Q2 2022 Azenta Inc Earnings Call
Okay.
Greetings and welcome to the event of Q2 2022 financial result during.
During the presentation, all participants will be in listen only mode. Afterwards, we will conduct a question and answer session.
At that time, if you have a question. Please press the one followed by the four on your telephone.
If at any time during the conference you need to reach an operator, Please press star zero.
As a reminder, this conference is being recorded Monday May nine 2022, I will now turn the conference over to Sarah Sullivan Director of Investor Relations. Please go ahead.
Thank you operator, and good afternoon to everyone on the line today, we would like to welcome you to our earnings conference call for the second quarter of fiscal year 2022 or.
Our second quarter earnings press release was issued after the close of the market today and is available on our Investor Relations website located at investors daughters onto Dotcom. In addition to the supplementary Powerpoint slides that will be used during the prepared remarks today.
Please note that due to the divestiture announced in the fiscal fourth quarter of 'twenty 'twenty. One the results of the semiconductor automation business are treated as discontinued operations on February 1st we completed the sale of this business and therefore, our second quarter results include one month of performance of this business.
I would like to remind everyone that during the course of the call we will be making a number of forward looking statements within the meaning of the private litigation Securities Act of 1995.
There are many factors that may cause actual financial results or other events to differ from those identified in such forward looking statements.
I would refer you to the section of our earnings release titled Safe Harbor statement, the Safe Harbor slide on the aforementioned Powerpoint presentation on our website and our various filings with the SEC, including our annual reports on Form 10-K, and our quarterly reports on Form 10-Q.
We make no obligation to update these statements in future financial data or events occur that differ from the forward looking statements presented today.
We may refer to number of non-GAAP financial measures, which are used in addition to and in conjunction with results presented in accordance with GAAP. We believe the non-GAAP measures provide an additional way of viewing aspects of our operations and performance, but when considered with GAAP financial results and the reconciliation of GAAP measures they provide.
An even more complete understanding of the advent of business.
non-GAAP measures should not be relied upon to the exclusion of the GAAP measures themselves on.
On the call with me today is our president and Chief Executive Officer, Steve Schwartz, and our executive Vice President and Chief Financial Officer, Lindon Robertson, we will.
Open the call with remarks from Steve on the highlights of the second quarter, then Lindon will provide a more detailed look into our financial results and our outlook for the third fiscal quarter of 2022. We will then take your questions at the end of the prepared remarks.
With that I would like to turn the call over to our CEO Steve Schwartz.
Thank you Sarah good afternoon, everyone and thank you for joining US today, our second quarter results show continued strength in execution in the business.
Couldn't be more enthusiastic about our performance and ability to deliver as a company.
As an organization, we're focused on driving growth in the business, both through our differentiated offerings and superior operational capabilities.
As many of you are aware on February one we announced the completion of the sale of the semiconductor automation business and we're now a pure play life Sciences company with more than $2 5 billion in cash available for strategic investment or.
We're full speed ahead investing for expansion to meet our strong growth and we are actively evaluating multiple M&A opportunities that will strengthen our portfolio of capabilities that allow us to enable breakthrough therapies to market faster.
I'll now turn to our results for Q2.
Revenue for the quarter was $146 million up 12% year over year and up 20% when normalized for the estimated COVID-19 impact in both periods.
Consider this to be a strong result in a sometimes challenging operating environment as COVID-19 impacts in Q2 were different compared to the past several quarters specifically.
Specifically, we had an impact from two fronts.
As we mentioned on our February earnings call. The Omicron surge that was still raging in January caused some disruption in the Sanger business as demand from academic labs in the U S and Europe was below normal due to scattered facility closures. This was largely past us by early February but it was noticeable in our revenue numbers compared to our normal run rate.
And second the sporadic and sudden closures of various parts of China in February and March caused occasional interruptions in demand from our Chinese customers and much the same way <unk> did in the U S and Europe .
Nonetheless overall demand was strong enough to allow us to make up for the few million dollars shortfall caused by Covid interruption.
And though we were able to power through Q2 in spite of Covid surprises the spillover effects have already impacted the start of our Q3.
In late April we experienced a government closure of our genomics facility in Suzhou that lasted for approximately two weeks at.
At this time, we are functioning at full power and we believe that we'll be able to largely make up for these last days.
That said the situation in China, that's impacting many companies with operations there remains tenuous.
If there are no additional shutdowns, we expect only a small impact to the results for our third quarter.
All in we're pleased with the results we delivered in Q2, even though they came a bit harder than we'd anticipated.
Now back to the results from the quarter.
Our services business reported revenue of $92 million up 19% year over year, driven by double digit growth in both genomics and sample repository services.
Genomics revenue was up a healthy 18% and there are already a strong result, excluding COVID-19 genomics grew 23% powered by next generation sequencing, which expanded nearly 30% year over year.
These results are a testament to our portfolio and the value that we bring to customers in the quarter. We saw continued commercial execution to land more large contracts, mostly with large pharma and biotech customers. This.
