All right. Good morning still, everybody. Welcome to the Stephens Investment Conference. I'm Jacob Johnson, the life science tools and pharma services analyst here at Stephens. Thanks for joining us this morning. This is the last fireside chat for us for this conference. It's been a great run, but I think we're finishing with a really good one, because we have the team from Azenta here with us today.
We have President and CEO, Stephen Schwartz, Herman Cueto, the new CFO, and Sara Silverman from Investor Relations. They're coming off a quarter on Monday, where there's a few updates we're gonna chat about. But before I start peppering them with questions in this fireside, I'll turn it over to Steve or Herman for any kind of opening comments, and we'll go from there.
Yeah. Thanks, Jacob. We're delighted to be here. We're gonna try Herman out here. How about that?
Sounds good.
Let's see. He's been with us for four weeks. I think he's ready.
Yeah.
Please go ahead.
There's nothing like jumping right into it. You know, maybe just a couple of minutes on me. I'm the new CFO of Azenta. Really honored and privileged to have the opportunity to serve the company. Can everybody hear me?
Yeah.
Okay. Yeah, it's been an exciting couple of weeks learning the business. Spent a lot of time with the various stakeholders and feeling really good about things. Fourth quarter was very strong, 25% growth on the top. When you take out the acquisitions and the C&I business, about 6% organic growth, which is very, very positive.
Excited about C&I. It did expand about 9%, quarter-over-quarter, so we did see some acceleration, but it is still a headwind to growth. That was positive. China genomics was a positive story as well. That grew about 12%. The overall China business grew about 2%. There was a tough compare in the products business. But overall, we felt really, really good about where we ended up in Q4.
EPS was strong, came in around $0.13 per share, so we were happy about that. So overall, feeling pretty good about where things ended up. We feel good about the guide. You know, maybe spend a minute on the guide. So 5%-8% on the top line.
Maybe a little closer, yeah.
Yeah. Start here. Sorry about that, if people can't hear me. I could always pick the mic up as well. Maybe I'll do that. 5%-8% on the top line. And then, you know, when we talk about EBITDA margin expansion, we're looking at about 300 basis points. We feel good about the line of sight that we have to that.
We talked a lot about the Phase One and Phase Two cost initiatives, which we saw a lot of the Phase One hit the P&L, and that'll continue to cycle through as we head into fiscal year 2024. The Phase Two initiatives, great line of sight to that, and we'll begin to see those savings as we get into the second fiscal quarter of 2024. So maybe I'll leave it there for now.
Yeah. Thanks, Herman. Maybe just, I think it'd be good, since this is the ... You just joined four months ago, this is your first conference, maybe it'd be helpful just kind of give us your background and what attracted you to the job at Azenta, and then, then, we'll start asking follow-up sometime.
Yeah. So I spent 20 years in medical devices. I was currently with Becton, Dickinson. I came to Becton, Dickinson through its acquisition of C.R. Bard. And the last role that I occupied was senior vice president of finance for the company. I'm a CPA and MBA. I have about 30 years of experience.
And what attracted me to Azenta was, you know, I think it's an exciting space. I think there's a lot of good things going on. And, you know, when I think about some of the challenges that they're currently working through, you know, EBITDA margin expansion, it's an area where I have a ton of experience and it felt like really high probability of success. I had great chemistry with my friend Steve here. That also helps.
It's a great team. You know, coming in and meeting the board and spend time with them, it just felt very much like home, and, you know, quite honestly, I couldn't wait to get started, so it's been a good couple of weeks.
Well, glad to have you on board. So going back to guidance, you know, your September year-end, so it's a little, little different than, kind of the calendar 2024 commentary, but still you're pointing to this 5%-8% growth next year coming off, yeah, I think a 1% decline this year, and, probably want to explain some of the puts and takes there. But, but still, mid-single digit plus type growth is better than what, you know, some people, have previewed for next year. So, so what gives you in that-- what gives you the confidence in that growth outlook?
