AZTA - Azenta: Delivering Solid Growth In Life Sciences

2023-07-26 20:31:51 ET

Summary

• Azenta Life Sciences, a key player in the life sciences industry, is poised for financial recovery with a robust Q2 performance and cost-cutting measures, making it an enticing investment opportunity.
• The company's product portfolio includes automated sample storage systems, consumables, and genomics services, with recent innovations like Cryo Store Pico, designed for the efficient preservation of biological specimens.
• Despite potential limitations and competition, Azenta outperforms rivals through reliable innovation, strategic partnerships, and diverse offerings that prioritize individual client needs and optimize their research capabilities.

Azenta Life Sciences (AZTA) has emerged as a key player in the thriving life sciences industry, leading the charge in designing, developing, and distributing state-of-the-art automated sample storage systems, consumables, instruments, along with genomics and analytical services that cater to diverse research, clinical, and industrial applications.

The investment thesis is grounded in the belief that Azenta's dedication to providing comprehensive solutions across the life sciences spectrum, sound financial footing, proactive cost-cutting measures, and robust product pipeline are powerful drivers for long-term growth and success. As a result, Azenta Life Sciences offers an enticing opportunity for those seeking a well-positioned, innovative, and future-driven investment in a pivotal and resilient industry.

Financials

Despite facing hurdles, Azenta is poised for a notable financial recovery. In Q2, Azenta achieved a robust revenue of $148 million , reflecting a 2% YoY growth, which highlights its capacity to adapt amid recent setbacks. The Life Sciences Products revenue increased by 10%, notwithstanding the reduction in consumables for COVID testing, largely due to the acquisition of B Medical .

Although the company faced an 8% organic revenue dip and a 21% organic revenue fall in the Products division, there are compelling factors that signal an optimistic future. For example, the revenue from storage systems rose by 6% YoY, Genomics revenue is displaying recovery signs with a 6% quarter-to-quarter growth, and Sample Repository Solutions ((SRS)) revenue organically climbed by 5% ex-COVID. B Medical, though not living up to initial forecasts, still generated $15 million in revenue during the second quarter.

The company recorded an operating loss of $13 million. There was a decline in gross margin by 12.8 percentage points YoY, settling at 35.9%. This decrease was significantly impacted by the augmented amortization and purchase accounting linked to the acquisition of B Medical, which contributed about 4 points to the decline. The remainder of the reduction can be attributed to a less favorable revenue mix and rising costs due to inflation.

In addition, Azenta has implemented substantial cost-cutting measures: operating expenses stood at $66 million, reflecting a $9 million decrease from the previous year. This reduction was propelled by a $17 million fall in the fair value of contingent consideration tied to B Medical. This was partially offset by the costs related to the operating structure of businesses purchased within the last year. There was other income amounting to $10 million derived from net interest, compared to the $2 million recorded in the same period last year.

Furthermore, as of March 31, 2023, Azenta's balance of cash, restricted cash, and marketable securities amounted to an impressive $1.5 billion. Coupled with the intended business realignment, this will not only simplify operations but also generate $15 million in annual cost savings by the close of 2023. The restructuring will establish three concentrated operational divisions, enhance efficiency, and deliver more comprehensive solutions to clients.

Given the share buyback program update and the corporation's pledge to repurchase an additional $500 million of its shares by the culmination of 2023, it is clear that Azenta is prepared for a prosperous future. The firm has also provided positive revenue and earnings guidance for fiscal 2023's third quarter, projecting total revenue between $150 to $168 million. While the Q3 EPS guidance is still lower than several of the last few quarters, it is projected to be an increase from the previous quarter. This shows that the cost-cutting measures and aforementioned business realigning are having positive results, and the company is positioned to slowly but surely recovered from the post-COVID revenue decline.

Products

Some notable products include advanced sample storage systems such as Cold Store, Ultra Cold Store, Cryo Store, and Cryo Store Pico . These systems cater to diverse storage temperature requirements and applications, including biobanking and clinical trials. Additionally, Azenta supplies a variety of consumables and instruments for sample processing and examination, such as Sample Tube Solutions , PCR & Microplate Solutions , Sample Cooling & Heating Labware , and the Decapper for RHINOstic swabs .

Among the genomics and analytical services offered by Azenta are Artificial DNA Synthesis, Olink Proteomics , and Lupus Nexus. These services aim to empower scientists in uncovering the molecular foundation of life, ailments, and medication reactions. Moreover, the firm provides data and informatics solutions like FreezerPro and Limfinity Biobanking LIMS for competent sample inventory administration and data assessment.

As of 2023, by incessantly evolving and broadening its product portfolio, Azenta Life Sciences exemplifies its dedication to supplying state-of-the-art solutions for life science applications. The advent of innovative products such as Cryo Store Pico and services like Lupus Nexus demonstrates the company's commitment to industry advancement and cooperation in devising pioneering solutions for researchers and scientists worldwide.

Cryo Store Pico

Recently, Azenta presented Cryo Store Pico, an automated cryogenic storage system explicitly crafted for the effective preservation of valuable biological specimens utilized across diverse life science phases, from exploration to clinical implementation. As a leading provider of state-of-the-art automated cryogenic solutions, including BioStore III Cryo and CryoPod Carrier , Azenta expands its dynamic portfolio with the addition of Pico. This product furnishes sophisticated automated cryogenic technology, especially suited for clinical and research environments.

Purpose-built for cell and gene therapy (CGT) developers and producers, Pico incorporates critical aspects such as regulated access and traceability, which aid in achieving regulatory compliance. The system features a compact design that is easy to use for laboratory employees.

The launch of Pico empowers laboratories and clinics to capitalize on Azenta's renowned automation prowess at a reduced scale, extending assurance of sample and process integrity nearer to the point of application, as stated by Erica Waller, the Product Manager for Pico.

