Veracyte and Azenta Report Strong Q2 and Q3 2024 Earnings Respectively

Veracyte, Inc. (VCYT) Q2 2024 Earnings Call Transcript

Shayla Gorman - Senior Director, Investor Relations Marc Stapley - Chief Executive Officer Rebecca Chambers - Chief Financial Officer Good day and thank you for standing by. Welcome to the Veracyte Second Quarter 2024 Financial Results Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Shayla Gorman, Senior Director, Investor Relations. Please go ahead. Shayla Gorman Good afternoon everyone, and thank you for joining us today for a discussion of our second quarter 2024 financial results. With me today are Marc Stapley, Veracyte's Chief Executive Officer; and Rebecca Chambers, our Chief Financial Officer. Veracyte issued a press release earlier this afternoon detailing our second quarter 2024 financial results. This release along with the business and financial presentation is available in the Investor Relations section of our website at veracyte.com. Before we begin, I'd like to remind you that various statements that we may make during this call will include forward-looking statements as defined under applicable securities laws. Forward-looking statements are subject to risks and uncertainties and the company can give no assurance they will prove to be correct. Additionally, we are not under any obligation to provide further updates on our business trends or our performance during the quarter. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Veracyte files with the Securities and Exchange Commission, including Veracyte's most recent Forms 10-Q and 10-K. In addition, this call will include certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures are included in today's earnings release accessible from the IR section of Veracyte's website. This quarter we have updated our non-GAAP measures to exclude stock-based compensation to provide better comparison to our peers and help investors gain a better understanding of our performance. Further, all comparisons to prior periods are to the updated non-GAAP metrics that excludes stock-based compensation. We have included a schedule of the non-GAAP adjustments for prior periods in today's earnings presentation available on the Investors section of our website. I will now turn the call over to Marc Stapley, Veracyte's CEO. Marc Stapley Thanks, Shayla, and thanks everyone for joining us today. I couldn't be more pleased to share with you the drivers of what I believe is Veracyte's best quarter to date. Importantly, we saw an acceleration of demand for both Decipher and Afirma that exceeded even our highest expectations coming into the quarter. As a result, we delivered second quarter revenue of $114.4 million, growing 27% compared to the prior year period. Testing revenue grew 31% over the prior year period, well ahead of our expectations. With our disciplined focus and strong fiscal management, this over performance on top-line growth contributed to our most profitable quarter to date. We generated $5.7 million in GAAP net income and our adjusted EBITDA margin was an industry leading 21%. I have previously stated that I believe a well run specialty diagnostics company like ours could achieve 25% adjusted EBITDA margins and as you can see we are well on our way to reaching that level of profitability. Before I get into this quarter's performance, I want to remind you that we are highly focused on five strategic imperatives: One, continued growth in Decipher; two, continued growth in Afirma; three, launch of multiple IVD products to expand geographically; four, solving new cancer challenges; and five, serving more of the patient journey. Regarding number three, I am pleased to share that we just submitted our existing Prosigna nCounter test for approval under the IVDR framework. Recall that this is a foundational step that we expect to enable the launch of future IVD tests in oncology around the world and drive the commercialization of our IVD portfolio. Turning to number four, we're making good progress on solving new cancer challenges with NIGHTINGALE, our pivotal trial for Nasal Swab. And with respect to number five, we continue to forge our way across the patient journey with the development of our first MRD test for muscle invasive bladder cancer using our whole genome platform, a platform that is extensible across multiple indications. We expect these three longer term strategic imperatives will layer on new revenue growth s-curves a number of years from now, on top of what we believe is durable Decipher and Afirma growth. Now, turning to the current quarter, I have talked before about the power of our Veracyte Diagnostics platform, which I believe is behind our strong performance and impressive growth. This unique approach relies on broad sets of genomic and clinical data, deep bioinformatic and AI capabilities, and a powerful evidence generation engine. This flywheel for growth builds increasingly strong and differentiated evidence for clinical validity and utility that ultimately drives guideline inclusion and combined with our proven commercial and managed care excellence, ensures broad adoption and reimbursement for our on-market diagnostics. Evidence of this can be seen in the positive trend in ASP we've delivered, driven by our managed care and billing teams, ensuring that patients who are indicated for diagnostic testing are able to access those tests and that we are paid appropriately and timely when our products are selected by physicians for those patients. Our ASP has grown at a 5% CAGR over the last two years as we focused on gaining new contracts and resolving prior payment challenges. Another key to the Veracyte Diagnostics platform is the flywheel of evidence generation, led by our clinical and medical teams, that fuels adoption and guideline inclusion. The outstanding Decipher and Afirma volume growth that we're seeing is a direct result of this flywheel in action, together with the execution of our talented commercial teams. Specifically on urology testing, for the second year in a row, we saw a step function change in demand for Decipher during the second quarter. Sequentially, Decipher Prostate grew by 3,400 tests as we delivered approximately 19,900 tests in the quarter, a new record, now reaching more patients in a single month than we did in a whole quarter when we acquired Decipher in 2021. Importantly, volume growth, which equated to 32% year-over-year, was driven by both new physician adoption and deeper penetration into existing accounts. This is another favorable data point that gives us the confidence that Decipher has plenty of headroom for durable future growth, with the majority of the market still unpenetrated. The updated NCCN Guidelines published in February were a significant catalyst to adoption as Decipher Prostate received the highest evidence level rating among molecular tests in the guidelines and was included in the principles of risk stratification section, which details treatment implications based on the NCCN classification and Decipher score. This result underscores both the mountain of evidence behind the test as well as its broad utility for patients diagnosed with prostate cancer, from those who are low risk and on active surveillance, to those who are intermediate risk, all the way up to NCCN high risk patients and patients after surgery. Even with the level of evidence behind the Decipher Prostate test today, we are committed to continuing to support additional research to advance prostate cancer science. In the second quarter alone, there were three newly published Decipher Prostate test studies, including a real-world data population-based analysis of Decipher linked to the National Cancer Institute's SEER database, demonstrating the test clinical utility. And we are very eager to be able to offer prognostic and predictive insights to patients with metastatic disease, a cohort for whom more information can make an even greater difference of pivotal moments in their cancer journeys. Given that WPS issued their local coverage determination, or LCD, for metastatic prostate cancer last week, we now expect the finalization of the Palmetto LCD soon. This will provide an additional vector for growth, accounting for an estimated 30,000 of the 300,000 newly diagnosed prostate cancer patients annually. Moving to Afirma, we also reported a new quarterly volume record with approximately 15,700 test results or 17% year-over-year growth. This performance for test that has been on the market for over a decade is a testament to our diagnostic platform and commercial approach and supports our positive outlook - for our long-term growth profile, fueled by both Decipher and Afirma. The differentiated level of evidence for the performance of the Afirma test, alongside the ease of use for physicians, drove volume increases with growth coming from new customers and our current customer base. Our research-use-only RUO Afirma GRID offering is another way we continue to further our leadership in the endocrinology market. This tool provides physicians with additional data to advance the science around thyroid nodules in cancer. This quarter at Endo 2024, the Annual Meeting of the Endocrine Society, three studies leveraging information from Afirma GRID were presented highlighting the importance of this tool in helping to unlock new molecular insights from thyroid tumors, which may ultimately further personalize treatment of the disease. This quarter, approximately half of physicians ordering Afirma chose to receive the RUO Afirma grid information, demonstrating a high level of interest in contributing to research. We also achieved a significant milestone in June as MolDX finalized an expanded local coverage determination for Afirma, adding reimbursement for Medicare and Medicare Advantage patients with Bethesda 5 thyroid nodules, or those that are suspicious for cancer. There are up to 30,000 patients with nodules classified as Bethesda 5 annually, of which we assume approximately one third will be covered under Medicare and Medicare Advantage. This is an important step in both expanding our market for Afirma, as well as furthering our leadership in endocrinology. Our confidence in continued growth driven by Decipher and Afirma has only increased with this quarter's outstanding performance. With durable market share gains, further penetration into existing accounts, expanded indications, and more use cases in our available markets, we are making progress towards the 80% penetration for both prostate and thyroid cancer molecular tests from 35% and 60%, respectively, coming into the year. Further, paired with the ASP improvements in the Decipher and Afirma volume catalyst delivered this year so far, there is compelling evidence that we are primed to continue to deliver robust revenue growth for the foreseeable future, near-term, mid-term, and even long-term, especially in the case of Decipher. We plan on underpinning this growth with continued profitability and cash generation while also investing in future innovation. With that, I will now turn to Rebecca to review our financial results for the quarter and heightened expectations for 2024. Rebecca Chambers Thanks Marc. Q2 was a fantastic quarter with $114.4 million in revenue, an increase of 27% over the prior year period. We grew total volume to approximately 39,000 tests, a 23% increase over the same period in 2023. Testing revenue during the quarter was $107 million, an increase of 31% year-over-year, driven by Decipher and Afirma volume, along with ASP growth. Total testing volume was approximately 36,000 tests. Testing ASP was approximately $2,950, which included approximately $4 million of prior period collections. It is important to recognize that while these adjustments are for tests delivered in prior periods, this result is driven by sustainable efficiencies in our billing and collections processes. Adjusting for the impact in the quarter, testing ASP would have been approximately $2,850. Second quarter product volume was approximately 3000 tests and product revenue was $3.9 million. We continue to expect supply chain issues to suppress supply of the ProSigna encounter tests in the second half of this year and perhaps beyond. Biopharmaceutical and other revenue was $3.6 million, down 22% year-over-year. Moving to gross margin and operating expenses, I will highlight our non-GAAP results. Our non-GAAP metrics exclude, where applicable, the amortization of acquired intangible assets, stock-based compensation, other acquisition-related expenses, restructuring costs, and certain other adjustments. Non-GAAP gross margin was 71%, up approximately 350 basis points compared to the prior year period. Testing gross margin was 74%, up 250 basis points compared to the prior year period due to ASP improvements and prior period cash collections. Product margin was 52% due to favorable manufacturing variances. With investments in service support in the second half of the year, we expect product margin to be below historical averages. Biopharmaceutical and other gross margin was negative 4% down year-over-year due to lower fixed cost absorption. In July, we executed our voluntary reduction plan in Marseille, which is expected to benefit our cost structure going forward. However, given our anticipated second half revenue, we expect full year biopharma and other gross margin to be at or slightly below the second quarter level. Non-GAAP operating expenses were up 14% year-over-year to $59 million. Research and development expenses increased by $3.5 million to $14.6 million given personnel additions with the C2i acquisition and increased costs related to our NIGHTINGALE clinical studies. Sales and marketing expense declined by $800,000 to $21.9 million due to lower personnel costs from the Envisia sales force reduction, partially offset by higher commissions. G&A expenses were up $4.7 million to $22.6 million driven by higher variable compensation given our updated full year outlook and other personnel costs. Moving to profitability metrics as Marc shared, we are proud of our Q2 results. We recorded GAAP net income of $5.7 million inclusive of a $3 million restructuring charge in relation to our Marseille location. We delivered adjusted EBITDA of $24 million or 21% of revenue, well on our way towards our goal of sustained 25% adjusted EBITDA margins. We also generated $29.6 million of cash from operations and ended the quarter with $235.9 million of cash and cash equivalents. Turning now to our 2024 outlook, we are excited to raise our total revenue guidance to $432 million to $438 million from our prior guidance of $402 million to $410 million. This reflects a significant improvement in the outlook for our testing business with revenue growth of approximately 25%, a substantial increase compared to our prior guidance of 15% to 18%. We are also raising our cash guidance and expect to end 2024 with between $260 million to $270 million in cash, cash equivalents and short-term investments. Moving to the third quarter, we are forecasting a sequential decline in total revenue given typical seasonality and the impact of prior year period cash collections in the second quarter. We expect Q4 revenue to be a sequential step up from Q3. Additionally, we anticipate adjusted EBITDA margins in the second half of the year to be slightly above the first half of the year as we sustain our fiscal discipline. I'm thrilled with our strong start to 2024 and our commitment to driving revenue growth with a focus on profitability and continued cash generation. I'm further grateful for the contributions of all of our employees towards our vision of helping cancer patients globally. We'll now go into the Q&A portion of the call. Operator, please open the line. Thank you. At this time, we will conduct the question-and-answer session. [Operator Instructions] Our first question is from the line of Mason Carrico with Stephens, Inc. Your line is now open. Mason Carrico Hey guys, thanks for taking the questions here. Marc or Rebecca, could you remind us what steps you still need to take or go through? I guess, once this metastatic LCD is finalized in order to secure coverage in how you're thinking about the timeline there? Marc Stapley Yes, happy to. So once we get the finalization from Palmetto, which would cover Viridian as well, we'll have to go through the tech assessment process, which will take a number of months. And then obviously, we've got to train our sales force and make sure we do a structured rollout as they work with physicians to make sure they understand the metastatic test and how it's to be deployed. And then we've got to go through the billing process. So we think of this as a 2025 activity, more so than 2024, with really starting in the first half and obviously ramping up as the year goes on. A reminder that there are roughly 30,000 patient incidences per year of metastatic that could apply here, and roughly two-thirds or so would be Medicare or Medicare Advantage. The other element of this is, of course, we'd have to work through commercial payers as well, and that takes a little bit longer. Rebecca Chambers And just to be abundantly clear on this, Mason, there's nothing currently embedded in our 2024 guide for metastatic. Mason Carrico Perfect. Okay. That's helpful. And then on the cash generation during the quarter, the balance sheet's in great shape. Could you talk about how you're thinking about capital allocation going forward? What are some of the key internal investments you're making here? How does M&A fit in? Do you plan on adding commercial heads anywhere throughout the organization? Marc Stapley Yes. If you think about organically, the investments that we're making, we've been making all the investments that we feel like we need to make. We've been generating positive cash flow for a little while here. Obviously, this quarter was very strong, but we've not been holding back is probably the best way to say in terms of adding commercial teams. We're getting tremendous leverage out of the commercial team. We've got every sales rep we need. We're adding a couple here and there, wherever we need to launch new territories. And then on the R&D side, we're investing in three long-term growth drivers and programs that each are roughly equal, give