Azenta, Inc. Q1 FY2025 Earnings Call

Greetings and welcome to the Azenta Q1 2025 Financial Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded, Wednesday, February 5, 2025. I will now turn the conference over to Yvonne Perron, Vice President, FP&A and Investor Relations. You may begin.

Thank you, operator, and good afternoon to everyone on the line today. We would like to welcome you to our earnings conference call for the first quarter of fiscal year 2025. Our first quarter earnings press release was issued before the open of the market today and is available on our Investor Relations website located at investors.azenta.com, in addition to the supplementary PowerPoint slides that will be used today during the prepared remarks. Effective this quarter, the first fiscal quarter of 2025, the results of B Medical Systems are treated as discontinued operations. I would like to remind everyone that during the course of the call, we will be making a number of forward-looking statements within the meaning of the Private Litigation Securities Act of 1995. There are many factors that may cause actual financial results or other events to differ from those identified in such forward-looking statements. I would refer you to the section of our earnings release titled Safe Harbor Statement, the Safe Harbor slide on the aforementioned PowerPoint presentation on our website, and our various filings with the SEC, including our annual report on Form 10-K and our quarterly reports on Form 10-Q. We make no obligation to update these statements should future financial data or events occur that differ from the forward-looking statements presented today. We may refer to a number of non-GAAP financial measures which are used in addition to and in conjunction with results presented in accordance with GAAP. We believe the non-GAAP measures provide an additional way of viewing aspects of our operations and performance but when considered with GAAP financial results and the reconciliation of GAAP measures, they provide an even more complete understanding of the Azenta business. Non-GAAP measures should not be relied upon to the exclusion of the GAAP measures themselves. On the call with me today is our President and Chief Executive Officer, John Marotta; and our Chief Financial Officer, Lawrence Lin. We will open the call with remarks from John and then Lawrence will provide a detailed look into our financial results and our outlook for fiscal year 2025. We will then take your questions at the end of the prepared remarks. And with that, I would like to turn the call over to our CEO, John Marotta.

