Azenta, Inc.

Greetings and welcome to the Azenta second quarter 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 star followed by 11 on your telephone. As a reminder, this conference is being recorded Wednesday, March 8, 2024. I will now turn the conference over to Yvonne Perrin, Vice President, FP&A, and 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 second quarter of fiscal year 2024. 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. 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 Chief Financial Officer, Herman Cuto. We will open the call with remarks from Steve on highlights of the second 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, Yvonne. Good afternoon, everyone, and thank you for joining us today. I'd like to start off by welcoming Yvonne to her new position as our head of investor relations. Yvonne is steeped in the knowledge of all aspects of Azenta by virtue of the fact that she's also been the leader of our global FP&A function for more than a year, and we're fortunate to have her leading IR here at Azenta. And Sarah Silverman, who many of you have gotten to know, has moved to become the CFO of our multi-omic segment. And of course, she's flourishing in that role as well. Before we get into the quarter, I want to address the announcement that we made in addition to our earnings release about my decision to retire as CEO after more than 14 years at Azenta. This decision follows a discussion with the board as part of the company's active succession planning process. To ensure a smooth transition, I will continue to serve as CEO until a successor is appointed. In the meantime, the board has initiated a search to identify my successor and has engaged Heidrick & Struggles, a leading executive search firm, to assist in the process of identifying and evaluating candidates. I'm confident now is the right time for a transition, and the board agrees. During my tenure, I've been fortunate to work with incredible people from whom I've learned much, and together we accomplished some incredible feats, including transforming from semiconductor capital equipment company Brooks Automation into Azenta, a standalone, publicly traded, pure play life sciences company. We've delivered outsized shareholder returns, and yet it seems like we're just getting started. At Azenta, we believe that's the way all companies should feel. I also want to express my gratitude for the strong support of the board of directors that's always been focused on delivering shareholder value and good governance. I'm confident that Azente is now in a position of strength with annual revenue of almost $700 million and in clear pursuit of our Ascend 2026 plan, which will create further value for shareholders in the future. Being part of this incredible company for the last 14 years with such an outstanding team has been a true privilege. Now I'll turn back to results from the quarter. Today I'll focus my remarks on a summary of solid Q2 results, our view on the current market environment, and an update on our outlook for the full year. Before I begin, I want to put today's comments into the perspective of a company in transition. We entered the second half of our fiscal year positive about our prospects for the next years because of all the work we've done over the past years to get into this position, specifically We're confident that the changes we've made to align the business units and sales organizations have fixed the company structure to best align our capabilities with our customers' businesses. And in the process, we successfully reduced annual expenses by more than $25 million, making us more efficient and putting us squarely on a path to accelerated profitability. Under Herman's leadership, we've initiated a program we call Ascend to lift EBITDA to the high teens by 2026 and on a path to exceed 20% thereafter. And we've developed and launched new innovative products and services in each of our segments that reinforce our ability to continue to outgrow the market in any environment by several hundred basis points. With that backdrop, we're pleased to report that Q2 was another strong quarter, and we're encouraged by the momentum we've seen in the first six months of the year. Even in what is still a down market, we delivered organic growth in all three of our business segments, a meaningful accomplishment in this environment. Now I'll turn to highlights from the quarter. In Q2, we delivered revenue of $159 million, which translates to both a reported and organic increase of 7% year-over-year. I'll briefly walk through each of the segments, beginning with sample management solutions. Revenue in the SMS segment grew 3% year-over-year and grew 8%, excluding the CNI line of business. Storage systems revenue was up 16%, our fourth consecutive quarter of double-digit year-over-year growth. Temple Repository Solutions was up 5% year-over-year. SMS is our largest segment and accounts for almost 50% of revenue. We've made strategic investments in highly differentiated products and service offerings, including the development of the BioArk Ultra store and in the move to automate our biorepositories. As we've detailed for you in the past, this market is fueled by two key factors. One, the sheer number of samples that are collected for future discovery, And two, the trend toward outsourcing of samples to our biorepositories for high-quality care and sample management. We see a bright future for all things SMS as our customers increasingly recognize the value of Azenta's sample management capabilities to improve their operations and speed to discovery. While the life sciences services market continues to face headwinds, we're pleased that the multi-omics segment revenue increased 1% year-over-year, meaningfully outpacing a downed market. In the next generation sequencing portion of our multiomics business, we're riding the next wave of technological advancement for research and discovery that enables processing of higher volumes of data at much lower costs. Our team is experienced not only in how to compete in this type of market environment, but also how to be profitable. Our success formula is clear. Invest in the latest technology, recruit top scientific talent, and put capacity in place in advance of what we know will be high demand for this service. We've honed this skill over several of these disruptive NGS technology cycles, and we're at it again. We currently have NovaSeq X Plus machines up and running in multiple sites. As an early adopter, we've already moved almost all of our NGS work to this technology. We're delivering at the leading edge of what our customers need, and we're working hard to deliver the better economics and superior cycle time our customers expect. In Q2, we saw modest organic revenue growth in next-generation sequencing on sample and data volumes that were, again, up significantly quarter over quarter. And while we met this increased