Azenta Inc (AZTA) 2014 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Brooks Automation Q4 and year-end financial results conference call.

(Operator Instructions)

As a reminder, this conference is being recorded Wednesday, November 12, 2014.

I would now like to turn the conference over to Lindon Robertson, Executive Vice President and Chief Financial Officer at Brooks Automation. Please go ahead.

Thank you, Mark. And good afternoon, everybody.

We would like to welcome each of you to the fourth-quarter financial results conference call for Brooks FY14 year. We will be covering the results of the fourth quarter ended on September 30 and then we will provide an outlook for the first fiscal quarter ending December 31 of this year. The press release was issued after the close of the markets today and is available at our investor relations page of our website www.brooks.com, as are the illustrated PowerPoint slides that will be used during the 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. 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 release titled Safe Harbor Statement, the Safe Harbor slide in the aforementioned PowerPoint presentation on our website, and our various filings with the SEC, including the Form 10-Q for the third quarter ended June 30, 2014. We make no obligation to update these statements should future financial data or events occur that differ from the forward-looking statements presented today.

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

On the call with me today is Brooks' Chief Executive Officer, Steve Schwartz. We will open with his remarks on the business environment and our fourth-quarter and fiscal-year highlights. Then we will provide an overview of the fourth quarter, financial results, and a summary of our financial outlook for the quarter ended December 31, which is our first quarter of FY15.

We will then take your questions. And during these prepared remarks we will from time to time make reference to slides available to everyone on the investor relations page of our Brooks website.

So with that, I would like to turn the call over now to our CEO Mr. Steve Schwartz.

Thank you Lindon.

Good afternoon, everyone, and thank you for joining our call. We are very pleased with our fourth-quarter performance as it's consistent with the significant progress we've made across the entire business during FY14, and it gives a strong momentum as we head into FY15.

To recap some of the most significant highlights of the year, we demonstrated excellent traction in our business, with growth of 14%. We continued to transform our product portfolio to position ourselves in businesses that we can grow profitably with the divestiture of Granville-Phillips and the subsequent acquisition of DMS. We are set to benefit even more from the rapidly growing OEM market for deposition and etch processes. And our product lineup is proving to be very well-suited for advanced packaging applications.

We grew our Life Sciences business by 46%. And we established ourselves as the clear market leader in applications which relate to the cold chain of condition for biological sample handling and storage.

In addition, we had another year of significant financial improvement as we boosted gross margins by 270 basis points over 2013. And we finished the year with almost $250 million in cash, leaving us well positioned to continue to make investments in future growth.

I will give some highlights from Q4 and then the year, and I'll speak about some of the events that transpired subsequent to the end of the quarter before I give color about our outlook heading into our FY15. As I mentioned on our last call we continue to build very strong momentum in our vacuum robot franchise. FY14 was a record year for Brooks in the shipment of MagnaTran robots. Our vacuum robot business grew by more than 50% over FY13. Our aggressive investment in single-minded customer focus over the last three years is beginning to pay off.

We've been enhancing and reinventing the MagnaTran vacuum robot platform for more than 15 years. It's the workhorse of the semiconductor equipment industry and the standard for productivity, cleanliness, and reliability. But it's our investments during the last three years on the next generation of MagnaTran robots and our alignment with our customers that's delivering some of the most important design win penetrations that we've had in more than a decade.

Specifically, during FY14, we closed on eight new MagnaTran vacuum robot design wins at three of the largest five tier 1 OEMs. Seven of those eight design wins were for deposition or etch tool applications, deposition and etch being that fastest-growing segments of the wafer fabrication equipment market. Furthermore, and most importantly, all of those seven position and etch wins displace robots previously designed and built by the OEMs themselves.

This ongoing transition from captive to merchant technology products is a testament to the capability that we've developed and have been able to demonstrate to these important customers over the last few years. And it represents a fundamental shift in how they concentrate their resources. Our OEM customers understand that the most critical value that they need to bring to their customers relates to new materials and enabling complex process technology. The automation capabilities are our strength and they can depend on us to deliver reliable and dependable handling systems.

This fundamental shift with the tier 1 OEMs does not come without certain obligations as we are required to stay in front of the equipment makers' technology needs and development road maps. But we are already fully engaged and in the process of getting our next-generation technologies designed in the platforms that will serve 10-nanometer and 7-nanometer nodes.

FY14 was also a pivotal year for us, penetrating products for the advanced packaging segment. At the close of the year, we counted 17 different customers and 21 different product configurations which have one or more of our vacuum robots, atmospheric systems, or vacuum systems as a critical part of their tool architecture. Furthermore, we've already secured additional design wins which will increase this customer count to at least 22 and product configurations to more than 26 in FY15. Although our revenue from advanced packaging was less than $20 million this FY14, we anticipate year-on-year growth of approximately 50% based on forecasts from our customers.

