filings.toolsItem 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 and in our end markets, 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 and solutions, 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 productivity, future financial results, our operating margin, 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 contributions to our defined benefit plans, impairment and adjustments of goodwill and other intangible assets, the impact of foreign currency movements, our hedging programs and other actions to offset the effects of foreign currency and interest rate movements, our future effective tax rate, unrecognized tax benefits, reimbursement incentives, our ability to satisfy our liquidity requirements, including through cash generated from operations, the potential impact of adopting new accounting pronouncements, indemnification, our sales, our purchase commitments, our capital expenditures, the integration, effects and timing of our acquisitions and other transactions, savings and headcount reduction recognized from our restructuring programs and other cost saving initiatives, our stock repurchase program and dividends, macroeconomic conditions, market conditions, the recovery and health of our end markets, our geographical diversification, interest rate and inflationary pressures, 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.
New Segment Structure. In the first quarter of fiscal year 2024, we announced a change in our operating segments to move our cell analysis business from our life sciences and applied markets segment to our diagnostics and genomics operating segment in order to further strengthen growth opportunities for both organizations. Following this reorganization, we continue to have three business segments comprised of 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 beginning with the Quarterly Report on Form 10-Q for the period ended January 31, 2024. All 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 Agilent CrossLab business segment.
Acquisition. On July 21, 2024 we signed an agreement to acquire BIOVECTRA, a leading specialized contract development and manufacturing organization for $925 million in cash. The acquisition is subject to certain customary closing conditions, including receipt of regulatory approvals. The financial results of BIOVECTRA will be included within our financial results from the date of the close, which is expected to occur before calendar year 2025.
Actual Results
Net revenue of $1,578 million and $4,809 million for the three and nine months ended July 31, 2024 decreased 6 percent and 7 percent, respectively, when compared to the same periods last year. Overall, foreign currency movements for the three and nine months ended July 31, 2024 had an overall unfavorable impact on revenue growth of 1 percentage point for both periods when compared to the same periods last year. Net revenue for the three and nine months ended July 31, 2024, declined in our life sciences and applied markets and diagnostics and genomics segments partially offset by revenue growth in our Agilent Crosslab segment. Revenue declined in all regions, particularly in China, and in nearly all of our end markets we serve,
most significantly in the pharmaceutical market due to our customers' continued capital expenditure pressures. Revenue generated by our life sciences and applied markets business in the three and nine months ended July 31, 2024 decreased 8 percent and 11 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2024, had an overall unfavorable impact on revenue growth of 1 percentage point for both periods 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, 2024 decreased 9 percent and 8 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2024 had an overall unfavorable impact on revenue growth of 1 percentage point and no impact, 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, 2024 increased 4 percent and 5 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2024 had an overall unfavorable impact on revenue growth of 1 percentage point and no impact, respectively, when compared to the same periods last year.
Net income for the three and nine months ended July 31, 2024 was $282 million and $938 million, respectively, compared to net income of $111 million and $765 million for the corresponding periods last year. In the nine months ended July 31, 2024, cash provided by operations was $1,270 million compared to cash provided by operations of $1,256 million in the same period last year.
Dividends. During the three and nine months ended July 31, 2024, we paid cash dividends of $0.236 per common share or $68 million and $0.708 per common share or $206 million, respectively, on the company's common stock. 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.
2021 Repurchase Program. During the nine months ended July 31, 2023, we repurchased and retired 661,739 shares for $99 million 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, excluding excise taxes of $2.4 million and 3.256 million shares for $396 million, excluding excise taxes of $2.4 million, respectively, under this authorization. During the three and nine months ended July 31, 2024, we repurchased and retired 4.397 million shares for $585 million, excluding excise taxes of $5.4 million and 5.991 million shares for $815 million, excluding excise taxes of $6.4 million, respectively, under this authorization. As of July 31, 2024, we had remaining authorization to repurchase up to approximately $709 million of our common stock under the 2023 repurchase program.
2024 Repurchase Program. On May 29, 2024, we announced that our board of directors had approved a new share repurchase program (the "2024 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 2024 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 2024 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 2024 repurchase program became effective on August 1, 2024 and will commence upon the termination of our 2023 repurchase program.
Looking forward, we continue to be focused on improving our customers’ experience, differentiating product solutions and productivity. While market conditions remain challenging, particularly in China, and customer capital budgets continue to be constrained, we expect a slow and steady recovery in the short-term and remain optimistic about the long-term health of our key end markets. Though inflationary pressures have moderated, 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, 2023. 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.
Restructuring and Other Related costs
Summary of Restructuring Plans. In fiscal year 2024 and 2023, we announced restructuring plans that were both designed to reduce costs and expenses in response to recent macroeconomic conditions. These actions impact all three of our business segments. The costs associated with these restructuring plans were not allocated to our business segments' results; however, each business segment will benefit from the future cost savings from these actions. When completed, the restructuring programs are expected to result in the reduction in annual cost of sales and operating expenses over the three business segments.
