Azenta Inc (AZTA) 2009 Q2 法說會逐字稿

Good afternoon, and welcome to the Brooks Automation earnings conference. Please be aware that today's conference is being recorded. At this time, I would like to turn the call over to your speaker today, Mr. Martin Headley, Chief Financial Officer. Please go ahead, sir.

Thank you very much, Rica. Good afternoon, everybody. I would like to welcome each of you to the Brooks Automation Inc. fiscal 2009 second quarter results call.

Our press release and form 10-Q were issued about 4:00 p.m. eastern time this afternoon and are available on our website at www.brooks.com. You'll also find posted there copies of the PowerPoint slides used during our call today. I would like to remind everybody that during the course of the call, we'll be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. There are a number of factors that cause actual financial results or other events to differ significantly from those identified in such forward-looking statements. I refer you to the section of our earnings release titled Safe Harbor statement, Safe Harbor slide on our website and the Company's various filings with the SEC.

I would also note that we're also making reference to a number of non-GAAP financial measures which are used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP measures. Management believes these financial measures provide an additional way of viewing aspects of our operations, that when viewed with our GAAP results, and the reconciliations to GAAP measures provide a more complete understanding of our business.

Bob Lepofsky, President and CEO of Brooks, will open the call, after which I will provide a more detailed overview of the second quarter financials and finally, Bob will return for a brief summary and wrap-up of prepared comments before taking your questions. Bob?

Thank you, Martin. And good day, ladies and gentlemen. The first comment we would make about the March ending quarter is that we're pleased to report it's over and behind us. It was to say the least, the most challenging period. The result of the hard work of the people of Brooks throughout this period should be the headline. Our situation in the quarter mirrors the observation of a highly regarded analyst describing another company, near term pain for long-term gain.

The bad news is summarized in our financial performance. Significant losses, asset impairment charges and cash burn. Not unexpected but still painful.

We projected a sequential revenue decline of up to 50% and that's what we had, as revenues fell from $73.4 million in the December quarter to $37.3 million in the June -- in the March ending quarter. The good news was that our restructuring and repositioning initiatives moved forward aggressively throughout the period. We had projected that on a 50% decline in revenues, our efforts could limit the decline in adjusted EBITDA to just 20%. Excluding significant unplanned legal charges associated with the trial of a former officer of the Company, adjusted EBITDA in the quarter declined just 21.7%.

To give you a better feel for how far people have come in implementing the restructuring plans, in the December-ended quarter, we had adjusted EBITDA loss of $20 million. On that same revenue base today, we would be at break-even.

And finally, I want to emphasize that the restructuring has not negatively impacted any of our critical new product and market development programs. Across the Company, the programs we consider key to our future growth, market position and profitability remain fully supported and on track. Continuous improvement programs, CIPs, that address evolving customer needs and cost reduction for existing products remain a priority, particularly within our automation products. New platform releases within our vacuum product portfolio will ensure our continued leadership position in current markets. And product introductions from our instrumentation group will expand our participation in non-semiconductor markets.

So, while we adjust to a changing external world, optimize our internal operations and reduce costs, we believe that we are maintaining the right balance between near-term realities and long-term opportunities. But before I speak to our expectations, let me turn the call back to Martin who will provide you with a detailed review of our financials for the March-ending period. Martin?

Thank you, very much Bob. As I mentioned earlier, we've again posted slides to the brook website that we believe will be useful in getting a clearer understanding of our results. During my prepared comments, I'll make reference to the appropriate slide number.

As laid out in our press release, we took a number of significant special charges in the quarter. Before explaining those charges, I first wanted to look at the underlying business performance without those special charges.

On slide number three, you will see the $36.1 million or 49% decline in revenues, Bob referred to earlier, only resulted in a $6 million reduction in operating loss before special charges, as a result of the significant restructuring and cost control actions triggered during the quarter. In particular, the decline in gross profit before special charges was held to $10 million, when the variable contribution to the revenue decline was over $15 million.

