Q4 2022 Azenta Inc Earnings Call
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Greetings and welcome to the <unk> Q4, 2022 financial results.
During the presentation, all participants will be in a 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 floor a new 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 November 14th 2022, I will now turn the conference over to Sarah Silverman head of Investor Relations.
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 fourth quarter of fiscal year 2022.
Our fourth 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 that the Dot Com. In addition to the supplementary Powerpoint slides that will be used during the prepared remarks today.
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.
There are many factors that may cause actual financial results or other events to differ from those identified in such forward looking statements.
I'd refer you to the section of our earnings release titled Safe Harbor statement, the Safe Harbor slide on our 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.
Future financial data or events occur that differ from the forward looking statements presented today.
You may refer to a 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 performing well when considered with GAAP financial results and a reconciliation of GAAP measures. They provide an even more complete understanding of the event that there's.
non-GAAP measures should not be relied upon to the exclusion of the GAAP measures themselves.
In addition, we may refer to certain estimates of Covid based impact.
These figures are estimated based on our insights to the customer application and or prototypes, indicating such demand or constraints on regional demand or ability to deliver on.
On the call with me today is our President and Chief Executive Officer, Steve Schwartz, Our Chief Financial Officer Lindon Robertson.
We'll open the call with remarks from Steve on highlights of the fourth quarter.
Lindon will provide a more detailed outlook into our financial results and our outlook.
We will then take your questions at the end of the prepared remarks.
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.
As we report on our results from the final quarter of fiscal 2022, it's an appropriate time to discuss the very different company. We are now compared to when we entered the fiscal year.
In the space of just one year, we've completed the dramatic pivot from a company that was the life Sciences arm of Brooks automation will stand alone publicly traded life Sciences company.
No small task to separate into two companies and our results show today that it's been successful.
And though we realize we have more work to do today's announcements are evidence of the decisive actions, we're taking to continue to drive value presents a shareholders.
Over the past decade, we transformed a small cyclical semiconductor capital equipment components business into a global market leader.
And as we did so we leveraged the core technologies in cash flow from that business to create a unique world class life Sciences business that meaningfully outgrew the life sciences market over the past five years.
Today, our revenues are four times greater than they were five years ago.
Now following the successful sale of the semiconductor business. We see this is the right time to reassess our approach to capturing the significant opportunity that lies in front of us and to make certain that we're doing all that we should realize our purpose and in doing so deliver exceptional shareholder value.
Today I'll report on two key initiatives that we're taking opportunistically to deliver that value and ensure the long term success of the company.
Today, we announced a significant near term return of capital to shareholders and.
And a meaningful realignment of our operations to recapture growth rates ahead of market growth.
First I'll talk about capital allocation over.
Over the past decade, we built our successful life sciences business by focused execution with organic Andy inorganic growth, including 10 acquisitions at a cost of approximately $1 billion.
Nine months ago, we completed the sale of the semiconductor automation business, which delivered a substantial return for our company and our shareholders.
The resulting net cash balance of more than $2 $5 billion insured our ability to accelerate our growth ambitions as a standalone life Sciences company.
Toward that end over the last four months, we continued our methodology of finding and acquiring precious assets that add to our valuable sample management solutions.
Acquiring barkey envy medical systems, both companies possess the characteristics of each of our most valuable acquisitions in that they strategically add to our technology and product and services portfolio.
Creative to earnings in the first year as part of our center and are led by talented energetic management teams with proven track records of success in.
In addition in the case of <unk> medical they also both provide sales synergy opportunities for other products and services and expand our offerings to sizable new markets.
But even with these two new companies in our portfolio and the success. We've had at this point, we find ourselves faced with the reality that our shares are significantly undervalued. So much. So that at this time, it's difficult to find any target acquisition that would give us as high a return as can be achieved by the repurchase of our own shares.
So we believe it's in the best interest of our shareholders for us to return excess cash.
Toward that end today, we announced the board has authorized a $1 $5 billion share repurchase program will.
We'll be aggressive in our share purchases with a target to return the first $500 million within approximately six months through a committed accelerated share repurchase program.
It's our intention to repurchase a total of at least $1 billion worth of shares in the next year.
It is important to note that this does not imply that we won't be acquisitive, we intend to continue to make both organic and inorganic investments as acquisitions of our powerful components of our growth strategy.
Whether this move is recognition that until we identify valuable targets that would require more substantial capital. We believe the cash should be in the hands of our investors rather than on our balance sheet.
I'll now turn to the second initiative, which underscores the operational adjustments we are implementing over.
Over the period 2016 through 2021, we had cumulative revenue growth of more than 20% per year more than twice the market growth rate.
As we finished the year, even at Q4 growth rate of 12% ex Covid feels too close to the market growth rate and considerably below our expectation and our capability.
And a year of tremendous change we believe we got most things right as we're now a fully functioning Standalone life Sciences company in.
In retrospect, we also think that the magnitude of the changes we've made in our go to market approach some misalignment with customers that manifested in a slower growth rate of sales.
Our branding initiative was first rate, but the restructuring of sales and customer contact points as caused some disruption in our sales channel. Fortunately the fixes are straightforward and we have the right team in place to implement them.
They'll just take some time to gain traction.
The rest assured we're full speed ahead and encouraged by our progress even over the past months.
Since we recently separated from our chief operating and Chief commercial officers, Linda and I are back in our positions of responsibility to be more directly involved in the daily operations of the center for product and service development to sales and customer satisfaction.
We've hired new sales leadership, and we've dedicated more product and services experts the sales effort.