This is particularly noteworthy because our genomics business has historically been comprised of many small and mid sized projects now not only do we have the tailwind of healthy end markets that are back. We're also gaining traction with larger deals that can move the needle for us.
As we noted we saw some softness in the Sanger business in January due to the rise of <unk> in the U S and Europe Sanger.
Sanger, Nonetheless delivered a solid quarter growing high single digits year over year.
Consistent with our legacy in genomics, we continue to innovate and adapt new technologies to add to our services offering in the first half of the fiscal year, we introduced seven new services, including our new proteomics and Jean to antibody offerings.
And cell and gene therapy research remains a healthy tailwind to growth.
Genomics revenue from cell and gene therapy, once again grew more than 30% year over year, and our AAV offerings more than doubled compared to Q2 2021.
We continue to expand our capabilities here and while we're still in the early days of the opportunity for solidifying our position in the market as the go to provider.
Even as we're managing through a complicated COVID-19 situation in China, we're still gaining momentum as once again, we added hundreds of new accounts in the quarter.
The sample and repository solutions business grew 21% year over year, driven by the increased number of samples in storage.
The transformation of our customer relationships as we shift from handling their sample storage transactions.
Their sample management partner, particularly.
Particularly exciting shift for us and it's driving a transformation to the next phase of how we will operate this business.
Historically, we've used manual freezers due to the archival nature of legacy sample storage, but now as we participate in more and more active clinical trials. In addition to the archival storage business or any sample volumes routinely measured in the millions of individuals sample transactions the.
The next phase of growth for our Srs business now depends on significantly more automation and workflows and sample storage to be able to more efficiently and more cost effectively manage the high value sample assets that customers entrust to us.
Toward that end, we're making significant investment in storage capacity and efficiency of our bio repositories.
In Q2, we installed a next generation automated store that will handle multiple millions of samples in our Indianapolis by a repository.
Over the next 12 months, we plan to add additional stores of this configuration in both Indianapolis and Germany as we transform this service offering to the next level of technology performance.
Both of these major sites, we already perform laboratory services related to sample preparation, including Alec flooding blood fractionation, <unk> isolation and nucleic acid extraction the.
The additional boost from automation will significantly enhance our value proposition for clinical trial samples management.
And Srs were growing rapidly and we have a great ambition about what this business can become.
We are using our automation skills and our balance sheet to enhance the offerings for a market that's demanding more of a bio repository in terms of capacity capability technology and efficiency.
We're excited about how our sample management solutions are taking hold and we look forward to the next level of capability that we're bringing to customers at exactly the time when it's needed most.
The products business delivered revenue of $54 million for the quarter, representing 2% growth year over year on a difficult COVID-19 compare.
Excluding COVID-19 impacts this business grew 12%.
Solid performance was driven by continued demand for our automated cryogenic store systems, which have strong applications in cell and gene therapy as well as good execution in our consumables and instruments business.
Our cryogenic sample systems business continues to build momentum and expand footprints and new customer wins, and we're increasing our manufacturing capacity to stay in front of the demand we anticipate more strong growth in this segment in the second half of the year.
Our large automated stores business is also seeing significant traction.
As of the end of April large store bookings are already 40% higher than they were in all of fiscal 2021.
We saw particularly strong bookings in April and these systems are scheduled to begin to convert to revenue in the Q4 timeframe and extend into fiscal 2023.
And the consumables and instruments product line non COVID-19 related C&I bookings reached a record level in the quarter with increased bookings across most C&I product lines.
That's nearly twice what it was pre COVID-19.
This is important because we've postulated that the accelerated transition to workflow automation that was brought about in large part by high volume Covid testing demands will provide additional post COVID-19 support for our consumables and instruments business as our products are geared almost exclusively to highly automated workflows.
The fact that we are indeed sustaining much of this year that we've gained during COVID-19 supports what we believed to be the case, when we doubled down on our ability to supply in the earliest days of the pandemic.
Finally, moving to capital allocation I've already mentioned some of the organic expansion that we've undertaken and we're actively exploring many potential complementary solutions to add to our existing portfolio.
As you can imagine with the strength of our balance sheet. We're in a good position and we're confident we have good visibility of the market landscape.
As we move into the second half of fiscal 2022 were well positioned to execute on our growth plans.
<unk> team is firing on all cylinders and our businesses are executing solidly. We believe we have a differentiated high value portfolio of offerings that will only continue to gain traction with new and existing customers are.
Our value proposition is strong and we continue to drive awareness of the <unk> brand. We believe we are still in the very early days of growth with a long runway ahead.
As always we thank you for your interest and support as we work to deliver value to our customers and shareholders.
And I'll now turn the call back over to Lindon.
Thank you Steve before I proceed I would like to thank everyone for their patience and understanding and rescheduling of our earnings call. The change in date was solely due to the complexity of the carve out of the sale and the team needing more time to finalize the numbers to.
To that end, we intend to file a form <unk> 25 to extend the 10-Q filing deadline by five days.
