Azenta Inc (AZTA) 2012 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the Brooks Automation Earnings Conference Call. Please be aware that today's conference is being recorded. At this time, I would now like to turn the call over to your presenter for today, Mr. Martin Headley, Chief Financial Officer. Sir, you may proceed.

Thank you very much, Chris. Good afternoon, everybody. I'd like to welcome each of you to the third quarter financial results conference call for Brooks in our fiscal 2012 year. We'll be covering the results of that third quarter that ended on September 30 (sic - see press release) and providing an outlook into the fourth fiscal quarter, which will end on September 30, 2012. Our press release was issued after close of the markets today and is available at the Investor Relations page of our website, www.Brooks.com, as are the illustrative Power Point slides to be used with our prepared comments during today's call.

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

I'd refer you to the section of our earnings release titled Safe Harbor Statement, the Safe Harbor slide in the aforementioned Power Point presentation on our website, and the Company's various filings with the SEC, including Form 10-Q for the third quarter ended June 30, 2012. We make no obligation to update these statements should future financial data or events occur that differ from forward-looking statements presented today.

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

With me today is Brooks' President and Chief Executive Officer, Steve Schwartz, who will follow my introductory remarks with commentary on the business environment and our current initiatives. I'll then provide an overview of the third quarter financial results and a summary of our financial outlook for the quarter ended September 30, which is our fourth quarter of fiscal 2012. We'll then take your questions.

During our prepared remarks, I will, from time to time, make reference to the slides available to everybody on the Investor Relations page. To frame the events of the quarter, a summary is provided on slide 3. After opening the quarter with bookings largely in line with our expectations, we saw two events that substantially slowed down the bookings rate in the quarter.

First, as many of you will have heard from our customers and peers, semiconductors bookings got very weak very quickly late in the quarter. Secondly, we saw a contraction in sample storage and management systems projects being awarded, largely through a slowdown in European funding. Together, these combined to bring bookings down to $128 million in the quarter. Offsetting the weakness in front end semi and Life Science Systems was strong demand for our Polycold cryochillers, supporting tablet and smartphone capacity build.

Our margins were adversely impacted by lower demand for tools with our high vacuum products that result in a proportionate increase in lower margin atmospheric robots, as compared to the more favorably contributing vacuum robotic and cryopump products. We also remain in negotiation with significant customers to establish time tables for introduction of alternately sourced components and subsystems. With that scene setting, let me introduce Steve Schwartz.

Thank you, Martin. Good afternoon, everyone, and thank you for joining our call. We're pleased to be able to discuss our third quarter results with you and give you some color as to the progress we're making on our growth initiatives.

Like others in our space who have already reported earnings, we, too, began to see a softening of the semiconductor business starting in early June, when orders began to slow considerably. But even in a challenging semiconductor environment, our revenue remained basically flat. We actually showed an increase of about 4% quarter-on-quarter in our BPS business unit, led by the strength of our Polycold business, which was driven by coating applications for active displays for tablets and smartphones. This increase was offset by a drop in revenue in our Life Science Systems business and I'll say more about that in a moment.

As we look forward, different dynamics will take place in the September quarter, when we expect to see semiconductor revenue falling, adjacent revenue holding, and Services and Life Science Systems businesses also steady. Martin will give some more detail about our guidance, but I want to take time right now to speak to you about our progress and challenges going forward.

We had another very strong quarter of design win activity, as we added 21 more OEM design wins; right about our quarterly average. The wins this time were highly weighted to adjacent markets, where we closed on 13 new business opportunities, which included six wins for non-MOCVD steps in LED manufacturing and two for semi back end packaging applications. We also had six new wins for semiconductor front end applications and two of the wins were for general vacuum applications.

We added two new customers in the quarter. We continued to show steady progress in 450 millimeter systems and components, as we shipped three more new systems and had another two design wins. This brings our 450 millimeter customer count to nine. We're encouraged by the increase in news about investment in 450 millimeter wafer size from the end user community and will continue to work on design wins for customers who want to be equipment suppliers to this market. Although we'll continue to innovate on novel system architecture designs, our product portfolio was already relatively complete and we are actively engaged with and able to deliver to customers on a relatively short-term basis.

In Life Sciences, the new order bookings were light, particularly in Europe, with just a few pieces of new business awarded in the quarter. In that list of systems, there was only a single large store and we did not win it. As the market leader in this space, it's unusual for us to lose business at minus 80 degrees and frankly, we did have it included in our forecast.