A summary of our aggregate liability relating to both restructuring plans and the total restructuring expense since inception of those plans are shown in the table below:
| Workforce Reduction | Consolidation of Excess Facilities | Total | |||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Balance at October 31, 2023 | $ | 31 | $ | 5 | $ | 36 | |||||||||||||||||
| Income statement expense | 2 | 1 | 3 | ||||||||||||||||||||
| Non-cash settlement | — | (1) | (1) | ||||||||||||||||||||
| Cash payments | (25) | (2) | (27) | ||||||||||||||||||||
| Balance at January 31, 2024 | $ | 8 | $ | 3 | $ | 11 | |||||||||||||||||
| Income statement expense | 1 | — | 1 | ||||||||||||||||||||
| Cash payments | (5) | (1) | (6) | ||||||||||||||||||||
| Balance at April 30, 2024 | $ | 4 | $ | 2 | $ | 6 | |||||||||||||||||
| Income statement expense | 67 | — | 67 | ||||||||||||||||||||
| Non-cash settlement | (6) | — | (6) | ||||||||||||||||||||
| Cash payments | (20) | (1) | (21) | ||||||||||||||||||||
| Balance at July 31, 2024 | $ | 45 | $ | 1 | $ | 46 | |||||||||||||||||
| Total restructuring expense since inception of all plans | $ | 117 |
The aggregate restructuring liability of $46 million at July 31, 2024, is recorded in other accrued liabilities on the condensed consolidated balance sheet and reflects estimated future cash outlays.
A summary of the charges in the condensed consolidated statement of operations resulting from both restructuring plans is shown below:
| Three Months Ended | Nine Months Ended | |||||||||||||
| July 31, | July 31, | |||||||||||||
| 2024 | 2024 | |||||||||||||
| (in millions) | ||||||||||||||
| Cost of products and services | $ | 12 | $ | 12 | ||||||||||
| Research and Development | 18 | 20 | ||||||||||||
| Selling, general and administrative | 37 | 39 | ||||||||||||
| Total restructuring costs | $ | 67 | $ | 71 |
Fiscal Year 2024 Plan ("FY24 Plan"). In the third quarter of fiscal year 2024, we announced a new restructuring plan designed to further reduce costs and expenses in response to current macroeconomic conditions. The plan includes a reduction of our total headcount by approximately 500 regular employees, representing approximately 3 percent of our global workforce. The timing and scope of the workforce reductions will vary based on local legal requirements. The costs associated with this workforce reduction include severance and other personnel-related costs. While the majority of the workforce reduction will be completed by the end of fiscal year 2024, we expect to substantially complete the remaining restructuring activities by the second quarter of fiscal year 2025. When completed, the restructuring program is expected to result in the reduction of approximately $100 million in annual cost of sales and operating expenses over our three business segments.
In connection with the FY24 Plan, we have recorded approximately $67 million in restructuring and other related costs in both the three and nine months ended July 31, 2024.
A summary of the FY24 Plan activity is shown in the table below:
| Workforce Reduction | |||||
| (in millions) | |||||
| Balance at April 30, 2024 | $ | — | |||
| Income statement expense | 67 | ||||
| Non-cash settlement (accelerated share-based compensation expense) | (6) | ||||
| Cash payments | (19) | ||||
| Balance at July 31, 2024 | $ | 42 | |||
| Total restructuring expense since inception of FY 24 Plan | $ | 67 |
Fiscal Year 2023 Plan ("FY23 Plan"). In the fourth quarter of fiscal year 2023, we initiated a restructuring plan designed to reduce costs and expenses in response to macroeconomic conditions. The plan included a reduction of our total headcount by approximately 400 regular employees, representing approximately 2 percent of our global workforce, and the consolidation of our excess facilities, including some site closures.
In connection with this plan, we have recorded approximately zero and $4 million in restructuring and other related costs in the three and nine months ended July 31, 2024, respectively. The restructuring plan costs include severance and other personnel costs associated with the workforce reduction. The consolidation of excess facilities includes accelerated depreciation expenses of right-of-use ("ROU") and machinery and equipment assets, and other facilities-related costs. The timing and scope of the workforce reductions will vary based on local legal requirements. While the majority of the workforce reduction was completed in the first quarter of 2024, we expect to substantially complete the remaining restructuring activities by the end of fiscal year 2024. When completed, the restructuring program is expected to result in the reduction of $80 million in annual cost of sales and operating expenses over our three business segments.
A summary of the FY23 Plan activity is shown in the table below:
| Workforce Reduction | Consolidation of Excess Facilities | Total | |||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Balance at October 31, 2023 | $ | 31 | $ | 5 | $ | 36 | |||||||||||||||||
| Income statement expense | 2 | 1 | 3 | ||||||||||||||||||||
| Non-cash settlement (accelerated depreciation expense of right-of-use assets) | — | (1) | (1) | ||||||||||||||||||||
| Cash payments | (25) | (2) | (27) | ||||||||||||||||||||
| Balance at January 31, 2024 | $ | 8 | $ | 3 | $ | 11 | |||||||||||||||||
| Income statement expense | 1 | — | 1 | ||||||||||||||||||||
| Cash payments | (5) | (1) | (6) | ||||||||||||||||||||
| Balance at April 30, 2024 | $ | 4 | $ | 2 | $ | 6 | |||||||||||||||||
| Cash payments | (1) | (1) | (2) | ||||||||||||||||||||
| Balance at July 31, 2024 | $ | 3 | $ | 3 | $ | 1 | $ | 4 | |||||||||||||||
| Total restructuring expense since inception of FY23 Plan | $ | 50 |
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. Overall, foreign currency movements for the nine months ended July 31, 2024 had an overall unfavorable impact on revenue growth of 1 percentage point when compared to the same period last year. Typically, 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 | ||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | Months | Months | ||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Net revenue: | |||||||||||||||||||||||||||||||||||
| Products | $ | 1,121 | $ | 1,222 | $ | 3,455 | $ | 3,819 | (8)% | (10)% | |||||||||||||||||||||||||
| Services and other | 457 | 450 | 1,354 | 1,326 | 1% | 2% | |||||||||||||||||||||||||||||
| Total net revenue | $ | 1,578 | $ | 1,672 | $ | 4,809 | $ | 5,145 | (6)% | (7)% |
Net revenue of $1,578 million and $4,809 million for the three and nine months ended July 31, 2024 decreased 6 percent and 7 percent, respectively, when compared to the same periods last year. Overall, foreign currency movements for the three and nine months ended July 31, 2024 had an overall unfavorable impact on revenue growth of 1 percentage point for both periods when compared to the same periods last year.
