Azenta, Inc. (AZTA) Q4 2024 Earnings Report, Transcript and Summary

Greetings and welcome to the Azenta Fourth Quarter 2024 Financial Results. During the presentation, all lines will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded on Tuesday, November 12, 2024. I will now turn the conference over to Yvonne Perron, Vice President, FP&A and Investor Relations.

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 fourth quarter of fiscal year 2024. Our fourth quarter earnings press release was issued after the close 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 during the prepared remarks today. 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 on our various filings with the SEC, including our annual reports 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, Herman Cueto. We will open the call with remarks from John. Then Herman 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 afternoon, everyone, and thank you for joining us today as we share our fourth quarter and full year fiscal 2024 results. I'm honored to have the opportunity to lead Azenta in its next phase of delivering value for our customers, employees and shareholders. On behalf of Azenta employees and shareholders, I want to thank Steve Schwartz for his unyielding commitment and many contributions to the company's success. Thank you, Steve. I also want to thank our almost 3,300 associates at Azenta for the very warm welcome. My first 60 days have been focused on meeting our customers, our teams, traveling to our many global locations, having in-depth working sessions and reviewing our portfolio. We are already busy identifying and tackling a long list of opportunities with a sense of urgency. I want to briefly discuss two recent announcements. Last week, we announced the appointment to our Board of new Independent Directors, William or Bill Cornog, Quentin Koffey and Alan Malus. I'm excited about these additions, who bring a diverse set of skills that complement our Board's existing strengths. We also established a new Value Creation Committee that will assist and advise the Board in driving long-term value-creation, including through growth, cost and capital allocation initiatives. Today, we announced the appointment of Lawrence Lin as our new CFO. Lawrence is a tremendous executive who I've known for nearly a decade and worked closely with at Danaher and PHC, a KKR company. Most recently, Lawrence was the CFO of private equity-owned GeoStabilization International, also a KKR company, where he was part of the management team that returned five times the equity invested by KKR. In addition to his exceptional performance as a CFO, Lawrence is extremely well-versed in the business systems operating model and lean principles we are implementing. He possesses the precise skill set we need as we move into the next phase of Azenta. I'm thrilled that he has agreed to join the team and excited for all to get to know him better. I also want to acknowledge Herman Cueto for the progress he helped us achieve at Azenta. Herman will leave us with a great foundation on which to build and has made many tangible contributions during his time at the company, including most notably his work on developing the Ascend 2026 program, which is already yielding significant margin benefits. I'll take this opportunity to thank him, although he'll be continuing on as an advisor with us for some time to ensure a smooth transition. Moving on to the business, I'm pleased to share Azenta delivered strong results in the quarter and in the year despite a depressed and uncertain life sciences market. Our full year 2024 results were in line with our guidance as we reported revenue of $656 million, down 2% year-over-year on an organic basis. Excluding B Medical, the combined Sample Management Solutions and Multiomics grew core revenue by 4% for the year. As this is my first opportunity to speak to the investment community, I'm going to briefly touch on B Medical and then I'll spend a few minutes discussing my perspectives on our core businesses and the key areas of focus in 2025 and beyond. Herman will then go into more detail about our financial performance. Today, we announced our decision to sell B Medical. This action will allow us to refocus our high-quality core businesses where we have a tremendous opportunity to accelerate core growth and expand margins. We will provide updates on the sale process as relevant. We'll now turn to my perspective on our core businesses. I was excited to join Azenta because of its attractive and competitively advantaged portfolio of businesses. And after 60 days on the job, I'm even more enthusiastic about our company today. Our Sample Management Solutions business enjoys a significant competitive advantage, long-term outsourcing tailwinds and highly profitable reoccurring revenue streams from its subscription and services offerings. For customers who want to store on-site, we sell differentiated cold storage and cryogenic products that are customized to the customers' unique requirements. For customers who want to outsource, we offer storage at one of our bio-repositories. For both, automation is at the core of our highly efficient and scalable storage management solutions. That automation technology manages the growing number of samples generated and functions as both a library and a warehouse workflow management tool. It enables digital formatting, registration and retrieval. When coupled with our sample intelligent software solutions, it pinpoints and provides timely access to samples the customer needs to retrieve. We'll invest more in building out our unique automation technology and developing new products like our BioArc Ultra, a revolutionary product enabling large-scale and eco-friendly ultracold sample storage. Moving now to our Multiomics business, which is renowned for its research expertise and consultative approach to performing genomics analysis and data collection that enables impactful scientific discovery. This business embraces the newest technology and develops product offerings to meet the needs of customers in a rapidly evolving scientific research environment. By way of example, our next-generation sequencing business was among the