Q4 2024 Azenta Inc Earnings Call
Thank you.
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 GAAP financial results and the reconciliation of GAAP measures, they provide an even more complete understanding of the events of business.
Non-GAP measures should not be relied upon to the exclusion of the GAP measures themselves.
Speaker Change: On the call with me today is our President and Chief Executive Officer, John Murata, and our Chief Financial Officer, Herman Cueto. We will open the call with remarks from John, then Herman will provide a detailed look into our financial results and our outlook for fiscal year 2025.
Speaker Change: We will then take your questions at the end of the prepared remarks, and with that, I would like to turn the call over to our CEO, John Marotta.
John Marotta: Thank you, Yvonne. Good afternoon, everyone, and thank you for joining us today as we share our fourth quarter and full year fiscal 2024 results. I'm honored to have the opportunity to lead Azenta in its next phase of delivering value for our customers, employees, and shareholders.
John Marotta: On behalf of Azenta employees and shareholders, I want to thank Steve Schwartz for his unyielding commitment and many contributions to the company's success. Thank you, Steve.
John Marotta: I also want to thank our almost 3,300 associates at Azenta for the very warm welcome. My first 60 days have been focused on meeting our customers, our teams, traveling to our many global locations, having in-depth working sessions, and reviewing our portfolio.
John Marotta: We are already busy identifying and tackling a long list of opportunities with a sense of urgency.
I want to briefly discuss two recent announcements.
John Marotta: Last week we announced the appointment to our board of new independent directors William or Bill Kornag, Quintin Coffey, and Alan Malas. I'm excited about these additions who bring a diverse set of skills that complement our board's existing strengths.
John Marotta: We also established a new value creation committee that will assist and advise the board in driving long-term value creation, including through growth, cost, and capital allocation initiatives.
John Marotta: Today we announce the appointment of Lawrence Lynn as our new CFO. Lawrence is a tremendous executive who I've known for nearly a decade and work closely with at Danaher and PHC, a KKR company.
John Marotta: Most recently, Lawrence was the CFO of private equity-owned Geostabilization International, also a KKR company, where he was part of the management team that returned five times the equity invested by KKR.
John Marotta: In addition to his exceptional performance as a CFO, Lawrence is extremely well versed in the business systems operating model and lean principles we are implementing.
Speaker Change: He possesses the precise skill set we need as we move into the next phase of Azenta. I'm thrilled that he has agreed to join the team and excited for all to get to know him better.
Speaker Change: I also want to acknowledge Herman Cueto for the progress he helped us achieve at Azenta.
Speaker Change: Herman will leave us with a great foundation on which to build, and has made many tangible contributions during his time at the company, including most notably his work on developing the Ascend 2026 program, which is already yielding significant margin benefits.
Speaker Change: I'll take this opportunity to thank him, although he'll be continuing on as an advisor with us for some time to ensure a smooth transition.
Speaker Change: Moving on to the business, I'm pleased to share Azenta delivered strong results in the quarter and in the year despite a depressed and uncertain life sciences market.
Speaker Change: Our full year 2024 results were in line with our guidance as we reported revenue of $656 million, down 2% year-over-year on an organic basis.
Speaker Change: excluding the medical that combined sample management solutions and multiomics group core revenue by 4% for the year.
Speaker Change: As this is my first opportunity to speak to the investment community, I'm going to briefly touch on BMedical and then I'll spend a few minutes discussing my perspectives on our core businesses and the key areas of focus in 2025 and beyond. Herman will then go into more detail about our financial performance.
Speaker Change: Today we announce our decision to sell B-Medical. This action will allow us to refocus our high-quality core businesses where we have a tremendous opportunity to accelerate core growth and expand margins. We will provide updates on the sale process as relevant.
Speaker Change: We'll now turn to my perspective on our core businesses. I was excited to join Azenta because of its attractive and competitively advantaged portfolio of businesses. And after 60 days on the job, I'm even more enthusiastic about our company today.
Speaker Change: Our Sample Management Solutions business enjoys a significant competitive advantage, long-term outsourcing tailwinds, and highly profitable reoccurring revenue streams from its subscription and services offerings.
Speaker Change: For customers who want to store on-site, we sell differentiated cold storage and cryogenic products that are customized to the customer's unique requirements.
Speaker Change: For customers who want to outsource, we offer storage at one of our biorepositories.
Speaker Change: For both, automation is at the core of our highly efficient and scalable storage management solutions.
Speaker Change: That automation technology manages the growing number of samples generated and functions as both a library and a warehouse workflow management tool.
Speaker Change: It enables digital formatting, registration, and retrieval. When coupled with our sample intelligence software solutions, it pinpoints and provides timely access to samples the customer needs to retrieve.
Speaker Change: We'll invest more in building out our unique automation technology and developing new products like our BioArk Ultra, a revolutionary product enabling large-scale and eco-friendly ultra-cold sample storage.