Revenue from products for the three and nine months ended July 31, 2024 decreased 8 percent and 10 percent, respectively, when compared to the same periods last year. The product revenue decline in the three and nine months ended July 31, 2024 was primarily driven by decreases in our liquid chromatography, mass spectrometry and cell analysis businesses partially offset by increases in our consumables and pathology businesses when compared to the same periods last year. Overall, product revenue declined due to our customers' continued capital expenditure pressures and mostly impacted the pharmaceutical market within our life sciences and applied markets and diagnostics and genomics segments.
Services and other revenue for the three and nine months ended July 31, 2024 increased 1 percent and 2 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, 2024, service revenue increases reflected strong growth from contract repair and preventative maintenance services partly offset by declines in installation services related to the decline of the product revenues.
Net Revenue By Segment
| Three Months Ended | Nine Months Ended | Year over Year Change | ||||||||||||||||||||||||||||||||||||
| July 31, | July 31, | Three | Nine | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | Months | Months | |||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||
| Net revenue by segment: | ||||||||||||||||||||||||||||||||||||||
| Life sciences and applied markets | $ | 782 | $ | 854 | $ | 2,382 | $ | 2,671 | (8)% | (11)% | ||||||||||||||||||||||||||||
| Diagnostics and genomics | 385 | 422 | 1,209 | 1,310 | (9)% | (8)% | ||||||||||||||||||||||||||||||||
| Agilent CrossLab | 411 | 396 | 1,218 | 1,164 | 4% | 5% | ||||||||||||||||||||||||||||||||
| Total net revenue | $ | 1,578 | $ | 1,672 | $ | 4,809 | $ | 5,145 | (6)% | (7)% |
Revenue in the life sciences and applied markets business for the three and nine months ended July 31, 2024 decreased 8 percent and 11 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2024 had an overall unfavorable impact on revenue growth of 1 percentage point for both periods when compared to the same periods last year. For the three months ended July 31, 2024, revenue declined in nearly all of our end markets. We saw a significant decline in revenue in the pharmaceutical, chemical and advanced materials and academia and government markets when compared to the same period last year. For the nine months ended July 31, 2024, revenue declined in all of our end markets. We saw a significant decline in revenue in the pharmaceutical, chemical and advanced materials and academia and government markets when compared to the same period last year.
Revenue in the diagnostics and genomics business for the three and nine months ended July 31, 2024, decreased 9 percent and 8 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2024 had an overall unfavorable impact on revenue growth of 1 percentage point and no impact, respectively, when compared to the same periods last year. For the three and nine months ended July 31, 2024, we saw a significant decline in revenue in the pharmaceutical market due to lower sales in our cell analysis, nucleic acid solutions and genomics businesses when compared to the same periods last year.
Revenue generated by Agilent CrossLab in the three and nine months ended July 31, 2024, increased 4 percent and 5 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2024 had an overall unfavorable impact on revenue growth of 1 percentage point and no impact, respectively, when compared to the same periods last year. For the three months ended July 31, 2024, we saw revenue growth across most of our end markets led by strong revenue growth in the pharmaceutical, environmental and forensics and diagnostics and clinical markets and moderate revenue growth in the chemical and applied materials and food markets when compared to the same period last year. For the nine months ended July 31, 2024, we saw revenue growth across all of our end markets led by strong revenue growth in the pharmaceutical, diagnostics and clinical and environmental and forensics markets when compared to the same period last year.
Operating Results
| Three Months Ended | Nine Months Ended | Year over Year Change | ||||||||||||||||||||||||||||||||||||
| July 31, | July 31, | Three | Nine | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | Months | Months | |||||||||||||||||||||||||||||||||
| (in millions, except margin data) | ||||||||||||||||||||||||||||||||||||||
| Total gross margin | 54.2 | % | 39.3 | % | 54.5 | % | 49.6 | % | 15 ppts | 5 ppts | ||||||||||||||||||||||||||||
| Research and development | $ | 127 | $ | 118 | $ | 368 | $ | 367 | 8% | — | ||||||||||||||||||||||||||||
| Selling, general and administrative | $ | 395 | $ | 407 | $ | 1,171 | $ | 1,241 | (3)% | (6)% | ||||||||||||||||||||||||||||
| Operating margin | 21.1 | % | 7.9 | % | 22.5 | % | 18.3 | % | 13 ppts | 4 ppts | ||||||||||||||||||||||||||||
| Income from operations | $ | 333 | $ | 133 | $ | 1,080 | $ | 942 | 151% | 15% |
Total gross margin for the three and nine months ended July 31, 2024 increased 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 in 2023, gross margin for the three and nine months ended July 31, 2024 was relatively flat in both periods when compared to the same periods last year. Gross margin for the three months ended July 31, 2024 was favorably impacted by targeted price increases, lower intangible amortization expense, shipping costs, inventory charges and salary expense related to workforce reduction activities offset by lower sales volume, restructuring charges primarily related to recent actions, higher variable pay and the unfavorable impact of currency movements. Gross margin for the nine months ended July 31, 2024 was favorably impacted by targeted price increases, lower shipping costs, intangible amortization expense and variable pay partially offset by lower sales volume, restructuring charges primarily related to recent actions, the unfavorable impact of currency movements and higher share-based compensation expense.
