UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
For the quarterly period ended: | |
OR | |
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from __________ to _________
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incorporation or organization) | Identification No.) |
(Address of principal executive offices)
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date, February 5, 2024: common stock, $
AZENTA, INC.
Table of Contents
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INFORMATION RELATED TO FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains statements that are, or may be considered to be, forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995, as amended, Section-27A of the Securities Act of 1933, as amended (the “Securities Act”); and Section-21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements that are not historical facts, including statements about our beliefs or expectations, are forward-looking statements. These statements may be identified by such forward-looking, terminology as “expect,” “estimate,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “likely” or similar statements or variations of such terms. Forward-looking statements include, but are not limited to, statements that relate to our future revenue, margins, costs, operating expenses, tax expenses, capital expenditures, earnings, profitability, product development, demand, acceptance and market share, competitiveness, market opportunities and performance, levels of research and development, the success of our marketing, sales and service efforts, outsourced activities, anticipated manufacturing, customer and technical requirements, the ongoing viability of the solutions that we offer and our customers’ success, our management’s plans and objectives for our current and future operations and business focus, our share repurchase authorization, litigation, our ability to retain, hire and integrate skilled personnel, our ability to identify and address increased cybersecurity risks, including as a result of employees continuing to work remotely, the anticipated growth prospects of our business, the expected benefits and other statements relating to our divestitures and acquisitions, the adequacy, effectiveness and success of our business transformation initiatives, our ability to continue to identify acquisition targets and successfully acquire and integrate desirable products and services and realize expected revenues and revenue synergies, our adoption of newly issued accounting guidance, the levels of customer spending, our dependence on key suppliers or vendors to obtain services for our business on acceptable terms, including the impact of supply chain disruptions, general economic conditions, the impact of inflation, and the sufficiency of financial resources to support future operations. Such statements are based on current expectations and involve risks, uncertainties, and other factors which may cause the actual results, our performance or our achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include the risk factors which are set forth in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 (the “2023 Annual Report on Form 10-K”) filed with the Securities and Exchange Commission (“SEC”) on November 21, 2023, as updated and/or supplemented in subsequent filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q hereof and are based on information currently and reasonably known to us. We do not undertake any obligation to release revisions to these forward-looking statements, to reflect events or circumstances that occur after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence or effect of anticipated or unanticipated events. Precautionary statements made herein should be read as being applicable to all related forward-looking statements wherever they appear in this Quarterly Report on Form 10-Q. Any additional precautionary statements made in our 2023 Annual Report on Form 10-K should be read as being applicable to all related forward-looking statements whenever they appear in this Quarterly Report on Form 10-Q.
Unless the context indicates otherwise, references in this Quarterly Report on Form 10-Q to “we”, “us”, “our”, “the Company”, and other similar references refer to Azenta, Inc. and its consolidated subsidiaries.
TRADEMARKS, TRADE NAMES AND SERVICE MARKS
This Quarterly Report on Form 10-Q includes our trademarks, trade names and service marks, which are our property and are protected under applicable intellectual property laws. Solely for convenience, trademarks, trade names and service marks may appear in this Quarterly Report on Form 10-Q without the ®, TM and SM symbols, but such references are not intended to indicate, in any way, that we or the applicable owner forgo or will not assert, to the fullest extent permitted under applicable law, our rights or the rights of any applicable licensors to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply a relationship with, or endorsement or sponsorship of us by, these other parties.
INDUSTRY AND OTHER DATA
Unless otherwise indicated, information contained in this Quarterly Report on Form 10-Q concerning our industry and the markets in which we operate, including our general expectations, market position and market opportunity, is based on management’s estimates and research, as well as industry and general publications and research, surveys and studies conducted by third parties. We believe the information from these third-party publications, research, surveys and
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studies included in this Quarterly Report on Form 10-Q is reliable. Management’s estimates are derived from publicly available information, their knowledge of our industry and their assumptions based on such information and knowledge, which we believe to be reasonable. This data involves a number of assumptions and limitations which are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the 2023 Annual Report on Form 10-K and those described in this Quarterly Report on Form 10-Q under “Information Related to Forward-Looking Statements” above and Part II, Item 1A “Risk Factors” below. These and other factors could cause our future performance to differ materially from our assumptions and estimates.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AZENTA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(In thousands, except share and per share data)
December 31, | ||||||
2023 | 2023 | |||||
Assets |
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Current assets |
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Cash and cash equivalents | $ | | $ | | ||
Short-term marketable securities |
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Accounts receivable, net of allowance for expected credit losses ($ |
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Inventories |
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Derivative asset | — | | ||||
Short-term restricted cash | | | ||||
Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Long-term marketable securities |
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Long-term deferred tax assets |
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Goodwill |
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Intangible assets, net |
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Other assets |
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Total assets | $ | | $ | | ||
Liabilities and stockholders' equity |
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Current liabilities |
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Accounts payable | $ | | $ | | ||
Deferred revenue |
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Accrued warranty and retrofit costs |
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Accrued compensation and benefits |
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Accrued customer deposits | | | ||||
Accrued VAT payable | | | ||||
Accrued income taxes payable |
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Accrued expenses and other current liabilities |
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Total current liabilities |
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Long-term tax reserves |
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Long-term deferred tax liabilities |
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Long-term operating lease liabilities | | | ||||
Other long-term liabilities |
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Total liabilities |
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Stockholders' equity |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Treasury stock, at cost - |
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Retained earnings |
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Total stockholders' equity | | | ||||
Total liabilities and stockholders' equity | $ | | $ | | ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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AZENTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)
Three Months Ended | ||||||
December 31, | ||||||
2023 | 2022 | |||||
Revenue | ||||||
Products | $ | | $ | | ||
Services |
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Total revenue |
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Cost of revenue | ||||||
Products |
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Services |
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Total cost of revenue |
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Gross profit |
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Operating expenses | ||||||
Research and development |
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Selling, general and administrative | |
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Restructuring charges |
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Total operating expenses |
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Operating loss |
| ( |
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Other income | ||||||
Interest income, net |
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Other, net |
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Loss before income taxes |
| ( |
| ( | ||
Income tax benefit |
| ( |
| ( | ||
Net loss | $ | ( | $ | ( | ||
Basic net loss per share | $ | ( | $ | ( | ||
Diluted net loss per share | $ | ( | $ | ( | ||
Weighted average shares used in computing net loss per share: | ||||||
Basic |
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Diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
AZENTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(In thousands)
Three Months Ended | |||||||
December 31, | |||||||
| 2023 |
| 2022 |
| |||
Net loss | $ | ( | $ | ( | |||
Other comprehensive income (loss), net of tax |
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Net investment hedge currency translation adjustment, net of tax effects of $ | ( | ( | |||||
Foreign currency translation adjustments |
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Changes in unrealized gains on marketable securities, net of tax effects of $ |
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Actuarial loss in pension plans, net of tax effects of $ |
| ( |
| — | |||
Total other comprehensive income, net of tax |
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Comprehensive income | $ | | $ | | |||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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AZENTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
Three Months Ended December 31, | |||||
2023 |
| 2022 | |||
Cash flows from operating activities |
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Net loss | $ | ( | $ | ( | |
Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization | | | |||
Stock-based compensation |
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Amortization and accretion on marketable securities |
| ( |
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Deferred income taxes |
| ( |
| ( | |
Purchase accounting impact on inventory |
| — |
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Loss on disposals of property, plant and equipment |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventories |
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Accounts payable |
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Deferred revenue |
| ( |
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Accrued warranty and retrofit costs |
| ( |
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Accrued compensation and tax withholdings |
| ( |
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Accrued restructuring costs |
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Other assets and liabilities | |
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Net cash provided by (used in) operating activities |
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Cash flows from investing activities |
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Purchases of property, plant and equipment |
| ( |
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Purchases of marketable securities |
| — |
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Sales and maturities of marketable securities | | | |||
Acquisitions, net of cash acquired |
| — |
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Net cash provided by investing activities |
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Cash flows from financing activities |
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Payments of finance leases | ( | ( | |||
Withholding tax payments on net share settlements on equity awards | ( | ( | |||
Share repurchases | ( | ( | |||
Net cash used in financing activities |
| ( |
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Effects of exchange rate changes on cash and cash equivalents |
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Net increase (decrease) in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash, beginning of period |
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Cash, cash equivalents and restricted cash, end of period | $ | |
| $ | |
Supplemental disclosures: |
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Cash paid for income taxes, net |
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Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets | |||||
December 31, | September 30, | ||||
2023 | 2023 | ||||
Cash and cash equivalents of continuing operations | $ | | $ | | |
Short-term restricted cash | | | |||
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Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows | $ | | $ | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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AZENTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited)
(In thousands, except share data)
Common | Accumulated | |||||||||||||||||||
Common | Stock at | Additional | Other | |||||||||||||||||
Stock | Par | Paid-In | Comprehensive | Retained | Treasury | Total | ||||||||||||||
Shares | Value | Capital | Loss | Earnings | Stock | Equity | ||||||||||||||
Balance September 30, 2023 |
| | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
Shares issued under restricted stock and purchase plans, net of shares withheld for employee taxes | | | ( | — | — | — | — | |||||||||||||
Open market repurchases | ( | — | — | — | — | ( | ( | |||||||||||||
Retirement of treasury shares | — | ( | ( | — | — | | — | |||||||||||||
Stock-based compensation | — | — | | — | — | — | | |||||||||||||
Net loss | — | — | — | — | ( | — | ( | |||||||||||||
Net investment hedge currency translation adjustment, net of tax | — | — | — | ( | — | — | ( | |||||||||||||
Foreign currency translation adjustments | — | — | — | | — | — | | |||||||||||||
Changes in unrealized gains on marketable securities, net of tax | — | — | — | | — | — | | |||||||||||||
Actuarial loss on pension plans, net of tax | — | — | — | ( | — | — | ( | |||||||||||||
Balance December 31, 2023 | | $ | | $ | | $ | ( | $ | | $ | ( | $ | | |||||||
Balance September 30, 2022 | | $ | | $ | | $ | ( | $ | | $ | ( | $ | | |||||||
Shares issued under restricted stock and purchase plans, net of shares withheld for employee taxes | | — | — | — | — | ( | ( | |||||||||||||
Accelerated share repurchase | ( | — | — | — | — | ( | ( | |||||||||||||
Retirement of treasury shares | — | ( | ( | — | — | | — | |||||||||||||
Stock-based compensation | — | — | | — | — | — | | |||||||||||||
Net loss | — | — | — | — | ( | — | ( | |||||||||||||
Net investment hedge currency translation adjustment, net of tax | — | — | — | ( | — | — | ( | |||||||||||||
Foreign currency translation adjustments | — | — | — | | — | — | | |||||||||||||
Changes in unrealized gains on marketable securities, net of tax | — | — | — | | — | — | | |||||||||||||
Other | — | — | — | — | ( | — | ( | |||||||||||||
Balance December 31, 2022 | | $ | | $ | | $ | ( | $ | | $ | ( | $ | | |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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AZENTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Nature of Operations
Azenta, Inc. (“Azenta”, or the “Company”) is a leading global provider of sample exploration and management solutions for the life sciences industry. The Company supports its customers from research and clinical development to commercialization with its sample management, automated storage, vaccine cold storage and transport, as well as genomic services expertise to help bring impactful therapies to market faster.