Genomics this means sciences selling to scientists and in products that focuses on automated storage systems and consumables and instruments.
Our sales organization has signed up to specific operational deliverables for 2023 with the expectation that we'll see a reinvigoration of growth as we move through the year.
With our portfolio of best in class capabilities. There's no reason why we shouldnt be growing well above market growth rates.
In the context of these changes that we're implementing to prepare for our next acceleration I want to comment on one additional change thats consistent with our next phase of growth and that relates to board governance.
As we're now at the end of one full year as a Standalone life Sciences company. The board sees this as an opportune time to further enhance the governance team by nominating two new outstanding independent directors, who are known value creators in the life Sciences space.
We're excited to have announced that Dorothy Pooey and Dr. Tina Nova have been nominated for election to our board.
They bring a combined 50 plus years of experience in the life Sciences space and a proven track records of outperformance and value creation with experiences, including sales of companies and leading boards. They.
They are invaluable perspectives will further enhances into strong momentum as we execute on our long term strategy.
As part of this transition Dorothy and Tina will replace two of our directors, who have elected not to stand for reelection at the next annual meeting.
On behalf of the entire board of directors at a center I would like to thank Dr. Mark Reiten and Mr. Al Walcott for their service and contributions over their tenure they've been exceptional stewards of the company over the period of significant transformation and value creation and have been instrumental in transforming <unk> into a global World class Life Sciences business.
Timing for this transition is ideal and will continue to evolve the board as we accelerate into the future as the life Sciences powerhouse.
Before I turn the call to Linda I'd like to give some additional information about the medical systems, which we introduced on our last call.
We're incredibly excited about the medical assistance for many reasons first it is a great purpose driven business.
Saving lives for more than 40 years through innovations in cold chain products, they're market leaders because they are technology leaders and we believe the world Hasnt, yet begun to fully take advantage of the sophistication of their offerings our.
Our attraction to the medical business is multi fold first we believe there is tremendous value yet to be delivered to regions, but the distribution of vaccines is still far behind need and demand.
This is a multiyear source of opportunity and one that be medical is positioned to serve better than any other company and in doing so not only do the products aligned perfectly with our present the portfolio, but the operational performance is also very consistent with ours.
Specifically, we currently forecast that the medical will generate revenue of at least 130 million euros in fiscal 'twenty three a growth rate of approximately 25% from the equivalent period in 2022.
And gross margin from the business are in the mid forty's, making be medical's contributions towards into accretive to growth and earnings in fiscal 2023.
The solid business and financially a positive contributor to a center.
In addition to this forecast we anticipate sales synergies by penetrating sales of <unk> Medical's Ultra cold Freezers and blood management systems into the target rich North American market, where they have essentially zero presence today.
This is a young initiative, but one with a lot of internal support and we believe we will see measurable expansion by the second half of the fiscal year.
The second part of our value creation thesis deals with what's made uniquely possible for <unk> because of the addition of <unk> medical systems to our portfolio.
There is an opportunity to bring us into offerings to a vast population in fast growing emerging markets, where demand for bio repositories is just awakening, but still in need of a real solution.
All of us in the Western World are familiar with the value of bio sample collections and viral repositories as sources for research into population studies and treatments of specific disease types.
Collection sites are plentiful as clinics and hospital networks, and Theres adequate cold chain infrastructure in place to ensure that samples can be collected and transported without degradation.
The same is not true for most fast growing emerging markets, where there is no consistent means for biological samples to be retrieved and brought to our research center.
This is the opportunity for <unk> medical and <unk> to team up.
As we assess this opportunity. We note there are three key elements necessary to enable a foundation of high quality bio samples that are essential for human health studies.
The ability to source samples from a broad swath of the population.
Second the ability to securely transport the samples to secure bio repository without degradation that is cold chain transportation and.
And finally, a reliable bio repository with secure cold chain redundancy informatics capability and operating procedures that ensure the sustained value of these samples over long periods of time.
Combination of <unk> medical and <unk> could play an enabling role in the fulfillment of this necessary capability.
It'd be medical distribution network consists of more than 150 distributors, who have relationships in countries.
This is a well functioning network for sales in countries that has enviable for anyone looking to get started in these fast growing economies that represent approximately 3 billion people.
The medical has an installed base of tens of thousands of vaccine cold chain systems and they deliver thousands of new systems every quarter, establishing a last mile connection to millions of first time patients each quarter.
This last mile Cold chain capability, that's in place to preserve a vaccine dose that has to remain cold and transport is the same mechanism. It can be used in the opposite direction to retrieve a blood sample from a patient and return it in the same coal transport carrier back to the cold chain box to be stored safely until it can be retrieved and moved to a bio repository.
The potential from samples collected in this fashion is game changing at the samples can be from a much more diverse swath of the population compared to just cities.
Samples will have known cold chain Kerr enhance be more usable and more valuable.
Finally, the value of a collection from a bio repository will increase exponentially and hence the care taken to protect and preserve the samples will be worthy of real investment in infrastructure and process.
We're pleased to be gaining traction on our first conversations as a unified solutions team and we like what we're learning from very engaged principals, who understand the value of this approach.
This is incredibly exciting because it has the potential to enhance human health initiatives for heretofore underrepresented populations and it allows the expansion of our <unk> offerings to serve the new population of billions of individuals.
We will report progress as we move forward, but we're excited about the capabilities that are enabled by <unk> medical and as an essential driver of the next level of health care and new markets.
As we embark on fiscal 2023, we're energized about our prospects for the future.