or take a few million dollars in terms of the investments that we are making in each of them. And together, they account for more than half of our R&D spend. So, organically, I don't think our positive cash generation really changes much around our strategies and focus. In terms of M&A and that type of activity, again, I don't think it really changes much. We've always said the type of targets that we'd be interested in would be something that has a clear path to reimbursement and positive growth and revenue generation. We don't want to take on multiyear R&D projects. We've got enough of those that we're working on ourselves. And so there's not a lot of, I'd say, suitable targets out there. Having said that, we always kick the tires, we always take a look at whatever comes our way. And given how well we've been performing in the strength of our balance sheet that you can imagine, we get a lot of inbounds. So no change in our approach here, and we'll continue to positive - generate positive cash flow going forward and deploy it. We're right in the middle or about to start our 2025 budgeting process, so we haven't even decided the capital allocation for next year. Thank you. Our next question comes from the line of Tejas Savant with Morgan Stanley. Your line is now open. Yuko Oku Hello, this is Yuko on the call for Tejas. Thank you for taking our question. With IP litigation increasingly coming into point of focus, particularly in light of TwinStrand IP licensing by Exact Sciences, what are the implications, if any, for your MRD portfolio strategy? Can we see you participate in any patent pool sharing along the lines of what we saw between Personalis and Myriad recently? Marc Stapley Yes, great question. So, as you know, we acquired our C2i business in early part of this year. And as we mentioned when we did that, we took a very specific approach of looking for an asset that is a whole genome based approach because really primarily, it fits with our Veracyte diagnostics platform of more data is better. And so for every time you run the sample, you get a whole genome and you'll see - you've seen us leverage that kind of approach with Decipher and now Afirma with GRID. So that was the primary purpose. Secondarily, of course, we looked at the freedom to operate in the IP landscape, and that approach gives us a lot more room than, I think, some of the targeted approaches that you're seeing a lot of this activity around. And so we don't feel. We don't believe that that is a, I mean, you never know, but we don't believe that that is an area of concern for us because specifically of the approach that we've taken. Going forward, I don't think there's necessarily any need for us to get involved in patent pools and so on. And we'll see where this - how this whole space evolves over time. Yuko Oku Got it. Thank you for that. And with respect for Bethesda V for Afirma, with about third of the population coming from Medicare, how quickly do you think that commercial payers could come on board following the reimbursement? Have you started to have discussion with payers already? Marc Stapley Yes, I mean, over a period of time, there has already been some element of commercial payers paying for Bethesda V. So now Medicare has caught up with that, and then there's some that are obviously now with the LCD, we're able to go to those commercial payers and leverage that to try and drive an update in policy. So we'll continue that activity. You know, it takes a long time. There's a lot to go and do a lot of blocking and tackling, and there are other big priorities, too. So Bethesda V remembers is about 30,000 patients. So we're getting some of that already. Rebecca Chambers Yes. And I was just going to add, in the volume number that we cite for Afirma, Bethesda V samples are included in that that are being run and reimbursed for, well, that are being run for Afirma at this point in time. And then the commercial component is also embedded in that ASP for Afirma. So just so you can have an understanding of where we're at. Thank you. Our next question comes from the line of Andrew Brackmann with William Blair. Your line is now open. Maggie Boeye Hi, everyone. This is Maggie Boeye on for Andrew today. Thanks for taking our questions. Maybe just to start on the Decipher front, just as you think about the levers of growth in the back half of the year and into 2025, how much of that should come from elevated incidents versus account penetration and then versus share gains? Marc Stapley Yes, great question. I actually don't think, it's really to do with incidents, although the incidences of prostate cancer are going up. If you look at some of the data there, it's kind of high-single digit growth, and the incidence is, of course, metastatic for us enables us to target that entire 300,000 a year annual incidence of prostate cancer now. So it gives us the final piece of that puzzle. What we're seeing and what we believe we're going to continue to see is both penetration in the market. If you remember, beginning of this year, we said the market is about 35% penetrated, so there's a lot of white space to go after there. So further penetration at market and even further share gains, it's pretty evident that in the numbers that we're posting, we're seeing a combination of both, and they're both significant drivers. And I do think, I mentioned this in the prepared remarks, but I do think the NCCN Level 1B guidelines and the specific table around that are a significant driver of what we're seeing as a step function increase this quarter and maybe a new normal. Too early to tell in terms of the growth curve, but certainly it stepped up in Q2 like it did this time last year when we got the first NCCN. So clearly a significant factor in growth. And this is why we've said, plus obviously the ASP gains that Rebecca talked about, this is why we've said we feel very comfortable with the durability of the growth in Decipher. Rebecca Chambers Yes, absolutely. I was going to add in the ASP gains, but I think it's really important to note, Maggie, that we had two major catalysts for Decipher really present themselves over the course of the first quarter, which were manifested in the second quarter, which Marc cited. And I think those were really great wins for the internal teams, which drove both the publications in support of NCCN Level 1 and well as the conversations with the major payer that we cited. Maggie Boeye Great. Thanks so much. And then maybe just one on the pipeline, could you level set us on MRD and then just what we should be expecting in terms of catalyst and data generation for the MRD assay and just how we should be thinking about the next six quarters or so before it comes to market. Marc Stapley Yes, thanks for reminding us of the timing there. And remember, the MRD, our approach is while this is a platform, a whole genome platform that can address multiple indications, and you can imagine us thinking about the indications that we're currently in as well as new indications. We are starting with our first, and it's more than a proof of concept, but think of it as our pilot MRD launch in muscle invasive bladder cancer. And so yes, we will launch that test in 2026. You will see us do obviously [ph] have to do the tech assessment, get the reimbursement again train the sales force, very similar to what we talked about the Decipher metastatic. But we got to run some samples there and do some of that activity as well as set it up in our clear lab. Regarding the automation, for we don't do whole genome today, so we have to ingest that into our lab. We do transcriptome today. So we're going to have to add that workflow and do the necessary activities around that. So that's why it takes a little bit longer to get that launched. And so I think what we'll probably share with you first is when we've done that tech assessment and we're clearly seeing that path to reimbursement. Thank you. Our next question comes from the line of Mike Matson with Needham & Company. Your line is now open. Joseph Conway Hey, Marc. Hey, Rebecca. This is Joseph on for Mike. So I guess first question, just around Afirma GRID. Marc, you talked about the three studies presented at ENDO in your prepared remarks. Just taking a look at those abstracts, it seems like GRID is kind of powering some new discoveries in thyroid cancer research. I'm just wondering if any of those kind of molecular insights that have been found or could be found, could be implemented in an updated Afirma or an add on clinical test in the future of wondering how GRID RUO could progress in the future. Marc Stapley Yes, it's a great question. And I can draw comparisons here to Decipher and what we've seen there. But let me just start by reminding everybody that GRID is our whole-transcriptome approach. It's fueled by the fact that we run a whole-transcriptome. It's ordered roughly half of the time in both Afirma and Decipher's case, and it's clearly fueling new research. And you cited the three that came out at ENDO 2024, and included in that were things like new biomarkers or groups of biomarkers that people are doing analysis on, researchers