The Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, describes principal factors affecting the results of our operations, financial condition and liquidity as well as our critical accounting policies and estimates that require significant judgment and thus have the most significant potential impact on our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Our MD&A is organized as follows:
Overview. This section provides a general description of our business and
? operating segments as well as a brief discussion and overall analysis of our
business and financial performance, including key developments affecting the
Company during the three and nine months ended
Critical Accounting Policies and Estimates. This section discusses accounting
policies and estimates that require us to exercise subjective or complex
? judgments in their application. We believe these accounting policies and
estimates are important to understanding the assumptions and judgments
incorporated in our reported financial results.
Results of Operations. This section provides an analysis of our financial
? results for the three and nine months ended
three and nine months ended
Liquidity and Capital Resources. This section provides an analysis of our
? liquidity and changes in cash flows as well as a discussion of available
borrowings and contractual commitments.
You should read the MD&A in conjunction with our unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, the MD&A contains forward-looking statements that involve risks and uncertainties. You should read "Information Related to Forward-Looking Statements" below for a discussion of important factors that could cause our actual results to differ materially from our expectations.
Sale of the Semiconductor Automation Business
In the fourth quarter of fiscal year 2021, we entered into a definitive agreement to sell our semiconductor automation business toThomas H. Lee, Partners, L.P. , or THL, for$3.0 billion in cash subject to customary adjustments. In connection with the planned divestiture of the semiconductor automation business and our continued focus on our life sciences businesses, we changed our corporate name from "Brooks Automation, Inc. " to "Azenta, Inc. " and our common stock started to trade on the Nasdaq Global Select Market under the symbol "AZTA" onDecember 1, 2021 . OnFebruary 1, 2022 , we completed the sale of our semiconductor automation business for$2.9 billion in cash, subject to working capital and other customary adjustments. Net proceeds from the sale are expected to be$2.5 billion , net of estimated taxes payable. Since our founding in 1978, we had been a leading automation provider and partner to the global semiconductor manufacturing industry. With the completion of the sale of the semiconductor automation business, we no longer serve the semiconductor market. The semiconductor automation business has been classified as a discontinued operation and, unless otherwise noted, this MD&A relates solely to our continuing operations and does not include the operations of our semiconductor automation business.
Impact of the COVID-19 Pandemic
We have implemented business continuity plans designed to address the COVID-19 pandemic and minimize the disruption to ongoing operations. Since the beginning of the COVID-19 pandemic inMarch 2020 , however, our business has been impacted at various times by reduced demand for services from customers experiencing lockdowns and quarantines, travel restrictions impacting our ability to service our products, supply chain constraints, increased competition for talent, and governmental mandates at times constraining our employees' ability to work at our facilities. Since the beginning of the COVID-19 pandemic inMarch 2020 , however, our business has been impacted at various times by reduced demand for services from customers experiencing lockdowns and quarantines, travel restrictions impacting our ability to service our products, supply chain constraints, increased competition for talent, and governmental mandates at times constraining our employees' ability to work at our facilities. Recently, during the third quarter endedJune 30, 2022 , we experienced a two-week facility closure inSuzhou, China as a result of local 35
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government protocols and mandates. As we expect the pandemic to continue to evolve, we will continue monitoring and assessing the effects of the COVID-19 pandemic on our business. However, we cannot at this time accurately predict what effects these conditions will ultimately have on our operations due to uncertainties relating to variants of the virus, vaccine effectiveness against the variants, the duration of any future outbreak and the pandemic itself, and the length of the travel restrictions and business closures imposed by the governments of impacted countries. Our financial results will also depend on variables including reduced demand from our customers, the degree that the supply chain may be constrained which could impact our delivery of products and services and the potential negative impact on our operations if there is an outbreak among our employees, as well as the amount of incremental demand caused by research and treatments in the areas of COVID-19 or related threats.
Information Related to Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements that are, or may be considered to be, forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995, as amended, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements that are not historical facts, including statements about our beliefs or expectations, are forward-looking statements. These statements may be identified by such forward-looking terminology as "expect," "estimate," "intend," "believe," "anticipate," "may," "will," "should," "could," "continue," "likely" or similar statements or variations of such terms. Forward-looking statements include, but are not limited to, statements that relate to our future revenue, margins, costs, earnings, profitability, product development, demand, acceptance and market share, competitiveness, market opportunities and performance, levels of research and development, the success of our marketing, sales and service efforts, outsourced activities, operating expenses, anticipated manufacturing, customer and technical requirements, the ongoing viability of the solutions that we offer and our customers' success, tax expenses, our management's plans and objectives for our current and future operations and business focus, our ability to retain, hire and integrate skilled personnel, the impact of the COVID-19 pandemic on our operations and results, including as a result of local mandates, any prolonged lock downs, or series of temporary closures, our ability to identify and address increased cybersecurity risks, including as a result of employees working remotely, the expected benefits and other statements relating to our divestitures and acquisitions, including sale of the semiconductor automation business and the semiconductor cryogenics business, the adequacy, effectiveness and success of our business transformation initiatives, our ability to continue to identify acquisition targets and successfully acquire and integrate desirable products and services and realize expected revenues and revenue synergies, our