Our portfolio of capabilities positions as never before to address a global opportunity thats, not only expanding rapidly, but an ever more need of our scientific and technology solutions, we've significantly expanded the breadth of our offerings and the size of our market opportunity both through products and geographic exposure.
We've refocused our go to market activities and alignment around customer capture and we believe this will be a potent combination that drives faster and sustained growth.
Additionally, we're taking actions to drive near term shareholder value, while we preserve adequate capacity to make meaningful organic and inorganic investments to fulfill our strategic objectives.
We're now a company of nearly 4000 employees ready to address the ever increasing needs of our customers.
We're driven by our purpose to enable health breakthroughs faster, we're enthusiastic about our work in support of our customers' missions and we're committed to delivering on the promise of enabling world class performance for our customers and their patients.
We very much look forward to reporting our progress to you over the coming quarters as we accelerate into 2023 and we thank you for your interest and support as we work to deliver value to our customers and shareholders.
I'll now turn the call over to Lindon.
Thank you Steve.
As Steve discussed was the successful transformation into a life Sciences company behind US, we are focused and well positioned to take advantage of the growth opportunities ahead of us to create significant shareholder value.
We continue to build our business and when we Peel back the estimated impacts of Covid we saw.
See clear signs of healthy organic growth both in the Q4 and for the full year 2022 results.
As I go through the financials. This will be a key focus to ensure you seen the total reported results and the strong growth indicators, excluding COVID-19 impacts.
I now refer you back to the slide deck available on our website turning to slide three for some highlights.
<unk> performance was strong in the quarter and full year.
Fourth quarter revenue was $138 million up $5 million or 4% sequentially I'll.
I will say more in a few minutes, but this is up 12% on an organic year over year basis, when adjusted to remove the estimated COVID-19 impacts.
On a sequential basis growth in the quarter was notable and large automated stores sample repository solutions and in all areas of genomics.
Also added barkey to the business contributing to the sequential growth.
I will provide more details on my segment remarks.
Earnings per share improvement was evident on a GAAP and non-GAAP basis non-GAAP earnings per share was <unk> 16.
<unk> year over year and sequentially adjusted EBITDA margin of six 9% is reflecting investments in the softer gross margins.
For the full year revenue was up 8% as reported and on an organic basis, excluding the impact of Covid was up 17%.
Over this past year, we completed the transformation into a Standalone life science business, we are well established as a global market leader in our space.
There's nobody else that provides the breadth and depth of sample management solutions, and genomic analysis, which we bring to market.
The forward momentum we are observing in our business lines looks much like these into our shareholders have seen in the past and reaffirms our position for future growth as we uniquely address the demanding needs for sample management and genetic analysis for a customer.
And of course, the addition of <unk> medical which closed October 3rd will bring further acceleration to the topline and it is expected to be accretive to non-GAAP earnings per share in FY 2023.
After putting a half a billion of capital to work on acquisitions. The company has announced a plan for substantial return of capital to our shareholders with a one $5 billion repurchase authorization and we plan to return $1 billion to shareholders over the next year, starting with a $500 million accelerated share repurchase program in the coming due.
Yes.
With all of this emotion, our balance sheet still has more than $400 million of additional cash resources available for investment and growth.
And finally, while I will provide more color on the guidance later in summary fiscal 2023 is expected to grow approximately 30% compared to fiscal 2022.
Let's move on to slide four to address Q4 results.
Revenue of $138 million above our midpoint of expectations was flat year over year and up 4% versus Q3.
Excluding estimated COVID-19 related revenues.
<unk> grew 12% year over year on an organic basis.
Right, we have provided a table to provide steps from the flat reported revenue the adjusted 12% growth excluding COVID-19 impacts.
From a reported revenue.
We removed four points of foreign exchange headwinds and three points of M&A tailwind, which provides the organic growth of 2%.
From there we remove the impacts of Covid, which was an estimated $12 million of revenue in Q4 of 2021 and was approximately $1 million in this quarter.
On a year over year basis organic growth when adjusted to remove the estimated COVID-19 related revenue from each period was strong at 12%.
Looking at the P&L on the left side <unk>.
Total GAAP earnings per share was a loss of <unk> <unk>.
<unk> better than Q3.
The primary differences in the quarter compared to the third fiscal quarter were driven by M&A expenses related to the acquisition of <unk> medical embarking and which was offset by improved interest income.
Getting deeper into quarterly performance, let's look at the non-GAAP .
To the right.
Revenue increase of $5 million quarter to quarter carried lower gross margin, primarily driven by the product segment results.
The softer gross margin combined with investments in operating expense translates into 7% adjusted EBITDA margin, while increased interest income supported improvement in the earnings per share.
Turning to slide five for our results for continuing operations on a full year basis.
Organic growth was 9% again, adjusting only for foreign exchange impacts and removing the benefit of the <unk> acquisition.
Fiscal 2022, we faced a meaningful COVID-19 headwinds, primarily in the consumables and instruments business.
In total we saw an estimated $22 million in Covid benefit in 2022 compared to $53 million benefit in 2021.
Organic growth when adjusted to remove the estimated COVID-19 impacts from each period was 17% year over year.
On the left side of the chart GAAP earnings per share improved 24 cents year over year.
With topline growth and the interest income on investments.
On the right side, we see improvement of three cents year over year and non-GAAP earnings per share again supported by expansion in the topline and interest income.
Profit profile reflects gross margins of 47, 3% with pressures from labor inflation across the business as well as lower leverage in the products business.
