Azenta Inc (AZTA) 2015 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Brooks Automation Q3 financial results conference call. (Operator Instructions) As a reminder, this conference is being recorded Thursday, August 6, 2015. And I'd like to turn the call over to Lindon Robertson, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you, Mikea, and good afternoon, everyone. We would like to welcome each of you to the third-quarter financial results conference call for the Brooks fiscal year 2015. We will be covering the results of the third quarter ended on June 30 and then we will provide an outlook for the fourth fiscal quarter ending September 30 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 the call.

I would like to remind everyone 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 are 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 fiscal year 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 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 an even more complete understanding of the Brooks business. Non-GAAP measures should not be relied upon to the exclusion of the GAAP measures themselves.

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 third-quarter highlights. Then we'll provide an overview of the third-quarter financial results and a summary of our financial outlook for the quarter ending September 30, which is our fourth quarter of the fiscal year 2015. We will then take your questions.

During our 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 are pleased to have the opportunity to report the results of the third quarter of our 2015 fiscal year.

Q3 was an excellent quarter for us as we continued to reap the benefits of the investments we've made in critical growth segments. Revenue was up 4% quarter over quarter and 23% over the same quarter one year ago. Bookings in the quarter were $152 million up from $135 million in Q2. We expanded gross margin by more than 200 basis points and we reduced operating expenses by $1.6 million. At the same time we advanced our new product development activities, gained important design wins, and made progress in some of the structural changes to our organization that will be important for our sustained profitable growth.

On the semiconductor side of the business, we saw strength from a broad base of drivers. Deposition and etch application fueled our semi front-end business, contamination control requirements in fabs drove another sequential increase in our automated FOUP cleaning business. The wins we've been accumulating in the advanced packaging space supported good growth in the quarter, and continued strength in 200 millimeter products to equip fabs making devices to supply the Internet of Things also contributed to our strength.

We have focused our investments in automation in cryogenics on the important growth areas, and we continue to recognize the above industry growth rates associated with these subsegments. We see continued strength in all of these areas in the September quarter.

We are similarly positive on our longer-term prospects for growth in our life sciences business, which was relatively flat for the quarter. We're encouraged by the activity we're seeing as a result of the launch of our first cryo product family, and we are confident that this transformational product capability will allow us to return to strong and more dependable growth in our life sciences business beginning in 2016.

All told, our Q3 results are an indication of the momentum we have and our market position and offer proof of our capability in various segments that are well positioned to grow and grow profitably.

I'd like to take a moment to give some of the specific highlights from the semi-side of our business. In our front-end automation business, we extended our lead in vacuum system products, which are crucial for deposition and edge processes by closing our first order for an evaluation system to a new Korean OEM customer for an ALD application. If we are ultimately able to win the volume requirements of this customer, we will have captured all four of the major OEMs in Korea on our vacuum system platform.

We have demonstrated unique capabilities with our high-temperature hardened, low-contamination vacuum robotics which gives us extremely high global share for vacuum automation in the very challenging ALD market.

We also continued to advance our contamination control solutions and fab solutions position at the 10 nanometer technology node with the three tool acceptances and one new tool shipment for 10 nanometer applications. We are pleased that design and the performance of our systems are demonstrated to be ready in fabs that are gearing up for 10 nanometer production, and though we do not anticipate any major buys for volume production this year, we continue to advance our design win position.

All in, the CCS business continued to grow with revenue of $11 million, up 23% from March, and bookings of $16 million driven significantly by 16 nanometer foundry capacity additions. We remain on track to deliver at least $40 million of CCS revenue this year, which means a sequential growth rate in September that is at least as fast as we saw in June.

Our cryogenics vacuum products business grew for the fifth consecutive quarter on the strength of semi front-end and new applications outside of semi for our large refrigerator. In the quarter, we also saw a 24% increase in our backend and advanced packaging applications. A vast majority of these businesses is from vacuum and atmospheric systems, which is aligned exactly with our front-end strategy.

Over the past two years we have been consistently winning new designs from OEMs, and we were pleased to be able to begin the benefit from some volume shipments. We now count 28 different product design wins and 24 customers as back end customers. We are particularly enthusiastic about the segment as we still forecast that our fiscal year 2015 back end business will be up more than 50% over 2014 in part by growth in the market and by share gains that we've achieved design wins over the last years.