are doing analysis on to determine there's correlations there. And that is really what GRID can do. We've seen that actually with Decipher, where there have been some specific biomarkers that have been used multiple times, and I'm trying to remember the name. [Indiscernible] is one of them in Decipher, where there have been a number of publications around that. And so I think you're going to see similar things with Afirma. It's really helping to renew investment and research around endocrinology and thyroid cancer, and it's wonderful to see that. And so whether those end up being commercial tests in the futures to be determined. But again, remember, from our standpoint, the fact that we run a whole-transcriptome means we always have that data for every patient. So it'd be nice to see some - yes, some new tests in the future potentially. But I'll wait and see how that pans out. Joseph Conway Okay. Great. Yes, that's very helpful. And just maybe a quick one. Do you have an approximation for NIGHTINGALE in terms of data release for clinical utility, or is that kind of too far out to put a quarter down or for an approximation? Marc Stapley Yes, too far out really to put a quarter down. It's one of our long-term growth drivers, as you know. And yes, what we need to actually do is complete the study. That's step number one. Analyze the data at several points along the way. See, when we have the clinical utility, take the refill that we have, take it to get it published, take it to MolDX, and go forward from there. So it's multi-years before we get to that point. We're still enrolling for NIGHTINGALE at this point. We still got close to 100 sites enrolling, and as I said last quarter, I'm not going to predict when that finishes, but we're progressing. Thank you. [Operator Instructions] Our next question comes from the line of Prashant Kota with Goldman Sachs. Your line is now open. Prashant Kota Hey guys, congrats on the quarter. Really strong results. Lot of questions have already been asked. But just going back to Afirma, how are you thinking about ASP trajectory, given the addition of GRID and Bethesda V classifications? So, for example, once GRID is potentially becomes available for patients as opposed to RUO. Marc Stapley Yes. Maybe I'll tackle that last time. And Rebecca, you can hit the ASP, but I see GRID as a research use only tool for the foreseeable future. I don't think that becomes a clinical tool. It could lead to, as we mentioned earlier, some clinical discoveries that end up in a clinical setting in the future. But I don't see that right now. It's a firmer clinical test as we have it, and then the research use only GRID to power research. Rebecca Chambers Yes. So on the ASP front, obviously, the Bethesda V updated LCD is great news for us, as Marc highlighted in the script. And in parallel, obviously, the large payer on the Decipher side in the first quarter is also another positive trend for us on ASP. And so when I think about ASP in general, I would like to think about it more at the total testing level and the high level positive trends that we have to that end. We've cited a 5% CAGR over the last two years on ASP. And I think when it comes down to it, these are the things that we need to continuously do to drive ASP growth above and beyond the volume growth that we're delivering. And so you can do the rough math on a third of the 30,000 patients being Medicare for Bethesda V and back into. If you assume whatever our penetration level is and share level is for Afirma, you can back into the absolute dollar magnitude there. But it won't necessarily be hugely impactful, but is another important driver, if you will, to that continued ASP gains over a multi-year period. Prashant Kota Got it. That's really helpful. And then as far as evidence generation for your tests, are there any notable upcoming studies we should be aware of aside from Nightingale? Marc Stapley Always. The level of activity around Decipher continues to be very, very broad studies that we're involved in as well as many studies where we're aware of it, but we're not necessarily driving it. And others are, again, fueled by GRID in many respects. And so you should expect to see more there. There's always a nice steady cadence of studies. And now I think that should pick up with GRID for Afirma. And then in other indications between lung and breast, there's a lot of activities going on. So, yes, nothing that I would point to right now as specifically notable. Just keep an eye on the steady rollout. Thank you. Our next question comes from the line of Thomas DeBourcy with Nephron Research. Your line is now open. Thomas DeBourcy Hi. Thanks for taking the question. I was just wondering, I guess, kind of sort of a combination - the level of investment in C2i in the quarter or for the year and/or how are you kind of thinking about your adjusted EBITDA margin trajectory from here? I know you haven't given long-term guidance towards that margin, but obviously the level of spend of C2i can obviously be a ceiling on that level. So any additional commentary you have in terms of how you balance those. Marc Stapley Yes, great question. I'm glad you brought that up. If you think about C2i, one of the things that it's important to note is we certainly didn't take on the burn run rate of the company as a standalone company, because we're adopting a very different approach to how we're utilizing that MRD capability and platform. And we've already kicked off our first project or product, if you like, as we talked about earlier. And so what's happened is we now have legacy Veracyte, team members working very closely with the C2i team on that project, and we have C2i team members working on other Veracyte projects. So those expenses have become very blended. And so we don't even talk about or think about the C2i expense run rate or burn anymore. It's just now part of Veracyte. If you think about that investment in MRD, which is really the bulk of what the C2i team brought to the table, that is, as I said earlier, there are three big projects MRD, it's the Nasal Swab with our NIGHTINGALE study in particular, and then it's our three IVD projects or products that we're launching. If you take each of those, they're roughly similar in size, give or take a couple of million dollars either way. And together, all three make up more than half of our total R&D spend. So, yes, I don't see a significant change in the trajectory of spend that we've been tracking for R&D, given that acquisition or anything else. And then I'll let Rebecca... Rebecca Chambers Yes. So I think that plays very nicely into the adjusted EBITDA look forward perspective as well, Thomas. I think Marc highlighted that we don't see meaningful changes inside trajectory. That being said, we also commented in our prepared remarks that the second half would - that adjusted EBITDA in the second half would be slightly higher than the adjusted EBITDA in the first half, and that we're going into our 2025 budgeting season. And so therefore, we can't necessarily comment on when or the duration to get to that 25% adjusted EBITDA goal. But obviously, we're headed in the right direction. We're incredibly proud of the portfolio approach we take to managing this company. And philosophically, I don't think anything will change on a go forward basis. In any given year, you can obviously have puts and takes, but we've abided by this philosophy now for many, many years, both here and elsewhere, and I don't foresee that changing. Marc Stapley And I do want to just punctuate that, the 21% adjusted EBITDA for the quarter, I think, is a significant milestone for us, and it's great to see it, and it's what we've been heading towards, that kind of a level of profitability and growth. And it's about - I think it's about 600 basis points higher than we achieved in Q1. Really impressed to see that, and it's certainly something that we want to sustain and grow from. Thank you. I am showing no further questions at this time. I would now like to turn it back to Marc for closing remarks. Marc Stapley Thank you, Lauren. I appreciate it. So, in closing, I believe that our Decipher revenue growth of 43% year-over-year, a firmer revenue growth of 21% year-over-year. Our 21% adjusted EBITDA margin and almost $27 million of cash generation in the quarter sets us apart. Add to that the durable growth in both tests that we're experiencing and our three incremental long-term growth drivers, Veracyte clearly has a very unique profile in the diagnostics industry that is not getting the attention I believe is warranted of the space. Molecular diagnostics are proving their value when supported by evidence, and I believe that Veracyte leading that charge. I want to thank all the approximately 850 employees at Veracyte who have contributed to this excellent performance over many years to make a difference in the lives of over 500,000 patients that we have served to date with our advanced diagnostic tests. I look forward to updating you again on our Q3 earnings call. Thank you. Ladies and gentlemen, this concludes our call today. Thank you for joining us. You may now disconnect.

