Azenta Inc (AZTA) 2006 Q1 法說會逐字稿

Good afternoon and welcome to Brooks Automation's conference call to discuss the results of the first quarter of fiscal year 2006, ended December 31, 2005. The press release announcing the results of the quarter was sent out this afternoon at approximately 4 p.m. eastern time. You may obtain a copy of the press release from our Investor Relations website at investor.brooks.com, or you may call the Investor Relations Department of Brooks Automation to request a copy.

Today, giving the prepared statements on behalf of the Company are Bob Woodbury, Chief Financial Officer; and Ed Grady, President and Chief Executive Officer. After the final speaker, we will open up the call for questions. Also present on the call to help answer questions are Jim Gentilcore, Chief Operating Officer of the Semiconductor Products Group at Brooks; and Michael Pippins, Chief Marketing Officer.

Let me caution you that in the course of today's call we will be making some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. There are a number of important factors that could cause actual results or events to differ materially from those indicated by such forward-looking statements. I refer you to the section in our press release titled Safe Harbor Statements and the Company's most recent filing with the Securities and Exchange Commission.

Now I will turn the call over to our CFO, Bob Woodbury. Bob?

Thanks, Mark. By now you have all seen the results of our first quarter, and as you can see, our results were slightly stronger than we expected. I'll spend a little more time than usual explaining some of the accounting entries during the period. Due to the acquisition, there is some purchase accounting related charges, as well as the two-month stub period, which we owed Helix.

Revenues finished slightly up from guidance and closed at $127.2 million. Earnings on a GAAP basis were a loss of $11.2 million or a loss of $0.17 per share. Included in this were charges of $12.6 million, which were made up of $7 million for amortization of the inventory step-up for Helix, $1.2 million for restructuring, $1.5 million for stock option expense, and lastly, amortization of intangibles of $2.8 million. We have included a table in our press release to try to help clarify all of this for you. These charges amounted to $0.19 per share, which when you consider their effects, pro forma EPS was $0.02 positive per share and have our guidance of a loss of $0.01 to $0.05.

Orders for the quarter were $141.3 million. We saw strength in our hardware businesses, consistent with the trends in the industry. We continue to see this strength right through our second fiscal quarter. On the software side, orders also improved, largely due to maintenance renewals, as we pointed out on our last quarterly call. Hardware orders totaled $119.5 million, which included $35 million from the two months of Helix. That being said, legacy Brooks hardware orders were up 14% quarter-to-quarter. Software orders recovered to $21.8 million, again, largely due to maintenance renewals. The total bookings for Brooks without Helix is up 23% over Q4.

Revenues for the quarter were $127.2 million. The mix was as we expected in all product areas. Hardware revenues were $108.5 million, and software revenues came in at $18.7 million. Our top 10 customers accounted for 41% of revenues. We did have one 10% customer. On a geographic basis, 53% was North America, 21% Europe, and Asia was 26%.

The gross margin as a percentage of sales was 36.4% on a pro forma basis. And our cost of goods sold for amounts or inventory step-up of $7 million, amortization of acquired intangibles of $2.1 million and stock option expense of $267,000. The total amount of the step-up valuation was $11.2 million, so you should expect to see the balance of $4.2 million be charged off in the second quarter. The accounting regs require us to amortize this over the inventory turns, so we have one more month left to amortize. Due to the nature of the acquired intangibles, we're required to classify any product-related amortization up in cost of goods sold, so we will continue to break that out going forward.

Margins in the hardware segment were 31.5%, pretty much as expected, and software margins were 64.7%, both on a pro forma basis.

Q4 operating expense came in at $44.8 million, again, right on guidance, with $15.9 of R&D and SG&A of $28.9 million. There was approximately $8 million in Helix spend in OpEx for the two-month period, though we own them, so on a run rate basis, it's slightly low as we combine the two companies. Also included in our SG&A was the additional appreciation of our CRM system for $1.3 million, which we have finished this quarter. We had restructuring expense of $1.2 million, largely related to severance. During the quarter, we also had $1.2 million in net interest income, tax expiration of $1.3 million, and again, this is primarily related to withholding and income taxes in foreign jurisdictions.

Turning to the balance sheet; cash, cash equivalents and marketable securities were $374 million, up $17 million for the quarter largely due to the cash from the Helix acquisition. Inventories were $78 million, the entire increase also being due to the acquisition. We continue to focus on working capital management and the legacy Brooks inventory stayed flat over this period. DSO's were 63 days. Depreciation was $5.1 million. And CapEx was $2.9 million.

For the March quarter, we expect orders to be between $165 and $175 million. We expect revenues to be between $152 and $158 million. Gross margins of approximately 37 to 38% before reporting the final inventory step-up charge of approximately $4.2 million or the amortization of intangibles that will be allocated to COGS. OpEx be between $47.5 and $48 million.

We're continuing to guide on a GAAP basis. And to that end, GAAP EPS should be ranging from a break-even to $0.04 per share positive. This includes charges of $0.12 per share or approximately $9 million, comprised of inventory step-up of $4.2 million, amortization of intangibles of $3.6 million, option expense of $1.4 million. Shares are estimated to be 74.5 million. On an apples-to-apples basis, this would compare to your consensus numbers which exclude these charges, to a profit of $0.12 to $0.16 per share.

