Business Context and Reporting Period
Azenta, Inc. is a global provider of life-sciences sample management, automated storage, genomic services, and cold-chain solutions. The company operates through Life Sciences Products and Life Sciences Services. The semiconductor automation business was sold in February 2022 and is reported as discontinued operations.
This unaudited Form 10-Q covers the three and nine months ended June 30, 2023, compared with the corresponding periods ended June 30, 2022. Azenta had approximately 3,500 workers and served customers in more than 150 countries at quarter-end.
Financial Metrics
| Metric | Three months ended June 30, 2023 | Prior-year period | Nine months ended June 30, 2023 | Prior-year period |
|---|---|---|---|---|
| Revenue | $165.9 million | $132.7 million | $492.7 million | $417.9 million |
| Gross profit | $68.0 million | $59.6 million | $195.1 million | $197.5 million |
| Gross margin | 41.0% | 44.9% | 39.6% | 47.2% |
| Operating loss | $15.8 million | $5.1 million | $56.5 million | $10.1 million |
| Loss from continuing operations | $2.5 million | $7.0 million | $15.7 million | $6.0 million |
| Net loss | $1.5 million | $9.6 million | $17.6 million | Net income of $2.2 billion |
| Basic and diluted loss per share | $0.02 | $0.13 | $0.26 | Income of $28.76 |
Products revenue was $67.3 million in the quarter and $205.0 million year to date; services revenue was $98.7 million and $287.7 million, respectively. Life Sciences Products revenue increased 57% in the quarter and 48% year to date, primarily from the B Medical and Barkey acquisitions. Life Sciences Services revenue increased 7% in the quarter and 1% year to date.
Interest income was $11.3 million in the quarter and $32.4 million year to date, compared with $6.8 million and $9.9 million in the prior-year periods. Azenta reported no interest expense in 2023, versus $2.1 million in the quarter and $4.1 million year to date in 2022.
For the nine months, operating cash flow was negative $22.4 million, investing cash flow was positive $328.9 million, and financing cash flow was negative $677.2 million. Capital expenditures were $29.2 million. Cash, cash equivalents, and restricted cash totaled $736.2 million at June 30, 2023.
Cash and cash equivalents were $733.4 million, marketable securities were $559.9 million, and total liquidity including restricted cash was approximately $1.30 billion. The balance sheet reported no outstanding debt; long-term liabilities principally included operating lease liabilities of $61.8 million. Total assets were $3.07 billion and stockholders’ equity was $2.72 billion.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue increased 25% and nine-month revenue increased 18%, but reported gross margin declined 3.9 percentage points in the quarter and 7.6 percentage points year to date.
- Revenue growth was substantially acquisition-driven. Excluding B Medical and Barkey, Life Sciences Products revenue declined approximately 10% in the quarter and 16% year to date, primarily because of lower consumables and instrument demand, including reduced COVID-19-related demand.
- Quarterly operating loss widened by $10.8 million, while the nine-month operating loss widened by $46.4 million. Selling, general and administrative expense increased $17.3 million in the quarter and $54.6 million year to date.
- Acquisition-related amortization and purchase-accounting inventory charges reduced reported profitability. These charges totaled $6.0 million in the quarter and $22.5 million year to date for completed-technology amortization and inventory purchase-accounting impacts, before other intangible amortization.
- The fair value of B Medical contingent consideration was reduced to zero at June 30, 2023, producing an operating benefit of $1.4 million in the quarter and $18.5 million year to date.
- Azenta paid $672.1 million for share repurchases during the first nine months, including completion of a $500.0 million accelerated share repurchase and additional open-market purchases. Approximately 14.0 million shares were repurchased during the reported quarter, and $828 million remained available under the authorization at June 30.
- Goodwill increased from $513.6 million to $793.6 million and intangible assets increased from $178.4 million to $312.1 million, primarily due to the B Medical and Ziath acquisitions and foreign-currency translation.
Outlook, Commentary, Risks, and Unusual Items
The filing does not provide quantitative revenue, margin, earnings, or cash-flow guidance. Management expects cost-reduction and reorganization actions to be substantially realized by the end of calendar 2023; restructuring charges were $0.8 million in the quarter and $3.8 million year to date.
Management stated that current cash and cash equivalents should fund operating expenses and capital expenditures for at least one year from the filing date and for the foreseeable future. However, longer-term liquidity needs remain difficult to predict, and additional financing may not be available on favorable terms.
- COVID-19-related revenue was estimated at $2.0 million in the quarter and $6.0 million year to date, compared with $1.0 million and $21.0 million in the prior-year periods.
- Inflation, higher labor costs, unfavorable product mix, and investment in service capacity pressured margins.
- Goodwill testing identified no impairment as of March 31 or April 1, 2023; management stated that weaker performance, a prolonged downturn, lower share price, or adverse forecast changes could trigger future impairment testing or charges.
- The company had $70.8 million of non-cancellable commitments, consisting primarily of inventory purchase orders and information-technology commitments.
- An Edwards Vacuum-related 2020 indemnification claim remained outstanding with a $1.7 million accrued liability. The company believes the matter is not expected to materially affect consolidated results, but the ultimate outcome remains uncertain.
- Following quarter-end, Azenta repurchased an additional 2.0 million shares for $91.6 million.
- B Medical represented approximately 17% of nine-month consolidated revenue. Its internal controls were excluded from management’s assessment under the SEC’s one-year acquisition transition guidance.
- After quarter-end, the Principal Accounting Officer resigned effective August 18, 2023, and the company appointed its Corporate Controller as successor. The company also amended and restated its bylaws, including changes to stockholder nomination procedures and exclusive-forum provisions.
Important Facts for Investors to Verify
- Whether revenue growth from B Medical and Barkey translates into sustainable organic growth and improved margins.
- The pace at which cost-reduction initiatives offset elevated SG&A, labor, integration, and service-capacity costs.
- The effect of acquisition-related amortization, inventory step-up charges, and goodwill assumptions on future reported earnings.
- Cash generation after substantial share repurchases, acquisitions, capital expenditures, and remaining purchase commitments.
- The final amount and timing of the B Medical contingent consideration and the resolution of the Edwards Vacuum claim.
- Whether declining COVID-related demand, inflation, supply-chain disruption, foreign-exchange movements, and customer concentration continue to affect results.
- The integration of B Medical’s financial controls and the effect of the Principal Accounting Officer transition.