volume, we were also able to hold gross margins year over year. In our experience from the last three generational shifts in NGS, we're at a pretty good point in the technology cycle and economics learning curves. In another validation of our strategy to invest ahead of discovery needs, we saw tremendous growth from our new multi-omics vectors, which include high throughput proteomics, single cell and spatial biology, as well as some of our new clinical services. In a trailing 12 months comparison for the period ended March 31, revenue for these new services was up 33% year over year to an annual run rate of approximately $30 million. Our synthesis business continued its strong recovery, delivering 13% organic revenue growth on a year over year basis, up 6% sequentially. We're seeing good acceptance of our newer growth vectors, including antibody production and viral packaging. In some ways, the regional look at services tells a more complex story, but it's also a testament to how we're leveraging our global presence. Our China business continues to perform extremely well, as in Q2, we delivered a fourth consecutive quarter of double-digit growth. We've reported to you consistently strong performance from China in what we know to be an outlier compared to what others are seeing in the market. By contrast, in North America, we continue to see softness across both NGS and Sanger sequencing. That said, we're seeing indications of improvement in that Sanger revenue was flat quarter to quarter after several sequential quarters of decline, and the reports of increased investment in biotech is promising news that the opportunities will once again increase, as small biotech companies have always been a meaningful source of GeneWiz multi-omics revenue. Finally, in Europe, we had another quarter of strong performance, growing 12%, led by NGS. Just two weeks ago, I had the pleasure to meet many of our customers at a well-attended grand opening of our NGS lab in Oxford, UK, where we're off to a strong start in a key market location. All in, we had a very solid quarter from our multi-omics business. Before I move on, I want to touch on an area that's important to us, which relates to the business from synergies we derive from the service offerings that include sample management solutions and multi-omics capabilities. Over the past two years, we've been working to educate customers on the benefits of integrated workflow solutions from our combined portfolio. We're seeing some good results from this endeavor as we currently have more than $40 million in our backlog that we can attribute to synergies across business segments. As we improve the benefits of lower cost and cycle time reduction, we anticipate more and greater opportunities will accrue to us. But already, this is a meaningful proof of the value of synergies from our portfolio, and we intend to build on this momentum. Now we'll turn to Be Medical, which is the smallest part of the company at roughly 15% of sales, but understandably gets a significant amount of attention. Be Medical is fundamentally a very good company. They operate in a supportive Luxembourg environment, have a team of very talented engineers, and they've developed manufacturing operations which are highly efficient and high quality. Their products are essential cold chain equipment for the distribution of life-saving cures, and as such, they're delivered under the approval of the FDA and other sanctioning bodies. They have high market share and incredible technologies. They're profitable and motivated to expand the value of their offerings to couple with Azenta for greater purpose and profit. And as you know, the hard part of the business is the unpredictable nature of the specific time is hard to forecast with any accuracy, as the typical funding sources are large, global, humanitarian, and health organizations, which are not predictable in terms of timing. We've taken some significant actions to better align the B medical business to Azenta. Some of these actions we outlined in our investor day presentation, and we've taken some additional decisions since then. We're now focused on the vaccine cold chain product lines only, and we plan to discontinue medical refrigeration and blood management product lines, which leaves us with a streamlined and focused B medical operation that will deliver at least 20% EBITDA in our outlook. And even with the consolidation of factory space, we still have capacity to manufacture more than $200 million in annual VCC revenue. These actions will not improve the visibility of our timing, but will definitely allow us greater profitability through this focus. I want to give two additional updates on B-Medical. First, we're still not confident in the timing of hard POs that will start the delivery of the $60 million of BCC products into the Democratic Republic of Congo. Second, because we have two quarters of actual and one quarter of guidance totaling approximately $60 million of B-Medical revenue, we're not in a position to hold our expectation for what we thought was a conservative $115 million to $120 million year. Instead, we'll reset expectations for fourth quarter revenue to be approximately $25 to $30 million. Even with this adjustment in B Medical revenue expectations, you'll hear from Herman that we reiterate our commitments for EBITDA and earnings improvement for this fiscal year. Nonetheless, we remain very positive about this business. We're operating with the largest opportunity pipeline in B Medical's history and have much confidence in revenue that will be ours. That said, we've skinnied down to the valuable, defensible essence of market-leading capabilities for vaccine delivery and maintain the potential for upside value from unlocking the true strategic intent to be medical, which is sample acquisition of the previously unreachable diversity of the African population. Toward that end, we're actively involved in three critical initiatives that are underway in Africa. In summary, our sample management business remains a steady and consistent source of growth, offering exceptional products. Our services solutions play a key role in discovery, and as mentioned, we're expanding our service offerings. Both business solutions are in high demand. We'll continue to make investments to lead the industry on both fronts, with a lot of blue sky ahead. As we maneuver through the slower market, this is the natural time to be hyper-focused on improving profitability. Our cost and operational efficiency initiatives are in full swing and already delivering ahead of plan, and we're preparing for the return of a healthier market. Herman will talk to you about the transformation initiatives he's leading to build long-term scale and efficiency for Aventa. As I turn the call over to Herman, I want to thank you for your interest and support of Aventa and for the support I've received from many of you over the years. Herman.