We cut back on research and development costs by $1.6 million, while retaining all of our critical programs for future growth. These benefits were mostly attained by leveraging our capabilities through the merger of our pump and robots group in Chelmsford and a redefinition of focus for our systems solution group. We continue to cut back on our continuing selling, general and administrative expenses, reducing them by 15% in the quarter. Further cutbacks were limited by our continued commitment to our Oracle ELP implementation.

We were adversely impacted, as Bob mentioned, by a high level of expense associated with the equity investigation matters, as a former director, Bob Therrien, went on trial. With the acquittal of Mr. Therrien in mid April, we're finally beyond those various legal activities that have been a drain on the financial and cash resources of the Company.

Slide number four shows in graphical format the continued and accelerating progress in driving down breakeven. In the fourth quarter of fiscal 2007, the net income breakeven on a quarterly basis was approximately $160 million and the adjusted EBITDA or cash breakeven was about $135 million.

Going into the second quarter of fiscal 2009, we reduced those breakevens to $125 million for net income and $105 million for adjusted EBITDA. Our restructuring actions during this quarter produced a breakeven for the quarter of $100 million and $80 million for net income and cash, respectively, without including all of the benefits of our actions.

During the quarter, we further reduced head count to less than 1300 and vacated one of the four remaining buildings on our Chelmsford campus. We have now vacated 22% of the facilities space we occupied 12 months ago.

As noted in slide number five, we did not provide specific revenue guidance for the quarter but referred investors to the projections of our largest customers and noted we would expect to see our own revenues [depress] below those levels because of inventory holdings of our products of those customers. Unfortunately, this turned out to be all too accurate and our revenues declined by 49% quarter-over-quarter, with the largest decline coming from sales to our nine largest semiconductor OEMs where the decline was 66% from $25.1 million to $8.5 million.

Revenues from the balance of our customer base were down 39% in the quarter. We are monitoring those OEM inventory levels at our larger customers closely to determine when we would expect to see the benefit of replenishment flow back to us.

Sales to semiconductor markets were roughly flat, with a percentage of the total at 65% as a result of the lower levels of decline in our service business direct with end users. Away from semiconductor capital equipment, we saw higher declines in our business-to-date to storage end markets and moderated declines into industrial markets. Industrial sales now comprise close to 20% of our business, with semiconductor markets at these lows.

Slide number six shows how the revenues and operating profits before special charges bridge from our first quarter of fiscal 2009 to the second quarter. This bridge demonstrates how the quarter reflects over $40 million of annualized cost reductions to the quarter. From a starting point of a loss of $30.5 million on revenues of $73.4 million, we suffered loss variable contribution of $15 million on a $35.5 million lower product and service revenues and offset this partially with $5 million of manufacturing and service cost reductions.

License revenues brought a further reduction of $0.6 million to both revenues and profits. Our restructuring program and cost controls brought down R&D expenses by $1.6 million and continuing SG&A costs by $3 million. We had discretionary external costs of $1.1 million in the first quarter on a targeted activity completed in that quarter.

The other negative during the quarter was the very high level of equity investigation expense associated with a contractual indemnification of Mr. Therrien as he went to trial. This resulted in $1.8 million increase in such costs. A miscellany of other items, including the levels of warranty provisioning, had a favorable impact on the quarter to the extent of $0.7 million.

The impact of special charges on our GAAP net income is identified on slide number seven. Special charges of $116.4 million comprised a goodwill impairment of $71.8 million and a $35.1 million impairment of over long lived assets. A. vast majority being amortizable intangibles.

We also had $5.9 million of restructuring expenses associated with head count reductions and $3.6 million of inventory provisions arising from our restructuring activity, whereby a redefinition of business goals will likely impair the carrying value of certain inventories. These charges totaled $166.4 million of which $24.1 million are reflected in cost of goods sold.

The impairment of goodwill and other intangible assets was driven by much higher discount rates, low and near term business levels and lower evaluations of comparable companies, all impacting the mechanics of our discounted cash flow based valuation modeling. Net interest income moderated to $0.6 million in a declining rate environment and with reduced investment holdings.

