Agilent Technologies, Inc. (A)

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Agilent Technologies (A)

Q3 2011 Earnings Call

August 15, 2011 4:30 pm ET

Executives

William Sullivan - Chief Executive Officer, President, Executive Director and Member of Executive Committee

Alicia Rodriguez -

Michael McMullen - Senior Vice President and President of Chemical Analysis Group

Nicolas Roelofs - Senior Vice President and President of Life Sciences Group

Ronald Nersesian - Senior Vice President and President of Electronic Measurement Group

Didier Hirsch - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Analysts

Richard Eastman - Robert W. Baird & Co. Incorporated

Jonathan Groberg - Macquarie Research

Tycho Peterson - JP Morgan Chase & Co

Paul Knight - Credit Agricole Securities (USA) Inc.

Isaac Ro - Goldman Sachs Group Inc.

Doug Schenkel - Cowen and Company, LLC

William Stein - Crédit Suisse AG

Jon Wood - Jefferies & Company, Inc.

D. Mark Douglass - Longbow Research LLC

Unknown Analyst -

Charles Butler - Barclays Capital

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2011 Agilent Technologies Inc. Earnings Conference Call. My name is Stacey, and I'll be your conference moderator for today. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the presentation over to your host for today, to Ms. Alicia Rodriguez, Vice President of Investor Relations. Please proceed.

Alicia Rodriguez

Thank you, Stacey, and welcome, everyone, to Agilent's Third Quarter Conference Call for Fiscal Year 2011. With me are Agilent's President and CEO, Bill Sullivan; as well as Senior Vice President and CFO, Didier Hirsch. Bill will give his perspective on the quarter, and Didier will follow with a view of financial results. After Didier's comments, we will open the line for questions.

Joining in our Q&A will be the Presidents of Agilent's Electronic Measurement, Life Sciences and Chemical Analysis Groups: Ron Nersesian, Nick Roelofs and Mike McMullen.

In case you've not had a chance to review our press release, you can find it on our website at www.investor.agilent.com. We are also providing further information to supplement today's discussion. At our website, please click on the link for supporting materials. There, you will find information, such as revenue breakout, historical financial for Agilent's operations and an investor presentation. We will also pose a copy of the prepared remarks following this call.

If during this conference call we use any non-GAAP financial measures, you will find on our website the most directly comparable GAAP financial metrics. We will make forward-looking statements about the future 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 throughout the current quarter. Please look at the company's most recent SEC filings for a more complete picture of the risks and other factors that work.

And now, let me turn the call over to Bill.

William Sullivan

Thanks, Alicia, and hello, everyone. Agilent's Q3 revenues were $1.69 billion, up 21% year-over-year on a non-GAAP basis. Q3 orders were also $1.69 billion, up 30% over last year. Overall financial results were excellent. Non-GAAP EPS was $0.77 per share, while adjusted operating margin of 20.2% was the highest in Agilent's history.

The Electronic Measurement business continues to be excellent. Q3 revenues of $856 million were up 24% over last year. All regions achieved double-digit growth. Quarterly operating margin of 24% was a record high for the business.

Communications revenues were up 33% year-over-year. We saw strong test demand for wireless manufacture, driven by smartphones, 3G and LTE network rollouts, while wireless R&D was relatively flat.

Although wireless manufacturing growth of 80% in the quarter lowered our overall gross margins, we still produced an incremental operating margin of 47%. We will continue to pursue mobile handset manufacturing opportunities, while positioning electronics measurement to continue meeting its incremental targets.

General-purpose revenues were up 19%, with growth driven by industrial, computer and semiconductor submarkets. Digital test was particularly strong, driven by new, high-speed digital interfaces.

Aerospace and defense was unfavorably impacted by recent U.S. budget concerns. However, aerospace and defense outside the Americas, which accounts for roughly 35% of that business continues to see solid growth.

Market acceptance for our oscilloscope product offerings continues to be excellent. We've also had strong response to the introduction of our PNA-X network analyzer.

Life Sciences business revenues of $453 million were up 21% over a year ago, up 18% organically. We saw solid growth across all regions, with particular strength in China and the rest of Asia Pacific. While there continues to be market uncertainty in the U.S. and European pharmaceutical industry, we have good momentum driven by the replacement cycle for lab instrumentation.

In academic and government, we continue to do an excellent job of identifying opportunities, where our solutions are true differentiators for leading researchers.

The Life Science group launched several new Mass Spec products in Q3. These include the 6550 iFunnel Q-TOF, the highest performing Q-TOF in the market and the 6420 Triple Quad, our entry level Triple Quad product.

Our Mass Spec platform continues to perform exceptionally well, as a result of the solid portfolio and positioning. All key product platforms, as well as services demonstrated double-digit revenue growth.

The Chemical Analysis business saw revenue growth of 17% to $383 million, up 11% organically. Chemical Analysis continues to outpace the markets with particular strength in the United States, China and Southeast Asia. Operating margins continue to expand, up nearly 2 points from the previous quarter to 21%.

We saw continued growth in core end markets. Energy, chemical and food markets remain strong across geographies, while the environmental market is particularly strong in China. Services also saw double-digit revenue growth. Our gas-based business had excellent results, with orders and revenues for both GC and GC/MS up by double digits from a year ago. We introduced our new GC/MS Q-TOF at ASMS in Denver. This is the first newly developed Agilent instrument that incorporate Agilent pumps.

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