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Item 7. Management’s Discussion and Analysis

2023-11-21 compared with 2022-11-25 · 232 added, 277 removed, 172 unchanged (75% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This 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 Consolidated Financial Statements included elsewhere in this Form 10-K.

You should read the following discussion and analysis of our financial condition and results of operations together with our Consolidated Financial Statements and related notes appearing elsewhere in this Annual Report on Form 10-K.

In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.

Our actual results may differ materially from those discussed below and in the forward-looking statements.

Factors that could cause or contribute to these differences include, without limitation, those discussed in “Information Related to Forward-Looking Statements” and Part I, Item 1A, “Risk Factors” included above in this Annual Report on Form 10-K.

All dollar amounts in the below MD&A are presented in U.S.

dollars, unless otherwise noted or the context otherwise provides.

Our MD&A is organized as follows:

This section provides a general description of our business and operating segments, recent developments, as well as a brief discussion and overall analysis of our business and financial performance, including key developments affecting us during fiscal years ended September 30, 2022 and 2021.

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 us during fiscal years ended September 30, 2023 and 2022.

● 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.

We believe these accounting

policies and estimates are important to understanding the assumptions and judgments incorporated in our reported financial results.

● Results of Operations.

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This section provides an analysis of our liquidity and changes in cash flows, as well as a discussion of contractual commitments.

You should read the MD&A in conjunction with our Consolidated Financial Statements and related notes in this Form 10-K.

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” and Item 1A, “Risk Factors"

included above in this Form 10-K for a discussion of important factors that could cause our actual results to differ materially from our expectations.

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 in March 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.

During the third quarter ended June 30, 2022, we experienced a two-week facility closure in Suzhou, China as a result of local 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.

We are a leading global provider of life science sample exploration and management solutions for the life sciences market.

We entered the life sciences market in 2011, leveraging our in-house capabilities of precision automation and cryogenics that we applied significantly in the semiconductor market, to provide solutions for automated ultra cold storage.

Since then, we have expanded our offerings both organically and through a series of acquisitions.

We now 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 supporting customers at every stage of the life cycle of samples including procurement and sourcing, automated storage systems, genomic services and a multitude of sample consumables, informatics and data software, and sample repository solutions.

Our expertise, global footprint and leadership position enables us to be a trusted partner to pharmaceutical, biotechnology, and life sciences research institutions globally.

In total, we employed approximately 3,200 full-time employees, part-time employees and contingent workers worldwide as of September 30, 2022 and have sales in approximately 100 countries .

We are headquartered in Chelmsford, Massachusetts and have operations in North America, Asia, and Europe.

Our portfolio includes products and services offerings developed by us internally as well as many offerings we have added through multiple acquisitions designed to bring together a comprehensive capability to service our customers’ needs in the sample-based services arena.

We continue to develop new products and services offerings and enhance existing and acquired offerings through the expertise of our research and development resources.

We believe our approach of acquisition, investment, and integration has allowed us to accelerate our internal development and significantly accelerate our time to market.

Within our Life Sciences Products segment, we have developed and continue to develop automated biological sample storage solutions for operating in low temperature environments.

We have a complete line up of automated stores from ambient temperatures to -190°C.

Our BioStore’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 we believe has both broad appeal in the life sciences industry and enables customers to select the best solution for their research challenges.

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.

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 to Thomas H.

Lee, Partners, L.P., or THL, and completed the sale on February 1, 2022, for $2.9 billion in cash.

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” on December 1, 2021.

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.

We are a leading global provider of biological and chemical compound sample exploration and management solutions for the life sciences industry.

We entered the life sciences market in 2011, leveraging our in-house precision automation and cryogenics capabilities that we were then applying in the semiconductor manufacturing market.

This led us to provide solutions for automated ultra-cold storage.

Since then, we have expanded our life sciences offerings through internal investments and through a series of acquisitions.

We now support our customers from research and clinical development to commercialization with our sample management, automated storage, and genomic services expertise to help our customers bring impactful therapies to the market faster.

Our expertise, global footprint and leadership positions enable us to be a trusted global partner to pharmaceutical, biotechnology and life sciences research institutions.

In total, we employ approximately 3,500 full-time employees, part-time employees and contingent workers worldwide as of September 30, 2023 and have sales in approximately 150 countries .

We are headquartered in Burlington, Massachusetts and have operations in North America, Asia, and Europe.

Our portfolio includes product and service offerings developed by us internally, as well as through acquisitions, designed to bring together comprehensive capabilities to service our customers’ needs in sample exploration and management, automated storage, and genomic solutions.

We continue to develop new product and service offerings and enhance existing and acquired offerings through the expertise of our research and development resources.

We believe our acquisition, investment and integration approach has allowed us to accelerate internal development and significantly accelerate time to market for our life sciences solutions.

Our business is comprised of two reportable segments, our Life Sciences Products segment and our Life Sciences Services segment.

For further information on our reportable and operating segments, please refer to Note 18, “Segment

and Geographic Information” to our Consolidated Financial Statements included under Item 8, “Financial Statements and Supplementary Data” of this Form 10- K.

For further information on our reportable and operating segments, please refer to Note 19, Segment and Geographic Information to our Consolidated Financial Statements included under Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Our Life Sciences Products business is a leading provider of automated cold storage solutions for biological and chemical compound samples.

Our storage systems provide reliable automation and sample inventory management at temperatures down to -190°C and can store anywhere from one to millions of samples.

Our sample management solutions include consumable vials and tubes, PCR plates, instruments for supporting workflows, and informatics.

This portfolio provides customers with the highest level of sample quality, security, availability, intelligence and integrity throughout the lifecycle of samples providing customers with complete end-to-end “cold-chain of custody” capabilities.

On July 1, 2022, we acquired Barkey Holding GmbH and its subsidiaries, or Barkey, a leading provider of controlled rate thawing devices for customers in the medical, biotech and pharmaceutical industries, headquartered in Leopoldshöhe, Germany.

We have a complete line of automated storage systems from ambient temperatures to -190°C.

Our sample management solutions include consumable vials and tubes, polymerase chain reaction (“PCR”) plates, instruments for supporting workflows, and informatics.

This portfolio provides customers with a high level of sample quality, security, availability, intelligence and integrity throughout the lifecycle of samples providing customers with complete end-to-end “cold-chain of custody” capabilities.

On July 1, 2022, we acquired Barkey Holding GmbH and its subsidiaries (“Barkey”), a leading provider of controlled rate thawing devices for customers in the medical, biotech and pharmaceutical industries, headquartered in Leopoldshöhe, Germany.

On October 3, 2022, we acquired B Medical Systems S.á r.l and its subsidiaries (“B Medical”), a market leader in temperature-controlled storage and transportation solutions that enable the delivery of life-saving treatments to more than 150 countries worldwide.

This acquisition complements our cold-chain capabilities, adding differentiated solutions for reliable and traceable transport of temperature-sensitive samples.

Additionally, on February 2, 2023, we acquired Ziath Ltd.

and its subsidiaries (“Ziath”), a leading provider of 2D barcode readers for life sciences applications to complement our product offerings.

Our Life Sciences Services business is a leading provider of solutions addressing the many needs of customers in the area of genomic analysis and the management and care of biological samples used in pharmaceutical, biotech, healthcare, clinical, and academic research and development markets.

We process millions of samples every year, each containing valuable information that must be preserved with the sample.