Today, we are sharing preliminary financial results and we encourage you to review the Form 10-Q upon filing for our final results a complete statement of cash flow will be available with our 10-Q.
I'll now refer you back to the slide deck available on our website turning to slide three.
Q2 was another strong quarter delivering revenue of $146 million up 12% year over year and up 20%. When you exclude the estimated impact of Covid in both periods.
I would like to clarify that all references to Covid based impacts are estimated based on our insights to customer applications and product types, indicating such demand or constraints on regional demand our ability to deliver growth.
It was driven by strength in the services segment up 19% year over year.
Again, if you exclude the estimated impact of Covid the base business grew an impressive 25%.
Products delivered 2% growth year over year and expanded 7% sequentially. The year to year comparison is a bit compressed due to the peak of Covid demands in Q2 2021, excluding this estimated impact of Covid. This business was up 12% year over year.
The strong sequential momentum of 7% was significantly driven by the non COVID-19 consumables and instruments and large store systems.
non-GAAP earnings per share for the quarter from continuing operations was 12.
Sequentially supported by revenue growth, but with a bit more expense this quarter as we invested in the business and had higher stock compensation expenses with our recent changes in executive leadership and our annual board grants.
Adjusted EBITDA margin was 13, 3% and is net of 30 basis points or $400000 of headwind from overlapping G&A structure, which is no longer with us.
I'll talk more about this position as we go through the P&L.
With the completion of the sale on February one Youll see one month of semiconductor results and the net gain on the sale of the semi business in discontinued operations and approximately $3 billion of the transaction proceeds on the balance sheet.
Taxes on the gain are now expected at approximately $450 million of which the majority is expected to be paid in June moving to slide four you can see the revenue was up 4% sequentially and up 12% year over year.
Reviewing the GAAP basis on the left side of the page. The key point to highlight is that the total earnings per share is driven by discontinued operations, which includes the gain on the sale of the semi business.
Now, let's look into the non-GAAP P&L on the right side of the page for additional color on the performance.
We indeed delivered a strong quarter with $146 million of revenue and 12% growth year over year, breaking that down organic growth was 12% also with an additional one point contribution from M&A and an offsetting one point headwind from FX.
Covid related revenue remained at approximately $10 million in the quarter driven by continued demand in the consumables business.
While this amount is stable quarter over quarter, we saw a $7 million decline in COVID-19 related revenue versus one year ago in Q2, 2021, which was our peak quarter for Covid related revenue.
Gross margin was 49, 6% up 30 basis points quarter over quarter. This was due to higher margins in the products business, partially offset by lower service gross margin.
If you look at the operating income the margin is down 210 basis points quarter over quarter with revenue up 4% and gross margins up modestly the pressure on the operating margin as an operating expense up approximately $6 million.
This is net of a reduction in overlapping G&A by approximately $2 5 million.
Within the expense lines, we experienced higher stock compensation quarter to quarter, a $2 million and the remaining increase was primarily due to business investment in the areas of direct sales R&D and G&A to support growth.
Adjusted EBITDA margin in the quarter was 13, 3% down 90 basis points quarter over quarter, and down 500 basis points year over year the year over year drop in EBITDA reflects those incremental investments we made during the year I recognize this raises the question regarding our Q4 targeted milestone.
On our EBITDA, which I will address the guidance commentary.
The current status reflects revenue on the expected trajectory and expense investments ahead of projections.
Turning to slide five for a review of our life Sciences products segment results.
The products business generated $54 million of revenue up 7% from the first quarter and up 2% year over year.
Products revenue was a bit stronger than expected driven by consumables and instruments. The C&I had additional non COVID-19 demand and the COVID-19 demand remained steady at an estimated $10 million.
Our automated stores business with the completion of multiple projects and initiation of new projects delivered strong results and is projected to show good growth in the second half.
Our life Science products Q2, gross margin was 49, 5% at 310 basis point improvement year over year, and 360 basis point improvement sequentially, reflecting favorable product mix in our consumables and instruments business as well as stronger margins in large automated stores, we continue to be.
Pleased in the gross margin progress in the products business.
Second quarter operating margin of nine 9% increased 110 basis points quarter over quarter as the topline performance dropped through to the bottom line on a year over year basis operating margin was down 400 basis points, primarily due to the previously mentioned investments, including R&D and sales aimed.
Driving future growth.
Adjusted EBITDA margin for the segment was 15, 5% up 230 basis points quarter over quarter.
Next please turn to page six for a review of our life Sciences services segment results.
Our services business delivered revenue of $92 million up 19% year over year sequentially the business grew 2%.
A genomic services business generated revenue of $65 million up 18% year over year with next generation sequencing delivering over 25% growth on a reported basis.
I want to provide a little more commentary on our COVID-19 related headwind in the genomics business in Q2.
While China represents less than 10% of total us into revenue our genomics business has a large portion of this exposure and as Steve mentioned in his remarks, a large effort by the team on the ground enabled solid results. Despite the difficult operating environment in total the genomics business faced a $3 million headwind from Covid.
In the quarter with nearly half of that coming in the gene synthesis business.