Thank you, Steve. Before I begin to discuss the quarter, I would like to add my thanks to Steve for leading Azenta for so many years and positioning the company where it is today. Steve, you will be a hard act to follow, and I, like many others, am grateful for the leadership and collaboration you've shown me since I joined. And with that, let's begin the review of the quarter. Good afternoon, everyone. As I shared with you in March, we are building the company for scale and growth, and the actions that I'm going to talk to you about today will certainly bring that to light because things are moving at a terrific pace. Let me begin with the $111 million non-cash goodwill impairment charge we recorded in the quarter. This is related to the B medical segment and is due to the reduction of the long-term revenue growth rate, which had included a contribution from the non-vaccine cold chain products that we are exiting. This is part of operationalizing the strategic portfolio shift that we outlined at Investor Day. The singular focus on vaccine cold chain enables a more profitable B medical segment as we move towards its strategic intent of sample acquisition. Before I get into the quarterly results, I want to spend some time discussing Ascend 2026, the transformation program that I introduced at Investor Day in March. I am very excited to announce several key milestones, beginning with our portfolio simplification initiatives. In the second quarter, we exited B Medical products in the U.S. market and announced the wind down of the sample sourcing product offering within our sample management solutions business. Within our site optimization initiative, we have successfully exited seven locations with another two to be completed in the very near term. Included in the nine is the exit from three Boston area sites be medical in the U.S., and sample sourcing. These early wins are giving us more confidence in the trajectory we are on to simplify the company and enable the profitability goals we have set forth. We are equally excited about the advancement of our IT system strategy, where in the quarter we eliminated one ERP and launched an ERP initiative within MultiOMICS to simplify and scale operations. Turning to our results in the quarter, and to supplement my remarks, I refer back to the slide deck available on our website. Turning to slide three for some highlights. Second quarter revenue was $159 million, up 7% year over year on both a reported and organic basis. We saw solid growth in SMS, both in storage and in large automated stores. Performance within B Medical against a soft compare in the prior year quarter helped drive the increase. The consumables and instruments business remained a headwind to growth in the quarter as we continue to see longer purchasing cycles for instruments due to the uncertainty in the timing of capital investments. However, on a positive note, we did have a late surge of orders come in at the end of March on the consumable side that didn't convert to revenue in the quarter. Bookings in the month of March for consumables was the largest we have seen since the pandemic, and CNI bookings in the second quarter were the highest over the last eight quarters. We continue to be confident that we have now cycled through the inventory stocking dynamics in the U.S. and Europe, And our distribution network has returned to pre-COVID inventory levels, which will help stabilize the consumables product lines as we move forward. Excluding CNI, organic revenue growth was a healthy 9%. We delivered non-GAAP EPS of $0.05 and adjusted EBITDA of 5.9% in Q2. A nice acceleration from Q1, where adjusted EBITDA was around 3%, a meaningful 300 basis points expansion. We ended the quarter in a very strong balance sheet position with $975 million in cash, cash equivalents, and marketable securities. Free cash flow at $2 million was positive for the fourth quarter in a row. In Q2, we returned $74 million of capital to our shareholders through the repurchase of 1.2 million shares of Ascenta stock. To date, we have now completed roughly $1.1 billion of the $1.5 billion of planned share repurchases. We continue to be extremely well positioned from a balance sheet perspective, and as I have said in the past, after this investment, we will still have roughly $500 million of cash on hand that can be used for disciplined and long-term value-creating initiatives. Now, let's turn to slide four to take a deeper look at our results in the quarter. Total revenue was $159 million. Non-GAAP gross margin was 44.3%, up 310 basis points year over year. This was driven by strong operating efficiencies within our factories and labs, plus non-recurring adjustments in the prior year. Non-GAAP operating margin was negative 3.6%, up 530 basis points year over year. Adjusted EBITDA margin was 5.9%, up 750 basis points year over year, driven by leverage from the combination of improved expense management, the impact of the cost