Research and development expenses for the three and nine months ended July 31, 2024 increased 8 percent and were flat, respectively, when compared to the same periods last year. Research and development expenses for the three months ended July 31, 2024 increased due to restructuring charges primarily related to recent actions and higher variable pay partially offset by lower salary expense related to workforce reduction activities and transformational initiatives when compared to the same period last year. Research and development expenses for the nine months ended July 31, 2024 slightly increased due to restructuring charges primarily related to recent actions and an impairment of in-process research and development mostly offset by lower salary expense related to workforce reduction activities and lower transformational initiatives and variable pay when compared to the same period last year.
Selling, general and administrative expenses for the three and nine months ended July 31, 2024 decreased 3 percent and 6 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 included asset impairment charges and other expenses related to the shutdown of our Resolution Bioscience business. Excluding these expenses in 2023, selling general and administrative expenses in the three and nine months ended July 31, 2024 increased 3 percent and decreased 4 percent, respectively, when compared to the same periods last year. The increase in selling, general and administrative expenses in the three months ended July 31, 2024, was due to restructuring charges primarily related to recent actions and higher variable pay partially offset by lower transformational initiatives, intangible amortization expense, salary expense related to workforce reduction activities, and the favorable impact of currency movements. The decrease in selling, general and administrative expenses in the nine months ended July 31, 2024 was due to lower salary expense related to workforce reduction activities, lower transformational initiatives, intangible amortization expenses, advertising expenses, variable pay and the favorable impact of currency movements partially offset by restructuring charges primarily related to recent actions and higher share-based compensation expense.
Total operating margin for the three and nine months ended July 31, 2024 increased 13 percentage points and 4 percentage points, respectively when compared to the same periods last year. Total operating margin for the three and nine months ended July 31, 2023 was unfavorably impacted by 16 percentage points and 5 percentage points, respectively, due to asset impairment charges primarily related to the shutdown of our Resolution Bioscience business. Excluding these asset impairment charges in 2023, total operating margin for the three and nine months ended July 31, 2024, decreased 3 percentage points and 1 percentage point, respectively, when compared to the same periods last year. The decrease in total operating margin for the three and nine months ended July 31, 2024 was mostly due to restructuring charges primarily related to recent actions.
Income from operations for the three and nine months ended July 31, 2024, increased $200 million or 151 percent and $138 million or 15 percent, respectively, on a corresponding revenue decrease of $94 million and $336 million, respectively.
Interest income for the three months ended July 31, 2024 and 2023 was $19 million and $13 million, respectively. Interest income for the nine months ended July 31, 2024 and 2023 was $56 million and $34 million, respectively. The increase in interest income in 2024 was primarily due to higher cash balances and increases in interest rates related to our cash and cash equivalents.
At July 31, 2024, our headcount was approximately 17,400 as compared to approximately 18,300 at July 31, 2023.
Other income (expense), net
In the three and nine months ended July 31, 2024, other income and expense, net includes a net gain of $2 million and a net gain of $6 million, respectively, on equity securities. In the three and nine months ended July 31, 2024, other income and expense, net includes income of $5 million and $19 million, respectively, 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, 2024, other income and expense, net also includes income of $3 million and $9 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, 2024, other income and expense, net also includes $8 million of income related to foreign currency translation reclassified out of accumulated comprehensive income (loss).
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, respectively, on equity securities. In the three and nine months ended July 31, 2023, other income and expense, net includes income of $3 million and $10 million, respectively, 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.
Income Taxes
For the three and nine months ended July 31, 2024, our income tax expense was $61 million with an effective tax rate of 17.8 percent and $182 million with an effective tax rate of 16.3 percent, respectively. For the three months ended July 31, 2024, there were no significant discrete items. For the nine months ended July 31, 2024, our effective tax rate and the resulting provision for income taxes were impacted by the tax expense of $12 million related to the settlement of an audit in Singapore.
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. 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.
In the U.S., tax years remain open back to the year 2020 for federal income tax purposes and 2019 for significant states. In other major jurisdictions where the company conducts business, the tax years generally remain open back to the year 2014.
With these jurisdictions and the U.S., it is reasonably possible that some tax audits may be completed over the next twelve months. However, management is not able to provide a reasonably reliable estimate of the timing of any other future tax payments or change in unrecognized tax benefits, if any.
Segment Overview
In the first quarter of fiscal year 2024, we announced a change in our operating segments to move our cell analysis business from our life sciences and applied markets segment to our diagnostics and genomics operating segment in order to further strengthen growth opportunities for both organizations. Following this reorganization, we continue to have three business segments comprised of 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 beginning with the Quarterly Report on Form 10-Q for the period ended January 31, 2024. All historical financial segment information has been recast to conform to this new presentation in our financial statements and accompanying footnotes. There was no change to our Agilent CrossLab business segment.
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; 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 | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | Months | Months | |||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||
| Net revenue | $ | 782 | $ | 854 | $ | 2,382 | $ | 2,671 | (8)% | (11)% |
Life sciences and applied markets business revenue for the three and nine months ended July 31, 2024 decreased 8 percent and 11 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2024 had an overall unfavorable impact on revenue growth of 1 percentage point for both periods when compared to the same periods last year.
