AZTA - NASDAQ

Greetings and welcome to the Azenta Q1 2025 Financial Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, February 5, 2025. I will now turn the conference over to Yvonne Perron, Vice President, FP&A and Investor Relations. You may begin.

Thank you, operator and good afternoon to everyone on the line today. We would like to welcome you to our earnings conference call for the first quarter of fiscal year 2025. Our first quarter earnings press release was issued before the open of the market today and is available on our Investor Relations website located at investors.azenta.com, in addition to the supplementary PowerPoint slides that will be used today during the prepared remarks. Effective this quarter, the first fiscal quarter of 2025, the results of B Medical Systems are treated as discontinued operations. I would like to remind everyone that during the course of the call, we will be making a number of forward-looking statements within the meaning of the Private Litigation Securities Act of 1995. There are many factors that may cause actual financial results or other events to differ from those identified in such forward-looking statements. I would refer you to the section of our earnings release titled Safe Harbor Statement, the Safe Harbor slide on the aforementioned PowerPoint presentation on our website and our various filings with the SEC, including our annual report on Form 10-K and our quarterly reports on Form 10-Q. We make no obligation to update these statements should future financial data or events occur that differ from the forward-looking statements presented today. We may refer to a number of non-GAAP financial measures which are used in addition to and in conjunction with results presented in accordance with GAAP. We believe the non-GAAP measures provide an additional way of viewing aspects of our operations and performance but when considered with GAAP financial results and the reconciliation of GAAP measures, they provide an even more complete understanding of the Azenta business. Non-GAAP measures should not be relied upon to the exclusion of the GAAP measures themselves. On the call with me today is our President and Chief Executive Officer, John Marotta; and our Chief Financial Officer, Lawrence Lin. We will open the call with remarks from John and then Lawrence will provide a detailed look into our financial results and our outlook for fiscal year 2025. We will then take your questions at the end of the prepared remarks. And with that, I would like to turn the call over to our CEO, John Marotta.

Thank you, Yvonne. Good morning, everyone and thank you for joining us today. We're happy to be with you in the morning rather than later in the day. And going forward, we will follow the same timing with the earnings release in the call before the market opens. This gives us more time for same-day interactions with our analysts, investors and other interested stakeholders. Before getting into the numbers, I want to give you an update on how I've spent my time the first few months at Azenta. Since September, I've spent most of my time getting to know our business in the best way I know how on the ground with our customers and our associates at our manufacturing sites and our lab facilities around the globe, including the U.K., China and the U.S. These meetings with our teams have been invaluable. They have given me a chance to see first-hand the incredible work being done and hear from those who drive our success every day. These visits have deepened my understanding of our operations, our opportunities and most importantly, our people. I'm even more excited about what lies ahead. Alongside our highly talented teams, we've been making progress towards our accelerated goal of delivering profitable growth and long-term shareholder value. Our work is well underway to further enhance our competitively advantaged portfolio, differentiated products and services and strong market positioning. The Board aided by the capabilities of the newly created Value Creation Committee have been working alongside me and my team to focus on and oversee our strategic initiatives, portfolio optimization, operational excellence and value-enhancing capital allocation. Our Sample Management Solutions business is unique. I've had the opportunity to observe first-hand the highly differentiated products and services we deliver to our customers. To that end, we are excited that the U.K. Biocentre selected Azenta to expand its sample storage capabilities with the BioArc Ultra. The BioArc Ultra will deliver significant operational efficiency and reduce footprint through high-density automated storage. The 16 million sample storage system includes our sample intelligence software solution with digitized library and warehouse workflows and the picking capability of up to 9 million picks per year. This is a clear testament to our market leadership position and reflects the trust and confidence that customers place in our capabilities and track record of delivering exceptional value. In our Multiomics GENEWI

