Azenta Reports Results of Second Quarter of Fiscal 2023 and Announces Business Realignment

BURLINGTON, Mass., May 9, 2023 /PRNewswire/ -- Azenta, Inc. (Nasdaq: AZTA) today reported financial results for the second quarter ended March 31, 2023.

Management Comments

"Second quarter results reflect a combination of solid progress on the Services side of the business offset by timing-related issues impacting performance in Products, most notably in B Medical. We are particularly encouraged by the results of the Genomics Services business, which included a sequential, broad based recovery in gene synthesis," stated Steve Schwartz, President and CEO. "B Medical continues to navigate variable timing in the final receipt of orders, however, we remain confident in the growth prospects of this business based on the notable projects on track to be completed."

"Today we also announced a business realignment, which we believe will best position the Company to meet the needs of our customers, and in turn, accelerate growth of the business. In conjunction with the realignment, we are in the process of streamlining our manufacturing operations around key centers of excellence. We expect to realize $15 million in annual cost reduction in addition to the previously announced cost saving initiative."

"We are keenly focused on driving profitable growth and remain committed to delivering shareholder value through our operations as well as through our capital deployment strategy. Since late November 2022 to date, we have repurchased roughly 15% of our outstanding shares and by the end of calendar year 2023 we expect to have applied a total of $1 billion to share repurchases."

Second Quarter Fiscal 2023 Results

In addition to reported and organic year-over-year percent changes, the Company has included the year-over-year percent changes of organic revenue ex-COVID which excludes the estimated revenue contribution from products delivered and services rendered to support COVID testing and research, and estimated constraints on the business due to disruptions in customer demand or the Company's ability to deliver in the COVID environment.

• Revenue was $148 million, up 2% year over year and down 17% sequentially. Organic revenue declined 8%, which excludes a 3 percentage point headwind from foreign exchange and a 13 percentage point tailwind from acquisitions.
• Organic revenue declined 2% excluding COVID impacts. The estimated COVID-related revenue was $3 million in the second quarter, including $2 million from B Medical, compared to $10 million in the prior year period, primarily reflecting the decline in sales of consumables for COVID testing.
• Life Sciences Products revenue increased 10% year over year primarily due to the addition of B Medical. Acquisitions contributed $19 million to revenue in the quarter. Organic revenue declined 21% and was down 2% excluding COVID impacts.
• The Products business, excluding B Medical, was primarily impacted by lower sales of consumables for COVID testing and continued destocking trends. Storage systems revenue grew 6% year over year in which, despite strong backlog, some planned installations were delayed due to customer facility readiness.  
• B Medical reported revenue of $15 million in the quarter, lower than initially expected due to order delays. 
• Life Sciences Services revenue declined 3% year over year, with organic revenue flat versus second quarter 2022 and down 2% excluding COVID impacts.
• Sample repository solutions ("SRS") revenue increased 1% year over year as reported and increased 5% on an organic basis, excluding COVID impacts, led by double-digit growth in core storage.
• Genomics revenue was down 4% year over year on a reported and organic ex-COVID basis, primarily reflecting the previously reported decline in the synthesis business over recent quarters. Synthesis was 12% lower year over year but provided a quarter-to-quarter expansion of 6% with strong indications of recovery. 

Summary of GAAP Earnings Results

• Operating loss was $13 million. Gross margin was 35.9%, down 12.8 points year over year. Increased amortization and purchase accounting related to the B Medical acquisition drove approximately 4 points of the decline and the balance reflects impacts from weaker revenue mix and inflationary costs. Operating expense was $66 million, lower by $9 million year over year.  The decrease was driven by a $17 million reduction in the fair value of the contingent consideration related to B Medical, partially offset by additional operating structure of businesses acquired during the past year.
• Other income included $10 million of net interest income versus $2 million in the prior year period.
• Diluted EPS from continuing operations was ($0.03) compared to ($0.02) in the second quarter of fiscal 2022. Diluted EPS from discontinued operations was ($0.04) primarily due to the accrual of a liability related to a prior disposition. Total diluted EPS was ($0.07), compared to $28.28 one year ago.

