Agilent Technologies Reports Fourth-Quarter Fiscal Year 2017 Financial Results

Financial Statements
Financial Tables (164kb)

Highlights:

GAAP net income of $177 million, or $0.54 per share
Non-GAAP net income of $218 million, or $0.67 per share⁽¹⁾,
$0.06 above midpoint guidance of $0.61 per share
Revenue of $1.19 billion, representing growth of 7.1 percent (core revenue growth of 5.8 percent⁽²⁾ versus midpoint guidance of 3.5 percent)
First-quarter fiscal year 2018 revenue guidance of $1.145 billion to $1.165 billion and non-GAAP earnings guidance of $0.55 to $0.57 per share⁽³⁾
Fiscal year 2018 revenue guidance of $4.720 billion to $4.740 billion and non-GAAP earnings guidance of $2.50 to $2.56 per share⁽³⁾
Fiscal year 2018 operating cash flow guidance of $970 million

Agilent Technologies, Inc. (NYSE: A) today reported revenue of $1.19 billion for the fourth-quarter ended October 31, 2017, up 7.1 percent year over year (up 5.8 percent on a core basis⁽²⁾).

Fourth-quarter GAAP net income was $177 million, or $0.54 per share. Last year's fourth-quarter GAAP net income was $126 million, or $0.38 per share.

During the fourth quarter, Agilent had intangible amortization of $28 million, transformation costs of $7 million and acquisition and integration costs of $5 million. Excluding these items and a tax expense of $1 million, Agilent reported fourth-quarter non-GAAP net income of $218 million, or $0.67 per share⁽¹⁾.

"We ended fiscal 2017 with another strong quarter of revenue and profit growth," said Mike McMullen, Agilent CEO and President. "Every quarter this year we have delivered strong revenue growth, expanded operating margins and increased non-GAAP earnings per share. Our consistently excellent financial performance demonstrates our sustained ability to win in the marketplace, while also driving operational improvements."

"We are successfully executing our strategy positioning Agilent for future growth," he added. "We continue strengthening our portfolio through our own R&D investment and M&A, bringing new capabilities and highly differentiated products to our customers. We have positive momentum heading into fiscal year 2018, and will continue our focus on driving sustainable above-market growth and delivering value to shareholders."

Fourth-quarter revenue of $575 million from Agilent's Life Sciences and Applied Markets Group (LSAG) grew 5 percent year over year (up 4 percent on a core basis⁽²⁾), with strength in chemical and energy, academia and government and food end markets. LSAG's operating margin for the quarter was 23.9 percent.

Fourth-quarter revenue of $404 million from Agilent CrossLab Group (ACG) grew 9 percent year over year (up 8 percent on a core basis⁽²⁾). Growth was healthy across services and consumables, most regions and end markets. ACG's operating margin for the quarter was 22.9 percent.

Fourth-quarter revenue of $210 million from Agilent's Diagnostics and Genomics Group (DGG) grew 9 percent year over year (up 7 percent on a core basis⁽²⁾) led by increasing demand for pathology products and companion diagnostics services. DGG's operating margin for the quarter was 20.8 percent.

Agilent expects first-quarter 2018 revenue in the range of $1.145 billion to $1.165 billion. First-quarter 2018 non-GAAP earnings are expected to be in the range of $0.55 to $0.57 per share⁽³⁾.

For fiscal year 2018, Agilent expects revenue of $4.720 billion to $4.740 billion and non-GAAP earnings of $2.50 to $2.56 per share⁽³⁾. The guidance is based on October 31, 2017, currency exchange rates.

Conference Call

Agilent's management will present more details about its fourth-quarter FY2017 financial results on a conference call with investors today at 1:30 p.m. PT. This event will be webcast live in listen-only mode. Listeners may log on at www.investor.agilent.com and select "Q4 2017 Agilent Technologies Inc. Earnings Conference Call" in the "News & Events Calendar of Events" section. The webcast will remain available on the company's website for 90 days.