first to implement the NovaSeq X Plus platform. While this technology transition brought with a pricing pressure, it has enabled growing customer adoption of our services, which combined with our commercial execution has outpaced the pricing headwind. Funding for capital investments continue to be constrained, driving increased R&D outsourcing to trusted partners like GENEWIZ. We expect pricing will continue to stabilize throughout the first half of 2025 and will benefit from capabilities of our new location in Oxford, UK, that opened earlier this year. In our Gene Synthesis business, we are investing and broadening our product portfolio to include more downstream workflows and we intend to expand our synthesis capacity in the US to satisfy growing demand. In our Sanger business, we have met the ongoing technology shift and traditional Sanger sequencing market with our O&G product called Plasmid-EZ. We have seen excellent adoption of the offering since its launch in 2023 and we'll continue to close the gap created by Sanger market headwinds. Importantly, the growth investments I mentioned are relatively small in absolute dollars, offer very attractive returns and can be made even as we expand margins and increase cash flow, thanks to the tremendous efficiency opportunities we have available to us. Next, I'll spend a few minutes talking about key areas in which we are focused for 2025 and beyond. These include portfolio optimization, operational excellence and value-enhancing capital allocation. We've talked about portfolio optimization with the ongoing sale of B Medical. In terms of operational excellence, we have identified key priorities to build on our strong foundation and reduce complexity. In my time at other high-performance organizations, I've experienced firsthand the positive impact that business system operating models and the use of lean principles had in driving exceptional performance. I expect implementing these tools at Azenta will have an outsized impact to helping us achieve our ambitious performance goals. Continuous improvement and simplification will become the way we work with the help of a business system model to drive our performance and unify our culture. Operational excellence begins with identifying key performance indicators that will align our daily operating decisions with our strategy. These KPIs are broadly focused on revenue growth and profitability. We will enable revenue growth by sales force optimization, geographic expansion and continued innovation. We'll achieve profitability improvement by gross margin expansion and corporate cost structure optimization. Other KPIs include working capital and cash management metrics, customer-facing metrics like quality and on-time delivery and employee metrics like turnover and internal advancement. The first step in our simplification process is addressing our incentive compensation programs. We have consolidated from eight plans down to one. This new compensation structure aligns directly with our KPIs. Each of our businesses will be compensated on core revenue growth, adjusted EBITDA or operating profit and free cash flow or working capital. This structure will help us align our organization with our strategic objectives, drive improved performance and make it clear to our team members how we win for our customers and our shareholders. There is much more to come on simplification because Azenta today is very complex. It was built through 15 legacy acquisitions and as a result had 13 IT systems, 45 physical sites and nearly 40 legal entities. In 2024, we benefited from substantial progress under Ascend 2026. In the next phase of our transformation, we will turn our attention to investing in growth for our future and further expanding margins. This means rightsizing our cost structure and reallocating resources to high-impact growth investments in sales, marketing and R&D. Simplification around corporate and operating company functions will provide clarity and accountability while empowering our employees who are closest to the customer to make the right commercial decisions. Indirect expenses will be deployed judiciously. Improved procurement process will drive direct material savings, optimize inventory and streamline our supply chain. Enhanced information systems will provide better and more timely insights across the organization, supporting continuous improvement and prioritization of our key focus areas. Finally, I'd like to make it clear on how we think about capital allocation. We will make our capital allocation decisions through a consistent, robust and returns-based process. We will be accountable for outcomes. We expect to evaluate potential investments that will improve productivity, expand gross margin, support profitable growth by increasing capacity or developing new organic offerings and drive inorganic growth through logical tuck-in M&A. We will always compare the returns for these investments with repurchasing our stock. In summary, we will be competing for resources internally. I'm actively working with our senior management and the Board Value Creation Committee to further refine our view of Azenta's full potential and how we can achieve it. We'll plan to host an Analyst Day in mid-2025 to share our findings in more detail with the investment community. Finally, I'd like to offer a few thoughts on the near term. While Azenta has tremendous opportunities and momentum entering in 2025, we are just getting started. Our guidance is based on the continuation of positive indicators from our last several quarters with the opportunity for upside as the market recovers and as we execute on the initiatives we've laid out today. We have confidence in the full year profile given our attractive reoccurring revenues, C&I and NGS recovering in the second half of 2024, and the stores backlog secured to-date. After covering a lot of ground today, I want to leave you with a message that I'm excited about Azenta's potential and I'm confident in our ability to deliver long-term sustainable value to our customers, our employees, and our shareholders. I look forward to keeping you updated on our progress. With that, I'm pleased to turn the call over to Herman. Thank you.

