Azenta Inc (AZTA) 2013 Q3 法說會逐字稿

Ladies and gentlemen thank you for standing by. Welcome to the Brooks Automation Q3 financial results conference call. During the presentation all participant lines will be in a listen-only mode. Afterwards we will conduct a question and answer session. (Operator Instructions). Please be advised this conference is being recorded Thursday, August 8, 2013. It is now my pleasure to turn the conference over to Martin Headley, Executive Vice President and Chief Financial Officer at Brooks Automation. Please go ahead, sir.

Thank you Lindsey. Good afternoon everybody. I would like to welcome you all to the third quarter financial results conference call for Brooks' fiscal year 2013. In addition to covering the results of the quarter that ended on June 30, we will be providing an outlook into the fourth quarter of our fiscal 2013 that will end on September 30. Our press release was issued after the close of markets 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 would 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 Securities Litigation Reform Act of 1995. There are many factors that may cause actual financial results or other events to differ from those identified in such forward-looking statements. I would refer you to the section of our earnings press release titled Safe Harbor statement. The Safe Harbor slide in the aforementioned PowerPoint preparation on the 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 today's forward-looking statements. I would like to note we will also make reference to a number of non-GAAP financial statements which are used in addition to and 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, but 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 measures.

Brooks' Chief Executive Officer, Steve Schwartz, will follow my introductory remarks, with commentary on the business environment and our current initiatives. I will then provide an overview of the third quarter financial results, and a summary of the financial outlook for the quarter ending September 30. During our prepared remarks I will from time to time make reference to slide numbers, which relate to the slides which are available to everybody on the Investor Relations page of our website.

To frame the events of the quarter a summary is provided on slide number three. Our order bookings for the quarter grew 5.6% sequentially to $128.1 million. Representing a book to bill of 108. Most notably the bookings for our Life Sciences business doubled to $18.5 million, as we successfully closed out several of the automated storage system orders that were in our pipeline. Our revenues into front end semiconductor market declined as a result of our planned exit from certain low margin business.

This contraction partially offset the $2.7 million sequential growth of revenues into industrial markets, and the $0.5 million sequential growth of revenues into adjacent technology markets. Brooks gross margins improved 150 basis points sequentially with expansion of margins in both our Life Sciences and Global Services segments. Our operating expenses were reduced in the quarter as a result of a $1.9 million reversal of stock compensation expense previously recognized for performance-based restricted stock grants. We now project performance below the aggressive targets that would have resulted in those awards.

The favorable reported operating performance was some what offset by an abnormally high effective tax rate of 74%. This reflects that our previous projections for full year performance were based on a ramp in business that is clearly not happening now, and that we now project a lower full year tax rate off the lower business levels. Consequently we are required to reverse tax benefits recognized in the first half of the year on the book losses incurred during those periods. Given the noncash flow nature of the tax adjustment, and with strong cash returns from one of our joint ventures, we have posted further improvements in cash flow generation, with $12.9 million of cash flow from operations. And with that scene setting, I will introduce Steve Schwartz.

Thank you Martin. Good afternoon everyone, and thank you for joining our call. We are pleased to have the opportunity to report the results of the third quarter of our fiscal year. We had a very good Q3, as we were able to demonstrate significant progress on the key initiatives that have been our focus for more than a year. We continued to capture meaningful design-in wins at key OEMs for the semi and adjacent markets. We secured orders on large shares of the Life Sciences systems business that we projected, and operationally we delivered improved gross margins, another quarter of inventory reduction, and strong cash flow. I will give some of the highlights here and provide some commentary as to what to expect as we move forward.

When we made our original plans for the year, we had anticipated something of an upturn in the Semi portion of our business. Indications were that order activity would begin to accelerate in the back half of the year. But as we have heard from other companies serving this segment any ramp looks to be delayed. However, even in a flat revenue quarter we delivered 150 basis points of gross margin improvement. We reduced inventory by another $4 million, and had strong cash flow of approximately $13 million.

