Agilent Technologies, Inc. (A) on Q2 2021 Results - Earnings Call Transcript

Operator: Good afternoon, and welcome to the Agilent Technologies Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. And now I'd like to introduce you to the host for today's conference, Ruben DiRado, Director of Investor Relations. Please go ahead, sir. Ruben DiRado: Thank you, , and welcome, everyone, to Agilent's second quarter conference call for fiscal year 2021. With me are Mike McMullen, Agilent’s President and CEO; and Bob McMahon, Agilent’s Senior Vice President and CFO. Joining in the Q&A after Bob and Mike’s comments will be Jacob Thaysen, President of Agilent’s Life Science and Applied Markets Group; Sam Raha, President of Agilent’s Diagnostics and Genomics Group; and Padraig McDonnell, President of the Agilent CrossLab Group. This presentation is being webcast live. The news release, investor presentation, and information to supplement today’s discussion, along with a recording of this webcast, are made available on our website at www.investor.agilent.com. Today’s comments by Mike and Bob will refer to non-GAAP financial measures. You will find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year and references to revenue growth are on a core basis. Core revenue growth excludes the impact of currency, and the acquisitions and divestitures completed within the past 12 months. Guidance is based on exchange rates as of April 30. We will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risks and other factors. And now, I’d like to turn the call over to Mike. Mike? Mike McMullen: Thanks, Ruben, and thanks to everyone for joining our call today. Before I get into the quarterly details, I want to start by recognizing our Agilent India team. Despite the challenging COVID-19 situation, our India team is working closely with our customers to do what we can to help in this time of extreme need. In addition, our Agilent India customer support, finance, and IT teams have worked tirelessly to help us close out the second quarter and keep us moving forward. I could not be more proud of how the team has worked together in true ‘One Agilent’ fashion. Our thoughts go out to the entire Agilent India team and their families during this difficult time. In Q2, the strong momentum in our business continues against the backdrop of a recovering market. The Agilent team delivered another outstanding quarter exceeding our expectations. Both revenue and earnings are up sharply versus a solid Q2 last year, when revenues and earnings per share were relatively flat. Our growth is broad-based across all business groups, markets, and geographies. We also expanded margins, driving faster earnings per share growth. Bob McMahon: Thanks Mike and good afternoon everyone. In my remarks today, I’ll provide some additional details on Q2 revenue and take you through the income statement and some other key financial metrics. I’ll then finish up with our updated outlook for 2021 and the third quarter. Unless otherwise noted, my remarks will focus on non-GAAP results. Revenue for the second quarter was $1.525 billion, reflecting reported growth of 23%. Core revenue growth was 19%, while currency contributed just under 4 points of growth. We are very pleased with our second quarter results as we saw strong, broad based growth with all three business groups posting mid-teens growth or higher, and all end markets growing strongly. From an end-market perspective, our focus on fast growing markets is paying off. Pharma, our largest market, again led the way, delivering 29% growth. This is on top of growing 5% last year. Growth was led by cell analysis, LC, and Mass Spec. These tools are delivering critical capabilities to our Bio-Pharma customers as they continue to make investments to develop new therapies and vaccines. Our biopharma business grew roughly 40% and represented over 35% of our pharma business in the quarter. Our small molecule segment also has momentum, growing in the mid-20s in the quarter. Overall, we are well-positioned within pharma and expect the pharma market to continue being the strongest end-market as we enter the second half of the year. Ruben DiRado: Thanks Bob. Gabriel, if you could please provide instruction for the Q&A. Operator: Absolutely. Our first question will come from Vijay Kumar of Evercore ISI. Please go ahead. Vijay Kumar: Hey guys, thanks for taking my question and congrats on a pretty impressive . I did want to start on pharma BioTek. It accelerated sequentially the number, it's really impressive, 35 on large molecule plus 28 in small molecule, so maybe talk about what is driving this maybe at a high level, if you can talk about what is your end-market growing? Is this a market acceleration? Are you guys gaining share and how much of this is incremental contribution for NASD? I think the prior assumption was $200 million in the fiscal coming in about? Mike McMullen: Yes, there was a lot to unpack there Vijay. I'll take the congratulations Vijay and I'll pass the to Bob. No. Yes, we're extremely pleased with the results that we've seen in the pharma business really across all three of our end business groups. I think it shows the investments in the great execution by the team that has been paying off over the last several years and I think what you're seeing is not only a market recovery for sure, but I think the relevance of our portfolio across all three of our business groups in that business, and certainly we are benefiting from the investments to expand capacity and new therapeutics across various end markets. But I also think the number of new products that we have launched in this space are really seeing a nice uptake. And on NASD to your point, I mean, we saw nice growth in NASD was in the high 30s and we are still on track for that $200 million that you talked about. And feel very good about that business going forward. Bob McMahon: And my perspective, I think we're capturing share in a faster growing market. So, I think there is a combination of