Good afternoon, everyone. Thanks for the kind words, John. And I'd like to start by thanking the company and especially the finance and IT teams who have worked with incredible dedication and commitment to help guide Azenta through its evolution. It's been a pleasure to work alongside you and I will be cheering Azenta on from the sidelines. As I've got to know, John, it's clear that his global experiences successfully leading high-growth life sciences companies in addition to his proven track record of building strong teams will serve our customers, our employees and our shareholders extremely well. In just 60 days, I've seen John come in, hit the ground running and his operational depth has already made an impact on how we run the company. I admire his ability to digest and simplify complex information to get at the root of what the company needs to do. Azenta is in great hands and we are all excited to welcome John. As you saw from the results we issued today, we executed well in Q4. Before I get into the financial details, I want to start by recapping some notable progress and accomplishments in fiscal year '24. At Investor Day, in March, we launched our transformation program called Ascend 2026. Under Ascend 2026, we identified four key pillars to simplify our company and enable it for scale and growth. In the area of site rationalization, we impacted an additional three sites in the fourth quarter, bringing our total this year to 16, which represents nearly 40% of our sites being either closed altogether or rightsizing them. Under organization simplification, we have made substantial progress towards our goals and have several functional transformations in flight that are designed to improve our operating capabilities and reduce costs. This journey is partially enabled by our IT system optimization initiative, where I am happy to announce we have successfully reduced our core systems count from 13 to 8 this month. These remarkable achievements give us great confidence in the margin progression we described at Analyst Day. Lastly, under the umbrella of portfolio optimization, in the second quarter, we exited two non-core product lines, and today, we announced our intention to sell B Medical Systems. The reshaping of our portfolio assets to focus on our core capabilities and Sample Management Solutions and Multiomics is pivotal to our strategy. On to the financial results. Market conditions played out as expected and through great execution, we delivered against our commitments. Fiscal year '24 revenue was $656 million, down 1% year-over-year on a reported basis and down 2% on an organic basis. Throughout the year, we effectively navigated what continued to be a challenging macro environment. Focused execution enabled us to deliver above-market top-line growth in our SMS and Multiomics segments and expand our adjusted EBITDA margin by approximately 300 basis points. In the second half of the year, we returned to profitability and finished with a meaningful improvement in operating margin. We have made considerable progress in optimizing our cost structure and improving operational efficiency and we expect those efforts to continue to deliver sustainable margin expansion into fiscal year '25 and beyond. With that, I would like to turn to our results in the quarter and for the full year. To supplement my remarks today, I will refer to the slide deck available on our website. Turning to Slide 4 for some highlights. Fourth quarter revenue was $170 million, down 1% year-over-year on a reported basis and down 2% on an organic basis. SMS and Multiomics combined grew 5% organic year-over-year, an outstanding performance relative to the market. Most notable contributors to growth include next-generation sequencing, Cryogenic Stores, Consumables & Instruments as well as Storage. B Medical came in slightly ahead of expectations, delivering $19 million in revenue, representing a 35% decline year-over-year. Fiscal year 2024 revenue was $656 million, which was down 1% on a reported basis and down 2% organic. On a combined basis, SMS and Multiomics delivered 4% organic growth. B Medical contributed $83 million to revenue and was down 27% on an organic basis. Non-GAAP EPS for the quarter was $0.18 and was $0.41 for the full year. I'm excited to report our adjusted EBITDA margin of 10.2% in the fourth quarter and 7.5% for the full year. This represents margin expansion of more than 550 basis points for the quarter and approximately 300 basis points for the year. I also want to highlight two consecutive quarters with an adjusted EBITDA margin above 10% demonstrating the impact of the transformation initiatives I discussed earlier. In the quarter, we returned $249 million to our shareholders through our share repurchase program. This completes our $1.5 billion share repurchase program in which we bought back approximately 30 million shares over the last two years. Now let's turn to Slide 5 to take a deeper look at our results in the