Finally, it's interesting to note that for most of this fiscal year and consistent with the reports of other equipment suppliers who have already announced results for June, our 200 millimeter product business has seen a sustained upturn, as much of the production of enabling devices that fuel the Internet of things is being done on 200 millimeter wafer diameter process equipment. We are well positioned to continue to provide products to meet this new demand for some of our very dependable legacy product lines.

I'll now turn to life sciences. Our life-sciences revenue came in about where we expected at $17 million. Gross margin and bookings were flat with results from the March quarter. We do anticipate a pickup in order rates in the base business during the next 12 months but the order levels for large stores are a bit slow at this time.

That said, we continued to advance the business in key product segments and with our new products. Specifically, approximately 70% of our life-sciences business, which does not come from large stores, continues to grow. Non-stores business, which consists of consumables and instruments plus services and software, was up 5% over the prior quarter.

On a year-over-year basis we are up 55% driven by the FluidX acquisition. However, even excluding the FluidX acquisition we are up 5% year over year, which highlights the value of having consumables and services as a strong part of the portfolio.

We are adding sales resources globally to continue to expand the segment of our business to take advantage of new and existing opportunities within the bio-banking market.

Already we count 60 new customers since we acquired FluidX only three quarters ago.

An additional benefit that we've been able to recognize from our FluidX products is that there is a strong commercial benefit to our more complete cold-chain offering and that on two recent store wins were able to bundle FluidX products as a high-value system solution and in one case we penetrated a new account with our FluidX products and used this as a starting point to pull in a store win.

We anticipate the sales synergies will be even stronger for the minus 150 degree C BioStore III cryo products as there's high correlation between the FluidX customers for Bio sample consumables and the minus 150 C store opportunities.

In terms of our near-term outlook, we forecasted the life-sciences revenue and gross margin for the September quarter will be flat to slightly up compared to June. We are in the last and heaviest stages of the move of our large storage business which consolidates our Poway, California operation into our Manchester UK site. And we are on schedule complete the move in its entirety by the end of September. We'll be ready in our Q1 for a good start to fiscal 2016 with a significantly improved cost structure and a single focused site for our large store business unit.

I'm also pleased to report on results in the first of a family of cryo bioproducts that we mentioned on our last call last quarter and that we officially introduced at the beginning of May in Phoenix at the annual meeting of the International Society of Biological and Environmental Repositories, which is a very rich assembly of experts to discuss all things bio banking.

Our newest products, the BioStore III cryo, automated minus 150 degree C store, the CryoPod, a minus 150 C instrumented sample transport device and the CryoPod filling station, which is used to safely and automatically load the CryoPods with a liquid nitrogen charge that will allow samples remain at controlled minus 150 C temperatures for four hours.

At the ISBER show, the CryoPod which we jointly developed with BioCision was awarded the prize for the best new product in 2015, with the BioStore III cryo system coming in second. We are particularly pleased with the early market interest in both products, and we've already begun the secured delivery commitments for customers.

Specifically, our plan is to work with 10 influential customers from different types of bio storage entities is what we call early adopters. Our goal is to place systems at the sites to obtain operational performance validation of user benefits that include sample quality, safety and ergonomics, and workflow improvements.

To date, we've secured formal agreements with six early adopters, and we are in various stages of commitment from four more. Thus far the early adopters include big pharma, large biotech, commercial bio banking, and research hospital customers. We plan to ship the first of these units within a few weeks, and we will continue to ship approximately 1 unit per week. We anticipate initial commercial revenue beginning in calendar Q1 of 2016, our fiscal Q2.

As we've mentioned before, we believe the long-term market opportunity for this product family is in excess of $300 million per year. We are very active in our efforts to grow the pipeline for these minus 150 C products as we are now signing up key industry opinion leaders to evaluate and report on the significant improvement in a way that samples are handled, transported, and stored.

Most importantly from a business perspective, the revenue from these smaller automated stores will also serve to improve the overall linearity of our life science revenue streams. We look forward to reporting to you on the progress of these exciting products on future calls.

In terms of our outlook for the September quarter, we see a sustained health in the same segment that propelled our June quarter but as you've heard, some of our OEM customers are forecasting they'd be down a bit in September. However, we do anticipate strong quarter for our CCS products that allows us to guide to a revenue range whose midpoint is only modestly lower than our June actual revenue.

