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

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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, 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, macroeconomic environment and geopolitical uncertainties, interest rate and inflationary pressures, 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.

Actual Results

Net revenue of $1,672 million and $5,145 million for the three and nine months ended July 31, 2023 decreased 3 percent and increased 3 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2023 had an overall unfavorable impact on revenue growth of 1 percentage point and 3 percentage points, respectively, when compared to the same periods last year. Net revenue for the three months ended July 31, 2023, declined in our life sciences and applied markets segment, in the pharmaceutical and chemical and applied materials markets and in the Asia Pacific region primarily related to weaker demand in China compared to the same period last year. Net revenue for the nine months ended July 31, 2023, increased in all of our segments, geographic regions and in all of our end markets when compared to the same period last year. Revenue generated by our life sciences and applied markets business in the three and nine months ended July 31, 2023 decreased 9 percent and increased 1 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2023, had an overall unfavorable impact on revenue growth of 1 percentage point 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, 2023 increased 3 percent and 2 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2023 had no overall impact and an overall unfavorable impact on revenue growth of 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, 2023 increased 10 percent and 9 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2023 had an overall unfavorable impact on revenue growth of 1 percentage point and 3 percentage points, respectively, when compared to the same periods last year.

Net income for the three and nine months ended July 31, 2023 was $111 million and $765 million, respectively, compared to net income of $329 million and $886 million, respectively, for the corresponding periods last year. The decrease in net income for both the three and nine months ended July 31, 2023 were impacted by the asset impairment charges primarily related to the shutdown of our Resolution Bioscience business. In the nine months ended July 31, 2023, cash provided by operations was $1,256 million compared to cash provided by operations of $864 million in the same period last year.

Dividends. During the three and nine months ended July 31, 2023, we paid cash dividends of $0.225 per common share or $66 million and $0.675 per common share or $199 million, respectively, on the company's common stock. 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.

2021 Repurchase Program. During the nine months ended July 31, 2023, we repurchased and retired 661,739 shares for $99 million under this authorization. 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. On March 1, 2023, the 2021 repurchase program was terminated and the remaining authorization of $339 million expired.

2023 Repurchase Program. On January 9, 2023, we announced that our board of directors had approved a share repurchase program (the "2023 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 2023 repurchase program authorizes the purchase of up to $2.0 billion, excluding excise taxes, of our common stock at the company's discretion and has no fixed termination date. The 2023 repurchase program does not require the company to acquire a specific number of shares and may be suspended, amended or discontinued at any time. The 2023 repurchase program commenced on March 1, 2023, and also terminated and replaced the 2021 repurchase program. During the three and nine months ended July 31, 2023, we repurchased and retired 2.812 million shares for $335 million and 3.256 million shares for $396 million, respectively, excluding excise taxes, under this authorization. As of July 31, 2023, we had remaining authorization to repurchase up to approximately $1.604 billion of our common stock under the 2023 repurchase program.

The Inflation Reduction Act of 2022, which was enacted into law on August 16, 2022, imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. As a result, we recorded the applicable excise tax of $2.4 million as an incremental cost of the shares repurchased and a corresponding liability for the excise tax payable in other accrued liabilities on our condensed consolidated balance sheet.

Looking forward, we remain focused on improving our customers’ experience, differentiating product solutions and productivity. While we anticipate a challenging macroeconomic environment, particularly in China, and an overall pressure on our customers' capital expenditures in the near-term, we remain optimistic about our long-term growth opportunities in all of our key end markets. We expect to continue to face inflationary pressures which we will continue to mitigate through targeted pricing and various other cost savings strategies.

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, 2022. 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, 2023 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 twelve-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
	2023		2022		2023		2022		Months	Months
	(in millions)
Net revenue:
Products	$	1,222	$	1,306	$	3,819	$	3,773	(6)%	1%
Services and other	450		412		1,326		1,226		9%	8%
Total net revenue	$	1,672	$	1,718	$	5,145	$	4,999	(3)%	3%

Revenue from products for the three and nine months ended July 31, 2023 decreased 6 percent and increased 1 percent, respectively, when compared to the same periods last year. Product revenue in the three months ended July 31, 2023 was driven primarily by declines in our liquid chromatography, cell analysis and mass spectroscopy businesses partially offset by revenue growth from our nucleic acid solutions and pathology businesses. Product revenue growth in the nine months ended July 31, 2023 was driven by our nucleic acid solutions, liquid chromatography, spectroscopy and pathology businesses partially offset by declines in our genomics, mass spectroscopy and cell analysis businesses.