On the positive side, we released a new upgrade program that enhances the productivity of older installed stores and we won a first order for a European customer under this upgrade program. We're also making the appropriate investments in new products, as we see it is a means to extend our reach in this space from innovative designs. We fully anticipate that Life Science Systems orders will improve in Q4 and we are encouraged by a strong pipeline of meaningful customers, as we look into the back half of the calendar year. Revenue in this business will likely be about flat in our Q4.

We do remain cautious as to the timing of some of the European opportunities, as historically, a little over 40% of the cold store system market has been in Europe. We believe that this issue was only one of timing related to the macro environment, as the demand to store cold samples is only increasing.

As you've heard from us before, we've been very aggressive going after new design wins, even when we know that there is usually a significant gap between when we receive an order for the initial penetration and when follow-on orders are realized. There is a wide range of variability, as sometimes we receive a repeat order as early as one quarter later or as late as two years or more after the initial order, depending upon the market acceptance rate for the OEM's tools. However, on balance, we notice that about half of the design wins generate repeat orders within four quarters of the initial win and higher volume adoption can typically begin about four quarters after that.

More specifically, when we look at the business we've generated to date from our 79 design wins from fiscal year 2011, we count more than $30 million in cumulative bookings over a seven-quarter period. From the 60 design wins so far in the first three quarters of fiscal year 2012, we already have $15 million in bookings. As these designs are part of successful OEM products, which typically have long qualification time, we anticipate additional accelerated growth from this hard-won design investment.

As you can imagine, the implications of 20 new design wins per quarter puts a strain on the delivery side of the Company as we procure, assemble, test, ship, and start up first articles at a higher cost than we'll incur for higher volume repeat business. Nonetheless, we believe these investments are securing the right type of business that will provide growth and share gain in the coming quarters and years.

To summarize our Q3, we're pleased by the top line strength that's coming from our new share gains and although we cannot avoid the impact of a slowdown in semiconductor, we'll come out even stronger when the next ramp-up comes.

We still have much work to do to improve gross margin. But the right actions have been and are being taken and we stand firm on our long-term objectives for quarterly improvements. Our products and our development activities are exactly in the right areas to take advantage of growth opportunities driven by changing customer needs.

We remain aggressive in our capture of near-term business and patient in our development of new market opportunities. Each of the market segments in which we participate provides us with the opportunity to grow significantly, both by internal product development and by acquisition. We will continually weigh these options as we drive our aggressive growth initiatives quarter-to-quarter and year-to-year. I'll now turn the call back over to Martin.

Thank you very much, Steve. Slide number 4 shows that for the third quarter of fiscal '12, we achieved $140.4 million in revenues compared to $139.3 million in the second quarter of fiscal 2012.

Revenues for the Brooks Products Solutions segment increased 4.1% on a sequential basis compared to that of the second fiscal quarter of 2012. Revenues for the Brooks Life Science Systems segment decreased 23.6% sequentially, due to delays in sample storage and management systems, predominantly in awarded tenders in Europe. The Brooks Global Services segment generated a 1.4% increase in revenues.

Also as shown on slide 4, gross profit was 33% in the third quarter of fiscal 2012 compared to 35% in the second quarter of fiscal 2012 and 30.8% for the third quarter of fiscal 2011. This year-over-year improvement was primarily due to revenue mix with higher Brooks Life Science Systems revenue from the divestiture of lower margin contract manufacturing segment business.

On a quarterly basis, sequentially, gross profit margin was down 200 basis points, primarily due to the atmospheric versus vacuum revenue mix in our product solutions segment, as well as some cost additions in our Global Services activities that had not been supported by revenue growth. Sequentially, operating expenses were approximately flat with reductions in R&D spending offsetting unfavorable comparisons for SG&A expenses. Overall, sequential operating profits before special charges were $9.2 million.

Turning to slide 4, the waterfall chart reiterates the impact the adverse margin headwinds impacting the quarter's results with variable contribution from Brooks Product Solutions of $300,000 on $3 million of additional revenues and reduced contribution from Brooks Global Services on a slight increase in revenues. The reduced contributions from Life Science Systems reflect a 50% drop-through from lower storage revenues. SG&A expenses were reduced by nearly $2 million to offset the unfavorable impact from the March quarter comparison of the legal cost recovery on closing out all remaining stock litigation and insurance matters.

