Azenta, Inc.: Form 10-Q for the period ended Jun 30, 2024

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited interim condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and related notes contained in our Annual Report on Form 10-K for the year ended September 30, 2023 (the “2023 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 this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) as well as those described in the 2023 Annual Report on Form 10-K and this Quarterly Report on Form 10-Q under “Information Related to Forward-Looking Statements” and Part II, Item 1A “Risk Factors”. 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:

• Overview. This section provides a general description of our business and operating segments as well as a brief discussion and overall analysis of our business and financial performance, including key developments affecting us during the three and nine months ended June 30, 2024 and 2023.
• Critical Accounting Policies and Estimates. This section discusses accounting policies and estimates that require us to exercise subjective or complex judgments in their application. We believe these accounting policies and estimates are important to understanding the assumptions and judgments incorporated in our reported financial results.
• Results of Operations. This section provides an analysis of our financial results for the three and nine months ended June 30, 2024 compared to the three and nine months ended June 30, 2023.
• Liquidity and Capital Resources. This section provides an analysis of our liquidity and changes in cash flows as well as a discussion of contractual commitments.

OVERVIEW

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 develop 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, vaccine cold storage and transport, as well as genomic services expertise to help our customers bring impactful therapies to market faster. We understand the importance of sample integrity and offer a broad portfolio of products and services supporting customers at every stage of the life cycle of samples including procurement, automated storage systems, genomic services and a multitude of sample consumables, informatics and data software, along with sample repository solutions. 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 3,300 full-time employees, part-time employees and contingent workers worldwide as of June 30, 2024 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 acquired through acquisitions, designed to provide comprehensive capabilities to our customers, addressing their needs in sample exploration and management, automated storage, multiomics, and cold chain 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

Within our Sample Management Solutions segment, we operate as a single business unit offering end-to-end sample management products and services, including: Sample Repository Solutions and Core Products (Automated Stores, Cryogenic Systems, Automated Sample Tube and Consumables and Instruments). 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. We also offer expert-level consultation services to our clients throughout their experimental design and implementation processes.

Within our Multiomics segment, our genomics services business advances research and development activities by providing 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, antibody development and biomarker discovery by addressing genomic complexity and throughput challenges.

Within our B Medical Systems segment, we provide temperature-controlled storage and transportation solutions that complement our cold chain capabilities, adding differentiated solutions for reliable and traceable transport of temperature-sensitive specimens worldwide. We offer end-to-end cold chain of custody capabilities for vaccines, blood components, and laboratory specimens through our portfolio of cold chain transport solutions, plasma freezers, contact shock freezers, ultra-low freezers, and real-time sample monitoring and location tracking solutions.

Business and Financial Performance

Basis of Presentation

Our condensed consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).

Financial Performance

Our performance for the three and nine months ended June 30, 2024 and 2023 are as follows:

In thousands

Three months ended June 30, 2024 compared to three months ended June 30, 2023

Revenue increased 4% for the three months ended June 30, 2024 compared to the corresponding period in the prior fiscal year, driven by increased revenue in the Sample Management Solutions and B Medical Systems segments, while revenue in the Multiomics segment remained flat. Gross margin was 40% for the three months ended June 30, 2024 compared to 41% for the corresponding period in the prior fiscal year, driven by higher amortization expense and transformation costs in the current period as well as purchase accounting impacts to inventory in the prior year period which did not reoccur, partially offset by higher revenue and operational efficiencies. Operating expenses remained flat during the three months ended June 30, 2024 compared to the corresponding period in the prior fiscal year driven by decreased research and development and selling, general and administrative expenses, offset by increased restructuring charges related to the Company's cost reduction initiatives launched in fiscal year 2024. Additionally, we recognized a benefit of $1.4 million of fair value contingent consideration adjustments related to the B Medical Systems segment in the three months ended June 30, 2023 which did not reoccur in fiscal year 2024. We generated a net loss of $6.6 million for the three months ended June 30, 2024 compared to a net loss of $1.5 million for the three months ended June 30, 2023, primarily driven by the decrease in interest and other income.