both above expectations on market growth, but we're also getting more than our fair share of that market. Vijay Kumar: That's helpful comments there Mike. One question on perhaps a more medium-term question and I'm not asking for guidance, but I think the question on the Group has been, the comps are going to be pretty hard for some of these companies. Certainly COVID diagnostics has been I think you guys are one of the cleanest stories here in the group. But again, if I'm looking at this guide of high teens, perhaps talk about maybe broad strokes what is sustainable, it looks like some of these trends, Biopharma share gains etcetera should be sustainable? Maybe some product line on that, how to think about the plus and the minuses? Mike McMullen: Hey Bob, maybe if I can start with some comments? So, I think if there has been a positive on COVID, I think it's actually stimulating to some increased levels of investments in some of these end markets. So, we think that that some of these growth rates we've seen from the markets perspective are sustainable for a while. And we mentioned earlier, our story is a core business story. We've been very pleased that our team has been able to participate and have a role here to play in the fight against COVID-19, but our story really is all about what we're doing in terms of driving the core business. Vijay Kumar: Understood. Thanks guys. Operator: Your next question will come from Tycho Peterson of JPMorgan. Please go ahead. Tycho Peterson: Hey, good afternoon. I wanted to actually start with the M&A question just on resolution. Their obviously a CLIA lab, but have a distributed model as well. Can you just talk about those two businesses? I know the overall revenue contribution this year is like $50 million, $55 million, but how do you think about leveraging both the CLIA lab and the distributed model across your portfolio going forward? Mike McMullen: Yes. Tycho thanks for the question and good afternoon. I'll make a few comments here and I'll pass it over to Sam. So, my comments are going to be, we're very excited about having Resolution Bioscience team as part of Agilent. And Sam, I think we were even becoming even more excited now that we've had even a deeper look about what's been going on with the company and I think you've just come back from a visit from with the team. So you've had a chance of our – because maybe perhaps your first face to face business trip in well over a year, but with that lead in, why don't I pass over to you and answer Tycho's question. Sam Raha: Yes. Thanks Mike. Thanks for the question, Tycho. Yes, it was very exciting to finally get out and see real human beings again and very exciting to see the enthusiasm of the team there. And first-hand what is now part of our company. And Tycho the specific answer is, both parts are important. The primary business today that we have in Resolution Bio is related to pharma services, very much akin to what we do in our traditional CDx business here at Agilent, it's working with pharma to better understand biomarkers and then to develop companion diagnostics, which will the market. There is some testing that's done in the CLIA lab as you mentioned, there is a relationship with LabCorp, and that is something that we expect over time to ramp, both because of the testing for LabCorp and also testing that will result from actual companion diagnostics that are approved as part of the former work that we're doing, but both are important, but the substantial part of our revenue today in this year, and even in the coming 18 months, 24 months will continue to be some pharma services revenue. Mike McMullen: Yeah. That's the focus. Tycho Peterson: Okay. And then on the quarter – two quick follow-ups, Mike, food up 22%. I know you talked about all regions and segments strong and sustained momentum. But we don't think about that market being 20% plus growth sustainably. So, can you just talk about whether there is stockpiling? How much of this is China coming out of the overhaul there? And then totally unrelated question on ACG operating margins, they were down about 90 bps. I'm just curious is that reinvestment there? Mike McMullen: Yes, sure. You're close study on the numbers, I can see it Tycho, so thanks for two good questions. So, while we're super pleased with the overall growth rate of food, it's been a story here for a number of quarters. We don't expect it to be a 20% growth rate in 2022 and years beyond, but we are expecting continued strength throughout this year, probably not at that same level. And Bob, I think it's really a – clinically China is part of that story, but in fact, when we look across the globe, it's been a – we also saw strength in other geographies as well. And I don't have exact... Bob McMahon: Yes, that's right. Mike McMullen: Geographic split, but it was a broad-based kind of story, with China leading the way, being the key part but not the only part of the story. Bob McMahon: Yes, absolutely, Tycho to Mike's point I think we see this kind of reverting back over time, but certainly what we're seeing is increased investment and increased testing here really around the globe. And China was actually slightly lower than the overall core business, you saw a strong recovery both in Americas and Europe and the Rest of Asia. And I think we're seeing some halo effect of COVID testing kind of a surveillance testing in various aspects of China or of food testing. And so, I think we feel very good about the business there. And then I think on your question... Mike McMullen: Bob I just want to add one thing. Additional thought in the Americas, historically that's been a lower growth rate for us in food. But with the inclusion of the cannabis testing market we're getting a bit of a bump there as well. Bob McMahon: Yes, thanks. Thanks Mike. And I think what you're seeing in the ACG business Tycho, is a combination of two things. One is some reinvestment, we continue to double down in areas like the digital investments to continue to