Azenta (AZTA), a provider of biological and chemical compound samples to the life sciences industry, is blaming the repeated and significant overstatement of operating cash flows on a classification error.

Instead of classifying the effects of exchange rate changes on its foreign denominated cash and cash equivalent balances, Azenta used FX changes to inflate operating cash flow.

Azenta also corrected for additional classification errors between cash flows from operating, investing, and financing activities.

As a result of the errors, Azenta:

—Overstated operating cash flow $10.3 million, or 144.3% in the year ended September 30, 2023
—Overstated operating cash flow $4.4 million, or 13.7% in the nine months ended June 30, 2024

Azenta says the errors are not material.

The company acknowledged a control deficiency related to the review of its cash flow statement.

In November, Azenta installed a new CEO and CFO and entered into a cooperation agreement with activist shareholder Politan Capital which now has a seat on the Board of Directors.

With an Enterprise Value (EV) of approximately $2 billion, Azenta is priced as if it will grow annual sales to more than $7.6 billion, up from an estimated $610.7 million in 2025. To justify its current share price of $45.00 our Reverse DCF— which quantifies investor expectations embedded in the current share price— indicates Azenta must:

—Grow sales 16% annually for nearly two decades, significantly faster than consensus FY25 and FY26 forecasts of (6.9%) and 6.5%, respectively
—Immediately increase NOPAT margin to 15%, or 2x our 3-year average estimate of (17.15%)
—Increase Invested Capital (IC) Turns to 0.75 from our 3-year average estimate of 0.40

Notably, the $7.6 billion in year eighteen sales implied by the current share price suggests a market share of 69%— based on Azenta’s Total Addressable Market (TAM) estimate— significantly higher than the company’s current market share estimate of less than ten percent: