Azenta Inc (AZTA) 2015 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Brooks Automation first-quarter financial results conference call. (Operator Instructions). As a reminder, this call is being recorded Thursday, February 5, 2015.

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

Thank you, Grant, and good afternoon, everyone. We would like to welcome each of you to the first-quarter financial results conference call for the Brooks fiscal-year 2015. We will be covering the results of the first quarter ended on December 31, then we will provide an outlook for the second fiscal quarter, ending March 31 of this year.

A 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 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 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 on the aforementioned PowerPoint presentation on our website, and our various filings with the SEC, including the Form 10-K for the fourth quarter ended September 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 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 our Chief Executive Officer, Steve Schwartz. We will open with his remarks on the business environment and our first-quarter highlights. Then we will provide an overview of the first-quarter financial results and a summary of our financial outlook for the quarter ended March 31, which is our second quarter of the fiscal-year 2015. We will then take your questions, and during these prepared remarks, we will from time to time make reference to the slides I mentioned, available to everyone on the investor relations page of our Brooks website.

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're glad to have the opportunity to report the results of the first quarter of our fiscal year 2015.

Today, I will briefly cover some of our key accomplishments and results for the quarter, and then give some specifics about our next actions and outlook.

In the December quarter, we continued to advance on all market and product fronts. We gained more market share in important growth segments and were particularly pleased that our two most recent acquisitions delivered strong above-plan performance. However, total revenue came in lighter than our expectations, which left earnings at the low end of our guidance. But even with the topline shortfall, all elements of our business remain intact for a good 2015.

Our growth strategy continues to be validated by our customer wins and share gains in important markets, but we do have some hurdles to overcome to be certain that we capitalize on the opportunity that we have created. For us, it's all about execution and delivering on the tremendous potential that exists.

We do forecast revenue growth of approximately 8%, but we also forecast approximately flat earnings per share while we complete some operational improvement initiatives and important restructuring actions. After that, we expect to be back to a more normal dropthrough for profit from revenue.

I will now give some color on the results of the quarter. In the quarter, we continued to advance our semiconductor product portfolio and market position. Our BPS products group revenue grew 5% quarter over quarter, led by front-end semi business, which increased by 13% over the September quarter. As the semiconductor business continues to strengthen, we believe that our strong product lineup provides us the opportunity to grow above the overall rate that is expected for the semiconductor capital equipment and we forecast double-digit growth in BPS in the March quarter, led by our strong position in the semi front-end applications.

As we have discussed on previous calls, the growth of our vacuum robot franchise continues to outpace the market, as we're heavily entrenched on both deposition and etch product platforms, which are exhibiting extremely robust growth as the number of layers and process steps requiring these technologies is growing much faster than other process steps.

We had another record quarter for vacuum robots, as we filled orders for platforms that we've been serving for years, and we saw the start of a meaningful ramp in demand for new platforms that we were designed into over the past eight quarters.

Additionally, we continue to be the supplier of choice in this space by winning the vacuum robot on yet another legacy CBD system at a Tier 1 OEM, who is replacing another of their captive robot designs with ours.

Our first-quarter vacuum robot revenue was up 30% compared with the prior quarter and our current build plan for the March quarter is that it will be yet another record quarter for vacuum robots, again driven by the fast growth in deposition and etch tools and compounded by our recent market-share gains of more tool platforms with Tier 1 OEMs.

In contrast, but consistent with the overall semicap and related markets, our systems business, which includes both vacuum and atmospheric systems, was down approximately 5% in the quarter. Our systems business is driven by our Tier 2 OEM customers who serve the front-end semiconductor market, as well as the advanced packaging and MEMS device technologies. As you are aware, many of these Tier 2 customers are Korean OEMs whose products mostly serve Korean customers.

We forecast that our March and June quarters will increase for both vacuum and atmospheric systems as business begins to pick up.

We do want to note here that it's becoming difficult for us to make a specific claim as to the exact size of our advanced packaging business, as it appears that over the last few quarters some of our Tier 1 OEM customers have begun to take more share in this market. When we ship product to these Tier 1 OEMs, we cannot be certain as to whether our systems will be used for front-end or backend tools. As a result, we only have clarity for customers who we know make products only for advanced packaging, and our sales to these dedicated advanced packaging customers was down in the quarter by almost half.

That said, for these same advanced packaging customers, we forecast that our sales will rebound somewhat in the current quarter, and the good news is that in most cases we are the beneficiaries of the business irrespective of which OEM has won the business.

It is interesting to note that we are also seeing a resurgence in 200-millimeter tool automation, and although modest, it will result in a few million dollars of business over the next couple of quarters. Most of this will be for wafer fabs in China.

We are pleased to report that our new contamination control systems business has performed above our expectations and we continue to make significant advances in this market. CCS revenue was just over $7 million for the quarter, up 60% from the September quarter and more importantly delivered positive operating profit on higher gross margin.

The CCS business is performing slightly ahead of our plan and we continue to see good growth opportunities, especially as capacity is added this year at fabs for 16-nanometer and smaller technology nodes.