quarter. Total revenue was $170 million, representing a decline of 1% reported and a decline of 2% organic. In the fourth quarter, non-GAAP gross margin was 45%, up 220 basis points year-over-year. The improvement is largely a result of a favorable product mix and operational efficiencies. Adjusted EBITDA margin in the quarter was 10.2%, up 560 basis points year-over-year. Again non-GAAP EPS was $0.18 per share. With that, let's turn to Slide 6 for a review of our segment results, starting with SMS. SMS revenue was $85 million for the quarter, up 4% year-over-year reported and up 3% organic. This is in spite of a tough compare in custom stores, which declined 27% in the quarter. On a positive note, we continue to see great momentum in Cryogenic Stores, which grew 67% in Q4, and Consumables & Instruments, which grew 14% in Q4. SMS fourth quarter non-GAAP gross margin was 48%, up slightly year-over-year. The impact of favorable one-time items recorded in the prior year offset the benefits of operational efficiencies and sales mix. Turning next to the Multiomics segment. Multiomics delivered revenue of $66 million, the largest revenue quarter since Q2 fiscal year '22, which translated to 8% growth on both a reported and organic basis. Next Generation Sequencing grew 25% year-over-year, benefiting from a combination of larger strategic deals like FinnGen and price stabilization. Gene Synthesis saw modest growth compared to last year and while we continue to see good acceptance of our new value offerings, we are still seeing constrained spending in critical markets such as pharma. Sanger Sequencing revenue was down 12% year-over-year as we continue to cycle through an evolving Sanger market. Our Multiomics business in China delivered organic revenue growth of 6%, once again outperforming a market with macro challenges. Multiomics fourth quarter non-GAAP gross margin was 47.1%, up 130 basis points year-over-year, driven largely by the growth in NGS volume as well as productivity gains that helped to offset pricing headwinds. And finally B Medical. Revenue was $19 million in the quarter down 35% on both a reported and organic basis due to the timing of orders. Non-GAAP gross margin of 24.1% was up 180 basis points versus last year. Next, let's turn to Slide 7 for a review of the balance sheet. We ended the quarter with $522 million in cash, cash equivalents and marketable securities. We had no outstanding debt. Regarding our consolidated statements of cash flows, as part of the year-end closing process, we are currently reviewing the classification of amounts principally between the effects of exchange rate changes on cash and cash equivalents and cash provided by operating activities line items in our consolidated statements of cash flows that could potentially impact those line items in our previously issued statements of cash flows for the fiscal year-end September 30th, 2023 and 2024 quarterly periods. Therefore, we have not included a statement of cash flows in our earnings press release issued before this call. Our consolidated balance sheet and income statement are not impacted by the cash flow reclassification item for any period. The company expects to reflect any changes to the previously issued statements of cash flows in its Annual Report on Form 10-K for the fiscal year ended September 30th, 2024. Capital expenditures for the quarter were about $13 million and approximately $38 million for the full year as we invested for growth and scale in our Sample Management Solutions and Multiomics businesses. Turning to guidance on Slide 8. As you saw in our press release, the company announced its intention to sell the B Medical Systems business. Therefore, we are guiding 2025 excluding B Medical as it will be reported within discontinued operations going forward. The plan is to issue recasted historical actuals reflecting the discontinued operations of B Medical before the filing of our 10-Q ended December 31st, 2024. As we continue to watch an evolving macro-environment, focus on our transformation efforts and complete the strategic exit of B Medical, we are guiding 2025 organic revenue to grow in a range of 3% to 5% year-over-year. We are forecasting Multiomics to grow low-single-digits and Sample Management Solutions to grow mid-single-digits. Growth will be driven by a combination of commercial excellence, contribution from new growth vectors and strategic investments in automation and technology. We are committing to approximately 300 basis points of adjusted EBITDA margin expansion year-over-year. In closing, we are very pleased with our performance in fiscal year 2024. We are optimistic about the noteworthy progress we have made in the business. As we turn our attention to executing in 2025, we are committed to delivering on our commitments, serving our customers and enabling life sciences breakthroughs faster. This concludes our prepared remarks and I will now turn the call over to the operator for questions.

Gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of David Saxon from Needham. Your line is now open.

Oh, great. Good afternoon, John and Herman. Hey, good afternoon, guys. Thanks for taking my questions and congrats on the quarter.

Hi, David.

Yeah. Hey, John. So I have two, one on guidance and then one on the margins. So for, I guess, the first question, guiding to 3% to 5% organic growth that's ex-B Medical. If I look at the fiscal '26 targets, I think, SMS was expected to grow high-singles, Multiomics mid-singles. So this might be a multi-part question. But first understanding you're hosting an Analyst Day next year, but would love, John, to hear your thoughts on the fiscal '26 targets, whether you think they're achievable, excluding the B Medical, obviously, or will the next long-term model be kind of starting from a new page? And then number two is the lower fiscal '25 guidance relative to kind of the assumptions baked into the '26 targets. Is that a function of the macro and market or are you still -- is it execution at this point? Thanks so much.

David, it's Herman. Why don't I start and then we could let John jump in and add a little bit of color? Why don't I start first with the LRP? So David, if you step back, we've seen considerable progress against the LRP that we announced at the 2024 Investor Day, including achieving above-market growth and margin expansion inside of fiscal year '24. We also continue to feel good about the revenue targets that are above-market as illustrated by the fiscal year '25 that we just gave. And I think the third point on the LRP is, we also believe that an EBITDA margin of 15% to 17% by fiscal year '26 is achievable. When you look at the guide of 3% to 5%, it certainly does assume the current market environment, and this recovery now being pushed out as we're starting to hear from some of the bellwether peers. If it comes back in the second half of 2025, maybe we do see a little bit of upside. But for right now, we think this growth of 3% to 5% with 4% at the midpoint is consistent with what we saw inside of fiscal year '24. And maybe, John.

David, just a few thoughts. Thanks for the question and it's good to be with you. I mean, I think, in general, as we enter into '25, there's some uncertainty in the market. We're working through that. We feel pretty confident on the bottom line right now. But as we look at our guidance, it's really about demonstrating capability. We've struggled on the topline and I think demonstrating capability there is going to be pretty important.

Okay. Great. That's super helpful. And then my second question is probably for Herman. So the EBITDA margin, obviously, really good performance this quarter and last. So the guidance for fiscal '25 is kind of implying flattish relative to the second half of fiscal '24. So I just want to understand kind of the dynamics there. Is that just B Medical coming out of the model or are there any other dynamics kind of at play in 2025? And then, I guess, secondly, I mean, any color on kind of the quarterly cadence for EBITDA margins? Thanks so much, guys.

Thanks, David. Look, we've said even at Investor Day, count on 300 basis points of EBITDA margin expansion each year and we do expect to get to that 15% to 17% that I just mentioned. David, look, if we start to do better and we start to see it come through, of course, we're going to pass it along, but we do want to guide in a range that we're highly confident in hitting right now. When you look at the last two quarters, where we were above 10%, I think, what I would want to point to is, as we come into fiscal year '25, we do have some items that we have to jump over. There are some investments that we need to make. So we want to make sure that we're guiding to an EBITDA margin where we have a ton of confidence. Maybe a minute on the quarterly cadence, I would look at the cadence both from a sales and an EBITDA point of view, consistent with the way you saw the revenue and EBITDA come in fiscal year '24. So look at that cadence as being similar to what you've seen this past year.

Okay. Great. Thanks so much for that color. Super helpful.

Your next question comes from the line of Jacob Johnson from Stephens. Please go ahead.

Hey, Jacob.

Hey, Jacob.

Mr. Johnson, your line is now open. Please ask your question. We'll move on to the next one.

Maybe we'll go to the next one.

We'll move to the next question, please. Thank you.

Your next question comes from Vijay Kumar from Evercore. Please go ahead.

Hi, Vijay.

Hey, Vijay.

Hi, John. Thank you for taking my question and welcome to the Azenta.

Thank you.

I guess Azenta earnings calls and then not to Azenta. I had a few questions if you don't mind on.

Sure.

NGS plus 25%, that's a pretty strong number. And I think I heard you say you've completed the transition on the NovaSeq X. Is NGS expected to continue strong double-digit growth and what did Gene Synthesis do in the quarter?

NGS was really strong in the quarter. Vijay, this is Herman. Yeah, you're right, it grew 25%. We saw the volume continue to go up and we did see price abate. We don't want to count on that trend right now as continuing, but it is certainly a positive indicator, of positive momentum as we head into fiscal year '25. Yes, the NovaSeq X plus that transition, almost everything is running on those tools at this point of -- at this point in time. And remind me what your last question was?

Sorry, Gene Synthesis in the quarter?

So Gene Synthesis in the quarter was low-single-digits, but for the full-year, it was, I would say mid-to-high single-digits.

