Q1 2024 Azenta Inc Earnings Call
Operator: Greetings and welcome to the Azenta Q1 2024 financial results. During the presentation, all participants will be in a listen-only mode.
Greetings and welcome to the <unk> Q1, 2024 financial results.
During the presentation, all participants will be in a listen only mode.
Operator: Afterward, we will conduct a question and answer session. At that time, if you have a question, please press 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.
Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the four on your telephone if at any time during the conference you need to reach an operator, Please press star zero.
Operator: As a reminder, this conference is being recorded Wednesday, February 7th, 2024. 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.
As a reminder, this conference is being recorded Wednesday February 7th 2024, I will now turn the conference over to Sarah Silverman head of Investor Relations.
Sarah Silverman: 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 first quarter of fiscal year 2024 hour.
Sarah Silverman: We would like to welcome you to our earnings conference call for the first quarter of fiscal year 2024. Our first quarter earnings press release was issued after the close of the market today and is available on our investor relations website, located at investors.azenta.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 are many factors that may cause actual financial results or other events to differ from those identified in such forward-looking statements.
Sarah Silverman: Our first 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 Dot Com. In addition to the supplementary Powerpoint slides that will be used during the prepared remarks today.
Sarah Silverman: 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.
Sarah Silverman: There are many factors that may cause actual financial results or other events to differ from those identified in such forward looking statements I would refer you to the section of our earnings release titled Safe Harbor statement, the Safe Harbor slide on the aforementioned Powerpoint presentation on our website and our various filings with the SEC.
Sarah Silverman: I would refer you to the section of our earnings release titled Safe Harbor Statement, the Safe Harbor slide on the aforementioned PowerPoint presentation on our website, and our various filings with the SEC, including our annual reports on Form 10-K and our quarterly reports on Form 10-Q. We make no obligation to update these forward-looking 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 GAAP financial results and the reconciliation of GAAP measures, they provide an even more complete understanding of the events of this year. Non-GAAP measures should not be relied upon to the exclusion of the GAAP measures themselves.
Sarah Silverman: Including our annual reports on Form 10-K, and our quarterly reports on Form 10-Q.
Sarah Silverman: We make no obligation to update these statements should future financial data or events occur that differ from the forward looking statements presented today.
Sarah Silverman: 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.
Sarah Silverman: We believe the non-GAAP measures provide an additional way of viewing aspects of our operations and performance, but when considered with GAAP financial results and a reconciliation of GAAP measures. They provide an even more complete understanding of the Atlanta business.
non-GAAP measures should not be relied upon to the exclusion of the GAAP measures themselves.
Stephen S. Schwartz: On the call with me today is our President and Chief Executive Officer, Steve Schwartz, and our Chief Financial Officer, Herman Kudo. We will open the call with remarks from Steve on the highlights of the first quarter. Then Herman will provide a more detailed look into our financial results and our outlook for fiscal year 2024. 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.
Sarah Silverman: On the call with me today is our president and Chief Executive Officer, Steve Schwartz, and our Chief Financial Officer Herman shoot up.
Stephen S. Schwartz: We'll open the call with remarks from Steve on the highlights of the first quarter.
Stephen S. Schwartz: And then Herman will provide a more detailed book into our financial results and our outlook for fiscal year 'twenty 'twenty four.
Stephen S. Schwartz: He 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.
Stephen S. Schwartz: Thank you Sarah good afternoon, everyone and thank you for joining us.
Stephen S. Schwartz: I'll focus my remarks on a summary of Q1 2024 results, our outlook for the full year, including updates on some of our key initiatives, as well as our view on the current market environment. Let me begin by saying that we're pleased with our Q1 results as we delivered everything we'd intended for the quarter in terms of performance and progress on key initiatives for the year. We have momentum that supports the guidance we announced on our November earnings call. In addition, new product and services offerings are gaining market momentum, and we're running larger contracts of bundled offerings for larger customers. We're in a post-COVID world now that colors the life sciences industry in more muted tones. This environment allows us to more clearly see the value of our capability in reference to peers in our space. We've embedded ourselves in a critical position in the center of a biological sample-based world that begins at discovery and goes all the way to the delivery of treatment.
Stephen S. Schwartz: With my remarks on the summary of Q1 2024 results our outlook for the full year, including updates on some of our key initiatives as well as our view on the current market environment.
Stephen S. Schwartz: Let me begin by saying that we're pleased with our Q1 results as we delivered everything we had intended for the quarter in terms of performance and progress on key initiatives for the year.
Stephen S. Schwartz: Momentum that supports the guidance, we announced at our November earnings call.
Stephen S. Schwartz: In addition, new product and services offerings are gaining market momentum and we are winning larger contracts are bundled offerings for larger customers.
Stephen S. Schwartz: We're in a post Covid world now the colors, the life sciences industry and more muted tones.
Stephen S. Schwartz: This environment allows us to more clearly see the value of our capability and referenced appears in our space, we've embedded ourselves in a critical position in the center of a biological sample based world that begins at discovery and it goes all the way to the delivery of treatments.
Stephen S. Schwartz: Our ability to source, manage, and store samples, and measure and interrogate samples, ultimately providing discovery-unlocking data, is paramount to all that is advancing this industry. We serve this sample world with a unique set of capabilities. We've built a company that's headed toward $700 million in revenue this year by matching our capabilities to customers' needs for more automated sample workflows and world-class multi-omics capabilities. And we further benefit from tailwinds generated by an industry trend to outsource more critical sample management and measurement. We see sustained long-term growth above the market rate that can persist for years to come. In addition, we've identified the potential for another strong growth vector that will utilize our core capabilities to allow us to add some of the rarest and most valuable biosamples into the discovery pipeline, samples that are sourced by us, managed by us, measured by us, and owned by us. By this, we mean the chance to bring consented samples from Africa, Asia, and South America, which will enrich and diversify the genomic sample population, which today is still dramatically underrepresented in research and discovery.
Stephen S. Schwartz: Our ability to source manage and store and measure and interrogate samples ultimately providing discovery unlocking data is paramount to all of that is advancing this industry. We.
Stephen S. Schwartz: We serve the sample world with a unique set of capabilities. We built a company that's headed towards $700 million in revenue this year by matching our capabilities to customers' needs for more automated sample workflows and world class multi omics capabilities.
Stephen S. Schwartz: And we further benefit from tail wins generated by an industry trend to outsource more critical sample management and measurement, we see sustained long term growth above the market rate that can persist for years to come in.
Stephen S. Schwartz: In addition, we've identified the potential for another strong growth vector.
Stephen S. Schwartz: We utilize our core capabilities to allow us to add some of the rarest and most valuable bio samples into the discovery pipeline samples.
Stephen S. Schwartz: Samples that are sourced by us managed by us measured by us and owned by Us.
Stephen S. Schwartz: By this we mean the chance to bring consented samples from Africa, Asia, and South America, which will enrich and diversify the genomic sample population, which today is still dramatically underrepresented in research and discovery.
Stephen S. Schwartz: There's still much work to be done to make this a reality, but we're uniquely positioned to deliver on this tremendous opportunity. We're a great company in strong, market-leading positions, serving a market in need of all that we do. Now, I'll turn to some highlights from the quarter.
Stephen S. Schwartz: Still much work to be done to make this a reality, but we're uniquely positioned to deliver on this tremendous opportunity. We're a great company and strong market leading positions serving a market in need of all that we do.
Speaker Change: I'll now turn to some highlights from the quarter in Q1, we delivered revenue of $154 million, which translates to an organic decline of 15% year over year, but up 2%. When you exclude the medical segment, which had a lighter Q1 due to the timing of orders as expected and up 5%. When you also exclude our consumables.
Stephen S. Schwartz: In Q1, we delivered revenue of $154 million, which translates to an organic decline of 15% year over year, but up 2% when you exclude the B-medical segment, which had a lighter Q1 due to the timing of orders, as expected, and up 5% when you also exclude our consumables and instruments business, which has faced the most notable headwinds in the post-COVID timeframe. Let's look at the business by segment. I'll begin with the SMS and multi-omics segments before I turn to the B-medical.
Speaker Change: Instruments business, which has faced the most notable headwinds in the post COVID-19 time frame.
Speaker Change: Let's look at the business by segment.
Speaker Change: Begin with SMS and multi omics segments before I turned to be medical and these market segments that were down for most peers in our space we continue to grow.
Stephen S. Schwartz: In these market segments that were down for most peers in our space, we continued to grow. We expanded in and around the sample space and once again received some indications that even the areas of our business that have been slow to recover, like consumables and instruments, are showing signs of continued recovery. Specifically, our sample management solutions business grew 1% year over year on an organic basis and grew 9% excluding the C&I business.
Speaker Change: We expanded in and around the sample space and once again received some indications that even the areas of our business that have been slow to recover like consumables and instruments are showing signs of continued recovery.
