Executive Summary / Key Takeaways

• Margin Inflection Through Operational Excellence: Azenta's Azenta Business System (ABS) delivered 310 basis points of adjusted EBITDA margin expansion in fiscal 2025, reaching 11.2% despite macro headwinds, demonstrating that the company's lean transformation is taking hold and creating durable cost structure improvements.

• Outgrowth Story in a Low-Growth Market: While the life sciences tools market grows at only 1-2%, Azenta is positioned to deliver 3-5% organic growth in fiscal 2026 by capturing market share as customers consolidate partners and outsource non-core operations, particularly in sample management.

• Capital Discipline with Strategic Dry Powder: With $546 million in cash and marketable securities and zero debt, Azenta has ample firepower for tuck-in acquisitions focused on core competencies (biorepositories, automation, synthesis) while the pending B Medical divestiture shows management's commitment to portfolio simplification.

• Key Risks Center on Execution and Funding: The investment thesis hinges on successful execution of the ABS transformation, stabilization of NIH funding uncertainty (currently a 1% revenue headwind but fully countermeasured), and competitive dynamics in Multiomics as Sanger sequencing declines and NGS volumes normalize.

• Valuation Reflects Turnaround Premium: Trading at 33.6x EV/EBITDA, Azenta commands a premium to larger peers like Thermo Fisher (TMO) (22.7x) and Danaher (DHR) (23.3x), but this reflects the company's margin expansion trajectory and pure-play exposure to life sciences growth, particularly in cell and gene therapy.

Setting the Scene: From Semiconductor Automation to Pure-Play Life Sciences

Azenta, Inc. was founded in 1978 and spent four decades building a leading automation business for semiconductor manufacturing before making a decisive pivot into life sciences in 2011. This transition leveraged in-house precision automation and cryogenics capabilities to develop automated ultra-cold storage solutions, a move that would ultimately define the company's future. The transformation accelerated in December 2021 when Brooks Automation rebranded as Azenta and began trading under the AZTA ticker, followed by the February 2022 divestiture of its semiconductor businesses for $2.9 billion in cash. This transaction completed Azenta's evolution into a pure-play life sciences company, exclusively focused on biological and chemical sample exploration and management solutions.

Today, Azenta operates two main segments serving approximately 14,000 customers globally, including top pharmaceutical and biotechnology companies, advanced research hospitals, leading-edge biotech startups, and academic institutions. The Sample Management Solutions (SMS) segment provides end-to-end sample management products and services, including automated storage systems, cryogenic equipment, consumables, and repository services. The Multiomics segment offers genomic services including next-generation sequencing (NGS), gene synthesis, and related bioinformatics. This portfolio addresses critical needs in biologics drug development, personalized medicine, and cell and gene therapy (CGT), where approximately 50% of therapeutics currently moving through FDA approval require ultra-cold or cold storage.

The company sits in a consolidating industry where customers increasingly seek to do more with less. As John Marotta, Azenta's CEO, noted, "As customers look to do more with less, they are consolidating partners, outsourcing non-core operations, and investing in automation and digital workflows—all areas where Azenta is positioned to lead." This dynamic creates a tailwind for Azenta's integrated solutions, particularly as academic labs face NIH funding pressures and biopharma companies restructure R&D operations. The competitive landscape includes diversified giants like Thermo Fisher Scientific and Danaher Corporation in automation and storage, along with specialized players like Hamilton Company in automated systems and BGI Genomics (300676.SZ) in sequencing services. Azenta's differentiation lies in its end-to-end cold-chain expertise and regional go-to-market model that allows it to behave like a local partner rather than a distant multinational.

Technology, Products, and Strategic Differentiation

Azenta's competitive moat rests on two pillars: specialized cold-chain automation and an integrated services network that creates high switching costs. The SMS segment's automated storage systems, such as the BioArc Ultra, represent far more than freezers—they are highly sophisticated 12-axis automated robots operating inside -80°C environments, controlled by advanced software that enables rapid inventory access for compounds, monoclonal antibodies, and biological samples. This capability delivers significant operational efficiency and footprint reduction, as evidenced by the U.K. Biocentre's selection of Azenta for a 16 million sample storage system with up to 9 million picks per year capacity.

