Azenta, Inc. (AZTA) FY 2023 MD&A

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our Consolidated Financial Statements and related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below and in the forward-looking statements. Factors that could cause or contribute to these differences include, without limitation, those discussed in “Information Related to Forward-Looking Statements” and Part I, Item 1A, “Risk Factors” included above in this Annual Report on Form 10-K.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, describes principal factors affecting the results of our operations, financial condition and liquidity, as well as our critical accounting policies and estimates that require significant judgment and thus have the most significant potential impact on our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. All dollar amounts in the below MD&A are presented in U.S. dollars, unless otherwise noted or the context otherwise provides.

Our MD&A is organized as follows:

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OVERVIEW

General

We are a leading global provider of biological and chemical compound sample exploration and management solutions for the life sciences industry. We entered the life sciences market in 2011, leveraging our in-house precision automation and cryogenics capabilities that we were then applying in the semiconductor manufacturing market. This led us to provide solutions for automated ultra-cold storage. Since then, we have expanded our life sciences offerings through internal investments and through a series of acquisitions. We now support our customers from research and clinical development to commercialization with our sample management, automated storage, and genomic services expertise to help our customers bring impactful therapies to the market faster. We understand the importance of sample integrity and offer a broad portfolio of products and services supporting customers at every stage of the life cycle of samples including procurement and sourcing, automated storage systems, genomic services and a multitude of sample consumables, informatics and data software, along with sample repository solutions (“SRS”). Our expertise, global footprint and leadership positions enable us to be a trusted global partner to pharmaceutical, biotechnology and life sciences research institutions. In total, we employ approximately 3,500 full-time employees, part-time employees and contingent workers worldwide as of September 30, 2023 and have sales in approximately 150 countries. We are headquartered in Burlington, Massachusetts and have operations in North America, Asia, and Europe.

Our portfolio includes product and service offerings developed by us internally, as well as through acquisitions, designed to bring together comprehensive capabilities to service our customers’ needs in sample exploration and management, automated storage, and genomic solutions. We continue to develop new product and service offerings and enhance existing and acquired offerings through the expertise of our research and development resources. We believe our acquisition, investment and integration approach has allowed us to accelerate internal development and significantly accelerate time to market for our life sciences solutions.

Segments

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

Our Life Sciences Products business is a leading provider of automated cold storage solutions for biological and chemical compound samples. We have a complete line of automated storage systems from ambient temperatures to -190°C. Our sample management solutions include consumable vials and tubes, polymerase chain reaction (“PCR”) plates, instruments for supporting workflows, and informatics. This portfolio provides customers with a high level of sample quality, security, availability, intelligence and integrity throughout the lifecycle of samples providing customers with complete end-to-end “cold-chain of custody” capabilities. On July 1, 2022, we acquired Barkey Holding GmbH and its subsidiaries (“Barkey”), a leading provider of controlled rate thawing devices for customers in the medical, biotech and pharmaceutical industries, headquartered in Leopoldshöhe, Germany. On October 3, 2022, we acquired B Medical Systems S.á r.l and its subsidiaries (“B Medical”), a market leader in temperature-controlled storage and transportation solutions that enable the delivery of life-saving treatments to more than 150 countries worldwide. This acquisition complements our cold-chain capabilities, adding differentiated solutions for reliable and traceable transport of temperature-sensitive samples. Additionally, on February 2, 2023, we acquired Ziath Ltd. and its subsidiaries (“Ziath”), a leading provider of 2D barcode readers for life sciences applications to complement our product offerings.

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Our Life Sciences Services business is a leading provider of solutions addressing the many needs of customers in the area of genomic analysis and the management and care of biological samples used in pharmaceutical, biotech, healthcare, clinical, and academic research and development markets. We process millions of samples annually, each containing valuable information that must be preserved with the sample. Our genomic services provide a broad capability to customers for gene sequencing, synthesis, editing and related services. We offer a comprehensive, global portfolio that we believe has both broad appeal in the life sciences industry and enables customers to select the best solution for their research and development challenges. This portfolio also offers unique solutions for key markets such as cell and gene therapy (“CGT”), antibody development and biomarker discovery by addressing genomic complexity and throughput challenges. Our sample management services include off-site storage services, transport services, laboratory services, sample procurement, and interactive informatics solutions. We also offer expert-level consultation services to our clients throughout their experimental design and implementation processes. Our services also include short- and long-term sample storage and management of the “cold-chain of custody” from collection, to storage, to retrieving the sample which ultimately may go back into the research workflow.

Sale of the Semiconductor Automation Business

On February 1, 2022, we completed the sale of our semiconductor automation business to Thomas H. Lee, Partners, L.P., for $2.9 billion in cash. In connection with the divestiture of the semiconductor automation business and our continued focus on our life sciences businesses, we changed our corporate name from “Brooks Automation, Inc.” to “Azenta, Inc.” and our common stock began trading on the Nasdaq Global Select Market under the symbol “AZTA” on December 1, 2021.

Since our founding in 1978, we had been a leading automation provider and partner to the global semiconductor manufacturing industry. With the completion of the sale of the semiconductor automation business, we no longer serve the semiconductor market. The semiconductor automation business is classified as a discontinued operation and, unless otherwise noted, this MD&A relates solely to our continuing operations and does not include the operations of our semiconductor automation business.

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Business and Financial Performance

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

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Results of Operations

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

Revenue increased 20% in fiscal year 2023 compared to the prior fiscal year, driven by revenue growth in our Life Sciences Products segment of 53% primarily due to acquisitions (largely B Medical), partially offset by the decline in COVID-related revenues in our Consumables and Instruments business. Gross margin was 39.6% for fiscal year 2023 compared to 46.0% in the prior fiscal year, primarily due to the higher costs resulting from the amortization of purchase accounting adjustments and intangibles associated with the acquisition of B Medical, and unfavorable mix in the Life Sciences Products segment, inclusive of margin dilution attributable to lower margins in the acquired B Medical business in the current year. Operating expenses increased $55.9 million in fiscal year 2023 compared to the prior fiscal year. Selling, general and administrative expenses increased $64.8 million in fiscal year 2023 compared to the prior fiscal year, primarily due to the acquisitions of B Medical and Barkey, partially offset by an $18.5 million reduction in the fair value of contingent consideration related to B Medical. We generated an operating loss of $73.1 million for fiscal year 2023 compared to an operating loss of $24.7 million for fiscal year 2022, driven by a reduction in gross margin and an increase in operating expenses. Loss from continuing operations was $12.9 million during fiscal year 2023 as compared to a loss from continuing operations of $11.3 million in fiscal year 2022. Loss from discontinued operations was $1.4 million during fiscal year 2023 as compared to income from discontinued operations of $2.1 billion in fiscal year 2022. The results for discontinued operations for fiscal year 2023 were due to adjustments to and/or settlements of assets and liabilities associated with the discontinued operations. Please refer to the “Results of Operations” section below for a detailed discussion of our financial results for fiscal year 2023 compared to fiscal year 2022.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of the Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue, intangible assets, goodwill, inventories, income taxes, and stock-based compensation. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. We evaluate current and anticipated worldwide economic conditions, both in general and specifically in relation to the life sciences industry, that serve as a basis for making judgments about the carrying values of assets and liabilities that are not readily determinable based on information from other sources. Actual results may differ from these estimates under different assumptions or conditions that could have a material impact on our financial condition and results of operations.

We believe that the assumptions and estimates associated with the following critical accounting policies involve significant judgment and thus have the most significant potential impact on our Consolidated Financial Statements.

Revenue Recognition

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

Although most of our sales agreements contain standard terms and conditions, certain agreements contain multiple performance obligations or non-standard terms and conditions. For customer contracts that contain more than one performance obligation, we allocate the total transaction consideration to each performance obligation based on the relative stand-alone selling price of each performance obligation within the contract. We rely on either observable standalone sales or an expected cost-plus margin approach to determine the standalone selling price of offerings, depending on the nature of the performance obligation. Performance obligations whose standalone selling price is estimated using an expected cost-plus margin approach relate to the sale of customized automated cold sample management systems and service-type warranties within the Life Sciences Products segment.

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

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have alternative use to us and an enforceable right to payment for performance completed to date is present. We recognize revenue as work progresses based on a percentage of actual labor hours incurred on the project to-date and total estimated labor hours expected to be incurred on the project. The selection of the method to measure progress towards completion requires judgment. We have concluded that using the percentage of labor hours incurred to estimated labor hours needed to complete the project most appropriately depicts our efforts towards satisfaction of the performance obligation. We develop profit estimates for long-term contracts based on total revenue expected to be generated from the project and total costs anticipated to be incurred in the project. These estimates are based on a number of factors, including the degree of required product customization and the work required to be able to install the product in the customer’s existing environment, as well as our historical experience, project plans and an assessment of the risks and uncertainties inherent in the contract related to implementation delays or performance issues that may or may not be within our control. We estimate a loss on a contract by comparing total estimated contract revenue to the total estimated contract costs and recognize a loss during the period in which it becomes probable and can be reasonably estimated. We review profit estimates for long-term contracts during each reporting period and revise the estimate based on changes in circumstances.