Speaker Change: Specifically, our sample management solutions business grew 1% year over year on an organic basis and grew 9% excluding the C&I business in.
Speaker Change: Inside this it's the growth of the sample volumes that continues to be the fuel for our S. M S opportunities.
Speaker Change: Large automated stores revenue was up 37% year over year and sample repository solutions was up a healthy 6% year over year, continuing the trends we saw in the September quarter.
Stephen S. Schwartz: Inside this, it's the growth of the sample volumes that continues to be the fuel for our SMS opportunity. Large automated stores revenue was up 37% year over year, and sample repository solutions were up a healthy 6% year over year, continuing the trends we saw in the September quarter. This pattern of business is fueled by two key drivers. One, the sheer number of samples that are collected for future discovery, and two, the trend toward outsourcing the care and management of these large, precious, and complex sample collections. We're positioned perfectly to provide on-site automated systems, as well as off-site collection management.
Speaker Change: This pattern of business is fueled by two key drivers one the sheer number of samples that are collected for future discovery and.
Speaker Change: And to the trend toward outsourcing the care and management of these large precious and complex sample collections.
Speaker Change: We're positioned perfectly to provide onsite automated systems as well as offside collection management and our workflow solution a best in class automated stores and repository services makes us enter the ideal choice for customers regardless of their sample management strategy.
Speaker Change: To add even more potential to our S. M. S opportunity. This week, we launched a breakthrough large automated storage system. The bio arc Ultra which was featured at the society for laboratory automation and screening 2024 International conference in Boston.
Speaker Change: This new system designed to hold up to 10 million samples offers unparalleled storage density. The ultra features an innovative eco friendly cooling system that utilizes natural air rather than ozone depleting refrigerants, furthering our commitment towards sustainability as an organization as well as supporting our customers and their carbon footprint reduction.
Stephen S. Schwartz: And our workflow solution of best-in-class automated stores and repository services makes us the ideal choice for customers, regardless of their sample management strategy. To add even more potential to our SMS opportunity, this week we launched a breakthrough large automated storage system, the BioArk Ultra, which we featured at the Society for Laboratory Automation and Screening 2024 International Conference in Boston. This new system designed to hold up to 10 million samples offers unparalleled storage density. The Ultra features an innovative, eco-friendly cooling system that utilizes natural air rather than ozone-depleting refrigerants, furthering our commitment to sustainability as an organization, as well as supporting our customers in their carbon footprint reduction efforts.
Speaker Change: Efforts.
Speaker Change: Not only will this provide a new level of sample management performance to our largest customers, but will also be transformative in the efficiency of our buyer of <unk> operations.
Speaker Change: And sample repository solutions during the quarter, we closed another multimillion dollar multi year large sample management agreement to provide sample storage and related services for our research consortium that currently has samples distributed across more than 25 sites.
Speaker Change: To the large disease specific projects, we highlighted in recent quarters will provide consolidated management of this precious collection and centralized laboratory services to members of this research collaborative.
Speaker Change: This project will start with the transfer of the customer's existing sample collection with the anticipation that this collection is expected to grow rapidly over the next five years.
Stephen S. Schwartz: Not only will this provide a new level of sample management performance for our largest customers, but it will also be transformative in the efficiency of our biorepository operation. In sample repository solutions, during the quarter, we closed another multi-million dollar, multi-year large sample management agreement to provide sample storage and related services for a research consortium that currently has samples distributed across more than 25 sites. Similar to the large disease-specific projects we highlighted in recent quarters, we'll provide consolidated management of this precious collection and centralized laboratory services to members of this research collaborative. This project will start with the transfer of the customer's existing sample collection with the anticipation that this collection is expected to grow rapidly over the next five years.
Speaker Change: Finally, we're also encouraged that consumables and instruments showed sequential growth for the second quarter in a row.
Speaker Change: Our channel partners continue to see improvement and end user demand is also showing signs of life with increased inquiries year over year.
Speaker Change: In a very challenging market for life Science services, we're pleased that multi omics delivered organic growth of 2% with yet another record revenue quarter in our next generation sequencing business.
Speaker Change: This result is particularly noteworthy as it highlights our ability to navigate through a market. That's once again being disrupted by a quantum improvement in cost performance.
Speaker Change: As everyone's aware to the benefit of all discovery the cost of sequencing is falling rapidly. We see this is not just good for global health initiatives, but also was a driver for significant demand for our sequencing services.
Speaker Change: As a thoroughly lower sequencing costs allow us to offer lower prices and the elasticity of demand is driving more volume and lab efficiency as we manage this balance of volume cost and profitability. We believe we're dialing it in just about right as revenue continues to increase while our gross margin is for now stable.
Stephen S. Schwartz: Finally, we're also encouraged that consumables and instruments showed sequential growth for the second quarter in a row. Our channel partners continue to see improvement, and end user demand is also showing signs of life with increased inquiries year over year. In a very challenging market for life science services, we're pleased that Multiomics delivered organic growth of 2%, with yet another record revenue quarter in our next-generation sequencing business. This result is particularly noteworthy as it highlights our ability to navigate through a market that's once again being disrupted by a quantum improvement in cost performance. As everyone's aware, to the benefit of all discovery, the cost of sequencing is falling rapidly.
Speaker Change: So although a 2% increase is modest growth. We believe it represents strong outperformance as end markets remained muted.
Speaker Change: In general pharma and academic funding remained steady to up modestly, but biotech continues to face funding constraints from.
Speaker Change: From a regional perspective, Europe was up strongly growing approximately 20% and the business was broad based.
Speaker Change: The expected opening of our new N G. S lab in Oxford U K in late spring is already helping us gain traction in several key accounts.
Although our north American multi omics business remains soft declining in the low single digits, our China team delivered yet another strong quarter of growth in the low teens.
Speaker Change: Our team in China is incredibly strong and they continue to outpace competitors there while they overcome some of the macroeconomic and regulatory headwinds that exist in that market.
Stephen S. Schwartz: We see this as not just good for global health initiatives but also as a driver for significant demand for our sequencing services. Necessarily, lower sequencing costs allow us to offer lower prices, and the elasticity of demand is driving more volume and lab efficiency. As we manage this balance of volume, cost, and profitability, we believe we're dialing it in just about right as revenue continues to increase while our gross margin is, for now, stable. So, although a 2% increase is modest growth, we believe it represents strong outperformance as end markets remain muted. In general, pharma and academic funding remained steady to up modestly, but biotech continues to face funding constraints. From a regional perspective, Europe was up strongly, growing approximately 20%, and the business was broad-based.
Speaker Change: The medical delivered $13 million of revenue down 70% that's expected the lower level of revenue year over year is primarily due to the timing of orders as of today, we have $19 million in orders on hand for Q2 and this number contains no revenue from the DRC, we recognize that we have much more product to ship this year, but we.
Speaker Change: Maintain our expectations for mid single digit growth for <unk> medical for the full year fiscal 2024.
Speaker Change: But I do want to take this moment to give an update on our activities with the Democratic Republic of Congo, and the opportunity we announced on our last earnings call.
Speaker Change: We're pleased with the vaccine cold chain business, that's expected from this project, but even more by the fact that we have an opportunity to play a central role in the collection of millions of samples of whole blood and support of crucial health initiatives that are high priorities for the minister of health will.
Stephen S. Schwartz: The expected opening of our new NGS lab in Oxford, UK, in late spring is already helping us gain traction in several key accounts. Although our North American multi-omics business remains soft, declining in the low single digits, our China team delivered yet another strong quarter of growth in the low teens. Our team in China is incredibly strong, and they continue to outpace competitors there while they overcome some of the macroeconomic and regulatory headwinds that exist in that market. BMedical delivered $13 million of revenue, down 70%, as expected.
Speaker Change: We will continue to keep you updated on this exciting opportunity as it develops.
Speaker Change: To summarize Q1 results our sample base business remains a steady source of growth or.
Speaker Change: Our customer positions across geographies and applications, coupled with improving markets will only add to our above market momentum our.
Speaker Change: Our investments to lead the industry in energy efficient ultra cold sample storage as well as our important role of coordinating focused health initiatives gives us tremendous confidence in the sustained growth prospects and our life sciences market in need of these new solutions yet.
Speaker Change: Yet as we benefit from this position. We're also keenly focused on enhancing our profitability through disciplined cost management plus a series of transformative structural improvements that Herman is leading with a huge amount of energy and enthusiastic support from our team.
Stephen S. Schwartz: The lower level of revenue year over year is primarily due to the timing of orders. As of today, we have $19 million in orders on hand for Q2, and this number does not include revenue from the DRC. We recognize that we have much more product to ship this year, but we maintain our expectations for mid-single-digit growth for B-Medical for the full year fiscal 2024. But I do want to take this moment to give an update on our activities with the Democratic Republic of Congo and the opportunity we announced on our last earnings call. We're pleased with the vaccine cold chain business that's expected from this project, but even more so because we have an opportunity to play a central role in the collection of millions of samples of whole blood in support of crucial health initiatives that are high priorities for the minister of health.
