Azenta, Inc.

Greetings and welcome to the Azenta Q2 2022 financial results. During the presentation, all participants will be in 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 Monday, May 9th, 2022 at I will now turn the conference over to Sarah Sullivan, Director of Investor Relations. Please go ahead.

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 second quarter of fiscal year 2022. Our second quarter earnings press release was issued after the close of the market today and is available on our investor relations website located at investors.azenta.com, in addition to the supplementary PowerPoint slides that will be used during the prepared remarks today. Please note that due to the divestiture announced in the fiscal fourth quarter of 2021, the results of the semiconductor automation business are treated as discontinued operations. On February 1st, we completed the sale of this business, and therefore our second quarter results include one month of performance 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 Azenta 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 second quarter. Then Lyndon will provide a more detailed look into our financial results and our outlook for the third 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.

Thank you, Sarah. Good afternoon, everyone, and thank you for joining us today. Our second quarter results show continued strength and execution in the business. I couldn't be more enthusiastic about our performance and ability to deliver as a company. As an organization, we're focused on driving growth in the business, both through our differentiated offerings and superior operational capabilities. As many of you are aware, on February 1st, we announced the completion of the sale of the semiconductor automation business And we're now a pure play life sciences company with more than $2.5 billion in cash available for strategic investment. We're full speed ahead investing for expansion to meet our strong growth, and we're actively evaluating multiple M&A opportunities that will strengthen our portfolio of capabilities that allow us to enable breakthroughs and therapies to market faster. I'll now turn to our results for Q2. Revenue for the quarter was $146 million, up 12% year over year. and up 20% when normalized for the estimated COVID-19 impact in both periods. We consider this to be a strong result in a sometimes challenging operating environment, as COVID impacts in Q2 were different compared to the past several quarters. Specifically, we had an impact from two fronts. As we mentioned on our February earnings call, the Omicron surge that was still raging in January caused some disruption in the Sanger business as demand from academic labs in the US and Europe was below normal due to scattered facility closures. This was largely past us by early February, but it was noticeable in our revenue numbers compared to a normal run rate. And second, the sporadic and sudden closures of various parts of China in February and March caused occasional interruptions in demand from our Chinese customers in much the same way Omicron did in the U.S. and Europe. Nonetheless, overall demand was strong enough to allow us to make up for the few million dollars shortfall caused by COVID interruption. And though we were able to power through Q2 in spite of COVID surprises, the spillover effects have already impacted the start of our Q3. In late April, we experienced a government closure of our genomics facility in Suzhou that lasted for approximately two weeks. At this time, we're functioning at full power, and we believe that we'll be able to largely make up for these lost days. That said, the situation in China that's impacting many companies with operations there remains tenuous. If there are no additional shutdowns, we expect only a small impact to the results for our third quarter. All in, we're pleased with the results we delivered in Q2, even though they came a bit harder than we'd anticipated. Now, back to the results from the quarter. Our services business reported revenue of $92 million, up 19% year-over-year, driven by double-digit growth in both genomics and sample repository services. Genomics revenue was up a healthy 18%, and though already a strong result, excluding COVID, genomics grew 23%, powered by next generation sequencing, which expanded nearly 30% year-over-year. These results are a testament to our portfolio and the value that we bring to customers. In the quarter, we saw continued commercial execution to land more large contracts, mostly with large pharma and biotech customers. This is particularly noteworthy because our genomics business has historically been comprised of many small and midsize projects. Now, not only do we have the tailwind of healthy end markets at our back, we're also gaining traction with larger deals that can move the needle for us. As we noted, we saw some softness in the Sanger business in January due to the rise of Omicron in the U.S. and Europe. Thanger nonetheless delivered a solid quarter, growing high single digits year over year. Consistent with our legacy in genomics, we continue to innovate and adopt new technologies to add to our services offering. In the first half of the fiscal year, we introduced seven new services, including our new proteomics and gene to antibody offerings. And cell and gene therapy research remains a healthy tailwind to growth. Our genomics revenue from cell and gene therapy