increase our capabilities there and then you did see some increased activity, and so as we actually see this is a good thing. Our sales and field service engineers are traveling to more customers. And so, we're seeing some increases there associated with just increased activity, which we saw on the on-demand side, but it also comes with some incremental cost. But long-term, we feel very good about our ACG business and continued ability to scale that business going forward. Mike McMullen: Absolutely. Tycho Peterson: Okay, thank you. Mike McMullen: You're welcome. Operator: And your next question will come from Doug Schenkel with Cowen. Please go ahead. Doug Schenkel: Good afternoon, guys. Thanks for taking my questions. I'm just doing some math here, and Bob I'm trying to make us a little more sense of your guidance. On one hand, you guided fiscal Q3 revenue expectations well above consensus. On the other hand your guidance assumes essentially that revenue is going to move sideways, maybe even move I think down sequentially in a quarter, which I think is normally a little bit better relative to fiscal Q2, if for no other reason than in China, one of your bigger markets, you don't have a Lunar New Year in that period. And then we're kind of back into the Q4 implied number, you know there is I think something like 4% sequential growth and a pretty big implied moderation in year-over-year growth in the fourth quarter relative to the rest of the year even accounting for comps. So, there’s all that, you've got more M&A in there. And then, I listened to what you're seeing in your prepared remarks, and look at the numbers and it sure seems like you're crushing it with no slowdown. So, am I missing anything here? Bob McMahon: No, I think you are reading the numbers very well, Doug. And what I would say is, certainly, we feel very good about Q3 and that's where we have most of our visibility. We still are in a pandemic, but we feel good about the recovery and our – I think still a little prudent in terms of our forecast going forward. We want to see how the continued rollout of the vaccines are around the world and I think there isn't anything that in the near term that we see is going to stop us from our momentum. Doug Schenkel: Okay, all right, that's helpful. And then again doing math on the fly, so hopefully, I'm not messing up anything. Bob McMahon: But your math on the fly is pretty good Doug. Doug Schenkel: I am doing okay so far. Thank you. So, it seems like you're assuming operating investment growth 15% year-over-year in the second half or something like that, just backing into that from the top and bottom line. And that seems to be a couple of points higher than the revenue growth rate you're guiding to for the second half. So, assuming I'm still doing this right, could you just talk about what some of the key areas of investment focus are? It seems like you're planning on maybe opportunistically pulling forward some investment even separate from the M&A? And then building off of that, if you are in a position to drive revenue upside relative to guidance, do you think it's possible we could see flow through to the operating line and the bottom line along the lines of what we saw in the second – in the first half of the year? Bob McMahon: Yes, the short answer on that, let me take the question around investment. The biggest investment that we have going forward is really the addition of the Resolution Bioscience business and continuing to invest behind the capabilities there both from an R&D and development perspective, as well as the channel. And so that that does have an outsized investment relative to the second half versus the first half where we didn't really have that in here, but we are continuing to invest in demand driving activities. Some of those things like we just talked about an ACG around the digital aspects, but also building capabilities to continue the momentum going forward, whether it'd be marketing programs and other activities within our R&D pipeline. And I think the last question that you had is, if we do have upside, will it drive the same kind of level of incrementals? And I would say the answer is yes. Doug Schenkel: Okay, super helpful. Thanks guys. Bob McMahon: Yes, thanks Doug. Appreciate the comments. Operator: Your next question will come from Dan Leonard of Wells Fargo. Please go ahead. Dan Leonard: Thank you. So first off, on the core analytical business, do you think you've seen any benefits from on-shoring through the order book or the revenue line as of yet? Mike McMullen: Dan. Hey, thanks for the question. Not yet. We've talked about it with you in prior quarters and we still think it's a area of interest of our customers in terms of future investment, but nothing material yet. This is the core kind of reinvestment happening in the chemical and materials side of C&E and as you heard in our prepared remarks, the order book actually was stronger than the revenue book. So, pointing to a recovery of this segment which, you know in passive and fairly cautious about in terms of calling it, but the trends are positive now. Dan Leonard: Okay. And Mike, I want to ask a follow-up on Resolution Bio, you kind of assume this a build the future positive updates to come there. Can you talk about your to invest in that business? And the reason I ask is, it does seem like a driver of success in that space is a willingness to absorb losses for long periods of time. So, can you talk about how you plan to invest in the business and how that fits your overall operating model? Thank you. Mike McMullen: Yeah, I'm not sure I accept the premise that do you need to have huge operating losses to have the business depend on the type of play you're trying to make here. And Bob and Sam you guys, keep me honest here as well, but pharma services business model we have where we can leverage a lot of investments that we've already made around our IHC base CDx business, we're not in the same position increment there perhaps maybe start up some