Our primary synthesis operations are in China, and the Lockdowns there this quarter impacted customer demand and added complexity to our logistics.
Sample repository solutions reported revenue of $27 million, another robust quarter of over 20% growth year over year and up 4% sequentially driven by growth in our core storage offering.
We continue to expect to step up in Q3, and then again in Q4 driven by increased samples in storage.
Like many of you on the line we have been following the tragic events in Ukraine, and we have received questions on our exposure there as well as in Russia. We.
We do not have direct customer exposure in those regions and have only modest exposure from a sample sourcing standpoint, our sample procurement services as sourcing channels in multiple countries and we are cultivating alternative sources.
The services business delivered 49, 6% gross margin down 150 basis points from first quarter and down 360 basis points year over year.
The decline in gross margin was driven by increased labor cost and customer mix.
Operating margin was five 3% down 350 basis points quarter over quarter, and down 200 basis points year over year due to the lower gross margins and additional investment in the Labor Force.
Adjusted EBITDA margin for the services segment was 13, 7% down 220 basis points quarter over quarter.
In regards to the current inflationary environment, we continued to see the competitive labor market is a factor and on the supply chain side, we are managing our raw materials and inventory very closely.
There have been increases in raw material costs. We believe we can generally offset these through disciplined pricing.
Most importantly, the growth of our business will provide significant leverage to the bottom line.
Let's turn to slide seven to review the balance sheet.
As of March 31, we had approximately $3 billion of cash restricted cash and marketable securities with no debt outstanding in conjunction with the close of the sale of the semiconductor automation business on February one we repaid the remaining $50 million of outstanding debt on our term loan and canceled our revolving credit.
<unk>.
On the tax front, we expect to pay approximately $450 million in taxes related to the sale the majority of which will be paid in the June quarter.
Let's turn to slide eight for our guidance on the third fiscal quarter of 2022 revenue.
Revenue from continuing operations is expected to be in the range of a $140 million to $150 million with a midpoint supporting growth of approximately 12% year over year, driven by continued growth in genomics as well as strengthen our automated stores and sample robust Tory solutions business, we expect products.
Revenue to be in the range of $48 million to $54 million supporting a growth rate of approximately 5% at the midpoint year over year and services being in the range of <unk> $91 million to $97 million supporting a growth rate of approximately 17% year over year again at the midpoint guidance.
Guidance reflects a lower level of Covid revenue in the third quarter and the C&I business. We have seen recent slowdown of Covid based orders to continue at approximately $5 million, which is a quarter to quarter reduction of $5 million and services. We expect the China Covid environment is dampening demand in constraining some delay.
<unk> for approximately a $3 million negative impact for Q3, which is in large part mitigated with vaccine management and Srs overall, we are projecting approximately $5 million of Covid based revenue in the quarter compared to an estimated $10 million in Q2, and a $12 million in Q3 of 2000.
'twenty one.
Adjusted EBITDA is anticipated to be 17% to 24 million and non-GAAP earnings per share is expected to be 9% to <unk> 17 per share.
Now I'd like to take some time to discuss our outlook for adjusted EBITDA in more detail.
For those of you newer to the story at the time, we announced the separation last may I provided a roadmap to help investors understand the evolution of our margin profile as we complete the separation and become a Standalone life Sciences company.
At that time I explained that our adjusted EBITDA margin would initially fall and as we grew into our ongoing expense base and shed temporary overlapping expenses that we expected to see our adjusted EBITDA margin for the life Sciences business to return to its reported Q2 2021 rate by Q4 2022.
This was meant to be a roadmap for investors and a milestone as we expect adjusted EBITDA margins declined to 25% to 27% and our fiscal 2024 target model that we presented at our November 2021 Investor Day.
Today, we still expect our Q4 2022, adjusted EBITDA margin to reflect meaningful operating leverage in the business. However, our Q4 expectations are now in the 18% to 20% range and to continue to climb from there as we progress along our three year plan to fiscal 2024.
As I shared previously the key to our leverage tract as topline growth and a stable level of operating expense. The good news is that the top line is on track for the expected growth excluding COVID-19 impacts, but this update does reflect the higher operating expense with investments for growth the.
The range leaves us room for variability in revenue and in gross margin.
This updated range of 18% to 20% does not change our trajectory to the 26% milestone by 2024, we remain confident in our ability to execute the goals set forth in our three year target model.
We're now three months into our journey as a Standalone life Science company and we've made great progress.
<unk> there is much more to be done in a long runway ahead.
Our core revenue trajectory is solid and we are building an organizational structure to support long term profitable growth.
Furthermore, we intend to leverage our strong balance sheet position to build on our organic potential.
In all there is much to be excited about and I look forward to continuing to report on our progress. This concludes our prepared remarks, I will turn the call back now over to the operator to take your questions.
Thank you. So if you would like to register a question you can press the one followed by the four on your telephone.
Here are three home prompt that acknowledges the request for your question has been answered and you would like to withdraw your registration. Please press. The one followed by the three so again for questions. It's a one four.
