Agilent Technologies, Inc. (NYSE: A) today reported revenue of $1.11 billion, up 7 percent year over year (up 7.5 percent on a core basis(2)) for the third fiscal quarter ended July 31, 2017.

Third-quarter GAAP net income was $175 million, or $0.54 per share. Last year’s third-quarter GAAP net income was $124 million, or $0.38 per share.

During the third quarter, Agilent had intangible amortization of $27 million, acquisition and integration costs of $4 million, transformation costs of $3 million, and $1 million in other costs. Excluding these items and a tax benefit of $19 million, Agilent reported third-quarter non-GAAP net income of $191 million, or $0.59 per share(1).

“Our team is executing very well. We had another great quarter delivering above-market revenue growth, expanding operating margins and growing our adjusted EPS,” said Mike McMullen, Agilent President and CEO. “We saw strength across all our business groups.”

“Our focus remains on driving sustainable above-market growth and providing long-term value to our shareholders,” he added. “We launched several new products that raise the bar on new capabilities for our customers. We also closed the acquisition of Cobalt Light Systems, enhancing our customer value proposition and providing us with immediate entry into the attractive, fast-growing Raman spectroscopy market.”

Third-quarter revenue of $531 million from Agilent’s Life Sciences and Applied Markets Group (LSAG) grew 5 percent year over year (up 7 percent on a core basis(2)), with strength in chemical and energy, pharma and environmental end markets. LSAG’s operating margin for the quarter was 21.3 percent.

Third-quarter revenue of $386 million from Agilent CrossLab Group (ACG) grew 7 percent year over year (up 8 percent on a core basis(2)). Both services and consumables saw solid growth across all end markets and geographies. ACG’s operating margin for the quarter was 23.4 percent.

Third-quarter revenue of $197 million from Agilent’s Diagnostics and Genomics Group (DGG) grew 9 percent year over year (up 8 percent on a core basis(2)) led by pharma and diagnostic and clinical end markets. DGG’s operating margin for the quarter was 16.9 percent.

Agilent expects fourth-quarter 2017 revenue in the range of $1.15 billion to $1.17 billion. Fourth-quarter 2017 non-GAAP earnings are expected to be in the range of $0.60 to $0.62 per share(3).

For fiscal year 2017, Agilent expects revenue of $4.435 billion to $4.455 billion and non-GAAP earnings of $2.29 to $2.31 per share(3). The guidance is based on July 31, 2017, currency exchange rates.

About Agilent Technologies

Agilent Technologies Inc. (NYSE: A) is a global leader in life sciences, diagnostics and applied chemical markets.With more than 50 years of insight and innovation, Agilent instruments, software, services, solutions, and people provide trusted answers to its customers’ most challenging questions. The company generated revenues of $4.20 billion in fiscal 2016 and employs about 13,000 people worldwide. Information about Agilent is available at www.agilent.com.

Agilent’s management will present more details about its third-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 “Q3 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 August 22 by dialing +1 855 859-2056 (or +1 404 537 3406 from outside the United States) and entering pass code 55782589.

Forward-Looking Statements

This news release contains forward-looking statements as defined in the Securities Exchange Act of 1934 and is subject to the safe harbors created therein. The forward-looking statements contained herein include, but are not limited to, information regarding Agilent’s future revenue, earnings and profitability; planned new products; market trends; the future demand for the company’s products and services; customer expectations; and revenue and non-GAAP earnings guidance for the fourth quarter and full fiscal year 2017. These forward-looking statements involve risks and uncertainties that could cause Agilent’s results to differ materially from management’s current expectations. Such risks and uncertainties include, but are not limited to, unforeseen changes in the strength of our customers’ businesses; unforeseen changes in the demand for current and new products, technologies, and services; unforeseen changes in the currency markets; customer purchasing decisions and timing, and the risk that we are not able to realize the savings expected from integration and restructuring activities.

