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spk07: Greetings and welcome to the Azenta Q1 2022 financial results. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, this conference is being recorded Tuesday, February 8th, 2022 at I will now turn the conference over to Sarah Silverman, Director of Investor Relations. Please go ahead.
spk01: 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 2022. Our first quarter earnings press release was issued after the close of the market today and is available at our Investor Relations website, located at investors.inventa.com. in addition to the supplementary PowerPoint slides that will be used during the prepared remarks today. Please note that due to the divestiture announced in the fiscal fourth quarter, the results of the semiconductor automation business are treated as discontinued operations. Subsequent to quarter end, on February 1st, we completed the sale of this business. I would like to remind everyone that during the course of the call, we will be making a number of forward-looking statements within the meaning of the Private Litigation Securities Act of 1995. There are many factors that may cause actual financial results or other events to differ from those identified in such forward-looking statements. I would refer you to the section of our earnings release titled Safe Harbor Statement, the Safe Harbor slide on the aforementioned PowerPoint presentation on our website, and our various filings with the SEC. including our annual reports on Form 10-K and our quarterly reports on Form 10-Q. We make no obligation to update these 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-GAAP measures should not be relied upon to the exclusion of the GAAP measures themselves. On the call with me today is our President and Chief Executive Officer, Steve Schwartz, and our Executive Vice President and Chief Financial Officer, Lyndon Robertson. We will open the call with remarks from Steve on highlights of the first quarter. Then Lyndon will provide a more detailed look into our financial results and our outlook for the second fiscal quarter of 2022. We will then take your questions at the end of the prepared remarks. With that, I would like to turn the call over to our CEO, Steve Schwartz.
spk05: Thank you, Sarah. Good afternoon, everyone, and thank you for joining us today. Q1 was another exciting quarter for the company. On top of continued strong performance, we held our Investor Day on November 16th, where we introduced Azenta to the investor and analyst community and presented our new three-year target model for fiscal 2024. In addition, on December 1st, we officially changed our name to Azenta and began trading on the NASDAQ under the ticker AZTA. And subsequent to the quarter close, last Tuesday, February 1st, We announced the completion of the sale of the semiconductor automation business for $3 billion in cash. Recall, we had expected to close the transaction by mid-calendar year. However, our regulatory approvals came quickly, and our internal preparation made it possible to close the transaction earlier in the year. Today, we're a pure play life sciences company with more than $2.5 billion in cash to deploy in a vibrant market landscape. As a standalone life sciences company, we're already seeing great promise from our one Zenta approach. Our unified commercial strategy is resonating with our customers. Our value proposition is strong and we're closely engaged with customers to craft solutions that meet their ever evolving needs. As we continue to grow, we saw an opportunity to bring on another outstanding leader to the organization. Earlier this month, we announced that Dr. Matthew McManus would be joining us as chief operating officer. Matt comes to us from Biotechni, where he was most recently leading the molecular diagnostics division, following its acquisition of Asuragen, where Matt was president and CEO. Matt reports directly to me and has responsibility for life sciences services, products, and the commercial operations of the business. He brings a deep understanding of the industry and a set of experiences that line up perfectly with Azenta. We're fortunate to have Matt on the team. So turning to Q1, I'll now provide some color on our performance and trends we saw in the quarter. Once again, the team delivered impressive results. Our success and strong reputation continues to open the door to new opportunities with customers. Revenue for the quarter was $140 million, up 18% year over year. Our services business remains vibrant with the revenue up 24% compared to Q1 of last year, and we continue to expand our menu of offerings. The products business delivered solid 10% growth and continues to prove itself a critical part of sample exploration and management value proposition. Our services business reported revenue of $90 million with both genomics and sample repository solutions, growing over 20% year over year. Genomics revenue was up 23%, driven by both next-generation sequencing and synthesis businesses. MGS demand was notably strong even through the December holiday timeframe when things tend to slow down. In gene synthesis, we saw strong demand from pharma and biotech customers, particularly in the Americas. This quarter was also our first quarter of synthesis production in our Indianapolis facility. This service is co-located with our largest biorepository and will allow us to provide expedited services to U.S. customers. Our offerings are also expanding beyond the core portfolio of Sanger, NGS, and Synthesis Services with a focus on key growth markets. Revenue from our proprietary AAV solutions have nearly doubled year over year. And while these are still a small portion of revenue, we're gaining the confidence of key cell and gene therapy customers, which we believe is a market still in the very early days of growth. In addition, we continue to expand our reach by adding adjacent services to our clients' workflows, and we continue to ramp our plasmid prep and molecular genetics laboratory services. Most recently, we added proteomics