Nine months ended June 30, 2024 compared to nine months ended June 30, 2023

Revenue decreased 1% for the nine months ended June 30, 2024 compared to the corresponding period in the prior fiscal year, driven by decreased revenue in the B Medical Systems segment, partially offset by increased revenue in the Sample Management Solutions and Multiomics segments. Gross margin was 40% for the nine months ended June 30, 2024, which is consistent with the corresponding period in the prior fiscal year. Gross margin in the 2024 period was driven by margin expansion in the Sample Management Solutions and Multiomics segments, offset by margin pressure from decreased revenue in the B Medical Systems segment. Operating expenses increased $131 million during the nine months ended June 30, 2024 compared to the corresponding period in the prior fiscal year, primarily due to the non-cash impairment of goodwill and intangible assets and increased restructuring charges recognized in the nine months ended June 30, 2024, partially offset by decreased selling, general and administrative expenses. Additionally, we recognized a benefit of $18.5 million of fair value contingent consideration adjustments related to the B Medical Systems segment in the nine months ended June 30, 2023 which did not reoccur in fiscal year 2024. We generated a net loss of $159.2 million for the nine months ended June 30, 2024 compared to a net loss of $17.6 million for the nine months ended June 30, 2023, primarily driven by the impairment of goodwill and intangible assets, a lower income tax benefit, and decreased interest income.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of the interim condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates based on historical experience and consider 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.

The critical accounting estimates that we believe affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q are described in the Critical Accounting Policies Estimates included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the 2023 Annual Report on Form 10-K. There have been no material changes to our critical accounting policies or estimates from those set forth in our 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 three and nine months ended June 30, 2024 compared to the three and nine months ended June 30, 2023.

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, purchase accounting impact on inventory, transformation costs, restructuring charges, goodwill and intangible asset impairment, fair value adjustments to contingent consideration, governance-related matters, merger and acquisition costs and costs related to share repurchase, and other unallocated corporate expenses 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 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. A reconciliation of non-GAAP measures to the most nearly comparable GAAP measures is included under “Operating Loss” and “Gross Margin” below.

Revenue

Our revenue performance for the three and nine months ended June 30, 2024 and 2023 is as follows:

In thousands, except percentages

Three months ended June 30, 2024 compared to three months ended June 30, 2023

Revenue for the three months ended June 30, 2024 increased 4% compared to the corresponding prior fiscal year period, driven by 7% increases in both our Sample Management Solutions and B Medical Systems segments, while revenue in our Multiomics segment remained flat.

Our B Medical Systems segment revenue for the three months ended June 30, 2024 increased 7% compared to the corresponding prior fiscal year period, primarily due to the timing of orders for cold chain equipment.

Our Sample Management Solutions segment revenue for the three months ended June 30, 2024 increased 7% compared to the corresponding prior fiscal year period driven by revenue growth in the Cryogenic Systems, Consumables and Instruments and Sample Repository Solutions businesses, partially offset by a decline in Clinical Stores.

Our Multiomics segment revenue for the three months ended June 30, 2024 remained flat compared to the corresponding prior fiscal year period driven by revenue growth in Next Generation Sequencing and Gene Synthesis, offset by a decline in Sanger sequencing services.

Revenue generated outside the United States was $77.6 million, or 45% of total revenue, for the three months ended June 30, 2024 compared to $76.1 million, or 46% of total revenue, for the corresponding period in the prior fiscal year.

Nine months ended June 30, 2024 compared to nine months ended June 30, 2023

Revenue for the nine months ended June 30, 2024 decreased 1% compared to the corresponding period in the prior fiscal year, driven by a 24% decrease in our B Medical Systems segment, partially offset by a 5% increase in our Sample Management Solutions segment and a 1% increase in our Multiomics segment.

Our B Medical Systems segment revenue for the nine months ended June 30, 2024 decreased 24% compared to the corresponding prior fiscal year period, primarily due to the timing of orders for cold chain equipment.

Our Sample Management Solutions segment revenue for the nine months ended June 30, 2024 increased 5% compared to the corresponding prior fiscal year period driven by revenue growth in the Automated Stores and Sample Repository Solutions businesses.

Our Multiomics segment revenue for the nine months ended June 30, 2024 increased 1% compared to the corresponding prior fiscal year period driven by revenue growth in Next-Generation Sequencing and Gene Synthesis, partially offset by a decline in Sanger sequencing services.

Revenue generated outside the United States was $212.1 million, or 44% of total revenue, for the nine months ended June 30, 2024 compared to $228.5 million, or 46% of total revenue, for the corresponding period in the prior fiscal year.