Geographically, revenue for the three months ended July 31, 2024 decreased 7 percent in the Americas with no currency impact, decreased 5 percent in Europe with no currency impact and decreased 11 percent in Asia Pacific with a 2 percentage point unfavorable currency impact when compared to the same period last year. The revenue decline in the Americas was driven by weakness in our liquid chromatography, gas chromatography mass spectrometry and gas chromatography businesses partially offset by strength in the consumables business when compared to the same period last year. The revenue decline in Europe was driven by weakness in our liquid chromatography and liquid chromatography mass spectrometry businesses partially offset by strength in the consumables business when compared to the same period last year. The revenue decline in Asia Pacific was driven by lower demand in China within our liquid chromatography, spectroscopy and liquid chromatography mass spectrometry businesses when compared to the same period last year.
Revenue for the nine months ended July 31, 2024 decreased 10 percent in the Americas with no currency impact, decreased 7 percent in Europe with a 1 percentage point favorable currency impact and decreased 13 percent in Asia Pacific with a 1 percentage point unfavorable currency impact when compared to the same period last year. The revenue decline in the
Americas was driven by weakness in our liquid chromatography, liquid chromatography mass spectrometry and gas chromatography mass spectrometry businesses partially offset by strength in the consumables business when compared to the same period last year. The revenue decline in Europe was driven by weakness in our liquid chromatography, gas chromatography and gas chromatography mass spectrometry businesses partially offset by strength in the consumables business when compared to the same period last year. The revenue decline in Asia Pacific was driven by lower demand in China within our liquid chromatography, liquid chromatography mass spectrometry and spectroscopy businesses when compared to the same period last year.
For the three months ended July 31, 2024, revenue declined across most end markets. Revenue in the pharmaceutical market declined significantly due to weakness in our liquid chromatography and gas chromatography businesses when compared to the same period last year. Revenue in the chemicals and advanced materials market declined significantly due to weakness in spectroscopy, gas chromatography and liquid chromatography businesses partially offset by strength in our consumables business when compared to the same period last year. Revenue in the academia and government market declined significantly due to weakness in our liquid chromatography, liquid chromatography mass spectrometry and spectroscopy businesses when compared to the same period last year.
For the nine months ended July 31, 2024, revenue declined across all end markets. Revenue in the pharmaceutical market declined significantly due to weakness in our liquid chromatography, liquid chromatography mass spectrometry and gas chromatography businesses when compared to the same period last year. Revenue in the chemicals and advanced materials market declined significantly due to weakness in our liquid chromatography, spectroscopy and gas chromatography businesses partially offset by strength in our consumables business when compared to the same period last year. Revenue in the food market declined significantly due to weakness in our liquid chromatography, gas chromatography mass spectrometry and spectroscopy businesses partially offset by strength in our consumables business when compared to the same period last year. Revenue in the academia and government market declined significantly due to weakness in our liquid chromatography and liquid chromatography mass spectrometry businesses when compared to the same period last year.
Looking forward, despite the challenging market conditions and customer capital budget constraints, 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. We will 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 | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | Months | Months | |||||||||||||||||||||||||||||||||
| (in millions, except margin data) | ||||||||||||||||||||||||||||||||||||||
| Gross margin | 60.2 | % | 60.1 | % | 59.9 | % | 60.5 | % | — | (1) ppt | ||||||||||||||||||||||||||||
| Research and development | $ | 62 | $ | 62 | $ | 192 | $ | 198 | — | (3)% | ||||||||||||||||||||||||||||
| Selling, general and administrative | $ | 187 | $ | 186 | $ | 592 | $ | 609 | 1% | (3)% | ||||||||||||||||||||||||||||
| Operating margin | 28.4 | % | 31.0 | % | 27.0 | % | 30.3 | % | (3) ppts | (3) ppts | ||||||||||||||||||||||||||||
| Income from operations | $ | 222 | $ | 265 | $ | 644 | $ | 809 | (16)% | (20)% |
Gross margin for products and services for the three and nine months ended July 31, 2024, was flat and decreased 1 percentage point, respectively, when compared to the same periods last year. Gross margin for the three months ended July 31, 2024 was impacted by lower sales volume and the unfavorable impact of currency movements offset by lower salary expense related to workforce reduction activities and lower shipping costs when compared to the same period last year. Gross margin for the nine months ended July 31, 2024, decreased due to lower sales volume, the unfavorable impact of currency movements and higher warranty costs which were partially offset by lower salary expense related to workforce reduction activities, variable pay and shipping costs when compared to the same period last year.
Research and development expenses for the three and nine months ended July 31, 2024, were flat and decreased 3 percent, respectively, when compared to the same periods last year. Research and development expenses for the three months ended July 31, 2024, were flat due to lower salary expense related to workforce reduction activities and the favorable impact of currency movements offset by higher program investments when compared to the same period last year. Research and development expenses for the nine months ended July 31, 2024 decreased due to lower salary expense related to workforce reduction activities, variable pay and lower consumables costs when compared to the same period last year.
Selling, general and administrative expenses for the three and nine months ended July 31, 2024, increased 1 percent and decreased 3 percent, respectively, when compared to the same periods last year. Selling, general and administrative expenses for the three months ended July 31, 2024, increased due to higher selling commission expenses and variable pay which were partially offset by lower salary expense related to workforce reduction activities and the favorable impact of currency movements when compared to the same period last year. Selling, general and administrative expenses for the nine months ended July 31, 2024, decreased due to lower salary expense related to workforce reduction activities, variable pay, marketing and communications costs and the favorable impact of currency movements when compared to the same period last year.
