Greetings, and welcome to the Azenta Q4 2022 Financial Results. [Operator Instructions]. As a reminder, this conference is being recorded Monday, November 14, 2022. I will now turn the conference over to Sara Silverman, Head of Investor Relations.

Thank you, operator, and good afternoon to everyone on the line today. We would like to welcome you to our earnings conference call for the fourth quarter of fiscal year 2022. Our fourth quarter earnings press release was issued after the close of the market today, and is available on our Investor Relations website located at investors.azenta.com in addition to the supplementary PowerPoint slides that will be used during the prepared remarks today. I would like to remind everyone that during the course of the call, we will be making a number of forward-looking statements within the meaning of the Private Litigation Securities Act of 1995. There are many factors that may cause actual financial results or other events to differ from those identified in such forward-looking statements. I would refer you to the section of our earnings release titled Safe Harbor Statement, the safe harbor slide on our aforementioned PowerPoint presentation on our website and our various filings with the SEC, including our annual reports on Form 10-K and our quarterly reports on Form 10-Q. We make no obligation to update these statements should future financial data or events occur that differ from the forward-looking statements presented today. We may refer to a number of non-GAAP financial measures, which are used in addition to and in conjunction with results presented in accordance with GAAP. We believe the non-GAAP measures provide an additional way of viewing aspects of our operations and performance, but when considered with GAAP financial results and the reconciliation of GAAP measures, they provide an even more complete understanding of the Azenta business. Non-GAAP measures should not be relied upon to the exclusion of the GAAP measures themselves. In addition, we may refer to certain estimates of COVID-based impacts. These figures are estimated based on our insights to the customer applications and/or product types indicating such demand or constraints on regional demand or ability to deliver. On the call with me today is our President and Chief Executive Officer, Steve Schwartz; and our Chief Financial Officer, Lindon Robertson. We will open the call with remarks from Steve on highlights of the fourth quarter. Then Lindon will provide a more detailed outlook into our financial results and our outlook. We will then take your questions at the end of the prepared remarks. With that, I would like to turn the call over to our CEO, Steve Schwartz.

Thank you, Sara. Good afternoon, everyone, and thank you for joining us today. As we report on results from the final quarter of fiscal 2022, it's an appropriate time to discuss the very different company we are now compared to when we entered the fiscal year. In the space of just 1 year, we've completed the dramatic pivot from a company that was a life sciences arm of Brooks Automation, who's a stand-alone publicly traded life sciences company. There was no small task to separate into 2 companies, and our results show today that it's been successful. And though we realize we have more work to do, today's announcements are evidence of the decisive actions we're taking to continue to drive value for Azenta shareholders. Over the past decade, we transformed a small cyclical semiconductor capital equipment components business into a global market leader. And as we did so, we leveraged the core technologies and cash flow from that business to create a unique world-class life sciences business that meaningfully outgrew the life sciences market over the past 5 years. Today, our revenues are 4x greater than they were 5 years ago. Now following the successful sale of the semiconductor business, we see this as the right time to reassess our approach to capturing the significant opportunity that lies in front of us and to make certain that we're doing all that we should to realize our purpose and in doing so, deliver exceptional shareholder value. So today, I report on 2 key initiatives that we're taking opportunistically to deliver that value and ensure the long-term success of the company. Today, we announced a significant near-term return of capital to shareholders and a meaningful realignment of our operations to recapture growth rates ahead of market growth. First, I'll talk about…

Thank you, Steve. As Steve discussed, with the successful transformation into a life sciences company behind us, we are focused and well positioned to take advantage of the growth opportunities ahead of us to create significant shareholder value. We continue to build our business and when we peel back the estimated impacts of COVID, we see clear signs of healthy organic growth, both in the Q4 and for the full year 2022 results. As I go through the financials, this will be a key focus to ensure you see the total reported results and the strong growth indicators, excluding COVID impacts. I now refer you back to the slide deck available on our website, turning to Slide 3 for some highlights. First, performance was strong in the quarter and full year. Fourth quarter revenue was $138 million, up $5 million or 4% sequentially. I'll say more in a few minutes, but this is up 12% on an organic year-over-year basis when adjusted to remove the estimated COVID impacts. On a sequential basis, growth in the quarter was notable in large automated stores, Sample Repository Solutions and in all areas of genomics. We also added Barkey to the business contributing to the sequential growth. I will provide more details in my segment remarks. Earnings per share improvement was evident on a GAAP and non-GAAP basis. Non-GAAP earnings per share was $0.16, up $0.04 year-over-year and sequentially. Adjusted EBITDA margin at 6.9% is reflecting investments and the softer gross margins. For the full year, revenue was up 8% as reported and on an organic basis excluding the impact of COVID, was up 17%. Over this past year, we completed the transformation into a stand-alone life science business, and we are well established as a global market leader in our space. There's nobody…

[Operator Instructions]. And your first question comes from the line of Vijay Kumar with Evercore ISI.

