Azenta Inc (AZTA) 2016 Q4 法說會逐字稿

Ladies and gentlemen thank you for standing by. Welcome to the Brooks Automation Q4 and FY16 financial results conference call.

(Operator Instructions)

This conference is being recorded Thursday, November 10, 2016. I would now like to turn the conference over to Lindon Robertson, Executive Vice President and Chief Financial Officer for Brooks Automation. Please go ahead sir.

Thank you Nelson. Good morning everyone. We would like to welcome each you to the fourth-quarter financial results conference call for the Brooks FY16.

We will be covering the results of the fourth quarter ending September 30, and then we will provide an outlook for the first fiscal quarter ending December 31 of this year. A press release was issued earlier this morning and is available at our Investor Relations page of our website, www.brooks.com as are the illustrated PowerPoint slides that we use during the prepared comments during the call.

I'd like to remind everyone that during the course of the call we will be making a number of forward looking statements within the meaning of the Private Litigation Securities Act of 1995. There are many factors that may cause actual financial results to differ from those identified in such forward-looking statements.

I would refer you to the section of our earnings release titled Safe Harbor Statement, the Safe Harbor slide on the aforementioned PowerPoint presentation on our website and our various filings with the SEC. Including our annual reports on form 10-K and our quarterly reports on Form 10-Q. We make no obligation to update these statements should future financial data or events occur that differ from the forward-looking statements presented today.

I would also like to note that we may make reference to a number of non-GAAP financial measures which are used in addition to and in conjunction with results presented in accordance with GAAP. We believe that these non-GAAP measures provide an additional way of viewing aspects of our operations and performance but when considered with GAAP financial results and the reconciliation of GAAP measures, they provide an even more complete understanding of the Brooks business. Non-GAAP measures should not be relied upon to the exclusion of the GAAP measures themselves.

On the call with me today is our Chief Executive Officer, Steve Schwartz. We will open with his remarks on the business environment and our fourth-quarter highlights and then we will provide an overview of the fourth quarter financial results and a summary of our financial outlook for the fourth quarter ending December 31-- I'm sorry first quarter ending December 31, which we'll then take your questions at the end of those comments.

During our prepared remarks, again we will from time to time make reference to the slides I mentioned available to everyone on the Investor Relations page of our Brooks website. With that, I like to turn the call over now to our CEO, Mr. Steve Schwartz.

Thank you Lindon. Good morning everyone and thank you for joining our call.

We are pleased to have the opportunity to report the results of the fourth quarter of our FY16. Throughout the second half of this year, we've been describing that the Company is at an inflection point. That is after construction of a total life sciences solution set and a complete retooling of our semi portfolio, we are embarking on a new trajectory for top-line growth and profitability.

We've filled in our life sciences offering to be able to define and capture sample management opportunities that were never before provided by a single company. And in 2016 we drove life sciences past the $100 million revenue threshold. Our semiconductor product portfolio was focused to deliver on growth segments and we eliminated lower-performing assets and restructured both businesses to make them more productive and efficient.

What we hold now is a portfolio with strong product offerings in two businesses where we have solid leadership positions in growing markets, a strong balance sheet, an engaged and aggressive management team and a customer base that is ready and eager for our support. These are the makings of an inflection point if there ever was one. And Q4 was exactly the way we wanted to finish our fiscal year and move into a very promising FY17.

Revenue was up 7% quarter over quarter to $158 million. Non-GAAP earnings were up 40%, the result of very solid performance in semiconductors and, for the first time, a positive and meaningful contribution from our Life Sciences business. We've created a position in a rapidly growing segment of the booming life sciences market that provides us with double-digit percentage growth opportunities for the foreseeable future.

And we've positioned our semiconductor product portfolio to allow us to outgrow the semi equipment industry because of our focus on vacuum automation and contamination control solutions. Today we'll report on our capture of these opportunities and will give some color as to our outlook. I'll begin with some comments about our Life Sciences business.

Q4 was a milestone quarter for Life Sciences, three quarters ago coming off a December quarter when we posted a $4 million loss, we outlined what our objectives were for the Life Sciences business for the remainder of the fiscal year. Cut that loss in half in March, break even in June and turn profitable in September. We did exactly that and we are proud to deliver 5% operating profit in the Life Sciences business in this quarter and we intend to continue to grow this business profitably from here onward.

This is the market that is still being defined and one that we are confident that will grow to be a multi-billion dollars market opportunity. The management of samples along the cold chain is much more than storage or consumables or tracking, but rather the value that comes with a guarantee of high quality samples with perfect assurance as to prominence, inventory, distribution and informatics that supports our customers' ability to unlock scientific information that is critical to developing drugs and therapies to solve current and future health issues. We have crafted a complete and comprehensive sample management lifecycle portfolio that enables us to deliver solutions to customers whose business and future relies upon the products and services that we now provide.

