The Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, describes principal factors affecting the results of our operations, financial condition and liquidity, as well as our critical accounting policies and estimates that require significant judgment and thus have the most significant potential impact on our Consolidated Financial Statements included elsewhere in this Form 10-K. Our MD&A is organized as follows:
Overview. This section provides a general description of our activities and
operating segments, recent developments, as well as a brief discussion and
? overall analysis of our business and financial performance, including
developments affecting us during the closed financial years
and 2019.
Critical accounting conventions and estimates. This section deals with accounting
policies and estimates that require us to exercise
? judgments in their application. We believe that these accounting policies and
estimates are important for understanding assumptions and judgments
included in our published financial results.
Results of operations. This section provides an analysis of our
? results for the year ended
closed year
20, 2020 compared to the year ended
Liquidity and capital resources. This section provides an analysis of our
? liquidity and changes in cash flows, as well as a discussion of the
loans and contractual commitments.
You should read the MD&A in conjunction with our Consolidated Financial Statements and related notes in this Form 10-K. In addition to historical information, the MD&A contains forward-looking statements that involve risks and uncertainties. You should read "Information Related to Forward-Looking Statements" and Item 1A, "Risk Factors" included above in this Form 10-K for a discussion of important factors that could cause our actual results to differ materially from our expectations.
PREVIEW
General
We are a leading global provider of life science sample exploration and
management solutions for the life sciences market. We support our customers from
research to clinical development with our sample management, automated storage,
and genomic services expertise to help our customers bring impactful therapies
to market faster. We understand the importance of sample integrity and offer a
broad portfolio of products and services spanning across the life cycle of
samples from procurement and sourcing, automated storage platforms, genomic
services and a broad range of consumables, informatics and data software, and
sample management solutions. Our expertise and leadership positions enable us to
be a trusted partner to pharmaceutical, biotechnology, and life sciences
research institutions globally.
In the life sciences sample management market, we utilize our core technology
competencies and capabilities in automation and cryogenics to provide
comprehensive bio-sample management solutions to a broad range of end markets
within the life sciences industry. Our offerings include automated ultra-cold
storage freezers, consumable sample storage containers, instruments which assist
in the workflow of sample management, genomic services and both on-site and
off-site full sample management services. We expect the life sciences sample
management market to remain one of our principal markets for our product and
service offerings and provide favorable opportunities for the growth of our
overall business. Over the past several years, we have acquired and developed
essential capabilities required to strategically address the sample management
needs across multiple end markets within the life sciences industry.
Our life sciences portfolio includes products and services that we acquired to
bring together a comprehensive capability to service our customers' needs in the
sample-based services arena. We continue to develop the acquired products and
services offerings through the combined expertise of the newly acquired teams
and our existing research and development resources. We believe our approach of
acquisition, investment, and integration has allowed us to accelerate our
internal development and that of the acquired entity, significantly decreasing
our time to market.
25
Table of Contents
We have also strengthened and broadened our product portfolio and market reach
by investing in internal product development. We expect to continue investing in
research and development and making strategic acquisitions with the objective of
expanding our offerings in the life sciences market.
Within our Life Sciences Products segment, we have developed and continue to
develop automated biological sample storage solutions for operating in ultra-low
temperature environments. We have a complete line up of automated stores from
ambient temperatures to -190°. Our BioStore's ™ unique design allows controlled
temperature storage down to -80°C with the industry's highest throughput of
sample retrieval. Our BioStore portfolio offers improved data management and
sample security for vaccines and biologics stored at -80°C.
Within our Life Sciences Services segment, our genomics services business
advances research and development activities in gene sequencing, synthesis
editing and related services to meet market demands. Recently, enabled by newly
developed proprietary technologies, we launched a portfolio of new services,
targeting analysis of adeno-associated virus, a common vector used in cell and
gene therapy. We will continue to focus on developing processes and technologies
that can streamline sample to data workflow.
Sale of the semiconductor automation business
In the fourth quarter of fiscal year 2021, we entered into a definitive agreement to sell our semiconductor automation business, which consists of ourBrooks Semiconductor Solutions Group reportable segment, toThomas H. Lee, Partners, L.P. , or THL, for$3.0 billion in cash subject to customary adjustments. Since our founding in 1978, we have been a leading automation provider and partner to the global semiconductor manufacturing industry. At the completion of the sale of the semiconductor automation business, we will no longer serve this market. We anticipate closing of the transaction in the first half of calendar year 2022 upon satisfaction of customary closing conditions and regulatory approvals. The semiconductor automation business has been classified as discontinued operations and, unless otherwise noted, this MD&A relates solely to our continuing operations and does not include the operations of our semiconductor automation business.
Sale of the Semiconductor Cryogenics business
In the fourth quarter of fiscal year 2018, we entered into a definitive agreement to sell our semiconductor cryogenics business toEdwards Vacuum LLC (a member of theAtlas Copco Group ) for approximately$675.0 million in cash, subject to customary adjustments. We originally acquired the cryogenics business in 2005 as part of the acquisition ofHelix Technology Corporation . The semiconductor cryogenics business has been classified as discontinued operations and, unless otherwise noted, this MD&A relates solely to our continuing operations and does not include the operations of our semiconductor cryogenics business. OnJuly 1, 2019 , we completed the sale of the semiconductor cryogenics business for$659.8 million . Net proceeds from the sale were$551.7 million , net of taxes and closing costs paid and remaining taxes payable. During the first quarter of fiscal year 2021, the final net working capital was determined, resulting in a negative adjustment in the amount of$1.8 million payable to Edwards. As part of this sale, we transferred our intellectual property, for our cryogenics pump products, but not our intellectual property related to our semiconductor automation or life sciences businesses. OnJuly 1, 2019 , in connection with the completion of the sale of our semiconductor cryogenics business, we used$495.3 million of the cash proceeds to extinguish debt. As a result of the debt extinguishment we recorded a loss on extinguishment of debt of$5.2 million in the fourth quarter of fiscal year 2019. Refer to "Liquidity and Capital Resources" for further discussion of
the
debt extinguishment.
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
Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.
26
Contents
Our Life Sciences Products business is a leading provider of automated ultra-cold storage solutions for biological and chemical compound samples. Our storage systems provide reliable automation and sample inventory management at temperatures down to -196°C and can store anywhere from one to millions of samples. Our sample management solutions include consumable vials and tubes, PCR plates, instruments for supporting workflow, and informatics, all of which focus on providing customers with the highest level of sample quality, security, availability, intelligence and integrity throughout the lifecycle of samples providing customers with complete end-to-end "cold-chain of custody" capabilities. 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. Millions of samples are processed every year, each containing valuable information that must be preserved with the sample. Through our genomic services we provide a broad capability to customers for sequencing and synthesis of genes. Our sample management services include off-site storage services, transport services, laboratory services, and interactive informatics solutions. We also provide expert-level consultation services to our clients throughout their experimental design and implementation. 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 customer's research workflow.