And congrats on the print and the ASR announcement. I guess you -- I had a couple of questions. One, I mean, let's start with the organic for the base business here. Double-digit -- low double-digit organic. You guys just had 12% Q4. Maybe talk about the macro situation, why perhaps organic, can be a little bit better? And when do you think we can get back to that LRP organic of high-teens here?

So Vijay, thanks for the question. It's an important one for us. So I'll give you a couple. We think we've done a pretty good job to understand where we are in the market. We're making -- it's not a uniform macro environment. So I'll give you a couple of pieces here. We had a record quarter for Sanger business has been in for 20 years. We had a record there. We saw a nice balance in the NGS business. India, we're still having -- we're still having softness in our synthesis business. And Lindon mentioned, we have some issues associated with our ability from a logistics standpoint in China. And frankly, our ability to get the products to customers quickly enough has caused us some issues with customers. So we think the market is healthy enough. We think the opportunities are there. And again, so I wouldn't call those macro, we're an aggressive enough player where we're doing things for customers. We think we can satisfy it and get the growth rates back. We have some logistic things to work. It will take us a couple of quarters probably on the synthesis side, just to get there. But NGS, we're pretty aggressive, Sanger continues to go strong. On the Product side, the bookings for the large automated stores are particularly strong, and that's a 2023 story as we get toward the back half, but the bookings have been record bookings for the large stores, but we'll start to see more revenue from that as we get to the second half of '23. And then on the consumables and instruments, that's -- we're finding the bottom there. And what I mean by that is when we get out of the COVID environment, we think we're probably to a run rate…

That's helpful commentary, Steve. And maybe the ASR and the share rebook here, that's a pretty big commitment, $1 billion for a company of your size. Does that perhaps seems to suggest, again, another way of getting back toward the bottom here in terms of growth rates? Maybe just talk about the timing of ASR and share report here last year.

Yes. Maybe I'll comment. Just as a reminder for everybody, the ASR itself is about $500 million. So we have -- we announced an authorization for $1.5 billion with a plan to execute a full $1 billion within the next year. But the $500 million ASR will launch in the coming days. And depending on where prices are, it will kind of set the pace for what we can accomplish how fast. Overall, I'll highlight to you that I think the market, according to our bankers, the market is going to be -- we'll be in a good spot to do $500 million. It will take a few months in most estimations based on our average daily trading volume. And that's why we give 1 year to do a full $1 billion. So Vijay, let me offer back to you if you want to come back with another question there, but trying to portray the characteristics we're seeing.

Understood. And Lindon, maybe one last one, if I may. If I just look at the guidance here for the year, 30% on the top line, inclusive of the acquisition, just some back of the envelope math, it looks like share count is going to be 15% below. And if I go back to your original margin commitment, I think back at the Analyst Day, it was 200, 300 basis points. And I understand it's a different environment, but assuming some margin expansion, we should be looking at least 50% EPS growth for fiscal '23. Does it seem right to you?

Well, I think that's probably a little aggressive. However, I'm not putting out an objective on the EPS. We'll watch how effective the market is in terms of taking shares back off the market. However, what I would highlight, bring you back to the EBITDA commentary we provided, that is as we leave the second half of this year, and I should just kind of emphasize what we're very cognizant of is we finished the year weaker than the second half. So our 7% that were coming off on the EBITDA basis is kind of our starting point of the fourth quarter. As we move through the year, we expect this to pass up through 10% midyear and an average about 10% for the year at least. So that's what we're focused on. This first step going into this next quarter, we see a couple of points of -- we have confidence in a couple of points of gross margin improvement in the first quarter, and we see some additional operating expenses. We return, you can imagine this year wasn't our best performance against our plans. And so in the first quarter, we'll be picking up some variable compensation accruals that we had foregone in the latter part of this year. So that will somewhat offset the gross margin. That's where -- that's why the EBITDA pickup will start off slower. But as we move through the year with the revenue ramp that Steve described, I think you'll see that pass through to 10%, and we'll finish the year up above that and averaged 10% for the year.