June was a very solid operating quarter for Brooks, and we project another in September. But as to any semiconductor business ramp, it feels likely to be postponed until after the September quarter. In the June quarter we continued to aggressively pursue design win activity in our Semiconductor and adjacent business and we registered another 17 design-in wins from OEMs who serve these markets. Nine wins were for Semi front ends, and 8 were for adjacent applications that included advanced packaging, MEMS, and LED.

This mix is very consistent with the split we have seen over the last eight quarters. Notably, eight of the wins were for various configurations of our MagnaTran 7 and MagnaTran 8 vacuum robots, and included equipment makers in Japan, Korea, North America and Europe. The capability and dependability of the MagnaTran family of vacuum robots continues to be reinforced as we still win new customers and new applications around the world. The brand is known and respected in every 200 millimeter and 300 millimeter factory, and is easily accepted by customers without excessive new product qualification. We are aware that new competitors are still trying to compete in this space, but we continue to win the value and performance battles with this trusted platform.

We achieved two important milestones in Korea as we captured yet another significant vacuum system design win from a Korean OEM. We also achieved the first production shipments of our Jet EFEM from our Korean factory. We continued to extend our lead in 450 millimeter automation capability with the launch of a product we call the 450 nano. The smallest footprint 450 millimeter vacuum transfer system in the market. The system was designed for the 14 nanometer design node and beyond, and it provides the cleanest most reliable smallest footprint system available today. We are currently engaged with five customers in various stages of technical evaluation. Our investments in product development and design wins continues to keep us in position to be the go-to supplier for critical automation needs, and we intend to remain active in our pursuit of even more high value applications.

In our Life Sciences business we are pleased to report that we achieved a significant improvement in bookings. Orders increased by 100% quarter to quarter to $18.5 million. We won six orders for storage systems, five of these were for our new BioStore II and SampleStore II systems that we introduced earlier this year. As I mentioned on the previous call the BioStore and SampleStore systems are the first Brooks-designed products and they combine the best of the product characteristics from the companies that we have acquired, with technologies and engineering capabilities from Brooks.

Three of the store wins were for biological sample storage, and three were for pharmaceutical applications. We were particularly proud that the Tohoku Medical Mega Bank selected our BioStore and SampleStore products, as part of broad population studies which include generational studies to investigate the impacts of the 2011 tsunami and associated aftereffects. Automation sample storage is in its infancy in Asia, and we believe we are well-positioned to lead in what we believe will be a high growth market over the next few years. We also saw a resurgence of sales into Europe, which was a welcome change from the rather dry period in Q1 and Q2. Additionally we had four orders for our life cycle upgrade program, two for biological stores and two were for pharma.

We are pleased with our market share accomplishments and especially with the rapid customer adoption of the new BioStore and SampleStore architecture. As the sample storage density, system speed and efficiency, and overall cost-effectiveness are compelling for large collections of critical samples. We are currently spending at a relatively high rate on R&D in the Life Sciences business, but we believe it is an important for new product development to solidify our product portfolio in this developing market.

The five system wins for the new platform is validation that our approach has merit, and this newly-developed architecture is right on target. We continue to spend on an additional system configuration that will further expand our market penetration into a segment that today is only served by manual systems, and where automation will add significant values to the storage and handling of cells and critical biological samples. Life Sciences revenue was essentially flat with the March quarter but with gross margins back above 40%, which is more representative of what we should achieve in this business.

Ultimately we target our Life Science systems gross margin to be at least 45%. We feel confident that we will be regularly able to deliver this, as we are able to grow the topline in the future. Although we had a very strong bookings quarter in June the delivery timing for these systems is spread out over the next three quarters, which means that revenue will be recognized over the next four quarters, with most coming in December and March. We also forecast the Q4 bookings will not be as high as we saw in Q3, as we are subject to the teaming of contracts being issued.

Nonetheless, we continue to work to build our backlog of is systems with a very active bookings pipeline, and although there will be lumpiness in the orders, revenue will now begin to increase over the next the few quarters. Specifically, our forecast for the September quarter revenue in Life Sciences is around $11 million. As we have discussed with you in the past, the automated sample management space has been fragmented, and has until recently been served by many small competitors who have good technologies and products, but have not had the scale to break out into a leadership position.