Thank you, John. Good morning everyone. Thank you for joining us today. I'm honored to be here with you for my first earnings call as the Chief Financial Officer of Azenta. Before we discuss our financial performance for the first quarter of fiscal 2025, we want to take a moment to acknowledge the trust that you placed in me to help lead this great company. Additionally, I would like to recognize the dedication of our entire Azenta team who demonstrate every day their commitment to delivering value for our customers, fellow employees and shareholders. I want to share my initial reflections following my first 90 days on the job. These past 3 months have been insightful and energizing as I work to immerse myself in learning the business, understanding the dynamics of our operations and engaging with the talented individuals across the organization. I couldn't be more excited to be here. Azenta has a history of delivering value and innovation and it's clear that the team is deeply committed to our purpose of enabling breakthroughs faster. I've been impressed by the resilience and adaptability demonstrated across the organization particularly in navigating challenging market conditions. At the same time, after spending time with the team, it's clear to me there are numerous opportunities to enhance our financial performance. Streamlining our operations to work simpler and smarter while deploying technology more fully to automate processes and build robust capabilities will enable improved cash flow generation and accelerate profitable growth. These initiatives will not only help us address immediate priorities and challenges but also sets the scalable foundation for sustainable, long-term value creation. Now on to the financial results. As a reminder, the results we are referring to today, unless otherwise noted, excludes B Medical Systems which is now reported under discontinued operations. I am pleased to report that we saw continued organic growth in our combined Sample Management Solutions and Multiomics businesses. These demonstrates the strength of our portfolio and our ability to better address the needs of our customers in an ever-evolving and uncertain and still difficult market environment. In addition, our continued focus on cost optimization and driving profitable growth is positioning us well to improve margins to deliver strong and consistent results for our shareholders. To supplement my remarks today, I will refer to the slide deck available on our website. Turning to Slide 3 for some highlights. First quarter revenue was $148 million, up 4% year-over-year on an as reported and on an organic basis. Both the SMS and Multiomics segments performed well in the quarter, given the continued challenging market environment. With growth in Next Generation Sequencing, Gene Synthesis, Consumables and Instruments, store systems as well as sample storage. Non-GAAP EPS for the quarter was $0.08. Adjusted EBITDA margin was 9% in the quarter. This represents a margin expansion of about 400 basis points versus last year demonstrating the impact of our transformation initiatives as well as our strong focus on improved operational efficiencies. Our results were impacted by certain onetime costs, including those related to executive compensation in connection with the recent restructuring of our management team. Free cash flow was $22 million for the quarter, driven primarily by lower accounts receivables and increased billings related to our source projects. We ended the quarter in a strong position with $530 million in cash, cash equivalents and marketable securities which includes $27 million of cash held in discontinued operations. Now let's turn to Slide 4 to take a deeper look at our results in the quarter. Total revenue was $148 million, representing a growth of 4% reported and organic. In the first quarter, non-GAAP gross margin was 47.6%, up 270 basis points year-over-year. The improvement is largely a result of higher revenue, favorable sales mix, operational efficiencies and certain nonrecurring items recorded in the same period last year. Adjusted EBITDA margin in the quarter was 9% up 400 basis points year-over-year. Again, non-GAAP EPS was $0.08 per share. With that, let's turn to Slide 5 for a review of our segment results, starting with Sample Management Solutions, or SMS. SMS revenue was $81 million for the quarter up 3% year-over-year reported and up 2% organic. Driven by growth in Sample Repository Solutions and Core Products. Consumables and Instruments, Clinical and Cryogenic Store Systems and sample storage were the drivers of growth which was partially offset by year-over-year decline in large automated stores due to timing. SMS first quarter non-GAAP gross margin was 47.8%, up 460 basis points year-over-year mostly driven by operational efficiencies, sales mix and the impact of certain nonrecurring items recorded in the same period last year. Turning next to the Multiomics segment. Multiomics delivered revenue of $66 million with a growth of 6% on both and as reported and organic basis, demonstrating our strong execution in the face of several market headwinds. Next Generation Sequencing grew 11% year-over-year. This was the third quarter of price stabilization and double-digit volume growth. Key large deals also contributed to the significant year-over-year gains, specifically in the North America and Europe regions. China delivered organic revenue growth of 7%, once again outperforming a market with macro challenges. Gene Synthesis grew 5% compared to last year with great execution by our teams in China in what continues to be a tough market environment. Sanger Sequencing revenue was down 11% year-over-year as we continue to see the impacts of the shift of sequencing technology. This pressure was offset by growth in Plasmid-E

[Operator Instructions] And your first question comes from the line of Jacob Johnson with Stephens.

Maybe a couple of questions on recent headlines. First, John, you mentioned the U.K. Biocentre, BioArc win. Is there any way to frame up the size of that opportunity, maybe the timing of the revenues and whether this is something that was contemplated in guidance? And then I guess along the same lines, I'm just kind of curious, how many other of these kind of BioArc Ultra wins could be out there?

Yes, good question. And Jacob, thanks for your continued support here. So couple of things on our BioArc Ultra, as you know, that's our ultra-low high-throughput warehouse management system, sample management system and biological management system. So it's got a lot of versatility on these end markets. From our perspective, that was in our guidance and so that was contemplated there. We're really excited about the implementation of that. As you know, it's a POC business, highly customized and multimillions of dollars. We have -- just for some context here, I mean, we have 7 quad banks in this facility already. So it's a continuation of our partnership with U.K. Biocentre, pretty important customer for us going forward. Lawrence, do you want to talk about phasing of this?

Yes. I think as John said, there's -- I think the accounting for this is a percentage of completion, Jacob, I'm sure you're aware. We expect the U.K. Biocentre to be operational early in 2026.

Got it. And then yesterday, there was a headline about Illumina being added to the unreliable entity list in China. I know it's probably early but we're getting questions on it. So can you talk about any impacts that you could see from that headline to your NGS business in China or maybe another way to ask is, is there any way to frame up how large the NGS business in China is for you all?

So the team has done a nice job of anticipating this for quite some time in China. We do not own any Illumina products in NovaSeq specifically in China. We do have a few Illumina products internally. Most of our NGS business, we actually partner with BGI in China specifically. We run 2 platforms with them in particular on NGS. And that is the Illumina platform and the MGI platform from BGI. As you know, BGI was put on the list in BIOSECURE and Pentagon -- a list at the Pentagon as well. Those -- our partnership is only in China with that and so we have the ability to move customers over to the MGI platform, if needed. But again, we've been -- the team in China has been anticipating this for quite some time. The risk is low. I'll let Lawrence quantify that in general but we've been anticipating this for quite some time.

Yes. Jacob, as you mentioned, really, when we look at the revenue for NGS particularly in the region of China [ph], it's roughly about 7%-ish to 10% of Multiomics. So again, what John mentioned is we see no material risk due to the Illumina issue.

And your next question comes from the line of David Saxon with Needham.

John and Lawrence, congrats on the quarter. So just a few for me on Multiomics, maybe I'll start. So the guide stayed at low single digits. You did 6% organic this quarter. It sounds like there were some orders that came in, in this quarter. But just given that guidance implies the deceleration in the back half of the year, or the balance, I should say, what's driving that? I think NGS comps get tougher but like anything you're seeing in Sanger or synthesis that would drive that deceleration?

Thanks, David. I appreciate your comments here on the morning as well. It's good to be speaking with you in the morning. Let's talk about, first, the way we're thinking about this. I mean we're looking at the full year. We're not looking at the quarters right now. Second thing is we are in the middle of a transformation. So we're holding that guide right now. We are going to be coming back to you in the summer with an Investor Day and kind of view of our LRP in general. I want to hand this over to Lawrence to talk to you about phasing here and what this looks like quarter-on-quarter.

Yes. And David, nice to speak with you. Look, as John alluded to, it's mainly a timing issue here. We had a really solid quarter to your point, right? NGS was up 11%. So we're really pleased about that. As John noted, I think as we get closer to Investor Day, more to come here but right now, we're just to a kind of -- we've got a lot of change that's happening and we're looking at the phasing as well.