Our integration efforts are on track, both teams have started the blend in together quite well. Initial head-count synergies have been achieved, and we should start to begin to see the impact this quarter. Additionally, we have announced that the lease for the Mansfield Campus will expire at the end of this year, and to that end, we will transfer it's primary operations to a third-party supplier in Mexico. Some additional operations in engineering, sales marketing, and administrative functions will be moving to Chelmsford. This should give us a good portion of the additional synergies we targeted by the end of the year.

And now, I'll turn it over to Ed.

Thanks, Bob, and good afternoon to all of you on the call. Today I'll give you our views on the current market environment, provide you with highlights of our just concluded fiscal Q1, and talk about our expectations as we go forward.

The general outlook and consensus for 2006 for semiconductor capital equipment spending from which Brooks gets the majority of our business, is very favorable. The demand throughout the food chain that drives our business is expected to be robust. The seemingly insatiable demand for content is driving convergence of applications for electronics products such as camera cell phones, multimedia iPods and digital home entertainment, just to name a few. This new wave of products requires advanced semiconductor chips, such as NAND flash memory, driving sub 90-nanometer design manufactured on 300 mm wafers to achieve the cost targets necessary to accelerate demand in this consumer-driven market.

Therefore, semiconductor chip manufacturers are investing heavily and expanding or building new 300mm Fabs to meet the demand for chips, which then increases the need for more wafer Fab equipment to build those chips. Brooks is a beneficiary of this investment cycle. Approximately 80% of our business is focused on providing automation and vacuum technology for wafer Fab equipment. And as the market leader in both categories, we are currently seeing strong improvement in orders from our products from our customers.

In our fiscal Q1, Brooks has a strong quarter as we beat our own expectations in the Thomson FirstCall consensus for revenues and earnings. We completed the acquisition of Helix in the quarter and are very pleased that Helix is immediately accretive to Brooks. As Bob has already pointed out, there are significant near-term impacts on the face of our income statement driven by purchase accounting rules arising from the Helix acquisition.

We experienced a positive inflection point in the semiconductor related order trend in the December quarter. Our bookings grew by 23% in Q1 over the preceding quarter, excluding about 2 months of Helix. This increase is better than our expectations of 15 to 20% growth. The positive bookings environment continues into the March quarter and we expect bookings to increase sequentially in the range of $165 million to $175 million.

In our Hardware segment, we had a strong quarter with multiple shipments of our new Marathon vacuum systems for etch, PVD and IMV deposition. In addition, we started shipments of our new high-speed vacuum robots for a new CVD application at one of our large customers. Our new family of atmospheric automation robots and systems continues to make progress with multiple customers taking Beta shipments in the March quarter.

I was pleased that the former Helix business delivered solid results and experienced minimal disruption from merging with Brook,s staying focused on winning business and servicing customers. We continue to do especially well with our [IN implant] customers and we are actively pursuing opportunities to further growth in this market. The on-board IS product is in production ramp and delivering the value that both OEM and end-user customers need. Our Polycold business is also making good progress, especially in Asia.

The integration of Helix is progressing better than expected, and I commend the dedication and effort of the integration teams. We have worked with the teams to minimize impact on our employees. I'm also exceedingly pleased with the significant improvement in customer relations we are getting from the new global customer service organization as we adopt the successful model from Helix to better support our customers. We have already started to implement the GUTS program, which stands for Guaranteed Up Time Support, for many legacy Brooks products. Customers globally are already seeing and realizing the benefits.

As we stated earlier, the service business is a key growth platform for Brooks as we leverage the large installed base of legacy products and provide better repair and replacement service. We are poised to see this business double over the next three to five years from it's current level. Of special note is we have now moved that -- the last legacy AMHS project inheirited from PRI off of warranty, and will move into a service contract relationship with that customer.

In our Software business, we continue to have strong maintenance renewals from our established customers, an annuity stream that speaks to our strong market position and semiconductor manufacturing, and the important role that our software plays in advanced Fabs. We also booked a large order in the quarter for our market-leading MCS software from a leading flat-panel display customer in Taiwan, as our software continues to do well in the flat-panel market. We will continue to manage this business closely. We are executing a plan to have it be a contributor to our operating margin and we have made progress in lowering it's break-even during the quarter.

Overall, I'm pleased with our continued operational focus across the Company. We have a number of initiatives underway that are designed to improve margins for several of our product lines. One of these initiatives is working with an Asian partner to manufacturer our load ports. This program is gaining momentum, as we started shipping products from this partner in Q1.

Another action we're taking is to move our AMHS business into our service organization, allowing us to leverage existing resources and to better support our large installed base of mostly 200mm customers. We believe that strategically, the current technology used in the AMHS market has been commoditized and therefore, does not meet our growth objectives for growth and profitability. As a result, we will not be pursuing any new 300mm AMHS opportunities. Our intent is to provide exceptional support to current customers for service, spares and system modifications and expansions. By moving this business into our global service organization, our profitability for the legacy business will be improved in line with our other service businesses. Our successful AMHS control software, called MCS, will continue to be sold and supported on a stand-alone basis, creating new opportunities with former AMHS hardware competitors and providing additional proprietary capability to the end-user Fabs.

We're also activity addressing the need to be geographically closer to our customers in key regions of Asia. We've expanded the Helix operations in China, creating a wholly-owned foreign entity that will better position us to capture more opportunities in this important growth region and deliver better support to our customers. We continue to strengthen our presence in Korea, recently enhancing our factory in Kiheung.