Commercial and financial performance
Results of operations –
Year ended
We reported revenue of$513.7 million for fiscal year 2021 compared to$388.5 million for fiscal year 2020, an increase of$125.2 million , or 32%. Gross margin was 47.5% for fiscal year 2021 compared to 44.3% for fiscal year 2020, an increase in gross profit of$71.7 million . Operating expenses were$274.9 million for fiscal year 2021 compared to$208.7 million for fiscal year 2020, an increase of$66.2 million . We reported an operating loss of$31.1 million for fiscal year 2021 compared to an operating loss of$36.6 million for fiscal year 2020, a decrease in operating loss of$5.5 million , which was primarily attributable to the revenue growth and gross margin improvement, partially offset by higher operating expenses. Other expenses, net includes$16 million of expense due to the release of a tax indemnification asset which is offset within our income tax benefit from the release of a related liability. Overall, we generated a net loss from continuing operations of$28.9 million during fiscal year 2021 as compared to$26.4 million in fiscal year 2020. Please refer to the "Results of Operations" section below for a detailed discussion of our financial results for the fiscal year 2021 compared to fiscal year 2020.
Year ended
We reported revenue of$388.5 million for fiscal year 2020 compared to$334.2 million for fiscal year 2019, an increase of$54.3 million , or 16%. Gross margin was 44.3% for fiscal year 2020 compared to 40.3% for fiscal year 2019, an increase in gross profit of$37.5 million . Operating expenses were$208.7 million for fiscal year 2020 compared to$182.0 million for fiscal year 2019, an increase of$26.7 million . We reported an operating loss of$36.6 million for fiscal year 2020 compared to an operating loss of$47.4 million for fiscal year 2019, a decrease in operating loss of$10.8 million , which was primarily attributable to the revenue growth and gross margin improvement, partially offset by higher operating expenses. We generated a net loss from continuing operations of$26.4 million during fiscal year 2020 as compared to$61.1 million in fiscal year 2019. The decrease in operating loss was primarily attributable to our increase in operating income in the current year as well as a loss on extinguishment of debt of$14.3 million and higher interest expense of$19.3 million in fiscal year 2019. Please refer to the "Results of Operations" section below for a detailed discussion of our financial results for the fiscal year 2020 compared to fiscal year 2019.
Cash flow and liquidity –
Our cash and cash equivalents, restricted cash and marketable securities were$244.0 million as ofSeptember 30, 2021 and$260.7 million as ofSeptember 30, 2020 . Both fiscal year 2021 and 2020 each exclude$45.0 million of cash classified as assets held for sale related to the semiconductor automation
business.
27
Table of Contents
Cash and cash equivalents and restricted cash as presented on our Consolidated
Statements of Cash Flows is on a total company basis and were $285.3 million as
of September 30, 2021 compared to $302.5 million as of September 30, 2020 . The
decrease of $17.2 million included cash outflows for investing activities of
$146.3 million and financing activities of $25.9 million , partially offset by
cash inflows from operating activities of $149.9 million . The effects of foreign
exchange positively impacted the annual change in balances by $5.2 million .
Please see the “Liquidity and Capital Resources” section below for a detailed discussion of our liquidity and changes in our cash flows for fiscal 2021 compared to fiscal 2020.
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 science industry, that serve as a basis for making judgments about the carrying values of assets and liabilities that are not readily determinable based on information from other sources. 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 require significant judgment and therefore 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 the Note 2, "Summary of Significant
Accounting Policies" in the Notes to the Consolidated Financial Statements
included in Item 8, "Financial Statements and Supplementary Data" of this
Form 10-K.
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 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
28
Contents
valued. We review the earnings estimates for long-term contracts during each reporting period and revise the estimate as circumstances change.
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. The fair value of the consideration paid, including contingent consideration, is assigned to the assets acquired and liabilities assumed based on their respective fair values.Goodwill represents the excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed. Significant judgment is used in determining fair values of assets acquired, liabilities assumed and contingent consideration, as well as intangibles and their estimated useful lives. Fair value and useful life determinations may be based on, among other factors, estimates of future expected cash flows, royalty cost savings and appropriate discount rates used in computing present values. For all the current year acquisitions, management applied significant judgment in estimating the fair value of the acquired intangible assets, which involved significant estimates and assumptions with respect to forecast revenue growth rates and the discount rates. These judgments may materially impact the estimates used in allocating acquisition date fair values to assets acquired and liabilities assumed, as well as our current and future operating results. Actual results may vary from these estimates that may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever occurs first. Adjustments to fair values of assets and liabilities made after the end of the measurement period are recorded within our operating results. During the third quarter of fiscal 2021, the Company recorded$9.4 million level 3 liability which represents contingent consideration for an acquisition within the Life Sciences Products segment. The amount is contingent based on the acquired business' performance for the twelve-month period endingDecember 31, 2021 . Please refer to Note 4, "Acquisitions" for further detail. Changes in the fair value of contingent consideration resulting from a change in the underlying inputs are recognized in results of operations until the arrangement is settled.