In our automation systems products, which consist of integrated atmospheric and vacuum robots that are built into systems, we grew more than 25% in the year. These higher-value systems are largely sold to tier 2 equipment makers where we are able to demonstrate fast development of fab-ready automation for their process tools. We are pleased that in the areas where we are investing we are able to demonstrate strong growth, and we feel that our automation investment strategy is paying off.

It is, however, important to note the impact of the atmospheric components business on our financial performance over the past years. Even though we've deemphasized this business, its revenue decline has been substantial. A decade ago this component business was a stronghold for Brooks. Today this market is served by more than a dozen aggressive and very capable suppliers, and is now quite commoditized, as represented by the steep price declines that have occurred over the last years.

To put this in perspective for Brooks, in 2007 the subsegment represented more than $130 million of revenue for us. But at that time the price erosion had begun and the Company elected to give up market share as we were not willing or able to chase price. Since then the business has slowly wound down until today for 2014 it was only about $35 million of revenue.

In terms of the recent impact of this wind down of the atmospheric component business from 2013 to 2014, our atmospheric component revenue decreased approximately $10 million, while revenue from our focus areas of vacuum robots and integrated systems increased by $40 million.

We believe that this is about the bottom for our atmospheric components business, and the small amount of business that we continue to support is profitable. We are still very much in the atmospheric automation business, but we are now focused on integrated systems where our strategy is to employ the wafer engine technology from Crossing Automation, which allows us to provide differentiated value to customers and respectable profitability to Brooks. This business is growing and is profitable.

In our newly acquired EMS business, which has become the foundation for our Contamination Control Solutions business, we had a good first full quarter. The integration is proceeding on schedule. And we had $11.5 million in bookings, which is already above the $40 million run rate that we anticipate for this business in our first year.

We also had some important wins, including our first foop cleaner for a memory maker, which we believe will be the first of many. We received orders for two reticle cleaning systems, and we agreed to ship one foop cleaner evaluation unit to a new foundry customer. We are generally pleased by the customer acceptance of our technology, our products and the field performance of the tools in the installed base.

Revenue came in at $4.5 million, up from $1 million in Q3, which was a partial quarter, but below the $6 million we had forecasted. But the strong bookings quarter gives us good confidence that revenue in December will be approximately $7 million.

It's worth noting that our Contamination Control Solutions products are proving to be critical in the flow of material in the factory, and the products are performing well. We are executing a road map which will continue to improve the capabilities of next-generation versions of these products, so we are confident in our ability to extend our market leadership position into the future.

Now we'll turn to the Life Sciences business. We had another strong building quarter in the Life Sciences business. We delivered $20 million and top-line revenue, up about $1.6 million from Q3, and we improved operating income in this segment to breakeven. And gross margin improved, getting back up to 40%.

Bookings in the quarter were $12.5 million and although up from Q3, are below what is sustainable for the revenue levels we are now achieving. However, total ending backlog is $44 million and we have a line of sight to several projects that we anticipate will close within the next couple of quarters. So we believe that this revenue level of $20 million per quarter is a new threshold from which we can and will deliver improvements in operating performance.

Since our last conference call we've registered several important milestones that are significant for continued growth in this business. First, we are on schedule with our store installations for the UK biosensor. We'll recognize most of the revenue from this project over this quarter and the March quarter, a sign that we've made dramatic improvements to our installation process, and that we learned many valuable lessons from our experience with the Tohoku systems.

Second, we announced the acquisition of FluidX, a UK-based consumables company that provides various formats of tubes and vials for the storage of biological materials in cryogenic systems.

As we've described to you over the last few calls, we've had tremendous success with the launch of our new Twinbank automated store architecture, which can be configured for use at both minus 20C and minus 80C. Our minus 20 degrees C temperature configuration is primarily for the storage of chemical compounds. The primary customers for these systems are pharmaceutical companies.

In the chemical compound area, we are able to offer the cold store and a complete set of tubes and wellplates that hold the samples at minus 20 degrees C. These consumables are an important part of our business, as typically the value of consumables purchased for the store can be of the order of 30% of the system price. And over the life of the store the amount of revenue associated with these consumables can add up to as much as the original store purchase price. It's an important and valuable part of our product offering.

The storage of biological samples at colder temperatures of minus 80 degrees C and below poses a different set of questions as the seal between the vial and the cap must be of much higher integrity and usually involves a more complex design and sealing method. The types of consumables in our portfolio were ideal for compounds but unsuited for the storage of biological samples. This is where the addition of FluidX is perfect for Brooks, as now more than 50% of our Twinbank system sales are for the storage of biological samples. And until we acquired FluidX we did not have a biological sample storage product that we could offer with our systems.

FluidX is recognized for their high-quality and innovative product designs. They bring impressive an impressive customer list and a loyal following. They've grown quickly since their inception in 2006. And we are making some incremental investments in FluidX so that they can grow even faster.