Additional information regarding financial results can be found at www.investor.agilent.com by selecting "Financial Results" in the "Financial Information" section.

A telephone replay of the conference call will be available at approximately 4:30 p.m. PST today through November 27 by dialing +1 855-859-2056 (or +1 404-537-3406 from outside the United States) and entering pass code 2283927.

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AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY


	Three Months Ended
	October 31,						Percent
	2017			2016			Inc/(Dec)

Net revenue	$	1,189		$	1,111		7	%

Costs and expenses:
Cost of products and services		542			523		4	%
Research and development		89			84		6	%
Selling, general and administrative		325			321		1	%
Total costs and expenses		956			928		3	%

Income from operations		233			183		27	%

Interest income		7			3		133	%
Interest expense		(20	)		(19	)	5	%
Other income (expense), net		6			(16	)	—

Income before taxes		226			151		50	%

Provision for income taxes		49			25		96	%

Net income	$	177		$	126		40	%



Net income per share:
Basic	$	0.55		$	0.39
Diluted	$	0.54		$	0.38

Weighted average shares used in computing net income per share:
Basic		322			324
Diluted		326			328

Cash dividends declared per common share	$	0.132		$	0.115

The preliminary income statement is estimated based on our current information.


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AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY


	Years Ended
	October 31,						Percent
	2017			2016			Inc/(Dec)

Net revenue	$	4,472		$	4,202		6	%

Costs and expenses:
Cost of products and services		2,063			2,005		3	%
Research and development		339			329		3	%
Selling, general and administrative		1,229			1,253		(2	%)
Total costs and expenses		3,631			3,587		1	%

Income from operations		841			615		37	%

Interest income		22			11		100	%
Interest expense		(79	)		(72	)	10	%
Other income (expense), net		19			(10	)	—

Income before taxes		803			544		48	%

Provision for income taxes		119			82		45	%

Net income	$	684		$	462		48	%



Net income per share:
Basic	$	2.12		$	1.42
Diluted	$	2.10		$	1.40

Weighted average shares used in computing net income per share:
Basic		322			326
Diluted		326			329

Cash dividends declared per common share	$	0.528		$	0.460

The preliminary income statement is estimated based on our current information.


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AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
PRELIMINARY


	Three Months Ended						Years Ended
	October 31,						October 31,
	2017			2016			2017			2016

Net income	$	177		$	126		$	684		$	462

Other comprehensive income (loss), net of tax:

Unrealized gain (loss) on derivative instruments		3			5			—			(6	)
Amounts reclassified into earnings related to derivative instruments		1			3			(1	)		3
Foreign currency translation		(21	)		(49	)		40			(8	)
Net defined benefit pension cost and post retirement plan costs:
Change in actuarial net loss		84			(115	)		118			(86	)
Change in net prior service benefit		(2	)		(2	)		(6	)		(15	)
Other comprehensive income (loss)		65			(158	)		151			(112	)

Total comprehensive income (loss)	$	242		$	(32	)	$	835		$	350

The preliminary statement of comprehensive income is estimated based on our current information.


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AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions, except par value and share amounts)
(Unaudited)
PRELIMINARY


	October 31,			October 31,
	2017			2016^(a)
ASSETS

Current assets:
Cash and cash equivalents	$	2,678		$	2,289
Accounts receivable, net		724			631
Inventory		575			533
Other current assets		192			182
Total current assets		4,169			3,635

Property, plant and equipment, net		757			639
Goodwill		2,607			2,517
Other intangible assets, net		361			416
Long-term investments		138			135
Other assets		397			452
Total assets	$	8,429		$	7,794

LIABILITIES AND EQUITY

Current liabilities:
Accounts payable	$	305		$	257
Employee compensation and benefits		276			235
Deferred revenue		291			269
Short-term debt		210			—
Other accrued liabilities		181			184
Total current liabilities		1,263			945