Looking at the big picture of the semiconductor industry is ramping. The number 300mm Fab projects that we're tracking in calendar 2006, has increased to 34 projects, consisting of 12 new Fabs and 22 expansions. On our prior call, we were tracking 30 Fabs -- Fab projects for 2006. There were 28 300mm Fab projects in 2005.

With industry capital spending likely to be up strongly in the first half of the calendar 2006, we're focusing on meeting the ramp. We continue -- continued to see evidence of outsourcing by OEM customers which plays to our strength. The industry looks for efficiency and technology innovation, driving towards focused business models that leverage the core strength of individual company. You can see it throughout the supply chain from chip makers to the equipment makers to the sub-system suppliers. Brooks is well-positioned with key customers and at the sweet spot of growth for automation and vacuum sub-systems market. As we continue to realize the cost synergies and the technology synergies of our combination with Helix, we believe we'll be able to play a critical and leading role in the trend that is emerging in our industry, where fewer companies control a larger share of product segments.

We want to thank our employees for their dedication and continued contributions as we work towards creating further value for all of our stakeholders. Thank you for your continued interest in Brooks.

And now let me open the call for some questions.

[OPERATOR INSTRUCTIONS] Our first question comes from Merriman's David Duley.

Congratulations on a nice quarter.

Thanks, Dave.

I was wondering, could you give an idea about what kind of trends in your gross margins you might see beyond the March quarter? Also, should we will looking at R&D on a dollar basis or a percentage basis for the balance of the year? And I have a quick follow-up.

The real easy one, R&D -- R&D dollars, Dave, is the way to measure it, not based on percentage. As is typically with all of our operating expense. As you do in our your models, if you just kind of flatten the R&D dollars. There's a couple of projects we'll do internally that may kick that up from one quarter to the other by a -- call it $0.5 million. Keep in mind what you see as well, only the has two months of Helix in it. So again, it will be up a little bit next quarter.

On the gross margin, we are working a bunch of initiatives. During the year, we have got some of our load ports being picked up on a Taiwanese supplier. The leverage you will see with just normal growth should be about $0.45 on the dollar, should be dropping through as we grow from here out. Additionally, we have got some other things that we're working on to try to improve margins. I wouldn't say the model is quite yet until we actually have real hard traction on those, but I can see the back-end of the year getting another lift of a good 1% in total margin points as we get to the back-end of the year with some of those improvements when they start kicking in.

Okay. And as far as your guidance on revenues and orders, could you kind of let us -- give us a little bit more detail on what the OEM tool business might be doing inside your guidance?

Oh -- we're back now to two segments, Hardware and Software. So we -- we are seeing the trend from the industry. You have all seen the current projections by the larger customers within the industry. So we are expecting to have stronger and stronger uplift from the OEMs, if you will. Our end use -- that is one of the reasons why we went to the one segment. One is with the acquisition of Helix. But additionally, as you look at our end-user side it's becoming such a smaller piece of the business, so we didn't expect much growth on what used to be the traditional user side of the business.

So all of the growth will be coming from the vacuum and atmospheric side?

Yes, exactly.

That's right.

And some of the service platforms with the Helix side too.

Thanks.

Our next question comes from Bill Lu with Piper Jaffray.

This is actually Dennis Cong calling for Bill Lu. Regarding the synergy cost savings for your OpEx, are you on target for this quarter? I think you mentioned about $2 million during last quarter conference call.

Yes.

Okay. And going forward, are you still looking at $3 million per quarter?

At $3 million per quarter?

Yes.

No we said we would have $10 million this year and we said $15 million as we went into next year.

Okay. Got it.

Total year. And some of that we had factored when -- we had originally guided the $15 million in the second year, we knew that some of the building costs as the lease expired in Mansfield would be a portion of that.

Sure. And regarding your Software business, is that all from Brooks or any contributions from Helix business?

No, it's all from Brooks.

It's all from Brooks. Can you break it out between the semi and non-semi.

We don't report semi and non-semi. For the most part, it's our traditional business. The penetration into the alternative markets that we've been trying to , medical most specifically -- it's a very small portion. So if you look at the traditional Brooks business between semi -- and what would also be included in that would be the LCD side, that's probably 90 to 95% of what is in that number.

I see. Okay. My last question is regarding your Fab database. And can you give us an update on that? And also from your Fab database information, do you have any visibility regarding how the second half is going pan out in terms of capacity expansion? And I'm not sure if you are guys are starting to monitor the Fabs project in 2007 at all? Thanks.

I think if you noted from Ed's remarks, we did add four projects to our list since the last call. I think what we're starting to see -- in the last call we talked about this being very heavy on the first half, but most of the additions actually are in the second half of the year. I think what we're starting to see a little bit of balancing of the year with things kind of filling in the second half. We have not commented on '07. We're working on that at this point, and probably by the next conference call we'll have some -- some remarks on '07.

Okay. Thanks.

Our next question comes from Steve O'Rourke with Deutsche Bank.

Good afternoon. Thanks for taking my call. Just a quick follow-up on that, Michael. As far as the Fab database goes, how many upside projects do you see on top of the 34? Or does the probability equation go the other way in 2006?

I think consistent with our view for the last few years, Steve, we never put everything in and we always have some number of hedge projects, especially as we get multiple quarters out. I think, as I see it right now, our number is 34. There's certainly some incremental projects but there's risks, as you look at the end of the year. So that's kind of where we are right now.

But if anything you are probably biased to the upside as opposed to the downside.?