Azenta, Inc. (AZTA) Q3 2024 Earnings Call Transcript

Yvonne Perron - Vice President, FP&A and Investor Relations Steve Schwartz - President and Chief Executive Officer Herman Cueto - Chief Financial Officer Greetings, and welcome to the Azenta Third Quarter 2024 Financial Results. [Operator Instructions]. As a reminder, this conference is being recorded Tuesday, August 6th, 2024. I'll now turn the conference over to Yvonne Perron, Vice President, FP&A, and Investor Relations. Yvonne Perron Thank you, operator, and good afternoon to everyone on the line today. We would like to welcome you to our earnings conference call for the third quarter of fiscal year 2024. Our third quarter earnings press release was issued after the close of the market today, and is available on our Investor Relations website located at investors.azenta.com in addition to the supplementary PowerPoint slides that will be used during the prepared remarks today. I would like to remind everyone that during the course of the call, we will be making a number of forward-looking statements within the meaning of the Private Litigation Securities Act of 1995. There are many factors that may cause actual financial results or other events to differ from those identified in such forward-looking statements. I would refer you to the section of our earnings release titled Safe Harbor Statement, the safe harbor slide on the aforementioned PowerPoint presentation on our website and our various filings with the SEC, including our annual reports on Form 10-K and our quarterly reports on Form 10-Q. We make no obligation to update these statements should future financial data or events occur that differ from the forward-looking statements presented today. We may refer to a number of non-GAAP financial measures, which are used in addition to and in conjunction with results presented in accordance with GAAP. We believe the non-GAAP measures provide an additional way of viewing aspects of our operations and performance. But when considered with GAAP financial results and the reconciliation of GAAP measures, they provide an even more complete understanding of the Azenta business. Non-GAAP measures should not be relied upon to the exclusion of the GAAP measures themselves. On the call with me today is our President and Chief Executive Officer, Steve Schwartz; and our Chief Financial Officer, Herman Cueto. We will open the call with remarks from Steve on the highlights of the third quarter, then Herman will provide a more detailed look into our financial results and our outlook for fiscal year 2024. We will then take your questions at the end of the prepared remarks. And with that, I'd like to turn the call over to our CEO, Steve Schwartz. Steve Schwartz Thank you, Yvonne. Good afternoon everyone, and thanks for joining us today. It's great to have the opportunity to report another strong quarter of execution in fulfillment of our long-term growth and profitability objectives. We delivered solid above-market growth and more acceleration of profitability. In a life sciences market environment that's still struggling to find its footing, our unique portfolio of capabilities and our market leading positions in each of our segments leaves us less vulnerable to market slowness. We're in a position to capitalize on the fact that all methods of discovery require high-quality consented samples that can be retrieved, measured, annotated, and stored for future reference and interrogation. As a matter of fact, it's the driving forces of lower cost and faster time to discovery that are moving the markets and attracting customers to Azenta. As we can provide immediate, tangible benefits to customers looking to manage and measure samples with best-in-class capability. We enable breakthroughs faster, and that's the name of the game. Furthermore, in addition to our core business, there's an increasing desire from our customers to have access to rare and valuable samples from human populations that were previously inaccessible. As we expand the breadth of our capabilities to source, manage, and measure samples, we aim to be the provider of a full complement of critical inputs, not just for laboratory discovery, but also as inputs for powerful AI models which are hungry for this information and an important factor in the transformation of life sciences and healthcare. At our Investor Day in March, we outlined a 10-quarter plan to continue to grow revenue faster than the market growth rate, while simultaneously transforming the company to deliver on the profit potential. That comes with this unique capability portfolio. Today, we report strong progress against these commitments with big positive moves in both areas. Now we'll turn to highlights from the quarter. At $173 million, organic revenue was up 5% year over year and 9% sequentially with all three segments contributing positive growth. Sample management solutions grew 7% year over year with products contributing 5% and sample repository services contributing 11%. On the product side, revenue was up 10% in large automated stores consistent with the double-digit growth trend we've seen for more than a year, and we're particularly pleased that our cryogenic stores revenue was up almost 40% to level we've not seen in a couple years. This is a good sign from the standpoint of cell and gene therapy applications where we're again starting to see opportunities for multiple unit automated systems orders. We remain encouraged by the persistent move toward automated cold storage equipment and away from manual systems. Consumers and instruments grew a healthy 17% year over year and 20% sequentially the best performance in more than one year. And although, we're optimistic about the increase, we'll be cautious about calling a turn until we witness this for a few quarters. That said, it's a positive indicator and we remain aggressive in our push from market share in this space. As I mentioned in our SRS repository business, we delivered 11% year-over-year growth. Not only are we seeing continued strong growth, but we're simultaneously transforming our operations to be able to handle the significant volume we anticipate in the coming years by aggressively implementing our transformation to automated repositories. For example, today, samples arriving at our repositories can be automatically registered utilizing tools we've developed for high-speed registration. These samples are subsequently stored in automated stores and managed utilizing our now fully operational software as a service sample management system. We're beginning to recognize the benefits of this transformation through reduced cycle times and lower registration costs. And these new capabilities are impressing customers who recognize the significant benefits we can provide to them compared to how they manage sample assets today. Toward that end, after almost two years of slower activity from large pharma companies, we're seeing an increase in the number of new sizable sample management opportunities. Our consultative evaluations of customer storage sites are picking up again, and it's these assessments that are typically the precursors to large contractual deals. In the quarter, we want a multi-year contract to take over a management of a large sample collection for a pharmaceutical company that's closing a facility and will transfer all sample responsibility to us. At the request of the customer, we'll manage their samples in a dedicated automated store installed at our new Boston buyer repository. We continue to see tremendous value in our stores and storage services portfolio, and we're pleased with the momentum that continues to build behind what we believe will be a huge transformation in how samples are managed with automation at scale being a game changer for the industry. The Multiomics GENEWIZ team had another great quarter delivering 1% organic year over year revenue and 2% sequential growth in a market that remains meaningfully down. The solid performance in a slow market environment continues to position us extremely well for a fast ramp-up in a market recovery. We're gaining share because of the quality and capability of our new offerings, as well as our ability to continue to reduce cycle time and deliver the highest quality scientific results that keep current customers coming back to us. Specifically, the next-generation sequencing team had another great quarter. In the face of significant price reductions due to the dramatic decrease in sequencing costs, volume was up more than 20% for the fifth consecutive quarter in terms of number of samples processed and measured, and amidst these large