If our judgment regarding revenue recognition proves incorrect, our revenue in particular periods may be adversely affected and could have a material impact on our financial condition and results of operations.

Business Combinations

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

Significant judgment is used in determining fair values of assets acquired, liabilities assumed, and contingent consideration, as well as intangibles and their estimated useful lives. Fair value and useful life determinations may be based on, among other factors, estimates of revenue growth rates, operating expenses, integration costs, obsolescence factor and discount rate among others attributable to completed technology and other acquired intangible assets used in computing present values. These judgments may materially impact the estimates used in allocating acquisition date fair values to assets acquired and liabilities assumed, as well as our current and future operating results. Actual results may vary from these estimates and may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever occurs first. Adjustments to fair values of assets and liabilities made after the end of the measurement period are recorded within our operating results.

Contingent consideration is recorded at fair value as measured on the date of acquisition using an appropriate valuation model, such as the Monte Carlo simulation model. The value recorded is based on estimates of future financial projections under various potential scenarios, in which the model runs many simulations based on comparable companies’ growth rates and their implied volatility. Our estimates of forecasted revenues in the earn-out period include a consideration of current industry information, market and economic trends, historical results of the acquired business and other relevant factors. These cash flow projections are discounted with a risk adjusted rate. Each quarter until such contingent amounts are earned, the fair value of the liability is remeasured at each reporting period based on changes to the underlying assumptions. The estimates used to determine the fair value of the contingent consideration liability are subject to significant judgment and given the inherent uncertainties in making these estimates, actual results are likely to differ from the amounts originally recorded and could be materially different.

Intangible Assets, Goodwill and Other Long-Lived Assets

We have identified intangible assets and generated significant goodwill as a result of our acquisitions. Intangible assets other than goodwill are valued based on estimated future cash flows and amortized over their estimated useful lives. Goodwill is tested for impairment annually or more often if impairment indicators are present, at the reporting unit level. Intangible assets other than goodwill and long-lived assets are subject to impairment testing if events and circumstances indicate that the carrying amount of an asset or a group of assets may not be recoverable.

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

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Significant Accounting Policies in the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K), we determine fair values of our reporting units based on an income approach in accordance with the discounted cash flow method, (the “DCF Method”). The DCF Method is based on projected future cash flows and terminal value estimates discounted to their present values. The key inputs used in the DCF Method include revenue growth rates, gross margin percentages, selling, general and administrative expense percentages and discount rates that are at or above our weighted average cost of capital. We derive discount rates that are commensurate with the risks and uncertainties inherent in the respective reporting units and our internally developed projections of future cash flows.

Application of the goodwill impairment test requires judgment based on market and operational conditions at the time of the evaluation, including management’s best estimates of the reporting unit’s future business activity and the related estimates and assumptions of future cash flows from the assets that include the associated goodwill. Different assumptions of revenue growth rates, gross margin percentages, selling, general and administrative expense percentages and the discount rate used in accordance with the DCF Method could result in different estimates of the reporting units’ fair value as of each testing date.

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

We are required to test long-lived assets, other than goodwill, for impairment when impairment indicators are present. For purposes of this test, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If we determine that indicators of potential impairment are present, we assess the recoverability of the long-lived asset group by comparing its undiscounted future cash flows to its carrying value. If the carrying value of the long-lived asset group exceeds its future cash flows, we determine fair values of the individual net assets within the long-lived asset group to assess potential impairment. If the aggregate fair values of the individual net assets of the group are less than their carrying values, an impairment loss is recognized for an amount in excess of the group’s aggregate carrying value over its fair value. The loss is allocated to the assets within the group based on their relative carrying values, with no asset reduced below its fair value.