Additionally now, not only are we able to offer biostorage systems with complete sets of consumables, but we will have the in-house capability to adapt and modify products that can be used more beneficially by our stores, particularly as it relates to improvements in storage density and the reliability and speed of automated handling where the format of the tube has a big impact on system performance. This captive capability will become even more important as we push our product offerings down to the minus 150 degrees C temperature range, and the challenges and opportunities for specialized consumables become more significant.

Overall, we remain extremely pleased with the acceleration of our Life Sciences business over the past four quarters. We've driven top-line growth, market position and profitability, and simultaneously strengthened the product offerings and the management team. We continue to spend a material amount on next-generation products. We have ambitious goals for product launches in the coming calendar year.

Towards that end we are making a conscious decision to step up our spending in Life Sciences by approximately $1 million in each of the December and March quarters, as the progress made by our development team has been such that we are prepared to bring a couple of our products to launch readiness faster than we had originally planned. Most of this expense will be in SG&A to enable us to bring the product launch in by a couple of quarters and to increase the investments in our channel to expand the FluidX business. These increased costs will come before we fully wind down the last of the engineering activity related to the Twinbank products, but we believe that it's absolutely the right approach to accelerate the opening of new market opportunities.

We feel very confident in this approach as the product development has gone extremely well. And the customer response from those with whom we've shared our development activity is to encourage us to bring these products to them as quickly as possible. This is a moment to be seized.

We fully recognize that in the absence of spending on next-generation products, which is now more than $2 million per quarter, even at $20 million of revenue per quarter our Life Sciences business would be nicely profitable. However, the products that we are developing will deliver real growth and differentiation and we are committed to bringing them to market as quickly as possible.

Finally, and perhaps as important as any other Life Sciences news we've had in the past two years, last week we announced that Dusty Tenney had joined us in the role of President of our Life Sciences business. Dusty comes to us from life sciences tool company PerkinElmer where he was responsible for various business units over his 13-year career.

He is a highly accomplished life sciences business leader who understands the life sciences tool industry, has a strong record of highly profitable business growth, and who keenly understands the opportunity that we are exploiting as we develop a business in the fast-growing cold chain of condition market. Dusty has full responsibility for the business and we are fortunate to have an executive of his stature and track record with us at Brooks, and we are already feeling the positive impact of his presence.

We are understandably bullish in our sentiments about this sector. And we look forward to another year of significant progress in 2015 for Life Sciences in terms of top- and bottom-line growth.

From an operating standpoint we continued to show the improvements that are being driven by our business model. We delivered another 20 basis points of gross margin improvement. And we closed the year with a full year improvement in gross margin of 270 basis points.

We continue to have active plans to further improve upon this performance in 2015. And we believe that we are adequately sized from a cost and infrastructure standpoint to be able to add meaningful revenue without adding appreciably to the infrastructure costs in the Company. All in, we feel that we are in about the third inning of this journey and we're bullish about the improvements that we have yet to deliver from a profitability standpoint.

In terms of our outlook we do see that things in the semiconductor side of the business have begun to pick up. Bookings in semi are rising and we're beginning to see an increase in demand that will keep us busy late in this quarter and into the March quarter. We do not have all the granularity to know if specific products that we delivered to OEMs are for foundry or memory, but we do have some indication from our IC maker touch points, via our lot sorters and our contamination control solutions products, that the spending environment is beginning to improve at various fabs in Asia, and not just at the biggest of the semiconductor chip makers.

We forecast that our BPS product group will be up in December, and that the Life Sciences business unit ought to be approximately flat at around $20 million in revenue. We count in this number approximately $3 million from FluidX. So, on a comparative basis we see a modest decrease in Life Sciences in the quarter.

All in, we are encouraged by the signs that we received that indicate that 2015 ought to be a healthy year in the semi business. We are positioned well in segments of this market that have the propensity and potential to grow faster than the overall market. We are extremely pleased by our presence in the Life Sciences market, our recruitment of Dusty Tenney, the acquisition of FluidX, and the potential for next steps as we define and capture the market for cold chain solutions that are so desperately needed by the marketplace.

That concludes my prepared remarks and I'll now turn the call back over to Lindon.

Thank you, Steve.

Please refer to the PowerPoint slides now available on the Brooks website under our Investor Relations tab. I'll draw your attention to slide 3 to start the remarks. Early in the year we disclosed a road map to 2017 and the key milestones for 2014 to ensure we stay on the path to achieve our goals. The focus is growth and profitability.

As you can see in our growth commitments for the year, we've far exceeded the Life Sciences Systems revenue growth with 46% year to year. That contributed $20 million of top-line revenue to our business in 2014. And the backlog expansion for Life Sciences was similar at 40% expansion, keeping us on the path for growth.

But it is not all about Life Sciences. 85% of our business is in the semiconductor space, and our best measure of the future is the active design wins. We had many wins, but not all design wins are created equally. We are assessing those with a criteria of driving incremental growth in 2015 and beyond. Early in the year we had 12 identified, but followed through on 18.