of it brand new entering the space. So, we have something to build from. So, I think our expense structure may look perhaps look different than others in this space. We do plan to invest aggressively on the R&D side as well, building out additional commercial relationships. But we think our plan has been to absorb within the overall operating model. So, there wasn't any asterisk when we put our long-term goals out and said well without Res Bio, so I think we believe that we can manage within our overall operating model and I think given where we're starting from, which is we're not starting from zero in this business. We have something to build from our acquisition, a number of years ago from Darko. I think that puts us in a different perhaps a different place. Anything else add to that... Dan Leonard: I appreciate the color. Okay, thank you. Mike McMullen: You're welcome. Operator: Next question comes from Derik de Bruin of Bank of America. Please go ahead. Derik de Bruin: Hi, sorry, had the mute on, sorry about that. So, can you talk a little bit more about the LCMS growth and the service going on there. And a couple of questions on that one. First of all, I've asked this question about are you seeing an accelerated replacement cycle in that market or any of your markets. Basically, are people feeling good about budgets. You're spending a little bit more than they had so that general question. And I guess one of your competitors has been talking about new LC platforms, particularly targeting the biologics area. I'm just sort of wondering what your sort of competitive response and product offerings are that will going against that? And then I've got one follow-up. Mike McMullen: It's maybe there are competitive response. But I'm going to pass over to Jacob, because we're in the conference room here and I'm looking at him on the screen and he is finally loved to be able to answer your question. Derik. So, I'm going to pass it over to you, Jacob. Jacob Thaysen: Yes. Thanks Mike. And, Derik this is great question. So thanks for that. First of all the – what the growth you're seeing both in our LC and LC/MS space is certainly not a coincidence, it is something we have invested in for quite some years. If you really think about our mass spec portfolio, we have really invested and innovated around the lines of robust reliable on the team and we really see our customers especially on our single and triple quads have really taken off here in the last period of time. I think even before in the food space, where we see a lot of upgrades into triple quads, but clearly in the pharma and biopharma space, we have doubled and tripled down on that, really, we can see that there's great opportunities there. So, when you move from small molecule things, the last molecule, we are also seeing that the customer base is changing and the customers or the users of the mass spec is changing and hence, they are looking for a different experience and we have invested quite a lot into our software platforms. First of all, to live up to the expectation from a regulatory perspective, but also from a usability. So that's a big part of our success in what we see and I truly believe there is a lot more to come in that area. If you look at the LC, investing into bio is a part of the game. We have had out at bio LC high end high LC for quite a while now and it is doing very well. We can compete about against everyone in this space and you will see us come out – continuously come out with new products in that space. So, we feel very good where we are, and we'll continue to invest to continue to keep tech market standards very important market for us. Mike McMullen: And Derik, if I could just add on to that, I think it's fair to say Jacob, we're seeing both market expansion but also some acceleration of replacement market as well, particularly in pharma molecule. Jacob Thaysen: Absolutely. Derik de Bruin: Great, thanks. And then I'm going to ask you an unfair question, but what the hell. And part of it goes like it is – this is like all the tools companies that put up really strong results, they're coming off of easier comps and that's great. But I think that everyone sort of focuses on the next fiscal year and the ability to grow earnings. I just sort of thought, can you sort of generally share any thoughts on sort of earnings growth next year and will it be in the double-digit range? Just your general thoughts right now as people are going to start worrying about the tough comps. Not the COVID tough comps and then other core tough comps. Mike McMullen: So Bob and I haven't actually compared notes on this. I'll start with a few comments. And then I think we'll probably end been in the line. That said, potential U.S. tax reformer side, our model has been to be able to deliver double-digit EPS growth and I'm not seeing a need to deviate from that in 2022. Bob McMahon: Agreed. Derik de Bruin: Okay. I appreciate it. Have a great day. Operator: Your next question will come from Matt Sykes of Goldman Sachs. Please go ahead. Matt Sykes: Hey, thanks for taking my questions. Just maybe in the category of too early, but just look at the growth rate that you guys have been showing in cell analysis. I'm just wondering if you can kind of give us an idea of contribution from that, just given – it's been integrated and growing at a pretty good clip. And then also, just sort of what you're seeing in terms of customer is largely new customers deepening relationships with existing customers. Just put more color on cell analysis? Thanks. Mike McMullen: Sure, Matt, I think Bob kind of give a view on the overall size of the business and maybe pass it to you Jacob for some more insight on the customer side. Bob McMahon: Yeah, I was going to say, Matt, we're extremely pleased with the performance really across all three of the major business groups within cell analysis really driving strong growth. And we are well on our way to continue to drive accelerated growth in those areas. And I would say the