Our genomic services provide a broad capability to customers for sequencing and synthesis of genes.

Our sample management services include off-site storage services, transport services, laboratory services, and interactive informatics solutions.

We also provide expert-level consultation services to our clients throughout their experimental design and implementation.

We process millions of samples annually, each containing valuable information that must be preserved with the sample.

Our genomic services provide a broad capability to customers for gene sequencing, synthesis, editing and related services.

We offer a comprehensive, global portfolio that we believe has both broad appeal in the life sciences industry and enables customers to select the best solution for their research and development challenges.

This portfolio also offers unique solutions for key markets such as cell and gene therapy (“CGT”), antibody development and biomarker discovery by addressing genomic complexity and throughput challenges.

Our sample management services include off-site storage services, transport services, laboratory services, sample procurement, and interactive informatics solutions.

We also offer expert-level consultation services to our clients throughout their experimental design and implementation processes.

Our services also include short- and long-term sample storage and management of the “cold-chain of custody” from collection, to storage, to retrieving the sample which ultimately may go back into the research workflow.

Acquisition completed after fiscal year end

On October 3, 2022, we acquired B Medical Systems S.á r.l and its subsidiaries, or B Medical, a market leader in temperature-controlled storage and transportation solutions that enables the delivery of life-saving treatments to more than 150 countries worldwide.

This acquisition complements our cold chain capabilities, adding differentiated solutions for reliable and traceable transport of temperature-sensitive specimens.

Sale of the Semiconductor Automation Business

On February 1, 2022, we completed the sale of our semiconductor automation business to Thomas H.

Lee, Partners, L.P., for $2.9 billion in cash.

In connection with the 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 began trading on the Nasdaq Global Select Market under the symbol “AZTA” on December 1, 2021.

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 is 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.

Business and Financial Performance

Our performance for the twelve months ended September 30, 2022, 2021 and 2020 are as follows:

Our performance for the twelve months ended September 30, 2023, 2022 and 2021 is as follows:

Year Ended September 30,

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Selling, general and administrative

Contingent consideration - fair value adjustments

Restructuring charges

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Operating loss

Other income (expense)

Interest income

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Loss on extinguishment of debt

Other expense, net

Loss before income taxes

Income tax provision (benefit)

Income tax (benefit) expense

Loss from continuing operations

Income from discontinued operations, net of tax

Income (loss) from discontinued operations, net of tax

Net income (loss)

Results of Operations

Fiscal Year Ended September 30, 2023 Compared to Fiscal Year Ended September 30, 2022

Revenue increased 8% for the fiscal year 2022 as compared to the prior fiscal year driven by revenue growth in our Life Sciences Services segment of 13%.

Gross margin was 46% for fiscal year 2022 compared to 47.5% for fiscal year 2021.

Operating expenses in fiscal year 2022 increased by $5.4 million compared to the prior fiscal year due to increases in both research and development expenses and selling, general and administrative expenses.

We reported an operating loss of $24.7 million for fiscal year 2022 compared to an operating loss of $31.1 million for fiscal year 2021, primarily due to the retirement of tradenames related to the rebranding of the Life Sciences business of $13.4 million and a charge related to liabilities for import tariffs related to imports in prior fiscal years that took place in the fourth quarter of 2021.

This was partially offset by inflation and investment in the business.

We also recorded $16 million of net interest income from our investments in marketable securities in fiscal year 2022.

Overall, we generated a net loss from continuing operations of $11.3 million during fiscal year 2022 compared to a net loss from continuing operations of $28.9 million in fiscal year 2021.

Please refer to the “Results of Operations” section below for a detailed discussion of our financial results for the fiscal year 2022 compared to fiscal year 2021.

Cash Flows and Liquidity -

Our cash and cash equivalents, restricted cash and marketable securities were $2.3 billion as of September 30, 2022 and $244.0 million as of September 30, 2021.

Fiscal year 2021 excludes $45.0 million of cash classified as assets held for sale related to the semiconductor automation business.

Cash and cash equivalents and restricted cash as presented on our Consolidated Statements of Cash Flows are on a total company basis and were $1.0 billion as of September 30, 2022 compared to $285.3 million as of September 30, 2021.

The increase of $0.8 billion was attributable to $1.5 billion of investing activities, including $2.9 billion of proceeds from the sale of the semiconductor automation business offset by $1.5 billion of investments in marketable securities, new acquisitions and capital equipment;

$63 million of cash outflow from financing activities, and $466

million of cash outflows from operating activities.

The cash outflow from operating activities includes $431.6 million of taxes and $52.5 million of fees related to the sale of the semiconductor automation business.

The effects of foreign exchange reduced the cash balance by $180.8 million.

Please refer to the “Liquidity and Capital Resources” section below for a detailed discussion of our liquidity and changes in cash flows for fiscal year 2022 compared to fiscal year 2021.

Revenue increased 20% in fiscal year 2023 compared to the prior fiscal year, driven by revenue growth in our Life Sciences Products segment of 53% primarily due to acquisitions (largely B Medical), partially offset by the decline in COVID-related revenues in our Consumables and Instruments business.

Gross margin was 39.6% for fiscal year 2023 compared to 46.0% in the prior fiscal year, primarily due to the higher costs resulting from the amortization of purchase accounting adjustments and intangibles associated with the acquisition of B Medical, and unfavorable mix in the Life Sciences Products segment, inclusive of margin dilution attributable to lower margins in the acquired B Medical business in the current year.

Operating expenses increased $55.9 million in fiscal year 2023 compared to the prior fiscal year.

Selling, general and administrative expenses increased $64.8 million in fiscal year 2023 compared to the prior fiscal year, primarily due to the acquisitions of B Medical and Barkey, partially offset by an $18.5 million reduction in the fair value of contingent consideration related to B Medical.

We generated an operating loss of $73.1 million for fiscal year 2023 compared to an operating loss of $24.7 million for fiscal year 2022, driven by a reduction in gross margin and an increase in operating expenses.

Loss from continuing operations was $12.9 million during fiscal year 2023 as compared to a loss from continuing operations of $11.3 million in fiscal year 2022.

Loss from discontinued operations was $1.4 million during fiscal year 2023 as compared to income from discontinued operations of $2.1 billion in fiscal year 2022.

The results for discontinued operations for fiscal year 2023 were due to adjustments to and/or settlements of assets and liabilities associated with the discontinued operations.

Please refer to the “Results of Operations” section below for a detailed discussion of our financial results for fiscal year 2023 compared to fiscal year 2022.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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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 life science industry, 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.

We evaluate current and anticipated worldwide economic conditions, both in general and specifically in relation to the life sciences industry, 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.

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We generate revenue from the sale of products and services.

A description of our revenue recognition policies is included in the Note 2, “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data"

of this Form 10-K.

A description of our revenue recognition policies is included in Note 2, Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Although most of our sales agreements contain standard terms and conditions, certain agreements contain multiple performance obligations or non-standard terms and conditions.

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Performance obligations whose standalone selling price is estimated using an expected cost-plus margin approach relate to the sale of customized automated cold sample management systems and service-type warranties within the Life Sciences Products segment.

Revenue from the sales of certain products that involve significant customization, which primarily include automated cold sample management systems is recognized over time as the asset created by our performance does not have alternative use to us and an enforceable right to payment for performance completed to date is present.