This flows through to the operating margins as does the investment we've put into the business for continued growth.
The full year non-GAAP tax rate was 12, 9%, culminating in full year non-GAAP earnings per share of <unk> 51.
Which is up <unk> versus fiscal 2021.
On a continuing operations basis full year adjusted EBITDA margin was 11, 3%.
Now please turn over to slide six for a review of our life Science products segment results.
Product segment revenue totaled $48 million for the quarter consistent with expectations.
As you can see fourth quarter revenue was 9% lower year over year on a reported basis and 10% lower on an organic basis.
This organic rate removes seven points of headwind from currency and eight points of benefit with the acquisition of Barkey.
The driver of this decrease is mainly attributable to the 30% decline in consumables and instruments, which was impacted by the dramatic drop of Covid related revenue just as we expected.
Fourth quarter organic growth for the segment when adjusted to remove the estimated COVID-19 related revenue from each period was 13% year over year.
This double digit growth is in the range that we have long described for the products business.
This was supported by large automated systems and services, both of which grew double digits year over year in the quarter, notably our large automated systems posted another record bookings quarter.
The life Science products Q4, gross margin was 42%.
The pressures on the margins are driven by numerous factors, including under absorbed cost in the automated systems area due in part to our recent investments for volume capability in the future.
Also a weaker margin mix of consumables and instrument business has dropped and the effect of cost headwinds from inflation and to some extent from foreign exchange.
The operating income line as breakeven for the quarter, reflecting softer revenue on the base business and incremental expense structure with the addition of Barkey.
Next please turn over to slide seven for a review of our life Science services segment results.
The services business generated fourth quarter revenue of $89 million, an increase of 6% year over year and up 4% on a sequential basis.
The organic growth for the quarter was 10%, reflecting 9% growth in genomics and 10% growth in sample repository solutions.
Both businesses expanded sequentially with genomics, expanding 6% and Srs, 2% on a reported basis.
Genomics services, 9% year to year organic growth was supported by a return to double digit growth at constant currency in the U S and China.
For us the offerings business growth at constant currency was led by Ngls at 14% and nicely supported with Sanger growth of 8%.
The gene synthesis business was 3% lower year over year with the China business actually growing 11% in the other regions declining.
Our synthesis samples are generated and shipped out of China, we have extended our commitment timelines to customers due to logistics challenges.
That said the local China business is not affected by this we have initiatives in place to address this challenge over the coming months.
Sample repository solutions organic growth of 10% year over year was driven by the storage revenue, which continues to expand our recurring revenue base.
Excluding estimated COVID-19 related impacts in the fourth quarter year over year organic growth rate for the services segment was 11%.
The services business delivered 45, 8% gross margin with a drop quarter to quarter and year to year, driven by labor inflation, which continues to weigh on us as well as some margin headwinds in the gene synthesis business.
The Ngls and Sanger businesses are relatively stable Q.
Q4 operating margin was two 1% down year over year, driven by the gross margin trend.
Partially offset with the efficiency of operating expense.
And adjusted EBITDA was approximately 8%.
Let's turn over to slide eight for a summary of cash flow for the quarter.
Capital expenditures for the fourth quarter were $14 million, which included laboratory equipment for our genomics business additional storage equipment and freezers as well as investments to expand our Srs footprint in Indianapolis and our genomics lab here in the Boston area.
For the full year capital expenditures were $73 million, including $19 million for the new China building.
Let's turn to slide nine to review the balance sheet.
As of September 30th we had $2 3 billion of cash restricted cash and marketable securities with no debt outstanding.
Following the close of our year, we finalized to be medical acquisition on October 3rd, leaving approximately $1 9 billion in cash.
This enables us to return the capital to shareholders through the one $5 billion authorization and are continuing to invest for growth both organically and inorganically.
Our working capital increase was driven substantially by the change in other current assets. This was primarily related to the fair value adjustment of the net investment hedge.
Let's turn to slide 10 for our guidance on the first fiscal quarter and full year 2023.
Revenue is expected to be in the range of $175 million to $190 million with a midpoint supporting growth of approximately 30% year over year.
This includes an organic growth rate, excluding COVID-19 of approximately 9% at the midpoint.
We estimate the foreign exchange impact to be a headwind of five points and the revenue from acquisition to be a total of approximately $49 million.
That is $4 million from Barkey, and we expect the medical systems to contribute approximately $45 million.
Within our base business of products and services, both segments are projected to be stable sequentially.
We expect products, including the $4 million from Barkey be in the range of $46 million to $50 million, reflecting a high teens organic growth rate when excluding the impact of Covid.
We expect services to be in the range of $86 million to $93 million, which is approximately 6% year to year of organic growth excluding COVID-19.
As we move through the year, we believe the business is set for a higher year over year growth in the second half.
To complete the equation a range around being medical expectations is $43 million to $47 million in the first quarter.
We will determine during this quarter. If this is to be a part of the product segment are reported as a new segment.
As you think about your models for next year and begin to incorporate the medical I would urge you to keep in mind that this business will likely be seasonal on a quarter to quarter basis and tends to have its strongest quarter in our first fiscal quarter.
Adjusted EBITDA is anticipated to be 13% to $21 million.
non-GAAP earnings per share is expected to be eight to 16.
For the full year, we expect reported revenue growth of approximately 30% year over year.
We expect it to be medical revenue will reach at least $130 million for the year <unk>.
Excluding all acquisition revenue and a foreign exchange headwind of four points, we foresee an organic growth for the year being high single digits.