Operating Loss

Our operating loss performance for the three and nine months ended June 30, 2024 and 2023 is as follows (in thousands, except percentages):

35

(1) Transformation costs represent non-recurring expenses for strategic projects with anticipated long-term benefits to the Company focused on cost reduction and productivity improvement that do not meet the definition of restructuring charges. These costs are directed at simplifying, standardizing, streamlining, and optimizing the Company’s operations, processes and systems to permanently alter the Company’s operations for the long term. For a project to be considered transformational, successful completion of the project must be expected to bring long-term material benefits to the organization and involve significant changes to process and/or underlying technology. Transformation costs in the period result from actions taken as part of the Company’s 2024 transformation plan, and primarily relate to one time asset write downs associated with changes in technology, one time inventory write downs relating to restructuring actions taken in the period, and third-party consulting costs associated with process & systems re-design.

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

Three months ended June 30, 2024 compared to three months ended June 30, 2023

Operating income for the Sample Management Solutions segment was $2.5 million for the three months ended June 30, 2024 compared to operating income of $0.1 million in the corresponding period in the prior fiscal year. The Sample Management Solutions segment operating margin was 3.1%, an increase of 297 basis points for the three months ended June 30, 2024 compared to the corresponding period in the prior fiscal year. The increase in operating income and operating margin were primarily driven by higher revenue, supported by operating leverage and cost reduction initiatives. Adjusted operating income was $3.4 million for the three months ended June 30, 2024 compared to adjusted operating income of $0.8 million in the corresponding period in the prior fiscal year. Adjusted operating margin was 4.2%, an increase of 314 basis points for the three months ended June 30, 2024 compared to the corresponding period in the prior fiscal year. Adjusted operating income and margin exclude the impact of amortization of intangible assets of $1.1 million and $0.7 million for the three months ended June 30, 2024 and 2023, respectively, and transformation cost benefit of $0.1 million for the three months ended June 30, 2024.

Operating loss for the Multiomics segment was $1.8 million for the three months ended June 30, 2024 compared to an operating loss of $4.6 million in the corresponding period in the prior fiscal year. The Multiomics segment operating margin was (2.8)%, an increase of 448 basis points for the three months ended June 30, 2024 compared to the corresponding period in the prior fiscal year. The decrease in operating loss and increase in operating margin were primarily driven by higher gross profit and lower operating expenses due to cost reduction initiatives. Adjusted operating loss was $0.7 million for the three months ended June 30, 2024 compared to adjusted operating loss of $3.4 million in the corresponding period of the prior fiscal year. Adjusted operating margin was (1.1)%, an increase of 420 basis points for the three months ended June 30, 2024 compared to the corresponding period in the prior fiscal year. Adjusted operating loss and margin exclude the impact of amortization related to completed technology of $1.0 million and $1.2 million for the three months ended June 30, 2024 and 2023, respectively.

Operating loss for the B Medical Systems segment was $5.1 million for the three months ended June 30, 2024 compared to an operating loss of $4.1 million in the corresponding period in the prior fiscal year. The B Medical Systems segment operating margin was (18.0)%, a decrease of 260 basis points for the three months ended June 30, 2024 compared to the corresponding period in the prior fiscal year. The increase in operating loss and decrease in operating margin were primarily driven by lower volume of cold chain sales in the product mix, partially offset by higher revenue and lower operating expenses due to cost reduction initiatives. Adjusted operating income was $1.9 million for the three months ended June 30, 2024 compared to adjusted operating income of $1.5 million in the corresponding period in the prior fiscal year. Adjusted operating margin was 6.7%, an increase of 101 basis points for the three months ended June 30, 2024 compared to the corresponding period in the prior fiscal year. Adjusted operating income and margin exclude the impact of amortization related to completed technology of $4.3 million and $2.7 million for the three months ended June 30, 2024 and 2023, respectively, transformation costs of $2.8 million for the three months ended June 30, 2024 and purchase accounting impact on inventory of $3.0 million for the three months ended June 30, 2023.