Intangible 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. The goodwill impairment test is performed at the reporting unit level. A reporting unit is either an operating segment or one level below it, which is referred to as a "component." The level at which the impairment test is performed requires an assessment of whether the operations below an operating segment constitute a self-sustaining business, in which case testing is generally performed at this level. We have two operating and two reportable segments consisting of Life Sciences Products and Life Sciences Services. As of the date of our goodwill impairment test, we had six reporting units which three reporting units are within semiconductor automation discontinued operations. The three reporting units within the continuing operations include one reporting unit within Life Sciences Products operating segment and two reporting units within the Life Sciences Services operating segment. As a result of a change in our management reporting structure and immediately post to the annual goodwill impairment test, the Company combined two components within the Life Sciences Services operating segment, Sample Repository Solutions and Genomic Services components, into the Life Sciences Services reporting unit. The Company evaluated the aggregation criteria under ASC 350 for the two components and concluded that they exhibit similar economic characteristics and meet the aggregation criteria. 29 Table of Contents We perform our annual goodwill impairment assessment onApril 1st of each fiscal year. We evaluate a reporting unit's goodwill for impairment between annual tests if events occur or circumstances change that would more likely than not reduce the fair value of such reporting unit below its carrying value. In accordance with ASC 350, Intangibles-Goodwill and Other, we initially assess qualitative factors to determine whether the existence of events or circumstances indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying value. If we determine, based on this assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying value, we perform a quantitative goodwill impairment test by comparing the reporting unit's fair value with its carrying value. An impairment loss is recognized for the amount by which the reporting unit's carrying value exceeds its fair value, up to the total amount of goodwill allocated to the reporting unit. No impairment loss is recognized if the fair value of the reporting unit exceeds its carrying value. We also concluded that the fair value of the aggregated reporting units significantly exceeded the book value thus no adjustment to goodwill was necessary. We determine fair values of our reporting units based on an income approach in accordance with the discounted cash flow method, or DCF Method. The DCF Method is based on projected future cash flows and terminal value estimates discounted to their present values. Terminal value represents a present value an investor would pay on the valuation date for the rights to the cash flows of the business for the years subsequent to the discrete cash flow projection period. We consider the DCF Method to be the most appropriate valuation technique since it is based on management's long-term financial projections. In addition to determining the fair value of our reporting units based on the DCF method, we also compare the aggregate values of our net corporate assets and reporting unit fair values to our overall market capitalization and use certain market-based valuation techniques to assess the reasonableness of the reporting unit fair values determined in accordance with the DCF Method. The key inputs used in the DCF Method include revenue growth rates, gross margin percentage, selling, general and administrative expense percentage and discount rates that are at or above our weighted-average cost of capital. We derive discount rates that are commensurate with the risks and uncertainties inherent in the respective reporting units and our internally developed projections of future cash flows. Application of the goodwill impairment test requires judgment based on market and operational conditions at the time of the evaluation, including management's best estimates of the reporting unit's future business activity and the related estimates and assumptions of future cash flows from the assets that include the associated goodwill. Different assumptions of revenue growth rates, gross margin percentage, selling, general and administrative expense percentage and the discount rate used in the DCF model could result in different estimates of the reporting unit's fair value as of each testing date. We completed our annual goodwill impairment test as ofApril 1, 2021 for the three reporting units within our continuing operations, including Life Sciences Products as the only reporting unit within our Life Sciences Products segment, and Sample Repository Solutions and Genomic Services within our Life Sciences Services segment. Based on the test results, we determined that no adjustment to goodwill was necessary. We conducted a qualitative assessment for the Life Science Products reporting unit and determined that it was more likely than not that its fair value was greater than its carrying value. As a result of the analysis, we did not perform the quantitative assessment for this reporting unit, and therefore, did not recognize any impairment losses. We performed the quantitative goodwill impairment test for the two reporting units within the Life Sciences Services segment. We determined that no adjustment to goodwill was necessary for these two reporting units. Both reporting units' fair values significantly exceeded their respective book values. 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. 30 Table of Contents During the fourth quarter of fiscal year 2021, we announced that the life sciences businesses will be rebranded under a single, unified life sciences brand, Azenta Life Sciences, or Azenta, during the first half of fiscal year 2022. We concluded that the abandoned tradenames for these businesses were fully impaired in the fiscal fourth quarter of 2021 and recorded a$13.4 million charge for the tradename impairment loss. The impairment loss is included in the Selling, general and administrative expense in our Consolidated Statements of Operations. We did not test our long-lived assets for impairment during fiscal years 2020 since no events indicating impairment occurred during the periods then ended.
Inventory
We state our inventory at the lower of cost or market amount 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 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 our deferred tax assets by tax-paying component and assess the need for a valuation allowance on an annual and quarterly basis. We evaluate the profitability of each tax-paying component on a historic cumulative basis and on a forward-looking basis while performing this analysis. After evaluating all the relevant positive and negative evidence we reduced our valuation allowance against certain foreign net deferred tax assets resulting in a tax benefit of$2.0 million in fiscal year 2021. We continue to hold aU.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 2021.
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, and the fair value of stock options is determined using the Black-Scholes valuation model. Such fair values are recognized as expense over the service period, net of estimated forfeitures. The estimation of stock awards that will ultimately vest requires significant judgment. We consider many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. 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 published accounting position papers
For a summary of recently issued accounting pronouncements applicable to our
Consolidated Financial Statements which is incorporated here by reference,
please refer to Note 2, "Summary of Significant Accounting Policies" in the
Notes to the Consolidated Financial Statements included in Item 8, "Financial
Statements and Supplementary Data" of this Form 10-K.
31
Table of Contents
RESULTS OF OPERATIONS
Year ended
Revenue We reported revenue of$513.7 million for fiscal year 2021 compared to$388.5 million for fiscal year 2020, an increase of$125.2 million , or 32%. The COVID-19 pandemic has had varying impacts on our business for the fiscal year endedSeptember 30, 2021 . Further discussion of the impacts by each segment are discussed below. Our Life Sciences Products segment reported revenue of$199.6 million for fiscal year 2021 compared to$129.8 million for fiscal year 2020, an increase of$69.8 million or 54%. The increase in revenue was driven by all major product lines. Consumables and instruments were the most significant driver of the increase, primarily due to COVID-19 related demand. Our Life Sciences Services segment reported revenue of$314.1 million for fiscal year 2021 compared to$258.8 million for fiscal year 2020, an increase of$55.3 million or 21%. We reported an increase of$56.2 million from our genomics services business driven by Next Generation sequencing, gene synthesis services and Sanger sequencing. We reported a decrease in sample repository solutions revenue of$1.0 million primarily due to reduction of outsourced genomic services which were provided through an alliance withInfinity BiologiX LLC , formerly RUCDR, that was terminated in the fourth quarter of fiscal year 2020. Offsetting the decrease in revenue from the alliance was an increase in storage, informatics, and revenue from the acquisition of Trans-Hit Bio. Revenue increased 30% excluding the impact of the RUCDR alliance. We estimate that the impact of the COVID-19 pandemic on our revenue for the fiscal year endedSeptember 30, 2021 was a net increase of approximately$53 million in the aggregate primarily attributable to the increased demand for in our consumables and instruments products. 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 outsidethe United States amounted to$192.9 million , or 38% of total revenue, for fiscal year 2021 compared to$135.0 million , or 35% of total revenue, for fiscal year 2020.