Services and other revenue for the three and nine months ended July 31, 2023 increased 9 percent and 8 percent, respectively, when compared to the same periods last year. Services and other revenue consist of contract repair, preventative maintenance, compliance services, relocation services, installation services and consulting services related to the companion diagnostics and nucleic acid solutions businesses. For the three and nine months ended July 31, 2023, service revenue increases reflected strong growth from the majority of the services portfolio.

Net Revenue By Segment


	Three Months Ended				Nine Months Ended				Year over Year Change
	July 31,				July 31,				Three	Nine
	2023		2022		2023		2022		Months	Months
	(in millions)
Net revenue by segment:
Life sciences and applied markets	$	927	$	1,019	$	2,928	$	2,891	(9)%	1%
Diagnostics and genomics	349		340		1,053		1,037		3%	2%
Agilent CrossLab	396		359		1,164		1,071		10%	9%
Total net revenue	$	1,672	$	1,718	$	5,145	$	4,999	(3)%	3%

Revenue in the life sciences and applied markets business for the three and nine months ended July 31, 2023 decreased 9 percent and increased 1 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2023 had an overall unfavorable impact on revenue growth of 1 percentage point and 3 percentage points, respectively, when compared to the same periods last year. For the three months ended July 31, 2023, we saw revenue decline significantly within the pharmaceutical market and modestly within the chemical and applied materials and food markets with modest revenue growth within the academia and government market when compared to the same period last year. For the nine months ended July 31, 2023, we saw revenue growth across most of our end markets led by strong revenue growth within the chemicals and advanced materials, academia and government and food markets partially offset by a significant decline in revenue from the pharmaceutical market when compared to the same period last year.

Revenue in the diagnostics and genomics business for the three and nine months ended July 31, 2023, increased 3 percent and 2 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2023 had no overall impact and an overall unfavorable impact on revenue growth of 2 percentage points, respectively, when compared to the same periods last year. For the three months ended July 31, 2023, we saw strong revenue growth in the pharmaceutical market led by our nucleic acid solutions business partially offset by decline in our biomolecular analysis business when compared to the same period last year. We saw modest revenue growth in the diagnostics and clinical market led by our pathology business partially offset by our genomics business when compared to the same period last year. For the nine months ended July 31, 2023, revenue growth in the pharmaceutical market was strong led by our nucleic acid solutions business which was partially offset by a decline in the academia and government markets when compared to the same period last year.

Revenue generated by Agilent CrossLab in the three and nine months ended July 31, 2023, increased 10 percent and 9 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2023 had an overall unfavorable impact on revenue growth of 1 percentage point and 3 percentage points, respectively, when compared to the same periods last year. For the three and nine months ended July 31, 2023, we saw strong revenue growth across all of our end markets led by the pharmaceutical, chemicals and advanced materials and academia and government 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
	2023			2022			2023			2022			Months	Months
(in millions, except margin data)
Total gross margin	39.3		%	54.7		%	49.6		%	54.2		%	(15) ppts	(5) ppts
Research and development	$	118		$	116		$	367		$	348		2%	6%
Selling, general and administrative	$	407		$	412		$	1,241		$	1,215		(1)%	2%
Operating margin	7.9		%	23.9		%	18.3		%	22.9		%	(16) ppts	(5) ppts
Income from operations	$	133		$	411		$	942		$	1,147		(68)%	(18)%

Total gross margin for the three and nine months ended July 31, 2023 decreased 15 percentage points and 5 percentage points, respectively, when compared to the same periods last year. Gross margin for the three and nine months ended July 31, 2023 was significantly impacted by asset impairment charges of $253 million primarily related to the shutdown of our Resolution Bioscience business. Excluding these asset impairment charges, gross margin for the three and nine months ended July 31, 2023 was relatively flat in both periods when compared to the same periods last year. Gross margin for the three months ended July 31, 2023 was also impacted by lower variable pay expenses, lower shipping and logistics costs offset by lower sales volume, higher wages and inventory charges. Gross margin for the nine months ended July 31, 2023 was impacted by higher sales volume, targeted sales price increases, and lower variable pay expenses, shipping and logistics costs, and intangible amortization expense partially offset by the unfavorable impact of currency movements, higher wages and inventory charges.