We are certainly more optimistic on the second half of the year than we were during the last call.

Okay. I think you mentioned that CapEx should be up strongly in first half '06. Do you have a view on the profile for the year in spending 2006?

Not really, Steve.

Okay. And if I could ask one other question here, you also talked about service with the GUTS program.

Right.

What kind of an improvement should we see, if any from '06, from say gross margin installation and warranty savings for example, maybe revenue benefits based upon customer, I don't know synergies, shall we say? Is there anything that we should expect out of that?

As I said in my remarks, we closed a project that was under warranty that will immediately become positive and add to gross margin next quarter. And I think the new product offerings are, again, replicating much of what Helix had in it's quiver of arrows. And we're beginning to see uptake on expanding the service contracts that Helix already has in the Fabs and getting some of the Brooks products into those contracts. So I think the biggest issue, in terms of gross margins or revenue, has to do with getting things -- legacy things off of warranty and getting them into the profit stream. And as well as just incremental business. But -- but I think it's -- you are going to see it start to creep up, that's all I can say.

Okay. Thank you.

And our next question comes from Timothy Arcuri with Citigroup.

Hi, guys. I'm wondering if you could help me out with a couple of things here. If I try to normalize the bookings base for December and I compare with the guidances for March, it looks like the normalized order base is roughly $159 million for December, so the guidance for orders is up about 7% sequentially. Is that the right math?

No. We reported bookings of $141. And that includes two months of Helix, Tim.

Right, but if you take the full three months of Helix and you normalize it out, shouldn't the base be more like $159?

Maybe $150. $150. So the guidance is up, what, 9 to 10% in orders? So $150 up to $165 to $175.

Okay. And then also, Bob, can you extend what the model would -- would be out looking six months from now? Can you pick a couple of different revenue levels and maybe tell us what gross and operating margin might look like, say maybe at $175 and at $200, for example?

Well, if you look at right now, the break-even of the Company is somewhere between $135 and $137 on a combined basis. So if you go to -- and if you look at our guidance, you can kind of extrapolate how much of that is going through -- the drop through. So if you -- if you basically take 40 to 45%, Tim, and drop it through, again, if more of that weight in increase in revenue is CDA, it's not going to come through at quite that amount. But if you take some 40, 45% drop through, you can kind of get the math on some of that. We'll also have synergies but then you might -- say these synergies are somewhat offset because as you start to ramp, you'll also have some incremental incentive comp that will kick in. That's probably the right way to think about it and model it.

And just last thing for me, if the base for bookings is like $150, then the guidance is up about 13% sequentially? Why so conservative relative to what your OEM customer are -- ?

Keep in mind, that there's a chunk of that business -- that one is Software, and the Software business would not be growing at that same rate. And secondly, if you understand -- one of the reasons what we did with the Helix acquisition, a big chunk of the Helix portion of revenue is the service side, and that -- what happens there is that does not -- the baiter of that will not be as dramatic on the upside or on the down side. So it will be some uninsulated there. But that's about 40% of what used to be the traditional Helix revenues.

So if you stripped out the apples-to-apples tool business, it's up roughly in line with the OEM suppliers?

Exactly right.

Okay. Thanks.

Next up with Lehman Brothers, we have C.J. Muse.

Good afternoon, a couple questions here. First off, what kind of visibility are your OEM customers offering you today? And how has that changed in the last four to six weeks?

First off, it hasn't changed at all. I think the visibility we typically see is within the quarter, maybe to the next quarter. We see about -- about a quarter out. I would say maybe the one thing that has changed -- I have to change my words here -- but the one thing that has changed is that we have had inquiries from some of the key large customers doing ramp readiness reviews. So they are wanting to know how fast we can ramp and at what rate we can ramp certain products, so we're getting inquiries of that type. But that's not a look and tell us what a number might be, they just want to know how fast we can ramp, given certain ramp characteristics.

Are you seeing any potential bottlenecks in your supply chain?

No, we have actually done a ramp readiness with our supply base as well. We haven't identified anything that looks like it's a real problem for us. We've consolidated -- during this last slow cycle, we have consolidated our vendor base and gone to some vendors where we have guaranteed supply contracts.

Got you. And moving to the AMHS business, can you talk a little bit about your decision to cease new business, as opposed to exiting outright? I know that would be kind of difficult given existing customers, but is this going to be a drag on earnings here? Or can you flush that out?

No it's exactly what we have done. There's a certain amount of infrastructure that's required to do the sales and marketing and simulations and all of that kind of stuff to chase after new business. The legacy 200mm and some of the 300mm business that's going to service contracts is actually quite attractive business. And your point of just exiting the business, quite honestly, makes no sense. We have had a lot of people say, why don't you just exit the business, but who are you going to sell it to? There are not a lot of people out there who want to buy an AMHS business. And the bottomline is, that in a service organization, it can deliver quite respectable up margins and profitability if run -- using the leverage of that whole -- over our organization. What we have really chosen to do is get out of that overhead that was causing a hit in our OpEx expense, and run the business more like what it should be. Probably the last piece of color is that -- I think I said in my comments, this business is commoditized to the point that it is -- it just doesn't meet our growth and profit targets for the Company.

So you feel comfortable that you don't have to invest much cash in this and that your return on capital is going to be positive from here on out?

There's not a lot of investment. Total inventory right now of AMHS products is about $6 million. There's over $1 million of that is already in the field just awaiting final install. Inventory -- total capital investment right now is just under $5 million. And with our Spares business, that's what takes up the bulk of those dollars -- to support that.

