Azenta, Inc.

Greetings and welcome to the Azenta Q1 2023 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 Wednesday, February 8, 2023. 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 first quarter of fiscal year 2023. Our first 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, our 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 the 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. In addition, we may refer to certain estimates of COVID-based impacts. These figures are estimated based on our insights to customer applications and or product types indicating such demand 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 first quarter. Then Lyndon will provide a more detailed look into our financial results and our outlook for the second fiscal quarter of 2023. 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 we're speaking to you from our new headquarters location in Burlington, Massachusetts. And we're pleased to share with you the progress we've made over the past three months. Our Q1 results were solid and in line with our target as we delivered revenue growth of 28% year over year. Organic growth excluding COVID was 7%. Our results consisted with our 2023 expectations and a signal that the adjustments we've made to the business are taking hold as planned. Today, all of my comments on growth will be organic growth rates, excluding the impacts of COVID. Looking at the business by segment, we saw strong performance in our products business, which grew 15%, reflecting another quarter of double-digit year-over-year growth in our automated stores business, as well as some promising stability in our C&I business, which contained no COVID revenue and was up slightly quarter-over-quarter. On the services side, both sample and repository solutions and GeneWiz Genomics performed well. A particular highlight was double-digit growth in our core storage business of SRS. When we first got into the SRS business seven years ago, occasionally we'd handle up to a million samples in a quarter. Today, we touch more than a million samples per month, and the number continues to increase as more and more customers see the value in our offering. And as we continue to automate, we're more able to satisfy the heavier transactional aspects of our customer sample management needs, especially around the critical steps in a clinical trial workflow. This high-volume individual sample tracking capability is a highly differentiated offering that's valued by customers and necessary for their future needs. In genomics, we began to recognize the positive impact from the retooling of our go-to-market approach, and were confident that the continued execution of our plans is the right strategy. Specifically, once again, we delivered a record quarter for next-generation sequencing, and Sanger sequencing was steady. Perhaps most importantly, We're seeing early signs that we're beginning to recover some lost momentum in our gene synthesis business, as we saw double-digit growth in China, which is a positive indicator in terms of what we can do in the global market now that our logistics issues are behind us. To be clear, we're not declaring victory here, as there's much more to be done in sales staffing, but we're confident that our actions and plans are providing the remedy, and this is all about investments and proper execution, which has the focus of the entire leadership team. One particularly bright spot in the quarter was our performance serving cell and gene therapy customers. Over the past few years, we've observed steady 20% to 30% growth from CGT across our portfolio of offerings. But in Q1, we recorded nearly 60% year-over-year growth, bringing cell and gene therapy sales to approximately 10% of revenue, not including Barkey or B Medical Systems. This was up 30% quarter to quarter. Contributions to this growth came from GeneWiz Genomics, especially from NGS and AAV services, from products, particularly cryosystems and instruments, and from SRS. From a geographic standpoint, the key top-line drivers I mentioned, NGS, automated stores, SRS, and CNI, drove growth at varying rates across the globe. The U.S. remains a steady grower, Europe is making progress, and China remains a highlight, even amidst COVID noise. Bee Medical had a record revenue quarter of $42 million and secured the commitments we'd anticipated. That said, we saw one large order get pushed out, which landed us below the $45 million we'd initially anticipated. We shared with you that quarterly revenue would be difficult to predict for this business, but we'll continue to refine our forecasting to the street. The good news is that the business has won, and we're still confident that we'll deliver $130 million in revenue for the year. In addition, our long-term key human health initiatives are underway. and we remain encouraged by this unique head start in a fast-growing emerging markets opportunity that's seeded by B Medical's expansive footprint and outstanding reputation. And though it's still the early days, we're already in discussions with pharma companies on how we could leverage B Medical's technologies and Beachhead to access patients in hard-to-reach geographies. All in, the base business is stable and exhibits signs of strong momentum. Even in a more challenging macroeconomic environment, we believe our opportunity is significant, and it's ours to capture. Q1 was a quarter of positive proofs that our position is solid in products and SRS and that our initiatives to accelerate top-line growth, especially in our genomics business, are proving to be the right ones and will continue to drive these forward. Specifically, we're accelerating our investments in additional sales talent for coverage of accounts, but also of specific genomics technologies with emphasis on synthesis. We continue to recruit for additional regional sales coverage where we have known gaps and And we're not slowing our investments in development of innovative new products and services, which are key to our future outperformance. It'll take time for some of these initiatives to impact the top line, but they're necessary for our long-term success. We're optimistic that these actions will support continued progress toward the low double-digit growth objectives in the second half. We'll fund these investments through cost reduction measures that come from a realignment of our internal operations that target efficiency and enhance focus on value-creating activities. In total, we'll take out about $20 million of annualized cost. The net impact of the actions we're announcing today are expected to remove about 200 basis points of cost. Most importantly, these are the right next steps to ensure both our near-term and long-term potential. We believe the end result will be tighter coordination between business units and sales, and we'll take advantage of recently implemented enterprise solutions to automate and streamline internal activities. And finally, we continue to identify opportunities to grow the business. Last week, we completed a tuck-in acquisition of Zyeth, a leading provider of 2D barcode readers for life sciences applications. The Zyeth portfolio fits perfectly with our consumables and instruments business and enhances our portfolio of high-throughput offerings designed for laboratory automation workflows. This is a great example of the types of transactions we can do where we have the opportunity to take a company with a great product portfolio and put Azenta's commercial reach behind it. In closing, I want to address a few key points. First, we believe we have a unique portfolio of best-in-class products and services that gives us a chance to secure the pole position in all things sample management and sample measurement. And our Q1 results and traction give us confidence that we're properly addressing issues that will allow us to regain our outsized growth profile. Second, we're adjusting our operations to match our current portfolio and profile. Specifically, we're prioritizing strategic sales investment to drive the top line while protecting our bottom line. We'll continue to monitor and measure results of actions taken and support all key sales initiatives with the objective to turn the corner in Q2 and to see the progress in our results in the second half of this year. And we're investing for growth. We have a strong balance sheet with more than a billion dollars in cash available for opportunistic additions to our already powerful portfolio. In all, we're very positive about our momentum and where we are at this moment. We have high conviction in the value that we bring to customers and our strong market leadership. We look forward to continuing to update you on our progress throughout the year, 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.