Azenta Inc (AZTA) 2006 Q3 法說會逐字稿

Good day, everyone, and welcome to this Brooks Automation fiscal third quarter earnings conference call. Today's call is being recorded. Now at this time I would like the turn the conference over to Mr. Mark Chung, Director of Investor Relations. Please go ahead, sir.

Thank you. Good morning and welcome to Brooks Automation's conference call to discuss the results of the third quarter of fiscal year 2006 ended June 30, 2006. The press release announcing the results of the quarter was sent out yesterday after market close. You may obtain a copy of the press release from our investor relation 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, our Chief Financial Officer, followed by 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 answers questions is Jim Gentilcore, the Chief Operating Officer of the Semiconductor Products Group.

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 Statement and the Company's most recent filings with the Securities & 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 third quarter. I hope you are as pleased as we are with these results. Revenues finished up from guidance and closed at 186.2 million. Earnings on a GAAP basis were a profit of 17.2 million or $0.23 a share. Included in this were charges of 5.4 million, which was made up of 800,000 for restructuring, 1.1 million for stock option expense and lastly amortization of intangibles of 3.5 million. We've included a table in our press release to try to help clarify this for all of you. These charges amount to $0.07 per share, which when you consider their effects, pro forma EPS was $0.30 a share ahead of our guidance of $0.23 to $0.29. Our results also were inclusive of $2.5 million in charges related to costs associated with the internal review of stock option, which was not in the forecast. Orders for the quarter were 193.9 million, up from our guidance and last quarter, as we continue to see momentum in our customer base.

This is again a new record for bookings for the Company in any one quarter. We had continued strength in our hardware business with orders totaling 174 million, consistent with trends in the industry. On the software side orders were solid as expected at 22.5 million. Of the 186 million in revenue, hardware revenues were 163.4 and software revenues were 22.8. Our top 10 customers accounted for 45% of revenue. On a geographic basis North America was 61, 17% was Europe, and Asia was 22%. The gross margin as a percentage of sales was 39.8% on a pro forma basis. And our cost of goods sold for GAAP measurement or amortization of acquired intangibles of 2.4 million an stock option expense of 207,000. Again, we've broken this out on the table in the press release to hep you. Margins in the hardware segment were 35.3 and software margins was 72.5, both on a pro forma basis. Q4 operating expense came in at 52.4 million ahead of guidance, primarily due to 2.5 million again in costs associated with the internal review of options. This is effectively $0.03 per share.

SG&A was 34.4 million, R&D was 18 million. We had restructuring expense of 800,000, again largely related to severance. During the quarter the Company had 1.8 million in net interest income. We had other income of 0.4, tax provision was 1.2 million, again primarily related to withholding in income taxes in foreign jurisdictions. Turning to the balance sheet, cash, cash equivalents and marketable securities at the end of the quarter were 342 million, down 31 million from a quarter ago. This is also after we paid 45 million in cash for Synetics. DSOs were 56 days, inventories were 93 million, again after the acquisition of Synetics, which we closed on June 30th. Inventory from pre-acquisition was down just slightly for the Brooks and Helix legacy businesses. Depreciation was 3.8 million and CapEx 5.6. As we announced in the middle of July, we have repaid our debt holders. Therefore our cash balance will be reduced by the 175 million for the September quarter. I do expect to generate more cash from operations during September and feel comfortable with the cash position on our balance sheet, as it will approach 200 million over the next couple of quarters.

For the September quarter we expect results to be effectively identical to Q3 with only a couple of differences. We expect 2 million less in expenses for the stock option controversy and will get the benefit from Synetics. As we've outlined the model for this before, Synetics has about 20% gross margins with $3 million for quarterly OpEx. Translated, we'll have Q3 plus an additional 1 to 2 million in operating profit from them at the $20 million rate this quarter. Also interest for the period will be effectively zero. We'll have interest income on our cash in the bank. However, with the retirement of the debt we'll take a charge for the unamortized debt issuance cost of 1.6 million. We'll continue to guide on a GAAP basis, and to that end GAAP EPS should be ranging from $0.18 to $0.23, which includes $0.09 per share of amortization of intangibles of [3.9 audio bad], restructuring of 1 million and option expense of 1.2. Shares are estimated to be 74.6 million. On an apples to apples basis, this would compare to our consensus numbers, which exclude these charges, to a profit of $0.27 to $0.32 per share. Now I will turn it over to Ed.