and a gene talentavirus offering, both of which are garnering early interest. The pamphlet and repository solutions business was also strong, growing 26% as we continue to onboard samples from our two most recent large pharma wins, as well as expansion of our on-site sample services model. Our large pharma projects are going well, and we continue to move samples from customer facilities to our global sites. And we see more relationships of similar scale on the horizon. Our value proposition to customers in the SRS business has never been stronger. And as we've scaled, we've gained experience and proficiency unmatched in the industry. As demand across our portfolio of services offerings continues to grow, we maintain our investments in footprint and talent to satisfy strong global demand. In genomics, our new Suzhou, China facility, which will become fully operational later this year, will consolidate our existing multi-site footprint while doubling our potential capacity. In addition, we're relocating our Cambridge, Massachusetts laboratory to a larger site in Waltham, as we've outgrown that facility. In SRS, we're constructing another Indianapolis repository and a manufactured product, a nascent but growing area of the business for us. where we store, distribute, and manage logistics for vaccines and other finished products. We remain bullish about our expansion initiatives that each is tied to satisfying strong existing customer demand. In the products business, we delivered revenue of $50 million for the quarter, representing 10% growth year over year. This business has firmly established itself at a new run rate of revenue and is on a solid growth trajectory. There is much to be enthusiastic about from the products business. We're particularly pleased by the accelerated acceptance of our automated cryogenic store systems, which set another record in Q1, more than doubling year over year, as we provide a truly critical capability for cell and gene therapy application. Additionally, sample management continues to move toward automated systems for all temperature ranges, and we broadened our portfolio to meet these requirements across a wide variety of storage volumes. As a result, we have a very healthy pipeline of stores opportunities, which leaves us particularly bullish about our growth prospects in the second half of 2022 and beyond. Quarter to quarter, we may see some fluctuations in this segment due to the nature of large capital purchases and systems and demand for consumables used in COVID testing. But longer term, we expect continued above market growth. We know many people are curious about the recent business impact of the Omicron variant. so I want to be sure to address that here. Lyndon will talk about the financials in more specifics, but in general, we saw continued demand for our consumables in COVID testing and sample management projects in SRS. On the genomic services side, recent COVID spikes, particularly in China, which implemented lockdown measures, have increased complexity of logistics, but our teams have risen to the occasion. And similar to what we observed in the June quarter of 2020, as COVID first hit, In the first weeks of January, we saw some measurable decrease in Sanger revenue from academic institutions. The decrease was not as dramatic as when labs were completely closed in 2020, but was representative of lower lab activity consistent with absences of lab personnel. And though it appears that as of the last week of January, we are back very close to normal Sanger run rates, our guidance for Q2 does contemplate some impact in Sanger due to Omicron. That said, Our ability to deliver to customers remains resilient in a difficult environment. The team has been creative with sourcing and inventory management. While this has led to some temporary increase in cost, we continue to be able to deliver for our customers. Before I wrap up, I want to take a moment to acknowledge the Brooks Automation employees and team at THL. We're proud of the team's many accomplishments and see nothing but continued success under THL's leadership. Moving forward, Aventa is a fully standalone life sciences company with a strong portfolio of products and services critical to the development of life-saving therapeutics. As we look to the future, our opportunities for more growth are abundant. Our markets are rich and growing, and our portfolio of solutions are at the heart of all that's driving life science and business opportunity. We're aware that there's a considerable interest and attention as to how we'll make use of the balance sheet to add capabilities and more scale to the company, And I can assure you that we're all over this, with a strong deal team giving consideration to a rich pool of opportunities. However, it's important also to emphasize that with the portfolio of sample value chain products and services that we hold today, there remains tremendous opportunity for more organic growth that will be delivered from our scientists and engineers, and also driven by customers who are encouraging us to expand our scale and footprint to allow them to achieve their objectives faster. Over the course of the past five years, we've demonstrated organic growth close to 20%. And we continue to uncover more high value vectors from services like AAV service offerings, cryogenic sample solutions, and the new offerings in our repository solutions business. And although we're actively looking at acquisition targets, we'll remain aggressive investing in organic growth opportunities, and there are still tremendous potential for strong, profitable growth from our current portfolio. In summary, our performance remains strong, our markets are healthy, and we're eager and ready to take on the growing opportunity ahead of us. We're enthusiastic about our strong growth prospects, as well as the opportunity for significant profitability that comes with leverage. And as always, we thank you for your interest and support as we work to deliver value to our customers and shareholders. And I'll turn the call over to Lyndon.