Yeah, maybe I'll start, and then I'll let-
Okay
... I'll let Steve fill in. I think for me, I start with, you know, where, where maybe the comments that I started with, when you, when you peel out the acquisitions and you peel out C&I, you see, 6% growth in the quarter, organic growth in the quarter, 5% in the year. So, you know, I would anchor everybody on that.
That growth gives me a lot of confidence in the 5%-8%. From there, you know, I would talk a little bit about the consumables business. So, you know, that did accelerate 9% from Q3 to Q4. That gives me confidence, and when we speak to the teams about the C&I business, it, it is starting to feel like, you know, in places like the U.S., we are getting back to sort of a par inventory level on the distributor side.
So we should start to see sales that we sell into the distributors; it's basically replenishing what they're doing in the end market. So, so that starts to feel good. And then on top of that, I would say, you know, when we pull on Europe, you know, they are lagging a little bit, but it does, it does feel like they've cycled through it, and they should be all the way out of it by the time they get to the second quarter of fiscal year 2024.
On top of that, we talked a lot about the sales team investments. You know, having alignment of the sales force feels really, really good. You know, we're back to this more decentralized model, where we have scientists selling to scientists, and we have asset managers selling to asset managers. That feels really good.
The backlog in stores gives us visibility into fiscal year 2024, and that's in a good place. You know, SRS is a very sticky business, you know, with the long retains and the timelines that we hold samples for. A lot of visibility into that, and I think, you know, we'll talk about B Medical, but the information that we provided on the B Medical business gives us confidence in there. So when you think about those couple of data points, you know, we have a lot of confidence in that 5 to 8, and I'll let you fill in-
Yeah, no, I think it's perfect. I'll, I'll pile on a little bit to what Herman mentioned. We're, we're a sample sourcing sample management, sample measurement company. We do the critical, but not core things for the people who do discovery. And even in an unusually soft environment, the sample business has been strong. So we, on the repository services business, the sample storage portion of the business grew 15% in the fourth quarter.
The automated storage tools grew 38%, and I think the way we look at that is not as a tools company doing something unusual, it's just satisfying this persistent demand for the storage of samples. So even in this environment, research continues, critical programs continue, the number of samples that are generated continue.
So our tools business is really to soak up this capacity of samples that have to be stored in cold systems. So that's a foundation for us that even in a soft environment, at least that portion of the business that's related to the stores and the repository services relate to the handling of this large number of samples that continues to be generated. So that gives us a foundation, if you will, for part of the business that we anticipate will continue to grow in any environment.
So, Herman said, we talked about B Medical. I think we'll... You know, based on the inbounds that I received this week, that is clearly an area of focus from investors.
Yeah
... so I think we have to start there. So, look, there's some moving pieces here. You're pointing to a pretty significant decline in one Q, which is, you know, we thought was a seasonally strong quarter or maybe historically has been. You also have this DRC contract, which, you know, could be pretty meaningful and a mid-single digit growth outlook for the year.
Yeah.
So I don't know if there's a question there, or those are just the moving pieces, but can you kind of help us? I, I think the question is: How do we square the, the 1Q decline versus potential upside versus mid-single-digit growth for the year?
Yeah. So maybe a couple of points. So first, the... Let me, let me clarify the, the DRC order. So it's EUR 100 million-
Yep
... euros. We expect to receive about 50% of that-
Yeah
- revenue. The other 50-odd% will go to a company like Toyota-
Yep
... where we will outfit their vehicles with the cold chain solutions. So the mix of—that's how the mix of the EUR 100 million-
Yep
... will be, will be spent. When we talked about the DRC order, this is a pipeline business.
Yeah.
So, our pipeline is rich, and it's in a place where it's actually the most healthy than it's ever been.
Yeah.
We've always had big orders, nothing to this magnitude, but, but B Medical always has sizable orders that they're dealing with. When we talk about this order, the context that we wanted to talk about it in was really, you know, this is a lumpy business. We've guided mid-single digits. When you think about that mid-single digit growth, this order should give you a lot of confidence in the full year.
Yeah.
Right? So this is a pipeline business, as I said. How the pipeline converts to revenue is sort of what gives everybody, you know, a little, you know, pause.
