Azenta, Inc. (AZTA) Earnings Call Transcript & Summary

I guess we can get started. Good afternoon, everybody. I'm Luke Sergott. I cover the Life Science Tools and Diagnostics here at Barclays. I have Vandana and Lindon here from Azenta. And we are going to do a presentation, and then we can just jump in with questions. If that's okay. Vandana Sriram our Senior VP of Finance, will present.

Great. Thank you so much. I'd love to give you an overview of just who we are, a little bit of our history, and then talk a little bit about our products and our growth prospects. And then we'd love to take questions from the audience. We'll try to wrap this up so we have enough time for questions. Firstly, before we get started, I'd like to address the safe harbor statement. We were making some forward-looking statements here, and we would encourage you to look at our website for more complete disclosure. We will also use certain non-GAAP measures, and we encourage to use them in conjunction with the appropriate GAAP measures. So firstly, just a quick introduction to Azenta. This is -- we've just completed our first full year of Azenta Life Sciences, but we've actually been in the life sciences space for a while now. Some of you may know us as Brooks Automation. And just a little bit of a working history, Brooks Automation really was a semiconductor automation company. Over a decade ago, they started to use the technologies related to automated cold storage and started to apply that to the life sciences space and continue to build that competency through a series of acquisitions. We then entered the sample management space through the acquisition of a biorepository company in the 2016 time frame, and that has now made us leaders in the sample management space. Similarly, in the 2019 time frame, we entered genomics again through an acquisition, but then continued to grow that out. And then lastly, in 2021, we divested from the semiconductor automation business as well as the Brooks Automation name and with that Azenta Life Sciences [ as well ]. Just a little bit about how we're doing financially. We ended our last fiscal year, which is the September 30 year-end, at $555 million, which translates to 8% reported, but when you strip out some significant COVID compare as well as the effects of currency and acquisitions, we grew double digits high teens at 17%. We have over 3,500 employees. We are a very global company, even [indiscernible] spread across the world. And the other notable item I'd call out to is our financial structure with the sale of semiconductor automation business, we had somewhere around $2.5 billion of cash. We started to put that to work very quickly. We did a series of acquisitions. We completed 3 acquisitions in the last 8 months. We also announced a share buyback program where the first tranche of $500 million is in [ phase ] right now, As that completes, we intend to do another tranche of $500 million and is expected to complete in this calendar year. So even with these couple of very significant capital allocations, we still expect to have approximately $900 million of cash, which is available for us for both organic as well as inorganic. Just a little overview of what we do and how we service our customers. We believe that biological samples are really the key to all life sciences research, [ and we say ] it's all aspects of sample management. And [indiscernible] we set ourselves out as being able to work with our customers across this opportunity. Starting with sample sourcing, we work with our customers to source [indiscernible] samples to ensure they're of the highest quality. We also have the ability to work with them on ensuring good sample formatting and have competencies in logistics for our sample management as well as in providing [indiscernible] that required. Within our storage and automation business, we made stores for storage of our biological samples both at a very high level of automation with our large biostores. We also have cryogenic stores, and we also have the ability to do this on a smaller [indiscernible]. So really across a spectrum [indiscernible] customers as well as customers. At the same time, we also have a series of Biorepositories where we can manage the samples of [indiscernible] our customers. This is a really neat business, which has essentially [indiscernible] once the store has to take a sample. And then in the genomics space, again, we provide the [indiscernible] offering in terms of being able to provide sequencing business as well as in the areas of [indiscernible] We have [indiscernible] on call customers [indiscernible] and truly provide solutions. And then underlying [indiscernible] platform, which gives our customers additional insights in terms of [indiscernible] samples, sample management and in terms of the [indiscernible]. So really we're an end-to-end sample management and exploration company. We work with all of the large pharma and biotech companies. We have deep relationships with all of them. And we're really well positioned to capitalize on some of the emerging [indiscernible] in terms of the growth of R&D as well as outsourcing. In terms of the advancements in cell and gene therapy as well as the global need for advanced cold storage. So very quickly in summary, we are a truly unique company and what differentiates and makes us unique is really few things. The first is our growth potential. When you look at our portfolio of offerings, the market that [indiscernible] that gives us tremendous opportunities for future growth and with that growth comes margin expense. Based on our current run rate, we are expected to be approximately in the range of $700 million of this fiscal year. But with continuing high-growth opportunities, and we feel really good about the composition of our portfolio as it stands today. We have an incredibly strong balance sheet that sets us up for growth, both organically and inorganically. And what's important to note over here is that we've done this before, we have grown the Life Sciences business partly through a series of acquisitions, but then more importantly, taking those acquisitions and being able to continue to grow them on a double-digit basis. So it's not just about the layer of revenue that an acquisition brings, but it's also about our ability to grow them organically. And lastly, we are global. Even before the addition of a new acquisition that brought with it a significant footprint, we were selling to over 150 countries. But we have capabilities that support our customers, both in terms of the breadth of our capability as well as our reach globally. So in summary, we are a unique company with a really strong value proposition that's backed by a team that knows how to do this as well as the balance sheet that's really ready for investment. With that, we'd love to take questions.

