Raymond James 47th Annual Institutional Investors Conference

I'm Andrew Cooper. I cover life science tools and diagnostics here at Raymond James. Happy to have you at the Raymond James Institutional Investor Conference. Happy to have the Azenta team with us today. I'm going to pass it to CEO John Morata just in a little bit for a presentation. And then he and I and CFO Lawrence Lynn will be up here for a little bit of fireside chat as well. So with that, I'll pass it to John. Thanks for being here and I'll kick it to you.

Andrew, thank you. And thank you to Raymond James for allowing us the opportunity to speak today. It's good to be with you all. Excited to share with you Zenta, if you're new to the story. I want to share some insights. If you are not new to the story, want to talk about where we are from a turnaround perspective, the normal safe harbor statements, you can read those at your Leisure, wanted to get you into the business and why we were excited to join the company. When we first came in, in September of 2024, we had learned about Azenta when I was in private equity and kind of did an outside in. I said, well, this is an interesting business. There's a lot of opportunities in front of us. The first one is around the fact that we are in this ecosystem that matters a lot to our customers. We are in the top 20 pharmaceutical and biotech companies in the world. Our stores manage some of their most valuable assets and our sample management solutions business supports some of their most valuable assets in terms of getting more throughput in research. We have a deep installed base. We have over 150 stores globally. And we've got thousands of instruments globally as well. And so that gives us the right to win and be front and center in terms of driving more share gains and driving more consumables in the business. So I was pretty excited about that. Third one is around above market growth. I mean, we'll talk about our SAM in terms of where we're positioned right now, but we've got a lot of room to grow from a new product perspective, feet on the street, some price. We'll get into those, I'm certain, in the Q&A today with Andrew. The fourth one is around margin expansion. When we came into the business, this business was extremely heavy on G&A. Bluntly, I've never seen anything like that before. That got us pretty excited when we got underneath the business and the margin opportunity where we had our resources in the company in the wrong areas. And so we're dynamic resource allocating those resources into growth investments in R&D and sales and marketing. We're on that journey and we're excited to talk about that today in terms of where we are. Last one is a financial profile in a business in a balance sheet that is pretty unique in the small mid cap market. We get very excited about that. When you look at the stock price about 12 to 15 dollars of our stock is cash today. about, you know, driving over the next three years in terms of driving performance in the business around $250 million of free cash flow we plan on driving, doubling our EBITDA in the next three years. And so one has to scratch their head. I don't know what it's trading at today, if it's eight to 10 times, but it's a pretty good value for where we are right now. So this is what attracted us to this business coming out of private equity. We're very excited about that. Our SAM right now is about $6 billion. So we're about 10% of the addressable market today. We will talk about how we want to continue to drive share gains there and what we're doing around that. Azenta today is around a $600 million business. Last year we grew about 3%. 55% of our revenue is around reoccurring revenue. We've got clear plans in terms of expanding that reoccurring revenue. Today we do business in about 14,000 customers. One of three of our employees are a PhD. We do business in top 20 pharmaceutical companies in the world and our revenue mix is about 55% is in pharma and biotech and about 46% is in academic medical and government today. We manage about 60 million samples globally. We touch and support over a billion of these samples, whether that be in a biorepository at their site with our instruments, our consumables, and our biorepositories. So we're embedded in there, very intimate with our customers today. We have basically two business segments. The first one is in our sample management solutions. Think about this in terms of supporting R&D, but supporting it from a sample perspective where we have a global biorepository footprint that is one of the largest in the world. We've got nine global repositories, we manage about 60 million samples, and then we have an automated solutions business. Think about this as our stores business, which manages at ultra low temperatures of negative 90 degrees Celsius up to ambient or plus four negative 80 or negative 20 with robotics think about these as managing thousands to millions of samples these stores are what our customers put their most valuable assets in so if you look at a pharma or biotech company and what's on their balance sheet we manage those in these stores. Think about it as the warehouse, the Amazon Warehouse Distribution Center. We also support their management of those in automation with our CNI instruments, our consumables and instruments business. So that is taking those samples and managing them in an automated workflow. This is a clear trend right now in the market and we're really excited to be at the epicenter of that. Moving over to our multi-omics business, think about this in terms of reading and writing genes. So the reading of genes is in next-gen sequencing, and we have 14 labs globally that support our customers. We have 4,000 drop boxes. A drop box, in your mind, I would think about us as the Cintas in life sciences or in the