Yeah.
The commentary was really, "Hey, you know, this one order, 45 days into the year, should give you a lot of confidence in that mid-single digits." So that was the frame we were trying to go with. A couple quarters back, you know, when we first-
Yep
... missed with B Medical, we went out and we said: Listen, going forward, we're only gonna guide a quarter with what we're holding, and the number that we gave is what we're holding.
Yep.
Now, could we go and get an order from DRC to begin shipping-
Yep
... in this first quarter? Yeah, we could.
Yep.
We don't have that order right now, and we don't wanna speculate on when we're gonna get it. But as I said on the earnings call, you know, we have inventory. We've actually. The government, when they came to Luxembourg, they actually wanted to see some of the inventory. We showed it to them. So when that order does come in, we'll be ready to go.
No, that's helpful perspective. I still have some follow-ups-
Yeah, yeah
... unfortunately, right?
Yeah, yeah.
I guess, so you're right. You're only guiding to the orders you're seeing, and to your credit, since you've done that, we've seen, you know, B Medical's outperformed expectations, I think, in those two quarters-
Yeah
... which has been good to see. I understand the philosophy about guiding that way. I think the question we get is, I think, like, you know, the guide implies, let's call it $10-ish million-
Yeah
... of revenue for B Medical, right?
Yep.
And I think last quarter, it escapes me, but you guided something well above that, and in theory, one gives a seasonally stronger quarter. So is there some reason why you haven't seen more orders to date in this quarter, versus last quarter?
... I think, you know, again, the quarter is not over.
Yeah, yeah, I know.
So I think there is the possibility that we could see something else. We just don't wanna count on it-
Yeah
... right now. I wouldn't point to anything in particular. As I said, the pipeline is healthy-
Yeah
- and we're feeling good about that.
Okay.
I don't know if you would add anything.
No, nothing to add.
Okay.
We're really comfortable with the year.
Yeah.
Obviously, we're not as comfortable with the quarter guide other than-
Yeah
... where we are at the moment, so.
Yeah. Well, but maybe on the year, so you've been clear, you're very, you know-
Yeah
... very comfortable for the year. DRC, it certainly gets you a long way there-
Yeah
... or a good way there.
Yeah.
But you also said, well, you know, and that you had expected some DRC contribution, and then-
Yeah
... this contract, and maybe larger than what you thought. But you also said, you know, that it could be upside to guidance. So I think, you know, naturally, the question I have, but also the question we get is, well, how much does guidance assume from DRC, or how much upside could it be this year? And I don't know if there's a way to answer that, but...
The DRC was in the pipeline.
Yep.
You know, DRC was always in the pipeline, just not to the magnitude that we're currently seeing.
Yep.
So, you know, it was there. So how much upside there could be? You know, we don't wanna speculate on that. I mean, we've had some, you know, foot faults-
Yeah
... in this area that we, you know-
Yeah
... we just wanna be a little bit-
Okay
... more cautious on that right now.
Uh-
I mean, the-
Yeah
... the part that's most interesting for us, obviously, it's a good piece of business, but for the first time, this will contemplate samples back-
Yeah
... which is the nature of the business. So vaccines out from a delivery standpoint, and in the same vehicle, bringing whole blood samples back. There's the highest propensity of sickle cell anemia -
Yeah
... in the Democratic Republic of Congo, and the infant mortality is particularly high in DRC. It's a population of 100 million people. The health minister wants to do that. Whole blood is necessary-
Yeah
... for the kinds of studies that they need to do. This is a huge-
Yeah
... this is a huge deal for us, and that's, that's what really enthuses us about-
The-
... not just the vaccines out.
Maybe just since you mentioned it, Steve-
Yeah
... that was part of the... You know, I think when you buy B Medical, people are like, freezers, and-
Yep
... you know.
You bet.
We've been through that, right?
Yeah.
But you'd also made the case, hey, there's a sample angle to this. So maybe, could you-
Yeah
... just elaborate on that? I'm also kind of curious, where do those samples go when they come back?