Nine months ended June 30, 2024 compared to nine months ended June 30, 2023

Operating loss for the Sample Management Solutions segment was $2.3 million for the nine months ended June 30, 2024 compared to an operating loss of $10.6 million in the corresponding period in the prior fiscal year. The Sample Management Solutions segment operating margin was (1.0)%, an increase of 382 basis points for the nine months ended June 30, 2024 compared to the corresponding period in the prior fiscal year. The decrease in operating loss and increase in operating margin were primarily driven by higher revenue, supported by operating leverage and cost reduction initiatives. Adjusted operating income was $1.0 million for the nine months ended June 30, 2024 compared to adjusted operating loss of $8.3 million in the corresponding period in the prior fiscal year. Adjusted operating margin was 0.4%, an increase of 414 basis points for the nine months ended June 30, 2024 compared to the corresponding period in the prior fiscal year. Adjusted operating income and margin exclude the impact of amortization of intangible assets of $3.0 million and $2.4 million for the nine months ended June 30, 2024 and 2023, respectively, and transformation costs of $0.2 million for the nine months ended June 30, 2024.

Operating loss for the Multiomics segment was $10.3 million for the nine months ended June 30, 2024 compared to an operating loss of $14.2 million in the corresponding period in the prior fiscal year. The Multiomics segment operating margin was (5.4)%, an increase of 212 basis points for the nine months ended June 30, 2024 compared to the corresponding period in the prior fiscal year. The decrease in operating loss and increase in operating margin were primarily driven by higher gross profit and lower operating expenses due to cost reduction initiatives. Adjusted operating loss was $7.1 million for the nine months ended June 30, 2024 compared to adjusted operating loss of $10.5 million in the corresponding period in the prior fiscal year. Adjusted operating margin was (3.8)%, an increase of 181 basis points for the nine months ended June 30, 2024 compared to the corresponding period in the prior fiscal year. Adjusted operating loss and margin exclude the impact of amortization related to completed technology of $3.1 million and $3.7 million for the nine months ended June 30, 2024 and 2023, respectively.

Operating loss for the B Medical Systems segment was $19.1 million for the nine months ended June 30, 2024 compared to an operating loss of $13.6 million in the corresponding period in the prior fiscal year. The B Medical Systems segment operating margin was (29.9)%, a decrease of 1,370 basis points for the nine months ended June 30, 2024 compared to the corresponding period in the prior fiscal year. The increase in operating loss and decrease in operating margin were primarily due to product mix with lower volume of cold chain sales, partially offset by lower operating expenses due to decreased commissions on cold chain sales and cost reduction initiatives. Adjusted operating loss was $3.7 million for the nine months ended June 30, 2024 compared to adjusted operating income of $4.5 million in the corresponding period in the prior fiscal year. Adjusted operating margin was (5.7)%, a decrease of 1,104 basis points for the nine months ended June 30, 2024 compared to the corresponding period in the prior fiscal year. Adjusted operating loss and margin exclude the impact of amortization of intangible assets of $12.3 million and $9.3 million for the nine months ended June 30, 2024 and 2023, respectively, transformation costs of $3.1 million for the nine months ended June 30, 2024 and purchase accounting impact on inventory of $8.7 million for the nine months ended June 30, 2023.

Gross Margin

Our gross margin performance for the three and nine months ended June 30, 2024 and 2023 is as follows (in thousands, except percentages):

(1) Transformation costs represent non-recurring expenses for strategic projects with anticipated long-term benefits to the Company focused on cost reduction and productivity improvement that do not meet the definition of restructuring charges. These costs are directed at simplifying, standardizing, streamlining, and optimizing the Company’s operations, processes and systems to permanently alter the Company’s operations for the long term. For a project to be considered transformational, successful completion of the project must be expected to bring long-term material benefits to the organization and involve significant changes to process and/or underlying technology. Transformation costs in the period result from actions taken as part of the Company’s 2024 transformation plan, and primarily relate to one time asset write downs associated with changes in technology, one time inventory write downs relating to restructuring actions taken in the period, and third-party consulting costs associated with process & systems re-design.

Three months ended June 30, 2024 compared to three months ended June 30, 2023

The Sample Management Solutions segment gross margin was 45.0% for the three months ended June 30, 2024, a decrease of 139 basis points compared to the corresponding period in the prior fiscal year. Adjusted gross margin was 46.1% for the three months ended June 30, 2024, a decrease of 124 basis points compared to the corresponding period in the prior fiscal year, driven by lower gross margin for the Core Products business partially offset by higher gross margin for the Sample Repository Solutions business. Adjusted gross margin excludes the impact of amortization related to completed technology of $1.0 million and $0.7 million for the three months ended June 30, 2024 and 2023, respectively, and transformation cost benefit of $0.1 million for the three months ended June 30, 2024.