The Multiomics segment demonstrates Azenta's ability to adapt to technological disruption. While traditional Sanger sequencing revenue declined mid-teens to low double-digits throughout fiscal 2025—consistent with industry-wide shifts to newer technologies—the company's Oxford Nanopore-based Plasmid-EZ solution more than doubled revenue compared to prior year periods. This product is on track to nearly offset the entire Sanger decline for the full year, leveraging Azenta's existing infrastructure of 2,500 drop boxes in the United States. This ability to cannibalize declining lines with growth products while utilizing the same distribution footprint shows operational agility.

Research and development investments target future growth drivers. In automated stores, Azenta is investing heavily in next-generation solutions expected to yield results in 2027-2028, positioning the company to capture tailwinds from cell and gene therapy development. In gene synthesis, the company has achieved 40% automation while employing nearly 400 PhDs to support complex long-read capabilities that competitors cannot easily replicate. As Marotta explained, "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." This high-complexity, high-margin business generates significant value despite current softness from pharma customer restructuring.

The regional go-to-market strategy provides another layer of differentiation. Azenta's China operations grew 5% organically in Q2 2025 while multinational peers declined dramatically, with gene synthesis up 8% in that market. This performance stems from a local-for-local model that makes the business "show up very much like a local China company," enabling rapid adaptation to regulatory changes and customer needs. The same approach applies to Europe and North America, creating a nimble organization that can respond faster than centralized competitors.

Financial Performance & Segment Dynamics: Evidence of Strategic Execution

Fiscal 2025 results provide compelling evidence that Azenta's operational transformation is working. Total revenue of $593.8 million increased 4% year-over-year, driven by growth in both segments. More importantly, adjusted EBITDA margin expanded 310 basis points to 11.2%, demonstrating that the Azenta Business System is delivering scalable operating leverage. This improvement came despite macroeconomic uncertainty, NIH funding headwinds, and geopolitical tensions that management estimates created a 1% revenue headwind—fully offset by countermeasures that prevented any EBITDA impact.

The SMS segment's financial trajectory reveals the power of operational discipline. Revenue grew 1.8% to $324.6 million, a modest top-line figure that masks dramatic margin improvement. Operating margin surged 412 basis points to 6.2%, while adjusted operating margin jumped 500 basis points to 8.5%. This expansion was driven by higher revenue, operational efficiencies, and favorable sales mix, with non-GAAP gross margin improving 390 basis points to 48.3% for the full year. The quarterly progression shows accelerating operational gains: Q3 non-GAAP gross margin reached 53.6%, up 760 basis points year-over-year, while Q4 hit 49.3%, up 180 basis points.

These margin improvements occurred while the segment faced headwinds in its largest product lines. Cryogenic Systems and Automated Stores revenue declined due to customer budget constraints and CapEx delays, particularly in cell and gene therapy markets. However, growth in Clinical Biostores, Consumables and Instruments, and Sample Storage offset these weaknesses, demonstrating portfolio resilience. The consumables and instruments business performed well throughout the year, benefiting from Azenta's installed base of tens of thousands of instruments and increasing attachment rates.

Multiomics presents a more mixed picture but shows clear momentum in the growth driver. Revenue increased 5.8% to $269.2 million, with Q4 delivering a record $73 million (+11% reported, +10% organic). Next Generation Sequencing services powered this growth, with sequence volume rising 50% year-over-year in Q4 and pricing stabilizing after prior-year pressures. Large customer deals in Europe and strong China performance (+17% organic in Q4) contributed to this strength. However, gene synthesis revenue declined high single-digits to 10% year-over-year across various quarters due to pharma customer project delays and reprioritization, while Sanger sequencing fell mid-teens to 18% as expected.

The segment's margin pressure reflects this product mix shift. Multiomics gross margin declined 225 basis points to 42.2% for the full year, with quarterly drops of 140-500 basis points as lower-margin NGS volume growth and Sanger declines outweighed productivity gains. This dynamic illustrates the trade-off Azenta faces: investing in high-growth, lower-margin NGS to capture market share while managing the decline of higher-margin legacy services. The Plasmid-EZ offset strategy shows management's ability to navigate this transition, but margin recovery in Multiomics remains a key variable for the investment thesis.

Cash flow generation validates the operational improvements. Free cash flow of $38 million in fiscal 2025 improved $26 million year-over-year, driven by better working capital execution. Lawrence Lin, CFO, noted the improvement was "really around better working capital execution," with lower accounts receivable, improved billings on stores projects, and higher payables. The company is targeting $100 million in free cash flow under its long-range plan, a goal that appears achievable as ABS initiatives gain traction.