Speaker Change: Moving now to our multiomics business, which is renowned for its research expertise and consultative approach to performing genomics analysis and data collection that enables impactful scientific discovery.
Speaker Change: This business embraces the newest technology and develops product offerings to meet the needs of customers in a rapidly evolving scientific research environment.
Speaker Change: By way of example, our next generation sequencing business was among the first to implement the NovaSeq XPLUS platform.
Speaker Change: While this technology transition brought with it pricing pressure, it has enabled growing customer adoption of our services, which combined with our commercial execution has outpaced the pricing headwind.
Speaker Change: Funding for capital investments continue to be constrained, driving increased R&D outsourcing to trusted partners like GeneWiz.
Speaker Change: We expect pricing will continue to stabilize throughout the first half of 2025 and will benefit from capabilities of our new location in Oxford, UK that opened earlier this year.
Speaker Change: In our gene synthesis business, we are investing and broadening our product portfolio to include more downstream workflows, and we intend to expand our synthesis capacity in the U.S. to satisfy growing demand.
Speaker Change: In our Sanger business, we have met the ongoing technology shift in traditional Sanger sequencing market with our ONT product called Plasmid EZ. We have seen excellent adoption of the offering since its launch in 2023, and we'll continue to close the gap created by Sanger market headwinds.
Speaker Change: Importantly, the growth investments I mentioned are relatively small in absolute dollars, offer very attractive returns, and can be made even as we expand margins and increase cashflow thanks to the tremendous efficiency opportunities we have available to us.
Speaker Change: Next, I'll spend a few minutes talking about key areas in which we are focused for 2025 and beyond. These include portfolio optimization, operational excellence, and value-enhancing capital allocation.
Speaker Change: We've talked about portfolio optimization with the ongoing sale of B-Medical.
Speaker Change: In terms of operational excellence, we have identified key priorities to build on our strong foundation and reduce complexity.
Speaker Change: In my time at other high performance organizations, I've experienced firsthand the positive impact that business system operating models and the use of lean principles had in driving exceptional performance.
Speaker Change: I expect implementing these tools at Azenta will have an outsized impact to helping us achieve our ambitious performance goals. Continuous improvement and simplification will become the way we work, with the help of a business system model to drive our performance and unify our culture.
Speaker Change: Operational excellence begins with identifying key performance indicators that will align our daily operating decisions with our strategy.
Speaker Change: These KPIs are broadly focused on revenue growth and profitability. We will enable revenue growth by Salesforce optimization, geographic expansion, and continued innovation.
Speaker Change: We'll achieve profitability improvement by gross margin expansion and corporate cost structure optimization.
Speaker Change: Other KPIs include working capital and cash management metrics, customer facing metrics like quality and on-time delivery, and employee metrics like turnover and internal advancement.
Speaker Change: The first step in our simplification process is addressing our incentive compensation programs. We have consolidated from eight plans down to one. This new compensation structure aligns directly with our KPIs.
Speaker Change: Each of our businesses will be compensated on core revenue growth, adjusted EBITDA or operating profit, and free cash flow or working capital.
Speaker Change: This structure will help us align our organization with our strategic objectives, drive improved performance, and make it clear to our team members how we win for our customers and our shareholders.
Speaker Change: There is much more to come on simplification because Isenta today is very complex. It was built through 15 legacy acquisitions and as a result had 13 IT systems, 45 physical sites, and nearly 40 legal entities.
In 2024, we benefited from substantial progress under ASCEND 2026.
Speaker Change: In the next phase of our transformation, we will turn our attention to investing and growth for our future and further expanding margins.
Speaker Change: This means right-sizing our cost structure and reallocating resources to high-impact growth investments in sales, marketing, and R&D.
Speaker Change: Simplification around corporate and operating company functions will provide clarity and accountability while empowering our employees who are closest to the customer to make the right commercial decisions.
Speaker Change: Indirect expenses will be deployed judiciously. Improved procurement process will drive direct material savings, optimize inventory, and streamline our supply chain.
Speaker Change: Enhanced information systems will provide better and more timely insights across the organization, supporting continuous improvement and prioritization of our key focus areas.
Speaker Change: Finally, I'd like to make it clear on how we think about capital allocation. We will make our capital allocation decisions through a consistent, robust, and returns-based process. We will be accountable for our outcomes.
Speaker Change: We expect to evaluate potential investments that will improve productivity, expand gross margin, support profitable growth by increasing capacity or developing new organic offerings, and drive inorganic growth through logical tuck-in M&A.
Speaker Change: We will always compare the returns for these investments with repurchasing our stock. In summary, we will be competing for resources internally.
Speaker Change: I'm actively working with our senior management and the board value creation committee to further refine our view of Azenta's full potential and how we can achieve it. We'll plan to host an analyst day in mid 2025 to share our findings in more detail with the investment community.