We had a number of highlights in the fourth quarter. Revenue increased 9% sequentially from June to $32 million. That follows a 10% increase from March to June and is up 85% from September a year earlier.

This segment delivered $1.5 million of operating income on gross margin of 39%, a 1,200 basis-point improvement from prior year. BioStorage revenues increased by $2 million sequentially bettering our acquisition model while adding five new strategic customers in the quarter. In our overall Life Sciences business we added 15 more new customers taking our total to more than 800 Life Sciences customers.

Storage revenue increased $1 million sequentially and versus prior year but more significantly stores are now delivering at approximately our target margin profile. While our overall automation portfolio remains strong, our expected adoption of our B3C cryogenic storage systems is taking longer than we'd anticipated. Although to date we've installed more than a dozen units in the field, we had expected to have more rapid commercial adoption of these products by this point in time.

While the pipeline for new opportunities continues to grow, the adoption rate is being gated by extensive verification testing by customers and changes of software to match their current workflows. In many cases this requires additional training and applications support as these cryogenic customers take their first steps into automation. As such we've adjusted our go-to-market strategy to focus more of our direct selling resources on the B3C systems while continuing to develop other channels for complementary products like our CryoPods and Filling Stations.

This business is coming and we are fully confident about the need for this capability and that our offerings satisfy these needs. It is just tough to be patient.

For the year, life sciences revenue was $108 million net of a negative $3 million of foreign-exchange impact. Bookings were $132 million and backlog increased to $230 million. Gross margin improved year over year by 800 basis points and operating profit improved by $12 million versus the prior year.

We ended the year with 65% of the Life Sciences revenue coming from services, consumables and informatics, what we consider to be recurring revenue streams. All in it was a tremendous year for Life Sciences, and yes, an inflection point where we are positioned to grow at least 40% in FY17 with the portfolio that we hold today.

We're in the early innings of the opportunity for management and biological samples in a cold chain and as cell-based therapies and precision medicine applications expand across the globe, the ability to manage the entire cold chain of condition is a necessary and valuable proposition for our customers. In terms of outlook, we look for the Life Sciences business to grow again sequentially in the December quarter.

Our confidence is reinforced by the strong stores, services, consumables and informatics bookings through October across the pharma, health sciences, clinical, academic and government end markets. With our current backlog position and strong order pipeline we have high confidence that we should see sequential quarterly growth in each quarter of FY17.

Now we'll turn to the semiconductor side of the business where we benefited from healthy demand for tools to equip 10 nanometer factories for foundry and logic as well as the buildout of 3D NAND capacity. Our BSSG business grew by 6% quarter over quarter and that's net of a 4% headwind that came from the cessation of both our atmospheric robots distribution agreement and license royalties which were down a combined $4 million from the June quarter. On a direct comparison basis, a 10% quarter-over-quarter increase of like portfolio performance is a testament to the power of our product offerings in the sweet spot of SemiCap growth and is at the high end of growth reported by other semi-critical subsystem suppliers.

We had another solid quarter in the Vacuum Automation business from our large OEMs who produce deposition and etch systems. We also began to receive a ramp in orders from Korean OEM customers and we believe that some of this elevated demand will persist through the December quarter and into calendar 2017 as Samsung hustles to put in 10-nanometer capacity. We had continued strength in our Contamination Control Solutions business as we set another record for quarterly revenue by topping $20 million.

The 37% quarter-over-quarter jump was led by strong foundry demand for 10-nanometer capacity buildout and more tools for 7-nanometer pilot line manufacturing. Although this business is still heavily weighted to foundry and logic customers, we have now begun to see expansion into memory fabs as we've shipped four systems to one memory maker in Asia and we plan to ship systems to two more memory customers in the December quarter. Our outlook is for CCS revenue to remain at approximately the same level in the December quarter and if we are able to accommodate some late orders, we even have a chance to set another quarterly revenue record.

We finished 2016 with just over $50 million in revenue. We are far and away the market leader in this important segment of the market and the market is growing along with the complexity of the technology required to manufacture devices. And it's important to note that even though a majority of our CCS business is driven by fabs, whose design rule is 16-nanometer and smaller, second-tier foundries and fabs which we'll begin to manufacture at these nodes in the coming years, will need this capability and this should meaningfully expand our market.

In the Advanced Packaging market we saw 10% growth quarter over quarter with revenue just shy of $11 million. Our Advanced Packaging revenue in FY16 was $37 million, up 40% from the approximately $26 million we delivered in FY15. We are up to 30 tool designs for 26 customers and our design activity is quite high.

