Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED)

77K characters. Original on sec.gov · Markdown

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED)

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Form 10-Q and our Annual Report on Form 10-K. This report contains forward-looking statements including, without limitation, statements regarding growth opportunities, including for revenue and our end markets, recognizing delayed revenue, strength and drivers of the markets into which we sell, sales funnels, our strategic direction, new product and service introductions and the position of our current products and services, market demand for and adoption of our products, the ability of our products and solutions to address customer needs and meet industry requirements, our focus on differentiating our product solutions, improving our customers’ experience and growing our earnings, future financial results, our operating margin, mix, our investments, including in manufacturing infrastructure, research and development and expanding and improving our applications and solutions portfolios, expanding our position in developing countries and emerging markets, our focus on balanced capital allocation, our contributions to our pension and other defined benefit plans, impairment of goodwill and other intangible assets, the impact of foreign currency movements, our hedging programs and other actions to offset the effects of tariffs and foreign currency movements, our future effective tax rate, tax valuation allowance and unrecognized tax benefits, the impact of local government regulations on our ability to pay vendors or conduct operations, our ability to satisfy our liquidity requirements, including through cash generated from operations, the potential impact of adopting new accounting pronouncements, indemnification, source and supply of materials used in our products, our sales, our purchase commitments, our capital expenditures, the integration and effects of our acquisitions and other transactions, our stock repurchase program and dividends, and the potential or anticipated direct or indirect impact of COVID-19 on our business that involve risks and uncertainties. Our actual results could differ materially from the results contemplated by these forward-looking statements due to various factors, including those discussed in Part II Item 1A and elsewhere in this Form 10-Q.

Basis of Presentation

The financial information presented in this Form 10-Q is not audited and is not necessarily indicative of our future consolidated financial position, results of operations, comprehensive income (loss) or cash flows. Our fiscal year-end is October 31, and our fiscal quarters end on January 31, April 30 and July 31. Unless otherwise stated, these dates refer to our fiscal year and fiscal periods.

Executive Summary

Agilent Technologies, Inc. ("we," "Agilent" or the "company"), incorporated in Delaware in May 1999, is a global leader in life sciences, diagnostics and applied chemical markets, providing application focused solutions that include instruments, software, services and consumables for the entire laboratory workflow.

In the first quarter of fiscal year 2022, we announced a change in organizational structure designed to enable our growth strategies and strengthen our focus on customers. Our chemistries and supplies business and our remarketed instruments business moved from our Agilent CrossLab business segment to our life sciences and applied markets business segment. Service revenue and cost of sales related to the previous acquisition of BioTek moved from our life sciences and applied markets business segment to our Agilent CrossLab business segment. We began reporting under this new structure with the Quarterly Report on Form 10-Q for the period ended January 31, 2022. Historical financial segment information has been recast to conform to this new presentation in our financial statements and accompanying notes. There was no change to our diagnostics and genomics business segment.

COVID-19 Pandemic

Both our domestic and international operations have been and continue to be affected by the ongoing global pandemic of a novel strain of coronavirus (“COVID-19”) and the resulting volatility and uncertainty it has caused in the U.S. and international markets. During the three and nine months ended July 31, 2022, many businesses and countries, including the U.S., continued applying preventative and precautionary measures to mitigate the spread of the virus.

In the latter part of our second quarter, we had to shut down our primary gas chromatography production facility and logistics center in Shanghai in compliance with lockdown measures related to COVID-19. During the three months ended July 31, 2022, we recognized over half of the revenue that was delayed from our second quarter due to this shutdown of our facility. We continue to believe the revenue impact due to the lockdown was temporary, and we now expect the remaining delayed revenue to be recognized throughout the fourth quarter of fiscal year 2022.

While conditions related to the COVID-19 pandemic have improved in 2022 compared to 2021, the pandemic continues to be dynamic, and near-term challenges across the economy remain. The ongoing effects of COVID-19 remain difficult to predict due to numerous uncertainties, including the severity, duration and resurgence of the outbreak, new variants and the contagiousness of these new variants, the effectiveness of health and safety measures including vaccines and therapies, government and community responses including additional lockdowns, managing the different pace of return-to-office in different locations, the pace and strength of the economic recovery, supply chain pressures, delivery and installation delays due to variable access to customer sites, among others. We will continue to actively monitor the effects of the pandemic and will continue to take appropriate steps to mitigate the impacts to our employees and on our business results.

Russia-Ukraine Conflict

In response to the ongoing conflict in Ukraine, at the beginning of March, we suspended sales prohibited by sanctions, halted the shipment of products to Russia with the exception of diagnostics and healthcare products and limited our in-country service to those diagnostics and healthcare customers. Subsequently, effective May 23, 2022 we ceased major operations within Russia and as a result, we recorded an immaterial expense associated with the shutdown of operations for the three months ended April 30, 2022. For the year ended October 31, 2021, sales derived from customers based in Russia represented an immaterial percentage of our total revenue.

Actual Results

Net revenue of $1,718 million and $4,999 million for the three and nine months ended July 31, 2022 increased 8 percent and 7 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2022 had an overall unfavorable impact on revenue growth of 5 percentage points and 3 percentage points, respectively, when compared to the same periods last year. This revenue growth came from increases in the Americas and Asia Pacific regions and from our two largest end markets (pharmaceutical and chemical and energy markets). Revenue generated by our life sciences and applied markets business in the three and nine months ended July 31, 2022 increased 14 percent and 7 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2022, had an overall unfavorable impact on revenue growth of 4 percentage points and 3 percentage points, respectively, when compared to the same periods last year. Revenue generated by our diagnostics and genomics business for the three and nine months ended July 31, 2022 decreased 2 percent and increased 9 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2022 had an overall unfavorable impact on revenue growth of 5 percentage points and 2 percentage points, respectively when compared to the same periods last year. Revenue generated by our Agilent CrossLab business in the three and nine months ended July 31, 2022 increased 5 percent and 7 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2022 had an overall unfavorable impact on revenue growth of 5 percentage points and 3 percentage points, respectively when compared to the same periods last year.