Speaker Change: Finally, I'd like to offer a few thoughts on the near term. While Azenta has tremendous opportunities and momentum entering in 2025, we are just getting started.
Speaker Change: Our guidance is based on the continuation of positive indicators from our last several quarters, with the opportunity for upside as the market recovers and as we execute on the initiatives we've laid out today.
Speaker Change: We have confidence in the full year profile given our attractive recurring revenues, CNI, and NGS recovering in the second half of 2024, and the store's backlog secured to date.
Speaker Change: After covering a lot of ground today, I wanna leave you with a message that I'm excited about Azenta's potential and I'm confident in our ability to deliver long-term sustainable value to our customers, our employees, and our shareholders. I look forward to keeping you updated on our progress.
Speaker Change: With that, I'm pleased to turn the call over to Herman. Thank you.
Good afternoon, everyone.
Herman Cueto: Thanks for the kind words, John, and I'd like to start by thanking the company and especially the finance and IT teams who have worked with incredible dedication and commitment to help guide Azenta through its evolution.
Speaker Change: It's been a pleasure to work alongside you, and I will be cheering Azenta on from the sidelines.
Speaker Change: As I've got to know John, it's clear that his global experiences successfully leading high-growth life sciences companies, in addition to his proven track record of building strong teams, will serve our customers, our employees, and our shareholders extremely well.
Speaker Change: In just 60 days, I've seen John come in, hit the ground running, and his operational depth has already made an impact on how we run the company.
Speaker Change: I admire his ability to digest and simplify complex information to get at the root of what the company needs to do. Azenta is in great hands and we are all excited to welcome John.
Speaker Change: As you saw from the results we issued today, we executed well in Q4.
Speaker Change: Before I get into the financial details, I want to start by recapping some notable progress and accomplishments in Fiscal Year 24. At Investor Day in March, we launched our transformation program called Ascend 2026.
Speaker Change: Under ASCEND 2026 we identified four key pillars to simplify our company and enable it for scale and growth.
Speaker Change: In the area of site rationalization, we impacted an additional three sites in the fourth quarter, bringing our total this year to 16, which represents nearly 40% of our sites being either closed altogether or right-sizing them.
Speaker Change: Under organization simplification, we have made substantial progress towards our goals and have several functional transformations in flight that are designed to improve our operating capabilities and reduce cost.
Speaker Change: This journey is partially enabled by our IT System Optimization Initiative, where I am happy to announce we have successfully reduced our core systems count from 13 to 8 this month.
Speaker Change: These remarkable achievements give us great confidence in the margin progression we described at Analyst Day.
Speaker Change: Lastly, under the umbrella of portfolio optimization, in the second quarter, we exited two non-core product lines and today we announced our intention to sell B-Medical Systems.
Speaker Change: The reshaping of our portfolio assets to focus on our core capabilities in sample management solutions and multi-omics is pivotal to our strategy.
On to the financial results.
Speaker Change: Market conditions played out as expected and through great execution we delivered against our commitments.
Speaker Change: Fiscal year 24 revenue was $656 million, down 1% year-over-year on a reported basis, and down 2% on an organic basis.
Speaker Change: Throughout the year we effectively navigated what continued to be a challenging macro environment. Focused execution enabled us to deliver above-market top-line growth in our SMS and multi-omic segments and expand our adjusted EBITDA margin by approximately 300 basis points.
Speaker Change: In the second half of the year, we returned to profitability and finished with a meaningful improvement in operating margin.
Speaker Change: We have made considerable progress in optimizing our cost structure and improving operational efficiency, and we expect those efforts to continue to deliver sustainable margin expansion into fiscal year 25 and beyond.
Speaker Change: With that, I would like to turn to our results in the quarter and for the full year. To supplement my remarks today, I will refer to the slide deck available on our website.
Turning to slide 4 for some highlights.
Speaker Change: Fourth quarter revenue was $170 million, down 1% year over year on a reported basis, and down 2% on an organic basis.
Speaker Change: SMS and multi-omics combined grew 5% organic year-over-year, an outstanding performance relative to the market.
Speaker Change: Most notable contributors to growth include next-generation sequencing, cryogenic stores, consumables and instruments, as well as storage.
Speaker Change: B-Medical came in slightly ahead of expectations delivering $19 million in revenue, representing a 35% decline year-over-year.
Speaker Change: Fiscal year 2024 revenue was $656 million, which was down 1% on a reported basis and down 2% organic. On a combined basis, SMS and Multiomics delivered 4% organic growth.
Speaker Change: Being medical contributed 83 million dollars to revenue and was down 27% on an organic basis.
Speaker Change: Non-GAAP EPS for the quarter was $0.18 and was $0.41 for the full year.
Speaker Change: I'm excited to report our adjusted EBITDA margin of 10.2% in the fourth quarter and 7.5% for the full year. This represents margin expansion of more than 550 basis points for the quarter and approximately 300 basis points for the year.