Operating profit (loss)
We reported an operating loss of$31.1 million for fiscal year 2021 compared to an operating loss of$36.6 million for fiscal year 2020. The decrease in operating loss of 15% was driven by higher revenue and gross profit, partially offset by an increase in both research and development expenses and selling, general and administrative expenses compared to the prior fiscal year. Within operating expenses, selling, general, and administrative expenses increased$61.8 million , and research and development expenses increased$4.6 million . Restructuring expenses decreased$0.3 million . Selling, general and administrative expenses for fiscal year 2021 included$13.4 million of impairment charges related to abandoned tradenames due to the rebranding of our life sciences business announced during the fourth quarter of fiscal year 2021. Cost of sales in fiscal year 2021 also included$5.5 million of cost of sales accrued for tariff liabilities related to intercompany import activity that occurred during the fiscal years of 2016 through 2020. The costs resulted from an internal review of the transaction value used to calculate tariffs on intercompany imports of samples shipped from our genomics services business. Operating income for our Life Sciences Products segment was$22.0 million for fiscal year 2021 compared to an operating loss of$4.2 million for fiscal year 2020. Cost of sales for our Life Sciences Products segment includes charges for amortization related to completed technology of$1.1 million for fiscal year 2021 and$1.2 million for the fiscal year 2020. Adjusted operating income for our Life Sciences Products segment, which excludes the charges mentioned above, was$23.1 million for fiscal year 2021 and adjusted operating loss in fiscal year 2020 was$3.0 million after excluding these charges. Please refer to Note 19, "Segment and Geographic Information". 32
Contents
Operating income for our Life Sciences Services segment was$10.3 million for fiscal year 2021 compared to an operating loss of$4.4 million for fiscal year 2020. Cost of sales for our Life Sciences Services segment includes charges for amortization related to completed technology of$7.0 million for fiscal year 2021 and$6.9 million for 2020. Fiscal year 2021 cost of sales includes$5.5 million of cost accrued for tariff liabilities as discussed above. Fiscal year 2020 includes$0.3 million of restructuring related charges. Adjusted operating income for our Life Sciences Services segment, which excludes the charges mentioned above, was$22.7 million for fiscal year 2021 and adjusted operating loss in fiscal year 2020 was$2.9 million after excluding these charges. Please refer to Note 19, "Segment and Geographic Information".
Gross margin
We reported gross margins of 47.5% for fiscal year 2021 compared to 44.3% for fiscal year 2020, an increase of 3.2 points. Gross margin increased 3.4 percentage points in the Life Sciences Products segment and 3.1 percentage points in the Life Sciences Services segment. Cost of revenue for both fiscal years 2021 and 2020 included$8.1 million of charges for amortization related to completed technology. Cost of revenue for fiscal year 2021 included$5.5 million of cost accrued for tariff liabilities as discussed above. Cost of revenue for fiscal year 2020 included$0.3 million of restructuring related charges. Excluding these charges, margins expanded 3.6 percentage points in fiscal year 2021, as compared to fiscal year 2020. Our Life Sciences Products segment reported gross margins of 46.4% for fiscal year 2021 compared to 42.9% for fiscal year 2020. The improvement of 3.4 percentage points was primarily driven by volume leverage related to increased sales across all product lines. Cost of revenue in fiscal year 2021 and 2020 included$1.1 million and$1.2 million , respectively, of amortization related to completed technology. Excluding these charges, margins expanded 3.1 percentage points in fiscal year 2021, compared to fiscal year 2020. Our Life Sciences Services segment reported gross margins of 48.1% for fiscal year 2021 compared to 45.0% for fiscal year 2020. The improvement of 3.1 points was driven by volume leverage and revenue mix, partially offset by the impact of the$5.5 million of cost accrued for the tariff liabilities as discussed above. The revenue mix benefit included 2.9 percentage points from the reduction in outsourced genomic services due to the exit of the alliance with RUCDR. Cost of revenue during fiscal year 2021 included$7.0 million of amortization related to completed technology as compared to$6.9 million incurred during fiscal year 2020. Cost of revenue for fiscal year 2020 included$0.3 million of restructuring related charges. Excluding the impact of the amortization related to completed technology, tariff charges and restructuring related charges, as described above, margins expanded 4.3 percentage points in fiscal year 2021, as compared to fiscal year 2020.
Research and development costs
Research and development costs were
Research and development expenses in our Life Sciences Products segment were$10.9 million in fiscal 2021 compared to$8.7 million in fiscal year 2020, which represented 5.4% and 6.7% of Life Sciences Products revenue in fiscal years 2021 and 2020, respectively. The increase in research and development expenses were primarily attributable to investments in our cryogenic product line and outside services costs. Research and development expenses in our Life Sciences Services segment were$11.5 million in fiscal 2021 compared to$9.1 million in fiscal year 2020 which represented 3.7% and 3.5% of Life Sciences Services revenue for fiscal years 2021 and 2020, respectively. The increase in research and development expenses was primarily driven by higher payroll related costs and project costs.
Selling, general and administrative expenses
Selling, general and administrative expenses were$252.1 million in fiscal year 2021 as compared to$190.3 million in fiscal year 2020. The increase of$61.8 million was driven by$26.2 million from segment selling, general and administrative expenses and$35.6 million from corporate expenses not allocated to our segments. The segment selling, general and administrative expenses are discussed in further detail below. The increase in unallocated corporate 33
Contents
expenses was primarily driven by mergers and acquisition related expenses, which were$20.7 million for fiscal year 2021, compared to$0.5 million in fiscal year 2020. Merger and acquisition expenses for fiscal year 2021 included$18.6 million of costs related to separation activities resulting in the sale of the semiconductor automation business. Unallocated corporate expenses also include the amortization of intangible assets primarily related to customer relationships, which were$8.1 million for both fiscal years 2021 and 2020. Fiscal year 2021 also includes$13.4 million of impairment charges to intangible assets related to tradenames. The charges were driven by the abandonment of tradenames which resulted from the rebranding of our life sciences products and life sciences services business during the fourth quarter of fiscal year 2021 and$0.8 million of costs related to rebranding and transformation efforts. Selling, general and administrative expenses at the segment level, which are discussed below, include corporate allocations from shared corporate function which include finance, information technology, human resources, legal, executive, governance, logistics and compliance, and variable compensation. During fiscal year 2021 corporate allocated expenses increased$10.0 million compared to fiscal year 2020, primarily due to higher variable compensation accruals and information technology infrastructure costs.
Selling, general and administrative expenses for our Life Sciences Products segment were
Selling, general and administrative expenses in our Life Sciences Services segment were$129.4 million in fiscal year 2021 as compared to$111.7 million in fiscal year 2020. The increase of$17.6 million is primarily related to variable compensation expense and costs to support growth, partially offset by lower travel expenses, and lower bad debt expense
Non-operating income (expenses)
Interest income – During fiscal years 2021 and 2020, we recorded interest income of
Interest expense – During fiscal years 2021 and 2020, we recognized interest expense of
Other expenses, net - During fiscal years 2021 and 2020 we recorded other expenses, net of$16.5 million and$1.6 million , respectively. Other expense, net for fiscal year 2021 includes a$16.0 million charge related to the release of a tax indemnification asset which is offset in the Income tax benefit line item in our Consolidated Statements of Operations.