Yeah. So we inferred there's a second phase-
Yeah
... that's underway. The first part is, can you get the local cold clinics, and can you get transport in and out? So I think those, those are done.
Yeah.
We're in conversations now about how do we process the samples? How do we extract DNA? How do we make the measurements that are necessary? But that's the engagement we want, and it's exactly, it's exactly why the order was upsized, and it gives us a start now to have those conversations. So we'll report that as we can. This is, this is all about vaccine boxes to start.
Yep. Okay, got it. And then just one last one on the kind of revenue guidance.
Yeah.
And Herman, you alluded to the lumpiness of this business, but, but, the other question we got is, okay, if I include DRC in some of these numbers, then if I back that out, then may-- you know, the business is down. Or, you know, if you're growing mid-single digits, there's some contribution from this, then maybe the base business could be down, and does that mean there's something going on here? So maybe to give you the opportunity to respond to that, and, and it seems like maybe looking at one-off lumpy contracts and stripping them out is unfair because there's-
Yeah
... lumpy ones year to year, but.
No, I mean, I—it's not what we're, you know, intending for it. I think the message was more to give everybody confidence in that mid-single digit guide. No, I wouldn't read into it. I mean, this is... you know, these are contracts. You have to go out and work these for a long time, and I'd go back to, you know, how the revenue converts. It's not a weakness. It's always a timing thing.
Yeah.
You know, we're dealing with charitable organizations, you know, Gavi, UNICEF, Gates Foundation. So, you know, the timing of how you convert is always the, you know, the big unknown. But the pipeline is out there. It's rich. You know, look at the DRC as, as a way to gain a lot of confidence that this year-
Yeah
... should be achievable.
Got it. And just last one, B Medical, just margins, I think they declined sequentially.
Yep.
I think that was a one-time item.
Yeah.
Could you kind of... How, how should we think about margins in that business from here?
I would think about it in the mid-30s, mid- to higher 30s.
Okay. Maybe for Steve on genomics-
Yeah
... and China. You grew 12%-
Yeah
... in China, in Genomics.
Yeah.
We've had other companies here telling us how not great China is. And so could you just, you talked about some on the call, but can you kind of give some color of how, why you're bucking the trend-
Sure
... in genomics and maybe what you're seeing elsewhere?
Sure. So we grew—This is a little bit odd. We grew 12% in the September quarter, and the China team was crushed because they grew 23% in the June quarter. So, it's probably proximity and capability. So in the—Our headquarters building in China is in Suzhou and surrounded by 1,000 life sciences companies, so proximity matters.
Our customers are there. The physical, personal, scientific contact we have with people allows us to sustain what we think is a strong presence with the local customers. Our ability to turn quickly because of the proximity really matters. So I think it's demonstrated capability in an almost captive market has served us particularly well.
But the fact of the matter is, on the product side, just like everybody else has seen, product side was considerably down in the same quarter, so we had a net 2% growth in China, but the genomics part was up 12%. So it's not an anomaly, and we're there because of the scientific community, and so we think it'll continue to serve us well. Just, yeah, please don't ask us to predict it as to what's coming, but we think we'll outperform what others are seeing just because we have a local capability, and the momentum is really strong in China.
Yeah. And then just the other one on Genomics, you talked about some pressures from the macro, elsewhere, I think maybe-
Yeah
... more in the US. Could you talk about what you're seeing there, including kind of the... How competitive has pricing become, I guess, on that business?
So the pricing element is, it's there's a continuous pressure, I think, just on pricing generally, but we don't see it in Sanger. We don't see it in things that people know what the cost structure is. Where we see it is in the expectations people have for lower cost next-gen sequencing, and I think we'll see that roll out. So we see a few percentage points. It's built into our forecast, but, you know, as our costs come down, we're pretty confident we'll hold the margin profile. Our target is to hold the margin dollars, but at least we'll hold the margin profile. And as the costs, hence prices, come down, we do believe the volume will be increased.
So when you have a chance to do a whole genome sequence at almost the price of a whole exome-
Yeah
... that's we, we think people are gonna move that way. So it's been. The trend is what everybody's seeing. So price is modestly down, but it's persistent, and we anticipate that in our go forward.