Net income for the three and nine months ended July 31, 2022 was $329 million and $886 million, respectively, compared to net income of $264 million and $768 million, respectively, for the corresponding periods last year. In the nine months ended July 31, 2022, cash provided by operations was $864 million compared to cash provided by operations of $1,044 million in the same period last year.

During the three and nine months ended July 31, 2022, we paid cash dividends of $0.210 per common share or $62 million and $0.630 per common share or $188 million, respectively, on the company's common stock. During the three and nine months ended July 31, 2021, we paid cash dividends of $0.194 per common share or $59 million and $0.582 per common share or $177 million, respectively, on the company's common stock.

On February 16, 2021 we announced that our board of directors had approved a new share repurchase program (the "2021 repurchase program") designed, among other things, to reduce or eliminate dilution resulting from issuance of stock under the company's employee equity incentive programs. The 2021 repurchase program authorizes the purchase of up to $2.0 billion of our common stock at the company's discretion and has no fixed termination date. The 2021 repurchase program which became effective on February 18, 2021, replaced and terminated the 2019 repurchase program on that date. The 2021 repurchase program does not require the company to acquire a specific number of shares and may be suspended, amended or discontinued at any time. During the three and nine months ended July 31, 2022, we repurchased and retired 2.673 million shares for $323 million and 7.331 million shares for $1.004 billion, respectively, under this authorization. During the three and nine months ended July 31, 2021, we repurchased and retired 804,352 shares for $113 million and 2.192 million shares for $287 million, respectively, under this authorization. As of July 31, 2022, we had remaining authorization to repurchase up to approximately $573 million of our common stock under the 2021 repurchase program.

During the nine months ended July 31, 2021, we repurchased and retired 3.05 million shares for $365 million under the 2019 repurchase program. Effective February 18, 2021, the 2019 repurchase program was terminated and replaced by the 2021 repurchase program. The remaining authorization under the 2019 repurchase plan of $193 million expired on February 18, 2021.

Looking forward, as conditions related to the COVID-19 pandemic evolve, we continue to take appropriate proactive measures to guard the health and safety of our employees and customer interactions. We also remain focused on improving our customers’ experience, differentiating product solutions and productivity. We expect to face continued inflationary and logistical pressures (such as longer lead times and limited sources of supply in the near term) which we will continue to mitigate through targeted pricing and various sourcing strategies. We remain optimistic about our growth opportunities in all of our end markets in the fourth quarter of fiscal year 2022.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S. The preparation of condensed consolidated financial statements in conformity with GAAP in the U.S. requires management to make estimates, judgments and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Our critical accounting policies are those that affect our financial statements materially and involve difficult, subjective or complex judgments by management. Those policies are revenue recognition, inventory valuation, retirement and post-retirement benefit plan assumptions, valuation of goodwill and purchased intangible assets and accounting for income taxes. There have been no significant changes to our critical accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s best knowledge of current events and actions that may impact the company in the future, actual results may be different from the estimates.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made and if different estimates that reasonably could have been used or changes in the accounting estimate that are reasonably likely to occur could materially change the financial statements.

Adoption of New Pronouncements

See Note 2, “New Accounting Pronouncements,” to the condensed consolidated financial statements for a description of new accounting pronouncements.

Foreign Currency

Our revenues, costs and expenses, and monetary assets and liabilities and equity are exposed to changes in foreign currency exchange rates as a result of our global operating and financing activities. Foreign currency movements for the nine months ended July 31, 2022 had an overall unfavorable impact on revenue of 3 percentage points when compared to the same period last year. When movements in foreign currency exchange rates have a negative impact on revenue, they will also have a positive impact by reducing our costs and expenses. We calculate the impact of movements in foreign currency exchange rates by applying the actual foreign currency exchange rates in effect during the last month of each quarter of the current year to both the applicable current and prior year periods. We hedge revenues, expenses and balance sheet exposures that are not denominated in the functional currencies of our subsidiaries on a short term and anticipated basis. We do experience some fluctuations within individual lines of the condensed consolidated statement of operations and balance sheet because our hedging program is not designed to offset the currency movements in each category of revenues, expenses, monetary assets and liabilities. Our hedging program is designed to hedge currency movements on a relatively short-term basis (up to a rolling thirteen-month period). We may also hedge equity balances denominated in foreign currency on a long-term basis. To the extent that we are required to pay for all, or portions, of an acquisition price in foreign currencies, we may enter into foreign exchange contracts to reduce the risk that currency movements will impact the U.S. dollar cost of the transaction.

Results from Operations

Net Revenue


	Three Months Ended				Nine Months Ended				Year over Year Change
	July 31,				July 31,				Three	Nine
	2022		2021		2022		2021		Months	Months
	(in millions)
Net revenue:
Products	$	1,306	$	1,188	$	3,773	$	3,510	10%	7%
Services and other	412		398		1,226		1,149		4%	7%
Total net revenue	$	1,718	$	1,586	$	4,999	$	4,659	8%	7%

Revenue from products for the three and nine months ended July 31, 2022 increased 10 percent and 7 percent, respectively, when compared to the same periods last year. Product revenue growth in the three months ended July 31, 2022 was driven by increased sales within our liquid chromatography, spectroscopy, cell analysis and consumables businesses. Product revenue growth in the nine months ended July 31, 2022 was primarily driven by increased sales within our liquid chromatography, spectroscopy, nucleic acid solutions and consumables businesses.

Services and other revenue for the three and nine months ended July 31, 2022 increased 4 percent and 7 percent, respectively, when compared to the same periods last year. Services and other revenue consist of contract repair, preventative maintenance, compliance services, repair and maintenance, installation services and consulting services related to the companion diagnostics and nucleic acid solutions businesses. For the three and nine months ended July 31, 2022, service revenue increases reflected solid growth from contract repair services, compliance services, consultative services and relocation services.

