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

All right. Good afternoon, everybody. Welcome to day 2 of the Stephens conference. I'm Jacob Johnson, the life science tools and services analyst here at Stephens. Got an interesting one for you this afternoon. Really excited to be joined by Azenta President and CEO, John Marotta; and brand-new CFO as of, I think, the last week, Lawrence Lin; and then Yvonne Perron from VP of FP&A and IR, here in the audience as well. So before we get started, this will be a fireside chat. I've got plenty of questions, but I'll try to pause along the way for the audience. With that said, John, I think this is your first conference appearance. You just had your first earnings call as CEO. And like I said, Lawrence, I'm not sure you've had a cup of coffee at the company quite yet. So I think maybe we'll start with if you guys want to kind of introduce yourselves, your background. I think you guys both go way back with each other as well. And any other opening comments you want to make, and then I'll start peppering you with some more questions.

Sure. It's good to be with you all. Good afternoon. John Marotta, I joined Azenta on September 9. My background, the last 4 years I've been in private equity. My last role, I was an Executive in Residence at Patient Square Capital, which Jim Momtazee, who is a health care lead at KKR. I joined them after I left KKR. A few years ago, when they left, they started a fund. It was about $4 billion. We had another $4 billion of co-invest, so $8 billion in total. And most of everything we looked at was take-privates. Of the 12 deals we did in Fund 1, 6 of them were take-privates. I looked at Azenta, I looked at some other companies that are here today. And ironically, it led me here, and we'll get into that I'm sure later. But we stepped out of wonderful careers in private equity. It was a really hard personal decision because Jim and that team are just outstanding. But when you look at the business, it's a unique opportunity to drive performance both on the top line and from a cost perspective, dramatically changing the cost side of the business. Before that, I was with Panasonic Healthcare. It was a KKR-owned company. We took that public in Japan. It was a $3 billion business. It was a conglomerate candidly that didn't make a lot of sense being put together. It was a life sciences tools business. We had a diagnostics business. We had a cell and gene therapy, IVD business. We had a diabetes business. It was a melting ice cube. It was about $1 billion. This thing was driving off a cliff. It was the old BGM business. And then we had electronic medical records in a clinical reference lab. Lawrence and I were together on that deal also. And then before that, we were together at Danaher. We came out of Danaher. So I ran a business in Danaher. I came in, installed DBS in this business. My background was medical devices, life sciences and diagnostics. So I was brought into Danaher as a growth guy, and they turned me into a turnaround guy. So skill set around growth and turnaround, and we turned that business around. And then we took about $200 million out of this business when we took it public. It was called Envista Holdings. It's a zero-growth business. And the only thing that drove it was margin expansion. And so you look at that and you say, "Well, there's one side of the equation, it would be good to get the growth up." And I see both here at Azenta, but we'll get into details in a bit. So that's really my background. I've been running businesses for quite some time. Excited to be here. Lawrence and I won't speak for your background, you can share that, but we worked together for almost 10 years. And he just transacted on a deal. He was at KKR as a CFO of a business over there. They sold the business to Leonard Green. And we looked at this and said, "Listen, there's an opportunity here for us to work together again, but it's about skill sets." Our skill sets fit what this company needs. That's what I believe personally that it's all about fit at this level. And so they just transacted a few weeks ago.

Yes, a month.

And part of what we want to drive is this business system mentality, and we work pretty well together. He balances me out. You'll hear from him today. But you want to share your background?

Yes. Hi, everybody. Lawrence Lin. So yes, to Jacob's point, newly appointed. I've been on officially 7 days with Azenta. But John's right. We spent about 10 years together. Our career paths have pretty much been no.

In and out.

In and out for over a decade. As John mentioned, I was with GeoStabilization International prior to joining Azenta 7 days ago, and we just transacted, KKR-backed portfolio company. And it has a really similar profile to Azenta, right? Very high overhead, G&A, modest growth. And within the course of 2 years, we're able to double EBITDA, double revenue, acquire 7 businesses, integrate them all and be able to sell it to another private equity sponsor. So why I bring that up is, again, when John calls me right after the transaction, we saw a really similar profile, great opportunity, great TAM in the business. It just -- it needs a little bit of support from a corporate level, chart the course and then really look at the business and the cost structure a little bit more clearly. Prior experience outside of kind of what John mentioned was with PHC as well as spent really a predominant portion of my career at Danaher, almost 20 years. So a pleasure being with all of you.