How do we know that they generate growth? As Steve referenced, they are coming from the packaging space or are opportunities coming back from captive OEM suppliers. So, they are new areas for the merchant business. Finally, we didn't state a goal on dividends but we're happy to support an increased dividend on the confidence of our ongoing operating cash flow.

Now let's focus on the fourth quarter results for a few minutes, turning to page 4. The top-line revenue came in at $123 million, an increase of 4% sequentially. And at the bottom line, non-GAAP earnings per share came in at $0.07. We had another quarter of solid execution.

In summary, on this page you're seeing gross margin expansion, primarily driven by the 9% sequential growth in improved margins of the Life Sciences Systems, which finished with an adjusted gross margin of 40.2% in the fourth quarter compared to just 38.4% in the third quarter.

And you are also seeing a prioritization of investments. The primary driver of the R&D expansion is the Contamination Control Systems investment, with three full months of R&D spend this quarter, and we continued our investment in Life Sciences. But overall you can see we contained the incremental spend of CCS with reductions in SG&A.

You will see further evidence of our strategic directions as we go through the segment results. Looking at page 5, you can see each segment achieving revenue in line with our strategy, steady expansion in product solutions with the CCS acquisition, and healthy growth in the Life Sciences segment.

Let's go deeper into the segments on page 6. You can see improved profitability in Product Solutions with the growth on the top line with stable margins and expense management. As just mentioned, the 5% growth is driven by the CCS business which turned in $4.5 million of revenue. This is a little lower than expected.

Margins are on track with this level of revenue, so, with the bookings of $11 million that Steve referenced we have confidence that CCS stays on track to be a profit driver in 2015. We maintained our full-year goal of $40 million and reaching 40% margin on the CCS business.

On page 7, Global Services continues to show a very stable picture, with solid margins above our 35% objectives for the segment. We're happy with the performance in this segment.

Turning on to page 8, if you look at the Life Sciences Systems, it's tracked n line with our expectations, 9% in the top line, margins above 40%, and breakeven operating income for the quarter providing $0.6 million of improved profits. The results reflect a broad-based business, with a significant portion coming from the UK biobank project, the largest of its kind in our history.

The backlog has changed shape over the past year. At the end of 2013 nearly all of our backlog that we signed was within 12 month. But we have expanded our services contracts to capture extended opportunity and now have $10 million of backlog greater than 12 months. This momentum is fueled by the Twinbank platform. The effect of the FluidX acquisition will start in this coming quarter.

Now turning back to a consolidated view on page 9, you can see again at the top of the page that non-GAAP operating income expanded to 4.7%, nearly 2 full points. And you can see $3 million of improvement in our GAAP net income from continuing operations. The restructuring done in the third quarter is beginning to pay back in the fourth quarter. We took another $1.6 million of restructuring in the fourth quarter.

Income tax has been a contributor to our results in both the third and fourth quarters. The tax benefit shown on the chart is the total GAAP tax benefit, but within that we also had a low 16% effective tax rate in the fourth quarter for our non-GAAP results, as some discrete items expired and were taken in the quarter.

Our cash performance is shown on slide 10. Operating cash flow for the fourth quarter of FY14 was $13 million and for the full year $54 million. This is the second year of cash flow from operations at this level.

Dividends, which increased 25% in the September payment, represented a 43% payout ratio to the operating cash flow. As a reminder, in the other financing investing line we reflect the divestiture of the Granville-Phillips business for $87 million earlier this year and the acquisition of the DMS business for $32 million, which we now refer to as the Contamination Control Solutions business.

At the end of the year our balance of cash and equivalents reached $245 million. This again is prior to the acquisition of FluidX. which we acquired on October 1 for approximately $16 million cash payment.

Slide 11 displays the balance sheet summary. In the quarter we saw cash flow driven by a healthy $10 million decrease in inventory; healthy not just because of the size, but it was driven by some reduction in each area of the business. On the page you see inventory is flat, but remember that we acquired the CCS business which carried about $10 million of inventory.

We did see significant improvement in working capital management through the year. DSO for the year was 60 days compared to 65 in 2013. And inventory turnover was 3.3, up from 3 turns in 2013.

Life Sciences Systems drives the deferred revenue line, reflecting the momentum of our advanced bookings through the year. I'm very pleased with the increasing strength of this balance sheet and the flexibility it provides in pursuing our strategies.

Turning to slide 12, we provide a summary of our annual operating performance. Revenue for the fiscal year was $483 million, an increase of $60 million or 14% compared to 2013. Non-GAAP operating income increased to $20 million and EPS to $0.25 per share. This is an increase of $0.13 per share and it's primarily driven by the top-line growth and margin expansion of 274 basis points.

Operating expenses increased but in line with our expectations. We are carrying the increased R&D for Life Sciences as well as the operating expense of the new CCS business. We also moved from a quite small amount of performance-based compensation expense in 2013 to a full year of performance compensation in 2014. As indicated by the EBIT growth of 56%, the strength of the business is significantly improved.