And excluding the COVID-19 impacts in each year this sets expectations for low double digit growth for the year.
As indicated this begins with approximately 9% ex COVID-19 organic growth in the first quarter and we expect to see a return to high teens growth in the second half.
Regarding the profit profile, we have confidence in our gross margin improving a couple of points this year.
We will have additional operating expense driven by variable compensation levels, returning to a par level accrual and some continued investments.
For adjusted EBITDA, keeping in mind that our Q4 adjusted EBITDA was 7% we expect to see this metric move up past, 10% through the year for an average of approximately 10% for fiscal 2023.
We will likely see fluctuation between Q1 and Q2 adjusted EBITDA give them be medical seasonally strong Q1, however, the trend from the first half to the second half we'll follow the improvement I just described.
We estimate the non-GAAP tax rate will be in the range of 20% to 25%.
And we expect capital expenditures to be approximately $65 million to $75 million.
This completes the guidance discussion.
In conclusion, we have an incredibly diverse profile for a company of our size and our profile aligned for higher growth.
We are currently tracking to double digit growth rates, when excluding currency and COVID-19 impacts.
As these effects are expected to be Cigna early out of the comparison periods in the second half of 2023, we expect to see higher as reported growth rates by that time.
As we execute toward our fiscal 2023 goals, we are committed to return substantial capital to our shareholders, whether one $5 billion share repurchase authorization in place as Steve mentioned this will not slow down our M&A efforts as we will retain a healthy capacity to invest for strategic growth.
As always we will continue to provide updates on our progress throughout the year. This concludes our prepared remarks, I will turn the call back over to the operator to take your questions.
Thank you.
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Here are three tone to acknowledge that request. If a question has been answered and you would like to withdraw your registration. Please press. The one followed by the <unk> III once again to register a question just one on your telephone keypad and your first question comes from the line of Vijay Kumar with Evercore ISI. Your line is open.
Hey, guys. Thanks for taking my question.
And congrats on the print and the ASR announcement.
I guess the.
I had a couple of questions one I mean, let's start with the organic for the base business here.
Double digit low double digit organic.
You guys just at 12% in Q4, maybe talk about the macro situation.
Hi, perhaps organic.
Can be a little bit better.
And when do you think we can get back to the <unk>.
Organic of high teen Steve.
Yeah. So vijay thanks for the for the question. It's important one for us So I'll give you a couple.
We think we've done a pretty good job to understand where we are in the market.
We're making it's not a uniform macro environment. So I'll give you a couple of pieces here, we had a record quarter for Sanger business <unk> been in for 20 years, we had a record there we saw a nice balance in the NCS business and yet we're still having.
We're still having softness in our in our synthesis business in Lindon mentioned, we have some issues associated with our ability from a logistics standpoint in China, and frankly, our ability to get the product to customers quickly enough is causes some some issues with customers. So we think those markets healthy enough. We think the opportunities are there.
And again I wouldn't call those macro work, we're an aggressive enough player where we're doing things for customers. We think we can satisfy it and get the growth rates back we have some logistic things to work it'll take us a couple of quarters, probably on the synthesis side just to get there, but ngls were pretty aggressive Sanger continues to go strong.
On the product side the bookings for the large automated stores are particularly strong and that's a.
2023 story as we get towards the back half.
The bookings have been.
Record bookings for the large stores, but we'll start to see more revenue from that as we get to the second half of 'twenty three and then on the consumables and instruments.
We're finding the bottom there and what I mean by that is when we get out of the Covid environment. We think we're probably to a run rate with sustained customers buying from us and we'll have to get those will have to get that growth back up we had a really good.
Automation move during the Covid environment, which we were just here to stay and we need to make sure that that continues to sustain but when COVID-19 is down and some market share gains are up it's tough to see where we are but we think we're getting to the bottom there and on the cryo business. We just continue to make good penetration. So that's a good healthy business and the signs from customers.
Or that the adoption of the automated systems are going to continue and that.
The ability for them to take the cryo pods.
And the charging systems, we think are really telling us that they are changing the way that they manage the workflow intelligence therapy. So I'll say that it feels like we're getting close to the close to the bottom of the growth rates are lower here in the fourth quarter lower in the first quarter that we anticipate well we think all the things that we're doing are going to help us as we get to the second half.
For the year will get back into consistent double digit growth and we think all those things are in motion. So I would say as we exit 2023, we ought to be back on growth rates that we've been accustomed to and do you have as well.
That's helpful commentary, Steve and maybe.
The ASR and the share repo here.
It's a pretty big commitment of $1 billion for a company of your size.
That perhaps seems to suggest again another way of getting back toward the bottom here in terms of growth rate.
Maybe just talk about the timing.
Timing of ASR and share repo here Steve.
Yes, maybe I'll comment just as a reminder for everybody. The ASR itself is about $500 million. So we have we announced an authorization for one 5 billion with.
With a plan to execute a full 1 billion within the next year.
The 500 million a S R.
We'll launch in the coming days and.
Depending on where prices are it'll it'll kind of set the pace for what we can accomplish all fast overall.
A highlight to you that.
I think the market.
According to our bankers the market is going to be.
Well it will be in a good spot to do $500 million it'll take a few months.
And most estimations based on our average daily trading volume.
And that's why we give one year to do a $4 billion. So Vijay let me offer back to you. If you want to come back with another question, there, but but trying to portray the characteristics we're seeing.
Understood and then and maybe one last one if I may.
If I just look at the guidance here for the year, 30% on the top line inclusive of the acquisition.
