Agilent Technologies(US:A)2024-12-19 23:51PART I Business Overview Agilent, a global leader in life sciences, diagnostics, and applied chemical markets, provides instruments, software, services, and consumables across three segments, serving diverse end markets with approximately 17,900 employees - Agilent is a global leader in life sciences, diagnostics, and applied chemical markets, providing application-focused solutions including instruments, software, services, and consumables16104105 - In Q1 2024, the company reorganized its operating segments, moving the cell analysis business from the Life Sciences and Applied Markets segment to the Diagnostics and Genomics segment to enhance growth opportunities; historical financial data has been recast accordingly803881029 - As of October 31, 2024, Agilent employed approximately 17,900 people worldwide, with primary R&D and manufacturing sites in the U.S., Europe, and Asia81193 Life Sciences and Applied Markets Business This segment offers instruments, consumables, and software for substance identification and analysis, serving diverse markets with approximately 6,000 employees - This segment provides solutions including instruments (LC, GC, MS, spectroscopy), consumables, and software for identifying and analyzing substances, serving markets such as pharma, chemicals, food, environmental, and academia82105527 - The business employed approximately 6,000 people as of October 31, 2024, and served around 52,000 customers in fiscal year 2024108121 - Principal competitors include Danaher Corporation, PerkinElmer Inc., Shimadzu Corporation, Thermo Fisher Scientific Inc., and Waters Corporation124 Diagnostics and Genomics Business This segment provides solutions for cellular and molecular analysis, including APIs, reagents, and instruments, serving approximately 14,000 customers and subject to regulatory approvals - This segment provides solutions like APIs for oligo-based therapeutics, reagents, instruments, and software for cellular and molecular analysis, with key areas including cell analysis, pathology, companion diagnostics, and genomics (NGS, microarrays)1251261001 - The business employed approximately 4,600 people as of October 31, 2024, and served around 14,000 customers in fiscal year 2024129171 - Principal competitors include Abbott Laboratories, Thermo Fisher Scientific Inc., Illumina, Inc., and Roche Ventana Medical Systems, Inc174 - Some products are subject to regulatory approval by the FDA and other global bodies, including the stringent EU In Vitro Diagnostic Regulation (EU IVDR) which became effective in May 2022152212 Agilent CrossLab Business This segment offers a broad portfolio of vendor-neutral lab services, including repairs, maintenance, and training, serving approximately 50,000 customers with recurring revenue - This segment provides a broad, largely vendor-neutral portfolio of lab services, including repairs, maintenance, training, compliance support, and asset management1751031 - The business employed approximately 5,400 people as of October 31, 2024, and served around 50,000 customers in fiscal year 2024176181 - The service business is mostly recurring and less susceptible to market seasonality compared to the instrument businesses157 Human Capital Management Agilent's human capital strategy focuses on global employee distribution, diversity and inclusion, and retention through competitive compensation and development programs - As of October 31, 2024, Agilent employed approximately 17,900 people: 7,000 in the Americas, 4,400 in Europe, and 6,500 in Asia Pacific193 - The company focuses on diversity and inclusion, with approximately 38% of full-time employees being female and 50% of the board representing underrepresented groups as of the report date218 - Agilent emphasizes employee retention through competitive compensation, equity opportunities, development programs, and benefits promoting work-life balance195241 Risk Factors Agilent faces significant risks including economic sensitivity, intense competition, international operational challenges, supply chain dependencies, acquisition integration, cybersecurity threats, and complex global regulatory compliance Business and Strategic Risks Key business and strategic risks include sensitivity to economic conditions, international operational challenges, and difficulties in integrating acquired businesses - The business is sensitive to negative changes in general economic conditions, which can reduce demand, increase price pressure, and lengthen sales cycles226227 - International operations, which represent a majority of total revenue, are subject to risks from foreign currency fluctuations, political instability, trade barriers, and tariffs230253254 - Failure to successfully integrate acquired businesses, such as managing different cultures, retaining key employees, and realizing expected synergies, could harm financial results238284286 Regulatory, Legal and Compliance Risks Regulatory, legal, and compliance risks involve extensive FDA and foreign agency oversight, complex global data privacy laws, and challenges associated with the use of Artificial Intelligence - Products and operations are subject to extensive regulation by the FDA and similar foreign agencies; failure to comply can result in penalties, recalls, and cessation of manufacturing, with the EU's stricter In Vitro Diagnostic Regulation (IVDR) posing a significant compliance challenge268288293 - The company is subject to complex global data privacy laws like GDPR and CCPA, which impose significant penalties for non-compliance and increase the cost of providing products and services190216289 - The use of Artificial Intelligence (AI) in operations and products presents risks related to intellectual property, data privacy, regulatory scrutiny, and potential for flawed or biased outputs276277302 Operational Risks Operational risks include dependence on outsourced supply chains, vulnerability to natural disasters, and susceptibility of centralized IT systems to cyberattacks or disruptions - Dependence on contract manufacturing and outsourced supply chain functions may adversely affect the ability to bring products to market, especially during market upturns or if suppliers fail to perform283309 - Factories and facilities, particularly those in California and Japan, are subject to catastrophic loss from natural disasters like earthquakes, which could disrupt operations and delay production310332 - The company relies on centralized IT systems, which are susceptible to damage, disruptions, or security breaches from cyberattacks, potentially leading to loss of sales, customers, and confidential information311333335 Financial and Tax Risks Financial and tax risks encompass changes in tax laws, significant outstanding indebtedness, and reliance on conditional foreign tax incentives - The company is subject to changes in tax laws and examinations by tax authorities in multiple jurisdictions, with the implementation of the OECD's Pillar Two global minimum tax rules currently being evaluated314315338 - As of October 31, 2024, the company had approximately $3.4 billion in outstanding indebtedness, which could increase vulnerability to economic downturns and limit financial flexibility316341 - The company benefits from tax incentives in foreign jurisdictions, such as Singapore, which are conditional on investment and employment thresholds and require future renewal340 Properties As of October 31, 2024, Agilent owned or leased approximately 6.8 million square feet globally, primarily for manufacturing, R&D, and administrative functions - As of October 31, 2024, Agilent owned or leased a total of approximately 6.8 million square feet of space worldwide349 - The Life Sciences & Applied Markets business has manufacturing and R&D facilities in the US, Europe, and Asia376 - The Diagnostics and Genomics business has manufacturing and R&D facilities in the US, Europe, and Asia, including locations in Belgium, Canada, China, Denmark, Germany, and Malaysia350 PART II Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Agilent's FY2024 net revenue decreased by 5% to $6.51 billion due to segment declines, while net income increased to $1.29 billion, influenced by cost-saving initiatives and strategic acquisitions like BIOVECTRA Overview and Executive Summary This section provides an executive summary of Agilent's fiscal year 2024 financial performance, highlighting revenue trends, net income drivers, and key strategic activities - FY2024 net revenue was $6.51 billion, a 5% decrease from FY2023, driven by declines in the Life Sciences & Applied Markets and Diagnostics & Genomics segments due to customer capital spending pressures364454 - Net income for FY2024 was $1.29 billion, compared to $1.24 billion in FY2023; the increase was influenced by cost-saving initiatives and higher interest income, while 2023 results were impacted by a significant asset impairment charge423 - On September 20, 2024, Agilent acquired