Agilent Technologies, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended April 30, 2020. Amounts are in millions of dollars except per-share data and percentages. Results are unaudited.
Business context
Agilent provides instruments, software, services and consumables for life sciences, diagnostics and applied chemical markets. Its reportable segments are Life Sciences and Applied Markets, Diagnostics and Genomics, and Agilent CrossLab. The quarter unfolded amid COVID-19-related customer-site restrictions, laboratory closures and economic disruption.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $1,238 | $1,238 | $2,595 | $2,522 |
| Operating income | $102 | $216 | $317 | $466 |
| Net income | $101 | $182 | $298 | $686 |
| Diluted EPS | $0.32 | $0.57 | $0.95 | $2.13 |
| Gross margin | 53.0% | 54.1% | 53.2% | 54.6% |
| Operating margin | 8.2% | 17.4% | 12.2% | 18.5% |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $254 | $465 |
- Revenue mix: Q2 segment revenue was $526 for Life Sciences and Applied Markets, $263 for Diagnostics and Genomics, and $449 for Agilent CrossLab. Six-month revenue rose 3% year over year; Q2 revenue was flat. Currency reduced reported growth by 2 percentage points in Q2 and 1 point for the six-month period.
- Cash, debt and liquidity: Cash and cash equivalents were $1,324 at April 30, 2020, versus $1,382 at October 31, 2019. Current assets were $3,171 and current liabilities $1,945. Short-term debt was $700 and long-term debt $1,788. The company reported $200 outstanding on its revolving facility and a $500 short-term loan used for the BioTek acquisition; it was in compliance with credit-facility covenants.
- Cash flow and investment: Six-month investing cash outflow was $88 and financing cash outflow was $217. Capital expenditures were $67; management expected approximately $124 for the fiscal year. Six-month dividends paid were $111. Stock repurchases totaled $186 before being suspended on March 23, 2020.
Material changes versus prior comparable periods
- Q2 operating income fell to $102 from $216, and net income fell to $101 from $182. Operating margin declined 9 percentage points, reflecting impairment charges, higher amortization and other costs, and lower volume and pricing pressure.
- Six-month net income was $298 versus $686. The 2019 comparison included a $299 tax benefit from an extension of the company’s Singapore tax incentive; 2020 included a $14 tax benefit related to stock-based compensation.
- Six-month operating cash flow declined to $254 from $465. Management cited a one-time $226 tax payment related to an intellectual-property transfer, among other working-capital and payment changes.
- Revenue was uneven across markets: pharmaceutical and biopharmaceutical revenue increased, while chemical and energy weakened. COVID-19 reduced routine and cancer testing and delayed installations as customer sites and research laboratories closed.
- Six-month segment revenue increased 2% in Life Sciences and Applied Markets, 5% in Diagnostics and Genomics, and 2% in Agilent CrossLab. BioTek, acquired in 2019, contributed to growth, particularly in Life Sciences and Applied Markets.
Outlook, commentary and risks
- Management anticipated volatility in the third quarter as markets reopened and could face renewed COVID-19 impacts. It gave no quantified revenue or earnings guidance in the provided filing text.
- The company reported that manufacturing and logistics had not been significantly disrupted to date, but described delays or disruptions in some component shipments, restricted access to customer sites, and the possibility of prolonged economic effects. It increased inventory and may increase it further.
- Management said it believed cash, operating cash generation, capital-market access and credit lines would meet liquidity needs for at least 12 months and that it had not identified material COVID-19-related liquidity concerns. This assessment is subject to substantial uncertainty.
- Agilent recorded approximately $99 of impairment charges related to shutting down its sequencer development program in Diagnostics and Genomics. The filing describes a $90 impairment of in-process R&D and a $98 write-down of long-lived assets; the reported aggregate impairment was $99.
- Other income included $22 related to settlement of a legal claim against Twist Bioscience and gains on equity investments of $11 for Q2 and $27 for the six-month period. These items affected reported results.
- A $1.0 billion U.S. commercial paper program was established in May 2020, after quarter-end. The board declared a $0.18-per-share dividend payable in July 2020.
- The company disclosed ordinary-course legal matters but said none were then believed probable or reasonably possible to have a material impact. It identified COVID-19, demand and economic conditions, supply constraints, foreign currency, debt and tax matters among its risks.
Important facts for investors to verify
- How COVID-19-related site restrictions, laboratory closures and delayed installations affect future orders, revenue recognition and service activity.
- The sustainability of margins and earnings after separating the sequencer-program impairment, Twist Bioscience settlement, equity-investment gains, acquisition-related costs and tax effects.
- The timing and cash impact of the intellectual-property-transfer tax payment, and potential changes to uncertain tax benefits or tax examinations.
- Inventory growth, receivable collection trends and the conversion of operating earnings to cash; inventory was $750 at April 30, up from $679 at fiscal year-end.
- Debt maturities, facility availability and the effect of commercial paper issuance, alongside the company’s dividend and any resumption of share repurchases.