Tax benefit
We recorded an income tax benefit on continuing operations of$20.1 million in fiscal year 2021 compared to an income tax benefit of$13.9 million in fiscal year 2020. The income tax benefit for fiscal year 2021 was primarily driven by uncertain tax position reversals totaling$18.2 million , which includes$16.0 million of uncertain tax positions that were indemnified. The tax reserve reversal is offset by a$3.4 million tax charge related to the write off a future tax deduction that would have been recognized if the uncertain tax position was settled in an audit. The benefit also included$2.0 million of benefits related to the reversal of valuation allowances against deferred tax assets, losses in theU.S. jurisdiction and stock compensation deductions in excess of book expenses. The overall benefit for fiscal year 2021 was partially offset by$4.1 million of withholding tax costs related to repatriation of foreign earnings in connection with the planned sale of the semiconductor automation business and the tax provision on earnings in our foreign jurisdictions during the year. The income tax benefit during fiscal year 2020 was driven primarily by benefits in theU.S. jurisdiction related to continuing operations losses and stock compensation deductions in excess of book expenses. The overall benefit for fiscal year 2020 was partially offset by the tax provisions on earnings in our foreign jurisdictions during the year. 34 Table of Contents Discontinued Operations Discontinued operations include our semiconductor automation business and our semiconductor cryogenics business. In the fourth quarter of fiscal year 2021, we entered into a definitive agreement to sell our semiconductor automation business to THL for$3 billion in cash, subject to customary adjustments. The sale is expected to close in the first half of 2022. OnJuly 1, 2019 , we completed the sale of the semiconductor cryogenics business for$659.8 million in cash. Revenue from discontinued operations was$680.1 million and$508.7 million , respectively, for fiscal years 2021 and 2020 and relates to the semiconductor automation business. Net income from discontinued operations was$139.6 million and$91.2 million for fiscal years 2021 and 2020, respectively, and is comprised primarily of the results of operations of our semiconductor automation 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.
Year ended
Revenue We reported revenue of$388.5 million for fiscal year 2020 compared to$334.2 million for fiscal year 2019, an increase of$54.3 million , or 16%. The COVID-19 pandemic had varying impacts on our business for the fiscal year endedSeptember 30, 2020 . The impacts by segment are discussed below. Our Life Sciences Products segment reported revenue of$129.8 million for fiscal year 2020 compared to$119.0 million for fiscal year 2019, an increase of$10.7 million or 9%. The increase in revenue was driven by consumables and instruments, which delivered record revenue levels driven by COVID-19 related demand, and an increase in revenue for our BioStore III Cryo systems, partially offset by decreases in revenue from automated cold sample management systems and infrastructure services revenue which were both impacted by customer site restrictions and schedule delays due to COVID-19. Our Life Sciences Services segment reported revenue of$258.8 million for fiscal year 2020 compared to$215.2 million for fiscal year 2019, an increase of$43.6 million or 20%. We reported an increase of$40.2 million from genomic services, which was composed of$20.0 million from the additional time of ownership for fiscal year 2020, compared to the prior fiscal year and$20.2 million from organic growth. Our genomic services business, which is comprised of the acquisition ofGENEWIZ Group , orGENEWIZ , was acquired inNovember 2018 . We reported an increase in Sample Repository Solutions revenue of$3.4 million primarily driven by informatics services and storage services, partially offset by declines in outsourced genomic services and transportation services, which were negatively impacted by COVID-19. Informatics revenue was primarily driven by the acquisition of RURO inFebruary 2020 . We estimate that the impact of the COVID-19 pandemic on our revenue for the fiscal year endedSeptember 30, 2020 was a net reduction of approximately$11 million in the aggregate primarily attributable to a slow-down in the marketplace, reflecting the absence of a portion of the workforces within our customers. This slowdown was first present in theChina market in the early part of the second quarter endedMarch 31, 2020 and began surfacing in the rest of the world in the latter part ofMarch 2020 . Partially offsetting these declines, we experienced an increase in demand for gene synthesis services and consumables and instruments, in support of numerous activities including research and development in the areas of virus detection and vaccines. During the fourth quarter of fiscal year 2020, demand and shipments for certain products and services in our life sciences businesses which were impacted by COVID-19 recovered to levels we experienced prior to the pandemic.
Income generated outside
35
Table of Contents
Operating Income (Loss)
We reported an operating loss of $36.6 million for fiscal year 2020 compared to
$47.4 million for fiscal year 2019. The decrease in operating loss of $10.8
million was driven by higher revenue and gross profit, partially offset by an
increase in both selling, general and administrative expenses and research and
development expenses compared to the prior fiscal year. Drivers of the increases
to research and development and selling, general and administrative expenses are
described below.
Operating loss for our Life Sciences Products segment was $4.2 million for
fiscal year 2020 compared to an operating loss of $22.1 million for fiscal year
2019. Operating income for our Life Sciences Products segment includes charges
for amortization related to completed technology of $1.2 million in each of the
fiscal years 2020 and 2019. Adjusted operating loss for our Life Sciences
Products segment, which excludes the charges mentioned above, was $3.0 million
for fiscal year 2020 compared to an adjusted operating loss of $20.9 million in
fiscal year 2019. Please refer to Note 19, "Segment and Geographic Information".
Operating loss for our Life Sciences Services segment was $4.4 million for
fiscal year 2020 compared to operating income of $3.1 million for fiscal year
2019. Operating loss for our Life Sciences Services segment includes charges for
amortization related to completed technology of $6.9 million and $5.6 million
for fiscal years 2020 and 2019, respectively, and restructuring related charges
of $0.3 million in each of the fiscal years 2020 and 2019. Adjusted operating
income for our Life Sciences Services segment, which excludes the charges
mentioned above, was $2.9 million for fiscal year 2020 compared to $9.0 million
in fiscal year 2019. Please refer to Note 19, "Segment and Geographic
Information".