First question is from Vijay Kumar with Evercore ISI and your line is open.
Hey, guys. Thanks for taking my question and congratulations on the print maybe one on <unk>.
The fiscal <unk> guidance here.
So at the midpoint $145 million of revenue, that's about 12% represents a 12% growth year on year.
Well it looks like we have a few moving parts right.
Can you walk us through what the underlying growth is X.
It looks like there is some China impact baked in.
In this pure lesser Covid revenues.
And perhaps remind us is there are there any other supply chain disruptions are being baked in.
Into the fiscal <unk> revenue guidance. Thank you.
Hey, Vijay Thanks for your question.
On the Covid side.
The projection in Q3, as we shared would be about half of what we saw in Q2 in terms of a positive contributor to the business. So in Q2, we had about $10 million of revenue.
We could describe that as principally being C&I driven but as you highlighted we had the negative headwind as we shared about $3 million in genomics and it was significantly offset by <unk> <unk>.
Sample repository solutions. If you recall, we have a pretty solid vaccine management contracts there that we still attributed to the Covid environment.
When we look into Q3, we.
We would say that our benefit or revenue contribution I should describe it.
<unk> to about $5 million overall, and again I would attribute that primarily to a drop in C&I as we've seen in the last I'll call. It 60 days a drop off in the order intake.
On the C&I consumables.
On the genomics.
The China situation is still.
Volatile, we would say in terms of what might happen going forward. We're pleased to say that while we had some.
Demand depression in the various markets that are in locked down from time to time.
In particular, Shanghai as you know has been in a lockdown.
Fairly pervasive Lee.
And then also we've had our own facilities.
Temporarily locked down due to a.
And even there with one positive, but it's been reopened so it was a short term.
Pretty fairly immaterial, but in total we assess about a $3 million <unk>.
Impact.
That would encompass some of the impacts we've had.
Quarter to date, and then also some of the expected impacts we have just on the suppress demand because of the lockdowns.
That and big picture, if thats the limit of it will be substantially offset by some of the Srs contracts. We have on the vaccine management. So we would attribute about $5 million in total the services, having almost a wash between.
Genomics and Srs.
And then C&I coming down to about a $5 million level on the consumables.
If I if I give you a picture versus the $5 million a year ago. In total we had about 13, I'm, sorry, 12 $12 million a year ago.
That was approximately $9 million in products and about $3 million benefit both benefits to revenue a year ago, because we had we had really strong genomics.
Performance without the.
Without COVID-19.
Impacts either way, but we had a ramp in the Srs contracts from vaccine management. So in total.
About $12 million benefit Q3, one year ago, and about $5 million in Q3.
That we're in currently.
Sorry, just to summarize that.
I guess the reported guidance is.
At the midpoint, it's about a 12% growth.
But given COVID-19, it's a year on year headwind in China.
A low single digit kind of impact in FX this year.
Incremental.
We've got for us so the underlying year on year growth is that north of 20% which is.
Roughly consistent with how you guys are thinking about the long term.
Yes, that's exactly right so I'm.
So just to cut through all the arithmetic on the year over year comparison, we're looking at a midpoint.
Slightly above 20% year over year.
That's extremely helpful.
Steve One is Jason sorry, Vijay I'll add to it ill add to that that it's a little above 20% on both products and services at the midpoint of the guidance that we've given.
Yeah.
That's helpful and steep out one big picture question for you on that.
Okay.
Clearly the cash on the balance sheet.
That is a source of upside.
I Couldnt help but observe your comments about <unk>.
Covering the landscape.
But just maybe talk about what kind of assets should we be thinking about what.
What would be considered as complementary here.
And the.
The ability to close deals in market environments like these.
Maybe talk about the pipeline and what it means to the model.
Sure.
P J, so a couple of things.
<unk> always we're looking at near Adjacencies to the capability of anything that can.
That would be a good add we'd be a better owner of something that that the capabilities that we already have so as we look at very specifically certain bio repository collections would be good add others would not necessarily be because they don't fit.
Particular, offering that we have in and around the genomics space near Adjacencies, you've heard us talk about gene to antibodies into protein.
Different kinds of activities that we've done as joint ventures to start I think a really meaningful add on the.
Genomics opportunity on the scientific side and from.
Product side, there are a number of opportunities where we can continue to add value for cold chain capabilities.
And on the management of samples that preparation of samples the handling of samples the storage of samples. We do believe that automation continues to be.
Necessity here as we evolve cell and gene therapy capabilities, and we think managing the cold chain in a very controlled environment is going to be critical. So there are a number of companies that do very interesting things.
The the position that we have in the marketplace plus the balance sheet actually and give us a look at almost everything thats an opportunity.
It's also helpful for us as we go to approach different companies that we've learned about <unk> companies that we made just to begin conversations.
In terms of in terms of the environment.
These are environments, where buyers think there are a lot of things to be done and sellers arent quite there yet, but it doesn't mean the conversation shouldnt be had and I think we're really positive about the about the environment and again, we are building the business for the long term. So the conversations that should've been happening over the past few years have been happening the conversations that will be happening.
