Azenta(AZTA) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements The consolidated financial statements present Azenta's financial position and performance, restated to reflect the semiconductor automation business as a discontinued operation, showing increased cash and a substantial net income for the nine-month period driven by divestiture gains Financial Statement Summary | Financial Statement | Period | Key Figure (in thousands) | | :--- | :--- | :--- | | Balance Sheet | As of June 30, 2022 | Total Assets: $3,722,717 | | | | Total Liabilities: $294,931 | | | | Total Stockholders' Equity: $3,427,786 | | Statement of Operations | Three months ended June 30, 2022 | Total Revenue: $132,735 | | | | Loss from continuing operations: $(7,015) | | | | Net (Loss) Income: $(9,570) | | Statement of Operations | Nine months ended June 30, 2022 | Total Revenue: $417,931 | | | | Loss from continuing operations: $(5,973) | | | | Net Income: $2,153,624 | | Statement of Cash Flows | Nine months ended June 30, 2022 | Net cash (used in) operating activities: $(475,680) | | | | Net cash provided by investing activities: $1,840,068 | | | | Net cash used in financing activities: $(64,513) | Note 1. Nature of Operation Azenta operates as a global provider of life science sample exploration and management solutions, having divested its semiconductor automation business for $2.9 billion - The company is a global provider of life science sample exploration and management solutions, supporting customers from research to clinical development[22] - On February 1, 2022, the company completed the sale of its semiconductor automation business for $2.9 billion in cash, with expected net proceeds of $2.5 billion after taxes and costs, now classified as a discontinued operation[23][24] - The COVID-19 pandemic has not had a substantial negative impact on financial results, partly mitigated by realignment of resources to support virus research and vaccine development[26] Note 3. Discontinued Operations The company completed the sale of its semiconductor automation business for $2.9 billion, resulting in a pre-tax gain of $2.6 billion included in net income from discontinued operations - The sale of the semiconductor automation business was completed on February 1, 2022, for $2.9 billion in cash, with expected net proceeds of $2.5 billion after taxes[56] Discontinued Operations (Semiconductor) | Discontinued Operations (Semiconductor) | Nine Months Ended June 30, 2022 (in thousands) | Nine Months Ended June 30, 2021 (in thousands) | | :--- | :--- | :--- | | Total Revenue | $264,430 | $474,674 | | (Loss) gain on divestiture | $2,560,384 | $0 | | Net income from discontinued operations | $2,159,597 | $95,414 | Note 5. Acquisitions The company completed two acquisitions in fiscal 2021, Abeyatech LLC for $9.9 million and Trans-Hit Biomarkers Inc. for $15.1 million, to enhance its life sciences offerings - Acquired Abeyatech LLC on April 2, 2021, for $9.9 million cash and $9.4 million in contingent consideration to enhance the Life Sciences Products segment[76] - Acquired Trans-Hit Biomarkers Inc. on December 3, 2020, for approximately $15.1 million cash to expand the Life Sciences Services segment[78] Note 7. Debt and Line of Credit Following the sale of its semiconductor automation business, Azenta used $49.7 million to extinguish its term loan and terminated its revolving line of credit, resulting in a $0.6 million loss on debt extinguishment - On February 1, 2022, the company used $49.7 million of proceeds from the semiconductor business sale to extinguish its outstanding term loan[89] - The company terminated its revolving line of credit, which had no borrowings outstanding, and recorded a loss on debt extinguishment of $0.6 million[89] Note 12. Earnings per Share For the nine months ended June 30, 2022, the company reported a diluted net income per share of $28.76, primarily driven by a significant gain from the sale of the semiconductor business Earnings Per Share (Diluted) | Earnings Per Share (Diluted) | Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | | :--- | :--- | :--- | | Loss from continuing operations | $(0.08) | $(0.09) | | Income from discontinued operations | $28.84 | $1.29 | | Diluted net income per share | $28.76 | $1.20 | Note 13. Revenue from Contracts with Customers The company disaggregates its revenue into Life Sciences Products, Sample Repository Solutions, and Genomic Services, with total revenue of $417.9 million for the nine months ended June 30, 2022, and $63.7 million in remaining performance obligations Revenue by Business Line | Revenue by Business Line (in thousands) | Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | | :--- | :--- | :--- | | Life Sciences Products | $150,861 | $146,490 | | Sample Repository Solutions | $78,806 | $64,496 | | Genomic Services | $188,264 | $165,778 | | Total | $417,931 | $376,764 | - As of June 30, 2022, remaining performance obligations totaled $63.7 million, with $35.7 million expected to be recognized as revenue within one year[135][137] Note 14. Segment and Geographic Information Azenta operates in Life Sciences Products and Services segments, with the Services segment generating $267.1 million and the Products segment $150.9 million in revenue for the nine months ended June 30, 2022, primarily from North America Segment Revenue | Segment Revenue (in thousands) | Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | | :--- | :--- | :--- | | Life Sciences Products | $150,861 | $146,520 | | Life Sciences Services | $267,070 | $230,244 | | Total Revenue | $417,931 | $376,764 | Revenue by Geography | Revenue by