lab space. It's pretty unique in terms of having that broad footprint because you're closer to the customers there. Gene synthesis, we're writing a genes. Right now, we have a very profitable business here. We do more complex genes than we do simple. And so it's a lower volume, very high margin business for us. All of this is underpinned by a digital ecosystem for our customers in which they can enjoy an experience that is in a proprietary ecosystem today, whether that be ordering or managing these samples remotely or on site, they can see all of their assets within our ecosystem. We're making investments here and we'll talk more about that later, I'm certain. A lot of our strategic priorities are simple and back to the basics. You know, I think Azenta was a confused story for a number of years based on the fact that we bought a lot of companies. We had really centralized a lot of things. We've decentralized a lot of things. We'll talk about that later. But really what we want to drive is clarity in the business. And that is starting with driving operational excellence, starting with quality and on-time delivery, starting with the customer, driving performance for the customer, driving gross margin improvements, and reinvesting that back into the business. We're reinvesting that in a number of areas. First is around our go-to-market. We have invested around 25 headcount this year in our go-to-market as we restructured and taken out and simplified the organization at corporate. Those go-to-market investments are in two areas, primarily the U.S., North America, and Europe. We have now leaders that are specifically assigned to those regions and wake up every day to serve our customers. We're really focused around scaling biorepositories. The biorepository is a very attractive business. It's 90% reoccurring revenue. It's 55% plus gross margin. And we think there's an opportunity to expand our footprint there, specifically around M&A and specifically in the European theater in the UK. Second is around regional synthesis. Because of biosecure and what's going on geopolitically, we're well positioned to move a lot of our synthesis into the United States and Europe, and we're planning on doing that around automation specifically, but also some M&A activities that we have in our hands today. and lastly is around technology and automated solutions continuing to drive performance for our customers around this automated workflow and what we can do for them this will be an area that is more focused on an organic investment but there will be some M&A here we're not the the organization is not quite ready for M&A in this area based on some operational issues that we're solving for. And then capital deployment. We've got a balance sheet, about $550 million in cash. We deploy capital in four areas specifically. First is around gross margin and productivity improvement. Second is around growth investments. Third is around M&A. And fourth is around buyback. We intend on using all four of those tools in our toolkit this year and driving performance financially. So where are we in the turnaround? You know, when we came in, the prior management team, we talked about, they talked about the fact that we had 13 IT systems, 39 legal entities. We had purchased around 15 companies. And so there was this centralization in a functionally aligned organization. So we inherited that. We also inherited some on-time delivery issues and some quality issues. We'll be talking more about that as well in terms of how we're focused around solving a lot of those. We had a high cost base, so heavy GNA, resources in the wrong areas, and we've started to redeploy those in the right areas. What we're excited about is having a highly differentiated portfolio and what we're doing about it. What we've done is very quickly, within about a month we made the determination that we were going to divest be medical we made that call pretty quickly we knew the company before we came in and we determined that it did not fit in the portfolio we've divested that and we're on target to be closing at the end of the month here we've redesigned the organization where it's now not a functionally aligned organization corporate headquarters is very small where all of our resources are into the businesses where they belong. R&D is into the business. Sales are in regionally. Marketing has investments. So we're excited about what we've done there. We're reducing our G&A. We continue and will continue to do this. This is a way of life for the organization where we try and drive improvements through leveraging G&A and bringing that down over time. We move very quickly here. We quickly restructured about 300 to 350 headcount at corporate out we put a lot of those resources back into the business we did another layer of restructuring q1 of last year around October November we took another 40 headcount out of our SMS business and since then we have regional general we have general managers that wake up now every day focused on our businesses They're focused on stores and cryo. They're focused on our CNI business, and they're focused on SRS. We've now stripped out the bureaucracy, and we've got good performance metrics into the organization. We'll talk more about these performance metrics in terms of what's important to us, but the structure that we were looking at in terms of coming into the turnaround was the following. Is people, do we have the right people? We've now turned over much of the management team, and then we have the right people. Do we have the right structure? We now have the right structure. Now we're focused on process and performance. Process meaning how are we managing this business actively? We now have monthly business reviews. We have standard KPIs in the business that help us drive performance. Those