Thanks, Bob, and good morning. We're very pleased with the Q3 results and the direction our Company is moving. I believe these results demonstrate concrete leads that we are on track for the financial objectives we have indicated. Of course, we have more progress to make, but we are executing to plan. We have a very exciting business to run. With the integration of Helix, Synetics and the Yaskawa joint venture, we have the building blocks in place to achieve our strategic objectives. Our new products are a complete retooling with innovative technology and we're working hard to meet strong customer interest in these new products. Brooks is much different today than it was in 2003 when I joined the Company. We have essentially put in a completely new management team at the top. We have a different strategic vision for the Company today, a vision that prioritizes growing profitably and building value for shareholders, customers and employees.

We have established specific goals and objectives designed to increase the value of our Company, and we're executing to the plan. Moving on to Q3 highlights. I was very pleased with the performance of the Company in the quarter. It would have been easy to become distracted, given all of these recent events, but through the exceptional work and focus of our employees and the support of our customers we met and exceeded our goals in the quarter for net income, EPS, bookings and revenue. We had an exceptionally strong show at SEMICON West in mid-July. And we were pleased with the level of interest in our new products by a number of customers. One of the highlights of the show was the introduction of five new product offerings from the global customer support division. These packaged services expand on the current offerings to include many of the legacy Brooks products. We have introduced an extension of our Marathon platform, which is our flagship vacuum wafer transport system, with a new expandable tandem platform that we call the M2T.

This is our first fully integrated platform combining both Brooks and Helix technologies, demonstrating the concept and promise of our integrated engineered content strategy for equipment manufacturers. Also at the show we displayed both the "mag 7" and mag 8 Vacuum Robots that provide best in class solutions for the current and future customers. The M2T was coupled to the new and fully functional Jet Atmospheric wafer handling system which is part of our exciting new generation of atmospheric automation products. Six customers are active beta sites for this new generation of products. We were quite pleased that our booth was a buzz for the full three days of the SEMICON West, with customers from every geographic region of the world. During the quarter we announced and established a joint venture in Japan with Yaskawa Electric, along with the acquisition of Synetics Solutions. We believe that the Yaskawa Brooks automation joint venture in Japan creates an exciting opportunity for Brooks.

These two transactions create tremendous potential for revenue growth, stability and improved profitability by increasing access to the Japan equipment market and improving our position with the largest OEMs and their captive businesses globally. I am typically not a big fan of joint ventures, however, in this case we have taken the learning from the 25-year-old Helix UCI joint venture with ULVAC. We organized this new joint venture structure in a similar form, such that the near-term and long-term interest of both parties are aligned. Remember that Brooks has tried for over ten years to build a business in Japan, the second largest OEM market. Now with the YBA joint venture, each incremental dollar sold into the joint venture in Japan is incremental business and incremental profit for Brooks, but also incremental revenue and profit for Yaskawa. The the downside risk for this joint venture financially is very low, with significant upside in all respects. The Yaskawa Brooks joint venture will begin in September. We are already cooperating in responding to local customer requests. We expect this JV to take several months to reach its full quarterly run rate.

However, our partner believes there is significant near-term design-in win opportunity with the combination of Brooks vacuum products and Yaskawa atmospheric products. Our service levels have already improved under the deployment of new Brooks management in Japan and the support from Brooks global Customer Service division. On top of the YBA joint venture, the addition of Synetics more than doubles the size of our current customer designed automation business or CDA. We also benefit by adding a reduced cost structure and supply chain that should drive our current cost down on both the CDA and our core OEM products. I want to welcome our new employees from Synetics Solutions. I am confident and enthusiastic about the near-term opportunity we can leverage for growth and profitability of the Company. Looking at the four product divisions, revenues improved over the preceding quarter across all our divisions, technology automation, vacuum products, global customer support and software.

You will notice when we file our 10-Q for Q3 that hardware services revenue, which is our global customer support or GCS group, grew by approximately 19% in Q3 over Q2. While this business benefited in part from our legacy AMHS product line into the services organization, we believe that the growth target for this division is on track. We also had a favorable boost from the timing of revenue recognition in certain service projects. Still, we believe the underlying run rate for growth in the hardware services business is in the range of 5% to 8% per quarter. This, encouraged by this fact, we're targeting GCS to double its revenues in the next three to five years and we're successfully executing towards this goal. In the quarter we won a new contract for an AMHS upgrade at a major semiconductor customer in Korea, as well as a number of other new contracts for multi-year product support. In our Technology Automation division, which is the legacy Brooks hardware group focused primarily on tool automation, bookings and revenue once again beat the plan.