Additionally, we are eager to see the first customer user feedback from our life-sciences minus 150 C products as we keep the drumbeat going on this new market segment. We are pleased with our improvement in gross margin and operating expenses for the quarter and will use this as the new foundation for continued improvements in our operating model. We have a number of key initiatives under way that map to the results we expect to be able to deliver during the next eight quarters, and we are confident that our approach will yield higher levels of profit and better performance in the semiconductor cycle from any time in our history.

Finally, as we have for much of the last two years, our strategy will be to continue to leverage our balance sheet and our strong cash generation capability to fuel the growth of the Company through acquisitions and organic product developments while we continue to return cash to shareholders. We have a pipeline of potential acquisitions and a series of new product development activities that give us confidence in our ability to grow to meet our objectives for the coming years.

That concludes my prepared remarks, and I'll 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, which is a consolidated view of our operating performance, to start the remarks.

Top-line revenue increased 4% sequentially to $145 million driven by higher revenue in the Brooks product solutions. Gross margins exceeded 36% this quarter on a non-GAAP get basis or 2.3 points of improvement reflecting costs improvements and growth with favorable mix.

In addition to the growth in gross profit, a healthy reduction of expense has driven a near doubling of the bottom line net income. We will cover more on each of our business units in the subsequent charts.

Let's now look at our segment revenue briefly outlined on page 4. Brooks product solutions grew 6% sequentially as we saw growth in each area of automation, contamination control solutions, and cryogenic vacuum products. Global services grew 3% sequentially which was offset by a 4% decline in the life-sciences systems business.

We could go deeper into the segment starting with page 5. As Steve has highlighted, the continued growth of the product solutions business displays the strength of the portfolio. As I just said, growth in the quarter was driven by sales and automation, contamination control solutions, and cryopumps. The primary market drivers were the need for systems, both vacuum and atmospheric, for advanced packaging as well as the increased need for contamination control and the leading technology fab lines.

The gross margin of the product solutions business increased 220 basis points from the prior quarter with improved manufacturing costs, higher volumes, and some favorable mix within the portfolio.

You can see on page 6 that our global services revenue increased 3% from the prior quarter driven by revenue growth in North America and Europe. The Brooks global services adjusted gross margin was up 4 full points at 35.6% in the third quarter. More favorable mix of repair services performed in the quarter provided a lower cost of revenue delivered.

Turning to page 7, life science revenue declined 4% from the prior period due to lower revenue in our large stores business. As the consumables business has expanded with FluidX, our store systems now represents approximately one-third of the quarter revenue in the segment. We have made significant strides in the planned restructuring of our systems business, and this will be completed by the end of our fourth quarter. We remain on track to see significant reductions of structure as we leave the fourth quarter.

As indicated in February, our plan is to reduce $1.5 million of structure around our store systems by the end of the fiscal year. Meanwhile, we are also focused on the progress in our areas of life science. We have continued to see healthy business of FluidX, our consumables acquisition from October. We made some investment to build out the FluidX consumables and instruments team, and we met a significant milestone with sample management as we have signed multiple early adopters for the new automated stores in the minus 150 degrees Celsius degree environment.

Margins declined modestly to 30.2% driven by the continued cost challenges in large store systems. Our roadmap remains focused on managing this to be a 40% to 45% gross margins business now, and we reiterate that our target is 45% for the 2017 fiscal year in life-sciences.

However, as you can see in this quarter results, we continue to find it difficult to move the needle currently with our large systems finds running low and while we are midstream in the business restructuring initiatives.

As Steve highlighted, we did book $14 million of new business in life-sciences, these bookings were also weighted toward consumables and services. Total backlog is now $44 million while the 12-month backlog is at $34 million.

Let's turn to slide 8 to see the cash performance. Operating cash flow for the third quarter fiscal 2015 was $16.5 million. Cash flow in the quarter benefited from healthy adjusted EBITDA while working capital was sufficient to support the growth of the Company.

At the end of the quarter, our balance sheet shows a balance of cash, cash equivalents, and marketable securities of $215 million. The strength that this balance supports continued dividend payments and strategic investments for the Company growth.

Slide 9 displays that balance sheet summary. As referenced, working capital decreased. This was on higher accounts payable deferred revenue and other current liabilities. The deferred revenue in this quarter was driven by the product solutions business delivering new first time tools to customers acquiring customer acceptance. The strength of the balance sheet provides significant flexibility to continue to support the dividend payout and again to pursue strategic growth investments.