With $283.5 million in cash and $262.7 million in marketable securities against zero debt, Azenta has both the liquidity to execute its strategy and the balance sheet flexibility to pursue acquisitions.

Outlook, Guidance, and Execution Risk

Management's guidance for fiscal 2026 reflects confidence in the operational transformation while acknowledging continued macro uncertainty. The company projects organic revenue growth of 3-5% and approximately 300 basis points of adjusted EBITDA margin expansion, targets that appear achievable based on FY2025 momentum. This outlook assumes SMS contributes mid-single-digit growth while Multiomics delivers low single-digit growth as NGS volumes normalize after exceptional FY2025 performance.

The quarterly progression will likely show a slower first half followed by acceleration. Management expects Q1 2026 revenue to decline 1-2% year-over-year, with macro slowdown on CapEx accounting for roughly two-thirds of the headwind and government funding impacts (including the 45-day shutdown) comprising one-third. This pattern mirrors FY2025, where the company overcame early headwinds to deliver full-year growth. The second half acceleration depends on commercial investments gaining traction, stores volume timing (which typically skews toward year-end), and realization of partial-year restructuring savings.

Key assumptions underpinning this guidance include stabilization of NIH funding and successful execution of identified countermeasures. On NIH, recent positive developments—a bipartisan Senate appropriations committee recommending a 1% step-up—support management's bullish stance for 2026. The company's "geopolitical war room" approach has identified and mitigated multiple risks, from tariffs to China regulatory changes, with estimated impacts of only $1-2 million on EBITDA. This systematic risk management provides confidence that external headwinds will not derail the margin expansion story.

Execution risk centers on the Azenta Business System's ability to sustain improvements while scaling commercial operations. The company restructured almost 10% of its workforce in FY2025, pushing R&D, quality, sales, and finance functions into the two operating companies to empower customer-facing teams. This structural realignment must translate into consistent commercial execution, particularly in SMS where new leadership and price optimization initiatives are expected to drive mid-single-digit growth. The Multiomics segment must successfully navigate the Sanger-to-NGS transition while maintaining customer relationships and pricing power.

Risks and Asymmetries: What Could Break the Thesis

The most material risk is execution failure of the operational transformation. While ABS delivered 310 basis points of EBITDA expansion in FY2025, the initiative is still in early stages. If the cultural shift and process improvements cannot be sustained or scaled, margin gains could prove temporary. Management's admission that "we're not where we need to be" on quality and on-time delivery metrics suggests execution gaps remain. Any slippage in these areas would undermine both customer retention and margin expansion, making the 300 basis points of FY2026 guidance unachievable.

NIH funding uncertainty represents a known but partially mitigated risk. While management has countermeasured the estimated 1% revenue headwind to near-zero EBITDA impact, a more severe or prolonged funding reduction could overwhelm these measures. The government shutdown's 45-day pause in grant reviews created booking delays that pushed revenue into future quarters. If House appropriations fail to match the Senate's 1% increase, or if grant approval processes remain slow, the 3-5% growth target could prove optimistic. However, this risk has an asymmetric upside: Lawrence Lin noted that NIH cuts "present an opportunity for Azenta" as less efficient core labs close or scale back and shift to outsourcing, potentially accelerating market share gains.

Competitive dynamics in Multiomics pose a structural challenge. The Sanger sequencing decline is permanent and accelerating, while NGS faces intense competition from larger players like BGI Genomics and Eurofins. Although Plasmid-EZ is offsetting Sanger declines for now, its growth rate may not sustain as the market matures. NGS pricing, while stabilized in FY2025, could face renewed pressure if competitors prioritize volume over margin. The segment's 225 basis point gross margin decline in FY2025 shows the difficulty of managing this transition while maintaining profitability.

Customer concentration and pharma R&D cyclicality create revenue volatility risk. The gene synthesis business experienced 10% declines due to "softness among key pharma accounts" and project delays, reflecting restructuring and reprioritization among major customers. While management sees "green shoots" and "April bookings look real good," the concentration in large pharma accounts means that customer-specific decisions can materially impact quarterly results. This dynamic is particularly acute in Multiomics, where a few large customers drive significant volume.

