Azenta Inc (AZTA) 2011 Q2 法說會逐字稿

Good morning, and welcome to the Brooks Automation Earnings conference call. 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, Katie, and good afternoon, everybody. I'd like to welcome each and every one of you to the Brooks Automation fiscal 2011 second-quarter results call. Our press release was issued after the close of markets and is available on our website, www.brooks.com, as are the illustrative PowerPoint slides to be used during the call today.

I'd like to remind everybody that during the course of the call we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. There are number of factors that could cause actual financial results or other events to differ significantly from those identified in such forward-looking statements. I would refer you to the section of our earnings release titled Safe Harbor statement, the Safe Harbor slide on our website, and to the Company's various filings with the SEC.

I'd also note that we will also be referencing to a number of non-GAAP financial measures which are used in addition to, and in conjunction with, results presented in accordance with US GAAP, and should not be relied upon to the exclusion of those GAAP measures.

Management believes those financial measures provide an additional way of viewing aspects of our operations and, when viewed with our GAAP results and the reconciliations to GAAP measures, provide a more complete understanding of our business.

With me today on our call is Brooks President and Chief Executive Officer, Steve Schwartz. After I have provided an overview for second-quarter fiscal 2011 financials, and a summary of our outlook for the June quarter, Steve will discuss our strategic initiatives and provide more detail on some of our business successes during the quarter. We will then take your questions.

During my prepared comments, slide references relate to the PowerPoint presentation posted on our website to accompany these remarks. Brooks continues to move forward with favorable momentum, and, as we reported in our press release issued after the market close, the net income attributable to Brooks for the second quarter of fiscal 2011 was $26.6 million.

Both GAAP earnings per diluted share and adjusted earnings per diluted share, excluding special charges, were $0.41, slightly -- significantly ahead of our expectations going into the quarter. Adjusted earnings increased by 13.2%, to $26.8 million in the second quarter, from $23.7 million in the first quarter. In both the first and second quarters of fiscal 2011, the only items excluded from adjusted earnings are modest charges related to our past restructuring programs. These charges will all be depleted by the end of the fiscal year.

Revenues increased sequentially by 8%, with approximately half of that increase coming from our sales of our CTI and Polycold brand products. In the case of CTI ,we benefited in part from new product introductions, other designing wins that we have referred to in prior calls, as well as generally favorable demand across a variety of end applications.

Our Polycold brand sales growth is in support of a number of end markets, most notably for the production of tablet computer and smartphone touch panels. But other secondary drivers include coating production of voltage converters, particularly for global automotive and [photovoltaic] applications.

The concentration with our 3 largest customers remained roughly consistent with the prior quarter of 43% of sales. Following the sale of the contract manufacturing business, we will continue to track sales of our robotic components by OEM platform customer, rather than of the basis of the integrating contract manufacturer. Following that methodology, on completion of the sale of our contract manufacturing business, we would expect those top 3 OEMs to represent about 27% of our total sales.

Sales to semi markets were 79% in the quarter with incremental growth in our sales to MEMS, LED, and the full [mantle] touch panel and [row coating] applications. We leveraged this revenue growth to generate a $3 million sequential increase in operating profits which dropped [enough] net income. Operating profits of $27 million was $16.6 million higher than in the second quarter of fiscal 2010.

I would remind listeners that the net income attributable to Brooks in the second quarter of fiscal 2010 included 2 significant nonrecurring items. A $7.5 million gain, net of tax, on the sale of intangible property related to our former AMA [chess] business. And a $3.9 million one-time income tax benefit, arising from favorable tax law changes.

Slide 4 shows the significant driver in sequential performance this quarter, with the growth in the top line of $14.3 million. With a $4.4 million build in gross profits, our gross margin rates were roughly flat while we continued with our planned build and research & development spend, and had an anticipated increase in G&A spend in the quarter with a non-cash expense of annual directors stop ground. Operating margins once again improved sequentially this quarter by 80 basis points to 14%.