C.J., this is Jim Gentilcore. I think over the next several quarters, we'll try to help you understand our service business a little bit better. But one of the advantages of the service contracts that we have -- we have several of them -- with most of the same Fabs that we would be talking about AMHS with. The better we understand, through our service organization what the costs are, what the timing, what the age of the material is and things like that the better we're able to control our costs and the better we're able to smooth out our customers service budget. And that's really at the heart of bringing this business into the service organization. We're confident that the things we have put in place already for other products, Helix products and some other Brooks products, are extendable to the AMHS installed base as well.

That's very helpful. One last question for me. Can -- can you help me out a little bit on the cost synergies, what combination would have looked like for total OpEx had you had three months of Helix?

I thought I had brought out -- on the cost side, OpEx was about $8 million -- almost $8 million in COGS for Helix for two months, so add four. That's two full months, though.

Okay. Can you walk through how you perceive the savings through fiscal '06?

Through this year, we'll probably get $2 this coming quarter, call it $2.5 the next quarter to get the $4.5. And I'll call it another $2.5, $2.7 million. And then a little back-ended -- to the back-end to get -- maybe to $3, $3.5 because we'll start to lose some of the cost on the building side.

Got you. Thank you.

And gentlemen, we'll next go CS First Boston's John Pitzer.

Yes, good afternoon, guys. Hey, guys, given that the margin -- the first three-month quarter with Helix, will you will willing to give us an assumption for Helix revenue and bookings, in the overall guidance?

No. We're not going to break it out, John, that way. We're going to stay straight to Hardware. I don't want to start going into having a separate segment here, which is ultimately what would happen there. So Helix on a traditional basis, for this past quarter would have been in that $40 -- you guys can do the math on -- for the $40, $42 million that runs before that.

Well, Bob, you gave us some color that the Helix bookings wouldn't be growing as fast as the Brooks bookings in the March quarter. Is the same true on the revenue line, as well?

Most of Helix -- if you go back and look at how they traditionally reported very high currents business. And again, 40% -- about 40% was service, the other 60% was pretty much in line with market. Is the way -- as you model it.

And then, as you guys restrict the AMHS business just to existing customers, Ed, you talked about some cost savings there, anyway of quantifying that? How meaningful is that?

John, we're looking at that now. I really don't want to lay a number out right now, because we're in the final throes of how it's going to move over into the service business. But -- but I think the bottomline is that it will be a contributor in line with the other service -- service businesses we have when we're finished with this. And I think as Bob pointed out, with the current structure and the restructuring we have done over the past several years, there's not a lot -- matter of fact, I don't think there's anything left that is significant that would cause any restructuring charges. But does that help?

Are you guys still going after the 200mm legacy business?

Only as it relates to existing customers and modifications, upgrades of existing stuff. And that's not stuff where you have to invest a lot of engineering or simulations or anything like that. This is -- this is pretty straight-forward service business.

And then the last question, I think Michael Pippins talked about the incremental four Fabs and the Fab database coming in the back half of the year and balancing things out between first half and second half. I'm just kind of curious, as you guys view the world today, does the second half CapEx -- or market opportunity for Brooks grow over the first half relative to the Fab database? Or is it just now -- doesn't decline as much given these four few Fabs?

John, I think what we saw last quarter and before that was a pretty strong start. And if you look at what is happening is, I think some of the projects are becoming more mid-yearish and some of the incremental things are end of the year. So I think we're much more optimistic about the second half than -- than we were before, just kind of generally speaking.

And were those four additional Fabs memory or logic, please?

Let's see, they are a mix of both. It's kind of two and two.

Great. Thanks, guys.

Gentlemen, our next question will now come from Ben Pang with Prudential.

The first question is, when you look at your product line renewal, you guys started that probably like six months or so ago, is that right for the vacuum business?

The product line renewals?

Yes. You released like a lot of new products, right?

Oh, yes. Yes. We -- in Semicon West of last year -- last July we launched a whole new family of vacuum systems, and we had a little bit of a preview opt our atmospheric systems.

And how much of a percentage does that account for of your business right now, the new products? How fully transitioned are you on the vacuum side for the new products?

Just starting. I think you heard Ed make a few comments about the traction that our new vacuums are getting in three applications in Etch and PVD and then [Ion Beam] applications. So it's just beginning. And if you think of the cycle, we introduce it in the summer, we get initial evaluations in the fall, and we start to ship in some reasonable volume over the next few quarters. I think we're very optimistic about the traction of the new vacuum systems. And if you think about the synergy that we're gaining with Helix as well, on the vacuum pump with the vacuum automation system, that strategy is extremely solid.

I guess the question I'm trying to get to actually is, you are seeing an acceleration in your Hardware business right now with OEMs, is that -- I mean, are you guys happy with where you are at, in terms of transitioning into new product? Or do you still see a lot of the custom design stuff and some of your old products? Does the timing hit where you want it to hit, in terms of the increase in the Hardware business? And how that impacts your margins, actually?

I think we answered that. Last conference call we talked about this. And I think we even indicated that another quarter delay wouldn't hurt us at all in the market upturn. So it's -- I think what we're working with right now is that every single customer that has come in on the advanced atmospheric projects and on the vacuum products is exceedingly pleased. The question is the rate at which they can build it into new products and get their betas out and get them to their customers and get them approved. So I think we would obviously, as a Company, be much happier if our -- if we were further along in this process, because it adds a fairly significant impact on our margins. But the fact is, we have -- we are on track with the plan that we laid out. And we're very pleased with where we are. We would obviously like to be further ahead, but we're on plan.