spk03: Thank you, Steve. I now refer you back to the slide deck available on our website, turning to slide three. As Steve highlighted, it's exciting times here at Azinta with many transformational changes and landmark events to touch on as we enter fiscal 2022. Amidst all of these events, the team continued to execute solidly on our commercial and financial objectives. We started the fiscal year strong with Q1 revenue of $140 million, up 18% year over year, Growth was driven by strength in the services segment, up 24% year-over-year. Non-GAAP earnings per share from continuing operations was 12 cents, up 1% sequentially, supported by 60 basis points of operating margin expansion. Adjusted EBITDA margin was 14.2%, and is net of roughly 200 basis points of a headwind from overlapping G&A structure And now that we closed the sale on February 1st, you should expect to see these costs substantially come out of Q2. In Q1, we also held our Investor Day and presented a new three-year target model for fiscal 2024. We outlined expectations with significant color in the underlying segments for a three-year revenue figure of 16% to 20%. As you can see, we began with a fast start at 18% year-over-year growth this quarter and As we walk through the results, you will see the earnings profile is also on track. With the completion of the sale, which was subsequent to our Q1 close, you will see the semi-assets in today's report are still in the assets held for sale category on the balance sheet, and the P&L results in discontinued operations. But I can confirm the transaction is complete, and we are indeed currently in possession of the cash proceeds. After fees and taxes are completely settled, we expect net proceeds of approximately $2.4 billion, which brings us to approximately $2.6 billion in net cash available to deploy for strategic investment. Moving to slide four, reviewing the gap basis on the left side of the page, you see the revenue was up 2% sequentially and up 18% year over year. Total gap earnings per share was a profit of $0.58, which includes $0.54 classified as discontinued operations. The GAAP earnings per share from continuing operations was $0.04 for the quarter. This significant sequential improvement of $0.34 on a GAAP basis primarily reflects the one-time impairment of trade name assets as we rebranded the Life Sciences Company and portfolio to the Azinta name. In addition, we had lower professional fees supporting the company separation in this quarter. Now let's look into the non-GAAP P&L on the right side of the page for additional color on the performance. We started off fiscal 2022 strong with $140 million of revenue and 18% growth year over year. Breaking that down, organic growth was 16% with an additional two-point contribution from M&A, while FX had little effect on the top line this quarter. COVID-related revenue remained relatively stable, generating approximately $10 million in the quarter, again, primarily in the consumables business. Normalized for COVID this year and last, our business grew 20% year over year. Gross margin was 49.3%, lower by 40 basis points quarter over quarter. This was due to lower margins in the products business, partially offset by higher services gross margin. If you look at the operating income, the margin is up 60 basis points quarter over quarter. driven by leverage over the operating expense. Within operating expense, we added some plan structure, both commercial and corporate, as we separated the company. But it was offset this quarter by lower performance-based variable compensation, including stock comp. To update you on the overlapping corporate G&A structure, this was approximately $3 million for this quarter, a little less than we had sized previously, but still applying about 200 basis points of pressure. Since we closed the transaction last week, we see the G&A overlap dropping off quickly to approximately 50 basis points in Q2 and then falling away completely. By Q3, you will be able to see a full quarter without a trailing effective cost. Adjusted EBITDA margin in the quarter was 14.2%, down 130 basis points quarter over quarter. The other expense line is burdened with a little more this quarter, primarily with FX losses. It may also be worth pointing out that stock compensation is excluded from our measure of adjusted EBITDA, so the help it brought to the operating income does not translate to help in this EBITDA margin line. Importantly, we continue to project that by Q4, we will be performing with an adjusted EBITDA margin in the range of 22%. Turn to slide five for a review of our life sciences product segment results. The products business generated 50 million of revenue, 6% lower than the fourth quarter, but up 10% year over year and on our expectations for the quarter. As we described at our investor day, the products business was expected to start with lower growth rates in the first half of 2022 and then strengthen with higher growth rates as we complete the year. This reflects the height