Slide 5 sets out how the revenue and operating profits, before nonrecurring income and special charges, bridged from the December quarter to the March quarter. The Critical Solutions business provided additional variable contribution of $3.7 million on revenue increases of $7.9 million, or a 47% drop-through rate.

The System Solutions business reported $0.5 million variable contribution on $5.9 million of additional revenues. The majority of the revenue increase in this segment came from the contract manufacturing business with its much lower gross margin structure. Our proprietary Systems Solutions suffered some late quarter shipment deferrals from the March quarter to the June quarter.

Finally, our Service business provided a 46% incremental contribution from the $0.5 million dollar revenue growth. That growth was halved by the complete shutdown of service and repair activities in Japan, following the early March earthquake and tsunami tragedies.

Slide 6 updates our charts of revenue in adjusted EBITDA progression over the past 8 quarters, with $51 million of growth in adjusted EBITDA per quarter, while revenue expansion has been $148 million. Adjusted EBITDA margins yet again expanded and are now running at 17.7%. From a Reg G perspective, please note that the adjusted EBITDA reconciliations are provided as a supplement to each of our quarterly earnings releases.

Our cash generation was moderated below EBITDA levels by a $12 million increase in accounts receivable, with very strong shipments in the month of March. Also, as shown on slide 7, capital expenditures for the quarter were $1.5 million, the largest single item of which was associated with our successful Oracle conversion in Europe. For the quarter, we further built our cash position by $20.6 million.

Briefly looking at the most significant operating balance sheet accounts, which are identified on slide number 8, cash and marketable securities grew from $157.9 million to $178.5 million. This includes those securities, plus others long-term on our balance sheet, which are the never-the-less freely marketable and can be considered readily liquid.

It also includes $3.9 million of cash that was in escrow at our attorneys and disbursed on April 1, with the acquisition of RTS Life Sciences. Our working capital velocity remained around 17% of annualized quarter sales as a result of the previously mentioned build in accounts receivable.

Inventories were largely flat, despite some build in inventories to manage supply-chain challenges with printed circuit board components and other Japan-sourced components. Despite this, we managed other areas of inventory such that we are back above 4 terms.

Accounts payable reductions reflected the build of product earlier in the quarter; and within accrued liabilities, compensation accruals increased to reflect improved estimates for variable compensation payments across the organization.

Slide 9 shows how our focus on both the balance sheet, as well as the income statement, provided results that an already very robust return on invested capital rose to an annualized rate of 40%. In the next 3 slides I will briefly cover our sequential segment operating performance.

On slide 10, we reviewed the sequential results of our Critical Solutions segment where we drove operating margins to 20% in the quarter. As previously mentioned, the larger part of the $7.9 million sequential revenue growth came from our vacuum products.

Momentum in this area is strong, with new product introductions and then market capacity requirements driven by growth in next generation mobile computing, telecoms, and automotive. Gross margin expanded again and was 42.2% for the quarter. We increased engineering investments, resulting in a $0.7 million increase in segment operating expenses. Segment operating income improved by $3 million to $16.5 million.

On slide 11, we summarize the performance of the System Solutions segment. Revenues increased by $5.9 million, with a $3.5 million growth in contract manufacturing revenues, as one of our key OEM customers reverted demand to prior levels, having worked through an inventory situation that adversely impacted our sales to them in the first fiscal quarter.

The relative contribution of our contract manufacturing business, and the mix within that contract manufacturing business, held back the gross profit and operating profit performance of the segment from the Company in the quarter. Together with increased R&D spending by the proprietary Brooks business, the result was a flat bottom line for the segment.

The global customer operations results, set out on slide 12, shows the impact of the second consecutive quarter of double-digit robot service revenue growth. The leverage of our service structure resulted in growth of the segment gross margins to 32.4%, and the segment reported improved operating profits for the quarter of $1.4 million.

On April 1, we closed our first transaction in the life science systems market space, acquiring RTS Life Sciences, a business based in Manchester, UK, which also has an after-market service presence in the US.