In our cryogenic vacuum space, business was flat in the quarter as the higher demand for semiconductor front-end business for cryopumps was offset by a seasonally lower quarter for our Polycold products. The semiconductor cryopump business was up 23%, led by shipments for ion implantation and PVD tools, which are by far the highest users of cryopumps.

In contrast, the Polycold business was off by 35% quarter over quarter, which is consistent with our results for December quarters over the past several years and very much aligned to the cyclical pattern of this business.

It is also important to note that the December quarter was a particularly high-cost quarter for the Polycold business as we completed the transition of all manufacturing from our facility in Petaluma, California, to our outsourced contract manufacturer in Malaysia. The factory in California is now closed.

However, in the quarter we carried the cost of both manufacturing entities, but with production only coming from the new factory. We have now incurred the last of the costs for our California operations and the extra approximately $1 million cost that we recorded in December will not be a gross margin drag on the business going forward, and we now have the right supply chain for this business.

As we look forward, we anticipate further growth in our cryo vacuum business in March that will be driven by semiconductor front-end strength and even more growth in the Polycold business as the demand for mobile device coatings continues to drive volume.

Now we will turn to the life science business, but I will start by summarizing our current position in terms of our long-term trajectory, rather than just quarter to quarter, as we will continue to see some variability along the way to steady success.

Thus far, we've been able to demonstrate that we have a unique and unchallenged position in a very exciting growth market. In calendar-year 2014, we grew our life sciences business by 55% organically, and when we include the December quarter revenue contribution from the FluidX acquisition we closed on October 1, our revenue growth year over year was 64%.

We have demonstrated that we can develop market-leading products to address the large automated cold store market, as we have won more than 80% of the opportunities we bid on that only five years ago were contested by eight different automated cold store companies. The Twin Bank architecture has been launched for multiple storage temperatures and is now anchored in a very strong base of customers around the world.

Simultaneously, we have continued to develop other segments of recurring revenue which support our automated stores, like services and consumables. Our life sciences services business has continued to grow steadily, both as we increase the opportunity that comes with our growing installed base, but also as we develop additional value-adding services. To great effect, we have worked to reach out to the significant installed base of systems that came to us through acquisitions to customers who did not always have the type of service support and coverage that they would have been willing to pay for.

And in 2014, although our installed base of large automated stores grew by just under 10%, we grew our services revenue by 26% over the same period.

Similarly, the December quarter addition of FluidX nearly doubled the consumables and devices revenue, compared to our quarterly average over the last two years. Consumables, like services, provides a more repeatable and recurring revenue stream.

FluidX, with their offering for biological sample storage products, expands the size of our served market opportunity by almost $200 million, and we intend to gain share in the near term by expanding our sales organization in North America and Europe.

We are also driving new product offering opportunities by combining FluidX's skills in the development of biological sample storage containers with our Brooks Automation engineering team to create new products, which will give even more advantage to automated storage systems. This will be particularly beneficial for customers who store samples at cryogenic temperatures, where new consumable designs were proved to be enabling in terms of sample handling reliability, traceability, and sample storage density.

Now let's look at our life sciences results for the quarter and outlook for March. In the December quarter, we had a number of puts and takes in this business, and after a couple of softer quarters, bookings rebounded to $19 million. We still have the swings that come from the timing of some rather large projects, but we have a very robust project pipeline that goes out over the next two years with reasonable visibility.

That said, revenue and income in Q1 were below where we wanted to be, as we spent more to ensure we met all of the deliverables for our large installation at the UK Biocentre, the pre-eminent automated biostorage facility in the world where we are fulfilling almost 20 million samples' worth of automated cold storage capacity.

Our performance at the UK Biocentre is important in terms of our results for the quarter and for our future. On the positive side, our systems are performing extremely well. The tools are starting up on time to a very aggressive schedule and the customer is quite pleased with our performance to our commitments.

However, the additional significant costs we incurred to make certain that we delivered this large project to schedule had a large impact on our earnings in December. We are confident that this spending was the right investment to secure our position and reputation as the best choice for this global industry, and I cannot overemphasize the importance of the UK Biocentre as a global reference site for any of the large biobanking projects that are now being planned.

But we are also committed to continue to make improvements to our processes and performance so that our subsequent systems are not only on schedule, but also on budget.

Before I address some of the changes that we are working on in the business, let me mention some notable highlights from the quarter that continue to build our momentum going forward. We are proud to announce our collaboration with Chart Industries, whose biomedical division is the leader in storage systems for samples that are kept at temperatures of minus 150 degrees C and below. They have a strong brand, a broad customer base, and a global distribution channel that will be advantageous in the rollout of our new products.

All of Chart's product offerings are for a manual storage and retrieval, so we believe that the combination of our expertise with theirs will be quite powerful. For more than a year, we have been working together with Chart to develop our first automated minus 150 degrees C system. When we officially launch this product line toward the middle of calendar 2015, we will have a full complement of automated capabilities that span all necessary storage temperatures for chemical compounds and biological samples.

