Azenta Announces $1.5B Share Buyback, Reports Q3

Azenta, Inc. (Nasdaq: AZTA) today reported financial results for the fourth quarter and fiscal year ended September 30, 2022.

Management Comments

Steve Schwartz, President and CEO, stated, "We exit fiscal 2022 having successfully transformed into a standalone life sciences business with significant opportunities ahead of us. We achieved strong double-digit organic growth of 12% in the quarter and 17% in the fiscal year, excluding estimated COVID impacts. In the fourth quarter of fiscal 2022, we regained momentum in our genomics business and saw sustained strength in large-automated stores, which posted another record bookings quarter. We remain focused on execution and on driving broader adoption of our unique offerings.

"We're also pleased to announce that our Board has authorized a new $1.5 billion share repurchase program and we intend to repurchase at least $1 billion of common stock over the coming year, beginning with a $500 million accelerated share repurchase. This program is a testament to our commitment to returning value to shareholders. It underscores our strong capital position, and our view that we have significant upside opportunity. Even with this meaningful repurchase of shares, we expect to have sufficient capital available to deploy for additional growth investment consistent with our long-term strategy, and we will continue to generate value for shareholders as we pursue opportunities to extend our industry leading position.

"We also announced that as part of our ongoing transformation we are nominating two new directors to our board. Both are outstanding life sciences executives with track records of creating value who will stand for election at our next annual shareholder meeting. These nominees will replace two of our directors who will not be standing for re-election."

Summary of Fourth Quarter and Full Year Fiscal 2022 Results

Revenue excludes revenue from the Semiconductor Automation business which was sold on February 1, 2022. Profits related to this business are included in discontinued operations. The Company has referenced in the explanation of revenue the estimated impact of COVID. Estimated impact of COVID includes 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.

Fourth Quarter, Fiscal 2022

Summary of GAAP Results

• Revenue was $138 million, flat year over year and up 4% sequentially. Year over year organic growth was 2%, which excludes over 4 percentage points of headwind from foreign exchange and a 3 percentage point contribution from the acquisition of Barkey Holding GmBH ("Barkey") completed on July 1, 2022.
• Organic growth was 12% year over year when excluding the COVID impact in both periods. The estimated COVID impact was approximately $1 million in the fourth quarter of fiscal 2022 compared to a $12 million contribution in the prior year period.
• Life Sciences Products revenue declined 9% year over year mainly due to lower revenue in the consumables and instruments ("C&I") business, partially offset by strong high-teens growth in our large-automated stores business. The acquisition of Barkey contributed $4 million to revenue. Organic revenue declined 10% year over year and was up 13% excluding COVID impacts in both periods.
• Life Sciences Services revenue grew 6% year over year, with 9% growth in sample repository solutions ("SRS") driven by revenue from stored samples and 6% growth in genomics driven by next-generation and sanger sequencing. Organic growth was 10% year over year and up 11% excluding COVID impacts in both periods.
• Operating loss was $15 million, a $7 million improvement year over year primarily due to the retirement of tradenames related to the rebranding of the Life Sciences business that took place in the fourth quarter of 2021. Gross margin was 42.3%, down 600 basis points year over year.
• Diluted EPS from continuing operations was ($0.07) compared to ($0.30) in fourth quarter of fiscal 2021. Total diluted EPS of ($0.28) includes ($0.21) of diluted EPS primarily from tax adjustments in discontinued operations related to the sale of the Semiconductor Automation business. Other income included $10 million of net interest income versus a $0.4 million expense in the prior year period. Fourth quarter 2021 non-operating expenses included $16 million of charges for the release of a tax indemnification asset, which was offset within the tax expense with the reduction of tax liability.

Summary of Non-GAAP Results

• Operating income was $2 million and operating margin was 1.5%, down 670 basis points year over year. Gross margin was 43.8%, down 580 basis points year over year. Operating expense in the quarter was $58 million, up $1 million year over year. Inflation, foreign exchange and product mix as well as incremental strategic investments for growth added pressure to the Company's margin performance in the fourth quarter of fiscal 2022.
• Diluted EPS for the fourth quarter of fiscal 2022 was $0.16, up $0.04 versus one year ago.
• Adjusted EBITDA, which excludes stock-based compensation, was $9 million and Adjusted EBITDA margin was 6.9%, down 860 basis points year over year.