Now turning to slide 10, we provide summary of our guidance estimates for the fourth fiscal quarter 2015. Revenue is expected to be the range of $140 million to $146 million, and our non-GAAP earnings per share is expected to be in range of $0.10 to $0.14 per share. The Board has continued to authorize the dividend this quarter, which will pay out $0.10 per share or $6.8 million. This will bring the total paid to investors to $97 million since the inception of the dividend in 2011.

That completes our prepared remarks, I'll now turn the call back over to the operator to take questions from the telephone lines.

(Operator Instructions) Craig Ellis, B. Riley.

Thanks for taking the question and congratulations on the solid quarter and outlook, guys. The first question is on the product solutions business. In the comments, you remarked that it was both advanced packaging and then front-end leading edge that was driving the strength. Can you just help us with the mix of those two in the quarter, and how you think about the sustainability of trends along those parameters ahead?

Hi Craig, it's Steve. The back end is still relatively small part of the business but it's growing and important. We have pretty long list of customers, and we really like the position. But you heard us on prior calls talk about kind, you know, the $25 million annual run rate for the back end. And we're higher than that but it's still relatively small fraction of the BPS business which is much closer to $100 million. But the strength in the back end in advanced packaging is important to us and, as that business continues to grow, we will participate more significantly. It's actually a perfect opportunity for us because the products fit extremely well and the fact that we sell a significant fraction of the business that we sell to systems, both atmospheric and vacuum systems, gives us higher content for any of those applications.

And in terms of the growth of the business, we hear some talk of slowing in the December quarter anyway. Probably be down a little bit in September, we don't have great visibility there. But we'll continue to work on gaining share in the back end.

And on the front-end side, we talked about being able to sustain an overall revenue somewhere around the level that we were in the June quarter. The acceptance of the contamination control systems and the growth of the contamination control systems business is helping to hold up a little bit of a downward trend, if you will, from some of our OEM customers who take the front-end semi applications. But again, we're almost guiding to a flat quarter.

That's helpful, thank you. The follow-up is for Lindon. Lindon, very nice gross margin performance in two of the segments. Product solutions up $200 million and services up $400 million. Are those, either of them, benefited by one-time items that would not recur in the fiscal fourth quarter, and is there anything that would be an adverse headwind as we look ahead to the outlook quarter?

Those two businesses, we don't see anything unique on that quarter. We had, frankly, we had an absence of cost issues. In other words, the previous two quarters, as we highlighted, we had higher costs and we had a little bit modestly improved mix this quarter. But I wouldn't call that are as unique. It's basically returning to the same levels that we were seeing much of fiscal year 2014 so we are very happy with where those are, and our expectation is we are in this range going forward.

Nice going, guys. Thank you.

Patrick Ho, Stifel.

Thank you very much and also congrats on a nice quarter and outlook. Steve, maybe first on semiconductor side of things. Typically you had shortly times with a lot of your OEM customers but your order flow was quite strong in the June quarter. Can you give a little color whether it's the timing of orders or -- because again you usually have turns business. Or do you believe the OEMs were building a little bit of inventory given some of the dynamics on their end with 3D NAND picking up and potentially foundries picking up in 2016. Can you give a little bit of color of your order flow and how that kind of worked out?

Sure, Patrick. You hit it on the head here. We generally have very short lead times. We continue to have short lead times but we do get a pretty good forecast from our OEMs so that we can continue to supply them in a timely fashion.

I think the one major difference here is we have pretty significant orders in the contamination control solutions, and we do get a longer look at that business. So we get, I won't say it's incredibly long, but we do get bookings likely more than a quarter in advance for most of that business. So when we build some backlog, it generally comes from the CCS business.

Great. As maybe as a follow-up to CCS that you just mentioned, and I understand if you can't get specific with customers, but there's a lot of noise out there regarding 10 nanometers, Moore's law, cadence being pushed out somewhat particularly related to 10 nanometers. I think it was an encouraging sign that you said you saw started saying activity there for CCS. Can you give a little bit of color what the customers are looking for and how that actually plays out for 2016 for you?

Sure. Patrick, as you can imagine, very similar to inspection tools, you need to have a FOUP cleaner and lots over in those kinds of things in an early line to be able to do some qualification for a technology. So the products that we are shipping now for 10 nanometer, to get qualified probably for the first test runs, if you will, for 10 nanometer.