Let's turn to the segments to see where the improvement materialized, on page 13, across the year. Full-year revenue growth shows up in each segment, as does the margin expansion of operating income. The revenue growth was significant, 46% and Life Science Systems, 12% in Product Solutions, and 6% Global Services.

In summary, we saw top-line growth, margin expansion in each segment, cash balance growth, and expansion of the market opportunity with our acquisition of the CCS business, and the strategic expansion of Life Sciences in our portfolio. It was indeed a pivotal year for performance and for positioning us for further value growth.

Turning to slide 14, we provide our guidance estimates for the first fiscal quarter of 2015. Revenue is expected to be in the range of $125 million to $130 million. The higher revenue is driven by the recent acquisitions of CCS and FluidX, each providing approximately $3 million of additional revenue in the quarter.

They are not dilutive, but not yet bringing profit to the bottom line. And as mentioned by Steve, we're making the SG&A investments mentioned to expand the Life Science sales and channel capability. So, the profit drop through from the revenue may not be what you would normally expect.

At the same time our effective tax rate is returning to a more normal 30% to 35% level in the first quarter, which is more than a $0.01 per share impact compared to the fourth quarter. So, non-GAAP diluted earnings per share is expected to be in the range of $0.05 to $0.07.

That completes our prepared remarks. I will now turn the call back over to Mark to take questions from the line.

(Operator Instructions)

Patrick Ho, Stifel Nicholas.

Thank you very much and congratulations to a nice end of your fiscal year. Steve, first, on the DMS business, when you look at it traditionally, logic and foundry customers typically have a tighter discipline and control on the contamination side of things. You mentioned a memory win. Is that being driven by their now more aggressive push to smaller shrink, say, the 25-nanometer and 20-nanometer node as well as the migrations to new device structures like 3D NAND? What's driving memory customers looking at some of these solutions, as well?

Patrick, first, it's the node. Actually the line width right now is the first one. And we anticipate that perhaps in 3D structures we'll begin to see more of that, but that's been slow to start. But we do see it as an artifact of the line width being driven down. As you said, most of the business sold to date has been logic and foundry.

Okay. Great. And maybe as a follow-up to that, and you can correct me if I'm wrong, a lot of your DMS sales, or the traditional DMS sales, are typically driven by fab expansion projects. From a big picture standpoint is that a positive sign that you're seeing some of these fab expansion projects now picking up once again that's driving the sales there?

Patrick, that's exactly the case. Interestingly, when we look at what we see is backlog for the current quarter, more systems go to actually not the top three manufacturers compared to the top three IC makers in the world. So, it's interesting the breadth, if you will, of the next tier of IC makers is driving most of the business in the current quarter.

Great. And one question on the Life Sciences side. With the FluidX business now being integrated into your life sciences operations as a whole, what are some of the key market drivers there? Is there a level, I don't want to say seasonality, but when spending trends? Or is that highly dependent on when some of your biostore sales occur that will drive subsequent FluidX sales? What are some of the drivers, there in terms of their trends?

Patrick, what we see from the FluidX team is they work very hard to win an account, and once they get their tube or the vial established as the device that'll be used for the handling of samples, then it's very sticky. So, they get repeat business, if you will, as customers need more tubes and vials.

Interestingly, in our entire installed base we have very little overlap to date of our stores and FluidX tubes. As we haven't pushed the customer one way or another, but the ability to go in and sell together, we think, provides a tremendous opportunity for us.

And the other thing is, we talked about an increased investment in FluidX. They are very well penetrated in Europe, and much less so, because they didn't have quite the footprint, in North America. And so some of the investments that we want to make are to give them coverage in North America to help expand a really excellent model where they just didn't have the resources to expand quite as quickly in North America yet.

Great. Thank you very much.

Edwin Mok, Needham & Company.

Hi. Great. Thanks for taking my question. And good job on all the growth initiatives.

The first thing, I took an interest in your commentary about displaying robot designed by the OEM themselves, the internal design. I was wondering, is this a trend that you see across the board, or is it just one or two particular customers? And do you think this is a sustainable trend as you go forward into the advanced node?

Edwin, it's been a few years of work to try to get to this point, but I think we see it across several of the large OEMs, that they recognize that an automation company that can keep up with their needs and demands is more than they ought to be investing on their own. And so the next generation of robots that we're able to deliver we think are very sophisticated. We think they meet the cleanliness and material requirements.

And I think the OEMs understand very clearly that their incremental spend or incremental engineering really ought to be around the process technology. And I think they've become very comfortable with us as a supplier.

But as I mentioned in my remarks, one of the demands that they have is that we also keep up with the next-generation road map. And we've made investments to make sure that we are able to serve not just the products that we're winning but also the ones that they're working on.

I see. Okay. Great. Good color there.