As slide number 6 shows, GAAP net income for the third quarter of fiscal 2012 was $8 million, or $0.12 per diluted share, which includes special charges, predominantly restructuring charges, of $900,000. Adjusted net income excluding these restructuring charges was $8.9 million or $0.14 per diluted share. GAAP earnings compared to second quarter of fiscal 2012 net income of $9.7 million, or $0.15 per diluted share, and $66.9 million, or $1.03 per diluted share, from the third quarter of fiscal 2011, which included $42.6 million of gain from the sale of the contract manufacturing business.

Brooks generated $17.2 million of adjusted EBITDA for the third quarter of fiscal '12, which compares to $20.9 million in the second quarter of fiscal 2012; a decrease of 18% sequentially. A reconciliation of non-GAAP measures to the appropriate GAAP comparison is included as an attachment to our press release.

As illustrated on slide number 8, the EBITDA performance produced cash flows from operations of $10.9 million in the quarter, after some increases in net working capital. After capital expenditures of $2 million, a $3 million loan to a strategic partner in the Life Sciences industry, on our quarterly dividend we're approximately net cash breakeven as we ended this third quarter with total cash and marketable securities of $203.7 million, as of June 30, 2012. We consider approximately $202 million of these balances to be readily liquid and available to us for our strategic deployment.

As shown on slide number 9, our balance sheet is very healthy, with $105 million of net working capital, although we're targeting lower inventory holdings. We may add a significant asset to the balance sheet in the fourth quarter, when it may be appropriate for us to release the valuation allowance against over $100 million of deferred tax assets associated with tax loss carry-forward. The judgment will become clearer as we close out the fourth quarter financial statements.

Beginning on slide 10, we break out the results for each of our three business segments in the third quarter of fiscal 2012. Brooks Life Science Systems business recognized $11.2 million of revenues in the June quarter; as previously noted, a 23% sequential decline as compared to $14.6 million in the previous quarter. Although the pipeline of sample storage and management system project awards is temporarily constricted with European activity much reduced, we continue to receive many strong indications of the recognition of the benefits of those automated solutions for biosample applications.

We remain enthused about the growth prospects going into fiscal 2013, despite the business contraction during the back half of this year. Actions that create some meaningful infrastructure reductions around the business are in progress and will significantly reduce the breakeven point for fiscal 2013.

Turning to slide number 11 now, revenues for the Brooks Product Solutions segment increased to $107.7 million for the third quarter of fiscal 2012; up 4% compared to $103.5 million in the second quarter of fiscal 2012. Gross profits of $36.2 million represented a 33.6% gross margin rate. The 110 basis point decline from the second quarter of fiscal 2012 arises mostly from an increasing mix favoring lower margin atmospheric products.

Pullback on our operating expenses also assisted in the build of our operating profit in the segment from $6.6 million in the March quarter to $10.7 million in the June quarter. On slide number 12, we see that revenue from the Brooks Global Services segment increased slightly at $21.5 million compared to $21.2 million in the second fiscal quarter of 2012, with growth in pump repair revenues.

Our gross margin in this segment was unfortunately down from 31.5% to 27.3%, with field cost increases that were not matched by revenue increases. New divisional management are working on better matching these resources. Operating profit in our Global Services segment was $2 million or a 9.2% operating margin.

Looking forward, we see a sharp slowdown in the activity levels of our technology OEM customers. This is most pronounced in semiconductor front end, but also extends, to a lesser extent, into other end markets. We also see the limitation of European opportunities also restricting recovery of our Life Science Systems business in the September quarter. Accordingly, as summarized on slide number 13, we look to a 15% to 20% decline in revenues from the June quarter to the September quarter, with the biggest reductions in products focused on the semiconductor front end.

With that reduction in activity, we are taking appropriate cost reduction actions, while insuring our business is ready for potential spring back in the December or March quarters of our fiscal 2013. We project adjusted non-GAAP earnings of between breakeven and $0.06. We're not providing GAAP guidance, given uncertainties surrounding the one-time items that may occur in the September quarter; namely the large tax credit that may arise from releasing the majority of the deferred tax assets valuation allowance and the charge associated with the termination of the US defined benefit pension plan.

Finally, we announced that our Board of Directors had declared a dividend of $0.08 per share, payable on September 28, 2012 to stockholders of record as of September 7, 2012. Future dividend declarations, as well as the record and payment dates for such dividends, are subject to the final determination of the Company's Board of Directors. At this time, I'll now turn the call over to Chris for questions.

(Operator Instructions) Edwin Mok, Needham & Company.