The Multiomics segment gross margin was 45.9% for the three months ended June 30, 2024, an increase of 158 basis points compared to the corresponding period in the prior fiscal year. Adjusted gross margin was 47.5% for the three months ended June 30, 2024, an increase of 130 basis points compared to the corresponding period in the prior fiscal year, driven by higher gross margin for the Next Generation Sequencing and Gene Synthesis businesses, partially offset by lower gross margin for Sanger sequencing services. Adjusted gross margin excludes the impact of amortization related to completed technology of $1.0 million and $1.2 million for the three months ended June 30, 2024 and 2023, respectively.

The B Medical Systems segment gross margin was 12.5% for the three months ended June 30, 2024, a decrease of 532 basis points compared to the corresponding period in the prior fiscal year. Adjusted gross margin was 37.3% for the three months ended June 30, 2024, a decrease of 170 basis points compared to the corresponding period in the prior fiscal year, driven by product mix with lower volume of cold chain sales, partially offset by higher revenue. Adjusted gross margin excludes the impact of amortization related to completed technology of $4.3 million and $2.7 million for the three months ended June 30, 2024 and 2023, respectively, transformation costs of $2.8 million for the three months ended June 30, 2024 and purchase accounting impact on inventory of $3.0 million for the three months ended June 30, 2023.

Nine months ended June 30, 2024 compared to nine months ended June 30, 2023

The Sample Management Solutions segment gross margin was 43.8% for the nine months ended June 30, 2024, an increase of 123 basis points compared to the corresponding period in the prior fiscal year. Adjusted gross margin was 45.2% for the nine months ended June 30, 2024, an increase of 160 basis points compared to the corresponding period in the prior fiscal year, driven by higher gross margin for both the Core Products and Sample Repository Solutions businesses. Adjusted gross margin excludes the impact of amortization related to completed technology of $2.9 million and $2.1 million for the nine months ended June 30, 2024 and 2023, respectively, and transformation costs of $0.2 million for the nine months ended June 30, 2024.

The Multiomics segment gross margin was 45.3% for the nine months ended June 30, 2024, an increase of 94 basis points compared to the corresponding period in the prior fiscal year. Adjusted gross margin was 46.9% for the nine months ended June 30, 2024, an increase of 63 basis points compared to the corresponding period in the prior fiscal year, driven by higher gross margin for the Gene Synthesis business, partially offset by lower gross margin for Next Generation Sequencing and Sanger sequencing services. Adjusted gross margin excludes the impact of amortization related to completed technology of $3.1 million and $3.7 million for the nine months ended June 30, 2024 and 2023, respectively.

The B Medical Systems segment gross margin was 9.5% for the nine months ended June 30, 2024, a decrease of 1,151 basis points compared to the corresponding period in the prior fiscal year. Adjusted gross margin was 33.7% for the nine months ended June 30, 2024, a decrease of 722 basis points compared to the corresponding period in the prior fiscal year, primarily due to lower volume of cold chain sales in the product mix. Adjusted gross margin excludes the impact of amortization related to completed technology of $12.3 million and $8.0 million for the nine months ended June 30, 2024 and 2023, respectively, transformation costs of $3.1 million for the nine months ended June 30, 2024 and purchase accounting impact on inventory of $8.7 million for the nine months ended June 30, 2023.

Research and Development Expenses

Our research and development expenses for the three and nine months ended June 30, 2024 and 2023 are as follows:

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Total research and development expenses decreased $1.1 million for the three months ended June 30, 2024 compared to the corresponding period in the prior fiscal year, driven by cost reduction initiatives across all three business segments, primarily from decreased expenditures for external services and decreased compensation and benefits expense.

Total research and development expenses increased $0.1 million for the nine months ended June 30, 2024 compared to the corresponding period in the prior fiscal year, driven by increased product development expenses in our Sample Management Solutions segment.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses for the three and nine months ended June 30, 2024 and 2023 are as follows:

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Total selling, general and administrative expenses decreased $1.6 million for the three months ended June 30, 2024 compared to the corresponding period in the prior fiscal year, driven by savings from cost reduction initiatives in our Sample Management Solutions and Multiomics segments, partially offset by increased expense in our B Medical Systems segment due to higher commissions on cold chain sales and corporate expenses related to incentive compensation accrual and insurance.