With a good bookings quarter, plus the addition of FluidX to our portfolio, we exited the December quarter with more than $50 million in backlog, which gives us confidence in the reacceleration of this business in the second half of the fiscal year.

I want to spend a moment to describe a significant change that we're making in the life sciences business that will dramatically improve our ability to grow and the efficiency of our operations. In the middle of Q1, we welcomed Dusty Tenney to Brooks as the President of our life sciences business. With a rapid, thorough, and decisive survey of the business situation, Dusty has determined the number of significant changes to the [bliss] structure that are right for the long-term profitable growth of the business and for the near-term improved operations of the organization.

Over the past three and a half years, we have built a strong life sciences business. We acquired four companies and formed them into one business unit. We have used all the market knowledge and technical talent that we acquired, plus some of the core engineering and scientific capabilities already residing in Brooks, to develop a new market-leading platform, and we have established a high-performing new product team to develop product offerings for new markets, which has allowed us to establish a great position in an exciting market.

However, we still have an awkward structure that is inefficient as it includes sites in California, Washington, Massachusetts, Switzerland, and two in the UK. This structure has long been a candidate for compression and better focus, but we believe that we were right to prioritize our market position over the internal structure of the business, as we wanted to establish our products, our technology, and our brand in the marketplace as quickly as possible.

We've held the view that we have needed to pull the cost structure down, and now with the successful and stable product offering in the field, a solid position with a strong customer base, and the right staffing in our business, we can accelerate the structural changes that are needed in life sciences.

It is important to note that none of these actions will impact the growth prospects of the business. We have hired additional sales resources for FluidX and we have plans to continue to add more sales reps this year. And we are very pleased with the leadership and talent in our new product development team and this team will not be impacted by the restructuring.

Even at current revenue levels, the life sciences business is capable of much better profit. A smaller size and fewer sites will also make us more nimble and provide better focus on meeting our customer systems solutions' requirements. We have high confidence in the leadership team running this business and their ability to successfully implement this restructuring over this quarter and next.

The results of these actions is that we will reduce operating expenses in this business unit by $1.5 million per quarter by the September quarter.

Going forward, what you'll see is a streamlined life sciences business unit with costs better aligned with the size of the business, a footprint that allows us to be more efficient and focused, and a concentration of technology capability co-located with next-generation product development.

By the end of this year, we will have launched new products that address an incremental $200 million of available market opportunity and we will extend our partnerships to include a new and broader channel and to more co-development with other partners, like Chart and BioCision.

We continue to examine and explore additional capabilities that we would like to add to Brooks and we are finding that the opportunities are expanding as we increase our presence and footprint in the cold chain of condition market, as we enable new capabilities in the field of cell therapy and regenerative medicine.

In terms of our outlook, we see the overall semiconductor business continuing to grow in the March quarter and we are receiving indications from both our OEM and end-user customers that the June quarter ought to be at least at the same levels as March. The wild card for us in terms of the ability for an even greater acceleration of our semi business will be in the buildout of foundry and logic capacity at smaller geometries, which will drive significant more CCS business.

In life sciences, we currently forecast a relatively flat to slightly up revenue quarter and, despite the operational changes, some improvement at the operating line as we believe that the projects in our pipeline for revenue in March are solid and that our operating performance will once again improve on our large installed -- large installation projects.

We are on schedule to complete the sign-up of the remainder of the eight stores we ship to the UK Biocentre and we do consider the completion of this project to be a tremendous customer and market success.

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

Thank you, Steve. Please refer now to the PowerPoint slides available on the Brooks website under our investor relations tab. I will draw your attention to slide 3, a consolidated view of our operating performance, to start the remarks.

Topline revenue was flat compared to the prior quarter at $123 million, as a decline in life sciences was offset by growth in our Brooks product solutions business. Gross margins were weak this quarter in life sciences, as Steve noted. We will cover more on each business -- on each of our business units in the segment charts.

As a reminder, we closed our acquisition of FluidX at the beginning of the quarter. That business is included in our life science systems business. This acquisition, as well as the April acquisition of Contamination Control Systems, or CCS, was accretive to our overall gross margin levels and to the non-GAAP EPS in this quarter. We continue to be pleased with the addition of each of those businesses.

Let's look now at our segment revenue briefly, outlined on page 4. Brooks product solutions grew 5% sequentially. As Steve described, vacuum robots and contamination control solutions were key drivers here. Within that product solutions group, we did have some headwinds with the normal seasonality of the industrial segment, which uses our Polycold offerings deep in the manufacturing supply chain for smart phones and tablets.

We also saw that paused this quarter in the advanced packaging space. We had seen good growth in the advanced packaging in the two prior quarters and our team sees a clear path of growth here in the next two quarters, which is why I use this term pause.

In life sciences, revenue was down 17% sequentially as our base business was lower than expected; however, FluidX offset some of this decline and added $3.6 million of revenue. Revenue realized from the significant biostorage systems contracts were expected to be lower this quarter, but we saw more softness in our base consumables business than we anticipated.

As we have said before, our life science business is not going to be linear on a quarter-to-quarter basis and we are very pleased with the positioning of this business as we look throughout this year and beyond.

Let's go deeper into the segment, starting with page 5. Product solutions business saw continued growth, but with softer margins. The margin reflects lower IP licensing compared to the fourth quarter and the final transition cost of shifting our Polycold manufacturing to an outsourced provider.

As previously mentioned, growth in the quarter was driven by sales of vacuum robots and the expansion of the contamination control solutions, which turned in $7.2 million of revenue. The gross margins for the CCS business achieved 44% this quarter, exceeding our full-year target of 40%. We expect CCS to continue to be a profit driver in 2015.

Page 6, global services continued to show a very stable picture with solid margins above our 35% objectives for this segment. We are happy with the performance in this segment.

Turning to page 7, let's address the life science systems business. We are not pleased with our revenue in this segment, though at the same time we continue to make important steps in the buildout of this business. First, revenue was softer than anticipated. We expected flat revenue, with the acquisition making up the difference for the anticipated rolloff of the backlog of the systems projects.

While the FluidX business performed well, our base business came in below expectations. The systems project came in a little softer, but the base consumables and instruments business also saw a decline that we had not experienced previously. As Steve described, further pressure on the margins came from cost overruns on projects where we added premium labor and expedited costs to meet customer commitments.

Our operations leadership is focused on correcting this, but it will take some time before we completely clear the issues from impacting the P&L. The combined impact of lower revenue and the increase of project costs resulted in disappointing margins and a deeper impact to operating income than anticipated.

The positives in this business remain. We booked $19 million of new business, adding $2 million to backlog. The FluidX business acquired on October 1 contributed $3.6 million of revenue, well ahead of our expectations, and was accretive to operating income in the first quarter of ownership, with strong gross margins.

Please turn your attention to page 8 to see a building of the backlog over the past two years. This is specific for the life science business. Understanding that the Q2 peak reflects the very large $15 million contract, which we had shared with you on the UK Biocentre, an important point to note is that the trajectory throughout the time to Q4, even excluding the peak, remained quite healthy. We added $2 million to that backlog from new orders this quarter and $8 million from the acquisition of FluidX.

Total backlog now is at $53 million, and $38 million of that is estimated to be in the coming 12 months. We're excited to have Dusty Tenney now leading this segment for us and we believe his experience is enabling us to optimize this opportunity.

On slide 9, you can see we have more dynamics driving EPS results this quarter. Special charges increased $1 million as we took restructuring actions of $2.7 million in the quarter, continuing the path to reduce redundancies in workforce and facilities. A portion of this was the final closure of our Petaluma site, which had previously contained Polycold operations now performed by a Malaysia-based third-party manufacturer.

Other income includes net gains from foreign exchange. The benefit on the income tax line reflects the normal tax rate applied to a loss position, but also has a $1.4 million benefit from discrete items. The largest of the discrete items was the 2014 tax credit authorized by Congress during the quarter.

Slide 10 shows our cash performance. Operating cash flow for the first quarter of fiscal-year 2015 was $3 million. We used $7 million for dividend payments in the quarter and investments included $15 million of cash for the purchase of FluidX and $2.5 million for the funding -- for funding BioCision in exchange for convertible debt securities.

Also, following the quarter closing, we have also funded a second half of this arrangement with BioCision, which is another $2.5 million for additional convertible debt securities. BioCision and Brooks are in joint development of products aimed at the cryo storage market in anticipation of the minus 150 degree systems reaching the market later this year.

At the end of the quarter, our balance sheet shows a balance of cash, cash equivalents, and marketable securities of $219 million. I continue to be very pleased with the strength of the balance sheet.

Slide 11 displays that balance-sheet summary. Working capital remains healthy. We had an operational decrease of inventory offsetting the addition of approximately $2 million of FluidX inventory acquired in the quarter. We also had improved Accounts Receivable performance with a DSO of 55 days, three days better than the fourth quarter.

Our net deferred tax asset now sits at $86 million. The strength of the balance sheet reflects the cash-generating strength of the business and provides significant flexibility to pursue strategic investments in the future.

Now turning to slide 12, we provide our guidance estimates for the second fiscal quarter of 2015. Revenue is expected to be in the range of $130 million to $135 million and our non-GAAP EPS is expected to be in the range of $0.04 to $0.06 per share.

That completes our prepared remarks. I will now turn the call back over to Grant to take questions from the telephone lines.

(Operator Instructions). Edwin Mok, Needham.

Thanks for taking my questions. First question on the life science side, on the restructuring you guys mentioned that you took some costs out of the model. Anyway you can give us some rough idea on breakeven after you reach -- what is your breakeven revenue level after the restructuring?

And you mentioned that it would take a few quarters to kick in. Is it more linear cost improvement across this year or how you think about that?