So we're not surprised that we'd have some. Our expectations are at that volume though -- there won't be any volume shipments certainly in the rest of 2015 for us, and we're not sure even when in 2016 they might come. We don't have too much visibility there.

Great and one life science question for me, you highlighted your BioStore III product and the CryoPod and the work you're doing there to get qualifications. Is there any leverage for the CryoPod product related to the BioStore that's drawing customers or do you really need to get adoption of the BioStore to pull in the CryoPod acceptance as well?

Actually, they can be independent. The fact that, actually, Patrick, give you an idea, we have taken some orders already for the CryoPod for people who won't be early adopters of the BioStore III cryo. It's a great instrumented carrier that anybody who store samples at minus 150 degrees C will have tremendous use for this as a product. We as a -- I won't say consumable but as a small device. But if people are also customers for the BioStore III cryo, they'll definitely want to have the CryoPod as the transport mechanism between store and bench or store and store. So they're independent. You don't need one with another but each one enhances the other.

Great, thank you very much.

Edwin Mok, Needham & Company

Congrats for a great quarter. Can you guys hear me okay?

We can, Edwin.

Perfect, thanks Edwin.

Okay, great. First question I have is actually going back to -- follow-up to Patrick's question on the CCS business, right? I think you mentioned on the near-term this transaction more driven by [because] of 16 nanometer FinFET product with some 10 nanometers shipments, right? To the extent that those 16 nanometers investments finish, do you expect to maybe see a little bit of the gap before the 10 millimeter comes in, or do you think this level that you expect in the September quarter is sustainable?

So Edwin, it was a little bit tough to hear. I think you asked is the 16-nanometer level sustainable for a while?

Yes, exactly, you got it.

So we anticipate more editions. We had some shipments obviously in the June quarter, we'll have some more in September. And frankly, we don't have too much visibility beyond that but the fact that we're getting qualified at 10 nanometer, we believe that if capacity gets added we will participate at any line with certainly from 2016 on down.

Okay, that's fair. And then can ask you about the semi [count]. I think you mentioned about the Korean OEMs and your wins at some of the Korean OEMs. Are you seeing those customers coming back with increased volume at those customers, or is that share gain kind of helping drive some of the growth you have in the [front end capital intensive].

Yes, for us this is clearly a share gain that we talked about right now, the Korean OEMs go up and down with some of the opportunities that exist in Korea. So it's a little bit more local as opposed to participating in a broader expansion. But we have good position at three, and we hope help 12 months from now to have good position at four. But the business that we have with them really striven by Korean semiconductor manufacturers.

Great. And then on the life science side, it seems like the compound store business that you guys had traditionally, right, like relationship with Twinbank has actually come down, right? Because I think you guys highlight count growth and the related FluidX in the consumable side, right?

Is that just kind of part of the market dynamics and is that business more stabilized on a lower level, or do you expect at some point down the road like you might see [a couple examples]?

Edwin, let me try that one. You're right, the revenue there has trailed off and the large store systems we think are down at a level -- by the way, netted versus the market, it reflects the market. So we're still winning deals and the deals that are in play were very strong. So it's reflective of the market more than anything else.

The backlog clearly has us weaker in our revenue and that's what's trailing off right now. We do have a pipeline that we are pleased with, and we see it being more of a global pipeline. There's not a concentration in any one space. So, I would just reflect on that suggest to you that as we've said in the past that is a lumpy business and we're looking to pick each piece of it up but right now the market has been slower.

We don't attribute it necessarily to any type of cycle nor any type of event globally, it's just that the market has been a bit slower and what business to pick up recently in the store segment.

The converse of that, I'd just highlight my the comments that Steve made in his prepared remarks, and you and the other analysts occasionally bring this up that, and that is: does the consumables and services business pick up when you have more store systems?

Well, of course, that helps us to build that business but, as Steve highlighted, the non-stores business, even if you took out the acquisition of FluidX, was up year over year about 5% -- which reiterates the point that that business continues to be something that we build out for a stream of business support our customer base, either when you're buying stores or not buying stores. It's a continuous service opportunity on the services as well as consumables. And that's why we're so enthusiastic about that side of the business and we're pleased with the momentum that the FluidX business is building.