of COVID demands on consumables in the comparative periods of the first half of 2021 as well as our line of sight to revenue in the second half of 2022. I would like to provide additional clarity around the growth results here. For products in total, the growth rate was 10% year over year, and if we exclude the estimated COVID revenue in both years, that growth rate would be 14%. The strength came through in the store systems business which grew 42% led by continued strength in shipments of our automated cryo stores, which continues to see strong adoption in cell and gene therapy applications. The business portfolio has continuous growth drivers, including a solid base of consumables business, unique infrastructure offerings to the largest of customers, and a growth engine in the cell and gene therapy space with the automated cryo store. The Life Science Products Q1 gross margin was 45.9%, with a 20 basis point improvement year over year. Gross margin was softer, 200 basis points quarter over quarter, coming off the higher stores margin in Q4, but partially offset by stronger CNI margins in Q1. Q1 operating margin of 8.8% declined 40 basis points over last year, driven by investments in the operating expense line. including commercial investments and the increased corporate expenses referenced earlier, which are allocated to each segment. On a quarter-over-quarter basis, we have pressure on operating margin, reflecting the softer gross margin and the effect of lower revenue. The product's business executed to our expectations for the quarter and remains on track for the year, including a healthy pipeline for revenue expansion in the second half and the leverage that will come with the growth. Next, please turn to page six for a review of our life sciences services segment results. The services business, with a continuous stream of demand in genomic services and an expanding recurring revenue stream in sample repository solutions, generated revenue of $90 million, an increase of 24% year over year. This was an increase of 7% on a sequential basis, accelerating above our expectation. The genomics services business grew 23% year-over-year, with both NGS and Synthesis delivering year-over-year growth in excess of 20%. Sequentially, genomics expanded 8% quarter-over-quarter, driven by NGS, up 13%, driven by strong year-end demand. Sample repository solutions also delivered strong growth, up 26% year-over-year, led by storage, where customers entrust us to hold their research samples. Sequentially, SRS revenue for the first quarter was up 6%. The services business delivered 51.2% gross margin, lower than a year earlier when we saw very high utilization during the initial global recovery and improvement of 40 basis points sequentially, driven by stronger margins in the genomics business. Operating margin was 8.8%, up 360 basis points quarter over quarter. due to higher gross margins and sharp leverage from 7% expansion of revenue. On a year-over-year basis, operating margin declined 80 basis points, reflecting the moderation in gross margin significantly offset by the positive leverage from the revenue growth. As a portion of the improvement comes from a reduction in stock comp, not all of the benefits drop through to the adjusted EBITDA. Let's turn to slide seven for the summary of cash flow for the quarter. Our operating cash flow is shown on a consolidated basis, including results from discontinued operations. We generated operating cash flow of $16 million in the quarter. We made necessary working capital investments for both continuing and discontinued operations. And as a reminder, we pay out our annual variable pay inside the December quarter, traditionally putting some pressure on the quarter's cash performance. Capital expenditures for the quarter totaled $18 million, including approximately $2 million for Semi. $10 million of the spend was for the new building in China. We continue to expect to complete our move by the June timeframe. We did pay out $7 million of dividends in the quarter. This brings our total dividends paid to shareholders since its inception in 2011 to more than a quarter of a billion dollars. As we announced previously, and now that we have closed the sale of the semiconductor business, we will discontinue the quarterly dividend. Going forward, we plan to use all excess cash for strategic investment and expect we will optimize returns in that way for our shareholders. Turn to slide eight to review the balance sheet. As a reminder, the semi-assets were moved to the net assets held for sale line in Q4. We closed with $232 million of cash, restricted cash, and marketable securities, along with approximately $50 million of debt, providing $182 million of net cash. The PP&E line of $147 million increased $17 million quarter over quarter, reflecting the $10 million on the China building project and the balance significantly driven by lab and sample storage equipment. As noted, The recent completion of the divestiture for $3 billion will contribute, when all is done, an estimated $2.4 billion debt proceeds of cash. The cash is in hand today, and you will see it in next quarter's statement. We have applied $50 million to eliminate our debt, and we also have closed our revolving line credit. Let's turn to slide nine for our guidance on the second fiscal quarter of 2022. Revenue from continuing operations is expected to be in the range of $137 to $147 million with a midpoint of supporting growth of approximately 10% year-over-year. This softer year-over-year guidance reflects this challenging compare we have in the products business with the COVID environment with an expectation to be lighter in revenue there by approximately 3% year-over-year. The services business continues to show growth at approximately 18% at the midpoint. Adjusted EBITDA is anticipated to be 18 to 24 million and non-GAAP earnings per share is expected to be seven to 15 cents per share. As I said earlier, we continue to expect the standalone business to return to around 22% adjusted EBITDA margin by the fourth quarter of fiscal 2022. As we have concluded the divestiture, I would like to take a moment to point you to resources readily available to you to understand and analyze our business. Our recent investor day held on November 16th featured our business leaders and provided a deep dive into our capabilities. We continue to receive great feedback on the insights and transparency our leaders provided, and you can still view this on the investor section of our Zenta website. You will also find there our three-year target model describing our financial objectives for fiscal 2024, supported with the goals from each of our business leaders. For those of you newer to our story, this is a practice we have followed for many years. We hold ourselves responsible to these metrics and have a history of delivering on these metrics as well. In addition, in the appendix of this deck, we have included quarterly historical financial information back to the first quarter of 2020. I encourage investors and analysts to refer to these materials, which are all posted on our website for your reference as you build out your models. As I reflect on where we stand today, we are now fully on our Life Sciences standalone path. We have had a strong start to fiscal 2022, and we have $2.6 billion in cash available to deploy for strategic investment. The team is incredibly excited about the reception Azenta has seen in the marketplace and is going full speed to address the many opportunities to support our customers across the industry. So this concludes our prepared remarks. I will turn the call back over to the operator to take your questions.
spk07: Thank you. So to register a question, you can press the 1 followed by the 4 on your keypad. You'll hear a three-tone prompt that acknowledges your request. If your question has been answered and you would like to withdraw your registration, press the 1 followed by the 3. So, again, for questions, it's 1-4. Our first question is from David Saxon with Needham. Please go ahead.
spk04: Yeah. Hi, Steve and Lyndon. Congrats on the quarter, and thanks for taking the questions. One on SRS and one on margins. First on SRS, can you give us a sense of how much progress you've made with bringing the samples from those two large pharma contracts. It sounds like you're still working on bringing them in. So is it fair to assume, you know, some sort of modest sequential growth in SRS over the next few quarters? And then any additional color you can give on traction you're getting with other potential customers?
spk05: Sure. I'll take that. This is Steve. So thanks, David. A couple things. Yeah, you should expect increases in SRS, and it's exactly, as you said, we have a number of contracts that we always bring in, but in particular, the two large contracts that we've been working on, these are tens of thousands of samples on a weekly basis, typically. We've almost exhausted one of the North American sites, and now we've ramped up in Europe, and the other one is behind that by six months, and this is an onboarding, if you will, of millions of samples, and I'd say we're probably halfway through, but, you know, things are on schedule and on plan. On one of the contracts, it involves a pretty significant on-site presence for us to help them to get organized before they ultimately send the samples to us. So everything's on track, but, yes, you should anticipate that we'll continue to see revenue expansion from those two contracts, you know, through the duration of the fiscal year. And the pipeline, we think, is... pretty significant. As we prove capability for a large contract capability, it brings more interest from customers who can now consider somebody who could handle millions of samples as opposed to somebody who could handle maybe thousands or a few hundred thousand samples. So we're bullish about the business. We'll be cautious as we guide it, but North American progress is good. Europe is now picked up on both contracts.