Total selling, general and administrative expenses decreased $10.6 million for the nine months ended June 30, 2024 compared to the corresponding period in the prior fiscal year, driven by savings from cost reduction initiatives across the business, as well as decreased governance-related costs and non-recurring expenses for the accelerated share repurchase arrangement in the nine months ended June 30, 2023.

Restructuring Charges

Restructuring charges were $2.1 million and $10.5 million, respectively, for the three and nine months ended June 30, 2024, an increase of $1.3 million and $6.8 million, respectively, compared to the three and nine months ended June 30, 2023 driven by initiatives launched in the fiscal year 2024. See Note 7, Restructuring in the notes to the unaudited condensed consolidated financial statements included in the section titled “Financial Statements” in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

Non-Operating Income

Interest income, net – We recorded interest income of $8.0 million and $27.7 million, respectively, for the three and nine months ended June 30, 2024 compared to $11.3 million and $32.4 million, respectively, recorded for the three and nine months ended June 30, 2023. The decrease in interest income is due to decreased investments in marketable securities during the nine months ended June 30, 2024 compared to the corresponding period in the prior fiscal year. Please refer to Note 4, Marketable Securities and Note 5, Derivative Instruments in the notes to the unaudited condensed consolidated financial statements included in the section titled “Financial Statements” in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Other income (expense), net – We recorded other expense of $0.3 million and other income of $0.7 million, respectively, for the three and nine months ended June 30, 2024 compared to other expense of $0.8 million and $0.7 million, respectively, for the three and nine months ended June 30, 2023, which primarily relates to foreign exchange gains and losses resulting from foreign currency denominated transactions and the revaluation of foreign currency denominated assets and liabilities.

Income Tax Benefit

We recorded an income tax benefit of $0.5 million and $0.9 million during the three and nine months ended June 30, 2024, respectively. The tax benefit for the three months ended June 30, 2024 was driven by our loss from operations. The tax benefit for the nine months ended June 30, 2024 was primarily driven by the pre-tax loss from operations offset by $1.7 million of charges related to a valuation allowance recorded against deferred tax assets in a foreign subsidiary, $0.5 million of stock compensation shortfall expense for tax deductions that were lower than the associated book compensation expense and $0.7 million of expenses related to a valuation allowance on beginning of year U.S. state deferred tax assets. Our tax rate on the loss from operations was lower than statutory rates because we were not providing a full tax benefit on U.S. losses due to a partial valuation allowance being recorded against U.S. federal and state deferred tax assets during the current year. As a result of the valuation allowance, the benefit was reduced by $1.3 million and $9.6 million during the three and nine months ended June 30, 2024.

We recorded an income tax benefit of $1.2 million and $9.1 million, respectively during the three and nine months ended June 30, 2023. The tax benefit for the three months ended June 30, 2023 was primarily driven by the pre-tax loss from operations during the period. The tax benefit for the nine months ended June 30, 2023 was primarily driven by the pre-tax loss from operations and a $1.4 million deferred tax benefit resulting from the extension of a tax incentive in China. The effective tax rates for the three and nine months ended June 30, 2023 are slightly higher than statutory rates. The effective rates are driven higher than statutory rates by the discrete tax benefit in China noted above and the fair value adjustment of the contingent consideration related to the B Medical acquisition. The contingent consideration generated $18.5 million of pre-tax income that is not subject to income taxes, therefore, the tax benefit is being driven by a tax loss that is significantly higher than the book loss for these periods.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2024, we had cash and cash equivalents of $336.5 million and stockholders’ equity of $2.0 billion. 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 Quarterly Report on Form 10-Q and for the foreseeable future thereafter. 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 additional financing that may be required 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 pressures, or take advantage of acquisition opportunities, any of which could have a material adverse effect on our business, financial condition and operating results.

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 June 30, 2024 and September 30, 2023 are as follows:

In thousands

As of June 30, 2024, we had$131.5 million of cash, cash equivalents and restricted cash held outside of the United States. If these funds are needed for U.S. operations, we would need to repatriate these funds. Based on current U.S. tax laws, any repatriation in the future would likely not result in U.S. federal income tax. Our marketable securities are generally readily convertible to cash without a material adverse impact.