Research and development expenses for the three and nine months ended July 31, 2023 increased 2 percent and 6 percent, respectively, when compared to the same periods last year. Research and development expenses for the three months ended July 31, 2023 increased due to higher wages offset by lower variable pay expenses. Research and development expenses for the nine months ended July 31, 2023 increased due to higher wages and program costs in our life sciences and applied markets and diagnostics and genomics businesses partially offset by the lower variable pay expenses.

Selling, general and administrative expenses for the three and nine months ended July 31, 2023 decreased 1 percent and increased 2 percent, respectively, when compared to the same periods last year. The decrease in the three months ended July 31, 2023, was due to lower variable pay and intangible amortization expenses partially offset by asset impairment charges and other expenses primarily related to the shutdown of our Resolution Bioscience business and higher wages. The increase in the nine months ended July 31, 2023, was due to higher wages and asset impairment charges primarily related to the shutdown of our Resolution Bioscience business partially offset by lower variable pay, intangible amortization expense, sales commissions and the favorable impact of currency movements. Selling, general and administrative expenses for the nine months ended July 31, 2022 included a credit in expenses related to the decrease in the fair value of a contingent consideration liability.

Total operating margin for the three and nine months ended July 31, 2023 decreased 16 percentage points and 5 percentage points, respectively, when compared to the same periods last year. Operating margin for the three and nine months ended July 31, 2023 decreased due to asset impairment charges primarily related to the shutdown of our Resolution Bioscience business.

Income from operations for the three and nine months ended July 31, 2023 decreased $278 million or 68 percent and $205 million or 18 percent, respectively, due to asset impairment charges primarily related to the shutdown of our Resolution Bioscience business.

At July 31, 2023, our headcount was approximately 18,300 as compared to approximately 17,700 at July 31, 2022.

Other income (expense), net

In the three and nine months ended July 31, 2023 other income and expense, net includes a net gain of $1 million and a net loss of $13 million on equity securities, respectively. In the three and nine months ended July 31, 2023 other income and expense, net includes $3 million and $10 million, respectively, of income related to the defined benefit retirement and post-retirement benefit plans (interest cost, expected return on assets, amortization of net actuarial (gain) loss and prior service credits). In the three and nine months ended July 31, 2023 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 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 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.

Income Taxes

For the three and nine months ended July 31, 2023, our income tax expense was $21 million with an effective tax rate of 15.9 percent and $154 million with an effective tax rate of 16.8 percent, respectively. Our effective tax rate increased in 2023 compared to 2022, primarily due to the mandatory capitalization of research and development expenses, which became effective for Agilent in the first quarter of 2023, due to a change in tax law from the Tax Cuts and Jobs Act of 2017. For the three and nine months ended July 31, 2023, our effective tax rate and the resulting provision for income taxes were impacted by the tax benefit of $63 million due to the asset impairment charge related to the shutdown of our Resolution Bioscience business. For the nine months ended July 31, 2023, our effective tax rate and the resulting provision for income taxes were also impacted by the excess tax benefits from stock-based compensation of $13 million along with the expiration of various foreign statutes of limitations which resulted in the recognition of previously unrecognized tax benefits of $10 million.

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. For the nine months ended July 31, 2022, our effective tax rate and the resulting provision for income taxes were impacted by the excess tax benefits from stock-based compensation of $18 million along with the expiration of various foreign statutes of limitations which resulted in the recognition of previously unrecognized tax benefits of $8 million.

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 2013.

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

We continue to have three business segments comprised of life sciences and applied markets, diagnostics and genomics and Agilent CrossLab.

Life Sciences and Applied Markets

Our life sciences and applied markets business provides application-focused solutions that include instruments, consumables 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
	2023		2022		2023		2022		Months	Months
	(in millions)

Net revenue	$	927	$	1,019	$	2,928	$	2,891	(9)%	1%

Life sciences and applied markets business revenue for the three and nine months ended July 31, 2023 decreased 9 percent and increased 1 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2023 had an overall unfavorable impact on revenue growth of 1 percentage point and 3 percentage points, respectively, when compared to the same periods last year.