Gross margin
We reported gross margins of 44.3% for fiscal year 2020 compared to 40.3% for fiscal year 2019, an increase of 4.0 points. Gross margin increased 6.2 percentage points in the Life Sciences Products segment and 2.7 percentage points in the Life Sciences Services segment. Cost of revenue for fiscal year 2020 included$8.1 million of charges for amortization related to completed technology as compared to$6.8 million in fiscal year 2019. Cost of revenue for both fiscal year 2020 and 2019 included$0.3 million of restructuring related charges. Excluding these charges, margins expanded 1.7 percentage points in fiscal year 2020, as compared to fiscal year 2019. Our Life Sciences Products segment reported gross margins of 42.9% for fiscal year 2020 compared to 36.6% for fiscal year 2019. The improvement of 6.3 percentage points was driven by material and labor cost reductions related to large stores and BIII Cryo systems, efficiencies realized installing large stores and performing infrastructure services, and volume leverage. Cost of revenue in each of the fiscal years 2020 and 2019 included$1.2 million of amortization related to completed technology. Excluding these charges, margins expanded 6.2 percentage points in fiscal year 2020, as compared to fiscal year 2019. Our Life Sciences Services segment reported gross margins of 45.0% for fiscal year 2020 compared to 42.3% for fiscal year 2019. The improvement of 2.7 percentage points is due to volume leverage, cost performance, and favorable service mix. Cost of revenue during fiscal year 2020 included$6.9 million of amortization related to completed technology as compared to$5.6 million incurred during fiscal year 2019. Cost of revenue for both fiscal year 2020 and 2019 included$0.3 million of restructuring related charges. Excluding these charges, margins expanded 2.8 percentage points in fiscal year 2020, as compared to fiscal year 2019.
Research and development costs
Research and development costs were
Research and development expenses in our Life Sciences Products segment were$8.7 million in fiscal 2020 compared to$10.8 million in fiscal year 2019, which represented 6.7% and 9.1% of Life Sciences Products revenue for fiscal years 2020 and 2019, respectively. The decline in research and development expenses were primarily attributable to lower outside service costs and lower temporary employee costs supporting product development initiatives. 36
Contents
Research and development expenses in our Life Sciences Services segment were$9.1 million in fiscal 2020 compared to$6.5 million in fiscal year 2019, which represented 3.5% and 3.0% of Life Sciences Services revenue for fiscal years 2020 and 2019, respectively. The increase in research and development expenses was primarily driven by acquisitions. The timing of theGENEWIZ acquisition added an additional$1.1 million of expense in fiscal year 2020 and the acquisition ofRURO, Inc. inFebruary 2020 added$0.6 million of additional expense. Investments in employee related costs and outside services to support development initiatives in our service offerings drove the remainder of the increase.
Selling, general and administrative expenses
Selling, general and administrative expenses were$190.3 million in fiscal year 2020 as compared to$163.3 million in fiscal year 2019. The increase of$26.9 million was driven by$26.6 million from segment selling, general and administrative expenses and$0.3 million from corporate expenses not allocated to our segments. Selling, general and administrative expenses at the segment level, which are discussed below, include corporate allocations from shared corporate functions which include finance, information technology, human resources, legal, executive, governance, logistics and compliance, and variable compensation. During fiscal year 2020 corporate allocated expenses increased$33.8 million compared to fiscal year 2019, primarily due to the integration of the shared corporate functions from our acquisitions. Selling, general and administrative expenses in our Life Sciences Products segment were$51.2 million in fiscal year 2020 as compared to$54.9 million in fiscal year 2019. The decrease of$3.7 million is primarily due to decreases in employee related costs from restructuring actions taken in 2019 and 2020 and decreases in expenses related to employee travel, trade shows, and conferences, partially offset by higher corporate allocated costs and higher sales commissions. Selling, general and administrative expenses in our Life Sciences Services segment were$111.7 million in fiscal year 2020 as compared to$81.4 million in fiscal year 2019. The increase of$30.4 million is primarily related to acquisitions, corporate allocations, and bad debt expense, partially offset by lower employee travel expense. The timing of theGENEWIZ acquisition added an additional$5.1 million of expense and the RURO acquisition added$1.2 million of additional expense in fiscal year 2020.
Non-operating income (expenses)
Interest income – During fiscal years 2020 and 2019, we recorded interest income of
Interest expense - During fiscal years 2020 and 2019, we recorded interest expense of$2.9 million and$22.2 million , respectively. The decrease in interest expense in the fiscal year 2020 compared to the prior fiscal year is due to carrying less debt. We extinguished$495.3 million of debt during the fourth quarter of fiscal year 2019. Loss on extinguishment of debt - During fiscal year 2019, we recorded losses on extinguishment of debt of$14.3 million of which$9.1 million was in connection with the syndication of the incremental term loan secured during the first quarter of fiscal 2019. The syndication to a new group of lenders during the second quarter of fiscal 2019 met the criteria of a debt extinguishment and therefore the amortization of the deferred financing costs associated with the origination of the incremental term loan was accelerated and recorded as a loss on extinguishment of debt in our Consolidated Statement of Operations. In addition, as a result of the$495.3 million extinguishment of debt during the fourth quarter of fiscal year 2019, we recorded an additional$5.2 million loss on extinguishment of debt.
Other net charges – During fiscal years 2020 and 2019, we recorded other charges, net of
Tax benefit
We recorded an income tax benefit on continuing operations of$13.9 million in fiscal year 2020 compared to an income tax benefit of$22.8 million in fiscal year 2019. The income tax benefit during fiscal year 2020 was driven primarily by benefits in theU.S. jurisdiction related to continuing operations losses and stock compensation deductions 37 Table of Contents
beyond the cost of books. The overall benefit for fiscal 2020 was partially offset by the income tax provisions in our foreign jurisdictions during the fiscal year.
The income tax benefit during fiscal year 2019 was driven primarily by benefits in theU.S. jurisdiction related to continuing operations losses, research tax credits, and stock compensation deductions in excess of book expenses. We also recorded a$1.4 million benefit due to a state tax change that resulted from the acquisition ofGENEWIZ . We also recorded a tax provision of$3.0 million during the year related to changes in the toll charge based on a change in tax legislation and the completion of all accounting of the charge underSAB 118. The overall benefit for fiscal year 2019 was partially offset by the tax provisions on earnings in our foreign jurisdictions during the year.
