Q4 2023 Azenta Inc Earnings Call
Hi, Hello, Please continue to stand by your incentive financial results call will begin momentarily. We thank you for your patience. Please remain on the line you have a sense of coal will begin momentarily. Thank you.
[music].
And welcome to the US into Q4 2023 financial results during the presentation, all participants will be in a listen only mode.
The words, 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 November 13th 2023, 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'd like to welcome you to our earnings conference call for the fourth quarter of fiscal year 2023.
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 data Center. In addition to the supplementary Powerpoint slides that will be used during the prepared remarks today.
I'd 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 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 should future financial data or events occur that differ from the forward looking statements presented today.
We 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 performance, but when considered with the GAAP financial results and a reconciliation of GAAP measures. They provide an even more complete understanding of the event.
non-GAAP measures should not be relied upon to the exclusion of the GAAP measures themselves.
On the call with me today is our president and Chief Executive Officer, Steve Schwartz.
Our Chief Financial Officer Herman cute.
We'll open the call with remarks from Steve on the highlights of the fourth quarter, then Herman will provide a more detailed look into our financial results and our outlook for fiscal year 'twenty 'twenty four.
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 I'll direct my remarks to a summary of 2023 results and a preview of how we see 2024, including some of our key initiatives have.
Have you seen in our press releases today, we have a lot to talk about it on this call.
Our strong fourth quarter result.
The outlook for fiscal 2020 for.
A big order for <unk> medical systems as well as important implications for go forward a center, including a significant capital allocation commitment to share repurchases as well as an announcement is part of our regular board refresh.
So let's get to it.
It's an exciting an energizing time presenter.
We had a strong finish to fiscal 2023 with fourth quarter results coming in nicely on top and bottom line.
We're pleased with the progress we've made during the quarter and our positioning headed into fiscal 2024.
Fiscal 2023 was another transformative year for the company as we reached over $660 million in revenue.
We accelerated and adjusted to the demands and opportunities afforded to an innovative Standalone life Sciences company.
We've taken substantial prudent actions to reinvigorate growth in revenue and profitability, even in what continues to be a challenging macroeconomic environment.
We added key leadership and strategic sales expertise and restructured our commercial team to better focus on specific business lines and increase our coverage of geographies.
We continued to build out our portfolio of unique offerings to deliver on our purpose to enable breakthroughs faster.
We extended our strategic leverage and expanded our geographic footprint with the additions of <unk> medical and <unk>.
And as a Standalone company after the divestiture of Brooks, we completed the first phase of streamlining cost reductions there.
There's much more work to be done, but we have a plan for continued execution in the coming year.
Notably we demonstrated positive adjusted free cash flow of $14 million in fiscal 2023.
One measure of the progress we've made throughout the course of the year and an indication of what this business is truly capable of as we go from here.
And on October one we moved to our new three segment reporting structure of multi omics sample management solutions and be medical which we believe will significantly improve our operating efficiency.
Better aligning our offerings to customer needs and providing greater transparency to our shareholders.
Most importantly, we're a year better at all that we do and the value we offer to our customers.
Our capabilities continue to enable customers and we're investing to stay ahead of their needs for solutions that shorten their time to discovery.
Altogether, we believe we're extremely well positioned to continue to outgrow the market.
And now for some highlights from the quarter.
In Q4, we delivered revenue of $172 million, which translates to organic growth of 2% year over year and 6% when you exclude our consumables and instruments business, which remains soft in line with market trends.
Let's look at the business by segment in.
In services, we delivered fourth quarter organic growth of 1% year over year.
Genomics was down 2% year over year, primarily driven by continued macroeconomic headwinds.
From a regional perspective genomics, China was once again, notably strong delivering 12% organic growth.
And although there's been a significant slowdown in the China economy post COVID-19.
Still growing due to our strong customer relationships and continued share gains with new customers in the region.
Despite the softer market environment, we believe our team has adapted extremely well to address customer needs and that performance has been solid on a relative basis.
Our sales realignment and strategic investments and sales expertise is proving to be the remedy we saw it for a slower <unk> sales at the start of the year.
We have more to do but as the current organization gains traction.
And for a return to solid growth in 2024.
In the sample repository solutions business grew 9% year over year led once again by growth in core storage as.
As we've previously announced we're in the process of opening a new buyer repository in the Boston area.
We've received great customer interest and we're currently and fit up mode through the end of this calendar year.
We look forward to accepting customer samples and early calendar 'twenty 'twenty four.
Since we last spoke with you we closed another large deal where we will provide sample management and multi omics services for prospective research study.
Similar to our project with the Lupus Research Alliance, we're demonstrating the value of our sample management and sample measurement platform to provide data to researchers doing discovery.
This is a multimillion dollar multiyear partnership rooted in our strong relationship that we developed over many years and the sample repository side of the business.
This win and others like it are a testament to the high quality capability set and reputation that we've built over the past decade.
Moving now to products.
The products business grew 3% year over year on an organic basis led by record revenues in automated store system.
Store systems grew 38% year over year, driven by our large automated stores business, which we previously reported as accumulated significant backlog over the past few quarters. This.
This team has done a tremendous job to engineer deliver and install these orders at customer sites at a record pace.
In C&I, we did continue to see year over year headwinds, but the good news is that this business expanded sequentially for the first time since Q1 of this year.
Finally be medical ended the year strong delivering $29 million in Q4 revenue led by cold chain solutions.
For the full year be medical generated $113 million of revenue and was accretive to our earnings per share.