We do anticipate some flowing in this segment as we await the next driver that will be as big as TSMC's first info line. However based on the activity that's underway to satisfy demand from some of the OSATs, and an indication from TSMC that they intend to outfit another info line in 2017, we are confident that the advanced packaging opportunity is here to stay and that growth will extend well into 2017.

As most of you are aware, there's been a recent upsurge in demand for Advanced Display capacity especially for OLEDs. Although we do not provide automation solutions to this industry, we do benefit in two of our product areas. Our Polycold Cryochillers are used to create a vacuum for some of the equipment that's used to manufacture active displays. And in addition, our joint venture Ulvac Cryogenics, a 32 year-old partnership with Ulvac in Japan is particularly strong supplying Korean display makers with Cryopumps. We don't often call out the performance of these entities but both subsegments are up meaningfully over average levels and both made good contributions to our profitability in Q4.

These are good days in the semiconductor equipment industry and particularly good for Brooks. We hold five number-one positions in different parts of the semiconductor equipment markets and we have strong growth momentum in four of those leading positions. Vacuum automation for deposition and etch, automation systems for Advanced Packaging, contamination control systems for POOF and radical management; and Polycold Cryochillers for Advanced Displays. Our other leading Cryopump position in PBD and Ion Implant is solid, but for the most part, moves with the market for these two technologies which are not growing as much as other process tools segments in the equipment market.

In terms of outlook for the semiconductor business, we see December to be another strong quarter and our estimate for this portion of our business is to be approximately the same level as September and we have some indications based on the customer forecasts that this business will remain healthy into the March quarter. In any case, we're not as concerned about short-term perturbations as we have established leadership positions in what we see to be growth areas over at least the next three to five years.

Overall we are quite positive as we start FY17. We have two strong businesses with number-one market positions; both are growing and now both are profitable. When we talk about being at an inflection point, this is exactly what we mean.

Life Sciences is now profitable and growing in an exploding market and semi now has growth potential without any drag from low-margin and unprofitable businesses and it's positioned to capture share and profit in high-growth subsegments. We are beginning to deliver on the value from these businesses and we are looking at some really good days ahead. That concludes my formal remarks and I'll now turn the call back over to Lindon.

Thank you Steve. Please refer now to the PowerPoint slides available on the Brooks website under our Investor Relations tab. To start the remarks, I would like to draw your attention to slide 3 which is a consolidated view of our operating performance.

Top-line revenue increased 7% sequentially to $158 million driven by growth in each segment. We made progress with additional cost reduction actions this quarter to consolidate the European refurbishment center into our North American manufacturing center. The consolidation project will be completed in the March quarter while the restructuring charges were accrued this quarter.

As a result, compared to the third quarter, GAAP earnings per share is up 22% to $0.15. On the non-GAAP side of the page you can see earnings per share of $0.22 a $0.06 increase. A little more than $0.01 of the increase came from the joint venture income and approximately $0.05 was driven from the operating income.

As Steve referenced, the joint venture income is from our Japan-based UCI venture which saw increased demand from the OLED market. Our operating income, up 29% from the third quarter, was driven by the high revenue and a 4% reduction of operating expense. We saw softer gross margin primarily driven by the anticipated drop in IP income.

We will address more on this as we get to the segments. On a segment basis, we are pleased to report each segment contributed just about equally to this profit growth with approximately $2 million of operating-income improvement from each segment. Let's turn to those segments now.

On slide 4, we see a summary of the results for Life Sciences. The $32 million with 9% top-line growth reflects the top initiatives continuing to drive the desired results. BioStorage grew 16% and the legacy business grew 4%. While margins were slightly softer in total, this reflects margin expansion in the legacy business and a little softer mix in the BioStorage revenue.

BioStorage which came in at 41% saw a higher mix of genomic services this quarter which carries a lower margin. The operating expense reductions round out the segment to carry the business to $1.5 million profit. We've had this target in our sites all year and are pleased to have the business positioned for positive profits and continued improvement.

In the fourth quarter, [Dusty's] business took total new orders and contracts valued at $32 million. As conclude our fiscal year, we remain confident in our continued ability to grow the Life Science business. The team is holding onto the target of $160 million for 2017 and has the objective to continue showing profit improvement with the topline.

We expect to see the Q1 revenue in the range of $33 million to $35 million depending on the year-end spend of our customers. On slide 5, let's look into the Semiconductor Solutions group.

The primary driver in Semiconductor Solutions was 37% growth in Contamination Control Solutions to $22 million in revenue. This business hit $52 million for the year, an increase of 17%. Revenue growth from this quarter was an uphill battle as we faced a $4 million decline in sales of robots distributed for the Yaskawa distribution agreement and for IP income.