This provides a good opportunity for a company like Brooks to bring together some of these entities, and be able to support and unleash some of these capabilities to the broader market. Toward that end two weeks ago we announced the acquisition of Matrical Bioscience, a small life sciences company that was also focused on automated sample management for both chemical compounds and biological samples. Trailing 12-months revenue from Matrical was approximately $8 million. They are an entrepreneurial company with some excellent technologies and a great customer list. They bring to us some product lines that complement what is already in the Brooks product portfolio. We anticipate that our integration activities will be relatively straightforward, and should be largely completed by the end of the December quarter. We are pleased to be able to welcome the team from Matrical to Brooks, and we look forward to the benefits that will accrue to our customers and shareholders.

Now for a few words about outlook. Once again, we are looking at a forecast that is healthy, but still does not include a ramp in business. Our forecast for September is for a flat to slightly down quarter, and yet we are encouraged by the potential for an increase in revenue in the December quarter. Our Life Sciences business will show some growth, but for the Semi and adjacent portion of our business our forecast is consistent with companies in our industry who have already guided revenue for the September quarter. That said we will remain true to our objective to continue to make improvements to be a better Company at all points in the semiconductor cycle, so even in a flat quarter the operational improvements we have been driving will continue to allow us to show margin expansion, improvements in operating efficiency, and additional gains in market share.

I also want to take a brief moment to congratulate Mark Morelli on his appointment as President of Brooks. Mark will continue to oversee the Company's operations, and his new title is a reflection of the much deserved credit Mark has earned over the last 18 months for leading the operational improvements that have already started to pay off for the Company. I am really looking forward to continuing my partnership with Mark as we move the Company forward. I will now turn the call back over to Martin.

Thank you very much Steve. And I direct you to slide number four which reflects the $2.3 million sequential improvement in gross profit that we secured on $1.5 million sequential revenue growth. As Steve mentioned, this represents gross margin expansion of 150 basis points. Our R&D spend was approximately flat, and the SG&A expense levels benefited from the previously noted stock compensation expense reversals.

An alternative view of this sequential change is shown on the waterfall chart, slide number five. The gross margin drop through on the $1.2 million revenue growth in our Brooks product solutions segment was limited to $100,000. As a result of a $1 million sequential decline in license revenues. That is 100% margin. This excluding this decline of license revenues the product sales generated $1.1 million of incremental gross profit on $2.2 million of revenue growth.

The Life Science systems business posted $1.1 million of additional gross profits on slightly lower revenues. This performance reflects robust considerations from software sales and device sales, both of which attract higher margins than the segment's average. The Global Services segment also generated outside margin performance in the quarter, with $1.1 million of incremental gross margins on $600,000 of revenue growth. This reflects both benefits from integrating the Crossing Automation service business, as well as sales of some previously reserved inventory. The stock compensation accrual reversal was the most the significant sequential impact to our operating expenses.

Slide number six shows the GAAP earnings for the third quarter of fiscal 2013 were $1.5 million, or $0.02 per diluted share, which includes special charges of $600,000 pretax, or $400,000 after tax. Adjusted net profit excluding these restructuring and merger cost charges was $2 million, or $0.03 per share. Our effective tax rate in the quarter was 74%, and it is expected to be below 3% in the fourth quarter. We also see cyclical recovery in our joint venture businesses that should continue into the fourth quarter. Adjusted EBITDA is probably the most consistent measure of Brooks performance given variability around our tax rates and fluctuations in other noncash items, such as stock compensation and intangibles amortization.

Slide number seven illustrates the longer term trend of adjusted EBITDA. A reconciliation of the non-GAAP measure to the appropriate GAAP comparisons is included as an attachment to our press release. Adjusted EBITDA was $12 million and over the past 16 quarters has tracked pretty close to a 40% drop through as compared to revenues. The margin performance in the June quarter actually resulted in a $2.9 million growth in adjusted EBITDA on the $1.5 million sequential growth of revenues.