Just some back of the envelope math it looks like <unk> is going to be.
You know 15% below.
And if I go back to your original margin commitment I think back at the analyst day. It was 200 300 basis points.
And I understand it's a different environment, but assuming some margin expansion.
You'd be looking at at least 50% EPS growth for fiscal <unk>.
Fiscal 'twenty three does it seem right to you.
Well I think that's probably a little aggressive however, I'm not putting out an objective on the EPS will watch how effective.
The market is in terms of taking shares back off the market.
However, what I would highlight bring you back to the EBITDA commentary, we provided that as you know.
As we leave the second half of this year and I should just kind of emphasize what what we're very cognizant of as we finished the year weaker than the second half so our 7% that we're coming off on the EBITDA basis.
It's kind of our starting point on that.
Off the fourth quarter as we move through the year, we expect us pass up through 10% mid year and an average of about 10% for the year at least so that's what we're focused on this first step going into this next quarter, we see a couple of points of comp.
Competence in a couple of points of gross margin improvement in the first quarter and we see.
Some additional operating expenses, we return you can imagine this year wasn't in our best performance.
Against our plans and so in the first quarter will be picking up some variable compensation accruals that we had foregone.
The latter part of this year, so that will somewhat offset.
Gross margin, that's where that's why the EBITDA pickup will.
Start off slower, but as we move through the year with a revenue ramp to Steve.
Described I think youll see that pass through the 10% and we'll finish the year up about that an average 10% for the year.
Yes.
Understood. Thanks, guys I'll hop back in the queue. Thanks.
Thanks Vijay.
Your next question comes from the line of David Saxon with Needham Your line is open.
Yeah, Hi, it's Steven Lindsey and good afternoon, and thanks for taking the questions.
Maybe starting with genomics.
I mean, you called out a rebound there which is nice to hear.
What are you seeing that gives you confidence that this can be a sustained recovery.
Okay.
Yes, so we hope it's a sustained recovery there. So let me just give it a try.
We really are adjusting readjusting, our go to market capabilities to make sure that were out getting getting the new customers that we used to get so we we spent a lot of time in the academic world getting new opportunities new customers and then it would grow go into all of the small startups and making sure that the people who had been serving at other cut.
And other companies are at University, we're still purchasing from us and we got away from that a little bit going after some larger opportunities, but we're we're really.
Confident that we need to be doing both we're going to continue to serve the large customers with good account coverage and we're going to go and make sure. They are calling on the individual scientists and thats really whats always fueled the business and we've got away from that a little bit. So we think thats a good long term strategy for the company and Thats, one that we will get back to and we really we really had.
We've gotten away from that for just a little bit, but we think the opportunities are out there. We think that you can see the growth in Sanger is pretty strong, but we think ours is growing more than the market. So we continue to gain share for people who are no longer doing that work themselves. So we think theres. Good sustained growth. There we think the technologies that we have in the in the <unk> World.
Are allowing us to continue to capture more business. So we feel really confident about that as I mentioned on the synthesis side were not quite as confident about our ability to ramp that yet, but we think we're well.
We think we're at the bottom and with a good chance to turn that on and the customers that we serve we're going to win because we turn things very quickly and high quality and that's what we're going to sustain our focus on so we think theres plenty of market opportunity and certainly tons of capability is just making sure. We're connected to the customers. So that we can bring that in and really challenge the.
The <unk>.
<unk> capacity and manufacturing capacity, we have in the company.
Okay. Thanks, that's helpful.
And then Steve another one for you in the script you called out sales synergies with the medical and Barkey.
Maybe can you give a little more color there.
Can you can you quantify kind of what how how are you thinking about those synergies.
Sure. So I'll give you a few weeks when we talk about.
B medical at 130 million Euro at least for the for 2023. We don't include some of the synergies for the ultra cold freezers that they have blood management system. So we think those are big opportunities for example, in North America, where we have the most significant sales coverage and opportunities to take this capability to.
Hospitals or clinics that toward to the blood bank. So there are a number of touch points that we have because we're in the.
In the sample management business that allows us to also promote their capabilities, where we have sales coverage and from the standpoint of Barkey. The fact that Theyre thawing.
We have no blood management systems, and we have plasma following devices. We think this is a great synergies wherever there's a place for blood management, there's a place for Barkey, where there is a place for cryogenics to store the cell and gene therapy applications as a place for Barkey. So we're we're working on those synergies today, where we have touch points our call points, we have one more thing in the portfolio.
Although this offer to those same customers.
Great. Thank you and congrats on the quarter. Thanks.
Thanks, David.
And as a brief reminder to all to register for a question. Please press. The one followed by the four on your telephone Keypad. Your next question comes from the line of Jacob Johnson with Stephens. Your line is open.
Hey, good evening and congrats on a really nice quarter.
Maybe first just on the buyback.
$1 billion of have some pretty big number obviously, you've got a lot of cash you know why why was that the right number and then I think the inevitable question is.
M&A seems like something you are still interested Dan can you just talk about.
If something were to come along.
What are your options to finance something like that.
Yes, so we have a lot of opportunity for sure but.
It's tough Jacob for us to.
<unk> be secure some of that's going to take that kind of cash so from the standpoint of what's the right number we've been really successful when we've had $100 million 200, now $500 million to put to work, we feel really confident that thats a good number for us.
Thing that we don't want to do is sit on cash for a long period of time. So we've had this much cash on the balance sheet now for nine months, we evaluate the prospects and we think that it'll be really adequate cash position that we have $500 million that we can put to work based on the landscape out there and the number of things that we've gone. After we also believe that.