Net Revenue By Segment


	Three Months Ended				Nine Months Ended				Year over Year Change
	July 31,				July 31,				Three	Nine
	2022		2021		2022		2021		Months	Months
	(in millions)
Net revenue by segment:
Life sciences and applied markets	$	1,019	$	897	$	2,891	$	2,701	14%	7%
Diagnostics and genomics	340		346		1,037		955		(2)%	9%
Agilent CrossLab	359		343		1,071		1,003		5%	7%
Total net revenue	$	1,718	$	1,586	$	4,999	$	4,659	8%	7%

Revenue in the life sciences and applied markets business for the three and nine months ended July 31, 2022 increased 14 percent and 7 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2022 had an overall unfavorable impact on revenue growth of 4 percentage points and 3 percentage points, respectively, when compared to the same periods last year. For the three months ended July 31, 2022, we saw revenue growth across all our end markets led by strong revenue growth within the pharmaceutical and chemical and energy markets when compared to the same periods last year. For the nine months ended July 31, 2022, we saw strong revenue growth within the chemical and energy and pharmaceutical markets and moderate revenue growth in the diagnostics and

clinical markets partially offset by a decline in the environmental and forensics and food markets when compared to the same periods last year.

Revenue in the diagnostics and genomics business for the three and nine months ended July 31, 2022, decreased 2 percent and increased 9 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2022 had an overall unfavorable impact on revenue growth of 5 percentage points and 2 percentage points, respectively when compared to the same periods last year. For the three months ended July 31, 2022, revenue declined within the diagnostics and clinical and the academia and government markets partially offset by moderate revenue growth within the pharmaceutical market when compared to the same period last year. For the nine months ended July 31, 2022, revenue growth was strong within the pharmaceutical market led by strong revenue growth from our nucleic acid solutions business.

Revenue generated by Agilent CrossLab in the three and nine months ended July 31, 2022, increased 5 percent and 7 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2022 had an overall unfavorable impact on revenue growth of 5 percentage points and 3 percentage points, respectively when compared to the same periods last year. For the three and nine months ended July 31, 2022, we saw revenue growth across most of our end markets led by strong revenue growth from the pharmaceutical and chemical and energy markets when compared to the same periods last year.

Operating Results


	Three Months Ended						Nine Months Ended						Year over Year Change
	July 31,						July 31,						Three	Nine
	2022			2021			2022			2021			Months	Months
(in millions, except margin data)
Total gross margin	54.7		%	53.7		%	54.2		%	53.8		%	1 ppt	—
Research and development	$	116		$	113		$	348		$	325		3%	7%
Selling, general and administrative	$	412		$	403		$	1,215		$	1,230		2%	(1)%
Operating margin	23.9		%	21.2		%	22.9		%	20.4		%	3 ppts	3 ppts
Income from operations	$	411		$	336		$	1,147		$	952		22%	21%

Total gross margin for the three and nine months ended July 31, 2022 increased 1 percentage point and was relatively flat, respectively, when compared to the same periods last year. Gross margin for the three and nine months ended July 31, 2022 was impacted by higher sales volume, price increases and lower inventory charges which were offset by higher materials, shipping and logistics costs, wages and intangible amortization expense.

Research and development expenses for the three and nine months ended July 31, 2022 increased 3 percent and 7 percent, respectively, when compared to the same periods last year. Research and development expenses for the three and nine months ended July 31, 2022 increased due to higher wages and program investments in our mass spectrometry business within our our life sciences and applied markets segment. The nine months ended July 31, 2022 also included additional research and development expenses related to the Resolution Bioscience acquisition.

Selling, general and administrative expenses for the three and nine months ended July 31, 2022 increased 2 percent and decreased 1 percent, respectively, when compared to the same periods last year. The increase in the three months ended July 31, 2022, was due to higher wages and share-based compensation expense partially offset by lower acquisition and integration costs and commissions. The decrease in selling, general and administrative expenses for the nine months ended July 31, 2022 was due to the decrease in the fair value of an acquisition-related contingent consideration, lower commissions, variable pay, acquisition and integration costs and transformational initiative expenses partially offset by higher wages and share-based compensation expense.

Total operating margin for the three and nine months ended July 31, 2022 increased 3 percentage points in both periods when compared to the same periods last year. Operating margin for the three and nine months ended July 31, 2022 increased primarily due to higher sales volume.

Income from operations for the three and nine months ended July 31, 2022 increased $75 million or 22 percent and $195 million or 21 percent, respectively, on a corresponding revenue increase of $132 million and $340 million, respectively.

At July 31, 2022, our headcount was approximately 17,700 as compared to approximately 16,700 at July 31, 2021. The increase in headcount was to address the increase in business.

Other income (expense), net

In the three months ended July 31, 2022 other income and expense, net includes a $9 million loss on the extinguishment of long-term debt and a net gain on equity securities of $2 million. In the nine months ended July 31, 2022 other income and expense, net includes a $9 million loss on the extinguishment of long-term debt and a net loss on equity securities of $60 million. In the three and nine months ended July 31, 2022 other income and expense, net also includes income of $3 million and $8 million, respectively, related to the provision of site service costs to, and lease income from Keysight Technologies, Inc. The costs associated with these services are reported within income from operations.

In the three and nine months ended July 31, 2021 other income and expense, net includes net gains on the fair value of equity investments of $9 million and $24 million, respectively. In the three and nine months ended July 31, 2021 other income and expense, net includes income of $2 million and $7 million, respectively, related to the provision of site service costs to, and lease income from Keysight Technologies, Inc. The costs associated with these services are reported within income from operations. In the nine months ended July 31, 2021 other income and expense, net also includes a $17 million loss on the extinguishment of debt.

Income Taxes

For the three and nine months ended July 31, 2022, our income tax expense was $68 million with an effective tax rate of 17.1 percent and $163 million with an effective tax rate of 15.5 percent, respectively. For the three months ended July 31, 2022, there were no significant discrete items. The income taxes for the nine months ended July 31, 2022 include the excess tax benefits from stock-based compensation of $18 million. For the nine months ended July 31, 2022, our effective tax rate and the resulting provision for income taxes were also impacted by the expiration of various foreign statutes of limitations which resulted in the recognition of previously unrecognized tax benefits of $8 million.

Our calculation of income tax expense for the three and nine months ended July 31, 2022 is dependent in part on forecasts of full year results. The impact of COVID-19 on the economic environment is uncertain and may change these forecasts, which could impact tax expense.

