Azenta Inc (AZTA) 2013 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Brooks Automation Q1 financial results conference call. During the presentation, all participants will be in a listen-only mode. Afterward, we will conduct a question-and-answer session. (Operator Instructions.) As a reminder this conference is being recorded Thursday, February 31st, 2013 (sic - see press release, January 31st, 2013).

I would now like to turn the conference over to Mr. Martin Headley, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you very much, Christie, and good afternoon, everybody. I'd like to welcome each of you to the first-quarter financial results conference call for Brooks's fiscal year 2013. In addition to covering the results of the quarter that ended on December 31, we'll be providing an outlook into the second quarter of our fiscal 2013; that quarter that will end on March 31.

Our press release was issued after the close of market today and is available at the Investor Relations page of our website, www.brooks.com, as are the illustrative PowerPoint slides to be used during our prepared comments during today's call. I'd like to remind everybody that during the course of the call will be making a number of financial looking -- forward-looking statements within the meaning of that Private Litigation Securities Act of 1995.

There are many factors that could cause actual results our other events to differ from those identified in these 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 PowerPoint presentation on our website; and the Company's various filings with the SEC. We make no obligation to update these statements should future financial data or events occur that differ from forward-looking statements presented today.

I'd also like to note we also make reference to a number of non-GAAP financial measures, which are used to, in addition to, in conjunction with results presented 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 reconciliation to GAAP measures, provide a more complete understanding of the Brooks business. Non-GAAP measures should not be relied upon to the exclusion of GAAP measures.

With me today is Brooks' President and Chief Executive Officer, Steve Schwartz, who will follow my introductory remarks with some commentary on the business environment and our current initiatives. I'll then provide an overview of the first quarter's financial results, and a summary of our financial outlook for the quarter ended March 31. Following my comments regarding my coming retirement, and some comments from Steve, we will 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 of our website. To frame the events of the quarter, a summary is provided in slide number 3.

We experienced a further 20% sequential downturn in the December quarter to front-end semiconductor products. This performance was actually favorable to our expectations, as we saw a late quarter hold to the downwards trend.

Countering this was slightly higher rate of decline in products sold for general vacuum purposes, resulting in a 31% sequential decline for revenues into industrial markets. Our $98.1 million, which were above the top end of our guidance range for revenues; and a result, our adjusted earnings also exceeded guidance, with a $0.05 net loss per diluted share.

These results include two months of our Crossing Automation acquisition that closed on October 29, 2012. The quarter included $6.5 million of product revenues reported in the Brooks Product Solutions segment, and $2 million of services revenue reported in the Brooks Global Services segment. We were very active with restructuring and integration programs during the quarter. The actions taken during the past two quarters have removed permanent annualized costs of $14 million from operating expenses, and $5 million from cost of goods sold.

These programs address the integration of the Crossing Automation acquisition; removal of costs in response to a somewhat U-shaped trough to the semiconductor capital equipment cycle; permanent improvements to our operating cost structure; downsizing the Life Sciences footprint; and the initial steps taken to close our Petaluma, California, manufacturing facility as we outsource manufacture of our Polycold branded products to Malaysia.

Additionally, we flexed down our cost of goods sold by $4 million in taking down our contractor workforce. The order environment during the quarter was weak, with bookings of $92.6 million. This represented a sequential decline of 5%. Consistent with an expectation of the December quarter being a trough quarter, the book-to-bill of our business into semiconductor and adjacent markets was 0.99. However, the Life Sciences book-to-bill was lower, at 0.68, with the specter of sequestration at the end of the quarter weighing hard on capital expenditure decisions for many of the participants in these markets.

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 have the opportunity to be able to report the results of the first quarter of our fiscal year. As Mark mentioned, December revenue and earnings performance were ahead of what we had forecasted for the quarter. It's too early to say that we are experiencing an upturn in the semiconductor-related portion of our business, but the upside that we saw to our estimates was related to some promising signs in that market.

In the quarter, we had a fast turn systems request from one of our Korean OEMs for multiple leading-edge thin-film deposition systems. We had won the design of this tool 18 months ago, but these tool requests came quickly and we were able to respond. Additionally, the Crossing Automation team, which is now part of our Systems group, was able to contribute more revenue than our forecasts.