So this doesn't impact, at least for your calendar year '06, the outlook for the margins, right? There's no change because things are kind of accelerating a little bit faster, right?

I would say with the exception of vacuum business, where we are getting more and more business, the answer is yes, vacuum systems will have a positive impact.

And a follow-on on that, in terms of getting some of the customers in Japan, I mean -- is the product cycle timing still right to gain share with the new products at those customers?

I think so. I think we're working through with -- again, with the Helix and Brooks coming together in Japan, we're very focused on how do we serve our existing customers and expand into that market space.

And do you see also a big CDM-type crossover or what not in Japan, as well? Will those customers follow along the same plan that you can get some custom business and then transition them over to your standard products?

I think the behavior, just based on the economics, will probably work out the same. We actually see some of that behavior in Japan already.

Good. The last question is on the Software. This is just a clarification. So Software bookings -- there was improvement in your March and end-quarter bookings on the Software side are a little bit better than expected relative to the rest of the year?

No, not relative to the rest of the year. We look to -- we had good bookings for the quarter. If you go back, Ben, and look at -- we had six great quarters of bookings at $30 million, and then we had two trough quarters at $12 and $14 -- or $14 and $12. We're back up to more normalized levels at $20 this past quarter.

Okay.

I would expect to see balancing somewhere in the high teens to low 20s these next few quarters, depending on how some of the license stuff lands.

Okay. Perfect. Thank you very much.

Next in line, we have Martin Teng with SG Cowen. Yes, thank you. Just a couple of quick questions. Given that there is -- the better, new Fabs coming online in '06, has that changed your Software outlook for the year?

I think we're -- we're hesitant to say there's a big upside. However, keep in mind that our-- our real time dispatcher activity manager simulation software is pretty much adopted across the full base of 300mm, so I would say generally, that our expectations would go up as the Fab database improves.

Okay. And then my -- my second question is, can you give us an idea of what the margins are like for AMHS servicing? Obviously Spares -- and is it as attractive, for example, as the two automation spares business?

It's almost identical.

Okay. Great. And also, when you talk about -- give us some good news about the new products -- traction with the new vacuum products. Can you give us an idea at what technology nodes they are being adopted at? Or are they actually also replacing some of the existing robots in [inaudible]?

I think it's both. I think in some cases, we have customers that historically just bought at the module level that are now converting to systems. And I think that's one of the trends that we have often talked about. And we have said that the biggest opportunity for growth is outsourcing the vacuum system. So -- in at least one of the cases, if not two that we cited, it was customers that had traditionally bought robots converting to systems which we obviously like, because it's a healthy margin business. And the revenue per shipment, in many cases, increases between five times and maybe even up to ten times, if you think about going from a robot to a system. So I think we feel very well-positioned for the -- the future nodes, but we see a lot of opportunities for just conversions.

Right. And where are they being adopted right now? 65-nanometers or 90-nanometers?

In one case, it's a replacement for an existing tool at today's nodes. So not only the future stuff, but current generation products.

Great. A couple of financial questions. What is the cash from operations this quarter? And also, what do you think taxes -- things you have synergies with Helix, $6 to $8 million -- can you give us an idea of where the tax rate -- or the run rate should be per quarter?

Taxes for the quarter should be pretty flat to the $1.3. Most of the taxes relate to, again, foreign withholding tax. And a lot of that actually relates to Software. So you can almost hold it flat at a $1.3 to $1.4 number quarter-over-quarter. Cash from operations, effectively flat. Most of the cash transferred in was from Helix.

Can you give us a number for this quarter? For the reporting quarter?

I have not done the 10-Q cash flow quite yet. But you can see -- $374, we're up $17 million quarter-over-quarter.

And last question, the SG&A trend -- you said R&D was kind of flat going forward. Does SG&A come down?

No it will be --guide my OpEx. My OpEx I guided slightly up over the quarter. You have to be careful when you look at R&D, it only included two months of Helix, did not include freight. I guided a combined, as I always do -- I guided a combined OpEx for the next period to be $47.5 to $48 million.

Thank you very much.

Thanks, Martin.

Next we have Mark Fitzgerald with Banc of America Securities.

Thank you. I was wondering if you can talk about what a combined company between Helix and Brooks operating margin target might be, once you get all of the synergies built in?

I think it's going to be -- on the Brooks side, somewhere in the $15 to $18 range. I think that because of the leverage we get from the margins from Helix, as well as what we're going to get through the synergies market, it's going to be closer to the high teens.

Okay. Given the big cash shortage you have on the balance sheet from the Helix acquisitions, any thoughts about buying back some of the debt at this point?

Having dialogues, as we always do with the Board, truthfully, to chat about what are the best uses of cash. Certainly I would like to be able to get some of that -- get some of the debt off of the books. But again, it's not -- four and three-quarter debt in today's interest environment isn't a bad borrowing rate. Personally, I would like to try to get that extra earnings dropped to the bottom line. But I think you'll see -- through the course of this year, I think we'll figure it out. As you know, that debt is actually due anyway, in a pretty short period of time -- about 18 months now.

And just a bigger question, given kind of the vertical ramp here and what some of the OEMs have been, in terms of aggressive about demands for pricing through '05, is there any opportunity to recapture some of the pricing loss in '05, with this ramp at this point?