Slide eight portrays the elements of our cash flow generation. We had cash flows from operations of $12.9 million, and free cash flows of $11.8 million. We closed the quarter with $150.7 million of cash and marketable securities. As slide number nine shows, we had further improvements in inventory performance in the quarter with a $4 million sequential reduction. However, we were challenged by significant back end loading of sales in the quarter revenues that resulted in a $13 million increase in Accounts Receivable taking these balances to $86 million. We target improvements in both Accounts Receivable and inventories at fiscal year end. Also our cash expenditures will be moderated from previous expectations, and should not exceed $6 million for fiscal 2013.

Beginning on slide 10 we break out results for each of our three segments in the third quarter of fiscal 2013. In the Brooks Life Sciences business, we saw continued automated cold store revenue contraction ahead of the rebound prefaced by the significant contract wins in the quarter. Automated cold sample management stores represented only about one-third of the revenues in the quarter, as compared to a more normal 50% to 55% mix. However, the favorable software and device mix helped drive gross margins back to 42.2%. Operating expenses in the segment were approximately flat. Turning to slide number 11, we are presenting the sequential performance of the Brooks product solutions segment, excluding the fair value purchase accounting adjustments excluded from our adjusted earnings in the March quarter. As I noted earlier, revenues into the Semi front end markets were down $1.9 million to $58.2 million, as a result of exiting low margin business.

While revenues into our industrial or general vacuum markets were up $2.6 million at $12.9 million with some strong demand ahead of a product transition within our Polycold offering. Revenues into adjacent markets including back end semiconductor markets were up $600,000, or $15.4 million. Gross margin declined 40 basis points from the $1 million sequentially lower license revenues. The stock compensation accrual reversal significantly impacted the comparative operating expenses in this segment. Overall, Brooks product solutions produced segment operating margins of 5.9% in the quarter.

On slide number 12, we address the Brooks Global Services segment. Again these are non-GAAP comparisons excluding fair value purchase accounting adjustments related to Crossing Automation in the March quarter. We experienced 2.9% revenue growth together with gross margin expansion of 310 basis point. Some of this margin expansion reflects the benefit of the work down of previously reserved inventories. The integration of the Crossing global infrastructure into our service business enabled reductions in operating expenses, and boosted the operating margins of the segment to 17.5%.

On slide number 13 we have a graphic representation of the historic revenues trends, excluding the contract manufacturing business that we divested in fiscal 2011. We also show the likely mix of revenues in the September quarter at the midpoint of the revenue guidance, which is in the range of $113 million to $118 million. We he expect to see the beginning of the automated cold store rebound, and as a consequence expect our Life Sciences business to generate around $11 million in revenues. However, contraction in Semiconductor front end products and services market will likely more than offset that growth.

Before getting into guidance for the September quarter, I would like to also talk about the a couple of events that occurred over the past ten days, that will also impact our financial performance in the September quarter. These are shown on slide 14. First at the end of July we entered into a definitive agreement to sell an owned building that we have leased out to a medical devices manufacturer. We expect to recognize a gain of approximately $1 million on closing this transaction later this quarter. This one-time gain is not included in our adjusted EPS guidance for the September quarter.

Secondly, on October 1st we closed the acquisition of the business and assets of a Matrical, Inc. The cash consideration for this acquisition was approximately $10.3 million. The business which is based in Spokane, Washington will be integrated into our Life Science systems business, and provides both market and product expansion, as well as adding entrepreneurial technical and sales resources within considerable experience in this market vertical. We are particularly excited about market and product reach into our buyer markets, and certain engineering solutions applicable to some of our automated cold store development setups.

Finally turning to the September quarter guidance, which is summarized on slide number 15, as I said we are guiding revenues to between $113 million and $118 million. On a pro forma basis this represents a revenue decline of between 1.5% and 6.5%. Off of these levels of revenues we guide adjusted EBITDA to be between $10 million and $13 million for the September quarter. Embedded in this guidance is continued gross margin improvement on some higher operating expense levels without recovery of the accrual reversals of the June quarter. This will translate into an adjusted bottom line performance of between $0.02 and $0.05 per diluted share.

Excluded from the projections are some residual restructuring expenses associated with previously announced actions and the gain on sale of the Chelmsford building. Consequently our guidance for GAAP diluted earnings per share is between $0.03 and $0.06. Finally we announced that our Board of Directors has declared a dividend of $0.08 per share payable on September 26, 2013, to stockholders of record as of is September 6, 2013. With that, I will turn the call over to Lindsey for questions.