Thank you, Yvonne. Good morning, everyone, and thank you for joining us today. We're happy to be with you in the morning rather than later in the day. And going forward, we will follow the same timing with the earnings release in the call before the market opens. This gives us more time for same-day interactions with our analysts, investors, and other interested stakeholders. Before getting into the numbers, I want to give you an update on how I've spent my time the first few months at Azenta. Since September, I've spent most of my time getting to know our business in the best way I know how: on the ground with our customers and our associates at our manufacturing sites and our lab facilities around the globe, including the U.K., China, and the U.S. These meetings with our teams have been invaluable. They have given me the chance to see first-hand the incredible work being done and hear from those who drive our success every day. These visits have deepened my understanding of our operations, our opportunities, and most importantly, our people. I'm even more excited about what lies ahead. Alongside our highly talented teams, we've been making progress towards our accelerated goal of delivering profitable growth and long-term shareholder value. Our work is well underway to further enhance our competitively advantaged portfolio, differentiated products and services, and strong market positioning. The Board, aided by the capabilities of the newly created Value Creation Committee, have been working alongside me and my team to focus on and oversee our strategic initiatives, portfolio optimization, operational excellence, and value-enhancing capital allocation. Our Sample Management Solutions business is unique. I've had the opportunity to observe first-hand the highly differentiated products and services we deliver to our customers. To that end, we are excited that the U.K. Biocentre selected Azenta to expand its sample storage capabilities with the BioArc Ultra. The BioArc Ultra will deliver significant operational efficiency and reduce footprint through high-density automated storage. The 16 million sample storage system includes our sample intelligence software solution with digitized library and warehouse workflows and the picking capability of up to 9 million picks per year. This is a clear testament to our market leadership position and reflects the trust and confidence that customers place in our capabilities and track record of delivering exceptional value. In our Multiomics GENEWIZ business, I have clearly seen how much our customers consistently prioritize our high-quality offerings and trust the research expertise and consultative approach that our scientists provide to genomics analysis and scientific research. Across Azenta, we have a talented team that is focused on enabling breakthroughs faster for our customers. Now I'll shift my focus to the first quarter 2025 results, our full-year outlook, and then dive into key updates on the focus areas that I shared with you during the last earnings call. As a reminder, during the fourth quarter of 2024 earnings call, we announced our decision to sell B Medical Systems. Effective this quarter, B Medical is reported in discontinued operations and I will not be discussing the business performance in my remarks. I'm pleased to share that fiscal 2025 was off to a good start with positive momentum on demand for our unique and differentiated offerings. On a year-over-year basis, organic revenue grew 4% and adjusted EBITDA margin expanded by 400 basis points. In Multiomics, Next Gen Sequencing, Gene Synthesis, and clinical services were strong. And in Sample Management Solutions, we saw growth in our Consumables and Instruments, clinical BioStore, cryogenics, as well as sample storage. We remain cautiously optimistic about the gradual market recovery. We are confident in our outlook and are reiterating our full year 2025 guidance of organic revenue growth between 3% to 5% and adjusted EBITDA margin expansion of 300 basis points. Lawrence will go into more detail in our quarterly financial performance. At the last earnings call, I shared with you that we're focusing on several key areas. The first is portfolio optimization; the second is operational excellence; and the third is value-enhancing capital allocation. Each quarter, I will update you on the progress we are making in each area and portfolio optimization, the B Medical sale process is underway which will help simplify our portfolio and will allow us to focus on driving revenue growth and profitability in our remaining businesses. We've engaged external advisers but are still in the initial stages. We will update shareholders as this process develops but won't be commenting further at this time. More broadly, our priority will always be to strategically review the portfolio on an ongoing basis and to ensure we are maximizing our full potential in creating value. We have made some early and positive strides in operational excellence. The efforts we are making will build the foundation for long-term value creation, reducing complexity and simplifying what we do and how we work each day. I am confident that by focusing on operational excellence and transformation, we will deliver best-in-class growth. Specifically, we started rolling out our business system and operating model. We brought together our top leaders for a 2-day training on