spk04: Okay. Got it. And then maybe one for Linden on margins. Um, it, it looks like operating margins for products was down. Um, I, I wasn't clear on, you know, what caused that. So can you talk about what, what drove that? Was that just mixed with the craft stores versus CNI? And then if I heard the prepared remarks correctly, it sounds like you're expecting products to be down around 3%. Um, can you confirm that? And if that's the case, Can you talk about how that kind of flows through the gross margin line? Thanks so much for taking the questions.
spk03: David, thanks very much. So, you're right. Gross margins on the quarter-to-quarter, as you can see, is down about 200 basis points in the product space this quarter, in the first quarter. I'll highlight right away. We do expect this to pick up a little bit in Q2, and reflected in the Q1 compared to Q4. I'll refer to it as customer mix and a bit of project timing mix. So in Q4, we had a little more favorable customer mix. In Q1, a little weaker. Sometimes that times out as projects come to an end and we receive final sign-off of projects and it's timing. So I'll put it in the category of perturbations. As I try to highlight in my remarks, I think structurally what we're seeing As you can see, we're still up year over year. You know, we gained roughly 800 gross margin points over the past three years in this business. And so sitting at the 46% range and looking forward to seeing continued gain as we grow, particularly in the cryo products as a growth engine toward the future. It will help us in the continued product mix over the three-year horizon. And, of course, we're going to have perturbations quarter to quarter on the timing of product delivery. But we're really encouraged where this is. And I would really indicate the 200 base points at the gross margin line quarter to quarter. We love to have it when it comes, but we're encouraged structurally where we are. Now, when we're down on the revenue quarter to quarter as we were, you're going to see that while we're in the sharp area of the leverage curve as we grow upward, when we're down quarter to quarter, you see it come back and kind of snap us in the face a bit. So that adds a little pain to it on the leverage equation over the operating expense. And we'll continue to invest. We know this is a growth business in both parts. As you've seen continuously, the products have been a huge source of growth We've highlighted that we see a pipeline in the second half. So now let me address the lighter revenue in Q2 on a year-over-year basis. We're looking at about a million of expansion to the midpoint. Let me talk to the midpoint. About a million of expansion in the products business and roughly a million of expansion in the services business. So as you go from that 140 to 142 midpoint, think of it in that range. Now, in that context, that result in products has us down from a year ago roughly two to three percentage points. In that comparison, we had a higher COVID revenue growth or COVID revenue in Q2 last year. Q2 was our highest quarter of consumables and instruments COVID revenue a year ago. And that's when it peaked. As a company, we had 17 million. And in the CNI business, we had, let me just refer back to it. I'm seeing that we had roughly 14 million, if I got my data correctly, round numbers in CNI a year ago. So this heavily hits the products business last year. So this is the tough compare that we talked about at Investor Day, we talked about last quarter, we'll talk about it again this quarter. As we go into second half, what we've seen is a pipeline toward the large store systems as well as the cell and gene therapy space on the B3 cryo. And we expect the CNI is going to continue to be a tougher compare, but as you may realize, as we got into second half of 21, It leveled out on the COVID demand about 9 to 11 million. And in Q1, our total COVID demand for a company was about 10 million, about nine of which was in the CNI product space. So we're at that same running level in the products business. What's that do to you? It slows you down because you've got this $9 or $10 million wedge that's not showing year-over-year growth. But if it stays stable the rest of the year, But the rest of the business is promising growth in the second half quite nicely for us.
spk04: Great. That's super helpful. Thanks so much for taking the questions.
spk03: David, thanks very much.
spk07: So, again, for questions, it's the one followed by the four on your keypad. Next question is from Jacob Johnson with Stevens, and your line's open.
spk02: Hey, good afternoon, everybody, and congrats on becoming the PurePlay Licensed Tools Company. Maybe first on the product side and freezers specifically, I think you posted another record quarter here. I believe Lyndon just called it a growth engine. Certainly when we think about freezers, there's the large stores, but a lot of focus on the B3 cryo. for cell and gene therapy. But I think you launched a new cryo freezer recently. Maybe just talk broadly about the potential for continued innovation, especially, I guess, as it relates to cryogenic freezers as we look out the next couple of years.