Speaker Change: Fulsome description of these focus areas and what we plan to deliver from these initiatives as well as our long term outlook, including our plans for <unk> medical which better aligns with the center will be key features of our presentation at our Investor Day next month, we very much look forward to the chance to engage with you in more depth on March 14th.
Speaker Change: And now it's my pleasure to turn the call over to Herman.
Herman: Thank you Steve.
Herman: My first 100 days at a center have been both busy and fulfilling I've had the opportunity to meet with many of our employees and have visited several key sites with more visits planned over the coming months.
Herman: I continue to be impressed by what I see and the opportunity that lies ahead to supplement my remarks today I refer back to the slide deck available on our website.
Herman: Turning to slide three for some highlights.
Herman: First quarter revenue was $154 million down 13% year over year and down 15% on an organic basis.
Stephen S. Schwartz: We'll continue to keep you updated on this exciting opportunity as it develops. To summarize our Q1 results, our sample-based business remains a steady source of growth. Our customer positions across geographies and applications, coupled with improving markets, will only add to our above-market momentum. Our investments to lead the industry in energy-efficient, ultra-cold sample storage, as well as our important role coordinating focused health initiatives, give us tremendous confidence in the sustained growth prospects of a life sciences market in need of these new solutions.
Herman: As expected the lower B medical revenue drove the Q1 decline excluding the medical the business grew 2% organically.
Herman: As we have discussed in the past the consumables and instruments business or C&I remained a headwind to growth in the quarter on a year over year basis.
Herman: If you exclude C&I as well as be medical organic growth was 5%.
Herman: This above market growth rate is consistent with what we delivered in Q4 fiscal year 'twenty three.
Herman: In C&I, we did see another 5% sequential improvement as we move from Q4 to Q1, and we believe that we have now cycled through the tough year over year compares.
Herman Kudo: Yet, as we benefit from this position, we're also keenly focused on enhancing our profitability through disciplined cost management, plus a series of transformative structural improvements that Herman is leading with a huge amount of energy and enthusiastic support from our team. A fulsome description of these focus areas and what we plan to deliver from these initiatives, as well as our long-term outlook, including our plans for B-Medical, which better aligns with Azenta, will be key features of our presentation at our Investor Day next month. We very much look forward to the chance to engage with you in more depth on March 14th. And now, it's my pleasure to turn the call over to Herman. Thank you, Steve. My first 100 days at Azenta have been both busy and fulfilling.
Herman: We delivered non-GAAP EPS of <unk> and adjusted EBITDA of 3% in Q1 our.
Herman: Our cost reduction initiatives continue to track well relative to our plans.
Herman: We ended the quarter in a very strong position with $1 1 billion in cash cash equivalents and marketable securities free.
Herman: Free cash flow was positive for the third quarter in a row at $15 million as we continue to focus on commercial operational and working capital management. In addition to the positive operational performance in Q1, we returned 113 million of capital to our shareholders through the repurchase of two 3 million shares of <unk>.
Herman: <unk> stock.
We have now completed roughly $1 billion of the $1 5 billion of planned share repurchases.
Herman Kudo: I have had the opportunity to meet with many of our employees and have visited several key sites, with more visits planned over the coming month. I continue to be impressed by what I see and the opportunity that lies ahead. To supplement my remarks today, I refer back to the slide deck available on our website. Turning to slide three for some highlights.
Herman: We continue to be extremely well positioned from a balance sheet perspective, and even 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.
Herman: Now, let's turn to slide four to take a deeper look at our results in the quarter.
Herman Kudo: First quarter revenue was $154 million, down 13% year over year and down 15% on an organic basis. As expected, lower B-Medical revenue drove the Q1 decline. Excluding B-Medical, the business grew 2% organically. As we have discussed in the past, the Consumables and Instruments Business, or C&I, remained a headwind to growth in the quarter on a year-over-year basis. If you exclude C&I as well as B-Medical, organic growth was 5%. This above market growth rate is consistent with what we delivered in Q4 fiscal year 2016. In C&I, we did see another 5% sequential improvement as we move from Q4 to Q1, and we believe that we have now cycled through the tough year-over-year comparison. We delivered non-gap EPS of 2 cents and adjusted EBITDA of 3% in Q1.
Herman: Total revenue was $154 million as anticipated non-GAAP gross margin was down year over year coming in at 43, 5% down 190 basis points.
Herman: Excluding the medical gross margin was roughly flat.
Herman: non-GAAP operating margin was negative five 6% down 560 basis points year over year.
Herman: Excluding the medical we saw operating margin expand 160 basis points.
Herman: Adjusted EBITDA margin was 3% down 370 basis points year over year again, driven by the <unk> Medical dynamics. This was partially offset by strong leverage from the combination of better expense management and the impact of the cost reduction actions implemented in fiscal 2023.
Herman: Again, non-GAAP earnings was <unk> <unk> per share in the quarter.
Speaker Change: Before I get into the segment details I want to remind everyone that Q1 is the first quarter, we will be reporting in the new segment structure.
Speaker Change: You should have seen an 8-K posted last week, which provides two years of historical quarterly information in the new format with that let's turn to slide five for a review of our segment results, starting with sample management solutions or SMS.
Herman Kudo: Our cost reduction initiatives continue to track well relative to our plan. We ended the quarter in a very strong position with $1.1 billion in cash, cash equivalents, and marketable security. Free cash flow was positive for the third quarter in a row at $15 million as we continue to focus on commercial, operational, and working capital.
Speaker Change: Total SMS segment revenue was 79 million for the quarter up 5% year over year on a reported basis led by growth in sample repository solutions, which was up 7%.
Speaker Change: S M S organic growth was 1%.
Herman Kudo: In addition to the positive operational performance in Q1, we returned $113 million of capital to our shareholders through the repurchase of 2.3 million shares of Azenta stock. We have now completed roughly $1 billion of the $1.5 billion of planned share repurchase. We continue to be extremely well-positioned from a balance sheet perspective, and even 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 four to take a deeper look at our results for the quarter. Total revenue was $154 million. As anticipated, non-GAAP gross margin was down year-over-year, coming in at 43.5%, down 190 basis points. Excluding B medical, gross margin was roughly flat. Non-GAAP operating margin was negative 5.6 percent, down 560 basis points year over year.
Speaker Change: If we look at SMS, excluding C&I organic growth for the segment was 9% as Steve mentioned continued momentum in sample repository solutions, a large automated stores were the key contributors to the year over year growth Zaire contributed approximately $1 million in revenue.
Speaker Change: SMS first quarter gross margin was 43, 1% and was up 10 basis points year over year absorbing the impact of strategic investments such as the new Boston were positive.
Speaker Change: Turning next to the multi omics segments.
Speaker Change: Multi omics delivered revenue of 63 million in the first quarter, an increase of 3% year over year. The organic revenue for the quarter was up 2% led by double digit growth and gene synthesis.
Speaker Change: This growth in next Gen sequencing and a decline in Sanger of note, our multi omics business in China delivered another strong quarter with organic growth of 12%.
Speaker Change: The multi omics business gross margin was 47, 1% down 30 basis points year over year as the cost of sequencing has come down with technological advances the increased volume in conjunction with labor productivity and direct material savings has allowed us to maintain a fairly stable growth.
Herman Kudo: Excluding B-Medical, we saw operating margin expand 160 basis points, and Adjusted EBITDA margin was 3%, down 370 basis points year over year, again driven by the B medical dynamics. This was partially offset by strong leverage from the combination of better expense management and the impact of the cost reduction actions implemented in fiscal 2023. Again, non-GAF earnings was $0.02 per share in the course.
Speaker Change: Margin.
Speaker Change: And finally, the medical segment.
Speaker Change: Revenue was $13 million in the quarter down roughly 70% on a reported and organic basis.
Speaker Change: The lower level of revenue was primarily due to timing of vaccine cold chain orders gross margin of 28, 1% was lower than last year, primarily driven by sales mix.
Next let's turn to slide six for a review of the balance sheet as I mentioned earlier, we ended the quarter with $1 1 billion in cash cash equivalents and marketable securities. We had no debt outstanding during the quarter improvements in working capital translated to the strong operating cash flow.
Herman Kudo: Before I get into the segment details, I want to remind everyone that Q1 is the first quarter we will be reporting in the new segment structure. You should have seen an 8K posted last week, which provides two years of historical quarterly information in the new format. With that, let's turn to slide five for a review of our segment results, starting with Sample Management Solutions, or SMS. Total SMS segment revenue was $79 million for the quarter, up 5% year-over-year on a reported basis, led by growth in sample repository solutions, which were up 7%. The organic growth for the segment was 1%. However, if we look at SMS excluding CNI, the organic growth for the segment was 9%. As Steve mentioned, continued momentum in sample repository solutions and large automated stores were the key contributors to the year-over-year growth. Additionally, Zayas contributed approximately $1 million in revenue.