the business system and the implementation plan. The level of engagement and enthusiasm for the teams to learn a new way of doing business was encouraging. They understand the need for change and they demonstrated interesting curiosity and lean tools. We are equipping our leaders with the skills and the knowledge through participation in Kaizen events to become experts in the field, empowering them not only to excel individually but also to lead and mentor others and amplify their impact deep into the organization. We're working to create an environment where continuous improvement and simplification is the way we work. The change in mindset will be modeled at the top and methodically cascaded throughout the organization. It will be challenging and sometimes bumpy but we have a strong culture with winning instincts. The business system model will help drive our performance and further unify our culture. I'm excited about the road ahead. To measure our performance, we have carefully selected our key performance indicators which we call core value drivers or CVDs. These align our daily management and operating decisions with our strategy. The CVDs are broadly focused on revenue growth, profitability, customer-facing metrics for quality and on-time delivery, employee metrics on internal advancement and voluntary turnover, as well as working capital and cash management. We are starting to better utilize our information systems to provide more timely visibility and insights across the organization. Recently, our technology team quickly developed and rolled out a weekly automated sales report which provides a visual dashboard to help focus deeply on running the business. To see where we're off track in red and where we are on track in green. This new tool will allow us to prioritize and focus on addressing issues, identify countermeasures where necessary, and save valuable time and resources and enable better, more consistent performance. This example illustrates the low-hanging fruit available to us. We have many opportunities like this that are highly achievable and can have a rapid and meaningful impact on our performance. As an organization, we will be programmatic in how we spend our time. We are prioritizing customer on-time delivery and products and services quality which will lead to gross margin improvements, indirect savings, inventory reduction, and importantly, improved customer experience and satisfaction. This will have immediate positive impacts on our profitability and how our customers see us, and organic growth acceleration will follow with a lag. In line with our priorities, we have scheduled three Kaizens for the fiscal second quarter. Two are in sample repository solutions; one focuses on sample management workflow automation that will create efficiency and scalability, and the other on simplification of order-to-cash process to shorten cycle time and improve process quality. The third is in Multiomics for improved payment capabilities to shorten the cycle from study inquiry to scientific results. These Kaizens will identify areas that will identify the need for more Kaizen starting the flywheel of continuous improvement. In January, we executed our corporate restructuring plan to rightsize our G&A cost structure and reposition our resources. Simplification of corporate and operating company functions is critical to provide clarity and accountability while empowering our employees who are closest to the customer to make the right commercial decisions. We have restructured headcount and pushed R&D, quality, sales operations, finance, human resources, and other functions into the two operating companies. Each operating company will undergo an organizational transformation in the coming weeks to ensure an optimal go-to-market and commercial structure. We are freeing up capital that will be redirected to the highest impact growth investments in sales, marketing, and R&D. There is a sense of excitement and optimism in the organization towards the changes and increased clarity around accountability and decision-making. To help implement standard procurement processes, we are in the process of establishing a new global procurement organization. This group will drive direct material and indirect cost savings, optimize inventory levels, streamline our supply chain, and optimize our preferred supplier list. More to come on this in Q2. Finally, on the capital allocation, the Value Creation Committee of the Board was created in November. I'm working closely with the committee to establish the monthly framework, where we will review progress on our financial performance, working capital initiatives, margin improvement, as well as evaluate potential investments. We will prioritize investment opportunities across the four levers which are gross margin productivity, organic growth offerings, inorganic growth through strategic tuck-in and M&A, and repurchasing our stock. We will make our capital allocation decisions through a standard and robust returns-based process. As I mentioned before, we will compete for resources internally to unlock long-term shareholder value. I'm excited about Azenta's potential and confident in our ability to drive long-term sustainable value to our customers, our employees, and our shareholders. I will keep you updated on our progress. With that, I'm pleased to turn the call over to Lawrence. Thank you.