All right. So I want to spend a good amount of time on kind of operating philosophy and strategy. But maybe, John, we'll start with you just reported 4Q '24 earnings. I think probably the biggest thing in that press release, you talked about on the call was simplifying the business and step 1 seemingly was to divest B Medical. So maybe just start there on kind of as you came into this portfolio with fresh eyes, what was the thinking behind divesting B Medical? And then I may have some follow-ups on that.

Yes. It was interesting. As we came into the business, I knew B Medical before joining the company. I was scratching my head when they made the acquisition. And when I came into the business, I was scratching my head but more on why do we have this business? So I thought the calculation and discussions with the Board and the Chairman, we stepped back and said, I think it's an easy decision. It's a yes or no. We got to go deep in that. Either way, we've got to do the operational work on driving performance in the P&L, get this cost structure where it needs to be and to get that top line moving. And then it became very clear there was a distraction in the business. And so we went deep. We were out in Luxembourg, which is the corporate headquarters for that business. We went real deep there. And it just -- it was very clear that this was a distraction in the business. It didn't fit the profile, meaning good secular tailwinds, good reoccurring revenue, good end market stabilization and the ability to enjoy recurring revenues. Our SMS business is about 50% of recurring revenues. Our multiomics business is about 85% are existing customers. So very attractive from that profile. B Medical enjoys none of that. Doesn't mean it's a bad business. It's just not a good business for us. So we decided we want to move in a different direction. That is discontinued operations. We've got 12 months to get it out, and we're moving on that right now.

Maybe a follow-up on that. So you have 12 months to get it out. Just how should we think about the timing of it? And then probably you may not want to answer it, but I'll try. B Medical is out of our forward numbers, but we don't know kind of how much cash you're going to get for it. I think Azenta bought it for $418 million in 2022. Any way to frame out how much of that investment you think you could recoup?

Not sure.

Okay.

I wouldn't have any credibility if I had an answer. Listen, we're going to run at that and try and get as much value as we can. I mean it's clear. I say we own it now. We've destroyed a lot of value. We need to figure out how to recoup it.

Okay. All right. So let's talk operating strategy. You referenced your time at Danaher, and they've got -- you mentioned DBS. I think on the call, you mentioned kind of lean principles. Can you just talk about the opportunity to implement that kind of operating philosophy at Azenta?

Sure. Let me pull back a second and why we joined the company. As we were on the journey in private equity, I had mentioned that we were looking at a lot of take-privates. And so I looked at the public markets and said, "Well, wait, there were 8,000 publicly traded companies. Now there's 4." And you can't just take everything private at the end of the day. Like our public markets aren't working. I think we got to get them moving in terms of delivering value, shareholder value in the business. Part of doing that is through effective business system management, meaning you're pulling levers around growth, growth in sales and marketing, growth in R&D and then operational improvements in manufacturing and operations, specifically around cost and productivity. So we pull levers commercially, and we do that systematically through process and our go-to-market. That implementation is what's important. I'll talk about KPIs in a second and kind of how you do that. From an R&D perspective, listen, it's an area that a lot of companies don't pay enough attention to. You should be getting growth on that R&D investment. And so we measure that incremental pipeline value, revenue achievement target and on-time delivery of that program. That we're going to start bringing that rigor into the business. And then lastly, around manufacturing and operations. So whether it's a product or service, how are we driving performance in operationally, lean implementation? Lean is around taking waste out, okay? You do that with metrics in operationally around quality, delivery and cost. You pull cost apart, and it's inventory and productivity. That's very important in how we view operational rigor around that. When you increase your cost, you decrease delivery, gross margin comes out of the business. And you're doing that through cost of goods, direct material and then productivity gains. We have a lot of opportunity around gross margin and productivity gains. This company never talked about gross margin in direct materials before. Okay. So that's at a high level on how you do that. From a structure perspective, structurally, I get asked, do you have the right people? You can't assess people unless you have the right environment for people to work in. First thing you got to do is create the right structure. We have a heavily matrixed organization. I do not believe in matrix organizations at all. I believe in accountability down from the top, down functionally into the business. We're fixing that right now. So that's the structure side. Process side, we talked about a bit, but we also want an operating cadence. We run -- we're going to -- we're starting to implement a week 1, week 3, week 2, week 4 cadence in the business on how we drive performance in the business. Week 2 is always around operating reviews and installing that. In lean, we call that daily management. You manage it by the day, by the week, by the month. We manage our businesses. We're going to be implementing that by the month. Right now, we do not manage our businesses that way at all. And so installing that into the business, okay? That's kind of lean implementation. There are other tools I can get into the specifics around standard work, Heijunka, all these sorts of things that you do when you implement a lean business system. But that's the way you want to think about it in general, is systematically pulling it apart. And so I can go in details if you'd like.