And then I was curious, if I listen to your commentary it sounds positive about the semi-cap space and you talked about improved bookings going into this quarter. But excluding CCS you actually guide flat for BPS business. Why is that the case?

Yes. On a revenue basis the BPS is relatively flat. But on an order base we do feel a little bit of strength in the business, but it won't necessarily convert to revenue in this quarter.

I see. It's just timing of revenue. That's great. And then just quickly moving to Life Sciences, can you share with us, at least in rough terms, for the last fiscal year, what is the mix of systems sales versus consumable sales for the last year?

And then more specific for FluidX, can you give us some idea about margin profile of that business? Is it in line with the 40% that you (inaudible) on a gross margin basis? Thank you.

Yes. Edwin, it's a good question.

We continue to have, up till now, seen about 50% of our revenue in systems in round numbers. And it has varied, really consistently around 25%, varied between 23% to 26% in any given period to be consumables and instruments. We group those together. And then the balance of that 25% is in services.

When we look forward to this year, obviously the FluidX business helps to pick that up a bit. And we anticipate that the consumables and instruments business, which FluidX brings both to us, as well, would probably come up to about 30%.

Now, we're optimistic that our services will continue to build with the placements of our stores, and so the final arithmetic will come out at the end. But I think we're going to see our consumables and instruments come up to be a nicer piece of continuous business supporting our base business.

Now, in terms of margins, I wouldn't vary off of our current profile, and that is range about 40% to 45% gross margin expectations in each of the spaces. We haven't seen a significant differentiation between the three as of yet.

We do believe that, as we go toward our 2017 goals and we build this business toward that objective out at that time frame to be $120 million, that we're going to see some margins change because we will have, one, a stronger top-line business and we will have gone through the integration of our business equation. And we will have also brought on the ultra-low temperature product capability which can stand alone in the market.

So for now, we would reiterate to think 40% to 45% across the Life Sciences business, without much differentiation between the three subcomponents, but that we're optimistic that, when we're talking to a year to two years from now, we will be talking about a different level of margin.

I see. Okay, great.

Quickly just to finish up on Life Sciences then, I think you mentioned bookings a little lighter this quarter, or at least lighter or, let's just say, your book-to-bill is below 1 this quarter. But you said that you believe this $20 million revenue run rate is sustainable. Is it because some of these bigger projects that you are bidding on will come on pretty shortly in the new year? Or is it possible that some of those things got pushed out a little bit more and we might see a quarter or two of softness before things come back?

Edwin, we used to get nervous about this, but we understand this is the nature of the business. It's really tough for us to predict. We keep things in our sites and in the pipeline. So, I think our team is pretty confident we'll be able to sustain at these revenue levels. The bookings will sometimes be up and down. But right now we're pretty confident that between the backlog and what the bookings pipeline looks like that this is about the revenue level to expect.

Great. One last question and I'll go.

Just on the OpEx side you mentioned increase on $1 million in Life Sciences, investing in channel. Is that the new level of spending we should expect, or is it just a short-term two-quarter scenario?

I think the investments that we are putting in will be something that's sustained around the Life Sciences business. However, later in this year you'll see some, I think, cost improvements by the end of the year as we have, in our plans, to take some integration steps of the businesses we've acquired.

What we've said in the past is, and we still hold strongly to, and that is, our first priority was to integrate the platform and the technology capabilities of our teams. Now we're seeing the opportunity to take some actions on real estate and things like that to take out as we've stabilized and actually matured quite nicely across the capabilities of our team.

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

Jairam Nathan, Sidoti & Company.

Hi. Thanks for taking my question. First I wanted to follow up on the SG&A question. Is that in any way related to the minus 150 biostore? Or what of all the projects, if you could give some more details on you're trying to bring forward.

Yes, Jairam, it's both. We have some minus 150 capabilities that we are bringing to market a little bit earlier than we'd anticipated. So, that's a real plus for the Company. So, this was spending that the Company will make at some time. The fact that we can accelerate that by a couple quarters is good for us from a product and market position standpoint.

And then as I mentioned before, some of it is to expand the capability of the FluidX team so they can go out and capture more market -- so, expand their distributions capability. But the new product acceleration and bringing it to market is related to, indeed, next-generation store technology.

Okay. And my other question, I was thinking on the Life Sciences front as far as the bookings go, is there any seasonality here with respect to number of bids out there, or has there been a change in the competitive environment?

No change that we are aware of in the competitive environment. Give us a few more seasons before we have to quote on seasonality. But the one thing that we are prepared for is that our understanding and our experience has been that smaller items, like consumables and instruments, sometimes there's an acceleration for your-end budgets to be spent, and we're standing by. But those are smaller items. It doesn't really impact the procurement of the stores necessarily.

Okay. And my last question, Lindon, you mentioned the tax rate going up. What about the cash tax rate? I know that's been in the single digits.

