On May 14, 2018 Agilent Technologies, Inc. (NYSE: A) reported revenue of $1.21 billion for the second quarter ended April 30, 2018, up 9 percent year over year (up 4.3 percent on a core basis(1)) (Press release, Agilent, MAY 14, 2018, http://www.agilent.com/about/newsroom/presrel/2018/14may-gp18040.html [SID1234526808]).
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Second-quarter GAAP net income was $205 million, or $0.63 per share. Last year’s second-quarter GAAP net income was $164 million, or $0.50 per share.
During the second quarter, Agilent had intangible amortization of $25 million, business exit and divestitures of $8 million, transformational initiatives of $5 million, acquisition and integration costs of $4 million, and $11 million in other net gains. Excluding these items and a tax benefit of $24 million, Agilent reported second-quarter non-GAAP net income of $212 million, or $0.65 per share(2).
"Again this quarter, we delivered significant earnings and cash flow growth on strong top-line results, contributing to an excellent first half of 2018. We saw strength in the Pharma and Chemical & Energy markets with 8 percent and 5 percent growth this quarter, respectively," said Mike McMullen, Agilent CEO and president.
"We are successfully executing on our growth strategy," continued McMullen. "On the innovation front, we are seeing strong momentum in our newly released products and are continuing to introduce highly differentiated solutions to help our customers advance their work. We are also effectively deploying our capital—the recently closed acquisitions of Genohm and Lasergen, Inc. will add new strategic capabilities to drive future growth and create value for our customers and our shareholders."
Second-quarter revenue of $561 million from Agilent’s Life Sciences and Applied Markets Group (LSAG) grew 7 percent year over year (up 3 percent on a core basis(1)). Strength in mass spectrometry and cell analysis led the results. LSAG’s operating margin for the quarter was 21.2 percent.
Second-quarter revenue of $426 million from the Agilent CrossLab Group (ACG) grew 13 percent year over year (up 7 percent on a core basis(1)). Growth was strong across services and consumables. ACG’s operating margin for the quarter was 23.1 percent.
Second-quarter revenue of $219 million from Agilent’s Diagnostics and Genomics Group (DGG) grew 9 percent year over year (up 4 percent on a core basis(1)) led by strength in genomics. DGG’s operating margin for the quarter was 20.2 percent.
Agilent expects third-quarter 2018 revenue in the range of $1.185 billion to $1.205 billion. Third-quarter 2018 non-GAAP earnings are expected to be in the range of $0.61 to $0.63 per share(3).
For fiscal year 2018, revenue guidance of $4.850 billion to $4.870 billion is adjusted only for changes in currency. Core revenue growth of 5.5 percent at the midpoint of guidance remains unchanged. Agilent expects non-GAAP earnings of $2.63 to $2.67 per share(3). The guidance is based on April 30, 2018 currency exchange rates.
Conference Call
Agilent’s management will present more details about its second-quarter fiscal 2018 financial results on a conference call with investors today at 1:30 p.m. (Pacific Time). This event will be webcast live in listen-only mode. Listeners may log on at www.investor.agilent.com and select "Q2 2018 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 May 14, 2018 at 4:30 PM (Pacific Time) after the call and through May 21 by dialing +1 855-859-2056 (or +1 404-537-3406 from outside the United States) and entering pass code 7398497.
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 six months ended April 30, 2018, management uses a non-GAAP effective tax rate of 18.0%. In the same periods last year, management used a non-GAAP effective tax rate of 19.0%.
(b) GAAP diluted net loss per share was computed using 323 million weighted average diluted shares which excludes from consideration the anti-dilutive effects of all potential common shares outstanding.
(c) Non-GAAP diluted net income per share was computed using 326 million weighted average diluted shares which includes the dilutive effects of potential common shares outstanding.
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 amortization of intangibles, transformational initiatives, acquisition and integration costs, pension settlement gain, NASD site costs, special compliance costs, and adjustment for Tax Reform.
Business exit and divestiture costs include costs associated with 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 company programs to transform our product lifecycle management (PLM) system, human resources 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 settlement gain resulted from transfer of the substitutional portion of our Japanese pension plan to the government.
NASD site costs include all the costs related to the expansion of our manufacturing of nucleic acid active pharmaceutical ingredients incurred prior to the commencement of commercial manufacturing.
Special compliance costs include costs associated with transforming our processes to implement new regulations such as the EU’s General Data Protection Regulation (GDPR), revenue recognition and certain tax reporting requirements.
Other includes certain legal costs and settlements in addition to other miscellaneous adjustments.
Adjustment for Tax Reform primarily consists of an estimated provision of $480 million for U.S. transition tax and correlative items on deemed repatriated earnings of non-U.S. subsidiaries and an estimated provision of $53 million associated with the decrease in the U.S. corporate tax rate from 35% to 21% and its impact on our U.S. deferred tax assets and liabilities. The taxes payable associated with the transition tax, net of tax attributes, on deemed repatriation of foreign earnings is approximately $440 million, payable over 8 years. The final impact of Tax Reform may differ materially from these estimates, due to, among other things, changes in interpretations, analysis and assumptions made, additional guidance that may be issued, and actions that we may undertake.
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.
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 amortization of intangibles, business exit and divestiture costs, transformational initiatives, acquisition and integration costs, NASD site costs, and special compliance costs.
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.
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.
(a) The constant currency year-over-year growth percentage is calculated by recalculating all periods in the comparison period at the foreign currency exchange rates used for accounting during the last month of the current quarter, and then using those revised values to calculate the year-over-year percentage change.
(b) The dollar impact from the current quarter currency impact is equal to the total year-over-year dollar change less the constant currency year-over-year change.
The preliminary reconciliation of GAAP revenue adjusted for recent acquisitions and divestitures and impact of currency is estimated based on our current information.