For taxes, since we have a valuation allowance against our significant carry-forward tax losses, we do not recognize an income tax benefit related to current period losses. And thus the tax provision was a small $200,000 which is all noncash. Income from our joint ventures were also reduced as they experienced declining market conditions in Asia.

Slide number eight shows the loss per share impact of those special charges driven by the 49% revenue decline, the loss before special charges moved 21% from $0.48 in the first quarter to $0.58 in the second quarter. Long-term asset impairment charges totaled $1.70 per share and the restructuring related charges of $9.5 million were $0.15 per share. The GAAP net loss per share was $2.43.

Moving away from accounting gymnastics to the concrete world of cash management, we look to our cash utilization on slide number nine. We take the adjusted loss before income taxes, interest, depreciation and amortization as a starting point. Two observations on EBITDA. First, the reconciliation of net loss to adjusted EBITDA is shown as an appendix to our press release and second, for those modeling the depreciation and amortization, amortization of intangibles was $4.2 million with $2.3 million recognized in cost of goods sold and appreciation was $3.6 million.

We incurred restructuring cash flow of $4.9 million as compared to a $5.9 million provision. Interest income and balance sheet items held the cash outflow from operations to $25.3 million. The cash from our balance sheet is now primarily driven by inventory reductions. Capital expenditures were $4 million, with $3.3 million associated with progressing down the final stretch of our Oracle ELP conversion. Finally, we got a couple of hundred thousand dollar cash flow benefit from the currency translation of cash held offshore.

On slide number 10, you will note that cash and marketable securities moved from $160 million to $130 million. It includes securities that have a maturity beyond 365 days but are nevertheless, freely marketable and can be considered readily liquid. The cash burn will be adversely impacted in the third quarter by restructuring cash outflows but moderated by our balance sheet actions.

Receivables in the second quarter were driven down from $41 million to $26 million with nominal additional bad debt provisions, despite a customer environment that saw a couple of bankruptcies. Our receivables day sales outstanding moved out to 62 days, as a result of a revenue profile that was back end weighted into March. We expect to see a reduction in our DSO during the June quarter.

Inventory reduced by $11 million with a $5.4 million reduction in gross inventories as our reduction program started to take hold. The balance of the reduction was related to reserves, most notably the $3.6 million special charge. The throttling back on our purchases as we utilize inventories is demonstrated by the $13.6 million reduction in accounts payable. Our days purchases outstanding decreased with a significant quarter and payment made to take advantage of an even more significant negotiated discount. The crude restructuring cost increased from the significant second quarter actions, approximately 40% of that accrual will be paid out in the June quarter.

The next three slides, I'll briefly cover our sequential segment performance. And as an introduction to each, we'll describe the businesses included within each segment. To assist those of you doing historical modeling, we include as an appendix to this presentation, the six quarter history for the new segments as reported.

With slide number 11, I'll talk about our critical solutions segment that compromises our newly integrated pump and robot businesses based in Chelmsford. The Granville-Phillips branded instrumentation of measurement products based in Colorado, the Polycold branded thermal management solutions and our small RFID solutions business.

The top line decline was 52% driven by inventory holdings at our largest wafer front and equipment customers. Gross profit before amortization and special charges reduced to a $1 million, a 37% flow through. Since this business has variable contributions in the mid-40s, you can see we're already securing strong fixed cost savings from our restructuring activities.

GAAP gross profits turned to a small loss with high end absorption of fixed costs early in the quarter. Sequentially, operating expenses decreased by $2.7 million or 17% with a removal of duplicate infrastructure costs.

On slide 12, we review our systems solutions segment. This segment comprises a range of products, manufacturing service and engineering services that enable our customers to effectively develop and source high quality and high reliability process tools. The segment includes our extended factory business but largely builds to customer designs, our Chelmsford and Korean-based groups that engineer systems solutions to unique problems, mostly for smaller OEMs, on our various factory automation products that we previously reported within the GCO segment.