KPIs are the following. Two are customer-facing KPIs, quality and on-time delivery. You as a customer, that's what you care about when you purchase a product. We wanted to start to see how the customers were seeing us every single day. We implemented quality and on-time delivery metrics. I'll talk more about that. We had a lot of work to do there. We still have a lot of work to do there. Second is shareholder metrics. What's important? Top-line growth, operating margin expansion, working capital, free cash flow, and return on invested capital. Those metrics are in each of the businesses, and we manage those on a monthly basis. Lastly, employee metrics. What is our turnover, and what is our employee, what we call internal fill, which is are we promoting employees from the inside of the organization? All eight of those are now into the businesses, and we can get good line of sight into the performance of the businesses today. Lastly, it's around bringing this culture of the Azenta business system, which is continuous improvement, which is making all of our operations better, driving gross margin improvements and driving the improvements we talked about that support performance. So we're pretty excited about where we're headed right now. We've got a great company, great portfolio of businesses. We're breathing life back into that from an R&D perspective. We've got a great board to support it. I'm very happy to be joining the board, and it's one of the reasons I wanted to come here is we've got a high-performing board for a small mid-cap company. We're a leaner, much leaner organization in the business, and that lean thinking allows decision-making at the lowest level of the organization. We say a lot of times those closest to the customer have the most credibility, and so we've leaned the organization out. we're more nimble. We're able to react and drive more performance in the organization. We've invested a lot in R&D this year in sales and marketing. Those investments are going to continue as we strip out our G&A. Some of that, the shareholders will enjoy from a profit perspective. Other goes back into the business to drive more growth and performance, and we're going to just continue that. That's not going to be a project. That is just going to be a way of life in the business going forward. And so building this culture of the Asenta business system is, I think, very important for the future. I'll tell you one data point to help where you always know, you know, turnarounds are challenging, but I'll tell you our engagement scores have gone up this year. So we're excited. We're winning the hearts and minds of our team members, and we're pretty excited when you bring in the Asenta business system, they understand that they can solve some of the problems they haven't been able to do in the past. We're early in our operational excellence journey. We'll talk more about that, I'm sure, Andrew, when we're in Q&A. I don't want to spend a lot of time on this today, but we're very excited about kind of where we are in the journey. We look at really two things from a growth perspective on our lean journey. First is around innovation. Are we funding that and do we have the right roadmaps to support that? Our investments in R&D were anemic for a number of years. They've now, we're now putting that in. Product managers are front and center in the organization now and driving performance around our roadmaps. Very excited about how that team is performing and the roadmaps we have in the future products to come in 27 and 28. Commercial excellence, we talked about that in terms of repositioning the organization, making sure that we have our sales reps in the right areas. Are they closest to our customers? We did not have that. We repositioned the entire organization there. And then lastly, around driving gross margin improvement, manufacturing and back office operations. When you have as many IT systems as we've had, and then you implement an Oracle and a NetSuite, and you go back and forth, which we did, we have to optimize those and get those back where they need to be. That's in process right now. Our ABS team is doing a very good job of driving performance there. Lastly, I want to leave you with just some early indicators for wins here. This was a slide we showed at our Investor Day in December. Improving quality. We talked about our stores complaints. We reduced those by 55%. We've got over 150 stores in the field. 18 of those stores had some quality issues. We're reducing that pretty quickly. It's worth the investment. Customer satisfaction is worth it and we are driving that number down. Enhancing delivery. Our on-time delivery in our CNI business was around 15%. So we've taken it from 15 up to 65. We're going to drive an improvement up to 95 this year. 90 some percent of those SKUs are in the system and they're working well. So we're driving change here and effectuating change and customers are seeing it. I hear from customers all the time that they can see the changes being made. We're reducing our cost. Clearly, we want to bring our G&A down and we're going to continue to do that. We moved very quickly where we could and in other areas we're moving slow because we did not want to break the organization. So, there's a pacing that we're working with here. Lastly, our working capital management. You can see the free cash flow coming into the business right now, which is new to Zenta and we're thrilled about continuing on that journey in driving free cash flow again over the next couple years we plan on driving around 200 to 250 million dollars of free cash flow so I had committed to Andrew that I would be brief with my remarks he said let's go have a conversation and in Q&A so Andrew thank you no that was great and we've got we've got just just the right amount of

