Q1 2025 Azenta Inc Earnings Call
Greetings and welcome to the Azenta Q1 2025 Financial Results Conference Call.
During the presentation, all participants will be in the listen-only mode.
Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press star followed by the number 1 on your telephone.
As a reminder, this conference is being recorded Wednesday, February 5th, 2025. I will now turn the conference over to Yvonne Perron, Vice President, FP&A and Investor Relations. You may begin.
Yvonne Perron: 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 2025.
Yvonne Perron: Our first quarter earnings press release was issued before the open of the market today and it's available on our Investor Relations website located at investors.azenta.com in addition to the supplementary PowerPoint slides that will be used today during the prepared remarks.
Yvonne Perron: 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.
Yvonne Perron: There are many factors that may cause actual financial results or other events to differ from those identified in such forward-looking statements.
Yvonne Perron: 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 other various filings with the SEC, including our annual reports on Form 10-K and our quarterly reports on Form 10-Q.
Yvonne Perron: We make no obligation to update these statements should future financial data or events occur that differ from the forward-looking statements presented today.
Yvonne Perron: 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.
Yvonne Perron: 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 Azenta business.
Yvonne Perron: 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 Marotta and our Chief Financial Officer Lawrence Lynn. We will open the call with remarks from John, and then Lawrence 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 morning, everyone, and thank you for joining us today. We're happy to be with you in the morning rather than later in the day. And going forward, we will follow the same timing, with the earnings release and the call before the market opens. This gives us more time for same-day interactions with our analysts, investors, and other interested stakeholders.
John Marotta: Before getting into the numbers, I want to give you an update of how I've spent my time the first few months at Azenta.
John Marotta: Since September, I've spent most of my time getting to know our business in the best way I know how. On the ground with our customers and our associates at our manufacturing sites and our lab facilities around the globe, including the UK, China, and the US.
John Marotta: These meetings with our teams have been invaluable. They have given me a chance to see firsthand the incredible work being done and hear from those who drive our success every day.
John Marotta: These visits have deepened my understanding of our operations, our opportunities, and most importantly, our people.
I'm even more excited about what lies ahead.
John Marotta: Alongside our highly talented teams, we've been making progress towards our accelerated goal of delivering profitable growth and long-term shareholder value.
John Marotta: Our work is well underway to further enhance our competitively advantaged portfolio, differentiated products and services, and strong market positioning.
John Marotta: The board, aided by the capabilities of the newly created Value Creation Committee, have been working alongside me and my team to focus on and oversee our strategic initiatives, portfolio optimization, operational excellence, and value-enhancing capital allocation.
Our sample management solutions business is unique.
John Marotta: I've had the opportunity to observe firsthand the highly differentiated products and services we deliver to our customers.
John Marotta: To that end, we are excited that the UK Biocenter selected Azenta to expand its sample storage capabilities with the BioArk Ultra. The BioArk Ultra will deliver significant operational efficiency and reduce footprint through high-density automated storage.
John Marotta: The 16 million sample storage system includes our sample intelligence software solution with digitized library and warehouse workflows and the picking capability of up to 9 million picks per year.
John Marotta: This is a clear testament to our market leadership position and reflects the trust and confidence that customers place in our capabilities and track record of delivering exceptional value.
John Marotta: In our multi-omics GeneWiz business, I have clearly seen how much our customers consistently prioritize our high-quality offerings and trust the research expertise and consultative approach that our scientists provide to genomics analysis and scientific research.
John Marotta: Across Azenta, we have a talented team that is focused on enabling breakthroughs faster for our customers.
John Marotta: Now I'll shift my focus to the first quarter 2025 results, our full year outlook, and then dive into key updates on the focus areas that I shared with you during the last earnings call.
John Marotta: As a reminder, during the fourth quarter of 2024 earnings call, we announced our decision to sell B-Medical Systems. Effective this quarter, B-Medical is reported in discontinued operations, and I will not be discussing the business performance in my remarks.
John Marotta: I'm pleased to share that fiscal 2025 was off to a good start, with positive momentum on demand for our unique and differentiated offerings. On a year-over-year basis, organic revenue grew 4% and adjusted EBITDA margin expanded by 400 basis points.
John Marotta: In multiomics, next-gen sequencing, gene synthesis, and clinical services were strong. And in sample management solutions, we saw growth in our consumables and instruments, clinical bio stores, cryogenics, as well as sample storage.
John Marotta: We remain cautiously optimistic about the gradual market recovery. We are confident in our outlook and are reiterating our full-year 2025 guidance of organic revenue growth between 3 to 5 percent and adjusted EBITDA margin expansion of 300 basis points.
John Marotta: Lawrence will go into more detail in our quarterly financial performance.
Speaker Change: At the last earnings call, I shared with you that we're focusing on several key areas. The first is portfolio optimization. The second is operational excellence. And the third is value-enhancing capital allocation.
Speaker Change: Each quarter, I will update you on the progress we are making in each area.
Speaker Change: In portfolio optimization, the B-Medical sale process is underway, which will help simplify our portfolio and will allow us to focus on driving revenue growth and profitability in our remaining businesses. We've engaged external advisors, but are still in the initial stages.