Thank you, John. Good morning, everyone. Thank you for joining us today. I'm honored to be here with you for my first earnings call as the Chief Financial Officer of Azenta. Before we discuss our financial performance for the first quarter of fiscal 2025, we want to take a moment to acknowledge the trust that you placed in me to help lead this great company. Additionally, I would like to recognize the dedication of our entire Azenta team who demonstrate every day their commitment to delivering value for our customers, fellow employees, and shareholders. I want to share my initial reflections following my first 90 days on the job. These past three months have been insightful and energizing as I work to immerse myself in learning the business, understanding the dynamics of our operations, and engaging with the talented individuals across the organization. I couldn't be more excited to be here. Azenta has a history of delivering value and innovation, and it's clear that the team is deeply committed to our purpose of enabling breakthroughs faster. I've been impressed by the resilience and adaptability demonstrated across the organization, particularly in navigating challenging market conditions. At the same time, after spending time with the team, it's clear to me there are numerous opportunities to enhance our financial performance. Streamlining our operations to work simpler and smarter while deploying technology more fully to automate processes and build robust capabilities will enable improved cash flow generation and accelerate profitable growth. These initiatives will not only help us address immediate priorities and challenges, but also set the scalable foundation for sustainable, long-term value creation. Now, on to the financial results. As a reminder, the results we are referring to today, unless otherwise noted, exclude B Medical Systems which is now reported under discontinued operations. I am pleased to report that we saw continued organic growth in our combined Sample Management Solutions and Multiomics businesses. This demonstrates the strength of our portfolio and our ability to better address the needs of our customers in an ever-evolving and uncertain, yet still challenging market environment. In addition, our continued focus on cost optimization and driving profitable growth is positioning us well to improve margins and deliver strong and consistent results for our shareholders. To supplement my remarks today, I will refer to the slide deck available on our website. Turning to Slide 3 for some highlights. First quarter revenue was $148 million, up 4% year-over-year on an as-reported and on an organic basis. Both the SMS and Multiomics segments performed well in the quarter, given the continued challenging market environment, with growth in Next Generation Sequencing, Gene Synthesis, Consumables and Instruments, store systems, as well as sample storage. Non-GAAP EPS for the quarter was $0.08. Adjusted EBITDA margin was 9% in the quarter. This represents a margin expansion of about 400 basis points versus last year, demonstrating the impact of our transformation initiatives, as well as our strong focus on improved operational efficiencies. Our results were impacted by certain one-time costs, including those related to executive compensation in connection with the recent restructuring of our management team. Free cash flow was $22 million for the quarter, driven primarily by lower accounts receivables and increased billings related to our source projects. We ended the quarter in a strong position with $530 million in cash, cash equivalents, and marketable securities which includes $27 million of cash held in discontinued operations. Now let's turn to Slide 4 to take a deeper look at our results in the quarter. Total revenue was $148 million, representing a growth of 4% reported and organic. In the first quarter, non-GAAP gross margin was 47.6%, up 270 basis points year-over-year. The improvement is largely a result of higher revenue, favorable sales mix, operational efficiencies, and certain nonrecurring items recorded in the same period last year. Adjusted EBITDA margin in the quarter was 9%, up 400 basis points year-over-year. Again, non-GAAP EPS was $0.08 per share. With that, let's turn to Slide 5 for a review of our segment results, starting with Sample Management Solutions, or SMS. SMS revenue was $81 million for the quarter, up 3% year-over-year reported and up 2% organic. Driven by growth in Sample Repository Solutions and Core Products. Consumables and Instruments, Clinical and Cryogenic Store Systems, and sample storage were the drivers of growth which were partially offset by a year-over-year decline in large automated stores due to timing. SMS first quarter non-GAAP gross margin was 47.8%, up 460 basis points year-over-year, mostly driven by operational efficiencies, sales mix, and the impact of certain nonrecurring items recorded in the same period last year. Turning next to the Multiomics segment. Multiomics delivered revenue of $66 million with a growth of 6% on both an as-reported and organic basis, demonstrating our strong execution in the face of several market headwinds. Next Generation Sequencing grew 11% year-over-year. This was the third quarter of price stabilization and double-digit volume growth. Key large deals also contributed to the significant year-over-year gains, specifically in the North America and Europe regions. China delivered organic revenue growth of 7%, once again outperforming a market with macro challenges. Gene Synthesis grew 5% compared to last year with great execution by our teams in China in what continues to be a tough market environment. Sanger Sequencing revenue was down 11% year-over-year as we continue to see the impacts of the shift of sequencing technology. This pressure was offset by growth in Plasmid-EZ, our ONT product which continues to be strong and gaining ground. Multiomics first quarter non-GAAP gross margin was 47.4%, up 30 basis points year-over-year, driven largely by the growth in NGS volume as well as labor and material productivity gains that helped to offset price headwinds. Next, let's turn to Slide 6 for a review of the balance sheet. We ended the quarter with $530 million in cash, cash equivalents, and marketable securities. Excluding discontinued operations, the balance was $503 million. We had no debt outstanding. Capital expenditures for the quarter were $8 million, of which $7 million was investment for growth and scale in our Sample Management Solution and Multiomics businesses. Turning to guidance on Slide 8. As you saw in our press release, we are reiterating our guidance for 2025 as we expect organic revenue growth of 3% to 5% for the full year, with Multiomics to grow low single digits and Sample Management Solutions to grow mid-single digits. We are reaffirming our commitment to 300 basis points of adjusted EBITDA margin expansion year-over-year. In closing, my priority as CFO is to ensure that we deliver value to our customers, employees, and shareholders. This includes maintaining transparency, enhancing shareholder returns, and aligning our financial strategies with our long-term vision. I look forward to engaging with you regularly and sharing updates on our progress. This concludes our prepared remarks. Now, I'll turn the call over to the operator for questions.