reduction initiatives, and a soft prior year compare. Again, non-GAAP EPS was $0.05 per share in the quarter. With that, let's turn to slide five for a review of our segment results, starting with sample management solutions, or SMS. Total SMS segment revenue was $74 million for the quarter, up 4% year-over-year on a reported basis and 3% on an organic basis, driven by growth in large automated stores and in sample repository solutions. SMS second quarter gross margin was 46.3%, up 620 basis points year-over-year, mostly driven by operational efficiencies and transformation activities, plus the impact of certain non-recurring adjustments in the prior year. Turning next to the multi-omics segment. Multi-omics delivered revenue of 62 million in the second quarter, flat year-over-year, Organic revenue for the quarter was up 1%, with gene synthesis growing 13% year-over-year, which is the largest revenue quarter since Q3 of 22, spurred by innovations. Next-generation sequencing was up slightly year-over-year on an organic basis. Sanger sequencing was down versus last year and continues to face headwinds from the ongoing softness in the North American market. Our multiomics business in China delivered another strong quarter with organic growth of 15% and continues to outpace competitors. The multiomics business gross margin was 46.2%, up 90 basis points year over year, despite the pricing headwinds in next-generation sequencing. This expansion was driven by operational efficiencies in labor productivity, laboratory cost savings, and volume leverage on our fixed overhead. And finally, the B medical segment. Revenue was $23 million in the quarter, up 51% reported and up 49% on an organic basis. The higher than initially expected level of revenue we set forth during the Q1 earnings call was primarily due to additional vaccine cold chain orders received during the quarter. Gross margin of 32.4% was up 370 basis points, primarily driven by sales mix. Next, let's turn to slide six for a review of the balance sheet. As I mentioned earlier, we ended the quarter with $975 million in cash, cash equivalents, and marketable securities. We had no debt outstanding. During the quarter, we generated $8 million of positive cash flow from operations that you could see on the next slide. Capital expenditures for the quarter were about $7 million, mainly from investments in multi-omics equipment, as well as our Oxford UK site and the Boston biorepository facility build-outs. Again, free cash flow in the quarter was $2 million. Turning to guidance on slide eight. As you saw in our press release, we continue to feel really good about our multi-omics and SMS businesses and are reiterating the full year organic revenue guide for both segments. For the B medical segment, however, we are adjusting down the full year revenue outlook. While the B medical pipeline continues to be robust and in fact is growing, the conversion to revenue remains unpredictable. Our experience with Be Medical is that once something comes into the pipeline, it has a high probability of converting to revenue. The timing is and continues to be the great unknown. The Ascend 2026 transformation initiatives that we are deploying within Be Medical will enable us to deliver approximately 20% of adjusted EBITDA. With five months left to go in the fiscal year, we feel it is appropriate to adjust B medical revenue to a range of $80 million to $90 million for the full year. The adjustment in B medical brings the full year company organic revenue guide to a range of negative 1% to positive 1% or $659 million to $671 million. Even with this change, we stand by the adjusted EBITDA guide of approximately 300 basis points of margin expansion, and we will be raising the non-GAAP EPS guide to a range of $0.27 to $0.37 for fiscal year 2024. The EPS raise is equally distributed between operational improvements and higher interest income. In terms of the quarterly guidance, please refer to page nine of the slide deck for color and key considerations. In Q3, we expect revenue growth to be roughly flat year over year. Combined multi-omics and sample management solutions revenue is expected to grow low single digits. We are holding 23 million of B medical orders at this time, which would make the B medical segment down 14% year over year. We expect gross margin to be approaching the mid 40%. R&D expense as a percentage of revenue will be around 5%. SG&A is expected to be in the low 40s and better than Q2 as a percentage of revenue. Overall, we expect the business to deliver an adjusted EBITDA margin that approaches mid-single digits to high single digits and non-GAAP EPS to be a couple pennies better than Q2. In closing, we are pleased with our performance in Q2. We are committed to delivering on our purpose, serving our customers, and enabling life sciences breakthroughs faster. This concludes our prepared remarks. I will now turn the call over to the operator for questions.