Slide number 13 shows some pertinent financial facts relative to this business. RTS Life Sciences was a privately held company recently spun out of a UK public company that was liquidating its operating assets. The company had its roots in life science automation systems, but had diversified in recent years.

We've already commenced refocusing its activities on life science automation applications and we have expectations that the current annual revenue run rate would be in the $10 million to $12 million range. This is currently a breakeven business whose operating performance can be significantly improved over time.

For fiscal 2011 we would expect that RTS will be less than $0.01 diluted. The purchase price for RTS was $3.3 million and that's of cash on hand in the business at closing. The impact of our 2 strategic initiatives, the RTS acquisition and the contract manufacturing business sale to Celestica, potentially make for a complicated revenue and earnings guidance story.

Slide 14 shows how we build up revenue guidance for the third fiscal quarter. As we noted in our press release, order bookings in the March quarter were $193.7 million, a 4.7% increase over the prior quarter, and a book-to-bill ratio of [1.01].

Accordingly, we move forward into the June quarter, our third fiscal quarter, with a robust backlog. We also have continued to secure technology wins across a broad spectrum of OEMs. However, this [provosertive] momentum is held back slightly by moderating demand from some of the larger OEMs. We are also disappointed that the pace of next generation LED tool sales is behind our previous estimates; and, accordingly, at this time, we are moderating the rate of the previously anticipated revenue run.

Thus, we currently see our core business driving revenues of $138 million to $145 million in the June quarter, as compared to $144.3 million in the March quarter. The contract manufacturing business, the sale of which should close during the quarter, provided $48.4 million of revenues in the March quarter. Depending on the timing of the sale transaction, we would expect to include anywhere between $25 million and $50 million of revenues in our June quarter.

Finally, we anticipate $2 million to $3 million of revenues from our life science systems business estimates. Put together, these components result in GAAP revenue guidance for the June quarter of $165 million to $195 million.

Our margin and earnings guidance is summarized on slide number 15. The timing of the sale of the contract manufacturing business obviously has significant impacts on our gross margins for the quarter. In making our guidance, we have assumed that the sale transaction would not close before mid May. That guidance is for gross margins of between 31% and 35%.

The bottom end of that margin guidance range would reflect increased costs that may arise in managing supply-chain issues arising from the dislocation of parts of Japan's manufacturing community. Thus far, we have managed to prevent significant disruption to the business, but are incurring additional costs in securing certain components.

Operating expenses reflect continuing engineering build, potential G&A reductions if the contract manufacturing sale occurs before the end of the quarter, and some additional infrastructure related to the life science systems business. We anticipate operating expenses will be between $33.5 million and $35 million.

Rolling all of this together, our earnings guidance is for adjusted diluted earnings per share, excluding nonrecurring items and special charges, to be between $0.35 and $0.40. With that, I will turn the call over to Steve.

Thank you, Martin. Today, I am very pleased to be able to give an update on the progress we made this quarter in our market share initiatives, and also to give some color about the strategic initiatives we have announced during the past few weeks.

Since the close of last quarter, we made some very significant progress that advances the Company along our strategic road map to be a nimble and highly valued provider of technology solutions to markets that need automation and controlled environments.

Specifically, we've continued to secure new design wins across our semiconductor and adjacent markets. We announced the pending divestiture of our contract manufacturing business, and we've taken the first step toward our stated objective to branch into other vertical markets where we are able to leverage our core technical capability.

While we understand that the orders and revenue projections for many of the large semiconductor equipment suppliers have entered a period of some uncertainty, we continue to see healthy business levels into the next 2 quarters. One reason for this is that the investments we've made in the adjacent spaces, like active display, LED, and Wafer-level packaging are now beginning to become meaningful.

To put this into perspective, when we exclude the contract manufacturing business from our portfolio, these adjacent markets represent more than 25% of our revenue. And this percentage is growing, even as we gain share in our core semiconductor markets.

