Azenta, Inc. Form 10-Q Summary
Business context and reporting period
Azenta, Inc. is a global life sciences company providing sample management, automated storage, genomic services, cold-chain solutions, and related products. This unaudited Form 10-Q covers the quarter and nine months ended June 30, 2022, compared with the corresponding 2021 periods. Results have been recast to present the semiconductor automation business as discontinued operations.
Azenta completed the sale of its semiconductor automation business on February 1, 2022, for approximately $2.9 billion in cash. The company no longer serves the semiconductor market and now reports two continuing segments: Life Sciences Products and Life Sciences Services.
Key financial metrics
| Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Nine months ended June 30, 2022 | Nine months ended June 30, 2021 |
|---|---|---|---|---|
| Revenue | $132.7 million | $129.1 million | $417.9 million | $376.8 million |
| Gross profit | $59.6 million | $62.4 million | $197.5 million | $177.7 million |
| Gross margin | 44.9% | 48.4% | 47.2% | 47.2% |
| Operating loss | $5.1 million | $0.9 million | $10.1 million | $9.8 million |
| Loss from continuing operations | $7.0 million | $1.8 million | $6.0 million | $6.5 million |
| Net income | $(9.6) million | $39.2 million | $2.154 billion | $88.9 million |
| Basic and diluted earnings per share | $(0.13) | $0.53 | $28.76 | $1.20 |
- Quarterly revenue increased 3%, led by a 6% increase in Life Sciences Services; Life Sciences Products declined 3%.
- Nine-month revenue increased 11%, with Life Sciences Products up 3% and Life Sciences Services up 16%.
- Quarterly gross margin declined 350 basis points, primarily from product mix, inventory adjustments, logistics costs, higher labor costs, and COVID-related disruption in China. Nine-month gross margin was unchanged.
- Quarterly adjusted operating income by segment was $2.2 million for Life Sciences Products and $2.3 million for Life Sciences Services. Combined segment adjusted operating margin was 3%, versus 8% in the prior-year quarter.
- Interest income increased to $6.8 million for the quarter and $9.9 million for the nine months, mainly from cash proceeds invested after the divestiture and interest on a net investment hedge.
- The nine-month net income includes approximately $2.1 billion of net gain from the semiconductor automation divestiture. The quarter included a $2.6 million loss from discontinued operations.
Cash flow, liquidity, debt, and balance sheet
- Cash, cash equivalents, and restricted cash were $1.486 billion at June 30, 2022, versus $285.3 million at September 30, 2021.
- Marketable securities totaled approximately $1.021 billion, compared with $3.7 million at September 30, 2021. Total cash, restricted cash, and marketable securities were approximately $2.507 billion.
- Operating cash flow was negative $475.7 million for the nine months, primarily reflecting $431.6 million of taxes and $52.5 million of fees related to the divestiture, working-capital investment, and other operating uses.
- Investing cash flow was positive $1.840 billion, including $2.926 billion of net divestiture proceeds, offset by $1.526 billion of marketable-security purchases and $59.7 million of capital expenditures.
- Financing cash flow was negative $64.5 million, including $49.7 million of debt repayment, $10.4 million of acquisition-related contingent consideration, and $7.5 million of dividends.
- The $200 million term loan was extinguished on February 1, 2022, and the revolving credit facility was terminated. The company reported no outstanding debt at June 30, 2022.
- Non-cancellable commitments totaled $78.6 million, primarily inventory purchase orders of $65.0 million and information-technology commitments of $13.1 million.
- Management stated that available resources should satisfy working-capital, capital-expenditure, financing, and debt-service requirements for the next twelve months.
Material changes versus the prior comparable period
- The company completed its transformation into a life sciences-focused business through the semiconductor automation divestiture.
- Continuing-operations revenue grew, but quarterly profitability weakened due to lower gross margin and higher operating expenses.
- Research and development expense increased to $6.5 million for the quarter and $19.9 million for the nine months, reflecting investment in automated storage, cryogenic storage, instruments, and services.
- Selling, general, and administrative expense increased to $58.1 million for the quarter and $187.4 million for the nine months, driven mainly by commercial, laboratory, staffing, and standalone-company costs.
- The company paid $5.9 million toward tariff liabilities during the quarter. The tariff accrual was $1.8 million at June 30, 2022, versus $7.0 million at September 30, 2021.
- Foreign-exchange translation reduced accumulated other comprehensive income by $85.2 million during the nine months, and foreign-exchange effects reduced cash by $99.0 million.
Guidance, outlook, commentary, and risks
- The filing does not provide quantitative revenue, earnings, or margin guidance.
- Management expects to continue investing in research and development and pursuing strategic acquisitions in the life sciences market.
- COVID-19 caused a two-week closure of the Suzhou, China facility during the quarter and affected customer orders, production, labor, and logistics. Management stated that the pandemic’s future effect remains uncertain.
- On July 1, 2022, Azenta acquired Barkey Holding GmbH for approximately €80 million, subject to customary adjustments.
- On August 8, 2022, Azenta agreed to acquire B Medical Systems for approximately €410 million, plus up to €50 million of contingent consideration. Closing was expected in October 2022, subject to customary conditions.
- Key risks include global economic conditions, customer demand, supply-chain disruption, tariffs and export controls, foreign-exchange movements, competition, cybersecurity, regulatory compliance, employee retention, acquisitions and integration, and COVID-related shutdowns.
- Azenta remains subject to ordinary-course legal proceedings and indemnification claims related to prior divestitures. Management does not currently expect these matters to have a material adverse effect, but outcomes remain uncertain.
- The company had approximately $1.1 billion of cash, cash equivalents, and restricted cash held outside the United States, which could require repatriation if needed for U.S. operations.
Most important facts for investors to verify
- Whether the post-divestiture life sciences business can sustain revenue growth while restoring quarterly gross and operating margins.
- The cash deployment plan for the approximately $2.5 billion of expected net divestiture proceeds, including the B Medical acquisition and other potential acquisitions.
- The final purchase price allocation, financing, and integration performance for Barkey and B Medical.
- The amount and timing of remaining taxes, transaction fees, retention payments, contingent consideration, tariff liabilities, and other divestiture-related obligations.
- The effect of COVID-related closures, supply-chain constraints, labor costs, logistics expenses, and foreign-exchange movements on future results.
- The marketable-securities portfolio, including approximately $909.6 million of securities in an unrealized-loss position at June 30, 2022, and the company’s ability to hold those investments to recovery or maturity.
- Whether the company’s stated liquidity remains adequate after acquisitions, capital expenditures, operating losses, commitments, and other strategic investments.