Operating margin for products and services for the three and nine months ended July 31, 2024 decreased 3 percentage points in both periods when compared to the same periods last year. Operating margin was impacted by lower sales volume and the unfavorable impact of currency movements partially offset by lower salary expense related to workforce reduction activities, and shipping costs when compared to the same period last year.
Income from operations for the three and nine months ended July 31, 2024, decreased $43 million or 16 percent and $165 million or 20 percent, respectively, on a corresponding revenue decrease of $72 million and $289 million, respectively.
Diagnostics and Genomics
Our diagnostics and genomics business includes the cell analysis, nucleic acid contract manufacturing and research and development, pathology, companion diagnostics, reagent partnership, genomics and biomolecular analysis businesses.
Our diagnostics and genomics business is comprised of seven 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 cell analysis business includes instruments, reagents, software, and labware associated with unique live-cell analysis platforms in addition to mainstream flow cytometers, plate-readers, and plate washers/dispensers which are used across a broad range of applications. 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 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. Sixth, our genomics business includes arrays and next generation sequencing ("NGS"). This business also includes solutions that enable clinical labs to identify DNA variants associated with genetic disease and help direct cancer therapy. 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 | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | Months | Months | |||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||
| Net revenue | $ | 385 | $ | 422 | $ | 1,209 | $ | 1,310 | (9)% | (8)% |
Diagnostics and genomics business revenue for the three and nine months ended July 31, 2024 decreased 9 percent and 8 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2024 had an unfavorable impact on revenue growth of 1 percentage point and no impact, respectively, when compared to the same periods last year.
Geographically, revenue for the three months ended July 31, 2024 decreased 14 percent in the Americas with no currency impact, increased 4 percent in Europe with a 1 percentage point unfavorable currency impact and decreased 16 percent in Asia Pacific with a 3 percentage point unfavorable currency impact compared to the same period last year. For the three months ended July 31, 2024, the revenue decline in the Americas was primarily driven by our cell analysis, genomics and nucleic acid solutions businesses. Revenue increased in Europe due to strong performance in our pathology, reagent partnership and biomolecular analysis businesses. The revenue decline in Asia Pacific was driven by our cell analysis and biomolecular analysis businesses partially offset by increased revenue in our reagent partnership business.
Revenue for the nine months ended July 31, 2024 decreased 12 percent in the Americas with no currency impact, increased 3 percent in Europe with a 2 percentage point favorable currency impact and decreased 13 percent in Asia Pacific with a 2 percentage point unfavorable currency impact. For the nine months ended July 31, 2024, the revenue decline in the Americas was primarily driven by our cell analysis, genomics and nucleic acid solutions businesses. Revenue increased in Europe due to strong performance in our pathology, genomics and biomolecular analysis businesses partially offset by a decline in our cell analysis business. The revenue decline in Asia Pacific was driven by our cell analysis business partially offset by increased revenue in our reagent partnership business.
For the three months ended July 31, 2024, revenue performance in the pharmaceutical market declined significantly due to our cell analysis, genomics and nucleic acid solutions businesses when compared to the same period last year. We also saw modest revenue increase in the diagnostics and clinical markets primarily due to strong performance in our pathology business. Revenue in the academia and government markets declined due to our cell analysis business.
For the nine months ended July 31, 2024, revenue performance in the pharmaceutical market declined significantly due to our cell analysis, genomics and nucleic acid solutions businesses when compared to the same period last year. We also saw a modest revenue decline in the diagnostics and clinical markets primarily from our genomics and cell analysis businesses which was partially offset by strong performance in our biomolecular analysis and pathology businesses. Revenue in the academia and government markets declined due to decline in our cell analysis business.
Looking forward, despite the challenging market conditions, 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 ongoing expansion of our nucleic acid solutions production facility in Frederick, Colorado, we are well positioned to serve more of the market demand. We will also 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 | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | Months | Months | |||||||||||||||||||||||||||||||||
| (in millions, except margin data) | ||||||||||||||||||||||||||||||||||||||
| Gross margin | 51.8 | % | 53.5 | % | 52.8 | % | 53.3 | % | (2) ppts | — | ||||||||||||||||||||||||||||
| Research and development | $ | 37 | $ | 38 | $ | 123 | $ | 133 | (2)% | (7)% | ||||||||||||||||||||||||||||
| Selling, general and administrative | $ | 92 | $ | 92 | $ | 289 | $ | 303 | — | (5)% | ||||||||||||||||||||||||||||
| Operating margin | 18.3 | % | 22.7 | % | 18.7 | % | 20.0 | % | (4) ppts | (1) ppt | ||||||||||||||||||||||||||||
| Income from operations | $ | 70 | $ | 96 | $ | 226 | $ | 262 | (27)% | (14)% |
Gross margin for products and services for the three and nine months ended July 31, 2024, decreased 2 percentage points and was flat, respectively, when compared to the same periods last year. Gross margin for the three months ended July 31, 2024 decreased due to lower sales volume, higher infrastructure costs and the unfavorable impact of currency movements partially offset by lower salary expense related to workforce reduction activities and expenses attributed to business exit activities. Gross margin for the nine months ended July 31, 2024 remained flat due to lower salary expense related to workforce reduction activities and variable pay offsetting the impact of lower sales volume, higher infrastructure costs and the unfavorable impact of currency movements.
Research and development expenses for the three and nine months ended July 31, 2024, decreased 2 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, 2024 decreased primarily due to lower expenses attributed to business exit activities and salary expense related to workforce reduction activities.