In addition, other risks that Agilent faces in running its operations include the ability to execute successfully through business cycles; the ability to meet and achieve the benefits of its cost-reduction goals and otherwise successfully adapt its cost structures to continuing changes in business conditions; ongoing competitive, pricing and gross-margin pressures; the risk that our cost-cutting initiatives will impair our ability to develop products and remain competitive and to operate effectively; the impact of geopolitical uncertainties and global economic conditions on our operations, our markets and our ability to conduct business; the ability to improve asset performance to adapt to changes in demand; the ability of our supply chain to adapt to changes in demand; the ability to successfully introduce new products at the right time, price and mix; the ability of Agilent to successfully integrate recent acquisitions; the ability of Agilent to successfully comply with certain complex regulations; and other risks detailed in Agilent’s filings with the Securities and Exchange Commission, including our quarterly report on Form 10-Q for the quarter ended April 30, 2017. Forward-looking statements are based on the beliefs and assumptions of Agilent’s management and on currently available information. Agilent undertakes no responsibility to publicly update or revise any forward-looking statement.

(1) Non-GAAP net income and non-GAAP earnings per share primarily excludes the impacts of acquisition and integration costs, transformation initiatives, business exit and divestiture costs, and non-cash intangibles amortization. We also exclude any tax benefits that are not directly related to ongoing operations and which are either isolated or is not expected to occur again with any regularity or predictability. A reconciliation between non-GAAP net income and GAAP net income is set forth on page 6 of the attached tables along with additional information regarding the use of this non-GAAP measure.

(2) Core revenue growth excludes the impact of currency, the NMR business and acquisitions and divestitures within the past 12 months. Core revenue is a non-GAAP measure. A reconciliation between Q3 FY17 GAAP revenue and core revenue is set forth on page 8 of the attached tables along with additional information regarding the use of this non-GAAP measure. Core revenue growth as projected for full fiscal year 2017 excludes the impact of currency, the NMR business and acquisitions and divestitures within the past 12 months. Most of these exclude amounts that pertain to events that have not yet occurred and are not currently possible to estimate with a reasonable degree of accuracy and could differ materially. Therefore, no reconciliation to GAAP amounts has been provided.

(3) Non-GAAP earnings per share as projected for Q4 FY17 and full fiscal year 2017 excludes primarily the future impact of acquisition and integration costs, pension settlement gain, and non-cash intangibles amortization. We also exclude any tax benefits that are not directly related to ongoing operations and which are either isolated or is not expected to occur again with any regularity or predictability. Most of these excluded amounts that pertain to events that have not yet occurred and are not currently possible to estimate with a reasonable degree of accuracy and could differ materially. Therefore, no reconciliation to GAAP amounts has been provided. Future amortization of intangibles is expected to be approximately $27 million per quarter.

(4) Free cash flow as projected for fiscal year 2017 is a non-GAAP measure determined by deducting the projected capital expenditures for fiscal year 2017 from the projected operating cash flow for fiscal year 2017.

NOTE TO EDITORS: Further technology, corporate citizenship and executive news is available on the Agilent news site at www.agilent.com/go/news.

 
AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY
     
 
Three Months Ended
July 31, Percent
  2017     2016   Inc/(Dec)
 
Net revenue $ 1,114 $ 1,044 7 %
 
Costs and expenses:
Cost of products and services 518 502 3 %
Research and development 87 86 1 %
Selling, general and administrative   308     310   (1 %)
Total costs and expenses   913     898   2 %
 
Income from operations 201 146 38 %
 
Interest income 6 3 100 %
Interest expense (19 ) (17 ) 12 %
Other income (expense), net   5     2   150 %
 
Income before taxes 193 134 44 %
 
Provision for income taxes 18 10 80 %
   
Net income $ 175   $ 124   41 %
 
 
 
Net income per share:
Basic $ 0.55 $ 0.38
Diluted $ 0.54 $ 0.38
 
Weighted average shares used in computing net income per share:
Basic 321 325
Diluted 326 328
 
Cash dividends declared per common share $ 0.132 $ 0.115
 
 
The preliminary income statement is estimated based on our current information.
 
 
Page 1
 
 
AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY
     
 
Nine Months Ended
July 31, Percent
  2017     2016   Inc/(Dec)
 
Net revenue $ 3,283 $ 3,091 6 %
 
Costs and expenses:
Cost of products and services 1,521 1,482 3 %
Research and development 250 245 2 %
Selling, general and administrative   904     932   (3 %)
Total costs and expenses   2,675     2,659   1 %
 
Income from operations 608 432 41 %
 
Interest income 15 8 88 %
Interest expense (59 ) (53 ) 11 %
Other income (expense), net   13     6   117 %
 
Income before taxes 577 393 47 %
 
Provision for income taxes 70 57 23 %
   
Net income $ 507   $ 336   51 %
 
 
 
Net income per share:
Basic $ 1.57 $ 1.03
Diluted $ 1.56 $ 1.02
 
Weighted average shares used in computing net income per share:
Basic 322 326
Diluted 325 329
 
Cash dividends declared per common share $ 0.396 $ 0.345
 
 
The preliminary income statement is estimated based on our current information.
 