adoption of newly issued accounting guidance, the levels of customer spending, our dependence on key suppliers or vendors to obtain services for our business on acceptable terms, including the impact of supply chain disruptions, general economic conditions, the sufficiency of financial resources to support future operations, and capital expenditures. Such statements are based on current expectations and involve risks, uncertainties and other factors which may cause the actual results, our performance or our achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include the Risk Factors which are set forth in our Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2021 , or the 2021 Annual Report on Form 10-K , filed with theU.S. Securities and Exchange Commission , orSEC , onNovember 24, 2021 , as updated and/or supplemented in subsequent filings with theSEC , including under Item 1A "Risk Factors" in Part II of our Quarterly Report on Form 10-Q for the quarter endedDecember 31, 2021 as filed with theSEC onFebruary 9, 2022 or the First Quarter Form 10-Q, and our Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2022 as filed with theSEC onMay 16, 2022 , or the Second Quarter Form 10-Q. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are based on information currently and reasonably known to us. We do not undertake any obligation to release revisions to these forward-looking statements to reflect events or circumstances that occur after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence or effect of anticipated or unanticipated events. Precautionary statements made herein should be read as being applicable to all related forward-looking statements wherever they appear in this Quarterly Report on Form 10-Q. Any additional precautionary statements made in our 2021 Annual Report on Form 10-K should be read as being applicable to all related forward-looking statements whenever they appear in this Quarterly Report on Form 10-Q. Unless the context indicates otherwise, references in this Quarterly Report on Form 10-Q to "we", "us", "our" and "the Company" refer toAzenta, Inc. and
its consolidated subsidiaries. 36 Table of Contents OVERVIEW We are a leading global provider of life science sample exploration and management solutions for the life sciences market. We support our customers from research to clinical development with our sample management, automated storage, and genomic services expertise to help our customers bring impactful therapies to market faster. We understand the importance of sample integrity and offer a broad portfolio of products and services spanning across the life cycle of samples from procurement and sourcing, automated storage platforms, genomic services and a broad range of consumables, informatics and data software, and sample management solutions. Our expertise and leadership positions make us a trusted partner to pharmaceutical, biotechnology, and life sciences research institutions globally. In total, our life sciences business employs approximately 2,900 full-time employees, part-time employees and contingent workers worldwide and have sales in approximately 80 countries. We are headquartered inChelmsford, Massachusetts and have operations inNorth America ,Asia , andEurope . In the life sciences sample management market, we utilize our core technology competencies and capabilities in automation and cryogenics to provide comprehensive bio-sample management solutions to a broad range of end markets within the life sciences industry. Our offerings include automated ultra-cold storage freezers, sample storage containers, instruments which assist in the workflow of sample management, genomic services and both on-site and off-site full sample management services. We expect the life sciences sample management market to remain one of our principal markets for our product and service offerings and provide favorable opportunities for the growth of our overall business. Over the past several years, we have acquired and developed essential capabilities required to strategically address the sample management needs across multiple end markets within the life sciences industry. Our life sciences portfolio includes products and services that we acquired to bring together a comprehensive capability to service our customers' needs in the sample-based services arena. We continue to develop the acquired products and services offerings through the combined expertise of the newly acquired teams and our existing research and development resources. We believe our approach of acquisition, investment, and integration has allowed us to accelerate our internal development and that of the acquired entity, significantly decreasing our time to market. We have also strengthened and broadened our product portfolio and market reach by investing in internal product development. We expect to continue investing in research and development and making strategic acquisitions with the objective of expanding our offerings in the life sciences market. Within our Life Sciences Products segment, we have developed and continue to develop automated biological sample storage solutions for operating in ultra-low temperature environments. We have a complete line up of automated stores from ambient temperatures to -190°. OurBioStore's ™ unique design allows controlled temperature storage down to -80°C with the industry's highest throughput of sample retrieval. Within our Life Sciences Services segment, our genomics services business advances research and development activities by gene sequencing, synthesis, editing and related services. We offer a comprehensive, global portfolio that has both broad appeal in the life sciences industry as well as enable customers to select the best solution for their research challenge. This portfolio also offers unique solutions for key markets such as cell and gene therapy, antibody development, and biomarker discovery by addressing genomic complexity and throughput challenges. Our sample repository solutions business is a global leader in sample storage and management, and provides a full suite of reliable cold and ultra-cold chain solutions. 37
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Business and Financial Performance
Our performance for the three and nine months ended
Three Months Ended June 30, Nine Months Ended June 30, Dollars in thousands 2022 2021 2022 2021 Revenue$ 132,735 $ 129,087 $ 417,931 $ 376,764 Cost of revenue 73,135 66,656 220,462 199,098 Gross profit 59,600 62,431 197,469 177,666 Operating expenses Research and development 6,515 5,489 19,895 15,813 Selling, general and administrative 58,133 57,825 187,361 171,648 Restructuring charges 25 - 319 53 Total operating expenses 64,673 63,314 207,575 187,514 Operating loss (5,073) (883) (10,106) (9,848) Interest income 6,822 409 9,933 503 Interest expense (2,101) (477) (4,111) (1,485)
Loss of extinguishment of debt -
- (632) - Other income (expense), net 631 (1,651) (1,617) (263) Loss before income taxes 279 (2,602) (6,533) (11,092) Income tax benefit (provision) 7,293 (760) (560) (4,620) Loss from continuing operations$ (7,014) $ (1,842) $ (5,973) $ (6,472) Income from discontinued operations, net of tax (2,555) 41,008 2,159,597 95,414 Net income$ (9,569) $ 39,166 $ 2,153,624 $ 88,942
Three Months Ended