Well I -- don't know. I wouldn't go there, Mark. I think we're better off -- we're -- we have to price at the market. We have a lot of competition. So I wouldn't see significant upside in pricing. I do see some enhancements in our cost position, however.

Okay. I only ask it because we're hearing some OEMs have getting -- have gotten price increases from some of the suppliers at this point. So I didn't know if you were participating or not.

I would love to, Mark. We're certainly going to try, how is that?

The one thing I would add, though, is that one of the favorable trends is, especially with Helix on board now is, we're just getting more content from the OEMs. And I think some of the larger companies, especially, want to do business with larger companies. So I think we're quite optimistic about our ability to get a larger percentage of the target customer's business. So we're very actively engaged in many discussions right now around that.

I think more is good, but more at higher margins is even better.

We absolutely agree.

Okay. Thank you.

Next we have from Bear Stearns, Michael O'Brien.

Hi, good afternoon. Just a couple of questions. Just on the Fab transport business, what -- what happened the last quarter that got you to decide that this is commoditized and it's best just to be a service business, as opposed to, we'll be opportunistic on going after opportunities?

I think what has really gotten to us is, we continue to see competitive pricing at a level that just -- that just is unacceptable for our Business. And we have seen this now for almost a year. We have gone out and tried to sell the value-add of one Fab, we have shown the value of the product to customers; and it just appears to us that the behavior in the market is such that the market doesn't want to pay for that. So we have deduced that, after trying for a year, that we're better off trying to move that business into something that's more profitable for the Company by eliminating some of the costs associated with continuing to be in a -- chase-the-business mode.

Okay. Then just -- other two questions with regard to 300mm projects, Softwares typically goes in first -- Bob, I think you said we should expect the same general range for Software the next few quarters. Is there a reason for that or just -- just the new Fabs are more back-half loaded?

And then with regard to the 300mm projects from a Hardware side of things -- assuming that your share position is flat or better, any reason why the Brooks standalone business wouldn't be able to get back to the levels that you achieved in '04?

Let me answer the question on Software first. If you look at the 34 Fabs, there's only 12 that are quote, new projects. And if you look at the locations of those Fabs, they are largely dominated in Asia, specifically a lot of Japanese Fabs. And we have less penetration in Japan. So that's part of the reason you are seeing a little conservativism on our part from the Software side.

That thing fell off my tooth so fast, the [inaudible] -- we're a little gun shy. We're falling down from a $30 to a $14 and a $12 number back-to-back. I would like to see a couple of data points where we're starting to get traction again.

So maybe just possible conservative.

Yes.

And then with regard to just any thoughts on being able -- if it's --given the number of projects getting back to the -- Brooks -- the Brooks standalone piece, getting back to some of the peak quarters you had in '04?

I think it will.

I think it will, yes.

I don't see any reason it won't.

Okay. Thanks a lot.

Our next question comes from Tim Summers with Stanford Financial Group.

Hi, yes. Thank you for taking my question. I wanted to ask about the service business. According to my notes, and my numbers may be wrong, Helix maintains about 70% of it's pumps in the field, and Brooks maintains roughly 20% of it's robots in the field. You're -- you're moving the Brooks service model to the GUTS model, and it seems like there's such a large delta there, that you would very rapidly expand your service revenues much more -- much faster than the three to five years you suggested it might take to double. Aren't you being kind of conservative on that?

Tim, this is Jim Gentilcore. Maybe we're a little conservative, but considering that we're three months into the merged companies, it's better for us to demonstrate the results. We're seeing early signs that the model is extendable over to the Brooks side. We're seeing very clearly where some of the contracts -- the longer-term contracts that were typical of the Helix business model, are now working for some of our Brooks equipment -- some of our automation equipment. So we're -- directionally, it's where we want it to be. The acceptance in the marketplace is where we want it to be right now. But we have a lot to learn yet about what has been happening with that other 80% of the installed base before we're going to get overly ambitious on the growth.

Is it reasonable to assume that service, over the next 18 months, could actually be the fastest-growing revenue stream within Brooks?

Well as Bob Woodbury pointed out, and you know Tim, from following Helix, that it's a stable business. Yes, it's going to be growing faster because we're going after an untapped installed base. But it's very hard for the service business to keep up with the kind of order acceleration that we see, typically, in our equipment business.

Okay. And did you guys mention who the 10% customer was?

No. We did not. It -- it's Brooks' traditionally largest customer, who is a [inaudible] supplier on the West Coast.

Thanks.

Actually they were just -- just barely got to 10%.

Okay.

Next up we have Philip Lee with J.P. Morgan.

One clarification in terms of the bookings, the way I'm calculating them -- I'm looking at the Helix bookings up roughly 5 to 10%, in that range, and then the Brooks Hardware business somewhere up 10 to 15% -- does that sound reasonable?

For?

For the bookings.

For Q2?

Yes.

Are up? You run the model. You probably have -- you heard what I said so, I said Software is probably going to be relatively flat.

Right.

Right? And we had pretty good renewals there, so maybe it's flat to down just modestly. And again, you can run your model -- your math wouldn't work, organically, if you take it -- 16%, if you go the $175 number, just total apples-to-apples when you bounce it off the $150 base. So if Helix is only 10%, you can't get 15%, you have to come to a higher conclusion. Weighted average math is all it is.

Maybe with the Helix, it was $32 million for the two months. I was assuming I was be $48 million on a full quarter, apples-to-apples.

No, absolutely not. $40 million.

Okay. All right. And then, two other housekeeping questions. What is your expected taxes for '07? And then what is the quarter ending headcount?

For '07, let's presume for now that we don't reinstate the deferred tax allowance -- the SN allowance -- if that were the case, it will be very similar to last year as it is this year, it's $1.3 million per quarter -- between $1.3 and $1.5. Don't think of it as a rate, think of it as a dollar charge, if you will.

Okay.

On a headcount standpoint, and again it's -- if you take full-time RFT's with -- again, without contractors, we have some flex in contractors and other things, which is the way we always report. But it's a little over 2200 employees at the end of the period after we had picked up the Helix staff.

Do you expect that to trend down or stay stable?

I would -- it's hard to say when you have ramp coming up here. If we were a flat company from here forward, I would expect my headcount to come down. Without volume-related things, which would be short-term -- we'll have some short-term employees coming on board and off. But we know we still have synergies to take out, we know we still have costs to reduce in Software, we know we have costs to reduce in the AMHS side of the house. So I would expect those numbers to come down somewhere in the 5 to 10% range. But then again, offset with some of the balance of what we'll do with this short-term range.

Okay. Thanks.

And gentlemen, our next question comes from Robert Maire with Needham.

By the way, congratulations on nice numbers. Getting over to the Software business again, you talked about bookings, high teens around 20, and you said you were getting closer to break-even. Could you give us a -- kind of your estimate as to why break-even is on the Software business? And where you would like to get it down to, and timing of all of that?

If you look at it, it was $22.5 in past quarters and this quarter it's about $22.5. So you actually see that if you look at -- the segment date is actually broken out on the press release.

Okay.

It's got some amortization in there, but it's about a $2.8 million loss on the $18. So right now, we're trying to target the break-even to get it down to about $19.

Okay. $19 by the end of this quarter or -- ?

We will get a step closer -- we'll be all completed by the end of March. But clearly, by the end of June -- we're transitioning some of the functions to India. But we will decline it by -- let's call it another $700,000 this quarter. So not all the way down.

So looking at in-bound orders and getting expenses down, so we're probably looking at break-even for the Software business -- June, September timeframe quarters?

It will be operating at a $19 million break-even. I would hope it was better than that, given quarter magnitude. But it is actually contributing at that point.

So you think we'll be actually above break-even with the Software business by then?

Yes, absolutely.

Okay, great. Thank you.

Okay. Our next question now comes from Derrick Wenger with Jefferies & Co.

Thank you. Two questions. What was the total amount of depreciation and amortization for the quarter? And what were the capital expenditures for the quarter? And then what is the capital expenditure outlook for fiscal year '06?

Depreciation for the quarter was $5.1 million, which had an accelerated depreciation of $1.3 million for the CRM system. And CapEx was $2.9 million.

Okay.

The amortization -- amortization for the quarter was $2.8 million. And again, that's a short stub period for Helix. And again, as I guided, I had -- I have got amortization of intangibles going up in the future quarters to $3.6 million.

Okay. So that was $7.9 million D&A for the quarter, right? In total?

Yes.

Capital expenditure outlook for fiscal year '06?

Probably somewhere -- because some of the move -- the reason I'm hesitating is, you have got $3 million for the quarter -- this past quarter, which we will probably run traditionally of $3 to $4 million a quarter burn rate. We are going to to have some accelerated capital, as we start getting the infrastructure ready here, to port the business from down in Mansfield to here -- so we're probably going to have back half of the year accelerated up to another $5 to $6 million.

So -- ?

If I take a Q1 of $3, a Q2 of, let's call it $3 to $4, and then say, $6 million in Q3, then probably about $6 million in Q4, which is again -- that's relatively high to where we need to be running the business. But again, it's more because of the projects related to what we've identified between Mexico and the transition to Chelmsford.

Got you. Thank you.

Next up we have David Nierenberg with Nierenberg Investment Management.

Hi, guys. Nice quarter, congratulations.

Thanks.

I just wanted to thank you guys for the decision that you made on consolidating AMHS into the service business. I know that you had aspirations to demonstrate your ability to sell at 300mm, but you have listened to the market, you have made the right decision. And there have been a number of questioners on the call who used to beat you up for staying in the business, and therefore, I want to thank you for making the right decision for the shareholders.

Thanks, David.

And also appreciate your comments about moving Software to break-even by perhaps the June quarter or September. Nice work. That's all I wanted to say.

Thanks, David.

Thanks, David.

And gentlemen, we have time for one final question,which is a follow-up from Timothy Arcuri with Citigroup.

Hi, guys. I'm just trying to do some more math on this increase in product bookings. So Bob, would it be fair to say that service bookings on a pro forma basis were -- sorry, service plus Software, was 40% in December, and it's going to be 40% again in March? Is that the right way to think about it?

I don't break it out that way, Tim, so I assuming -- 20% was -- or 18% or so was Software. And what are you using for a service business?

I'm just assuming, based upon your prior comments --

40% of Helix.

40% of Helix. Okay. Helix revenue is 40% service and 60% product?

For Helix, yes.

For Helix, Great. Thanks.

Mr. Chung, I would like to turn the conference back over to you for additional or closing remarks.

Okay. Thank you for joining us today, and this concludes our call. Good night.

Thank you for your participation. Have a great day.