Speaker Change: That you could see on the next slide cash flow from operations was 26 million, primarily driven by an improvement in inventory accounts receivable and customer prepayments.
Speaker Change: Capital expenditures for the quarter were $12 million slightly elevated versus recent quarters, primarily due to investments in multi omics equipment.
Speaker Change: In total this brought free cash flow in the quarter to $15 million.
Speaker Change: Turning to guidance on slide eight as you saw in our press release, we are maintaining our previous full year guide that we initiated on our Q4 fiscal 2023 call in November which calls for organic growth of 5% to 8% approximately 300 basis points of adjusted EBITDA.
Margin expansion and non-GAAP EPS in a range of 19 to 29 cents for.
Speaker Change: For fiscal year 2024.
Speaker Change: In terms of the quarterly guidance. Please refer to page nine of the slide deck for color and key considerations.
Speaker Change: In Q2, we expect revenue growth to accelerate to mid to high single digits multi omics in sample management solutions are expected to grow mid single digits on a combined basis.
Herman Kudo: SMS's first quarter gross margin was 43.1% and was up 10 basis points year over year, absorbing the impact of strategic investments such as the new Boston Repository, turning next to the multi-omic site. Multiomics delivered revenue of $63 million in the first quarter, an increase of 3% year-over-year. The organic revenue for the quarter was up 2%, led by double-digit growth in gene synthesis, modest growth in next-gen sequencing, and a decline in Sanger. Of note, our multiomics business in China delivered another strong quarter with organic growth of 12 percent. The multiomics business gross margin was 47.1 percent, down 30 basis points year over year. As the cost of sequencing has come down with technological advances, the increased volume, in conjunction with labor productivity and direct material savings, has allowed us to maintain a fairly stable gross margin. And finally, the B-Medical site. Revenue was $13 million in the quarter, down roughly 70% on a reported and organic basis. The lower level of revenue was primarily due to the timing of the vaccine cold chain. Gross margin of 28.1% was lower than last year, primarily driven by the sales mix.
Speaker Change: And at this point in the quarter be medical is expected to grow 25%.
Speaker Change: We expect gross margin to be approaching the mid forty's and slightly better than Q1 fiscal year 'twenty four.
Speaker Change: R&D expense as a percentage of revenue will be consistent with Q1 fiscal year 'twenty four.
Speaker Change: SG&A is expected to be slightly better than Q1 fiscal year 'twenty for on a percentage of revenue basis.
Speaker Change: Overall, we expect the business to deliver an adjusted EBITDA margin that approaches mid single digits and non-GAAP EPS roughly flat to Q1 fiscal year 'twenty four.
Speaker Change: In closing we are pleased with our performance in Q1 and look forward to our analyst day scheduled for March 14th of this year, where we will discuss our longer term strategy vision and financial goals.
Speaker Change: We are committed to delivering on our purpose and serving our customers and enabling life sciences breakthroughs faster.
Speaker Change: This concludes our prepared remarks, and I will now turn the call over to the operator for questions.
Speaker Change: Thank you if you would like to register a question. Please press the one followed by the four on your telephone you will hear a three pronged to acknowledge that request if.
Operator: Your question has been answered or you would like to withdraw your registration. Please press. The one followed by the three once again to register for a question. It is one four on your telephone keypad and your first question comes from line of David Saxon with Needham Your line is open.
Herman Kudo: Next, let's turn to slide six for a review of the balance. As I mentioned earlier, we ended the quarter with $1.1 billion in cash, cash equivalents, and marketable security. We had no debt outstanding.
David Saxon: Great Hi, Steve Hi, Herman Thanks, so much for taking my questions.
David Saxon: I guess I wanted to start on the medical so I mean, obviously the December quarter is supposed to be the strongest quarter, but it looks like the second half of the quarter only drove $3 4 million in revenue.
Herman Kudo: During the quarter, improvements in working capital translated to a strong operating cash flow that you can see on the next slide. Cash flow from operations was $26 million, primarily driven by an improvement in inventory, accounts receivable, and customer prepayment. Capital expenditures for the quarter were $12 million, slightly elevated versus recent quarters, primarily due to investments in multiomics equipment.
David Saxon: So as the seasonality changing at all or is there anything about the deals in the pipeline, that's resulting in that dynamic that holding or just requiring a longer selling cycle.
David Saxon: And then just regarding the DRC deal it doesn't sound like there's anything in the fiscal second quarter Guide.
Herman Kudo: In total, this brought free cash flow in the quarter to $15 million. Turning to guidance on slide 8, as you saw in our press release, we are maintaining our previous full-year guide that we initiated on our Q4 fiscal 2023 call in November, which calls for organic growth of 5 to 8 percent, approximately 300 basis points of adjusted EBITDA margin expansion, and non-GAAP EPS in a range of 19 to 29 cents for fiscal year 2024. In terms of quarterly guidance, please refer to page 9 of the slide deck for color and key considerations. In Q2, we expect revenue growth to accelerate to mid to high single digits. Multiomics and sample management solutions are expected to grow at mid-single digits on a combined basis.
David Saxon: But can you give us a sense of how we should think about the cadence of that skills revenue.
David Saxon: Being realized in the back half.
David Saxon: Hey, David determine how are you.
David Saxon: Yes.
David Saxon: Great.
David Saxon: Yeah.
David Saxon: I guess.
David Saxon: Let's start with you know bring everybody back to some of the commentary that we talked about on the fourth quarter call that.
David Saxon: B medical it's a pipeline business.
David Saxon:
David Saxon: Trying to predict the timing of these things is very hard to do what I would say is we have a very robust pipeline.
David Saxon: But the timing of the conversion of that pipeline is is.
David Saxon: One of the unknowns here.
David Saxon:
David Saxon: In terms of.
David Saxon: Maybe just a little bit of backdrop on.
Herman Kudo: And at this point in the quarter, B-Medical is expected to grow 25%. We expect gross margin to be approaching the mid 40s and slightly better than Q1 fiscal year 24. R&D expense as a percentage of revenue will be consistent with Q1 fiscal year 24.
David Saxon: Finding environment, there's a baseline of Gaby funding out there that just hasn't happened yet so you know in terms of.
David Saxon: Seasonality and things like that it's it's not that it's just.
David Saxon: When that funding frees up.
David Saxon: The orders will start to flow as I said, we have a robust pipeline we feel good about where the pipeline is the pipeline gives us confidence in the full year guide.
Herman Kudo: SG&A is expected to be slightly better than Q1 fiscal year 24 on a percentage of revenue base. Overall, we expect the business to deliver an adjusted EBITDA margin that approaches mid-single digits and non-GAAP EPS roughly flat to Q1 fiscal year 2021. In closing, we are pleased with our performance in Q1 and look forward to our Analyst's Day scheduled for March 14th of this year, where we will discuss our longer-term strategy, vision, and financial goals. We are committed to delivering on our purpose, serving our customers, and enabling life sciences breakthroughs fast. This concludes our prepared remarks, and I will now turn the call over to the operator for questions. Thank you. If you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge that request. If your question has been answered and you would like to withdraw your registration, please press 1, followed by 3.
David Saxon: We just have to be comfortable with the timing of when it comes in.
And David on the this is Steve on the DRC.
There are ongoing really active discussions about how to get this.
David Saxon: How to get the segments of the contract.
David Saxon: <unk> and contributed Theres a lot of urgency from the DRC standpoint to get the vaccine cold chain products in place, but as we mentioned there are also emergency vehicles and distribution vehicles that are being discussed and what we can tell you is that the multi party discussions are going on and make sure. The funding comes in but we're confident.
David Saxon: About the contract the timing is what we're working on so we will.
David Saxon: Well, let you know when we got it in hand, I think as you can imagine that's the that's the way we've been guiding here is what do we hold at the time of the call just to make sure the expectation set properly, but I can assure you. There's a lot of activity going on to make sure that but by all parties to make sure that gets.
David Saxon: Accelerated here as we go forward.
Operator: Once again, to register for a question, it is 1-4 on your telephone keypad. And your first question comes from the line of David Saxon with Needham. Your line is open. Great. Hi, Steve.
Speaker Change: Okay great.
Speaker Change: Helpful. Thanks for that and then just as my follow up I wanted to ask on DNI and the recovery you're seeing there I.
Speaker Change: I think you had kind of called out the U S. As being ahead of Europe from a recovery perspective, though.