We're also encouraged by the healthy capital spending projections that have been announced by some of the large IDMs of late. And although we have yet to see meaningful changes in order patterns from our OEM customers, we're positive that there is some kind of recovery coming in the next few quarters.

I'd like to spend a moment reviewing the results of our key initiatives, as even in a down quarter, we had several notable highlights that bode well for our future. On the product development and market penetration side, we had another strong quarter. We captured another 21 OEM design wins, essentially right on our average for the previous two years. Eight of the wins were for front-end semi applications, and 13 were for adjacent markets that include back-end packaging and MEMs, which are our principal for adjacent technology wins.

Our lone Japan win for the quarter is one that provides tremendous upside potential. After years of persistence and determination, we won a vacuum robot application at a major Japanese semiconductor equipment maker. It was for one of several possible tool platforms for a next-generation technology, but it's a good start. And we're encouraged that it will lead to future success during the coming quarters and years.

After only two months of being together, we already have won a piece of business that incorporates both Brooks and Crossing Automation technologies into one product -- a Crossing wafer engine, combined with a sophisticated end effector from Brooks, exactly satisfied a customer need for a back-end application. And we've identified other customer opportunities where our combined capabilities make our joint solutions more competitive in the marketplace.

In addition to the product and sales alignment, the rest of the Crossing Automation integration activity is going very well. We're moving with great speed and focus to take advantage of all of the benefits brought by that acquisition. We finalized a new organization, and we've already taken a significant portion of the planned actions that will deliver the $12 million in synergies provided by this combination. We're ahead of schedule on our 15% ROI target, as we expect the Crossing Automation acquisition to be accretive in the March quarter.

In our Life Science Systems business unit, we made solid progress. We topped $14 million in revenue and had a significant increase in gross margin, where we hit 44.5%, thanks to a boost from a planned software project. We won an additional five new automated cold stores at four customers in three countries, and were competitive in all of the large automated store opportunities that we bid on. We also won a contract with a large pharmaceutical manufacturer to perform an upgrade on an aging installed system. It's noteworthy that we anticipate that the installed base of automated systems that are more than 10 years old will develop into steady revenue streams during the coming years.

Also in the Celigo product line we increased sales again, albeit off a small starting point. But the focus of our sales team and the excellence of the product in the field has allowed us to build a very strong pipeline going into 2013. We are particularly encouraged by one other news item in our Life Science business, and that we're partnering with the newly established Chinese biobank that will enable us to be a part of a highly influential center of excellence in Shanghai.

Asia is becoming increasingly important as a market for upcoming biobanks. We see an increase in government funding, as well as a shift by the pharmaceutical industry toward focusing research on the large and relatively untapped populations in Asia. We will report more on the implications of this program on subsequent calls.

Let me shift now to an update on our operational and profitability improvement initiatives. Since August, we publicly disclosed the few activities related to cost reductions and restructuring. These initiatives are being taken to capture synergies from acquisitions in both the Life Science and core businesses, and to provide organizational focus around one of our most critical business objectives -- ensuring that we're better able to deliver higher levels of profitability at all points in a semi cycle.

Some of these major actions include reducing global staffing by 180; consolidating or closing 8 different sites around the world; investing in the reconstruction and rationalization of our supply chain to be able to secure lower parts cost and a more competitive sources of supply. The impact of these changes will be to reduce our annual cost structure by $23 million, of which approximately one-third will be from cost of goods, and two-thirds from operating expenses.

And we're not finished. At this time we have more than 30 value engineering activities underway to reduce the cost of our designs. And we're in a multi-quarter product line rationalization exercise that will necessarily help us to be more efficient with our engineering focus, as we discontinue some older and unprofitable product lines that we've supported beyond useful life, and which have consumed too much of the Company's resources.

In the last quarter we discontinued two older product lines, and we have a number of others on the list to be worked with customers in 2013. These actions will continue throughout the year, but improvements are now starting to show through to our bottom line. The upshot of all this activity will be to increase gross margin and improve overall profitability. While these actions have been in process for some time, it's been difficult to show much in the way of progress because of the steep decline in the market.