Got it. And then, you know, again, 38% growth in storage systems. We've heard about, you know, capital equipment spending, right?
Yep.
And you guys are bucking the trend there, as well. So maybe could you talk about what's driving the strength in that business?
Yeah, I think it's sample count. I think people just have—people have to have a place to put their samples. There's an overwhelming trend toward automation. I think as the collections get larger, as they get more complicated, people really do have to automate. We're seeing that as one of the growth vectors in the storage, and the other one is, historically, the stores have been used for rare disease collections, population studies, where the entity will have 1 million or 2 million or 3 million samples in a large automated store.
What we're seeing now is, as companies continue to expand their businesses, companies that manufacture biological materials, they're now buying our stores to manage their inventory. So think about an Amazon warehouse, but biological materials contained in a large store so that they can summon inventory and ship it to customers.
So we have now four large, recognizable customers who manufacture biological materials, who buy our stores to manage their supply chain and production. So it's a growth vector on top of the historical sample business, and we anticipate that will continue to grow just because it really simplifies the manufacturing shipping process for them.
That's interesting. Thanks for that. Maybe just the other piece of the kind of freezer stuff, cryo freezers, I think there may be some signs of optimism, but maybe that's an area that's felt some of the macro pressures. Can you just talk about what you're seeing in demand there? And then, you know, maybe dovetail that with Cell and Gene Therapy demand in general this year.
Sure. So the, on the cryo side, it's been softer. There's no question it's been softer-
Yeah
... but what— So we talk about green shoots, the... We did fill an order in the fourth quarter for multiple systems to one customer, and that's what we used to see on a regular basis. So it's a good sign. It's not gonna... I can't tell you that everything's gonna change, but we've been a few quarters without that. But when customers order 5 or 10 units at a time, we know there are lines that are going through and manufacturing processes that are going, and it's the first one we've seen where it wasn't just 1 or 2 units going to various places. So it was for a very specific therapy, and that's a... We think that's a real plus for us.
In theory, those seem like they're well suited for kind of commercial distribution of the cell and gene therapies 'cause you're the automation.
That's correct. So automation, and then the retain. So always, there are two steps. The therapy is manufactured, then it's usually a whole time of seven days during a test period.
Yep.
Then there's always a retain. So the beauty of it is there's a persistence of even once that dose is shipped. There's a remnant that stays in a storage system, and it'll be in an automated system.
Got it.
Maybe the-
Yeah.
You had asked about the growth, cell gene therapy-
Yeah, yeah, yeah
… for the—
Yep, thank you.
Yeah.
Yeah, just that, yeah.
Yep
... what you're seeing from that industry, 'cause I think, you know, I think it, it's been impacted by the funding backdrop to some degree.
Yeah.
But we've... it feels like there's a little bit of a dichotomy of, like, if you have some things that are maybe going towards commercial or-
Yeah
... or later stage stuff, that's holding up relatively well, maybe weaker on the earlier stage.
Yep.
But yeah, what, you know, but that's from what others have said. So what are, what have you seen?
I mean, we have seen... We saw growth in the year-
Yep
... so I wanna be clear on that. But it was more indexed to Q1 and Q2. As we got into Q3 and Q4, it did begin to slow down. But we did, we did see growth in the year, and it's not a huge portion of our business. It's probably 5%-6%, something like that.
Yeah. Where do you... Is it mostly cryo, and some GENEWIZ? Is that-
Yeah, so we do our best to determine GENEWIZ-
Yeah
... just generally based on the customer. So we're, we're always clear with everybody. If we called that Cell and Gene Therapy business last quarter, Cell and Gene Therapy this quarter, there's likely more.
Yeah.
But unless the company's clearly declared that's what it is, it's hard, it's really hard for us to tell.
Yeah.
So, but we're consistent in our reporting just to understand what the-
Got you
... what the trend would be.
Yeah.
And then just on C&I, Herman, you talked through a lot of this earlier, but, but maybe, you know, the sequential increase seems to, seems to me, kind of feel like it's bottoming or-
Yeah
or bottomed. Just your take on, on that business.