Success over these next couple of years, if we needed to have access to capital to larger deal that would be available to us, but right now we think it's.
It's better for the shareholders to have it.
Allow us a chance to come back if we need it another time, if there's something larger there.
Becomes president we'd be all over it and $500 million still a nice a nice sum of money to do the kinds of things that we're doing about build in our high value portfolio here.
Hi, Yeah, just having $500 million enviable position.
For sure and then I think in the last week or so.
There has been.
Some have called out some headwinds from the macro environment on kind of large ticket freeze your purchases doesn't sound like you're seeing that in the storage business or maybe in cryo, either but maybe just give you the opportunity to talk about kind of the macro backdrop for freezers and how we should think about growth in that offering in 2023.
Yes.
We heard we heard the commentary and again, sometimes sometimes we just have different customers or different customer base, we're not seeing that.
Present, the business still feels pretty healthy and.
We.
Most of them for example, most of our Cryo systems go to people, who are doing cell and gene therapy work on a pretty large scale. So we have you know.
We have a large number of customers with repeat orders and they've changed the means by which they.
Handle those materials and they manage them when they go to manufacturer and those are of move now toward automation and we think Thats, we think thats something thats pretty sustainable.
But as we talked about the large automated stores are.
Sure.
But by far the strongest order position that we've ever had as a company and so we see that continuing to continuing to grow now that we're in the ultra cold freezer business, a little bit with the B medical we'll learn about that so I can't comment yet, but we will learn about that here in the in the coming quarters.
Got it thanks for taking the question Steve you Betcha.
Your next question comes from the lung of U N G with B Riley Your line is open.
Congrats on the quarter and thank you for taking our questions a couple of them.
First maybe somewhat repackage to here so can you.
Articulate the challenges you are facing right now and the plan that you guys have in place to address them.
Okay.
Okay.
Sorry would you mind to repeat we just we had a little connection issue on our side. Please.
So can you articulate the challenges you guys are facing different business segments and the plans you have in place to address them.
Yes.
Maybe let me comment a little bit because we address some of the momentum and we highlighted a little bit of a headwind in.
But there still remains but but in the products business definitely the C&I is where we've had the biggest headwind on the COVID-19 demands and I would say even as Steve said, we maybe we were finding bottom, but inventories are still out there.
I would say, while it's while we're taking orders.
And a little bit of a slower rate than what we'd seen in the past years pre COVID-19. So I wouldn't say it's back fully.
But but aside from that and this really goes on the heels of the last question from the previous analyst.
The automated store systems the cryo.
Business really has shown nothing but steam.
I say that our cryo, our cryo product client expand at 30% year over year for the year are.
Automated large stores, we've seen we've reported now a couple of quarters. This year record bookings and it's got a lot of momentum and that that represent significant infrastructure investment on our customers' part as well as.
The relevance and the importance of the reliable infrastructure that we provide to them.
In that market and thats at their site.
Meanwhile.
If I shift from there over to the services space and sample repository solutions as we highlighted double digit growth there already.
We've seen steady wins and steady volumes still coming in.
So we think that's been a steady grower with the recurring revenue.
<unk> now back over to genomics and genomics, we still we did see some nice turnaround there in terms of I should say.
Turnarounds, probably the wrong word some improvement in the growth rates back into the double digits.
Frankly, even in China, we were up double digits year over year in the quarter and I think everybody recognizes the challenging environment that they've had and the lockdowns.
But in the.
Our rest of the world, we've seen growth Europe still a touch slower in the genomics space than what we would like to see so you are and I think that's still that's still a focus for us still growing.
But it is in the lower single digits in this quarter, but the Americas and China is really expanding at all in the double digits.
In the quarter. So we've seen good momentum there now in terms of the actions.
We've highlighted a few some of them are in our own structure and how we're managing the business.
Steve and I are.
Very much.
Re engaged in all areas of the business currently.
We are looking at.
Playing marketing more at the product level, rather than at the isn't a brand level, making sure that we're driving to the fuel behind each area.
But obviously, we think there is tremendous value in the us into brand and we'll keep we'll keep building on that when you take all of those.
<unk> initiatives and Theres more but you take those and combined with the acquisitions of marquee.
And the medical.
We will fuel those businesses, but we'll be looking at the synergies that Steve highlighted and we think those are the additional action focus from our side. So some repair done in terms of seeing some momentum in the growth rates in the quarter, we have some confidence that we'll be seeing.
Seeing our growth rates moves from.
Into the high single or higher.
Rates in the in the latter part of the year to give us a low double digit for the for the year growth on an organic basis, but then when you add that be medical and Barkey and you've got 30% growth plan for this year. So.
Let me, let me pause there and see if that helps.
Yes, that's super helpful and maybe one follow up there is.
Like you mentioned that you are going to expand the product offering for the medical in the North America, and then in ex U S or in the.
In the territory of the amount of calls you will expand your either part of the services just won't go here.
On the Opex investment on this different territory and how should we think about the old packs over the next 12.
Now to 18 months.
So you ended this is Steve so I'll comment on the things that we're doing from an Opex standpoint, we have a pretty good sales coverage, we're going to continue to add more sales people to make sure that we cover not just accounts, but also the specific technologies products and services that we have with those accounts. So you see our spending.
Up just a little bit, but we're pretty close to where we need to be from the standpoint of sales coverage for those added capabilities. So that those investments are for the most part in place in terms of.