Speaker Change: We will update shareholders as this process develops, but won't be commenting further at this time. More broadly, our priority will always be to strategically review the portfolio on an ongoing basis and to ensure we are maximizing our full potential and creating value.
Speaker Change: We have made some early and positive strides in operational excellence.
Speaker Change: The efforts we are making will build the foundation for long-term value creation, reducing complexity and simplifying what we do and how we work each day. I am confident that by focusing on operational excellence and transformation, we will deliver best-in-class growth.
Speaker Change: Specifically, we started rolling out our business system and operating model. We brought together our top leaders for a two-day training on the business system and the implementation plan. The level of engagement enthusiasm for the teams to learn a new way of doing business was encouraging.
Speaker Change: They understand the need for change. They demonstrated interest and curiosity in lean tools.
Speaker Change: We are equipping our leaders with the skills and the knowledge through participation in Kaizen events to become experts in the field, empowering them not to only excel individually, but also to lead and mentor others and amplify their impact deep into the organization.
Speaker Change: We're working to create an environment where continuous improvement and simplification is the way we work.
Speaker Change: The change in mindset will be modeled at the top and methodically cascaded throughout the organization. It will be challenging and sometimes bumpy, but we have a strong culture with winning instincts.
Speaker Change: The business system model will help drive our performance and further unify our culture. I'm excited about the road ahead.
Speaker Change: To measure our performance, we have carefully selected our key performance indicator, which we call core value drivers or CBDs.
Speaker Change: These align our daily management and operating decisions with our strategy. The CVDs are broadly focused on revenue growth, profitability, customer-facing metrics for quality and on-time delivery, employee metrics on internal advancement and voluntary turnover, as well as working capital and cash management.
Speaker Change: We're starting to better utilize our information systems to provide more timely visibility and insights across the organization.
Speaker Change: Recently, our technology team quickly developed and rolled out a weekly automated sales report which provides a visual dashboard to help focus deeply on running the business, to see where we are off track in red and where we are on track in green.
Speaker Change: This new tool will allow us to prioritize and focus on addressing issues, identify countermeasures where necessary, and save valuable time and resources, and enable better, more consistent performance. This example illustrates the low-hanging fruit available to us.
Speaker Change: We have many opportunities like this that are highly achievable and can have rapid and meaningful impact on our performance.
Speaker Change: As an organization, we will be programmatic in how we spend our time. We are prioritizing customer on-time delivery and products and services quality, which will lead to gross margin improvements, indirect savings, inventory reduction, and, importantly, improved customer experience and satisfaction. This will have immediate positive impacts on our profitability and how our customers see us, and organic growth acceleration will follow with a lag.
Speaker Change: In line with our priorities, we have scheduled three Kaizans for the fiscal second quarter.
Speaker Change: Two are in sample repository solutions, one focused on sample management workflow automation that will create efficiency and scalability, and the other on simplification of order-to-cache process to shorten cycle time and improve process quality.
Speaker Change: The third is in multiomics for improved payment capabilities to shorten the cycle from study inquiry to scientific results. These Kaizans will identify areas that will identify the need for more Kaizans starting the flywheel of continuous improvement.
Speaker Change: In January, we executed our corporate restructuring plan to right-size our G&A cost structure and reposition our resources.
Speaker Change: Simplification of corporate and operating company functions is critical to provide clarity and accountability while empowering our employees who are closest to the customer to make the right commercial decisions.
Speaker Change: We have restructured headcount and pushed R&D, quality, sales operations, finance, human resources, and other functions into the two operating companies.
Speaker Change: Each operating company will undergo an organizational transformation in the coming weeks to ensure an optimal go-to-market and commercial structure.
Speaker Change: We are freeing up capital that will be redirected to the highest impact growth investments in sales, marketing, and R&D.
Speaker Change: There is a sense of excitement and optimism in the organization towards the changes and increased clarity around accountability and decision making.
Speaker Change: To help implement standard procurement processes, we are in the process of standing up a new global procurement organization. This group will drive direct material and indirect cost savings, optimize inventory levels, streamline our supply chain, and optimize our preferred supplier list.
More to come on this in Q2.
Speaker Change: Finally, on the capital allocation, the Value Creation Committee of the Board was created in November.
Speaker Change: I'm working closely with the committee to establish the monthly framework where we will review progress on our financial performance, working capital initiatives, margin improvement, as well as evaluate potential investments.
Speaker Change: We will prioritize investment opportunities across the four levers, which are gross margin and productivity, organic growth offerings, inorganic growth through strategic tuck-in and M&A, and repurchasing our stock.
Speaker Change: We will make our capital allocation decisions through a standard and robust returns-based process. As I mentioned before, we will compete for resources internally to unlock long-term shareholder value.
Speaker Change: I'm excited about Azenza's potential and confident in our ability to drive long-term sustainable value to our customers, our employees, and our shareholders. I will keep you updated on our progress. With that, I'm pleased to turn the call over to Lawrence. Thank you.