spk05: Sure, Jacob. We've got a pretty significant initiative around all manner of cryogenic automated stores. So it's a necessary tool we see for all cell and gene therapy applications. the ramp is pretty significant. As you mentioned, we just launched a modest size one that we think is comfortable for many lab configurations. So it'll wheel through a door to a stand-up tool that somebody can put in like an appliance, but it's a fully automated cryogenic system. And we think the promise for this tool, the demand's very strong. The promise for the tool we think is great. Actually, we're showing it at the SLAS conference here in Boston this week, and it's been received particularly well. So We have a complete portfolio, a range of sizes, and the demand just continues to build. And we talked about doubling year-over-year volume. We anticipate that this will continue. We have customers now, some with more than 20 units, and we see nothing but continued acceptance of the technology because it's a necessity. We think to really fidelity of the cells and samples. We think it's critical, and we think automation is the way that customers are going. And on the large automated stores, just to comment on the large automated stores, we just see a general trend toward automation, both because of the complexity and the number of samples, but also, once again, the fidelity of samples as we go forward. And we can feel it building in the second half of calendar 22 in the pipeline phase. that's as strong as we can ever remember it for the large store. So these always take a little bit of time to build, to book, and to close, but we're fully engaged with customers like we've never been before, and we have a complete offering from a portfolio standpoint across temperature ranges and across sizes, and we're really confident about what the back half of the year looks like across the portfolio of all automated stores.
spk02: Got it. Thanks for that, Steve. And then maybe as a follow-up, just Lyndon, just again on margins, if my calculator is right, I think you're kind of looking towards, do you like 13% to 16% EBITDA margins in 2Q? You're still planning to exit the year at 22%. I know there's some moving pieces there, but maybe could you just help us bridge from kind of the 2Q margin to exiting the year at 22%.
spk03: Yeah, so you got it about right. In Q2, our guidance would land us right around the range of 15% EBITDA margins. We still got a half a point in there on the overhang. So think of it as 15 and a half. And so we still need to produce about six and a half more points to get to the 22%. As we highlight, we're very bullish one It starts at the top line. The top line growth is key for us. We see as a year that we're going to be consistent with the longer term model as total. I'm not going to spell it out by products and services just yet. We'll give more clarity as we move through the quarters. But each of our general managers see growth ahead as we expand through the second half. Secondly, our gross margins. You know, we're in this 49.3 we just turned in. In the second quarter, we're looking at this to be relatively stable. It's going to be up a little bit in products. In the services business, we're about to move through a couple of quarters here where we're taking on some duplicate building costs as we move in China, and we're also moving into a new space in the Boston area out of Cambridge into the nearby Waltham area. And we've contemplated a little bit of a bump there. And we've also contemplated, as I've highlighted before, some of the labor costs. We've made some specific investments in our labor costs for retention of key skills and certainly some hiring, as we've highlighted. But with those things said, we think stable gross margins is going to be our expectation for Q2 in total. And we'll continue to support our investments. In the second quarter, as I highlighted, while our expenses will appear somewhat stable, keep in mind that will be a fall-off of some of the overlapping G&A, and we're going to have a bump in some stock comp, as we always do with the annual board grant in the quarter, but it's non-cash expense, and we'll be back at a little bit lower in the second half. And so when we put this together, and I don't mean to say I just made it simple for you, but I give you enough detail and color to fill in some model. But then it comes down to arithmetic. So you take the revenue out to the fourth quarter at a growth rate, as I said, is consistent with our longer-term model with higher growth rates in the second half. We get to a level that supports a touch more gross margin. I will highlight that we see as we leave the year, we think we'll be back up at 50 or better at the gross margin level, and the leverage on the operating expense will deliver the balance of it. So I appreciate the question, because as we've highlighted consistently, we thought the first half would start a little slower, and I just want to give everyone confidence. We're executing almost exactly where we expected. You know, there's always a little bit of perturbation, but we're exactly at the midpoint where we thought we would be at this point. So, thank you, Jacob.
spk02: Perfect. Thanks for that, Lyndon.
spk07: And our next question is from Paul Knight with KeyBank. Please go ahead. Hey, Steve.
spk06: Obviously, you've got a balance sheet that's ready to go, but... Talk about pipeline. A common question we're getting is in this kind of equity sell-off. Are you seeing different pricing on the M&A side, or do you expect lag, and what would that lag be? So I guess kind of your essay on M&A right now.