Results of Operations - Revenue increased 3% as compared to the prior fiscal year period driven by a 6% increase in our Life Sciences Services segment, partially offset by a 3% decrease in our Life Sciences Products segments. Gross margin was 44.9% for the three months endedJune 30, 2022 , as compared to 48.4% for the corresponding period of the prior fiscal year. Operating expenses increased$1.4 million compared to the three months endedJune 30, 2021 , driven by increases in both research and development expenses and selling, general and administrative expenses. We reported an operating loss of$5.1 million for the three months endedJune 30, 2022 , as compared to operating loss of$0.9 million for the corresponding prior fiscal year period due to a decrease in gross profit and operating expenses. Loss from continuing operations was$7.0 million as compared to$1.8 million for the three months endedJune 30, 2021 . During the three months endedJune 30, 2022 , we recorded a$2.6 million net loss from discontinued operations. Nine Months EndedJune 30, 2022 Compared to Nine Months EndedJune 30, 2021 Results of Operations - Revenue increased 11% as compared to the prior fiscal year period driven by both our Life Sciences Services and Life Products segments which increased 16% and 3%, respectively. Gross margin was 47.2% for both the nine months endedJune 30, 2022 and 2021. Operating expenses increased$20.1 million compared to the nine months endedJune 30, 2021 , driven by increases in both research and development expenses and selling, general and administrative expenses. We reported an operating loss of$10.1 million for the nine months endedJune 30, 2022 , as compared to an operating loss of$9.8 million for the corresponding prior fiscal year period due to an increase in operating expenses. Loss from continuing operations was$6.0 million and$6.5 million , respectively, for the nine months endedJune 30, 2022 and 2021. During the nine months endedJune 30, 2022 , we recorded a net gain on the sale of our semiconductor automation business of$2.1 billion , which is included within net income from discontinued operations. 38 Table of Contents
Cash Flows and Liquidity - Cash and cash equivalents and restricted cash as presented on our Consolidated Statements of Cash Flows is on a total company basis and were$1.5 billion as ofJune 30, 2022 compared to$285.3 million as ofSeptember 30, 2021 . The increase of$1.2 billion was attributable to$2.9 billion of cash inflows related to the sale of our semiconductor automation business, partially offset by$431.6 million of taxes paid related to the sale of the automation semiconductor business, cash outflows for the net change in operating assets and liabilities of$83.7 million ,$1.5 billion related to purchases of marketable securities,$59.7 million for capital expenditures,$1.0 million related to the acquisition of technology intangible assets and financing activities of$64.3 million . Financing activities include$49.7 million for the extinguishment of debt and$10.4 million related to the payments of acquisition related contingent consideration. The effects of foreign exchange reduced our cash balance by$99.0 million . The net proceeds from the sale of the semiconductor automation business was approximately$2.5 billion after payment of taxes and other expenses.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our unaudited consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles, or GAAP. The preparation of the interim consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue, intangible assets, goodwill, inventories, income taxes, and stock-based compensation. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. We evaluate current and anticipated worldwide economic conditions, both in general and specifically in relation to the semiconductor and life science industries, that serve as a basis for making judgments about the carrying values of assets and liabilities that are not readily determinable based on information from other sources. Actual results may differ from these estimates under different assumptions or conditions that could have a material impact on our financial condition and results of operations. For further information with regard to our significant accounting policies and estimates, please refer to Note 2, "Summary of Significant Accounting Policies" in the Notes to the unaudited consolidated financial statements included in Item 1 "Consolidated Financial Statements" of this Quarterly Report on Form 10-Q and in the Notes to our audited consolidated financial statements included in Part II, Item 8 "Financial Statements and Supplementary Data" in our 2021 Annual Report on Form 10-K.
Recently Issued and Adopted Accounting Pronouncements
For a summary of recently issued and adopted accounting pronouncements applicable to our unaudited consolidated financial statements, please refer to Note 2, "Summary of Significant Accounting Policies" in the Notes to the unaudited consolidated financial statements included in Item 1 "Consolidated Financial Statements" of this Quarterly Report on Form 10-Q.
RESULTS OF OPERATIONS
Please refer to the commentary provided below for further discussion and
analysis of the factors contributing to our results from operations for the
three and nine months ended
39 Table of Contents Revenue Our revenue performance for the three and nine months endedJune 30, 2022 and 2021 is as follows: Three Months Ended June 30, Nine Months Ended June 30, Dollars in thousands 2022 2021 % Change 2022 2021 % Change Life Sciences Products$ 47,369 $ 48,625 (3) % $
150,861
Life Sciences Services
267,070
Total revenue$ 132,735 $ 129,087 3 % $
417,931
Three months ended
Revenue increased 3% driven by a 6% increase in our Life Sciences Services segment, partially offset by a 3% decline in our Life Sciences Products segment during the three months endedJune 30, 2022 as compared to the corresponding prior year period.
Our Life Sciences Products segment revenue decreased 3% driven by decreased demand for our consumables and instruments; partially offset by increased revenue in our automated cold sample management systems.
Our Life Sciences Service segment revenue increased 6% driven by increased revenue in both our sample repository solutions and genomics services businesses. Sample repository solutions revenue increased 19% due to growth in our storage services. Genomic services revenue increased 1% due to an increase in our Next Generation Sequencing, or NGS, business. Revenue generated outsidethe United States was$44.8 million , or 34% of total revenue, for the three months endedJune 30, 2022 , as compared to$46.2 million , or 36% of total revenue, for the corresponding period of the prior fiscal year. No individual customer that accounted for more than 10% of our consolidated revenue for the three months endedJune 30, 2022 or 2021. Nine months endedJune 30, 2022 compared to nine months endedJune 30, 2021 Revenue increased 11% driven by increases in both our Life Sciences Products and our Life Sciences Services segments during the nine months endedJune 30, 2022 as compared to the corresponding prior year period.
Our Life Sciences Products segment revenue increased 3% driven by increased revenue in our automated cold sample management systems and infrastructure services, partially offset by a decrease in demand for our consumables and instruments.