Full Year, Fiscal 2022

Summary of GAAP Results

• Revenue for fiscal 2022 was $555 million, up 8% year over year. Organic growth was 9%, which excludes a 2 percentage point headwind from foreign exchange and a 2 percentage point contribution from acquisitions.
• Organic growth was 17% year over year when excluding the estimated COVID impact in both periods. The COVID impact was $22 million in fiscal 2022 compared to $53 million the prior year.
• Life Sciences Products revenue was $199 million, flat year over year driven by lower C&I revenue offset by increases across all other business lines and the addition of Barkey in July 2022. Organic revenue declined 1% year over year and was up 13% excluding estimated COVID impacts in both periods.
• Life Sciences Services revenue was $356 million, up 13% year over year, with 18% growth in SRS driven by stored samples and 11% growth in genomics with expansion across all major business lines. Organic growth was 15% year over year and was 18% excluding COVID impacts in both periods.
• Operating loss was $25 million, a $6 million improvement year over year primarily due to the retirement of tradenames related to the rebranding of the Life Sciences business and a charge related to liabilities for tariffs related to imports in prior fiscal years that took place during fiscal 2021 and did not repeat in fiscal 2022, partially offset by inflation and investment in the business. Gross margin was 46.0%, down 150 basis points year over year.
• Diluted EPS from continuing operations was ($0.15) compared to ($0.39) in fiscal 2021. Total diluted EPS of $28.48 includes $28.63 of diluted EPS from discontinued operations related to the sale of the Semiconductor Automation business. Other income included $16 million of net interest income versus a $1 million expense in the prior year.

Summary of Non-GAAP Results

• Operating income was $28 million and operating margin was 5.1%, down 400 basis points year over year. Gross margin was 47.3% down 280 basis points year over year. Operating expense was $234 million, up $24 million year over year. Full year margins were impacted by inflation and strategic investments for growth as well as unfavorable foreign exchange and product mix weighing on second half results.
• Diluted EPS for fiscal 2022 was $0.51, up $0.03 versus fiscal 2021.
• Adjusted EBITDA, which excludes stock-based compensation, was $62 million and Adjusted EBITDA margin was 11.3%, down 550 basis points year over year.

Cash and Liquidity as of September 30, 2022

• The Company ended fiscal year 2022 with a total balance of cash, cash equivalents, restricted cash and marketable securities of $2.3 billion.

Subsequent Events

• On October 3, 2022, the Company completed the acquisition of B Medical Systems S.a.r.l ("B Medical"), a global leader in temperature-controlled storage and transportation solutions for approximately $422 million in cash, which includes an adjustment for cash acquired and other items. Additional cash consideration, up to approximately $50 million, may be paid upon achievement of certain future performance milestones.
• Following the completion of the B Medical acquisition, the Company had a total balance of cash, cash equivalents, restricted cash and marketable securities of approximately $1.9 billion.

New Share Repurchase Program

The Company's Board of Directors has approved a share repurchase authorization of $1.5 billion in common stock. The Company intends to repurchase at least $1 billion in common stock over the next year, including an accelerated share repurchase (ASR) program to repurchase approximately $500 million in common stock. Azenta intends to enter into an ASR agreement in the coming days.

Repurchases of the Company's common stock may be made in the open market or through privately negotiated transactions (including the ASR program), or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, subject to market and business conditions, legal requirements, and other factors. This share repurchase authorization does not obligate Azenta to acquire any particular amount of common stock, and share repurchases may be commenced or suspended at any time at the Company's discretion.

Board of Directors Nominations

Today the Company announced that Tina S. Nova, Ph.D. and Dorothy E. Puhy have been nominated for election to its Board of Directors at the Company's 2023 Annual General Meeting. Current directors Mark Wrighton, Ph.D. and Alfred Woollacott, III have stated their intention to retire from the Board and not to run for re-election. Please refer to the Company's separate press release for further information.

Guidance for Continuing Operations for First Quarter and Full Year Fiscal 2023

The Company announced guidance for continuing operations for the first quarter and full year fiscal 2023.

For the first quarter, revenue is expected to be in the range of $175 to $190 million and non-GAAP diluted earnings per share is expected to be in the range of $0.08 to $0.16. GAAP diluted earnings per share from continuing operations is expected to be in the range of ($0.20) to ($0.12).

For the full year, total revenue is expected to grow approximately 30%.

Conference Call and Webcast

Azenta management will webcast its fourth quarter and full year fiscal 2022 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 800-936-4761 (US & Canada only) or +1-212-231-2922 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 focus and execution and adoption of our offerings, 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: 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.