We had anticipated this headwind to be $6 million but we saw $2 million come in this quarter on final IP income receipts and the sale of some spares inventory related to the exited product line. The gross margin for the semi business decreased 90 basis points to 36% as a result of the revenue mix this quarter. Bookings in the fourth quarter totaled $140 million, up 22% from the previous quarter giving us some confidence as to its continuing strength in semi as we start 2017.

On slide 6, we summarize the full-year performance. We sustained growth including the down cycle of the first quarter. Life Sciences has moved to be 20% of our portfolio.

The non-GAAP EPS expanded on the strength of revenue and margins. If you look at the expense line, we see growth in the year. This expansion occurred as we absorbed approximately $12 million of annual structure with the BioStorage acquisition.

We offset the significant reduction primarily from the restructuring we did in the middle of the year but when you exclude adjustments to stock compensation accruals between the quarters, our fourth-quarter adjusted operating expense in this fourth quarter was flat to the fourth quarter spending in 2015. That was before we acquired BioStorage. While we saw modest growth in our non-GAAP earnings this year, we finished the year much stronger and are positioned to see substantial year-over-year growth in 2017.

The strength is not limited to the P&L, let's turn to the balance sheet on page 7. We finished the quarter with significantly lower inventory driving about a half a turn improvement to 4.4 on an annualized basis. Similarly, while receivables grew, the DSO performance improved in the quarter by one day to 61.

It total, we drove cash and equivalents to a balance of $91 million. Let's turn to the cash flow summary on slide 8. The improved working capital levels show up in the quarter as we just discussed and similarly in the full-year column in light of the growth that we had.

We saw $23 million of operating cash in the quarter while full-year cash flow was $40 million fueled by the overall strength of our business including more efficient operations. Capital expenditures were $13 million for the year and $3.4 million in the fourth quarter which reflects our new normal run rate with the integrated BioStorage business.

The dividend payment of the $7 million shown here was our 21st sequential quarterly dividend which brings the total paid out since the program started a little over five years ago to $125 million. In total, our cash balance expanded $19 million in the fourth quarter to end the fiscal year with $91 million in cash and no debt on our balance sheet.

Let's go to slide 9 to address the outlook for our first fiscal quarter of 2017. First quarter revenue in total was expected to be in the range of $157 million to $162 million. Non-GAAP earnings per share is expected to be the range of $0.18 to $0.22.

GAAP earnings per share is expected to be the range of $0.13 to $0.17. Our GAAP estimated numbers include the impact of amortization of intangibles, restructuring and special charges. That concludes our prepared remarks.

I'll now turn the call back over to Nelson to take questions from the line.

(Operator Instructions)

Our first question comes from the line of Edwin Mok with Needham & Company.

Great, thanks for taking my question and congratulations. First, just a housekeeping question, did you have any FX impact on revenue this quarter on either the semicap or the life sciences?

I'm sorry Edwin, any impacts from what?

From foreign exchange?

We did have a modest foreign exchange impact in the fourth quarter on Life Sciences. We saw about $1 million on the year-over-year basis and we saw a little less than $0.5 million in the quarter compared to the third quarter.

Okay, that's helpful.

You may recall a little bit about this. Brexit hit as at the end of the previous quarter, so it was more of a full-quarter impact Q3 to Q4.

Okay, that's helpful. Since we mentioned Life Science, we'll stay with that. On Life Science, I noticed that booking was down sequentially. Can you help us a little with the bookings, what portion of that was BioStorage and given the slightly down booking, what gives you the confidence that you can grow to this $33 million or $35 million revenue for the December quarter?

One, we wouldn't split it out, but let me explain it this way. The bookings on both the projects for stores, as well as our storage business remain really solid for us. I'll make the observation that year over year we actually finished about the same backlog on stores as we started last year.

But remember that the second half of the year that filled back in and we see a really strong pipeline now, and what we should see as a good bookings quarter in the first quarter on the store site as well as on the storage site.

So it's -- we are not bothered by this. The $32 million says we didn't burn any backlog and we are really content with where that backlog sits. And then on our ability to project the business Edwin, we have a lot of confidence in the steadiness of the storage business. Obviously you understand that most of the backlog already sits in the freezer, so it's not something that has to be incrementally delivered although we are seeing incremental expansion.

And the storage projects are sitting there ready for execution as well; so we feel pretty solid on our line of sight in our business today. If you recall a couple years ago, it was just a little more up and down for us; but right now this is a pretty solid position.