Revenue declined 64% for this business, having the highest exposures to the inventory adjustments of major OEMs who are reconfiguring existing inventories as part of the -- their own cash burn mitigation. Gross margins before amortization and special charges remain negative but we limited the flow through from the revenue decline to 14% after restructuring and other cost actions. This segment is the segment with the greatest surplus capacity at these very low levels of business activity. Operating expenses were reduced by $2.4 million or 12% sequentially.

Slide number 13, we look at the global customer operations that comprise our global field service and regional repair center activities together with the spare sales of our AMHS products. Other spare sales for the other product groups are within those critical solutions and systems solutions groups. 21% decline in revenues reflects a significant reduction in product return for repair, given utilization rates and the ability to defer repairs by cannibalizing idle tools. Also, maintenance spending by fab customers has been pulled back, impacting our service field revenues.

Gross profit before amortization and special charges reflected a 40% net flow through from revenue declines after cost reductions. Operating expenses were cut by $0.9 million or 15%.

Returning to our breakeven charts on page 14, you'll note that the gap between income and cash breakeven will narrow in the June quarter, as we'll have approximately $3 million less of quarterly intangibles amortization as a result of the impairment charge taken this quarter. We will also see the full quarter impact of the action taken in the June 2nd quarter.

So, looking to the near future, what do we see? Slide 15 contains some of those thoughts. Gross bookings for the second quarter were $33.4 million. And our backlog going into the June quarter is $31 million. A number of OEMs have been reassessing requirements and have few firm orders with us but are rebooking those requirements as they assess demand with expectations of a rapid response from us. This makes visibility very limited. However, we are reasonably certain that the rapid downward momentum has ended and that there is a base on which to build incremental business momentum.

We are targeting exiting the June quarter at cash breakeven approaching $70 million with incremental variable contributions in the mid 40% range, gives us a moderated loss in the adjusted EBITDA picture. Inventory reduction plans are our regular focus and provide a much reduced cash burn amount for the third fiscal quarter, as compared to the $29.5 million in the second fiscal quarter. We are targeting that the cash burn will be less than $10 million a quarter, even at trough revenue levels as we exit the June quarter. With that, I'm going to handle the call back to Bob.

Thank you, Martin. Clearly, our ability to deliver the kind of results that you, on the call and we expect, will be heavily influenced by the external environment and here we are, encouraged but cautious looking forward. From December 15th until February 15th, we sustained a period of almost daily hammering down of our orders and revenue forecasts, as our customers began to adjust to the impact of the global economic slowdown. From February 15th through mid April, we saw a period of real stability. No declines but also no improvement in order rates or shipment schedules.

Since mid April, that stability has been marked by what we would call a steady flow of positive upward blips. Some positive momentum in orders and some delivery pull in requests. This positive activity level is increasing our confidence that in up to 10% sequential quarterly revenue increase is achievable for the June ending quarter.

For our hardware-oriented product groups, the key to revenue growth is the inventory levels of components, subsystems and complete tools, remaining in our OEM customers. We have completed a detailed assessment of exactly what exists at each of our major customers and we are closely monitoring reconfiguration and build plans, as we converge on the more normal operating mode of new orders received by our customers turning into orders for us.

For our services business, the key is fab utilization rates. As fab utilization improves, cannibalization will diminish, the pressure to reduce or eliminate preventive maintenance will no longer be deferred and more normal operating modes will emerge.

Internally, our efforts to reduce costs and streamline operations will continue. We will gain increasing leverage through internal integration initiatives and external collaboration with our global business partners. As business improves, our shareholders will see a real return on the investments we have made on their behalf. The investments in restructuring will pay off, as the costs we have taken out are mostly permanent. As business recovers, for example, we will not need the space that we have eliminated, nor the infrastructure that we have removed. Our significant investment in business systems will allow us to work more effectively. And our investments in new product development will broaden our product portfolio, market reach and global positioning.

So, if you note a bit of optimism in our voices this afternoon, despite just closing out a grueling quarter with miserable financial results, you are correct. We actually like where we're going, the path that we're on and the incrementally better external world that we are working in.