Yes. Yes. I already have a few follow-ups. Maybe I want to start with one that you mentioned on the call that we were talking about before we started. You emphasized going from 8 incentive comp plans to 1. I've never run a company. Why does that matter? How does that change incentives internally? And what does it mean externally for stakeholders and shareholders?

Yes, sure. It's a good question. So we came in September 9. That's my first day. Our fiscal year starts October 1. As we come in, I said, "Where is the budget?" Budget wasn't done. We're 3 weeks away from our fiscal year, okay? Normally, you like to come in the first 100 days. You don't want to make any decisions, you want to listen and learn. If the house is burning, you go make a decision around putting the fire out. I didn't see a lot of fires burning, but I said to the board, I said, "Me coming in at this point in time, it's creating a lot of attention because now it's my budget, I have to own it." So we come in and the first thing you do in private equity is you get control, meaning from a shareholder perspective. Well, you can't do that in a public company. The second thing you do in private equity is you make sure your incentive compensation plans are aligned around driving performance in the business and driving the behaviors you want in the business. We came in and we looked at it, and I'm talking to HR and they said, "We have 8 plans here." I said, "How do you know what winning is? We have 2 operating -- we have 3 operating companies. How does anybody in labor understand what EPS is, how to drive performance around EPS? Like it's shipping product out or at the lab bench or talking to -- a PhD talking to another PhD. How do they understand it? They don't understand that. So we needed to fix that. We have one plan now. That plan is core growth top line. It is adjusted EBITDA or operating profit, operating profit in the businesses, adjusted EBITDA at corporate, adjusted operating profit in the business. Third is around free cash flow and then working capital into the business. We translate those numbers into areas where people understand you buy 10 bolts, you only needed 2. Buy 2, not 10 because you get a price discount on 10. I mean these details I'm sharing with you, they matter. That's how you drive performance in the business. And so that was step one is get this compensation plan correct. I was clear with the comp committee. I'm not going in. If it's my budget, I'm not going in 12 months without fixing comp, period. And they've delivered on it. So we did that. That matters because you got to know what winning looks like. People have to understand what winning looks like. Now we got clear performance measures around that. People are compensated only on that. The management team now is compensated on relative TSR. I'm a big believer in that, on PSUs on relative TSR. We haven't done that in the past. I'm a big believer in that. And so there is a -- there's an index that we built around it specific to the organization with a 90% correlation which is, I think, is important. Okay. So we fixed that. Now what does it matter in terms of you go back to the business system question around aligning now KPIs that drive performance in the business? We have 8 core value drivers in the business. First is top line growth. Second is operating margin expansion. We're always looking to expand our margins and reinvest those back in the business. Third is around working capital. Fourth is around ROIC. This company has done a very poor job of ROIC. We know that. We spent $450 million on a business, no returns there. There's no returns around capital allocation or CapEx. I'll talk about that, and Lawrence and I can talk about kind of how we think about that. Those are the 4 metrics around driving performance in the business. Two other metrics that are customer-focused metrics, first one is quality and the other one is delivery or on-time delivery of your product or service. You think about it from we're all consumers, what do we care about? Whether it's a product or service business, we only care about the quality of the product or service. And does that -- is it delivered in a manner, in a time frame that matters to you? We look at it differently internally now. It's really interesting. Our on-time delivery in one of our businesses is 15%, [ 50% ]. I don't -- I told the team, don't worry about it. We're going to go fix it. Measure it based on the customer expectations, not on a promised date that we deliver to. What does the customer expect? We drive to that expectation. All right. Those are the 6 other KPIs, 2 other KPIs is employee turnover. These are employee metrics now. We have 3 stakeholders in the business, shareholders, employees and customers. Our employee metrics are turnover and then internal promotion. Employees care about being promoted internally. That's how we bring in talent in the organization. Sometimes we'll bring in more from the outside or we're going to promote within. We change those metrics over time. That goes to the question, long-winded answer, but I want to go on, the details matter. And so once you get the KPI set, then you move to compensation, it all rolls up. And that's the importance of it from our perspective. And we can talk about capital allocation later, but I'm sure we'll get there.