Lawrence Lynn: Thank you, John. Good morning, everyone. Thank you for joining us today. I'm honored to be here with you for my first earnings call as the Chief Financial Officer at Zenta. Before we discuss our financial performance for the first quarter of fiscal 2025, we really want to take a moment to acknowledge the trust that you've placed in me to help lead this great company.
Lawrence Lynn: Additionally, I'd like to recognize the dedication of our entire Zenta team, who demonstrates every day their commitment to delivering value for our customers, fellow employees, and shareholders.
Lawrence Lynn: I want to share my initial reflections following my first 90 days on the job. These past three months have been insightful and energizing as I work to immerse myself in learning the business, understanding the dynamics of our operations, and engaging with the talented individuals across the organization. I couldn't be more excited to be here.
Lawrence Lynn: Azenta has a history of delivering value and innovation and it's clear that the team is deeply committed to our purpose of enabling breakthroughs faster.
Lawrence Lynn: I've been impressed by the resilience and adaptability demonstrated across the organization, particularly in navigating challenging market conditions. At the same time, after spending time with the team, it's clear to me there are numerous opportunities to enhance our financial performance.
Lawrence Lynn: Streamlining our operations to work simpler and smarter while deploying technology more fully to automate processes and build robust capabilities will enable improved cash flow generation and accelerate profitable growth.
Lawrence Lynn: These initiatives will not only help us address immediate priorities and challenges, but also set the scalable foundation for sustainable, long-term value creation.
Lawrence Lynn: Now on to the financial results. As a reminder, the results we are referring to today, unless otherwise noted, excludes B Medical Systems, which is now reported under discontinued operations.
Lawrence Lynn: I am pleased to report that we saw continued organic growth in our combined sample management solutions and multi-omic businesses.
Lawrence Lynn: This demonstrates the strength of our portfolio and our ability to better address the needs of our customers in an ever-evolving and uncertain, and still difficult, market environment.
Lawrence Lynn: In addition, our continued focus on cost optimization and driving profitable growth is positioning us well to improve margins to deliver strong and consistent results for our shareholders.
Lawrence Lynn: To supplement my remarks today, I will refer to the slide deck available on our website.
Turning to slide three for some highlights.
Lawrence Lynn: First quarter revenue was $148 million, up 4% year-over-year on an as-reported and on an organic basis.
Lawrence Lynn: Both the SMS and multi-omics segments performed well in the quarter, given the continued challenging market environment, with growth in next-generation sequencing, gene synthesis, consumables, and instruments, storage systems, as well as sample storage.
Non-GAAP EPS for the quarter was $0.08.
Lawrence Lynn: Adjusted EBITDA margin was 9% in the quarter. This represents a margin expansion of about 400 basis points versus last year, demonstrating the impact of our transformation initiatives as well as our strong focus on improved operational efficiencies.
Lawrence Lynn: Our results were impacted by certain one-time costs, including those related to executive compensation in connection with the recent restructuring of our management team.
Lawrence Lynn: Free cash flow was $22 million for the quarter, driven primarily by lower accounts receivables and increased billings related to our SOARS projects.
Lawrence Lynn: We ended the quarter in a strong position with $530 million in cash, cash equivalents, and marketable securities, which includes $27 million of cash held in discontinued operations.
Lawrence Lynn: Now, let's turn to slide 4 to take a deeper look at our results in the quarter. Total revenue was $148 million, representing a growth of 4% reported and organic.
Lawrence Lynn: In the first quarter, non-GAAP growth margin was 47.6%, up 270 basis points year-over-year.
Lawrence Lynn: The improvement is largely a result of higher revenue, favorable sales mix, operational efficiencies, and certain non-recurring items recorded in the same period last year.
Lawrence Lynn: Adjusted EBITDA margin in the quarter was 9%, up 400 basis points year-over-year. Again, non-GAAP EPS was $0.08 per share.
Lawrence Lynn: With that, let's turn to slide 5 for a review of our segment results starting with Sample Management Solutions, or SMS.
Lawrence Lynn: SMS revenue was $81 million for the quarter, up 3% year-over-year, reported an up 2% organic.
Driven by growth in sample, repository solutions, and core products.
Lawrence Lynn: Consoles and instruments, clinical and cryogenic storage systems, and sample storage were the drivers of growth, which was partially offset by year-over-year decline in large automated stores due to timing.
Turning next to the multi-omic segment.
Lawrence Lynn: Multiomics delivered revenue of $66 million with a growth of 6% on both an as-reported and organic basis, demonstrating our strong execution in the face of several market headwinds.
Lawrence Lynn: Next-generation sequencing grew 11% year-over-year. This was the third quarter of price stabilization and double-digit volume growth.
Lawrence Lynn: Key large deals also contribute to the significant year-over-year gains specifically in the North America and Europe regions.
Lawrence Lynn: China delivered organic revenue growth of 7% once again outperforming a market with macro challenges.
Lawrence Lynn: Gene synthesis grew 5% compared to last year, with great execution by our teams in China in what continues to be a tough market environment. Sanger sequencing revenue was down 11% year over year as we continue to see the impacts of the shift of sequencing technology.
Lawrence Lynn: This pressure was offset by growth in PlasmaDZ, our OMT product, which continues to be strong and gaining ground.