once again grew more than 30% year over year, and our AAV offerings more than doubled compared to Q2 2021. We continue to expand our capabilities here, and while we're still in the early days of the opportunity, we're solidifying our position in the market as the go-to provider. Even as we're managing through a complicated COVID situation in China, we're still gaining momentum, as once again, we added hundreds of new accounts in the quarter. The sample and repository solutions business grew 21% year over year, driven by the increased number of samples in storage. The transformation in our customer relationships as we shift from handling their sample storage transactions to being their sample management partner is a particularly exciting shift for us, and it's driving a transformation to the next phase of how we'll operate this business. Historically, we've used manual freezers due to the archival nature of legacy sample storage. But now, as we participate in more and more active clinical trials, in addition to the archival storage business, Quarterly sample volumes routinely measure in the millions of individual sample transactions. The next phase of growth for our SRS business now depends on significantly more automation in workflows and sample storage to be able to more efficiently and more cost-effectively manage the high-value sample assets that customers entrust to us. Toward that end, we're making significant investment in storage capacity and efficiency of our biorepositories. In Q2, we installed a next-generation automated store that will handle multiple millions of samples in our Indianapolis biorepository. Over the next 12 months, we plan to add additional stores of this configuration in both Indianapolis and Germany as we transform this service offering to the next level of technology performance. At both of these major sites, we already perform laboratory services related to sample preparation, including aliquoting, blood fractionation, PBMC isolation, and nucleic acid extraction. The additional boost from automation will significantly enhance our value proposition for clinical trial sample management. In SRS, we're growing rapidly, and we have a great ambition about what this business can become. We're using our automation skills and our balance sheet to enhance the offerings for a market that's demanding more of a biorepository in terms of capacity, capability, technology, and efficiency. We're excited about how our sample management solutions are taking hold, and we look forward to the next level of capability that we're bringing to customers at exactly the time when it's needed most. The products business delivered revenue of $54 million for the quarter, representing 2% growth year over year on a difficult COVID compare. Excluding COVID impacts, this business grew 12%. The solid performance was driven by continued demand for our automated cryogenic store systems, which have strong applications in cell and gene therapy. as well as good execution in our consumables and instruments business. Our cryogenic sample systems business continues to build momentum and expand footprints and new customer wins, and we're increasing our manufacturing capacity to stay in front of the demand. We anticipate more strong growth in this segment in the second half of the year. Our large automated stores business is also seeing significant traction. As of the end of April, large store bookings are already 40% higher than they were in all of fiscal 2021. We saw particularly strong bookings in April, and these systems are scheduled to begin to convert to revenue in the Q4 timeframe and extend into fiscal 2023. In the consumables and instruments product line, non-COVID related C&I bookings reached a record level in the quarter, with increased bookings across most C&I product lines to a level that's nearly twice what it was pre-COVID. This is important because we've postulated that the accelerated transition to workflow automation that was brought about in large part by high-volume COVID testing demands would provide additional post-COVID support for our consumables and instruments business as our products are geared almost exclusively to highly automated workflows. The fact that we're indeed sustaining much of this share that we've gained during COVID supports what we believe to be the case when we doubled down on our ability to supply in the earliest days of the pandemic. Finally, moving to capital allocation, I've already mentioned some of the organic expansion that we've undertaken, and we're actively exploring many potential complementary solutions to add to our existing portfolio. As you can imagine, with the strength of our balance sheet, we're in a good position, and we're confident we have good visibility of the market landscape. As we move into the second half of fiscal 2022, we're well positioned to execute on our growth plans. The commercial team is firing on all cylinders, and our businesses are executing solidly. We believe we have a differentiated high-value portfolio of offerings that will only continue to gain traction with new and existing customers. Our value proposition is strong, and we continue to drive awareness of the Aventa brand. We believe we're still in the very early days of growth with a long runway ahead. As always, we thank you for your interest and support as we work to deliver value to our customers and shareholders. And I'll now turn the call back over to Lyndon.