The medical is a differentiated market leader in the areas that it operates in particular vaccine cold chain and it's profitable.
What's more is it from the lens of event the ownership, we see meaningful strategic upside in expanding the scope and reach of cold chain projects.
We're building a reputation as enter in fast growing emerging markets and engaging with several opportunities that will leverage <unk> medical and the important change to connect precious biological samples to researchers.
One piece of exciting news I'd like to share today is about one of these transformative opportunities.
Last week, we signed a memorandum of understanding with the Democratic Republic of Congo, or a project just for in country vaccination efforts.
This project has the potential to generate approximately $60 million in our fiscal year 2024.
Let me put this order into perspective on how it impacts our outlook for the year.
On top of the $113 million, we delivered in 'twenty three we expect 24 to be a growth year for <unk> medical our.
Our guidance for the year comes from our view of the pipeline, which is richer than it's ever been.
Before the upsizing of the DRC deal pipeline already included a program from the DRC, but none of the magnitude. We just described and with it gives us additional confidence in the outlook for <unk> Medical's business.
We have a healthy and growing pipeline, but revenue and 24 will be delivered with a different cadence than we've seen in the past or historically Q1 was the largest quarter of the year.
Keep in mind, the medical business is agnostic to the macro environment, but it is lumpy.
When we guided inside the quarter, we've anchored on our forecast for which we have orders in hand, and our Q1 outlook is no different.
We currently expect Q1 to be meaningfully down versus the prior year, but still delivering growth on a full year basis.
<unk> will provide more color in his prepared remarks.
Let me say a little bit more about this DRC project and its strategic significance.
It is important to note that this opportunity began as one that's supported traditional vaccine cold chain solutions from be medical.
Does have us enter it's expanded in scope to form the first part of a critical country initiative that will also include the retrieval and processing of biological samples.
Although the secondary part of the project is still being formed it's one of the key tenets for widest engagements has come to resent the envy medical.
We're enthusiastic about the prospects for this meaningful human health initiative, and our enabling role in this important mission.
As we wrap up fiscal 2023 and move into 2024, I'd like to revisit our overarching strategy and vision for <unk>.
As I think about the progression of the business over the past decade, we started as the life Sciences tools and products Company later added sample management services and genomics or multi omics as we now refer to it and most recently emerging markets cold chain solutions.
We stand here today is a truly unique end to end bio sample management company with a platform that provides expertise from sample to answer enabling our customers to accelerate breakthroughs and therapies.
First and foremost we're focused on strengthening our key leadership positions in the markets we serve.
But we're also keen to leverage our end to end bio sample management capabilities to drive the next vector of growth.
While it's still early I would like to provide some insight into our plans starting with the large deal in the Democratic Republic of Congo as the first live example.
Presenter, we're able to source biological samples from participants of certain phenotype format them for storage and automated workflow analysis.
M. A C code repositories and systems until they're to be interrogated for any of many multi omics measurements we.
We then supply data on these samples to entities, who focus on discoveries and cures.
Our ability to manage this entire critical sample sourcing storage and measurement workflow chain is a unique and increasingly valuable capability for our customers today.
Today, most of the samples we handle our from participants of European descent, and although valuable there's tremendous interest in biological samples that are from contributors of non European descent.
But these samples are scarce, because they're difficult to obtain transport and consents.
We have the platform that will allow us not only to source. These hard to collect samples will also have a means to secure them in regions of interest although in country research on these samples and simultaneously permit access to those rare and valuable samples through our infrastructure.
To say, we've developed a platform not only to manage and measure samples for others, which has already driven $650 million of business and still has tremendous growth upside.
We intend to use this unique platform to source and provide data on high value biological samples to a multitude of interested partners.
Hence the power of our portfolio was clear.
We utilize our cold chain care and management of samples.
Exercise our world class scientific expertise to interrogate these samples and deliver accurate data to discovery teams around the world.
The untapped value opportunity of this platform is twofold.
First more customer samples as we tap into a market opportunity that we barely penetrated by bringing order to vast global collections of samples that have accumulated over decades as.
As we get better at what we do customers are giving us more to do for them.
Second we can leverage our platform to be the source of high value samples that are rare, meaning non European <unk>.
Consented for use in research and discovery.
Highly annotated through multi omics analysis and.
And stored even after measurement for use in future research or follow up analysis.
The clarity of our strategy and where we will focus in the near future leads us to a conclusion about the next steps in what's been a disciplined capital deployment strategy.
As of today, we have repurchased roughly 25% of our outstanding shares relative to when we started the program last November.
Today, we commit to an additional share repurchase of $500 million under the authorization approved by the board of directors last year, which will take place in fiscal year 2024.
This will still leave us with approximately $500 million in cash on our balance sheet, which we plan to prudently deploy in opportunities that will accelerate growth and enhance profitability over the coming years.
Our plans for the remaining cash which should be adequate for the next couple of years will be in support of our strategic roadmap.
This includes organic growth investments to meet the needs of ramping customer demand.
Cash deployment for structural investments to streamline the operations like rationalization of footprint and system upgrade implementation as.
As well as tuck in acquisitions likely in the tens of millions of dollars range that provide durable recurring revenue and enhance our current portfolio of offerings and supportive sample to data and.
And we believe it's prudent to have a couple of hundred million dollars available to run the business to.
To be clear, we do remain active on the M&A front with an eye toward financially attractive and strategically compelling acquisitions that would enhance the value proposition and accelerate the growth of our unique sample management portfolio.