Today is a continuation of those are our ongoing so we are undaunted by the environment because all.
All valuations aren't established arent necessarily set in the public markets. So we think there are a lot of reasons why and a lot of good conversations.
Ought to be going on and are going on in and around the kinds of things that we're looking to do I'll remind you and I remind everyone in a $10 billion market opportunity as a $500 million company, we're 5% penetrated.
And so we see we see lots of upside and lots of opportunities for companies that serve elements of this space and when we add them to our portfolio. We think is even more value.
That's helpful perspective to you and if I. If you don't mind, one quick if I could squeeze in how big a cell and gene therapy for <unk> right now.
So we haven't put a specific number out there, but we were hovering below $10 million or around the $10 million Mark right now.
On a quarterly basis, we did talk about a 30% year over year growth again in the current quarter. So it's a fast grower. So you can imagine that's about where we are.
Certainly the fastest consistently fastest growing segment of the opportunity that we have and we remain really bullish about our contributions there.
And what the market itself will do so the market growth plus our ability to capture.
In almost every element of this space.
Understood. Thanks, guys.
So again for questions. It's the one followed by the four on your keypad.
Our next question is from Paul Knight with Keybanc and your line is open.
Lindon.
You are seeing that right now.
No.
<unk> of the facility correct.
Not currently as we highlighted we had a short closure due to one case, but its been reopened.
And then the filing of the Q, what date would that be now.
Sorry again.
The 10-Q filing date.
Yes.
The official date would've been tomorrow and it gives us a five day extension. So you should see it sometime between now and Monday.
Okay.
Got it.
And the cash is already.
On balance sheet correct, yes.
Yes, that's absolutely right.
And then what are your thoughts on Covid long term could go completely away.
Well, let me answer it in two regards one in our model we have not relied upon COVID-19 revenue contributing in 2024, we do think that our capabilities to contribute in that.
Problem statement in that environment with our customers has produced additional opportunities in deeper relationships for sure and demonstrated a lot of capabilities.
In terms of whether Covid stays.
With us in terms of a testing environment for a long term.
We're just.
Motive speculating right now the line of sight for us even in the near term as is short but.
But I guess I would anticipate it becomes more of an off the shelf commodity in terms of testing and plastics around that space and that we would.
And another here probably stopped calling this out.
We'll call it out as long as we can see it but.
But but.
The contributions here I think I think this turns towards.
Value that we're offering for example in that vaccine management, we're getting additional opportunities around manufactured products and other opportunities.
Which are blossoming from our capabilities to respond so quickly and reliably and in this environment. So there's opportunities for us, but we wouldnt refer to them as Colby.
Paul This is Steve I'll pile on a little bit just to be clear.
Like all companies in and around the space, we dealt with the Covid environment really well I think we knew the kinds of investments to make but but here now two years later.
We see the kinds of things that are going on in China. It really tested the business continuity.
Plans and processes that we had in place and the team really delivered well so that although China is uncertain the capabilities that the team.
<unk> demonstrated as part of the business continuity planning allowed them to use different sites in China to move the distribution of materials and customer products around the salesforce jumped in really well. So again, it's an uncertain environment, but we're really confident about our ability to deal with the however, it comes to us and it has come.
To us a bunch of different ways. So that part gives us a lot of confidence, but again, it's something that we're going to deal with in a little bit different way because we do have a different structure from our China operation compared to.
So some other companies.
Okay, and then regarding your guidance 24, plus percent EBIT margin on 'twenty three is that really linked to.
Pricing pass throughs.
On your increased costs.
Yeah, So Paul.
The premise of your question isn't quite.
Isn't quite closing in my mind, So let me summarize what we've presented we described it by the time, we get to the Q4 instead of the 22% we provided 18% to 20% EBITDA. However.
It is on a trajectory and thats only a milestone on its way to 'twenty 'twenty four which we said we still feel strongly we're on a trajectory toward approximately at 26% EBITDA by 2024, so perhaps youre interpolating that will be on our part.
From from the I'll call. It 18 to 20 on its way to 2006 and you're pointing to.
To a mid point is that you are.
Question, Yes. My question is your FY 'twenty four.
<unk>.
I'm, sorry, 23, what's your EBIT dollars goal 120 D Lindon.
Yes, we haven't put out an objective or target there, we only do the long term model and as.
As we said.
It's a really good question to air one more time, so we'll put out the long term model track ourselves to the and we clearly given indication of whether we think we're tracking ahead or behind that right now as I shared in my commentary, we take we're tracking right to the top line.
What we would expect to be on that trajectory.
On the operating expense, we've invested a little bit faster in this year as we've gotten off the ground as a standalone company and.
Significantly I think you would look you would see that in our commercial investments as well as some of our G&A.
But with that said, we think we leverage that and grow into that and that by the time you can see us at the end of 'twenty three going into 'twenty four we're on the trajectory towards that 26% EBITDA.
Okay got it.