Geography (in thousands) | Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | | :--- | :--- | :--- | | North America | $285,283 | $236,939 | | Europe | $75,863 | $82,412 | | China | $33,936 | $33,869 | | Asia Pacific/ Other | $22,849 | $23,544 | | Total | $417,931 | $376,764 | Note 18. Subsequent Event After the quarter ended, Azenta continued its acquisition strategy by acquiring Barkey Holding GmbH for approximately €80.0 million and agreeing to acquire B Medical Systems S.a.r.l for approximately €410 million plus contingent payments - On July 1, 2022, the company acquired Barkey Holding GmbH, a provider of controlled rate thawing devices, for approximately €80.0 million[170] - On August 8, 2022, the company agreed to acquire B Medical Systems, a leader in temperature-controlled storage and transportation, for approximately €410 million, plus up to €50 million in contingent payments[171] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion centers on the company's transformation into a pure-play life sciences entity following the $2.9 billion sale of its semiconductor automation business, significantly boosting liquidity and funding strategic acquisitions Overview Azenta is now a leading global provider of life science sample exploration and management solutions, with a strategy combining internal development and strategic acquisitions to build a comprehensive portfolio - The company is a leading global provider of life science sample exploration and management solutions, supporting customers from research to clinical development[183] - Azenta's strategy combines internal R&D with acquisitions to accelerate time-to-market for its comprehensive sample-based service offerings[185] Results of Operations For Q3 fiscal 2022, revenue increased 3% to $132.7 million, but gross margin declined to 44.9%, leading to an operating loss of $5.1 million, while nine-month revenue grew 11% to $417.9 million with a $10.1 million operating loss Revenue by Segment | Revenue by Segment (in thousands) | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | Life Sciences Products | $47,369 | $48,625 | (3)% | | Life Sciences Services | $85,366 | $80,462 | 6% | | Total Revenue | $132,735 | $129,087 | 3% | Key Metrics | Key Metrics | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Gross Margin | 44.9% | 48.4% | | Operating Loss (in thousands) | $(5,073) | $(883) | - For the nine months ended June 30, 2022, revenue increased 11% to $417.9 million, while operating loss was $10.1 million compared to $9.8 million in the prior year period[191] Liquidity and Capital Resources The company's liquidity significantly strengthened to $2.5 billion in cash and marketable securities at June 30, 2022, primarily due to $2.9 billion in divestiture proceeds used to extinguish all outstanding debt and fund operations Liquidity | Liquidity (in thousands) | June 30, 2022 | September 30, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,474,189 | $227,427 | | Marketable securities | $1,021,090 | $3,679 | | Total Cash & Marketable Securities | $2,495,279 | $231,106 | - On February 1, 2022, the company used $49.7 million of proceeds from its divestiture to extinguish all outstanding debt and terminated its revolving line of credit[239] - Cash outflows from operating activities for the nine months ended June 30, 2022 were $475.7 million, which included $431.6 million in cash taxes paid related to the semiconductor business sale[241] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate and foreign currency fluctuations, with a hypothetical 100 basis point interest rate change impacting interest income by approximately $8 million on its $1 billion investment portfolio, and uses forward contracts to mitigate foreign currency risk on 37% of sales - A hypothetical 100 basis point change in interest rates would result in an approximate $8 million change in interest income on the company's $1 billion investment portfolio[253] - Sales in currencies other than the U.S. dollar were approximately 37% of total sales for the nine months ended June 30, 2022, and the company utilizes forward contracts to mitigate currency risk[255][256] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures are effective, with no material changes in internal control over financial reporting during the most recent fiscal quarter - Management, including the CEO and CFO, has concluded that the company's disclosure controls and procedures are effective as of June 30, 2022[257] - No material changes occurred in internal control over financial reporting during the third fiscal quarter[257] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is subject to various legal proceedings in the ordinary course of business, none of which management believes will have a material adverse effect on its financial condition or results of operations - The company is subject to ordinary course legal proceedings but does not believe any will have a material adverse effect on its financial condition or results of operations[262] Item 1A. Risk Factors There have been no material changes from the risk factors previously disclosed in the company's 2021 Annual Report on Form 10-K and subsequent quarterly reports - There have been no material changes from the risk factors disclosed in the 2021 Annual Report on Form 10-K and subsequent quarterly filings[263] Item 6. Exhibits This section lists the exhibits filed with the quarterly report, including the certifications by the CEO and CFO as required by the Sarbanes-Oxley Act of 2002 and the Interactive Data File (iXBRL) - The report includes certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[264]