Our Life Sciences Service segment revenue increased 16% driven by increased revenue in both our sample repository solutions and genomics services businesses. Sample repository solutions revenue increased 22% due to growth in our storage, logistics services, informatics and sample procurement services. Genomic services revenue increased 14% due to an increase in demand across all service lines. Revenue generated outsidethe United States was$134.6 million , or 32% of total revenue, for the nine months endedJune 30, 2022 , as compared to$142.4 million , or 38% of total revenue, for the corresponding period of the prior fiscal year. No individual customer that accounted for more than 10% of our consolidated revenue for the nine months endedJune 30, 2022 or 2021. The COVID-19 pandemic has had varying impacts on our business for the three and nine months endedJune 30, 2022 . We estimate that the COVID-19 pandemic had a positive net impact of approximately$1 million and$13 million , 40
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respectively, on our revenue for the three months endedJune 30, 2022 and 2021 and approximately$21 million and$39 million , respectively, on our revenue for the nine months endedJune 31, 2022 and 2021.
Operating Loss
Our operating income performance for the three and nine months ended
Three Months Ended June 30, Nine Months Ended June 30, Dollars in thousands 2022 2021 2022 2021 Revenue: Life Sciences Products$ 47,369 $ 48,625 $ 150,861 $ 146,520 Life Sciences Services 85,366 80,462 267,070 230,244 Total revenue$ 132,735 $ 129,087 $ 417,931 $ 376,764 Operating income: Life Sciences Products$ 2,216 $ 5,060 $ 11,895 $ 16,492
Life Sciences Products adjusted operating margin 5 % 10 % 8 % 11 % Life Sciences Services$ 2,251 $ 5,774 $ 14,997 $ 18,316 Life Sciences Services adjusted operating margin 3 % 7 % 6 % 8 % Segment adjusted operating income$ 4,467 $ 10,834 $ 26,892 $ 34,808 Total segment adjusted operating margin 3 % 8 % 6 % 9 % Amortization of completed technology 1,811 2,173 5,424 6,200 Amortization of acquired intangible assets 5,745
7,396 18,064 21,657 Restructuring charges 23 - 319 53 Tariff adjustment - - (486) 5,414
Other unallocated corporate expenses 1,961
2,148 13,677 11,332 Total operating loss$ (5,073) $ (883) $ (10,106) $ (9,847) Total operating margin (4) % (1) % (2) % (3) %
Three months ended
We reported an operating loss of$5.1 million during the three month period endingJune 30, 2022 , compared to an operating loss of$0.9 million in the prior fiscal year period. The increase in operating loss was due to a decrease in gross profit of$2.8 million and an increase in operating expenses of$1.4 million . Within operating expenses, research and development expenses increased$1.0 million and selling, general, and administrative expenses increased$0.3 million . Life Sciences Products segment adjusted operating income decreased$2.8 million and adjusted operating margin decreased 5.7 percentage points compared to the prior fiscal year period. The decrease in adjusted operating income was driven by a decrease in gross profit of$1.8 million and higher operating expenses of$1.0 million . Adjusted operating income for our Life Sciences Products segment excludes charges for amortization related to completed technology of$0.3 million and$0.4 million for both the three months endedJune 30, 2022 and 2021. Please refer to Note 14, "Segment Information" in the Notes to the unaudited consolidated financial statements included in Item 1 "Consolidated Financial Statements" of this Quarterly Report on Form 10-Q. Life Sciences Services segment adjusted operating income decreased$3.5 million and adjusted operating margin decreased 4.5 percentage points compared to the prior fiscal year period. The decrease in adjusted operating income was driven by higher operating expenses of$2.2 million and a decrease in gross profit of$1.3 million . Adjusted operating income for our Life Sciences Services segment excludes charges for amortization related to completed technology of$1.6 million and$1.7 million for the three months endedJune 30, 2022 and 2021, respectively. Please refer to Note 14, "Segment Information" in the Notes to the unaudited consolidated financial statements included in Item 1 "Consolidated Financial Statements" of this Quarterly Report on Form 10-Q. 41
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Nine months ended
We reported an operating loss of$10.1 million during the nine month period endingJune 30, 2022 , compared to an operating loss of$9.8 million in the prior fiscal year period. The increase in operating loss was due to an increase in operating expenses of$20.0 million ; partially offset by an increase in gross profit of$19.8 million . Within operating expenses, selling, general, and administrative expenses increased$15.7 million , and research and development expenses increased$4.1 million . Restructuring charges increased$0.3 million . Operating income for the nine months endedJune 30, 2021 included$5.4 million of cost accrued for tariff liabilities on intercompany import activity in fiscal years 2016 through 2020 and$0.7 million of tariff liabilities related to activity during the three and nine months endedJune 30, 2021 . During the nine months endedJune 30, 2022 , upon the completion of an independent study, we recorded a benefit of$0.5 million related to the accrual for the fiscal years 2016 through 2020, as described above. Life Sciences Products segment adjusted operating income decreased$4.6 million and adjusted operating margin decreased 3.4 percentage points compared to the prior fiscal year period. The decrease in adjusted operating income was driven by higher operating expenses of$7.1 million ; partially offset by an increase in gross profit of$2.5 million . Adjusted operating income for our Life Sciences Products segment excludes charges for amortization related to completed technology of$0.7 million and$1.0 million for the nine months endedJune 30, 2022 and 2021, respectively. Please refer to Note 14, "Segment Information" in the Notes to the unaudited consolidated financial statements included in Item 1 "Consolidated Financial Statements" of this Quarterly Report on Form 10-Q. Life Sciences Services segment adjusted operating income decreased$3.3 million and adjusted operating margin decreased 2.3 percentage points. The decrease in adjusted operating income was driven by an increase in operating expenses of$14.0 million , partially offset by an increase in gross profit of$10.6 million and excludes charges for amortization related to completed technology of$4.7 million and$5.2 million for the nine months endedJune 30, 2022 and 2021, respectively. Adjusted operating income also excludes a benefit of$0.5 million and a charge of$5.5 million , respectively for the nine months endedJune 30, 2022 and 2021 related to tariff charges for the fiscal years 2016 through 2020, as described above. Please refer to Note 14, "Segment Information" in the Notes to the unaudited consolidated financial statements included in Item 1 "Consolidated Financial Statements" of this Quarterly Report on Form 10-Q.