And your first question comes from Jacob Johnson with Stephens.

Maybe a couple of questions on recent headlines. First, John, you mentioned the U.K. Biocentre, BioArc win. Is there any way to frame up the size of that opportunity, maybe the timing of the revenues and whether this is something that was contemplated in guidance? And then I guess along the same lines, I'm just kind of curious, how many other of these kind of BioArc Ultra wins could be out there?

Yes, good question. And Jacob, thanks for your continued support here. So a couple of things on our BioArc Ultra, as you know, that's our ultra-low high-throughput warehouse management system, sample management system, and biological management system. So it's got a lot of versatility on these end markets. From our perspective, that was in our guidance and so that was contemplated there. We're really excited about the implementation of that. As you know, it's a POC business, highly customized and multimillions of dollars. We have just for some context here, I mean, we have seven quad banks in this facility already. So it's a continuation of our partnership with U.K. Biocentre, a pretty important customer for us going forward. Lawrence, do you want to talk about phasing of this?

Yes. As John mentioned, the accounting for this is a percentage of completion, Jacob, I'm sure you're aware. We expect the U.K. Biocentre to be operational early in 2026.

Got it. And then yesterday, there was a headline about Illumina being added to the unreliable entity list in China. I know it's probably early but we're getting questions on it. So can you talk about any impacts that you could see from that headline to your NGS business in China or maybe another way to ask is, is there any way to frame up how large the NGS business in China is for you all?

The team has effectively prepared for this situation in China for quite some time. We do not have any Illumina products, specifically NovaSeq, in China. However, we do possess a few Illumina products internally. Most of our NGS business is conducted through a partnership with BGI in China. We operate two platforms with them, namely the Illumina platform and BGI's MGI platform. As you may know, BGI has been placed on the BIOSECURE list as well as a list at the Pentagon. Our partnership is strictly in China, which allows us to transition customers to the MGI platform if necessary. Nevertheless, the team in China has been anticipating this situation for quite some time, and the associated risk is low. I'll let Lawrence provide more detail on that, but we have been prepared for this for a while.

Yes. Jacob, as you mentioned, really, when we look at the revenue for NGS particularly in the region of China, it's roughly about 7% to 10% of Multiomics. So again, what John mentioned is we see no material risk due to the Illumina issue.

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

John and Lawrence, congrats on the quarter. So just a few for me on Multiomics, maybe I'll start. So the guide stayed at low single digits. You did 6% organic this quarter. It sounds like there were some orders that came in this quarter. But just given that guidance implies the deceleration in the back half of the year, or the balance, I should say, what's driving that? I think NGS comps get tougher but like anything you're seeing in Sanger or synthesis that would drive that deceleration?

Thanks, David. I appreciate your comments here on the morning as well. It's good to be speaking with you in the morning. Let's talk about, first, the way we're thinking about this. I mean we're looking at the full year. We're not looking at the quarters right now. Second thing is we are in the middle of a transformation. So we're holding that guide right now. We are going to be coming back to you in the summer with an Investor Day and kind of view of our LRP in general. I want to hand this over to Lawrence to talk to you about phasing here and what this looks like quarter-on-quarter.

Yes, David, it’s great to talk with you. As John mentioned, this is primarily a timing issue. We had a really strong quarter; NGS was up 11%, which we are very pleased about. As John noted, we will share more details as we approach Investor Day. For now, there is a lot of change happening, and we are examining the phasing as well.

Okay, great. Lawrence, maybe I'll stay with you on margins, just really strong improvement in the quarter. It does seem like the guide implies EBITDA kind of margins kind of plateau in the back half. I don't know if it's just how you're thinking about the year versus the quarter. It's still early but any comments around like how much of that is conservatism versus any timing from the Ascend '26 initiatives? And then just lastly on B Medical, I don't know if this would be for John or Lawrence. I think last quarter, you talked about potentially closing that in the fiscal first half. It sounds like this morning, you're talking about still in the initial stages. So is the message essentially that it's going to probably take longer than that?

Yes, David, I will address the margin and then pass it to John for an update on B Medical. To start, our EBITDA for the first quarter was 9%. I mentioned in the prepared remarks that we experienced some one-time events. Excluding those, our EBITDA is above 10%. This gives us a clear pathway to the target of 300 basis points as we progress through the year. John pointed out that we restructured our corporate function, which is included in our guidance and will cost a couple million dollars for the remainder of the year. We have more initiatives planned, and we feel confident in our guidance based on the actions we are taking this quarter, as well as what we have lined up for the second and third quarters.