Interrupted operations
As noted above, discontinued operations include the results of the semiconductor automation business and the results of the semiconductor cryogenics business, which was sold on
Revenue from discontinued operations was$508.7 million and$556.2 million , respectively, for fiscal years 2020 and 2019, respectively. Revenue from discontinued operations for fiscal year 2020 relates to the semiconductor automation business. Revenue from discontinued operations for fiscal year 2019 includes$446.7 million related to the semiconductor automation business and$109.5 million related to the semiconductor cryogenics business. Net income from discontinued operations was$91.2 million for fiscal year 2020 and is comprised primarily of our semiconductor automation business. Net income for fiscal 2019 was$498.5 million and includes the net gain on sale of the semiconductor cryogenics business of$408.6 million . The net income for fiscal year 2019 is also inclusive of income from theULVAC Cryogenics, Inc. joint venture. 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 the Company on an ongoing basis. Indirect expenses which supported the semiconductor automation business and cryogenics business, and which remained as part of the continuing operations, are not reflected in income from discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
We believe that we have adequate resources to satisfy our working capital,
financing activities, debt service and capital expenditure requirements for the
next twelve months. The current global economic environment, including the
uncertainty related to the short and long-term impacts of the COVID-19 pandemic,
make it difficult for us to predict longer-term liquidity requirements with
sufficient certainty. We may be unable to obtain any required additional
financing on terms favorable to us, if at all. If adequate funds are not
available to us on acceptable terms or otherwise, we may be unable to
successfully develop or enhance products and services, respond to competitive
pressure or take advantage of acquisition opportunities, any of which could have
a material adverse effect on our business, financial condition and operating
results.
The discussion of our cash flows and liquidity that follows does not include the
impact of any adjustments to remove discontinued operations, unless otherwise
noted, and is stated on a total company consolidated basis.
38
Contents
Overview of cash flow and liquidity
Our cash and cash equivalents, restricted cash and marketable securities at
Year Ended September 30,
2021 2020
Cash and cash equivalents $ 227,427 $ 250,649
Restricted cash 12,906 6,877
Short-term marketable securities 81 51
Long-term marketable securities 3,598 3,101
$ 244,012
Cash, cash equivalents and restricted cash 240,333
257,526
Cash and cash equivalents included in assets held for sale 45,000
45,000
$ 285,333 $ 302,526
Our cash and cash equivalents, restricted cash and marketable securities were
$244.0 million as of September 30, 2021 and exclude $45 million of cash included
within assets held for sale related to the semiconductor automation business. As
of September 30, 2021 , we had cash, cash equivalents and restricted cash
including cash in assets held for sale of $285.3 million , of which $169.6
million was held outside of the United States . If these funds are needed for the
United States operations, we would need to repatriate these funds. As a result
of recent changes in U.S. tax legislation, any repatriation in the future would
likely not result in U.S. federal income tax. During the quarter ended
September 30, 2021 we repatriated foreign cash to the U.S. in planning for the
sale of the discontinued operation and recognized all related tax costs. We
have provided immaterial deferred income taxes for the impact of these future
repatriations. Aside from these actions, our intent is to reinvest the
remaining foreign cash. Aside from these actions, our intent is to reinvest the
remaining foreign cash outside of the United States and our current operating
plans do not demonstrate a need to repatriate these funds for our U.S.
operations. We had marketable securities of $3.7 million and $3.2 million as of
September 30, 2021 and 2020, respectively. Our marketable securities are
generally readily convertible to cash without an adverse impact.
Year ended
Overview Cash Flows and Liquidity - Cash and cash equivalents and restricted cash as presented on our Consolidated Statements of Cash Flows is on a total company basis and were$285.3 million as ofSeptember 30, 2021 compared to$302.5 million as ofSeptember 30, 2020 . The decrease of$17.2 million included cash outflows for investing activities of$146.3 million and financing activities of$25.9 million , partially offset by cash inflows from operating activities of$149.9 million . The effects of foreign exchange positively impacted the annual change in balances by$5.2 million .
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 flows from operating activities of$149.9 million for the fiscal year endedSeptember 30, 2021 , resulted from net income$110.7 million , adjusted to exclude the effect of non-cash operating charges of$90.3 million , partially offset by an increase in net operating assets of$51.2 million . Cash outflows 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 accounts payable, accrued expenses, and other liabilities and accrued compensation and tax withholdings.
Cash flow from operating activities of
39
Table of Contents
offset by an increase in net operating assets of $12.7 million . Additionally,
the company paid $91.5 million in cash taxes related to the sale of the
semiconductor cryogenics business. Cash outflows related to the increase in net
operating assets were primarily driven by increases in accounts receivable,
inventory, and decreases in accrued expenses and other liabilities, partially
offset by increased accrued compensation and tax withholdings.
Discontinued operations contributed $139.6 million of net income to fiscal year
2021 and $91.2 million of net income to fiscal year 2020 referenced above. The
pending sale of the semiconductor automation business may have a negative impact
on cash flows from operations in future periods after the sale is completed.
Investment activities
Cash used in investing activities was$146.3 million during fiscal year 2021 and consisted of$95.5 million for acquisitions and$52.8 million for capital expenditures, partially offset by$2.0 million of proceeds from the collection of loans receivable. Capital expenditures were made primarily to increase capacity, support new product development, and enhance information technology infrastructure. Capital expenditures for the fiscal year 2021 included$35.6 million for construction in process of a building site inSuzhou, China . The site is intended to consolidate operations of three leased sites in the same region, while expanding operational capacity. Cash used in investing activities was$22.7 million during fiscal year 2020 and consisted of$39.9 million for capital expenditures and$15.7 million for acquisitions, partially offset by$33.9 million of net proceeds from the net purchases, sales, and maturities of marketable securities.
Fundraising activities
Cash used for financing activities was$25.9 million during fiscal year 2021 and included net cash outflows for cash dividends paid of$29.7 million ,$1.2 million in payment of finance leases and$0.8 million of debt principal payments. Partially offsetting these cash outflows was$5.8 million related to the proceeds from issuance of common stock. Cash used for financing activities was$27.0 million during fiscal year 2020 and included net cash outflows for cash dividends paid of$29.5 million ,$1.3 million in payment of finance leases and$0.8 million of debt principal payments. Partially offsetting these cash outflows was$4.6 million related to the proceeds from issuance of common stock.
Installation in China
InApril 2019 , we committed to construct a facility inSuzhou China , to consolidate theSuzhou operations of our genomic services business and provide infrastructure to support future growth. The facility is being constructed in two phases. We have incurred$35.6 million of capital expenditures to date related to the construction of the facility, which includes$26.0 million and$8.3 million , respectively, for fiscal years 2021 and 2020, respectively.