My first question is, if I look at your guidance, your guidance revenue, I assume the direction that you mentioned regarding the various piece of your business, it kind of implied that your semi cap business or business with your semi cap customers could potentially be down in the high 20%s sequentially, maybe as high as 30% sequentially. That seems like in the high end of your peers, right? I was wondering what caused that. Is it just because of the mix of customer you have or how do you kind of think of that?

I don't think that the high end of the guidance is as heavy as that for semiconductor front end reductions, Edwin. But you will note that the guidance is, in fact, from very high ends in terms of some of the OEM customers into the 30% range and no less than about 15% for most of the people that represent our customers. We may be being fairly cautious here in our guidance, but we're clearly seeing an increasingly soft picture for the business levels for this quarter.

Edwin, as we watch the business here, even over the last weeks, there's just not any good news. We're a little bit cautious here in terms of what the semi side will look like for the quarter.

Yes, actually this leads to my next question. Incrementally over the last few weeks, after semi con until now, incrementally you have seen your business deteriorate, especially on the semi cap side. Is that fair to say?

Yes, it's getting softer and for us to be a little bit cautious, there aren't things that are getting pulled back in.

Interesting. Maybe some of your peers hadn't seen that when they provided guidance. My next question actually relates to the design-in, again, very strong design-in activity this quarter. Steve, we appreciate providing color in terms of how those design-in translate to your booking numbers. That was very, very helpful here.

Just question about how you think about that potentially impacting business that you have for your existing customer? Meaning that how much of those design-in are for new opportunity versus opportunities for designing something that maybe your customer just changing their hardware and therefore, your design-in. That's the first part of the question.

The second part is, are those numbers, over $7 million of backlog for last year design and I think $50 million for this year, are those incremental revenue opportunity that you think you have generated? Or does that also include some of these replacing of changes that I just mentioned?

Yes, I understand, Edwin. Thanks. For the most part, these are new design-in wins. If we have a win already on a particular configuration and they switch from one version of our robot to another version of our robot, we don't count that. By and large, these are incremental and so when we talk about year-on-year gaining 200 or 300 basis points in market share, it's largely from these opportunities. A lot of these things have come from new customers and customers who are new to the markets, actually.

Great, okay. Great. Thanks. That's helpful. On the Life Science side, you mentioned that you have this timing issue and impact you for this quarter and -- or for last quarter and likely for the coming quarter remain at similar level. How do you think about that? Do you think that's more of a short-term issue that things have improved? In terms of timing of revenue, does that have any impact on how you think about your future contract opportunity in Europe and maybe any impact on pricing there?

Let me go backwards, Edwin. This is not a pricing issue. This is a matter of contracts being let. These are pretty big capital items. They're queued up for a long period of time. The fact that a project will slip one quarter or two quarters based on the ability to get financing or to get the budget is what we seem to be seeing here.

These aren't cancellations of projects, but natural delays. In this macro environment, with a lot of uncertainty, if people have incremental samples to store, they can do it by a manual means as they have done it for the past years, but it doesn't mean that they will ultimately not go to automation. Once they've made that decision, generally they will. But right now, the environment is such that we're seeing a pretty significant pause in the project commitments that are going on in Europe.

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

Patrick Ho, Stifel Nicolaus.

It's Richard Kandel on for Patrick. My question relates back to the Life Sciences business, what you were just saying. So that business that you're describing that won't be coming in next several quarters, can we think about that as far as it being pushed off into 2013, or is it something where it just actually might not come back until the macroeconomic environment in Europe improves?

Yes, Richard, it's not that firm. I wish I could tell you that. We still are paying close attention to the opportunities. It's just that what we watched happen in the June quarter, what we sense will happen in the September quarter, we don't want to get ahead of ourselves here in terms of what might happen in December. But at some point, it doesn't mean projects are dried up completely, but it just means that we need to be a little more prudent about how we size the business around those opportunities.

I don't sense that it requires a complete recovery in Europe at all. Eventually, these projects, the samples need to be stored. Eventually, the projects need to go forward. But we think it's prudent right now to imagine the business will be less robust here in the next couple of quarters.

Okay, thank you. That's very helpful. As revenues seem to be declining a bit over the quarters, and I understand that's happening mostly from the semi cap front, how do you view OpEx going forward, R&D, SG&A? I know you've tried to pull in the R&D. How about SG&A going forward?

I think you would expect to not see any particular movement on R&D. We have some important projects moving forward and we want to sustain and build the business going forward and continue to support our design-in win activities so they remain robust. The level of work that we're actually doing there is as busy as it has ever been.