David Saxon: Hi Herman. Thanks so much for taking my question. I guess I wanted to start on the medical. So, obviously, the December quarter is supposed to be the strongest quarter, but it looks like the second half of the quarter only drove, you know, three, four million in revenue. So, is the seasonality changing at all, or is there anything about the deals in the pipeline that's kind of resulting in that dynamic not holding or just requiring a longer selling cycle? And then just regarding the DRC deal, it doesn't sound like there's anything in the fiscal second quarter guide, but can you give us a sense of how we should think about the cadence of that deal's revenue, you know, being realized in the Hey David, it's Herman. How are you?
Speaker Change: Any any color on the geographic mix of C&I.
Speaker Change: As Europe kind of recovers behind the U S. How big of a tailwind could that be and then.
Speaker Change: Thanks, Steve It with you in your prepared remarks, you called out.
Speaker Change: P&I.
Speaker Change: Fully lapping the tougher comps.
Speaker Change: Maybe that was Herman so should we think about <unk> being a.
Speaker Change: Year on year grower.
Speaker Change: Going forward. Thanks, so much for taking my questions.
Speaker Change: Yeah, David determined.
Speaker Change: The commentary around C&I is very similar to what we talked about on the fourth quarter call. So the U S. When we talk to the team. It does seem that distributors are now at pre pandemic inventory levels. So whatever we're selling into the distributors, it's being sold through to the end market.
Speaker Change: So.
Speaker Change: That.
Speaker Change: We feel very confident about and it's a it's a similar situation as we talked about in in Q on Q4 call.
Herman Kudo: I guess I would start with, you know, bringing everybody back to some of the commentary that we talked about on the fourth quarter call about Be Medical, it's a pipeline business, iDubbz....
Speaker Change: Europe, it's it's very similar they were lagging behind a little bit the commentary is still the same but again. They are we expect to be out of that when we get into.
Herman Kudo: Trying to predict the timing of these things is very hard to do. What I would say is we have a very robust pipeline, but the timing of the conversion of that pipeline is one of the unknowns here, you know, in terms of, you know, maybe just a little bit of a backdrop on the funding environment. There's a baseline of GAVI funding out there that just hasn't happened yet. So, you know, in terms of, you know, seasonality and things like that, it's not that.
Speaker Change: The second half of this year, we did see sequential growth from Q4 to Q1. So that was about 5%. So we have two quarters in a row. So from Q3 to Q4, it was 9% growth and now we're seeing an additional five so.
Herman Kudo: It's just... when that funding frees up, the orders will start to fall. As I said, we have a robust pipeline. We feel good about where the pipeline is. The pipeline gives us confidence in the full-year guide. We just have to be comfortable with the timing of when it comes. And David, this is Steve.
Speaker Change: At this point in time, we do think we've cycled through it and as we get into the second quarter and later in the year.
Speaker Change: We don't expect it to be a headwind as we said in the past we're not counting on a ton of growth in this in this area.
Stephen S. Schwartz: On the DRC, there are ongoing, really active discussions about how to get this, how to get the segments of the contract let and contributed. There's a lot of urgency from the DRC standpoint to get the vaccine cold chain products in place. But, as we mentioned, there are also emergency vehicles and distribution vehicles that are being discussed. And what we can tell you is that multi-party discussions are going on to make sure the funding comes in. But we're confident about the contract; the timing is what we're working on. So we will let you know when we've got it in hand.
Speaker Change: But we do believe we're out of the tough compares.
Speaker Change: Okay, great. Thank you so much.
Speaker Change: Your next question comes from line of Jacob Johnson with Stephens. Your line is open.
Jacob Johnson: Hey, Thanks, Good afternoon, everybody, Hey, Steve Hey, Herman.
Jacob Johnson: I guess.
Jacob Johnson: Let's start on the medical and Steve I, just wanted to follow up on your comments about the DRC contract you said you're confident in the contract. But then you mentioned kind of vehicle procurement and timing can be difficult I just wanted to make sure I guess one.
Jacob Johnson: Is there any risk to the full year guide from this or is this just more about kind of when it hit.
Stephen S. Schwartz: And I think, as you can imagine, that's the way we've been guiding here is what we hold at the time of the call just to make sure the expectation is set properly. But I can assure you there's a lot of activity going on to make sure that, but by all parties, to make sure that gets accelerated here as we go forward. Okay, great. That's helpful. Thanks for that.
Jacob Johnson: <unk> versus <unk>, and then I guess, along the same lines, obviously, the seasonality has been a bit different than we would've expected. This year and I know it can be a lumpy business I just I'm curious kind of on an annual basis. Do you think this is a more predictable or stable business or is there any risk. This give me a lumpy busy.
David Saxon: And then just as a follow-up, I wanted to ask about DNI and the recovery you're seeing there. I think you had kind of called out the U.S. as being ahead of Europe from, you know, a recovery perspective. So, any color on, you know, the geographic mix of CNI as Europe kind of recovers behind the U.S.? How big of a tailwind could that be?
Jacob Johnson: From year to year I know, it's too early to talk about 2025, but I think that.
Jacob Johnson: Yeah. So generally the answer them backwards. This is Steve so thanks for the question the on the on an annual basis I think it's it's not so lumpy. If you do if we always run the business and when we look at 12 trailing 12 months it's.
Stephen S. Schwartz: It's not linear for sure, but it's the Lumpiness gets smoothed out.
Herman Kudo: And then I think, Steve, it was you in your prepared remarks that called out CNI, you know, fully lapping the tougher comps, or maybe that was Herman. So, should we think about CNI being a, you know, year on year grower going forward? Thanks so much for taking my question. Yeah, David, it's Herman.
Stephen S. Schwartz: Yeah, we expected based on three data points from diligence. If you will that the December quarter would be the largest one and we came to this December quarter and it was not but we've seen that in our forecast on the DRC. We just we continue to be bullish about you know how many units where theyre going to go it's just a matter of getting these things getting.
Stephen S. Schwartz: Theres, a pent up demand for vaccines that need to be distributed so we're confident that they will.
Herman Kudo: The commentary around C&I is very similar to what we talked about on the fourth quarter call. So in the US, when we talked to the team, it does seem that distributors are now at pre-pandemic inventory levels. So whatever we're selling into the distributors, it's being sold through to the end market. So that, we feel very confident about, and it's a similar situation to what we talked about on the Q4 call. In Europe, it's very similar.
Stephen S. Schwartz: This will begin to be part of this year, which we don't know the timing exactly but I can tell you it.
Stephen S. Schwartz: There's a lot of energy going into making sure that everything gets resolved. So that we can get the start start to ship product to the DRC.
Stephen S. Schwartz: And your next question comes from the line of Andrew Cooper with Raymond James Your line is open.
Andrew Cooper: Hey, everyone. Thanks for the questions.
Andrew Cooper: I'll start with that with something other than be medical so maybe just first and multi omics and he pointed out growing at a time when that's not necessarily what we're hearing from some of the others in the space. So just.
Herman Kudo: They were lagging behind a little bit. The commentary is still the same. But again, we expect to be out of that when we get into the second half of this year. We did see sequential growth from Q4 to Q1. So that was about 5%.
Andrew Cooper: Maybe any sense for whether that did something change in the competitive landscape are you taking share are you working with.
Andrew Cooper: A little bit different sort of customer set than maybe some of the others are just help us think about.
Andrew Cooper: What's what's allowing you to grow when when others are struggling a little bit on that.
Herman Kudo: So we have two quarters in a row. So from Q3 to Q4, it was 9% growth. And now we're seeing an additional 5%. So at this point in time, we do think we've cycled through it. And as we get into the second quarter and later in the year, we don't expect it to be a headwind.
Andrew Cooper: Yeah, Andrew when we look at it we for sure I can tell you that contracts that we have with customers that we have are giving us more business, but I can't tell you. It's because we've taken share from others, but as we get more capable for sure.
Andrew Cooper: The size of the of the contract work, we're doing for customers has grown for a lot of the larger customers, we attributed to that because indeed in North America.
Herman Kudo: As we said in the past, we're not counting on a ton of growth in this area, but we do believe we're out of the tough comparison. Okay, great. Thank you so much.
Andrew Cooper: One of the biotech funding has been off are down as companies have either.
Jacob Johnson: Your next question comes from the line of Jacob Johnson with Stephen's Ear Liners. Hey, thanks. Good afternoon, everybody.
Andrew Cooper: Reduced funding or gone out of business. So from larger customers without question, we're getting we're getting more business and I do attribute the elasticity on some of the Ngls. The number of reactions. We do has gone up appreciably and.
Stephen S. Schwartz: Hey, Steve. Hey, Herman. I guess I too will start on B-Medical. Steve, I just want to follow up on your comments about the DRC contract. You said you're confident in the contract, but then you mentioned kind of vehicle procurement and timing can be difficult. I just want to make sure, I guess, one, you know, is there any risk to the full-year guidance from this, or is this just more about kind of when it hits, you know, 2Q versus 3Q, 4Q? And then, along those same lines, obviously, the seasonality has been a bit different than we would have expected this year. And I know it can be a lumpy business. I just, I'm curious, kind of on an annual basis, do you think this is a more predictable or stable business, or is there any risk that it could be a lumpy business from year to year? I know it's too early to talk about 2025, but I think that's... Yeah, so Jacob, let me answer them backwards. This is Steve.