As the creator of this unique sample management and measurement capability. We're also the largest player providing this type of complete service and companies, we target that will add to our capability are necessarily smaller and though valuable will not require cash beyond our current means.
While we're in a challenging macro environment over the short term, we're confident in our long term potential.
We serve high growth markets with fundamental underpinnings for healthy expansion.
24 will be a year of topline growth and increased profitability driven by revenue expansion and significant operational improvements that will drive shareholder value.
We're on a path to be the preeminent provider of high quality samples and high value data the life Sciences industry.
Herman will provide more detail during his prepared remarks, but suffice it to say, we expect to grow mid to high single digits in a market that is forecasted to be up low single digits or even declining slightly next year.
Same time, we're laser focused on profitability enhancement and expect to see improvement from fiscal 'twenty three 'twenty four on both the gross and operating margin lines.
I want to reiterate how encouraged I am by our accomplishments in fiscal 2023, and the momentum we have as we headed into 2024.
We're incredibly well positioned in the markets, we serve and we're ready to outgrow the market as we convert more customers to our value offerings.
I want to thank the entire global as enter team for their contributions and tireless efforts over the past year.
Before I turn it over to Herman I wanted to make a brief comments about the governance changes, we also announced today.
As you know the board continues to add directors to support the company's ongoing transformation strategy.
And so that and we're thrilled to announce the nominations of DDA Hirsch and Martin Madhouse to join our board at the 'twenty 'twenty four annual meeting of stockholders.
DDA and Martin both possess strong life Sciences leadership experience and have track records of creating stockholder value.
We're excited to have their fresh perspectives and I look forward to working closely with them in the new year.
At this time I'm pleased to introduce you to our new CFO Herman Kudo.
Herman joins us from BD, where he most recently served as senior Vice President of finance overseeing segments regions F P&A and operations.
<unk> joined US on the 16th of October He has hit the ground running and has already begun to make great contributions to the team.
We're fortunate to have him onboard.
And I'll now turn the call over to Herman.
Thank you Steve.
I want to start by saying, how thrilled I am to be part of the center.
Over the past four weeks I have worked closely with the leadership team the finance team and other stakeholders to get up to speed on the business.
I've been impressed by what I've seen and I am energized by the potential that we have as a company.
I look forward to meeting our customers and shareholders in the coming weeks and months.
With that I now refer you back to the slide deck available on our website.
Turning to slide seven for some highlights fourth.
Fourth quarter revenue was 172 million up 25% year over year and up 2% on an organic basis.
Most notable contributors to growth include a record quarter in our large automated stores business as well as continued strength in sample repository solutions consumables.
Consumables and instruments or C&I remained a headwind to growth in the quarter.
On a positive note we did see sequential improvements as we move from Q3 to Q4.
Excluding the CNI business, our organic growth in the quarter was 6%.
The medical also performed well delivering revenue of 29 million up 10% sequentially.
I am delighted to announce that our cost savings initiatives are on track and the benefits were felt in the quarter where.
Where we delivered non-GAAP EPS of 13 cents and.
Justice EBITDA of four 6% reflecting continued momentum.
In the quarter. We also benefited by approximately five <unk> or $5 million pretax from the reversal of stock based compensation accrual versus our Q4 guidance.
This accrual favorably impacted net income and had no impact to adjusted EBITDA.
Moving to the full year.
Fiscal year 2023, all in revenue of 665 million represented 20% growth.
While organic growth declined 1% in the full year when you exclude CNI, our organic growth was 5%.
Our strong performance relative to the market.
For the full year.
Acquisitions contributed 127 million to revenue, including 113 million from B medical Phil.
Fiscal 2023, non-GAAP EPS was <unk> 31, and adjusted EBITDA margin finished at four 6% as.
As we move from the first half of 'twenty twenty-three till the second half of 2023 we saw an acceleration in adjusted EBITDA margin of more than 300 basis points, largely driven by our cost savings initiatives.
Turning to the balance sheet and capital deployment, we ended the year in a very strong position with 1.1 billion in cash cash equivalents and marketable securities and no debt outstanding.
Free cash flow was positive for the second quarter in a row at $30 million as we continue to focus on commercial execution and working capital management.
For the full year when you exclude certain payments in the first half of 2023 related to the divestiture, we delivered positive adjusted free cash flow of $14 million.
In addition to the positive finish to fiscal year 'twenty three I want to highlight to everyone that we have returned over 900 million to shareholders via our repurchase program as of today.
This repurchase program has reduced the share count by over 19 million shares or by approximately 25% over the past year.
Today, as Steve mentioned, we announced a commitment to repurchase an additional 500 million worth of shares in fiscal 'twenty, 'twenty, four which will complete the $1 5 billion share repurchase authorization announced last year.
We are extremely well positioned from a balance sheet perspective, and after this investment we will still have roughly 500 million of cash on hand to be used for disciplined and long term value creating initiatives.
Now, let's turn to slide eight to take a deeper look at our results in the quarter.
As previously mentioned total revenue was $172 million.
25% year over year.
non-GAAP gross margin was 42, 8%.
I own a 110 basis points.
We did see positive gross margin expansion in the services and legacy incentive product segments.
The year over year favorability was largely driven by cost savings initiatives within operations and favorable product mix, namely in large automated stores.
This favorability was offset by a soft the medical margin.
I'm happy to report that in Q4, our cost savings initiatives within our operating expenses accelerated sequentially and the benefits we expected to see in the P&L or realized.
non-GAAP operating margin was negative 0.5% down.