Lawrence Lynn: Multi-omics first quarter non-GAAP growth margin was 47.4%, up 30 basis points year-over-year, driven largely by the growth in NGS volume as well as labor and material productivity gains that helped to offset price headwinds.
Next, let's turn to slide 6 for a
Lawrence Lynn: We ended the quarter with $530 million cash, cash equivalents, and marketable securities.
Lawrence Lynn: Excluding discontinued operations, the balance was $503 million. We had no debt outstanding. Capital expenditures for the quarter were $8 million, of which $7 million was investment for growth and scale in our sample management solutions and multi-omic businesses.
Lawrence Lynn: Turning to guidance on slide 8. As you saw in our press release, we are reiterating our guidance for 2025, as we expect organic revenue growth of 3 to 5 percent for the full year, with multiomics to grow low single-digit, and sample management solutions to grow mid-single digits.
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Lawrence Lynn: We are reaffirming our commitment to 300 basis points of adjusted EBITDA margin expansion year-over-year.
Speaker Change: In closing, my priority at CFO is to ensure that we deliver value to our customers, employees, and shareholders. This includes maintaining transparency, enhancing shareholder returns, and aligning our financial strategy with our long-term vision. I look forward to engaging with you regularly and sharing updates on our progress.
Speaker Change: This concludes our prepared remarks and I will now turn the call over to the operator for questions.
Speaker Change: Thank you, and ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press a star followed by the number one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press a star followed by the number two. One moment, please, for your first question.
Speaker Change: And your first question comes from the line of Jacob Jensen with Stephens, please go ahead.
Jacob Jensen: Hey, good morning, John and Lawrence. Thanks for the time. Maybe a couple questions on the headlines.
Speaker Change: Hey, good morning. A couple of questions on recent headlines. First, John, you mentioned the UK BioCenter, BioArk, WIN.
Speaker Change: Is there any way to frame up the size of that opportunity, maybe the timing of the revenues, and whether this is something that was contemplated in guidance? And then, I guess, along the same lines, I'm just kind of curious, how many other of these kind of bioarc ultrawins could be out there?
Speaker Change: Yep, good question and Jacob thanks for your continued support here.
Speaker Change: So a couple things on our BioArk Ultra. As you know, that's our ultra-low, high-throughput warehouse management system, sample management system, and biological management system. So it's got a lot of versatility on these end markets.
From our perspective, that was in our guidance.
Speaker Change: and so that was contemplated there. We're really excited about the implementation of that. It's, as you know, it's a POC business, highly customized and multi-millions of dollars.
Speaker Change: We have, just for some context here, I mean, we have seven quad banks in.
Lawrence Lynn: in this facility already, so it's a continuation of our partnership with UK Biocenter. Pretty important customer for us going forward. Lawrence, do you want to talk about phasing of this?
Speaker Change: Yeah, I think, you know, as John said, the accounting for this is a percentage of completion, Jacob, as I'm sure you're aware. You know, we expect the UK BioCenters to be operational early in 2026.
Got it. Thanks for that.
Speaker Change: Yesterday, there was a headline about Illumina being added to the unreliable entity list in China. I know it's probably early, but we're getting questions on it. So can you talk about any impacts that you could see from that headline to your MGS business?
Speaker Change: in China, or maybe another way to ask is, is there any way to frame up how large the DNGS business in China is for you all?
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Speaker Change: So, the team has done a nice job of anticipating this for quite some time in China. We do not own any Illumina products in NovaSeq specifically in China. We do have a few Illumina products.
Speaker Change: internally. Most of our NGS business we actually partner with BGI in China specifically.
Speaker Change: We run two platforms with them, in particular on NGS, and that is the Illumina platform
Speaker Change: and the MGI platform from BGI. As you know, BGI was put on the list in Biosecure and a list at the Pentagon as well.
those
Speaker Change: Our partnership is only in China with that. And so we have the ability to move customers over to the MGI platform if needed.
Speaker Change: But again, we've been, we've been, the team in China has been anticipating this for quite some time.
Speaker Change: The risk is low. I'll let Lawrence quantify that in general, but we've been anticipating this for quite some time.
Jacob Jensen: Yeah, Jacob, as you mentioned, you know, really when we look at the revenue for NGS, particularly in the region of China, it's roughly about 7%-ish.
to 10% of multi-omics.
Jacob Jensen: So, again, what John mentioned is we see no material risk due to the Illumina issue.
Speaker Change: Got it. That's super helpful. I'll leave it there. Thanks for taking the questions.
Thank you, Jacob. Appreciate it.
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Speaker Change: Thank you. And your next question comes from the line of David Saxon with Needham. Please go ahead.
David Saxon: Great. Good morning, John and Lawrence. Congrats on the quarter. Thanks for taking my questions and I like the morning for the call. Yeah, of course. So just a few for me on multi-omics. Maybe I'll start. So the guide.
David Saxon: stays at low single digits. You did six percent organic this quarter. It sounds like there were some orders that came in in this quarter, but
David Saxon: you know, just given that guidance implies the deceleration in the back half of the year, or the balance, I should say, you know, what's driving that? I think NGS comps get tougher, but like anything you're seeing in Sanger or Synthesis, that would drive that deceleration.