Yes. We'll get to that, too. I still have a couple of other follow-ups. You said that Azenta was heavily matrixed previously. What do you mean by that?

Yes. So matrix organizations are not functionally aligned, meaning finance goes all the way down to the customer internal, right? Sales goes all the way down. It's not aligned functionally. It's matrix, meaning there can be a matrix in the organization that "may own it" but the operating companies, they may be accountable for those individuals. We went -- the organization went matrix in corporate functions. And so in a matrix organization, people can't hide. They're pointing fingers at each other and saying, "Well, wait a minute, you're corporate, you roll up in corporate," but not paid on multiomics or they're not paid on SMS specifically.

So maybe I'll give you an example. So our business unit CFO generally reports to me. But really, what we want them to do is report to the leader of that organization in SMS multiomics, right? And then you end up with just a very thin layer corporate structure, and then all the resources are at the business to point of contact ultimately to the customer. So that's -- I mean, all this sounds like common sense. But as organization grows, it gets a bit too entangled. And so we want to get some clarity simplification. I think that's important.

So maybe the follow-up there, too. I mean Danaher runs an operating company strategy. And the way you're kind of talking about things, SMS and multiomics, is that kind of how you view the world and that's where this matrix stuff matters is those are kind of 2 stand-alone businesses that are now responsible for that P&L? Is that the right way to think about it?

Yes. It's ultimate accountability, okay, which goes back to the incentive compensation plan. But you've got -- I mean now these individuals are accountable for performance. For us, from an operating perspective, we're in those businesses all the time, helping mentor and coach and make sure those operating company presidents are getting the support they need. It creates the right structure for them to be successful.

Maybe one follow-up on that of kind of your view of corporate role. It sounds like it's to support those -- I would assume it's to support those kind of holding companies and then your job, big job is to allocate capital across the 2 of them? Is that fair?

You bet. You bet. Yes. And we want to get in and help them and be supportive for them. But our job ultimately is to ensure that talent is being moved in the organization effectively and capital is allocated effectively. And this P&L is in a good place for us to win. It's not right now.

Yes. And then just 2 other phrases or words you threw out, Heijunka and standard work. What are those?

Yes. Heijunka is level loading in production, meaning your -- you have a demand and a forecast, you level load the plant to meet that demand. Part of our -- one of our businesses, we have 240 days of inventory. And the question is, is like always a lot of people come in and say we have too much inventory. That's not the right answer. Do we have the right inventory? It's not -- having a lot of inventory may not be a bad thing for a business, but having the right inventory is a good thing. We don't have that. Heijunka, you level load and you build to demand and you level load the plant, therefore, you can get productivity gains firstly. Second thing is standard work is the standardization of our work in the facilities that helps drive gross margin improvement. That's a standard lean principle that you install in everything we do. We would standardize that. When you standardize that, quality comes up, delivery goes down and cost rate [indiscernible] for the business.

Got it. And then going back, you, I think, used the phrase competing for capital. How do you think about capital allocation, buybacks, which you just concluded a big one, M&A, organic investments? Just any preference given you do have the one good thing -- or one good thing you do have is a bunch of cash on the balance sheet.