Geographically, revenue for the three months ended July 31, 2023 decreased 7 percent in the Americas with no currency impact, increased 3 percent in Europe with a 2 percentage point favorable currency impact and decreased 16 percent in Asia Pacific with a 2 percentage point unfavorable currency impact. The revenue decline in Asia Pacific was mainly driven by a significant revenue decline in China due to weakness in the overall economy. The revenue decline in the Americas was driven by weakness in our liquid chromatography and cell analysis businesses when compared to the same period last year.

Revenue for the nine months ended July 31, 2023 decreased 2 percent in the Americas with no currency impact, increased 3 percent in Europe with a 4 percentage point unfavorable currency impact and increased 3 percent in Asia Pacific with a 5 percentage point unfavorable currency impact compared to the same period last year. The revenue growth in Asia Pacific was driven by the spectroscopy and cell analysis businesses in China. Revenue growth in Europe was driven by the liquid chromatography and cell analysis businesses when compared to the same period last year.

For the three months ended July 31, 2023, revenue declined significantly in the pharmaceutical market as customers remain cautious in making capital purchases. The revenue decline was mainly driven by weakness in our liquid chromatography and cell analysis businesses when compared to the same period last year. Revenue also declined in the chemical and advanced material market driven by weakness in our mass spectrometry, spectroscopy and liquid chromatography businesses when compared to the same period last year.

For the nine months ended July 31, 2023, revenue growth by end market was strong across chemicals and advanced materials, food and academia and government partially offset by a significant decline in the pharmaceutical market when compared to the same period last year. Revenue growth in the chemicals and advanced materials market was mainly driven by strength in the spectroscopy, gas chromatography, liquid chromatography and consumables businesses when compared to the same period last year. Revenue growth in the food market was primarily driven by the spectroscopy, liquid chromatography and cell analysis businesses when compared to the same period last year. Revenue growth in the academia and government market was mainly driven by strength in liquid chromatography, gas chromatography and mass spectrometry when compared to the

same period last year. Revenue declined significantly in the pharmaceutical market driven by weakness in our cell analysis, liquid chromatography mass spectrometry, spectroscopy and liquid chromatography businesses when compared to the same period last year.

Looking forward, despite the challenging macroeconomic environment, our customers' capital expenditure pressures and geopolitical uncertainties, 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 long term growth across most end markets 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
	2023			2022			2023			2022			Months	Months
(in millions, except margin data)
Gross margin	60.0		%	60.5		%	60.4		%	60.0		%	(1) ppt	—
Research and development	$	70		$	73		$	225		$	219		(4)%	3%
Selling, general and administrative	$	210		$	233		$	689		$	696		(10)%	(1)%
Operating margin	29.9		%	30.5		%	29.2		%	28.4		%	(1) ppt	1 ppt
Income from operations	$	277		$	311		$	855		$	821		(11)%	4%

Gross margin for products and services for the three and nine months ended July 31, 2023, decreased 1 percentage point and was relatively flat, respectively, when compared to the same periods last year. Gross margin for the three months ended July 31, 2023 was impacted by lower sales volume, higher wages and the unfavorable impact of currency movements partially offset by lower variable pay and logistics costs when compared to the same period last year. Gross margin for the nine months ended July 31, 2023 was flat due to higher sales volume, targeted price increases, lower variable pay and logistics costs fully offset by the unfavorable impact of currency movements, higher wages, inventory and warranty costs when compared to the same period last year.

Research and development expenses for the three and nine months ended July 31, 2023, decreased 4 percent and increased 3 percent, respectively, when compared to the same periods last year. Research and development expenses for the three months ended July 31, 2023 decreased due to lower variable pay and reduced consumables spending when compared to the same period last year. Research and development expenses for the nine months ended July 31, 2023 increased due to higher wages and program investments in the digital lab platform technology partially offset by lower variable pay when compared to the same period last year.

Selling, general and administrative expenses for the three and nine months ended July 31, 2023, decreased 10 percent and 1 percent, respectively, when compared to the same periods last year. Selling, general and administrative expenses for the three and nine months ended July 31, 2023, decreased due to lower variable pay, lower commissions, lower marketing expenses and the favorable impact of currency movements partially offset by higher wages when compared to the same period last year.