However, one indicator of the progress is our change in gross margin during the downturn. Over the last two quarters, while revenue dropped by 30%, our gross margin only decreased by 110 basis points. When our semi revenue recovers to even mid-cycle levels, the result should be measurable and meaningful.

At the same time we've reduced our overall expenses, we reinforced our commitment to our investment and in R&D and E. We continued to make significant investments for new product and new market development. We solidified our efforts to significantly in this area, and are just now beginning to see the fruits of these investments as contributions to the top line are now coming. We believe that at our current level, we are adequately investing for the growth opportunities in our business sectors. And we're specifically targeting areas of semi and life sciences, where we can deliver the most value and will drive the highest return on our innovation.

In terms of outlook, our March quarter is starting out well. And we anticipate some lift on the top line, driven mostly by the core business. And we'll also benefit from a full quarter of revenue from Crossing Automation. Although our bookings were down in the December quarter, we've seen them stabilize, and we are encouraged by some of the orders that are coming through in January.

We projected our Services business would be roughly flat with December, and we're seeing some shifting out in a couple of our Life Sciences projects; so we forecast that our March revenue will be approximately $12 million before growing again in the June quarter. This slight drop-off is a result of delays in commitments from two European population biobanks which are fully committed and funded, but are simply postponed for what we hope is only one quarter.

We're at an interesting point in the history of the Company. We have an extremely strong product portfolio and a development engine that is allowing us to innovate and capture wins and market share. During this semi equipment cycle downturn, we continue to invest in our profitability initiatives, which are substantial; and we simultaneously restructured and leaned out much of our cost structure, so that we'll run more effectively from now on.

Were making our mark in life sciences, and enjoyed the leadership position in this space that we've entered. And we'll continue to build out our presence both by internal product development and through acquisitions that add capability to our cold chain roadmap. We're enthusiastic about the opportunities that are in front of us, and all that we have planned to accomplish this year, and we definitely look forward to being able to report to you on our progress.

I'll now turn the call back over to Martin.

Thank you very much, Steve. Slide number 4 reflects the 20% sequential reduction in revenues, from $119.4 million in the September quarter to $8 million (sic - see slides, $98 million) in the December quarter. The gross profits of $31.3 million, presented here on a non-GAAP basis for the December quarter, exclude the $2.2 million of purchase accounting charges reflected in cost of goods sold. The adjusted gross margin impact of the revenue decline was limited to 40 basis points, with higher margin contributions from Life Science Systems business and the Crossing acquisition.

If you exclude the impact of $260,000 higher amortization costs in cost of goods sold from the Crossing acquisition, on a comparable basis the underlying gross margins only declined 28 basis points, despite the significant revenue decrease. Operating cost control measures and $3.2 million of restructuring-related benefits resulted in a limitation of the operating expense increase to $700,000, substantially less than the incremental Crossing Automation expenses.

If you turn to slide number 5, the waterfall chart demonstrates the various moving pieces. The organic change in our Brooks Product Solutions business was $28.1 million, or a 33% sequential decline in revenues, with an $11 million reduction in profits that took the segment to a loss position in the quarter. The drop-through on the revenue declines was a relatively modest 39%. The Life Sciences business produced slightly higher revenues, and as a result of much more software components of the revenues, generated a $900,000 increase in gross profits.

Meanwhile, in the core Brooks business, within Brooks Global Services segment, this declined 10% organically, from $21.1 million to $19.2 million. As a result of the restructuring actions, the drop-through from this revenue decline was limited to $700,000 or a 35% rate on a business that provides variable contributions well in excess of 50% on the upside. As previously mentioned, the operating expense benefit of restructuring actions was $3.2 million.

Slide 6 shows the GAAP net loss for the first quarter of fiscal 2013 was $9.2 million or $0.14 per diluted share, which includes special charges of $7.5 million before tax; being the restructuring and integration charges after tax of $3.4 million, or $0.05 a share; merger costs of $500,000 after tax, or $0.01 a share; and after tax purchase accounting charges of $1.5 million.