changes, overall NGS revenue was up 3% and on organic basis year over year. Profitability in this product line also ticked up again and we're bullish that we're at an inflection point. Pricing's been stable over the past three quarters and we're positioned to sustain growth and higher profitability. This market dynamic is consistent with each of the past three meaningful NGS technology inflections, but this time it feels as though demand elasticity is driving even more outsourcing of NGS. Two specific results add to our confidence about the future of our NGS business. First, in the quarter, we added more than 700 of what we call new to NGS customers. This is a huge number of new customers, but it's also great because these are the customers for the fuel for our future work; and second, our NGS quoting activity in both number of quotes and dollar volume were at record highs in Q3, so all in a comfortable position for us in our NGS business. As we reported last quarter, we believe we're past the bottom in revenue for our overnight sequencing with Sanger and Plasmid-EZ offerings growing sequentially for the first time in more than a year. If you recall, our Q2 revenue was flat with Q1, and we believed we'd stemmed any further decline. Indeed, that was the case as we grew sequentially, 4% in overnight sequencing, and we anticipate more sequential growth in the fourth quarter. In our synthesis business, we grew by a few percentage points year-over-year. We're seeing good traction from value enhancing products we refer to as Azenta [ph] that allows customers to give us more of their downstream workflow from the synthesized gene product. These are differentiated higher-value extensions of our gene synthesis business. Finally, I report on the overall performance of what we call our new vectors, where we delivered a sequential revenue increase of 9% and double what we delivered from these offerings just a year ago. Moreover, growth from these new offerings is expected to increase rapidly boosted by the FinnGen proteomics contract that we announced a few weeks ago, as well as business from new service offerings that are associated with our Plasmid-EZ solutions. Momentum continues to be strong from the adoption of new offerings and share gains, and we believe organic revenue growth in a down market represents significant outperformance, keeping us confidence that we're positioned to meaningfully outgrow with any recovery in biotech and pharma spending. Finally, B Medical delivered a very solid quarter with revenue of $29 million and an accretive EBITDA margin. As we've shared before, we're positioning B Medical to focus solely on vaccine cold chain products as we wind down blood management and medical refrigeration product lines. Reshaping of B Medical is part of a long-term value creation strategy that derives from B Medical's unique cold chain capability serving fast-growing emerging markets. In the quarter, we advanced several initiatives which are part of the strategy that are expected to begin to deliver additional benefits from B Medical into 2025. The first of these is operational. The B Medical factory in Luxembourg has now absorbed production from three SMS factory sites that we'd close, giving us meaningful synergies, more manufacturing capacity, lower cost, and better B Medical factory cost absorption. These are important milestones that are part of creating the world class factory that we described to you at Investor Day. Importantly, we received our first order from Democratic Republic of Congo from the large MOU announced last November. It's small in terms of dollars, but it's positive because it signals a commitment to this EUR60 million project that'll be driven by the health ministry now that the new government is finally in place. Again, this is not a signal of timing but rather reinforcement that we believe the business will happen. Finally, we advanced our participation in two multi-party sample sourcing initiatives where we are a critical partner. One of these projects is set to deploy in Q4 and will be a first critical test of our capability to source and protect valuable human biological samples. So, a good quarter for B Medical and great progress in its transformation to align to Azenta's strategic initiatives. All in we're extremely pleased with our strong results for Q3. We demonstrated solid growth in a soft environment. We delivered meaningful strategic gains in each of our business segments, and as you'll now hear from Herman, we accelerated results from our transformation initiatives allowing us to grow while we transform the company for scale and improve profitability. Moreover, we continue to distance ourselves further from competitors. Every day we're charting new and next opportunities to benefit our customers, which we know we can uniquely deliver. Before I turn the call over to Herman, I want to give a brief update on the search for my replacement. Of course, we can't comment too much except to say the search is a top priority and it's proceeding as planned. We have strong interest from highly qualified, experienced candidates, and the interview process is ongoing. We're confident we'll identify a great next CEO for Azenta. And now, I'm pleased to turn the call over to Herman. Thank you. Herman Cueto Thank you, Steve, and good afternoon everyone. Let me start by saying how proud and encouraged I am of the Azenta team on the disciplined execution that enabled us to accelerate the realization of savings into the third quarter, contributing to our margin expansion profitability. In addition to above-market top-line revenue performance, the efforts and initiatives of the Ascend 2026 transformation program are bearing fruit and the results we are reporting today reflect that. As you can see in the financial results we issue today for the third fiscal quarter, we delivered adjusted EBITDA margin of 10.3%, which equates to 260 basis points of expansion year over year and 440 basis points versus the prior quarter. Beyond that, and even more exciting in my mind is that we turn profitable in Q3, delivering an operating profit of $4.6 million a fee we have not seen over the last six quarters. This is the result of a fully engaged organization leading initiatives focused on reshaping the company for long-term success, scale and growth. Let me talk about the actions we've completed as part of Ascend 2026 in the area of portfolio optimization. We've now exited two non-strategic product lines, one in sample management solutions and one in B Medical, which as you know, aims at reshaping the B Medical segment to focus solely on vaccine cold chain products and the related sample acquisition strategy. In our site optimization initiative, we made tremendous progress in Q3, where we impacted another six locations. Within the six was a focus on B Medical's operation in Asia where we were able to exit three of their five locations and reduce the footprint in another. Since we started this journey, we have closed a total of 10 sites and reduced our footprint in another three. At this point in time, we have closed or optimized approximately 30% of our sites. Our IT initiatives aimed at streamlining and integrating systems is progressing well and we are on target to consolidate three systems following our fiscal year end. With that, I would like to turn to our results in the quarter and to supplement my remarks, I refer back to the slide deck available on our website. Turning to Slide 3 for some highlights. In the face of what continues to be a challenging market, third quarter revenue was $173 million, up 4% year over year on a reported basis and up 5% on an organic basis. We saw growth in sample management solutions, particularly in both large automated and cryogenic stores and in consumables and instruments. B Medical also contributed to the performance with better than expected revenue as we were able to secure more vaccine cold chain orders in the quarter, exceeding the Q3 revenue guide. Non-GAAP EPS for the quarter was $0.16 and adjusted EBITDA margin was 10.3%. And as I mentioned in my initial remarks, this is an outstanding acceleration with a meaningful 440 basis points of expansion from Q2 and 260 basis points year over year. We ended the quarter in a very strong balance sheet position with $754 million in cash, cash equivalent and marketable securities. Free cash flow was slightly negative in the quarter with a usage of $5 million driven by the timing of billings. Through three quarters, we have generated positive free cash flow of $11 million. In Q3, we returned $225.9 million of capital to our shareholders through the repurchase