Andrew Cooper: The revenue has grown so I attributed to both of those things I will say.
Andrew Cooper: For example on the Sanger side.
That's shrunk a little bit here.
Andrew Cooper: Here in the last quarter two reasons one without question. This a little bit softer North America business has caused us some issues there and we begin to transfer some of the plasmid.
Andrew Cooper: Easy sequencing into the NGL business, but I think just aggressive aggressive sales close customer contact.
Andrew Cooper: And larger contracts with larger customers or what's allowed us to continue to sustain the business here.
Andrew Cooper: Okay.
Andrew Cooper: Yeah.
Speaker Change: Oh go ahead, yeah, Andrew I was just going to add in terms of the funding environment. I think you know from a macro perspective, we're seeing steady funding and pharma and academics. It's when you get into biotech, where youre still seeing a little bit of the funding pressure. So we'll just continue to watch that.
Speaker Change: When we do our scouting in the markets, we understand that the interest rate.
Stephen S. Schwartz: So thanks for the question. On an annual basis, I think it's not so lumpy. If we always run the business and we look at the trailing 12 months, it's not linear for sure, but the lumpiness gets smoothed out. We expected, based on three data points from diligence, if you will, that the December quarter would be the largest one. And we came to this December quarter, and it wasn't.
Speaker Change: Borrowing against that or maybe some of that funding will come.
Speaker Change: Great. That's helpful. And then maybe just on margins in that segment. I mean, you you mentioned a lot of the things that help you.
Speaker Change: Maintain as best you can the margins there, but it sounds like certainly still some pricing pressures. So just maybe what's baked into the guide in terms of pricing and maybe longer term, where do you think we can settle out or is it a continued kind of ongoing pressure at this pace at a different pace just would love your thoughts on what that looks like.
Stephen S. Schwartz: But we've seen that in our forecast. On the DRC, we just, we continue to be bullish about, you know, how many units, where they're going to go. It's just a matter of these things getting released.
Speaker Change: Yeah, It's Herman Andrew So, it's an interesting dynamic with pricing right now in the multi omics business because what you have on the revenue line as you have the pricing pressure, but you now have a lot more volume than you've ever had before because now sequencing is much more affordable than it was.
Stephen S. Schwartz: There's a pent-up demand for vaccines that need to be distributed, so we're confident that they will, you know, that they'll begin to be part of this year. We don't know the timing exactly, but I can tell you there's a lot of energy going into making sure that everything gets resolved so that we can start to ship product to the DRC. And your next question comes from the line of Andrew Cooper with Raymond James. Your line is open. Hey everyone, thanks for the question. I'll start with something other than the medical.
Speaker Change: In the past so you have that dynamic going on on the top line and when you look at margins you have a couple of things going on so first you have a ton of leverage on your fixed overhead so that drives cost savings and then on top of that you have labor efficiency because of the technology is there and also the direct material.
Stephen S. Schwartz: So maybe just first in multi-omics, I think you pointed out, you know, growing at a time when that's not necessarily what we're hearing from some of the others in the space. So just, any sense for whether that's something changing the competitive landscape? Are you taking share? Are you working with, you know, a little bit different sort of customer set than maybe some of the others? Just help us think about what's allowing you to grow when others are struggling a little bit more? Yeah, Andrew, thanks. When we look at it, for sure, I can tell you that the contracts that we have, the customers that we have, are giving us more business. But I can't tell you it's because we've taken the share from others.
Speaker Change: So youre kind of seeing.
Speaker Change: Nice stable gross margin.
Speaker Change: When we think about pricing.
Speaker Change: In the guide we cared for it we knew it was going to be there. So so it's all contemplated in the guide, but we think it's going to be a dynamic is as the market sort of cycles through the technology, we will start to see it settle down when we get into the back half of the year.
Speaker Change: Okay, Great and then maybe if I can just sneak one last one in just on C&I any sense for I know you called out some of the sequential improvements here, but last quarter and this quarter, but you know what is the typical seasonal step up you might have seen in a calendar <unk>, where we often do see some of those.
Stephen S. Schwartz: But as we get more capable, for sure, the size of the contract work we're doing for customers has grown for a lot of the larger customers. We attribute it to that. Because, indeed, in North America, a lot of the biotech funding has been off or down, as companies have either reduced funding or gone out of business. So from larger customers, without question, we're getting more business. And I do attribute the elasticity to some of the NGS.
Speaker Change: Changes in then.
Speaker Change: Aligned with that.
Speaker Change: Is there anything in particular, whether it's more anecdotal or not that you can point to to give you that comfort that hey, where we're past the worst worst of it other than simply the plus 5% sequentially.
Speaker Change: Yeah, I mean, maybe I'll step back and talk about it from an incentive point of view if if if you look at the incentive business and you exclude be medical.
Stephen S. Schwartz: The number of reactions we do has gone up appreciably, and the revenue has grown. So I attribute it to both of those things. I will say, for example, on the Sanger side, that shrunk a little bit here in the last quarter. Two reasons.
Speaker Change: For the dynamics that we talked about.
Speaker Change: And you have Q1, you have the Q2 guide and you have the book end of the full year guide, you'll see and it's just math is that it's a very balanced business overall.
Stephen S. Schwartz: One, without question, this little bit softer North America business has caused us some issues there, and we have begun to transfer some of the plasmid EZ sequencing into the NGS business. But I think just aggressive sales, close customer contact, and larger contracts with larger customers are what's allowed us to continue to sustain the business here. Thank you. Okay, great. And then...
Speaker Change: A look at the mix of revenue in the first half versus the mix of revenue in the second half, it's very balanced and if you look at the growth rates from the first half to the second half it's very balanced. So I think you have similar dynamics.
Speaker Change: In CNI, Andrew it's it's a I wouldn't look at that business as being overly cyclical and a central overall when you unpack the SMS business and also the multi omics business you see really a nice balance across the first half and second half.
Herman Kudo: I was just going to add, you know, in terms of the funding environment, I think, from a macro perspective, we're seeing steady funding in pharma and academia. It's when you get into biotech that you're still seeing a little bit of the funding pressure. So we'll just continue to watch that when we do our scouting in the markets. Maybe some of that funding will come. Great, that's helpful.
Speaker Change: Great looking forward to seeing everybody and I much appreciate it.
Speaker Change: Your next question comes from the line of Paul Knight with Keybanc. Your line is open.
Paul Richard Knight: Where are you.
Paul Richard Knight: Transition on your just your sales distribution model I know you had to redo that strategy. So are you have done where are you.
Herman Kudo: And then maybe just on margins in that segment, I mean, you mentioned a lot of the things that help you maintain as best you can the margins there, but it sounds like there are certainly still some pricing pressures. So just maybe what's baked into the guide in terms of pricing and maybe longer term, you know, where do you think we can settle out? Or is it a continued kind of ongoing pressure at this pace at a different pace? I just would love your thoughts on what that looks like. Yeah, it's Herman, Andrew.
Paul Richard Knight: Okay.
Paul Richard Knight: Yeah, Hi, Paul Thanks, we're aligned so we have the the sales.
Paul Richard Knight: Organization is complete in the in each of the three segments. There is a dedicated sales organization and now it's just getting traction in practice and in making sure that we execute but we believe the fact that we've been growing in this environment is because we've got the sales aligned again as it should be so.
Paul Richard Knight: Channel continues to build and you can imagine as we as we exercise that channel will be.
Paul Richard Knight: Rotating through different distributors.
Herman Kudo: So it's an interesting dynamic with pricing right now in the multi-omics business because what you have on the revenue line is you have pricing pressure, but you now have a lot more volume than you ever had before, because now sequencing is much more affordable than it was in the past. So you have that dynamic going on on the top line. And when you look at the margins, you have a couple of things going on.
Paul Richard Knight: Distributors, who are keeping up but we like how the channel has built and.
Paul Richard Knight: The science is selling to scientists in the multi omics business is already completely aligned we still have.
Paul Richard Knight: Some openings to fill but.
Paul Richard Knight: By and large that organization is also in place and that's why we're seeing we're starting to see really good traction.
Speaker Change: And then could you update us on on China, I know you that you read it logistics a little bit there last year.
Herman Kudo: So first, you have a ton of leverage on your fixed overhead, so that drives cost savings. And then on top of that, you have labor efficiency because the technology is there, and also direct material efficiency.
Speaker Change: Yes.
Speaker Change: Thanks.
Speaker Change: You bet and so let me talk to China, a little bit. So we mentioned that we were you know.
Speaker Change: Double digit growth in China again for the third consecutive quarter.