David, I want to share a few additional thoughts. Regarding restructuring, we have restructured about 17% of our corporate operations, and we will continue this transformation within our operating companies to ensure we have the right structure moving forward. Our focus is on structure, process, and our people as we set the company up for success. With Ascend 2026, we believe we are on the right path, and this will become the standard approach in running our business in the future. We aim to keep general and administrative expenses at a modest level while increasing investments in sales, marketing, and R&D for growth. Currently, we are working to understand the steady state of our organization, and we are pleased with the progress our teams are making. The restructuring at corporate went very well, and I commend our HR team and the other leaders involved in executing that. Our operating companies are also entering their phase of transformation. Regarding the one-time items that Lawrence mentioned, we are happy with our financial trajectory on the bottom line. Excluding those one-time items, we feel confident about our progress and have a better grasp on our bottom line. In reference to B Medical, I can tell you that our Value Creation Committee is actively involved in the process, and we will work to accelerate this effort. We are focused on maximizing the value of that sale and are glad that committee members are engaged. Specifically, I believe this will assist us in collaborating with our outside advisers to enhance value. I am pleasantly surprised by the high level of interest and engagement from various parties regarding this business. That’s the update for you, David.

And your next question comes from the line of Vijay Kumar with Evercore ISI.

A couple of maybe macro-related questions on recent noise around tariffs. Can you talk about your exposure to China, Mexico, Canada and any risk related to tariffs?

Sure. Let me provide some high-level context, and then Lawrence will elaborate on the details regarding any material impact. In terms of Mexico and Canada, we have minimal risk. Our Multiomics businesses are structured regionally, utilizing a local-for-local model, although there is some global overlap with our synthesis business. The SMS segment in that business remains unaffected. Regarding China, there is currently a 6.5% tariff, and it's expected to rise to 10%. I will let Lawrence address the specifics regarding materiality.

Yes, Vijay. Regarding the China tariff increase to 10%, we believe the impact on Azenta is quite minor. At most, it could add an incremental $1-2 million, and that would be at the high end. We anticipated this change, so we have already incorporated much of it into our guidance. Given the fluid nature of this situation, we will keep an eye on further developments. If circumstances change significantly, we will update you. However, at this point, we feel confident that the impact will be minimal for us.

Understood. And then maybe one on the guidance, SMS. It looks like it was off to a slow start. I know the guidance contemplated mid-singles for Sample Management Solutions. I think stores, you said low singles. So maybe talk about your orders, backlog. Was this just a timing element or some cautiousness from customers, perhaps which we're seeing here in the numbers?

Yes, Vijay, you're absolutely right. It's really around timing. Our large stores in the first quarter was down 13%. However, we have a pretty robust pipeline and backlog that continues to build for '25, '26, just to provide a little bit of context around that. We've got a good line of sight for the next 12 months here. And we've got 75% of the 2025 revenue secured. So I feel pretty good. Sometimes these capital projects do kind of move on us quarter-to-quarter, as you saw similarly to what the U.K. came up but we feel good. And on top of that, as you look at C&I, we continue to see really strong demand up in the quarter about 9%, particularly in instruments. So again, mainly timing here, Vijay.

We attended SLAS last week, which is the largest trade show in our market segment. We received over 300 leads and were encouraged by the level of activity during the event. We also engaged with numerous customers and noted some uncertainty in the end markets due to the new administration. However, we believe this is more a matter of waiting and seeing rather than cancelling projects. Our sales leaders and representatives are quite confident in our current programs, reporting no cancellations or delays. It appears to be a wait-and-see attitude in these initial months, but overall, we are optimistic about the second half of the year.

Understood. And maybe if I could squeeze one more in. Gross margins, nice boost here in the quarter. It looks like there was some timing element in stock compensation here in Q1 that perhaps depressed operating margins. When you think about the back half margin ramp, should gross margin sustain at these levels and visibility into the back half operating margin ramp?

Yes, Vijay. Quite honestly, in terms of gross margin, really pleased with the results in Q1. We saw a similar profile last quarter but a couple positive things, right? We saw better margins within storage and the SMS business. Multiomics, we saw stabilization in NGS price, coupled with favorable sales mix and really operational efficiencies, right? And in general, we feel good about the gross margin trajectory here and then the investment opportunity.

Your next question comes from the line of Matt Stanton with Jefferies.