Revenue from the sales of certain products that involve significant customization, which primarily include automated cold sample management systems, is recognized over time as the asset created by our performance does not

have alternative use to us and an enforceable right to payment for performance completed to date is present.

We recognize revenue as work progresses based on a percentage of actual labor hours incurred on the project to-date and total estimated labor hours expected to be incurred on the project.

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We account for business acquisitions using the purchase method of accounting, in accordance with which assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date.

The fair value of the consideration paid, including contingent consideration, is assigned to the assets acquired and liabilities assumed based on their respective fair values.

Goodwill represents the excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed.

Significant judgment is used in determining fair values of assets acquired, liabilities assumed, and contingent consideration, as well as intangibles and their estimated useful lives.

Fair value and useful life determinations may be based on, among other factors, estimates of future expected cash flows, royalty cost savings and appropriate discount rates used in computing present values.

For all the current year acquisitions, management applied significant judgment in estimating the fair value of the acquired intangible assets, which involved significant estimates and assumptions with respect to forecast revenue growth rates and the discount rates.

Fair value and useful life determinations may be based on, among other factors, estimates of revenue growth rates, operating expenses, integration costs, obsolescence factor and discount rate among others attributable to completed technology and other acquired intangible assets used in computing present values.

These judgments may materially impact the estimates used in allocating acquisition date fair values to assets acquired and liabilities assumed, as well as our current and future operating results.

Actual results may vary from these estimates that may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever occurs first.

Actual results may vary from these estimates and may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever occurs first.

Adjustments to fair values of assets and liabilities made after the end of the measurement period are recorded within our operating results.

Contingent consideration is recorded at fair value as measured on the date of acquisition using an appropriate valuation model, such as the Monte Carlo simulation model.

The value recorded is based on estimates of future financial projections under various potential scenarios, in which the model runs many simulations based on comparable companies’ growth rates and their implied volatility.

Our estimates of forecasted revenues in the earn-out period include a consideration of current industry information, market and economic trends, historical results of the acquired business and other relevant factors.

These cash flow projections are discounted with a risk adjusted rate.

Each quarter until such contingent amounts are earned, the fair value of the liability is remeasured at each reporting period based on changes to the underlying assumptions.

The estimates used to determine the fair value of the contingent consideration liability are subject to significant judgment and given the inherent uncertainties in making these estimates, actual results are likely to differ from the amounts originally recorded and could be materially different.

Intangible Assets, Goodwill and Other Long-Lived Assets

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Intangible assets other than goodwill and long-lived assets are subject to impairment testing if events and circumstances indicate that the carrying amount of an asset or a group of assets may not be recoverable.

The goodwill impairment test is performed at the reporting unit level.

A reporting unit is either an operating segment or one level below it, which is referred to as a “component.” The level at which the impairment test is performed requires an assessment of whether the operations below an operating segment constitute a self-sustaining business, in which case testing is generally performed at this level.

We have two operating and two reportable segments consisting of Life Sciences Products and Life Sciences Services.

We previously had three reporting units, which included the Life Sciences Products operating segment, which constitutes of a single reporting unit, and two reporting units within the Life Sciences Services operating segment, sample repository solutions and genomic services, which have been combined into a single reporting unit within the Life Sciences Services segment following the 2021 impairment test.

See Note 8, “Goodwill and Intangible Assets” for additional information.

We perform our annual goodwill impairment assessment on April 1 st of each fiscal year.

We evaluate a reporting unit’s goodwill for impairment between annual tests if events occur or circumstances change that would more likely than not reduce the fair value of such reporting unit below its carrying value.

In accordance with Accounting Standards Codification 350, Intangibles- Goodwill and Other , we initially assess qualitative factors to determine whether the existence of events or circumstances indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying value.

If we determine, based on this assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying value, we perform a quantitative goodwill impairment test by comparing the reporting unit’s fair value with its carrying value.

An impairment loss is recognized for the amount by which the reporting unit’s carrying value exceeds its fair value, up to the total amount of goodwill allocated to the reporting unit.

No impairment loss is recognized if the fair value of the reporting unit exceeds its carrying value.

We determine fair values of our reporting units based on an income approach in accordance with the discounted cash flow method, or DCF Method.

In performing a quantitative test for impairment, either annually, or if required after initially assessing qualitative factors to determine whether events occurred indicating possible impairment (as described further in Note 2 Summary of

Significant Accounting Policies in the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K ), we determine fair values of our reporting units based on an income approach in accordance with the discounted cash flow method, (the “DCF Method”).

The DCF Method is based on projected future cash flows and terminal value estimates discounted to their present values.

Terminal value represents a present value an investor would pay on the valuation date for the rights to the cash flows of the business for the years subsequent to the discrete cash flow projection period.

We consider the DCF Method to be the most appropriate valuation technique since it is based on management’s long-term financial projections.

In addition to determining the fair value of our reporting units based on the DCF Method, we also compare the aggregate values of our net corporate assets and reporting unit fair values to our overall market capitalization and use certain market-based valuation techniques to assess the reasonableness of the reporting unit fair values determined in accordance with the DCF Method.

The key inputs used in the DCF Method include revenue growth rates, gross margin percentage, selling, general and administrative expense percentage and discount rates that are at or above our weighted-average cost of capital.

The key inputs used in the DCF Method include revenue growth rates, gross margin percentages, selling, general and administrative expense percentages and discount rates that are at or above our weighted average cost of capital.

We derive discount rates that are commensurate with the risks and uncertainties inherent in the respective reporting units and our internally developed projections of future cash flows .

Application of the goodwill impairment test requires judgment based on market and operational conditions at the time of the evaluation, including management’s best estimates of the reporting unit’s future business activity and the related estimates and assumptions of future cash flows from the assets that include the associated goodwill.

Different assumptions of revenue growth rates, gross margin percentage, selling, general and administrative expense percentage and the discount rate used in the DCF Method could result in different estimates of the reporting unit’s fair value as of each testing date.

We completed our annual goodwill impairment test as of April 1, 2022 for our continuing operations Life Sciences Products and Life Sciences Services segments.

Based on the test results, we determined that no adjustment to goodwill was necessary at that time.

We conducted a qualitative assessment for the Life Sciences Products and Life Sciences Services reporting units and determined that it was more likely than not that its fair value was greater than their carrying value.

As a result of the analysis, we did not perform the quantitative assessment, and did not recognize any impairment losses.

In the fourth quarter of 2022, we experienced a decline in our stock price resulting in our market capitalization being less than our carrying value of our reporting units.

Therefore, as of September 30, 2022, we assessed several events and circumstances that could affect the significant inputs used to determine the fair value of our reporting units, including updates to operating margins and cash flows, and the overall change in the economic climate.

We considered the decline in the market capitalization being less than the carrying value of our reporting units in our evaluation of goodwill impairment indicators and determined it appropriate to perform a quantitative assessment of both our reporting units as of September 30, 2022.

Our valuation was based on the DCF Method.

We concluded that there was no impairment, as the estimated fair value of the segments exceeded their carrying value.

Different assumptions of revenue growth rates, gross margin percentages, selling, general and administrative expense percentages and the discount rate used in accordance with the DCF Method could result in different estimates of the reporting units’ fair value as of each testing date .

In the event the financial performance of either of the segments does not meet our expectations in the future, we experience a prolonged macro or market downturn, or there are other negative revisions to key assumptions used in our DCF Method, we may be required to perform additional impairment analyses and could be required to recognize a non-cash impairment charge.