So, I'm not trying at all to discount the importance of store systems but it just underscores that if you went back a year ago, two years ago, we were talking about -- well, is this business $9 million or $10 million? Now we're talking about $16 million to $18 million business, right now, at a low point.

And so we've got a very different low point now then you saw back at that time, and it's much stronger in the consumables and services space, and as we pick up the storage business, we are very encouraged what the model has to offer. That's why we continue to have a lot of confidence in that 2017 business model that we've talked about previously.

Great, all right, good color. Definitely really appreciate that. One last question I have. This quarter you guys have reported lower, I guess, SG&A expenses, right? So assuming [that afterwards they got put in the yield improvement in the lab efficient] in the model, right? And I think you talked about like science potentially can come, can see some improvement in the September quarter? How do you guys think about OpEx kind of longer-term? And assuming these drivers kicked in and you guys have a high revenue level, is there a way for us to think about either through incremental margin or maybe OpEx is sustainable at the current level. Any color you can provide on that?

I'll also pick that up. One, think of our business in the two pieces for sure. In the semi business, we significant a leverage point in our expense structure, both in our semi business as well as our G&A structure. On that side, both of those pieces should remain steady and, as you've seen, we continue to restructure and reduce that structure. That's where we're picking up some of the benefits.

Meanwhile, on the life science business we have two things in motion. We're trying to restructure that business -- well, we are restructuring that business. But it's mostly around the manufacturing and operations costs.

In the SG&A, just know that we are focused on the SG&A on the growth and support of the business and right now the focus is around building out the sales and channel capabilities around the new cryo products as well as expansion of the FluidX sales team, which as a reminder was based in Europe when we picked it up and has opportunity for us to take to the rest of our business with significant scale. But it takes some resources to put on the street for the sales.

And then a final point there is on the R&D side, you're seeing the R&D reduce as we curtail the development initiatives around the Twinbank. We got over the hump on that, and even the cryo development, while we continue to invest some there, now that we're at the threshold of launching a product and doing our first commercial shipments in, you're seeing that some of that curtail.

That will moderate on the R&D side but you'll see SG&A still be fueling some growth, and so you see a little bit of variability of SG&A with revenue on that side. So in that, I think you're going to see operating expense at our current levels pick up a little bit over time driven by sales side of life sciences and possibly moderated on the continued effort to reduce on the semi and central.

Great, very, very good color, thank you. That's all I have.

Jairam Nathan, Sidoti.

Just a couple of -- first on the CCS side. Is there an opportunity to kind of go beyond logic into 3D NAND. You seeing a lot of new fab out there and is there an opportunity to kind of penetrate that market?

Jairam, we believe so. Just to give you an idea, in the contamination control systems business, we have FOUP cleaners, automated and manual, and we also have reticle stockers. Some very high level capability in the reticle business as well. So we think we have CCS opportunities that almost every leading-edge factory right now.

Some of the requirements in memory are not as stringent as they are in the foundries, so there will be some level of automated FOUP cleaning there but maybe not at the same density if you will that goes into a logic fab.

Okay and on the life-sciences side, twofold question. First just thinking about an early lead for fiscal 2016. The large store kind of still weak. You will get incremental minus 150 sales, so is there any early lead you can give on sales for revenue for next year on fiscal 2016, what should we think of?

We're not ready to guide that yet. I think we're really enthusiastic about what we anticipate will be great customer acceptance from the early adopters, but we are going to learn a lot from that.

And the two points will be you know is the product -- how ready is the product as a result of these 10 beta sites, if you will, and does it require any modification before we are really satisfied with the product? And we will find out. So within two quarters, will have a really good understanding about the readiness of the product for higher volume release, and then hopefully at that time will be able to give a little bit better feel for what we think the ramp will be. But we really are positive on the product, our customers really positive on the product, but we're a little reluctant at this point to give any guidance in terms of revenue. When we can, we will.

Okay, lastly for you, Lindon, you mentioned life-sciences still sticking to 45% goal gross margin for 2017. How should we think about the kind of cadence here going forward? Do expect a step function increase in early 2016 with the restructuring done or how should we think about that?

Actually, Jairam, you've hit it exactly, that as we step out of the fiscal year into the beginning, you're going to start to see the pickup in the margins. The very first pickup will be the restructuring will be behind us, and we will have some of that fixed cost structure out. To be very specific, we're still pairing real estate and some resources in the California area that is supporting and has done a great job supporting us to this point on the platform.

