Executive Summary / Key Takeaways

• Azenta is strategically transforming its business, divesting non-core assets like B Medical Systems to focus on high-margin Sample Management Solutions (SMS) and Multiomics segments, aiming for simplified operations and accelerated profitable growth.
• The company is implementing the Azenta Business System (ABS) and undertaking significant restructuring to drive operational excellence, improve efficiency, and reallocate resources towards high-impact growth investments in sales, marketing, and R&D.
• Recent financial performance shows solid organic revenue growth in core segments (5% in Q2 FY2025, 4% in Q1 FY2025) despite macro challenges, coupled with significant adjusted EBITDA margin expansion (400 bps in Q2 FY2025, 400 bps in Q1 FY2025) driven by operational efficiencies and cost controls.
• Key technological differentiators in automated cold storage and integrated genomic services provide a competitive edge, enabling efficiency gains, reduced errors, and differentiated customer value, particularly in niche, high-value applications.
• Management is guiding for 3% to 5% organic revenue growth and approximately 300 basis points of adjusted EBITDA margin expansion for the full fiscal year 2025, incorporating anticipated macro headwinds and identified countermeasures, signaling confidence in continued operational execution.

Setting the Scene: Azenta's Pivot to Life Sciences and the Quest for Operational Excellence

Azenta, Inc. (NASDAQ: AZTA) stands as a leading global provider of biological and chemical compound sample exploration and management solutions, a critical, yet often unseen, layer within the vast life sciences industry. The company's journey to this specialized position began in 2011, leveraging its precision automation and cryogenics expertise honed in the semiconductor market. This strategic pivot marked the genesis of its life sciences focus, initially centered on automated ultra-cold storage. Subsequent internal investments and targeted acquisitions expanded its footprint, culminating in a significant portfolio optimization phase that saw the divestiture of its semiconductor cryogenics (2019) and automation (2022) businesses. This cleared the path for Azenta to concentrate on its core life sciences segments: Sample Management Solutions (SMS) and Multiomics.

The SMS segment offers end-to-end sample management, encompassing Sample Repository Services (SRS) and Core Products like Automated Stores, Cryogenic Systems, and Consumables & Instruments (C&I). This segment is foundational to ensuring sample integrity throughout the research and clinical lifecycle. The Multiomics segment, primarily operating under the GENEWIZ brand, provides genomic services such as gene sequencing and synthesis, enabling critical data generation for scientific discovery.

The competitive landscape in life sciences tools and services is diverse, ranging from large, diversified players like Thermo Fisher Scientific (TMO) and Eurofins (ERF.PA) to more specialized competitors like Labcorp (LH) and Twist Bioscience (TWST). While larger rivals often benefit from scale and extensive distribution networks, Azenta carves out its niche through specialized automation technology and integrated service offerings. For instance, in automated cold storage, Azenta's systems, like the BioArc Ultra, are designed for high-density storage and offer significant picking capability (up to 9 million picks per year), emphasizing efficiency and sample integrity at ultra-low temperatures. This contrasts with more manual systems or less specialized automated solutions offered by broader competitors. In Multiomics, Azenta's Gene Synthesis business focuses on complex, long reads for biotech and pharma, differentiating itself from high-volume, lower-quality chip-based synthesis providers. The company's LIMS system is highlighted as a unique advantage in NGS, contributing to market penetration.

However, Azenta operates within a market currently characterized by uncertainty and macro headwinds, including shifts in academic funding (like NIH reductions), geopolitical tensions (potential tariffs, BIOSECURE Act implications), and constrained capital spending in certain areas. Larger competitors with deeper pockets and broader portfolios may weather these storms differently. Azenta's strategic response is centered on operational excellence and disciplined capital allocation, aiming to control what it can internally while positioning itself to capitalize on market recovery and outsourcing trends.

Central to Azenta's strategy is its differentiated technology, particularly in automated sample management. The BioArc Ultra exemplifies this, targeting large-scale, eco-friendly ultra-cold storage with high throughput. While specific quantifiable energy efficiency gains or cost advantages over all alternatives are not detailed, the emphasis on automation and high-density storage inherently targets operational efficiency and reduced footprint, key benefits for customers managing vast biological sample collections. In Multiomics, the adoption of platforms like NovaSeq X Plus and the development of offerings like Plasmid-EZ demonstrate a commitment to embracing new technology and addressing market shifts, such as the disintermediation of traditional Sanger sequencing. The Plasmid-EZ product's revenue more than doubled year-over-year in Q2 FY2025, and the company expects to double this business in FY2025, showcasing the impact of targeted technological development and infrastructure (2,500 Sanger dropboxes in the U.S. supporting the transition). The Gene Synthesis business leverages approximately 40% automation for complex reads, supported by a significant number of PhDs, highlighting a blend of technology and expertise. The strategic intent behind R&D and new product development is to enhance competitive positioning, capture market share, and improve profitability through differentiated offerings and operational efficiencies.

Strategic Transformation and Performance Trajectory

Azenta's current narrative is deeply intertwined with its transformation journey, formally articulated through the Ascend 2026 program and the rollout of the Azenta Business System (ABS). This is not merely a cost-cutting exercise but a fundamental reshaping aimed at simplifying a complex organization built through numerous acquisitions (15 legacy acquisitions resulting in 13 IT systems, 45 sites, ~40 legal entities). Key initiatives include site rationalization (impacting ~40% of sites in FY2024), IT system optimization (reducing core systems from 13 to 8), and significant organizational simplification. The corporate restructuring in Q1 FY2025 and operating company restructurings in Q2 FY2025 involved restructuring almost 10% of the workforce, strategically reallocating resources towards growth drivers like R&D, sales, and marketing.