Our cash flows for the nine months ended June 30, 2024 and 2023 were as follows:

In thousands

Cash inflows from operating activities for the nine months ended June 30, 2024 were $36.6 million, primarily due to improved inventory management and decreased selling, general and administrative expenses as a result of our cost savings plans and transformation initiatives. Investing activities for the nine months ended June 30, 2024 include $378.3 million of purchases of marketable securities, offset by $431.5 million for sales and maturities of marketable securities. Financing activities for the nine months ended June 30, 2024 include $412.8 million of outflows related to our share repurchase program described below, partially offset by proceeds from our employee stock purchase plan.

As of June 30, 2024, we had no outstanding debt on our balance sheet.

Capital Resources

Share Repurchase Program

On November 4, 2022, our Board of Directors approved an 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 commence or be suspended at any time at management’s discretion.

As of June 30, 2024, we have repurchased 25.1 million shares of common stock for $1.25 billion (excluding fees, commissions, and excise tax) under the 2022 Repurchase Authorization and $249 million of the 2022 Repurchase Authorization remained. All shares of common stock repurchased by the Company under the 2022 Repurchase Authorization have been retired, accounted for as a reduction to stockholders’ equity in the Condensed Consolidated Balance Sheets and treated as a repurchase of common stock for purposes of calculating earnings per share as of the applicable settlement dates.

Contractual Obligations and Requirements

At June 30, 2024, we had non-cancellable commitments of $71.4 million, comprised primarily of purchase orders for inventory of $53.3 million, and other operating expense commitments of $18.1 million.

We are exposed to a variety of market risks, including changes in interest rates affecting the return on our cash and cash equivalents, restricted cash and short-term and long-term investments and fluctuations in foreign currency exchange rates.

Interest Rate Exposure

Our cash and cash equivalents and restricted cash consist principally of money market securities which are short-term in nature. At June 30, 2024, our aggregate short-term and long-term investments were $407.4 million, consisting mostly of highly rated corporate debt securities and U.S. government backed securities. At June 30, 2024, the unrealized loss position on marketable securities was $1.8 million which is included in “Accumulated other comprehensive loss” in the Condensed Consolidated Balance Sheets. A hypothetical 100 basis point change in interest rates would result in a $6.1 million and $9.5 million change in interest income earned during the nine months ended June 30, 2024 and 2023, respectively.

Currency Rate Exposure

We have transactions and balances denominated in currencies other than the functional currency of the transacting entity. Most of these transactions carrying foreign exchange risk are in Germany, the United Kingdom, and China. Sales in currencies other than the U.S. dollar were approximately 25% and 24% of our total sales, respectively, during the nine months ended June 30, 2024 and 2023. These sales were made primarily by our foreign subsidiaries, which have cost structures that substantially align with the currency of sale.

In the normal course of our business, we have liquid assets denominated in non-functional currencies which include cash, short-term advances between our legal entities and accounts receivable which are subject to foreign currency exposure. Such balances were $63.7 million and $157.8 million, respectively, at June 30, 2024 and September 30, 2023, and primarily relate to the Euro, British Pound, and the Chinese Yuan. We mitigate the impact of potential currency translation losses on these short-term intercompany advances by the timely settlement of each transaction, generally within 30 days. We also utilize forward contracts to mitigate our exposures to currency movement. We incurred foreign currency losses of $1.7 million and $0.1 million during the nine months ended June 30, 2024 and 2023, respectively, which related to the currency fluctuation on these balances between the time the transaction occurred and the ultimate settlement of the transaction. A hypothetical 10% change in foreign exchange rates as of June 30, 2024 would result in an approximate change of $0.2 million in our net loss during the nine months ended June 30, 2024.

Evaluation of Disclosure Controls and Procedures. As of June 30, 2024, pursuant to Rule 13a-15 under the Exchange Act, we performed an evaluation of the effectiveness of our disclosure controls and procedures. Based on this evaluation, management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were operating and effective as of June 30, 2024.

Change in Internal Controls. There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

You should carefully review and consider the information regarding certain factors that could materially affect our business, consolidated financial condition or results of operations set forth under the section titled “Risk Factors” in Part I, Item 1A of the 2023 Annual Report on Form 10-K and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024. There have been no material changes from the risk factors disclosed in the 2023 Annual Report on Form 10-K or the referred to Quarterly Report on Form 10-Q. We may disclose changes to risk factors or additional factors from time to time in our future filings with the SEC.