Understood. John, one for you on China. What did China do in fiscal '24? And what is the guide assuming for fiscal '25? I guess a lot of questions here on a potential China tariff impact. So maybe if you could just comment on [indiscernible] importing from China and any hypothetical scenario analysis on what a tariff impact would look like?

Yeah. Sure, Vijay. So a couple of comments. Let me just give some color on our high-single-digit growth in Gene Synthesis. We're well-positioned there both in China and the US serving those independent markets. I mean we are -- we have the capabilities to invest in Gene Synthesis in the US. It's more around capacity. From a capability perspective, it's mirrored directly to China. In the US, it's a capacity issue. So we are investing there. Our high-single came in and we think that's going to continue. These are shorter run higher-margin runs that we have in that business in Indianapolis. Regarding China tariffs, as we sit here today, I don't think based on my comments in terms of our regionality in terms of how we manufacture for US for US and China for China, I don't think we're going to see an impact. We're not modeling that today. I'll let Herman discuss that briefly.

Yeah. So, Vijay, in fiscal year '24, China for us in the fourth quarter grew about 10% and in the full year, it grew about 12%. And in terms of modeling the full year, we don't give regional guidance on how we model, but you could expect that all the macro factors and all those things were considered when we gave the 3% to 5% on the total company.

Understood. And maybe one last one for you, John. And I know it's still early days, but high-level learnings for you and sort of your strategic vision for the business would be helpful.

Sure, you bet. Happy to share a few thoughts. I mean, we're really focused around three areas portfolio optimization, operational excellence and, of course, capital allocation. Let me touch on portfolio. I mean if you think about, I mean, B Medical was an easy decision for us pretty quickly. We're focused around our high margin businesses, outsourced products and services for our customers. We want to be in really good end markets. We've got the right to win. We've got strong capabilities. There's good secular growth trends and attractive reoccurring revenue. So that's around portfolio and the lens that we're taking there. I think right now, as we sit here today, our SMS business and our Multiomics business, we really feel confident in those businesses going forward, especially moving B Medical out of the portfolio and allowing us to focus in those areas. As it pertains to value creation and capital allocation, there is a significant opportunity here. We compete for resources internally. And this is going to be a departure from the past. The lens we're taking on this and what's important in the organization and some observations around this is some rigor around return on investment, meaning there is specific criteria for that. The four levers we pull in capital allocation are the following around gross margin, productivity improvements, growth initiatives around R&D, capacity increases, other business lines. The third being M&A around strategic tuck-ins. I want to be very clear here. We need to earn -- and we need to earn our way back and demonstrate capabilities in this area. And then lastly, around share buybacks. We always compare against this in terms of the other options I just discussed, but that's the lens on capital allocation. And lastly I want to talk about operational excellence. And I'll be brief here, but there's a lot of learnings coming from Danaher and KKR. And I think the biggest learning is around doing the basics really, really well. I think there's a real opportunity here. It starts with alignment and prioritization and that's how we're going to drive value. This is a bit of a departure from the past. I want to give an example of around alignment and prioritization. First, we talked about these compensation plans going from 8 to 1. The simplification and moving off of the complexity we have in the organization is going to be really important. The teams need to understand how we win. And how we win is around implementing our core value drivers. Those core value drivers in the business will cascade down in the organization and will give the businesses the ability to go win. What that means is specifically in really eight areas of core value drivers, but three main stakeholders here. First one is around customers and that is quality and on-time delivery. We're going to drive centricity around the customer here and we do that through these metrics. The second is around our employees and that's turnover and internal promotion that we look at. And the third being shareholders and how we win in our businesses, that's top-line growth, operating margin expansion, working capital and return on invested capital. So in general there's opportunity around G&A and gross margin and COGS but we'll leave that for a later call. But really, Vijay, that's kind of our view of the business right now.

That's helpful. Thank you.

You bet.

Our next question comes from the line of Jacob Johnson from Stephens. Please go ahead.

Hey, can you guys hear me now?

We can. Yes, thank you.

Great. John, welcome. I'm off to a great start with you. Herman, it's been great working with you and kudos to all of the progress you made.

Thanks, Jacob.

Maybe for both of you. Yeah, no problem, Herman. Just maybe first on freezers, maybe for both of you. I think stores were down in the quarter. I'm just curious kind of what you saw there. Was it timing or are you seeing some headwinds from the capital kind of equipment environment? And then, John, just given your background and the freezers market is kind of a four-letter word for investors right now.