margin profile of that business is above the Agilent average. And so, I'll let Jacob actually talk about some of the areas where we continue to invest in new products such as the Cytation C10, but also some of the areas around customer acquisition and what we're doing in the marketplace. Jacob Thaysen: Yes, thanks. It's another great question. And as you can hear we are super excited about the cell analysis business, particularly I'll focus on live cell analysis by immuno-oncology and immunology as a whole. And as Bob has also mentioned, we have made some quite some good investments into that space, particularly in also the imaging space where we have recently come out with the Cytation C10. I think Bob also talked about that, which is a new confocal microscope and what it really does is that it allows we have build it and build it out this way that you can get a relatively good entry level microscope that will compete based on the market and then you can upgrade it and use all the other automation platform and configurations that we already have established in BioTek. So, it is a really mixed unmatched stat that our customers are really delighted about. And our customer base, of course, we enjoy a very strong installed base from the BioTek acquisition, which we are now leveraging also for . But we also see a much stronger push into the biopharma space where some of our businesses have been very exposed to the academia government and we had a very clear focus there has to move in that and that works very well. So, we are excited where we are but I would say that the main growth comes from the biopharma space, but clearly now with the academia government coming back that of course also across the growth. Bob McMahon: Yes, Matt, just one other thing to add to what Jacob is saying, I mean this is an area that if you look at over the last several years, we continue to invest both organically and inorganically. And I would say, given our success in the strength in that marketplace and the strength of our portfolio, those are areas where we continue to look to invest further. Matt Sykes: Great. Thanks for that. That's very helpful. And then just on Diagnostics. Your comment that you exit the quarter is stronger run rate. I'm sure some of that sort of catch-up demand from the COVID period, but just can you talk about the sustainability and your views on diagnostics throughout the rest of the year? Sam Raha: Yes, that's one where we are – if we think about the opportunities, we're very, very pleased with kind of the progression of that business recovery throughout the course of the year. If you recall last year, we actually grew in that business and then saw a strong fall off when the pandemic really hit and we're expecting accelerated growth in Q3, but this is an area where we're watching to say, is there going to be sustained – how fast is that sustained recovery going. But all signs right now are very positive from the standpoint of the recovery, not only in our business, but if you look at just the overall testing environment continues to be very positive on non-COVID testing. So, I think people are getting back into the doctors' for wellness tests, certainly diagnostic tests like cancer diagnostics and so forth, and I think we're seeing the benefit of that going forward. And then couple that with the addition of the Res Bio business and I think we've got a very compelling portfolio of opportunities to provide to our customers going forward. Matt Sykes: Great, thank you very much. Operator: Your next question comes from Puneet Souda of SVBL. Please go ahead. Puneet Souda: Yes, hi. Thanks, Mike and Bob. Bob question for you first. What are you baking in for pricing expectations for the year? And I think the bigger question here is, your ability to take pricing in the market in case there is a rise in raw material prices and in-line with the expectations? And then I have a follow-up for Jacob and Sam. Bob McMahon: That's a great question, Puneet, and what I would say is, first of all, just a shout out to our OFS team, our supply chain organization, who've just done a fantastic job of being able to manage the increased demands on a increasingly fragile supply chain or logistics, I would say. And so they've just done a fantastic job of supporting our customers. And as you say, we are starting to see inflationary pressures in these areas, but I would say, you know our contracts are more long-term in nature and the teams have been able to drive with the volume, as well as continued discussions, good cost controls there at least in the near term. And on pricing, our pricing hasn't changed. We felt that we had modest price built into our plan. That's what we've seen through this first half of the year and that's what we're assuming in the second half of the year. It depends on what group, but overall, we hadn't built any expectation of significant price increase or decreases into our business. Puneet Souda: Okay, that's helpful. And then a quick one for Sam first and then other one for Jacob. Sam, if you could characterize what are your expectations with the pipeline in terms of MRD, beyond therapy management for Resolution Biosciences, and if you could also talk a little bit about the regulatory framework? In past you followed PDL1 pharmDx assays into FDA approvals. How should we think about the new product launches? Are they going to follow a similar path? And then for Jacob briefly, could you update us briefly on the Open Lab efforts and your position in pharma there, obviously with your competitor now being focused again on the – very much on the core LC position. I'm wondering if you're seeing any changes in the market and I totally appreciate your 1,100 and 1,200 LCs has done well, but I just want to get a sense of Open Lab. Thank you very much and congrats again on the quarter. Bob McMahon: Yeah, thank you for the question on the Resolution Bio, I think … Mike McMullen: How many questions in there. Sam Raha: Quick response for you. Our primary focus