Okay, great. Lawrence, maybe I'll stay with you on margins, just really strong improvement in the quarter. It does seem like the guide implies EBITDA kind of margins kind of plateau in the back half. I don't know if it's just how you're thinking about the year versus the quarter. It's still early but any comments around like how much of that is conservatism versus any timing from the Ascend '26 initiatives? And then just lastly on B Medical, I don't know if this would be for John or Lawrence. I think last quarter, you talked about potentially closing that in the fiscal first half. It sounds like this morning, you're talking about still in the initial stages. So is the message essentially that it's going to probably take longer than that?

Yes. David, I'll take the margin one and maybe I'll pass it to John on the status of the B Medical. First foremost, just kind of ground ourselves a bit. EBITDA for the first quarter was 9%. I did mention during kind of the prepared remarks, that we had some onetime events. Excluding some of those onetime events, we're north of 10% EBITDA. So it gives us a bit of a pathway towards kind of what we're looking at 300 basis points. As we step through the balance of the year, John noted that we did a restructuring of the corporate function. That will also -- is within our guidance and it will -- is a couple of million dollars on the balance of the year. We've got some more to come but we feel pretty confident right now in our guide based on some of the actions we're taking this quarter. But more importantly, what we've got in queue for the second and third.

David, a few other comments here. So on restructuring about 17% of corporate, we restructured. We're going to continue that transformation in the operating companies and making sure we got the right structure to go forward. So it's -- the way we're framing this is it's around structure, process and then our people is the framing of how we're setting the company up. In regard to Ascend 2026, that put us on the right path. This is just going to be a way of life in how we run our business going forward. So we're going to -- I mean we want to keep G&A at a very modest level in this company and then accelerate around sales and marketing and R&D in these growth investments. Right now, we're trying to -- we're getting our resting heart rate in the organization to figure out what steady state looks like. We're really pleased with the progress the teams have been making. Restructuring at corporate was very well done, hats off to our HR team and the rest of the leaders that executed that. And our operating companies are entering their transformational phase as well. As it pertains to the one-timers that Lawrence discussed, I mean we're pleased about our trajectory financially on the bottom line right now. I mean those one-timers, if you back those out, we're pretty confident in where we're moving the bottom line right now and more in control there. In regard to B Medical, what I can tell you is our Value Creation Committee, Board members are involved in that process. We're going to help accelerate that. We're very pleased about maximizing -- well, let me say it differently. We're focused heavily on maximizing the value of that sale and we're pleased that the committee members are involved in that. Specifically, I think that's going to really help us partner with our outside advisers to maximize value. Listen, the funnel in regard to inbound and in our outreach, I'm pleasantly surprised at how many parties are involved and interested in this business. So that's the update on that one, David.

And your next question comes from the line of Vijay Kumar with Evercore ISI.

A couple of maybe macro-related questions on recent noise around tariffs. Can you talk about your exposure to China, Mexico, Canada and any risk related to tariffs?

Sure. Let me talk about -- just give you the high-level context and then Lawrence will jump into the -- he'll dive into the details of our -- if there's a materiality there or not. As it pertains to Mexico and Canada, we have minimal risk. Again, our businesses in Multiomics specifically are set up regionally. It's a local-for-local model. We do have some global overlap around our synthesis business. In regard to SMS in that business unaffected, in China specifically, as you know, there's a 6.5% tariff in what's contemplated right now at 10%. I'll let Lawrence get into particulars of that in terms of materiality or not.

Yes. Vijay. In terms of China tariff, looking at kind of the step up to 10%, we believe the impact of Azenta is really immaterial. Potential incremental probably 1 -- maybe $2 million at most that will be at the upper end. Really, as you think about this is -- we kind of know this was going to be happening. So we've really factored a lot of this into our guide. As you know, this is a pretty fluid situation. So we're kind of monitoring the developments here. And if the situation evolves adversely and the underlying understanding changes, we will communicate that to you. But right now, we feel pretty good that it's a very immaterial amount for us.