In Q2, our new product development and market share penetration thrust continue to bear fruit. In the quarter, we received first-time purchase orders for 14 new design-ins opportunities for robots, systems and pumps, for semiconductor, LED, MEMs, and Wafer-level packaging. I will highlight a few of these wins to illustrate the breadth of these opportunities.

In our systems business, we continue to gain share in Europe with 2 separate systems penetrations in our adjacent semi- markets with one of our largest OEM customers. We also received our first order for a vacuum system from an OEM customer in Korea for a front-end semiconductor application. This is one of 6 Korean OEMs that we count as a customer for our vacuum systems products.

In the quarter, we also secured our first EFEM order from a Wafer-level packaging customer, after we had won a robot application in the prior quarter. We had 2 multiple unit orders for our high-capacity MagnaTran 8 robot from OEMs in China.

Additionally, the demand for our large vacuum pumping solutions that are used to manufacture active displays resulted in another record bookings quarter. And we continue to ramp that production line, which in the month of April ran at a level 25% higher than last quarter, and more than 50% higher than in the December quarter.

We had a number of qualifications at major OEMs and end-users for our higher capacity series of Cryo pumps, that improved semiconductor Fab productivity by allowing a much longer time between regeneration cycles. At the same time, we had more qualifications of our IS2000V compressor that is showing energy savings of greater than 30% compared with any other offerings.

In Q2, we also passed a major product milestone when we shipped our ten-thousandth MagnaTran vacuum robot, a product that has been enhanced and adapted to continue to serve the semiconductor industry for many device generations. Lastly, we closed a joint service agreement with a large equipment OEM to provide our services together to a major European maker of logic devices.

At the end of this fiscal year, we will have added approximately $10 million to our RD&E spending, with more than 75% of that going to develop new products that serve our core semiconductor and adjacent markets. We are pleased with the results of this investment, and our momentum in the marketplace continues to build.

On April 21, we announced the planned divestiture of the contract manufacturing portion of our business to Celestica. Over the past 6 years we've grown the extended factory business in support of 5 OEMs; and, although the business has been quite successful, we felt that it was not core to the direction that we want to continue to evolve the Company, and that our customers will be better served by our focus on the development and enhancement of high-value components and systems that are critical to their product and technology success. Celestica is a highly capable contract manufacturer with whom we will continue to work very closely, as they will become both a customer and a supplier to Brooks as well.

Finally, in the quarter, we also announced the acquisition of RTS Life Science, a company based in Manchester, UK. With this addition to Brooks, we have taken one of our first steps that is part of a well-defined plan to expand the application of our core technology capability into another vertical market.

RTS Life Science has been providing automation solutions to the life science industry since the 1990s. Eight out of the top 10 companies in the pharmaceutical industry use RTS products for the automation and storage of chemical compounds utilized for drug development.

More recently, RTS has developed automation products for the bio banks which collect, store, and distribute biological materials for basic science and clinical research activities. In RTS, we've acquired a strong team which has roots in the life sciences automation space, a history of successful market-leading products, and excellent market knowledge and customer relationships.

We've already begun to develop definitions for products that will enhance the market position of some of the RTS systems by utilizing some of the technical expertise that we developed at Brooks, particularly in the areas of sample movement and controlled environments and cryogenic cooling.

At present, this represents a small financial investment, but a meaningful directional change, as we begin to enter into this multi-billion dollar market for automated life sciences equipment. We'll have more to say on this exciting new opportunity on subsequent conference calls, but suffice it to say, we are encouraged by the chance to leverage our core capabilities directly into another rapidly growing vertical industry.

We are also pleased to welcome the RTS team into Brooks, and we look forward to their continued success on behalf of our shareholders. That concludes our prepared remarks, and now we will be pleased to take your questions. Operator?

Thank you.

(Operator Instructions)

Questions will be taken in the order received. Please hold while we compile a list of questions. The first question comes from David Duley from Steelhead Please proceed.

Yes. A couple questions from me. First on your revenue guidance for the June quarter, I think you highlighted $165 million to $195 million. If you held the contract manufacturing business for the whole quarter, is that what you are saying you would do at the upper end of that range or help us understand the moving parts of the top line.