Summary of Non-GAAP Earnings Results

• Operating loss was $13 million. Operating margin declined 15.6 points year over year. Gross margin was 41.1%, down 8.5 points year over year, driven by weaker revenue mix and inflationary costs. Operating expense in the quarter was $74 million, up $12 million year over year driven primarily by the added structure of acquired businesses.
• Adjusted EBITDA, which excludes stock-based compensation, was ($2.4) million, and Adjusted EBITDA margin was (1.6%), down 14.9 points year over year.
• The Company recorded $1.5 million of restructuring charges related to the previously announced cost reduction actions. Net of investments, these actions are expected to provide a structural benefit to operating margin of approximately 2 points, equally split between gross margin and operating expense, in the second half of fiscal 2023.
• Diluted EPS was ($0.06), compared to $0.12 one year ago.

Cash and Liquidity as of March 31, 2023

• The Company ended the quarter with a total balance of cash, cash equivalents, restricted cash and marketable securities of $1.5 billion.
• On February 2, 2023, the Company completed the acquisition of Ziath, Ltd., a leading provider of 2D barcode readers for life sciences applications for a cash purchase price of approximately $16 million, net of cash acquired.

Share Repurchase Program Update

• On April 3, 2023 the Company completed its previously announced $500 million accelerated share repurchase ("ASR") program and on April 5, 2023 received final settlement of approximately 4 million shares for a total of approximately 10 million shares repurchased under the program.

• Following completion of the ASR, the Company commenced open market share repurchases under a 10b5-1 program and is committed to repurchase another $500 million, bringing the total repurchase expected by the end of calendar year 2023 to $1 billion. This program is under its previously announced $1.5 billion share repurchase authorization.

Business Realignment Plan

• The Company announced a realignment of the business to enhance its commercial strategy for accelerating growth and to enable additional profitability initiatives. The Company is forming three operational groups aligned with industry end-users and purchase decision-makers: Multi-Omics, Sample Management Solutions, and B Medical Systems.
• All Multi-Omics resources will operate under a single structure that aligns scientists, marketing resources, and decision-making around the customer, with a full embodiment of the GENEWIZ heritage of "solid science, superior service."
• SRS, Ultracold Systems and Consumables and Instruments resources will operate as a single business unit offering end-to-end sample management services and products.
• B Medical will continue under its current management structure. 
  
  
• The commercial sales organization will be unified but with dedicated leadership aligned with each of the business units. The sales structure includes strategic account management which will continue the cross-offering sales and support which has resulted in significant global enterprise relationships.
• The new organizational structure is set to be effective October 1, 2023, as the 2024 fiscal year begins. 
• In conjunction with the realignment, plans are also ongoing to integrate and streamline operations leveraging centers of excellence. In total, the Company expects to realize $15 million in annual cost savings from these actions by the end of the 2023 calendar year.  

Guidance for Third Quarter Fiscal 2023

The Company announced revenue and earnings guidance for the third quarter fiscal 2023.  Total revenue is expected to be in the range of $150 to $168 million. Life Sciences Services revenue is expected to be in the range of $87 to $97 million. Life Sciences Products revenue excluding B Medical is expected to be in the range of $42 to $50 million. B Medical revenue is expected to be approximately $21 million.

Non-GAAP diluted earnings per share is expected to be in the range of ($0.07) to $0.03. GAAP diluted earnings per share from continuing operations is expected to be in the range of ($0.29) to ($0.19).

Conference Call and Webcast

Azenta management will webcast its second quarter fiscal 2023 earnings conference call today at 4:30 p.m. Eastern Time. During the call, Company management will respond to questions concerning, but not limited to, the Company's financial performance, business conditions and industry outlook. Management's responses could contain information that has not been previously disclosed.