Well, that's why we came here bluntly. So let me pull back a second. The rigor in the business around capital allocation, I think, has not been there. I think it's a departure from the past and what we're bringing in. We expect double-digit returns when you deploy capital. Now there is 4 levers we pull around capital allocation. First is gross margin and productivity improvements. Second is around growth. When I say growth, I mean capacity expansion in R&D. Three is around M&A and strategic tuck-ins. I want to be very clear about this. We have not earned the right to go do this. We have to demonstrate capabilities in this area. And I think that's putting points on the board in terms of moving this P&L where it needs to be. There is opportunities we see in the market for M&A. We're getting that funnel built out. We're pretty excited about that. It will be a forward-leaning funnel, meaning it's active cultivation. We've got to demonstrate capabilities there. And then fourth is around share buybacks. I don't believe you hire us to do share buybacks. That's my personal belief. We have a smart Board. When we talk about that, we've got some folks that we just brought on the Board. Smart Board, I mean, capable management team. I don't think -- when we look at return on invested capital, when you've got -- it's always compared against the share buyback, candidly. It has to be. But I think we have 3 other levers we can pull there. I'm excited about those. I'm not talking about tens of millions of dollars. I'm talking about millions of dollars of investments in those 3 areas that we're talking about, especially the first 2. I mean there's automation that we have coming from Brooks that we have today, that it's been underinvested and like we behave like a hobby in certain areas in our business. And we've got these investment opportunities, and it's very clear what those are, especially around the gross margin productivity and growth side capacity, specifically.

So you mentioned we have to earn the right to do M&A. How should we be thinking about the timing of M&A? It seems like you want to implement a lot of these efforts before you start thinking about it. How long should we think about these efforts taking before you could start to maybe look at something?

I don't know yet. I mean we're putting a process around M&A where it's read out to the Board. There's clear -- there's a forward-looking funnel. There's no surprises from a Board perspective, but we're talking about it, socializing it. We've got work to do in the P&L, but we're always going to be opportunistic also. I mean we don't want anything to pass us by. So I think it's a balance. I don't -- as I sit here today, I don't know what that -- I'm 70 days in. I'm not exactly sure what the balance is, but we're thinking about it. I mean we've got a war chest of cash. We want to get it to work.

Yes. And then just kind of on the operating philosophy. You talked about lean principles. It seems like there's going to be opportunities on the margin side of things and to streamline operations. But it's interesting as I think about Danaher's DBS, which not the longest history with, but I think it started with lean principles and something they've added over time is kind of growth initiatives. So I'm just curious kind of how you think about the evolution of implementing that operating structure as you think about margin expansion and then maybe growth opportunities?

Yes. Yes. It's interesting because I think Danaher, I mean, they're an amazing company. I came into Danaher as a growth guy. And then they kind of morphed me into this turnaround, with this turnaround skill set. I actually think Thermo does growth a bit better than Danaher. And we bought a business from -- when I was at KKR, we bought a business from Thermo, and it was clear. They do things a little differently. And I came from the medical device world, where it's heavily weighted on the growth side. And so there are areas where I'm really excited about implementing growth from a business system perspective. And that is more around how you operationalize your go-to-market, how do you target different customers in different segments, how do you actually layer the relationships in the organization. Like my job is sales. And so I'm now talking to customers. I mean I want to help close business. If you look at Marc Casper, I mean that's -- Marc does a very good job of closing business at Thermo. His EVP, Alan Malus, who worked for Marc for 18 years is on our Board now. I knew Alan at Panasonic Healthcare. He understands go-to-market better than a lot of people. He ran every -- almost every business from when it went from $1 billion to $60 billion at Thermo. And that mindset, like we want to bring that mindset in the organization. That I'm excited about. We got to get our house in order though on the cost side first. The growth, I would think about that is, listen, we're going to be above market. We're not going to reach our full potential until our resources are tied up in areas they shouldn't be. We have to get on the offense with our resources, meaning take them out and put them in areas for growth, that's sales and marketing and R&D. And so that's where we are today. That's how I think about it. I don't know...