Down 200 basis points year over year, primarily driven by the dynamics I just described.
Again, non-GAAP earnings was <unk> 13 cents per share in the quarter.
Now, let's turn to slide nine for a review of our life Sciences products revenue and gross margin.
Total segment revenue was 82 million for the quarter.
Up 70% year over year, driven primarily by acquisitions, which contributed 30 million.
For the first time all year the products segment returned to growth on an organic basis up 3%.
The performance was led by strong double digit growth in large automated stores, partially offset by lower C&I sales.
Excluding the C&I business products was up 21% organically.
Products fourth quarter gross margin was 37, 9% and down 230 basis points year over year.
Next please turn to slide 10 for a review of our life Sciences services segment revenue and gross margin.
The services segment delivered 90 million of revenue in the fourth quarter and.
An increase of 1% year over year.
The organic revenue for the quarter was also up 1% led by strength in sample repository solutions, partially offset by softness in genomics.
In genomics organic revenue declined 2% as we saw continued double digit year over year growth in China offset by softer revenue in the U S.
As you know the genomics market overall continues to face pressures from macro economic uncertainty.
<unk> and a difficult funding environment.
In Srs revenue growth was strong up 9% on an organic basis, driven by the core storage business.
The services business delivered 47, 2% gross margin up 140 basis points year over year with improvements in bulk genomics and Srs businesses.
Now, let's review the balance sheet and a little more detail on slide 11.
T areas to highlight our inventory and accounts receivable, where the improvement was primarily driven by the underlying performance of the business and our operations teams, who have put in significant effort and are making good progress to reduce inventory balances as well as accounts receivable.
Both of which had become elevated during the Covid period.
Let's turn to slide 12 to address the current period cash performance.
Cash flow from operations was $40 million, primarily driven by the improvement in working capital cash.
Capital expenditures for the quarter were $10 million.
Let's turn to slide 13, where I want to remind everyone that starting in fiscal year 'twenty four we will move to a three segment structure, which consists of sample management solutions.
See all mix and be medical.
Sample management solutions combines our sample repository solutions business as well as the product segment, excluding the medical multi.
Multi omics is the renamed genomics business.
<unk> medical will be reported in its own segment, given its distinct end market dynamics and revenue cadence.
We have provided much of the necessary information to model the new segments in the past disclosures as well as in the appendix of today's presentation.
Now, let's turn to slide 14 for fiscal 'twenty 'twenty four guidance.
For the full year, we expect to deliver organic revenue growth in the range of 5% to 8% year over year or $696 million to $718 million.
FX is currently expected to be a nominal headwind.
By segment, we expect multi all mix to grow low to mid single digits Sam.
Sample management solutions to grow mid to high single digits.
And B medical to grow mid single digits.
Growth will be driven by a combination of sales execution as the investments we made in our sales force begin to reach optimal productivity.
Broadening the use of channel partners in certain regions.
Expanding our geographic footprint as.
As well as by innovation and new product introductions, as we develop new vectors of growth.
As you look to model. The Opex line. Please note you will see the expense come up as we reset our variable compensation levels to par as we entered the new fiscal year.
We will also have some added expense related to the Boston repository investment.
We will however, see offsetting benefits from the annualized nation of our cost initiatives completed in fiscal 'twenty three along with the cost initiatives already identified.
That will start in the second fiscal quarter of 'twenty 'twenty, four and increase as we move throughout the year.
While we are on the subject of operating expenses I want to take a moment to recognize the numerous actions we have taken to improve our cost structure, which you could see in the EBITDA margin expansion from the first half to the second half of fiscal 'twenty three.
And although we have taken actions to enhance our efficiency.
We still have meaningful opportunity to optimize our expense structure.
We look forward to sharing more on this in the future.
As you can see on slide 15 on the adjusted EBITDA line.
We expect EBITDA dollars to grow nearly 75% year on year. This translates to approximately 300 basis points of margin expansion versus fiscal 2023.
This expansion reflects the impact of our cost initiatives as well as solid leverage on sales growth.
The work, we will do to further rightsize, our cost structure will positively impact both EBITDA dollars and margin.
We expect EPS to be in a range of 19 to 29 per share.
Our commitment to return capital back to shareholders through the completion of the initial 1 billion of share repurchases as well as today's announcement for an incremental $500 million of share repurchases for fiscal 'twenty 'twenty four is expected to reduce our average share count.
Proximately 52 million shares in fiscal 2024.
However, our share buyback will also reduce interest income in fiscal 2024% to 27% to $29 million.
The lower share count offset by the lower interest income creates a short term net headwind of approximately 13.
In fiscal year 'twenty four.
In addition, we estimate the tax rate will increase to a range of 33% to 37%, which is an approximately three cent headwind year over year, largely driven by deferred tax assets that will not be realized related to stock based compensation.
If we remove the net impact of stock based compensation, our effective tax rate would be comparable to 2023.
And finally with regard to cash flow, we expect capital expenditures of roughly $50 million in fiscal 2024, and we are highly focused on free cash flow generation and expect to be cash flow positive in the year.
In terms of the quarterly guidance. Please refer to page 16 of the slide deck for color and key considerations. We will provide this color every quarter and update our full year guidance based on what we are seeing.
Excluding the medical the business is expected to grow low single digits in the first quarter our.
Our current forecast or be medical anticipates, a decline of approximately 75% year over year due to the timing of orders.
In total we expect Q1 revenue will decline mid teens year over year.