Adjusted net loss, excluding these charges, was $3.8 million, or $0.06 a share. Our effective tax, in light of the weak opening to the fiscal year, is now projected at 28%, with a cash tax rate of around 12%. The presence of non-cash taxes in fiscal 2013, following our reinstatement of deferred tax assets in September, complicates the comparability of Brooks's net result. Thus, I believe looking at adjusted EBITDA continues to be a meaningful way of judging the cash profits trends.

Sequentially, adjusted EBITDA declined from $10.2 million in the September quarter to $3.3 million in the December quarter. This represents a 32% sequential drop-through, which is below the long-term trend drop-through rate since the major restructuring in 2009. Slide number 7 illustrates this trend. A reconciliation of this non-GAAP measure to the appropriate GAAP comparison is included as an attachment to our press release.

Slide 8 portrays how the EBITDA performance resulted in cash flow from operations of $5.1 million. We were successful in our management of working capital, including reductions of $4.7 million in core Brooks inventories. Free cash flow, i.e., cash flow from operations less capital expenditures, was $4.5 million. We returned $5.3 million of cash to shareholders in the form of dividends during the quarter, and had cash outflows of $56 million related to the Crossing acquisition.

We closed the quarter with $142 million of cash and marketable securities. As shown on slide number 9, our balance sheet is very healthy, with $123 million of net working capital, which increased $7 million from the acquired Crossing balance sheet, with $9.7 million of reductions in our core net working capital. Receivables velocity was flat, with a DSO of 59 days. Inventories increased with the addition of Crossing inventories; but core inventories, as I mentioned, were trimmed by $4.7 million.

The calendar year-end shut-down of operations contributed to a much lower accounts payable at the end of this quarter. Additional fixed assets associated with the Crossing business were minimal. And we've revised downwards our capital expenditure requirements in the current environment -- in the light of the current environment. And after another quarter of minimal spend in the March quarter, expect our full fiscal year capital expenditures to be between $6 million and $8 million. Goodwill and other intangibles increased $56 million from the Crossing Automation acquisition.

Beginning on slide number 10, we break out our results for each of the three segments in the first quarter of fiscal 2013. The Brooks Life Science Systems business essentially broke even at $14.1 million of revenues in the December quarter. Gross margins improved to 44.5%, with favorable impact from a mix favoring higher-margin software upgrades. With a relatively larger proportion of our business represented by Life Science Systems, the business attracts a higher proportion of our corporate overhead allocation. And this allocation increase pulled on the contribution, reflected in our external results.

Turning to slide number 11, we're presenting the sequential performance of the Brooks Product Solutions segment, excluding the fair value purchase accounting adjustments excluded from our adjusted earnings. As I noted earlier, organic revenues into front-end semiconductor were down $10.4 million, or 20%. Timely and comprehensive cost actions ensured that we kept gross margin above 30% even at these business levels.

Restructuring actions and reductions in corporate cost allocations resulted in reduced operating expenses for the segment, despite the addition of the Crossing business. Overall, the segment reported a $5.4 million loss.

On slide number 12, we again present the sequential performance of the Brooks Global Services segment. Here again, excluding the fair value purchase accounting adjustments, we experienced a 22% reduction in our organic robot repair business that offset the addition of $2 million in service and spares revenues from the Crossing business.

Overall gross margin improved to 29.1%, and we look to reaching 30% levels again in the near future. Additional global infrastructure costs came with the Crossing acquisition. These costs will be key elements of our integration focus over the next 3 to 4 months, as we eliminate duplicate facilities and functions. Overall, the segment produced $1.6 million in segment operating income at a 7.7% margin.

On slide 13 we portray the revenue trends of the business, excluding the divested contract manufacturing business and including our acquisitions. We're confident that the December quarter revenues represent the trough of this current cycle. We're starting to see bookings recovery, in particular for pumps and robots. Additionally, we can build on the good starting point of adjacent markets, where back-end semiconductor revenues are already running at a $20 million annualized run rate.

Accordingly, on slide 14, we provide guidance of revenues for between $102 million and $112 million for the March quarter. This reflects a 3% improvement from a full quarter of the Crossing business in the March quarter, as compared to two months in the December quarter; a flat to 15% decline in the Life Science Systems business of the weaker bookings performance in the December quarter; and a 17% to 32% increase in the technology business, as front-end semiconductor demand grows.