The call will be broadcast live over the Internet and, together with presentation materials referenced on the call, will be hosted at the Investor Relations section of Azenta's website at https://investors.azenta.com/events and will be archived online on this website for convenient on-demand replay. In addition, you may call 800- 926-9761 (US & Canada only) or +1-212-231-2919 for international callers to listen to the live webcast.

Regulation G – Use of Non-GAAP financial Measures

The Company supplements its GAAP financial measures with certain non-GAAP financial measures to provide investors a better perspective on the results of business operations, which the Company believes is more comparable to the similar analyses provided by its peers. These measures are not presented in accordance with, nor are they a substitute for, U.S. generally accepted accounting principles, or GAAP. These measures should always be considered in conjunction with appropriate GAAP measures. A reconciliation of non-GAAP measures to the most nearly comparable GAAP measures is included at the end of this release following the consolidated balance sheets, statements of operations and statements of cash flows.

"Safe Harbor Statement" under Section 21E of the Securities Exchange Act of 1934

Some statements in this release are forward-looking statements made under Section 21E of the Securities Exchange Act of 1934. These statements are neither promises nor guarantees but involve risks and uncertainties, both known and unknown, that could cause Azenta's financial and business results to differ materially from our expectations. They are based on the facts known to management at the time they are made. Other forward-looking statements include but are not limited to statements about our revenue and earnings expectations, our ability to realize margin improvement from cost reductions, the benefits we expect to realize from the planned realignment of our business, our ability to integrate acquired companies, our ability to improve or retain our market position, and our ability to deliver financial success in the future and otherwise related to future operating or financial performance and opportunities. Factors that could cause results to differ from our expectations include the following:  our ability to reduce costs effectively, the impact of the COVID-19 global pandemic on the markets we serve, including our supply chain, and on the global economy generally; the volatility of the life sciences markets the Company serves; our possible inability to meet demand for our products due to difficulties in obtaining components and materials from our suppliers in required quantities and of required quality; the inability of customers to make payments to us when due; price competition; disputes concerning intellectual property; uncertainties in global political and economic conditions; our ability to successfully invest the cash proceeds from the sale of our Semiconductor Automation business; and other factors and other risks, including those that we have described in our filings with the Securities and Exchange Commission, including but not limited to our Annual Report on Form 10-K, Current Reports on Form 8-K and our Quarterly Reports on Form 10-Q. As a result, we can provide no assurance that our future results will not be materially different from those projected. Azenta expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any such statement to reflect any change in our expectations or any change in events, conditions, or circumstances on which any such statement is based. Azenta undertakes no obligation to update the information contained in this press release.

About Azenta Life Sciences
Azenta, Inc. (Nasdaq: AZTA) is a leading provider of life sciences solutions worldwide, enabling impactful breakthroughs and therapies to market faster. Azenta provides a full suite of reliable cold-chain sample management solutions and genomic services across areas such as drug development, clinical research and advanced cell therapies for the industry's top pharmaceutical, biotech, academic and healthcare institutions globally.

Azenta is headquartered in Burlington, Massachusetts, with operations in North America, Europe and Asia. For more information, please visit www.azenta.com.

AZENTA INVESTOR CONTACTS: 

Sara Silverman
Head of Investor Relations & Corporate Communications
[email protected]

Sherry Dinsmore
[email protected]

Notes on Non-GAAP Financial Measures

Non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures. Management adjusts the GAAP results for the impact of amortization of intangible assets, restructuring charges, purchase price accounting adjustments and charges related to M&A to provide investors better perspective on the results of operations which the Company believes is more comparable to the similar analysis provided by its peers.  Management also excludes special charges and gains, such as impairment losses, gains and losses from the sale of assets, certain tax benefits and charges, as well as other gains and charges that are not representative of the normal operations of the business. Management strongly encourages investors to review our financial statements and publicly filed reports in their entirety and not rely on any single measure.