Well anyway those are the things that are in place already so I'll, let Linda take it with a follow up.
On the operating expense, let me just give a little color.
So, we'll we'll be adding some in our base business.
Partly because of significant return to accruing for variable comp and stock comp.
For our for our teammates on a at the beginning of the fiscal year, we had taken most of those accruals out of the fourth quarter.
<unk>.
To right size the year for the payouts on our core performance, but on a but on a.
New year, you start accruing.
When you take that and combined with the addition of the medical Youre going to see some operating expense expansion at all.
I'll highlight to you that we see.
I think of is roughly about $15 million.
From <unk> medical.
Added in the in the first quarter.
Operating expense that we'll be spending on that business now as we go through the year, we will be supporting that further partly around the G&A structure as we highlighted previously we put some of that investment and already.
But but the medical extends in a public company environment.
A little more structural requirements that.
That will have that they didn't necessarily have in our compliance. So so we're in good shape, there, but I'd highlight that for your modeling that's a significant chunk.
Yeah got it thank you so much.
And your next question is a follow up from the line of Vijay Kumar with Evercore.
Line is open.
Hey, guys. Thanks for squeezing me back in.
One just on this cohort.
Assumptions for the guidance.
What is the total COVID-19 guidance excuse me COVID-19 headwinds that the guidance is assuming for fiscal 'twenty to be in the base business and the.
Medical revenues of $130 million.
Does that include any code revenues.
Yeah. So the headwind that we'll have roughly you can think of 2000 $20 million to $722 million of revenue for the full year most of that in the first half we only had a modest amounts.
Frankly, it was it was even more modest because we had the headwinds that we are constraints in the China market in Q3, and a little bit in Q4.
But in the first half we had if you recall $10 million to $11 million each quarter or for C&I. So that's the biggest headwind once we get through first half youre going to see this become pretty much just modest noise level.
So with that said going forward, we really have very modest expectations think of about $1 million a quarter plus or minus going forward, depending on whether we have any more disruptions in China that might that might hold us back a little bit, but but in our positive revenue that will be carrying we still have some vaccine management.
Going forward.
We will.
We are doubtful that we will see much in the C&I space. This quarter. It was just very very very modest in the C&I space.
And by the way.
Jay I'll point out to you and the other investors listening in it.
When you look at our chart deck this quarter.
With the aim towards just giving a lot more clarity on this growth capability peeling out the COVID-19. The very last page of our chart deck. We did provide a table to give you the historical by quarter.
The breakout of the.
FX.
M&A and then the COVID-19 impacts by quarter. So youll have a good historical base that baseline to use.
That's helpful and sorry.
<unk> medical guidance of $130 million is there any cobra revenue isn't that 130.
There'll be modest in this current quarter. They have highlighted a couple of months. So thats a good point when I was referring to a million dollars a quarter.
That is.
That's a number on our base business and the medical did highlight that at the $45 million that we're looking at this quarter there'll be a couple of million dollars and.
And I'll highlight that we don't foresee it's going to be more than that in the quarters going forward of course that business.
Well move around its lumpy as we said a little bit unpredictable in terms of what kind of orders may come in on projects, but they don't foresee that COVID-19 is the driver in 2022, nor 2023, I should say predict on 'twenty three as it was in 2022.
Understood and if I could just squeeze a quick 32nd Lindon on the margins here, 10% EBITDA margins can you talk about what's the impact from FX inflation pricing, maybe acquisitions, perhaps being a drag because I think if I go back to the <unk> model, we are really expecting triple digit margin expansion is that more.
Mostly.
Function of flow revenues.
Ballroom leverage being low or do you have some additional impact.
From inflation and FX heading into 'twenty three.
So.
It depends.
Youre looking at a year over year basis, just keep in mind that from first half 'twenty two to second half 'twenty. Two we had the decline that you've seen so we're coming off of a lower point at the end of 2022 and as I said, we will see a couple of it we're pretty confident that we'll have a couple of points of gross margin improvement in the <unk>.
First quarter.
And as we move through the year, we do expect that that will sustain and continue.
I.
I will highlight that be medical business.
We'll have a higher skew in this disc.
December quarter, and when they typically will have a little lower revenue in the follow on quarters and that will bring down their leverage a little bit but the rest of our business will we expect some stability and increasing now the FX.
Impacts.
We do anticipate a bit in our.
And our year over year headwinds of two to three points for the year.
And in that context, we'll report on that as we move through the year. That's just based on where the rates are currently.
Thanks, guys.
Thanks Vijay.
And there are no further questions I'll turn the call back to Lindon Robertson for closing remarks. Thank you.
Thanks, operator.
Everybody this was.
Certainly an exciting year for us and a lot of regards.
Well, while we had headwinds in the.
In the middle of the year and we were certainly in action in a little bit recovery mode. In Q4, we feel like we've turned the corner there in many regards we still have work to be done transformations behind us we're into a standalone life science business like nobody has seen before centered around infrastructure services.
Around the sample and we couldnt be more excited about the portfolio, we have but also about the prospects. We have not just with what we have ran in 2022, but what we've acquired and in the teammates that have joined us.
Medical and embarking already proving tremendous value as we look into this quarter.
With that said, we look forward to seeing you out on the street so to speak will be at <unk>.
Conference.
Just about each week for the next three weeks.
And we look forward to engaging with you and meeting with you and seeing you at the end of the quarter. Thank you for being with US today and your interest in the company.
And all of that does conclude these into Q4 2022 financial results call.
Thank you very much for your participation you may now disconnect.
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