So with the backdrop of new [indiscernible] business, talk about the different end markets that you're operating in right now how this kind of progressing out through the year?

Yes. In the end markets, number one, our largest sector is pharma and biotech by and large. In that space, we've seen customers subscribe significantly to our large infrastructure that we provide on-site for them given the automation of all the cold stores. We've also seen substantial enterprise relationships to some of the largest pharma. We served 20 of the top 20 as you rate by R&D and in the area of services as well. So it's a substantial traction with pharma biotech. And the second place is analytics [indiscernible] on the map as well. Academics continues to [indiscernible] on research front. Obviously, I think with the government austerity, you may see academics [indiscernible] going forward, but that remains to be seen. We haven't seen an impact on our business directly. And then across the other spaces in the end markets, we would say we've had exposure to certainly government, health care, hospitals, research institutes that [indiscernible] distance in terms of the augmentation of our revenue. But if you come back in big picture on pharma biotech [indiscernible]

Right. [indiscernible] How come Brooks Automation. You guys -- it's in your DNA. Talk about how you've now transferred that culture into addressing the life sciences into different hurdles with different clinical trial works well.

So if you look at the automation front, our strength by our legacy is the automation of the large [indiscernible] systems and also the cryogenic capability that we've had for actually well over a couple of decades in terms of the background of where our science has been. In the past 12 years, as we built the business, this is extended, not just automation insight, the [ ultracold ] environment, but has also taken to innovate in minus 190 space. When you think about cell and gene therapy whether it be in their research or in manufacturing or clinical space, we're helping to enable significant breakthroughs and most important standard protocols in cell and gene therapy space. But it really is, we think, paramount in the future, meaning if you just -- if you try to do an autologous solution today, you can handle it by manageable means, you try to do an allogenic [indiscernible] down the road. It is going to be really challenged to maintain those standards. But even in the autologous solutions, we have presence with its own gene therapy customers. In the minus 190 environment as well as the controlled rate [ following of the process ] and the disbursements of those therapies. And then anyway, you could see the impact that the automation side has in the cryo space. And certainly, in the outsourcing, we're helping to take storage needs and overwhelming volumes, but also in the integrity and maintaining the inventory of the samples in various research environments.

And you called that cell and gene therapy bigger part -- or, small part of your business, but significant growth contribution in the quarter. How big is that business for you guys now? And just some more on the different areas where you're seeing the most strength?

So cell and gene therapy is less -- a little less than 10%. We [indiscernible] the 10% before we added the acquisition of B Medical, but they're in the [indiscernible] cold chain as [indiscernible] cell and gene therapy. But [indiscernible] additional marketing, which was a accompanying the controlled rate buying space, that's substantial, as you highlighted, our growth rate this last quarter, we saw a 60% increase in revenue over a year ago. With that said, it's still less than 10%. We see this [Indiscernible] higher. And part of our growth of our portfolio and our strength of our portfolio is highly differentiated in that cryo space, the [Indiscernible] maybe cryo. And again, this comes down to the [indiscernible] someone tries to manage a cell and gene therapy process annually. If you can do it in your shop. But when you try to transfer those standards of protocols and manual environment to another side, say, from here to San Diego, then -- or here to London, you'd really like to see more standards and protocols controlled by the equipment you put in place, not just the instructions you hand someone. So we see this as being critical in the going forward in cell and gene therapy.