So, allow me to close where I began. By taking note of the superb work of our employees around the world who have worked tirelessly through this difficult period to restructure and reposition Brooks. The returns on their investment will be felt for some time to come. I thank you and now, operator, we would like to open the lines for questions.

(Operator Instructions). We'll take our first question from Satya Kumar with Credit Suisse.

This is [Vis Valuti] for Satya. You mention a 10% revenue increase quarter--over-quarter is possible. Can you give a split between mainly from your global operations that you see a significant portion or do you see something coming back from your systems solutions group also?

Actually, we see it from both sides. The extended, what we refer to as our extended factory activity, is engaged with our major OEM accounts in reconfiguration of tools initially and now actually the building of some new tools. Similarly, as new tools are built, that has direct impact on our critical components group.

Okay. Thank you very much.

Thank you. We'll take our next caller, Timothy Accuri with Citi.

Yes, hi. This is [Janai Omid] calling in for Tim. Thanks for taking my question. My first question is how is your -- the solar market going for you guys and could there be any inventory write-downs because of the slowdown in that margin? Then I have a follow-up.

We have found the solar activity to be very slow because inventory had built up in the channel there. It is difficult for me to speculate what might happen in terms of somebody else's inventory issues. We certainly have no inventory issues as it relates to purely servicing the solar piece. So, I don't know if that answers the question for you.

Sure. And how is the -- how is the outlook for the non-semi business overall?

I would say that as we talked in the prepared comments, the non-semi pieces, the industrial markets have been a moderated but declining market as compared to semiconductor. And made note that data storage is very lumpy and happened to have a down quarter for us. Solar markets, the inventory issues we previously referred to. So, it can be very particular as people are addressing their inventory issues during this time of decline.

Okay. And if I could just have one last question. In the last call, you -- it was mentioned that utilizations head up toward like the 60, mid 60% range, that's when you can maybe see a decent pickup in spares and service. With the pickup we've seen recently, utilizations and that's the kind of range that's been predicted for the next quarter. Are you looking -- are you seeing that pick up?

We certainly are seeing some pickup and again, as we did in today's remarks, we think that there is a direct correlation between utilization rates, cannibalization, the return to preventive maintenance protocols and then a more normalized relationship for ongoing service and service activities.

Okay. But could you guide to like what type of incremental growth in the service for you could be seen in the next quarter?

We would not like to provide that level of granularity and obviously the issue of utilization rates are very fab specific and therefore, the impact on us is also fab specific.

Okay. Thank you very much.

A pleasure.

(Operator Instructions). We'll go to our next question, from Tim Summers with Wunderlich Securities.

Good afternoon, gentlemen.

Good afternoon, Tim.

If you had given your guidance two weeks ago instead of today, would you have the confidence to say business is up 10% or has something changed in the last couple of weeks?

Tim, I think two observations. In my prepared remarks, I actually put the marker of a changed climate at the April 15th point. And so, since April 15th, on a steady and continuous basis, we've seen these upward blips. And that's a change from where it was from the February to mid April, where it was merely stability. We would then like to reiterate that we say we are optimistic. We're cautious. And we've taken a position of up to 10%. Could it be 5%, could it be 15%? There's still a lot of weeks ahead of us in the quarter. But, as you know, we also have the potential of at least one major plant shutdown in the OEM domain during our current quarter. So, we've altogether, we think 10% is the right place to put the marker at today's information point.

Bob, as a follow on as you look at the June quarter, do you anticipate the semi or the non-semi revenue, the increase quarter-over-quarter to be greater?

I think we're really focused on the increases in the current quarter coming from the semi. You should not read that there isn't anything non-semi but I think we're probably -- you could almost accuse us of being myopically focused on what's going on with our semi customers because that's going to move the dial the fastest for us, particularly because of their inventory situation and the inventory burn at the OEM level.

Okay, great. Thanks.

Pleasure.

And we'll take our next question from Hari Chandra with Deutsche Bank.