Maybe sticking with the theme of kind of recent noisy headlines. Could you guys just remind us what the pro forma mixes within your academic and government exposure? And then within that, what's directly tied to NIH. And any kind of impact you've seen? I know it's early days in the last few weeks but then kind of a choppy backdrop from a headline perspective with the new administration. Anything you're seeing kind of in terms of activity levels at customers or things being pushed out? And then I assume that's kind of contemplated within the 3% to 5% guide. But if you can just confirm that as well?

It is contemplated in the guide. From an end market perspective, in general, so about 45% pharma biotech, about 16% academic, about 15% medical government, and we've got about 15% in emerging markets. The way I would look at this, Matt, is we've seen some pausing or delays in some projects that are government funded. We believe those are going to come back online once some decisions are made either on the NIH front or outside of government funding of some of these projects. So again, we're able to respond to whichever way the markets are going based on the fact that there are always projects and programs going on. We toggle our call points based on that. I mean the teams can move over and move over to more pharma and biotech in the event there is a pullback, a slight pullback on research in other areas. We're comfortable but we're also monitoring the uncertainty out there in general in these markets. So that's kind of our view of it right now.

Okay, that's helpful. And then, maybe shifting gears a little bit. Can you just talk about what you saw in the cell and gene therapy side in the first quarter? I think the last few quarters have started to see some improvement funding still may be a bit challenged, but there's some later-stage programs ramping up. So I just love to see kind of what you're hearing and seeing from your customers on the cell and gene therapy side of things.

Last year, we saw our auto cryo business increase about 67%. We've delivered about 11 units this quarter against that. So we're seeing good progress in cell and gene therapy. I mean that product is specifically sits under that value stream in cell and gene therapy as well as our Barkey products. We're pretty bullish on that end market and we're seeing good traction there as well this year and that trend is continuing.

Your next question comes from the line of Paul Knight with KeyBanc.

First question I have would be the company has been even before your tenure buying stock, we really didn't know what the margin target was and I don't understand why there was such an aggressive share repurchase program when there was no clear metrics out there on what business performance should be. So the question really is, as you are now on Board, is there still a share buyback program or will we wait to see what the business can return first? And then is there a likelihood that we could go back to what I think was a consolidator of the industry or are you still out on that? So two questions there.

Good questions, Paul. Last year during our Q1 discussions with investors, this topic came up frequently. Our capital allocation framework is currently active within the organization. First, we are focused on improving our gross margin. Second, we are pursuing growth initiatives in R&D and expanding our business lines and geographies. Third, we are looking into M&A and tuck-in opportunities. Lastly, share buybacks are on our agenda. I want to reiterate this framework because it is not going away. The teams are aware of it, and the Board is focused on it through the Value Creation Committee. When I mention that share buybacks are our last priority, it competes against the other three levers specifically. At this moment, we believe there are greater opportunities in the first three areas. We acknowledge these opportunities and are currently investing in them. We have strict ROIC metrics in place, and we are dedicated to these efforts. We are eager to reach a steady-state model so we can provide you with a clearer understanding of our business's algorithm and its returns perspective. There’s still work to be done, but that outlines our current thinking. Once we achieve that, we can come back with a more definitive answer. I have been transparent about this; I don’t believe shareholders hire us solely for share buybacks. We are particularly excited about the investment opportunities in SMS and SRS, as well as in our Multiomics segment. At some point, we will also consider M&A when we are in a strong position to pursue that.

Great. And then last question, I guess, it has been asked about but it seems like this post-COVID era of overcapacity and ultra-cold temperature and even cold storage in general, it seems like we're starting to get past that glut of material and capacity that did emerge during COVID. So are we kind of in one step past it now? Or what's your feeling on where we are with this post-COVID hangover?