Yes, you are really quite right with your assumption, which is if we hold contract manufacturing for the full quarter, our guidance would be about $195 million for the current quarter of the top end of the range. Maybe a range slightly off of that if the core business were slightly lower than that. It's in that range of up to $195 million, David.

Okay. You mentioned that you are moderating your expectations on the LED side of things, could you talk a little bit about what your new expectations are and why is there a Delta at this point?

I think it's just the pace of which the next generation tools appear to be to be adopted at this very early stage. Having said that, the pace of which that curve of adoption might accelerate is unclear to us and we have been advised by customers we work with to be ready for that pace, and a curve to move up at any point in time. So, I would say it's a pace that is impacted us a little bit this quarter and certainly for the June quarter. We cannot assess when we might get back onto the similar level of pace that we previously projected.

Do you think -- so you are adjusting your expectations for the ramp-up of your customers business. Is that more you overshooting the targets as to what you thought the ramp-up of the tool is, or was it that the market just hasn't adopted those tools as rapidly as the customers thought?

I think it was always our assessments of what the rate would be for adoption. Our customers were always very cautious of providing us clear guidance there for reasons that anyone could well expect on a new product introduction.

So, it may have been us being slightly more optimistic. It's equally just that very difficult phase of understanding when people really are going to say that they are going to go with this next-generation tool which represents a very different capital investment paradigm for them than they were previously used to.

I guess just on the outlook then, you still think that the industry will adopt these cluster tools, it's just the timing of which is difficult to determine, but it's coming.

It's our belief when you look at the productivity gain improvement that our customers talk about, that it is clear that those are perhaps even higher than was previously imagined by ourselves, and therefore it seems highly likely that there will be a reasonable level of acceptance.

One final question from me and I'll turn it over to other folks. You mentioned you are seeing some moderation from your top three OEM customers. If you hold this contract manufacturing business for the whole quarter, your revenue theoretically would be up a little bit. So, if your three biggest customers are going down a bit, what are the exact areas that you've made up revenue to show either flat or some revenue growth?

The areas are across our broader range of OEMs. Steve gave some examples of the breadth of our customer base, particularly in other semiconductor and adjacent markets, where those OEMs have a much more positive outlook in the near term than some of our larger customers.

Okay, thank you.

Thank you.

The next question comes from Satya Kumar from Credit Suisse. Please proceed.

Hello, thanks for taking my question. This is [Perham] calling in for Satya. I had a question on your gross margins for September quarter. If you assume that the core business is flat in September, how will the gross margins look like in September?

In September, so beyond our guidance that we have provided at this stage, I think you could fairly say that our expectations would be for north of 38% when we talked about what the margins -- the gross margins of our business would be without the contract manufacturing business. We said they would have been 38% for the first six months of the year.

We continue to see as we refer to what is gross margin expansion. The whole Life Sciences space as a whole is expected to have growth margins above our corporate average. We would expect it north of 38% and clearly, in the not too far distant future, we want a number beginning with a four.

Thank you. And I had a follow up on the acquisition. On (inaudible), How do you see that changing the opportunity for Brooks over a longer period of time?

I think we have excellent relationships with both of those customers. We would be looking to remain a critical supply to them, a critical solutions provider and hopefully this provides us the opportunity to actually increase our level of business.

Thank you. That's all I had.

Thank you.

Your next question comes from Timothy Arcuri from Citigroup. Please proceed.

Hi. This is [Wang] in for Tim. Thank you for taking my question.

Hi Wang.

Hi. The first thing regarding the closing date of your contract business sales. It's already in May and you initially mentioned about mid-May as the closing time. Is there any update on what is the likely closing because that's going to effect what revenues I see in the quarter.

Right, well I think the clarity, or lack of it, revolves around really the critical gating item which relates to a consent from a government agency, it's a very routine consent but it is a government agency. The timing for those things is subject to a degree of uncertainty.