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

Inventory

We state our inventory at the lower of cost or market and make adjustments to reduce the inventory cost to its net realizable value by providing estimated reserves for excess or obsolete inventory. The reserves are established for the difference between the cost of inventory and its estimated market value based on assumptions related to future demand and market conditions to reduce the carrying value to its net realizable value. We fully reserve for inventories and non-cancelable purchase orders for inventory deemed obsolete. We perform periodic reviews of our inventory to identify excess inventories on hand. We compare on-hand inventory balances to anticipated inventory usage based on our recent historical activity and anticipated or forecasted demand for our products developed through our planning systems and sales and marketing inputs.

We adjust the reserves for excess or obsolete inventory and record additional inventory write downs based on unfavorable changes in estimated customer demand or actual market conditions that may differ from management projections.

Deferred Income Taxes

We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We consider recent historical income, estimated future taxable income, carry-forward periods of tax attributes, and ongoing tax planning strategies in assessing the need for the valuation allowance. We evaluate the realizability of

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our deferred tax assets by tax-paying component and assess the need for a valuation allowance on a quarterly basis. We evaluate the profitability of each tax-paying component on a historic cumulative basis and on a forward-looking basis while performing this analysis. We continue to hold a U.S. valuation allowance related to the realizability of certain state tax credits and net operating loss carry-forwards. We also maintain valuation allowances against net deferred tax assets in certain foreign tax-paying components as of the end of fiscal year 2023.

Stock-Based Compensation

We measure compensation cost for all employee stock awards at fair value on the date of grant and recognize compensation expense over the service period for awards expected to vest. The fair value of restricted stock units is determined based on the number of shares granted and the closing price of our common stock quoted on the Nasdaq Global Select Market on the date of grant. In addition, for stock-based awards where vesting is dependent upon achieving certain operating performance goals, we estimate the likelihood of achieving the performance goals. Actual results, and future changes in estimates, may differ from our current estimates.

Recently Issued Accounting Pronouncements

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

RESULTS OF OPERATIONS

Please refer to the commentary provided below for further discussion and analysis of the factors contributing to our results from operations for the twelve months ended September 30, 2023 and 2022. A comparison of our results for the fiscal year ended September 30, 2022 to the fiscal year ended September 30, 2021 is included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for fiscal year ended September 30, 2022, filed with the SEC on November 25, 2022.

Non-GAAP Financial Measures

Non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures. Management adjusts the GAAP results for the impact of amortization of intangible assets, restructuring charges, purchase price accounting adjustments, and charges related to M&A to provide investors better perspective on the results of operations which the Company believes is more comparable to the similar analysis provided by its peers. Management also excludes special charges and gains, such as impairment losses, gains and losses from the sale of assets, certain tax benefits and charges, as well as other gains and charges that are not representative of the normal operations of the business. Management strongly encourages investors to review our financial statements and publicly filed reports in their entirety and not rely on any single measure.

Revenue

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

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

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

Our Life Sciences Products segment revenue increased 53% year-over-year, primarily due to acquisitions (largely B Medical). Excluding these acquisitions, we experienced a decline in revenue of approximately 9% year-over-year, primarily due to the decreased demand and associated revenue for COVID-19 related to our Consumables and Instruments business of approximately 28% year-over-year, which was partially offset by increased revenue in Automated Store Systems of approximately 20% year-over-year.

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

We estimate that revenue related to the COVID-19 pandemic for the fiscal year ended September 30, 2023 was approximately $7.7 million in the aggregate, including $4.1 million from B Medical, as compared to COVID-related revenue of $22 million for the year ended September 30, 2022. The decrease in this revenue was primarily due to lower demand for Consumables and Instruments related to COVID-19 testing.

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

Revenue generated outside the United States amounted to $310.0 million, or 47% of total revenue, for fiscal year 2023 compared to $197.3 million, or 36% of total revenue, for fiscal year 2022. There was one customer with more than 10% of our consolidated revenue for fiscal year 2023. This individual customer is a distributor shipping to end users in approximately 50 countries. No individual customer accounted for more than 10% of our consolidated revenue for the fiscal year ending 2022.

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Operating Income (Loss)

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

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We generated an operating loss of $73.1 million for fiscal year 2023 compared to an operating loss of $24.7 million in the prior fiscal year. The increase in operating loss year-over-year was driven by lower gross margin at Life Sciences Services primarily due to macroeconomic uncertainty and pricing in the Genomics business, as well lower gross margin at Life Sciences Products primarily due to the acquisition of B Medical driving increased selling, general and administrative expenses and lower gross margin for the segment overall. Fiscal year 2023 included the impact of amortization of intangible assets and purchase accounting impact on inventory due to the addition of B Medical. Within operating expenses, research and development expenses increased $6.4 million and selling, general, and administrative expenses increased $64.8 million. Selling, general and administrative expenses increased due to the addition of B Medical, higher labor costs, and continued investment in the business. These increased expenses were partially offset by an adjustment to the fair value of contingent consideration related to B Medical of $18.5 million and savings from cost reduction actions.