Long-term debt		1,801			1,904
Retirement and post-retirement benefits		242			360
Other long-term liabilities		293			339
Total liabilities		3,599			3,548

Total Equity:
Stockholders' equity:
Preferred stock; $0.01 par value; 125 million shares authorized; none issued and outstanding		—			—
Common stock; $0.01 par value, 2 billion shares authorized; 322 million shares at October 31, 2017 and 614 million shares at October 31, 2016, issued		3			6
Treasury stock at cost; zero shares at October 31, 2017 and 290 million shares at October 31, 2016		—			(10,508	)
Additional paid-in-capital		5,301			9,159
(Accumulated deficit) retained earnings		(126	)		6,089
Accumulated other comprehensive loss		(352	)		(503	)
Total stockholders' equity		4,826			4,243
Non-controlling interest		4			3
Total equity		4,830			4,246
Total liabilities and equity	$	8,429		$	7,794

^(a) Includes the impact of the adoption of ASU 2015-15 and reclassification of technology and licenses from third parties from other assets to other intangible assets, net.


The preliminary balance sheet is estimated based on our current information.


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AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
PRELIMINARY


	Three Months Ended						Years Ended
	October 31,			October 31,			October 31,			October 31,
	2017			2016			2017			2016
Cash flows from operating activities:
Net income	$	177		$	126		$	684		$	462

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		52			56			212			246
Share-based compensation		12			11			60			58
Excess and obsolete inventory related charges		5			4			24			20
Impairment of equity method investment and loans		—			25			—			25
Other non-cash expenses, net		2			3			7			19
Changes in assets and liabilities:
Accounts receivable		(52	)		(52	)		(81	)		(33	)
Inventory		(15	)		4			(61	)		(7	)
Accounts payable		(9	)		12			2			(15	)
Employee compensation and benefits		49			29			38			15
Interest rate swap payments		—			(10	)		—			(10	)
Other assets and liabilities		67			26			4			13
Net cash provided by operating activities ^(a)		288			234			889			793

Cash flows from investing activities:
Investments in property, plant and equipment		(58	)		(52	)		(176	)		(139	)
Proceeds from sale of investment securities		—			—			—			1
Payment to acquire cost method investment		(1	)		—			(1	)		(80	)
Loan to equity method investment		—			—			—			(3	)
Change in restricted cash and cash equivalents, net		(1	)		—			(1	)		245
Payment in exchange for convertible note		—			—			(1	)		(1	)
Proceeds from divestitures		1			—			2			—
Acquisition of businesses and intangible assets, net of cash acquired		(1	)		(26	)		(128	)		(261	)
Net cash used in investing activities		(60	)		(78	)		(305	)		(238	)

Cash flows from financing activities:
Issuance of common stock under employee stock plans		8			3			66			62
Payment of taxes related to net share settlement of equity awards		(1	)		—			(14	)		(6	)
Payment of dividends		(43	)		(38	)		(170	)		(150	)
Proceeds from debts and credit facility		57			—			400			255
Repayment of debts and credit facility		(127	)		(272	)		(290	)		(292	)
Proceeds from issuance of senior notes		—			299			—			299
Debt issuance cost		—			(2	)		—			(2	)
Treasury stock repurchases		—			(46	)		(194	)		(434	)
Net cash used in financing activities		(106	)		(56	)		(202	)		(268	)

Effect of exchange rate movements		(7	)		(10	)		7			(1	)

Net increase in cash and cash equivalents		115			90			389			286

Cash and cash equivalents at beginning of period		2,563			2,199			2,289			2,003

Cash and cash equivalents at end of period	$	2,678		$	2,289		$	2,678		$	2,289

^(a) Cash payments included in operating activities:
Income tax payments, net	$	7		$	13		$	63		$	67
Interest payments	$	13		$	8		$	82		$	73


The preliminary cash flow is estimated based on our current information.