Organizational Structure
As previously announced, effective October 1, 2023, the Company realigned its organizational structure to three principal business segments: Sample Management Solutions (“SMS”), Multiomics, and B Medical Systems. The segment realignment had no impact on the Company’s consolidated financial position, results of operations, or cash flows. All segment information included in this Form 10-Q is reflective of this new structure and prior period information has been recast to conform to the Company’s current period presentation. Refer to Note 15 Segment and Geographic Information for further details on the nature of operations of these segments.
2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying Condensed Consolidated Financial Statements include the accounts of the Company and all entities where it has a controlling financial interest and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). All intercompany balances and transactions have been eliminated in consolidation.
The accompanying year-end balance sheet was derived from audited financial statements but does not include all disclosures required by GAAP. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the Company’s financial position, results of operations, and cash flows for the periods presented.
Certain information and disclosures normally included in the Company’s annual consolidated financial statements have been condensed or omitted and, accordingly, the accompanying financial information should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023 filed with the U.S. Securities and Exchange Commission (“SEC”) on November 21, 2023 (the “2023 Annual Report on Form 10-K”).
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect amounts reported in the financial statements and notes thereto. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may differ from these estimates. Estimates are associated with recording accounts receivable, inventories, goodwill, intangible assets other than goodwill, long-lived assets, derivative financial instruments, deferred income taxes, warranty obligations, revenue over time, stock-based compensation expense, and other accounts. The Company assesses the estimates on an ongoing basis and records changes in estimates in the period they occur and become known.
Foreign Currency Translation
Certain transactions of the Company and its subsidiaries are denominated in currencies other than their functional currency. Foreign currency exchange gains (losses) generated from the settlement and remeasurement of these
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transactions are recognized in earnings and presented within “Other income” in the Condensed Consolidated Statements of Operations. Net foreign currency transaction and remeasurement losses were $
Recently Issued Accounting Pronouncements
In October 2023, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. The ASU aligns the requirements in FASB’s Accounting Standards Codification with SEC regulations. The effective date for each amendment is the date on which the SEC removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, or if the SEC does not remove the requirement by June 30, 2027, the amendment will not become effective for any entity. Early adoption is prohibited. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements or disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU requires the disclosure of incremental segment information on an annual and interim basis, primarily through enhanced disclosures about significant segment expenses. This update is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. The Company is currently evaluating the standard to determine the impact of adoption to its consolidated financial statements and disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU is intended to enhance the transparency and decision usefulness of income tax disclosures primarily through changes to the rate reconciliation and income taxes paid information. This update is effective for annual periods beginning after December 15, 2024, though early adoption is permitted. The Company is currently evaluating the standard to determine the impact of adoption to its consolidated financial statements and disclosures.
Other
For further information regarding the Company’s significant accounting policies, please refer to Note 2, Summary of Significant Accounting Policies in the notes to the audited consolidated financial statements included in the section titled “Financial Statements and Supplementary Data” in Part II, Item 8 of the 2023 Annual Report on Form 10-K. There were no material changes to the Company’s critical accounting policies during the three months ended December 31, 2023.
3. Business Combinations
The Company recorded the assets acquired and liabilities assumed related to the following acquisitions at their fair values as of the acquisition date, from a market participant’s perspective. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value the assets acquired and liabilities assumed on the acquisition date, its estimates and assumptions are subject to refinement. Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results of operations. The measurement period to finalize the fair values is completed within one year after the respective acquisition date.
Acquisitions Completed in Fiscal Year 2023
Ziath, Ltd.
On
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support the entire lifecycle of sample management from specimen collection to sample registration, storage and processing. The acquisition was completed at a purchase price of $
The allocation of the consideration included $
The Company did not present pro forma financial information for its consolidated results of operations for the acquisition because such results are immaterial.
B Medical Systems S.á r.l.
On
The consideration paid for B Medical was allocated to the assets acquired and liabilities assumed based on their fair values at the acquisitions date. The Company finalized purchase accounting for B Medical in the fourth quarter of fiscal year 2023 and there have been no adjustments to the purchase price allocation disclosed in Note 3, Business Combinations in the notes to the audited consolidated financial statements included in the section titled “Financial Statements and Supplementary Data” in Part II, Item 8 of the 2023 Annual Report on Form 10-K.
In performing the purchase price allocation, the Company considered, among other factors, the intended future use of acquired assets, and historical financial performance and estimates of future performance of B Medical’s business. As part of the purchase price allocations, the Company determined the identifiable intangible assets were completed technology value, trademarks, customer relationships and backlog. The fair value of the intangible assets was estimated using the income approach, specifically the multi-period excess earnings method, and the cash flow projections were discounted using a rate of
4. Marketable Securities
The Company had sales and maturities of marketable securities of $
12
The following is a summary of the amortized cost and the fair value, including accrued interest receivable as well as unrealized gains (losses) on the short-term and long-term marketable securities as of December 31, 2023 and September 30, 2023 (in thousands):
|
| Gross |
| Gross |
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Amortized | Unrealized | Unrealized | ||||||||||
Cost | Losses | Gains | Fair Value | |||||||||
December 31, 2023: |
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U.S. Treasury securities and obligations of U.S. government agencies |
| $ | | $ | ( | $ | — |
| $ | | ||
Bank certificates of deposit | | ( | — | | ||||||||
Corporate securities | | ( | — | | ||||||||
$ | | $ | ( | $ | — | $ | | |||||
September 30, 2023: |
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U.S. Treasury securities and obligations of U.S. government agencies | $ | |
| $ | ( |
| $ | — | $ | | ||
Bank certificates of deposit | | ( | — | | ||||||||
Corporate securities | | ( | — | | ||||||||
$ | | $ | ( | $ | — | $ | | |||||
The fair values of the marketable securities by contractual maturities as of December 31, 2023 were as follows (in thousands):
Amortized | ||||||
Cost | Fair Value | |||||
Due in one year or less | | | ||||
Due after one year through five years |
| |
| | ||
Due after five years through ten years | — | — | ||||
Due after ten years |
| |
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Total marketable securities | $ | | $ | | ||
Expected maturities could differ from contractual maturities because the security issuers may have the right to prepay obligations without prepayment penalties.
Unrealized losses from fixed-income securities are primarily attributable to changes in interest rates. The Company does not believe any unrealized losses represent impairments based on its evaluation of the available evidence.
5. Derivative Instruments
The Company has transactions and balances denominated in currencies other than the functional currency of the transacting entity. Most of these transactions carry foreign exchange risk in Germany, the United Kingdom and China. The Company enters into foreign exchange contracts to reduce its exposure to currency fluctuations. Net gains and losses related to foreign exchange contracts are recorded as a component of “Other income” in the Condensed Consolidated Statements of Operations and are as follows for the three months ended December 31, 2023 and 2022 (in thousands):
Three Months Ended | ||||||
December 31, | ||||||
| 2023 |
| 2022 | |||
Realized losses on derivatives not designated as hedging instruments | $ | ( | $ | ( | ||
13
The notional amounts of the Company’s derivative instruments as of December 31, 2023 and September 30, 2023 were as follows (in thousands):
December 31, |
| September 30, | ||||||
Hedge Designation | 2023 | 2023 | ||||||
Cross-currency swap | Net Investment Hedge | $ | | $ | | |||
Foreign exchange contracts | Undesignated | | | |||||
The fair values of the foreign exchange contracts are recorded in the Condensed Consolidated Balance Sheets as “Prepaid expenses and other current assets” and “Accrued expenses and other current liabilities”. Foreign exchange contract assets and liabilities are measured and reported at fair value based on observable market inputs and classified within Level 2 of the fair value hierarchy described further in Note 2, Summary of Significant Accounting Policies in the notes to the audited consolidated financial statements included in the section titled “Financial Statements and Supplementary Data” in Part II, Item 8 of the 2023 Annual Report on Form 10-K and in Note 12, Fair Value Measurements below due to a lack of an active market for these contracts.
Hedging Activities
On February 1, 2022, the Company entered into a cross-currency swap agreement to hedge the variability of exchange rate impacts between the U. S. dollar and the Euro. Under the terms of the cross-currency swap agreement, the Company notionally exchanged $
On February 1, 2023, the Company entered into a cross-currency swap agreement to hedge the variability of exchange rate impacts between the U.S. dollar and the Euro. Under the terms of the cross-currency swap agreement, the Company notionally exchanged $
On February 1, 2024, the Company entered into another cross-currency swap agreement to hedge the variability of exchange rate impacts between the U.S. dollar and the Euro. Under the terms of the cross-currency swap agreement, the Company notionally exchanged $
The cross-currency swap is recorded as a component of “Accrued expenses and other current liabilities” as of December 31, 2023 and was recorded as a derivative asset as of September 30, 2023 in the Condensed Consolidated Balance Sheets.