Edwin, as Lindon mentioned we had a strong October and we have a really good look at the pipeline and because the revenue comes a lot from the backlog there is nothing that we ever want to do that is unnatural at the end of a quarter just to book some business. So we're really confident about how Q1 will be and what the nature of the revenue profile looks like.

Great, those are helpful. A question on profitability, or how we think about the business, now that the business is profitable, should we assume breakeven revenues stay at around this $30 million range? And then, as you grow, what kind of incremental margin should we assume in our model?

On the Life Sciences side, we're not going to start guiding profit, but we're really confident in this staying profitable. And as the topline grows, we expect we will get a little more leverage. I will highlight that, on the gross margin side, we believe it is reasonable to expect these margins in this range which are a little better than 39% up into the 40s. And as we said, our objective for 2017, we told you that we expect it to be 40% and better and that is where we are executing to, we believe, as we go into 2017.

And then, on the expense investments, we will continue to invest some in this business. So while I expect business to stay profitable and to increase modestly with revenue, we're going to continue to invest for growth. That does not -- I want to make sure there is clarity; we are not taking investments so that this goes negative, but we're going to support it for growth, for profitable growth, going forward.

Great, last question I have on this, just on the semi side, actually, a two-part question. First is, since you have $2 million of IP revenue in the September quarter, are you assuming that will go to zero in the December quarter? And then, a more important question, outlook beyond the current quarter, you guided for flat on that business overall on the December quarter. Any kind of visibility you have in the March quarter, or at least in the first half of 2017 as how you think your business can trend?

I will take both halves. The $2 million, you are correct. Between the Yaskawa robot distribution and the IT, that will go to zero. We anticipate it goes to zero in the December quarter.

On the other side, the business still remains strong. We don't have a tremendous amount of visibility, but the order patterns we're getting from customers do extend out into the March quarter. So really no visibility beyond that. But we feel comfortable how this calendar year will end and how the March quarter will begin.

And I did mention that we think Advanced Packaging would be down a little bit, but there is strength and the other businesses are driven by the front end OEM's and that is why we give a roughly flat guide from September to December.

But we feel like there is not a letup yet. As you know, we don't have much visibility beyond March.

And as you tie those together, Edwin that is part of the reason why I went to the point of pointing out the $2 million that we had. We exceeded our guidance a little bit and that $2 million contributed. We had a really strong quarter in delivery.

But that $2 million was something that kind of fell in for us. And if you were to take that out, you're going to see us up a little bit while it shows flat. But you take out that $2 million which, we're not taking it out, but when you do, it would show a little improvement in Q1. That is why I took pains to point that out for you.

Great, very helpful. That's all I have. Thank you.

Thanks Edwin.

Our next question comes from the line of Patrick Ho with Stifel.

Thank you very much and congrats on a nice quarter. First off, in the semiconductors, the supply chain, with business ramping up pretty much across the board, how are you balancing some of your working capital needs with regards to inventory and the supply chain and making sure that you are able to meet your customers' changing demands?

This is a really good question and I will tell you that this is a topic really on a weekly basis across the management team, but on a day-to-day basis with our supply chain management. We have really focused on supply chain both internally in our manufacturing capability, in some cases, contract manufacturers to support key parts of our business, and then of course, the deeper supply chain. We are on a focus to manage the lead times from our suppliers to start matching up to more demanding lead times that we face on our customers.

So in net, we believe we have got a position to support the forecast coming in. It's a really good point. We are dealing with some shortages right now in the quarter that we feel we'll have solved in the quarter and that is part of the range on this revenue that we give you is that if we didn't get some of that supply, we might find ourselves at the lower end of the range. But we believe that we will get it.

It is a really astute question though because as the industry is at a little more robust today, the supply chain does tighten up a little bit, Patrick. In terms of balancing, I would expect our inventories to come up just a little bit in the first quarter as we try to ensure that we are ready for this quarter and making sure that the supply chain is there. So I think that addresses your question, but let me know if you have more on that.

That's helpful. Steve, maybe as a follow-up on the semiconductor side of things. You talked about the growth in contamination control, but you also talked about some of the second-tier foundries over the next few years going to more of the advanced technology nodes. I'm assuming you also mean the opportunities in China where you're seeing new fab investments.

Maybe broadly speaking, in terms of both contamination control, as well as your traditional OEM business, how do you see China, and especially the rise of new fabs both leading-edge as well as even on the mature technology node, how do you see that opportunity for Brooks over the next couple of years?

We see that it will do much the same as we have in the Taiwan East foundries, the leading edge foundries. We have shipped the CCS products to 28-nanometer foundries in China, so they have capacity. What we find is, as they go to smaller and smaller line widths, the number of those steps, the number of cleaning steps increases. So we see roughly a 50% increase in the tool requirement going from 28 to 20 and then again from 20 to 14.