Sure.

Can you just talk about kind of your thoughts on the differentiation of Azenta's freezer portfolio? And then obviously, it's been kind of difficult broadly for the freezer market the last couple of years, kind of your view for the outlook for that market longer-term?

Sure. Jacob, why don't I jump in go first? You're right, stores were down in the quarter. I would remind everybody that we had -- we have a very tough compare in the fourth quarter where the fourth quarter of fiscal year '23, it had a very, very, yeah, it was a record growth rate. I want to remind everybody that we have high visibility into the backlog in that business. We have a lot of confidence in it. And right now is where we sit today. We have close to 75% visibility into that backlog. So we feel good about our guide for stores in fiscal year '25.

And Jacob, a few thoughts here and observations. Around the freezer business, this is a market penetration and a market conversion business for us. I mean, we feel very, very good about our capabilities here today. I think, in general, if you think about these freezer farms and the viability of those long-term, I think you're going to see a natural shift over to a stores business, where it's highly automated. You look at samples per square foot. I mean these efficiencies are real. The capabilities are real in the organization. And I think we feel pretty strongly about our conversion opportunities, but more importantly, how we penetrate, meaning win-loss in these competitive situations. So in general, we're pretty bullish on this. And I understand your point of view, having come from PHC on the freezer market, I think we've got really good advantage capabilities here at Azenta around that space specifically.

Got it. That's helpful. And then just maybe one on NGS. Just can you talk about what you're seeing there in terms of pricing versus volume? I think I heard you talk about maybe some continued price stabilization in the first half of the year. So can you just talk about trends on that piece of business?

.Yeah. So, Jacob, it's Herman. Yeah, we did see price stabilization from Q3 to Q4, which really helped to drive the growth rate that you saw. We do continue to see nice volume in this space, so volume did increase, and we benefited from that. We also, as we said in the prepared remarks, we benefited from some larger deals like FinnGen, which helped drive the growth rate in the quarter.

Got it. Thanks, Herman. And thanks, yes, go ahead, John. Sorry.

Yeah, Jacob, we're all getting to know each other. So I was remiss on a comment here I wanted to make in terms of the market outlook. There is a unique advantage that we have around our LIMS system in this business. I mean this is pretty unique in terms of the conversion. That's why this market is growing double-digit, high-single to double-digit right now. We think that's going to continue. And when we're competitively advantaged based on the LIMS system, I think, we're going to continue to enjoy market penetration in this area.

Got it. I appreciate that, John, and thanks for taking the question.

Sure. You bet. Thank you.

Thanks, Jacob.

Next question is from the line of Andrew Cooper from Raymond James. You may now ask your question.

Hey, everybody. Thanks for your time.

Hi, Andrew.

John, great to connect for the first time publicly here. Maybe just two quick ones on the guide though. I just want to maybe ask it a little bit of a different way. I know you mentioned macro. We talked a little bit about some of the pricing in Multiomics. But you do have some periods in this fiscal year you just closed where comps should be not overly difficult when we think about the '25 growth. So maybe just can you lay out some of the items that we should keep in mind to keep us from being a little more bullish than that 3% to 5% in terms of what you might be able to deliver given what you just did in the fourth quarter with the core business was kind of right in line with that already?

There's a couple of things to think about here, Andrew, that being in this for 60 days, we've got some open territories. We had a bit of turnover. There is potential for distraction around the transformation. I think we're being somewhat prudent around how we're guiding the organization at this point in time. And that's really part of this that's in the guide that really, well, it may not have come out directly in our comments, but hopefully, I've helped to clarify that a little bit.

No, that's helpful. And then just one more kind of again sticking with guidance. I want to make sure the margin uplift, the 300 basis points, is that off a base of what you just reported or do we need to think about the EBITDA margins from continuing ops being a little bit different just given B Medical was probably somewhere, I don't know, near breakeven and probably dilutive to the overall base when we think about EBITDA margins in terms of a reported number for fiscal '24?

Yeah. So, Andrew, we will get the recasted financials out before we issue the first quarter queue. We'll do that for you and you'll have all that information. But the 300 basis points is on the RemainCo.

On an apples-to-apples basis or from?

Yeah.

Okay.

No. It will be apples-to-apples. Yeah. So you'll get a restated number.

So you can't give us a sense for kind of what the actual number you're pointing towards is for fiscal '25, given we don't have that fiscal '24 recast yet?