Thank you.

And as a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for a name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.

One moment for our first question. And our first question will come from the line of David Saxon from Needham.

Your line is open.

Great. Hi, Steve and Herman. Thanks for taking my questions. And Steve, congrats on all you've accomplished at Brooks and Azenta, and I hope you enjoy retirement.

Thank you.

Yeah, of course. In terms of questions, maybe just two for me. maybe i'll start probably for herman just on the the b medical guidance um you know you're bringing that down i just want to understand how much of that is driven by dr the drc contract um you know maybe getting pushed out to fiscal 25 and kind of how much of that is driven by just the the rest of the uh pipeline um and timing you know in that part of the pipeline

David, thank you for the question. It's a combination of things. The DRC is certainly a part of the takedown. If you recall back to the Q4 call in November, I explained that DRC was already in the pipeline, but not at the magnitude of $60 million. That size, that $60 million certainly bolstered the pipeline up. But the fact of the matter is we removed DRC from our current guide. We still feel good about the order, but unsure about the timing. In fact, we continue to work closely with the DRC as part of our sample acquisition strategy. So talks are progressing, but the timing of the $60 million is still an open item. The exit from the U.S. non-VCC market is also a factor, and I would say the combination of DRC and the exit of the U.S. market in non-VCC are key contributors to the takedown.

Okay. Uh, that's helpful. And then maybe this is for Steve, I think. Um, so for SMS, you know, one of the questions I get from investors is about the large stores growth and you know, how much of that is being driven by just working down the backlog. So can you talk about the backlog and the order pipeline there? And what you're seeing that gives you confidence that the backlog can, you know, continue to grow or at least be replenished. And I know it's early in the BioArk Ultra launch, but how significant could that be to the backlog and the durability of large stores revenue growth? Thanks so much.

