Q3 2024 Earnings Summary
- Strong growth in Next Generation Sequencing (NGS) services, with over 700 new customers added this quarter—a 100 increase from the prior quarter—indicating significant momentum in customer acquisition and outsourcing of NGS work to Azenta due to cost advantages and capacity. Volume continues to grow, with 20% growth in number of samples processed for the fifth consecutive quarter .
- Cryogenic freezer revenue increased by almost 40%, driven by heightened demand for automated cryogenic storage systems and multiple system orders, reflecting customer adoption of Azenta's automated solutions and a trend towards automation in sample management .
- The ASCEND 2026 transformation program is delivering cost savings earlier than expected, with the closure of 10 sites and optimization of another 3, contributing to margin expansion. Despite a lower revenue guide, Azenta expects to achieve approximately 300 basis points of margin expansion for fiscal year 2024, demonstrating strong operational execution and commitment to profitability .
- Revenue Guidance Lowered Due to Order Shifts and Delays: The company has lowered its full-year revenue guidance due to the shifting of OEM product orders from the second half of 2024 into Q1 of 2025 and delays in converting B Medical's pipeline into firm orders. This results in approximately $5 million of revenue moving from fiscal year 2024 to 2025, impacting their Sample Management Solutions (SMS) segment. ,
- Pricing Pressure in Next Generation Sequencing (NGS) Limiting Revenue Growth: Despite over 20% growth in NGS volume, revenue growth is only 3% due to significant price reductions in sequencing services. This indicates ongoing pricing headwinds in the NGS market, which may continue to pressure margins despite increased volumes. ,
- Dependence on Cost-Cutting Measures for Margin Expansion: Margin improvements are largely driven by cost-cutting initiatives under the ASCEND 2026 program, including site closures and operational optimizations. While these measures enhance short-term profitability, they may signal challenges in achieving organic growth and could affect future operational capacity.
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NGS Business Outlook
Q: Why is outsourcing NGS demand increasing now?
A: Customers are delaying their own sequencing tool purchases and outsourcing to us, resulting in over 700 new customers this quarter, an increase of 100 from the prior quarter. Record quote activity and stabilized pricing indicate that customers are leveraging our cost structure for reduced prices and outsourcing more NGS work. Volume continues to grow, marking the fifth consecutive quarter of 20% quarter-over-quarter growth. -
Margin Expansion Drivers
Q: What's driving margin expansion despite lower revenue?
A: The ASCEND 2026 program is yielding results faster than anticipated, with actions like optimizing or closing 10 sites and rightsizing 3 others, contributing to margin improvements. Cost initiatives related to ASCEND 2026 are helping us reach targets, and we remain confident in our fiscal year '26 commitment. -
NGS Volume vs. Revenue Growth
Q: Is NGS volume growth a proxy for future revenue?
A: With NGS volumes up 20%, and pricing pressures stabilizing, we are optimistic that future revenue will reflect volume growth. Customer behavior suggests more outsourcing, and strong customer activity supports continued progress. -
B Medical Resource Allocation
Q: How are you managing B Medical amid revenue variability?
A: We aim to build B Medical into an accretive EBITDA margin business for the long term. Despite revenues being down 29% this year, the business achieved above overall EBITDA margin this quarter. Efforts around Ascend 2026 to rightsize the business are starting to bear fruit, providing the runway to explore opportunities profitably. -
C&I Growth and Guidance Changes
Q: What are you seeing in C&I markets, and is guidance change timing-related?
A: C&I grew 17% in the third quarter. While instrument bookings were soft due to capital spending constraints, the strong pipeline indicates healthy demand tied to spending delays. Consumables saw significant double-digit sequential and year-over-year revenue increases. The guidance change is purely timing-related, with a $5 million shift in B Medical revenue and another $5 million in OEM product line revenue moving to Q1 of '25. -
Cryogenic Freezers Growth
Q: What drove 40% growth in cryogenic freezers?
A: Growth was driven by automated systems, with multiple system orders from customers transitioning to automation. These systems are priced between $150,000 to $250,000, and we haven't seen reluctance from customers to purchase. The trend favors automated systems over manual cryogenic freezers. -
Multiomics Revenue and NovaSeq X Plus Transition
Q: Has the NovaSeq X Plus transition finished, and is revenue increasing?
A: The transition to the NovaSeq X Plus is complete, with almost all data now generated on the X Plus tool. While price reductions are offset by volume gains, we've maintained margins due to lower raw material and labor costs, and leveraging fixed overhead. NGS revenue grew 3% this quarter, the largest growth in the past year, signaling a positive trend. -
EBITDA Margin Guidance
Q: What factors contribute to the implied EBITDA margin step-up into Q4?
A: We don't anticipate a margin step-up from Q3 to Q4; margins may be flat to slightly down. Hitting the overall guidance doesn't require a sequential margin increase. -
Site Closures
Q: Any further site closures expected?
A: We are working on a couple more site closures but haven't disclosed whether they'll occur in Q4 or next year. -
Synthesis Manufacturing in the U.S.
Q: Have customers requested U.S. manufacturing for synthesis?
A: Customers have inquired from a risk mitigation standpoint, and we are prepared, with existing synthesis manufacturing in North America. There's no push for it, and no customers have left due to our current structure.