Notwithstanding Q1 softness and be medical it is important to anchor back to the full year, where we feel very good about the 5% to 8% growth for a center the.
<unk> Medical's expected mid single digit growth in fiscal 'twenty 'twenty four is underscored by the opportunity in the Democratic Republic of Congo, which we just announced and by itself could represent 50% or more of their full year revenue.
We expect gross margin to be down in Q1, driven primarily by be medical or.
R&D expense as a percentage of revenue is expected to be around 6%.
And SG&A as a percentage of revenue is expected to be at its highest point of the year and approaches the mid Forty's keep.
Keep in mind that Q1 reflects the full impact of the strategic sales investments, while our additional cost savings initiatives ramped throughout the year starting in Q2.
Overall, we expect the business to be roughly breakeven on adjusted EBITDA and approximately a few pennies negative on non-GAAP EPS for the quarter.
In closing we are pleased with our performance in fiscal 2023.
We are especially optimistic about the progress we made in the business as we move through the second half of the year.
Still we know there is much work to be done.
Our attention moving into fiscal year 'twenty 'twenty four is on continued strong execution with an acute focus on accelerating our margin expansion initiatives, which we will be talking to you more about in the upcoming quarters.
I also look forward to an analyst day early next year, where we can lay out a framework for our longer term strategy and financial goals.
We are committed to delivering on our purpose, serving our customers and enabling life sciences breakthroughs faster.
This concludes our prepared remarks, and I now turn the call over to the operator for questions.
Thank you if you would like to register a question. Please press the one followed by the four on your telephone.
Here are three total prompt to acknowledge that request. If your question has been answered and you would like to withdraw your registration. Please press. The one followed by the three what skin to register for a question. It is one four on your telephone keypad and your first question comes from the line of David Saxon with Needham Your line is open.
Great.
Steve Hi, Herman Thanks for taking my questions and congrats on the quarter, maybe I'll start with.
A multipart question on multi omics or genomics legacy generics. So you called out weakness on pricing it would be great. If you could break down the price versus volume.
Contribution for growth in the quarter.
Is there any modality more impacted by pricing than the others and then in terms of guidance.
Obviously calls for some acceleration.
For multi omics. So maybe can you talk about the puts and takes for reaching the low single digit growth.
Floor versus getting to the mid single digit growth.
Sealing that's embedded in the guidance and then I'll have one follow up thanks.
Okay, Great Hey, David This is Steve.
Permanent I'll share. The response, just a couple of things there there is some pricing some pricing impact I can't tell you exactly what it is but we saw it we saw the similar growth across each of the elements across mgs across sanger and across synthesis. So it seems to be a softness in the market as opposed to specifically pricing, but you know.
We we sustained the revenue.
Just a really slight decrease but we're battling for everything there's no question about it but I think the the.
The the volume of customer activity in each of the areas is depressed and we're seeing that uniformly across so it's not it's not a single area of the.
Of the all makes business, but rather you uniformly across woods and without question.
We're down in some of the small biotech I think everybody's feeling that in and where were certainly no exception, but theres pricing theres a pricing differential of a you know a few percentage.
Points for the compare year over year for example in Ngls.
And we're making up for a lot of that in volume and we're continuing to maintain good margins in that business.
Yeah, David maybe a term and maybe I'll just add a couple of things.
Hum.
The pressure was probably worth about 50 basis points to margin in the quarter.
Where I would like to to anchor you on is when we talk about the guidance of low single digits I think theres a couple of things to think about we do expect pricing pressure to continue into fiscal year 'twenty four and we've cared for that in the guidance that we've given.
But when you think about the sales force investments and the direct alignment we feel good about the coverage that we now have in those investments should start to pay off as as the reps begin to hit their optimal productivity levels.
We are expanding channel sales in places like.
Europe, and Japan, and there's a really good innovation story here when we talk about things like AAV packaging and Sanger easy and that's what gives US a lot of confidence that we have in the low single digits that we described in the guidance.
Great. That's super helpful. Thanks for that and then just on my follow up on the B Medical agreement with with the DRC through 60 million comes out of that.
<unk> medical obviously, you're calling to be down 75% in the first quarter illustrated that.
Projects start to kick in in the.
Fiscal second quarter or is it later and then the 60 million that comes from that is that all assumed in guidance or does that extend into.
Fiscal 'twenty five thanks, so much for taking my questions.
Yeah, So David what I would say is we.
We don't want to sit here today and predict the timing of when this is going to come in.
It wouldn't be prudent for us to do that we do think that we should.
Have the ability to as soon as the order comes in fill whatever portion of it.
Is requested we do expect a lot of it to come in fiscal year 'twenty for US as we described we have the inventory ready to go.
So as soon as the order comes in we will ship it but right now to predict the timing on that we wouldn't be wise for us to do that there's there's a lot of moving parts to it.
What I would say is is this think of it in terms of it it's a pipeline and we did have DRC in the pipeline, but it certainly wasn't at the magnitude that we're describing now.
So it does bolster the pipeline quite a bit so the way I would think about it is this order gives us a ton of confidence in the full year and probably gives us the ability.
To potentially do better than what we're currently describing.
Yeah.
Great. Thanks, so much.
Your next question comes from the line of Jacob Johnson with Stephens. Your line is open.
Hey, good evening, congrats on a nice quarter and thanks for taking the question maybe just sticking on that be medical topic. I think revenues were up sequentially, but gross margins were down sequentially can you just help us understand kind of what drove that was it mix was it something else and then.