Your next question comes from the line of David Saxon with Needham.

Yes. Maybe starting with genomics. I mean, you called out a rebound there, which is nice to hear. What are you seeing that gives you confidence that this can be a sustained recovery?

Yes. So we hope it's a sustained recovery, David. So let me just give it a try. We really are readjusting our go-to-market capabilities to make sure that we're out getting the new customers that we used to get. So we spent a lot of time in the academic world, getting new opportunities, new customers and then we would grow go into all the small startups and making sure that the people we've been serving at other companies or at university, we're still purchasing from us. And we got away from that a little bit going after some larger opportunities. But we're really confident that we need to be doing both. We're going to continue to serve the large customers with good account coverage, and we're going to go and make sure we're calling on the individual scientists. And that's really what's always fueled the business and we got away from that a little bit. So we think that's a good long-term strategy for the company and that's one that we'll get back to. And we really had -- we've got away from that for just a little bit. But we think the opportunities are out there. We think the -- you can see the growth in Sanger is pretty strong, but we think ours is growing more than the market. So we continue to gain share for people who are no longer doing that work themselves. So we think there's good sustained growth there. We think the technologies that we have in the NGS world are allowing us to continue to capture more business. So we feel really confident about that. As I mentioned, on the synthesis side, we're not quite as confident about our ability to ramp that yet, but we think we're at the bottom and with a good chance to turn that on. And the customers that we serve, we're going to win because we turn things very quickly in high quality, and that's what we're going to sustain our focus on. So we think there's plenty of market opportunity and certainly tons of capability. Just making sure we're connected to the customers that we can bring that in and really challenge the lab capacity and manufacturing capacity we have in the company.

Okay. That's helpful. And then, Steve, another one for you. In the script, you called out sales synergies with B Medical and Barkey. Maybe can you give a little more color there? C.an you quantify kind of what -- how you're thinking about those synergies?

Sure. So I'll give you a few. When we talk about B Medical at €130 million, at least for 2023, we don't include some of these synergies for the ultra-cold freezers that they have for the blood management systems. So we think those are big opportunities, for example, in North America, where we have the most significant sales coverage and opportunities to take this capability to hospitals or clinics or to blood banks. So there are a number of touch points that we have because we're in the sample management business that allows us to also promote their capabilities where we have sales coverage. And from the standpoint of Barkey, the fact that they're thawing -- where we have now blood management systems and we have plasma-thawing devices, we think this is a great synergy. So wherever there's a place for blood management, there's a place for Barkey. Where there is a place for cryogenics to store the cell and gene therapy applications, there's a place for Barkey. So we're working on those synergies today where we have touch points or call points. We have one more thing in the portfolio that's offered to those same customers.

Great. And congrats on the quarter.

[Operator Instructions]. Your next question comes from the line of Jacob Johnson with Stephens.

Congrats on a really nice quarter. Maybe first just on the buyback, $1.5 billion is a pretty big number. Obviously, you've got a lot of cash. Why was that the right number? And then I think the inevitable question is M&A seems like something you're still interested in? Can you just talk about if something were to come along, what are your options to finance something like that?

Yes. So we have a lot of opportunity for sure. But it's tough, Jacob, for us to be secure on some of that's going to take that kind of cash. So from the standpoint of what's the right number, we've been really successful when we've had $100 million, $200 million, now $500 million to put to work, we feel really confident that, that's a good number for us. . The thing that we don't want to do is sit on cash for a long period of time. So we've had this much cash on the balance sheet now for 9 months. We evaluate the prospects, and we think that it will be a really adequate cash position that we have $500 million that we can put to work based on the landscape out there and the number of things that we've gone after. We also believe that success over these next couple of years, if we needed to have access to capital to a large deal that would be available to us. But right now, we think it's better for the shareholders to have it and allow us a chance to come back if we need it another time, if there's something larger than come present, we'd be all over it. And $500 million still a nice -- is a nice sum of money to do the kinds of things that we're doing about building a high-value portfolio here.