Speaker Change: I also want to highlight two consecutive quarters with an adjusted EBITDA margin above 10% demonstrating the impact of the transformation initiatives I discussed earlier.
Speaker Change: In the quarter, we return $249 million to our shareholders through our Share Repurchase Program.
Speaker Change: This completes our 1.5 billion dollar share repurchase program in which we bought back approximately 30 million shares over the last two years.
Speaker Change: Now let's turn to slide 5 to take a deeper look at our results in the quarter.
Speaker Change: Total revenue was $170 million, representing a decline of 1% reported and a decline of 2% organic.
Speaker Change: In the fourth quarter, non-GAAP gross margin was 45%, up 220 basis points year over year. The improvement is largely a result of favorable product mix and operational efficiencies.
Speaker Change: Adjusted EBITDA margin in the quarter was 10.2% up 560 basis points year over year. Again, non-GAAP EPS was 18 cents per share.
Speaker Change: With that, let's turn to slide 6 for a review of our segment results, starting with SMS.
Speaker Change: SMS revenue was $85 million for the quarter, up 4% year-over-year reported, and up 3% organic.
Speaker Change: This is in spite of a tough compare in custom stores, which declined 27% in the quarter. On a positive note, we continue to see great momentum in cryogenic stores, which grew 67% in Q4, and consumables and instruments, which grew 14% in Q4.
Speaker Change: SMS fourth quarter non-GAAP gross margin was 48%, up slightly year over year. The impact of favorable one-time items recorded in the prior year offset the benefits of operational efficiencies and sales mix.
Turning next to the multi-omic segment.
Speaker Change: Multiomics delivered revenue of $66 million, the largest revenue quarter since Q2 FY22, which translated to 8% growth on both a reported and organic basis.
Speaker Change: Next-generation sequencing grew 25% year-over-year, benefiting from a combination of larger strategic deals like FinGen and price stabilization.
Speaker Change: Gene synthesis saw modest growth compared to last year, and while we continue to see good acceptance of our new value offerings, we are still seeing constrained spending in critical markets such as pharma.
Speaker Change: Sanger sequencing revenue was down 12% year-over-year as we continue to cycle through an evolving Sanger market.
Speaker Change: Our multiomics business in China delivered organic revenue growth of 6%, once again outperforming a market with macro challenges.
Speaker Change: Multiomics fourth quarter non-GAAP gross margin was 47.1 percent, up 130 basis points year-over-year, driven largely by the growth in NGS volume as well as productivity gains that helped to offset pricing headwinds.
And finally, be medical.
Speaker Change: Revenue was $19 million in the quarter, down 35% on both a reported and organic basis due to the timing of orders.
Speaker Change: Non-GAAP gross margin of 24.1% was up 180 basis points versus last year.
Speaker Change: Next, let's turn to slide 7 for a review of the balance sheet.
Speaker Change: We ended the quarter with $522 million in cash, cash equivalents, and marketable securities. We had no outstanding debt.
Speaker Change: Regarding our consolidated statements of cash flows, as part of the year-end closing process, we are currently reviewing the classification of amounts principally between the effects of exchange rate changes on cash and cash equivalents,
Speaker Change: in our consolidated statements of cash flows that could potentially impact those line items in our previously issued statements of cash flows.
Speaker Change: for the fiscal year-end September 30th, 2023 and 2024 quarterly periods.
Speaker Change: Therefore, we have not included a statement of cash flows in our earnings press release issued before this call.
Speaker Change: Our consolidated balance sheet and income statement are not impacted by the cash flow reclassification item for any period.
Speaker Change: The company expects to reflect any changes to the previously issued Statements of Cash Flows in its annual report of Form 10-K for the fiscal year ended September 30, 2024.
Speaker Change: Capital expenditures for the quarter were about $13 million and approximately $38 million for the full year as we invested for growth and scale in our sample management solutions and multiomics businesses.
Turning to guidance on slide eight.
Speaker Change: As you saw in our press release, the company announced its intention to sell the B-Medical Systems business.
Speaker Change: Therefore, we are guiding 2025 Excluding B-Medical as it will be reported within discontinued operations going forward.
Speaker Change: The plan is to issue recasted historical actuals reflecting the discontinued operations of B-Medical before the filing of our 10-Q ended December 31st, 2024.
Speaker Change: As we continue to watch an evolving macro environment, focus on our transformation efforts, and complete the strategic exit of B-Medical, we are guiding 2025 organic revenue to grow in a range of 3 to 5 percent year over year.
Speaker Change: We are forecasting multiomics to grow low single digits and sample management solutions to grow mid-single digits.
Speaker Change: Growth will be driven by a combination of commercial excellence, contribution from new growth vectors, and strategic investments in automation and technology.
Speaker Change: We are committing to approximately 300 basis points of adjusted EBITDA margin expansion year over year.