On the restructuring, Edwin, we'll have -- this quarter, it was 2.7. So I would estimate that the payback on that is going to be about close to -- less than a year, but it will be about more than a $0.5 million of savings on a quarterly basis.

Your question on breakeven, it moves for us because we have the life science investments, so I would hesitate to put a number on the table at this point. But here is our focus. Our focus is to continue to reduce the structure that our semi business is running on, and we have improved that point, and our breakeven point on our life science business, while we lost money in this quarter, that's something we are very focused on in getting back to as we move through the year.

I see. With a bigger mix of consumable or service revenue from the life science now, while you're doing restructuring, is it also that you need to actually invest in your sales or service organization to support that and would that slow down the kind of improvement you make on the operating line?

Edwin, the addition on the sales, for example, for the consumables is -- it's a pretty quick return. You build that out incrementally, and so as the market opportunities expand, the salespeople can capture it.

Generally, the costs that we incur there are covered by the incremental sales, and what we do is we watch the salespeople. As their territory or the region or the opportunity they have continues to grow, that's when we add people to it.

Generally, those costs go with that -- generally, those costs grow and are covered by the revenue and gross margin. From the services standpoint, generally we follow the installed base and we have been pretty successful selling service agreements with the tools as they go out. We are selling upgrades. We are selling software upgrades, so there are a number of things that we do, again, where revenue goes along with the cost structure. We don't have to build out costs for services, either, in advance of being able to cover those costs.

I see, okay. Lastly, just on life science, just quickly, you guys have this target of $80 million revenue over this year or within fiscal 2015. Is that still the target right now?

Edwin, we stand by that right now. We had a slow start in the year, for sure, and we're going to have something like that in the March quarter. Dusty has got his work cut out for him. He has got that as a target and he is working to pull that through. How we get the backlog balanced against that is going to be our challenge, but we are not giving up on that target yet.

I see, okay, that's fair. Then just quickly on the product -- Brooks product business group. On the Polycold side, is that just seasonality? I remember every year this quarter you always have weakness on that part anyway, but eventually you balance that because you get to March and beyond. Is that how we should think about that?

And then, I guess, two-part question. The second part is you mentioned that AP revenue came down a lot. Is that just a timing thing or you're worried that revenue is not materializing this year?

Edwin, a couple of things. One, the Polycold is exactly the same cyclical behavior we have seen for the last years and, interestingly, almost the same revenue level for the December quarter, so we don't see any difference in the seasonality of that business. That's pretty consistent. We saw December behave like you did.

We do see the business coming up some in March and generally June is a stronger quarter. We don't have so much visibility to that, but that's what the seasonal pattern has been.

Edwin, sorry, you mentioned which revenue had come down? We didn't catch that?

The second part is, sorry, advanced packaging.

Advanced packaging?

Yes, what's going on with (multiple speakers)

We saw advanced packaging drop by almost half in the December quarter. Our forecast and our build plans are for it to rebound somewhat this quarter and then be even higher in the June quarter, but indeed we did see advanced packaging down.

As I mentioned in my comments, we are not as certain about the size of that opportunity as we once were as it's a little bit clouded by some of the Tier 1 OEMs who ship our products into some of their backend market-share gains.

I see. Last question I have, baked into your guidance, what kind of -- how do we think about gross margin?

In that guidance, we expect good improvement coming back this quarter. As we've said, it will take a little bit of time to get out from under some of the cost pressures we are seeing in the installation stages of life sciences, but we will see a significant improvement is our expectation, perhaps not all the way back to the 40% to 45% target that we have established, but most of the way. And we expect that BPS returns to a more normal level as well.

Great, that's all I had. Thank you.

Craig Ellis, B. Riley.

Thank you for taking the question. The first is just a clarification. On the shortfall in life sciences in the quarter with base systems and consumables, what was the cause of that? Was that deals that were pushed out or went to a competitor? What was the variance?

Craig, actually, we had shortfall a little bit from a number of elements of the business. Some was from systems, but probably the one that had the biggest impact was the instruments and consumables and devices from the regular course of business, not FluidX. FluidX really was outstanding and they not only met their numbers, they had one of the best quarters they have ever had in their history.

But we had anticipated more from the consumables and devices and instruments and it just didn't come -- it didn't come through. Those are things we can turn pretty quickly. We had anticipated that revenue would be a little bit higher and it didn't come through in the December quarter.

Thanks, Steve. Then, Lindon, on the optimization program in the same segment, how much of the benefit is expected to come through in the COGS line versus OpEx for the $1.5 million that you're looking for two quarters out?

Most of that will come -- actually, I guess I would say about two-thirds of that will come through the cost and then about one-third through expense. It's going to spread across the life science segment.

I would emphasize that the restructuring that we discussed this quarter, it had a little bit, but more of that was in other parts of our business. It wasn't as much of the life sciences.

So the life sciences actions that we are talking about is something that we are going to be executing between now and the time we get to that September quarter that we talked about.