David Saxon: Thanks David, appreciate your comments here on the morning as well. It's good to be speaking with you in the morning. Let's talk about first the way we're thinking about this. I mean we're looking at the full year, we're not looking at the quarters right now.
Second thing is
David Saxon: We are in the middle of a transformation, so we're holding that guide right now.
Thank you.
David Saxon: view of our LRP in general. I want to hand this over to Lawrence to talk to you about phasing here and what this looks like quarter on quarter.
Speaker Change: Yeah, and David, I speak with you. Look, as John alluded, it's mainly a timing issue here. We had a really solid quarter to your point, right? NGS was up 11%, so we're really pleased about that. As John noted, I think as we get closer to investor day, more to come here, but right now we're just kind of.
David Saxon: We've got a lot of change that's happening and we're looking at the Bay Area as well.
David Saxon: Okay, great. Lawrence, maybe I'll stay with you on margins, just, you know, really strong improvement in the quarter. It does seem like the guide implies...
David Saxon: Yvette Da kind of margins kind of plateau in the back half. I don't know if it's just you know
David Saxon: How you're thinking about the year versus the quarter, you know, it's still early but any comments around like how much of that is conservatism versus
David Saxon: you know, any timing from the ASCEND 26 initiatives. And then just lastly, on B-Medical, I don't know if this would be for John or Lawrence, I think last quarter you talked about potentially closing that in the fiscal first half.
David Saxon: It sounds like this morning you're talking about still in the initial stages, so is the message essentially that it's going to probably take longer than that? Thanks so much.
Yeah.
Speaker Change: David, I'll take the margin one, and maybe I'll pass it to John on the stats on the B-medical. First, first and foremost, you know, just kind of ground ourselves a bit.
Speaker Change: EBITDA for the first quarter was nine percent. You know, I did mention during kind of the prepared remarks that we had some one-time events. Excluding some of those one-time events, we're north of ten percent EBITDA, so that gives us a bit of a pathway towards kind of what we're looking at at 300 basis points.
Speaker Change: As we step through the balance of the year, John noted that we did a restructuring of the corporate function. That will also, it is within our guidance.
Speaker Change: and it is a couple million dollars to the balance of the year. We've got some more to come, but feel pretty confident right now at our guide based on some of the actions we're taking this quarter, but more importantly, what we've got in queue for the second and third.
Speaker Change: David, a few other comments here. So I'm restructuring about 17% of corporate we've restructured. We're going to continue that transformation in the operating companies and making sure we've got the right structure to go forward.
Speaker Change: The way we're framing this is it's around structure, process, and then our people, is the framing of how we're setting the company up. In regards to Ascend 2026, you know...
Speaker Change: that put us on the right path. This is just going to be a way of life in how we run our business going forward. So we're going to, I mean, we want to keep GNA at a very modest level in this company and then accelerate around sales and marketing and R&D in these growth investments. Right now we're trying to
Speaker Change: We're getting our resting heart rate in the organization to figure out what steady state looks like. We're really pleased with the progress the teams have been making. Restructuring at corporate was very well done.
Speaker Change: hats off to our HR team and the rest of the leaders that executed that and our operating companies are entering their transformational phase as well.
Speaker Change: As it pertains to the one-timers that Lawrence discussed, I mean, we're pleased about our trajectory financially on the bottom line right now. I mean, those one-timers, if you back those out...
Speaker Change: we're pretty confident in where we're moving the bottom line right now and more in control there.
Speaker Change: In regards to B-Medical, what I can tell you is our Value Creation Committee board members are involved in that process.
Speaker Change: We're going to help accelerate that. We're very pleased about maximizing, well, let me say it differently. We're focused heavily on maximizing the value of that sale and we're pleased that the committee members are involved in that. Specifically, I think that's going to really help us partner with our outside advisors to maximize value.
Speaker Change: Listen, the funnel in regards to InBound and our outreach, I'm pleasantly surprised at how many parties are involved and interested in this business. So, that's the update on that one, David.
Okay, super helpful. Thanks, guys.
Speaker Change: And your next question comes from the line of Vijay Kumar with Evercore ISI. Please go ahead.
Hey guys, good morning. Thank you for taking my question.
Speaker Change: A couple of maybe macro-related questions. On making noise around tariffs, you know, can you talk about your exposure to China, Mexico, Canada, and any risks related to tariffs?
Let me let me talk about just
Speaker Change: give you the high-level context, and then Lawrence will dive into the details of art, if there's materiality there or not.
Speaker Change: As it pertains to Mexico and Canada, we have minimal risk. Again, our businesses and multi-omics specifically are set up regionally. It's a local for local model. We do have some global overlap around our synthesis business.
in regards to SMS in that business unaffected.
Speaker Change: In China specifically, as you know, there's a 6.5% tariff in what's contemplated right now at $10. I'll let Lawrence get into particulars of that in terms of materiality or not.
Speaker Change: Yeah, BJ, good to be with you. In terms of China tariff, you know, looking at kind of a step up to 10%, well, we believe the impact of ZENTA is really immaterial.