The cross-currency swap is marked to market at each reporting period, representing the fair value of the cross-currency swap, any changes in fair value are recognized as a component of “Accumulated other comprehensive loss” in the Condensed Consolidated Balance Sheets. The cross-currency swap is classified within Level 2 of the fair value hierarchy, described in Note 2, Summary of Significant Accounting Policies in the notes to the audited consolidated financial statements included in the section titled “Financial Statements and Supplementary Data” in Part II, Item 8 of the 2023 Annual Report on Form 10-K and in Note 12, Fair Value Measurements below.
14
Interest earned on the cross-currency swap is recorded within “Interest income, net” in the Condensed Consolidated Statements of Operations. For the three months ended December 31, 2023 and 2022, the Company recorded interest income of $
6. Goodwill and Intangible Assets
The Company conducts an impairment assessment annually, or more frequently if impairment indicators are present. Changes to the Company’s operating segments effective October 1, 2023 resulted in a change to the Company’s reporting units, which are aligned to the Company’s operating and reportable segments (as further described in Note 15 Segment and Geographic Information).
As a result of this segment realignment, the Company allocated goodwill to the reporting units existing under the new organizational structure on a relative fair value basis as of the first quarter of fiscal year 2024. The Company estimated the fair values of the affected businesses based upon the present value of their anticipated future cash flows. The Company’s determination of fair value involved judgment and the use of significant estimates and assumptions, as described in the notes to the audited consolidated financial statements included in the section titled “Financial Statements and Supplementary Data” in Part II, Item 8 of the 2023 Annual Report on Form 10-K and in the “Critical Accounting Policies and Estimates” included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the 2023 Annual Report on Form 10-K.
In conjunction with the goodwill allocation described above, the Company tested its reporting units for potential impairment immediately before and after the segment realignment and concluded that the estimated fair value of each reporting unit exceeded its respective carrying value. As of October 1, 2023, the fair value of the B Medical Systems reporting unit exceeded its carrying value by approximately
The following table sets forth the changes in the carrying amount of goodwill by reportable segment since October 1, 2023 (in thousands). The Company has presented the October 1, 2023 balances to be consistent with the current segment structure.
Sample Management Solutions | Multiomics | B Medical Systems | Total | |||||||||
Balance - October 1, 2023 | $ | | $ | | $ | | $ | | ||||
Currency translation adjustments | | — | | | ||||||||
Balance - December 31, 2023 | $ | | $ | | $ | | $ | | ||||
The components of the Company’s identifiable intangible assets as of December 31, 2023 and September 30, 2023 are as follows (in thousands):
December 31, 2023 | September 30, 2023 | |||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||
| Cost |
| Amortization |
| Value |
| Cost |
| Amortization |
| Value | |||||||
Patents | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Completed technology |
| |
| |
| |
| |
| |
| | ||||||
Trademarks and trade names |
| |
| |
| |
| |
| |
| | ||||||
Non-competition agreements | | | | | | | ||||||||||||
Customer relationships |
| |
| |
| |
| |
| |
| | ||||||
Other intangibles | | | — | | | — | ||||||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
15
Amortization expense for intangible assets was $
Estimated future amortization expense for the intangible assets for the remainder of fiscal year 2024 and the subsequent five fiscal years is as follows (in thousands):
Remainder of fiscal year | $ | | |
2025 |
| | |
2026 |
| | |
2027 |
| | |
2028 | | ||
2029 | |
7. Restructuring
Cost Reduction Initiatives
In the second and third quarters of fiscal year 2023, the Company announced cost reduction initiatives to position itself to meet the needs of its customers and accelerate growth for the business. The majority of the restructuring expenses for the three months ended December 31, 2023 and 2022 are severance and related costs.
The Company’s restructuring reserve activity is summarized as follows (in thousands):
Three Months Ended December 31, | ||||||
2023 | 2022 | |||||
Balance at beginning of period | $ | | $ | | ||
Provisions | | | ||||
Payments | ( | ( | ||||
Balance at end of period | $ | | $ | | ||
16
8. Supplementary Balance Sheet Information
Inventories
The following is a summary of inventories at December 31, 2023 and September 30, 2023 (in thousands):
| December 31, |
| September 30, | |||
| 2023 |
| 2023 | |||
|
|
|
|
| ||
Raw materials and purchased parts |
| $ | |
| $ | |
Work-in-process |
| |
| | ||
Finished goods |
| |
| | ||
Total inventories |
| $ | |
| $ | |
Reserves related to write downs of inventory to net realizable value were $
Warranty and Retrofit Costs
The following is a summary of product and warranty retrofit activity for the three months ended December 31, 2023 and 2022 (in thousands):
Three Months Ended December 31, | |||||||
2023 | 2022 | ||||||
Balance at beginning of period | $ | | $ | | |||
Adjustment for acquisitions | — | | |||||
Accruals for warranties during the period | | | |||||
Costs incurred during the period | ( | ( | |||||
Balance at end of period | $ | | $ | | |||
9. Stockholders’ Equity
On November 4, 2022, the Company’s Board of Directors approved an authorization to repurchase up to $
As of October 1, 2023, $
During the three months ended December 31, 2023, the Company repurchased
17
Accumulated Other Comprehensive Income (Loss)
The following is a summary of the components of accumulated other comprehensive income (loss), net of tax for the three months ended December 31, 2023 and 2022 (in thousands):
|
| Unrealized |
|
|
| ||||||||||
Gains (Losses) | |||||||||||||||
on Available- | |||||||||||||||
Currency | for-Sale | Gains (Losses) | Pension |
| |||||||||||
Translation | Securities | on Derivative asset | Liability |
| |||||||||||
Adjustments | Net of tax | Net of tax | Adjustments | Total | |||||||||||
Balance at September 30, 2022 | $ | ( | $ | ( | $ | | $ | ( | $ | ( | |||||
Other comprehensive income (loss) before reclassifications | | | ( | — | | ||||||||||
Balance at December 31, 2022 | $ | ( | $ | ( | $ | | $ | ( | $ | ( | |||||
|
| Unrealized |
|
|
| ||||||||||
Gains (Losses) | |||||||||||||||
on Available- | |||||||||||||||
Currency | for-Sale | Gains (Losses) | Pension | ||||||||||||
Translation | Securities | on Derivative asset | Liability | ||||||||||||
Adjustments | Net of tax | Net of tax | Adjustments | Total | |||||||||||
Balance at September 30, 2023 | $ | ( | $ | ( | $ | | $ | ( | $ | ( | |||||
Other comprehensive income (loss) before reclassifications | | | ( | ( | | ||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | — | — | — | | | ||||||||||
Balance at December 31, 2023 | $ | ( | $ | ( | $ | | $ | ( | $ | ( | |||||
Unrealized gains (losses) on available-for-sale marketable securities are reclassified from “Accumulated other comprehensive income (loss)” into results of operations at the time of the securities’ sale, as described in Note 2, Summary of Significant Accounting Policies in the notes to the audited consolidated financial statements included in the section titled “Financial Statements and Supplementary Data” in Part II, Item 8 of the 2023 Annual Report on Form 10-K. Amounts reclassified from “Accumulated other comprehensive income (loss)” related to pension liability adjustments represent amortization of actuarial gains and losses.
10. Revenue from Contracts with Customers
Disaggregated Revenue
The Company disaggregates revenue from contracts with customers in a manner that depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The following is revenue by significant business line for the three months ended December 31, 2023 and 2022 (in thousands):
Three months ended December 31, | ||||||
2023 | 2022 | |||||
Significant Business Line | ||||||
Multiomics | $ | | $ | | ||
Core Products (1) | | | ||||
Sample & Repository Services | | | ||||
B Medical Systems | | | ||||
Total revenue | $ | | $ | | ||
(1) Core Products are Automated Stores, Cryogenic Systems, Automated Sample Tube, and Consumables and Instruments.
18
Contract Balances
Accounts Receivable, Net. Accounts receivable represent rights to consideration in exchange for products or services that have been transferred by the Company, when payment is unconditional and only the passage of time is required before payment is due. The Company maintains an allowance for expected credit losses representing its best estimate of probable credit losses related to its existing accounts receivable. The Company determines the allowance for expected credit losses based on a number of factors, including an evaluation of customer credit worthiness, the age of the outstanding receivables, economic trends, historical experience, and other information through the payment periods.
Contract Assets. Contract assets represent rights to consideration in exchange for products or services that have been transferred by the Company and payment is conditional on something other than the passage of time. These amounts typically relate to contracts where the right to invoice the customer is not present until completion of the contract or the achievement of specified milestones and the value of the products or services transferred exceed this constraint. Contract assets are classified as current as they are expected to convert to cash within one year. Contract asset balances which are included within “Prepaid expenses and other current assets” in the Company’s Condensed Consolidated Balance Sheet, were $
Contract Liabilities. Contract liabilities represent the Company’s obligation to transfer products or services to a customer for which consideration has been received, or for which an amount of consideration is due from the customer. Contract assets and liabilities are reported on a net basis at the contract level, depending on the contract’s position at the end of each reporting period. Contract liabilities are included within “Deferred revenue” in the Condensed Consolidated Balance Sheet. Contract liabilities were $
Remaining Performance Obligations. Remaining performance obligations represent the transaction price of unsatisfied or partially satisfied performance obligations within contracts with an original expected contract term that is greater than one year and for which fulfillment of the contract has started as of the end of the reporting period. The aggregate amount of transaction consideration allocated to remaining performance obligations as of December 31, 2023 was $
As of December 31, 2023 | |||||||||
Less than 1 Year | Greater than 1 Year | Total | |||||||
Remaining performance obligations | $ | | $ | | $ | | |||
11. Stock-Based Compensation
In accordance with the 2020 Equity Incentive Plan, the Company may issue to eligible employees options to purchase shares of the Company’s common stock, restricted stock units and other equity incentives, which vest upon the satisfaction of a performance condition and/or a service condition. In addition, the Company issues common stock to participating employees pursuant to an employee stock purchase plan, and may issue common stock awards and deferred restricted stock units to members of its board of directors in accordance with its board of director compensation program.