Herman Kudo: So you're kind of seeing, you know, a nice stable gross margin. When we think about pricing in the guide, we care about it, we knew it was going to be there. So it's all contemplated in the guide. But we think it's going to be dynamic as the market sort of cycles through the technology, and we will start to see it settle down when we get into the back half. Okay, great. And then maybe I can just sneak one last one in, just on CNI, you know, any sense for, I mean, you called out some of the sequential improvements here, both last quarter and this quarter, but you know, what is the typical seasonal step up you might have seen into a calendar 4Q where we often do see some of those changes and then, you know, aligned with that, Is there anything in particular, whether it' Yeah, I mean, maybe I'll step back and talk about it from an Azenta point of view.
Speaker Change: Most of the business, we do in China. These days is services related so it's for the multi omics business.
Speaker Change: And we grew 11% and synthesis this quarter again, so we've seen strong growth in synthesis really good recovery.
Speaker Change: Issues, we had in China 18 months ago are behind Us and we feel we feel like we're in a really good position back to growth.
Speaker Change: Can tell you the team is incredibly busy.
Speaker Change: In China, serving the customers both inside and outside of China. So we believe China is.
Speaker Change: Fully capable full speed ahead, and just the growth characteristics. They have exhibited so different from what's going on in the rest of the market is attributed to a strong team aggressively going after all there.
Speaker Change: Our local customer base.
Speaker Change: And then lastly on the medical I mean, the real reason to buy the medical was to move it into things Besides vaccine.
Speaker Change: The technology and the box was kind of what you liked a lot and maybe move into other areas like service where are you in that journey would be medical.
Speaker Change: Yes, Paul it's exactly what.
Herman Kudo: If you look at the Azenta business, and you exclude B-Medical for the dynamics that we talked about, and you have Q1, you have the Q2 guide, and you have the bookend of the book, what you'll see, and this is just math, is that it's a very balanced business overall. You know, if you look at the mix of revenue in the first half versus the mix of revenue in the second half, it's very balanced. And if you look at the growth rates from the first half to the second half, it's very balanced.
Paul Richard Knight: The DRC contract is about that's the.
Paul Richard Knight: Probably the most exciting opportunity for us.
Paul Richard Knight: We talked about the 60 million Euro portion of the 100 million Euro agreement is related to vaccine cold chain.
Paul Richard Knight: But the DRC Toyota Zen to be medical we're all focused on how to use those now to do whole blood recovery. So the plans are for how do we get to retrieving a million a million whole sample whole blood samples per year in the DRC through this channel using the <unk> medical vaccine boxes.
Herman Kudo: So I think you have similar dynamics in C&I. Andrew, it's a business, I wouldn't look at that business as being overly cyclical. And Azenta overall, when you unpack the SMS business and also the multi-omics business, you see a really nice balance across the first half and second half. Great; looking forward to seeing everybody in March. I appreciate it. Your next question comes from the line of Paul Knight with KeyBot. Your line is open. Yes, where are you in the transition on just your sales distribution model? I know you had to redo that strategy.
Paul Richard Knight: On the outbound side sample retrieval on the inbound and that those are those are the active life discussions that are going on right now because it is a.
Paul Richard Knight: Top priority for the Ministry of Health and that's exactly where we are and that's why we're really enthusiastic about the DRC.
Paul Richard Knight: We hope before the year is over that we can articulate what that program is specifically with numbers in units and samples in.
Paul Richard Knight: In terms of what Thats done from a transformative standpoint to add tremendous value to a product based.
Paul Richard Knight: B medical vaccine cold chain to our services base of services revenue for us into on the.
Paul Richard Knight: So are you half done? Where are you with you know, where do you think? Yeah, hi, Paul.
Paul Richard Knight: The sample retrieval side.
Okay. Thank you.
Paul Richard Knight: Okay.
Speaker Change: Your next.
Speaker Change: Question comes from line of Vijay Kumar with Evercore ISI. Your line is open.
Stephen S. Schwartz: Thanks. We're aligned. So we have the sales organization complete. In each of the three segments, there's a dedicated sales organization, and now it's just getting traction and practice and making sure that we execute. But we believe the fact that we've been growing in this environment is because we've got the sales aligned again as it should be. So the distribution channel continues to build, and you can imagine as we grow that channel will be, you know, rotating through different distributors who are keeping up. But we like how the channel has built, and the scientists selling to scientists in the multiomics business are already completely aligned. We still have, you know, some openings to fill, but, by and large, that organization is also in place, and that's why we're starting to see really good traction. And then could you please update us on China?
Vijay Muniyappa Kumar: Maybe Jay Hi, Steve Hi.
Vijay Muniyappa Kumar: Hi, Steve Thanks for taking my question.
Vijay Muniyappa Kumar: A few if it's a month.
Vijay Muniyappa Kumar: Just maybe some questions on guidance, our second quarter mid singles to high singles is that like coated revenue growth or is that an organic number if you could clarify.
Speaker Change: That's going to be an organic number.
Speaker Change: Fantastic.
Speaker Change: Uh huh.
Speaker Change: Based on those numbers the implied from back half is high teens.
Speaker Change: The step up in the back half what gives you I mean is that all just coming from <unk>.
Speaker Change: DRC contract revenue recognition or are you assuming.
Speaker Change: Sample management and monetized, one extra step up in back half.
Speaker Change: Yeah, So Vijay it's Herman so.
Herman Andrew: When you so.
Herman Andrew: When you look at the business XP medical for a minute.
Herman Andrew: If you look at the Q1 actuals and you now have the the color on Q2.
Herman Andrew: And you have the full year guide is the bookend.
Herman Andrew: What youll see is a very balanced mix of revenue between the first half in the second half and you can do the math it's.
Stephen S. Schwartz: I know that you redid logistics a little bit there last year. Capacity expansion would be a good thing. You bet.
Stephen S. Schwartz: And so let me talk about China a little bit. So we mentioned that we were experiencing double-digit growth in China again for the third consecutive quarter. Most of the business we do in China these days is services-related.
Herman Andrew: Around $49 51.
Herman Andrew: And you look at the growth rates again, theyre very very balanced so when you look at SMS and multi omics.
Herman Andrew: Between the first half and second half you don't have very large step ups.
Stephen S. Schwartz: So it's for the multi-omics business, and we grew 11% in synthesis again this quarter. So we've seen strong growth in synthesis, and a really good recovery. The issues we had in China 18 months ago are behind us, and we feel like we're in a really good position. Back to growth, I can tell you the team is incredibly busy in China, you know, serving customers both inside and outside of China. So we believe China is, you know, fully capable, full speed ahead.
Herman Andrew: It's not a hockey stick.
Herman Andrew: The big piece is be medical.
Herman Andrew: In the back half and that becomes all about the pipeline conversion, we have a very robust pipeline.
Herman Andrew: The timing of when it converts is is the thing that we've been talking about for the last two quarters. So Vijay. This is Steve I think you hit it exactly that.
Stephen S. Schwartz: We have good line of sight, good visibility to the business on the multi omics side on the SMS side, we feel really comfortable about what that looks like and as Herman defined.
Stephen S. Schwartz: And just the growth characteristics they've exhibited so different from what's going on in the rest of the market is a tribute to a strong team aggressively going after all their, you know, their local customer base. And then lastly, on B-Medical, I mean, I thought the real reason to buy B-Medical was to move it into things besides vaccines. The technology in the box was kind of what you liked a lot and would maybe move into other areas like service.
Vijay Muniyappa Kumar: <unk>, it's modest uptick from the first half to the second half and we feel good about that and then we have a lot of good opportunity there it's heavily weighted on bringing the b medical business home in the second half.
Speaker Change: Understood and then one on a N G S modest growth.
Speaker Change: Is that just the transition because it's in.
Speaker Change: In a price coming down like Kansas business get back to like high singles like how do you see NGL market playing out.
Stephen S. Schwartz: Where are you on that journey with B-Medical? Yeah. Paul, that's exactly what the DRC contract is about.
Speaker Change: So Vijay what we see and again, we need a few more data points, but the number of reactions. We ran was up considerably but we are prepared for it. We knew this was coming but we're starting to populate.
Stephen S. Schwartz: That's probably the most exciting opportunity for us. We talked about the 60 million euro portion of the 100 million euro agreement related to the vaccine cold chain, but the DRC, Toyota, Zenta B Medical, we're all focused on how to use those now to do whole blood recovery. So the plans are for how do we get to retrieving a million whole blood samples per year in the DRC through this channel using the B Medical vaccine boxes on the outbound side and sample retrieval on the inbound. And those are the active live discussions that are going on right now because it is a top priority for the Ministry of Health. And that's exactly where we are.
Vijay Muniyappa Kumar: With the large number now of the Nova seek ex pluses and it does change the economics. So we're comfortable to help power the reagent cost through to customers, but we still get paid for the value that we bring for the consultative nature of what we do for the capital that we've employed and so thats why we can sustain the margin while we're growing revenue.