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The loss is allocated to the assets within the group based on their relative carrying values, with no asset reduced below its fair value.

We did not test our long-lived assets for impairment during fiscal year 2022 since no events indicating impairment occurred during the periods then ended.

During the fourth quarter of fiscal year 2021, we announced that the life sciences businesses would be rebranded under a single, unified life sciences brand, Azenta Life Sciences, or Azenta, during the first half of fiscal year 2022.

We concluded that the abandoned tradenames for these businesses were fully impaired in the fiscal fourth quarter of 2021 and recorded a $13.4 million charge for the tradename impairment loss.

The impairment loss is included in the Selling, general and administrative expense in our Consolidated Statements of Operations .

We were not required to test our long-lived assets for impairment during fiscal years 2023 or 2022 since no events indicating impairment occurred during the periods then ended.

We state our inventory at the lower of cost or market and make adjustments to reduce the inventory cost to its net realizable value by providing estimated reserves for excess or obsolete inventory.

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We consider recent historical income, estimated future taxable income, carry-forward periods of tax attributes, and ongoing tax planning strategies in assessing the need for the valuation allowance.

We evaluate the realizability of our deferred tax assets by tax-paying component and assess the need for a valuation allowance on an annual and quarterly basis.

We evaluate the realizability of

our deferred tax assets by tax-paying component and assess the need for a valuation allowance on a quarterly basis.

We evaluate the profitability of each tax-paying component on a historic cumulative basis and on a forward-looking basis while performing this analysis.

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Recently Issued Accounting Pronouncements

For a summary of recently issued accounting pronouncements applicable to our Consolidated Financial Statements which is incorporated here by reference, please refer to Note 2, “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of this Form 10-K.

For a summary of recently issued accounting pronouncements applicable to our Consolidated Financial Statements which is incorporated here by reference, please refer to Note 2, Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

RESULTS OF OPERATIONS

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A comparison of our results for the fiscal year ended September 30, 2022 to the fiscal year ended September 30, 2021 is included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for fiscal year ended September 30, 2022, filed with the SEC on November 25, 2022.

Non-GAAP Financial Measures

Non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures.

Management adjusts the GAAP results for the impact of amortization of intangible assets, restructuring charges, purchase price accounting adjustments, and charges related to M&A to provide investors better perspective on the results of operations which the Company believes is more comparable to the similar analysis provided by its peers.

Management also excludes special charges and gains, such as impairment losses, gains and losses from the sale of assets, certain tax benefits and charges, as well as other gains and charges that are not representative of the normal operations of the business.

Management strongly encourages investors to review our financial statements and publicly filed reports in their entirety and not rely on any single measure.

Our revenue performance for the twelve months ended September 30, 2023, 2022, and 2021 is as follows:

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Fiscal Year Ended September 30, 2023 Compared to Fiscal Year Ended September 30, 2022

Revenue for fiscal year 2022 increased 8% as compared to the prior fiscal year.

The COVID-19 pandemic has had varying impacts on our business for the fiscal year ended September 30, 2022.

Further discussion of the impacts of the COVID-19 pandemic has had on each segment are discussed below.

Our Life Sciences Products segment revenue was decreased slightly over year.

This was due to growth in stores & services product lines which was offset by a reduction in consumables and instruments, as COVID-19 related demand declined in fiscal 2022 from the prior fiscal year.

Our Life Sciences Services segment revenue increased 13% in fiscal year 2022 compared to the prior fiscal year, with double digit growth in both our genomics and sample repository solutions businesses.

Sample repository solutions revenue increased 18% in fiscal year 2022 compared to the prior fiscal year due to the growth in our storage services.

Genomic services revenue increased 11% in fiscal year 2022 compared to the prior fiscal year primarily due to an increase in our next generation sequencing business.

We estimate that revenue related to the COVID-19 pandemic for the fiscal year ended September 30, 2022 was approximately $22 million in the aggregate primarily attributable to the increased demand for our consumables and instruments products as compared to COVID-related revenue of $53 million for the year ended September 30, 2021.

Revenue increased 20% in fiscal year 2023 compared to the prior fiscal year, driven by a 53% increase in our Life Sciences Products segment and a 1% increase in our Life Sciences Services segment.

Our Life Sciences Products segment revenue increased 53% year-over-year, primarily due to acquisitions (largely B Medical).

Excluding these acquisitions, we experienced a decline in revenue of approximately 9% year-over-year, primarily due to the decreased demand and associated revenue for COVID-19 related to our Consumables and Instruments business of approximately 28% year-over-year, which was partially offset by increased revenue in Automated Store Systems of approximately 20% year-over-year.

Our Life Sciences Services segment revenue increased 1% year-over-year, primarily due to growth in our SRS business, partially offset by a decline in the Genomics Services business.

We estimate that revenue related to the COVID-19 pandemic for the fiscal year ended September 30, 2023 was approximately $7.7 million in the aggregate, including $4.1 million from B Medical, as compared to COVID-related revenue of $22 million for the year ended September 30, 2022.

The decrease in this revenue was primarily due to lower demand for Consumables and Instruments related to COVID-19 testing.

We anticipate continued growth in revenue from our Life Sciences Products and Services businesses through our internally developed products and services and through our acquired businesses and potential future acquisitions.

Revenue generated outside the United States amounted to $310.0 million, or 47% of total revenue, for fiscal year 2023 compared to $197.3 million, or 36% of total revenue, for fiscal year 2022.

There was one customer with more than 10% of our consolidated revenue for fiscal year 2023.

This individual customer is a distributor shipping to end users in approximately 50 countries.

No individual customer accounted for more than 10% of our consolidated revenue for the fiscal year ending 2022.

Operating Income (Loss)

Our operating performance for the twelve months ended September 30, 2023, 2022 and 2021 is as follows:

Life Science Products

Life Science Services

Year Ended September 30,

Dollars in thousands

Life Sciences Products

Life Sciences Services

Total revenue

Operating income:

Life Sciences Products

Life Sciences Products adjusted operating margin

Life Sciences Services

Life Sciences Services adjusted operating margin

Segment adjusted operating income

Total segment adjusted operating margin

Operating income (loss):

Operating income (loss)

Amortization of completed technology

Restructuring related charges

Purchase accounting impact on inventory

Amortization of other intangibles

Tariff adjustment

Other adjustments

Total adjusted operating income (loss)

Operating margin

Adjusted operating margin

Year Ended September 30,

Dollars in thousands

Operating income (loss):

Operating income (loss)

Amortization of completed technology

Purchase accounting impact on inventory

Impairment of intangible assets

Amortization of acquired intangible assets

Restructuring charges

Amortization of other intangibles

Tariff adjustment

Other unallocated corporate expenses

Total operating loss

Total operating margin

We reported an operating loss of $24.7 million for fiscal year 2022 compared to an operating loss of $31.1 million for fiscal year 2021.

The decrease in operating loss was primarily due to the impairment of a trademark in 2021 of $13.4 million.

Operating income for our Life Sciences Products segment was $11.0 million for fiscal year 2022 compared to an operating income of $22.0 million for fiscal year 2021.

Cost of sales for our Life Sciences Products segment includes charges for amortization related to completed technology of $1.1 million for both fiscal years 2022 and 2021.