of 4.2 million shares of Azenta stock. To date, we have now completed roughly $1.3 billion of the $1.5 billion of planned share repurchases. Now, let's turn to Slide 4 to take a deeper look at our results in the quarter. Total revenue was $173 million. Non-GAAP gross margin was 45.2%, down 40 basis points year over year driven largely by non-recurring items from last year, which made for a difficult prior year. Compare non-GAAP operating margin was 2.6%, an improvement of 330 basis points year over year coming from a combination of top-line sales growth and our cost-saving efforts, which resulted in a meaningful year-over-year reduction in SG&A. Adjusted EBITDA margin was 10.3%, up 260 basis points year over year, again, non-GAAP EPS was $0.16 per share in the quarter. With that, let's turn to Slide 5 for a review of our segment results starting with Sample Management solutions or SMS. Total SMS segment revenue was $81 million for the quarter up 7% year over year on both a reported and organic basis, driven by growth in storage of 13% and in products, which was up 5% as we expected, but softer than we would've liked due to the pushout of orders within our OEM product line from the second half of 24 into Q1 of '25. Consumables and instruments grew 17% and large automated stores were up 10%. As Steve mentioned, cryogenics had the best performance in more than two years, up almost 40%. SMS third quarter gross margin was 46.1%, down 130 basis points year over year driven by the impact of certain one-time items recorded in the prior year that offset the benefits of operational efficiency and sales mix. Turning next to the Multiomics segment. Multiomics delivered revenue of $64 million in the third quarter, flat year over year, and up 1% on an organic basis with growth in both gene synthesis and next-generation sequencing. Despite a market slowdown, gene synthesis saw the largest revenue quarter since Q2 of '22, bolstered by new product offerings. In NGS, we saw a moderation of price erosion and significant increases in the volume of data generated. Sanger sequencing was down 8% organic year over year, but grew 4% quarter to quarter, and while we continue to cycle through in evolving Sanger market, we believe we are past the low point. Our Multiomics business in China delivered organic revenue growth of 4%, once again, outperforming a soft market. Gross margin in the Multiomics business was 47.5%, up 130 basis points year over year driven by productivity gains and direct material, labor and fixed overhead leverage. And finally, B Medical. Revenue was $29 million in the quarter, up 7% reported and 8% on an organic basis. The higher than initially expected level of revenue was primarily due to additional vaccine cold chain orders received during the quarter. Gross margin of 37.3% was down 170 basis points, primarily driven by sales mix. Next, let's turn to Slide 6 for a review of the balance sheet. As I mentioned earlier, we ended the quarter with $754 million in cash, cash equivalent and marketable securities. We had no debt outstanding. During the quarter, free cash flow was negative $5 million. Capital expenditures for the quarter were about $7 million as we invested for growth and scale in our sample repository solutions and Multiomics businesses. Turning to guidance on Slide 8. As you saw in our press release, we are lowering our full year to a range of down 2% to down 1%. This is versus our prior guide of a range of down 1% to up 1%. At this point in the quarter, B Medical's firm orders are approximately $16 million, and with nine months of actuals would land B medical at $80 million of revenue for the year. This is due to conversion delays in a still robust pipeline. SMS is now expected to grow mid-single digits as a result of the shifting of OEM orders to Q1 of 2025. We continue to feel good about our Multiomics business and are reaffirming the revenue guide of growing low single digits to mid-single digits. Even with this change, we stand by the adjusted EBITDA guide of approximately 300 basis points of margin expansion, and we are raising the non-GAAP EPS guide to a range of $0.30 to $0.36 for fiscal year 2024. The EPS raise is primarily driven by operational improvements, which offset the impact of lower sales and interest income is now expected to be approximately $32 million. In closing, we are pleased with our performance in Q3. We are committed to delivering on our purpose, serving our customers, and enabling life sciences breakthroughs faster. This concludes our prepared remarks, and I will now turn the call over to the operator for questions. [Operator Instructions]. Our first question will come from line of Jacob Johnson from Stephens. Your line is open. Jacob Johnson Good afternoon everybody. Congrats on the quarter. Maybe starting in a somewhat random place, but that cryogenic freezer's up 40% in the quarter, that's a pretty striking number. And much better than I think another peer that reported tonight on the freezer side. We're still hearing about some muted capital equipment spend, so I'm just curious, kind of, I'm guessing some of that was off a low base, but what drove the growth in cryo freezers? Is it the differentiated aspect of the offering or anything you'd call out there? Steve Schwartz It's automated systems are the driver here. Jacob, for the first time in several quarters now, we had some multiple system orders for customers who have converted to automation. And so, they had these systems in place. They spent the last few quarters verifying that was the way they were going to go and we had multiple system orders. And so that's a good boost for us. We haven't seen the constraints because these are not huge ticket items. These are in the 150 K to 250 K. So, it's not multimillion kind of things like the large automated stores. And so, we haven't seen any reluctance from customers to keep purchasing. But the by and large -- although we have manual cryogenic freezers as well but by and large, the trend that we see is for the automated systems. Jacob Johnson And then maybe for my follow-up, Herman, I guess on B Medical, just kind of high level as you think about strategic planning and right sizing costs, obviously, it's a business that's going to be down 29% this year. I imagine if DRC comes back maybe it could be something better than next year. I'll let you wait to opine on 2025 B Medical trends, but I'm just kind of curious how you think about managing resources for that business given some of the variability in the revenue streams there? Herman Cueto Thanks, Jacob. Listen, what we set at Investor Day is that we're going to build B Medical to be an accretive EBITDA margin business for the long haul. We continue to see value in the sample acquisition strategy, so we're going to continue to go after that. But when you look at where they're coming in what they did this quarter, if they had an above Azenta overall EBITDA margin all of the things that we're doing around Ascend 2026 to rightsize that business, they're starting to bear fruit. So, we're going to rotate resources to the places that are growing, of course. But the things we're doing will give us the runway to explore things in a profitable way. Our next question line Vijay Kumar from Evercore ISI. Your line is open. Sophia Knopp This is Sophia Knopp on for Vijay. I just had a quick question on the EBITDA margin. So, the current guide implies about a 250 bips sequential step up into 4Q and I was wondering if you could just talk about the factors that go into that step up and then kind of going off that, what is the right jump-off point as we start to think about fiscal '25 from a margin standpoint? Herman Cueto Hi, Sophia, its Herman. I won't talk about fiscal year '25, but I actually don't think it's a step up from Q3 to Q4 to hit the overall guide. Maybe it's flat to down a little bit from Q3 to Q4. Maybe we could talk offline on the modeling. Our next question will come line of Andrew Cooper from Raymond James. Your line is open. Noah Lewis This is Noah Lewis on for Andrew. I just had a quick question. So, C&I, I think you said grew 17%, and I just wanted to see like what you're seeing in those end markets there. and maybe even also within SMS what you're hearing from customers? And is that purely just a timing thing on the guidance change? Or is there anything else going into that? Herman Cueto Noah, its Herman. So, in the third quarter, C&I grew 17% within instruments as we've seen in prior quarters bookings in the quarter were soft as we saw capital spending continue to be somewhat constrained. However, the pipeline continues to look strong indicating