Operating loss for our Life Sciences Products segment was $30.3 million for fiscal year 2023 compared to operating income of $11.0 million in the prior fiscal year. The Life Science Products segment adjusted operating income decreased $18.1 million and adjusted operating margin decreased 8.0 percentage points compared to the prior year. The decrease in adjusted operating income was driven by an increase in operating expenses of $53.0 million (primarily due to the addition of B Medical), partially offset by higher adjusted gross profit of $33.9 million driven by increased revenues. Adjusted operating income for our Life Sciences Products segment excludes charges for amortization related to completed technology of $13.2 million and $1.1 million for fiscal years 2023 and 2022, respectively, a $9.7 million charge related to the purchase accounting impact on inventory, and a $1.6 million charge related to amortization of other intangibles for fiscal year 2023. Please refer to Note 19, Segment and Geographic Information in the Notes to the

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

Operating loss for our Life Sciences Services segment was $14.7 million for fiscal year 2023 as compared to operating income of $10.8 million in the prior fiscal year. The Life Sciences Services segment adjusted operating income decreased $26.2 million and adjusted operating margin decreased 7.3 percentage points compared to the prior year. The decrease in adjusted operating income was driven by lower adjusted gross profit of $5.3 million and an increase in adjusted operating expenses of $20.8 million. Adjusted operating income for our Life Sciences Services segment excludes charges for amortization related to completed technology of $5.3 million and $6.2 million for fiscal years 2023 and 2022, respectively, and a $0.5 million benefit from a tariff adjustment for fiscal year 2022. Please refer to Note 19, Segment and Geographic Information in the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10 K.

Gross Margin

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

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We reported a gross margin of 39.6% for fiscal year 2023 compared to 46.0% in the prior fiscal year, a decrease of 6.4 percentage points. Gross margin decreased 11.6 percentage points in the Life Sciences Products segment and 1.7 percentage points in the Life Sciences Services segment for fiscal year 2023 compared to the prior fiscal year.

Our Life Sciences Products segment reported gross margin of 33.2% for fiscal year 2023 compared to 44.7% in the prior fiscal year. The decrease was primarily driven by the impact of amortization of purchase accounting adjustments and intangibles associated with the acquisition of B Medical. Cost of revenue in fiscal years 2023 and 2022 included $13.2 million and $1.1 million, respectively, of amortization related to completed technology. Fiscal year 2023 also included $9.7 million of purchase accounting impact on inventory. Excluding these charges, adjusted gross margin decreased 4.6 percentage points in fiscal year 2023 compared to the prior year, primarily due to the mix of products sold in our Cryogenics business, and margin dilution attributable to lower margins in the acquired B Medical business in the current year. Please refer to Note 19, Segment and Geographic Information in the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10 K.

Our Life Sciences Services segment reported gross margin of 45.0% for fiscal year 2023 compared to 46.7% in the prior fiscal year primarily driven by a decline in the Genomic Services business due to the impact of lower sales, higher labor costs and continued investment in the business. Please refer to Note 19, Segment and Geographic Information in the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10K.

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Research and Development Expenses

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

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

Selling, General and Administrative Expenses

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

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

Within our segment expense, discussed below, we allocate certain corporate general and administrative expenses including costs related to shared corporate functions which include finance, information technology, human resources, legal, executive, governance, and compliance. In total, corporate general and administrative expense allocated to segments increased $12.2 million year-over-year, primarily due to higher labor costs and investment in the business.

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

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

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

Non-Operating Income (Expenses)

Interest income – During fiscal years 2023 and 2022, we recorded interest income of $43.7 million and $20.3 million, respectively, which primarily represented interest earned on our cash and cash equivalents, marketable securities, and net investment hedge. The increase in interest income in fiscal year 2023 from the prior fiscal year is due to higher interest rates on the investment of the proceeds from the sale of the semiconductor automation business, including interest accrued on a net investment hedge during fiscal year ended 2023.