remains therapy selection and that's where the programs that we have contracted and the continued significant interest we're seeing both from our existing pharma partners on the Agilent side, as well as the Resolution clientele that are coming into our pipeline as well. Now the fundamental technology is, we do believe the minimal to more applications including minimum residual disease and monitoring, but once again our primary focus remains therapy selection. Now, in terms of the model, I think you asked about that. It is what we can do before, which is we believe as Agilent, we've got a capability set, which we've used for PDL1 where we work, specifically with pharma partners to work on companion diagnostics meaning to develop register and then commercialize those companion diagnostics as they come to market and are approved, tied to a specific indication specific drugs. So that is our model and ultimately our vision is to have IVD kitted NGS solutions that are near to patients that are distributable, but of course as you heard even earlier we've got a CLIA lab and there's diagnostic testing that will happen along the way, and that's a little bit different than the PDL1 model that we have today, because that's the nature of NGS based diagnostic testing, but our interest and long-term focus remains an IVD kitted diagnostic test. Jacob, over to you. Jacob Thaysen: Yeah. Thank you and let me just start by saying that Informatics and Open Lab is key to our strategy. So, though we like to talk about our instrument, it's always connected – most of the time connected within a very strong position in Informatics, and we continue to invest in Open Lab, in fact, we believe that is the lab, where we connect all our instruments into an ecosystem in a cloud setup where you can also track your samples and in the end also connect into an e-commerce set up is going to be the future, and with Agilent's broad portfolio we can very quickly, we can very well do this. So, I'm very excited about that and we continue to invest, in fact we have over the last few months decided to further invest into these areas to further accelerate our presence here. Puneet Souda: That's great. I appreciate you guys taking that extra questions. Thanks guys. Mike McMullen: Sure not a problem. Operator: Your next question will come from Brandon Couillard of Jefferies. Please go ahead. Brandon Couillard: Thanks, good afternoon. Bob or Mike in terms of the chemical energy business, could you break out instruments versus aftermarket in the quarter? I suspect it's probably the first quarter in a while that you've seen solid instrument growth. Just wanted to confirm that's the case. And then what's embedded in terms of the updated full-year guide for that end markets specifically? Mike McMullen: Bob, I know that the instrument business was strong for us in C&E. I can't remember the actual relative ratios of . We're looking though our notes here right now to answer your question. And going into the Q3 is probably our easiest compare in C&E. We're still looking for that stack growth to kind of move up bit on us, but Bob? Bob McMahon: Yes, I was going to say, Brandon to your point of that LSAG or the instrument business is slightly higher than that and LSAG was slightly lower than that, but both double-digit growth. And as we think about where we are going forward in terms of the guide for the third quarter and it kind of going forward, our assumption for Q3 is somewhat similar to Q2 in terms of continued recovery of a weak base. It was down 10% again last Q3 and then we started seeing recovery. And so I think about it – we're thinking about it in roughly the same kind of terms in Q3 that we saw in Q2. Mike McMullen: I think right now we're taking it quarter-by-quarter, Bob. But I think overall we see this trending being more upside than downside. Bob McMahon: That's right. Brandon Couillard: Got you. And then just one more, it doesn't sound like, based on your prepared remarks today, but to what extent if at all are you seeing any supply constraints, printed circuit boards or other marked materials? Mike McMullen: Brandon, I just would echo what Bob mentioned earlier, our office team that is on a spectacular job, so in our remarks you heard we talked about some strong orders, order growth higher in China and C&E, but that was not at all tied to any supply chain constraints. So, we've been able to get product. We've been able to ship product and listen, it's not easy, but the teams find a way to make it happen. So, I think Bob is relatively material at all to the quarter and we think it's manageable moving forward as well. Bob McMahon: That's right. Brandon Couillard: Great, thanks. Operator: And your next question will come from Patrick Donnelly of Citi. Please go ahead. Patrick Donnelly: Great, thanks for taking the questions guys. Maybe following-up on Brandon's question on C&E there, can you just talk through what you're seeing in there a bit more? Obviously, the order book growth is encouraging coming in higher than revenue. You know, was that enough to give you confidence that this won't kind of turn quickly on you? I know you've noted historically it's been a bit hesitant to bake in too much growth there. I mean this is among the most positive I’ve heard from you guys over the past couple of years. So, can you just talk through that and then I guess was that segment the biggest piece guidance raise doing a bit more comfortable about the sustainability there? Mike McMullen: Yes. Thanks, Patrick. And I'm glad you remember my earlier comments, because I always said once the orders here in my book I'll start to talk a little bit differently about it and that's why you're getting more positive tone. I would say that we're still in the early phases of the transition. We feel really good about where things are on the chemical materials side of C&E. I would say we're starting to see quoting and some initial order activity on the refining side still relatively light compared to the Materials and