42 Table of Contents Gross Margin
Our gross margin performance for the three and nine months ended
Life Science Products Life Science Services Azenta Total Three Months Ended June 30, Three Months Ended June 30, Three Months Ended June 30, Dollars in thousands 2022 2021 2022 2021 2022 2021 Revenue$ 47,369 $ 48,625 $ 85,366 $ 80,462 $ 132,735 $ 129,087 Gross profit 21,026 22,655 38,573 39,772 59,600 62,431 Gross margin 44.4 % 46.6 % 45.2 % 49.4 % 44.9 % 48.4 % Adjustments: Amortization of completed technology 251 432 1,560 1,742 1,811 2,174 Tariff adjustment - - - (83) - (83) Adjusted gross profit$ 21,277 $ 23,087 $ 40,133 $ 41,431 $ 61,411 $ 64,522 Adjusted gross margin 44.9 % 47.5 % 47.0 % 51.5 % 46.3 % 50.0 % Life Science Products Life Science Services Azenta Total Nine Months Ended June 30, Nine Months Ended June 30, Nine Months Ended June 30, Dollars in thousands 2022 2021 2022 2021 2022 2021 Revenue$ 150,861 $ 146,520 $ 267,070 $ 230,244 $ 417,931 $ 376,764 Gross profit 70,006 67,232 127,475 110,431 197,469 177,666 Gross margin 46.4 % 45.9 % 47.7 % 48.0 % 47.2 % 47.2 % Adjustments: Amortization of completed technology 722 985 4,702 5,215 5,424 6,200 Tariff adjustment - - (486) 5,414 (486) 5,414 Adjusted gross profit$ 70,728 $ 68,217 $ 131,691 $ 121,060 $ 202,407 $ 189,280 Adjusted gross margin 46.9 % 46.6 % 49.3 % 52.6 % 48.4 % 50.2 %
Three months ended
Total gross margin increased 3.5 percentage points to 44.9% compared to the prior three month fiscal year period driven by decreased gross margin in both our Life Sciences Products segment and our Life Sciences Services segment.
Life Sciences Products segment gross margin decreased 2.2 percentage points. The decrease was primarily driven by the mix of products sold in our consumables and instruments business, one time inventory adjustments and higher logistics costs. Cost of revenue included$0.3 million and$0.4 million of charges for amortization related to completed technology for the three months endedJune 30, 2022 and 2021, respectively. Excluding the impact of the amortization of completed technology, margins decreased 2.6 percentage points during the three months endedJune 30, 2022 , as compared to the corresponding period of the prior fiscal year. Life Sciences Services segment gross margin decreased 4.2 percentage points driven by decreased gross margin in both the genomic services business and sample repository solutions business. The decrease in the genomic services business was due to the impact of lower sales as well as mandated COVID related measures inChina that reduced customer orders and production at ourSuzhou, China location. The decrease in gross margin in the sample repository solutions business is mainly driven by higher labor costs in the storage solutions business. Excluding the impact of the amortization of completed technology, Life Sciences Services margins decreased 4.5 percentage points during the three months endedJune 30, 2022 , as compared to the corresponding period of the
prior fiscal year. 43 Table of Contents
Nine months ended
Total gross margin increased 0.1 percentage points to 47.2% compared to the prior nine month fiscal year period driven by decreased gross margin in our Life Sciences Services segment; partially offset by an increase in gross margin in our Life Sciences Products segment. Life Sciences Products segment gross margin increased 0.5 percentage points. The increase was primarily driven by cost reduction initiatives within our automated storage systems business and increased productivity. Cost of revenue included$0.7 million and$1.0 million , respectively, of charges for amortization related to completed technology for the nine months endedJune 30, 2022 and 2021. Excluding the impact of the amortization of completed technology, margins expanded 0.3 percentage points during the nine months endedJune 30, 2022 , as compared to the corresponding period of the prior fiscal year. Life Sciences Services segment gross margin decreased 0.2 percentage points driven by the sample repository solutions business, partially offset by an increase in gross margin in the genomic services business. The decrease in gross margin in the sample repository solutions business primarily related to increased employee related costs within our storage solutions business. The increase in the genomic services gross margin was primarily driven by$6.1 million accrued for tariff liabilities during the nine months endedJune 30, 2021 as discussed in the "Operating Income (Loss)" section above, as compared to the nine months endedJune 30, 2022 , in which we recorded a benefit of$0.5 million related to the accrual for the fiscal years 2016 through 2020 based on the results from an independent study. Excluding the impact of the amortization of completed technology and the tariff adjustment, margins decreased 3.3 percentage points during the nine months endedJune 30, 2022 , as compared to the corresponding period of the prior fiscal year due to higher labor costs and the product mix in our sample repository solutions business.