Yeah, it would be in the neighborhood. I want to say the 300 basis points will be above 11%.

Okay. Great. I'll stop there and let others ask. Appreciate it.

Thank you.

Your next question comes from the line of Matt Stanton from Jefferies. Please go ahead.

Hey, Matt.

Hey, thanks. John, I'll go back to some of your -- hey how are you doing? I wonder why some of your comments are helpful just on vision for the business, where you're focused. If we go to M&A, you talked about strategic tuck-ins and the need to kind of earn your way back there. Can you maybe just talk about kind of how the funnel you inherited looks today? Does that need to be rebuilt or changed at all? And should there be any evolution in terms of key criteria as we think about those strategic tuck-ins, maybe leaning on some of the financial metrics and lens to do deals from your experience prior such as Danaher? Thanks.

Yeah, it's early days here, Matt. I mean, we're going to continue to build out the funnel and drive a more rigor around cultivation, in general, in M&A, taking both a short-term, long-term point of view. When it comes to how we're thinking about it, in general, I mean, our SMS business, if you think about our capabilities in SMS with automation and our ability to invest more in automation, specifically around sample registration. I have to be candid here. I mean, I was a little surprised at how manual our process is with our capabilities. Today, we have the ability to invest there. And when we invest there, we will see that gross margin improve dramatically. What that means for M&A in the future is in our biorepositories business, we think there's an opportunity there and bringing more biorepositories in and potentially putting them on our platform that's a lower gross margin, a higher gross margin, more automated type of business where those make a lot of sense. These contracts are seven years to 25 years, pretty attractive. So it's an area that we're really keen on and we're starting to take a look at. But again, it's early days there. Regarding the criteria, I would expect that rigor around any ROIC metric of double-digits. I mean, there's got to be a clearing criteria around that and we're going to be very stringent around what that criteria is.

Thanks. That's helpful. And then maybe one for you, Herman. Just could you talk about the pricing that's baked into the 3% to 5% guide next year? It sounds like NGS, the headwinds there kind of abating reflecting kind of market growth mix dynamics. What's baked in from a pricing standpoint for 2025? Thank you.

Yeah. So, Matt, we won't give you a very detailed explanation on the price. We don't give that type of information typically. But what I would say is, we do anticipate continued pricing headwinds in NGS as we cycle through the comp. And again could it continue to stabilize? Yes, it could, but we don't want to look at one quarter as being a trend. We want to see how it starts to play out.

I'll leave it there. Thank you.

Thank you, Matt.

Your last question comes from the line of Paul Knight from KeyBanc Capital Markets. Please go ahead.

Hi. This is Lucas on for Paul Knight at KeyBanc. Yeah, one.

Hi, Lucas.

Hi. One quick question on the B Medical transaction. Is there any color you can provide on the timeline for closing that transaction and whether it's more likely to be a first half or second half type of event? Thanks.

It's a good question, Lucas. Go ahead, Herman.

Yeah, Lucas, I think we're looking at this as a first half type of event, certainly inside of one year for sure. It's still early days, but I would expect that this is something we could do within the first half of the year.

Great. And then switching over to CapEx, I believe you said the CapEx number for the quarter was $13 million. Would you expect that to trend lower after the B Medical divestiture closes?

No. I mean, it certainly will come down. But relative to sales, I think if you stick to this 4% to 6%, you're probably in the right range. 4% to 6% of sales, Lucas.

Yeah, Lucas, so a couple of thoughts there. I mean we are looking at our CapEx right now in the business. It's, again, in early days. But again I think that what we talked about in terms of capital allocation and return on investment being double-digit, I mean we are looking in general at how we deploy capital in the business. And specifically there's a lot of opportunities around productivity improvements in gross margin that I think we're going to take another look at and sharpen our pencil around growth initiatives. We think there's capacity building initiatives. We'll look into that. We'll come back to you and let you know what that looks like. But in general, I think, we want to make sure that our capital allocation and CapEx matches our strategic initiatives going forward. Thank you for the question.

Thanks. That's all I had.

Excellent. Well, listen, thank you all. It's good to be with you. So go ahead, operator. Thank you.

There are no further questions at this time. So I'd like to turn the call over back to Herman Cueto for closing remarks. Please go ahead sir.

Thank you. On behalf of the Azenta leadership team, I'd like to thank our 3,300 employees around the world for their continued dedication and support. Thank you, everybody.

This concludes today's conference call. Thank you, everyone, for your participation. You may now disconnect.