Speaker Change: In closing, we are very pleased with our performance in fiscal year 2024. We are optimistic about the noteworthy progress we have made in the business.
Speaker Change: As we turn our attention to executing in 2025, we are committed to delivering on our commitments, 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: We will now begin the question and answer session. If you have a question, please press star followed by the number 1 on your touch screen. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number 2.
Speaker Change: Your first question comes from the line of David Saxon from Needham. Your line is now open.
David Saxon: Oh, great. Good afternoon, John and Herman. Hey, good afternoon, guys. Thanks for taking my questions and congrats on your quarter.
David Saxon: Yeah, hey John. So I have two, one on guidance and then one on...
the margins
David Saxon: So, for, I guess, the first question, you know, guiding to three to five percent organic growth at the XB Medical, if I look at the fiscal 26 targets, I think SMS was expected to grow high singles, multi-omics, mid-singles.
David Saxon: So, this might be a multi-part question, but first, understanding you're hosting an analyst day next year, but would love, John, to hear your thoughts on the fiscal 26 targets, whether you think they're achievable, excluding the medical, obviously, or will the next long-term model be kind of starting from a new page?
David Saxon: And then number two, is the lower fiscal 25 guidance relative to kind of the assumptions baked into the 26 targets, is that a function of the macro and market or, you know, are you still, is it execution at this point? Thanks so much.
Why don't I start first with the LRP?
Speaker Change: So David, if you step back, we've seen considerable progress against the LRP that we announced.
Speaker Change: at the 2024 Investor Day, including achieving above-market growth and margin expansion inside of fiscal year 24.
Speaker Change: We also continue to feel good about the revenue targets that are above market, as illustrated by the fiscal year 25 that we just gave. And I think the third point on the LRP is we also believe that an EBITDA margin
15 to 17 percent by fiscal year 26 is achievable.
Speaker Change: When you look at the guide of 3-5%, it certainly does...
Speaker Change: Assume the current market environment and this recovery now being pushed out as we're starting to hear from some of the bellwether peers If it comes back in the second half of 2025, maybe we do see a little bit of upside but for right now
Speaker Change: We think this growth of three to five percent with four at the midpoint is consistent with what we saw inside of fiscal year 24.
Speaker Change: David, just a few thoughts. Thanks for the question, and it's good to be with you. I think in general, as we enter into 2025, there's some uncertainty in the market. We're working through that.
Speaker Change: We feel pretty confident on the bottom line right now, but as we look at our guidance, it's really about demonstrating capability. We've struggled on the top line, and I think demonstrating capability there is going to be pretty important.
Thank you.
Thank you.
Okay, great. That's super helpful. And then...
Speaker Change: My second question is probably for Herman. So the EBITDA margin obviously really good performance this quarter and last. So the guidance for fiscal 25 is kind of implying flat-ish.
relative to this.
second half of fiscal 24, so
Speaker Change: I just want to understand kind of the dynamics there, is that just the medical coming out?
of the model, or are there any other dynamics?
Speaker Change: kind of at play in 2025. And then, I guess, secondly, I mean, any color on kind of the quarterly cadence for EBITDA margins. Thanks so much, guys.
Speaker Change: Thanks, David. You know, look, we've said even at Investor Day, count on 300 basis points of even a margin expansion.
Speaker Change: each year, and we do expect to get to that 15-17% that I just mentioned. David, look, if we start to do better and we start to see it come through, of course we're going to pass it along, but we do want to guide in a range that we're highly confident in hitting right now.
Thank you.
Speaker Change: When you look at the last two quarters where we were above 10% I think what I would want to point to is
Speaker Change: As we come into fiscal year 25, we do have some items that we have to jump over. There are some investments that we need to make, so we want to make sure that we're guiding to an even margin where we have a ton of confidence.
Speaker Change: Maybe a minute on the quarterly cadence. I would look at the cadence both from
Speaker Change: a sales and an EBITDA point of view consistent with the way you saw the revenue and EBITDA come in fiscal year 24.
Speaker Change: So look at that cadence as being similar to what you've seen this past year.
Okay, great. Thanks so much for that, Kala. Super helpful.
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Thank you. Thank you. Thank you.
Speaker Change: Your next question comes from the line of Jacob Johnson from Stevens. Please go ahead.
Hey, Jacob.
Hey, Jacob.
We'll move on to the next question please, thank you.
Speaker Change: Your next question comes from Vijay Kumar from Evercore. Please go ahead.
Hi, Vijay.
Speaker Change: Hi John, thank you for taking my question and welcome to the event.
Thank you.
Speaker Change: I have a few questions if you don't mind. NGS plus 25, that's a pretty strong number and I think I heard you say you've completed the transition.
Speaker Change: on the NoSeqx. Is NGS expected to continue strong double-digit growth, and what did gene synthesis do in the quarter?
Herman Cueto: So NGS was really strong in the quarter. Vijay, this is Herman.