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AGILENT TECHNOLOGIES, INC.
NON-GAAP NET INCOME AND DILUTED EPS RECONCILIATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY

	Three Months Ended										Years Ended
	October 31,										October 31,
	2017		Diluted EPS		2016			Diluted EPS			2017			Diluted EPS			2016			Diluted EPS

GAAP Net income	$	177	$	0.54	$	126		$	0.38		$	684		$	2.10		$	462		$	1.40
Non-GAAP adjustments:
Asset impairments		—		—		—			—			—			—			4			0.01
Intangible amortization		28		0.09		32			0.10			117			0.36			152			0.46
Business exit and divestiture costs		—		—		4			0.01			—			—			10			0.03
Transformational initiatives		7		0.02		6			0.02			12			0.04			38			0.12
Acquisition and integration costs		5		0.02		13			0.04			32			0.10			41			0.12
Impairment of investment and loans		—		—		25			0.08			—			—			25			0.08
Pension curtailment gain		—		—		—			—			—			—			(15	)		(0.05	)
Pension settlement gain		—		—		—			—			(32	)		(0.10	)		(1	)		—
Other		—		—		1			—			5			0.02			6			0.02
Adjustment for taxes ^(a)		1		—		(14	)		(0.04	)		(50	)		(0.16	)		(71	)		(0.21	)
Non-GAAP Net income	$	218	$	0.67	$	193		$	0.59		$	768		$	2.36		$	651		$	1.98


^(a) The adjustment for taxes excludes tax benefits that management believes are not directly related to on-going operations and which are either isolated or cannot be expected to occur again with any regularity or predictability. For the three months and year ended October 31, 2017, management uses a non-GAAP effective tax rate of 18.0% for both periods. In the same periods last year, management used a non-GAAP effective tax rate of 16.8% and 19.0%, respectively.

We provide non-GAAP net income and non-GAAP net income per share amounts in order to provide meaningful supplemental information regarding our operational performance and our prospects for the future. These supplemental measures exclude, among other things, charges related to asset impairments, amortization of intangibles, business exit and divestiture costs, transformational initiatives, acquisition and integration costs, impairment of investment and loans, pension curtailment gain and pension settlement gain.

Asset impairments include assets that have been written down to their fair value.

Business exit and divestiture costs include costs associated with the exit of the NMR business and other business divestitures.

Transformational initiatives include expenses associated with targeted cost reduction activities such as manufacturing transfers, site consolidations, legal entity and other business reorganizations, insourcing or outsourcing of activities. Such costs may include move and relocation costs, one-time termination benefits and other one-time reorganization costs. Included in this category are also expenses associated with the post-separation resizing of the IT infrastructure and streamlining of IT system as well as company programs to transform our product lifecycle management (PLM) system and financial systems.

Acquisition and Integration costs include all incremental expenses incurred to effect a business combination. Such acquisition costs may include advisory, legal, tax, accounting, valuation, and other professional or consulting fees. Such integration costs may include expenses directly related to integration of business and facility operations, the transfer of assets and intellectual property, information technology systems and infrastructure and other employee-related costs.

Impairment of investment and loans include an investment and the related convertible loans that have been written down to their fair value.

Pension curtailment gain resulted from certain retirement plans benefit reductions.

Pension settlement gain resulted from transfer of the substitutional portion of our Japanese pension plan to the government.

Other includes certain legal costs and settlements in addition to other miscellaneous adjustments.

Our management uses non-GAAP measures to evaluate the performance of our core businesses, to estimate future core performance and to compensate employees. Since management finds this measure to be useful, we believe that our investors benefit from seeing our results “through the eyes” of management in addition to seeing our GAAP results. This information facilitates our management’s internal comparisons to our historical operating results as well as to the operating results of our competitors.

Our management recognizes that items such as amortization of intangibles can have a material impact on our cash flows and/or our net income. Our GAAP financial statements including our statement of cash flows portray those effects. Although we believe it is useful for investors to see core performance free of special items, investors should understand that the excluded items are actual expenses that may impact the cash available to us for other uses. To gain a complete picture of all effects on the company’s profit and loss from any and all events, management does (and investors should) rely upon the GAAP income statement. The non-GAAP numbers focus instead upon the core business of the company, which is only a subset, albeit a critical one, of the company’s performance.