 
Page 2
 
 
AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
PRELIMINARY
       
 
Three Months Ended Nine Months Ended
July 31, July 31,
  2017     2016     2017     2016  
 
Net income $ 175 $ 124 $ 507 $ 336
 
Other comprehensive income (loss), net of tax:
 
Unrealized loss on derivative instruments (3 ) (5 ) (3 ) (11 )
Amounts reclassified into earnings related to derivative instruments (1 ) 1 (2 ) —
Foreign currency translation 57 (48 ) 61 41
Net defined benefit pension cost and post retirement plan costs:
Change in actuarial net loss 8 8 34 29
Change in net prior service benefit   (1 )   (2 )   (4 )   (13 )
Other comprehensive income (loss)   60     (46 )   86     46  
 
Total comprehensive income $ 235   $ 78   $ 593   $ 382  
 
 
The preliminary statement of comprehensive income is estimated based on our current information.
 
 
Page 3
 
 
AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions, except par value and share amounts)
(Unaudited)
PRELIMINARY
   
 

    July 31,    

October 31,
2017

2016(a)

ASSETS
 
Current assets:
Cash and cash equivalents $ 2,563 $ 2,289
Accounts receivable, net 678 631
Inventory 566 533
Other current assets   189     182  
Total current assets 3,996 3,635
 
Property, plant and equipment, net 716 639
Goodwill 2,612 2,517
Other intangible assets, net 375 408
Long-term investments 137 135
Other assets   425     460  
Total assets $ 8,261   $ 7,794  
 
LIABILITIES AND EQUITY
 
Current liabilities:
Accounts payable $ 289 $ 257
Employee compensation and benefits 230 235
Deferred revenue 301 269
Short-term debt 280 —
Other accrued liabilities   141     184  
Total current liabilities 1,241 945
 
Long-term debt 1,801 1,904
Retirement and post-retirement benefits 323 360
Other long-term liabilities   285     339  
Total liabilities   3,650     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 July 31, 2017 and 614 million shares at October 31, 2016, issued

3 6

Treasury stock at cost; zero shares at July 31, 2017 and 290 million shares at October 31, 2016

— (10,508 )
Additional paid-in-capital 5,282 9,159
(Accumulated deficit) retained earnings (260 ) 6,089
Accumulated other comprehensive loss   (417 )   (503 )
Total stockholders' equity 4,608 4,243
Non-controlling interest   3     3  
Total equity   4,611     4,246  
Total liabilities and equity $ 8,261   $ 7,794  
 
(a) Includes the impact of the adoption of ASU 2015-15.
 
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 Three Months Nine Months Nine Months
Ended Ended Ended Ended
July 31, July 31, July 31, July 31,
  2017     2016     2017     2016  
Cash flows from operating activities:
Net income $ 175 $ 124 $ 507 $ 336
 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 51 60 160 190
Share-based compensation 13 11 48 47
Excess and obsolete inventory related charges 4 4 19 16
Other non-cash expenses, net 3 8 5 16
Changes in assets and liabilities:
Accounts receivable 19 — (29 ) 19
Inventory (17 ) 2 (46 ) (11 )
Accounts payable 5 26 11 (27 )
Employee compensation and benefits (18 ) (1 ) (11 ) (14 )
Other assets and liabilities   (7 )   (40 )   (63 )   (13 )
Net cash provided by operating activities (a) 228 194 601 559
 
Cash flows from investing activities:
Investments in property, plant and equipment (43 ) (24 ) (118 ) (87 )
Proceeds from divestitures — — 1 —
Proceeds from sale of investment securities — — — 1
Payment to acquire cost method investment — — — (80 )
Loan to equity method investment — — — (3 )
Change in restricted cash and cash equivalents, net — — — 245
Payment in exchange for convertible note (1 ) — (1 ) (1 )
Acquisition of businesses and intangible assets, net of cash acquired   (57 )   —     (127 )   (235 )
Net cash used in investing activities (101 ) (24 ) (245 ) (160 )
 