We're pleased with a significant design-in win, a large North American equipment manufacturer, for our mag 8 vacuum robot, replacing their internally developed robot to be used in a common platform for a range of semiconductor process applications. We are targeting volume production shipments in the December quarter. As a result of this additional outsourcing, we believe we continue to gain market share of the total available market for vacuum tool automation as the merchant market expands. We continue to make good progress on several opportunities at mid-sized original equipment manufacturers that makes the process and metrology equipment for data storage and semiconductor industries. In the OEM market in Korea, we won a large multi-million dollar order from Jusung engineering for or GX6000 platform. We also won the vacuum automation system business from another Korean OEM during the quarter, also for the GX6000. Our new atmospheric products were a big hit at SEMICON West this year, as I already mentioned.

We're targeting the beginning of the next calendar year for production shipments and, by ramping these lower costs, higher performance products, we believe we can maintain our value to customers and competitive position in the market while improving our margins. In the vacuum products business, which includes mostly the former Helix products, we had another solid quarter driven by strong sales to 200 and 300mm PVD equipment makers. We're pleased to be designed into a next generation platform at a leading Japanese OEM, from whom we received our first order in the quarter. We continued to capture additional design-in wins from ion implant customers, especially in Japan. We also got design-in wins for our cryopump and water pump systems at a major flat panel and thin film deposition equipment manufacturer. Our focused effort in this segment over prior periods is beginning to take hold and the value of our on-board IS platform continues to develop. Finally, our software business grew approximately 12% Q3 over Q2. We booked orders for a number of significant new licenses.

We're pleased that a semiconductor manufacturer in North America selected our promise MES for multiple sites replacing older systems from a competitor. We won business at two large glass LCD manufacturers in Asia. And our industry leading realtime dispatcher software was selected by 300mm Taiwanese DRAM fab. We continue to do well in serving the semiconductor and flat panel industries, while leveraging a steady annuity stream from our large installed base of customers for the software maintenance. We have seeded several opportunities outside of our traditional verticals with key pilot projects under way at potential customers. In summary, when I joined Brooks in 2003 my job was to turn around a Company that was in the midst of the most severe downturn in the history of the semiconductor industry, as well as confronting the challenge of assimilating 24 acquisitions that were made in the four-year time period from '98 to 2002. In essence my job was to help build a new Brooks.

We put in place a five year plan with six key growth and profit improvement areas. Bringing new products to market. Number two, gaining access to the Japanese market. Three, grow the module business at the top five OEMs, particularly the largest U.S. based OEM. Number four, grow system business at the top five OEMs, particularly the largest U.S. based OEM, expand service business and, last, take the software business to new verticals. Here we are about three and a half years later and the Company is very different, and I would argue better, or at least more focused, and significantly more profitable than ever before. Instead of burning $50 million in cash per quarter, we're generating cash from operations throughout the semiconductor business cycles. We have no debt on our balance sheet and more than $160 million in net cash and cash equivalents after the acquisition of Synetics and paying off the debt. Near-term the integration of our recent acquisition is a major focus for the Company. We realize that execution is the key. We're ahead of our synergy target for the Helix acquisition.

This deal is clearly accretive to earnings and a good strategic fit, as we increase the integrated content for vacuum based process equipment and as we leverage the annuity of multi-year support contracts to dampen the amplitude of the semiconductor business cycles. Going forward the management team that is in place here is committed to continued improvement in operations, financial performance, market penetration, customer satisfaction and corporate governance. I believe we have one of the strongest and deepest management teams in the industry. Just to anticipate a followup from questions last quarter about my future with Brooks, the board and I have agreed to an additional extension of my employment agreement. I look forward to continuing to work with the team and continuing to build for the success of all of our constituents.

Bob presented our forecast for the next quarter financials that I don't need to repeat. I do caution that next quarter will include a full quarter of Synetics and will not reflect any significant contribution from the YBA joint venture, as these results will kick in in the December quarter. The semiconductor cycle will have its up's and down's. Though customer demand still remains strong in September quarter, our job is to manage the Company through the cycles and build a platform for stability, growth, and profitability. Again, it is all about execution. Thank you all for your support and now I will open up for some questions.

[OPERATOR INSTRUCTIONS] We'll take our first question from Jay Deahna with J P Morgan.

Hi. Can you hear me okay.

Yes.