Yeah, I think we will have a tough compare in Q1. Q1 was the largest sales volume of fiscal year 2023, so keep that in mind.
Yeah.
Yeah, I mean, all signs are certainly pointing to that. You know, when you look at the data and you talk to the team, you feel that maybe we have started to see the bottom. But you know, listen, we're gonna have to go through it and see where the actual results start to come in. You know, as I said, when we were on the call earlier this week, we haven't planned on a ton of growth in that space.
Yeah.
You know, we're being mindful of, you know, what we saw in 2023.
Yeah.
Yeah, I mean, don't wanna get overly excited, but it certainly does feel like, you know, maybe we have bottomed out a little bit.
Go
t it. Maybe I'll pause there if anybody has any questions on kind of top-line trends, and then we'll get to the margin side of things. No. Okay. Maybe just one thing on the guide for the year. I think you're pointing to, like, low single-digit growth in 1Q, and then something a little better than that for the full year.
Yeah.
So that implies some kind of pickup and acceleration throughout the year. Can you, can you just talk about what's driving, that acceleration throughout the year?
Yeah, I mean, I would point to maybe two things is, you know, the sales team will start to hit optimal productivity levels. So that's one thing that will certainly drive the back half of the year as those investments start to really pay for us. The second thing is, you know, I do think there's an innovation agenda that will start to ramp up. We'll see some positive things in the Genomics business, for example. And then, you know, we're really trying to do more in terms of geographic expansion, and we've made some investments there that should begin to pay off as we get into the back half of the year.
Maybe, Steve, just one follow-up on that, just the sales strategy. I feel like you've kind of gone back to more scientists selling to scientists. So can you just talk about why that's so powerful? And then I guess longer term, I think at some point there was kind of an idea we need to unify our selling strategy and cross-sell everything.
Yeah.
You know, is that still a direction at some point you could move? Obviously, you've kind of reverse course a little bit in the near term.
Yeah, it's a really fair question. So we went to selling the portfolio capabilities to customers. When we assessed the portfolio, the top 20 pharmaceutical companies all buy every one of our elements from us, but they don't purchase that way. So although they're customers of all those elements, they don't.
Their genomics people buy from our genomics team, the stores people buy from our stores team. And so when we spread ourselves around the accounts, we lost some of those very specific contacts that allowed us to have point of sales and really focused contact with the customer. During the past five quarters, we've realigned the genomic sales with scientists selling to scientists.
We realigned the business unit now so that the Sample Management and the Stores are together, so we can have salespeople talk to the customer about how do we manage your sample assets across the lifecycle and the workflows, and that's been a great alignment. So now we have two sales organizations almost exclusively dedicated to selling those capabilities to the customers, and that's where the customers are.
That's how they want to engage. In terms of cross-selling, this is still a huge opportunity for the company, but the means by which we go about it, we'll be a little more patient, and the things that we have begun to do. Our Genomics people know now to engage the customer. Where do those samples come from? Where do those samples go next? What do you do with them?
We can at least begin to have those conversations, but I don't have a genomics person asking them about their sourcing.
Yeah.
Then, by the same token, in the repository business, when they pack up a 50,000 samples to ship to a laboratory, we know that there's an opportunity for us to do those same, same kind of samples. So we're learning how, how to treat those things incrementally from one. We have a diagram from one chevron, from one step in the process to the next one. How do we bridge those?
We'll, we'll get back to it, and I think that's a process that over the next three years, the customers will get used to it. We'll get better at it. There is, there is, without question, an opportunity for us to simplify that for the customer, from sourcing to formatting and storage and measurement and giving them data.
When customers know that there's a single place to get all of that done in a world-class fashion, we do believe that's the direction we'll get there, as opposed to forcing our customers to go there.
Okay. Thanks for that, Steve. Maybe getting to margins, and this will be probably a leading question, but Herman, you just joined Azenta. Can you talk about your key area of focus?