Vijay Muniyappa Kumar: It's the amount of work we're doing is up significantly we're going to work to stay in front of it. So I'm guessing that we'll ask each other this question one quarter now and for two quarters now three quarters from now just to make sure that we're keeping up but right now that's how this is playing out.
Stephen S. Schwartz: And that's why we're really enthusiastic about the DRC. We hope before the year is over that we can articulate what that program is specifically with numbers and units and samples in terms of what that has done from a transformative standpoint to add tremendous value to a product-based, B-Medical vaccine cold chain to a servant's revenue for Azenta on the sample retrieval site. Thank you. Your next question comes from the line of Vijay Kumar with Evercore ISI. Your line is open. Hey, Vijay. Hi Steve.
Vijay Muniyappa Kumar: We're able to sustain margin right now, but we are we're putting a lot of volume through brand new tools, and we think that transition will just keep coming.
Speaker Change: Understood and maybe my last one Herman for you the interest income assumption here for actual Q is that just because it's lower cash balance on share repurchase and then the free cash flow performance in Q1 are pretty impressive.
Herman Andrew: Is that sustainable I think it's annualized into $60 million.
Herman Andrew: Yeah. So.
Herman Andrew: Maybe the first one on the interest income yes. So we do we do see a little bit of uptick in interest income in the second quarter, and we're calling that out and again, it's just it's more around the timing of the cash that we're holding.
Vijay Muniyappa Kumar: Hi Steve, thanks for taking my question. Just maybe keeping questions on guidance, second quarter, mid-singles to high-singles, is that like total revenue growth or is that an organic number, if you could clarify? That's going to be an organic number.
Herman Andrew: And then free cash flow yeah, we feel we feel good about.
Herman Andrew: Our cash flow is coming in we're doing a lot of work.
Herman Kudo: Fantastic. And I think based on those numbers, they implied for BACF as high teens. The step up in a BACF, what are you assuming? Is that all just coming from the DRC contract revenue recognition, or are you assuming sample management and multi-units to step up in BACF? So Vijay, it's Herman.
Herman Andrew: Operationally a lot of discipline around spend management timing working capital.
Speaker Change: So I don't want to speculate on where the number could go but.
Speaker Change: Your math is right 15 times for 60, so yes, we will see where it ends up.
Speaker Change: Fantastic Thanks, guys.
Speaker Change: Thanks Vijay.
Herman Kudo: So, um, when you look at the business, X be medical for a minute. If you look at the Q1 actuals, and you now have the color on Q2, and you have the full year guide as the book end.
Speaker Change: And your next question comes from the line of you want Choo with B Riley Your line is open.
Speaker Change: Thank you for taking our questions first we are trying to look back on gerstein the impact from recent news from nano screening and a light <unk>.
Herman Kudo: What you'll see is a very balanced mix of revenue between the first half and the second half. And you can do the math, around $49.50. And you look at the growth rates, again, they're very, very balanced. So when you look at SMS and multi-omics... Between the first half and the second half, you don't have very large step-ups. It's not a hockey step.
Speaker Change: Bankruptcy are they a client of the firm and is there any read through to your genomics customer in this clinical application space.
Speaker Change: Yet you are not yet I mean, we.
Speaker Change: This isn't so immediate and we've got other.
Speaker Change: Other backup capabilities will provide the customers so we.
Speaker Change: We think we're we think theres no repercussions that we havent guided or people aren't aware of.
Stephen S. Schwartz: The big piece is B-Medical in the back half, and that becomes all about the pipeline conversion. We have a very robust pipeline. The timing of when it converts is the thing that we've been talking about for the last two quarters. We have good line of sight, and good visibility to the business on the multi-omic side and on the STMS side.
Speaker Change: Got it and another question is.
Speaker Change: For Astrazeneca, AZ, just announced a $300 million sales therapy push out here in Maryland for that with higher manufacturing can you maybe comment.
For projects like this what is the impact to different parts of it than has been as.
Stephen S. Schwartz: We feel really comfortable about what that looks like, and as Herman defined the progress, it's a modest uptick from the first half to the second half, and we feel good about that, and we had a lot of good opportunities there. It's heavily weighted on bringing the B-medical business home in the second half. Understandable. And then one on NGS here, Steve, Modest Fruit, is that just because of the transition, because of, you know, the price coming down? Like, can this business get back to like high singles?
Speaker Change: Large store the sample management and maybe some genomics and if you can.
Speaker Change: Our win some business here.
Speaker Change: Yes.
Speaker Change: It's not something we're able to comment on specifically for our customer, but you can imagine anywhere there is an opportunity like this that we're involved with.
Speaker Change: It can't be specific but.
Speaker Change: We've been partners with <unk>.
Speaker Change: Zeneca for many many years.
Speaker Change: Got it that's all from my time, Thank you.
Speaker Change: Okay. Thanks, Sean.
Stephen S. Schwartz: Like, how do you see the NGS market playing out? So, Vijay, what we see, again, we need a few more data points, but the number of reactions we ran was up considerably, but we prepared for it. We knew this was coming, but we're starting to populate with a large number now of the NovaSeq X-Pluses, and it does change the economics.
Speaker Change: And there are no further questions I will turn the call back to your presenters for closing remarks. Thank you very much.
Speaker Change: Okay.
Speaker Change: Thank you everybody for joining the call today and a big Thank you to the 3500 plus <unk> associates around the world. Thank you very much.
Stephen S. Schwartz: So we're comfortable with helping pass the reagent costs through to customers, but, you know, we still get paid for the value that we bring, for the consultative nature of what we do, for the capital that we've employed. And so that's why we can sustain the margin while we're growing revenue. The amount of work we're doing is up significantly, so we're going to work to stay in front of it. So I'm guessing that we'll ask each other this question one quarter from now and two quarters from now, three quarters from now, just to make sure that we're keeping up. But right now, that's how this is playing out.
Speaker Change: We look forward to speaking with you at the analyst day on the 14th of March Thanks, everyone.
Speaker Change: Yes.
Speaker Change: And that does conclude the conference call for today, we thank you very much for your participation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Hum.
[music].
Herman Kudo: You know, we're able to sustain margin right now, but we're putting a lot of volume through brand new tools, and we think that transition will just keep coming. Understandable, and maybe my last one Herman for you, the interest income assumption here for our QQ. Is that just because of the lower cash balance on share repurchase and then the free cash flow performance in Q1 pretty impressive. Is that sustainable? I think it's annualizing to 60 million. Yeah, so maybe the first one on the interest income.
Speaker Change: Uh huh.
Speaker Change: [music].
Speaker Change: Okay.
Herman Kudo: Yeah, so we do see a little bit of an uptick in interest income in the second quarter, and we're calling that out. And again, it's more around the timing of the cash that we're holding. And then free cash flow, yeah, we feel good about where cash flow is coming in. We're doing a lot of work operationally, a lot of discipline around spend management, timing, and working capital. So I don't want to speculate on where the number could go. The path is right, 15 times 4 is 60, so yeah, we'll see where it ends up.
Speaker Change: Uh huh.
Speaker Change: [music].
Herman Kudo: Fantastic. Thanks, guys. Thanks, Vijay. And your next question comes from the line of Yuan Shi with B. Riley. Your line is open. Thank you for taking our questions. First, we are trying to better understand the impact of recent news from NanoScreen and NYT's bankruptcy. Are they clients of the firm, and is there any read-through to your genomics customers in this clinical application space? yet?
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: Uh huh.
Speaker Change: [music].
Yuan Shi: You are not yet. I mean, we this isn't so immediate. And, you know, we've got other backup capabilities we provide to customers, so, you know, we think there are no repercussions that we haven't guided or people aren't aware of. Got it. Another question is for AstraZeneca, Arizona just announced a $300 million cell therapy project here in Maryland for cell therapy manufacturing. Can you maybe comment on projects like this, what the impact is on different parts of a dentist's business, you know, the large store, the sample management, and maybe some genomics, and if you can, you know, win some business here? Yeah, it's not something we're able to comment on specifically for a customer, but you can imagine that anywhere there's an opportunity like this, we're involved. So we can't be specific, but we've been partners with AstraZeneca for many, many years.
Speaker Change: No.
Speaker Change: [music].
Stephen S. Schwartz: Got it. That's all from my end. Thank you. Okay, thanks, John. And there are no further questions. I'll turn the call back to your presenters for closing remarks. Thank you. Okay.
Speaker Change: Yes.
Speaker Change: [music].
Operator: Thank you, everybody, for joining the call today, and a big thank you to the 3,500-plus Azenta associates around the world. Thank you very much. We look forward to speaking with you at Ambulance Day on the 14th of March. Thanks, everyone. And that does conclude the conference call for today. We thank you very much for your participation. You may now disconnect.