that demand remains healthy and it's tied to spending delays. However, we did see revenue growth in instruments quarter to quarter, which we viewed as a positive. And on the consumable side, revenue growth was very strong. We saw significant double-digit sequential in year-over-year increases. So, related to SMS, it's certainly just a timing thing. Maybe if I talk for a minute about the change in the guide. If I were to start with B Medical at this point in the quarter, as we talked about in the prepared remarks, we're holding about 16 million firm orders. Through nine months, B Medical's delivered $64 million of revenue, and that takes us to about $80 million. The midpoint of the last guide was about $85 million, so $5 million of the change was driven by that. And then the remaining five is related to our OEM product line. We make an automated store for a customer that goes into a lab automation system, and we're working with that customer to shift some of the volume from the second half of '24 into Q1 of '25. It's not lost volume at all. It's just a movement of revenue from in our case one fiscal year to the next. And our next question on come line of Matt Stanton from Jefferies. Your line is open. Matt Stanton Maybe one on the NGS side, it sounds like you're -- things are maybe getting a bit better. Maybe we have brighter days ahead. You talked about demand elasticity this time around versus prior cycles, maybe driving more outsourced demand. Maybe just kind of talk a bit more about why this time might be different. We might see that. And then you talked about 700 new customers. Anyway, your kind to level set us on what a normal quarter is, or what last year was just to kind of get the magnitude of the activity on in the quarter year. Herman Cueto A couple things. One, it seems like compared to other cycles when there's been a transition like this. It feels like our end customers who used to do their own sequencing maybe have delayed some of the tool purchases and they're sending their work to us. So, it's what we envisioned might be the case. And it's kind of what's proven to be happening here over the last quarters. We went over 700 new customers this quarter. That was an increase of a hundred from the prior quarter. Just to give you an idea. So, it feels like there's a pretty significant momentum build and we -- as I mentioned, we had a record in quote activity, both in the number of quotes and the dollar volume on quotes. And it feels to us right now as though customers want to take advantage of a significant opportunity to have a reduced price. Because of our cost structure, and our outsourcing more of the NGS work. So again, we will report on that as we go forward in quarters, but that's been our observation here over the three quarters. Pricing seems to have stabilized; volume continues to grow fifth consecutive quarter-over-quarter growth of 20% growth in terms of volume and we'll see what happens from here. But right now, I think there are just not as many tools installed and we've got a lot of capacity in place ready to take customer business and turn it fast. Matt Stanton And Herman, maybe one for you on the margin. So still guiding for up 300 bips for the year, despite the lower top line, is that just mixed dynamics or are there other kind of cost levers you're pulling maybe faster to protect that 300 basis points? You laid out quite a hefty list of improvements around the Ascend 26 for the year. So just kind of curious on what's kind of underpinning the ability to drive that large expansion still. Herman Cueto The Ascend 2026 program is bearing fruit and things are coming online faster. Maybe then we would've committed to, so we're always planning ahead and there's always things in the pipeline. Things fall off and then things come on faster and we're just experiencing that. So, we talked about in the prepared remarks that we've already, for example, optimized closed 10 sites. We've right sized another three. That's finding its way into the P&L. It's a combination of things. So, there are cost actions related to Ascend 2026. That's helping us reach these targets. And we still feel good about the fiscal year '26 commitment. [Operator Instructions]. Our next question will comes from the line of Lucas Baranowski from KeyBanc Capital. Your line is open. Lucas Baranowski This is Lucas on for Paul Knight at KeyBanc. Last quarter, I believe you mentioned that you had two more sites that were expected to close over the near term. It sounds like those have occurred now, but are there any further closures that you're expecting in the coming quarters? Thanks. Herman Cueto We do have a couple others that we are currently working on. I don't want to disclose whether they'll happen in the fourth quarter or next year, but we do have a few things in flight right now. Lucas Baranowski And then switching over to the Multiomics business, I believe you had some sites where revenue was expected to be flat sequentially as you transitioned over to the new NovaSeq X Plus. Has that transition finished at this point and are you starting to see a step up in revenue? Herman Cueto It's actually an interesting dynamic Lucas. And we've said this in the past, where we're seeing price losses, it's actually being offset by volume gains. We've been able to maintain the margins in the business because the new technology actually enables us to use less raw material, less labor. And on top of that, we're able to leverage our fixed overhead structure. And it's the combination of those three things that have contributed to the margin stabilization. Over, I would say the last two quarters, the ASPs have stabilized and we're beginning to get to the point where we're lapping these tougher compares. So NGS in the quarter growing 3% is the largest quarter growth that we've seen in the past year. So, it's a positive sign for this business for sure. Steve Schwartz To the last part of your question, almost all the data that we generate today and the measurement we make is on the X Plus tools. So, we've made that conversion already prior to the last quarter. Looks like we have a follow-up question from the line of Jacob Johnson from Stephens. Your line is now open. Jacob Johnson Two follow ups. I guess first, just following-up on that last line of questioning NGS 3%, Steve, I think I heard you say volume was up 20% as we near the end of some of these pricing headwinds. Is that volume growth a proxy for how we -- what we could see from NGS or any caveats there as we think about NGS growth as pricing comps normalize? Steve Schwartz We hope so, let me start with two things. We hope so. We think the volumes are good. Yeah. The other thing I'll say is on -- when we look at the last three conversion cycles, when there were appreciable decreases in the cost of sequencing, we're at or a little bit ahead performance-wise compared to where we were before. But I think that's customer behavior. I think more people are outsourcing. So, we anticipate we'll see continued progress here. Now we got work to do and proofs to do, but there's nothing that says that we wouldn't have a chance then on the more solid, like Herman says year over year compares that that wouldn't be a lot more solid business. So, we anticipate that's the case. We'll wait and see, but the customer volume and customer activity has been really strong. Jacob Johnson And then just one other follow-up on Multiomics just on synthesis, it's been topical for customer or for investors. You guys have mentioned the potential to add US manufacturing for synthesis if customers are asking for it. I'm just curious, have you heard any of that from customers? Herman Cueto I'll share this one. So, customers ask from a risk mitigation standpoint, and we're prepared. So, we have -- we already do manufacturing synthesis in North America, customers ask because they want to know that in the event that we couldn't supply from our China facility for example could we, and the answer of course is yes, but there's no push for it and no customers have gone away from us as a result of the way that we're structured today. So indeed, it's a question but only a question and it's mostly for their risk mitigation strategy. But we're prepared if we needed to, we'd be prepared to move more manufacturing to North America. Now I want to turn it back over to Herman Cueto for any closing remarks. Herman Cueto Thank you everybody for joining us today. I would like to thank our 3000 pluses and employees worldwide for their hard work and dedication. That concludes our call for today. Thank you everybody. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.