Selling, general and administrative expenses for the three and nine months ended July 31, 2024, were flat and decreased 5 percent, respectively, when compared to the same periods last year. Selling, general and administrative expenses for the three months ended July 31, 2024 were flat due to lower expenses attributed to business exit activities and lower salary expense related to workforce reduction activities offset by higher infrastructure costs and higher variable pay. Selling, general and administrative expenses for the nine months ended July 31, 2024 decreased due to lower expenses attributed to business exit activities, lower salary expense related to workforce reduction activities and lower variable pay partially offset by higher infrastructure costs.
Operating margin for products and services for the three and nine months ended July 31, 2024 decreased 4 percentage points and 1 percentage point, respectively when compared to the same periods last year. Operating margin for products and services for the three and nine months ended July 31, 2024, decreased due to lower revenue, higher infrastructure costs and the unfavorable impact of currency movements partially offset by lower salary expense related to workforce reduction activities, lower variable pay and expenses attributed to business exit activities.
Income from operations for the three and nine months ended July 31, 2024 decreased $26 million or 27 percent and $36 million or 14 percent, respectively, on a corresponding revenue decrease of $37 million and $101 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 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 | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | Months | Months | |||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||
| Net revenue | $ | 411 | $ | 396 | $ | 1,218 | $ | 1,164 | 4% | 5% |
Agilent CrossLab business revenue for the three and nine months ended July 31, 2024 increased 4 percent and 5 percent, respectively, when compared to the same periods last year. Foreign currency movements for the three and nine months ended July 31, 2024 had an overall unfavorable impact on revenue growth of 1 percentage point and no impact, respectively, when compared to the same periods last year.
Geographically, revenue for the three months ended July 31, 2024 increased 7 percent in the Americas with no currency impact, increased 5 percent in Europe with no currency impact and was flat in Asia Pacific with a 3 percentage point unfavorable currency impact compared to the same period last year. For the three months ended July 31, 2024, revenue in all three regions reflected consistent high demand for repair and maintenance services across the entire portfolio. In Americas and Europe, revenue growth was partially offset by weakness in installation revenue. In the Asia Pacific region the weakness in installation revenue offset the revenue growth seen from repair and maintenance services.
Revenue for the nine months ended July 31, 2024 increased 7 percent in the Americas with no currency impact, increased 8 percent in Europe with a 2 percentage point favorable currency impact and decreased 1 percent in Asia Pacific with a 2 percentage point unfavorable currency impact. For the nine months ended July 31, 2024, revenue in all three regions reflected consistent high demand for repair and maintenance services across the entire portfolio. In Americas and Europe,
revenue growth was partially offset by weakness in installation revenue. In the Asia Pacific region the weakness in installation revenue more than offset the revenue growth seen from repair and maintenance services.
For the three and nine months ended July 31, 2024, we saw strong revenue growth in the environmental and forensics, diagnostics and clinical and pharmaceutical markets, mainly driven by our spectroscopy, gas chromatography and liquid chromatography businesses, 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 | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | Months | Months | |||||||||||||||||||||||||||||||||
| (in millions, except margin data) | ||||||||||||||||||||||||||||||||||||||
| Gross margin | 52.1 | % | 50.9 | % | 50.9 | % | 48.8 | % | 1 ppt | 2 ppts | ||||||||||||||||||||||||||||
| Research and development | $ | 8 | $ | 8 | $ | 25 | $ | 25 | — | — | ||||||||||||||||||||||||||||
| Selling, general and administrative | $ | 66 | $ | 65 | $ | 211 | $ | 209 | 3% | 1% | ||||||||||||||||||||||||||||
| Operating margin | 34.0 | % | 32.7 | % | 31.6 | % | 28.8 | % | 1 ppt | 3 ppts | ||||||||||||||||||||||||||||
| Income from operations | $ | 140 | $ | 129 | $ | 385 | $ | 335 | 8% | 15% |
Gross margin for the three and nine months ended July 31, 2024 increased 1 percentage point and 2 percentage points, respectively, when compared to the same periods last year. Gross margin for the three months ended July 31, 2024 was impacted by targeted price increases, well-controlled variable service delivery costs and by lower salary expense related to workforce reduction activities partially offset by higher variable pay. Gross margin for the nine months ended July 31, 2024 was impacted by targeted price increases, well-controlled variable service delivery costs, lower variable pay and salary expense related to workforce reduction activities.
Research and development expenses for the three and nine months ended July 31, 2024 were flat in both periods when compared to the same periods last year. Research and development expenses for the three months ended July 31, 2024 were flat due to lower salary expense related to workforce reduction activities offset by higher program investments. Research and development expenses for the nine months ended July 31, 2024 were flat due to lower salary expense related to workforce reduction activities and variable pay, offset by higher program investments.
Selling, general and administrative expenses for the three and nine months ended July 31, 2024 increased 3 percent and 1 percent, respectively, when compared to the same periods last year. For the three months ended July 31, 2024, selling, general and administrative expenses increased due to higher commissions, variable pay and travel costs partially offset by lower other discretionary spending and salary expense related to workforce reduction activities. For the nine months ended July 31, 2024, selling, general and administrative expenses increased due to higher commissions partially offset by lower travel expenses, variable pay and other discretionary spending and salary expense related to workforce reduction activities.
Operating margin for products and services for the three and nine months ended July 31, 2024 increased 1 percentage point and 3 percentage points, respectively when compared to the same periods last year. Operating margin for the three and nine months ended July 31, 2024 increased mostly driven by targeted price increases, lower service delivery costs and salary expense related to workforce reduction activities.