BIOVECTRA for $915 million in cash to expand its contract development and manufacturing organization (CDMO) capabilities389614 - The company issued $1.2 billion in new senior notes in September 2024, consisting of $600 million due in 2027 (4.20% interest) and $600 million due in 2034 (4.75% interest)363390 Results of Operations This section details Agilent's consolidated financial performance, including revenue, gross margin, operating expenses, and effective tax rates for the fiscal year Consolidated Statement of Operations Summary (in millions) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Total Net Revenue | $6,510 | $6,833 | $6,848 | | Products | $4,672 | $5,051 | $5,187 | | Services and other | $1,838 | $1,782 | $1,661 | | Income from Operations | $1,488 | $1,350 | $1,618 | | Net Income | $1,289 | $1,240 | $1,254 | | Diluted EPS | $4.43 | $4.19 | $4.18 | - Total gross margin increased to 54.3% in 2024 from 50.7% in 2023; the improvement was primarily due to the absence of the $253 million asset impairment charge related to the Resolution Bioscience business exit in 2023459460486 - Selling, general and administrative (SG&A) expenses decreased 4% in 2024 to $1.57 billion, driven by lower intangible amortization, transformational initiatives, and reduced variable pay, partially offset by higher restructuring charges489 - The effective tax rate was 15.3% in 2024, compared to 7.4% in 2023 and 16.6% in 2022; the low 2023 rate was due to a significant tax benefit from the realized loss on the divestiture of a business467494495 Segment Analysis This section provides a detailed analysis of Agilent's financial performance across its Life Sciences and Applied Markets, Diagnostics and Genomics, and Agilent CrossLab segments Net Revenue by Segment (in millions) | Segment | 2024 | 2023 | 2022 | % Change (24 vs 23) | | :--- | :--- | :--- | :--- | :--- | | Life Sciences & Applied Markets | $3,215 | $3,510 | $3,630 | -8% | | Diagnostics & Genomics | $1,651 | $1,755 | $1,766 | -6% | | Agilent CrossLab | $1,644 | $1,568 | $1,452 | +5% | | Total Net Revenue | $6,510 | $6,833 | $6,848 | -5% | Income from Operations by Segment (in millions) | Segment | 2024 | 2023 | 2022 | % Change (24 vs 23) | | :--- | :--- | :--- | :--- | :--- | | Life Sciences & Applied Markets | $877 | $1,049 | $1,097 | -16% | | Diagnostics & Genomics | $320 | $363 | $390 | -12% | | Agilent CrossLab | $524 | $463 | $370 | +13% | | Total Segment Income | $1,721 | $1,875 | $1,857 | -8% | - Life Sciences and Applied Markets: Revenue declined 8% in 2024 due to significant weakness across all end markets, particularly in pharmaceutical, driven by lower sales of LC, GC, and MS instruments63499528 - Diagnostics and Genomics: Revenue decreased 6% in 2024, driven by a significant decline in the pharmaceutical market from lower sales in nucleic acid solutions and cell analysis457507537 - Agilent CrossLab: Revenue grew 5% in 2024, with growth across all end markets, led by strong demand for repair and maintenance services485514 Restructuring This section outlines Agilent's restructuring plans initiated in fiscal years 2023 and 2024, detailing headcount reductions, associated costs, and anticipated annual savings - In Q3 2024, Agilent initiated the FY24 Plan to reduce headcount by approximately 500 employees (around 3% of workforce) in response to macroeconomic conditions, incurring $72 million in costs in 2024, and is expected to generate approximately $100 million in annual savings417449478 - In Q4 2023, Agilent initiated the FY23 Plan to reduce headcount by approximately 400 employees (around 2% of workforce) and consolidate facilities; this plan incurred costs of $46 million in 2023 and $4 million in 2024, and is expected to generate approximately $80 million in annual savings418451479 Total Restructuring Costs in P&L (in millions) | Expense Category | 2024 | 2023 | | :--- | :--- | :--- | | Cost of products and services | $13 | $11 | | Research and development | $21 | $6 | | Selling, general and administrative | $42 | $29 | | Total restructuring costs | $76 | $46 | Liquidity and Capital Resources This section discusses Agilent's cash position, cash flow activities, debt management, share repurchase programs, and dividend payments - Cash and cash equivalents decreased to $1.33 billion at year-end 2024 from $1.59 billion in 202311550 Cash Flow Summary (in millions) | Cash Flow Activity | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net Cash from Operations | $1,751 | $1,772 | $1,312 | | Net Cash Used in Investing | ($1,258) | ($310) | ($338) | | Net Cash Used in Financing | ($752) | ($930) | ($1,372) | - Net cash used in investing activities increased significantly to $1.26 billion in 2024, primarily due to the $862 million spent on acquisitions, including BIOVECTRA522523 - The company repurchased 8.4 million shares for $1.15 billion in 2024 under its share repurchase programs; a new $2.0 billion repurchase program was authorized in May 2024100367524 - Cash dividends paid totaled $274 million ($0.944 per share) in 2024; a quarterly dividend of $0.248 per share was declared for payment in January 2025368425586 Financial Statements and Supplementary Data This section presents Agilent's audited consolidated financial statements for fiscal years 2022-2024, including the auditor's report and notes, highlighting the valuation of BIOVECTRA customer relationships as a critical audit matter - The financial statements were audited by PricewaterhouseCoopers LLP, who issued an unqualified opinion on both the financial statements and the effectiveness of internal control over financial reporting as of October 31, 2024600601633 - A critical audit matter was the valuation of certain customer relationships from the BIOVECTRA acquisition, due to significant management judgment and estimates related to revenue growth rates, discount rates, and customer attrition6576577 Consolidated Financial Statements This section provides Agilent's core audited consolidated financial statements, including the balance sheet and statement of cash flows for the reported fiscal years Consolidated Balance Sheet (in millions) | Metric | Oct 31, 2024 | Oct 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $3,959 | $4,186 | | Cash and cash equivalents | $1,329 | $1,590 | | Total Assets | $11,846 | $10,763 | | Goodwill | $4,477 | $3,960 | | Total Current Liabilities | $1,895 | $1,603 | | Total Liabilities | $5,948 | $4,918 | | Long-term debt | $3,345 | $2,735 | | Total Stockholders' Equity | $5,898 | $5,845 | Consolidated Statement of Cash Flows (in millions) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $1,751 | $1,772 | $1,312 | | Net cash used in investing activities | ($1,258) | ($310) | ($338) | | Acquisitions, net of cash acquired | ($862) | ($51) | ($52) | | Net cash used in financing activities | ($752) | ($930) | ($1,372) | | Repurchase of common stock | ($1,150) | ($575) | ($1,139) | | Effect of exchange rate changes on cash | ($2) | $5 | ($36) | | Net (decrease) increase in cash | ($261) | $537 | ($434) | Notes to Consolidated Financial Statements This section provides detailed explanatory notes to Agilent's consolidated financial statements, covering significant accounting policies, acquisitions, revenue recognition, and debt - Note 3 (Acquisition): On September 20, 2024, Agilent acquired BIOVECTRA for $915 million in cash; the purchase price was allocated to assets including $526 million in goodwill and $183 million in intangible assets594361 - Note 4 (Revenue): Revenue from remaining performance obligations with terms over one year was $409 million as of October 31, 2024, primarily from extended warranty, manufacturing contracts, and software maintenance1102 - Note 5 (Share-Based Compensation): Total share-based compensation expense was $130 million in 2024, $112 million in 2023, and $126 million in 202255699 - Note 11 (Goodwill & Intangibles): Goodwill increased to $4.48 billion in 2024 from $3.96 billion in 2023, mainly due to the $526 million goodwill from the BIOVECTRA acquisition; amortization expense for intangible assets was $105 million in 2024758909940 - Note 20 (Long-Term Debt): As of October 31, 2024, total senior notes outstanding were $3.33 billion; this includes new issuances in 2024 of $600 million due 2027 and $600 million due 2034957984990 Controls and Procedures Management concluded that Agilent's disclosure controls and internal control over financial reporting were effective as of October 31, 2024, with the BIOVECTRA acquisition excluded from the assessment - Management concluded that disclosure controls and procedures were effective as of October 31, 20241018 - Management concluded that internal control over financial reporting was effective as of October 31, 2024, based on the COSO framework (2013)1045 - The recently acquired BIOVECTRA was excluded from management's assessment of internal control over financial reporting for FY2024; BIOVECTRA represented 3% of total assets and less than 1% of total revenues41019