Thank you. Question is relating to the positive incremental data points that you're seeing. And you made a comment regarding that things would improve and the companies would be back to ordering on a normalized level. I just wanted to know what is that range of the new normal would be in terms of revenue or in terms of the margin profile that we would be seeing?

Yes, I -- I'm not, today, in a position to define the new normal. My reference to a return to normal was relative to the process. Clearly, today, when one of our OEM customers gets an order, we don't see the impact of that because of his inventory position. And that inventory position might be comprised of a complete tool, a subsystem, or a component. So, what we will see first, is that that additional pressure on us is being mitigated over time as they receive orders. We look forward to the period that they have gone through that burn and then we'll be in a normal operating mode which means they get an order, we get an order and you really have the flow. We are also encouraged that in many of our larger OEMs, that that burn is going at a reasonable pace.

As a follow-up, can you comment on the fab utilization rates? I know you said maybe fab to fab but on a general industry basis.

Yes, again, I would rather refer you to externally published data than be in a position of commenting on utilization rates in any specificity.

Okay. And one final question on the new products, can we just elaborate a little bit on the vacuum products and the instrumentation of the products you refer to?

Yes. We have, in previous calls and public statements, made it clear that we have a major cryopump platform that will continue to ensure our global leadership there. That is a -- a platform that currently has systems in beta sites and is on target. The implications on our top and bottom lines for our shareholders there, again, is protecting market position and, in fact, improved cost price targets.

In our instrumentation area, we have made reference to instrumentation products that have a scheduled release later this year. Those -- it is a product family principally in the gas analysis area and it has some very interesting opportunities that have been identified and validated, both in semiconductor applications with traditional customers but equally importantly, in our non-semiconductor space. So, this is a program that we've been talking about through our calls this fiscal year and we'll start to see the roll-out and the initial impact on top and bottom line in the latter part of the calendar year '09. And we think this is an important product family.

Thank you.

We'll go on to our next question from Patrick Ho with Stifel Nicolaus.

Hi, this is Mary. Thank you for taking my questions. A couple of questions. First, given you've burned about almost $30 million this quarter in terms of cash, how many quarters of cushion are you comfortable with before a capital infusion is needed or if you can give us an idea of what you think the cash maintenance level would be?

I think clearly, where we're aiming to be when we're beyond the end of the June quarter is using no more than $10 million of cash, even at the worst situation. So, that would be no recovery from current trough levels. So, if you look at that situation and you talk about the minimum cash that we would need to conduct operations very comfortably, we clearly see that we have something of the order of six, seven, eight kinds of quarters, at a minimum, if this were the worst situation. If this were to extend for that length of time, you can be assured we would not be standing still and just looking at the Company as we are today. But we do not see the need to do so until we see how things develop for the next couple of quarters.

Okay, great. And can you give us an idea of the percentage of turns business this quarter?

Percentage of turns business. As in spares?

Do you have a percentage number for the amount of turns business?

Frankly, we don't tend to monitor in that situation because the vast majority of our business is with the lead times that we have, is in essence, a turns business within the quarter. There's very little that's coming in and has a lead time for us that goes beyond that. So, that's why, although we have a backlog of $31 million, we're not concerned because the vast majority of our business coming through that way. So, we don't tend to look at our business in that fashion.

It is the derivative of our high inventory levels coming in to this calendar year, positions us that across the board, component systems, spare parts and services all as Martin say, become a quote, "turns business".

Okay, great. And final question, in terms of your R&D investments for the rest of '09 and maybe into early 2010, have you changed your priorities since last quarter?

Not changed priorities at all. I think what we have is we have these key strategic programs that have continued to be funded, continue to have an intensity of effort and oversight where we've been able to pull back and we're now at a level that we're reasonably comfortable with as focused and programs. And it is probably more about how we're doing the work than what work we're doing.

Okay, great. Thank you.

Pleasure.

And we'll take our next question from [Olga Levinson] with Barclays.