In terms of our OpEx, I made reference to some initiatives that we're looking at and we're actively working, particularly on the Life Science Systems side. It won't have meaningful reduction in the September quarter, but it will have meaningful impact on fiscal 2013. Obviously, in an environment like this, we are nimble and try to adjust our cost structures as best we can, but you shouldn't be looking for something that's dramatically different.

Okay, great. Thanks. As a final question, as far as semi cap spending going forward, is there any particular areas within the market where you're seeing a special weakness or any kind of indication you can give us in terms of customer segments that may be dropping off a bit faster than others?

I don't think that we see meaningful change. We see a lot of caution across the whole spectrum of the activity. Maybe in one or two of our adjacent markets, we see less of a pullback than we do in the front end markets.

Sometimes, I think it's already been reported, the inspection metrology a little bit healthier than some of the other pieces, parts of the business.

Okay, great. Thank you very much.

CJ Muse, Barclays.

This is Olga Levinzon calling in for CJ. Just wanted to probe a little bit on the gross margin side. In your press release, I think you talked about expectations for gross margins to be up sequentially, off of revenues coming down about 15% to 20% and it sounds from your comment that's really on the product side. Just wanted to get a better sense for how you plan to achieve the sequential gross margin improvement off of lower revenues? Maybe any color you can provide on the individual line segments and the gross margins and will it largely be driven by a mix of back towards vacuum or will there be any sort of cost savings that should drive that as well?

I think what you can say is we wouldn't expect any further decline in margins from where we are now, even at the bottom end of our guidance. In the middle and upwards part of our guidance range, that implies, with the absorption impacts, an expansion. We get some favorable impacts from our supply chains and operations activity that we have been working on now for a number of quarters.

As those start to move through the financials, some of them that have been caught up on the balance sheet with capitalized variances. We also will get some benefits from the working the Life Science Systems cost reductions that we talk about; not huge amounts, but some benefits there. We really think that we've probably seen the worst mix that we're likely to see at this stage.

Got it. On the Life Sciences side, you talked about tracking some large project, which should come back towards, in the upcoming quarter and may drive sequential growth in your Life Sciences business in the December quarter and beyond. Could it provide a range in terms of what kind of revenue opportunity that could pose for December or March, maybe some sort of range, low end, high end, so we can just have a view as to how that should trend going forward.

Sure, Olga. I'll use the trend analysis here. This is a business that we anticipate about now, when it's relatively steady, ought to be about a $60 million per year business for us. The opportunity continues to grow about [20%] per year and we would at least keep up with that, if not gain share. That's about where we anticipate the business will be when it's a little bit more regular in terms of balance, if you will.

Got it. And just a final housekeeping question. What sort of tax rate or tax expense are you embedding in your guidance?

We're embedding in the guidance a relatively modest tax credit for the fourth quarter of this year. So that's irrespective of the valuation allowance release, that we have some uncertainties that we believe will expire by statute at the end of the fiscal year.

Thank you.

Darice Liu, National Securities.

I was wondering if you could provide an update on your non-semi cap business.

By that for you, I presume, Darice, the principal areas would be what we refer to as our other adjacent markets?

Yes, like the LED and things of that sort.

Right, right. I would say if you look at LED, we are starting to see some order activity. You will recall, though, that's off a very moribund level of activity. It's modest at this stage and wouldn't they say be indicative of a significant market uptick, but it is clear that the inventories worked out of the pipeline and that there is interest in LED investments at this time.

We probably see it a little bit more reversed in the areas, other than MOCVD, at the moment. We see the MEMs business starting to invest a little bit more and starting to move forward some. We remain very strongly infused by the level of interest and activity within those design-in wins around back end opportunities and the seriousness that everybody is taking about applying the wafer level or wafer-handling techniques into what has previously been dye automation.

Data storage and solar remain at very, very low levels of activity; not much activity there. We're actually seeing a pullback and fairly modest levels of activity in our analytic area. Our industrial business was buoyed by the Polycold business in the June quarter and the industrial business is following the previous trends of trailing what happens in semiconductor by a quarter to two. It is not declining at the same pace going into the September quarter.

Darice, just to add one more thing. Of 140 design wins in seven quarters, half are for these adjacent spaces.

Okay. That's actually very helpful. In the Life Science business, two housekeeping questions. In the past, you've talked about targeting that segment to be accretive in 2013. I'm wondering whether you're on track for that, even if the macro continues to be at the state it is right now. Secondly, you mentioned in your prepared remarks, Martin, that you're making a lot of efforts in cutting the cost profile of Life Sciences to improve the breakeven level. Can you provide more color on that?