Research and Development Expenses
Our research and development expense for the three and nine months ended
Three Months Ended June 30, Nine Months Ended June 30, Dollars in thousands 2022 2021 2022 2021 Life Sciences Products$ 3,314 $ 2,724 $ 10,543 $ 7,422 Percent Revenue 2.5 % 2.1 % % 2.5 % 2.0 % Life Sciences Services$ 3,200 $ 2,765 $ 9,352 $ 8,391 Percent Revenue 2.4 % 2.1 % 2.2 % 2.2 %
Total research and development expense$ 6,514 $ 5,489
$ 19,895 $ 15,813 Percent Revenue 4.9 % 4.3 % 4.8 % 4.2 %
Research and development expenses for the three months endedJune 30, 2022 increased$1.0 million as compared to the three months endedJune 30, 2021 , driven by a$0.6 million increase in our Life Sciences Products segment and a$0.4 million increase in our Life Sciences Services segment. Research and development expenses for the nine months endedJune 30, 2022 increased$4.1 million as compared to the three months endedJune 30, 2021 , driven by a$3.1 million increase in our Life Sciences Products segment and a$1.0 million increase in our Life Sciences Services segment. The increase for the three and nine months endedJune 30, 2022 , in Life Sciences Products was driven by continued investment in automated stores, cryogenic stores, and instruments. The increase for the three and nine months endedJune 30, 2022 , in Life Sciences Services was primarily related to continued development of our services lines. 44 Table of Contents
Selling, General and Administrative Expenses
Our selling, general and administrative expenses for the three and nine months
ended
Three Months Ended June 30, Nine Months Ended June 30, Dollars in thousands 2022 2021 2022 2021 Life Sciences Products$ 15,746 $ 15,284 $ 48,289 $ 44,298 Percent Revenue 11.9 % 11.8 % 11.6 % 11.8 % Life Sciences Services$ 34,677 $ 32,892 $ 107,342 $ 94,318 Percent Revenue 26.1 % 25.5 % 25.7 % 25.0 % Corporate$ 7,710 $ 9,649 $ 31,730 $ 33,032 Percent Revenue 5.8 % 7.5 % 7.6 % 8.8 % Total selling, general and administrative expense$ 58,133 $ 57,825 $ 187,361 $ 171,648 Percent Revenue 43.8 % 44.8 % 44.8 % 45.6 % Total selling, general and administrative expenses increased$0.3 million and$15.7 million , respectively, for the three and nine months endedJune 30, 2022 as compared to the three and nine months endedJune 30, 2021 , driven by increases in both our segments and an increase in unallocated corporate expenses. Within our segment expenses discussed below, we allocate certain corporate general and administrative expenses including costs related to shared corporate functions which include finance, information technology, human resources, legal, executive, governance, logistics and compliance. In total, corporate general and administrative expense allocated to segments decreased$1.5 million for the three months endedJune 30, 2022 , due to lower variable compensation expense and increased$4.6 million for the nine months endedJune 30, 2022 , due to staffing and labor cost increases to support the standalone Life Sciences company.
Life Sciences Products segment selling, general and administrative expenses
increased
Life Sciences Services segment selling, general and administrative expenses increased$1.8 million and$13.0 million , respectively, for the three and nine months endedJune 30, 2022 related to investments in the commercial organization and lab support personnel. In addition, bad debt expense was higher for the nine months endedJune 30, 2022 due to a reversal that occurred in the first fiscal quarter of 2021. Unallocated corporate expenses decreased$1.9 million for the three months endedJune 30, 2022 as compared to the comparable prior year period primarily due to lower merger and acquisition costs and costs related to the separation of our company as well as lower amortization of intangible assets. During the fourth fiscal quarter of 2021, we impaired tradename intangibles due to the rebranding of our company. Partially offsetting these decreases were charges related to transformation and rebranding efforts during the three months endedJune 30, 2022 , which were not present in the prior fiscal year period. Unallocated corporate expenses decreased$1.3 million for the nine months endedJune 30, 2022 as compared to the comparable prior year period, primarily due to lower merger and acquisition costs and costs related to the separation of the Company as well as lower amortization of intangible assets. These decreases were partially offset by costs related to transformation and rebranding efforts, which were not present in the prior fiscal year period.
Restructuring Charges
Restructuring charges increased by less than$0.1 million and$0.3 million , respectively, for the three and nine months endedJune 30, 2022 as compared to the three and nine months endedJune 30, 2021 . The three and nine months endedJune 30, 2022 includes charges for actions taken related to the transformation of our business. Costs savings from these actions are expected to be realized in future periods. 45 Table of Contents
Non-Operating Income (Expenses)
Interest income - We recorded interest income of$6.8 million and$9.9 million , respectively, for the three and nine months endedJune 30, 2022 , as compared to$0.4 million and$0.5 million , respectively, for the corresponding periods of the prior fiscal year. The increase in interest income in the three and nine month periods endedJune 30, 2022 as compared to the same periods in the prior fiscal year is due to interest earned on the proceeds from the sale of the semiconductor automation business, including interest accrued on a net investment hedge, during the three and nine month periods endedJune 30, 2022 . Please refer to the Derivative Instruments section of Note 2, "Summary of Significant Accounting Policies" in the Notes to the unaudited consolidated financial statements included in Item 1 "Consolidated Financial Statements" of this Quarterly Report on Form 10-Q. Interest expense - During the three and nine months endedJune 30, 2022 we recorded interest expense of$2.1 million and$4.1 million , respectively, as compared to$0.5 million and$1.5 million , respectively, during the corresponding periods of the prior fiscal year. Interest expense for the three and nine months endedJune 30, 2022 , is primarily related to interest on cash held in one of our German subsidiaries that is denominated in EUR, which carries a negative interest rate. Interest expense for the three and nine months endedJune 30, 2021 , is primarily related to interest expense on our term loan. The term loan was settled onFebruary 1, 2022 using the proceeds from the sale of the semiconductor automation business. Other income (expenses), net - We recorded other income of$0.6 million for the three months endedJune 30, 2022 and we recorded other expense of$1.6 million for the nine months endedJune 30, 2022 , as compared to other expense of$1.7 million and$0.3 million , respectively, for the three and nine months endedJune 30, 2021 . The change for the three months endedJune 30, 2022 as compared to the corresponding prior fiscal year period is primarily due to foreign exchange gains. The change for the nine months endedJune 30, 2022 from the corresponding prior fiscal year period is primarily due to foreign currency exchange losses.
Income Tax Provision / Benefit
We recorded an income tax provision of$7.3 million for the three months endedJune 30, 2022 and income tax benefit of$0.6 million during the nine months endedJune 30, 2022 . The tax provision for the three months endedJune 30, 2022 was primarily driven by a true-up of the effective tax rate on a year-to-date basis. These changes were the result of fluctuations in expected global income from operations. The tax benefit for the nine months endedJune 30, 2022 , was driven by the pre-tax loss and a$4.6 million discrete stock compensation windfall benefit for tax deductions that exceeded the associated book compensation expense. The tax benefit for the nine months endedJune 30, 2022 , was partially offset by a$0.7 million charge to increase the deferred tax liability to reflect a change in the blended state income tax rate that results from the sale of the semiconductor business assets. We recorded an income tax benefit of$0.8 million and$4.6 million , respectively during the three and nine months endedJune 30, 2021 . The tax benefit for the three months endedJune 30, 2021 , was primarily driven by the benefit on loss from operations during the period and$ 1.5 million overall benefit from multiple releases of unrecognized tax benefits and accrued interest due to the status of limitation expirations. The tax benefit for the nine months endedJune 30, 2021 , was further increased by a$2.0 million discrete stock compensation windfall benefit for tax deductions that exceeded the associated book compensation expense.
Discontinued Operations
Discontinued operations for the three and nine months endedMarch 31, 2022 and 2021 include our semiconductor automation business. In the fourth quarter of fiscal year 2021, we entered into a definitive agreement to sell our semiconductor automation business to THL for$3 billion in cash, subject to net working capital and other adjustments. OnFebruary 1, 2022 , we completed the sale of our semiconductor automation business to THL for$2.9 billion in cash, subject to net working capital and other adjustments. Net cash proceeds from the divestiture are expected to be$2.5 billion after estimated taxes payable. The nine months endedJune 30, 2021 include an adjustment recorded in the first fiscal quarter of 2021 to our previously recorded gain on sale from our semiconductor cryogenics business, which was completed onJuly 1, 2019 . 46
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Revenue from discontinued operations was$264.4 million for the nine months endedJune 30, 2022 , we did not have revenue from discontinued operations for the three months endedJune 30, 2022 . Revenue from discontinued operations was$186.3 million and$474.7 million , respectively, for the three and nine months endedJune 30, 2021 . Net loss from discontinued operations was$2.6 million for the three months endedJune 30 . 2022 and net income from discontinue operations was$2.2 billion for the nine months endedJune 30, 2022 . Net income from discontinued operations was$41.0 million and$96.6 million , respectively, for the three and nine months endedJune 30, 2021 . Net income from discontinued operations for the three and nine months endedJune 30, 2022 includes the net gain on the sale of the semiconductor automation business of$2.1 billion . The income from discontinued operations only includes direct operating expenses incurred that (1) are clearly identifiable as costs being disposed of upon completion of the sale and (2) will not be continued by our company on an ongoing basis. Indirect expenses which supported the semiconductor automation business and which remained as part of the continuing operations, are not reflected in income from discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
We believe that we have adequate resources to satisfy our working capital, financing activities, debt service and capital expenditure requirements for the next twelve months. The current global economic environment, including the uncertainty related to the COVID-19 pandemic, make it difficult for us to predict longer-term liquidity requirements with sufficient certainty. We may be unable to obtain any required additional financing on terms favorable to us, if at all.
The discussion of our cash flows and liquidity that follows stated on a total company consolidated basis and excludes the impact of discontinued operations.
Overview of Cash Flows and Liquidity
Our cash and cash equivalents, restricted cash and marketable securities as of
June 30, 2022 September 30, 2021 Cash and cash equivalents$ 1,474,189 $ 227,427 Restricted cash 12,047 12,906 Cash and cash equivalents and restricted cash 1,486,236 240,333 Short-term marketable securities 709,063 81 Long-term marketable securities 312,027 3,598$ 2,507,326 $ 244,012 Cash, cash equivalents and restricted cash$ 1,486,236 $ 240,333 Cash and cash equivalents included in assets held for sale - 45,000$ 1,486,236 $ 285,333 Our cash and cash equivalents, restricted cash and marketable securities were$2.5 billion as ofJune 30, 2022 . As ofJune 30, 2022 , we had cash, cash equivalents and restricted cash of$1.5 billion , of which$1.1 billion was held outside ofthe United States . If these funds are needed forthe United States operations, we would need to repatriate these funds. As a result of changes inU.S. tax legislation, any repatriation in the future would likely not result inU.S. federal income tax. During the quarter endedSeptember 30, 2021 we repatriated foreign cash to theU.S. in planning for the sale of the discontinued operation and recognized all related tax costs. Aside from these actions, our intent is to reinvest the remaining foreign cash outside ofthe United States and our current operating plans do not demonstrate a need to repatriate these funds for ourU.S. operations. We had marketable securities of$1.0 billion and$3.7 million as ofJune 30, 2022 andSeptember 30, 2021 , respectively. Our marketable securities are generally readily convertible to cash without a material adverse impact. 47
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Nine Months Ended
Overview
Cash Flows and Liquidity - Cash and cash equivalents and restricted cash as presented on our Consolidated Statements of Cash Flows is on a total company basis and were$1.5 billion as ofJune 30, 2022 compared to$285.3 million as ofSeptember 30, 2021 . The increase of$1.2 billion was attributable to$2.9 billion of cash inflows related to the sale of our semiconductor automation business, partially offset by$431.6 million of taxes paid related to the sale of the automation semiconductor business, cash outflows for the net change in operating assets and liabilities of$83.7 million ,$1.5 billion related to purchases of marketable securities,$59.7 million for capital expenditures,$1.0 million related to the acquisition of technology intangible assets and financing activities of$64.3 million . Financing activities include$49.7 million for the extinguishment of debt and$10.4 million related to the payments of acquisition related contingent consideration. The effects of foreign exchange reduced our cash balance by$99.0 million . The net proceeds from the sale of the semiconductor automation business was approximately$2.5 billion after payment of taxes and other expenses.