Understood. And then maybe one on the guidance, SMS. It looks like it was off to a slow start. I know the guidance contemplated mid-singles for Sample Management Solutions. I think stores, you said low singles. So maybe talk about your orders, backlog. Was this just a timing element or some cautiousness from customers, perhaps which we're seeing here in the numbers?

Yes Vijay, you're absolutely right. It's really around timing. Our large stores in the first quarter was down 13%. However, we have a pretty robust pipeline and backlog and continues to build for '25, '26, just to provide a little bit of context around that. We've got a good line of sight for the next 12 months here. And we've got 75% of the 2025 revenue secured. So I feel pretty good. Sometimes these capital projects do kind of move on us quarter-to-quarter, as you saw similarly to what the U.K. came up but we feel good. And on top of that, as you look at C&I, we continue to see really strong demand up in the quarter about 9%, particularly in instruments. So again, mainly timing here, Vijay.

Vijay, similar color here. So we were at SLAS last week. As you know, that's the biggest trade show in that segment of the market. We had a lot of inbound, over 300-some leads. We're pleased with the activity during that trade show. I think the other thing that we've learned and we spoke with a lot of customers last week, I mean, personally, we spoke a lot of customers in. There's some uncertainty in these end markets right now, with new administration but we think that it's more of a wait-and-see instead of cancelling projects. Our sales leaders and our sales reps feel pretty confident with the -- with where we are in these programs, they're not seeing cancellations at all or delays. It's more of a wait-and-see approach we're seeing right now in these just first couple of months. But we feel pretty confident in our back half in general.

Understood. And maybe if I could squeeze one more in. Gross margins, nice boost here in the quarter. It looks like there was some timing element in stock comp here in Q1 that perhaps depressed operating margins. When you think about the back half margin ramp, should gross margin sustain at these levels and visibility into the back half operating margin ramp?

Yes, Vijay. Quite honestly, in terms of gross margin, really pleased with the results in Q1. We saw a similar profile last quarter but a couple positive things, right? We saw better margins within storage and the SMS business. Multiomics, we saw stabilization in NGS price coupled with favorable sales mix and really operational efficiencies, right? And in general, we feel good about the gross margin trajectory here and then the investment opportunity.

And your next question comes from the line of Matt Stanton with Jefferies.

Maybe sticking with the theme kind of recent noisy headlines. Could you guys just remind us what the pro forma mixes within your academic and government exposure? And then within that, what's directly tied to NIH. And any kind of impact you've seen? I know it's early days in the last few weeks but then kind of a choppy backdrop from a headline perspective with the new administration. Anything you're seeing kind of in terms of activity levels at customers or things being pushed out? And then I assume that's kind of contemplated within [ph] -- the 3% to 5% guide. But if you can just confirm that as well?

It is contemplated in the guide. From an end market perspective, in general, so about 45% pharma biotech, about 16% academic, about 15% medical government and we've got about 15 in emerging markets. The way I would look at this, Matt, is we've seen some pausing or delays in some projects that are government funded. We believe those are going to come back online once some decisions are made either on the NIH front or outside of funding -- government funding of some of these projects. So again, we're able to respond to whichever way the markets are going based on the fact that there are always projects and programs going on. We toggle our call points based on that. I mean the teams can move over and move over to more pharma and biotech in the event there is a pullback, slight pullback on research in other areas. We're comfortable but we're also monitoring the uncertainty out there in general in these markets. So that's kind of our view of it right now.

Okay, that's helpful. And then, maybe shifting gears a little bit. Can you just talk about what you saw in the cell and gene therapy side in the first quarter? I think the last few quarters have started to see some improvement funding still may be a bit challenged but there's some later-stage programs ramping up. So I just love to see kind of what you're hearing and seeing from your customers on the cell and gene therapy side of things.