19
2020 Equity Incentive Plan
The following table reflects the total stock-based compensation expense recorded during the three months ended December 31, 2023 and 2022 (in thousands):
Three Months Ended December 31, | ||||||
| 2023 |
| 2022 | |||
Restricted stock units | $ | | $ | | ||
Employee stock purchase plan |
| |
| | ||
Total stock-based compensation expense | $ | | $ | | ||
Restricted Stock Unit Activity
The following table summarizes restricted stock unit activity for the three months ended December 31, 2023:
|
| Weighted | |||
Average | |||||
Grant-Date | |||||
Shares | Fair Value | ||||
Outstanding as of September 30, 2023 |
| | $ | | |
Granted |
| | $ | | |
Vested |
| ( | $ | | |
Forfeited |
| ( | $ | | |
Outstanding as of December 31, 2023 |
| | $ | | |
The fair value of restricted stock units vested during the three months ended December 31, 2023 and 2022 was $
As of December 31, 2023, the future unrecognized stock-based compensation expense related to restricted stock units expected to vest is $
Restricted stock units granted with performance goals may also have a required service period following the achievement of all or a portion of the performance goals. The following table reflects restricted stock units granted during the three months ended December 31, 2023 and 2022:
Three Months Ended December 31, | ||||
| 2023 |
| 2022 | |
Time-based restricted stock units | | | ||
Performance-based restricted stock units |
| |
| |
Total units |
| |
| |
Time-Based Restricted Stock Unit Grants
Restricted stock units granted with a required service period typically have
Performance-Based Restricted Stock Unit Grants
Performance-based restricted stock units are earned based on the achievement of performance criteria established by the Human Resources and Compensation Committee and approved by the Board of Directors. The criteria for performance-based awards are weighted and have threshold, target, and maximum performance goals.
20
Performance-based restricted stock unit awards granted allow participants to earn
In October 2023, the Company’s Board of Directors approved an amendment to the performance goals associated with the previously issued performance-based restricted stock units for all impacted employees, excluding members of the executive team. The performance goals, as amended, are more reflective of the current macro-economic environment and consideration toward employee retention in the competitive life sciences industry. Before the amendment, the original performance goals were not expected to be satisfied. Subsequent to the amendment, vesting became probable based on the forecasted achievement of the amended performance goals. The amendment of these restricted stock units is treated as a modification with the total compensation cost of $
12. Fair Value Measurements
See Note 2, Summary of Significant Accounting Policies in the notes to the audited consolidated financial statements included in the section titled “Financial Statements and Supplementary Data” in Part II, Item 8 of the 2023 Annual Report on Form 10-K for information on the fair value hierarchy and the level of inputs used by the Company in determining fair value.
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables summarize assets and liabilities measured and recorded at fair value on a recurring basis in the Condensed Consolidated Balance Sheets as of December 31, 2023 and September 30, 2023 (in thousands):
As of December 31, 2023 | ||||||||||||
Description | Total Fair Value | Level 1 | Level 2 | Level 3 | ||||||||
Assets: |
|
|
|
|
|
|
|
| ||||
Cash equivalents | $ | | $ | | $ | — | $ | — | ||||
Available-for-sale securities |
| |
| | |
| — | |||||
Foreign exchange contracts |
| |
| — |
| |
| — | ||||
Total assets | $ | | $ | | $ | | $ | — | ||||
Liabilities: |
|
|
|
|
|
|
|
| ||||
$ | | $ | — | $ | | $ | — | |||||
Foreign exchange contracts | | — | | — | ||||||||
Total liabilities | $ | | $ | — | $ | | $ | — | ||||
21
As of September 30, 2023 | ||||||||||||
Description | Total Fair Value | Level 1 | Level 2 | Level 3 | ||||||||
Assets: |
|
|
|
|
|
|
|
| ||||
Cash equivalents | $ | | $ | | $ | — | $ | — | ||||
Available-for-sale securities |
| |
| | |
| — | |||||
Foreign exchange contracts |
| |
| — |
| |
| — | ||||
| — |
| |
| — | |||||||
Total assets | $ | | $ | | $ | | $ | — | ||||
Liabilities: |
|
|
|
|
|
|
|
| ||||
Foreign exchange contracts | $ | | $ | — | $ | | $ | — | ||||
Total liabilities | $ | | $ | — | $ | | $ | — | ||||
Cash Equivalents
Cash equivalents consist of money market funds and are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets. The Company considers all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. The fair values of these investments approximate their carrying values.
Available-For-Sale Securities
Available-for-sale securities primarily consist of highly rated corporate debt securities, and U.S. government backed securities, which are classified as Level 1. Investments classified as Level 2 consist of debt securities that are valued using matrix pricing and benchmarking because they are not actively traded, and bank certificates of deposit. Matrix pricing is a mathematical technique used to value securities by relying on the securities’ relationship to other benchmark quoted prices.
Foreign Exchange Contracts & Net Investment Hedge
The Company’s foreign exchange contract assets and liabilities, and its net investment hedge assets are measured and reported at fair value using the market method valuation technique. The inputs to this technique utilize current foreign currency exchange forward market rates published by third-party leading financial news and data providers. These are observable data that represent the rates that the financial institution uses for contracts entered into at that date; however, they are not based on actual transactions, so they are classified as Level 2.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
During the three months ended December 31, 2023 and 2022, the Company did not record any material fair value measurements for assets or liabilities on a nonrecurring basis.
13. Income Taxes
The Company recorded an income tax benefit of $
The Company’s tax rate on the loss from operations is lower than statutory rates because the Company is not providing a full tax benefit on U.S. losses due to a partial valuation allowance being recorded against U.S. federal and state deferred tax assets during the current year.
22
The Company recorded an income tax benefit of $
The Company evaluates the realizability of its deferred tax assets by tax-paying component and assesses the need for a valuation allowance on an annual and a quarterly basis. The Company evaluates the profitability of each tax-paying component on a historical cumulative basis and a forward-looking basis in the course of performing this analysis.
The Company has generated U.S. pre-tax losses in recent years but has been in an overall deferred tax liability position where future taxable temporary differences were considered sufficient to offset future deductible temporary differences. During fiscal year 2024, the Company expects to generate a U.S. loss which will result in a partial valuation allowance against U.S. federal and state deferred tax assets. In addition to the U.S. federal and state partial valuation allowance being recorded against deferred tax assets through the estimated annual effective tax rate, the Company has also recorded $
The Company also maintains a valuation allowance against net deferred tax assets on certain foreign tax-paying components.
The Company has recorded net deferred tax assets in the amount of $
The Company has not provided deferred income taxes on the outside basis difference of any other foreign subsidiary and maintains its general assertion of indefinite reinvestment regarding those subsidiaries and the remaining earnings of its German subsidiary as of December 31, 2023.
The Company maintains liabilities for unrecognized tax benefits. These liabilities involve judgment and estimation, and they are monitored based on the best information available. The Company recognizes interest related to unrecognized tax benefits as a component of the income tax provision or benefit. The Company recognized minimal interest expense related to its unrecognized tax benefits during the three months ended December 31, 2023.
The Company is subject to U.S. federal, state, local and foreign income taxes in various jurisdictions. The amount of income taxes paid is subject to the Company’s interpretation of applicable tax laws in the jurisdictions in which it files.
In the normal course of business, the Company is subject to income tax audits in various global jurisdictions in which it operates. The years subject to examination vary for the United States and international jurisdictions, with the earliest tax year being 2017. Based on the outcome of these examinations or the expiration of statutes of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized tax benefits could change from those recorded in the Condensed Consolidated Balance Sheets. The Company currently anticipates that it is reasonably possible that the unrecognized tax benefits and accrued interest on those benefits will not be reduced in the next twelve months due to the statute of limitations expirations. These unrecognized tax benefits would impact the effective tax rate if recognized.
23
14. Net Loss per Share
The calculations of basic and diluted net loss per share and basic and diluted weighted average shares outstanding are as follows for the three months ended December 31, 2023 and 2022 (in thousands, except per share data):
Three Months Ended | ||||||
December 31, | ||||||
| 2023 |
| 2022 | |||
Net loss | ( | ( | ||||
Weighted average common shares outstanding used in computing basic loss per share |
| |
| | ||
Weighted average common shares outstanding used in computing diluted loss per share |
| |
| | ||
Basic net loss per share | $ | ( | $ | ( | ||
Diluted net loss per share | $ | ( | $ | ( | ||
As a result of incurring a net loss from continuing operations for the three months ended December 31, 2023 and 2022, outstanding restricted stock units and shares issued by the Company under the employee stock purchase plan were excluded from the computation of diluted loss per share as their effect would be antidilutive to earnings per share for continuing operations based on the treasury stock method.
15. Segment and Geographic Information
Operating segments are defined as components of an enterprise that engage in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker (“CODM”) in deciding how to allocate resources and to assess performance. The Company’s Chief Executive Officer is the Company’s chief operating decision maker.
As previously announced, effective October 1, 2023, the Company realigned its organizational structure to
| ● | Sample Management Solutions (“SMS”). Sample Management Solutions operates as a single business unit offering end-to-end sample management products and services, including: Sample & Repository Services and Core Products (Automated Stores, Cryogenic Systems, Automated Sample Tube, and Consumables and Instruments). |
| ● | Multiomics. The Multiomics business resources operate under a single business unit that provides genomic and other sample analysis services, including gene sequencing and gene synthesis. |
| ● | B Medical Systems. B Medical Systems business resources operate as a single business unit focused on the manufacturing and distribution of temperature-controlled storage and transportation solutions in international markets to governments, health institutions, and non-government organizations. |
The segment realignment had no impact on the Company’s consolidated financial position, results of operations, or cash flows. All segment information is reflective of this new structure, and prior period information has been recast to conform to our current period presentation.
Management considers adjusted operating income, which excludes charges related to amortization of intangible assets, purchase accounting impact on inventory, restructuring charges, merger and acquisition costs and costs related to share repurchase, governance-related matters, and other unallocated corporate expenses, as the primary performance metric when evaluating the segments’ operations.