Adjusted operating income for our Life Sciences Products segment, which excludes the charges mentioned above, was $12.2 million for fiscal year 2022 and adjusted operating income in fiscal year 2021 was $23.1 million after excluding these charges.

Please refer to Note 18, “Segment and Geographic Information”.

Operating income for our Life Sciences Services segment was $10.8 million for fiscal year 2022, a slight increase as compared to an operating income of $10.3 million for fiscal year 2021.

Cost of sales for our Life Sciences Services segment includes charges for amortization related to completed technology of $6.3 million for fiscal year 2022 and $7.0 million for 2021.

Fiscal year 2021 cost of sales includes $5.4 million of cost accrued for tariff liabilities related to intercompany import activities that occurred during the fiscal years from 2016 to 2020.

Adjusted operating income for our Life Sciences Services segment, which excludes the charges mentioned above, was $16.8 million for fiscal year 2022 and adjusted operating income in fiscal year 2021 was $22.7 million after excluding these charges.

Please refer to Note 18, “Segment and Geographic Information”.

Rebranding and transformation costs

Restructuring charges

Contingent consideration - fair value adjustments

Merger and acquisition costs and costs related to share repurchase (1)

Other adjustments

Total adjusted operating income (loss)

Operating margin

Adjusted operating margin

(1) Includes expenses related to governance-related matters.

We generated an operating loss of $73.1 million for fiscal year 2023 compared to an operating loss of $24.7 million in the prior fiscal year.

The increase in operating loss year-over-year was driven by lower gross margin at Life Sciences Services primarily due to macroeconomic uncertainty and pricing in the Genomics business, as well lower gross margin at Life Sciences Products primarily due to the acquisition of B Medical driving increased selling, general and administrative expenses and lower gross margin for the segment overall.

Fiscal year 2023 included the impact of amortization of intangible assets and purchase accounting impact on inventory due to the addition of B Medical.

Within operating expenses, research and development expenses increased $6.4 million and selling, general, and administrative expenses increased $64.8 million.

Selling, general and administrative expenses increased due to the addition of B Medical, higher labor costs, and continued investment in the business.

These increased expenses were partially offset by an adjustment to the fair value of contingent consideration related to B Medical of $18.5 million and savings from cost reduction actions.

Operating loss for our Life Sciences Products segment was $30.3 million for fiscal year 2023 compared to operating income of $11.0 million in the prior fiscal year.

The Life Science Products segment adjusted operating income decreased $18.1 million and adjusted operating margin decreased 8.0 percentage points compared to the prior year.

The decrease in adjusted operating income was driven by an increase in operating expenses of $53.0 million (primarily due to the addition of B Medical), partially offset by higher adjusted gross profit of $33.9 million driven by increased revenues.

Adjusted operating income for our Life Sciences Products segment excludes charges for amortization related to completed technology of $13.2 million and $1.1 million for fiscal years 2023 and 2022, respectively, a $9.7 million charge related to the purchase accounting impact on inventory, and a $1.6 million charge related to amortization of other intangibles for fiscal year 2023.

Please refer to Note 19, Segment and Geographic Information in the Notes to the

Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10 K.

Operating loss for our Life Sciences Services segment was $14.7 million for fiscal year 2023 as compared to operating income of $10.8 million in the prior fiscal year.

The Life Sciences Services segment adjusted operating income decreased $26.2 million and adjusted operating margin decreased 7.3 percentage points compared to the prior year.

The decrease in adjusted operating income was driven by lower adjusted gross profit of $5.3 million and an increase in adjusted operating expenses of $20.8 million.

Adjusted operating income for our Life Sciences Services segment excludes charges for amortization related to completed technology of $5.3 million and $6.2 million for fiscal years 2023 and 2022, respectively, and a $0.5 million benefit from a tariff adjustment for fiscal year 2022.

Please refer to Note 19, Segment and Geographic Information in the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10 K.

Our gross margin performance for the twelve months ended September 30, 2023, 2022 and 2021 is as follows:

6 unchanged sentences

Amortization of completed technology

Other adjustment

Purchase accounting impact on inventory

Tariff adjustment

Other unallocated corporate expenses

Adjusted gross profit

Adjusted gross margin

We reported gross margins of 46.0% for fiscal year 2022 compared to 47.5% for fiscal year 2021, a decrease of 1.5 points.

We reported a gross margin of 39.6% for fiscal year 2023 compared to 46.0% in the prior fiscal year, a decrease of 6.4 percentage points.

Gross margin decreased 11.6 percentage points in the Life Sciences Products segment and 1.7 percentage points in the Life Sciences Services segment for fiscal year 2023 compared to the prior fiscal year.

Our Life Sciences Products segment reported gross margins of 44.7% for fiscal year 2022 compared to 46.4% for fiscal year 2021.

The contraction of gross margin by 1.7 percentage points was primarily due to unfavorable product mix and inflation during fiscal year 2022.

Cost of revenue in fiscal year 2022 and 2021 both included $1.1 million, of amortization related to completed technology.

Excluding these charges, adjusted gross margins contracted 1.7 percentage points in fiscal year 2022, compared to fiscal year 2021.

Please refer to Note 18, “Segment and Geographic Information”.

Our Life Sciences Services segment reported gross margins of 46.7% for fiscal year 2022 compared to 48.2% for fiscal year 2021.

The reduction of 1.4 points was driven by higher costs due to a buildout of our facilities infrastructure and the effects of currency and inflation during fiscal year 2022.

Cost of revenue during fiscal year 2022 included $6.2 million of amortization related to completed technology as compared to $7.0 million incurred during fiscal year 2021.

Cost of revenue for fiscal year 2021 included $5.4 million of tariff related charges.

Excluding the impact of the amortization related to completed technology and tariff charges, as described above, adjusted gross margins decreased 3.7 percentage points in fiscal year 2022, as compared to fiscal year 2021.

Please refer to Note 18, “Segment and Geographic Information”.

Our Life Sciences Products segment reported gross margin of 33.2% for fiscal year 2023 compared to 44.7% in the prior fiscal year.

The decrease was primarily driven by the impact of amortization of purchase accounting adjustments and intangibles associated with the acquisition of B Medical.

Cost of revenue in fiscal years 2023 and 2022 included $13.2 million and $1.1 million, respectively, of amortization related to completed technology.

Fiscal year 2023 also included $9.7 million of purchase accounting impact on inventory.

Excluding these charges, adjusted gross margin decreased 4.6 percentage points in fiscal year 2023 compared to the prior year, primarily due to the mix of products sold in our Cryogenics business, and margin dilution attributable to lower margins in the acquired B Medical business in the current year.

Our Life Sciences Services segment reported gross margin of 45.0% for fiscal year 2023 compared to 46.7% in the prior fiscal year primarily driven by a decline in the Genomic Services business due to the impact of lower sales, higher labor costs and continued investment in the business.

Research and Development Expenses

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Life Sciences Products

Percent Revenue

Life Sciences Services

Percent Revenue

Total research and development expense

Percent Revenue

Research and development expenses in fiscal year 2022 increased $5.1 million as compared fiscal year 2021, driven by a $3.8 million increase in our Life Sciences Products segments and a $1.4 million increase in our Life Sciences Services segment.

Research and development expenses in our Life Sciences Products segment increased $3.8 million in fiscal year 2022 compared to fiscal year 2021.

The increase in research and development expenses were primarily related to continued investment in automated stores, cryogenic stores, and operations associated with the Barkey acquisition.