Certainly first, the first point of your question, we remain committed in our plans for fiscal '13 for this business to be accretive. We don't see movement or any step backwards on our longer term goals with this business.

In terms of what we're going through now, we're going through things such as a lot of back office integration, that's dependent on a lot of hard work with our systems folks that could only be done in this timeframe and that will enable us to get efficiencies as we integrate the business from the back office point of view more closely into Brooks as a whole. We're also looking at the location footprint that we have and the space footprint and significantly reducing that footprint. Between those two levels, as well as some sourcing initiatives, we can significantly improve the cost profile of the business.

Can you help translate that into numbers, though, Martin? In terms of what the new breakeven level for Life Sciences would be, what the new margin target we should be looking at and the OpEx targets we should be looking at for Life Sciences in 2013? All these actions.

If you look to all of these actions, as we've said, we're looking for the business to be in the low to mid 40% gross margins and that it should be producing segment operating margins in the low single digits.

Okay.

I just wanted to emphasize that these cost reductions are part of synergies that have been planned since the acquisition of the companies. Whether the business was going up or going down, these were actions that were underway and taking place as a means to run the business better.

Okay. Thank you, guys.

Ben Pang, Caris & Company.

First, a follow-up on a previous question and answer. On the Polycold, you guys mentioned that started rebounding in the June quarter. Do you expect it to go down again in the second half of the calendar year?

Its rate of growth is clearly going to modify significantly from what we have seen in the last couple of quarters. Whether this will cycle down, entirely possible. It's not sufficiently clear to us exactly how the capacity for these requirements are. It's entirely possible it may cycle down, but to what extent is not clear to us at this juncture.

Ben, if you recall last year, we had a record quarter in the Polycold business, in the quarter when the semiconductor business was turning down.

Right.

We're kind of at those levels again today in terms of manufacturing levels for the Polycold because the business is really strong. We watch it cautiously. We don't anticipate it will go up, but anything can happen here. But we're almost at a replay of where we were three quarters ago.

Okay. On the Life Sciences, I was a little bit confused about the quarter. I think you guys mentioned that you lost a contract, that you had a competitive loss.

Yes, Ben, let me be very specific about this. We delivered a quarter at $140 million in revenue, so we had a strong semi and adjacent side here and we looked at this as a missed opportunity. We had a chance to win a big store. It was in our forecast. We thought we had it. This one we just missed. It was a good gross margin piece of business.

We like the Life Sciences business. It would have kept the momentum going. We have a good platform. This was in our sweet spot and we just missed it. We really missed a chance to add a good system at good revenue and good gross margin and we made some changes and we're moving forward, but, yes, we did miss the large store that came through in the June quarter.

Was the company that you lost that to is kind of your typical competitor or was there some difference in the competitive nature of this decision?

Yes, I don't want to get into too much detail. They are a cold storage supplier, the competitor. It's one of those things that we are getting repaired here and I wouldn't anticipate we'll have that kind of thing again.

Okay, fair enough. And then finally -- (multiple speakers)

Ben, just as a clarification point, and why that's more important was because the pipeline had constricted because of the European slowdown in funding, winning everything became more important. Not that it isn't important normally, but it had much more of an impact.

Right. I'm just more interested from a competitive nature. The cycles are -- the economic conditions go up and down, right?

Yes.

Finally, on the Brooks semiconductor solution, the vacuum versus atmospheric mix, I think you answered the question earlier, but is that (technical difficulty) or is it a customer mix or something going on in the industry?

It's a little bit of a mix of customers and the particular kinds of tools and who happens to be winning pieces of business.

So that could continue for a couple of quarters if the industry is down?

It could do, but as we look, we haven't changed anything in the way of particular pieces of business that we have won or lost. The particular customer piece that drives the strength in atmospheric, we think is probably as strong a component of our mix as it could be in the June quarter.

Okay. Thank you very much.

David Duley, Steelhead Securities.

Do you have any 10% customers in the quarter?

In terms of end customers, we had one more than 10% customer that was less than 20%, more than 10%, Dave.

Okay. Was the weakness in the semiconductor business broad-based amongst your big OEMs and small OEMs? Was it everybody or was it more concentrated?

The weakness is turning out to be very broad-based across the breadth of our OEMs, wherever they are located and whatever their size. It has a fairly negative feel from that point of view.

Okay. Final thing from me is, could you just talk a little bit more about the service gross margins? I think they were down sequentially. What was the exact reason for that?