Yeah, you bet. Thanks, David. Yeah, it's really an interesting period for us. And every quarter we're we're stopped being surprised by the magnitude of the orders that are coming. So the backlog continues to build even as the revenue grows. So we think we're in a good position from that standpoint. Actually, the large stores revenue year over year grew 50% in the quarter. So it was particularly strong and the backlog continues to grow. In terms of the BioWork Ultra, you know, we're We went through a factory acceptance test a couple weeks ago, as we mentioned. I was fortunate to be there when the customer was there, and that was a pretty nice event. That's a massive store and a capability that they'll receive here this year. And our conversation pipeline is really strong. So there's a high level of interest there for all of the large automated stores. So to summarize for you, I think the activity level is as high as we can remember. As the revenue increases, so too do the bookings. The backlog continues to be really solid. So when we talked about a solid backlog 12 months ago, we have more backlog now, and the revenue continues to grow. So we never know how long that's going to be, but we also talked about additional vectors, not just the particular samples for biological studies, for population studies, for rare disease. but rather we're seeing them now, these additional vectors for manufactured product, which also continues to be strong. So good environment for large stores, and we continue to see a healthy backlog. So when we look at what the next 12 months look like, we feel pretty confident in our ability to forecast that business.

Great. Thanks so much, and congrats again, Steve. Thank you. Thanks, David.

Thank you. One moment for our next question. Our next question comes from Jacob Johnson from Stevens.

Your line is open. Hey, Jacob.

Hi. It's actually Hannah on for Jacob. Thanks for taking the question. First, you all have done a really good job guiding quarterly for Be Medical. Is there anything you can do to better forecast Be Medical revenue over longer periods of time?

This is Steve. Let me try it a couple ways.

We look at a number of things, including the sources of funding, which actually this is Gavi and Gates and the various funding organizations who do put out their projections for how much they're going to invest in some of these, and that represents about half of the business. So we get a pretty good idea with a 12-month notice as to what we think is going. Of course, we have to win our share of that business, but we're – We have high market share, so we're pretty steady there. And I would say that it's the other half of the revenue that's a little bit tougher to call. Again, when Herman mentioned that when we know we've won business, we've generally won it, the timing in particular is pretty hard. So when we guide the business, I think at our investor day, we guided the business after we took out the MedRef and blood management systems, that fiscal 23 was around $100 million. We guided our multi-year plan toward low single digits, we have a pretty good sense that that's going to be it. So when we look at the business right now, just the vaccine cold chain portion to be around $100 million every 12 months period, you know, plus a little bit of growth built in feels like the right way to do it. I won't tell you that we'll be able to nail it from that standpoint. But generally, if the funding agencies don't fund, then they've missed an opportunity. They've missed what the people who contribute that money have asked them to do. So that part gives us a pretty good feeling that it'll get spent. But right now, we're looking at that business in the 100, 100 plus a little bit range. And we feel pretty good about what it looks like over a 12-month period.

Great. Thank you. And then also, Steve, congrats on all the accomplishments on your upcoming retirement. What are the key criteria the board is looking for in a new CEO?

Gosh, Ed, I don't know. But here's my thought on that. This is a really excellent company. And if you ask any one of us, everybody will tell you the same. I think they're going to – I know they're going to look for somebody who's going to keep the strategy alive and just continue to take advantage of what we see as tremendous market opportunities. And I'm really eager to see who can step forward. My background wasn't here. And there are a lot of people who are really equipped to just do excellent things with the company to work with this team. I think the board is in the process of getting that specification defined, and I'll be really excited to see who they bring and be very supportive of that transition.

Great. Thanks. I'll leave it there.

Thanks, Hannah. Thank you. One moment for our next question.

Our next question will come from Vijay Kumar from Evercore ISI. Your line is open.

Hey, Vijay. Hey, guys. Thanks for taking my questions to you. And you'll be missed. Wishing you all the best. It's been quite a journey.

Vijay, we had conversations a long time ago. So, yeah, it's been a long time at it.

Yes, the transformation is complete. So, wishing you all the best. I had a few questions here. You know, on guidance here, sample management, I think, in the first half, we've done low signals. Is the third quarter guide assuming low signals for sample management? And, you know, I think that would imply, you know, double digits in Q4. Am I thinking about it the right way, and what drives the 3Q to 4Q step up? Yeah, so, Vijay,

SMS in Q3. I do have a firm order in hand right now that I pushed into Q4. It's worth a couple of million dollars. We have a minor supply chain delay that we expect to have resolved in May or early June. But I don't want to say I could do something and then end up not being able to deliver it. So I pulled that order early. or push that order into Q4. So there is a step up. That's part of the reason you see it.