24
The following is the summary of the financial information for the Company’s reportable segments for the three months ended December 31, 2023 and 2022 (in thousands):
Three Months Ended December 31, | |||||||
2023 | 2022 | ||||||
Revenue: |
|
| |||||
Sample Management Solutions | $ | | $ | | |||
Multiomics |
| |
| | |||
B Medical Systems | | | |||||
Total revenue | $ | | $ | | |||
Adjusted operating (loss) income: |
|
| |||||
Sample Management Solutions | $ | ( | $ | ( | |||
Multiomics |
| ( |
| ( | |||
B Medical Systems | ( | | |||||
Segment adjusted operating (loss) income | ( | | |||||
Amortization of completed technology | | | |||||
Purchase accounting impact on inventory | — | | |||||
Amortization of intangible assets other than completed technology | | | |||||
Restructuring charges | | | |||||
Merger and acquisition costs and costs related to share repurchase(1) | | | |||||
Other unallocated corporate expenses | | | |||||
Total operating loss | ( | ( | |||||
Interest income, net | | | |||||
Other, net | | | |||||
Loss before income taxes | $ | ( | $ | ( | |||
(1) Includes expenses related to governance-related matters. | |||||||
The Company has corrected the segment adjusted operating (loss) income for the three-month period ended December 31, 2022 as certain corporate expenses that are not part of the Company’s CODM’s review of operating segment performance were improperly included in the previously disclosed segment adjusted operating (loss) income. The previously disclosed amount of total segment adjusted operating (loss) income for the reportable segments was understated by $
The following is the summary of the asset information for the Company’s reportable segments for the three months ended December 31, 2023 and 2022 (in thousands):
Assets: | December 31, 2023 | September 30, 2023 | |||||
Sample Management Solutions | $ | | $ | | |||
Multiomics | | | |||||
B Medical Systems | | | |||||
Total assets | $ | | $ | | |||
25
The following is a reconciliation of the segment assets to the corresponding amounts presented in the Condensed Consolidated Balance Sheets as of December 31, 2023 and September 30, 2023 (in thousands):
| December 31, |
| September 30, | |||
2023 | 2023 | |||||
Segment assets |
| $ | |
| $ | |
Cash and cash equivalents, restricted cash, and marketable securities |
| |
| | ||
Deferred tax assets |
| |
| | ||
Other assets | | | ||||
Total assets | $ | | $ | | ||
Revenue from external customers is attributed to geographic areas based on locations in which the product is shipped. Net revenue by geographic area for the three months ended December 31, 2023 and 2022 are as follows (in thousands):
Three Months Ended December 31, | ||||||
| 2023 | 2022 | ||||
Geographic Location: | ||||||
United States | $ | | $ | | ||
Africa | | | ||||
China | | | ||||
United Kingdom | | | ||||
Rest of Europe | | | ||||
Asia Pacific/Other | | | ||||
Total revenue | $ | | $ | | ||
The Company had no individual customer that accounted for 10% or more of its consolidated revenue or accounts receivable for the three months ended December 31, 2023. The Company had one individual customer that accounted for 10% or more of its consolidated revenue and accounts receivable for the three months ended December 31, 2022. This individual customer is a distributor shipping to end users in
16. Commitments and Contingencies
Contingencies
The Company is subject to various legal proceedings, both asserted and unasserted, that arise in the ordinary course of business. The Company cannot predict the ultimate outcome of such legal proceedings or, in certain instances, provide reasonable ranges of potential losses.
The Company may also have certain indemnification obligations pursuant to claims made under the definitive agreement it entered into with Edwards Vacuum LLC (a member of the Atlas Copco Group) in connection with the Company’s sale of its semiconductor cryogenics business in the fourth quarter of fiscal year 2018. In the third quarter of fiscal year 2020, Edwards asserted claims for indemnification under the definitive agreement relating to alleged breaches of representations and warranties relating to customer warranty claims and inventory (the “2020 Claim”). In addition, in January 2023, Edwards filed a lawsuit against the Company in the Supreme Court of the State of New York in the County of New York seeking indemnification from the Company under such definitive agreement for $
In April 2023, the Company responded to and filed a counterclaim against Edwards for the 2023 Claim alleging breach of the definitive agreements by Edwards and seeking a declaratory judgment. During the third quarter of fiscal year 2023, the Company and Edwards entered into a settlement agreement related to the 2023 Claim to avoid the costs
26
and uncertainties of potential litigation. Under the settlement agreement, the Company paid Edwards $
The Company accrued a liability of $
The Company cannot determine the probability of any losses or outcome of the 2020 Claim including the amount of any indemnifiable losses, if any, resulting from these claims. However, the Company does not believe that this claim will have a material adverse effect on its consolidated financial position or results of operations. If the resolution of the 2020 Claim results in indemnifiable losses in excess of the applicable indemnification deductibles established under the definitive agreement, Edwards would be required to seek recovery under the representation and warranty insurance Edwards obtained in connection with the closing of the sale of the semiconductor cryogenics business. Management believes that any indemnifiable losses in excess of the applicable deductibles established in the definitive agreement would be covered by such insurance. For indemnifiable claims other than those arising from breaches of representations and warranties and for indemnifiable claims arising from breaches of representations and warranties exceeding the maximum coverage of the representations and warranties insurance policy, Edwards could seek recovery of such indemnifiable losses, if any, directly from the Company. In the event of unexpected subsequent developments and given the inherent unpredictability of these matters, there can be no assurance that the Company’s assessment of any claim will reflect the ultimate outcome, and an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company’s consolidated financial position or results of operations in particular quarterly or annual periods.
Tariff Matter
With the assistance of a third-party consultant, during the first quarter of fiscal year 2021, the Company initiated a review of the value of transactions it used for intercompany imports into the United States from its GENEWIZ business. As a result of this review and a new interpretation surrounding the valuation method used to calculate the estimated transaction value, the Company revised its estimate of the tariffs owed and paid $
Purchase Commitments
As of December 31, 2023, the Company had non-cancellable commitments of $
27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited interim condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and related notes contained in our Annual Report on Form 10-K for the year ended September 30, 2023 (the “2023 Annual Report on Form 10-K”). In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below and in the forward-looking statements. Factors that could cause or contribute to these differences include, without limitation, those discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) as well as those described in the 2023 Annual Report on Form 10-K and this Quarterly Report on Form 10-Q under “Information Related to Forward-Looking Statements” and Part II, Item 1A “Risk Factors”. All dollar amounts in the below MD&A are presented in U.S. dollars, unless otherwise noted or the context otherwise provides.
Our MD&A is organized as follows:
| ● | Overview. This section provides a general description of our business and operating segments as well as a brief discussion and overall analysis of our business and financial performance, including key developments affecting us during the three months ended December 31, 2023 and 2022. |
| ● | Critical Accounting Policies and Estimates. This section discusses accounting policies and estimates that require us to exercise subjective or complex judgments in their application. We believe these accounting policies and estimates are important to understanding the assumptions and judgments incorporated in our reported financial results. |
| ● | Results of Operations. This section provides an analysis of our financial results for the three months ended December 31, 2023 compared to the three months ended December 31, 2022. |
| ● | Liquidity and Capital Resources. This section provides an analysis of our liquidity and changes in cash flows as well as a discussion of contractual commitments. |
OVERVIEW
We are a leading global provider of biological and chemical compound sample exploration and management solutions for the life sciences industry. We entered the life sciences market in 2011, leveraging our in-house precision automation and cryogenics capabilities that we were then applying in the semiconductor manufacturing market. This led us to develop solutions for automated ultra-cold storage. Since then, we have expanded our life sciences offerings through internal investments and through a series of acquisitions. We now support our customers from research and clinical development to commercialization with our sample management, automated storage, and genomic services expertise to help our customers bring impactful therapies to market faster. We understand the importance of sample integrity and offer a broad portfolio of products and services supporting customers at every stage of the life cycle of samples including procurement and sourcing, automated storage systems, genomic services and a multitude of sample consumables, informatics and data software, along with sample repository solutions. Our expertise, global footprint and leadership positions enable us to be a trusted global partner to pharmaceutical, biotechnology and life sciences research institutions. In total, we employ approximately 3,500 full-time employees, part-time employees and contingent workers worldwide as of December 31, 2023 and have sales in approximately 150 countries. We are headquartered in Burlington, Massachusetts and have operations in North America, Asia, and Europe.
Our portfolio includes product and service offerings developed by us internally, as well as through acquisitions, designed to provide comprehensive capabilities to our customers’, addressing their needs in sample exploration and management, automated storage, multiomics, and cold chain solutions. We continue to develop new product and service offerings and enhance existing and acquired offerings through the expertise of our research and development resources. We believe our acquisition, investment and integration approach has allowed us to accelerate internal development and significantly accelerate time to market for our life sciences solutions.
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Segments
As previously announced, effective October 1, 2023, we realigned our organizational structure to three principal business segments: Sample Management Solutions (“SMS”), Multiomics, and B Medical Systems. The segment realignment had no impact on our consolidated financial position, results of operations, or cash flows. All segment information presented is reflective of this new structure and prior period information has been recast to conform to our current period presentation.
Within our Sample Management Solutions segment, we operate as a single business unit offering end-to-end sample management products and services, including: Sample Repository Solutions and Core Products (Automated Stores, Cryogenic Systems, Automated Sample Tube, and Consumables and Instruments). This portfolio provides customers with a high level of sample quality, security, availability, intelligence and integrity throughout the lifecycle of samples, providing customers with complete end-to-end “cold-chain of custody” capabilities. We also offer expert-level consultation services to our clients throughout their experimental design and implementation processes.
Within our Multiomics segment, our genomics services business advances research and development activities by providing gene sequencing, synthesis, editing and related services. We offer a comprehensive, global portfolio that we believe has both broad appeal in the life sciences industry and enables customers to select the best solution for their research and development challenges. This portfolio also offers unique solutions for key markets such as cell and gene therapy, antibody development and biomarker discovery by addressing genomic complexity and throughput challenges.
Within our B Medical Systems segment, we provide temperature-controlled storage and transportation solutions that complement our cold chain capabilities, adding differentiated solutions for reliable and traceable transport of temperature-sensitive specimens worldwide. We offer end-to-end cold chain of custody capabilities for vaccines, blood components, and laboratory specimens through our portfolio of cold chain transport solutions, plasma freezers, contact shock freezers, ultra-low freezers, and real-time sample monitoring and location tracking solutions.