And so we anticipate that as those fabs become more sophisticated and they go to loner line widths, they will have a very similar CCS market opportunity profile as the factories in Taiwan which are actually driving so much business for us right now. So the coming years in China are, we think, very positive for us for exactly the same reason that we have been driving business through Taiwan.

Great, and a final question on Life Sciences. You saw pretty good strength in your BioStorage business quarter over quarter. Can you give qualitatively whether that growth came from what I would characterize traditional BioStorage customers and business, or are you starting to see the leverage in the combination legacy storage business helping to drive BioStorage revenues because of the combination?

Patrick, we're -- for sure, the growth comes from the traditional customers, the conventional ones. We hit a couple milestones. We have 20 out of the top 20 Pharma companies. So, we are now part of the portfolio, so that is one source of growth. But what is becoming conventional that was not so much in the past is a lot of these biopharma companies and some interesting studies that are coming up because those are starting fresh.

The thought for them to outsource some of the management to the samples, it's a lot easier. So we are at the starting point in a couple of big programs and so we're just beginning to see those ramp. So in the coming quarters, you will see some meaningful bookings from some of these new programs, but that is first revenue from some new customers. So when we talk about BioStorage adding five new customers in the quarter, we'll start to see some of that revenue showing up here in 2017.

Great, thank you, very much.

Our next question comes from the line of Paul Knight with Janney Montgomery Scott.

Good morning Steve. Can you talk about the cash, your thoughts on dividend, repurchase and M&A and specifically more stuff that's due, see opportunity in life science?

Yes, sure. Thanks Paul. Without question, was see a lot of opportunity continue to build out the Life Sciences portfolio. So when Lindon talks about us growing to $160 million in FY17, that's with the portfolio that we hold today.

But we do have a number of opportunities that we are looking at in terms of how do we build out the current capability, add more of the kinds of things that are in the portfolio already? There are opportunities that are related to the BioStorage businesses. There are a number of smaller companies out there providing like services, not at the same level that we believe we have at BioStorage, but we will continue to look at those opportunities. The balance sheet is strong. Our ability to make those investments is strong.

And so, we will continue to be on the lookout for those opportunities, because we do, we think, we provide a unique capability and if we had an expanded customer base to whom we could offer the BioStorage capabilities, we would take full advantage. The other opportunity for us on the buildout side is related to informatics.

We have a very strong informatics portfolio company in the Company right now, but the offerings beyond inventory management and consent management we think are also substantial. We are pretty familiar with the neighborhood of the companies who provide those kinds of services and we're getting to know each other a lot better. But we have a strong growth profile organically, a strong pipeline inorganically and we are really enthusiastic about what the opportunity will bring.

I'll ask Lindon to actually talk about the cash and the dividend.

Paul, the cash flow, we are getting increasingly confident in both the profit outlook for 2017 as you've seen and, connected to that, cash capability, we feel will be improved in 2017 again. So while we finish the year with about $40 million of operating cash, we expect to improve upon that in 2017.

What I will say, we will traditionally in the first quarter, we will see just a little bit of burn of cash because we do a couple things in the first quarter in terms of paying out bonuses, things of that nature. Supply chain and the growth we see in first quarter will probably take a little bit of investment. So, don't be surprised if first quarter we take that little cash out, but for the year we expect the cash capability to improve.

And, what I'll say on the dividend and on repurchases, you will recall, we've been very steady on the dividend. We have a philosophy to build the cash to use it first and foremost for our organic funding. Secondly for these acquisitions, as Steve refers to, to build up strategic portfolio. And then we have a tradition of looking and seeing if we should increase dividends and we have an approved buyback program of $50 million if we determine to do a special disbursement in that form.

So we have some flexibility there. We have a track record of really looking at that and taking action on that; but for now, I would say at $91 million of cash, we like that position; it gives us a little flexibility if we face a semi downturn and still play offensive on the M&A side. I think the investors in general should expect us to stay steady right now on our dividend and look for us to generate more cash for investment.

And then, as it regards guidance, on Life Science specifically, are you guiding to a Life Science op margin in the upcoming quarter? And any change in organic growth from what was just posted?

The $33 million to $35 million in the coming quarter would put us in the range of the same type of growth. There are some dynamics that we are anxious to see what happens in December. A year ago we bought the BioStorage business on the first -- November 30th and we lived with that business that final month of December and we saw Genomics really mix up. And it takes our margins down when that happens, but it's incremental revenue on the top of the business, so to speak.