Research and development expenses in our Life Sciences Services segment increased $1.4 million in fiscal year 2022 compared to fiscal year 2021.

The increase in research and development expenses was primarily driven by higher investments in our genomics services business.

Life Sciences Products Percent-Segment Revenue

Life Sciences Services Percent-Segment Revenue

Corporate Percent Revenue

Total Percent-Total Revenue

Research and development expenses increased $6.4 million in fiscal year 2023 as compared fiscal year 2022, primarily driven by a $6.3 million increase in our Life Sciences Products segments due to the addition of B Medical as well as an increase in product development expenses.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses for the twelve months ended September 30, 2022, 2021, and 2020 is as follows:

Our selling, general and administrative expense for the twelve months ended September 30, 2023, 2022, and 2021 is as follows:

Year Ended September 30,

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Life Sciences Products

Percent Revenue

Life Sciences Services

Percent Revenue

Total selling, general and administrative expense

Percent Revenue

Total selling, general and administrative expenses were flat in fiscal year 2022 as compared to fiscal year 2021, driven by an increase of $17.1 million from segment selling, general and administrative expenses and a decrease of $17.2 million from corporate expenses not allocated to our segments.

The segment selling, general and administrative expenses are discussed in further detail below.

The decrease in unallocated corporate expenses in fiscal year 2022 compared to the prior fiscal year was primarily due to $13.4 million of impairment charges to intangible assets related to tradenames recorded in 2021.

Merger and acquisition related expenses decreased by $2.7 million for fiscal year 2022 as compared to fiscal year 2021.

Unallocated corporate expenses also include the amortization of intangible assets primarily related to customer relationships, which were $32.3 million for fiscal year 2022 and $37.4 million for fiscal year 2021.

Selling, general and administrative expenses at the segment level, which are discussed below, include corporate allocations from shared corporate functions which include finance, information technology, human resources, legal, executive, governance, logistics and compliance, and variable compensation.

During fiscal year 2022 corporate allocated expenses decreased $17.2 million compared to fiscal year 2021, primarily due to lower variable compensation accruals.

Selling, general and administrative expenses in our Life Sciences Products segment increased $3.7 million in fiscal year 2022 as compared to fiscal year 2021, due to higher selling costs as we made investments in our commercial resources and capabilities .

Selling, general and administrative expenses in our Life Sciences Services segment increased $13.4 million in fiscal year 2022 as compared to fiscal year 2021 primarily due to selling costs as described above, and support personnel in our laboratories .

Life Sciences Products Percent-Segment Revenue

Life Sciences Services Percent-Segment Revenue

Corporate Percent-Total Revenue

Percent-Total Revenue

Selling, general and administrative expenses increased $64.8 million in fiscal year 2023 as compared to fiscal year 2022, driven by higher costs in both our segments (largely in Life Sciences Products due to $41.5 million associated with B Medical), partially offset by savings from cost reduction actions.

Within our segment expense, 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, and compliance.

In total, corporate general and administrative expense allocated to segments increased $12.2 million year-over-year, primarily due to higher labor costs and investment in the business.

Selling, general and administrative expenses in our Life Sciences Products segment increased $47.2 million year-over-year, primarily due to the addition of B Medical .

Selling, general and administrative expenses in our Life Sciences Services segment increased $20.8 million year-over-year, primarily due to investments in the commercial organization .

Corporate expenses decreased $3.2 million year-over-year primarily due to lower external professional service cost related to merger, rebranding, and transformation costs.

Non-Operating Income (Expenses)

Interest income – During fiscal years 2022 and 2021, we recorded interest income of $20.3 million and $0.6 million respectively, which primarily represented interest earned on our marketable securities.

The increase in interest income in fiscal year 2022 from 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.

Interest income – During fiscal years 2023 and 2022, we recorded interest income of $43.7 million and $20.3 million, respectively, which primarily represented interest earned on our cash and cash equivalents, marketable securities, and net investment hedge.

The increase in interest income in fiscal year 2023 from the prior fiscal year is due to higher interest rates on the investment of the proceeds from the sale of the semiconductor automation business, including interest accrued on a net investment hedge during fiscal year ended 2023.

Interest expense – During fiscal years 2023 and 2022, we recorded interest expense of $0.0 million and $4.6 million, respectively.

The interest expense for fiscal year 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 fiscal year 2021 is primarily related to interest expense on our former term loan.

Other expenses, net – During fiscal years 2022 and 2021 we recorded other expenses, net of $0.3 million and $16.5 million, respectively.

Other expense, net for fiscal year 2022 is primarily due to foreign exchange loss.

Other expense, net for fiscal year 2021 includes a $16.0 million charge related to the release of a tax indemnification asset which is offset in the Income tax benefit line item in our Consolidated Statements of Operations.

Income Tax Provision (Benefit)

We recorded an income tax provision on continuing operations of $1.4 million in fiscal year 2022 compared to an income tax benefit of $20.1 million in fiscal year 2021.

The changes were the result of fluctuations in global income from operations and one-time tax benefits recorded in the fiscal year 2021.

The income tax provision for fiscal year 2022 was primarily driven by the tax provision on earnings in our foreign jurisdictions offset by the tax benefit on the losses in the United States on a continuing operations basis.

The income tax benefit during fiscal year 2021 was driven primarily by uncertain tax position reversals totaling $18.2 million, which includes $16.0 million of uncertain tax positions that were indemnified.

The tax reserve reversal is offset by a $3.4 million tax charge related to the write off a future tax deduction that would have been recognized if the uncertain tax position was settled in an audit.

The benefit also included $2.0 million of benefits related to the reversal of valuation allowances against deferred tax assets, losses in the U.S.

jurisdiction and stock compensation deductions in excess of book expenses.

The overall benefit for fiscal year 2021 was partially offset by $4.1 million of withholding tax costs related to repatriation of foreign earnings in connection with the planned sale of the semiconductor automation business and the tax provision on earnings in our foreign jurisdictions during the year.

There is no interest expense in 2023 as the interest rate was positive.

Other expenses, net – During fiscal years 2023 and 2022, we recorded other expenses, net of $1.0 million and $0.3 million, respectively, primarily due to foreign exchange loss.

Income Tax (Benefit) Expense

We recorded an income tax benefit on continuing operations of $17.6 million in fiscal year 2023 compared to an income tax expense of $1.4 million in fiscal year 2022.

The increased tax benefit for the year was driven by the increased global pre-tax loss from operations recorded in fiscal year 2023.

In addition to the tax benefit driven by the loss from operations, we also recorded a $1.4 million tax benefit from the reversal of tax reserves, a $1.4 million deferred tax benefit resulting from a tax rate reduction extension in our China business, and a $6.1 million tax benefit related to the outside basis difference in a German subsidiary.

The benefit includes $8.1 million related to anticipated U.S.

foreign exchange losses on the future repatriation calculated at foreign exchange rates as of September 30, 2023.

This benefit is offset by $2.0 million of state income taxes, net of the federal benefit.

During the fourth quarter of fiscal year 2023, it became apparent that the outside basis difference with regard to $450 million of foreign cash maintained in the German subsidiary would be reversed within the next twelve months.

These additional tax benefits drove the effective tax rate on our loss higher than ordinary statutory tax rates.

Discontinued Operations

Discontinued operations in fiscal years 2022 and 2021 consist of the semiconductor automation business.