The key point there is that is an integration effort really of the sites that we are carrying in life sciences and I think we have talked about this before. Our focus there has been integrating on the platform, which we did with the Twin Bank development, and we have turned our focus toward integrating the sites. And frankly, there was a caution here now with Dusty here, there is a lot of clarity of exactly which direction we want to go on the integration of this, so I think it's helping us quite a lot with his leadership.

Okay. The gross margin questioned in global services, 37.2%. Were there any one-offs there? And related to that, is that a sustainable level or should we expect to move back towards 35.5%?

I have been extremely pleased with the last three quarters of the margins in global services. My expectation is this generally is between a 35% to 36%. I keep pressing them that, hey, they did it for me this quarter; you got to do it for me again.

But I wouldn't suggest to you to model at 37%. I would say 35% to 36% is where we would have a general momentum. This quarter, we -- our observation is we did have some materials under run. I wouldn't call it one time, Craig; I just -- we'll call it a little bit of the mix of the business that we participated in.

Thank you, and then lastly for me, a longer-term question for Steve on product solutions. Steve, I think a quarter ago you were thinking it was a business that could outgrow the industry this year. Is that still your view?

Yes, we really think so, Craig. We are bullish on the slots that we've taken, if you will, with the contamination control solutions and the vacuum robotics really set to outgrow other elements of the business, will grow with the business. But we feel very confident we are in a position to outgrow.

Thanks, guys.

Patrick Ho, Stifel Nicolaus.

Steve, maybe first a question in terms of what you highlight on the semiconductor side about some of the increasing capital intensity trends related to etch and deposition. As you see those market trends transpire, do you also see new opportunities where you can gain additional share from, quote, the captive capabilities that these suppliers have, or is it more just benefiting from the number of tools that they will be shipping over time?

Yes, Patrick, we do see both, actually. On next design tools, we probably had more wins and a higher percentage than any time in the Company's history. Over the past four quarters, we penetrated a very large Japanese OEM for -- to replace their captive robots, not just on two difficult platforms, but also we are working with them on even replacing a common platform robot.

In the quarter -- I might not have been clear in my comments -- in the quarter, we actually won another legacy CVD robot from a Tier 1 OEM where we replaced their captive robot on a pretty high volume runner.

So we continue -- as we perform at the next-generation products, we continue to have opportunities to go into legacy products with really dependable vacuum robots, and we're benefiting from both of those things, so the growth in the market itself and, as I mentioned, compounded by some of these newer wins on older products, if you will.

Great, that's helpful. Maybe sneak in one more question on the semiconductor side of things. Obviously, you have seen the pickup on the OEM side of things with the tool vendors. Are you also seeing sustainable growing trends on the chipmaker side, given that there are several fab projects that need to be filled out over the next couple of quarters?

Patrick, we are. We are seeing it. We are -- but we're on the edge here. We anticipate that if the fab commitments are made that we will have orders, but we're on the edge between how much material do we order, how ready do we get so we can meet some of these delivery requirements, which we know will be short.

But we are in pretty close contact. We understand what the demands will be. We're not as there on the exact timing, but we are getting prepared at the fabs where there is 16- and 14-nanometer and even smaller production. The things that we do specifically and directly for those fabs, which include lot sorters and the CCS products, that will definitely benefit the business.

Great, and a final question on the life sciences side. You mentioned the services business, so some of the opportunities there. Given your expertise and your long experience in the semiconductor side, there is obviously a different kind of, I guess, variable on the services front. What are the life sciences customers looking for on the services side that you can provide that others can't?

Patrick, a few things. One, when we moved to automated systems, suddenly we are talking with customers about workflows, as opposed to discrete events where we could not add quite as much value, for example, when it was always a manual insertion and retrieval of a sample from a cold store.

The kinds of things that we will be able to do to guarantee the temperature, to guarantee the reliability of the samples, to guarantee the safety and security of the samples are the kinds of things that we can offer that weren't available to the marketplace before, but are as a direct result of the products that we bring to the market.

Dusty has a lot of experience here growing a very successful services business at Perkin-Elmer, and the principles and practices and things that he will bring to the team will just continue to enhance that. So we are bullish about the opportunity, we are laying it out and defining it, but you will see that it includes more not just about the physical handling of samples, but also the logistics and informatics that go along with delivering secure samples.

We are encouraged by what could be, but just what we have been able to accomplish in the last 12 months has made us -- enabled us to make the services organization much more productive than we had been.

Great, thank you very much.

Patrick, I think I will add to that, too, because we have seen a lot of momentum over this last year. We have talked about some, just on the global presence that we have in the service field as well, supporting the sales of our system.

There is a tremendous amount of momentum and synergy between those two. I think our customers have highly valued Brooks having a global presence and capability to service various markets readily and being near them, and you can see the evidence of that, as I have highlighted in the past on service contracts that we have signed with the upfront sale of the system, more so this past year than ever before.

Great, thank you very much.

(Operator Instructions). Jairam Nathan, Sidoti.

Thanks for taking my question. First, I might have missed this, but did you explain given the revenue increase, why is the EPS declining?