Herman Cueto: Yeah, you're right, it grew 25%. We saw the volume continue to go up and we did see price abate. We don't want to count on that trend right now as continuing, but it is certainly a positive indicator.
Herman Cueto: of Positive Momentum as we head into fiscal year 25. Yes, the NovoSeq X Plus, that transition, almost everything is running on those tools at this point in time. And remind me what your last question was?
on gene synthesis in the quarter.
Speaker Change: So gene synthesis in the quarter was low single digits, but for the full year, it was, I would say, mid to high single digits.
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Hello, everyone.
Speaker Change: Understood. John, I want one for you on China. What did China do in Fiscal 24 and what is the guide assuming for Fiscal 25? I guess a lot of questions here on
Speaker Change: potential China tariff impact, so maybe if you could just comment on is Azenta importing from China and any hypothetical scenario analysis on what a tariff impact could look like.
Speaker Change: Sure, sir, BJ. So, a couple, a couple comments. Let me...
Thank you.
Speaker Change: Let me just give some color on our high single-digit growth in gene synthesis. We're well positioned there both in China and the U.S. serving those independent markets. I mean we are
Speaker Change: We have the capabilities to invest in gene synthesis in the U.S.
Speaker Change: It's more around capacity. From a capability perspective, it's mirrored directly to China. In the U.S., it's a capacity issue. So we are investing there.
Speaker Change: High single came in and we think that's going to continue. These are shorter run, higher margin runs that we have in that business in Indianapolis.
Regarding China tariffs...
Speaker Change: You know, as we sit here today, I don't think, you know, based on my comments in terms of our regional, regionality in terms of how we manufacture for U.S. for U.S. and China for China, I don't think we're going to see an impact. We're not modeling that today. I'll let Herman discuss that briefly.
Herman Cueto: Yeah, so Vijay, in fiscal year 24, China for us in the fourth quarter grew about 10% and in the full year it grew about 12%.
Speaker Change: And in terms of modeling the full year, we don't give regional guidance on how we model, but you could expect that all the macro factors and all those things were considered when we gave the three to five on the total company.
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Speaker Change: Understood. Maybe one last one for you, John. I know it's still early days, but high-level learning for you and sort of your strategic vision for the business would be helpful.
John Marotta: Sure, you bet. Happy to share a few thoughts. I mean we're really focused around three areas.
Portfolio Optimization, Operational Excellence, and of course Capital Allocation.
John Marotta: Let me touch on portfolio. I mean, if you think about, I mean, be medical is an easy decision for us pretty quickly. We're focused around our high margin businesses, outsource products and services for our customers. We want to be in really good end markets.
John Marotta: We've got the right to win, we've got strong capabilities, there's good secular growth trends, and attractive reoccurring revenue. So that's around portfolio and the lens that we're taking there.
John Marotta: I think right now as we sit here today, our SMS business and our multi-omics business, we really feel confident in those businesses going forward, especially moving B-Medical out of the portfolio and allowing us to focus in those areas.
As it pertains to value creation and capital allocation,
John Marotta: You know, there is a significant opportunity here. We compete for resources internally, and this is going to be a departure from the past.
John Marotta: The lens we're taking on this and what's important in the organization and some observations around this is some rigor around return on investment, meaning there are specific criteria for that.
John Marotta: The four levers we pull in capital allocation are the following, around gross margin, productivity improvements, growth initiatives, around R&D, capacity increases, other business lines. The third being M&A.
John Marotta: around strategic tuck-ins, I want to be very clear here. We need to earn our way back and demonstrate capabilities in this area. And then lastly, around share buybacks, we always compare against this.
John Marotta: in terms of the other options I just discussed, but that's the lens on capital allocation.
John Marotta: And lastly, I want to talk about operational excellence. And I'll be brief here, but there's a lot of learnings coming from Danaher and KKR, and I think the biggest learning is around doing the basics really, really well.
John Marotta: I think there's a real opportunity here. It starts with alignment and prioritization, and that's how we're going to drive value.
John Marotta: This is a bit of a departure from the past. I want to give an example of around alignment and prioritization. First, we talked about these compensation plans going from 8 to 1. This simplification and
John Marotta: In moving off of the complexity we have in the organization, it's going to be really important.
The teams need to understand how we win.
John Marotta: And how we win is around implementing our core value drivers. Those core value drivers in the business will cascade down in the organization.
John Marotta: What that means is specifically in really eight areas of core value drivers, but three main stakeholders here. First one is around customers.
John Marotta: and that is quality and on-time delivery. We're going to drive centricity around the customer here, and we do that through these metrics.
John Marotta: The second is around our employees, and that's turnover and internal promotion that we look at. And the third being shareholders and how we win in our businesses. That's top-line growth, operating margin expansion, working capital, and return on invested capital.
Speaker Change: So, you know, in general, there's opportunity around GNA and gross margin and COGS, but we'll leave that for a later call. But really, Vijay, that's kind of our view of the business right now.