Discontinued operations in fiscal year 2022 consisted of the semiconductor automation business.

On February 1, 2022, the Company completed the sale of the semiconductor automation business for $2.9 billion in cash.

Revenue from discontinued operations was $264.4 million and $680.1 million, respectively, for fiscal years 2022 and 2021 related to the semiconductor automation business.

Net income from discontinued operations was $2.1 billion and $139.6 million for fiscal years 2022 and 2021, respectively, and is comprised of the gain on the sale of the semiconductor business in fiscal year 2022, and results of operations of the semiconductor automation business in fiscal year 2021.

There was no revenue from discontinued operations for fiscal year 2023.

Revenue from discontinued operations was $264.4 million for fiscal year 2022.

Net loss from discontinued operations was $1.4 million for fiscal year ended 2023 and net income was $2.1 billion for fiscal year 2022.

The net loss from discontinued operations was primarily driven by adjustments to liabilities related to discontinued operations, particularly the accrued liability for the litigation with Edwards Vacuum LLC which was recorded during second quarter of 2023 and is discussed in Note 20, Commitments and Contingencies in the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10 K.

Net income from fiscal year 2022 is comprised of the gain on the sale of the semiconductor business.

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.

1 unchanged sentence

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 short and long-term impacts of the COVID-19 pandemic, make it difficult for us to predict

longer-term liquidity requirements with sufficient certainty.

As of September 30, 2023, we had cash and cash equivalents of $678.9 million, marketable securities of $450.2 million, and stockholders’ equity of $2.5 billion.

Net cash provided by (used in) operating activities was $17.5 million and ($466.0) million for fiscal years ending 2023 and 2022, respectively.

We incurred a net loss of $14.3 million, and

earned net income of $2.1 billion for fiscal years ending 2023 and 2022, respectively.

We believe that our current cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements for at least one year from the date of this Annual Report on Form-10K and for the foreseeable future.

The current global economic environment makes 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.

If adequate funds are not available to us on acceptable terms or otherwise, we may be unable to successfully develop or enhance products and services, respond to competitive pressure or take advantage of acquisition opportunities, any of which could have a material adverse effect on our business, financial condition and operating results.

The discussion of our cash flows and liquidity that follows does not include the impact of any adjustments to remove discontinued operations, unless otherwise noted, and is stated on a total company consolidated basis.

Overview of Cash Flows and Liquidity

The discussion of our cash flows and liquidity that follows is stated on a total company consolidated basis and excludes the impact of discontinued operations.

Our cash and cash equivalents, restricted cash and marketable securities as of September 30, 2023 and 2022 consist of the following (in thousands):

Year Ended September 30,

September 30, 2023

September 30, 2022

Cash and cash equivalents

2 unchanged sentences

Long-term marketable securities

Cash, cash equivalents and restricted cash

Cash and cash equivalents included in assets held for sale

Our cash and cash equivalents, restricted cash and marketable securities were $1.1 billion as of September 30, 2023.

As of September 30, 2022, we had cash, cash equivalents and restricted cash of $1.0 billion, of which $867.6 million was held outside of the United States and included $379 million of short-term restricted cash in Luxembourg as of September 30, 2022, to complete the purchase of B Medical on October 3, 2022.

If the funds held outside the United States are needed for the United States operations, including for use in our recently approved share repurchase program, we would need to repatriate these funds.

As of September 30, 2023, we had cash, cash equivalents and restricted cash of $684.0 million, of which approximately $569 million was held outside of the United States.

If these funds are needed for U.S.

operations, we would need to repatriate these funds.

As a result of recent changes in U.S.

tax legislation, any repatriation in the future would likely not result in U.S.

federal income tax.

Our intent is to reinvest our foreign cash outside of the United States and our current operating plans do not demonstrate a need to repatriate these funds for our U.S.

We had marketable securities of $1.3 billion and $3.7 million as of September 30, 2022 and 2021, respectively.

tax legislation, any repatriation in the future would likely not result in significant U.S.

federal income tax impacts.

We had marketable securities of $450.2 million and $1.3 billion as of September 30, 2023 and 2022, respectively.

Our marketable securities are generally readily convertible to cash without an adverse impact.

Fiscal Year Ended September 30, 2023 Compared to Fiscal Year Ended September 30, 2022

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 $1.0 billion as of September 30, 2022 compared to $285.3 million as of September 30, 2021.

$63 million of cash outflow from financing activities, and $466 million of cash outflows from operating activities.

The cash outflow from operating activities includes $431.6 million of taxes and $52.5 million of fees related to the sale of the semiconductor automation business.

The effects of foreign exchange positively impacted the annual change in balances by $180.8 million.

Divestiture and Extinguishment of Debt

On February 1, 2022, we completed the sale of our semiconductor automation business for $2.9 billion in cash.

Net cash proceeds from the divestiture were $2.5 billion after estimated taxes payable and other items, such as closing costs.

Upon closure of the sale on February 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 of September 30, 2022, we have no outstanding debt on our balance sheet.

Year Ended September 30,

Dollars in thousands

Net cash provided by (used in) operating activities

Net cash provided by investing activities

Net cash used in financing activities

Effects of exchange rate changes on cash and cash equivalents

Net (decrease) increase in cash, cash equivalents and restricted cash

Cash Flows and Liquidity

Cash and cash equivalents and restricted cash were $684.0 million as of September 30, 2023 compared to $1.0 billion as of September 30, 2022.

The decrease of $357.3 million was attributable to $844.1 million of cash outflows from financing activities, partially offset by $431.4 million of cash inflows from investing activities, and $17.5 million of cash inflows from operating activities.

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 charges impact reported cash flows.

Cash inflows from operating activities of $17.5 million for the fiscal year ended September 30, 2023, resulted from collections on accounts receivable, and efficient working capital management partially offset by payment of retention bonuses and cash settled stock-based awards, as well as state income taxes resulting from the sale of the semiconductor automation business.

Cash outflows from operating activities of $466.0 million for the fiscal year ended September 30, 2022, resulted from net income of $2.1 billion, adjusted to exclude the effect of non-operating items of $2.5 billion, and an increase in net operating assets of $507 million.

1 unchanged sentence

$72.1 million of cash outflows from the increase in net operating assets were primarily driven by increases in accounts receivable, inventory, and prepaids and other assets partially offset by increases in accrued expenses, and accrued compensation and tax withholdings.

Cash flows from operating activities of $149.9 million for the fiscal year ended September 30, 2021, resulted from net income of $110.7 million, adjusted to exclude the effect of non-cash operating charges of $90.3 million, partially offset by an increase in net operating assets of $51.2 million.

Cash outflows related to the increase in net operating assets were primarily driven by increases in accounts receivable, inventory, and decreases in accrued expenses and other liabilities, partially offset by increased accrued compensation and tax withholdings.

Discontinued operations contributed $2.1 billion of net income to fiscal year 2022 and $139.6 million of net income to fiscal year 2021 referenced above.

Investing Activities

Cash flows provided by investing activities consist primarily of proceeds from divestitures, cash used for acquisitions, capital expenditures and purchase of marketable securities as well as cash proceeds generated from sales and maturities of marketable securities.

Cash provided by investing activities was $1.5 billion during fiscal year 2022 and consisted of $2.9 billion of proceeds from the sale of the semiconductor automation business on February 1, 2022, net of the cash transferred;

offset by $125.9 million of acquisitions, $73.4 million of capital expenditures, and $1.3 billion of net investments in marketable securities.