Yes. Just having $500 million, enviable position, for sure. And then I think in the last week or so, there's been some who've called out some headwinds from the macro environment on kind of large ticket freezer purchases. Does it sound like you're seeing that in the storage business or maybe in cryo either, but maybe just give you the opportunity to talk about kind of the macro backdrop from freezers and how we should think about growth in that offering in 2023.

Yes. It's -- we heard the commentary. And again, sometimes we just have different customers, a different customer base. We're not seeing that. At present, the business still feels pretty healthy. And we most of -- for example, most of our cryo systems go to people who are doing cell and gene therapy work on a pretty large scale. So we have a large number of customers with repeat orders and they've changed the means by which they handle those materials and they manage them and they go to manufacturer and those have moved now towards automation. And we think that's something that's pretty sustainable. But -- and as we talked about, the large automated stores are in -- by far, the strongest order position that we've ever had as a company. And so we see that continuing to grow. Now that we're in the ultra-cold freezer business a little bit with B Medical, we'll learn about that. So I can't comment yet, but we'll learn about that here in the coming quarters.

Your next question comes from the line of Yuan Zhi with B. Riley.

Congrats on the quarter. We have a couple of them. First, maybe somewhat repetitive here. So can you articulate the challenges you are facing right now and the plans that you guys have in place to address them?

I'm sorry, would you mind to repeat? We just -- we had a little connection issue on our side, please.

Yes. So can you articulate the challenges you guys are facing in different business segments and the plans you guys have in place to address them?

Maybe let me comment a little bit because we addressed some of the momentum, and we highlighted a little bit of the headwind and yet this still remains. But in the products business, definitely, the C&I is where we've had the biggest headwind on the COVID demands. And I would say even as Steve said, maybe we're finding bottom, but inventories are still out there. And I would say while it's -- while we're taking orders, it's a little bit of a slower rate than what we had seen in the past years pre COVID. So I wouldn't say it's back fully. But aside from that, and this really goes on the heels of the last question from the previous analyst. The automated store systems, the cryo business really has shown nothing but steam. When I say that, our cryo product line expanded 30% year-over-year for the year. Our automated large stores, we've seen -- we've reported now a couple of quarters this year, record bookings, and it's got a lot of momentum. And that represents significant infrastructure investment on our customers' part as well as the relevance and the importance of the reliable infrastructure that we provide to them in that market. And that's at their site. Meanwhile, if I shift from there over to the services space and sample repository solutions, as we highlighted double-digit growth there already, we've seen steady wins and steady volumes still coming in. So we think that's been a steady grower of the recurring revenue business. Now I'm back over to genomics. In genomics, we still -- we did see some nice turnaround there in terms of -- I should say turnaround is probably the wrong word. Some improvement in the growth rates back into the double digits. Frankly, even in China, we…

Yes. That's super helpful. And maybe one follow-up there is, like you mentioned, you are going to expand the product offering for B Medical in North America and then in ex-U.S. or in the territory of B Medical, you will your other part of the services. Just want to hear your thoughts on the OpEx investment on this different territory? And how should we think about the OpEx over the next 12 to 18 months?

So Yuan, this is Steve. So I'll comment on the things that we're doing from an OpEx standpoint. We have pretty good sales coverage. We're going to continue to add more sales people to make sure that we cover not just the accounts but also the specific technologies, products and services that we have with those accounts. So you see our spending up just a little bit, but we're pretty close to where we need to be from the standpoint of sales coverage for those added capabilities. So that's -- those investments are for the most part in place. In terms of -- anyway, those are the things that are in place already. So I'll let Lindon take it with a follow-up.

Yes. On the operating expense, let me just give a little color. We said we'll be adding some in our base business partly because of significant return to accruing for variable comp and stock comp for our teammates on the beginning of a fiscal year. We had taken most of those accruals out of the fourth quarter to rightsize the year for the payouts on a poor performance. But on a new year, you start accruing. When you take that and combine with the addition of B Medical, you're going to see some operating expansion. And I'll highlight to you that we see -- I think of it as roughly about $15 million from B Medical added in the first quarter of operating expense that we'll be spending on that business. Now as we go through the year, we'll be supporting that further partly around the G&A structure as we highlighted previously. We put some of that investment in already, but B Medical extends in a public company environment, a little more structural requirements that we'll have that they didn't necessarily have in a compliance sense. So we're in good shape there, but I'd highlight that for your modeling. That's a significant jump.