Thank you. (Operator Instructions). Our first question comes from the line of Patrick Ho. Please go right ahead.

Thank you very much, and nice job on the Life Sciences business. Steve, maybe if you could provide a little bit of color, I understand that business is always going to have some lumpiness, and is very dependent on the timing of fundings respective to each institution. What type of traction are you seeing in terms of the automated storage systems? Are you seeing it in the extreme cold BioStores, and some of the smaller and midrange, or are you seeing it across the board? Is it centered in one of those areas, or is it across the board?

Patrick, the bulk of the wins that we had were for pretty sizeable stores, so that is the majority of the business right now and for us. As we work on a smaller offering we will be a little bit more competitive, but there is an opportunity for some smaller stores, and we won all but one of the ones we are aware of from a large store, and there is more opportunity for us as we continue to develop a smaller store, and we do want to be more competitive there.

Do you think over like the next 6 to 12 months that is going to be the focus in terms of the largest storage systems is where we will see at least the near term growth?

From a business standpoint we will continue to grow the medium and large sized stores, and from an investment standpoint we continue to invest in smaller colder stores.

Right. Going to the Semi side of things. I think it is rationale and makes sense in terms of the pushouts that we are seeing in the business. Can you remind us what type of lead times you have with your OEM customers from the standpoint of if they see their pickup in shipments in the December quarter for some of their customers, how quick can you turn around I guess your products for them in terms of the shipments that they may have scheduled for the December quarter?

Patrick, for most of the products that we have we are in the 4 week to 8 week lead time for the bulk of what we ship to our customers. A lot of the business we have is turns, and a lot of the expectation is that we will turn business for our customers.

Great. And final question just in terms of the balance sheet. Martin you talked about the increase in Accounts Receivables given the lateness of it coming in the quarters. Was it primarily tilted to one side of the business, Semis or Life Sciences, or was it a mix of both?

It was a mix of both but particularly pronounced in the Life Science systems because within Accounts Receivable there are also some billings made just before the end of the quarter, that were associated with initial payments on large store systems, and that would offset the increase in deferred revenues that you will also see on the balance sheet.

Great. Thank you very much.

Our next question comes from the line of Edwin Mok with Needham. Please go right ahead.

Hi, thanks for taking my question. I guess a follow-up question on Semi. I think some of your customers are actually talking about a very strong shipment on the fourth quarter, or the calendar fourth quarter. Shouldn't you start to see some of that business in the back half of this quarter as they start to note for stronger shipment in the fourth quarter, even with the current systems that you have?

Edwin, exactly likely when they get orders we will get orders, because the lead times now are considerably shorter. So indeed, if there are shipments that are expected in December we would anticipate toward the end of this quarter we would start to see orders.

I see. You don't have the order on hand so that is why you don't want to guide to that, is that the way you want to think about it?

Yes, we are not sure who has orders in hand right now.

I see. That is fair. I want to talk a little bit about market share. Your market share as well as some of your major customers share. Have you seen some share shift among the major customers that is impacting your business? For example maybe your Korean OEM customers are not doing as well, or one or two big customer has lost share and that may have impact on your business?

Edwin, it would be tough for us to comment on the market share that our customers have, but if there is any variability with the customers particularly where we are strong we would see it, but we certainly wouldn't be in a position to comment on their particular market share.

That is fair. Asking a different question, have you seen any of your customer, your major customers want to in-source some robotic solutions, or use their own robotic design themselves, using yours, which have an impact on your robotic business?

Edwin, in fact we are seeing the reverse at this moment on new business we are seeing more opportunities where people are considering outsourcing, where they have maybe more traditionally insourced. So we don't see that as a move that has any momentum, and certainly not a current impact on our revenues.

Okay, great. That is helpful. Moving onto Life Science. I guess two questions related to the company you guys bought. First one just mechanics, does your $11 million guidance include revenue from Matrical?

Yes, it does. It includes a short quarter from Matrical, so relatively modest amounts of revenues from that business.