We had (technical difficulty) put a field cost structure in place and have not had a level of revenue that supported that. We'll be revisiting what the appropriate cost structure for the revenue levels that we see at the moment are.

Thank you.

Jairam Nathan, Sidoti.

I just wanted to get some question clarification on Life Sciences. From what I understood, it looked like you had a lot of visibility and a long lead time, as far as orders go, in the segment. So what happened, like was -- in the fact that this quarter was lower? In other words, if you can tie the sequential decline to -- was it a delay or the business lost that had the impact?

Jairam, this is Steve. Part of both. One, we missed some revenue from the system that we described that we lost and other business that's in a valid pipeline, those systems were not awarded in the quarter.

We still have a very strong backlog for delivery of systems into fiscal '13. There is a good and solid underpinning of business for fiscal '13 from the bookings gains that we secured earlier in the fiscal year. We needed a degree of some wins in the quarter that were going to provide some of the current within-quarter turn to make the revenue goals that we had for the quarter and we did not secure that.

Okay. Can you just remind me of what the backlog is on the Life Science right now?

I'll have to get back to you on that, Jairam.

Okay. Can you give us any more details on the timing related to the order that didn't go through? Is it a university, a government-related order or --? That would be helpful.

Yes, Jairam, we don't have a single order. We've got a pipeline with a bunch of systems with different probabilities. It's a combination. All of those types of systems are in the backlog.

Okay. My last question is on the -- you mentioned a loan of $3 million to a life sciences company. That is not one of your subsidiaries?

No, this is a loan that's facilitating the development of a strategic partner as we see it. Not anything more that we can talk about at this juncture, but an appropriate and exciting opportunity for us, we believe sometime in the future.

Okay. Sounds good. Okay. Thanks.

Say it's a loan to an independent external third party that we regard as a business partner.

Okay. Okay, thanks. That's all I had.

[Patrick Wu], Battle Road Research.

Just delve in a little bit more into Life Sciences, as everyone else has, but you guys said there was softness in Europe and I just wanted to get a sense of how the domestic business in that segment looked for the quarter. Can you add a little color there?

I would say that in terms of the pipeline and the opportunities, US is by far the greater current place of those being generated. I would also say that the fastest growth rate is actually in Asia. We are always seeing for this business to be healthy. There will be some downgrading of this European business. It happened to be much more severe in the current quarter with the macroeconomic situation that they face.

We just see tremendous amounts of interest with some awards, not in the quarter, but some awards just after the end of the quarter that are very exciting in terms of the acceptance and the growing acceptance of the need for our kind of solutions to ensure sample integrity and the value that's being placed and encouraged by some of the leading thinkers within the industry. That's the kind of strength and endorsement that we've seen from the US side. The US side is going to be by far the biggest spender in the biosample area.

Okay. Please me remind me if you guys do a distribution, if you would, just for that segment? Can you do that real quick for me in terms of the different regions for the Life Sciences segment for the quarter of revenue distribution?

No, I can't give you that, I'm afraid, Patrick.

Okay. That's no problem. Secondly, I asked more about the domestic Life Sciences segment because there was recent news about freezer failure in a hospital actually near Boston, in the McLean Hospital. A lot of the brain samples that were donated to The Autism Research Foundation, they were severely damaged. I was wondering if you guys have any insight about that and what are your thoughts regarding that?

Yes, so Patrick, we're aware of it. It was certainly a product that was not ours. It was, our understanding, is a manual mechanical freezer. It was really an unfortunate incident because you think incredibly valuable samples were lost. But not an automated store, a manual, and really I think a pretty significant loss for the research institute.

An advantage should somebody have been using one of our stores is in most configurations, we have at least one, if not two levels of redundancy. I think the degree of importance of the capital investment to secure your samples and ensure their integrity is having an increasing level of importance, we believe, attributed to that amongst decision-makers.

Okay. If I may, just one last one, taking a look at the order bookings for the quarter, is it at all possible to just get an understanding of how it's distributed across the different business segments that you guys have? I just want to get a sense of that.

No, we've not traditionally provided that information, but we do provide the split between our technology bookings as we put them and our bookings for our Life Sciences business, and our bookings were down most significantly in the Life Sciences business. Our bookings were $7.6 [billion] in the Life Sciences business and the $120.4 million in the technology business.

Okay. Got it. Thank you.

Satya Kumar, Credit Suisse.