And your next question is a follow-up from the line of Vijay Kumar with Evercore.

One just on the COVID assumptions for the guidance. What is the total COVID guidance -- excuse me, COVID headwinds that the guidance is assuming for fiscal '23 in the base business? And the B Medical revenues of $130 million, Lindon, does that include any COVID revenues?

Yes. So the headwind that we'll have roughly think of 2022 as having $22 million of revenue for the full year. Most of that's in the first half. We only had modest amounts. And frankly, it was even more modest because we had the headwinds that we are constraints in the China market in Q3 and a little bit in Q4. But in the first half, we had, if you recall, $10 million to $11 million each quarter for C&I. So that's the biggest headwind. Once we get through first half, you're going to see this become pretty much just modest noise level. So with that said, going forward, we really have very modest expectations. Think of about $1 million a quarter, plus or minus going forward, depending on whether we have any more disruptions in China. That might hold us back a little bit. But in our positive revenue that we'll be carrying, we still have some vaccine management going forward. We're doubtful that we'll see much in the C&I space. This quarter, it was just very, very modest in the C&I space. And by the way, Vijay, I'll point out to you and the other investors listening in. When you look at our chart deck this quarter, with the aim towards just giving a lot more clarity on this growth capability peeling out the COVID, on the very last page of our chart deck, we did provide a table to give you the historical by quarter, the breakout of the FX, the M&A and then the COVID impacts by quarter. So you'll have a good historical base that baseline to use.

That's helpful, Lindon. And sorry, on the B Medical guidance of $130 million, is there any COVID revenue in that $130 million?

They'd be modest. In this current quarter, they have highlighted a couple of mix. So that's a good point. When I was referring to $1.25 million, that is -- that's a number on our base business, and B Medical did highlight that at the $45 million that we're looking at this quarter, there will be a couple of million. And I'll highlight that we don't foresee it's going to be more than that in the quarters going forward. Of course, that business will move around. It's lumpy, as we said, a little bit unpredictable in terms of what kind of orders may come in on projects. But they don't foresee that COVID is the driver in 2022 nor 2023, I should say, predict on '23 as it was in 2022.

Understood. And if I could just squeeze a quick 30 second, Lindon. On the margins, your 10% EBITDA margins, can you talk about what's the impact from FX, inflation, pricing, maybe acquisitions, perhaps being a drag? Because I think if I go back to the LRP model, we were expecting triple-digit margin expansion, right? Is that mostly a function of lower revenues, volume leverage being lower? Or do you have some additional impact from inflation and FX heading into '23?

So it depends if you're looking at a year-over-year basis, just keep in mind that from first half '22 to second half '22, we had the decline that you've seen. So we're coming off of a lower point at the end of 2022. And as I said, we'll see a couple of -- we're pretty confident that we'll have a couple of points of gross margin improvement in the first quarter. And as we move through the year, we do expect that, that will sustain and continue. It will -- I will highlight that the B Medical business will have a higher skew in this December quarter. And when they typically will have a little lower revenue in the follow-on quarters, and that will bring down their leverage a little bit. But the rest of our business will -- we expect some stability in increasing. Now the FX impacts, we do anticipate a bit in our year-over-year headwinds of 2 to 3 points for the year. And in that context, we'll report on that as we move through the year. That's just based on where the rates sit currently.

And there are no further questions. I'll turn the call back to Lindon Robertson for closing remarks. Thank you.

Thanks, operator. Everybody, this was certainly an exciting year for us in a lot of regards. We -- while we had headwinds in the middle of the year, and we were certainly in action and a little bit of recovery mode in Q4, we feel like we've turned the corner there in many regards. We still have work to be done. Transformation's behind us. We're into a stand-alone life science business like nobody has seen before, centered around infrastructure services around the sample. And we couldn't be more excited about the portfolio we have, but also about the prospects we have. Not just with what we have ran in 2022, but what we've acquired and the teammates that have joined us at B Medical and at Barkey already proving tremendous value as we look into this quarter. With that said, we look forward to seeing you out on the street, so to speak. We'll be at conference just about each week for the next 3 weeks. And we look forward to engaging with you and meeting with you and seeing you at the end of the quarter. Thank you for being with us today and your interest in the company.

And all, that does conclude the Azenta Q4 2022 financial results call. We thank you very much for your participation. You may now disconnect.