Interest expense – During fiscal years 2023 and 2022, we recorded interest expense of $0.0 million and $4.6 million, respectively. The interest expense for fiscal year 2022 is primarily related to interest on cash held in one of our German subsidiaries that is denominated in EUR, which carries a negative interest rate. There is no interest expense in 2023 as the interest rate was positive.

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

Income Tax (Benefit) Expense

We recorded an income tax benefit on continuing operations of $17.6 million in fiscal year 2023 compared to an income tax expense of $1.4 million in fiscal year 2022. The increased tax benefit for the year was driven by the increased global pre-tax loss from operations recorded in fiscal year 2023. In addition to the tax benefit driven by the loss from operations, we also recorded a $1.4 million tax benefit from the reversal of tax reserves, a $1.4 million deferred tax benefit resulting from a tax rate reduction extension in our China business, and a $6.1 million tax benefit related to the outside basis difference in a German subsidiary. The benefit includes $8.1 million related to anticipated U.S. foreign exchange losses on the future repatriation calculated at foreign exchange rates as of September 30, 2023. This benefit is offset by $2.0 million of state income taxes, net of the federal benefit. During the fourth quarter of fiscal year 2023, it became apparent that the outside basis difference with regard to $450 million of foreign cash maintained in the German subsidiary would be reversed within the next twelve months. These additional tax benefits drove the effective tax rate on our loss higher than ordinary statutory tax rates.

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Discontinued Operations

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

There was no revenue from discontinued operations for fiscal year 2023. Revenue from discontinued operations was $264.4 million for fiscal year 2022. Net loss from discontinued operations was $1.4 million for fiscal year ended 2023 and net income was $2.1 billion for fiscal year 2022. The net loss from discontinued operations was primarily driven by adjustments to liabilities related to discontinued operations, particularly the accrued liability for the litigation with Edwards Vacuum LLC which was recorded during second quarter of 2023 and is discussed in Note 20, Commitments and Contingencies in the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10 K. Net income from fiscal year 2022 is comprised of the gain on the sale of the semiconductor business. The income from discontinued operations only includes direct operating expenses incurred that (1) are clearly identifiable as costs being disposed of upon completion of the sale and (2) will not be continued by our company on an ongoing basis. Indirect expenses which supported the semiconductor automation business and semiconductor cryogenics business, and which remained as part of the continuing operations, are not reflected in income from discontinued operations.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2023, we had cash and cash equivalents of $678.9 million, marketable securities of $450.2 million, and stockholders’ equity of $2.5 billion. Net cash provided by (used in) operating activities was $17.5 million and ($466.0) million for fiscal years ending 2023 and 2022, respectively. We incurred a net loss of $14.3 million, and

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earned net income of $2.1 billion for fiscal years ending 2023 and 2022, respectively. We believe that our current cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements for at least one year from the date of this Annual Report on Form-10K and for the foreseeable future. The current global economic environment makes it difficult for us to predict longer-term liquidity requirements with sufficient certainty. We may be unable to obtain any required additional financing on terms favorable to us, if at all. If adequate funds are not available to us on acceptable terms or otherwise, we may be unable to successfully develop or enhance products and services, respond to competitive pressure or take advantage of acquisition opportunities, any of which could have a material adverse effect on our business, financial condition and operating results.

Overview of Cash Flows and Liquidity

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

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

Our cash and cash equivalents, restricted cash and marketable securities were $1.1 billion as of September 30, 2023. As of September 30, 2023, we had cash, cash equivalents and restricted cash of $684.0 million, of which approximately $569 million was held outside of the United States. If these funds are needed for U.S. operations, we would need to repatriate these funds. As a result of recent changes in U.S. tax legislation, any repatriation in the future would likely not result in significant U.S. federal income tax impacts. We had marketable securities of $450.2 million and $1.3 billion as of September 30, 2023 and 2022, respectively. Our marketable securities are generally readily convertible to cash without an adverse impact.

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

Overview

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Cash Flows and Liquidity

Cash and cash equivalents and restricted cash were $684.0 million as of September 30, 2023 compared to $1.0 billion as of September 30, 2022. The decrease of $357.3 million was attributable to $844.1 million of cash outflows from financing activities, partially offset by $431.4 million of cash inflows from investing activities, and $17.5 million of cash inflows from operating activities.

