Azenta, Inc.

Greetings and welcome to the Azenta Q1 2024 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 7, 2024. 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 2024. 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, 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 Chief Financial Officer, Herman Cuto. We will open the call with remarks from Steve on highlights of the first 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. I'll focus my remarks on a summary of Q1 2024 results, our outlook for the full year, including updates on some of our key initiatives, as well as our view on the current market environment. Let me begin by saying that we're pleased with our Q1 results, as we delivered everything we'd intended for the quarter in terms of performance and progress on key initiatives for the year. We have momentum that supports the guidance we announced at our November earnings call. In addition, new product and services offerings are gaining market momentum and we're running larger contracts of bundle offerings for larger customers. We're in a post-COVID world now that colors the life sciences industry in more muted tones. This environment allows us to more clearly see the value of our capability in reference to peers in our space. We've embedded ourselves in a critical position in the center of a biological sample-based world that begins at discovery and goes all the way to the delivery of treatments. Our ability to source, manage, and store, and measure and interrogate samples, ultimately providing discovery-unlocking data, is paramount to all that is advancing this industry. We serve this sample world with a unique set of capabilities. We've built a company that's headed towards $700 million in revenue this year by matching our capabilities to customers' needs for more automated sample workflows and world-class multi-omics capabilities. And we further benefit from tailwinds generated by an industry trend to outsource more critical sample management and measurement. We see sustained long-term growth above the market rate that can persist for years to come. In addition, we've identified the potential for another strong growth vector that will utilize our core capabilities to allow us to add some of the rarest and most valuable biosamples into the discovery pipeline. Samples that are sourced by us, managed by us, measured by us, and owned by us, By this, we mean the chance to bring consented samples from Africa, Asia, and South America, which will enrich and diversify the genomic sample population, which today is still dramatically underrepresented in research and discovery. There's still much work to be done to make this a reality, but we're uniquely positioned to deliver on this tremendous opportunity. We're a great company in strong market-leading positions, serving a market in need of all that we do. I'll now turn to some highlights from the quarter. In Q1, we delivered revenue of $154 million, which translates to an organic decline of 15% year-over-year, but up 2% when you exclude the B medical segment, which had a lighter Q1 due to the timing of orders, as expected, and up 5% when you also exclude our consumables and instruments business, which has faced the most notable headwinds in the post-COVID timeframe. Let's look at the business by segment. I'll begin with SMS and multi-omic segments before I turn to B medical. these market segments that were down for most peers in our space we continued to grow we expanded in and around the sample space and once again received some indications that even the areas of our business that have been slow to recover like consumables and instruments are showing signs of continued recovery specifically our sample management solutions business grew one percent year over year on an organic basis and grew nine percent excluding the cni business inside this it's the growth of the sample volumes that continues to be the fuel for our SMS opportunities. Large automated stores revenue was up 37% year-over-year, and sample repository solutions was up a healthy 6% year-over-year, continuing the trends we saw in the September quarter. This pattern of business is fueled by two key drivers. One, the sheer number of samples that are collected for future discovery, and two, the trend toward outsourcing the care and management of these large, precious, and complex sample collections. We're positioned perfectly to provide on-site automated systems as well as off-site collection management. And our workflow solution of best-in-class automated stores and repository services makes us enter the ideal choice for customers, regardless of their sample management strategy. To add even more potential to our SMS opportunity, this week we launched a breakthrough large automated storage system, the BioARC Ultra, which we featured at the Society for Laboratory Automation and Screening 2024 International Conference in Boston. This new system designed to hold up to 10 million samples offers unparalleled storage density. The Ultra features an innovative eco-friendly cooling system that utilizes natural air rather than ozone depleting refrigerants, furthering our commitment towards sustainability as an organization, as well as supporting our customers in their carbon footprint reduction efforts. Not only will this provide a new level of sample management performance to our largest customers, but will also be transformative in the efficiency of our biorepository operations. In sample repository solutions, during the quarter we closed another multi-million dollar, multi-year large sample management agreement to provide sample storage and related services for our research consortium that currently has samples distributed across more than 25 sites. Similar to the large disease specific projects we highlighted in recent quarters, We'll provide consolidated management of this precious collection and centralized laboratory services to members of this research collaborative. This project will start with the transfer of the customer's existing sample collection with the anticipation that this collection is expected to grow rapidly over the next five years. Finally, we're also encouraged that consumables and instruments showed sequential growth for the second quarter in a row. Our channel partners continue to see improvement and end user demand is also showing signs of life with increased inquiries year over year. In a very challenging market for life science services, we're pleased that MultiOMICS delivered organic growth of 2% with yet another record revenue quarter in our next generation sequencing business. This result is particularly noteworthy as it highlights our ability to navigate through a market that's once again being disrupted by a quantum improvement in cost performance. As everyone's aware, to the benefit of all discovery, the cost of sequencing is falling rapidly. We see this as not just good for global health initiatives, but also as a driver for significant demand for our sequencing services. Necessarily, lower sequencing costs allow us to offer lower prices, and the elasticity of demand is driving more volume and lab efficiency. As we manage this balance of volume, cost, and profitability, we believe we're dialing it in just about right as revenue continues to increase while our gross margin is, for now, stable. So although a 2% increase is modest growth, we believe it represents strong outperformance as end markets remain muted. In general, pharma and academic funding remain steady to up modestly, but biotech continues to face funding constraints. From a regional perspective, Europe was up strongly, growing approximately 20%, and the business was broad-based. The expected opening of our new NGS lab in Oxford, UK in late spring is already helping us gain traction in several key accounts. Although our North American multi-omics business remains soft, declining in the low single digits, our China team delivered yet another strong quarter of growth in the low teens. Our team in China is incredibly strong, and they continue to outpace competitors there while they overcome some of the macroeconomic and regulatory headwinds that exist in that market. C-Medical delivered $13 million of revenue, down 70% as expected. The lower level of revenue year over year is primarily due to the timing of orders. As of today, we have $19 million in orders on hand for Q2, and this number contains no revenue from the DRC. We recognize that we have much more product to ship this year, but we maintain our expectations for mid-single digit growth for B Medical for the full year fiscal 2024. But I do want to take this moment to give an update on our activities with the Democratic Republic of Congo and the opportunity we announced on our last earnings call. We're pleased with the vaccine cold chain business that's expected from this project, but even more by the fact that we have an opportunity to play a central role in the collection of millions of samples of whole blood in support of crucial health initiatives that are high priorities for the Minister of Health. We'll continue to keep you updated on this exciting opportunity as it develops. To summarize Q1 results, our sample-based business remains a steady source of growth. Our customer positions across geographies and applications, coupled with improving markets, will only add to our above market momentum. Our investments to lead the industry in energy-efficient, ultra-cold sample storage, as well as our important role coordinating focused health initiatives, gives us tremendous confidence in the sustained growth prospects in a life sciences market in need of these new solutions. Yet, as we benefit from this position, we're also keenly focused on enhancing our profitability through disciplined cost management, plus a series of transformative structural improvements that Herman is leading with a huge amount of energy and enthusiastic support from our team. A fulsome description of these focus areas and what we plan to deliver from these initiatives, as well as our long-term outlook, including our plans for Be Medical, which better aligns with Azenta, will be key features of our presentation at our investor day next month. We very much look forward to the chance to engage with you in more depth on March 14th. And now it's my pleasure to turn the call over to Herman.