Operating margin for products and services for the three and nine months ended July 31, 2023 decreased 1 percentage point and increased 1 percentage point, respectively, when compared to the same periods last year. Operating margin for the three months ended July 31, 2023 was impacted by lower sales volume and the unfavorable impact of currency movements partially offset by lower variable pay and logistics costs when compared to the same period last year. Operating margin for the nine months ended July 31, 2023 was impacted by higher sales volume, lower variable pay and logistics costs partially offset by higher wages and the unfavorable impact of currency movements when compared to the same period last year.

Income from operations for the three and nine months ended July 31, 2023, decreased $34 million or 11 percent and increased $34 million or 4 percent, respectively, on a corresponding revenue decrease of $92 million and an increase of $37 million, respectively.

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 is a contract and development manufacturing organization that provides services related to and the production of synthesized oligonucleotides under pharmaceutical good manufacturing practices ("GMP") conditions for use as API in a 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 provides clinical flow cytometry reagents for routine cancer diagnostics. This business also provides bulk antibodies as raw materials and associated assay development services to IVD manufacturers, biotechnology and pharmaceutical companies. 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 including NGS, 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
	2023		2022		2023		2022		Months	Months
	(in millions)

Net revenue	$	349	$	340	$	1,053	$	1,037	3%	2%

Diagnostics and genomics business revenue for the three and nine months ended July 31, 2023 increased 3 percent and 2 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2023 had no overall impact and an overall unfavorable impact on revenue growth of 2 percentage points, respectively, when compared to the same periods last year.

Geographically, revenue for the three months ended July 31, 2023 increased 4 percent in the Americas with no currency impact, increased 4 percent in Europe with a 2 percentage point favorable currency impact and decreased 8 percent in Asia Pacific with a 5 percentage point unfavorable currency impact compared to the same period last year. For the three months ended July 31, 2023, the revenue increase in the Americas was driven by strong performance in our nucleic acid solutions and pathology businesses and was partially offset by declines in our genomics business. In Europe, the revenue increase was driven by our pathology and reagent partnership businesses and was partially offset by a decline in the companion diagnostics business. The decline in Asia Pacific revenue was driven by our biomolecular analysis and genomics businesses. On a worldwide level, our genomics and biomolecular analysis businesses were impacted by a challenging macroeconomic environment, customers delaying purchasing decisions and a general softness in next generation sequencing test markets in comparison to significant revenue growth in the same period last year.

Revenue for the nine months ended July 31, 2023 increased 6 percent in the Americas with no currency impact, decreased 1 percent in Europe with a 4 percentage point unfavorable currency impact and decreased 10 percent in Asia Pacific with an 8 percentage point unfavorable currency impact compared to the same period last year. For the nine months ended July 31, 2023, the increase in the Americas was driven by strong performance in our nucleic acid solutions, pathology and reagent partnership businesses partially offset by a decline in our genomics business. In Europe, the unfavorable impact of

currency on revenue was partially offset by strong growth in our pathology and reagent partnership businesses. The decline in Asia Pacific revenue was driven by our biomolecular analysis and genomics businesses.

For the three months ended July 31, 2023, revenue growth in the pharmaceutical market was driven by strong performance in our nucleic acid solutions business which was partially offset by a decline in the biomolecular analysis business. Revenue growth in the diagnostics and clinical market was driven by strong results in our pathology and reagent partnership businesses which was partially offset by a decline in the genomics business.

For the nine months ended July 31, 2023, revenue growth in the pharmaceutical market was driven by our nucleic acid solutions business partially offset by declines in our biomolecular analysis and genomics businesses. Our diagnostics and clinical market growth resulted from the pathology and reagent partnership businesses which was partially offset by a decline in the genomics business. The revenue in the academia and government markets declined due to our genomics business.

