Azenta, Inc.

Greetings and welcome to the Adzanta Q1 2025 Financial Results Conference Call. 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 Store followed by the number 1 on your telephone. As a reminder, this conference is being recorded Wednesday, February 5, 2025. I will now turn the conference over to Yvonne Perron. Vice President at P&A and Investor Relations. You may begin.

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 2025. Our first quarter earnings press release was issued before the open 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 today during the prepared remarks. Effective this quarter, the first fiscal quarter of 2025, the results of the medical systems are treated as discontinued operations. 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 other 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, John Murata, and our Chief Financial Officer, Lawrence Lin. We will open the call with remarks from John, and then Lawrence will provide a detailed look into our financial results and our outlook for fiscal year 2025. We will then take your questions at the end of the prepared remarks. And with that, I would like to turn the call over to our CEO, John Murata.

Thank you, Yvonne. Good morning, everyone, and thank you for joining us today. We're happy to be with you in the morning rather than later in the day. And going forward, we will follow the same timing with the earnings release and the call before the market opens. This gives us more time for same-day interactions with our analysts, investors, and other interested stakeholders. Before getting into the numbers, I want to give you an update of how I've spent my time the first few months at Azenta. Since September, I've spent most of my time getting to know our business in the best way I know how, on the ground with our customers and our associates at our manufacturing sites and our lab facilities around the globe, including the UK, China, and the US. These meetings with our teams have been invaluable. They have given me a chance to see firsthand the incredible work being done and hear from those who drive our success every day. These visits have deepened my understanding of our operations, our opportunities, and most importantly, our people. I'm even more excited about what lies ahead. Alongside our highly talented teams, we've been making progress towards our accelerated goal of delivering profitable growth and long-term shareholder value. Our work is well underway to further enhance our competitively advantaged portfolio, differentiated products and services, and strong market positioning. The board, aided by the capabilities of the newly created Value Creation Committee, have been working alongside me and my team to focus on and oversee our strategic initiatives, portfolio optimization, operational excellence, and value-enhancing capital allocation. Our sample management solutions business is unique. I've had the opportunity to observe firsthand the highly differentiated products and services we deliver to our customers. To that end, we are excited that the UK Bio Center selected Azenta to expand its sample storage capabilities with the BioArch Ultra. The BioArch Ultra will deliver significant operational efficiency and reduce footprint through high density automated storage. The 16 million sample storage system includes our sample intelligence software solution with digitized library and warehouse workflows and the picking capability of up to 9 million picks per year. This is a clear testament to our market leadership position and reflects the trust and confidence that customers place in our capabilities and track record of delivering exceptional value. In our multi-omics GeneWiz business, I've clearly seen how much our customers consistently prioritize our high-quality offerings and trust the research expertise and consultative approach that our scientists provide to genomics analysis and scientific research. Across Tezenta, we have a talented team that is focused on enabling breakthroughs faster for our customers. Now I'll shift my focus to the first quarter 2025 results, our full year outlook, and then dive into key updates on the focus areas that I shared with you during the last earnings call. As a reminder, during the fourth quarter of 2024 earnings call, we announced our decision to sell B Medical Systems. Effective this quarter, B Medical is reported in discontinued operations, and I will not be discussing the business performance in my remarks. I'm pleased to share that fiscal 2025 was off to a good start with positive momentum on demand for our unique and differentiated offerings. On a year-over-year basis, organic revenue grew 4% and adjusted EBITDA margin expanded by 400 basis points. In multiomics, next-gen sequencing, gene synthesis, and clinical services were strong. And in sample management solutions, we saw growth in our consumables and instruments, clinical biostores, cryogenics, as well as sample storage. We remain cautiously optimistic about the gradual market recovery. We are confident in our outlook and are reiterating our full year 2025 guidance of organic revenue growth between 3% to 5% and adjusted EBITDA margin expansion of 300 basis points. Lawrence will go into more detail in our quarterly financial performance. At the last earnings call, I share with you that we're focusing on several key areas. The first is portfolio optimization. The second is operational excellence. And the third is value-enhancing capital allocation. Each quarter, I will update you on the progress we are making in each area. In portfolio optimization, the B Medical sale process is underway, which will help simplify our portfolio and will allow us to focus on driving revenue growth and profitability in our remaining businesses. We've engaged external advisors, but are still in the initial stages. We will update shareholders as this process develops, but won't be commenting further at this time. More