spk05: Sure. So, Paul, I'll start with the pipeline's pretty rich. And so I think the conversations we were having before we had the cash, the same conversations we're having now. I think everybody is aware of the multiples that are in the public markets. You know, we've done 14 transactions here over the past nine years, and we've always been with private companies. So there are different means to apply value and the things that we can bring to a company. So I think I anticipate that as we get to pricing, expectations are high. But we're in it for the long term. The companies that we're in discussions with are also in it for the long term. There are a lot of ways to construct deals. So we'll always add value. We're going to stay true to our ROIC focus. And if things make sense and the things that we're going to do, you know they'll pencil out that way. So we're really enthusiastic, though. There are a lot of good opportunities, a lot of good companies, a lot of things that make sense. For Zenta, and again, we have an aperture that's opened a little bit more now with the kind of balance sheet that we have. So we're busy and we're enthusiastic and we like the outlook. The pricing will come down to is it something that shareholders will like as much as we do, and we're going to stick to that. Yeah.
spk06: And then regarding these array of capacity expansions, centering it around GeneWiz, Between Indianapolis, China, and other, what's the capacity addition for GeneWiz, this, let's call it, by the time we wrap up June 30, where will we be with GeneWiz capacity expansion? Is it 20%, 25%, what is it?
spk05: Yeah, sure, Paul. So on the genomic side, we've been keeping up with the you know, 20 plus percent growth across the board now for years. And we'll always stay in front of that. Doubling capacity in China is particularly useful. It'll last us a few years and we have more room to expand there. But we always have an eye toward that. So we'll be able to keep up, we think, with any demand in the 20 to 30 percent growth. Beyond that, we'll have to hustle a little bit, but all of our plans, as you can imagine, are always to sustain that kind of growth, and we've never been constrained. We can move pretty quickly. We do it not just on the genomic side, but on the biorepository side, and certainly we can keep up with it from a production standpoint. So if we were fortunate enough to bump up against 30%, we'd keep up with that. We'll remain pretty tired, but we've done a good job, and we think we've got the skills to continue to do that Um, and so we, we won't be constrained.
spk06: And then last, uh, Lyndon on, uh, COVID, uh, what, what are you expecting for full year down mid single digits, double digits? What are your, what's your thought on full, full, uh, fiscal year?
spk03: Yeah. So as I mentioned, we had about 10 million of revenue in this first quarter and we we've got factored in some stability around CNI. Um, we see, uh, You know whether it's going to be eight or it's going to be 11 million we think it's going to have perturbations and and I will tell you that we've got it in that range looking forward. But I have to confess, as I've been consistent over the past year, we have little line of sight to the customer transactional orders around this space, but we don't have a reason to think, as I think everybody could tell. Testing is prevalent. Demand on tubes is high around the world. Customers are still in dire need of the test kits. So the tubes is where we've been delivering the most of this, certainly some in research, but we see some stability. On the other fringes, you know, we do some of the vaccine management. We have other vaccine management contracts that are coming into play later. And so I would call that more of a peripheral site, and we have more value to add there, I think. But I think the biggest driver here is the CNI the rest of the year. Okay. Thank you.
spk07: We have no further questions. I'll turn it back to Lynn and Robertson.
spk03: Please go ahead. All right. Well, thank you. You know, it's with a lot of excitement and a lot of pride that Steve and I and the leadership team at Azenta have wrapped up our first fiscal quarter under the new name and under the legal structure, under the banner of being able to say we have closed the transformation at this point of a milestone of becoming a standalone life science company, one that's producing high growth, high capability of value add to our customer front, But the unique portfolio that on each element of the portfolio, not only have we demonstrated continuous growth, we have every expectation that every slice of it continues to grow. We just don't have a bad spot in the portfolio. And as a CFO, I think you can see that that's an envious place to be in, and I just love being able to talk about that. We're completely proud of what we've been able to accomplish, but we're completely – unsatisfied with where we are today, and we look forward to delivering more the rest of this year and over the next three years as we've outlined recently. Thank you for your attention, and we really look forward to talking to you again this time next quarter. Thank you.
spk07: And that does conclude our call for today. We thank everyone for participating, and you can now disconnect.
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