Last year, we saw our auto cryo business increased about 67%. We've delivered about 11 units this quarter against that. So we're seeing good progress in cell and gene therapy. I mean that product is specifically sits under that value stream in cell and gene therapy as well as our Barkey products. We're pretty bullish on that end market and we're seeing good traction there as well this year and that trend is continuing.

Your next question comes from the line of Paul Knight with KeyBanc.

First question I have would be the company has been even before your tenure buying stock, we really didn't know what the margin target was and I don't understand why there was such an aggressive share repurchase program when there was no clear metrics out there on what business performance should be. So the question really is, as you are now on Board, is there still a share buyback program or will we wait to see what the business can return first. And then is there a likelihood that we could go back to what I think was a consolidator of the industry or are you still out on that? So two questions there.

Good questions, Paul. We were at -- last year, we were with investors in our Q1 and this topic came up quite frequently. And our capital allocation framework is alive and well in the organization right now. And first, it's around gross margin improvement. And we're really focused around that specifically. The second is around growth initiatives in R&D and expanding our business lines and geographies. Third is around M&A and tuck-in. And last is share buyback. And I wanted to share that framework again because it's not going to go away. The teams understand that. The Board is really focused around that, we're focused around that in the Value Creation Committee. And so when I say share buybacks are last, everything competes against that fourth lever specifically. Right now, as we sit here today, we think there's much more opportunity in levers 1 through 3. We see those opportunities. We're investing in those now. There are strict ROIC metrics around that and we're head down and focused on that specifically. I think we're excited to get us into the steady-state model where we can come back to you all with a clear eye view on what is the algorithm of this business, what does it look like from a returns perspective. There's still work to be done there, Paul. But in general, that's the way we're thinking about it. And once we have that, then we can come back with a better answer around that. I don't view -- I've been pretty candid around this. I don't think that the shareholders hire us to do share buybacks. And I think the opportunity we have in front of us, specifically around SMS and SRS and in our some other business lines in Multiomics really excites us around our investment opportunities but also at a certain point around M&A and when we get us into a good place to start to do that type of work.

Great. And then last question, I guess, it has been asked about but it seems like this post-COVID era of overcapacity and ultra-cold temperature and even cold storage in general, it seems like we're starting to get past that glut of material and capacity that did emerge during COVID. So are we kind of in one step past it now? Or what's your feeling on where we are with this post-COVID hangover?

Yes. As you know, we have some experience in the ULT market from my prior life. But thankfully, we've never -- I understand kind of the investment community lumps us into that. And I don't think that's the case. The more I get into the business, the more I'm kind of scratching my head wondering why that we're being kind of lumped into that end market. And here's -- and let me be more helpful here, Paul. So if we think about our stores specifically, those units are basically asset management units or warehouse management units for highly valuable assets in pharma and biotech, specifically around compound management, specifically around sample management. And we're also seeing this around antibodies and using these as warehouse management systems and pick systems for shipping of these products. Those are 3 different applications that a ULT just -- I mean you may get some support there but it's very manual process. I mean we're not seeing that overlap in particular. So we're pretty excited about these other applications and how they sit in other end markets that maybe you wouldn't see it on a broad macro chart but will able to meet the needs of these customers very uniquely because of our inventory management at the facilities, at -- providing that service to our customers. Really excited about that. I mean these are highly sophisticated 12-access automated robots that are inside negative 80 degrees Celsius that what sits on top of that is a highly sophisticated software program that you can access your inventory very quickly, whether that's in compounds, monoclonal antibodies, antibodies and/or samples. So pretty excited about that end market. But this ULT glut, I don't think we've been party to that because we've been growing well over that end market on the ULT side.

[Operator Instructions] Your next question comes from the line of Andrew Cooper with Raymond James.

Maybe just one into a little bit of a nitty-gritty on Multiomics. I just want to make sure -- you made a couple of comments about stability on NGS pricing but there was one in there about price headwinds as a drag on margins. So maybe just help adjudicate or confirm, was that just, hey, you're a handful of quarters through stability and the comp is a little bit difficult? Or is there somewhere else in that segment where there's a little bit of pricing pressure we need to make sure we're thinking about?