Divestiture and Extinguishment of Debt
OnFebruary 1, 2022 , we completed the sale of our semiconductor automation business for$2.9 billion in cash, subject to net working capital and other adjustments. Net cash proceeds from the divestiture are expected to be$2.5 billion after estimated taxes payable and other items, such as closing costs. Upon closure of the sale onFebruary 1, 2022 , we utilized$49.7 million of proceeds to extinguish outstanding debt related to our term loan. We also terminated our revolving line of credit, which had no borrowings outstanding. As ofJune 30, 2022 , we have no outstanding debt on our balance sheet.
Operating Activities
Cash flows from operating activities can fluctuate significantly from period to period as earnings, working capital needs and the timing of payments for income taxes, restructuring activities and other operating charges impact reported cash flows. Cash outflows from operating activities of$475.7 million for the nine months endedJune 30, 2022 , resulted from net income of$2.2 billion , adjusted to exclude the effect of non-cash operating adjustments of$2.1 billion which includes$2.1 billion on the net gain on sale of the semiconductor automation business, transaction fees paid related to the sale of$52.5 million ; partially offset by a usage of cash from changes in our net operating assets and liabilities of$83.7 million , primarily driven by increases in inventory for both the continuing operations and discontinuing operations business and increased in accounts receivable and prepaid expenses and other assets; partially offset by an increase in accrued expenses and other liabilities and accrued compensation. Additionally, the company paid$431.6 million in cash taxes related to the sale of the semiconductor automation business during the nine months endedJune 30, 2022 . Cash flows from operating activities of$122.7 million for the nine months endedJune 30, 2021 , resulted from net income$88.9 million , adjusted to exclude the effect of non-cash operating charges of$60.0 million , partially offset by an increase in net operating assets of$26.2 million . The net increase in operating assets and liabilities consisted primarily of increases in accounts receivable and inventory, partially offset by increases to accrued expenses and other liabilities, accrued compensation and accounts payable. 48
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Discontinued operations contributed$2.2 billion and$95.4 million of net income to the nine months endedJune 30, 2022 and 2021, respectively. Net income from discontinued operations for the nine months endedJune 30, 2022 includes a gain on the sale of the semiconductor automation business of$2.1 billion .
Investing Activities
Cash flows provided by investing activities consist primarily of proceeds from divestitures, cash used for acquisitions, capital expenditures and purchases of marketable securities as well as cash proceeds generated from sales and maturities of marketable securities. Cash provided by investing activities was$1.8 billion during the nine months endedJune 30, 2022 and included$2.9 billion of proceeds from the sale of the semiconductor automation business, net of cash transferred; partially offset by cash outflows for the purchase of marketable securities of$1.5 billion , capital expenditures of$59.7 million , and the acquisition of technology intangible assets of$4.0 million . Cash used in investing activities was$128.8 million during the nine months endedJune 30, 2021 , and included capital expenditures of$34.6 million and acquisitions of$92.4 million . Financing Activities Cash outflows for financing activities were$64.5 million during the nine months endedJune 30, 2022 which primarily consisted of cash outflows of$49.7 million to extinguish the term loan,$10.4 million for the payments of acquisition related contingent consideration and$7.5 million related to dividend payments. Cash used in financing activities was$21.4 million during the nine months endedJune 30, 2021 , which primarily consisted of cash outflows for cash dividend payments of$22.3 million .
China Facility
InApril 2019 , we committed to construct a facility inSuzhou China , to consolidate the multiple locations inSuzhou, China related to the genomics business and provide infrastructure to support future growth. The facility is being constructed in two phases. During the third fiscal quarter of 2022, we completed the construction of phase one of the facility. The total cost transferred from construction in progress atJune 30, 2022 , was$42.4 million , which included$7.1 million of costs incurred for the nine months endedJune 30, 2022 . Capital Resources Term Loan and Line of Credit
OnOctober 4, 2017 , we entered into a$200.0 million term loan withMorgan Stanley Senior Funding, Inc. ,JPMorgan Chase Bank, N.A . andWells Fargo Securities, LLC pursuant to the terms of a credit agreement with the lenders. The term loan was issued at$197.6 million , or 98.8% of its par value, resulting in a discount of$2.4 million , or 1.2%, which represented loan origination fees paid at the closing.
On
The Company also maintained a revolving line of credit withWells Fargo Bank, N.A. andJPMorgan Chase Bank, N.A . that provided for a revolving credit facility of up to$75.0 million . OnFebruary 1, 2022 , we also terminated the revolving line of credit, which had no borrowings outstanding.
Share Repurchase Program
OnSeptember 29, 2015 , our Board of Directors approved a share repurchase program for up to$50.0 million worth of our common stock. The timing and amount of any shares repurchased will be based on market and business conditions, legal requirements and other factors and repurchases may be commenced or suspended at any time at our discretion. There were no shares repurchased under this program during the nine months endedJune 30, 2022 and there have been no shares repurchased under this program since its inception. 49
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Contractual Obligations and Requirements
AtJune 30, 2022 , we had non-cancellable commitments of$78.6 million , comprised primarily of purchase orders for inventory of$65.0 million , information technology related commitments of$13.1 million , andChina facility commitments of$0.4 million .
Off-Balance Sheet Arrangements
As of
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