So I have modeled in just a little softer margin for the quarter, and that's why you see this center around that $0.20 midpoint on EPS with just flat to up revenue. It depends on where this thing mixes.

But we see organic revenue to be just about this consistent with this last quarter on the Life Science side. And hopefully, we'd please you when it comes out, but we have a little variability in the December timeframe.

Anything else, Paul?

No thank you.

Thank you.

Our next question comes from Amanda Scarnati with Citibank.

Hi, thanks for taking the question. Going back to the storage business. I think you mentioned that you were delivering at target margins in the storage business. Is this due to specific cost savings on your end or is this stronger entities have better mix? What is going on in that business?

Amanda, I think what we did is we got back to what we knew we were capable to do. So just really tight management of projects and programs. Adequate planning for the insulation, and a I think a really good knowledge about the material costs.

The expectation is that we are where we ought to be and it was really just tighter management of the operational aspects of delivering on systems. So not a significant change in pricing, but really management to a place we've been before.

And then, on the semi side of the business, do you think that Q4 was peak ordering for your product lines, or do you see strong orders continuing? I know that you've been kind of saying that you see orders continuing, but is this status quo or do you see improvements in orders going forward throughout FY17?

Amanda, that is really tough because the lead times that we have are pretty short. We get forecasts from our customers that give us an indication that it is stronger than the order pattern. So we are preparing in advance for the orders that we actually get. So we think if it remains relatively strong.

We can't go by the bookings to know specifically, but we report on them every quarter for you. But that's not the indicator for us as much as the advanced forecast we get from our customers. But, it feels like right now we will come out of December and start March with a very healthy semi business.

The last question I have is on overall corporate gross margins. They were down a little bit sequentially. Was this partly due to a mix differential and where do you see corporate gross margins trending through FY17? I know you mentioned that Life Sciences should be around the 40% range and the up and down would be in the semiconductor group. But what are you looking at in terms of margins there?

We had this little headwind in this quarter with the drop of IP income on the BSSG side. And as I said, just a little softer mix on the BST or the BioStorage site. As I referenced a minute ago, I have modeled in, just a little bit, it's about the same, but it was just a little bit softer margins. So we still think it will be above 36% at the midpoint of my model.

With that said, let me emphasize a couple of things. We have described a model to the Street that says in 2017 that we see for the year that we will get this thing to 38% and we are dead set to do that. There is a couple of actions that we referenced in the comments, such as we're in the midst of integrating our repair operations out of Europe into North America.

On the life sciences side, Dusty's closed the site in Switzerland at the beginning of last quarter and we're going to see just a little more benefit from that in this quarter. We continue to look at the structure and fine tune that. We have a few more operations that we are going to continue to fine tune. We referenced, in our Analyst Day, that by the time we got into the middle of 2017, that we would reduce a total of about $8 million of costs and expense out of the business on top of the $15 million annual cost that we took out last year.

We think, that with these actions that we just described, that we're just about halfway there. We will give you an update as we get into next quarter again. But my point being, while our margins may come in flat or a little soft saw this coming quarter, we have a roadmap to see improvement as we go through 2017 and we've got a lot of confidence in that. I appreciate that question really.

Thank you.

Thanks Amanda.

Our next question comes from the line of Craig Ellis with B. Riley.

Thanks for taking the questions. And as I start, let me just take a step back and say, congratulations guys, on your ability to manage a very positive evolution in the business. It's been a strategy that you've had in play for some time and we're starting to see the real fruits of good execution there.

The first question is a follow-up on some of the life sciences commentary noting quarter-on-quarter growth expectations through next year. Can you just provide some color on where there might be both better relative strength or discontinuities in growth, things that might start off a little bit weaker, but accelerate later in the year? Just fill in what the expectation is for that sequential growth.

Thanks, Craig. Lindon and I will share this one, but I will start with the commentary that I had in my prepared remarks. The BioStore III Cryo system is a product we think has tremendous promise. We've introduced it to the market; there seems to be tremendous interest. The traction from a commercial standpoint has been slow. One of the reasons is, as customers put real samples in, they need to be exactly sure that this is going to be a tool that they know how to operate and that the samples will be safe.

We hadn't anticipated the amount of testing and verification that would go into that. One of the things that you'll see that is necessary for us to get the ramp in the business that we expect is to get traction on the BioStore III cryo. We have very little of that built into the December quarter, but we do have high expectations for it as we exit the year.

That's a very important part of the portfolio. It is still modest. It is not the driver of the $160 million but it is an important component about the future growth for the Life Sciences operation.