On the DRC contract is there any way to think about any impact that could have on on the medical margins.
Yeah. So just in the quarter, you're right. There was a soft b medical gross margin in the quarter, we took a precautionary warranty reserve for our components and our vaccine cold chain products.
We have some work we need to do with the supplier to resolve the spec issue. It was a couple of million dollars and what I would ask is keep in mind. These products have a long warranty of up to 10 years. So we.
We took it as a precautionary measure.
Yeah.
Got it thanks permanent and welcome by the way.
And then thankfully.
Christine.
Just on the large stores you know that was a.
A standout again this quarter you decided that that backlog can you just kind of update us on where that backlog stands and then kind of any commentary around like new order trends I guess large capital equipment and an area that did some some have called out some softness in this quarter. So I'm just curious have you seen any any change there.
Yeah. So we got Jacob roughly half of the year's forecast and backlog. So we continue to make good progress on the stores you know the pipeline is as robust as it's ever been and so we're working to make sure that we continue to bring in enough enough business to keep it full but you know we've always talked about the opportunity here beyond.
Rare disease in population studies were putting large automated stores now into companies that manufacture biological materials and that's helped us to drive another vector. So we feel good about the pipeline, we feel confident about the growth rate that we forecasted going into 2024, but do you have a healthy backlog right now we continue to.
One part of the business feel really strongly about continuing to be healthy and in 'twenty.
2024.
Got it I'll leave it there thanks for taking the question.
Jacob Thanks Jacob.
And your next question comes from line of Andrew Cooper with Raymond James Your line is open.
Hey, everybody thanks for the questions.
And Herman and good to chat with you here for the first time.
Thanks, Andrew Nice to meet you.
Just on C&I.
If I go back to last quarter, there was some commentary around the instrument.
The instrument dynamics actually giving you a little bit of comfort that there was going to be consumable pull through things with what hopefully start to get better I don't think he put an exact timing on it but just maybe an update on that.
That thinking and how you think about potential for recovery in that business, because obviously the product business is doing well other than that I guess would love to know kind of how you think about.
When that could normalize.
Yeah.
Andrew It's it's it's an interesting question, so I think where I would start determined by the way.
Sequential growth in C&I was eight 6% from Q3 to Q4, so we feel really good about that as we speak with the teams. We do continue to hear that C&I budgets are constrained, but right now we have the largest active funnel in this period than we've had at <unk>.
Any point in the last calendar year.
And when we dig a little bit deeper and we ask about what's going on with U S distributor inventory levels right now they tell us that they're basically at par where they need to be.
We do hear that.
The levels in EMEA are a little bit lagging behind right now, but they do expect to cycle through.
That inventory by mid 2024.
Okay, Great that's helpful.
And then maybe just another one on the large stores business asking a little bit different way any changes there in terms of the sales cycles are you hearing about and the duration to close that backlog just in terms of obviously a pressure funding environment for some of these customers.
There just aren't enough to give you the detailed trend here, Andrew but for sure the <unk>.
<unk> that have been out there active it often takes us.
18 to 24 months from identification of an order to closing it. So we're not seeing anything different from normal behaviors, but once once a customer needs a store, we usually get get moving pretty fast and the indications we have.
We usually start with the design work that we do upfront to get the specification close enough and we think that activities in normal course right. Now. So there is some reluctance for sure.
At some places, but then we focus on other stores, where it's more active so I can't tell you that it's different but.
It's not overly robust, but its certainly adequate for us to have a good look into 2024.
Okay, Great I will stop there I appreciate it.
Thanks, Andrew.
Your next question comes from the line of Paul Knight with Keybanc. Your line is open.
Yes, Paul.
Herman.
For all your time today.
Steve I'll I guess I'll start with you first though and that is.
This srs the stores business.
Is this the ramp up of some of these cell therapies <unk> <unk>, we're expecting here in December.
Yeah, Paul So some of it is.
It's difficult to say I will give you a number Paul that'll make sense for us. This the growth in the cell and gene therapy business for US has slowed this year compared to what we'd seen in the past, but we're up 7% year over year for the full year, but it's been slower without question. It's been slower here in the third and fourth quarter.
I will tell you one of the things that we observed as for the first time in a few quarters, we had a multi system order for the <unk> III Cryo systems, there's been a little while since we had those we used that they used to come rather frequently. This is the first we've had probably in four quarters. So its a good green shoot.
For us as people are starting to stabilize them and makes sense of which which process is going to go forward or not so I won't say, it's off to the races, yet, but it's a healthier environment for us and in the pipeline that we have continues to build.
In a way that we haven't seen now in a few quarters.
And Herman.
Seven or so percent EBITA margin, you're targeting on FY <unk>.
<unk> 24 is a long from peers.
What has to happen there to get.
Got it.
Yeah, I mean listen there there is still work to be done as I said in the prepared remarks and <unk>.
Listen I'm going to come in here and I'm I'm, an operator I see the same things that everybody sees and we need to work through that and I look forward to talking more about that.
In the future what I would say on the EBITDA margin that we put into the guide we are seeing nice operating leverage on sales growth. So I'm happy to talk about that we do expect gross margin to expand despite price pressure in genomics and some of the investments that we're making in places.
Like the Boston repository.
You see the cost initiatives that we've been talking about they are showing up in the P&L. We have great line of sight to the phase two initiatives that we've been talking about so we feel really good about that and.
And I do want to remind everybody that the investments in the sales force they do ramped.