Additionally, we have a couple of larger new opportunities that we should land in the near future, but are not assuming to do so in the March quarter, and not in the guidance we provided. We see these contributing to an even more robust recovery in the June quarter.

Off these levels of guidance, we guide adjusted EBITDA to be between $5 million and $9.5 million for the March quarter. And this will translate to adjusted bottom-line performance of between a $0.05 loss per diluted share and breakeven.

Excluded from these projections are the residual fair value acquisition adjustments and restructuring associated with the actions already announced. Consequently, our guidance for GAAP loss per share is between $0.10 and $0.03.

Finally, two announcements that are also included in our financial results release -- first, we announced that our Board of Directors has declared a dividend of $0.08 per share, payable on March 29 to shareholders of record as of March 8. And secondly, after a period of contemplation and subsequent discussion with Steve, I've decided to retire as CFO of Brooks, and will be leaving the Company in June after an orderly transition to an as-yet-unidentified successor.

I've enjoyed a challenging but rewarding period at Brooks where, working with many outstanding people, we have addressed unique business challenges and repositioned Brooks for a successful future.

I thank Steve; and before him, Bob Lepofsky; and together with the Board of Directors for this opportunity. I look forward to a different set of experiences with as-yet-unplanned encore activities.

And I believe at this stage Steve would like to make some comments before we turn the call over for questions.

Yes I would. Thank you, Martin. Martin, let me just say it's been a true honor and privilege to have teamed with you over these past three years. And the support you've provided to me on my ramp-up to CEO, and throughout my tenure at Brooks, has been exemplary and much appreciated. Mark and I, as well as all the Brooks employees, will certainly miss working with you. And I'm sure your friends and colleagues on the call, as well as across your professional network, look forward to wishing you the best in this new life chapter. Thank you very much.

Thank you.

And with that, operator, we'll be happy to take questions, please.

(Operator Instructions). Satya Kumar, Credit Suisse.

Yes, hi, thanks. And, Martin, we will really miss you. Wish you the very best for your transition.

Thank you very much, Satya.

On the cycle -- if I take Crossing out of last year and if I take contract manufacturing out of 2011 -- I guess you guys in the product business were probably down roughly about 25% year-on-year. Typically, you see a bigger amplitude related to the cycle. If you're looking at, let's say an increase in CapEx that starts to approach a flattish trajectory for this year, how would you think about the product business for the full year?

And, likewise, on the Life Sciences business, you mentioned that March would be down a bit at the -- in the retail bookings in December; how do you think about the trajectory of that business for the remainder of this year?

I think, Satya, with the addition of Crossing, that we would see that, because of the significant back-end loading to the likely semiconductor demand within 2013, we will still be down in our revenues from semi front-end products on a year-to-year basis from 2012 to 2013. But should be starting out 2014 with a very strong level and runway for our products business there.

So, just with the nature of where that looks likely that those orders will come in, it looks like we will be down sequentially, even if the calendar year capital expenditures were as good as flat.

Yes, Satya, on the Life Sciences, we are learning that as we continue to have success in the business, that these $1 million, $2 million, $3 million projects still provide a little bit of lumpiness in the business. We project the business to grow. We know the market opportunity continues to grow. But we're going to see these $1 million or $2 million up and down from time to time. But we're still very positive on the business and the opportunity that it presents.

We are very close to some stores that have moved out. They could just as easily moved in, in a quarter. But we're still bullish on that business -- on the growth of the business. We would hope that as we get toward the end of the fiscal year, that we'd be up closer to a $70 million run rate compared to where we are today.

And then, Steve, one follow-up -- I think you mentioned that you saw some turns business in the quarter from one of your Korean OEMs for that position. I was wondering if you could clarify to that which were [odallitric] or a metal deposition. And I think in the last three or six months, you had mentioned that the visibility from your Korean customers has been unusually limited. But it sounds like there has been some change. How do you think about that the [unden mallen] that, as you look at the bright side of opportunities beyond the March quarter with your Korean OEMs?