Speaker Change: potential incremental probably 1, maybe 2 million at most. That would be at the upper end. Really, you know, as you think about this, this is
Speaker Change: We've kind of known this was going to be happening, so we've really factored a lot of this into our guide.
Speaker Change: As you know, this is a pretty fluid situation, so we're kind of monitoring the developments here, and if the situation evolves adversely, you know, and the underlying understanding changes, we'll communicate that to you. But right now, we feel pretty good that it's a very immaterial amount for us.
You know, it looks like it was off of...
in a slow start, I know the guidance.
Speaker Change: condominium midsingles for sample management solutions. I think stores, you said low singles, so maybe talk about your orders.
Speaker Change: backlog, was this just a timing element or, you know, some cautiousness from customers perhaps, which we're seeing here in the numbers?
Yeah, Vijay, you know...
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Speaker Change: You're absolutely right. It's really around timing. You know, our large stores in the first quarter was down 13%. However, we have a pretty robust pipeline and backlog.
Speaker Change: and continues to build for 2025-26. Just to provide a little bit of context around that, we've got a good line of sight for the next 12 months here, and we've got 75% of the 2025 revenue secured. So, feel pretty good. Sometimes these capital projects do kind of move on us, a quarter to quarter, as you saw, similarly to what the UK...
Speaker Change: came up, but we feel good. And on top of that, as you look at C&I, we continue to see really strong demand up in the quarter, about 9%, particularly in instruments. So again,
mainly timing here at VJ.
Speaker Change: Yeah, BJ, similar color here. So we were at SLAS last week. As you know, that's the biggest trade show in that segment of the market.
Speaker Change: We had a lot of inbound, over 300 and some leads were pleased with the activity during that.
Speaker Change: during that trade show. I think the other thing that we we've learned and we spoke with a lot of customers last week I mean personally we spoke a lot of customers and there's some uncertainty in these end markets right now with new administration
Speaker Change: But we think that it's more of a wait-and-see instead of cancelling projects. Our sales leaders and our sales reps feel pretty confident with the...
Speaker Change: with where we are in these programs. They're not seeing cancellations at all or delays. It's more of a wait and see approach we're seeing right now in these just first couple months. We feel pretty confident in our back half in general.
Speaker Change: And maybe if I could squeeze one more in. Gross margins, nice piece here in the quarter.
Speaker Change: Looks like there was some timing element on stock comp here in Q1 that perhaps depressed operating margins. When you think about the back half margin ramp, should gross margin sustain at these levels and visibility into the back half operating margin ramp?
Speaker Change: Yeah, Vijay, you know, quite honestly, you know, in terms of the growth margin, I'm really pleased with the results in Q1. We saw a similar profile last quarter, but, you know, a couple of
Speaker Change: Positive things, right? We saw better margins within stores and the SMS business. Multiomics, we saw stabilization and NGS price.
Speaker Change: coupled with favorable sales mix, you know, and really operational efficiencies, right? And, you know, in general, we feel good about the gross margin trajectory here and then the investment opportunity.
Fantastic. Thanks, guys.
You bet. Thank you, BJ. Thank you, BJ.
Speaker Change: And your next question comes from the line of Matt Stanton with Jeffries. Please go ahead.
Matt, how are you?
Matt Stanton: Good, how are you doing? Thanks for taking the question. Maybe sticking with the theme of the recent noisy headlines, could you guys just remind us what the Proforma...
Matt Stanton: mixes within your academic and government exposure, and then within that, you know, what's directly tied to NIH and any kind of impact you've seen. I know it's early days the last few weeks, but then kind of a choppy backdrop from a headline perspective.
Matt Stanton: with the new administration, you know, anything you're seeing kind of in terms of activity levels at customers or things being pushed out. And then I assume that's kind of contemplated within the Arabage or the three to five guide, but if you just confirm that as well. Thanks.
It is contemplated in the guide.
Matt Stanton: From an in-market perspective, in general, so about 45% pharma, biotech, about 16% academic, about 15% medical, government.
Matt Stanton: and we've got about 15 in emerging markets. The way I would look at this.
Matt is
We've seen some pausing.
or delays in some projects that are government-funded.
Matt Stanton: We believe those are going to come back online once some decisions are made, either on the NIH front or...
outside of funding, government funding, of some of these projects.
Matt Stanton: Again, we're able to respond to whichever way the markets are going based on the fact that there are always projects and programs going on. We toggle our call points based on that. I mean, the teams can move over and move over to more pharma and biotech in the event there is a pullback, slight pullback.
on research in other areas, so we're comfortable.
Matt Stanton: but we're also monitoring the uncertainty out there in general in these markets. So that's kind of our view of it right now.
Speaker Change: Thanks, that's helpful. And then maybe shifting gears a little bit, can you talk about what you saw in the cell and gene therapy side in the first quarter? I think the last few quarters have started to see, you know, some improvement.
Speaker Change: funding, you know, still may be a bit challenged, but there's some later stage programs ramping up, so just love to see kind of what you're hearing and seeing from your customers on the cell and gene therapy side of things. Thanks.
Speaker Change: Yeah, you bet. You know, last year we saw our auto cryo business increase about 67 percent.