time here. So this is perfect. I'm going to start with my normal last question, because I think you're kind of champing at the bit to answer it, which is what do you think investors are kind of missing the most in the market today when you look at where you see Azenta sitting and where the

market is valuing it? Yeah, that's a tough one. So a few things. I mean, if you look at what we're what we're driving towards, I mean, first thing is, I think, $12, $15 of our stock price is cash. You know, we're trading around eight to 10 times. You've got a great set of assets, great portfolio. We've got a lot of customer intimacy. We're driving a lot of free cash flow around $200 to $250 million. That's new to the organization. I think it's an underappreciated story around, we were an old semiconductor business. Now we're in life sciences. You know, do you sell freezers? You know, are you in the freezer business? I've heard that a lot. And the answer is absolutely not. We sell highly complex robotics in a very, very cold environment where you're picking. Electronics don't like the cold. And so I think it's an underappreciated story on where we fit in the ecosystem of farm and biotech and how critical we are to their success. If you think about these units, we are in the basement of most all biotech and pharma companies. It's like the Amazon Warehouse Distribution Center where we're moving these products out so they can get more research out. It's an amazing place to be. And so that's part of it. That's very unique. Then in our sample management solutions, great business because we're touching millions of samples. then you have a biorepository asset that's very attractive not only from a customer perspective and the value we bring them but financially it's 90% reoccurring revenue at 55 plus gross margin very attractive we're going to continue to expand on that and so you had this crown jewel sitting here that I think has been excuse me underappreciated and then you move over to multi-omics business where you know I was scratching my head when I first joined the company I said but does this does multi-omics you know does reading and writing make sense from a customer perspective and the answer is absolutely the more I got into this the more I got excited about it that a customer now has one partner that they need to deal with in terms of reading and writing it's very strategic and so building on that I think is going to be important I think it's just underappreciated I don't know you know coming out of the semi-business, if we articulated that very well, hopefully we're starting to do that. But I can tell you, you know, when our teams are out in the field and when we perform from a customer, from a product delivery perspective, customers love us. That's perfect. Super helpful.

Maybe touching on something you said in the presentation, and I think back to results, the most recent results, I think you used the word reboot. I think you used the word reposition for a lot of the sales force in the presentation. Just kind of thinking about the commercial efforts, where are you in that process of getting the footprint, the feet on the street, the right people that you want to be able to push forward? What inning are we in and how do we think about the dividends that'll pay down the road?

So Europe, we're eight to nine innings. I mean, we're through it. That team is performing very well. We were in Europe last week at our regional sales meeting. I mean, you talk about high performance, they're growing very nicely. They've repositioned all their sales reps where they need to be, great leadership. Our North America, we were a bit behind in our SMS business, specifically around automated solutions. Joe came in around the summer, around July. He quickly came in, low performers, found another team to be on outside of the company. We've rehired. We've got good management now. We're seeing some of those efforts in terms of the results. So they're in, you know, seven to eight. I think just last week they hired their last two sales reps so early. We're getting through it. I mean, Joe's done a very good job there. SRS, we had to reboot that whole org. We had a lot of sales reps coming out of COVID that weren't in the right areas. We had people in Iowa and Michigan, and you get the point I'm trying to make. They weren't where our customers were. So we wanted to reposition those individuals where our customers were. And then we've got to get people in the field. So we've got a new leader there. All of that's in place. We went through all of that in a late summer, early fall. Okay. That's on the SMS side of the house. And then on the multi-omic side of the business. We're hiring people there. I think Europe's in a better place. North America, we're in a bit of a reboot. We had, this is public, we were in a lawsuit with Twist right now. They took some of our employees. We feel very good about where we are from a restricted covenant perspective. We're rebooting some of that right now. Those managers are in and the sales reps are in. They just came in and then we're still, we've still got a North America sales leader to bring in. So we're almost there, almost, I'd say getting six to seven there on a reboot. Okay, helpful. And