Chemicals segments. As you know, the larger part of that business for us, but yes we are – I am much more positive. I think it's probably the first time in a long time that we've had this kind of view on the trends we're seeing in the C&E space. And yes, we had in prior quarters seamless PMIs, but I wanted to see in the order book and I started to see it this quarter. Bob McMahon: And I would say, Patrick to build on what Mike is saying, we still have – we're taking it as he said, kind of, one quarter at a time. We've built in some of that into Q3 and I would still say there is a bias to the upside in Q4. Patrick Donnelly: Okay, that's helpful. And then just maybe on the M&A landscape. Bob, you mentioned the balance sheet helped, obviously we saw the Resolution deal you guys touched on that a few times. Should we expect more deals of that nature? Are you still on the hunt for something a bit larger? Mike, maybe if you could talk a little bit about the pipeline activity and the segments you're focused on and then Bob, if you want to talk about where the leverage could go, that will certainly be appreciated. Mike McMullen: Yes. So I think our view on M&A remains the same. We see that as a key part of our – we've been terming our build and buy growth strategy. We've signaled that we would be willing to do deals in the multiples of BioTek, which to date is our largest deal. And that's still an area of interest for us. We like to, kind of a growth accretive deals that you're seeing. We're bringing in great new teams like Res Bio team, like the BioTek, ACEA, so we are maintaining our focus on higher growth segments. We like the areas we're going, we've been gone after. We like cell analysis, we like the genomics look at biopsy space, I think Informatics others. We have a number of areas that we were continuing to look for growth opportunities. Again, we don't have to do deals to make our model work. But if we can find great new teams and great businesses to bring into the company we're quite willing to do that. You just have to remain disciplined in terms of valuation expectations. There's a lot of frothiness in certain segments of the market, but we're going to stay where we've been successful in the private space, where company founders often looked at and say listen, this will be a great home for my company my team. We like how you guys run your company, we like your culture, we like to just for in terms of growing the business for the long-term. So, we're going to stick to our model. It’s been working for us Bob and I think we can adjust the question... Bob McMahon: Just quickly, we're not going to give a specific target around that other than to say that our intent is to maintain an investment grade and we ended the quarter at, kind of 1 times net leverage and that gives us plenty of flexibility to continue to invest in deals growth accretive deals as Mike just talked about. Patrick Donnelly: Okay. Thanks, Mike and Bob, really appreciate it. Mike McMullen: You're very welcome. Operator: And your last question today will come from Dan Brennan of UBS. Please go ahead. Unidentified Analyst: Hi this is on for Dan. Just a quick question. To what extent has your upgrade cycle been impacted by the pandemic, and now that we're kind of coming out of the pandemic, are you seeing any traction, any acceleration in the upgrade cycle in any of your instruments or end market? Mike McMullen: Yes, I think to answer your question, I think when the pandemic hit, it really slowed down any kind of replacement cycle. Particularly I would say in the C&E side of our business. And as we just commented, we're seeing positive indications that that actually is now turning to different direction. So, I'd say it's been even in the C&E space that are tied to chromatography spectroscopy platforms. Bob McMahon: I would say, Nathan as Mike said, still early days, but all the trends are looking positive. Unidentified Analyst: Great. And just, if I can switch , you did mention that you're seeing share gains on top end market grow. Can you just elaborate what is driving share gains for you? Mike McMullen: If you think about our – the combination of our LSAG and ACG businesses where we come in the analytical lab, as Jacob mentioned earlier and I haven't had a chance to have jump into the call yet, but you know they’ve been working very well together for multiple years. And you're seeing it by bringing innovative solutions to the market that have a differentiated value proposition from the competition. A superior service experience and I think it's – we continue to build out our commercial reach as well. So, I think it's been the combination of portfolio and the workflow focus within that portfolio, building the service capability and then building out further commercial reach. I think it's been a combination of all those factors helping us to do really well in our LSAG and ACG groups, and then obviously we talked earlier about the play in cell analysis, which is a new addition to the company in biopharma, and then our NASD play in Sam's business. I think it's been a combination of all those factors. So, that's why we keep using the word broad-based growth because you see it in all parts of the businesses. So, we feel really good about the results from the size we were working on for a while. Unidentified Analyst: Great, thanks. Operator: And this concludes today’s conference call. Thank you everyone for joining us. You may now disconnect.
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Agilent Technologies, Inc. Q2 Fiscal Year 2024 Financial Performance Analysis

  • Agilent's earnings per share (EPS) of $1.05 fell short of the estimated $1.19, indicating a discrepancy between performance and market expectations.
  • Revenue for the period was $1.573 billion, slightly below the anticipated $1.582 billion, suggesting a challenging quarter.
  • The company's GAAP net income increased to $308 million, with a non-GAAP net income of $356 million, showcasing profitability adjustments.