Looking forward, despite the challenging macroeconomic environment, geopolitical uncertainties and the short-term unfavorable market conditions affecting our genomics business, 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 and PD-L1 assays continues to gain strength with our customers in clinical oncology applications, and our next generation sequencing related solutions continue to be adopted. Market demand in the nucleic acid solutions business related to therapeutic oligo programs continues, and with the planned expansion of our nucleic acid solutions production facility in Frederick, Colorado, we are well positioned to serve more of the market demand. 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
	2023			2022			2023			2022			Months	Months
(in millions, except margin data)
Gross margin	52.2		%	54.0		%	51.8		%	54.3		%	(2) ppts	(3) ppts
Research and development	$	30		$	34		$	106		$	103		(11)%	4%
Selling, general and administrative	$	68		$	77		$	223		$	228		(11)%	(2)%
Operating margin	24.0		%	21.5		%	20.5		%	22.4		%	3 ppts	(2) ppts
Income from operations	$	84		$	73		$	216		$	232		15%	(7)%

Gross margin for products and services for the three and nine months ended July 31, 2023, decreased 2 percentage points and 3 percentage points, respectively, when compared to the same periods last year. Gross margin for the three and nine months ended July 31, 2023 decreased due to the unfavorable market conditions in our genomics business which impacted our overall business mix. Gross margin was also impacted by the unfavorable impact of currency movements, higher wages and infrastructure costs partially offset by lower variable pay.

Research and development expenses for the three and nine months ended July 31, 2023, decreased 11 percent and increased 4 percent, respectively, when compared to the same periods last year. Research and development expenses for the three months ended July 31, 2023 decreased primarily due to lower variable pay and consumables expenses. Research and development expenses for the nine months ended July 31, 2023 increased due to higher wages, additional expenses related to an acquisition and program investments in multiple next generation platform projects partially offset by lower variable pay.

Selling, general and administrative expenses for the three and nine months ended July 31, 2023, decreased 11 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, 2023 decreased due to lower variable pay, the favorable impact of currency movements and lower infrastructure costs.

Operating margin for products and services for the three and nine months ended July 31, 2023 increased 3 percentage points and decreased 2 percentage points, respectively, when compared to the same periods last year. Operating margin for products and services for the three months ended July 31, 2023, increased due to higher revenue and lower operating expenses.

Operating margin for products and services for the nine months ended July 31, 2023, decreased due to lower gross margin, the unfavorable impact of currency and additional costs related to a recent acquisition partially offset by lower variable pay.

Income from operations for the three and nine months ended July 31, 2023 increased $11 million or 15 percent and decreased $16 million or 7 percent, respectively, on a corresponding revenue increase of $9 million and $16 million, respectively.

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 include 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
	2023		2022		2023		2022		Months	Months
	(in millions)

Net revenue	$	396	$	359	$	1,164	$	1,071	10%	9%

Agilent CrossLab business revenue for the three and nine months ended July 31, 2023 increased 10 percent and 9 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2023 had an overall unfavorable impact on revenue growth of 1 percentage point and 3 percentage points, respectively, when compared to the same periods last year.

Geographically, revenue for the three months ended July 31, 2023 increased 8 percent in the Americas with no currency impact, increased 15 percent in Europe with a 3 percentage point favorable currency impact and increased 8 percent in Asia Pacific with a 5 percentage point unfavorable currency impact compared to the same period last year. For the three months ended July 31, 2023, revenue growth in all three regions reflected consistent high demand for repair services, compliance services and consultative services across the entire portfolio.

Revenue for the nine months ended July 31, 2023 increased 12 percent in the Americas with no currency impact, increased 7 percent in Europe with a 4 percentage point unfavorable currency impact and increased 6 percent in Asia Pacific with a 7 percentage point unfavorable currency impact compared to the same period last year. For the nine months ended July 31, 2023, revenue growth in all three regions reflected consistent high demand for repair services, compliance services, installation services, consultative services and relocation services across the entire portfolio.

For the three and nine months ended July 31, 2023, we saw strong revenue growth across all of the end markets, and it was mainly driven by the biomolecular, spectroscopy and liquid chromatography mass spectrometry platforms when compared to the same periods 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 customers' experience. 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
	2023			2022			2023			2022			Months	Months
(in millions, except margin data)
Gross margin	50.9		%	47.0		%	48.8		%	47.2		%	4 ppts	2 ppts
Research and development	$	8		$	8		$	25		$	23		—	5%
Selling, general and administrative	$	65		$	72		$	209		$	216		(11)%	(3)%
Operating margin	32.7		%	24.6		%	28.8		%	24.8		%	8 ppts	4 ppts
Income from operations	$	129		$	88		$	335		$	266		46%	26%

Gross margin for the three and nine months ended July 31, 2023 increased 4 percentage points and 2 percentage points, respectively, when compared to the same periods last year. Gross margin for the three and nine months ended July 31, 2023 was impacted by higher sales volume, targeted price increases and lower variable pay that improved margins, which were partially offset by higher wages, service delivery and parts costs and unfavorable impact of currency movements.