Speaker Change: We've delivered about 11 units this quarter against that. So we're seeing good progress in cell and gene therapy. I mean, that product specifically sits under that.
Speaker Change: that value stream in cell and gene therapy as well as our Barkey products we're pretty bullish on that end market and we're seeing good good traction there as well it this year and that that trend is continuing
Thank you.
Goodbye.
Speaker Change: Your next question comes from the line of Paul Knight with KeyBank. Please go ahead.
Hi, Paul. Hi, Lola. Great comments on Kaizen.
Speaker Change: Thank you. Appreciate it, Paul. The first questions I have would be...
Speaker Change: You know, the company has been, even before your tenure buying stock, you know, we really didn't know what the margin target was and I don't understand why there was such an aggressive share purchase program when there was no clear metrics out there on
Speaker Change: on what business performance should be. So the question really is...
Speaker Change: As you are now on board, is there still a share buyback program, or will we wait to see what the business can return first?
Speaker Change: And then, is there, you know, the likelihood that, you know, we could go back to what I think was a consolidator of the industry or you fill out on that? So, two questions there.
Speaker Change: Good questions Paul. You know we were at last year we were with investors in our Q1 and this topic came up quite frequently and in our capital allocation
Speaker Change: framework is alive and well in the organization right now. And first, it's around gross margin improvement. And we're really focused around that specifically.
Speaker Change: The second is around growth initiatives in R&D and expanding our business lines and geographies. Third is around M&A and tuck-in. And last is share buyback.
Speaker Change: And I wanted to share that framework again because, you know, it's not going to go away. The teams understand that. The board is really focused around that. We're focused around that in the Value Creation Committee.
Speaker Change: And so when I say share buybacks are last, everything competes against that fourth lever specifically.
Speaker Change: Right now, as we sit here today, we think there's much more opportunity in levers 1 through 3.
Speaker Change: We see those opportunities. We're investing in those now. There's strict ROIC metrics around that. And we're head down and focused on that specifically. I think we're excited to get us into this steady state model where we can come back.
Speaker Change: to you all with a clear-eyed view on what is the algorithm of this business? What does it look like from a returns perspective? There's still work to be done there.
Speaker Change: Paul but in general that's the way we're thinking about it and once we have that then we can come back with a better answer around that I don't view you know I've been
Speaker Change: pretty candid around this. I don't think that their shareholders hire us to do share buybacks.
Speaker Change: And I think the opportunity we have in front of us, specifically around SMS and SRS
Speaker Change: and some other business lines and multi-omics really excites us around our investment opportunities, but also at a certain point around M&A and when we get us into a good place to start to do that type of work.
Speaker Change: Great, and then last question. I guess it's been asked about, but, you know, it seems like this post-COVID era of overcapacity and ultra-cold temperature and
Speaker Change: Even cold storage in general, it seems like we're starting to get past that glut of material and capacity that did emerge during COVID, so are we kind of in...
Speaker Change: one step past it now or what are you what's your feeling on you know where we are with this post COVID hangover?
Speaker Change: So thankfully, we've never, you know, I understand kind of the investment community lumps us into that, and I don't think that's the case. The more I get into the business...
Speaker Change: The more I'm kind of scratching my head wondering why that we're being kind of lumped into that end market. And let me be more helpful here, Paul. So if we think about our stores specifically,
Those units are basically...
Speaker Change: highly valuable assets in pharma and biotech, specifically around compound management.
Speaker Change: specifically around sample management and we're also seeing this around antibodies and using these as warehouse management systems and PIC systems for shipping of these products.
Those are three different applications that a ULT just...
Speaker Change: I mean you may get some support there but it's very manual process. I mean we're not seeing...
We're not seeing that overlap.
Speaker Change: in particular. So we're pretty excited about these other applications and how they fit in other end markets.
Speaker Change: that maybe you wouldn't see on a broad MECO chart, but we're able to meet the needs of these customers very uniquely because of our inventory management at the facilities, at providing that service to our customers.
Speaker Change: Really excited about that. I mean, these are highly sophisticated, 12-axis, automated robots that are inside, you know, negative 180, negative 80 degrees Celsius.
that
Speaker Change: that what sits on top of that is a highly sophisticated software program. You can access your inventory very quickly, whether that's in compounds.
monoclonal antibodies, antibodies...
Speaker Change: and or samples. So pretty excited about that end market but this ULT glut you know I don't I don't think we've been a party to that because we've been we've been growing well over that end market on the ULT side.
Super helpful. Thank you.
You bet. You bet. Thank you for that question.
Speaker Change: Thank you. And once again, if you would like to ask a question, simply press star followed by the number one on your telephone keypad.
Speaker Change: Your next question comes from the line of Andrew Cooper with Raymond James. Please go ahead.
Speaker Change: Hi everybody, thanks for the questions. Maybe just one and do a little bit of an integrity on multi-omics. I just want to make sure...
Speaker Change: You made a couple of comments about stability on NGS pricing, but there was one in there about, you know, price headwinds as a drag on margins. So maybe just help adjudicate or confirm, was that just, hey, you're a handful of quarters through stability and the comp is a little bit difficult, or is there somewhere else in that segment where there's a little bit of pricing pressure we need to make sure we're thinking about?