Income from operations for the three and nine months ended July 31, 2024 increased $11 million or 8 percent and $50 million or 15 percent, respectively, on a corresponding revenue increase of $15 million and $54 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, 2024 consisted of cash and cash equivalents of $1,779 million as compared to $1,590 million as of October 31, 2023.
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 provided by operating activities was $1,270 million for the nine months ended July 31, 2024 compared to net cash provided by operating activities of $1,256 million for the same period in 2023. Net cash paid for income taxes in the nine months ended July 31, 2024 was $284 million compared to net cash paid for income taxes of $143 million for the same period in 2023. Net cash from operating activities in 2023 was helped in part by the deferral of estimated U.S. tax payments to our fourth quarter of fiscal 2023 due to the payment deferral relief made available by the IRS to taxpayers in designated counties in California.
In the nine months ended July 31, 2024, accounts receivable provided cash of $67 million compared to cash provided of $113 million for the same period in 2023. Days’ sales outstanding ("DSO") as of July 31, 2024 was 70 days when compared to 72 days as of July 31, 2023. Cash provided by inventory was $15 million for the nine months ended July 31, 2024 compared to cash used of $53 million for the same period in 2023 mainly due to focused inventory optimization efforts. Inventory days on-hand was 122 days as of July 31, 2024 compared to 95 days as of July 31, 2023. Excluding the asset impairment charges that were recorded in cost of sales in 2023, inventory days on-hand as of July 31, 2023 was 126 days. In the nine months ended July 31, 2024, accounts payable provided cash of $78 million compared to cash used of $117 million for the same period in 2023. This was mainly due to less expenditures for direct materials as we continue optimizing our inventory levels and to timing of payments. The employee compensation and benefits liability used cash of $65 million for the nine months ended July 31, 2024 compared to cash used of $137 million for the same period in 2023. This was largely due to a decrease in variable and incentive payments which were $105 million in 2024 compared to $185 million in 2023.
We contributed approximately $16 million and $17 million to our defined benefit plans in the nine months ended July 31, 2024 and 2023, 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 2024.
Net Cash Used in Investing Activities
Net cash used in investing activities was $304 million for the nine months ended July 31, 2024 as compared to net cash used in investing activities of $270 million in the same period of 2023. In the nine months ended July 31, 2024, we used cash of $3 million related to one acquisition compared to cash used of $51 million related to two acquisitions in the nine months ended July 31, 2023.
Investments in property, plant and equipment were $285 million for the nine months ended July 31, 2024 compared to $214 million in the same period of 2023. We expect that total capital expenditures for the current year will be approximately $400 million. These continued investments in property plant and equipment are primarily due to the planned expansion of 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, 2024 was $777 million compared to net cash used in financing activities of $729 million for the same period of 2023.
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, we repurchased and retired 661,739 shares for $99 million 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 nine months ended July 31, 2023, we repurchased and retired 3.256 million shares for $396 million, excluding excise taxes of $2.4 million under this authorization. During the nine months ended July 31, 2024, we repurchased and retired 5.991 million shares for $815 million, excluding excise taxes of $6.4 million, under this authorization. As of July 31, 2024, we had remaining authorization to repurchase up to approximately $709 million of our common stock under the 2023 repurchase program.
On May 29, 2024, we announced that our board of directors had approved a new share repurchase program (the "2024 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 2024 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 2024 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 2024 repurchase program became effective on August 1, 2024 and will commence upon the termination of our 2023 repurchase program.
Dividends. During the nine months ended July 31, 2024 and 2023, we paid cash dividends of $0.708 per common share or $206 million, and $0.675 per common share or $199 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 was 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. 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 an incremental revolving credit facility 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, 2024, we had no borrowings or repayments under these credit facilities compared to borrowings and repayments of $360 million in the same period in 2023. As of July 31, 2024, we had no borrowings outstanding under either the credit facility or the incremental revolving credit facility. We were in compliance with the covenants for the credit facility during the nine months ended July 31, 2024.
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, 2024, we had no borrowings or repayments under this credit facility compared to borrowings and repayments of $1 million in the same period in 2023. As of July 31, 2024, 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 $1.5 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, 2024, we borrowed $610 million and repaid $235 million under our commercial paper program compared to borrowings of $1.54 billion and repayments of $1.52 billion in the same period in 2023. As of July 31, 2024 we had borrowings of $375 million outstanding under our U.S. commercial paper program and a weighted average annual interest rate of 5.53 percent.
Term Loan Facility. 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. During the nine months ended July 31, 2024, we prepaid a total of $180 million on our term loan. As of July 31, 2024, we had $420 million borrowings outstanding under the term loan facility and had a weighted average interest rate of 6.19 percent.
Senior Notes. 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, 2024 as compared to the senior notes as described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023.
Other. Our commitments for indirect material and services did not change significantly from what was reported in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023. These commitments are related to a variety of suppliers including IT support service providers. Our commitments to contract manufacturers and suppliers decreased by $112 million as supply chain issues improved from $707 million as reported in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023. 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, 2023 to our contractual commitments in the first nine months of fiscal year 2024. We have no other material non-cancelable guarantees or commitments.
Other long-term liabilities as of July 31, 2024 and October 31, 2023 include $114 million and $162 million, respectively, related to long-term income tax liabilities. Of these amounts, $63 million and $68 million related to uncertain tax positions as of July 31, 2024 and October 31, 2023, 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, 2024 the remaining $51 million in other long-term liabilities relates to the U.S. transition tax payment which is due within the next two years.
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