Our cash tax rate will continue to be quite nominal. Essentially what happens is we end up paying just a little bit of cash tax in foreign jurisdictions where we don't have debt operating losses to carry forward. But in the US we still carry substantive deferred tax assets. Our total net deferred tax assets is $83 million. So, you'll see us go for quite some time now, which is quite a strong source of cash for us.

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

(Operator Instructions)

Ben Rose, Battle Road Research.

Yes. Good afternoon. A couple of questions for Steve.

When you talk about being in the third inning of the transition for the Company, I guess that's paraphrasing from you, could you talk a little bit about whether that's a third inning from the perspective of executing against the market opportunity, or are we in the third inning in terms of your anticipated acquisitions and divestitures going forward?

Ben, I am going to split probably right in between. From the standpoint of the cost reductions, our ability to integrate the companies that we've acquired to get them onto common platforms and systems, and for us to manage a streamlined business model that applies to all of the product businesses, that's the third inning portion. We're working on low-cost region transitions, footprint utilization, as Lindon mentioned. But in terms of us streamlining the cost structure and putting the efficiencies in place to improve the gross margin as much as possible, it's more from an operating standpoint at that level.

We like the product portfolio very much. We do intend to put the balance sheet to work to continue to grow the business. As you know, we're making pretty significant investments from an R&D standpoint. But there will be capabilities that we continue to add to fill in both on the semi side and in the Life Sciences.

So, we will continue to be acquisitive as it suits the business that we've laid out here. We like the portfolio and the platform and the direction of the products. That's rather far along in terms of direction, and the vector is correct. We'll make investments there. But most of the reference was to the kinds of things that we're doing from a common operating platform and developing the business model here at Brooks.

Okay. And in terms of the second tier pick up that you're seeing on the semi-cap side, I realize that not all of your customers over in Asia are telling you what kinds of products they're making with the systems that they're purchasing from you. But can you speculate a little bit as to what kinds of end-user products might be driving that uptick in the second tier, such that they would need new systems from you?

Ben, that's a tough one for us because it would be speculative. These are next-tier foundries, if you will. The devices that they continue to make, they seem to be the customers here. I wouldn't know specifically what those are. But you'd know the names of all of them. But I'd say they're next-tier foundries.

Okay. And then just going back, a question for Lindon, on this slide 13, where you've laid out the improvement made on the operating margin side, could we anticipate a like operating margin improvement for Brooks Product Solutions in the coming fiscal year in terms of what happened in FY14?

You get a lot of leverage on this margin on growth, and so it's going to vary a bit on how the year bears out for us on the growth level. But we do have actions in place that continue to strengthen the gross margin. And as we build out or integrate the CCS business I think you'll see stabilization of the expense structure there. So, as you get growth it's got good leverage, Ben, and that will determine just how much of the operating margin flows through.

Okay. Great. Thanks very much.

John Pitzer, Credit Suisse.

Hi. Thanks for taking my questions. This is Farhan asking a question on behalf of John. My first question is regards to the demand that you're seeing. How much of the demand are you seeing from the Korean OEMs?

Hang on Farhan, we're struggling to find any numbers. But it's a pretty low level at this moment, just to give you an idea. This is not one of the big quarters.

Okay. So you have not seen a pickup from demand from the Korean OEMs yet.

We didn't have it in the fourth quarter.

I would add a comment, just looking back across the year, we've talked that early in 2014 it was actually a significant source of the growth. And we are seeing interest in the CCS product line across several spaces, including Korea. And, so, as we step forward we're going to see some benefits there. But I think Steve's captured it correctly, that we wouldn't call out Korea as being a primary growth driver right now.

Okay. And is it fair to say that for December quarter, as well?

Yes, it is.

And just one quick question in terms of the September quarter. You had a very strong quarter in terms of the semi products. And I just wanted to understand, relative to your expectations clearly you've done better than expected there. What I wanted to understand was, was it throughout the quarter that you see better than expected orders and revenue, or was it more in the later half of the quarter that you started to see a pickup?

It's a great question. I would say that it was very modest coming through the quarter toward then end of the quarter. We didn't know coming into the last month if we would be at these levels are not. And what we saw was a little pickup in both automation and cryogenics, but we also saw a little bit in the Life Science space.

As we mentioned on the call, we were a little short on the CCS, a couple systems that didn't go that we expected. It's hard to tell where the decision timing is on the customer side, but in terms of our realization of what was happening is more in the last month of the quarter.

Thank you. That's all I had.

Craig Ellis, B. Riley Financial.

Thank you for taking the question, and congratulations on the revenue trends in the business. By first question was just clarifying the development spending on the Life Sciences side. Was that an incremental $1 million in the December quarter and the March quarter, so a total of $2 million incremental? Or just the $1 million incremental for both quarters?

Craig, right now we anticipate in each of the quarters about $1 million.

Okay. And then the follow-up to that is, since that's pulling in product that you had expected to ship, what's the timing on revenue recognition on the product that is now coming to development a little bit sooner? Are we going to see that in FY15, or is that really FY16 revenue materiality, Steve?