Readers are reminded that non-GAAP numbers are merely a supplement to, and not a replacement for, GAAP financial measures. They should be read in conjunction with the GAAP financial measures. It should be noted as well that our non-GAAP information may be different from the non-GAAP information provided by other companies.

The preliminary non-GAAP net income and diluted EPS reconciliation is estimated based on our current information.


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AGILENT TECHNOLOGIES, INC.
SEGMENT INFORMATION
(In millions, except where noted)
(Unaudited)
PRELIMINARY

Life Sciences and Applied Markets Group
	Q4'17		Q4'16
Revenue	$	575	$	548
Gross Margin, %		61.0%		59.4%
Income from Operations	$	138	$	125
Operating margin, %		23.9%		22.8%


Diagnostics and Genomics Group
	Q4'17		Q4'16
Revenue	$	210	$	193
Gross Margin, %		55.2%		55.4%
Income from Operations	$	44	$	38
Operating margin, %		20.8%		19.6%


Agilent CrossLab Group
	Q4'17		Q4'16
Revenue	$	404	$	370
Gross Margin, %		49.6%		49.4%
Income from Operations	$	92	$	84
Operating margin, %		22.9%		22.7%


Income from operations reflect the results of our reportable segments under Agilent's management reporting system which are not necessarily in conformity with GAAP financial measures. Income from operations of our reporting segments exclude, among other things, charges related to asset impairments, amortization of intangibles, business exit and divestiture costs, transformational initiatives, acquisition and integration costs, impairment of investment and loans, pension curtailment gain and pension settlement gain.

Readers are reminded that non-GAAP numbers are merely a supplement to, and not a replacement for, GAAP financial measures. They should be read in conjunction with the GAAP financial measures. It should be noted as well that our non-GAAP information may be different from the non-GAAP information provided by other companies.

The preliminary segment information is estimated based on our current information.


Page 7


AGILENT TECHNOLOGIES, INC.
RECONCILIATIONS OF REVENUE BY SEGMENT EXCLUDING THE NMR BUSINESS,
ACQUISITIONS, DIVESTITURES AND THE IMPACT OF CURRENCY ADJUSTMENTS (CORE)
(in millions)
(Unaudited)
PRELIMINARY

	Year-over-Year

	GAAP
					Year-over-Year
GAAP Revenue by Segment	Q4'17		Q4'16		% Change

Life Sciences and Applied Markets Group	$	575	$	548	5	%

Diagnostics and Genomics Group		210		193	9	%

Agilent CrossLab Group		404		370	9	%

Agilent	$	1,189	$	1,111	7	%


	Non-GAAP (excluding NMR and Acquisitions)						Currency Adjustments		Currency-Adjusted ^(a)
					Year-over-Year								Year-over-Year
Non GAAP Revenue by Segment	Q4'17		Q4'16		% Change		Q4'17		Q4'17		Q4'16		% Change

Life Sciences and Applied Markets Group	$	573	$	547	5	%	$	4	$	569	$	547	4	%

Diagnostics and Genomics Group		208		193	7	%		2		206		193	7	%

Agilent CrossLab Group		404		370	9	%		5		399		370	8	%

Agilent (Core)	$	1,185	$	1,110	7	%	$	11	$	1,174	$	1,110	6	%



^(a) We compare the year-over-year change in revenue excluding the effect of recent acquisitions and divestitures and foreign currency rate fluctuations to assess the performance of our underlying business. To determine the impact of currency fluctuations, current period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the actual exchange rate in effect during the respective prior periods.


The preliminary reconciliation of GAAP revenue adjusted for the NMR business, recent acquisitions and divestitures and impact of currency is estimated based on our current information.


Page 8

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