That's helpful. Thank you.
You bet.
Speaker Change: Your next question comes from the line of Jacob Johnson from Stevens. Please go ahead.
Hey, can you guys hear me now?
We can't. Thank you.
Speaker Change: John, welcome. I'm off to a great start with you. Herman, it's been great working with you. And kudos to all of the progress you made. Maybe for both of you. No problem, Herman. Just maybe first on freezers, maybe for both of you. I think stores were down in the quarter.
Speaker Change: I'm just curious kind of what you saw there with the timing or are you seeing some headlines from the capital kind of equipment Environment and then John just given your background and you know the freezers market or is kind of a four-letter word for investors right now Can you just talk about?
Speaker Change: Your thoughts on differentiation of the Zensys freezer portfolio and then obviously it's been kind of difficult broadly for the freezer market the last couple years, kind of your view for the outlook for that market longer term.
Sure.
Speaker Change: Jacob, why don't I jump in, go first. You're right, stores were down in the quarter. I would remind everybody that we have a very tough compare in the fourth quarter, where the fourth quarter of fiscal year 23, it had a very, very... It was a record. Yeah, it was a record growth rate.
Speaker Change: I want to remind everybody that we have high visibility into the backlog in that business. We have a lot of confidence in it. And right now is where we sit today. We have close to 75% visibility into that backlog. So we feel good about our guide for stores in fiscal year 25.
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You know
Speaker Change: Around the freezer business, this is a market penetration and a market conversion business for us.
We feel very, very good about our capabilities here today.
Speaker Change: business where it's highly automated. You look at samples per square foot. I mean, these efficiencies are real. The capabilities are real in the organization. And I think we feel pretty strongly about our conversion opportunities, but more importantly how we penetrate, meaning win-loss.
Speaker Change: in these competitive situations. So in general, we're pretty bullish on this. And I understand your point of view, having come from PHC on the freezer market. I think we've got, you know, really good advantage capabilities here at Azenta around that space specifically.
Speaker Change: Got it. That's helpful. And then just maybe one on NGS. Can you talk about what you're seeing there in terms of pricing versus volume? I think I heard you talk about maybe some continued price stabilization in the first half of the year. Can you just talk about trends on that piece of business?
Yeah, so
Herman Cueto: Jacob, it's Herman. Yeah, we did see price stabilization from Q3 to Q4, which really helped to drive
the growth rate that you saw.
Herman Cueto: We do continue to see nice volume in this space, so volume did increase and we benefited from that. We also, as we said in the prepared remarks, we benefited from some larger deals like FinGen, which helped drive the...
the growth rate in the quarter.
Speaker Change: Yeah, Jacob, you know, we're all getting to know each other, so I was remiss on a comment here I wanted to make in terms of the market outlook. There's a unique advantage that we have around our limb system in this business.
Speaker Change: I mean this is this is pretty unique in terms of the conversion That's why this market is growing double-digit, you know high single to double-digit right now We think that's going to continue and when we're competitively Advantage based on the limb system. I think we're going to continue to enjoy market penetration in this area
Speaker Change: Got it. I appreciate that, John, and thanks for taking the question. Sure. You bet. Thank you. Thanks, Jacob.
Thank you.
Speaker Change: Next question is from the line of Andrew Cooper from Raymond James. You may now ask your question.
Speaker Change: Hey everybody, thank you for your time and John great to connect for the first time publicly here. Maybe just a quick one on the guide though.
Speaker Change: I just want to maybe ask it a little bit of a different way. I know you mentioned macro. We talked a little bit about some of the pricing in multi-omics, but you do have some periods in this fiscal year you just closed where comps should be, you know, not overly difficult.
Speaker Change: when we think about the 25 growth. So maybe just, can you lay out?
Speaker Change: Some of the items that we should keep in mind to keep us from being a little more bullish than that three to five percent in terms of what you might be able to deliver, given what you just did in the fourth quarter with the core business was kind of right in line with that already.
Speaker Change: You know, there's a couple things to think about here, Andrew, that, that, you know, being in this for 60 days, we've got some open territories, we had a bit of turnover, there is, there is potential for distraction around the transformation. I think we're, we're being somewhat
Speaker Change: prudent around how we're guiding the organization at this point in time. And that's really part of this that's in the guide that really, well, it may not have come out directly in our comments, but hopefully I've helped to clarify that a little bit.
Speaker Change: No, that's helpful. And then just one more kind of, again, sticking with guidance. I want to make sure the margin uplift, the 300 basis points, is that off a base of
Speaker Change: What you just reported or do we need to think about the EBITDA margins from continuing ops being a little bit different just given B-Medical was probably somewhere
Speaker Change: I don't know, near break-even and probably dilutive to the overall base when we think about EBITDA margins in terms of a reported number for fiscal 24.