Cash flows from financing activities:
Issuance of common stock under employee stock plans 32 27 58 59
Payment of taxes related to net share settlement of equity awards — (1 ) (13 ) (6 )
Payment of dividends (42 ) (37 ) (127 ) (112 )
Proceeds from revolving credit facility 115 — 343 255
Repayment of revolving credit facility (76 ) — (163 ) (20 )
Treasury stock repurchases   —     (94 )   (194 )   (388 )
Net cash provided by (used in) financing activities 29 (105 ) (96 ) (212 )
 
Effect of exchange rate movements 18 (5 ) 14 9
 
Net increase in cash and cash equivalents 174 60 274 196
 
Cash and cash equivalents at beginning of period   2,389     2,139     2,289     2,003  
 
Cash and cash equivalents at end of period $ 2,563   $ 2,199   $ 2,563   $ 2,199  
 
(a) Cash payments included in operating activities:
Income tax payments (refunds), net $ 15 $ 33 $ 56 $ 54
Interest payments $ 29 $ 29 $ 69 $ 66
 
 
 
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 Nine Months Ended
July 31, July 31,
  2017     Diluted EPS   2016     Diluted EPS   2017     Diluted EPS   2016     Diluted EPS
 
GAAP Net income $ 175 $ 0.54 $ 124 $ 0.38 $ 507 $ 1.56 $ 336 $ 1.02
Non-GAAP adjustments:
Asset impairments — — 4 0.01 — — 4 0.01
Intangible amortization 27 0.08 37 0.11 89 0.27 120 0.36
Business exit and divestiture costs — — 1 — — — 6 0.02
Transformational initiatives 3 0.01 11 0.03 5 0.02 32 0.10
Acquisition and integration costs 4 0.01 11 0.03 27 0.08 28 0.09
Pension curtailment gain — — — — — — (15 ) (0.05 )
Pension settlement gain — — — — (32 ) (0.10 ) (1 ) —
Other 1 — 2 0.01 5 0.02 5 0.02
Adjustment for taxes (a)   (19 )     (0.05 )   (30 )     (0.08 )   (51 )     (0.16 )   (57 )     (0.18 )
Non-GAAP Net income $ 191     $ 0.59   $ 160     $ 0.49   $ 550     $ 1.69   $ 458     $ 1.39  
 
 
(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 and nine months ended July 31, 2017, management uses a non-GAAP effective tax rate of 16.2% and 18.0%, respectively. In the same periods last year, management used a non-GAAP effective tax rate of 20.0%.
 
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, 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, small 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, 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.
 
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
Q3'17 Q3'16
Revenue $ 531 $ 504
Gross Margin, % 59.7 % 57.8 %
Income from Operations $ 113 $ 96
Operating margin, % 21.3 % 19.1 %
 
 
Diagnostics and Genomics Group
Q3'17 Q3'16
Revenue $ 197 $ 180
Gross Margin, % 52.7 % 55.8 %
Income from Operations $ 33 $ 34
Operating margin, % 16.9 % 18.8 %
 
 
Agilent CrossLab Group
Q3'17 Q3'16
Revenue $ 386 $ 360
Gross Margin, % 49.9 % 48.7 %
Income from Operations $ 90 $ 82
Operating margin, % 23.4 % 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, 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.
 
 
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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

Q3'17   Q3'16   % Change  
 
Life Sciences and Applied Markets Group $ 531 $ 504 5 %
 
Diagnostics and Genomics Group 197 180 9 %
 
Agilent CrossLab Group 386 360 7 %
     
Agilent $ 1,114   $ 1,044 7 %
 
 
Non-GAAP

(excluding NMR and Acquisitions)

Currency Adjustments Currency-Adjusted (a)
Year-over-Year Year-over-Year

Non GAAP Revenue by Segment

Q3'17   Q3'16   % Change   Q3'17 Q3'17   Q3'16   % Change  
 
Life Sciences and Applied Markets Group $ 531 $ 500 6 % $ (4 ) $ 535 $ 500 7 %
 
Diagnostics and Genomics Group 194 180 8 % (1 ) 195 180 8 %
 
Agilent CrossLab Group 384 360 7 % (3 ) 387 360 8 %
             
Agilent (Core) $ 1,109   $ 1,040 7 % $ (8 ) $ 1,117   $ 1,040 7 %
 
 
 
(a) We compare the year-over-year change in revenue excluding the effect of the NMR business, 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.
 
 
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