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Business and Financial Performance
Basis of Presentation
Our condensed consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).
Financial Performance
Our performance for the three months ended December 31, 2023 and 2022 are as follows:
Three Months Ended December 31, | ||||||
In thousands | 2023 | 2022 | ||||
Revenue | $ | 154,317 | $ | 178,366 | ||
Cost of revenue |
| 92,805 |
| 104,501 | ||
Gross profit |
| 61,512 |
| 73,865 | ||
Operating expenses | ||||||
Research and development |
| 8,493 |
| 7,536 | ||
Selling, general and administrative |
| 78,576 |
| 92,552 | ||
Restructuring charges |
| 1,120 |
| 1,461 | ||
Total operating expenses |
| 88,189 |
| 101,549 | ||
Operating loss |
| (26,677) |
| (27,685) | ||
Other income | ||||||
Interest income, net |
| 10,081 |
| 10,665 | ||
Other, net |
| 682 |
| 1,145 | ||
Loss before income taxes |
| (15,914) |
| (15,875) | ||
Income tax benefit |
| (190) |
| (4,640) | ||
Net loss | $ | (15,724) | $ | (11,235) | ||
Three months ended December 31, 2023 compared to three months ended December 31, 2022
Revenue decreased 13% for the three months ended December 31, 2023 compared to the corresponding period in the prior fiscal year, driven by a 70% decrease in revenue in the B Medical Systems segment due to the timing of orders, partially offset by an 8% combined increase in revenue in the Multiomics and Sample Management Solutions segments. Gross margin was 40% for the three months ended December 31, 2023 compared to 41% for the corresponding period in the prior fiscal year, primarily due to product mix in our B Medical Systems segment. Operating expenses decreased $13.4 million during the three months ended December 31, 2023 compared to the corresponding period in the prior fiscal year, driven by a $14.0 million decrease in selling, general and administrative expenses, primarily due to decreased bad debt expenses and commissions expenses, as well as decreased expenses related to the accelerated share repurchase agreement and governance-related costs. The savings from our cost reduction initiatives that commenced in fiscal year 2023 also contributed to the decrease in operating expenses. We generated a net loss of $15.7 million for the three months ended December 31, 2023 compared to a net loss of $11.2 million for the three months ended December 31, 2022, driven by a reduction in income tax benefit. The decrease in the income tax benefit for the three months ended December 31, 2023 compared to the corresponding period in the prior fiscal year, is due to tax reserves recorded against the current year deferred tax assets.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of the interim condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates based on historical experience and consider various other assumptions that are believed to be reasonable under the circumstances. We evaluate current and anticipated worldwide economic conditions, both in general and specifically in relation to the life sciences industry, that serve as a basis for making judgments about the carrying values of assets and liabilities that are not readily determinable based on
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information from other sources. Actual results may differ from these estimates under different assumptions or conditions that could have a material impact on our financial condition and results of operations.
The critical accounting estimates that we believe affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q are described in the Critical Accounting Policies Estimates included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the 2023 Annual Report on Form 10-K. There have been no material changes to our critical accounting policies or estimates from those set forth in our Annual Report on Form 10-K.
RESULTS OF OPERATIONS
Please refer to the commentary provided below for further discussion and analysis of the factors contributing to our results from operations for the three months ended December 31, 2023 compared to the three months ended December 31, 2022.
Non-GAAP Financial Measures
Non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures. Management adjusts the GAAP results for the impact of amortization of intangible assets, restructuring charges, purchase price accounting adjustments, charges related to merger and acquisitions and share repurchases, and rebranding and transformation costs to provide investors better perspective on the results of operations which the Company believes is more comparable to the similar analysis provided by its peers. Management also excludes special charges and gains, such as impairment losses, gains and losses from the sale of assets, certain tax benefits and charges, as well as other gains and charges that are not representative of the normal operations of the business. Management strongly encourages investors to review our financial statements and publicly filed reports in their entirety and not rely on any single measure. A reconciliation of non-GAAP measures to the most nearly comparable GAAP measures is included under “Operating Income (Loss)” and “Gross Margin” below.
Revenue
Our revenue performance for the three months ended December 31, 2023 and 2022 is as follows:
Three Months Ended December 31, | |||||||||
% Change | |||||||||
In thousands, except percentages | 2023 | 2022 | 2023 v. 2022 | ||||||
Sample Management Solutions | $ | 79,005 | $ | 75,455 | 5 | % | |||
Multiomics | 62,720 | 61,089 | 3 | % | |||||
B Medical Systems | 12,592 | 41,822 | (70) | % | |||||
Total revenue | $ | 154,317 | $ | 178,366 | (13) | % | |||
Three months ended December 31, 2023 compared to three months ended December 31, 2022
Revenue for the three months ended December 31, 2023 decreased 13% compared to the corresponding period in the prior fiscal year, driven by a 70% decrease in revenue in our B Medical Systems segment, partially offset by a 5% increase in revenue in our Sample Management Solutions segment and a 3% increase in revenue in our Multiomics segment.
Our B Medical Systems segment revenue for the three months ended December 31, 2023 decreased 70% compared to the prior fiscal year, primarily due to the timing of orders for cold chain equipment.
Our Sample Management Solutions segment revenue for the three months ended December 31, 2023 increased 5% compared to the prior fiscal year driven by broad based revenue growth across major business lines, led by large automated stores and sample repository solutions.
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Our Multiomics segment revenue for the three months ended December 31, 2023 increased 3% compared to the prior fiscal year period primarily driven by revenue growth in Gene Synthesis and Next-Generation Sequencing services, partially offset by a decline in Sanger sequencing services.
Revenue generated outside the United States was $63.7 million, or 41% of total revenue, for the three months ended December 31, 2023 compared to $90.6 million, or 51% of total revenue, for the corresponding period in the prior fiscal year.
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Operating Income (Loss)
Our operating income (loss) performance for the three months ended December 31, 2023 and 2022 is as follows:
Three Months Ended December 31, | |||||||||||||||||||||
Sample Management Solutions | Multiomics | B Medical Systems | |||||||||||||||||||
In thousands, except percentages | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||
Revenue: | $ | 79,005 | $ | 75,455 | $ | 62,720 | $ | 61,089 | $ | 12,592 | $ | 41,822 | |||||||||
Operating loss: | |||||||||||||||||||||
Operating loss | $ | (1,723) | $ | (3,476) | $ | (4,489) | $ | (4,481) | $ | (8,181) | $ | (454) | |||||||||
Amortization of completed technology | 816 | 429 | 1,039 | 1,215 | 3,772 | 2,523 | |||||||||||||||
Purchase accounting impact on inventory | — | — | — | — | — | 2,869 | |||||||||||||||
Amortization of other intangibles | 51 | 48 | — | — | — | 1,365 | |||||||||||||||
Other adjustment | — | 1 | (1) | 1 | — | — | |||||||||||||||
Total adjusted operating income (loss) | $ | (856) | $ | (2,998) | $ | (3,451) | $ | (3,265) | $ | (4,409) | $ | 6,303 | |||||||||
Operating margin | (2.2) | % | (4.6) | % | (7.2) | % | (7.3) | % | (65.0) | % | (1.1) | % | |||||||||
Adjusted operating margin | (1.1) | % | (4.0) | % | (5.5) | % | (5.3) | % | (35.0) | % | 15.1 | % | |||||||||
Three Months Ended December 31, | |||||||||||||||||||||
Segment | Corporate | Azenta Total | |||||||||||||||||||
In thousands, except percentages | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||
Revenue: | $ | 154,317 | $ | 178,366 | $ | — | $ | — | $ | 154,317 | $ | 178,366 | |||||||||
Operating loss: | |||||||||||||||||||||
Operating loss | $ | (14,393) | $ | (8,411) | $ | (12,284) | $ | (19,274) | $ | (26,677) | $ | (27,685) | |||||||||
Amortization of completed technology | 5,627 | 4,167 | — | — | 5,627 | 4,168 | |||||||||||||||
Purchase accounting impact on inventory | — | 2,869 | — | — | — | 2,869 | |||||||||||||||
Amortization of other intangibles | 51 | 1,413 | 6,811 | 5,959 | 6,862 | 7,372 | |||||||||||||||
Rebranding and transformation costs | — | — | 41 | (65) | 41 | (65) | |||||||||||||||
Restructuring charges | — | — | 1,120 | 1,462 | 1,120 | 1,462 | |||||||||||||||
Merger and acquisition costs and costs related to share repurchase(1) | — | — | 4,321 | 11,838 | 4,321 | 11,838 | |||||||||||||||
Other adjustment | (1) | 2 | — | — | (1) | — | |||||||||||||||
Total adjusted operating income (loss) | $ | (8,716) | $ | 40 | $ | 9 | $ | (80) | $ | (8,707) | $ | (40) | |||||||||
Operating margin | (9.3) | % | (4.7) | % | (17.3) | % | (15.5) | % | |||||||||||||
Adjusted operating margin | (5.6) | % | 0.0 | % | (5.6) | % | (0.0) | % | |||||||||||||
(1) Includes expenses related to governance-related matters. | |||||||||||||||||||||
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Three months ended December 31, 2023 compared to three months ended December 31, 2022
Operating loss for the Sample Management Solutions segment was $1.7 million for the three months ended December 31, 2023 compared to an operating loss of $3.5 million in the corresponding period in the prior fiscal year. The Sample Management Solutions segment operating margin was (2.2)%, an increase of 240 basis points for the three months ended December 31, 2023 compared to the corresponding period in the prior fiscal year. The increase is primarily driven by revenue growth across the segment’s major business lines and lower selling, general, and administrative expenses, partially offset by higher research and development expenses. Adjusted operating loss was $0.9 million for the three months ended December 31, 2023 compared to adjusted operating loss of $3.0 million in the corresponding period in the prior fiscal year. Adjusted operating margin was (1.1)%, an increase of 290 basis points for the three months ended December 31, 2023 compared to the corresponding period in the prior fiscal year. Adjusted operating loss and margin exclude the impact of amortization of intangible assets of $0.9 million and $0.5 million for the three months ended December 31, 2023 and 2022, respectively. Please refer to Note 15, Segment and Geographic Information in the notes to the unaudited condensed consolidated financial statements included in the section titled “Financial Statements” in Part I, Item 1 of this Quarterly Report on Form 10 Q.
Operating loss for the Multiomics segment was $4.5 million for each of the three months ended December 31, 2023 and 2022. The Multiomics segment operating margin was (7.2)%, an increase of 10 basis points for the three months ended December 31, 2023 compared to the corresponding period in the prior fiscal year. Adjusted operating loss was $3.5 million for the three months ended December 31, 2023 compared to adjusted operating loss of $3.3 million in the corresponding period of the prior fiscal year. Adjusted operating margin was (5.5)%, a decrease of 20 basis points for the three months ended December 31, 2023 compared to the corresponding period in the prior fiscal year. Adjusted operating loss and margin exclude the impact of amortization related to completed technology of $1.0 million and $1.2 million for the three months ended December 31, 2023 and 2022, respectively. Please refer to Note 15, Segment and Geographic Information in the notes to the unaudited condensed consolidated financial statements included in the section titled “Financial Statements” in Part I, Item 1 of this Quarterly Report on Form 10 Q.
Operating loss for the B Medical Systems segment was $8.2 million for the three months ended December 31, 2023 compared to an operating loss of $0.5 million in the corresponding period in the prior fiscal year. The B Medical Systems segment operating margin was (65.0)%, a decrease of 63.9 percentage points for the three months ended December 31, 2023 compared to the corresponding period in the prior fiscal year. The decrease is primarily driven by declines in revenue and gross margin, partially offset by lower selling, general, and administrative expenses, largely associated with lower commissions related to lower sales in the fiscal year 2024 period. Adjusted operating loss was $4.4 million for the three months ended December 31, 2023 compared to adjusted operating income of $6.3 million in the corresponding period in the prior fiscal year. Adjusted operating margin was (35.0)%, a decrease of 50.1 percentage points for the three months ended December 31, 2023 compared to the corresponding period in the prior fiscal year. Adjusted operating loss and margin exclude the impact of amortization related to completed technology of $3.8 million and $2.5 million for the three months ended December 31, 2023 and 2022, respectively. Adjusted operating loss and margin for the three months ended December 31, 2022 also exclude purchase accounting impact on inventory of $2.9 million and amortization of other intangibles of $1.4 million. Please refer to Note 15, Segment and Geographic Information in the notes to the unaudited condensed consolidated financial statements included in the section titled “Financial Statements” in Part I, Item 1 of this Quarterly Report on Form 10 Q.
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Gross Margin
Our gross margin performance for the three months ended December 31, 2023 and 2022 is as follows:
Three Months Ended December 31, | ||||||||||||||||||||||||||||||||
Sample Management Solutions | Multiomics | B Medical Systems | Azenta Total | |||||||||||||||||||||||||||||
In thousands, except percentages | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||
Revenue | $ | 79,005 | $ | 75,455 | $ | 62,720 | $ | 61,089 | $ | 12,592 | $ | 41,822 | $ | 154,317 | $ | 178,366 | ||||||||||||||||
Gross profit | $ | 33,272 | $ | 32,035 | $ | 28,471 | $ | 27,716 | $ | (231) | $ | 14,114 | $ | 61,512 | $ | 73,865 | ||||||||||||||||
Adjustments: | ||||||||||||||||||||||||||||||||
Amortization of completed technology |
| 816 |
| 429 |
| 1,039 |
| 1,215 |
| 3,772 |
| 2,523 |
| 5,627 |
| 4,167 | ||||||||||||||||
Purchase accounting impact on inventory | — | — | — |
| — | — |
| 2,869 | — |
| 2,869 | |||||||||||||||||||||
Adjusted gross profit | $ | 34,088 | $ | 32,465 | $ | 29,510 | $ | 28,931 | $ | 3,541 | $ | 19,506 | $ | 67,139 | $ | 80,902 | ||||||||||||||||
Gross margin | 42.1 | % | 42.5 | % | 45.4 | % | 45.4 | % | (1.8) | % | 33.7 | % | 39.9 | % | 41.4 | % | ||||||||||||||||
Adjusted gross margin | 43.1 | % | 43.0 | % | 47.1 | % | 47.4 | % | 28.1 | % | 46.6 | % | 43.5 | % | 45.4 | % | ||||||||||||||||
Three months ended December 31, 2023 compared to three months ended December 31, 2022
The Sample Management Solutions segment gross margin was 42.1% for the three months ended December 31, 2023, a decrease of 40 basis points compared to the corresponding period in the prior fiscal year. Adjusted gross margin was 43.1% for the three months ended December 31, 2023, an increase of 10 basis points compared to the corresponding period in the prior fiscal year, driven by higher gross margin for the Core Products business, partially offset by lower gross margin for the Sample Repository Solutions business. Adjusted gross margin excludes the impact of amortization related to completed technology of $0.8 million and $0.4 million for the three months ended December 31, 2023 and 2022, respectively.
The Multiomics segment gross margin was 45.4% for both the three months ended December 31, 2023 and 2022. Adjusted gross margin was 47.1% for the three months ended December 31, 2023, a decrease of 30 basis points compared to the corresponding period in the prior fiscal year, primarily driven by pricing headwinds partially offset by labor productivity and direct material savings. Adjusted gross margin excludes the impact of amortization related to completed technology of $1.0 million and $1.2 million for the three months ended December 31, 2023 and 2022, respectively.
The B Medical Systems segment gross margin was (1.8)% for the three months ended December 31, 2023, a decrease of 35.5 percentage points compared to the corresponding period in the prior fiscal year. Adjusted gross margin was 28.1% for the three months ended December 31, 2023, a decrease of 18.5 percentage points compared to the corresponding period in the prior fiscal year, primarily due to product mix. Adjusted gross margin excludes the impact of amortization related to completed technology of $3.8 million and $2.5 million for the three months ended December 31, 2023 and 2022, respectively, and purchase accounting impact on inventory of $2.9 million for the three months ended December 31, 2022.
Research and Development Expenses
Our research and development expenses for the three months ended December 31, 2023 and 2022 are as follows:
Three Months Ended December 31, | ||||||||||||
2023 | 2022 | |||||||||||
In thousands | % of Revenue | In thousands | % of Revenue | |||||||||
Sample Management Solutions | $ | 4,387 | 5.6 | % | $ | 3,486 | 4.6 | % | ||||
Multiomics | 2,926 | 4.7 | % | 3,053 | 5.0 | % | ||||||
B Medical Systems | 1,180 | 9.4 | % | 997 | 2.4 | % | ||||||
Total research and development expense | $ | 8,493 | 5.5 | % | $ | 7,536 | 4.2 | % | ||||
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Research and development expenses for the three months ended December 31, 2023 increased $1.0 million compared to the three months ended December 31, 2022, primarily driven by increased product development expenses at the Sample Management Solutions segment.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses for the three months ended December 31, 2023 and 2022 are as follows:
Three Months Ended December 31, | ||||||||||||
2023 | 2022 | |||||||||||
In thousands | % of Revenue | In thousands | % of Revenue | |||||||||
Sample Management Solutions | $ | 30,609 | 38.7 | % | $ | 32,016 | 42.4 | % | ||||
Multiomics | 30,034 | 47.9 | % | 29,136 | 47.7 | % | ||||||
B Medical Systems | 6,769 | 53.8 | % | 13,572 | 32.5 | % | ||||||
Corporate | 11,164 | 7.2 | % | 17,828 | 10.0 | % | ||||||
Total selling, general and administrative expense | $ | 78,576 | 50.9 | % | $ | 92,552 | 51.9 | % | ||||
Total selling, general and administrative expenses decreased $14.0 million for the three months ended December 31, 2023 compared to the three months ended December 31, 2022, primarily due to decreased bad debt expenses and commissions expenses, as well as decreased expenses related to the accelerated share repurchase and governance-related costs. The savings from our cost reduction initiatives that commenced in fiscal year 2023 also contributed to the decrease for the three months ended December 31, 2023.
Restructuring Charges
Restructuring charges were $1.1 million for the three months ended December 31, 2023, a decrease of $0.3 million compared to the three months ended December 31, 2022. The majority of the restructuring expenses for the three months ended December 31, 2023 and 2022 are severance and related costs resulting from cost reduction initiatives that commenced in fiscal year 2023.
Non-Operating Income
Interest income, net – We recorded interest income of $10.1 million for the three months ended December 31, 2023 compared to $10.7 million recorded the three months ended December 31, 2022. The decrease in interest income is due to less investment in marketable securities during the three months ended December 31, 2023 compared to the corresponding period in the prior fiscal year. Please refer to Note 4, Marketable Securities and Note 5, Derivative Instruments in the notes to the unaudited condensed consolidated financial statements included in the section titled “Financial Statements” in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Other, net – We recorded other income of $0.7 million for the three months ended December 31, 2023 compared to other income of $1.1 million for the three months ended December 31, 2022, primarily due to the foreign exchange gains and losses resulting from foreign currency denominated transactions and the revaluation of foreign currency denominated assets and liabilities.
Income Tax Benefit
We recorded an income tax benefit of $0.2 million during the three months ended December 31, 2023, which was primarily driven by the pre-tax loss from operations. The pre-tax loss benefit is offset by a $0.5 million stock compensation shortfall expense for tax deductions that are lower than the associated book compensation expense and a $0.7 million expense related to a valuation allowance on beginning of year deferred tax assets. Additionally, the tax benefit for the three months ended December 31, 2023 was reduced by $2.6 million of tax reserves recorded against the current year deferred tax assets.