We will obviously provide an update when we have greater clarity than this at this stage. The best we know is it's unlikely to be before the middle of May. It's highly likely to be before the end of June. That is really what provides us with this range that we have provided in our guidance.

Okay, for the modeling purpose we should push it towards the June time-frame instead of mid May?

I can't say that. It's really uncertain at this stage, probably somewhere in the middle.

Okay. I understand. Regarding the core semi business. You mentioned about some of the large OEMs showing some kind of moderations. Have you got any indications from your forecast discussion with those OEMs what the second half is going to look like for the core semi's?

I think they are trying to evaluate it. We hear the same things said publicly and in public forums which is -- we really don't know. I don't think they see a weakening of business. I think they've eased back from perhaps any great bullish expectations for the second half.

I understand. My last question is regarding your Life Science business. And, obviously, you already acquired RTS and it seems like you have maybe more deals coming up. So I just want to understand what is your strategic plan for the Life Science and why you think Brooks should get into that business? Is it faster revenue growth or better margin profile? What is your final target?

Hi Wang. We think the Life Sciences systems opportunities are pretty significant for us. We spent a lot of time looking at those markets and what we found, where we think we can add some real value, is where we do things very similar to what we do in and around the semiconductor space.

We're talking about the protection in movement of high-value material in clean environments that requires precision movement and the tracking of tens of thousands, up to millions of samples in controlled environments. When we assess the capabilities with Brooks against some of the challenges that have been satisfied by a company like RTS, we think there is a very significant opportunity here for us to enhance those product offerings and to participate in a market, a market segment anyway, that we believe is growing somewhere in the range of 20% to 30% per year.

The initial market opportunity at the sweet spot where RTS participates, with a number of other competitors, if you will, is something that we size in the range of $140 million to $150 million right now. But with a relatively high growth rate and a market that is really just beginning and one that will benefit from the things that we have been able to develop for the semiconductor industry.

That's very helpful. Thank you.

(Operator Instructions)

Your next question comes from Ben Pang from Caris & Co. Please proceed. Ben, you are in the queue, you may proceed with your question.

Sorry about that. Thanks for taking my question. First on the service organization you mentioned a joint venture, or not joint venture, but I guess a collaboration in Europe. How does that impact a margin for that segment?

Hi Ben, this is Steve. It's a margin that is very consistent with the rest of the business that we have in service. Probably it's the structure of a different business model that's important to us. We are providers to an OEM who has responsibility for a greater portion of the service. But it's good to be a part of it. The thing that's most encouraging for us, it's, hopefully, the start of a new services business opportunity for us and maybe a model that will employ at a lot of other fab's around the world.

In general when I look at your business model after the Celestica deal closes, is it a service organization where the margin is going to start to lag and that is going to become a bigger part of your revenues?

I think the important point is that there's a great volume leverage and margin leverage out of our service business. We have a greater leverage point over a fixed cost infrastructure, therefore when you are looking at opportunities that, on a variable contribution basis are probably at the higher end of many of our opportunities, it will actually drive a higher variable contribution even though it starts from lower absolute gross margin and operating margin rates.

Can you give some metrics about how to think about the incremental gross margin?

You should think about 50% incremental gross margin out of this business currently.

Okay. On the vertical opportunities you mentioned, who are the competitors in the Life Sciences area?

Competitors are largely smaller companies, no big names in there. In the space that we are mostly focused in, $150 million to $200 million market, there's kind of a handful of smaller players there. It's a space where we already know many of those players and we feel very comfortable about our ability to create a winning proposition in this space.

Okay, and the last question for me. You commented on the customer concentration of your top three, what's the customer concentration of your top 10?

If you were to take our top 10 OEMs, they represent, before the sale of the contract manufacturing business, about 60% of our business. And after the sale of the contract manufacturing business, slightly less than 50%. It greatly diversifies our business.

Thank you very much.

Thank you Ben.

Your next question comes from Ben Zhao from Talara Capital Management. Please proceed.

Hello. Just one quick question on the acquisition of (inaudible) semiconductor and any impact on your business? Any comments on that? Thank you.