If you noted in this prior quarter here that we just discussed, we had a benefit from foreign exchange, as well as we had income tax benefits in this quarter, and we don't project that to happen in this coming quarter.

While we are going to get some revenue growth and we will see some return of margins in the life sciences, it doesn't quite offset getting the -- [instead of] getting the income tax benefits, as well as the FX.

We will also face just a little bit of expense. I always hate addressing this, but in the March quarter of the year, two things happens with us, but we just have a little bubble expense as we pay our Board on an annual basis in that quarter and we also have a bubble on our payroll expenses, tax expenses. By the end of the year, not everybody is paying in the payroll taxes because they have already capped out, so we just to have a bubble that we always face this time of the year on the expense. That puts a little pressure on it as well, but that levels out over the year.

Okay, and Steve, just on -- with regard to the agreement with Chart Industries, can you just give us some more understanding of how your revenue will flow? Do you -- I am guessing you'll use their distribution networks or do you -- should we expect the same amount of operating margins from the products that are sold through Chart?

I can't go into the details yet. We will be clearer after we are able to launch the product, but our intention and our target and our path is that you will see this similar kind of operating margins for the revenue we recognize from the products that we sell with Chart.

Okay, and then, is the -- would you be recognizing what you sell and they are recognizing what they sell, or would it be a joint effort?

We have -- it's us and Chart and our channel partners, and after we work out not just two, but three of the parts here, we could communicate a little bit more clearly to you. We are still in discussions on how all of this will flow. We will be as clear as we are able once all the contracts are in place.

Okay. My last question --

(multiple speakers) a little bit fast for us yet, but we will be clear as we launch the product.

Okay. Lastly, over the past two or three years, Brooks has seen a decline in revenue because -- primarily because of Samsung. I think their confidence went a bit here on the logic side. As Samsung is reportedly winning some more Apple business, and so do you see that reverse a bit here?

We won't comment on any specific end users, but I think as you are aware as Korean suppliers spend more, it drives a specific portion of our business, as we supply to a lot of the Korean OEMs who have very strong presence in the Korean fab.

Again, we can't get down to that level of granularity, but absolutely Samsung drives an outsized portion of our business.

Okay, thank you. That's all I had.

Farhan Ahmad, Credit Suisse.

Thanks for taking my question. My first question is on the product gross margin. If I look at the trend from September of 2013, the gross margins back then were about 38% and they have declined every quarter and now they are close to 34%. So I just wanted to get a sense of what's happening there.

And also, if -- one of your big customers has been talking about using more of the Japanese suppliers, and as the yen has devalued, is that putting some pressure on pricing?

I think one thing you need to do in the gross margins that you're looking at is look at it on a continuing operations basis. We have done some changes in our portfolio, so I just question you on that, and either of you is fair to ask us questions, I'm not resisting the question, but just on an absolute basis in our portfolio through 2013, the product solutions margins increased from a 32% level up to, by the end of the year, a 36%. Now we are looking at this level that's at 34%.

So we dropped -- went from this 36% down to 34% in this quarter, and as we have explained, we think this returns. I think essentially you saw strong improvement through 2013, and then in 2014, you saw us make some portfolio adjustments and we are investing in the CCS business. We have just seen that come up and we expect more revenue energy from that business.

We have also seen on the life sciences, as we have explained in more detail here, that we generally expect 40% to 45%, but we are clearly running below that in the low 30%s now, but we will be bringing that back.

Just -- that's the trend I see. Recall that we did make the sale of the Granville-Phillips business last year, three times revenue. We brought $87 million back to the shareholders for investments in strategic businesses. That was the trade-off that we made and I think most of our investors appreciated that trade that we made in the portfolio.

It's Steve. I just wanted to comment also on the nature of the strength of the yen. In the days when we had a larger atmospheric robot portfolio, we likely would have suffered some pricing pressure there. But as we have spoken recently, the atmospheric robot portfolio is quite small now from Brooks' standpoint on the systems and on the vacuum robots. We really don't compete against Japanese competitors there, so we neither see either a pressure or a benefit from that as we stand alone in those particular markets.

Got it, thank you. Then in regards to your OpEx strategy going forward, if I look at the OpEx, obviously you have made a lot of acquisitions and have been investing a lot to grow the business. How should we think about OpEx going forward? Over last one year, I see the OpEx has grown about 5%-ish and how do I see -- how should I think about OpEx for next year?

It's a fair question. Remember, we have added two acquisitions and that's been a fair amount of the operating expense increase this year on our quarterly run rate.

Our objective is when we take an acquisition where there is synergies, we exercise that synergy. For example, the contamination control business, we took on an additional structure initially and what we said as we acquired it that over a two-year period, we would integrate more of this both in the sales and the operations. And so over that period of time, you'll see this pretty much fully absorbed inside our structure, I expect, both on an expense G&A structure, as well as in a cost structure.

It's been really -- I would add to that, by the way, we have had tremendous teamwork and integration with our teammates in Germany there, so we have been very happy with that thus far.