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We recorded an income tax benefit of $4.6 million during the three months ended December 31, 2022. The benefit was primarily driven by the pre-tax loss from operations and a $1.3 million deferred tax benefit resulting from the extension of a tax incentive in China.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2023, we had cash and cash equivalents of $702.9 million and stockholders’ equity of $2.4 billion. We believe that our current cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements for at least one year from the date of this Quarterly Report on Form 10-Q and for the foreseeable future. The current global economic environment makes it difficult for us to predict longer-term liquidity requirements with sufficient certainty. We may be unable to obtain any required additional financing on terms favorable to us, if at all. If adequate funds are not available to us on acceptable terms or otherwise, we may be unable to successfully develop or enhance products and services, respond to competitive pressures, or take advantage of acquisition opportunities, any of which could have a material adverse effect on our business, financial condition and operating results.
Cash Flows and Liquidity
The discussion of our cash flows and liquidity that follows is stated on a total company consolidated basis and excludes the impact of discontinued operations.
Our cash and cash equivalents, restricted cash and marketable securities as of December 31, 2023 and September 30, 2023 were as follows:
In thousands | December 31, 2023 | September 30, 2023 | ||||
Cash and cash equivalents | $ | 702,923 | $ | 678,910 | ||
Restricted cash | 5,298 | 5,135 | ||||
Short-term marketable securities |
| 281,212 |
| 338,873 | ||
Long-term marketable securities |
| 61,962 |
| 111,338 | ||
$ | 1,051,395 | $ | 1,134,256 | |||
As of December 31, 2023, we had $593.7 million of cash, cash equivalents and restricted cash held outside of the United States. If these funds are needed for U.S. operations, we would need to repatriate these funds. As a result of changes in U.S. tax legislation, any repatriation in the future would likely not result in U.S. federal income tax. Our marketable securities are generally readily convertible to cash without a material adverse impact.
Our cash flows for the three months ended December 31, 2023 and 2022 were as follows:
Three Months Ended December 31, | ||||||
In thousands | 2023 | 2022 | ||||
Net cash provided by (used in) operating activities | $ | 26,431 | $ | (27,020) | ||
Net cash provided by investing activities | 98,397 | 56,356 | ||||
Net cash used in financing activities | (113,153) | (504,720) | ||||
Effects of exchange rate changes on cash and cash equivalents | 12,501 | 49,941 | ||||
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 24,176 | $ | (425,443) | ||
Cash inflows from operating activities for the three months ended December 31, 2023 were $26.4 million, primarily due to improved accounts receivable collections and inventory management, and increased customer prepayments. Investing inflows of $98.4 million include $110.3 million of sales and maturities of marketable securities, offset by $11.9 million for purchases of property plant and equipment. Financing activities for the three months ended December 31, 2023 include $113.0 million of outflows related to our share repurchase program described below.
As of December 31, 2023, we had no outstanding debt on our balance sheet.
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Capital Resources
Share Repurchase Program
On November 4, 2022, our Board of Directors terminated the existing share repurchase authorization and approved a new authorization to repurchase up to $1.5 billion of our common stock (the “2022 Repurchase Authorization”). Repurchases under the 2022 Repurchase Authorization may be made in the open market or through privately negotiated transactions (including under an accelerated share repurchase (“ASR”) agreement), or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 of the Exchange Act, subject to market and business conditions, legal requirements, and other factors. We are not obligated to acquire any specific amount of common stock under the 2022 Repurchase Authorization, and share repurchases may commence or be suspended at any time at management’s discretion.
On November 13, 2023, we announced our intention to repurchase shares using all the remaining capacity available under the 2022 Repurchase Authorization during fiscal year 2024, subject to market and business conditions, legal requirements, and other factors.
As of December 31, 2023, we had repurchased 19.7 million shares of common stock for $951.4 million (excluding fees, commissions, and excise tax) under the 2022 Repurchase Authorization and $548.6 million of the 2022 Repurchase Authorization remained. All shares of common stock repurchased by the Company under the 2022 Repurchase Authorization have been retired, accounted for as a reduction to stockholders’ equity in the Condensed Consolidated Balance Sheets and treated as a repurchase of common stock for purposes of calculating earnings per share as of the applicable settlement dates.
See Note 9, Stockholders’ Equity in the notes to the unaudited condensed consolidated financial statements included in the section titled "Financial Statements" in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information about the 2022 Repurchase Authorization.
Contractual Obligations and Requirements
At December 31, 2023, we had non-cancellable commitments of $78.1 million, comprised primarily of purchase orders for inventory of $58.2 million, and information technology related commitments of $19.9 million.
Off-Balance Sheet Arrangements
As of December 31, 2023, we had no obligations, assets or liabilities which would be considered off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a variety of market risks, including changes in interest rates affecting the return on our cash and cash equivalents, restricted cash and short-term and long-term investments and fluctuations in foreign currency exchange rates.
Interest Rate Exposure
Our cash and cash equivalents and restricted cash consist principally of money market securities which are short-term in nature. At December 31, 2023, our aggregate short-term and long-term investments were $343.2 million, consisting mostly of highly rated corporate debt securities and U.S. government backed securities. At December 31, 2023, the unrealized loss position on marketable securities was $3.5 million which is included in “Accumulated other comprehensive loss” in the Condensed Consolidated Balance Sheets. A hypothetical 100 basis point change in interest rates would result in a $2.7 million change in interest income earned during the three months ended December 31, 2023.
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Currency Rate Exposure
We have transactions and balances denominated in currencies other than the functional currency of the transacting entity. Most of these transactions carrying foreign exchange risk are in Germany, the United Kingdom, and China. Sales in currencies other than the U.S. dollar were approximately 27% and 24% of our total sales, respectively, during the three months ended December 31, 2023 and 2022. These sales were made primarily by our foreign subsidiaries, which have cost structures that substantially align with the currency of sale.
In the normal course of our business, we have liquid assets denominated in non-functional currencies which include cash, short-term advances between our legal entities and accounts receivable which are subject to foreign currency exposure. Such balances were $69.2 million and $157.8 million, respectively, at December 31, 2023 and September 30, 2023, and primarily relate to the Euro, British Pound, and the Chinese Yuan. We mitigate the impact of potential currency translation losses on these short-term intercompany advances by the timely settlement of each transaction, generally within 30 days. We also utilize forward contracts to mitigate our exposures to currency movement. We incurred foreign currency losses of $0.6 million and gains of $0.9 million during the three months ended December 31, 2023 and 2022, respectively, which related to the currency fluctuation on these balances between the time the transaction occurred and the ultimate settlement of the transaction. A hypothetical 10% change in foreign exchange rates as of December 31, 2023 would result in an approximate change of $0.3 million in our net income during the three months ended December 31, 2023.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As of December 31, 2023, pursuant to Rule 13a-15 under the Exchange Act, we performed an evaluation of the effectiveness of our disclosure controls and procedures. Based on this evaluation, management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures are operating and effective as of December 31, 2023.
Change in Internal Controls. There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are subject to various legal proceedings, both asserted and unasserted, that arise in the ordinary course of business. We cannot predict the ultimate outcome of such legal proceedings or in certain instances provide reasonable ranges of potential losses. However, as of the date of this Quarterly Report on Form 10-Q, we believe that none of these claims will have a material adverse effect on our consolidated financial condition or results of operations. In the event of unexpected subsequent developments and given the inherent unpredictability of these legal proceedings, there can be no assurance that our assessment of any claim will reflect the ultimate outcome and an adverse outcome in certain matters could, from time to time, have a material adverse effect on our consolidated financial condition or results of operations in particular quarterly or annual periods.
Item 1A. Risk Factors
You should carefully review and consider the information regarding certain factors that could materially affect our business, consolidated financial condition or results of operations set forth under the section titled. “Risk Factors” in Part I, Item 1A of the 2023 Annual Report on Form 10-K. There have been no material changes from the risk factors disclosed in the 2023 Annual Report on Form 10-K. We may disclose changes to risk factors or additional factors from time to time in our future filings with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following provides information about repurchases of our common stock during the three months ended December 31, 2023:
Period of Repurchase | Repurchase authorization | Total Number of Shares Purchased | Average Price | Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs | Approximate Dollar Value | |||||||
October 1 - 31, 2023 | Open market repurchase | 1,461,943 | $ | 49.91 | 18,916,954 | $ | 589 | |||||
November 1 - 30, 2023 | Open market repurchase | 796,917 | $ | 50.14 | 19,713,871 | $ | 549 | |||||
December 1 - 31, 2023 | Open market repurchase | - | - | 19,713,871 | $ | 549 | ||||||
Total | 2,258,860 | $ | 49.99 |
| (1) | See Note 9, Stockholders’ Equity in the notes to the unaudited condensed consolidated financial statements included in the section titled "Financial Statements" in Part I, Item 1 of this Quarterly Report on Form 10-Q and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Share Repurchase Program” in Part I, Item 2 of this Quarterly Report on Form 10-Q for additional information regarding repurchases of our common stock. |
Item 5. Other Information
Rule 10b5-1 Trading Arrangements
During the three months ended December 31, 2023, the following directors and officers (as defined in Rule 16a-1(f) of the Exchange Act) of the Company took the following actions regarding trading arrangements with respect to our securities:
On
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Item 6. Exhibits
The following exhibits are included herein:
Exhibit No. |
| Description |
10.1* | Transition Letter Agreement dated December 4, 2023 between the Company and Lindon G. Robertson. | |
10.2* | Separation Agreement dated January 2, 2024 between the Company and David C. Gray. | |
31.01 | ||
31.02 | ||
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101 | The following material from the Company’s Quarterly Report on Form 10-Q, for the quarter ended December 31, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the unaudited Condensed Consolidated Balance Sheets; (ii) the unaudited Condensed Consolidated Statements of Operations; (iii) the unaudited Condensed Consolidated Statements of Comprehensive Income; (iv) the unaudited Condensed Consolidated Statements of Cash Flows; (v) the unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity; and (vi) the Notes to the unaudited Condensed Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because XBRL tags are embedded in the iXBRL document. | |
104 | Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101). *Management contract, compensatory plan or agreement. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AZENTA, INC. | |
Date: February 8, 2024 | /s/ Herman Cueto |
Herman Cueto | |
Executive Vice President and Chief Financial Officer | |
(Principal Financial Officer) | |
Date: February 8, 2024 | /s/ Violetta A. Hughes |
Violetta A. Hughes | |
Vice President and Chief Accounting Officer | |
(Principal Accounting Officer) |
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