Agilent Technologies, Inc. (NYSE:A) Q4 2023 Earnings Call Transcript

Agilent Technologies, Inc. (NYSE:A) Q4 2023 Earnings Call Transcript November 20, 2023

Agilent Technologies, Inc. beats earnings expectations. Reported EPS is $1.38, expectations were $1.34.

Operator: Ladies and gentlemen, welcome to the Agilent Technologies Q4 2023 Earnings Conference Call. My name is Bo and I will be coordinating your call today. [Operator Instructions] I will now hand you over to your host, Parmeet Ahuja, Vice President, Investor Relations. Please go ahead, sir.

Parmeet Ahuja: Thank you, Bo, and welcome, everyone, to Agilent’s conference call for the fourth quarter of fiscal year 2023. With me are Mike McMullen, Agilent’s President and CEO; and Bob McMahon, Agilent’s Senior Vice President and CFO. This presentation is being webcast live. The news release for our fourth quarter financial results investor presentation and information to supplement today’s discussion along with a recording of this webcast are 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 year-over-year, and references to revenue growth are on a core basis.

Core revenue growth excludes the impact of currency and any acquisitions and divestitures completed within the past 12 months. Guidance is based on forecasted exchange rates. 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 McMullen: Thanks, Parmeet, and thanks, everyone, for joining our call today. Before we get into discussing our results and outlook, I want to mention that we’re joined today by Padraig McDonnell, President of the Agilent CrossLab Group; and Sam Raha, President of the Agilent Diagnostics and Genomics Group. We’re also joined on this call for the first time by Phil Binns, President of the Agilent Life Sciences and Applied Markets Group. Phil’s name may be new to some of you, but he’s well-known at Agilent and in the industry. Phil has been with us for more than 13 years, coming over with the Varian acquisition and overseeing our market leading spectroscopy business. We’re extremely pleased to have someone with Phil’s knowledge, experience and proven leadership strength heading up our LSAG business.

In his short time in the role, we’ve already seen Phil add tremendous value as a member of our senior leadership team. Welcome, Phil. Now onto our fourth quarter results. The Agilent team once again continued to perform well under challenging market conditions. Revenue of $1.69 billion declined 9.7% core after increasing 17.5% last year. This is at the high end of our guidance. Our proactive approach to managing our cost structure in this market environment helped us deliver healthy fourth quarter operating margins of 27.8%. Q4 earnings per share of $1.38 exceeded our guidance. While this was a decline of 10%, it comes against a tough compare last year when EPS grew 26%. While the market continues to be challenging, we believe we are starting to see signs of stabilization.

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Q&A Session

As an encouraging data point, for the quarter our book-to-bill ratio was 1 for the company and greater than 1 for our LSAG instruments. Let’s take a closer look at our Q4 performance, starting with our regional results. During the quarter, while down year-on-year, we delivered sequential growth except for China, as expected. In China, our business declined 31% year-on-year after growing 44% in Q4 last year. While China was down sequentially, these results were very much in line with our expectations. And the year-on-year monthly performance improved slightly as the quarter progressed. In addition, orders were slightly higher than revenue for the quarter. While it is too early to call these two data points a trend, we see this as an encouraging sign of potential stabilization.

In late September, I traveled to China for the first time since the COVID outbreak to meet with the Agilent team, key customers, and government officials. I was reminded of both the sheer size of the Chinese economy and our market there. I saw first-hand the work being done to bolster economic activity in the near-term and create an environment that will support continued growth into the future. I remain convinced China will continue to play an important role in life sciences and I’m confident that the China market will return to growth. In looking at our largest end market, pharma declined 14% driven by continued caution among customers on capital expenditures for new instruments. Within pharma, biopharma performed better than small molecule.

Geographically, our biopharma business outside of China grew high-single digits. Looking at our performance by business unit, the Life Sciences and Applied Markets Group delivered revenue of $928 million, down 18% core versus a tough compare last year of up 22%. Customers continue to hold off on capital expenditures, particularly in the pharma segment of LSAG’s business, which declined in the high 20% range. This is against growth in the low 20s last year. On the other hand, we continue to see strong customer demand and growth in our PFAS solutions, as well as continued strength in the advanced materials segment. These are two secular trends we’ve highlighted before and we remain optimistic about future growth in these market segments. While the market environment remains challenged, we continue to innovate and provide unique solutions for our customers.

The new products we launched in June at ASMS, in particular the 6595 LC triple quad, which is focused on key applications like PFAS, continue to generate positive customer interest and new orders. We’re also bringing innovative new solutions for customers across the biopharma value chain. We have installed a number of our online UHPLC systems with large biopharma companies. The systems are easy-to-use, reliable, and deliver significant value by providing fully automated analysis of critical quality attributes and allowing real time decision making outside the lab. The Agilent CrossLab Group posted revenue of $404 million, up 4% core and 6% on a reported basis. ACG delivered growth across all end-markets, and in all regions except China. The contract services business was up double-digits, offset by the services associated with new instrument placements.

Our strategy of increasing the connect rate continues to pay off. In the quarter, the contract services business represented 65% of ACG revenue, a number that has grown nicely over the years. The Diagnostics and Genomics Group delivered revenue of $356 million, flat on a core basis and up 1% reported. DGG’s results were led by the pathology and NASD businesses, which both delivered low double-digit growth. These strong results were offset by the continued market challenges in genomics in both consumables and instruments. Our NASD portfolio and capacity expansion are continuing as planned. We’re confident in the long-term growth prospects for the markets we serve. Before I finish covering DGG, I want to thank Sam Raha for his contributions over the years and for helping us build a strong foundation for the DGG business.

I wish Sam well. In addition to these business group highlights, during the quarter we were recognized for our commitment to sustainability. Agilent’s near and long-term targets for reaching net-zero greenhouse gas emissions have been approved by the highly regarded Science Based Targets initiative. A year ago, we entered 2023 sharing a view of economic and industry uncertainty, as we guided for moderating growth in the second half of 2023. We had not anticipated, however, the significance of the market headwinds the industry eventually faced, particularly in the pharma market and China. Despite the challenging market conditions, we delivered full year revenue of $6.83 billion, growing 1.5% core. While our full-year growth was lower than initially expected, we met or exceeded every quarterly guidance range we provided, a solid testament to the team’s execution ability.