Yes. As you know, we have some experience in the ULT market from my prior work. However, I believe there's a misunderstanding in the investment community regarding our position in that market. The more I learn about our business, the more puzzled I am about why we are categorized that way. To clarify, our stores are essentially asset management or warehouse management units tailored for valuable assets in pharma and biotech, focusing on compound management and sample management. We're also observing applications around antibodies, utilizing these systems for warehouse management and shipping. These specific uses differ significantly from what traditional ULT solutions offer, which tend to involve more manual processes. Thus, we are quite enthusiastic about these alternative applications and their unique fit for customer needs, even if they don’t show up in broader market analyses. Our inventory management at the facilities allows us to provide exceptional service to our customers. We are particularly excited about this market, as we employ advanced automated robots operating at negative 80 degrees Celsius, all supported by sophisticated software for quick inventory access. Overall, we are optimistic about this segment, and we don’t believe we are part of the current ULT glut since our growth continues in that area.

Your next question comes from Andrew Cooper with Raymond James.

Could you provide some detailed insights on Multiomics? You mentioned some comments regarding the stability of NGS pricing, but there was also a mention of price headwinds impacting margins. Can you clarify whether this is simply a situation where you have experienced a few quarters of stability and are facing a challenging comparison, or if there is additional pricing pressure in that segment we should be aware of?

Andrew, to clarify, we are experiencing price stability in NGS. We had a strong quarter with 11% growth overall in that sector. Regarding Sanger, we face some challenges due to a shift in technology, which has resulted in a decline of approximately 11%. However, the significant development is in our ONT technology, Plasmid-EZ, which has increased almost 300% year-on-year this quarter. I hope that provides some clarity.

Andrew, some color here. So our Sanger business is seeing some headwinds. But I'll tell you, with 2,500 drop boxes in the United States, just alone, I'm not even going to speak to Europe and our infrastructure there. In the United States, we've got 2,500 drop boxes. Sanger's being disintermediated by the ONT Plasmid-EZ product, we're going to double that business this year because of our infrastructure. We're very excited about the growth of this in general. And I think the team has done a really good job of responding to that disintermediation. We've got great capabilities there. And frankly, we're investing in it.

Great, that's helpful. Maybe just one more on that side of the business and I'll sneak a third in at the same time as well. But just in terms of Gene Synthesis, one area that you guys have talked about kind of capacity and needing to add some in India, I think and more kind of coming out of China there relative to other parts of the business. So just to be clear, is the takeaway on the China tariff response that even that business you feel relatively comfortable with kind of the moving parts there? And where are we in that capacity expansion you've talked about before? And then lastly, just, John, the one comment made on getting in that right spot where it's time to execute on M&A and tuck-ins again. What do you need to see in the core business to feel like you're at that point where it is time to get a little bit more kind of forward-looking and aggressive on the M&A front? I appreciate it.

Yes, let’s discuss Gene Synthesis first, then move on to capacity and M&A. The Gene Synthesis business has experienced steady mid-single-digit growth, primarily due to our customer base in biotech and pharma, rather than academia. This distinction is important as there is a lot of noise and misunderstanding in the market regarding Synthesis. We operate in a niche market with unique customer needs, focusing on complex long reads. We have achieved about 40% automation in this area, supported by approximately 400 PhDs in the U.S. and China. Our capabilities allow us to meet these specialized customer demands effectively. There is a competitor operating highly automated processes, focusing on high volume and lower quality, which belongs to a different market segment. We are well positioned within our segment, emphasizing high quality, complexity, and margin, making Gene Synthesis a high-margin business for us. With respect to capacity, we are still in the early stages of understanding that area. We are cautious about making decisions until we gain clear insights. We are currently focused on easy growth opportunities in R&D and commercial investments. Our team is successfully increasing capacity, and we will provide further updates as we clarify our strategy there. Regarding M&A, we need to establish our credibility and capabilities, which we recognize we haven’t done effectively in the past. We aim to show results by meeting our commitments. As we demonstrate consistent quarterly results with tight controls on the bottom line and strategic investments, we would be better positioned to consider M&A opportunities. Currently, we are uncertain about the timing, but we are open to strategic tuck-in opportunities as they arise. We are ready to pursue those as they align with our business growth and strategy moving forward.

Thank you. I'm showing no further questions at this time. I would like to turn it back to John Marotta for closing remarks.

Very good. Thank you so much, and thank you again for all your support. I want to thank our 3,000 employees that make Azenta special every day and appreciate your time this morning here.

Thank you, presenters. And this concludes today's conference call. Thank you all for participating. You may now disconnect.