Azenta, Inc.

Greetings and welcome to the Azenta Q4 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 Monday, November 14th, 2022. I will now turn the conference over to Sarah Silverman, Head of Investor Relations.

Thank you, Operator, and good afternoon to everyone on the line today. We would like to welcome you to our earnings conference call for the fourth quarter of fiscal year 2022. Our fourth quarter earnings press release was issued after the close of the market today and is available on our investor relations website located at investors.azenta.com in addition to the supplementary PowerPoint slides that will be used during the prepared remarks today. I would like to remind everyone that during the course of the call, we will be making a number of forward-looking statements within the meaning of the Private Litigation Securities Act of 1995. There are many factors that may cause actual financial results or other events to differ from those identified in such forward-looking statements. I would refer you to the section of our earnings release titled Safe Harbor Statement, the Safe Harbor slide on our 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 event of business. Non-GAAP measures should not be relied upon to the exclusion of the GAAP measures themselves. In addition, we may refer to certain estimates of COVID-based impacts. These figures are estimated based on our insights to the customer applications and or product types indicating such demands or constraints on regional demand or ability to deliver. On the call with me today is our President and Chief Executive Officer, Steve Schwartz, and our Chief Financial Officer, Lyndon Robertson. We will open the call with remarks from Steve on highlights of the fourth quarter. then Lyndon will provide a more detailed outlook into our financial results and our outlook. 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. As we report on results from the final quarter of fiscal 2022, it's an appropriate time to discuss the very different company we are now compared to when we entered the fiscal year. In the space of just one year, we've completed the dramatic pivot from a company that was a life sciences arm of Brooks Automation to a standalone publicly traded life sciences company. It was no small task to separate into two companies, and our results show today that it's been successful. And though we realize we have more work to do, today's announcements are evidence of the decisive actions we're taking to continue to drive value for Resenta shareholders. Over the past decade, we transformed a small, cyclical semiconductor capital equipment components business into a global market leader. And as we did so, we leveraged the core technologies and cash flow from that business to create a unique world-class life sciences business that meaningfully outgrew the life sciences market over the past five years. Today, our revenues are four times greater than they were five years ago. Now, following the successful sale of the semiconductor business, we see this as the right time to reassess our approach to capturing the significant opportunity that lies in front of us and to make certain that we're doing all that we should to realize our purpose and, in doing so, deliver exceptional shareholder value. So today I report on two key initiatives that we're taking opportunistically to deliver that value and ensure the long-term success of the company. Today we announce a significant near-term return of capital to shareholders and a meaningful realignment of our operations to recapture growth rates ahead of market growth. First, I'll talk about capital allocation. Over the past decade, we built our successful life sciences business by focused execution with organic and inorganic growth, including 10 acquisitions at the cost of approximately $1 billion. Nine months ago, we completed the sale of the semiconductor automation business, which delivered a substantial return for our company and our shareholders. The resulting net cash balance of more than $2.5 billion ensured our ability to accelerate our growth ambitions as a standalone life sciences company. Toward that end, over the last four months, we continued our methodology of finding and acquiring precious assets that add to our valuable sample management solutions by acquiring Barkey and V Medical Systems. Both companies possess the characteristics of each of our most valuable acquisitions in that they strategically add to our technology and product and services portfolio, they're accretive to earnings in the first year as part of Azenta, and they're led by talented energetic management teams with proven track records of success. In addition, in the case of Barkey and B Medical, they also both provide sales synergy opportunities for other Resenta products and services, and they expand our offerings to sizable new markets. But even with these two new companies in our portfolio and the success we've had, at this point we find ourselves faced with the reality that our shares are significantly undervalued, so much so that at this time it's difficult to find any target acquisition that would give us as high a return as can be achieved by the repurchase of our own shares. So we believe it's in the best interest of our shareholders for us to return excess cash. Toward that end, today we announced the Board has authorized a $1.5 billion share repurchase program. We'll be aggressive in our share purchases with a target to return the first $500 million within approximately six months through a committed accelerated share repurchase program. It's our intention to repurchase a total of at least $1 billion worth of shares in the next year. It's important to note that this does not imply that we won't be acquisitive. We intend to continue to make both organic and inorganic investments as acquisitions are a powerful component of our growth strategy. Rather, this move is recognition that until we identify valuable targets that would require more substantial capital, we believe the cash should be in the hands of our investors rather than on our balance sheet. I'll now turn to the second initiative, which underscores the operational adjustments we're implementing. Over the period 2016 through 2021, we had cumulative revenue growth of more than 20% per year. more than twice the market growth rate. But as we finished the year, even a Q4 growth rate of 12% ex-COVID feels too close to the market growth rate and considerably below our expectation and our capability. In a year of tremendous change, we believe we got most things right, as we're now a fully functioning standalone life sciences company. In retrospect, we also think that the magnitude of the changes we made in our go-to-market approach caused some misalignment with customers that manifested in a slower growth rate of sales. Our branding initiative was first rate, but the restructuring of sales and customer contact points has caused some disruption in our sales channel. Fortunately, the fixes are straightforward, and we have the right team in place to implement them. It'll just take some time to gain traction. But rest assured, we're full speed ahead and encouraged by our progress, even over the past months. Since we recently separated from our chief operating and chief commercial officers, we Lyndon and I are back in our positions of responsibility to be more directly involved in the daily operations of Azenta, from product and service development to sales and customer satisfaction. We've hired new sales leadership, and we've dedicated more product and services experts to the sales effort. In genomics, this means scientists selling to scientists, and in products, the focus is on automated storage systems and consumables and instruments. The sales organization has signed up to specific operational deliverables for 2023 with the expectation that we'll see reinvigoration of growth as we move through the year. With our portfolio of best-in-class capabilities, there's no reason why we shouldn't be growing well above market growth rates. In the context of these changes that we're implementing to prepare for our next acceleration, I want to comment on one additional change that's consistent with our next phase of growth, and that relates to board governance. As we're now at the end of one full year as a standalone life sciences company, the Board sees this as an opportune time to further enhance the governance team by nominating two new outstanding independent directors who are known value creators in the life sciences space. We're excited to have announced that Dorothy Pui and Dr. Tina Nova have been nominated for election to our Board. They'll bring a combined 50 plus years of experience in the life sciences space and have proven track records of outperformance and value creation, with experiences including sales of companies and leading boards. Their invaluable perspectives will further enhance Azenta's strong momentum as we execute on our long-term strategy. As part of this transition, Dorothy and Tina will replace two of our directors who have elected not to stand for reelection at the next annual meeting. On behalf of the entire Board of Directors at Azenta, I would like to thank Dr. Mark Wrighton and Mr. Al Woollacott for their service and contributions. Over their tenure, they've been exceptional stewards of the company over the period of significant transformation and value creation and have been instrumental in transforming Azente into a global, world-class life sciences business. Timing for this transition is ideal and will continue to evolve the board as we accelerate into the future as a life sciences powerhouse. Before I turn the call to Lyndon, I'd like to give some additional information about Bee Medical Systems, which we introduced on our last call. We're incredibly excited about B Medical Systems for many reasons. First, it's a great purpose-driven business, saving lives for more than 40 years through innovations in cold chain products. They're market leaders because they're technology leaders, and we believe the world hasn't yet begun to fully take advantage of the sophistication of their offerings. Our attraction to the B Medical business is multifold. First, we believe there's tremendous value yet to be delivered to regions where the distribution of vaccines is still far behind need and demand. This is a multi-year source of opportunity and one that B Medical is positioned to serve better than any other company. And in doing so, not only do the products align perfectly with our Adenta portfolio, but the operational performance is also very consistent with ours. Specifically, we currently forecast that B Medical will generate revenue of at least 130 million euros in fiscal 23, a growth rate of approximately 25% from the equivalent period in 2022. And gross margins from the business are in the mid-40s, making B Medical's contributions to Azenta accretive to growth and earnings in fiscal 2023. It's a solid business and financially a positive contributor to Azenta. In addition to this forecast, we anticipate sales synergies by penetrating sales of B Medical's ultra-cold freezers and blood management systems into the target-rich North American market, where they have essentially zero presence today. This is a young initiative, but one with a lot of internal support, and we believe we'll see measurable expansion by the second half of the fiscal year. The second part of our value creation thesis deals with what's made uniquely possible for Azenta because of the addition of B medical systems to our portfolio. There's an opportunity to bring Azenta offerings to a vast population in fast-growing emerging markets where demand for biorepositories is just awakening, but still in need of a real solution. All of us in the Western world are familiar with the value of biosample collections and biorepositories as sources for research into population studies and treatments of specific disease types. Collection sites are plentiful as clinics and hospital networks, and there's adequate cold chain infrastructure in place to ensure that samples can be collected and transported without degradation. The same is not true for most fast-growing emerging markets, where there's no consistent means for biological samples to be retrieved and brought to a research center. This is the opportunity for B-Medical and Azenta to team up. As we assess this opportunity, we note that there are three key elements necessary to enable a foundation of high-quality biosamples that are essential for human health studies. First, the ability to source samples from a broad swath of the population. Second, the ability to securely transport these samples to a secure biorepository without degradation, that is, cold chain transportation. a reliable biorepository with secure cold chain redundancy, informatics capability, and operating procedures that ensure the sustained value of these samples over long periods of time. The combination of B-Medical and Azenta can play an enabling role in the fulfillment of this necessary capability. The B-Medical distribution network consists of more than 150 distributors who have relationships in countries. This is a well-functioning network for sales in countries that is enviable for anyone looking to get started in these fast-growing economies that represent approximately 3 billion people. Bee Medical has an installed base of tens of thousands of vaccine cold chain systems, and they deliver thousands of new systems every quarter, establishing a last-mile connection to millions of first-time patients each quarter. This last-mile cold chain capability that's in place to preserve a vaccine dose that has to remain cold in transport is the same mechanism that can be used in the opposite direction to retrieve a blood sample from a patient and return it in the same cold transport carrier back to the cold chain box to be stored safely until it can be retrieved and moved to a biorepository. The potential from samples collected in this fashion is game-changing, as the samples can be from a much more diverse swath of the population compared to just cities. Samples will have known cold chain care and hence be more usable and more valuable. Finally, the value of a collection from a biorepository will increase exponentially, and hence, the care taken to protect and preserve these samples will be worthy of real investment in infrastructure and process. We're pleased to be gaining traction on our first conversations as a unified solutions team, and we like what we're learning from very engaged principals who understand the value of this approach. This is incredibly exciting because it has the potential to enhance human health initiatives for heretofore underrepresented populations, and it allows the expansion of our Acenta offerings to serve the new population of billions of individuals. We'll report progress as we move forward, but we're excited about the capabilities that are enabled by B Medical and as an essential driver of the next level of healthcare in new markets. As we embark on fiscal 2023, we're energized about our prospects for the future. Our portfolio of capabilities positioned as never before to address a global opportunity that's not only expanding rapidly, but it's in ever more need of our scientific and technology solutions. We've significantly expanded the breadth of our offerings and the size of our market opportunity, both through products and geographic exposure. We've refocused our go-to-market activities and alignment around customer capture, and we believe this will be a potent combination that drives faster and sustained growth. Additionally, we're taking actions to drive near-term shareholder value while we preserve adequate capacity to make meaningful organic and inorganic investments to fulfill our strategic objectives. We're now a company of nearly 4,000 employees, ready to address the ever-increasing needs of our customers. We're driven by our purpose to enable health breakthroughs faster. We're enthusiastic about our work in support of our customers' missions, and we're committed to delivering on the promise of enabling world-class performance for our customers and their patients. We very much look forward to reporting our progress to you over the coming quarters as we accelerate into 2023, and we thank you for your interest and support as we work to deliver value to our customers and shareholders. I'll now turn the call over to Lyndon.