Thanks a lot. Nice execution by the team. The first question is, Ed, on the software business, how successful do you believe you have been in penetrating new verticals? And given what seems to be an enhanced focus on the OEM business, what are you doing with R&D? Have you shuffled the R&D around to focus more on OEM and less in software? I am just kind of wondering what is the strategic priority of the software business at this time. And then I've got a follow-on question.

Well, first is, Jay, last maybe a couple years ago we restructured the Company and set up two separate divisions, software and hardware. So the two are independent and the R&D investments therefore are established during our strategic planning process so that each one of those is prioritized independently. With respect to what we're investing in and where we think the software business is going, we clearly spend most of our dollars on supporting the semiconductor business today. But as you know, we agreed this past year to invest in incremental 10% of revenue in developing the new verticals. The new MEDIC product is targeted to come to market in January, the January to March time frame next year. Mostly what we've done is seed products into that segment to gain interest and get feedback and validation that the product we're delivering is what is needed.

We also spent some time working with Microsoft this past six months, six or eight months, essentially moving or porting the old platforms over to a Microsoft based platform. So that's been extremely well received. In the hardware side, to answer your question on R&D, again, in our strategic planning process we look at where we're allocating funds. And back in '03 we spent probably 85% of our money working on legacy products and fixing old broken stuff. We've moved that to where over 60% of our investment today is in new products. And we've continued to move more and more of our development work into the atmospheric and vacuum OEM products, as you can see by the new product introductions in both the vacuum platform space and the atmospheric platform space. So we're really pleased with that.

Okay. So going forward, do you see software as a key strategic priority for Brooks or are you increasingly going to look to drill the Company down to an OEM business. And then the second question, and the final question, is when are we going to start to see the accretiveness, if it is not right away I am not sure, on the Yaskawa JV?

Accretiveness on the Yaskawa JV, basically Yaskawa JV is going to be a combination of Brooks and the Yaskawa business initially, so I would expect that there won't be any change until there is incremental business there, which will take some design and win-time. Could be a couple quarters or more.

Probably back half of next year, Jay. The JV will continue to ship our current business through in the Japanese market. The key is that they can get penetration and expansion. You guys know the design cycle takes some time. Hopefully we start seeing elevated revenues in Japan back half of next calendar year, but there is no drain, just when do we get the benefit. It doesn't cost any more, the employees get transferred over. I don't see much change in the nea-term for that.

The only incremental benefit, Jay, is the joint venture partners split the cost equally. There is a bit of an improvement there in the JV.

As far as software, I have said this at many of the conferences, that we've got to get this new product to market. If you look at semiconductor software, probably over the life of the next three to five years, would decline in the market just because of less fabs, less new large buildouts of fabs. The key was to get to the new product offerings. The new products launched next year, if we're extremely -- I think we're going to have a great product, so the question is will we be able to execute to get that to those new verticals in the new markets that we go to. If we're wildly successful we will continue to invest in that business. If we're not wildly successful, I think again, Ed and I have both said publicly, that it is a return on investment. We have to get the products available. Whether we reap those benefits or somebody else can reap those benefits, that those are available.

Okay. Thank you.

We'll go next to Daniel Berenbaum with Susquehanna Financial Group.

Good morning. A quick follow-up on the software business. How long do you think it will take after these products are introduced in the January to March time frame, how long do you think it will take until you are able to make a decision that, yes, it is a go or no, it is not giving you the return on investment you expect? Also wanted to ask questions on the gross margin trend in the hardware business, particularly as you grow service revenues. Is service accretive to gross margin and operating margin and how should we think about that moving forward?

I don't think it is going to take long to figure out the software side. We actually know, it's going to be how good of a success do we have in penetration. We have heard that we have been selected at two potential clients. We haven't closed the order yet. They have gone with the new product. So again, we will see how good that -- if this early indication with the product, still somewhat in the beta phase, we're encouraged by. But again we should see traction fairly quickly. I don't think that there is a long waiting period here to figure that out. I think you will start seeing us -- we should start seeing stuff towards the end of the calendar year beginning the first part of the year, so relatively quickly. As far as gross margin, the service side it will be, from an operating margin standpoint, it is accretive. As you measure that growth, I don't think it will be significantly push up our gross margins. Right now it is slightly below standard hardware margin. I think we've got some opportunities to make some improvements there. But clearly a great contributor at the operating line.

Great. Thanks.

We'll hear now from Tim Summers with Stanford Financial Group.

Were there any 10% customers in the quarter and if you had included Synetics in the results, would there have been 10% customers?

There is one 10% customer for the quarter.

Is that with or without Synetics?