I see. And for CQ, Herman, am I thinking about the right way sample management of low singles?

Yeah, you're certainly thinking about it the right way, Vijay. Yep.

Understood. And one on the NGS side here, Steve, I want to make sure I understood this correctly. Total NGS, I think you said, was up slightly. With North America, it looks like flat to down. Europe up significantly. What's driving this disparity from a regional perspective? And is that the transition to the NoSeqX? I think at their endless day, you had a slide on the amount of data being generated on the NoSeqX. So is now, at this point in time, the transition complete and Should we expect NGS to grow in the back half?

Vijay, our history would say that, but let me do it in a few pieces. We've shifted almost all of the NGS to the NovoSeq X+, and we're running it three sites. We have the majority of those tools in North America. This is customer business level, so the strength in... The strength in Europe is, again, for a little bit of a smaller base. In North America, it's the funding levels that are consistent with the rest of the business, consistent with also what we've seen in Sanger. But indeed, when we look at history, we've taken a two or maybe three-quarter dip sometimes as we get the volumes up, as we get calibrated on how to run the new tools. But already, we're in a little bit better spot just on the second quarter of this transition, you know, holding and improving actually gross margin and holding the revenue flat during the transition. So it feels pretty good. So we like where we are in the cycle. And we'll just keep reporting every quarter to let you know how we're doing. But if you compared where we were in the last three transition cycles, we're a little bit ahead of where we were in each of those transition cycles.

And that's helpful, Steve. And maybe one last one, Herman. EPS was raised by 8 cents. It looks like all of it came from below the line, right, between tax and lower interest income. You lowered your revenues. Is the implication here your margins are stepping up? I'm just trying to understand if the margin expansion didn't change and your revenues came down, you know, what's driving this EPS increase?

Yeah, so... Vijay, what I would say is, let me begin with sales. If you look at, and you could see this math, and you're already doing it, we have a step up from Q3 to Q4. That'll be in the neighborhood of about $20 million. Be medical is about $4 million of that step up, and based on prior quarters performance, we could see some of that come in Q3. In SMS, as I just described to you, There's a couple million dollar order that we have in hand that could be delivered in Q3, if we get the parts, that I push to Q4. In multiomics, if you remember, we started to see the pricing pressure in Q4 of last year. So we expect to cycle through those headwinds as we exit Q3 and head into Q4. And beyond that, we have businesses, as you were just talking to Steve about, stores and storage that are growing nicely for us, and consumables, as we talked about in the prepared remarks, are on a very positive trajectory. In the middle of the P&L, we talked about nine site exits. There are other plans underway right now that reduce the footprint of sites even further. And beyond that, we're making really good progress on our organization simplification initiatives. So the way I would think about it, Vijay, is the combination of the GP drop on the sales step-up and the Ascend 2026 programs. It gives us the line of sight to the EBITDA and EPS that we're guiding. I hope that's helpful. Thanks, guys.

No, that's helpful. Thanks, guys.

Thank you. One moment for our next question.

And our next question will come from one of Yuanzi from B. Reilly. You are now open.

Thank you for taking our questions. Steve, it has been great working with you, and thank you for your contribution to introduce this automation to biologic sample management. Thanks, Yuan. Maybe a couple questions from us. Just for one clarification, for the lowered guidance, Herman, was it mainly coming from the lowered revenue guidance from B-Medical, or were there some other factors in it as well?

No, it was B-Medical. We reiterated the full year guide for both multi-omics and SMS.

Got it. And then maybe we take a step back here. So with lowered revenue for 2024, and then some exiting of the business here, what does this mean to the 2025 and 2026 guidance on both the top line and bottom line?

No, I don't think it changes anything, Yuan. When we think about SMS and multiomics, we continue to feel really good about those two businesses and the trajectory that they're on. As we talked about, large stores grew 50% this quarter, and new vectors in multiomics are starting to contribute nicely to the top line. And in multiomics, we're growing when everybody else is down. So we feel really strongly about those two businesses. In B-Medical, as Steve reminded everybody, When we were at investor day when we remove the non vaccine cold chain product lines from the starting point of the medical fiscal year 23 will be about 100 million. And we said that business will grow low single digits and we feel good about that, especially when we look at the forecasted funding projections that actually enable vaccine culture timing, of course, is always a question.