For the three and nine months ended July 31, 2021, our income tax expense was $63 million with an effective tax rate of 19.3 percent and $144 million with an effective tax rate of 15.8 percent, respectively. The income taxes for the nine months ended July 31, 2021 include the excess tax benefits from stock-based compensation of $24 million. For the three and nine months ended July 31, 2021, our effective tax rate and the resulting provision for income taxes were also impacted by the expiration of various foreign statutes of limitations which resulted in the recognition of previously unrecognized tax benefits of $8 million and $24 million, respectively.

In the U.S., tax years remain open back to the year 2018 for federal income tax purposes and for significant states. In other major jurisdictions where the company conducts business, the tax years generally remain open back to the year 2012.

With these jurisdictions and the U.S., it is reasonably possible there could be significant changes to our unrecognized tax benefits in the next twelve months due to either the expiration of a statute of limitation or a tax audit settlement which will be partially offset by an anticipated tax liability related to unremitted foreign earnings, where applicable. Given the number of years and numerous matters that remain subject to examination in various tax jurisdictions, management is unable to estimate the range of possible changes to the balance of our unrecognized tax benefits.

Segment Overview

In the first quarter of fiscal year 2022, we announced a change in organizational structure designed to enable our growth strategies and strengthen our focus on customers. Our chemistries and supplies business and our remarketed instruments business moved from our Agilent CrossLab business segment to our life sciences and applied markets business segment. Service revenue and cost of sales related to the previous acquisition of BioTek moved from our life sciences and applied markets business segment to our Agilent CrossLab business segment. Following this reorganization, we continue to have three business segments (life sciences and applied markets, diagnostics and genomics and Agilent CrossLab), each of which continues to comprise a reportable segment. We began reporting under this new structure with the Quarterly Report on Form 10-Q for the period ended January 31, 2022. Historical financial segment information has been recast to conform to this new presentation in our financial statements and accompanying notes. There was no change to our diagnostics and genomics business segment.

Life Sciences and Applied Markets

Our life sciences and applied markets business provides application-focused solutions that include instruments and software that enable customers to identify, quantify and analyze the physical and biological properties of substances and products, as well as enable customers in the clinical and life sciences research areas to interrogate samples at the molecular and cellular level. Key product categories include: liquid chromatography ("LC") systems and components; liquid chromatography mass spectrometry ("LCMS") systems; gas chromatography ("GC") systems and components; gas chromatography mass spectrometry ("GCMS") systems; inductively coupled plasma mass spectrometry ("ICP-MS") instruments; atomic absorption ("AA") instruments; microwave plasma-atomic emission spectrometry ("MP-AES") instruments; inductively coupled plasma optical emission spectrometry ("ICP-OES") instruments; raman spectroscopy; cell analysis plate based assays; flow cytometer; real-time cell analyzer; cell imaging systems; microplate reader; laboratory software for sample tracking; information management and analytics; laboratory automation and robotic systems; dissolution testing; vacuum pumps and measurement technologies. Our consumables portfolio is designed to improve customer outcomes. Most of the portfolio is vendor neutral, meaning Agilent can serve and supply customers regardless of their instrument purchase choices. Solutions range from chemistries to supplies. Key product categories in consumables include GC and LC columns, sample preparation products, custom chemistries, and a large selection of laboratory instrument supplies.

Net Revenue


	Three Months Ended				Nine Months Ended				Year over Year Change
	July 31,				July 31,				Three	Nine
	2022		2021		2022		2021		Months	Months
	(in millions)

Net revenue	$	1,019	$	897	$	2,891	$	2,701	14%	7%

Life sciences and applied markets business revenue for the three and nine months ended July 31, 2022 increased 14 percent and 7 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2022 had an overall unfavorable impact on revenue growth of 4 percentage points and 3 percentage points, respectively, when compared to the same periods last year.

Geographically, revenue increased 16 percent in the Americas with a 1 percentage point unfavorable currency impact, decreased 4 percent in Europe with an 11 percentage point unfavorable currency impact and increased 21 percent in Asia Pacific with a 5 percentage point unfavorable currency impact for the three months ended July 31, 2022 compared to the same period last year. For the three months ended July 31, 2022, revenue growth was driven by strong growth in liquid chromatography, spectroscopy products and consumables portfolio when compared to the same period last year.

Revenue for the nine months ended July 31, 2022 increased 13 percent in the Americas with no currency impact, was flat in Europe with a 6 percentage point unfavorable currency impact and increased 7 percent in Asia Pacific with a 2 percentage point unfavorable currency impact when compared to the same period last year. For the nine months ended July 31, 2022, revenue growth was driven by strong growth in liquid chromatography, spectroscopy products and consumables portfolio when compared to the same period last year.

For the three months ended July 31, 2022, revenue by end markets was mixed with pharmaceutical, chemical and energy, food and environmental and forensics delivering strong revenue growth while academia and government and diagnostics and clinical delivering modest revenue growth as compared to the same period last year. Revenue growth in the pharmaceutical end market was primarily driven by our liquid chromatography, cell analysis and consumables businesses. Revenue growth in chemical and energy was mainly driven by strength in our spectroscopy, liquid chromatography and liquid chromatography mass spectrometry products while academia and government revenue growth was mainly led by spectroscopy, liquid chromatography mass spectrometry and liquid chromatography products as compared to the same period last year. Revenue growth in the food market was driven by our liquid chromatography and consumables businesses when compared to the same period last year. Environmental and forensics revenue growth was mainly led by spectroscopy, liquid chromatography and liquid chromatography mass spectrometry products when compared to the same period last year.