Andrew, just to clarify, we are seeing price stability in NGS. Just to reiterate, we had a great quarter there, 11% growth. So overall, that's kind of where the NGS businesses is. When you look at Sanger, you're going to -- we have challenges in Sanger but that's kind of a shift in technology, right? We're down about 11% there and the big thing is, though, it's a shift in technology. We are seeing a significant kind of upside in our ONT technology called Plasmid-E

Andrew, some color here. So our Sanger business is seeing some headwinds. But I'll tell you, with 2,500 drop boxes in the United States, just alone, I'm not even going to speak to Europe and our infrastructure there. In the United States, we've got 2,500 drop boxes. Sanger's being disintermediated by the ONT Plasmid-E

Great, that's helpful. Maybe just one more on that side of the business and I'll sneak a third in at the same time as well. But just in terms of Gene Synthesis, one area that you guys have talked about kind of capacity and needing to add some in India, I think and more kind of coming out of China there relative to other parts of the business. So just to be clear, is the takeaway on the China tariff response that even that business you feel relatively comfortable with kind of the moving parts there? And where are we in that capacity expansion you've talked about before? And then lastly, just, John, the one comment made on getting in that right spot where it's time to execute on M&A and tuck-ins again. What do you need to see in the core business to feel like you're at that point where it is time to get a little bit more kind of forward-looking and aggressive on the M&A front? I appreciate it.

Yes, you bet. So let's talk about Gene Synthesis, then we'll go to capacity and then the M&A piece. So the Gene Synthesis business has been a mid-single-digit grower for us, very steady because our customer base is biotech and pharma specifically. I mean that's the lion's share of our customers, less academics. And I want to share that openly because I think there's a lot of noise and there's a lot of misrepresentation out there in the market, specifically around Synthesis. We compete in a very niche part of this market that no one else does and the needs of those customers are very unique because they're looking at very complex long reads. And that takes a bit of automation which we have. We're about 40% automated on that. And the rest, we've got about 300 -- and I'm sorry, almost 400 PhDs that support that business, both in the U.S. and in China. And so we've got great capabilities there and we meet those customers' needs very uniquely. There's a competitor out there that operates highly automated on a chip and so it's high volume, lower quality but it's a different segment of the market. Again, we're positioned very nicely in that market from a high quality, high complexity very high margin. It's a very high-margin business for us. So that's kind of Gene Synthesis in general. As it pertains to capacity Andrew, we're very early innings there. I mean we're trying to figure out, in general, we go back to Paul's question around discipline, around capital allocation. We're not going to rush into decisions around areas of the business quite yet until we've got absolute clarity there. The easy wins for us around growth in R&D and some commercial investments we're making those today. And as it pertains to capacity, we're increasing capacity and we're -- the team is doing a nice job. We'll come back to you when we've got a clear line of sight into that specifically. Regarding M&A, I mean, I think this is a case where we have to demonstrate credibility and capabilities. And in all candor, we haven't done a good job of that in the past. And so we're trying to change that specifically about doing what we say we're going to do and showing those results and doing that. At the end of the day, we own these results. And when we show a track record on quarter-on-quarter what those results are, we've got stability in the bottom line, very tight controls in the bottom line and we're chasing the upside, meaning we've made those appropriate investments in strategic areas, then I could come to you and say, I think we're ready for some M&A. As I sit here today, we're not sure when that is. We may see some tuck-ins that are -- we're opportunistic around strategic parts of our business. We're not going to let those go. We have capacity to bring on some tuck-ins but more to come on that Andrew as we go forward here.

Thank you. I'm showing no further questions at this time. I would like to turn it back to John Marotta for closing remarks.

Very good. Thank you so much and thank you again for all your support. I want to thank our 3,000 employees that make Azenta special every day and appreciate your time this morning here.