Hi. Thanks for taking my questions. Just to go back on the cost side, you outlined EBITDA breakevens but I guess can you talk about where you see cogs and OPEX for the June quarter and how you see that exiting calendar '09?

Well, I think we're careful about defining the breakeven because the level of cogs or the level of -- that one has is going to be dependent upon the level of activity. And as we say, visibility is very cloudy and we don't really want to get in the business of crystal balling that. I think you would -- you would say that if you look at our engineering expense for the second quarter, you would expect that our engineering expenses would move forward at that or very slightly moderated levels. If you look at our SG&A expenses, you could see some fairly substantial reductions by virtue of being beyond some of the issues associated with the [S-quity] investigation. The full quarter impact of some of the actions that we took in the second quarter. And the fact that there would be a fairly substantial reduction in the amortization, as I indicated, taking about $3 million of amortization out of which about two thirds of it will come out of cost of goods and about a third out of SG&A.

So, if you build all of those in, you see a reduction to the OPEX expenses and the gross profit cost of goods sold comes by virtue of looking at where we are today, adjusting for the special charges in the intangibles and assuming that a mid-40s variable contribution currently with the current mix of products that we have.

Okay. So, given that on the SG&A side, do you see that level that you're thinking of is around $20 million, a little less?

Probably less.

Okay. Got you. And then in terms of the drivers for your '010 guidance, you mentioned that's primarily driven by your nine OEMs, off of that $8.5 million level?

That's one factor. But we're seeing blips of improvement across the board, not just in those OEMs but in a variety of our other customers as well. We see it probably as Bob referred to as more -- more in our semiconductor business than we do in the other areas of our business. And that's largely because that's taken the biggest decline on an -- because of the customer's inventory holdings. So, it is largely those factors where we would expect to see the largest gains.

Okay. And then just one last question. I guess given -- if you take assuming that level of revenue growth, where do you see inventories exiting June quarter?

Our targets are to see $5 to $7 million reduction in inventories per quarter for a little while yet. That's where our kind of focus is at.

Okay. Thank you.

(Operator Instructions). We'll take our next question from Timothy Arcuri with Citi.

Hi, just a quick follow-up. Could you outline the special charges with with reference to the cogs and OPEX lines?

Yes. In the cogs line, you have $3.6 million of inventory, E&O.

Okay.

Then the other item, the $20.5 million is the impairments of completed technology intangible assets which, since those assets amortize through cost of goods sold, we're required to impair -- put the impairment charge through there. And that's separate line itemed on the face of our income statement to our press release.

Right.

Then within operating expenses, you have $71.8 million impairment of goodwill. The balance of the impairments of intangibles, which is $14.6 million, which relates to other intangibles that would normally amortize through operating expenses. And a restructuring charges which are mostly severance-related of $5.9 million.

And $5.9 million, could you give how it distributes between R&D and SG&A?

No , no we haven't

It is not at that level. Okay, I understand.

Right. Okay.

Okay, great. Thank you very much.

Pleasure.

And we'll take a follow-up question from Patrick Ho with Stifel Nicolaus.

Hi, thank you. Do you have any 10% customers this quarter?

We have one 10% customer in the quarter, yes.

Okay. And are you able to name that customer?

It is the same customer that was our top 10% customer last quarter. So, that's supplied materials.

Okay, great. Thank you.

And we'll take our final follow-up question from Tim Summers with Wunderlich Securities.

Hi, Bob, you may have hit on this before. Assuming your business is up -- revenue is up 10% in the June quarter, is any of that related to restocking components that might be in what I would call field service as opposed to just true end demand?

True end demand as opposed to the service stocking.

I'm sorry. I didn't follow your answer.

We are look at true end demand, not service restocking.

I got it. Okay. Okay. Terrific. Thank you.

Pleasure, Tim.

And that is all of the questions I have at this time. I would like to turn the conference back over to you for closing remarks.

We thank you very much for participating in our call this evening. And that will conclude the call for today.

And that concludes today's conference. We thank you for your participation and hope you have a wonderful day. You many now disconnect.

Thank you.