On the FluidX, it's just a little bit different because it's a different business right now. It's small in terms of the engine that it has provided. We are taking that and looking to leverage that equation and energy that they have in two directions.

One, take more of our consumable business and let it follow with that channel as well and to model our business after that. But secondly, to take their product and expand their channel reach. In that case, we would expect more investment behind that, more so than a synergistic reduction. That will be an investment area for us and we see growth in FluidX coming back. As we said in the very first quarter of ownership, it is accretive at the non-GAAP level and I believe it will get accretive at the GAAP level very shortly.

Now overall in operating expense, I'll remind you that our objective is to keep our development expense to about a $50 million envelope. We have got $13.5 million in this quarter, so we are not at that $50 million level. We are running at about $52 million level, if you annualize that. It has improved and it has gone through quite a bit of trade-offs and prioritization this past quarter, and we're still focused on doing that as we go through this year.

So it's running just still a little hot right now, but it is in that $50 million range, and our objective, as you have asked over the next couple of years, is to keep it approximately that envelope, absent, I should say, a significant acquisition that would change that, but we don't see that, as we're defining today, would change.

On the SG&A, we would see our SG&A structure have, again, two pressure points. One is I would look at this as a good cost or a bad cost (inaudible) equation. So we are focused on driving productivity on all lines. We are hoping to reduce our G&A, making it productive and leveraging it, but at the same time making wise investments on our S&A, making sure that we are investing behind the sales equation that drives our business.

Our particular focus this year, making sure we are supporting that consumables business that I already mentioned, but also getting ready with the channel in the minus 150 life sciences space, so we will see a little investment there.

Got it. Just one clarification in regards to the June shipment level looking flat. Was that specific to the semi business or was that for the overall company?

Specific to semi.

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

Ben Rose, Battle Road Equity Research.

A question either for Steve or for Lindon. Just looking back at the sales patterns in the life sciences business over the last several quarters, can you comment on the level of repeat versus new customers, either quantitatively or qualitatively?

I will start. Lindon is going to maybe look through some specifics, Ben.

Okay.

Generally when we sell systems to customers, they do an install, so we get all of the systems -- if it is one or eight systems, we get all of those in a single order.

With very few -- I would say maybe a handful of instances, a customer already has an automated cold store from us that they've filled up and they come back for another one. But often they will plan that in advance, but often -- but a few times, we will have an incremental one.

It's generally -- incumbency is very important, but capacity is what drives another store, and generally it will take a customer a year, two years, three years sometimes to fill a store. But we do have a number of customers over a 15-years-old installed base with multiple systems and even in multiple locations.

I will just add to that, not a lot more specific, but some additional context. We have more than 100 customer relationships in that space, and it is -- as Steve says, it's an incremental capacity, but not something they add on a semiannual or even an annual basis.

We estimate that in general about half of our business or a little more is from the pharmaceutical space, and so they've continued to add and they have multiple locations. So it's not unusual for us to be working on more than one project for a pharmaceutical company or to have them come back in the same year for a different location.

On the other hand, if you look at the fastest-growing part, the customers are in the biobank space and tend to be around the cell research. In those cases, it's first time and those large installations we wouldn't see nor would we expect it to come back within the next one, maybe even two years. But we do have ongoing service contracts with them.

Okay. You mentioned with regard to the UK Biocentre project, do you believe that most of the cost absorption for the project is behind you and that you will start to see some margin improvement on the implementation in the next couple of quarters?

We won't talk about specifics of our accounting treatment, but just to remind you in general, the way we -- we do share that our practice is percentage of completion. So the cost impact, to some degree, will be with us until we finish that project and the fact that the margin is on that contract gets realized as we complete it.

However, when we have a cost increase in the middle of a project like this you realize the percent that has already been completed and we are more than halfway through, so there's a little bit of -- I hate to refer to it as catch-up, because it's not a change to prior period. It's just that the total project, you recognize more of that cost in this current period, but it will -- that's why we say we will carry a little more into next quarter. It takes a little while for us to get out from the P&L impacts of this, and we still have more revenue to deliver and systems to close in that space this coming quarter.

Okay, sorry, and then finally on the FluidX, I know that you had mentioned at the time of acquiring the company and you alluded to some of your goals going forward. The big goal, I suppose, was increasing their sales in the US, and with the strong quarter that they just reported, was some of that in fact from the US or is that still to be realized going forward?

I would say the benefits that we have seen so far, they are existing channel. We have been very pleased, both with the team, the enthusiasm, and the example they've set inside Brooks in how to get that done, and they have really leveraged the channel they have.

We are still looking at the strategic opportunities and how fast to expand them through other channels, and that's something that's at near the top of the list for Dusty as he is completing the framework of this business model going forward.

Okay, thanks very much.

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

Thanks, Grant. Thanks, everyone, for your interest in Brooks. We do look forward to speaking with you when we report results from second quarter of fiscal 2015. Thanks very much.

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