Got it. Yeah, that's all from us. Thank you for the helpful color there.

Thanks, Yuan. Thanks, Yuan.

Thank you.

One moment for our next question. And our next question will come from the line of Matt Stanton from Jefferies.

Your line is open.

Thanks. Appreciate it. Hey, Matt. How are you? Good. Maybe one on China. Mid-teens growth in multiomics was nice to see. Clearly, it's been a challenging market for the broader tool space. Could you unpack a bit more what you're seeing in China, what's kind of underpinning that demand, and then what you're penciling in in China for the year? Thanks.

Hi, Matt. This is Steve. When we look at China, this has been a really outperformance for the past four quarters. We've been in double digits. growth in China when the market's been down significantly each of the last four quarters. I'll give you a couple things. One, being in China and serving Chinese customers is a big deal. We're right in the middle of Suzhou, and there are hundreds, if not a thousand, life sciences companies close by. We're staffed with really outstanding scientists and really aggressive sales teams who serve the customers particularly well. When the GeneWiz team was founded all the way until we acquired them and beyond. Their driving force is solid science, superior service, and I think they really apply that in China. And so as other competitors have struggled, we've picked up that business. And as we build capacity, we have a new facility there. We have an enormous amount of capacity built into China. It allows us to also serve larger customers because we have the capacity to take on contracts that we couldn't So I think it's just aggressive sales and huge capability that allows us to be successful in China. Similarly, it's where we perform our synthetic biology. So the synthesis business is from China, and as we've built capacity and capability, they serve most of our global capacity, and I think just the better they get, that's a market that's booming for all of us. There's a lot of business to be had. We continue to win it by serving the customers with high quality and fast turn, even though we do it in China. And I think that's proven to be particularly successful. So better business in China for China and from China for the rest of the world. Both businesses are doing particularly well.

Thanks. That's helpful. And maybe one on instruments, which remain a bit challenged. Any signs of you're seeing that we're at or near the bottom, whether it be orders, just kind of a change in conversations with customers, I guess, any more color visibility on when things could improve and maybe return to growth, understanding, you know, there's start to go up against some easier comps there too. Thanks.

Yeah. That's a, you said instruments, you make the consumables and instruments part of the business.

Yeah, exactly.

Okay. Because there, yeah, if, Instruments for some people is our tools business also. I think our stores and storage businesses are particularly strong. On the consumables and instruments, Herman mentioned that we saw a pretty strong uplift in orders toward the end of the quarter, and they came in time that we couldn't necessarily get them all solved. I will tell you that we could feel the momentum starting to pick up, and if anything, I think we'd anticipated the orders coming a little bit earlier in the quarter. But in general, we're positive about that we're out of the depleted backlog situation. People are starting to take supply now. So, you know, we don't have the proof points in front of us right now, but we've got a good order pattern here in the near term, and it feels like that we're up off the mat here in the consumables and instruments business. Herman, anything to add?

Yeah, I mean, maybe, Matt, just a little bit of color. Revenue and bookings for instruments. in the quarter was soft, and we saw capital spending continue to be constrained. However, the pipeline continues to look really strong, indicating that demand is healthy. It's just tied up in spending delays. And on the consumable side, it was very strong. We saw significant double-digit sequential and year-over-year increases in bookings. And the bookings number in Q2 was the highest that we've seen since the pandemic. So it's, you know, the instruments are caught up in capital funding. That hasn't changed. We do hear that biotech funding, as an example, is starting to loosen up. We expect that there will be a lag there between that funding starting to happen and orders coming through. So we're just... We're just riding the same wave as everybody else on that instrument side.

Thanks. Appreciate the caller. Thank you.

And I'm not showing any further questions in the queue. I'd like to turn the call back over to Herman for any closing remarks.

Well, thanks, everybody. I appreciate you joining the call today. I want to say a big thank you to Steve for leading this wonderful company for 14 years. We look forward to working with you over the next several months until your successor is identified. Big shoes to fill, as I said in the prepared remarks. But thank you to the 3,500-plus employee associates around the world. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.