Yes, Satya, so we like the position we have with them. We really don't get much visibility at all. The systems that we're able to turn was helped actually because we had some product that was in the inventory which was really helpful. The specific application, I shouldn't speak to; but it's a very thin film CBD application. And we were aware, when we won the business about a year and a half ago, the application that it was for. And there are several of these kinds of films for which the system architecture is well-suited and already qualified.

So we liked that part of it. We anticipate that as there is any further development in Korea at this particular front-end device node, that it will drive more business. But we are relegated to very short window lead times. And I can't tell you specifically what line or what -- sorry, what line prompted a pretty rush order, but it was for business for a Korean OEM in Korea.

That's very helpful. Thanks a lot.

Patrick Ho, Stifel Nicolaus.

Thank you very much. And, Martin, also I'd like to extend my congrats; and best of luck going forward.

Thank you very much, Patrick.

First, Steve, maybe on the core semiconductor automation business -- I know we've talked about it, but the advanced packaging market and some of the emerging opportunities there, you detailed that you generated some good design wins this past quarter. Maybe if you could give a little color in -- where in your product portfolio are you getting these wins? And what type of applications are they for?

Yes, Patrick, these are for -- they're robotic applications, primarily, on the back end. There is a lot of complexity associated with some of the wafer handling, if you will. So, end effector designs; but at the atmospheric and vacuum level, we have the ability really to adapt. We've spent a lot of the last two years focused on how do we capture more business from the back end and wafer level packaging applications. As Martin mentioned, we're at a run rate right now of about $20 million of annual business driven by the back end, with more opportunity coming, we think.

Great. Going to the Life Sciences side for a second, I know you've talked about the different cold storage products that you have. Some of the revenue that you generated this past quarter, and maybe looking forward, are they on the more medium-sized systems or on the larger-sized systems?

Patrick, what we have mostly is -- if it's a pharmaceutical company, it's a large-sized -- large-size store means measured in millions. And if it's a bio store, typically a medium-size system might be 500,000 to 700,000 samples; and we had a mix.

Okay. And going forward, how do you think that mix could turn out, say, for the next -- at least for calendar 2013? Where do you see the greater penetration?

We think that the growth -- so the -- we think the compound storage that relates to the pharma business is relatively steady. We think the growth in this market opportunity really comes from BioSource; so, for the colder stores of medium- and smaller-size.

And we are seeing quite a number more of, actually, the smaller stores be successful in terms of what's in the pipeline for the balance of the fiscal year.

Great. And then final question, Martin, for you. Just housekeeping -- I was a little unclear about what the tax rate was on a going-forward basis for your fiscal year, and I guess calendar year. What was the tax rate again?

28% is our effective tax rate for both purposes, of which 12% -- not 12% of 28%, but 12% absolute -- are cash taxes, and the balance are non-cash taxes.

Great. Thank you very much.

Ben Pang, B. Riley Caris.

I'd also like to offer my best wishes to Martin. You've done a great job here. To follow-up on the earlier line of questioning in terms of the Korean business that you won, is that an indication that that business has come back? Or this a market share win scenario? Is this a rebound in the business, or market share gain?

Ben, hard to say -- so let me put it this way, it's something that we won to a while ago. I think the equipment maker that we sell the product to has been in qualification. And what turned on this particular thing is difficult to say. But, obviously, it was a win for this particular application that got us going here in a production environment.

Okay. And then in terms of the Crossing business, is the behavior that they're seeing near-term pretty much exactly what you are seeing with your own business? Is there any kind of difference in terms of the [hostar] mix or whatever that might cause there to be a deviation later on in the year?

Yes, so, Ben, a pretty significant portion of the Crossing business is directly to the end-user. So they are getting a little bit different look and maybe a little bit earlier look because some of the product goes directly to IDMs; so they're getting a little bit of earlier and more encouraging look, if you will.

And is that one of the reasons why there's an offset on the service?

Is sorry, Ben. What do you mean by the offset, sorry?

In your prepared commentary, you were talking about this -- maybe I misunderstood it. Their service revenues are higher than what you expected.

No, no. You mean the $2 million that we allocated to services?