Sure.
So again for questions. It's one four on your keypad. Our next question is from Jacob Johnson with Stephens. Please go ahead.
Hey, good afternoon, everybody and apologies if you've already covered this but it looks like guidance assumes kind of a step down in COVID-19 revenues in <unk> are you assuming any offset.
Selling so that as customers kind of for non COVID-19 products or is that something that could be.
Upside to your guidance if that plays out.
So Jacob in the in the guidance.
We do have a drop off on a sequential basis and a pretty significant drop off on a year over year compare.
To summarize on the year over year and our guidance for Q3, we have about $5 million projected in Q3 coming up and we had about $12 million a year earlier, while we described is if you remove it in both periods.
Our guidance supports a little north of 20% growth. So I think when we look at that I highlighted that the 20% growth is supported both on services and products and the non COVID-19 offerings.
Had.
Conveyed before and we would reinforce this as we move through the second half we're seeing good performance in our automation systems.
And also in the services.
Round.
Srs and continued consistent high growth in genomics.
Those three pieces.
Continuously seen genomics perform and then Srs and large systems or automated systems continue to percolate with accelerating.
Momentum.
And Jacob this is Steve I think also that the last point in your question. Indeed, the non COVID-19 portion of the consumables and instruments has remained higher than it was pre COVID-19. So we do think the stickiness of the share gains that we've had are sustained we a few data points, we're really confident about it it's hard to quantify.
If I had exactly but we did talk about <unk>.
Non COVID-19.
The non COVID-19 C&I bookings doubling.
From our prior prior to Covid.
Okay perfect. Thank you for that Steven Lindon, and then maybe following up on VJ in cell and gene therapy question.
Yes, I think there is a lot of interest in kind of the cold chain of custody and distributing the cell and gene therapies.
As I think about your portfolio today.
I would think certainly the <unk> III cryo plays in that process, but I am curious.
If there is an opportunity on the Srs side there.
And also if theres, maybe more you can do there one day I don't know organically, maybe inorganically, just just kind of thoughts around that the distribution of the cell and gene therapies.
Yes.
We absolutely think that there is a tremendous opportunity.
The <unk> C. As part of the development line now and part of the manufacturing line for a number of companies.
So the repeat orders that we're getting there really firmly establish us in that workflow.
There is another product that we have it's not.
As visible, but particularly as it assists the cold chain, we have a cryo pod that deals with these cryogenically frozen samples for for the movement inside the workplace. So it's a critical transport device.
We had a record number of shipments of those products in the last quarter.
A really strong elements and we do believe that as we continue to build out.
In support of cell and gene therapy, it's going to be strong.
<unk> business is all over it so the Srs business continues to see more opportunities and we have.
A lot of customers, we didn't have before who we support for cell and gene therapy cold chain applications.
Great I'll leave it there thanks for taking the question.
Next question is from David Saxon with Needham and your line is open.
Okay.
Hi, guys. This is Joseph on for David I was wondering if you could give a little color on the.
The backlog for.
Freezers, but the stores and the.
Cryogenic freezers.
You had mentioned.
A handful of large orders in.
In the quarter I was wondering if you could maybe size those.
In terms of.
Actual revenue or sample volume size of the.
Units being built.
Yes, Joseph I appreciate the question, but we stopped talking about the backlog absolutely.
A couple of years ago.
And we do this because.
Theres so many different characterizations of backlog on our <unk> business won on the Srs one on the store systems and I understand you've narrowed it down our stores, but we just we arent disclosing the backlog, but I would like to add some color for you what we've seen.
There were significant.
Uptake in large store systems as we entered the year and we saw customers at an enterprise level that we've been supporting engaging on large systems. We've seen larger quantities also on the cryo systems and more robust.
Repeat.
Instead of orders from customers as we've taken those in the past.
And then we.
We've had a pretty strong.
The pipeline does not fully materialized to orders in our backlog and so I wanted to be clear about that so we anticipate that we'll have bookings in this quarter that will feed the fourth quarter and so when we're talking about the ramp in the second half. It is seeing what we have to work on currently and what we know.
The sales team.
<unk>.
As an increasing need across our customer base.
Very enthusiastic about this pump.
Okay, Great. That's very helpful. Thanks for that.
Additional comment.
Then maybe just kind of building off that a little bit with the customers.
Could you guys, maybe talk about especially in this quarter, but.
Here recently in the last couple of quarters, where a lot of these new customers have been coming from especially as we see the COVID-19.
Driven revenue declining is there a certain business unit that.
Most of these.
Customers are gravitating towards whether it would be srs or <unk>.
Genomics services.
Yes, so it would be tough to pinpoint there we have we're getting close to 10000 customers here and I think.
Joseph.
Testament to the aggressive gains everywhere or if they come from all the product lines. So when we're when we're growing in the.
In the <unk>.
Double digit up to 20% growth each of the business units is capturing customers everywhere. So we pride ourselves in our ability to sustain the customers that we've won already.
We derive a lot of growth there and most of the customers that we win that our new customers are generally small companies can we grow with them. So I think thats been consistent.