Geopolitical risks, while actively managed, remain unpredictable. The China business, representing a meaningful portion of Multiomics revenue, faces regulatory uncertainties including BIOSECURE Act implications and potential asset freezes. Azenta's partnership with BGI rather than Illumina in China reduces specific risk, but broader U.S.-China tensions could disrupt operations. Tariffs on Chinese imports, while currently estimated at only $1-2 million impact, could escalate in ways that overwhelm management's supply chain diversification efforts.

Valuation Context: Pricing the Turnaround

At $35.05 per share, Azenta trades at a market capitalization of $1.61 billion and an enterprise value of $1.33 billion, reflecting a net cash position of $546 million. The stock trades at 33.6x EV/EBITDA based on FY2025 adjusted EBITDA of approximately $39.6 million, a significant premium to larger, more diversified peers. Thermo Fisher trades at 22.7x EBITDA, Danaher at 23.3x, Revvity (RVTY) at 17.0x, and Agilent (A) at 23.7x. This premium valuation reflects Azenta's status as a pure-play life sciences company with demonstrated margin expansion potential and exposure to high-growth CGT markets.

On a price-to-free-cash-flow basis, Azenta trades at 35.3x FY2025 FCF of $38 million. This multiple appears more reasonable when considering the company's target of $100 million in free cash flow under its long-range plan, which would imply a 13.3x multiple if achieved. The path to this target relies on continued working capital improvements and EBITDA margin expansion, both of which are core tenets of the ABS transformation. Lawrence Lin expressed confidence in this target, stating, "we're really optimistic and we're still holding to kind of our LRP target of $100 million in free cash flow and feel pretty confident about that."

Revenue multiples provide another perspective. With FY2025 revenue of $593.8 million, Azenta trades at 2.2x EV/Revenue, below the 4.9x of Thermo Fisher and 6.6x of Danaher, reflecting its smaller scale and lower margins. However, if the company achieves its FY2026 organic growth target of 3-5% and 300 basis points of EBITDA margin expansion, the revenue multiple would compress while the EBITDA multiple would become more attractive, particularly for investors focused on operational leverage.

The balance sheet strength supports the valuation thesis. With zero debt and $546 million in liquid assets, Azenta has over 13 years of runway at current cash burn rates, though the company is FCF positive. This financial flexibility enables management to pursue tuck-in acquisitions that accelerate growth and margin expansion, prioritizing "high-quality strategic tuck-in opportunities that we believe can help to accelerate revenue growth and profitability." The absence of debt also means the company can weather cyclical downturns without financial distress, a meaningful advantage over more leveraged competitors.

Conclusion: A Turnaround Story with Asymmetric Potential

Azenta represents a compelling investment case built on two converging themes: operational excellence driving margin inflection and market share capture enabling outgrowth in a consolidating industry. The Azenta Business System has already delivered 310 basis points of EBITDA margin expansion in FY2025, and management's guidance for another 300 basis points in FY2026 suggests this is a durable, structural improvement rather than a one-time benefit. This margin expansion, combined with working capital discipline, puts the company's $100 million free cash flow target within reach, which would fundamentally alter the valuation narrative.

The outgrowth thesis rests on Azenta's positioning as a trusted partner for customers seeking to consolidate vendors and outsource non-core operations. NIH funding headwinds, while creating near-term uncertainty, actually strengthen the long-term case by forcing inefficient labs to close or outsource, expanding Azenta's addressable market. The company's regional go-to-market strategy and deep expertise in cold-chain automation create switching costs that larger, more generalized competitors cannot easily replicate.

The investment thesis is not without risks. Execution of the ABS transformation must continue at pace, competitive dynamics in Multiomics require careful navigation, and customer concentration in pharma creates quarterly volatility. However, these risks are mitigated by strong balance sheet flexibility, proactive risk management through the "geopolitical war room," and a management team that has demonstrated data-driven forecasting accuracy.

For investors, the key variables to monitor are commercial execution in SMS, particularly the impact of new leadership and price optimization initiatives, and the pace of margin recovery in Multiomics as NGS growth stabilizes. If Azenta delivers on its FY2026 guidance, the current valuation premium will compress rapidly as EBITDA and free cash flow scale. The story is still early innings, but the operational foundation being laid today creates asymmetric upside for patient investors willing to bet on management's ability to transform a collection of acquired businesses into a lean, focused life sciences leader.