Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Azenta Inc (AZTA, Financial) reported a strong quarter with organic revenue up 5% year over year and 9% sequentially.
- Sample Management Solutions segment grew 7% year over year, with cryogenic stores revenue up almost 40%.
- The Multiomics GENEWIZ team delivered 1% organic year-over-year revenue growth and 2% sequential growth despite a down market.
- Azenta Inc (AZTA) achieved an adjusted EBITDA margin of 10.3%, marking a 260 basis point expansion year over year.
- The company turned profitable in Q3, delivering an operating profit of $4.6 million, a significant improvement after six quarters of losses.
Negative Points
- Azenta Inc (AZTA) lowered its full-year revenue guidance to a range of down 2% to down 1%, citing delays in B Medical and OEM product lines.
- Non-GAAP gross margin was down 40 basis points year over year, driven by nonrecurring items from the previous year.
- The Sanger sequencing business saw an 8% organic year-over-year decline, although it grew 4% sequentially.
- Free cash flow was slightly negative in the quarter, with a usage of $5 million driven by the timing of billings.
- The company is still in the process of optimizing and closing additional sites, which may incur further costs and operational disruptions.
Q & A Highlights
Q: Cryogenic freezers were up 40% in the quarter. What drove this growth?
A: Stephen Schwartz, President, CEO, Director: The growth was driven by multiple system orders for automated systems, which customers have verified as their preferred choice. These systems are not huge ticket items, ranging from $150k to $250k, and we haven't seen reluctance from customers to keep purchasing.
Q: How are you managing resources for B Medical given the variability in revenue streams?
A: Herman Cueto, CFO, EVP: We are focusing on making B Medical an accretive EBITDA margin business for the long haul. We continue to see value in the sample acquisition strategy and are rotating resources to growing areas while implementing cost-saving measures as part of the Ascend 2026 program.
Q: Can you explain the factors contributing to the expected 250 bps sequential step-up in EBITDA margin for Q4?
A: Herman Cueto, CFO, EVP: The Ascend 2026 program is bearing fruit faster than anticipated, with significant cost-saving measures already implemented, such as site closures and optimizations. This has contributed to margin expansion.
Q: What are you seeing in the Consumables and Instruments (C&I) end markets, and what led to the guidance change for SMS?
A: Herman Cueto, CFO, EVP: C&I grew 17% in Q3, with strong revenue growth in consumables and instruments. The guidance change for SMS is due to the timing of OEM product line orders shifting from the second half of '24 to Q1 of '25, not lost volume.
Q: Can you elaborate on the demand elasticity driving more outsourced NGS demand this cycle?
A: Stephen Schwartz, President, CEO, Director: Compared to previous cycles, customers are delaying tool purchases and outsourcing more sequencing work to us. We added over 700 new customers this quarter, indicating strong momentum and increased quote activity.
Q: How are you achieving the 300 bps margin expansion despite lower top-line guidance?
A: Herman Cueto, CFO, EVP: The Ascend 2026 program's cost-saving measures, such as site closures and optimizations, are contributing to margin expansion. We are also benefiting from operational efficiencies and improved cost structures.
Q: Are there any further site closures expected in the coming quarters?
A: Herman Cueto, CFO, EVP: Yes, we have a few more site closures in progress, but the timing of these closures is not yet disclosed.
Q: Has the transition to the new NovaSeq X Plus in the Multiomics business finished, and are you seeing a revenue step-up?
A: Herman Cueto, CFO, EVP: The transition is complete, and we are seeing positive signs with NGS growing 3% in Q3, the largest growth in the past year. The new technology has enabled us to maintain margins despite price erosion.
Q: Is the volume growth in NGS a proxy for future growth as pricing headwinds normalize?
A: Stephen Schwartz, President, CEO, Director: We hope so. Customer behavior indicates more outsourcing, and we anticipate continued progress. Volume growth has been strong, and we are well-positioned to take on more customer business.
Q: Are customers pushing for US manufacturing for synthesis, and how are you addressing this?
A: Herman Cueto, CFO, EVP: Customers ask about US manufacturing for risk mitigation, and we are prepared to move more manufacturing to North America if needed. However, there is no significant push from customers, and our current structure is sufficient.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