For the nine months ended July 31, 2022, revenue by end markets was mixed with pharmaceutical, chemical and energy markets and diagnostics and clinical delivering strong revenue growth, academia and government delivering modest revenue growth while food and environmental and forensics revenue declined when compared to the same period last year. Revenue growth in the pharmaceutical market was primarily driven by our liquid chromatography, cell analysis and consumables businesses. Revenue growth in the chemical and energy market was mainly driven by strength in our spectroscopy, gas chromatography and consumables portfolio while diagnostics and clinical market growth was mainly led by our cell analysis business as compared to the same period last year. The academia and government market revenue growth was mainly due to our liquid chromatography and liquid chromatography mass spectrometry business when compared to the same period last year. Revenue in the food market declined mainly due to weakness in gas chromatography mass spectrometry and gas chromatography product categories partially offset by consumables and cell analysis business when compared to the same period last year. Weakness in the environmental and forensics market was mainly driven by declines in gas chromatography mass spectrometry and gas chromatography products partially offset by spectroscopy when compared to the same period last year.

Looking forward, despite supply chain uncertainties and the adverse effects of the COVID-19 pandemic, we are optimistic about our long-term growth opportunities in the life sciences and applied markets as our broad portfolio of products and solutions are well suited to address customer needs. While we anticipate volatility in our markets, we expect continued growth across most end markets in the long term from our new product introductions and acquisitions in the last couple of years as we continue to invest in expanding and improving our applications and solutions portfolio.

Operating Results


	Three Months Ended						Nine Months Ended						Year over Year Change
	July 31,						July 31,						Three	Nine
	2022			2021			2022			2021			Months	Months
(in millions, except margin data)
Gross margin	60.5		%	60.4		%	60.0		%	60.2		%	—	—
Research and development	$	73		$	67		$	219		$	201		8%	9%
Selling, general and administrative	$	233		$	225		$	696		$	685		4%	2%
Operating margin	30.5		%	27.9		%	28.4		%	27.4		%	3 ppts	1 ppt
Income from operations	$	311		$	250		$	821		$	741		24%	11%

Gross margin for products and services for the three and nine months ended July 31, 2022, was relatively flat in both periods when compared to the same periods last year. Gross margin for the three and nine months ended July 31, 2022 was impacted by higher materials and logistics costs which were fully offset by price increases, higher sales volume and favorable hedging gains.

Research and development expenses for the three and nine months ended July 31, 2022, increased 8 percent and 9 percent, respectively, when compared to the same periods last year. Research and development expenses for the three and nine months ended July 31, 2022 increased due to higher wages and program investments in our mass spectrometry business.

Selling, general and administrative expenses for the three and nine months ended July 31, 2022, increased 4 percent and 2 percent, respectively, when compared to the same periods last year. Selling, general and administrative expenses for the three and nine months ended July 31, 2022, increased due to higher wages and marketing expenses partially offset by favorable currency movements when compared to same period last year.

Operating margin for products and services for the three and nine months ended July 31, 2022 increased 3 percentage points and 1 percentage point, respectively, when compared to the same periods last year. Operating margin for the three and nine months ended July 31, 2022 was impacted by higher sales volume and favorable currency movements partially offset by higher wages, material and logistics costs.

Income from operations for the three and nine months ended July 31, 2022, increased $61 million or 24 percent and $80 million or 11 percent, respectively, on a corresponding revenue increase of $122 million and $190 million, respectively. Income from operations for the three and nine months ended July 31, 2022 increased primarily due to higher sales volume.

Diagnostics and Genomics

Our diagnostics and genomics business includes the genomics, nucleic acid contract manufacturing and research and development, pathology, companion diagnostics, reagent partnership and biomolecular analysis businesses.

Our diagnostics and genomics business is comprised of six areas of activity providing active pharmaceutical ingredients ("APIs") for oligo-based therapeutics as well as solutions that include reagents, instruments, software and consumables, which enable customers in the clinical and life sciences research areas to interrogate samples at the cellular and molecular level. First, our genomics business includes arrays for DNA mutation detection, genotyping, gene copy number determination, identification of gene rearrangements, DNA methylation profiling, gene expression profiling, as well as next generation sequencing ("NGS") target enrichment and genetic data management and interpretation support software. This business also includes solutions that enable clinical labs to identify DNA variants associated with genetic disease and help direct cancer therapy. Second, our nucleic acid solutions business provides equipment and expertise focused on production of synthesized oligonucleotides under pharmaceutical good manufacturing practices ("GMP") conditions for use as API in an emerging class of drugs that utilize nucleic acid molecules for disease therapy. Third, our pathology solutions business is focused on product offerings for cancer diagnostics and anatomic pathology workflows. The broad portfolio of offerings includes immunohistochemistry ("IHC"), in situ hybridization ("ISH"), hematoxylin and eosin ("H&E") staining and special staining. Fourth, we also collaborate with a number of major pharmaceutical companies to develop new potential tissue and liquid-based pharmacodiagnostics, also known as companion diagnostics, which may be used to identify patients most likely to benefit from a specific targeted therapy. Fifth, the reagent partnership business is a provider of reagents used for turbidimetry and flow cytometry. Finally, our biomolecular analysis business provides complete workflow solutions, including instruments, consumables and software, for quality control analysis of nucleic acid samples. Samples are analyzed using quantitative and qualitative techniques to ensure accuracy in further genomics analysis techniques utilized in clinical and life science research applications.

Net Revenue


	Three Months Ended				Nine Months Ended				Year over Year Change
	July 31,				July 31,				Three	Nine
	2022		2021		2022		2021		Months	Months
	(in millions)

Net revenue	$	340	$	346	$	1,037	$	955	(2)%	9%

Diagnostics and genomics business revenue for the three and nine months ended July 31, 2022 decreased 2 percent and increased 9 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2022 had an overall unfavorable impact on revenue growth of 5 percentage points and 2 percentage points, respectively when compared to the same periods last year.

Geographically, revenue was flat in the Americas with no currency impact, decreased 7 percent in Europe with a 10 percentage point unfavorable currency impact and increased 2 percent in Asia Pacific with an 8 percentage point unfavorable currency impact for the three months ended July 31, 2022 compared to the same period last year. For the three months ended July 31, 2022, revenue in the Americas was driven by strong performance in our biomolecular analysis, genomics and reagent partnership portfolios and was offset by a decline in our companion diagnostics business. In Europe, the decline resulted from the COVID testing headwinds in our qPCR portfolio and unfavorable currency impact partially offset by revenue growth driven by our reagent partnership, pathology and companion diagnostics businesses. The growth in Asia Pacific was driven by our pathology and reagent partnership businesses.