Speaker Change: Yeah, so Andrew, we will get the recasted financials out before we issue the first quarter Q. We'll do that for you and you'll have all that information, but the 300 basis points is on the Remain Co.
Speaker Change: on an apples-to-apples basis, or from, okay. No, it'll be apples-to-apples, yeah. So you'll get a restated number at all.
Speaker Change: So you can't give us a sense for kind of what the actual number you're pointing towards is for Fiscal 25 given we don't have that Fiscal 24 recast yet?
Speaker Change: Yeah, it would be in the neighborhood, I want to say the 300 basis points will be above 11%.
Speaker Change: Okay, great. I'll stop there and let others ask. Appreciate it.
Thank you.
Thank you.
Speaker Change: Your next question comes from the line of Matt Stanton from Jeffries. Please go ahead.
Speaker Change: Hey, thanks. John, I want to go back to some of your... Hey, how you doing? I want to go back to some of your comments that were helpful just on, you know, vision for the business, where you're focused. If we go to M&A, you know, you talked about strategic tuck-ins and the need to kind of earn your way back there. Can you maybe just talk about kind of...
Speaker Change: How the funnel you inherited looks today, does that need to be rebuilt or changed at all, and should there be any evolution in terms of key criteria as we think about those strategic tuck-ins, maybe leaning on some of the financial metrics and, you know, lens to do deals from your experience prior, you know, such as Danner. Thanks.
Speaker Change: It's early days here, Matt. I mean, we're going to continue to build out the funnel and drive more rigor around cultivation in general in M&A.
taking both a short-term, long-term point of view.
Speaker Change: specifically around sample registration. I have to be candid here. I mean, I was a little surprised at how manual our process is with our capabilities.
today
Speaker Change: We have the ability to invest there, and when we invest there, we will see that gross margin improve dramatically. What that means for M&A in the future is in our biorepository business, we think there's an opportunity there in bringing more biorepositories in and potentially putting them on our platform that's a lower gross margin.
a higher gross margin, more automated type of
Speaker Change: type of business where those make a lot of sense. These contracts are 7 to 25 years, pretty attractive, you know, it's an area that we're really keen on and we're starting to take a look at. But again, it's early days there.
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Speaker Change: Regarding the criteria, I would expect that rigor around any ROIC metric of double digits. I mean there's got to be a clearing criteria around that and we're going to be very stringent around what that criteria is.
Speaker Change: Thanks, that's helpful. And then maybe one for you, Herman, just talk about the pricing that's baked into the three to five percent guide next year. It sounds like, you know, NGS, the headwinds, they're kind of abating, but in fact I'm going to market growth, mixed dynamics, what's baked in from a pricing standpoint for 2025? Thank you.
So, Matt, we won't give, you know,
a very detailed
Speaker Change: explanation on the price. We don't give that type of information typically, but...
Speaker Change: What I would say is we do anticipate continued pricing headwinds in NGS as we cycle through the comp. And again, could it continue to stabilize? Yes, it could. But we don't want to look at one quarter as being a trend. We want to see how it starts to play out.
I'll leave it there. Thank you.
Thank you, Matt.
Speaker Change: Your last question comes from the line of Paul Knight from Key Bank Capital Markets. Please go ahead.
Hi, this is Lucas Sun for Paul Knight at KeyBank.
Speaker Change: Hi, one quick question on the BeMedical transaction. Is there any color you can provide on the timeline for closing that transaction and whether it's more likely to be a first half or second half type of event? Thanks.
Speaker Change: It's a good question, Lucas. Go ahead. Yeah, Lucas, I think we're looking at this as a first half type of event, certainly inside of one year for sure. It's still early days. But I would expect that this is something we could do within the first half of the year.
Speaker Change: Great, and then switching over to CapEx, I believe you said the CapEx number for the quarter was $13 million. Would you expect that to trend lower after the B-Medical divestiture closes?
Speaker Change: No, I mean, it certainly will come down, but relative to sales, I think if you stick to this 4% to 6%, you're probably in the right range.
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Speaker Change: 4% to 6% of sales, Lucas. Yeah, Lucas says, so a couple thoughts there. I mean, we are looking at our CapEx right now in the business. It's, again, early days.
Speaker Change: But again, I think that what we talked about in terms of capital allocation and return on investment being double-digit, I mean, we are looking in general at how we deploy capital in the business.
Speaker Change: look at and sharpen our pencil around growth initiatives. We think there's...
Capacity Building Initiatives.
Speaker Change: We'll look into that and we'll come back to you and let you know what that looks like.
Speaker Change: But, in general, I think we want to make sure that our capital allocation in CAPEX matches our strategic initiatives going forward. Thank you for the question.
Thanks, that's all I had.
Excellent.
Speaker Change: Thank you all. It's good to be with you. So go ahead, operator. Thank you.
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Speaker Change: There are no further questions at this time, so I'd like to turn the call over back to Herman Cueto for closing remarks. Please go ahead, sir.