Cash provided by investing activities was $431.4 million during fiscal year 2023 and consisted of $1.1 billion of sales and maturities of marketable securities, partially offset by $236.2 million for purchases of marketable securities and $386.5 million paid for the acquisition of B Medical and Ziath.

offset by $2.0 billion of purchases of marketable securities, $125.9 million of acquisitions, and $73.4 million of capital expenditures.

The acquisitions comprised the purchase of a technology intangible of $4 million related to the semiconductor automation business, $84 million for Barkey and $43 million to prepay the debt for the B Medical acquisition prior to September 30, 2022.

Capital expenditures were made primarily to increase capacity, support new product development, and enhance information technology infrastructure.

Cash used in investing activities was $146.3 million during fiscal year 2021 and consisted of $95.5 million for capital expenditures and $52.8 million for acquisitions, partially offset by $2.0 million of net proceeds from the net purchases, sales, and maturities of marketable securities.

Financing Activities

Cash outflows for financing activities were $844.1 million for the year ended September 30, 2023 which primarily consisted of cash outflows for our share repurchase authorization.

Cash outflows for financing activities were $62.8 million for the year ended September 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, $7.5 million related to dividend payments, $0.4 million payment of finance leases, partially offset by $5.2 million of proceeds from the issuance of common stock.

Cash used for financing activities was $25.9 million during fiscal year 2021 and included net cash outflows for cash dividends paid of $29.7 million, $1.2 million in payment of finance leases and $0.8 million of debt principal payments.

Partially offsetting these cash outflows was $5.8 million related to the proceeds from issuance of common stock.

China Facility

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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 to fixed assets as of September 30, 2022 was $42.4 million, which includes $16.4 million and $26.0 million for fiscal years 2022 and 2021, respectively.

As of fiscal year end 2023, we have completed the construction of phase one of the facility with a total cost of $43.0 million.

Construction of phase two of the facility is expected to begin in the second fiscal quarter of 2024 and be completed over several years with a total estimated cost of $30.0 million.

Capital Resources

Term Loans and Line of Credit

On October 4, 2017, we entered into a $200.0 million term loan with Morgan Stanley Senior Funding, Inc., JPMorgan Chase Bank, N.A.

and Wells 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 February 1, 2022, we settled the term loan using proceeds from the sale of the semiconductor automation business.

We also maintained a revolving line of credit with Wells Fargo Bank, N.A.

and JPMorgan Chase Bank, N.A.

that provided for a revolving credit facility of up to $75.0 million.

On February 1, 2022, we also terminated the revolving line of credit, which had no borrowings outstanding.

Our Board of Directors declared the following dividends during the fiscal years 2022 and 2021(in thousands, except per share data):

Declaration Date

Fiscal Year Ended September 30, 2022

November 2, 2021

December 3, 2021

December 23, 2021

Fiscal Year Ended September 30, 2021

November 5, 2020

December 4, 2020

December 17, 2020

January 25, 2021

March 5, 2021

March 26, 2021

April 27, 2021

June 25, 2021

August 3, 2021

September 3, 2021

September 24, 2021

As of September 30, 2023 and September 30, 2022, we have no outstanding debt on our balance sheet.

Dividends are declared at the discretion of our Board of Directors and depend on actual cash flow from operations, our financial condition, debt service and capital requirements and any other factors our Board of Directors may consider relevant.

Since the completion of the sale of the semiconductor automation business on February 1, 2022, we have not paid a quarterly dividend and do not have plans to pay any dividends at this time.

During fiscal year 2022, prior to the sale, we paid a $0.10 per share quarterly dividend totaling $7.5 million in December 2021.

Share Repurchase Program

On September 29, 2015, our Board of Directors approved a share repurchase program for up to $50 million of our common stock, or the 2015 Repurchase Program.

On November 4, 2022, our Board of Directors terminated the 2015 Repurchase Program and approved a new share repurchase program authorizing the repurchase of up to $1.5 billion of our common stock, or the 2022 Repurchase Program.

Repurchases under the 2022 Repurchase Program may be made in the open market or through privately negotiated transactions (including under an accelerated share repurchase, or ASR, agreement), or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, subject to market and business conditions, legal requirements, and other factors.

We are not obligated to acquire any particular amount of common stock under the 2022 Repurchase Program, and share repurchases may be commenced or suspended at any time at our discretion.

As part of the 2022 Repurchase Program, we expect to enter into an ASR agreement for the repurchase of up to $500 million of our common stock.

There were no repurchases of our common stock during the fiscal year ended September 30, 2022.

On September 29, 2015, our Board of Directors approved an authorization to repurchase up to $50.0 million of our common stock.

On November 4, 2022, our Board of Directors terminated the existing share repurchase authorization and approved a new authorization to repurchase up to $1.5 billion of our common stock (the “2022 Repurchase Authorization”).

Repurchases under the 2022 Repurchase Authorization may be made in the open market or through privately negotiated transactions (including under an accelerated share repurchase (“ASR”) agreement), or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 of the Exchange Act, subject to market and business conditions, legal requirements, and other factors.

We are not obligated to acquire any specific amount of common stock under the 2022 Repurchase Authorization, and share repurchases may be commenced or suspended at any time at management’s discretion.

As part of the 2022 Repurchase Authorization, we entered into an ASR agreement for the repurchase of $500.0 million of our common stock on November 23, 2022, and received delivery of, and retired, 10.1 million shares of common stock under the ASR agreement, which terminated on April 3, 2023.

In April 2023, other arrangements commenced under the 2022 Repurchase Authorization under which we expect to repurchase up to an additional $500.0 million of shares of our common stock in open market purchases, subject to market and business conditions, legal requirements, and other factors.

In addition, in November 2023, we announced that we intend to repurchase the remaining $500.0 million shares of common stock available under the 2022 Repurchase Authorization in 2024.

We repurchased 17.5 million shares of common stock for $838.5 million (excluding fees, commissions, and excise tax) in the fiscal year ending September 30, 2023 under the ASR and these other arrangements.

As of September 30, 2023, $662.0 million of the 2022 Repurchase Authorization remained available for additional repurchases.

See Note 13, Stockholders’ Equity in the Notes to the consolidated financial statements included in the section titled "Financial Statements and Supplementary Data"

in Part II, Item 8 of this Annual Report on Form 10-K for additional information about the share repurchase authorization.

Contractual Obligations and Requirements

At September 30, 2023, we had non-cancelable commitments of $73.5 million, including purchase orders for inventory of $51.3 million, and information technology related commitments of $22.2 million.

As of September 30, 2022, the total amount of net unrecognized tax benefits for uncertain tax positions and the accrual for the related interest was $1.7 million, all of which represents a potential future cash outlay, in comparison to September 30, 2021 where the balance was $2.0 million.

The decrease in the balance over the year was primarily driven by many of our accruals on our preexisting unrecognized tax benefits for uncertain tax positions reaching their statute of limitations.

We are unable to make a reasonably reliable estimate of the timing of the cash settlement for these liabilities since the timing of future tax examinations by various tax jurisdictions and the related resolution is uncertain.

Off-Balance Sheet Arrangements

As of September 30, 2023, we had no obligation, assets or liabilities which would be considered off-balance sheet arrangements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis