Azenta, Inc.

and welcome to the Azenta Q4 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 Monday, November 13, 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 fourth quarter of fiscal year 2023. 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 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 the 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 Chief Financial Officer, Herman Kudo. We will open the call with remarks from Steve on highlights of the fourth quarter. Then Herman will provide a more detailed look into our financial results and our outlook for fiscal year 2024. 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, I'll direct my remarks to a summary of 2023 results and a preview of how we see 2024. including some of our key initiatives. As you've seen in our press releases today, we have a lot to talk about on this call. A strong fourth quarter result, a healthy outlook for fiscal 2024, a big order for V Medical Systems, as well as important implications for Go Forward Azenta, including a significant capital allocation commitment to share repurchases, as well as an announcement as part of our regular board refresh. So let's get to it. It's an exciting and energizing time for Zenta. We had a strong finish to fiscal 2023 with fourth quarter results coming in nicely on top and bottom line. We're pleased with the progress we've made during the quarter and our positioning headed into fiscal 2024. Fiscal 2023 was another transformative year for the company as we reached over $660 million in revenue. We accelerated and adjusted to the demands and opportunities afforded to an innovative standalone life sciences company We've taken substantial prudent actions to reinvigorate growth in revenue and profitability, even in what continues to be a challenging macroeconomic environment. We added key leadership and strategic sales expertise and restructured our commercial team to better focus on specific business lines and increase our coverage of geographies. We continue to build out our portfolio of unique offerings that deliver on our purpose to enable breakthroughs faster. We extended our strategic leverage and expanded our geographic footprint with the additions of B Medical and Zyeth. And as a standalone company after the divestiture of Brooks, we completed the first phase of streamlining cost reductions. There's much more work to be done, but we have a plan for continued execution in the coming year. Notably, we demonstrated positive adjusted free cash flow of $14 million in fiscal 2023, one measure of the progress we've made throughout the course of the year, and an indication of what this business is truly capable of as we go from here. And on October 1st, we moved to our new three-segment reporting structure of multi-omics, sample management solutions, and B Medical, which we believe will significantly improve our operating efficiency while better aligning our offerings to customer needs and providing greater transparency to our shareholders. Most importantly, we're a year better at all that we do and in the value we offer to our customers. Our capabilities continue to enable customers, and we're investing to stay ahead of their needs for solutions that shorten their time to discovery. Altogether, we believe we're extremely well positioned to continue to outgrow the market. And now for some highlights from the quarter. In Q4, we delivered revenue of $172 million, which translates to organic growth of 2% year over year, and 6% when you exclude our consumables and instruments business, which remains soft in line with market trends. Let's look at the business by segment. In services, we delivered fourth quarter organic growth of 1% year over year. Genomics was down 2% year over year, primarily driven by continued macroeconomic headwinds. From a regional perspective, in genomics, China was once again notably strong, delivering 12% organic growth. And although there's been a significant slowdown in the China economy post-COVID, we're still growing due to our strong customer relationships and continued share gains with new customers in the region. Despite the softer market environment, we believe our team has adapted extremely well to address customer needs, and that performance has been solid on a relative basis. Our sales realignment and strategic investments in sales expertise is proving to be the remedy we sought for our slower OMIC sales at the start of the year. We have more to do, but as the current organization gains traction, we're in for a return to solid growth in 2024. In the sample repository solutions business, we grew 9% year over year, led once again by growth in core storage. As we've previously announced, we're in the process of opening a new biorepository in the Boston area. We've received great customer interest, and we're currently in fit-up mode through the end of this calendar year. We look forward to accepting customer samples in early calendar 2024. Since we last spoke with you, we closed another large deal where we'll provide sample management and multi-omic services for prospective research study. Similar to our project with the Lupus Research Alliance, we're demonstrating the value of our sample management and sample measurement platform to provide data to researchers doing discovery. This is a multi-million dollar, multi-year partnership rooted in the strong relationship that we developed over many years in the sample repository side of the business. This win and