Agilent Technologies, Inc. (NYSE:A) recently disclosed its financial performance for the second quarter of the fiscal year 2024, which ended on April 30, 2024. The company, known for its contributions to the life sciences, diagnostics, and applied chemical markets, reported earnings and revenue that provide a snapshot of its current financial health and operational efficiency. This report is crucial for investors and stakeholders to understand how Agilent is performing, especially in comparison to market expectations and its performance in the previous year.

On Wednesday, May 29, 2024, Agilent reported an earnings per share (EPS) of $1.05, which did not meet the estimated EPS of $1.19 set by analysts. This outcome indicates a discrepancy between the company's performance and market expectations. Additionally, Agilent's revenue for the period was $1.573 billion, slightly below the anticipated $1.582 billion. These figures suggest a challenging quarter for Agilent, as both top and bottom line numbers fell short of expectations.

Despite the shortfall in EPS and revenue, Agilent's financial health can be further understood through its reported GAAP net income for the quarter, which stood at $308 million, or $1.05 per share. This represents an increase from the $302 million, or $1.02 per share, reported in the same quarter of the previous year. The company's non-GAAP net income for the quarter was $356 million, or $1.22 per share, showcasing a more nuanced picture of its profitability when adjusting for specific items.

Agilent's financial ratios also offer insight into its market valuation and financial stability. With a price-to-earnings (P/E) ratio of approximately 34.32, the market values Agilent at over 34 times its earnings over the last twelve months. This high P/E ratio could indicate investor confidence in Agilent's future growth prospects. The company's debt-to-equity (D/E) ratio stands at 0.41, showing a moderate level of debt relative to equity, which suggests a balanced approach to financing its operations. Additionally, the current ratio of 2.15 indicates that Agilent has more than twice its current liabilities in current assets, pointing to a strong liquidity position.

In summary, Agilent Technologies' Q2 fiscal year 2024 earnings report reveals a mixed financial performance, with some metrics not meeting analyst expectations while others highlight the company's profitability and financial health. The detailed analysis of Agilent's earnings, revenue, net income, and financial ratios provides a comprehensive view of its current standing and future prospects in the competitive landscape of the life sciences and diagnostics sectors.

Agilent Technologies' Quarterly Earnings Preview

  • Earnings per Share (EPS) forecast at $1.19, indicating a 6.3% decrease year-over-year.
  • Expected revenue of $1.58 billion, representing an 8% decline from the same quarter last year.
  • Stability in EPS estimates over the last 30 days suggests analyst confidence in Agilent's ability to meet expectations.

Agilent Technologies, trading under the symbol "A" on the NYSE, is gearing up for its quarterly earnings release on Wednesday, May 29, 2024, after the market closes. The company, known for its scientific instruments, is a key player in its industry, competing against other firms in the development and manufacturing of analytical instruments, software, services, and consumables for laboratories worldwide. As the earnings date approaches, Wall Street's eyes are on Agilent, with expectations set for an earnings per share (EPS) of $1.19 and revenue forecasts aiming at approximately $1.58 billion for the quarter.

The anticipation surrounding Agilent's earnings report is heightened by the fact that these figures represent a year-over-year decline. Specifically, the EPS forecast of $1.19 marks a 6.3% decrease from the previous year, while the expected revenue of $1.58 billion would signify an 8% drop from the same quarter last year. This downturn in both earnings and revenue highlights the challenges Agilent has faced over the past year, possibly due to market dynamics or internal factors affecting its performance.

Despite these anticipated declines, the stability in the consensus estimate for the EPS over the last 30 days is noteworthy. This stability suggests that analysts have not found reason to adjust their forecasts, indicating a consensus view on Agilent's performance for the quarter. This aspect is crucial for investors, as stability in earnings estimates can often signal confidence in the company's ability to meet expectations, which in turn can influence the stock's performance in the short term.

Moreover, Agilent's financial health, as reflected by its valuation ratios, provides a broader context for evaluating its upcoming earnings report. With a price-to-earnings (P/E) ratio of approximately 35.71, Agilent is seen as having a higher valuation compared to some of its peers. This high P/E ratio, along with a price-to-sales (P/S) ratio of about 6.56 and an enterprise value-to-sales (EV/Sales) ratio of around 6.70, indicates that investors are willing to pay a premium for Agilent's shares. These metrics, combined with a healthy liquidity position as shown by a current ratio of approximately 2.68, suggest that Agilent is well-positioned to navigate its current challenges.

As Agilent Technologies prepares to unveil its quarterly earnings, the focus will not only be on whether it meets or exceeds Wall Street's expectations but also on the insights provided by the management regarding the company's future outlook. The upcoming earnings report will be a critical moment for Agilent, potentially influencing its stock price and shaping investor sentiment based on its performance and strategic direction moving forward.