It's margins. Yeah, margin is certainly a key area of focus. And you know, listen, when we spun the semiconductor business, you know, we lost a large portion of the revenue. Not an equal amount of expense went with it-
Mm-hmm
... so there is some stranded overhead, and it'll be my job to, you know, find a way to systematically optimize that.
Okay.
So that's certainly a key area of focus. We talked about, in the beginning of calendar 2024, you know, my expectation is we'll spend a lot of time going through the plans to do just that.
In the near term, you're pointing to, I think, 300 basis points of EBITDA margin expansion in 2024.
Yeah.
You just talked about the, I guess, phase one and phase two cost savings-
Yeah
how that plays into next year-
Yeah
and then operating leverage.
Yeah. So, you know, I think when we spoke about these programs, there were two of them.
Yep.
In the past, we said it'll be 400 basis points of expansion. So the simple math on that, if we're a $700 million company, 400 basis points, that's $28 million.
Yeah.
Each program was about equal.
Okay.
I think around $14 million. Phase one, we did see, you know, more than 50% of that hit the P&L-
Okay
... and then the remainder will come into fiscal year 2024. Phase two really starts in the second fiscal quarter and will ramp as we find our way through the year. But we should see, you know, two-thirds of that hit the
Got it
... hit the P&L.
Got you.
In a year.
So, as you kind of exit fiscal 2024, everything should be-
Approaching double digits.
Okay.
Yeah, yeah, yeah. There, there'll be a little bit of carry on-
Yeah
in the phase two into-
Okay
... into fiscal 2025, but, you know, the exit rate on EBITDA will be approaching double digits.
Yep, and then just incremental margins or operating leverage, just-
Yeah, there's a good amount there. So if you take the sales growth, and it really shows up nicely on the slides that we used for-
Yep
... the earnings call. If you think about the sales growth, you know, in the neighborhood of $40-ish million.
Yeah.
And not that I want people to take a, you know, a ruler out and measure the operating leverage, but you could, if you look at that, you will see that the operating leverage, the EBITDA margin on those sales, you know, is somewhere in that 20-ish% range, which, you know, for a company our size and our growth profile and the markets that we play in, we think that's a pretty good margin.
Don't worry, somebody already has taken out a ruler and pen, and they get to do that tomorrow. Just on the flip side of that chart, you're also still kind of reinvesting.
We are.
You know, some of these are going back to the business, just, you know, key areas of growth, and I think some of it relates to the Boston Biorepository.
It does.
Any other call-outs?
Yeah, I would certainly talk to the sales team that we've been talking a lot about.
Yep.
That's in there. We also have an investment in the U.K., Oxford, U.K., lab that we're gonna be investing in. So yeah, there are investments as well that we're making.
Got it. Maybe on the Boston Biorepository, can we just talk about, you know, Indy has been what we always talked about for a long time. The decision, I mean, Boston's a logical place, but the decision to build one there?
Oh, yeah, simple. This is, this is, this is proximity. This is really,
Yeah.
So, there's a reluctance sometimes for distance of samples, and so it's an easy investment for us to make to allow someone, any researcher, to bring samples, to have us pick up samples for them, put them into a repository, and return them same day if they need. So someone can order samples. The cost of real estate in and around Kendall Square is unsuitable for a freezer for us to have that capability in a location close by, where they can probably retrieve the sample faster by sending us a signal, "Please deliver these samples," than they can do it down the hall.
Yeah.
It's a big deal. So we're really bullish about the opportunity we have from a discovery standpoint to support customers in the area and to be really efficient. It will. Within two years, it'll be almost exclusively automated as a repository, and this makes a huge amount of difference because customers will be able to have us pick samples up, and within two hours, know that it's registered in an automated system, that they'll, they won't lose sight of their samples. We think this is. We think it's transformative. The reason Boston is, it's a test area for us.
Okay.
And it's with willing customers, and it's a transformative repository strategy for us.
Got it. And then just kind of the final one, back on margins, Herman.
Yeah.
You mentioned Investor Day, so maybe this is, you know, I don't need to ask this question because the answer is just wait. But, you know, Azenta previously pointed to mid-20s type-
Yeah
... EBITDA margin. You know, is that still a reasonable target, and what will it take to get to that type of margin?