others like it are a testament to the high quality capability set and reputation that we've built over the past decade. Moving now to products. The products business grew 3% year over year on an organic basis, led by record revenues in automated store systems. Store systems grew 38% year over year, driven by our large automated stores business, which we previously reported has accumulated significant backlog over the past few quarters. This team has done a tremendous job to engineer, deliver, and install these orders at customer sites at a record pace. In CNI, we did continue to see year-over-year headwinds, but the good news is that this business expanded sequentially for the first time since Q1 of this year. Finally, B Medical ended the year strong, delivering $29 million of Q4 revenue led by Cold Chain Solutions. For the full year, B Medical generated $113 million of revenue and was decretive to our earnings per share. B Medical is a differentiated market leader in the areas that it operates, in particular, vaccine cold chain, and it's profitable. What's more is that from the lens of Azenta ownership, we see meaningful strategic upside in expanding the scope and reach of cold chain projects. We're building our reputation as Azenta in fast-growing emerging markets and engaging with several opportunities that will leverage B Medical in the important chain to connect precious biological samples to researchers. One piece of exciting news I'd like to share today is about one of these transformative opportunities. Last week, we signed a memorandum of understanding with the Democratic Republic of Congo for a project to support in-country vaccination efforts. This project has the potential to generate approximately $60 million in our fiscal year 2024. Let me put this order into perspective on how it impacts our outlook for the year. On top of the $113 million we delivered in 23, we expect 24 to be a growth year for B Medical. Our guidance for the year comes from our view of the pipeline, which is richer than it's ever been. For the upsizing of the DRC deal, the pipeline already included a program from the DRC, but none of the magnitude we just described, and with it, gives us additional confidence in the outlook for B Medical's business. We have a healthy and growing pipeline, but revenue in 24 will be delivered with a different cadence than we've seen in the past, where historically Q1 was the largest quarter of the year. Keep in mind, the B medical business is agnostic to the macro environment, but it is lumpy. When we've guided inside a quarter, we've anchored on a forecast for which we have orders in hand, and our Q1 outlook is no different. We currently expect Q1 to be meaningfully down versus the prior year, but still delivering growth on a full year basis. Herman will provide more color in his prepared remarks. Let me say a little bit more about this DRC project and its strategic significance. It's important to note that this opportunity began as one that supported traditional vaccine cold chain solutions from B Medical, but because of Azenta, it's expanded in scope to form the first part of a critical country initiative that will also include the retrieval and processing of biological samples. Although this secondary part of the project is still being formed, it's one of the key tenets for why this engagement has come to Azenta and Be Medical. We're enthusiastic about the prospects for this meaningful human health initiative and our enabling role in this important mission. As we wrap up fiscal 2023 and move into 2024, I'd like to revisit our overarching strategy and vision for Azenta. As I think about the progression of the business over the past decade, we started as a life sciences tools and products company, later added sample management services, then genomics or multiomics as we now refer to it, and most recently emerging markets cold chain solutions. We stand here today as a truly unique end-to-end biosample management company with a platform that provides expertise from sample to answer, enabling our customers to accelerate breakthroughs and therapies. First and foremost, we're focused on strengthening our key leadership positions in the markets we serve, But we're also keen to leverage our end-to-end biosample management capabilities to drive the next vector of growth. While it's still early, I'd like to provide some insight into our plans, starting with the large deal in the Democratic Republic of Congo as the first live example. As Azentha, we're able to source biological samples from participants of certain phenotype, format them for storage and automated workflow analysis, keep them in safe, cold repositories and systems until they're to be interrogated for any of many multi-omics measurements. We then supply data on these samples to entities who focus on discoveries and cures. Our ability to manage this entire critical sample sourcing, storage, and measurement workflow chain is a unique and increasingly valuable capability for our customers. Today, most of the samples we handle are from participants of European descent And although valuable, there's tremendous interest in biological samples that are from contributors of non-European descent. But these samples are scarce because they're difficult to obtain, transport, and consent. We have the platform that will allow us not only to source these hard to collect samples, we'll also have a means to secure them in regions of interest, allow in-country research on these samples, and simultaneously permit access to those rare and valuable samples through our infrastructure. That's to say, we've developed a platform not only to manage and measure samples for others, which has already driven $650 million of business and still has tremendous growth upside, but we intend to use this unique platform to source and provide data on high-value biological samples to a multitude of interested partners. Hence, the power of our portfolio is clear. We utilize our cold chain care and management of samples, exercise our world-class scientific expertise to interrogate these samples, and deliver accurate data to discovery teams around the world. The untapped value opportunity of this platform is twofold. First, more customer samples as we tap into a market opportunity that we barely penetrate by bringing order to vast global collections of samples that have accumulated over decades. As we get better at what we do, customers are giving us more to do for them. Second, we can leverage our platform to be the source of high-value samples that are rare, meaning non-European, consented for use in research and discovery, highly annotated through multi-omics analysis, and stored, even after measurement, for use in future research or follow-up analysis. The clarity of our strategy and where we'll focus in the near future leads us to a conclusion about the next steps in what's been a disciplined capital deployment strategy. As of today, we've repurchased roughly 25% of our outstanding shares relative to when we started the program last November. Today, we commit to an additional share repurchase of $500 million under the authorization approved by the Board of Directors last year, which will take place in fiscal year 2024. This will still leave us with approximately $500 million in cash on our balance sheet, which we plan to prudently deploy in opportunities that will accelerate growth and enhance profitability over the coming years. Our plans for the remaining cash, which should be adequate for the next couple of years, will be in support of our strategic roadmap. This includes organic growth investments to meet the needs of ramping customer demand, cash deployment for structural investments to streamline the operations like rationalization of footprint and system upgrade implementation, as well as tuck-in acquisitions likely in the tens of millions of dollars range that provide durable recurring revenue and enhance our current portfolio of offerings in support of sample-to-data. And we believe it's prudent to have a couple hundred million dollars available to run the business. To be clear, we do remain active on the M&A front with an eye toward financially attractive and strategically compelling acquisitions that would enhance the value proposition and accelerate the growth of our unique sample management portfolio. But as the creator of this unique sample management and measurement capability, we're also the largest player providing this type of complete service and companies we target that will add to our capability are necessarily smaller and, though valuable, will not require cash beyond our current needs. While we're in a challenging macro environment over the short term, we're confident in our long-term potential. We serve high-growth markets with fundamental underpinnings for healthy expansion. 2024 will be a year of top-line growth and increased profitability driven by revenue expansion and significant operational improvements that will drive shareholder value. We're on a path to be the preeminent provider of high-quality samples and high-value data to the life sciences industry. Herman will provide more detail during his prepared remarks, but suffice it to say we expect to grow mid to high single digits in a market that's forecasted to be up low single digits or even declining slightly next year. At the same time, we're laser-focused on profitability enhancements and expect to see improvement from fiscal 23 to 24 on both the gross and operating margin lines. I want to reiterate how encouraged I am by our accomplishments in fiscal 2023 and the momentum we have as we head into 2024. We're incredibly well positioned in the markets we serve, and we're ready to outgrow the market as we convert more customers to our value offerings. I want to thank the entire Global Ascenta team for their contributions and tireless efforts over the past year. Before I turn it over to Herman, I want to make a brief comment about the governance changes we also announced today. As you know, the board continues to add directors to support the company's ongoing transformation strategy. And to that end, we're thrilled to announce the nominations of DDA Hirsch and Martin Madhouse to join our board at the 2024 Annual Meeting of Stockholders. DDA and Martin both possess strong life sciences leadership experience and have track records of creating stockholder value. We're excited to have their fresh perspectives, and I look forward to working closely with them in the new year. At this time, I'm pleased to introduce you to our new CFO, Herman Kudo. Herman joins us from BD, where he most recently served as Senior Vice President of Finance, overseeing segments, regions, FP&A, and operations. Since Herman joined us on the 16th of October, he's hit the ground running and has already begun to make great contributions to the team. We're fortunate to have him on board. And I'll now turn the call over to Herman. Thank you, Steve.