Craig, I'd put it out into 2016. And the reason I say it is the first units will be beta units. The terms have not yet been worked out. We talked originally about by the end of the calendar year having a couple of units in the field. We'll likely have more than that. But we will be more clear on what to expect from a revenue standpoint, but right now it's safer to put it out into 2016.

Okay. That's helpful. And then, lastly, and sticking in Life Sciences, the Company's clear on the ability to maintain revenues at the $20 million level. Gross margins got to a very nice level at 40.2%. Do you think you can hold gross margins at 40% or higher as you go forward? Or is there anything that would cause that number to be a little bit lumpier than what you expect on the revenue side?

We really think that we should be able to maintain this. Craig, it's in the context, we describe this as really being a 40% to 45% gross margin expectation. There's going to be individual time frames, like last quarter where we had a contract that took us below that level. But at a critical run rate we see ourselves solidly between 40% to 45%.

Thanks, Lindon. Thanks.

David Duley, Steelhead Securities.

Just a follow on, I think it was Edwin who asked it. As far as your revenue guidance goes, I think when you listen to your comments that all your sequential revenue growth is coming from a recent acquisition or a return of revenue from an acquired business. So, I'm a little curious why the core semi business isn't up sequentially in the upcoming quarter. Could you just address that and what you're seeing?

Yes, Dave, for us it's a matter of only timing on units, we think. Parts of the business are really busy and parts are not as much. It's unusual times when all of the parts of the business don't go together.

For example the cryo pump business generally is for one of two semi processes, PVD or implant. But the automation systems go with all the tools. And, so, unusually we have patterns that are not as regular from the standpoint of the etch and CVD are driving some outsized growth, whereas implants and PVD, for example, don't experience the same kind of revenue rise.

So, parts of our business are up, and we believe this is because of the device structure, both the FinFET, the 3D NAND devices. But other parts of our business are not up in the same way. It used to be, five years ago, when part of the business was up all of the business was up.

And why do you think that is now, that not all the segments are moving in the same direction as they used to?

Again, I think device structures drive different amounts of business for various process segments. And there's reuse of tools, as we understand it, so it is conceivable that some new process technologies will drive -- incremental growth will drive some new equipment and there can be some reuse. But we don't know that specifically but that's what we sense.

Okay.

You gave some great detail on the segments of this business in your prepared remarks, like how a couple of them were up pretty substantially last year, and then the atmospheric components business being down, and now it's bottomed. Then you also talked about all these significant design wins in etch and deposition and in advanced packaging. So, maybe help us understand what you think your growth trajectory of your product solutions business is. Or any color that you can give us would be helpful. Thanks.

Dave, I think really tough for us to call the market. But we do feel that we're in a good position, that if the semiconductor capital equipment market is up, we will be up higher than that from a percentage standpoint because of the positions that we have in some of the higher-growth segments.

So, it's really tough for us to call as we don't have any more visibility than anybody else does. But you can anticipate that if wafer fab equipment is up, we believe that the portfolio we've put into place will be in a growth rate higher than that.

Okay. And inside your Product Solutions group what do you think for Brooks will be the biggest growth drivers this year and next year?

Dave, I'll offer up one. We think the big difference maker for us inside our business will be CCS as we ramp that. As I said, we had $4.5 million this past quarter and we think it'll get to $7 million. But we do think we will hit $40 million for the year. So we think there's going to be a significant difference maker, particularly on a year-to-year growth basis. But we also see the increasing application across the front end and in that packaging space.

And I'll just come back to your point, just in the near term there is some seasonality in industrial spaces for us. So, we see a little bit of softness, typically, when we go into this December quarter because all of the ramp around glass treatment and coatings is already behind us in the year for the retail space in the December quarter. So in this coming quarter will see a little softness in that. That's very typical for us. We see that every year at this time.

And on a year-to-year basis we don't see that business particularly breaking out into a growth pattern or incremental applications. We have a very high share there. It depends on the applications of that retail space. But I think the applications in the front end as well as in the packaging are significant for us, and then the CCS.

Great; you have several drivers. That's good. One thing, just final question from me is, you seem to have a lot, or talk a lot more, more emphasis on design wins with the OEMs on the vacuum robotic front. Maybe you could give us an idea about how big that businesses is and what the growth trajectory is, or any details to help go with the design wins. I always have a difficult time understanding how design wins translates into revenue and how much revenue. So, whatever you can provide in that area would be great.

Dave, it's tough for us to break it down to that level of granularity right now. But 50% growth is pretty substantial. It's a really good and healthy business for us. But we're not at a point where we are prepared to break it out at that level of granularity yet.

Okay. Thanks.

There are no further questions at this time. I'll now turn the call back over to Steve Schwartz.

Thank you, everyone. We appreciate your interest in Brooks. And we do look forward to speaking with you when we report results from our fiscal first quarter of 2015. Thank you very much.

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