Speaker Change: Yeah, Andrew, just to clarify, you know, we are seeing price stability in NGS. Just to reiterate, we had a great quarter there, 11% growth. So, overall,
Speaker Change: That's kind of where the NGS business is. You know, when you look at Sanger, you're going to, you know, we have challenges in Sanger, but that's kind of a shift in technology, right? We're down about 11% there.
Speaker Change: And the big thing is, though, it's a shift in technology. We are seeing a significant kind of upside in our ONT technology called Plasvid-EZ, and that is up significantly. I believe almost...
300% year-on-year in the quarter. So hopefully that's helpful.
Andrew, some color here.
Andrew Cooper: you know our Sanger business is seeing some headwinds but I'll tell you
Andrew Cooper: with 2,500 Dropboxes in the United States just alone. I'm not even going to speak to Europe and our infrastructure there.
In the United States we've got 2,500 drop boxes.
Speaker Change: Sanger's, you know, being disintermediated by the ONT Plasma AZ product. We're going to double that business this year.
Speaker Change: because of our infrastructure. We're very excited about the growth of this in general, and I think the team's done a really good job of responding to that disintermediation. We've got great capabilities there, and frankly, we're investing in it.
Okay, great. That's helpful.
Speaker Change: Maybe just one more on that side of the business and I'll sneak a third in at the same time as well.
Speaker Change: But just in terms of gene synthesis, you know, one area that you guys have talked about, kind of capacity and needing to add some in Indy, I think.
Speaker Change: and more kind of coming out of China there relative to other parts of the business. So just to be clear.
and Stephen Schwartz.
Speaker Change: You know, is the takeaway on the China tariff response that even that business you feel relatively comfortable with?
Speaker Change: kind of the moving parts there, and where are we in that capacity expansion you've talked about before. And then lastly, just, John, the one comment you made on
Speaker Change: you know, getting in that right spot where it's time to execute on M&A and tuck-ins again. What do you need to see in the core business to feel like you're at that point where it is time to get a little bit more kind of forward-looking and aggressive on the M&A front? Appreciate it.
Speaker Change: Yeah, you bet. So let's talk about gene synthesis, then we'll go to capacity and then the M&A piece.
Speaker Change: So the gene synthesis business has been a mid-single-digit grower for us.
very steady because our customer base
Speaker Change: is biotech and pharma specifically. I mean, that's the lion's share of our customers, less academics.
Speaker Change: And I want to share that openly, because I think there's a lot of noise and there's a lot of misrepresentation out there in the market, specifically around synthesis. We compete in a very niche part of this market that no one else does.
Speaker Change: and the needs of those customers are very unique because they're looking at very complex.
Long reeds.
and Matt Cakes.
Speaker Change: bit of automation which we have. We're about 40% automated on that and the rest we've got about 300, I'm sorry almost 400 PhDs that support that business both in the U.S. and in China.
Speaker Change: And so we've got great capabilities there, and we meet those customers' needs very uniquely. There's a competitor out there that operates highly automated on a chip.
Speaker Change: And so it's high volume, lower quality, but it's a different segment of the market. Again, we're positioned very nicely in that market from a high quality, high complexity, very high margin. It's a very high margin business for us.
Speaker Change: So that's kind of gene synthesis in general. As it pertains to capacity...
Andrew Cooper: Andrew, we're very early innings there. I mean, we're trying to figure out, in general, we go back to Paul's question around discipline, around capital allocation. You know, we're not going to rush into decisions around
Andrew Cooper: areas of the business quite yet until we've got absolute clarity there.
Andrew Cooper: The easy wins for us around growth and R&D and some commercial investments, we're making those today. And as it pertains to capacity, we're increasing capacity and we're, you know, the team is doing a nice job. We'll come back to you when we've got a clear line of sight into that specifically.
Andrew Cooper: Regarding M&A, I mean, I think this is a case where we have to demonstrate credibility and capabilities.
Andrew Cooper: And in all candor, we haven't done a good job of that in the past. And so we're trying to change that specifically about doing what we say we're going to do and showing those results and doing that. At the end of the day, we own these results.
Andrew Cooper: and when we show a track record on quarter-on-quarter what those results are
Andrew Cooper: We've got stability in the bottom line, very tight controls in the bottom line, and we're chasing the upside, meaning we've made those appropriate investments in strategic areas. Then I can come to you and say, I think we're ready for some M&A.
Andrew Cooper: As I sit here today, we're not sure when that is. We may see some tuck-ins that are opportunistic around strategic parts of our business. We're not going to let those go. We have capacity.
Andrew Cooper: to bring on some tuck-ins, but more to come on that, Andrew, as we go forward here.
Super helpful, I appreciate it.
and the board of trustees. Thank you. Thank you.
Speaker Change: Very good. Thank you so much and thank you again for all your support. I want to thank our 3,000 employees that make Eventa special every day and appreciate your time this morning here.
Speaker Change: Thank you, presenters. And this concludes today's conference call. Thank you all for participating. You may now disconnect.
Speaker Change: and the rest of the team. Thank you. Thank you. Thank you.