Pico ensures precise cold-chain management and secure, login-enabled access. This guarantees traceability of samples and preserves their integrity. This aspect is particularly vital for storing cells at clinical sites that lack established sample management systems. The automation capabilities of Pico within a clinical environment signify a milestone in effectiveness, and securing even one invaluable sample can more than validate the investment in this technology.

The introduction of Pico in the life sciences sector marks a significant advancement, specifically designed to meet the unique demands of CGT progress. It ensures the preservation of sample integrity and improves efficiency. This inventive product underscores Azenta's dedication to enhancing its cryogenic storage solutions and catering to the industry's ever-changing requirements.

Addressing Potential Limitations

Azenta's automated sample storage systems are designed to preserve samples at various temperatures, ranging from ambient to cryogenic. However, there are several potential limitations, including cost and maintenance aspects. The systems may be expensive to purchase and operate, especially for small-scale or low-budget laboratories. They may also require regular maintenance and calibration to ensure optimal performance and sample quality and could consume significant energy and generate heat and noise, affecting the laboratory environment.

Another potential issue is compatibility and interoperability, as the systems may not be compatible with all types of sample containers and might not be interoperable with other instruments, devices, databases, or software. Furthermore, the systems may lack scalability or flexibility to handle large-scale storage and retrieval or accommodate different sample types and formats.

Azenta also offers a variety of consumables and instruments for sample preparation and analysis, but these might have possible limitations, such as varying quality and reliability. There may also be issues with availability and accessibility due to supply chain or other challenges, and standardization and validation might not be suitable for all applications or protocols.

Regarding genomics and analytical services, potential limitations include the complexities of the methods and technologies, which may require specialized skills and knowledge to use effectively. Additionally, the services' accuracy and sensitivity might vary, and ethical and privacy issues may arise when handling sensitive or personal information.

Lastly, Azenta's software solutions may have limitations in terms of usability and functionality. Compatibility and interoperability issues might arise with different types of samples or other software platforms, and scalability and flexibility may be limited for large-scale or high-throughput sample management.

Facing the Competition

Azenta is a dominant force in the life sciences solutions industry, facing competition from several companies with similar offerings. Thermo Fisher Scientific ( TMO ) poses another significant competitor with a wide range of products and services in sample storage, consumables, and genomics. Despite Thermo Fisher's competitive edge, Azenta showcases a strong market presence by offering specialized services such as the Lupus Nexus, developed in collaboration with the Lupus Research Alliance . This partnership empowers scientists to explore crucial clinical and molecular data, underpinning Azenta's focus on providing clients with comprehensive solutions that meet their unique research demands.

Another competitor, Hamilton Storage , offers sample management and storage systems, with similar temperature ranges and capacities. However, Azenta sets itself apart by emphasizing user-friendly interfaces, advanced barcode tracking systems, and inventory management software. Further, the introduction of Azenta's Decapper3 for RHINOstic swabs streamlines and accelerates the sample extraction and analysis workflow, significantly reducing the risk of contamination and human error.

Lastly, LabVantage Solutions provides laboratory information management systems ((LIMS)) as another competitor in the data and informatics space. However, Azenta's software offerings excel in terms of customization capabilities, extensive integration with barcode scanners, RFID readers, label printers, and user-focused interfaces. The company ensures that its software platforms cater to even the most complex sample management applications, solidifying its position as a leader in the life sciences solutions market. Overall, Azenta Life Sciences outperforms its competitors through reliable innovation, strategic partnerships, and diverse offerings that prioritize individual client needs and optimize their research capabilities.

Valuation

In understanding Azenta's market valuation, there are several elements at play. With its current market cap of $3.03 billion, and considering the TTM revenue, Azenta has a P/S ratio of 5.67. This figure is significantly higher than the sector's average P/S ratio of 4.14, suggesting the market is pricing in a substantial amount of growth for the company.

The high current price from a value approach may seem like a concern. Yet, when we align it with the firm's progressive strategies and successful efforts toward portfolio enhancement and cost savings, the P/S ratio does not appear as daunting. After overcoming revenue setbacks in the past quarters, Azenta has been able to deliver a promising 2% YoY revenue growth in Q2, signaling its resilience. The revenue diversification across the storage systems, Genomics, and Sample Repository Solutions is also a positive indicator, reinforcing the company's ability to generate revenues even when certain segments face headwinds. Additionally, the integration of B Medical has contributed to the overall revenue stream despite not meeting initial expectations.

Other Concerns and Takeaways

Azenta Life Sciences' future financial outlook appears promising, as evidenced by its ability to bounce back from recent hurdles and deliver robust revenue growth. The company's solid financial position, commitment to innovation, and efficient operations position them for long-term success. Additionally, their strategic acquisitions demonstrate their expansion goals and market influence, further strengthening the optimistic view of the company's financial prospects.

The life sciences industry, by nature, is a highly competitive and dynamic sector. Azenta is up against established giants like Thermo Fisher Scientific and Hamilton Storage. These companies have extensive product lines and strong market penetration that could challenge Azenta's position. Any disruption in product development, manufacturing, or failure to meet the evolving demands of the market could hamper Azenta's growth trajectory. While Azenta has demonstrated resilience in the face of setbacks, the revenue decline in the Products division poses a concern. Any further reductions or slow recovery in this division could potentially pressure the company's overall revenue growth and consequently impact its share price.

That said, as we look ahead, Azenta's appeal extends beyond its financial outlook and recent achievements. The company's standout product offerings, including Cryo Store Pico and Lupus Nexus, highlight their ongoing impact in the life sciences sector. By providing solutions that not only meet industry demands but also surpass competitors' offerings, Azenta has positioned itself as an appealing investment option.

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