For the last five years.
All the way through Covid as well so I think I think there is nothing nothing unique or special here.
We are heavily penetrated in all of the large pharma biopharma companies.
Small projects for academic institutions and each one continues to each one continues to grow.
And we do track our ability to add.
More and more revenue with existing customers and I think we're having.
Lines of the success that we ought to be having.
In that environment and as Lindon Lindon mentioned in his remarks.
The commercial activities that we have continued to build on account.
Account base that capabilities, we're bringing us into rather than individual product lines and product capabilities.
Okay, great. Thanks for taking our questions.
Thanks Joseph.
Next question is from one sheet with B Riley's Securities and your line is open.
But thank you for taking our questions.
Gratulation, Steve on Lindon for another great quarter, So maybe two questions from us.
First can you provide some general color on the impact of Covid truly our China operation I'm. Just curious was there a pent up demand on genomics service relative co Ed.
And then the second question is that in the last two quarters, causing our cultural grille saw a cell and gene products sales were up single digits and then <unk> has risen as I have mentioned is that lower demand for their products I'm. Just curious what kind of signals have you guys pick up from your customers regarding their demand.
Ample repository and related genomics services. Thank you.
So on the first one I'll take that one.
Corporate impacts in China.
Think of it as really kind of three pieces that we have covered in our guidance one.
The the demand being suppressed a bit already quarter to date and coming into the quarter due to the lockdowns we've already experienced.
Second we did describe we had a short temporary.
Constrained on our operations in China to deliver gene synthesis.
Significantly gene synthesis impacts things that youre operating in China, but.
But the sense is it's most and what we highlighted about half.
<unk>.
Of our impact overall, there was in genomics and then the third piece is what we project for the next couple of months as we finished the quarter and in that regard what we've covered here.
Is a bit of uncertainty on the demand environment, and perhaps a little rockiness, but not substantial recognized it in our operations.
What we've seen and we've been pretty pleased.
That.
The China government.
There was very fluid communication, when we had a temporary shutdown that we felt there was everybody had motivations to keep things open they are being very cautious I think appropriately so and we reopened in pretty short order and.
We're pretty encouraged that.
Going to be the motive operation so what we've mostly.
Assessed in the 3 million is a modest operational constraints the larger part of it's the demand.
<unk>.
This is Steve just about the.
Impact for example cell and gene therapy on the product side.
Youre correct, when we back out Covid, it's 12% growth in the product side.
We still think is particularly strong but it shouldnt distribute all of the growth and all of that market actually to the cell and gene therapy, so to be specific.
We still ship about 75% of the <unk> III cryo systems for cell and gene therapy applications, but the products also include the consumables and instruments and from that standpoint, the cell and gene therapy is still a relatively small portion. So when we talk about a 30%.
Year on year growth in cell and gene therapy.
The impact on the product side isn't isn't dominating factor if you will but still the growth is strong in almost all of the <unk> III cryo business and the cryo parts of those are products that are related to cell and gene therapy growth and similarly on the sample repository services side with a business that's kind of almost a one.
$1 million run rate cell and gene therapy continues to grow.
And is there is a good contributor but its not its not big enough to push the growth rates there yet towards 30%.
Got it thank you for the additional color.
We have no further questions I'll turn the call back to Lindon Robertson for closing remarks.
Alright, Thank you and thank you everyone for the interest.
And tuning in with us and especially the analyst of the these questions to help add color.
We're very much.
Energized by the momentum of the business the responsiveness that our teams around the world have been able to have and difficult.
<unk> and are we particularly wanted tip, our hat to our China team and how they've executed.
With that said.
Just highlight to you.
Shouldn't be more enthusiastic about what we're doing we are.
We have the revenue growth on track, we're putting investments in place for a long term model with extreme confidence that everything we're putting in this capability that's going to benefit us in the near term and set for scalable growth in the long term and again, we reinforced the objectives for the 2020.
For model with a lot of confidence and I think the proof points are starting to show up which we couldn't be more encouraged I'll remind everyone watch for the 10-Q between now and the beginning of next week.
And those results will be out and confirmed the things I expect that we've said.
But we will.
We'll file that in the next coming weeks, so with that said. Thank you again for tuning in we appreciate it and we look forward to talking to you again next quarter.
And that does conclude our call for today, we thank everyone for participating and you may now disconnect.
Yes.
Okay.
Okay.
Perfect.
Okay.
[music].
Sure.
Okay.
Okay.
Yes.
Sure.
Sure.
Okay.
Okay.
Okay.
Mhm.
So.
Okay.
Okay.
Thanks.
Sure.
[music].
Sure.
Okay.
Okay.
Sure.
Okay.
Okay.
Thanks.
Okay.
Thanks.
Okay.
[music].
Hum.
Okay.
Yes.
Yes.
Great.
Okay.
Okay.
Okay.
Okay.
Okay.
Sure.
Okay.
[music].
Okay.
Okay.
[music].
Okay.
Okay.
[music].