Yes. That's hard I think. Yes. No, maybe just to add, we do have some open territories. So as we evolve some of the cost takeout, we'll still be filling open territories. And so it will be a bit of a progression. But again, there are some short-term low-lying fruit opportunities available to us today.

Yes. Maybe on that, Lawrence, as we think about the cost opportunities, I heard John mention gross margins. I would assume there's probably OpEx opportunities. How do you think about margin expansion on those 2 pieces of it?

Yes. So I think, obviously, right now, what we're saying is about 300 basis points all up for the year. And I think we'll revisit our perspective, I think, during Investor Day in the summer. But I feel pretty confident. To John's point, when we looked at the budget, we went from a bottoms-up approach, right? Like ask everyone, what's your 85% to 90% confidence? No more top-down push down, right? And so we feel pretty good about the 300 basis points that we've called out.

Yes. I was just thinking kind of longer term or qualitatively kind of how you're thinking? Is there more opportunity on the OpEx side or gross margin side? Or is it all of the above?

I think it's all of the above. But again, early days, we'll refine our view in a couple of months.

Yes. We're coming back to the investors midsummer with a clear point of view on this. We want to host everybody in Indy. I think doing an Investor Day in a conference room is actually not helpful. I'd rather everybody see it. And so we want to bring you all out to Indianapolis and so you can see kind of where we are as a company and what we're working on. And we will come back with a clear point of view on the numbers around this. Right now, it's too early for him and I to speak credibly about what the opportunity truly is. I think in general, when you look at the business, there's a substantial amount of opportunity on the cost side.

Okay. Perfect. I guess maybe last question on kind of the strategy. You've alluded to it. You've got some new Board members and you've got a new Value Creation Committee. So beyond kind of what we've just talked about, John, and what you're trying to implement, what is the Board and this committee focused on as we think about longer-term strategy?

Yes. So we actually -- we've had 3 activists in the stock since 2015. There's $3 billion on the balance sheet, [ 2 more fast money ]. And then Quentin Koffey who's here now with Politan, I think he's great. He's got 200 million reasons to help us. And so I used to sit on the same side of the table as activist when I was in private equity. And so Quentin just joined the Board. I think that's a good thing. He's going to help us out around our investor strategy, shareholder, investor management and some things around capital allocation. I think he's helpful. So he just joined. I called him my second week as the team kind of was saying, "Oh, well, John will give you a call in like 90 days." I said, "He's a major shareholder .I work for him." So I called him and we had a conversation. I said, "You've joined the Board. It's fine." And so he joined. Bill Cornog just joined the Board. Bill led KKR Capstone, which is effectively the Danaher Business System Group KKR, 22 years. He led every transformation in KKR. He is joining the Board. He just joined the Board. And I would -- I mean I don't like to speak in absolutes, but I feel very confident about saying this. I don't think there's another skill set like Bill Cornog's in the public markets right now. He's chairing our Value Creation Committee, I'll talk more about that. So Bill just joined us. And then Alan Malus, I talked about how Alan just joined. I mean just an outstanding -- I mean, outstanding. He's on the KKR Board as well and then EVP at Thermo. He came in with the T.H. Lee Fisher Thermo business. He's the only executive to make it 18 years under Marc. I mean he's just -- he's really a capable person, but he's also an outstanding human being. And so Martin Madaus is on the Board also. Martin was the CEO of Merck Millipore and Ortho Clinical Diagnostics. So we've got the right people on the Board right now. We set up this thing called Value Creation Committee. We're used to our handlers in private equity, they set up a cadence of -- a monthly cadence where you drive performance through the cadence on. There's a very detailed view of the P&L and you're driving performance, top line, cost out and capital allocation. That's what we've done here. Bill is chairing that committee. We meet monthly. We're standing that up right now. That is going to be put in place for, I don't know, next year. We'll see. If we need more of it, we'll continue it on. It holds us accountable. I think it's good rigor in the business to bring in, good visibility into the business. And so that's been -- we're implementing that now. Who's on that committee is Martin, myself, Alan Malus, Quentin and Bill Cornog. Lawrence and I both report into that. That committee reports up to the Board just like any other committee. And then the Chairman of the Board is an observer on that committee..

Maybe I'll pause there if anybody in the audience has a question on kind of the strategy. If not...

So on the value creation piece, so your focus is top line cost out and capital allocation. That's what [indiscernible] quality of stock.

That's it, yes. Yes.

The focus initially is really on the cost extraction.

Yes, yes.

Just to repeat it for anybody listening on the webcast. The question is the focus of the committee top line growth, margin expansion, capital allocation, and margin is the focus in the near term.

Yes.

Where do you think the big skepticism is from investors? What pushback have you gotten? Is it all with the cost of doing the turnaround? Or is the skepticism that it might take too long?

I don't have -- I mean, I can tell you some of the feedback, but I don't watch the stock day in and day out. And I think the feedback first is you've never hit your numbers. You have no credibility. So that's, I think, the starting point. So we've never hit our top line number ever. Team has not been paid a bonus in 3 years. Okay. So that's point number one. Point number two is around cost structure. I don't think you have a lot of credibility. If you don't hit your top line, but you can't control your cost, that's a tough story. The third one is around capital allocation, where on the M&A side, like we destroyed some value and we've got to earn our way back into that. I think those are the 3 things is just inconsistent performance. And so we need to be careful about we've got to demonstrate capabilities. And so that's at least what we're focused on doing. So does that help?

Yes.

Do you feel like the systems are adequate for you to be able to do all of this internally? Or do you have to add a lot more tools into the business [indiscernible] ?

Yes.

The question is for anybody listening. The question is do you have the systems in place to kind of measure this performance or anything you need to implement on that side of things?

So from an IT perspective, I think the team has done a good job of getting us on the launching pad there. 15 acquisitions, you had 40-some legal entities. We're still working on that. A lot of facilities. But from an IT perspective, there were basically 13 ERPs, IT systems bringing that down. I mean I think the team has done a nice job there. So from a visibility perspective, we're still working through that. But we just rolled off 4 systems November 1. So yes, the information from a management perspective is there, clarity down into the business. There's still some blind spots, but I don't -- no worries about that, is pretty clean, frankly. That's -- yes.

Maybe to add, the beauty of lean is the elegance and simplicity. You can get out to the shop floor, sticky note, Sharpies, and you can really affect change. So systems are good for data, and I'm an advocate of that. But sometimes really just Post-it notes and Sharpies gets the job done. And we want to start simple because the complexity is kind of what's caused us to be -- Azenta to be where it is right now.

Well, maybe we've got a couple of minutes left, and there was a question earlier about pushback from investors. So maybe I want to ask you on maybe 2 specific businesses that have been kind of topical for investors. So maybe, John, I think I asked you this on the earnings call, but I think it's worth revisiting. A lot going on in the freezer market in recent years. Sentiment from investors isn't exactly enthusiastic on that business as a whole. Can you just talk about -- given you came from Panasonic, who I think has freezers, just how differentiated is Azenta's technology? How do you view that business and maybe the broader SMS business?

This SMS business, this was a surprise to the upside. It's a wonderful business. 50% recurring revenue. There's 24 billion samples in the world, 6 billion need cold storage or ultra-cold storage. We have 50 million. It was part of the calculation in terms of divesting B Medical. So the freezer business -- and this is why I got a question, I wanted to share this openly. I got a question by an investor this morning. He said, "It sounds like a bunch of lip service around freezers versus what you have." I said, "Don't take my word for it. Come in and see it in Indianapolis. Just don't take my word for it. It's fine." A freezer is a 4-foot by 8-foot or 9-foot envelope. You put those as far as you'd like from a freezer farm. You can only go up 9 feet and you can only go 4 feet wide. These stores, this is where I give the prior management team a lot of credit. The capabilities from Brooks on automation in this is extraordinary.

It is.

So you picture now if you've got a facility and you'll see it when you come to Indianapolis. We have freezer farms that are the old-school manual biorepositories, okay? You have to have a human being go out and pick those samples out. On top of that system, whether it's manual or automated is what's called a Limfinity system. Picture a library management or warehouse management system, okay? When you're talking about billions of samples, you have to control that, those samples through a software. If not, you're going to -- the roll-off and the loss is -- I mean, it's extraordinary. These are highly valuable samples. Okay. Start there. Now what does it mean? And I wouldn't want to be in the freezer business because you have to continue the thinking around that is from a demand perspective is you're in the freezer farms. It's real estate. Real estate is expensive. These stores in our facility, you can take a store from 50 feet up to 100 feet. So the metric is samples per square foot, and so you can go vertical with all the samples. You'll see this where you run them vertically and you're now talking about effectively stacking freezer on freezer on freezer, so you get a lot more fixed cost leverage at the end of the day. Like that's what we need to do because the VCM will start to drop once you get more fixed cost leverage in the business. We do not have freezers. I get this question all the time like, "Aren't you in the freezer business?" I said, "A freezer is something you open up and you put something and you take it out." These are sample management solutions. You'll see it. You walk in these things. It's a negative 80-degree chamber. When you walk in and there's a little robot that came from Brooks, you go out and pick these samples and you pull them out, highly specialized. Inside of those chambers is negative 120 degrees Celsius. It's remarkable. We have intellectual property around that. Our closest competitor is Hamilton, okay? That's it. It's us and them. As over time, these freezer farms are not sustainable, okay? Over time, the convert is coming over to stores. It's just natural. That conversion is high single digits, mid-single, high single. Wonderful place to be. I'd rather be here. But we have 2 areas, right? You have SMS, which is around specifically our ability to go store that from a biorepository. If you don't want to do it in-house, we'll do it ourselves, we'll do it for you. Limfinity system, you control it, you can see where your products are. And then you have the stores businesses. You want to do it on your own, we'll sell you the store, it's the same technology. But what's on top of it is Limfinity, okay? So short answer is we're not a freezer business. Freezer businesses do not have a Limfinity system that manages samples, okay? Thank you for asking that question. I want to be very clear.

Freezers. Our store is not freezers. So it's going to take me a while.

And I don't think stores is the right terminology either. I mean I don't think we're helping ourselves from a marketing perspective, but that's why I wanted to go in the detail because I think the detail matters.

That's helpful. Just in the last couple of minutes, I think the other area of investor focus over the last few years is just you have synthesis products coming out of China. I think there are concerns around biosecure now maybe around tariffs. You talked about last quarter, adding capacity in the U.S. for synthesis because of demand. Can you just talk about that decision?

Yes. So when we look at the multiomics business, GENEWIZ is a great brand. We didn't help ourselves. We started a brand that is Azenta. It's a bad move. The team is moving back. Did this [ pan-Azenta ] thing where we brought in all the sales force that are not helpful either. From a synthesis perspective, I'm very excited about our synthesis capabilities, and that's a $60 million business. Very high margins. I think it's a hobby. We want to make investments in this area, okay, around capacity. Remember, I talked about capital allocation. This is an area you're going to see investments in capital -- from a capacity perspective. Let me go to the China question. China. So our business, we have 1,000 employees in China. That business is doing very well. And the reason it's doing very well is it's a China for China play. We have 400 PhDs. No one speaks English. They're directly speaking to other life sciences companies in Suzhou, which is the heart of life sciences in China. We're right there. We have a lot of credibility. It's China for China, okay? You ask, well, what's going on in your Indy plant? You've got gene synthesis there. You'll see it in the summer. It's an area that we have all the same capabilities as China. The difference is we have capacity issues. So we've got to invest in there. If you think about Twist versus us or in our oligo business, IDT versus us, we're a low-volume, very, very high-margin business. That's what we want, okay? Give the high volume and low margin to somebody else. We want that high-margin business in gene synthesis. A lot of capabilities there, more to come on that. It's early days. But I'm very excited about the potential there. I mean speaking to someone that's known the company for a very long time yesterday, he said, "John, I've never seen anything like it. Why aren't you guys behaving more? Like you've got capabilities here." I said, "Just give us some time."

Well, speaking of time, I think we're out of time. And it's a great 45 minutes, John, and I'm pretty sure we could go another 45.

Sure.

John, Lawrence, thank you guys for being here. I really appreciate it.

Well, thank you for having us, Jacob. We really appreciate it. Thank you.