I think we have to talk more about it. I mean, it really will depend on the growth profile. I mean, so if we, you know, have a growth profile that's in the teens, we're gonna obviously want to invest to maintain that. So I think it's a more to come-
Okay
... type answer right now. You know, as I said in the past, we see what everybody else sees. We do have to get margins north of where they are today, and we're gonna be spending a lot of time to do that, and we'll establish timelines and goals as we get into this analyst day.
Higher is the near-term answer, and we'll get a more refined answer at some point.
Yes.
Okay.
Yes, absolutely.
All right. And then just, I guess last line of questions, just on capital allocation.
Yeah.
You know, appreciate you guys being in Nashville again. It's becoming a routine now, where Monday night, I'm in Nashville in a hotel room, and I get a Azenta buyback announcement. So Steve or Herman, could you just kind of talk about the capital allocation, the decision to do the final $500 million?
... Yeah, maybe I could start, and then Steve, you could fill in. So it's really just living into this authorization that we had set up about a year ago. We committed to the $1 billion. We'll live into that by the time we exit this calendar quarter. And then, you know, when you look at where Azenta is trading today, it's certainly... it's a good time to buy Azenta stock. You know, we feel like it's at an undervalued, so we'll take the opportunity to buy shares and return that capital back to shareholders. It will leave us with about $500 million of cash on $700 million business. That's a lot.
So when we think about, you know, near-term M&A, this will, you know, be plenty of money to continue to be-- look at things and make the good choices that we'll make. And then, as we get into more, you know, programs to expand EBITDA margin, you know, if we need to consolidate some things, it'll certainly give us a lot of flexibility to, to do that as well. Steve, I don't know if you-
Yeah. So just to couple that, during this next two years, you can imagine margin expense is gonna be really important, get EBITDA up. We spent a significant amount of energy and money getting the sales team back, so we had a growth profile. We're not at-- we're not back at that 20% growth we had for 5 years, but the, the market doesn't support it either.
Yeah.
We think those investments are the right ones. The next thing that we'll do from a operational standpoint, footprint standpoint, system standpoint, is to make sure we have foundation as a $700 million company. The things that we need to do to be a $2 billion company and have a considerably higher EBITDA margin, more profitability, are things that we're gonna do during this next year or two. We, we have tuck-in kinds of acquisitions to build out more capability, but the portfolio is complete, and now proving that we can have this kind of growth supporting a lot more profitability is how we'll focus. So $500 million cash is really appropriate as we get more profitable.
If it's time to do something, if we can find a bigger acquisition to do a couple of years from now, hopefully shareholders will be very supportive of helping us to go do that. That's, that's really how we look at it. $500 is really adequate to, to have the company-
Yeah
... start to get back on the track that we, the shareholders deserve.
Yep. Got it. You answered my M&A question. So, any other questions?
So, yeah. Can you just sort of talk about kind of, Obviously, you've had an activist involved-
Yeah
... and there's been some resolution, I guess-
Yeah
to some extent. Can you kind of give us an update on kind of what is where that stands and kind of what the, you know, what was kind of their objective to try?
Yeah.
Steve, just for the webcast.
Yeah.
Just, yeah, just quick, the questions on an activist in the stock, and you announced some two new board member - two impressive-
Yeah
... new board members earlier this week.
Yeah.
Maybe it's worth talking about that, and kind of where that stands.
Yeah. Well, I won't comment on the activist request at all. You know, for us, an activist is a shareholder that sees great value in the company, and I think any conversations we had were constructive. All decisions that were taken were by the board, and I think that's the way we would talk about it.
You know, the activists withdrew their nominations, and I think for the satisfaction over the direction the company's taken and where we are. So just yeah, we wouldn't comment more, but you know, we love having a shareholder who thinks there's a lot of value in the company, and that's a good thing for us.
All right. Well, Steve, Herman, Sara, always great to see you guys here.
Yeah.
Thanks so much for joining us. Herman, great to meet you in person.
Yeah, thank you so much.
And, uh-
Glad to be here.
Thanks again.