Okay, great. That is helpful. And then on Matrical, two questions. This company are they losing money right now? Profitable? Breakeven? That is the first question. The second question I see that they have is a lot of consumable type product. How do you think do you think and integrate that, and help drive your consumable business? I think you previously highlighted that is an area that you want to focus your Life Science effort in. Any color you can provide?

I will cover the first part which is that the business is EBITDA positive at Matrical, and so it will be adding positive EBITDA. There obviously will be downdraft from the intangibles amortization that we will take on board. We are currently finalizing all those valuation studies, so it is a little early to project how much of that down draft is, and how much it has offset the favorable EBITDA.

On the consumables in the area that we call devices as well a lot of table top things related to the preparation of those samples and the consumables, those integrate really well into the product portfolio that we have already. Those are good capabilities from Matrical, and they will fold right into the existing Life Science systems business, both from a channel standpoint and the approach to customer.

Okay, great. I have just one last question for Martin. A question on gross margin. It seems like your guidance implies a little bit lighter gross margin in the current quarter. Is that just coming from the reversal of the inventory recovery you guys had this quarter in the service business, was that the main driver there, or it was any other things we should watch out for?

If you look at there were both favorable and negative impacts on our gross margin rates in the June quarter. The BPS gross margins were actually held down as I mentioned by the level of license revenues that we had in the quarter. That was an abnormally light number, and we wouldn't expect that to recur. So we would expect to see together with the other initiatives that our operations groups got going as well as full quarter impact of some of the removal of the lower margin business that you will see margin progressing in BPS. I think the comment on the BGS side, the Global Services side is that you probably saw a higher gross margin than is sustainable. That was over 34%, and as I think you probably recollect our business model targets around about 33% gross margin for that business, so it would be something that is slightly unusual there. And it is likely just the partial quarter of a Matrical introduction is going pull down slightly from the 44% levels in the Life Science systems, but still it would be healthier than we saw two quarters ago. But overall our guidance would be margin expansion, but a lot of dynamics unfortunately between the different pieces.

Okay, great. That is all I have. Thank you.

(Operator Instructions). Our next question comes from the line of John Pitzer with Credit Suisse, please go right ahead.

Hi, this is Farhan Ahmad asking a question on behalf of John. I wanted to understand like in terms of your exit from the low margin businesses that you mentioned, how you much impact did you think that had on your revenues in the June quarter?

It had an impact of about a couple million dollars in the June quarter. But that was not a full quarter of all those initiatives, so there will be a little more sequentially that is embedded within our guidance for the September quarter.

Okay. And so if I look at it like most of your peers like if I look across the component space on the Semi side, they saw a significant increase in the June quarter approximately like 15% in revenue increase. So I am just kind of trying to understand like your Semi revenue trend in the June quarter, why is it like if there is only $1 million of impact from exit, like why is it so much lower?

I think you also might have seen that we had a sequentially higher growth rate in the March quarter to the December quarter than many other people. I think you have probably got to look at the two quarters combined, and then I think you are looking at something that looks fairly comparable there.

Got it. And in terms of the licensing revenues that you mentioned the $1 million. So in response to one of the earlier questions you said that it is not something that you were expecting in future, so I should just expect that to be a one-time event? Is that correct?

It is an unusual impact because the recognition of license revenues is on a delayed basis, because of the time it takes for those licensors to report the revenues that report the associated revenues that they secured that were tied to our licenses. So what it means is that the license revenues we were recognizing in the June quarter related to the down periods of the December and March quarters, and therefore they were depressed. With the way that the industry has recovered since then we are pretty assured that our license revenues will recover back to the levels we have previously seen.

Got it. And just one question on your industrial markets, can you talk about like what trends you are seeing in the display market in particular, and what trends you saw in display in June quarter, and what is your kind of outlook looking into the September quarter?

Well, our investments and revenues in general vacuum are not particularly well timed with what other people see in display. The timing is not a perfect sync. As I said, we saw benefits because we are going through a product transition within our Polycold line, and we saw one of our customers place some significantly larger orders there ahead of that, so I wouldn't necessarily draw conclusions there about what is going on in display generally from that particular event that we saw, but we saw very nice growth there. We generally are seeing display and the general vacuum area be relatively soft, so within our guidance for September quarter is not a particularly robust quarter in that area.