Synetics we closed at June 30th, the Synetics P&L for this quarter was just we closed literally on June 30th. We just picked up the balance sheet.

Bob, just a housekeeping question. Are you taking a charge either in the June quarter or the September quarter for the debt issuance unamortized premium?

The debt issuance cost, since we retired the debt in the fourth quarter, September Q, we will take that then. As you model Q4, effectively assume no interest line. We would normally receive 1.7, 1.8 million in interest income. That will be offset with that issuance cost charge.

Okay. Is that charge included in your GAAP guidance?

Yes.

It is in the GAAP numbers?

Yes.

Okay.

It is in the pro forma, too, Tim.

Great. That's all I had. Thanks.

We'll hear now from Hari Chandra with Deutsche Bank.

Can you quantity the revenue and cost synergies that you realized from the Helix acquisition in the latest fiscal year? And the second I have is going to be new product introduced, the last one, what percentage of the sales did they account for?

We don't break it out.

Hello.

The synergies, as we've said several times, we expect, I think, publicly we said $15 million into next year. We had 10 million in synergies from Helix this year. And we said would be realistically in excess of the 15 million target next year. The building that Helix resides in down in Mansfield will be being shutdown, if you will, in the December quarter. We have already started transition process there. We've already seen -- we've already achieved the 10 million for this year. We'll have that through the September Q. From a revenue side, we didn't talk about revenue synergies really with the Helix acquisition. They're a large provider in their market. What we were hoping to get it in by the way of any revenue synergies is the service businesses get together, how we can grow that part of our business. I forget the second part of your question.

New products introduced in the last one year, what percentage of sales do they account for?

Insignificant. If you look at what we did is we have launched, and that's why we're really excited about '07, last year we had introduced a bunch of new products, which again, went through beta most of this year and fine tuning. So Brooks had gone down a path of doing many acquisitions as Ed referred to back in the late 90's, early 2000 range and had not done a lot of new product development. The last three year have been about getting new products to market. And we're really looking forward to those hitting our customers as we start into the December Q this year and the first half of next year. We expect that to move up. This year, insignificant new products were layered in.

The M2T we introduced at SEMICON is the first product fully integrated Helix Brooks products together. If you just introduced a product in July that is not volume shipment, yet we're in design-in win phase.

And one follow-up question on the gross margins. When do you see them reverting back to the 40% range given that Synetics INAUDIBLE] beginning the next quarter?

We're going to have to see where we're going to build some. As we are building our plans into next year, I see a lot of ways -- just because of the waiting factor of Synetics, as I described last quarter, it is going to be about 200 basis point delta with the waiting factor. But I think we get that recovered in our FY '07 year as we start getting some of the Mexico online, we start introducing these new products, series 9 product has a much better margin profile. I think you will see that recovery during next year.

One of the key points, and we have tried to communicate this clearly to the investment community, what's really important in this business is look at operating margin. And each one of these business at the operating margin line is contributing significant incremental dollars to the business. So while I recognize that people like to put us in a bucket and do the gross margin, gross margin leverage program, let's focus on how we generate free cash flow for the Company and for the shareholders and how we generate operating profits. I think that's a more valuable way to look at this Company.

Thank you.

Thank you.

We'll take your next question from CJ Muse with Lehman Brothers.

Hi. This is Okalana calling in for C.J. Muse. Congratulations on a nice quarter.

Thank you.

I had a couple questions regarding the Synetics acquisition. Can you talk about how much the Synetics contributed to the bookings upside that you saw this quarter?

This past quarter, none. Again, we closed that transaction literally on June 30th. The only thing in our financial statements is the balance sheet is showing in our ending balance sheet. There was nothing in bookings and there was nothing in the income statement the June quarter.

And going forward, how much do you expect it to contribute in either bookings or revenue? I know it is 20 million in revenues for September, but does that include -- ?

Bookings will be about the same.

Bookings will be about 20. And for the December you kind of expect that sorted of run rate until you start getting more traction?

We haven't guided out to December, but it will move with the industry.

Okay. And then in terms of -- I know you talked about award wins with your new tools. Have you penetrated any new top tier OEMs in the quarter?

Yes. Yes, we've had several design-in wins. And as I said in my remarks, we had a major design-in win with the MAG-8 robot at a key OEM that we have been targeting for a couple of years.

Okay. That was all I have. Thank you.

Thank you.

Ben Pang with Prudential Financial has our next question.

A quick question in terms of your strategic initiatives and especially on the system side. Does the Synetics acquisition change your view of the CDA business going forward? And is that still the primary way of gaining systems business?

Ben, this is Jim Gentilcore. There is a couple parts to that question. I think that our system's business that's in our current tool automation division here in Chelmsford has been growing very well and very profitably. Our first challenge with Synetics is making sure that we have got interchangeability of some of the key pieces of the full systems and the robotics' drives themselves. That's a commitment that we made to our customer set. They've received it favorably and so that's order number one. Number two is that we believe that the business model that Synetics has built, using an Asian supply chain more completely than we have been in our systems division here in Chelmsford, will give us margin leverage as we go forward. Bob mentioned that next year we expect to see some improvements there and a lot of that is because of the low cost sourcing that's already in place for the Synetics team. Over the next few quarters there will be some changing of the responsibilities where the systems business resides, where the CDA business resides. And as that flushes out, we think we're going to see a stronger performance from Synetics, both top-line and operating line and that the tool automation division is going to have a more complete systems offering.

The Synetics acquisition does provide better leverage for CDA in the long-term, is that the right way to think about it.

Yes.

Not only long-term but short-term. It provides leverage from a sourcing perspective, as Jim said short-term, but the CDA business is designed to help the internally sourced, the captive market outsource and provide a vehicle for them to outsource and continue to drive their costs down. So it is more of a vehicle to get moved over to the systems, as we talked about. And what Synetics does is it just provides a better vehicle to do that, much more critical mass, much lower costs and essentially the volume that's needed there. Yes, it is a significant add and significant contributor to the Company.

So in terms of your initiatives right now, which ones do you feel are going to get a new priority at this point? You have released a lot of new products. I think your joint venture looks like it will be -- have all the right strategies for winning market share in Japan. Can you give me, on a relative basis, what moves up in terms of your strategic priorities within those six initiatives that you mentioned?

I guess I wouldn't move anything up. The six are relatively balanced. Obviously getting the Japanese joint venture with Yaskawa in place has been a big piece of work that we have really put in place this past year. So now it is executing on these. If anything I would say in terms of strategy, it is not putting the strategy that had been putting the building blocks in place is now a strategy of how do we execute and execution delivering on execution. No question, we're going to be spending a lot more effort working on the vacuum system platforms, the M2T product and the M2 Marathon platforms is probably the biggest focus for the TAD group. And generating additional products out of the global customer support group is continuing to move up. Service is really a key focus area for us to grow that business. And I think as I reported, we're growing at 5% to 8% a quarter, which translates into about a 20% compound annual growth rate, which gets us to the doubling of the business in the next three to five years, which is a critical part of our growth strategy.

Okay. Thank you. Last question is you mentioned you have extension of your contract. Could you give some details in the length of that?

It is annual extension. It is something that we review with the board every year.

Thank you very much. Congratulations.

Thanks.

We'll hear now from Satya Kumar with Credit Suisse.

Assuming we go through some kind of long-turn here in the next few quarters for orders, can you give me a sense of how to think about the cyclicality in the Synetics business? Does it follow the order trends that the OEMs have or is it more defensive?

As far as I know that business follows the OEM business. The demand. Probably the only significant difference between the basic Brooks business and the Synetics business is they have one key customer that is a very large customer of their's, I think, that represents close to 40% or 50% of their business. They're probably more tied to that one customer. But I would say that one customer is generally tied to the industry and will behave similarly to the rest of our OEM business.

Satya, the only thing I would add to that is if you integrated over a slightly longer period of time, they're going to benefit from the outsourcing that we've talked about. As each of our process OEMs goes through the severe parts of the cycle, it is more of their energy is devoted to process development and less to automation, so that provides better opportunities for us to increase our OEM, our outsourced content from the OEMs.

On the GCS, is this something like an $80 million run rate right now?

In that range.

Probably closer to 100. I think we have said before we'd like to take that from 100 up to about 200 million over the next three to five years.

Quickly, can you give us an update on the fab project database that you guys track. What are the trends that you are seeing there and do you have an early lead on shipment trends for later in the year or early next year as to what the database is saying?

No significant change in 2006. I think we reported last time we had 13 new and 22 expansion programs, total of 35 in 2006 calendar. For 2007 it is kind of a mixed bag, but if we look at what we have on our plates today, the number of fabs in 2007 actually increased by one since last quarter. The mix is balanced between new and expansion fabs, 18 and 19. So I would say generally we kind of look forward to '07, currently, kind of the way we looked at '06. I guess that's the best I can give you in terms of guidance. That's what we see out there. Obviously, fabs can push in or pull out. But this is what is currently announced and when we see the tool move-in's, it looks pretty much like an instant replay of '06.

I guess in the last quarter conference call you were saying that you were seeing shipments that are first half loaded this year, but I think at the analyst day at SEMICON you were saying it was more evenly balanced. What are the trends you see first half versus next half right now for maybe next year?

Really don't have that visibility. I would say the best visibility we have is through the September quarter, continues to look strong, and we're going to have to take a look again. Again, the fab database would say not much changed. But we've seen that move around in the past. I would hesitate to give you much guidance past September quarter.

All right. Thanks.

Timothy Arcuri with Citigroup has our next question.

This is actually Brian Lee calling in for Tim. I just had a couple of quick ones. Bob, how much of the remaining 2 million in the stock options related investigation costs will fall into Q4 and then how much can we expect to be falling into later Qs? And then I had a quick followup.

The reference on the remaining 2 million, I am not sure what you mean by that. There's 2.5 million that we expended in the September Q, in the June Q, I'm sorry. The September Q maybe it will be $0.5 million, if you going to try to model maybe it's $0.5 million quarter, as we are still having some -- the finalization of the filings with the auditors looking at some things. Factor this quarter about $0.01 a share, and future Q's, too.

Okay. Helpful, and then just a quick follow-up. With respect to demand, how would you guys characterize the tone at your OEM customers today relative to what it was at the start of the Q? Are you guys seeing any incremental signs of potential pushouts or meaningful changes in order patterns?

No. Matter of fact, as we said, September looks like an instant replay of the June quarter.

And then on the software side of things, would you characterize it pretty much along the same lines as well?

I would say from a demand perspective it is actually up, mostly driven by the new product introductions and retooling that we've done in software. As I said the port to Microsoft has gone exceptionally well as being well received. Some of the new rewrites with the realtime dispatcher software has done quite well. Product called RealView, product called EI Hub are both being well accepted. I would say probably doing well, better than expected I would say in software.

Great. Thanks.

And moving on to go to David Nierenberg with Nierenberg Investment Management.

Hi, guys, I want to congratulate you on an fabulous quarter. When you add back the $2.5 million of legal and investigation expense, which is mostly nonrecurring as you have said, it really looked like your pro forma results were more like $0.33, which is a major upside performance relative to expectations. Thank you and congratulations. I just want to note one thing. We've already had at least three questioners asking about software. If you look sequentially at software as a percentage of your revenues over the last several years and think about it in the context of the next quarter with revenues of over $200 million corporately, software is shrinking as a percentage of this Company, down towards 10% or 11% of revenues. And the trend suggests as it will persist that software will soon be a single digit portion of your business. Actions speak louder than words.

You got it.

I just wanted to repeat it. Actions speak louder than words. For those people who don't like the software business, the success in your other ventures is making software almost insignificant. So let's not talk so much about it, let's talk about the real business of Brooks.

Clearly our priority to, and I think you have seen that in our investments in the Helix transaction and Synetics and in the YBA joint venture, we clearly see a significant opportunity for us. As I have said, I am personally very excited about the YBA joint venture and the potential it has for us. Every incremental dollar we sell through that joint venture is an incremental dollar we wouldn't have gotten if we hadn't done this joint venture. As I said in my remarks, the downside for that JV is low. The upside in my mind is significant. You add that with the Helix transaction. I think this is a pretty exciting business. We at this management team are very excited about the potential here and we're doing well in all of our product lines. And I will leave it at that. Thank you, David.

We think you guys are doing a great job, just keep hitting the cover off the ball, the share price will take care of itself.

We're going to work at it, I will tell you.

We'll hear now from Robert Maire with Needham.

Yes. When I back out the Synetics we're guiding for roughly flat revenues going forward. Do you think we're at a, I shouldn't call it a status quo, but a normalized run rate for your OEM customers? And would you characterize this guidance of sort of flattish core revenues as being conservative? Is this a view back from your OEM customers? Or is this your conservatism looking at the macro part of the market? Can you give us a little more color on the revenue guidance going forward?

I think it is just an accurate reflection of what we see in the market. It is not conservative. If you have seen our guidance for the last litany of quarters, even this most recent one, we were slightly favorable. But this is how we see -- we see the September Q for us for the base Brooks business, Brooks Helix business if you will, we see it - I couldn't have said it differently. It is identical. It's almost an identical quarter to our Q3. That's what we're seeing and hearing from our customers.

Your customer -- this is primarily due to customer guidance, right?

Yes.

And no real change in mix, basically mix and and OEM customers would remain roughly the same.

Yes.

One last follow-on question. In terms of inventory levels at your customers, can you give us some sense as to what that is? Do you think that is still relative light? Do you think there is any inventory issue there?

Robert, this is Jim Gentilcore. We're working so closely with our customers that we don't see inventory buildup through any part of the cycle at this point in time because of the replenishment systems that we use, both on the Helix and Brooks product sides. It is pretty tight and we don't see any inventory buildup at our OEM customers.

Great. Thank you.

We'll hear next from Jim Covello with Goldman Sachs.

Hello. Can you marry me?

We can.

This is Keta Barskin behalf of Jim Covello. In your press release you had indicated that you were ahead of plan in recognizing some of the synergies from the Helix acquisition. Do you think you can update us on what synergies you currently expect for the remainder of the year?

We're effectively, not so much incremental for the next quarter. There is probably only about $0.5 million of incremental for the September Q. And we'll have by December, again when we close that facility, the facility itself, the operating costs plus the leases, that's about $3 million annually. But addition to that, when we transition manufacturing up here again for the December Q, we're going to have a number of folks that just won't join us in Chelmsford as we, again, close that facility.

I think the way to look at that one is as we said we would have 10 million for sure. We've exceeded that slightly in this fiscal year, and next year the 5 million more that we talked about we're ahead of that far plan with a few big drivers there.

Great. Thank you.

We'll go next to A J Sepru with J.P. Morgan.

I have a question for Ed.

Yes.

Ed, I wanted to ask you about your new products with the greater integrated engineering content, the new wafer transfer systems.

Yes.

Can you give us some sort of a timeline on when you would expect revenue and how much and what are the milestones that we should look for? And also what risks do you see in that business? What do you see as critical things that need to happen for you to be successful in that business?

Well, if you're saying that business being the single platform that we introduced in July, is that the question?

Yes.

Well, first off it is a platform we've introduced. It is going through your normal product lifecycle process. It is in a phase where we're working with customers. It is in, I would say, an alpha phase of the product right now. I expect and we're beginning to see very strong interest in design-in wins. Typical design-in wins will turn into volume production anywhere from six months to a year after beta is complete. It is hard to put a timeline specifically on that, but that's the lead time when we bring a new product to market for things to get to production. And the barriers are relatively low because this is a very unique platform that integrates the Helix and Brooks products in a way that has got intellectual property and some capability that if you just bought the components and tried to put them together, you would not get the value proposition or the cost position that we have by doing the integration and designed integration inside the Company. I think we have a unique position with that product that will be highly desired by many of our customers. And that is certainly what we saw at SEMICON.

So are we looking at revenue latter half, later half of 2007 or 2008?

I would say '07. We'll see revenue in '07.

What part of, going forward in your business plan, do you see this being what percentage of your business?

Hard to predict. We've got this platform. We've got other new platforms coming out. It is very difficult to predict which platform meets the needs of which customer. As we reported, the GX6000 is still in production and being demanded. It is very difficult to give you a product split out for this particular platform.

Thank you, AJ. I think we have time for one more call.

We'll hear now from Kevin Casey with Casey Capital.

Hi, guys, nice quarter. Now that the debt is paid off and you have a bunch of cash, what is the correct cash level that you guys would like to have and then what are the potential uses of that cash? Thanks.

I think we want to get a little more stability in the balance sheet. We've demonstrated we can generate cash up turns, up cycles, down cycles. I think from a normal operating cash standpoint I would like to see a minimum 75 million on the balance sheet at all times. So again, as we generate cash over the next couple quarters we'll be in excess of 200 million on that, just from an operating side. We'll keep it there. What should we do it with? We're pursuing different ideas on capital structure. Should we do some stock buybacks, should we pay potential dividends? Should we -- ? There is nothing on the horizon on a M&A side, but again using that cash, the 50 million, for Synetics this past quarter we think was a wise choice of investment of that capital. We'll have dialogs with the board over the next couple quarters. Nothing imminent to use the cash.

There are no further questions at this time, Mr. Chung. I will turn it back to you for any closing comments.

Let me remind you that Books will be giving a presentation for investors at the Canaccord Adams summer seminar on August 8th in Boston. And we will be webcasting that presentation. Thank you for joining us today and that concludes our call.

Thank you. That does conclude today's conference. Thank you all for participating.