Capital resources
OnOctober 4, 2017 , we entered into a$200.0 million term loan withMorgan Stanley Senior Funding, Inc. ,JPMorgan Chase Bank, N.A . andWells Fargo Securities, LLC pursuant to the terms of a credit agreement with the lenders. The term loan was issued at$197.6 million , or 98.8% of its par value, resulting in a discount of$2.4 million , or 1.2%, which represented loan origination fees paid at the closing. The loan principal amount may be increased by an aggregate amount equal to$75.0 million plus any voluntary repayments of the term loan plus any additional amount such that our secured leverage ratio is less than 3.00 to 1.00. The term loan matures and becomes fully payable onOctober 4, 2024 . Installment principal payments equal to 0.25% of the initial principal amount of the term loan are payable on the last day of each quarter, with any remaining principal amount becoming due and payable on the maturity date. Subject to certain conditions stated in the credit agreement, we may redeem the term loan at any time at our option without a significant premium or penalty, except for a repricing transaction, as defined in the credit agreement. We are required to redeem the term loan at the principal amount then outstanding upon the occurrence of certain events, as set forth in the credit agreement. 40
Contents
OnNovember 15, 2018 , we entered into an incremental amendment to the credit agreement under which we obtained an incremental term loan in an aggregate principal amount of$350.0 million , issued at$340.5 million . The proceeds of the incremental term loan were used to pay a portion of the purchase price for our acquisition ofGENEWIZ . OnFebruary 15, 2019 , we entered into the second amendment to the credit agreement and syndicated the incremental term loan to a group of new lenders. The syndicated incremental term loan was issued at$345.2 million . Except as provided for in the amendments, the incremental term loan was subject to the same terms and conditions of the initial term loan. OnJuly 1, 2019 , in connection with the completion of the sale of our semiconductor cryogenics business, we used$348.3 million of the cash proceeds from the transaction to extinguish the outstanding balance atJuly 1, 2019 of the incremental term loan and$147.0 million of the cash proceeds from the transaction to extinguish a portion of the outstanding balance atJuly 1, 2019 of the term loan. The total amount of debt extinguished onJuly 1, 2019 was$495.3 million . The credit agreement, as amended, for contains certain customary representations and warranties, covenants and events of default. As ofSeptember 30, 2021 , we were in compliance with all covenants and conditions under the credit agreement, as amended. In connection with our acquisition ofGENEWIZ inNovember 2018 , we assumed three five-year term loans and two one-year term loans. The two one-year short term loans matured and were repaid in full as ofSeptember 30, 2020 . The three five-year term loans matured and were repaid in full during fiscal year 2021. AtSeptember 30, 2021 , the aggregate outstanding principal balance of all outstanding term loans was$49.7 million , excluding unamortized deferred financing costs of$0.3 million . Borrowings under the term loans bear variable interest rates. As a result, we may experience exposure to interest rate risk due to the potential volatility associated with the variable interest rates on the term loans. If rates increase, we may be subject to higher costs of servicing the loans which could reduce our profitability and cash flows. During the year endedSeptember 30, 2021 , the weighted average stated interest rate on the term loans was 2.8%. During the year endedSeptember 30, 2021 , we incurred aggregate interest expense of$1.7 million on the term loans, including$0.2 million of deferred financing costs amortization. Our debt service requirements are expected to be funded through our existing sources of liquidity and operating cash flows.
Line of credit facility
We maintain a revolving line of credit under a credit agreement withWells Fargo Bank, N.A. andJPMorgan Chase Bank, N.A that provides for a revolving credit facility of up to$75.0 million , subject to borrowing base availability, as defined in the credit agreement. The line of credit matures onOctober 4, 2022 . The proceeds from the line of credit are available for permitted acquisitions and general corporate purposes. As ofSeptember 30, 2021 , we had approximately$57.7 million available for borrowing under the line of credit. There were no amounts outstanding pursuant to the line of credit as ofSeptember 30, 2021 . The amount of funds available for borrowing under the credit agreement may fluctuate each period based on our borrowing base availability. The credit agreement contains certain customary representations and warranties, a financial covenant, affirmative and negative covenants, as well as events of default. We were in compliance with the credit agreement as ofSeptember 30, 2021 . Although we believe we will be able to generate sufficient cash inthe United States and foreign jurisdictions to fund future operating costs, we secured the revolving line of credit as an additional assurance for maintaining liquidity inthe United States for strategic investments and acquisitions. 41 Table of Contents Dividends
Our Board of Directors declared the following dividends during fiscal years 2021 and 2020 (in thousands, except per share data):
Dividend
per Record Payment
Declaration Date Share Date Date Total
Fiscal Year Ended September 30, 2021
November 5, 2020 $ 0.10 December 4, 2020 December 17, 2020 $ 7,421
January 25, 2021 0.10 March 5, 2021 March 26, 2021 7,429
April 27, 2021 0.10 June 4, 2021 June 25, 2021 7,430
August 3, 2021 0.10 September 3, 2021 September 24, 2021 7,435
Fiscal Year Ended September 30, 2020
November 1, 2019 $ 0.10 December 6, 2019 December 20, 2019 $ 7,362
January 24, 2020 0.10 March 6, 2020 March 27, 2020 7,375
April 29, 2020 0.10 June 5, 2020 June 26, 2020 7,376
July 29, 2020 0.10 September 4, 2020 September 25, 2020 7,383
On November 2, 2021 , our Board of Directors approved a cash dividend of $0.10
per share of our common stock. The total dividend of approximately $7.5 million
will be paid on December 23, 2021 to shareholders of record at the close of
business on December 3, 2021 . 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. On November 16, 2021 at our investor day
conference, we disclosed that we intend to discontinue paying a quarterly
dividend upon the completion of the sale of our semiconductor automation
business.
Share buyback program
OnSeptember 29, 2015 , our Board of Directors approved a share repurchase program for up to$50.0 million worth of our common stock. The timing and amount of any shares repurchased are based on market and business conditions, legal requirements and other factors and may be commenced or suspended at any time at our discretion. There were no shares repurchased under this program during fiscal year 2021.
Obligations and contractual requirements
TO
AtSeptember 30, 2021 , the Company had$1.3 million of letters of credit outstanding related primarily to customer advances and other performance obligations. These arrangements guarantee the refund of advance payments received from our customers in the event that the product is not delivered, or warranty obligations are not fulfilled in accordance with the contract terms. These obligations could be called by the beneficiaries at any time before the expiration date of the particular letter of credit if we fail to meet certain contractual requirements. None of these obligations were called during fiscal year 2021, and we currently do not anticipate any of these obligations to be called in the near future. As ofSeptember 30, 2021 , the total amount of net unrecognized tax benefits for uncertain tax positions and the accrual for the related interest was$2.0 million , all of which represents a potential future cash outlay, in comparison toSeptember 30, 2020 where the balance was$18.5 million . The decrease in the balance over the year was primarily driven by many of our accruals on our preexisting unrecognized tax benefits for uncertain tax positions reaching their statute of limitations. We are unable to make a reasonably reliable estimate of the timing of the cash settlement for these liabilities since the timing of future tax examinations by various tax jurisdictions and the related resolution is uncertain. 42 Table of Contents
© Edgar online, source