Yes.

As we got into it, there was actually -- it was the identification of the spare parts business and where that should have gone. So the difference between what we previously said and what we did is that the spare parts business properly belonged and is going to be managed in the services business. So for consistency's sake, we moved it there. In terms of the way they characterized it, they had the spare parts actually within what we would have called the products business. So it was more an alignment around the way that we normally report. That wasn't so much something that was news to us. It was perhaps something we didn't communicate as effectively as we should have done.

Okay. And the final question is on the Polycold business. Can you give us any indication -- do you see better signs of a ramp up there? And in general, what's the lead time right now for that part of the business?

Yes, Ben, that's the big question here to Company, too. We know there's a pent-up demand; a lot of preparation work going on amongst all the people who supply to the tablet display market. We are on notice that we are not holding firm orders right now. So we hope that that business will come soon, but it's not something that we are putting into our current projections right now. When Martin talked earlier about there were some things that could happen, that's one potential, but we just we have to wait and see.

Is that -- you can turn that business during the quarter?

We can build a lot of units in a quarter.

We turn it providing the orders come in on the right time frame, so it will depend -- relatively soon.

Okay, fair enough. Thank you very much, and a really good quarter.

(Operator Instructions). Edwin Mok, Needham & Company.

Hi. Thanks for taking my questions. First question is on what happened to your industrial and other adjacent market business in the calendar fourth quarter? And are you guiding to that business recovering in the coming quarter? Why did it decline so much in the fourth quarter?

It declined because we found that the demand for general -- in general vacuum markets was declining. Part of it was actually going back to the last question we just got; a lot of uncertainty around the timetable for installing equipment to support the tablets business; a lot of uncertainty there, and it slowed down a lot more quickly than we had anticipated.

In terms of our guidance, we are kind of seeing that business be flattish. The recovery is much more around the semi front-end than is around the adjacent markets going from our December quarter to our March quarter.

Great, that's helpful. Thank you for clarifying that. And then on the semi equipment business, I think on the prepared remarks you mentioned that you guys are looking through your product portfolio and might discontinue some older product lines that might have generated [part of]no revenue growth or slower margin, et cetera, et cetera. I was just curious, have you guys thought about how much revenue you will lose from discontinuing those lines? And how do we think about that?

Yes, Edwin, hi. It's Steve. We have thought about the amount of revenue. Right now if we discontinue a product, it's in the hundreds of thousands or perhaps $1 million kind of range. It's a small amount on the revenue lines; a big amount, usually, on the cost line; and it's in an interesting amount at the gross margin line. But some of these products are very important to our customers. And so we're spending time working with the customer very specifically on either a phase-out, or a change, or getting them to move to a different product.

And I think people are generally understanding that that's the way we're going to go. So in the aggregate here, over the year, if you can imagine that if we were down even $10 million or $20 million of revenue, the Company would be healthier. That's not what we're forecasting right now, but just to give you an idea. That's about the magnitude of the kinds of things that we're probably looking at at the upside here.

I see. I would imagine if you get to that $10 million to $20 million, based on your commentary, it means by two years out or something, that kind of time horizon takes to work through that?

It would take a couple of years to get there, Edwin.

I see. Okay, great. That's helpful to clarify that. And then on the Life Science side, can you remind us, how much of your business is now coming from biobank versus compound? And how do you view that? You mentioned in the coming quarter you might have a slightly lower quarter because of the weakness in Europe. How do you see that?

Edwin, to give you an example, the tools we just booked, the systems we just booked in the quarter, three were for compound and two were for bio. That's pretty typical, actually. That's a bigger percentage of bio compared to the installed base. And what we're seeing now is more bio stores coming forward in the future, without question.

But your compound installation typically is much bigger than the biobank, right? Is that correct?

Yes, the installed base is much greater in the compound store. That's correct. But in terms of incrementally, we're seeing the growth really coming from the biological sample stores.

I see, I see. Great. That's all I have -- and last question, in terms of your costs -- on your prepared remarks you guys talked about cost savings, up to $23 million of cost savings. I was wondering what time frame are you thinking that you achieve that? And from what level would you baseline that number from?