Craig, I would just say when you think about perturbations, we have lots of confidence on the storage and on the storage site. And, in the $160 million target I think what, the trajectory that extols, you have to change for us is around that cryo store, the B3 cryo, the minus 150 and we're seeing still a lot of conviction and a lot of value at the customer engagement site. Conviction and excitement is really confirmed when it turns to revenue and we fully recognize that. So we're anxious to see that.

That is a trajectory that really needs to change for us. And as Steve said, we're going to be patient and we're going to see that happen we're convinced. But that's what the trajectory needs to change. And then we are also looking for an uptick in our consumables revenues. So, when I look at the $160 million, I see really solid trajectories on stores and storage. And then I'm looking for a trajectory incremental on these other two pieces that are smaller, but important for us.

That's helpful guys. Then, the follow-up is on the FY17 target financial model that was presented at the Analyst Day. In the fiscal fourth quarter of 2016, annualized earnings were $0.88. The target model is $0.90. Lindon, you outlined $8 million in efficiencies that will be coming into the model. Is the performance of the business really showing the trajectory that would push above that $0.90 or is there mix shift in the business as we go through the year towards Life Sciences that would mean, even with the efficiencies, that $0.90 number is still the right bogey to be focused on?

This is a really good question. So, I was careful, every time we talk about that model to emphasize that it is a model. And what you and the other analysts and investors are going to see is that we will stop showing that page only because I don't want it to be confused as guidance.

This is a good point for clarity. In the semi business, we all know that the business has about 90 days of visibility. We still believe that we are in that range. You can see that this quarter we are at $0.22. We gave you a range of $0.80 to $1.00 and we just gave you guidance for first-quarter that continues to support that run rate.

We have every reason to believe that we are in that range. And at the same time, I have got to be really hesitant with you in that the semi business cycles, right now, we are in a good cycle. In the second half, we don't have that visibility yet; so as we've always said, we use this range in semi and, you know Craig, it could be better, it could be worse. But right now, I don't have any indication to pull back from that model and to guide differently. I'm just not going to guide on the full year.

With that said, let me give you a couple of points that we have really good conviction on. Life Sciences, we've already said, $160 million, I've reiterated; we are holding to that target and Dusty is dead set on it and we have a line of sight on the largest portions of that. And, as I just mentioned, we need the trajectory on the smaller pieces. The second point is on gross margins. I mentioned earlier 38% is our target for the year.

We believe that we've got all the actions plumbed including the $8 million that we said as we get to the second half -- or I should say, through the first half, that we've got half of it underway and we've got more coming; so we believe those two key points are under there. The third point is what does semi revenue do for the year? That will have some bearing on it, but no reason for us to tell you it's not going to be in that range of $0.80 to $1.00.

I appreciate that, thanks. The next question is really a longer-term question and it relates to some of the areas of growth that are smaller but really helping the semi business. Advanced packaging has been a real success story as you have taken your front-end technology and moved into the back end.

You mentioned OLED on the call. Our view is that industry's capacity has to move up to handle a 5x increase in units between here and 2020, so it seems like the secular dynamics for that business for Brooks would be quite strong. As we think about smaller opportunities, but secularly advantaged opportunities, how do those two opportunities play into the Company's thinking about longer-term financial performance, specifically the FY19 target model laid out at Analyst Day back in the first half?

We think they are really important. I think you hit it right on the head. Advanced Packaging is a really important sector for us and we found a way to employ core technologies in a really unique way to address Advanced Packaging.

When we apply these on very standard, very commoditized semi front-end, it's a tough business. At Advanced Packaging, we've distanced ourselves from competition because of the nature of what we do specific to that industry, so that is a really important one We too see strong growth in the OLED.

The other thing that I would add to the two that you listed is that contamination control is extremely important. And we are finding that as now half of the periodic table is being used to manufacture semiconductor devices, the new chemistries and capabilities that are employed really require a different level of cleanliness and contamination control from anything we have seen before.

Frankly, we are even surprised by the amount of the cleaning technology that goes into some of these factories and we see that continuing to grow very quickly as we push down toward 10, 7 and 5 nanometers. So, for us, as we go to 2019, these smaller opportunities, which are becoming bigger, are extremely important for us in the growth profile and the profitability of the Company.

Thanks for the help guys.

(Operator Instructions)

Mr. Robertson, I'm showing no further questions at this time. I will turn the call back to you.

Thank you Nelson. I'm very cognizant that we're just a couple of minutes away from the market open. We really appreciate everybody's attention and the questions are all really good and they help fill in the color of our business.

We couldn't be more pleased with where we sit as we enter 2017. We are excited about both our customer set and the outlook for the business, but we are also really pleased with the investment base that you guys all helped to facilitate with us. So we appreciate that and we look forward to talking to you next quarter. We hope you all have a great day in the market.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.