In the first part of the year and then the savings will happen throughout the year. So again listen there's there's a lot to be done.
We have work to do in this area I do think we can be more efficient we just have to.
Work those plans and we'll be happy to talk to you more about that in the future.
Okay. Thanks.
Sure.
Your next question comes from the line of Vijay Kumar with Evercore ISI. Your line is open.
Hey, Vijay Hey, guys. Thanks for taking my question Hi, Steve.
I had a few questions I had a few questions for Don mines do you want one on.
This guidance here for Q1.
It looks like we're looking at a minus 15% and it's all being driven by the medical I think implied be medical is 10 million revenues.
What were orders would be medical in the quarter like why is the medical so low to start the year.
And I think you mentioned multi omics plus Srs is is low single is that assuming declines for multi omics and what kind of the clients are you expecting are you expecting China to grow in Q1.
So vijay so lots going on here. So let me give you a few so the core business, we anticipate growth in the.
The December quarter. So as you said the decline comes from the B Medical and then again as Herman mentioned, we give you the forecast somebody medical for we are at this point in the quarter, just not knowing what else will come.
But as we mentioned the pipeline is particularly healthy.
The expanded this.
Expanded order from the DRC is particularly.
I'm positive for us because we had some other we had a different forecasted in the original pipeline and now that they've upsized. The order. This gives us great promise for what the year can be so we're really confident about how we will land for beam at Echo we hope there's upside even to that number but we feel confident about where we are the timing of.
Orders for the medical business as you know are unpredictable and so we give you what we're holding at the moment the pipeline is rich and it doesn't mean things can't drop in between now and the end of the year, but we're not going to commit that yet till we hold it because a lot of things can happen, but you know.
The team is bullish.
Order pipeline and the customer list is pretty significant and we feel we feel really strong about the opportunity growth for b medical in the year, and we're particularly enthusiastic about the strategic implications of the DRC order because of the ability now to handle biological samples, which is the reason really the driving reason for us to be.
Connected to be medical so vaccines out human Biosamples back we think that's the start of what's going to be a tremendous value proposition for the for the customers.
So Vijay it's Herman I think the way you are characterizing the Q1 orders, you're you have that pretty well figure it out.
When we think about Q1 growth in multi omics I would point you to.
The full year range and I would say.
The legacy genomics business is probably on the lower end.
Srs is probably on a little bit of the higher end as a way to think about it.
So we do see growth on that side of the business.
And Vijay finally about China, we have we don't give you the forecast there, but we still see really healthy environment in China. We recognize that's different from what other people are saying Oh I'll give you a little extra color here. The genomics. The genomics growth of 12% was was countered by a decrease in the product side. So the overall.
China growth was 2%, but we had we had 23% growth the prior quarter to 12% growth in Q4. It just continues to be a robust environment. A lot of that is because there are hundreds of companies within walking distance of our Suzhou facility and so we have a really strong customer base and if they if they need any kind of work we're there for them. So.
That's a customer capture proximity capability that allows us to remain really strong in China, and we anticipate that will outperform the market in China here in the in the first quarter.
Understood.
And a welcome one on the thanks for your good guidance here.
I guess, if I guess, he's adding 50 million I think you implied be medical revenues for fiscal 'twenty four is 125 ish.
You know be medical what's the right run rate.
Exiting 'twenty four.
Yeah, I I mean, Vijay I would anchor you back to the guidance that we gave for be medical I come back to the way I described it we have a robust pipeline. This is a lumpy business I think everybody knows that.
The way the pipeline converts to revenue.
It takes a little bit of time, we don't want to bet on it but the DRC order certainly gives us a lot of confidence that the guide that we gave of mid single digits for <unk> medical we have a lot of confidence on that.
Understood and Steve maybe I apologize for the.
Multi question, Peter just one maybe on capital allocation here.
Yes, so the new share repo announcement here, but if I just look at the lost interest income here, that's a pretty sizeable EPS headwind I'm just curious what drove the half a billion share repo, let me know that.
Knew that it was going to be an EPS headwind just curious on the thought process here.
Yeah, Vijay we've always been clear that they're managing their cash isn't that's not our business. We're about growing the company when we looked at the strategic alternatives. We have in terms of acquisitions from our organic growth first then acquisitions and investments that we're making in the company to streamline to reduce cost.
A compressed facilities, we really have adequate cash for the next couple of years and we've been clear with the shareholders that if we don't have better use for cash it belongs to them and that's really what drove the decision. So we made a we made a decision a year ago for one 5 billion, we committed $1 billion and we're simply following through on the remainder of that authorization from the board.
That we that we put out a year ago. So we will still have $500 million of cash and we got a lot of internal work to continue to improve the operations to get the profitability up and that's how you'll see us focusing mostly here over 2024, we've got a good path towards growth and now we've got to get the profitability up and that's how we'll make internal investments organic.
Investments to make sure that we're able to deliver on that and these are investments that have a 700 million dollar revenue company needs to be making now to make sure that were.
Hugely profitable $2 billion revenue company and that's really the focus that we have here in fiscal 'twenty four.
Understood and Herman one last one for you here.
Yes that guidance is a tax rates there predicting normalize once these D. T S go away or Oh, what's the normalized tax rate and do you expect gross margins to be up next year.
Yeah, Let me take the gross margin one first yeah I do expect gross margin expansion next year. So we should.
Certainly count on that and what I would say is is it's growing and it's growing despite some investments that we're making so the Boston repository would put pressure on margin.
We talked about some of the pricing pressures, we're seeing in genomics would put pressure on margin, but I think the big story is.
We do see volume and with that volume coming in we do expect leverage on our fixed overhead and labor efficiency. So we feel really good about that.
Going to the tax rate, yeah, I mean.
I would anchor you back to where we were in 'twenty three is sort of a more normalized tax rate.
In the prepared remarks, I think I alluded to if you remove the.
This headwind you do get back to that more normalized rate.
In that.
Mid 20 range.
Understood. Thanks, guys.
Thanks P J.
Your next question comes from the line of Jan She with B Riley Your line is open.
Oh, Hi, Tim Congrats on the local culture and thank him for au online functions.
Hi, Steve.
Sorry about this small poll question here for the guided organic growth of five 8% can you. Please clarify how much of it is contributed from the medical and that is the organic revenue organic revenue growth in line with the overall industrial growth.
Slide the secondhand using not growth higher than the industry average. Thank you.
Yeah, I mean, let me, let me start with with a couple of things and then Steve feel free to jump in.
If you look at.
You want it I think maybe the best way to look at this if you look at a center ex acquisition acquisitions and ex C&I, we grew 5% organically.
For the full year and 6% in the in the quarter, we did see sequential growth in C&I, which tells us that maybe we've cycled through these tough compares.
Beyond that when you think about the sales team investments the channel.
Expansion that we're doing and the strong backlog that we have in stores. It gives us a lot of confidence.
In this in this five to eight that we've guided today and and on top of that we are seeing when you think about the stores business. We are seeing new vectors for growth. We're seeing companies, who are who manufacture biological materials that are using our stores as part of their supply chain.
So.
We have a lot of confidence in the in the five to eight and this is a this is a tough market and we do believe this five to eight represents us outperforming it.
And you want to answer your question a little bit about how do we compare with the market is tough for us because we don't have full year looks from people in because we're up cycle here our fiscal year started on October one we look at peers and kind of what they're guiding for the quarter. We think in our core business, we're outperforming and just the momentum we've had in the.
Bottoms up look we have with the business, we're really comfortable with a 5% to 8% if the market picks up.
Beyond what.
We believe it looks like well, we'll outperform that we think we're set up to do that we focus on our ability to outperform we think the offerings. We have are superior and that's really how we got into the business on the on the product side on the services side, we remain.
Very competitive and so we're imagining a slow growth market in that 5% to 8% growth would would outgrow the our current view of what the market is.
Got it thanks for flows out of household color and maybe one last question from me for the remaining five are hungry dollars, you'll see on a long term initiatives, where you can in last or improve internally to improve the top line on product margin.
Yeah determined you want.
Yeah, I do think there there could be as we start to build out our plans on how we expand our.
EBITA margin through.
What I would describe as operational type programs there could be.
The need to use some of that money certainly that's a lot of money $500 million, but use some of that money.
To build out some of those programs and we're looking at architecture type things that we want to think about.
You know maybe there was some product line focus that we could do and then certainly continuing with the org efficiencies that we've already began.
And you want to put a couple in four years, we've made investments we basically doubled the capacity we have in Indianapolis area, we're putting a boston by repository and.
We're about to open a genomics laboratory in Oxford in the UK. We're developing next generation tools. So we are making organic investments from the topline standpoint, and those are already in place and it's really to satisfy customer demand that we see coming and also to transform some of the product areas, where we're already market leaders, but we think we have we have.
Product lines that will help to distance from from even where we are today. So those would be topline value creators without question as Herman mentioned other investments inside to rationalized footprint to continue to reduce costs to get systems implementations in place. So that we're a much more profitable much more efficient company as we go forward. So.
We it's hard to earmark, a full 500 million for that but we got a couple of things that strategically makes sense. There are rather small tuck ins, but they will add to the strategic portfolio and we think we have good line of sight for how to keep growing the company with the real where the significant balance sheet that has that 500 million on them.
Got it thank you.
And there are no further questions I'll turn the call back to Steve Schwartz for closing remarks. Thank you.
Okay. Thank you operator, and thanks, everybody for joining us today before we conclude I just wanted to deliver a brief message of thanks to Lindon Robertson, who most of you know now for quite some time, but over the past 10 years, Linda it's been really an incredible partner to me as a collaborator and a teacher.
And in doing so really a tremendous value creator for all of us he's been extraordinarily customer focused and by that I mean is that the end use customers, but also you our investors and analysts.
He's been a patient detail precise communicator and he has always been for someone who delivered the messages with care really with the sole intent to provide clarity to you.
His focus is always on the what was best presenter and for you our shareholders.
In every way linden's represented Brooks automation and as enter in a manner that made each of us proud to be part of his company and we'll miss his presence and his leadership.
Of course, we are enthusiastic about Herman as our new CFO and I think Herman and Linden for the means by which they have worked together during this transition period, it's been great for the company, particularly smooth and if you can tell from Herman's ability to answer the questions that have come in already he's 100% up to speed and I just think both of them for that transition.
So that said we really thank you for your support of a center Herman and I look forward to seeing many of you at various upcoming investor meetings and certainly on our next earnings call. In early 2024. So we thank everybody and look forward to speaking next time.
That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your line.
Okay.
Uh huh.
[music].
Okay.
Hum.
Okay.
Uh huh.
Okay.
[music].
Okay.
So.
Okay.
[music].
Uh huh.
Sure.
Sure.
Okay.
[music].
Uh huh.
Uh huh.
[music].