broadly, our priority will always be to strategically review the portfolio on an ongoing basis and to ensure we are maximizing our full potential and creating value. We have made some early and positive strides in operational excellence. The efforts we are making will build the foundation for long-term value creation, reducing complexity and simplifying what we do and how we work each day. I am confident that by focusing on operational excellence and transformation, we will deliver best-in-class growth. Specifically, we started rolling out our business system and operating model. We brought together our top leaders for a two-day training on the business system and the implementation plan. The level of engagement and enthusiasm for the teams to learn a new way of doing business was encouraging. They understand the need for change. They demonstrated interest and curiosity in lean tools. We are equipping our leaders with the skills and the knowledge through participation in Kaizen events to become experts in the field, empowering them not to only excel individually, but also to lead and mentor others and amplify their impact deep into the organization. We are working to create an environment where continuous improvement and simplification is the way we work. The change in mindset will be modeled at the top and methodically cascaded throughout the organization. It will be challenging and sometimes bumpy, but we have a strong culture with winning instincts. The business system model will help drive our performance and further unify our culture. I'm excited about the road ahead. To measure our performance, we have carefully selected our key performance indicator, which we call core value drivers, or CBDs. These align our daily management and operating decisions with our strategy. The CVDs are broadly focused on revenue growth, profitability, customer-facing metrics for quality and on-time delivery, employee metrics on internal advancement and voluntary turnover, as well as working capital and cash management. We're starting to better utilize our information systems to provide more timely visibility and insights across the organization. Recently, our technology team quickly developed and rolled out a weekly automated sales report, which provides a visual dashboard to help focus deeply on running the business to see where we are off track and red and where we are on track and green. This new tool will allow us to prioritize and focus on addressing issues, identify countermeasures where necessary, and save valuable time and resources, and enable better, more consistent performance. This example illustrates the low-hanging fruit available to us. We have many opportunities like this that are highly achievable and can have rapid and meaningful impact on our performance. As an organization, we will be programmatic in how we spend our time. We are prioritizing customer on-time delivery and products and services quality, which will lead to gross margin improvements, indirect savings, inventory reduction, and importantly, improved customer experience and satisfaction. This will have immediate positive impacts on our profitability and how our customers see us, and organic growth acceleration will follow with a lag. In line with our priorities, we have scheduled three Kaizans for the fiscal second quarter. Two are in sample repository solutions, one focused on sample management workflow automation that will create efficiency and scalability, and the other on simplification of order-to-cash process to shorten cycle time and improve process quality. The third is in multiomics for improved payment capabilities to shorten the cycle from study inquiry to scientific results. These Kaizans will identify areas that will identify the need for more Kaizans starting the flywheel of continuous improvement. In January, we executed our corporate restructuring plan to right-size our G&A cost structure and reposition our resources. Simplification of corporate and operating company functions is critical to provide clarity and accountability while empowering our employees who are closest to the customer to make the right commercial decisions. We have restructured headcount and pushed R&D, quality, sales operations, finance, human resources, and other functions into the two operating companies. Each operating company will undergo an organizational transformation in the coming weeks to ensure an optimal go-to-market and commercial structure. We are freeing up capital that will be redirected to the highest impact growth investments in sales, marketing, and R&D. There is a sense of excitement and optimism in the organization towards the changes and increased clarity around accountability and decision-making. To help implement standard procurement processes, we are in the process of standing up a new global procurement organization. This group will drive direct material and indirect cost savings, optimize inventory levels, streamline our supply chain, and optimize our preferred supplier list. More to come on this in Q2. Finally, on the capital allocation, the value creation committee of the board was created in November. I'm working closely with the committee to establish the monthly framework where we will review progress on our financial performance, working capital initiatives, margin improvement, as well as evaluate potential investments. We will prioritize investment opportunities across the four levers, which are gross margin productivity, organic growth offerings, inorganic growth through strategic tuck-in and M&A, and repurchasing our stock. We will make our capital allocation decisions through a standard and robust returns-based process. As I mentioned before, we will compete for resources internally to unlock long-term shareholder value. I'm excited about Azenta's potential and confident in our ability to drive long-term sustainable value to our customers, our employees, and our shareholders. I will keep you updated on our progress.