Got it. Thank you. That is all I have.

Our next question comes from the line of David Duley with Steelhead Securities. Please go right ahead.

Thanks for taking my question. This Life Science acquisition that you are layering in, could you talk about how that is going to impact the breakeven, and where the breakeven of the business will be after we layer that in, and I guess if you could remind us where it was before, that would be great?

Well, we are going through a lot of dynamics in the business at the moment as you would appreciate. The breakeven of the business is probably in the area of about $18 million a quarter currently. This acquisition may temporarily increase the breakeven, but we think post-integration it will not do so. It will actually contribute to the sales mass without increasing the breakeven point.

And do you guys have established when you think this business will start to contribute to be profitable?

Dave, we hope that by the time we exit 2014 that we will. As I mentioned we are making some investments in the next generation product development, really the reason why we got into the market, we think the investments are important, but we do hope that and we believe that by the time we exit 2014 that we will be there.

And that is your fiscal year, what is that in the calendar year?

So calendar 2014. December 2014.

Okay. And what is at this point can you just give me a rough idea how much have you invested in total in Life Sciences as far as just acquisitions and buying businesses?

The investments in terms of cash acquisitions is now $108 million.

And if we think longer term what sort of return on investment do you think you should get from this business?

We think that this business has the potential to be both a faster growing business than the Semiconductor business, secondly, a higher margin business than the Semiconductor business, and therefore drive down on what is really relatively asset light business, very low levels of working capital to an ROIC that is better than our Semiconductor average. Our issue and our challenge there is, there is a degree of inventing the market, or in terms of automation solutions for parts of the market where there are not automation solutions today. And that is the challenge that we are currently going through in getting from here, which is a loss making business to there which should be a very valuable business for our shareholders.

Okay. And just someone asked earlier, but I just need to clarify a little bit more. You are basically guiding revenue down but your gross margins are going to be up sequentially. That is because essentially product gross margins are going up in Semi, or could you just kind of walk me through the gross margin guidance?

We have a number of initiatives in place both in terms of supply chain, eliminating lower margin business in terms of exiting from those, and from work that we are doing in terms of efficiency and productivity. All of those have a benefit. We will have a benefit from the mix in the Brooks product solutions, which will have a higher content of the higher margin license business, and so those should give us a very nice increase in margins in the Brooks Product Solutions business, where we see only modest falloff in the other two pieces of our business, and overall that gives us a nice margin improvement.

Now, final question from me is when we see the Semiconductor business take off let's say, take another leg up, let's say in December and beyond, what should the drop rate of the growth in that business be, given all of these initiatives that you have just talked about?

Well, clearly we have shown throughout the cycle as I noted over the last 16 quarters there, it is about a 40% drop through on average, and with these initiatives I would say it has the opportunity to be a few points ahead of that average.

Okay, great. Thank you.

Our next question is a follow-up question from the line of Patrick Ho with Stifel Nicolaus. Please go right ahead.

One quick question in terms of going forward based on some of the design ins and design wins you talked about on this call as well as previous calls. I know it is timing dependent on when OEMs go to their products, as well as new devices that come out. Would it be fair to characterize that these design ins can be reflected in 2014, especially if we have an upmarket next year, or are these design wins for I guess for more of the out years?

Just on a really rough terms here, when we get a win we have seen about half of them come back for repeat business in approximately eight quarters. So just to give you an idea some come one quarter later, some come three years later, but on average in the six to eight quarters after we get a design win, we start to see if the product was indeed successful because there is a long qual time for the OEM's equipment, and that is about what we have noted, and we have seen about half of the wins so far over the cumulative nine quarter period, we have tracked that about half have come back for repeat orders.

Great, that is helpful. Thank you very much.

We have no further questions at this time. I will now turn the conference back to Steve Schwartz for any closing remarks.

Thank you everyone for your interest in Brooks, and we look forward to speaking with you when we report results from our fiscal 2013 fourth quarter. Thank you.

Thank you.

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