This is Farhan asking a question on behalf of Satya. I just wanted to ask you, regarding the shipment growth in the December quarter, some of your OEM customers have suggested that they could potentially see an increase in shipment in December and I was just wondering if Brooks is seeing any order pattern which would suggest that could indeed happen, that you would have growth in December?

We didn't pick that up. Could you -- are you talking about shipment patterns?

What I wanted to know was, from the order pattern quarter to date, does it reflect the view that Q4 shipments could be up for OEMs?

It would not indicate to us that shipment patterns are bullish at all for the September quarter from the order patterns that we are seeing. Somebody may have an inventory of our products that may, particularly if they have them at the contract manufacturer, that may enable a trend that's different than that. But we're not seeing, direct from our own bookings and our understanding of manufacturing plans, consistency with that observation.

One of your peers reported yesterday and they mentioned that they had seen some order push-outs on memory, and even as the demand (technical difficulty) also mentioned that there was weakness more recently. Is it fair most of the weakness is coming from memory? Is it fair to say that or are you seeing it in other segments as well?

We're not sure, because we supply to the equipment makers. We don't have precise visibility, if you will, into what the drivers are. We usually could find that out after the fact, but not immediately.

Thanks. One last question on the mix of revenue for your June quarter, how much of it was from semi and how much was it adjacent in industrial? You have, in the past, provided that number and I was just wondering if you could provide that?

Yes. In fact, with that weakness, our semiconductor revenues were down in the quarter very slightly. They were 58% were semi front end products of our business, service was 15.3%, life sciences was 8%, industrial was 11.8% and the balance was in our adjacent markets.

Got you. That's all I had. Thank you.

Edwin Mok, Needham & Company.

Just to clarify one thing on your answer to the last caller. I think he was asking for your calendar fourth quarter, regarding the December quarter. Have you guys seen any indication that the December quarter shipment may be up?

Edwin, not yet. We hear that it's a potential, but we haven't seen indications that would indicate that the December quarter is up yet.

I see. I see. Okay. Good. Just wanted to clarify that. Then the second question I have regarding your Service business, if I look at your Service operating margins and the decline over the last few quarters and I think you guys have mentioned that you guys are making some investment to beef up that group, partially also to support Life Science.

But I was wondering if we kind of go back, historically your Service operating margins runs in the mid-teens or even high teens, I think, in one quarter. I was wondering, with this new investment now, what kind of revenue level do you need to get to for service business for you to go back to that kind of operating margin structure? Frankly, how do you get there?

Some of it is a determination as to whether all the additional infrastructure is necessary. We're going through that evaluation, making appropriate levels of adjustment. It is our target to be back to low to mid-teen operating margins in this business without significant revenue growth above the levels that it's currently at.

I see. How long do you think it would take for you to make that adjustment to the investment you made?

I think it's a couple of quarters.

I see, great. Circling back to a question regarding gross margins for the coming quarter, your guidance implies higher gross margin quarter-on-quarter. Is there a trend that you expect to continue going beyond the September quarter?

Growing gross margins is an important objective for all of the management in this Company, one in which we do place a lot of emphasis. We do know, not speculate, we know with the initiatives in place and under way, to start securing those benefits. It may be frustrating that we're not achieving them as early as we would wish, but we do remain convinced that we will see sequential gross margin improvement as we move forward, recognizing that we can have headwinds in given quarters from the level of activity that we may have to operate within.

Okay, great. That's all I have. Thank you.

Darice Liu, National Securities.

I did have a follow-up question to Ben's earlier question on the Polycold business. Some of that business has been driven by touch for smartphones and tablets. There's been a recent pickup by touch makers for the OGS ramp. I was wondering what this impact to Brooks is when the touch business transitions from the touch manufacturers to the LCD makers, with the move to in cell and on cell?

It has no impact, because you still have a touch interface that's on glass that requires the same levels of coatings as you currently have today. That particular technology development has no known impact to us at this stage.

I mean in terms of your customer base would differ because you're going to see the LCD makers take more control of the supply chain.

Our customer base probably doesn't change. It's who they themselves are selling to, because in this instance, we're selling to coating equipment manufacturers. We're integrating that into complete systems where they will then be selling to a different customer base. There can be a different customer base in that chain, but our share is so significant we don't see any particular reason for any mix change with that change in customer base for our customers.

Okay. Thank you.

You have no further questions at this time. I would now like to turn the call back over to the speakers for any closing remarks.

Thank you, everyone, for your interest in Brooks. We look forward to speaking with you when we report our results for our fiscal fourth quarter. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you so much for your participation. You may now disconnect. Have a great day.