The focus on operational excellence is tangible, driven by the implementation of Core Value Drivers (CVDs) that align daily operations with strategic goals, emphasizing revenue growth, profitability, customer satisfaction (quality, on-time delivery), employee metrics, and working capital management. Kaizen events are being deployed to tackle specific process inefficiencies, such as manufacturing cycle time reduction and streamlining order-to-cash processes in sample repositories and Multiomics. A new global procurement organization is being established to drive cost savings and optimize the supply chain. These efforts are designed to build a foundation for sustainable profitable growth by improving efficiency, expanding gross margins, and controlling indirect costs.

This strategic focus is beginning to yield results in the company's financial performance. In the second quarter of fiscal year 2025, Azenta reported total revenue of $143.4 million, a 5% increase year-over-year (6% organic). This growth was broad-based, with SMS revenue up 8% organically, driven by SRS and Core Products (C&I, Clinical Stores), and Multiomics revenue up 3% organically, led by strong NGS performance (20% YoY growth, price stabilization). Gross margin expanded to 46% in Q2 FY2025 (47.5% non-GAAP), up from 44% in the prior year, reflecting higher revenue, favorable mix, and operational efficiencies. Operating expenses decreased year-over-year, partly due to the absence of a prior-year intangible asset impairment and lower R&D, despite higher transformation costs and stock-based compensation.

For the six months ended March 31, 2025, total revenue was $290.9 million, up 4.6% year-over-year. SMS revenue grew 5.2% to $161.1 million, and Multiomics revenue grew 3.9% to $129.8 million. Gross profit for the six months was $134.6 million, up from $122.4 million, with gross margin at 46.3%. The company reported an operating loss of $27.5 million for the six months, an improvement from $40.5 million in the prior year, primarily due to reduced operating expenses and higher gross profit. Loss from continuing operations was $27.6 million, compared to $23.4 million in the prior year, impacted by lower interest income ($8.8 million vs. $19.4 million) and higher income tax expense ($11.2 million vs. $2.6 million). However, the net loss significantly decreased to $53.8 million for the six months, down from $152.6 million, largely due to a substantially lower loss from discontinued operations ($26.2 million vs. $129.2 million).

Liquidity remains strong, with $513.3 million in cash, cash equivalents, restricted cash, and marketable securities as of March 31, 2025, and no outstanding debt. Net cash provided by operating activities for the six months ended March 31, 2025, was $44.2 million, a significant increase from $22.4 million in the prior year, driven by improved working capital management and a U.S. federal tax refund. The company completed its $1.5 billion share repurchase program in Q4 FY2024, demonstrating a commitment to returning capital, though management emphasizes a disciplined, returns-based approach to capital allocation going forward, prioritizing internal investments and strategic tuck-in M&A.

Outlook and Risks

Management is guiding for full fiscal year 2025 organic revenue growth of 3% to 5% and approximately 300 basis points of adjusted EBITDA margin expansion year-over-year. This outlook anticipates continued growth in the core SMS (mid-single-digits) and Multiomics (low-single-digits) segments. The guidance incorporates known macro headwinds, including an estimated 1% revenue headwind from NIH funding reductions and potential tariff impacts, but management asserts that countermeasures are in place to mitigate the financial impact, aiming for near-zero EBITDA impact from NIH changes and negating tariff margin risk. Confidence in the outlook is underpinned by the positive momentum in core businesses, the solid stores backlog, and the expected realization of savings from ongoing restructuring and operational efficiency initiatives, which are projected to accelerate EBITDA in the second half of the year. The sale of the B Medical Systems business, expected to be announced in the second half of fiscal year 2025, is a key component of the portfolio simplification strategy.

Despite the positive operational momentum and clear strategic direction, Azenta faces notable risks. Macroeconomic uncertainty, including the duration and severity of funding constraints in academic and pharma markets, could impact revenue growth. Geopolitical risks, such as the potential implications of the BIOSECURE Act on supply chains and operations in China, remain a concern. Operationally, the company has identified material weaknesses in internal control over financial reporting related to cash flow statements and account reconciliations, which, if not effectively remediated, could impact financial reporting reliability. Legal proceedings, including the ongoing Edwards claim related to a past divestiture and the tariff matter, present potential liabilities, though management does not currently anticipate a material adverse effect on continuing operations from most claims. The success of the ongoing transformation and ABS rollout is critical to achieving stated margin expansion and growth targets; execution risks associated with such large-scale organizational change exist.

Conclusion

Azenta is actively reshaping itself, shedding non-core assets and implementing a rigorous operational framework to unlock the full potential of its specialized life sciences businesses. The strategic pivot from semiconductor to life sciences, coupled with targeted acquisitions, has positioned the company in critical areas of sample management and multiomics. While operating within a challenging macro environment, Azenta's differentiated automation technology and integrated service offerings provide a competitive foundation. Recent financial results demonstrate tangible progress, with solid organic growth in core segments and significant margin expansion driven by operational efficiencies and cost controls.

The company's guidance for fiscal year 2025 reflects confidence in its ability to navigate headwinds through proactive countermeasures and continued execution of its transformation initiatives. The focus on operational excellence, disciplined capital allocation, and investment in strategic growth areas positions Azenta for potential long-term value creation. Investors should monitor the successful execution of the ABS rollout, the realization of targeted cost savings, the impact of macro conditions on demand, and progress on the B Medical Systems divestiture as key indicators of the company's trajectory towards sustainable profitable growth and achieving its stated financial targets.