Yes, makes sense. Let's switch gears and talk about the genomics side of the business. You've been dealing with several headwinds over the past couple of quarters. Talk about what's going on there and then how you're going to recovery to shape up?

Yes, I'll take that. Yes, our genomics business has been a really nice growth business for us. It's given us good consistent double-digit growth, and it did really well during the COVID time frame as well. We did have a few stores in the last year. And there were a few different reasons for it. It's been hard to kind of see that the impact of it. There's been some amount of market pressure, but we've been careful not to call it all market pressure Some of our competitors are still improving. We don't really put it on the market. From our side, the most compelling thing we found was as we rebranded and changed that into Azenta, we lost a little bit of that name recognition and the connection. Most people would go online and look for [ GENEWIZ ] and end up didn't necessarily know who we were. So there was a little bit of fact that we had to really readjust and so we've made a series of actions over the last few months that are still continuing, and we expect [indiscernible]. Some of this is in the orientation of our commercial team, making sure that we have the right touch points for that customer. The genomic space is highly technical. So it's really important that the customers are comfortable with the nature of services we're offering. So we're now [indiscernible] rather than have a generalist normal making sure that we have scientist talking to scientist so that's a good connection with our customers, and it gives our customers the confidence on that to us. We're making sure we have the right geographical coverage as well, making sure that in all of the major centers for life sciences research. We've also relooked our incentive plans and make [indiscernible] well oriented towards what we need to [indiscernible]. So we feel like we've taken all the actions based on what so far and now where those are all going through.

Okay. And then so when the recovery [indiscernible] in the guide that, I guess second half weighted? Or should we expect an incremental benefit each quarter, give us a sense of the pacing that you guys are targeting there?

Yes. We don't expect that to be incremental. It always takes time to get all of these changes through. And you'll see that on our guide, our first half guide is weaker than our second half guide. So there's certainly an expectation that these changes will take some time to flow through.

Okay. And then on the -- just in general, I take it you guys are pretty much [indiscernible] agnostic. And so with all those different competing technologies coming out, talk about conversations you're having with customers and the solutions they are asking you to provide around these new technologies?

Yes, the technology landscape is really interesting, and it's changing very, very fast right now. This is actually a huge advantage for us in a way. We are constantly relooking at technology stack, we're reassessing what we need. Generally, customers are agnostic to where the sequencing is going to happen. Some customers are extremely specific about saying, hey, I want that data sequencing, but others are more interested in getting the results of [indiscernible]. The way we look at it from our perspective is we constantly relook the technology stack. We make sure we have U.S. technology in-house, but we also keep our workhorses. We don't completely discard our technology within a period of time. The advantage it brings for us versus individual customers doing sequencing on their own is we have the ability to do this because we have [indiscernible] If you are A customer with A sequencing in lab, you don't really have that mentioned. But for us, it's really nice to be able to continuously stay on top of technology and be ahead of the curve.

If I could I'd add, this is exactly right what Vandana just explained and if you on top of that, customers turn to us for, it's really a consultative insights of what is applicable. So we have multiple platforms of technology. We also have proprietary protocols and prep steps. Our scientists are known by customers by name. It's not just -- they don't just send it in and it comes back from Azenta. It comes back through a consultative approach with our -- we have more than 400 advanced scientists that supplement this. So sometimes an investor often at the table or ask me, so you guys can buy the equipment at a discounted price for you buy volume? It's arbitrage of capital isn't it. And I say, of course, we get a little bit of that because we use a lot of volumes on the reagents in the platform. But more important to our customers is that consultative nature of the scientist that's helping them. And they literally know the person by name and call them out and say, you know this person is high value to us. So we see that our management sees what's important to the customer and helping to accelerate and enable those breakthroughs at the customer side.

Yes, it makes sense. On the Gene Synthesis side with GENEWIZ, there's been a softer market for you guys. Talk about what's going on there? And the -- where you play within that market versus some of the other players that are out there?

Yes. The Gene Synthesis space for us, one, understand our model. Our model has been with a strong tie to an operational site in China, Suzhou China. We manufactured most of our -- almost of our Gene Synthesis materials at Suzhou and delivered globally. What we've seen is that in 2022 calendar year, COVID environment impacted China, but also some customs changes and export changes inside China, which we always comply with, obviously, disrupted and made it a little bit unpredictable on bringing shipments out of China. We adjusted our own approach to that simplistically saying we consolidated our shipments brought them into the U.S. or into Europe and then shipped to our many customers from there, made it completely predictable again and turnaround time to be competitive. Our performance this past calendar year, the last few quarters had been delayed. Last quarter, we reported a [ decline ] in Gene Synthesis by itself, not sequencing. Sequencing actually did nicely, but Synthesis was down. Now some asked us about competitive to [indiscernible] share. In our minds, no question as we slipped off in the deliveries, and we declined that we lost some share during that time period. However, we also know that customer values is, first and foremost, for the quality of the substance, and we always rate high in the quality of the gene fragments that we send. And so we don't lose on the substance. We missed on the turnaround time. We fixed that. But now we have the challenge in marketing and sales to win those customers back. We referenced back to the delightful experience that they've had in the past and reassured them that our schedules are on track. And I think we'll see that come back to us through this year. It will take a few months. Some customers have already expressed that we'd like to run some more trials with it and then we'll evaluate after we see those proof points, but we think it will come back. In terms of the competition, the most misunderstood aspect is oligos, it's now where we play so much. We've produced oligos. We use oligos in gene synthesis. But a company that produces just purely oligos, they may be disrupted. It may price low, but that's not our impact. We're in the longer gene fragment and the long gene substance. And so we're not so much in a disruptive space. We're in a competitive space, and I think we'll do well through this year.

I've seen that you guys [indiscernible]

You're going to ask me a question like that, and I'm going to deny that I can't tell you because I don't know the answer. So I've got to right now to see if I don't count the base pairs. We have those conversations for the science [indiscernible].

That's perfectly fine. On China in general, I mean, this has been -- I mean the -- there's no template for shutting a country down and then all of a sudden just letting the virus run free. So as you guys think about the recovery here across your all your business, what are you seeing from a recovery standpoint? Is it coming in fast than what you guys were anticipating?

I can take this. These are the questions that we've gotten from everybody today. And what's been interesting for us is through the lockdowns through some of the more challenging COVID period, we certainly had instances where customers weren't available, customers are not in their land. We -- or there was shut down. But we didn't really have a period of a steep decline. So we didn't really see revenues fall for cliff in China. As a result of that, as the lockdowns have been lifted and as things have opened up this last quarter, we haven't seen any major swings in the other direction as well. China grew about 10% for us in the last quarter, which is a pretty healthy growth. So we see that them on a relatively steady growth trajectory, but there's no massive base because what matter [indiscernible] either in the past.

Okay. And then last year, B Medical acquisition that you guys did. Talk about what that brings to the portfolio strategy there, the margin and the growth kind of characteristics?

Yes. The B Medical acquisition is an exciting one for a lot of reasons. One, it's an extension of the cold chain offerings that we have. All of the cold chain of management that we've had up until B Medical address the research in the pharma biotech end of things, this -- while we -- and we participate in providing services for vaccines in the past. For example, we shared with investors that we service some of the COVID manufacturers on vaccines, and we help with their storage needs, and in some cases, some distribution or subcontracted to the QTC contract with the [ Federal Reserves ]. But this one is a product capability that extends for vaccine cold chain preservation. It's at the endpoint. And the exciting part is in markets where we haven't been in the past. In other words, 80% of the revenue comes from the summation of Africa, South America and Asia. And while we're really prevalent in Asia, these are parts of Asia that we're not talking about. So this is exciting extension of both our product capabilities as well as the markets that now we have relationships footprint. And down the road, we believe that this brings us a significant opportunity in those markets that I think we all would agree is vastly underserved by science and research. We don't see population studies on the continent of Africa, like you see in mature markets. This is an area for science to grow, and we think that we're not just well suited. We're a natural fit for that space.

Makes sense. All right. Thanks again. This has been very helpful.

Thanks, Luke.