Research and development expenses for the three and nine months ended July 31, 2023 were flat and increased 5 percent, respectively, when compared to the same periods last year. Research and development expenses for the three months ended July 31, 2023 were flat mainly due to higher wages offset by lower variable pay and the favorable impact of currency movements. Research and development expenses for the nine months ended July 31, 2023 increased mainly due to higher wages.

Selling, general and administrative expenses for the three and nine months ended July 31, 2023 decreased 11 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, 2023 decreased primarily due to lower variable pay and a favorable impact of currency movements partially offset by higher wages.

Operating margin for products and services for the three and nine months ended July 31, 2023 increased 8 percentage points and 4 percentage points, respectively, when compared to the same periods last year. Operating margin for the three and nine months ended July 31, 2023 increased mostly driven by higher sales volume, targeted price increases that improved margins in addition to reduction in expenses.

Income from operations for the three and nine months ended July 31, 2023 increased $41 million or 46 percent and $69 million or 26 percent, respectively, on a corresponding revenue increase of $37 million and $93 million, respectively.

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, 2023 consisted of cash and cash equivalents of $1,329 million as compared to $1,053 million as of October 31, 2022.

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.

Net Cash Provided by Operating Activities

Net cash inflow from operating activities was $1,256 million for the nine months ended July 31, 2023 compared to cash inflow of $864 million for the same period in 2022. Net cash from operating activities in 2023 was helped in part by deferring estimated U.S. tax payments to our fiscal fourth quarter due to the payment deferral relief made available by the IRS to taxpayers in designated counties in California. Net cash paid for income taxes in the nine months ended July 31, 2023 was approximately $143 million compared to income taxes paid of $217 million for the same period in 2022.

In the nine months ended July 31, 2023, accounts receivable provided cash of $113 million compared to cash used of $233 million for the same period in 2022. Days’ sales outstanding ("DSO") as of July 31, 2023 was 72 days when compared to 70 days as of July 31, 2022. Cash used for inventory was $53 million for the nine months ended July 31, 2023 compared to cash used of $206 million for the same period in 2022. Inventory days on-hand was 95 days as of July 31, 2023. Excluding the asset impairment charges that were recorded in cost of sales, our days on-hand was 126 days as of July 31, 2023 compared to 117 days as of July 31, 2022 mainly due to increased inventory levels to meet anticipated customer needs.

In the nine months ended July 31, 2023, accounts payable used cash of $117 million compared to cash provided of $110 million for the same period in 2022.

The employee compensation and benefits liability used cash of $137 million for the nine months ended July 31, 2023 compared to cash used of $98 million for the same period in 2022. This was largely due to a lower accrual for variable pay.

We contributed approximately $17 million and $13 million to our defined benefit plans in the nine months ended July 31, 2023 and 2022, 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 $4 million to our defined benefit plans during the remainder of 2023.

Net Cash Used in Investing Activities

Net cash used in investing activities was $270 million for the nine months ended July 31, 2023 as compared to net cash used in investing activities of $228 million in the same period of 2022. In the nine months ended July 31, 2023, cash used of $51 million was related to two acquisitions.

Investments in property, plant and equipment were $214 million for the nine months ended July 31, 2023 compared to $221 million in the same period of 2022. We expect that total capital expenditures for the current year will be approximately $300 million. These continued investments in property plant and equipment are primarily due to the planned expansion of our nucleic acid solutions production facility in Frederick, Colorado. In January 2023, we announced that we will be investing $725 million to further expand our manufacturing capacity for production of nucleic acid based therapeutics in Frederick, Colorado. Some of our investment may be eligible to qualify for reimbursement incentives, which will not fully be known until the expansion is substantially complete.