I want to touch on one that I don't know if investors ask about a ton necessarily, because we tend to focus on, you know, numbers, but ABS is something you, I think, are excited about putting in. And it's hard for us to really frame what it is concretely. So I guess the question here is, as you implement ABS, as you talk about these Kaizens and all the different things you're doing from that perspective, can you give some examples and talk about where it's showing up first and how that, you know, translates to some of the financials, whether it's in multiomics versus SMS versus, you know, carving out some of the GNA, just a little bit of flavor for what that looks like in terms of the result that investors are probably looking to and thinking about more?

Sure. Feel free to jump in too, Lawrence. But here's the way I would think about it. So ABS is around driving, operating leverage, and gross margin. So ultimately, if you get a customer a product faster, your free cash flow conversion cycle, you bring your lead time down, your cash flow conversion cycle gets much better. Okay? So where are we focused? I'll give you some examples. GeneWiz. So we came in and started implementing ABS where we were pretty inefficient in the business. So we're looking at gross margins specifically. The team came in. I'll give you a few examples on Kaizen. We were delivering a product in 25 days to a customer. Unacceptable. They came in in one week. We got it down to nine hours. That's the power of a Kaizen. You go in. you map the value stream out, and you attack these big areas of inefficiency, and you redesign a process. And the first two days is unpleasant. Well, there's a little bit of excitement. Wednesday is like a very bad day for the teams because they don't feel like they can get through and break through. And then Thursday, Friday, they break through, and they fix whatever the issue is. They came up to come up with it. Executives don't do that. So we did that, okay? It's going from nine hours to five. There's line of sight there. That impacts gross margin, that impacts revenue. We have specific deliverables that come out of that. Another one is on sample registrations. So when you've got a backlog on sample registrations and you can't get to those for weeks, which was what we were doing, now we get to those in days. So when you get them registered, revenue goes up. When you get more people working on a problem, gross margin improves. And so these are certain areas that we're attacking. And we only have a certain amount of resources, so we're going to the biggest problem areas. Quality was one of them. I gave you specifics around quality, around going from 15% to 65%. All of that is related to ABS. I don't know if you had anything else.

Yeah, maybe around G&A, right? A perfect example is a couple of weeks ago, we ran an accounting closed Kaizen. Well, you go in as investors, why do I care? I mean, certainly John does because we want to make sure that we get the information dashboards in a timely basis. So the preliminary outcome of that, we brought 20 individuals together, cross-functional team, and we sat for three, four days and talked about how do we improve it. Net-net, after the effort, we're going to have a 35% to 50% improvement. Overall, you know, over the long term, that will pay dividends not only in G&A, but more importantly, the visibility to give us the time really to act on, you know, running the business.

And so, I mean, one of the things, Andrew, that is important is, so we, there was a decision made three years ago to outsource accounting, accounting, ARAP, into a different country. Okay? We don't want to do that. We want to bring it back. But in order to bring it back, you got to know what the process is. And so, you know, information management system is important. Our closes were not that happening that fast. So there was a lag in information. So the team went at it and they map out the whole process. They figure out where the waste is. They get rid of it and then they re-implement. So we re-implemented this and now we've, we've, we've dramatically decreased that time. We'll do that. So there's a step change and then we'll go run another Kaizen to get another step change. That's ABS. That's how you think about it. Because a lot of companies will look at a problem, and over time, they'll try and improve it. We do it. Do a Kaizen. You get a big incremental. You get a big step change in performance. You go at that performance for a while, and then you go do it again. That's ABS.

There's a lot more I want to ask. We'll have to save it for the breakout downstairs because we're out of time. So everybody, if you want to follow us down to Amarante1, we'll continue the conversation there.