Those costs were baseline versus the run rates that we were running at in the month of August. And the time frame, the furthest any of those goes out is towards the end of our June fiscal quarter this year. But as you can see, we're already getting significant levels of that; when you look at the level, for instance, of sequential cost saving in the December quarter versus the September quarter, at $3.2 million. That's nearly $13 million there already locked, loaded, and recognized. And that wasn't even necessarily a full quarter of some of the actions.

(Multiple speakers) To put it into perspective a little bit, if you look at the September quarter and December quarter, as Martin mentioned, at the operating expense line that looks very similar quarter to quarter. But we added Crossing Automation; so, revenue about $50 million; gross margin, 40%; and two months of the operating expenses, about $3.2 million. But we held OpEx, in the aggregate, flat.

I see. Just to be clear, you said basically you expect to finish that, exiting the fiscal third quarter? Am I correct?

For those actions, yes.

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

CJ Muse, Barclays Capital.

Hi, this is Olga calling in for CJ. Thank you for taking the question. And, Martin, good luck with all of your future endeavors.

Thank you very much, Olga.

Just wanted to follow-up on the previous question on the cost reductions. Could you provide us with what you're currently assuming within the guidance on the OpEx side and gross margins -- especially by segment, so we can see some of these cost cuts flowing through the model.

Yes, we haven't provided the gross margin by segment guidance. But what we can say is that if you were to look at the guidance that we have here, that the operating expenses would be around $37 million to $37.5 million within that guidance range. And that guidance range is, then, largely a function of gross margin, which is somewhat volume-dependent, which is why we'd prefer not to give point estimates there.

Got it. And then, you mentioned on the front-end semi side, expectations for a bit of a recovery there in the June quarter, pointing to some of your design wins. Excluding some of these incremental wins coming through, do you expect the underlying business to see an inflection in June? Or will most of the growth come in the second half of the year?

Olga, it's still a little bit too hard to call. We see what the March quarter looks like. We're encouraged and hopeful about June. But we really don't have any signs that indicate anything about the magnitude of the June business.

Okay, got it. And, final question, given some of the -- some slipping of the timelines within the Life Sciences business that's impacting your March outlook, could you -- do you still see that business growing 20%-plus in 2013? Or is visibility there also a bit more limited?

Well, the visibility is better, actually. We understand a pretty strong pipeline, Olga. We've got to get a little more crisp about being able to close very specific opportunities. And then, frankly, a lot of them do move. But we have a very strong pipeline, good position. We know the growth that's in the business is around 20% opportunity. We intend to capture at least with the same market share. So we do believe that we'll be able to get the business up to a run rate that's in the $65 million, $70 million range as a target by the time we exit 2013.

Okay. Thank you.

Jairam Nathan, Sidoti & Company.

Hi, guys. Thanks for taking my question. And good luck, Martin, for (multiple speakers).

Thank you very much, Jairam.

You mentioned the sequestration issue in the Life Sciences. Was that US-related? And do you think that -- we still haven't figured it out, right? It could be March, or it could be -- so do you think the constant uncertainty could hurt Life Sciences business, especially in the US this year?

Jairam, it could have some impact. The biological stores that go in are important, but they may or may not be at the top of the priority list. But we think that the opportunities we continue to track -- we think there's been a more positive tone, if you will, in the nature of the business. But one or two stores moving in or out has something of an impact. We're positive about the business. And it would be tough to blame the sequestration on anything as we go forward. I think we might have had some hiccups here going into the March quarter, from that standpoint. But, going forward, we think we're in good position.

Okay. On the gross margin on the Life Sciences side, is the 45% -- is that sustainable? Or you think it was more because the software content and it might not repeat?

I think it's -- in the near term, it's going to dip below that 44.5% level, because the software content was particularly large in the December quarter. I think returning to these levels is entirely within our plans. But we need to get further along with some of our supply chain activities to get there. And that will not be the case for the March quarter.

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

Mr. Schwartz, there are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

Okay. Well, thank you everyone for your interest in Brooks. And we very much look forward to speaking with you when we report our results for fiscal 2013, second quarter. Thanks, everyone.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and ask that you please disconnect your lines.