Revenue for the nine months ended July 31, 2022 increased 15 percent in the Americas with no currency impact, decreased 1 percent in Europe with a 6 percentage point unfavorable currency impact and increased 9 percent in Asia Pacific with a 5 percentage point unfavorable currency impact when compared to the same period last year. For the nine months ended July 31, 2022, the increase in the Americas was driven by strong performance in our nucleic acid solutions, biomolecular analysis, reagent partnership and genomics portfolios. In Europe, the unfavorable impact of currency on revenue was partially offset by revenue growth in our reagent partnership, pathology and companion diagnostics businesses. Revenue growth in Asia Pacific was driven by strong performance across our entire portfolio.

For the three months ended July 31, 2022, revenue performance in the pharmaceutical market was led by strong revenue growth in our genomics and biomolecular analysis businesses with moderate growth in our nucleic acid solutions which was impacted by a planned facility shutdown. Our nucleic acid solutions factory in Frederick was shutdown for both routine maintenance and development of future capacity for our Train B manufacturing line. For the three months ended July 31, 2022 strong revenue results in our clinical cancer testing and NGS businesses were partially offset by COVID testing headwinds in the qPCR portfolio and unfavorable currency impact. For the nine months ended July 31, 2022 we saw strong revenue growth in the pharmaceutical market led by our genomics, biomolecular analysis and nucleic acid solutions businesses. We also saw moderate revenue growth in diagnostics and clinical and academia and government markets led by our biomolecular analysis, pathology, genomics and reagent partnership businesses when compared to the same period last year.

Looking forward, we are optimistic about our long-term growth opportunities in our end markets and continue to invest in expanding and improving our applications and solutions portfolio. We remain positive about our growth in our end markets as our product portfolio around OMNIS, PD-L1 assays and SureFISH continues to gain strength with our customers in clinical oncology applications, and our next generation sequencing target enrichment solutions continue to be adopted. Market demand in the nucleic acid solutions business related to therapeutic oligo programs continues, and with our newly opened and planned extension of our nucleic acid solutions production facility in Frederick, Colorado, we are well positioned to serve more of the market demand. We will expand our capabilities in NGS-based cancer diagnostics and provide innovative technology to further serve the needs of the fast-growing precision medicine market. We will continue to invest in research and development and seek to expand our position in developing countries and emerging markets.

Operating Results


	Three Months Ended						Nine Months Ended						Year over Year Change
	July 31,						July 31,						Three	Nine
	2022			2021			2022			2021			Months	Months
(in millions, except margin data)
Gross margin	54.0		%	53.5		%	54.3		%	52.9		%	1 ppt	1 ppt
Research and development	$	34		$	33		$	103		$	92		2%	11%
Selling, general and administrative	$	77		$	74		$	228		$	211		4%	8%
Operating margin	21.5		%	22.6		%	22.4		%	21.1		%	(1) ppt	1 ppt
Income from operations	$	73		$	78		$	232		$	202		(6)%	15%

Gross margin for products and services for the three and nine months ended July 31, 2022, increased 1 percentage point in both periods when compared to the same periods last year. Gross margin for the three months ended July 31, 2022 increased due to favorable product mix and higher cash flow hedging gains partially offset by higher wages. Gross margin for the nine months ended July 31, 2022 increased due to higher sales volume offsetting the higher wages and logistics costs.

Research and development expenses for the three and nine months ended July 31, 2022, increased 2 percent and 11 percent, respectively, when compared to the same periods last year. Research and development expenses for the three months ended July 31, 2022 increased primarily due to wages mostly offset by favorable currency movements. For the nine months ended July 31, 2022 research and development expenses increased primarily due to additional expenses related to the Resolution Bioscience acquisition.

Selling, general and administrative expenses for the three and nine months ended July 31, 2022, increased 4 percent and 8 percent, respectively, when compared to the same periods last year. Selling, general and administrative expenses for the three months ended July 31, 2022 increased due to higher wages. For the nine months ended July 31, 2022 selling general and administrative expenses increased due to higher wages and additional expenses related to the Resolution Bioscience acquisition partially offset by favorable currency movements.

Operating margin for products and services for the three and nine months ended July 31, 2022 decreased 1 percentage point and increased 1 percentage point, respectively, when compared to the same periods last year. The decrease in operating margin for the three months ended July 31, 2022 was primarily due to higher operating expenses. The increase in operating margin for the nine months ended July 31, 2022 resulted from higher revenue growth and gross margins which offset the increase in wages, logistics costs and program investments.

Income from operations for the three and nine months ended July 31, 2022 decreased $5 million or 6 percent and increased $30 million or 15 percent, respectively, on a corresponding revenue decrease of $6 million and an increase of $82 million, respectively. Income from operations for the three months ended July 31, 2022 decreased due to higher wages. Income from operations for the nine months ended July 31, 2022, increased due to higher revenue and gross margins improvement partially offset by higher wages, logistics costs and program investments.

Agilent CrossLab

The Agilent CrossLab business spans the entire lab with its extensive services portfolio, which is designed to improve customer outcomes. The majority of the portfolio is vendor neutral, meaning we can serve and supply customers regardless of their instrument purchase choices. The services portfolio includes repairs, parts, maintenance, installations, training, compliance support, software as a service, asset management, consulting and various other custom services to support the customers' laboratory operations. Custom services are tailored to meet the specific application needs of various industries and to keep instruments fully operational and compliant with the respective industry requirements.

Net Revenue


	Three Months Ended				Nine Months Ended				Year over Year Change
	July 31,				July 31,				Three	Nine
	2022		2021		2022		2021		Months	Months
	(in millions)

Net revenue	$	359	$	343	$	1,071	$	1,003	5%	7%

Agilent CrossLab business revenue for the three and nine months ended July 31, 2022 increased 5 percent and 7 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2022 had an overall unfavorable impact on revenue growth of 5 percentage points and 3 percentage points, respectively when compared to the same periods last year.

Geographically, revenue increased 13 percent in the Americas with no currency impact, was flat in Europe with an 11 percentage point unfavorable currency impact and was flat in Asia Pacific with a 7 percentage point unfavorable currency impact for the three months ended July 31, 2022 compared to the same period last year. For the three months ended July 31, 2022, revenue growth in all three regions was driven by contract repair services, compliance services, consultative services and relocation services.

Revenue for the nine months ended July 31, 2022 increased 11 percent in the Americas with no currency impact, increased 3 percent in Europe with a 7 percentage point unfavorable currency impact and increased 6 percent in Asia Pacific with a 4 percentage point unfavorable currency impact when compared to the same period last year. For the nine months ended July 31, 2022, revenue growth in all three regions was driven by contract repair services, compliance services, consultative services and relocation services.

For the three months ended July 31, 2022, we saw strong revenue growth from the pharmaceutical and chemical and energy markets when compared to the same period last year. For the nine months ended July 31, 2022, we saw strong revenue growth in the pharmaceutical, chemical and energy, food and environmental and forensics markets when compared to the same period last year.

Looking forward, Agilent CrossLab services are well positioned to continue their success in our key end markets by supporting a growing installed base of instruments. Digital and remote capabilities will continue to be a key factor in improving the service quality and the experience to customers. Geographically, the business is well diversified across all regions to take advantage of local market opportunities and to hedge against weakness in any one region.

Operating Results


	Three Months Ended						Nine Months Ended						Year over Year Change
	July 31,						July 31,						Three	Nine
	2022			2021			2022			2021			Months	Months
(in millions, except margin data)
Gross margin	47.0		%	46.6		%	47.2		%	46.3		%	—	1 ppt
Research and development	$	8		$	9		$	23		$	26		(7)%	(8)%
Selling, general and administrative	$	72		$	67		$	216		$	209		7%	3%
Operating margin	24.6		%	24.4		%	24.8		%	22.9		%	—	2 ppts
Income from operations	$	88		$	84		$	266		$	229		5%	16%

Gross margin for the three and nine months ended July 31, 2022 was relatively flat and increased 1 percentage point, respectively, when compared to the same periods last year. Gross margin for the three and nine months ended July 31, 2022 was impacted by higher sales volume, targeted price increases and higher cash flow hedging gains that improved margins, which were partially offset by higher wages, service delivery costs for logistics and parts.

Research and development expenses for the three and nine months ended July 31, 2022 decreased 7 percent and 8 percent, respectively, when compared to the same periods last year. Research and development expenses for the three and nine months ended July 31, 2022 decreased mainly due to cost efficiencies in certain research and development projects which led to lower expenditures.

Selling, general and administrative expenses for the three and nine months ended July 31, 2022 increased 7 percent and 3 percent, respectively, when compared to the same periods last year. Selling, general and administrative expenses for the three and nine months ended July 31, 2022 increased primarily due to higher wages and sales commissions partially offset by favorable currency movements.

Operating margin for products and services for the three and nine months ended July 31, 2022 was flat and increased 2 percentage points, respectively, when compared to the same periods last year. Operating margin for the three and nine months ended July 31, 2022 increased mostly driven by higher sales volume with improved gross margins and higher cash flow hedging gains.

Income from operations for the three and nine months ended July 31, 2022 increased $4 million or 5 percent and $37 million or 16 percent, respectively, on a corresponding revenue increase of $16 million and $68 million, respectively. Income from operations for the three and nine months ended July 31, 2022 increased primarily due to higher sales volume.

FINANCIAL CONDITION

Liquidity and Capital Resources

We believe our cash and cash equivalents, cash generated from operations, and ability to access capital markets and credit lines will satisfy, for at least the next twelve months and beyond, our liquidity requirements, both globally and domestically, including the following: working capital needs, capital expenditures, business acquisitions, stock repurchases, cash dividends, contractual obligations, commitments, principal and interest payments on debt, and other liquidity requirements associated with our operations.

Our financial position as of July 31, 2022 consisted of cash and cash equivalents of $1,071 million as compared to $1,484 million as of October 31, 2021.

Net Cash Provided by Operating Activities

Net cash inflow from operating activities was $864 million for the nine months ended July 31, 2022 compared to cash inflow of $1,044 million for the same period in 2021. Cash flow for the nine months ended July 31, 2022 was impacted by the transitory impact of COVID-related shutdowns in China in the second quarter of fiscal year 2022. Net cash paid for income taxes in the nine months ended July 31, 2022 was approximately $217 million compared to income taxes paid of $164 million

for the same period in 2021. Other assets and liabilities, for the nine months ended July 31, 2022, had cash outflow of $33 million compared to cash outflow of $7 million for the same period in 2021.

In the nine months ended July 31, 2022, accounts receivable used cash of $233 million compared to cash used of $69 million for the same period in 2021. Days’ sales outstanding as of July 31, 2022 and 2021 was 70 days and 64 days, respectively. The increase in accounts receivable related to the transitory impacts of shutdowns in China as well as an increase in unbilled accounts receivable. Cash used for inventory was $206 million for the nine months ended July 31, 2022 compared to cash used of $115 million for the same period in 2021. Inventory days on-hand was 117 days as of July 31, 2022 compared to 100 days as of July 31, 2021 mainly due to increased inventory levels to meet customer needs and to compensate for long lead time in ordering from our suppliers. In the nine months ended July 31, 2022, accounts payable provided cash of $110 million compared to cash provided of $46 million for the same period in 2021. The change in the employee compensation and benefits liability was $98 million for the nine months ended July 31, 2022 compared to cash provided of $38 million for the same period in 2021. This was largely due to an increase in variable pay and incentive payments of $201 million in 2022 compared to $119 million in 2021.

We contributed approximately $13 million and $16 million to our defined benefit plans in the nine months ended July 31, 2022 and 2021, respectively. Our annual contributions are highly dependent on the relative performance of our assets versus our projected liabilities, among other factors. We expect to contribute approximately $6 million to our defined benefit plans during the remainder of 2022.

Net Cash Used in Investing Activities

Net cash used in investing activities was $228 million for the nine months ended July 31, 2022 as compared to net cash used in investing activities of $690 million in the same period of 2021. Investments in property, plant and equipment were $221 million for the nine months ended July 31, 2022 compared to $126 million in the same period of 2021. The increase in our investments in property plant and equipment is primarily due to the expansion of our Frederick manufacturing line in Colorado site. We expect that total capital expenditures for the current year will be approximately $300 million. In the nine months ended July 31, 2022, cash provided of $22 million related to the sale of equity securities. In the nine months ended July 31, 2022, cash used of $18 million related to our acquisition of advanced artificial intelligence technology compared to cash used of $547 million primarily related to our acquisition of Resolution Bioscience in 2021.

Net Cash Used in Financing Activities

Net cash used in financing activities for the nine months ended July 31, 2022 was $1,031 million compared to net cash used in financing activities of $372 million for the same period of 2021.

Treasury Stock Repurchases

Our 2021 repurchase program authorizes the purchase of up to $2.0 billion of our common stock at the company's discretion and has no fixed termination date. During the nine months ended July 31, 2022 and 2021 we repurchased and retired 7.331 million shares for $1,004 million and 2.192 million shares for $287 million, respectively, under this authorization. As of July 31, 2022, we had remaining authorization to repurchase up to approximately $573 million of our common stock under the 2021 repurchase program.

During the nine months ended July 31, 2021, we also repurchased and retired 3.05 million shares for $365 million under the 2019 repurchase program. Effective February 18, 2021, the 2019 repurchase program was terminated and was replaced by the 2021 share repurchase program. The remaining authorization under the 2019 repurchase plan of $193 million expired on February 18, 2021.

Dividends

During the nine months ended July 31, 2022 and 2021, we paid cash dividends of $0.630 per common share or $188 million, and $0.582 per common share or $177 million, respectively, on the company's common stock. The timing and amounts of any future dividends are subject to determination and approval by our board of directors.

Credit Facilities and Short-Term Debt

On March 13, 2019, we entered into a credit agreement with a group of financial institutions which, as amended,

provided for a $1 billion five-year unsecured credit facility that will expire on March 13, 2024 and incremental term loan facilities in an aggregate amount of up to $500 million. On April 21, 2021, we entered into an incremental assumption agreement, pursuant to which the aggregate amount available for borrowing under the revolving credit facility was increased to $1.35 billion, and the aggregate amount available for incremental facilities was refreshed to remain at $500 million. As of July 31, 2022, we had no borrowings outstanding under the credit facility and no borrowings under the incremental facilities. We were in compliance with the covenants for the credit facility during the nine months ended July 31, 2022.

Commercial Paper

Under our U.S. commercial paper program, the company may issue and sell unsecured, short-term promissory notes in the aggregate principal amount not to exceed $1.35 billion with up to 397-day maturities. At any point in time, the company intends to maintain available commitments under its revolving credit facility in an amount at least equal to the amount of the commercial paper notes outstanding. Amounts available under the program may be borrowed, repaid and re-borrowed from time to time. The proceeds from issuances under the program may be used for general corporate purposes. During the nine months ended July 31, 2022, we borrowed $940 million and repaid $760 million. As of July 31, 2022, we had borrowings of $180 million outstanding under our U.S. commercial paper program and had a weighted average annual interest rate of 2.43 percent.

Long-Term Debt

Term Loan

On April 15, 2022, we entered into a term loan agreement with a group of financial institutions, which provided for a $600 million delayed draw term loan that will mature on April 15, 2025. As of July 31, 2022, we had $600 million borrowings outstanding under the term loan facility and had a weighted average interest rate of 2.75 percent. Loans under the term loan agreement will bear interest, at our option, either at: (i) the alternate base rate, as defined in the term loan agreement, plus the applicable margin for such loans or (ii) adjusted term SOFR, as defined in the term loan agreement, plus the applicable margin for such loans. The term loan agreement contains customary representations and warranties as well as customary affirmative and negative covenants.

On May 4, 2022, we used the proceeds from the term loan and repaid the $600 million outstanding aggregate principal amount of our 2023 senior notes due July 15, 2023. The total redemption price of approximately $609 million was computed in accordance with the terms of the 2023 senior notes as the present value of the remaining scheduled payments of principal and unpaid interest on the notes being redeemed. In May 2022, we recorded a loss on extinguishment of debt of $9 million in other income (expense), net in the condensed consolidated statement of operations. In addition, $7 million of accrued interest, up to but not including the applicable redemption date, was paid.

We may, from time to time, retire certain outstanding debt of ours through open market cash purchases, privately-negotiated transactions or otherwise. Such transactions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

There have been no other changes to the principal, maturity, interest rates and interest payment terms of the Agilent outstanding senior notes in the nine months ended July 31, 2022 as compared to the senior notes as described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021.

Other

Our commitments for indirect material and services increased by $62 million from $83 million as reported in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021. These commitments are related to a variety of suppliers including IT support service providers. Our commitments to contract manufacturers and suppliers increased by $213 million from $901 million as reported in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021. These commitments are related to a variety of suppliers, and we use several contract manufacturers to provide manufacturing services for our products. During the normal course of business, we issue purchase orders with estimates of our requirements several months ahead of the delivery dates. These open purchase orders with our suppliers have not yet been received and our agreements usually provide us the option to cancel, reschedule and adjust our requirements based on our business needs prior to the firm orders being placed. There were no other substantial changes from our Annual Report on Form 10-K for the fiscal year ended October 31, 2021 to our contractual commitments in the first nine months of fiscal year 2022. We have no other material non-cancelable guarantees or commitments.

Other long-term liabilities as of July 31, 2022 and October 31, 2021 include $220 million and $241 million, respectively, related to long-term income tax liabilities. Of these amounts, $103 million and $117 million related to uncertain tax positions as of July 31, 2022 and October 31, 2021, respectively. We are unable to accurately predict when these amounts will be realized or released. However, it is reasonably possible that there could be significant changes to our unrecognized tax benefits in the next twelve months due to either the expiration of a statute of limitations or a tax audit settlement. As of July 31, 2022 the remaining $117 million in other long-term liabilities relates to the U.S. transition tax payment which is due in installments over the next four years.

Previous: Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) · Next: Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK