Agilent Technologies Inc. (A) Q1 2021 Earnings Call Transcript

Agilent Applied sciences Inc. (NYSE: A) Q1 2021 earnings name dated Feb. 16, 2021

Company Members:

Ankur Dhingra — Vice President of Investor Relations

Mike McMullen — President and Chief Govt Officer

Robert W. McMahon — Senior Vice President, Chief Monetary Officer




Good afternoon and welcome to the Agilent Applied sciences First Quarter Earnings Convention Name. All traces have been positioned on mute to forestall any background noise. After the audio system’ remarks, there can be a question-and-answer session. [Operator Instructions] And now, I’d prefer to introduce you to the host for at the moment’s convention, Ankur Dhingra, Vice President of Investor Relations. Sir, please go forward.

Ankur Dhingra — Vice President of Investor Relations

Thanks, Jason and welcome everybody to Agilent’s first quarter convention name for fiscal yr 2021. With me are Mike McMullen, Agilent’s President and CEO and Bob McMahon, Agilent’s Senior Vice President and CFO. Becoming a member of within the Q&A after Bob’s feedback can be Jacob Thaysen, President of Agilent’s Life Sciences and Utilized Markets Group; Sam Raha, President of Agilent’s Diagnostics and Genomics Group; and Padraig McDonnell, President of Agilent CrossLab Group. This presentation is being webcast reside. The information launch, investor presentation, and knowledge to complement at the moment’s dialogue together with a recording of this webcast are made obtainable on our web site at

At this time’s feedback by Mike and Bob will consult with non-GAAP monetary measures. You will see probably the most immediately comparable GAAP monetary metrics and reconciliations on our web site. Except in any other case famous, all references to will increase or decreases in monetary metrics are year-over-year and references to income development are on a core foundation. Core income development excludes the affect of forex and the acquisitions and divestitures accomplished throughout the previous 12 months. Steerage relies on change charges as of January thirty first. We can even make forward-looking statements in regards to the monetary efficiency of the corporate. These statements are topic to dangers and uncertainties and are legitimate as of at the moment. The corporate assumes no obligation to replace them. Please take a look at the corporate’s latest SEC filings for a extra full image of our dangers and different elements. And now, I wish to flip the decision over to Mike.

Mike McMullen — President and Chief Govt Officer

Thanks, Ankur and thanks everybody for becoming a member of us at the moment on our name. I’m very happy to be on the decision for you at the moment. We’re off to a wonderful begin to our fiscal yr. The Agilent workforce delivered excellent leads to the primary quarter. The momentum in our enterprise continues. Revenues for the quarter $1.55 billion. That is up 14% on a reported foundation and 11% core, exceeding our mid-January revised expectations. Additionally, as anticipated, COVID-19 tailwinds added roughly 2.5 factors to our total development. Working margins are a wholesome 25.5%. EPS of $1.06 is up 31% year-over-year. General, a really spectacular begin to 2021.

Our development is broad primarily based. All three of our enterprise teams delivered double-digit development. All areas grew with the 2 largest main the best way. China grew 25% and the Americas posted 13% development. We proceed to see power in most of our finish markets led by pharma rising 20%. These outcomes are a testomony to our construct and purchase development technique and the Agilent workforce’s relentless buyer focus. Demand remained sturdy for the total breadth of our choices. We now have been gaining market share in key areas. We’re clearly retaining our foot on the gasoline.

Now, let’s check out our efficiency by enterprise group. The Life Sciences and Utilized Markets Group generated $722 million in income, up 13% on a reported foundation and up 11% core. LSAG’s development is broad-based throughout finish markets and geographies. We’re notably happy with our cell evaluation enterprise. Cell evaluation grew within the high-teens led by biotech, which grew 26%. Development can also be sturdy at liquid chromatography and mass spec product traces with each rising within the teenagers. General, our LSAG enterprise noticed very sturdy demand as many shoppers utilized their finish of yr capex budgets and our market share good points continued. From an finish market perspective, meals and pharma led the best way for LSAG.

Persevering with our biopharma funding focus, we launched new updates to our mass spec [Phonetic] LCMS software program. This new software program permits knowledge integrity consists with necessary regulatory necessities for our biopharma clients. As we proceed to construct our digital lab, we launched the Agilent 7850 ICP-MS System, which gives new good digital instruments to enhance workflows. LSAG’s broad and regularly strengthening portfolio is properly positioned and continues to outperform the {industry}.

The Agilent CrossLab Group posted revenues of $532 million. That is up a reported 13% and up 10% core. ACG’s development can also be broad- primarily based throughout finish markets and geographies. Development is robust at each providers and consumables. Our digital investments in scale are including vital worth. We proceed to drive improved connect charges to Agilent’s giant put in base of devices. Annual service contract renewal charges and development was sturdy within the quarter as we proceed to construct a extra resilient and better development enterprise. The Diagnostics and Genomics Group revenues are $294 million, up 18% reported and up 15% core. Development is broad-based led by our NASD oligo enterprise. Our genomics product portfolio grew double-digit aided by COVID-19 associated to qPCR demand. We additionally achieved sturdy development in our core NGS pattern prep enterprise.

As talked about earlier, total firm development is broad primarily based throughout most of our finish markets. The pharmaceutical and meals companies led the best way each rising sturdy double-digits. We additionally posted 10percentr development within the environmental and forensics market. Chemical and power grew 2% and we see an elevated enterprise exercise within the C&E area. The academia finish market is down 1% with many college labs nonetheless working in a constrained setting. We’re additionally persevering with our efforts within the battle towards COVID-19. We now have accomplished our improvement and medical validation for a serology assay to detect COVID-19 antibodies. We plan to undergo for qPCR primarily based check for COVID-19 detection and plan to launch in Europe within the subsequent couple of months and submit for emergency use authorization within the U.S. throughout the identical timeframe.

I’m additionally happy to share that Barron’s once more lately named Agilent certainly one of America’s most sustainable firms. This marks the third yr in a row we’ve been included among the many High 3 firms on this rating. We’ve additionally been the chief in our {industry} all 4 [Phonetic] years that Barron’s record has been printed. We’re very pleased with this honor. Sustainability is a key precedence for our firm. You realize, once I look again on the uncertainty we confronted at the moment final yr, I’m so proud about at what the Agilent workforce completed: all-time excessive buyer satisfaction scores, constructing momentum in all our companies, and delivering wonderful outcomes.

Our first quarter outcomes are one other compelling proof level that we’re constructing a good stronger firm and market place in the course of the pandemic. As we mentioned at our December investor occasion, our numerous, industry-leading product portfolio has by no means been stronger. Our constructing and shopping for development technique with a concentrate on larger development markets continues to ship. Our M&A finnel entrance as sturdy and stays centered on development accretive M&A alternatives. We’re concentrating on firms and markets the place we see potential for vital long-term development and Agilent is in a powerful place to win.

As we glance forward, we now have a way of real looking optimism. We now have strong momentum. We’re profitable available in the market and we now have the correct workforce to proceed to succeed. Because of this, we’re elevating our core development steerage vary to six.5% to eight% for the yr. As it’s possible you’ll recall, we lately guided to a long-term core development fee of between 5% and seven%. So we’re actually off to a superb begin in 2021 and we now have no intention of slowing down. We now have additionally raised our earnings steerage for the yr. In December, I shared Agilent’s long-range plan of margin enlargement at 50 foundation factors to 100 foundation factors a yr. We at the moment are guiding in direction of the highest finish of that vary for 2021. Bob will share extra particulars on this in his remarks.

I couldn’t be extra happy with how we now have began the yr. We now have momentum. Our workforce is robust and energized. We’re gaining market share in key areas and we now have an much more promising outlook for the total yr. Thanks for being on the decision at the moment and sit up for your questions. I’ll now hand the decision off to Bob. Bob?

Robert W. McMahon — Senior Vice President, Chief Monetary Officer

Thanks, Mike, and good afternoon everybody. In my remarks at the moment, I’ll present some extra particulars on Q1 income and take you thru the primary quarter revenue assertion and another key monetary metrics. I’ll then end up with our outlook for 2021 and the second quarter. Except in any other case famous, my remarks will concentrate on non-GAAP outcomes. We’re very happy with our first quarter outcomes as we noticed sturdy broad-based development exceeding our revised expectations. Income for the primary quarter was $1.55 billion, reflecting reported development of 14.1%. Core income development was 11.3% whereas forex contributed 2.8 factors of development. N

Ow earlier than I get into the top markets, Mike’s earlier feedback bear repeating. All three enterprise teams delivered double-digit development, core development within the quarter. Our superior worth proposition continues to resonate with our clients and our workforce executed properly capitalizing on recovering demand in our finish markets. Pharma, our largest market was sturdy throughout all areas delivering 20% development. Development was led by NASD which skilled vital development within the quarter, albeit towards the simplest comp of the yr. NASD contributed 4 factors to the general pharma development fee. We proceed to be very happy in regards to the ramp of the Frederick oligo facility and the lately introduced capability enlargement in Frederick is on monitor.

Small molecule grew mid-teens whereas biopharma excluding NASD delivered 20% development pushed partly by sturdy demand for LC and mass spec instrumentation. We noticed sturdy year-end demand from pharma clients and are additionally seeing elevated enterprise associated to the characterization of oligo-based therapies and vaccines. The meals market additionally skilled sturdy double-digit development in the course of the quarter, posting a 22% enhance in income. Our enterprise grew in all geographies pushed by elevated demand for meals security and high quality testing. China is main the best way pushed by investments in each business and authorities entities. Environmental and forensics grew double-digits coming in at 10% core development. Broad regional development mirrored sturdy tech refresh or alternative demand from contract labs.

Our diagnostics and medical income grew 9% in the course of the quarter and has benefited from development in COVID-related functions, primarily within the Americas and Europe. Our pathology enterprise grew barely as non-COVID testing continues to enhance, however has not but recovered to pre-pandemic ranges globally. Whereas our diagnostics and medical finish market in China remains to be small, it skilled sturdy development attributable to enhancements in non-COVID testing and the uptake of our medical LCMS. The chemical and power finish market continued the restoration we noticed final quarter and grew 2% in Q1.

We proceed to see indicators of elevated enterprise exercise, notably in specialty chemical substances and engineered supplies together with encouraging enhancements within the macro setting. And whereas we’re optimistic, we’re not but reflecting a change in our forecast for the remainder of the yr. And as anticipated, the academia and authorities market restoration has lagged the opposite finish markets, down 1% year-on-year as analysis labs are nonetheless not working at full capability. We proceed to count on a sluggish however regular restoration all through 2021.

On a geographic foundation, all areas grew. China grew 25% main all geographies led by the meals and pharma markets. The Americas delivered a powerful double-digit efficiency in the course of the quarter with 13% development whereas Europe was up 6% each additionally led by pharma and meals. Now turning to the remainder of the P&L, the primary quarter gross margin was 55.8%, up 10 foundation factors year-on-year. Adjusting for the change charges, gross margins improved 50 foundation factors. Our working margin for the primary quarter got here in at 25.5%. That is up a powerful 260 foundation factors from final yr pushed by quantity and spending self-discipline and this outcome contains the affect of elevated strategic investments we began final quarter. Our prime line development coupled with our working leverage helped ship EPS of $1.06 per share, up 31% versus final yr. Our tax fee was 14.75% and our share depend was 309 million shares as anticipated.

Now on to the money circulate and the steadiness sheet. Our working money circulate continues to be very sturdy. In Q1, we had working money circulate of $238 million, a 43% enhance over final yr after adjusting for final yr’s one-time tax cost. This efficiency exhibits the power of our enterprise mannequin and gives monetary flexibility going ahead. We continued the balanced capital deployment technique we highlighted at our Annual Investor Occasion in December. Within the quarter, we invested $41 million in capital expenditures, paid out $59 million in dividends and repurchased 2.9 million shares for $344 million. And as we introduced earlier at the moment, our Board of Administrators approved a brand new $2 billion share repurchase program changing the present program. We ended the quarter in a powerful monetary place with $1.3 billion in money and $2.5 billion in debt.

Now transferring on to the outlook. We now have had a powerful begin to the yr and whereas there are nonetheless uncertainties in entrance of us and the enterprise setting stays fluid, we now have strong momentum and we see continued restoration in our finish markets, albeit at totally different charges and because of this, we’re growing our full-year projections for each income and earnings per share. For income, we’re growing our full-year to a variety of $5.825 to $5.900 billion, up over $200 million on the midpoint and representing reported development of 9% to 11% and core development of 6.5% to eight%. This enhance displays sturdy Q1 outcomes and a few enchancment in our outlook for the rest of the yr. The elevated information assumes stronger efficiency in most of our finish markets.

The academia market continues to trace as anticipated in our preliminary plans and whereas enterprise exercise within the chemical and power has picked up, we now have not but included any enchancment in that market on this up to date outlook. As well as, we now have not included any income related to both the serology or qPCR COVID assay within the outlook. As Mike talked about, we additionally really feel excellent about increasing our margins. Throughout the investor occasion in December, we supplied long-range plan of annual margin enlargement within the vary of fifty foundation factors to 100 foundation factors.

Given the volatility in outcomes throughout 2020, our margin enlargement profile will range every quarter. Nonetheless, we really feel assured about our full yr margin enlargement being in direction of the top-end of that vary, whereas additionally investing for future development. The upper gross sales and margin enlargement coupled with sustaining our tax fee at 14.75% and a decrease share depend of roughly 307 million shares will increase our fiscal 2021 non-GAAP EPS to a variety of $3.80 to $3.90 per share. That is development of 16% to 19% for the yr.

Now for the second fiscal quarter, we’re anticipating income to vary from $1.37 billion to $1.39 billion representing reported development of 11% to 12% and core development of seven% to 9%. We count on second quarter 2021 non-GAAP earnings to be within the vary of $0.78 to $0.80 per share with development of 10% to 13% as we strategy the one-year anniversary of the numerous discount in bills in Q2 of final yr.

Now, earlier than opening the decision for questions, I need to say I couldn’t be extra pleased with the Agilent workforce in driving such sturdy efficiency. We’ve gotten off to an ideal begin this yr and I’m personally very excited to know what this firm is able to transferring ahead. We now have very sturdy momentum, the correct strategy that leads me to imagine that we’re on a really strong path for Q2 and the remainder of 2021. With that, Ankur, again to you for the Q&A.

Ankur Dhingra — Vice President of Investor Relations

Thanks, Bob. Jason, when you can present the directions for Q&A please.

We’re nonetheless processing the Q&A portion of the convention name. We can be updating it as quickly as we analyze and course of the con name. Keep tuned right here for extra updates.


Huynh Nguyen

My name is Huynh and I am a full-time online marketer.

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