Net Cash Used in Financing Activities

Net cash used in financing activities for the nine months ended July 31, 2023 was $729 million compared to net cash used in financing activities of $1,031 million for the same period of 2022.

Treasury Stock Repurchases

Our 2021 repurchase program authorized the purchase of up to $2.0 billion of our common stock at the company's discretion and had no fixed termination date. During the nine months ended July 31, 2023 and 2022 we repurchased and retired 661,739 shares for $99 million and 7.331 million shares for $1.004 billion, respectively, under this authorization. On March 1, 2023, the 2021 repurchase program was terminated and the remaining authorization of $339 million expired.

Our 2023 repurchase program authorizes the purchase of up to $2.0 billion, excluding excise taxes, of our common stock at the company's discretion and has no fixed termination date. The 2023 repurchase program does not require the company to acquire a specific number of shares and may be suspended, amended or discontinued at any time. The 2023 repurchase program commenced on March 1, 2023, and also terminated and replaced the 2021 repurchase program. During the three and nine months ended July 31, 2023, we repurchased and retired 2.812 million shares for $335 million and 3.256 million shares for $396 million, respectively, excluding excise taxes, under this authorization. As of July 31, 2023, we had remaining authorization to repurchase up to approximately $1.604 billion of our common stock under the 2023 repurchase program.

Dividends

During the nine months ended July 31, 2023 and 2022, we paid cash dividends of $0.675 per common share or $199 million, and $0.630 per common share or $188 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.

Contingent Consideration Payment

During the nine months ended July 31, 2023, we paid a total of $70 million in contingent consideration payments, of which $3 million is included as an outflow in cash from operations. We paid $65 million related to the achievement of a certain technical milestone associated with our acquisition of Resolution Bioscience and $5 million related to another acquisition.

Credit Facilities and Short-Term Debt

On June 7, 2023, we entered into a credit agreement with a group of financial institutions which provides for a $1.5 billion five-year unsecured credit facility that will expire on June 7, 2028 and incremental term loan facilities in an aggregate amount of up to $750 million. The credit facility replaced the existing credit facility which was terminated on the closing date of the new facility. During the nine months ended July 31, 2023, we borrowed and repaid $360 million. As of July 31, 2023, we had no borrowings outstanding under both the credit facility and the incremental facilities. We were in compliance with the covenants for the credit facility during the nine months ended July 31, 2023.

On June 2, 2023, we entered into an Uncommitted Money Market Line Credit agreement with Societe Generale which provides for an aggregate borrowing capacity of $300 million. The credit facility is an uncommitted short-term cash advance facility where each request must be at least $1 million. The interest rate is set by the lender at the time of the borrowing and is fixed for the duration of the advance. During the nine months ended July 31, 2023, we borrowed and repaid $1 million. As of July 31, 2023, we had no borrowings outstanding under the credit facility.

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. On July 3, 2023, we increased the authorized maximum amount of notes that may be outstanding to $1.5 billion. 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, 2023, we borrowed $1.54 billion and repaid $1.52 billion. As of July 31, 2023, we had borrowings of $55 million outstanding under our U.S. commercial paper program and had a weighted average annual interest rate of 5.4 percent.

Long-Term Debt

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, 2023, we had $600 million borrowings outstanding under the term loan facility and had a weighted average interest rate of 6.13 percent.

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.

There have been no changes to the principal, maturity, interest rates and interest payment terms of the Agilent outstanding senior notes in the nine months ended July 31, 2023 as compared to the senior notes as described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022.

Other

Our commitments for indirect material and services decreased by $17 million from $139 million as reported in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022. These commitments are related to a variety of suppliers including IT support service providers. Our commitments to contract manufacturers and suppliers decreased by $238 million as supply chain issues improved from $1,043 million as reported in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022. 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, 2022 to our contractual commitments in the first nine months of fiscal year 2023. We have no other material non-cancelable guarantees or commitments.

Other long-term liabilities as of July 31, 2023 and October 31, 2022 include $186 million and $216 million, respectively, related to long-term income tax liabilities. Of these amounts, $99 million related to uncertain tax positions as of both July 31, 2023 and October 31, 2022, 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, 2023 the remaining $87 million in other long-term liabilities relates to the U.S. transition tax payment which is due in installments over the next two years.

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