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Operating Activities

Cash flows from operating activities can fluctuate significantly from period to period as earnings, working capital needs and the timing of payments for income taxes, restructuring activities and other charges impact reported cash flows.

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

Cash outflows from operating activities of $466.0 million for the fiscal year ended September 30, 2022, resulted from net income of $2.1 billion, adjusted to exclude the effect of non-operating items of $2.5 billion, and an increase in net operating assets of $507 million. This includes $431.6 million of taxes and $52.5 million of fees related to the sale of the semiconductor automation business. $72.1 million of cash outflows from the increase in net operating assets were primarily driven by increases in accounts receivable, inventory, and prepaids and other assets partially offset by increases in accrued expenses, and accrued compensation and tax withholdings.

Investing Activities

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

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

Cash provided by investing activities was $1.5 billion during fiscal year 2022 and consisted of $2.9 billion of proceeds from the sale of the semiconductor automation business on February 1, 2022, net of the cash transferred, and $705.4 million of sales and maturities of marketable securities; offset by $2.0 billion of purchases of marketable securities, $125.9 million of acquisitions, and $73.4 million of capital expenditures. The acquisitions comprised the purchase of a technology intangible of $4 million related to the semiconductor automation business, $84 million for Barkey and $43 million to prepay the debt for the B Medical acquisition prior to September 30, 2022. Capital expenditures were made primarily to increase capacity, support new product development, and enhance information technology infrastructure.

Financing Activities

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

Cash outflows for financing activities were $62.8 million for the year ended September 30, 2022 which primarily consisted of cash outflows of $49.7 million to extinguish the term loan, $10.4 million for the payments of acquisition related contingent consideration, $7.5 million related to dividend payments, $0.4 million payment of finance leases, partially offset by $5.2 million of proceeds from the issuance of common stock.

China Facility

In April 2019, we committed to construct a facility in Suzhou China, to consolidate the Suzhou operations of our genomic services business and provide infrastructure to support future growth. The facility is being constructed in two phases. As of fiscal year end 2023, we have completed the construction of phase one of the facility with a total cost of $43.0 million. Construction of phase two of the facility is expected to begin in the second fiscal quarter of 2024 and be completed over several years with a total estimated cost of $30.0 million.

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Capital Resources

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

Dividends

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

Since the completion of the sale of the semiconductor automation business on February 1, 2022, we have not paid a quarterly dividend and do not have plans to pay any dividends at this time. During fiscal year 2022, prior to the sale, we paid a $0.10 per share quarterly dividend totaling $7.5 million in December 2021.

Share Repurchase Program

On September 29, 2015, our Board of Directors approved an authorization to repurchase up to $50.0 million of our common stock. On November 4, 2022, our Board of Directors terminated the existing share repurchase authorization and approved a new authorization to repurchase up to $1.5 billion of our common stock (the “2022 Repurchase Authorization”). Repurchases under the 2022 Repurchase Authorization may be made in the open market or through privately negotiated transactions (including under an accelerated share repurchase (“ASR”) agreement), or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 of the Exchange Act, subject to market and business conditions, legal requirements, and other factors. We are not obligated to acquire any specific amount of common stock under the 2022 Repurchase Authorization, and share repurchases may be commenced or suspended at any time at management’s discretion. As part of the 2022 Repurchase Authorization, we entered into an ASR agreement for the repurchase of $500.0 million of our common stock on November 23, 2022, and received delivery of, and retired, 10.1 million shares of common stock under the ASR agreement, which terminated on April 3, 2023. In April 2023, other arrangements commenced under the 2022 Repurchase Authorization under which we expect to repurchase up to an additional $500.0 million of shares of our common stock in open market purchases, subject to market and business conditions, legal requirements, and other factors. In addition, in November 2023, we announced that we intend to repurchase the remaining $500.0 million shares of common stock available under the 2022 Repurchase Authorization in 2024. We repurchased 17.5 million shares of common stock for $838.5 million (excluding fees, commissions, and excise tax) in the fiscal year ending September 30, 2023 under the ASR and these other arrangements. As of September 30, 2023, $662.0 million of the 2022 Repurchase Authorization remained available for additional repurchases.

See Note 13, Stockholders’ Equity in the Notes to the consolidated financial statements included in the section titled "Financial Statements and Supplementary Data" in Part II, Item 8 of this Annual Report on Form 10-K for additional information about the share repurchase authorization.

Contractual Obligations and Requirements

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

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Off-Balance Sheet Arrangements

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

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