As we said in response to an earlier question, we've got good relationships with both of these companies. They are both important customers to us and we would trust that we can use and leverage that situation as a valued supplier and solutions provider to effect across the joint business.

The next question comes from David Duley from Steelhead Securities. Please proceed.

I was just wondering once you do sell this business, do you have any plans for the total cash balance?

I would just maybe make reference to the fact that we did in our prepared remarks indicate we may make further acquisitions in the Life Sciences area. We have that.

We have other discrete technology capabilities we could see adding to our core capabilities that would enhance our offering into some of our adjacent markets as well. We have a runway to making controlled but effective use of that capital in acquisitions, so that would be our principal and first use for such cash. We'd clearly consider other alternatives if those pathways are not successful or appropriate.

As a follow-up, you mentioned -- could you give us the percentages of the top three customers in the quarter that just finished? You mentioned how those percentages would be adjusted downward for the sale of the business, could you just walk us through that so we understand in greater detail?

Given the sensitivity of that information, I would just indicate we have three greater than 10% customers that cumulatively accumulate 43% in the quarter. If we had not had the contract manufacturing business in the quarter, we would only have had one 10% customer and cumulatively they would have been 27%.

Thank you.

Thanks.

Your next question comes from Edwin Monk from Needham and Company. Please proceed.

Thanks for taking my question. First question is regarding your commentary about some moderation from your key OEM. I was wondering which part of your business, be it critical solution, system solution or servers that is seeing more impact from that change, and a tie to that question, are those changes more concentrated on one or two specific customer or are you seeing that across-the-board?

I don't really want to talk about specific customer situations, Edwin. I would just say what we are seeing is consistent with public pronouncements that customers themselves have made. In terms of impact across all of our business, if you were to look at what the implied growth in our core business is kind of flat to up very slightly, I think you could expect to see that situation apply across all three of our segments of the business.

(inaudible). Just looking on operating expense guidance (inaudible), how much of that is driven by this contract manufacturing? Is any OpEx tied to that?

There is some OpEx tied to it. As I said in my prepared remarks, there are some operating expenses that go away. There is probably some transition expenses, that means that it doesn't disappear as quickly in the current quarter as it would for the full amount of the contract manufacturing business. We will see further gains in our operating expenses in the September quarter as well.

But the (inaudible) gains come more from the R&D side which is the investment that you guys talked about, right?

If you were to look at the guidance there, there's an intrinsic reduction in our spend rate because we had an increase in the second quarter of non-cash stock compensation expense that's always reflected in our second quarter associated with a particular direct (technical difficulty) that spikes that versus a run rate. So, it's down again.

Other than that, you have a relatively modest portion of operating expense disappear from a partial part of the quarter of the contract manufacturing business. You equally have an equally modest amount coming in from the Life Sciences business which has its own infrastructure currently. And a net-net those are going to end up with somewhere -- with slightly below to about the same level of operating expenses we had in the March quarter.

I have one more question, on this Life Science company that you acquired, you talked about (inaudible). I'm just wondering what kind of share you guys target to let's say longer-term, let's say three to five years from now. Just trying to get a sense in terms of ramp from what you've guided in the last quarter for the coming quarter of I think $2 million to $3 million versus where we think revenue can get to for this piece of business.

Hi Edwin. We would imagine that within two years we would have more than 50% share of this particular segment.

Okay, then the followup for that, is that just all come from this one acquisition or would you require an additional company to achieve that 50% of basically what you (inaudible) $75 million to $100 million a year revenue

Edwin, probably for sure there will be internal developments and we are also looking at other potential add-on's that could help us to grow this business.

Great. That's all I have. Thank you.

At this time, I'm showing we have no further questions. I would like to hand the call back over to management for closing remarks.

Okay, thanks Katie. We thank everyone for your interest in Brooks Automation and certainly we look forward to an opportunity to speak with you again next quarter. Thanks everyone.

Ladies and gentlemen, thank you very much for your participation in today's conference call. You may now disconnect, have a wonderful day.