As we go forward, our objectives and our execution here is putting the center of competency in our Manchester site in the UK. And have a more flexible structure. So we'll be into that flexible structure in the first fiscal quarter of 2016, that being the December quarter. So not yet in the September quarter but in the December quarter. And then, obviously, we anticipate that, while we continue to expand the consumables and services, we continue to take a business on the store site.

Of course, we know we have a very quick hop to expand on the cryo, the new cryo product site, but also on the large storage and that will help then fill in the model for that 45% gross profit by the time we get to 2017.

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

David Duley, Steelhead.

Yes, just as a follow-on to the previous question. I think you mentioned number earlier. What -- when you're done restructuring how much lower costs when you have in the life science business? I think you gave a number earlier of $1.5 million or something like that. Maybe you can help frame houses current restructuring will change the gross margins. I realize need revenue to grow to get to 45% but help us understand what just the cost cutting will do?

Yes, Dave, thanks for asking. I was just reflecting and those who have been with our story here for the year, as we left the first fiscal quarter earlier this year, we described that we were on a path to restructuring and described the plan to consolidate our sites and that that would produce about $1.5 million per quarter, about $6 million on an annual run rate, by the time we were finished. And so in other words, when you compare 2015 fiscal year going into 2016, we will have taken about $6 million of cost and expense out on an annual basis. And that's in rough numbers, that's going to be almost half and half in terms of expense versus costs.

So I guess the way to model it, if it's half costs, you put $3 million into the annual budget next year for some help. You're going to see as we go into the first quarter, I just share that I anticipate I'll be describing this and confirming it as to get into the first quarter for you, and that you'll see that as investments we've highlighted in FluidX and as well as the cryo stores that we'll make that clear.

But you'll see some I anticipate the decline in the R&D overall levels and some investment sustaining and perhaps picking up the SG&A levels. So the OpEx, you may see less difference than I described but it's shifted tremendously towards fueling an expansion of FluidX in the cryo business but taking out structure around stores side. And then on the cost side it would just be a pure cost take out in terms of taking out around stores business.

Okay, and on the semiconductor business, Steve, where besides the FOUP cleaning business, it looks like you're gaining share in some other segments. Could you just talk about where you think you're picking up business from some of your large OEMs, and perhaps why you are?

Sure, Dave, probably the primary spot is in the vacuum automation. I think that the franchise the Company has owned for very long time and the demands as we get to some of the ALD applications, some of the thinner films, different chemistries, really require a number of different capabilities. Including high-temperature -- the ability to operate at high temperature, different corrosive environments. And I think those are the things that as a Company we've stayed out in front of.

We've added a number of benefits also in the latest generation of the automation design, which we think even at the next generation node will continue to add more value. But in staying in front of the requirements of chemistry and temperature and throughput, we think we've done a really good job there. So we win on new platforms from the larger OEMs, and we also win on legacy platforms when there's a modification or revision or a chance to come in and displace an incumbent design with, frankly, a much more capable robot. We've been winning some of these legacy platforms. And they're of adequate volume that it's good business for us.

So I think that the engineering connections a very strong between Brooks and our OEMs. Our understanding of their process and their problems is probably the best that it's ever been. And I think the relationships, the working relationships, and our ability to deliver has been really enhanced. And the fact that as the industry continues to consolidate the problems start to become more similar, the customers are fewer, the amount of focus we can give for some real technical expertise is allowing us to be a lot more successful than we have ever been.

Okay. And final one for me is you mentioned the 200 millimeter business. Do you have is there supply chain there to be able to address the demand for those legacy tools, number one? A number two maybe just talk bit about Internet of Things -- is it sensors, MEM? What are you exactly seeing that is driving this increase in business there? Thank you.

Sure, Dave so the fact that we've been in the 200 millimeter business for a long time and it never stopped, we've always had a live supply chain. The volume issues we're dealing, but we've always had capability. We have a lot of that outsourced already for quite some time now. And so, making sure that we awaken and invigorate the supply chain was a little bit of a challenge, but everybody in the industry had the same challenge. So we've done I think a very good job keeping up with it, but we never lost the formula or the secret sauce or the talent and ability to do it because it's always been in the manufacturer. And we've always had some volume of 200 millimeter production over the last 10 years.

In terms of how we see it going forward, the applications -- there seem to be a number of applications, very suitable. And economically suitable for the 200 millimeter capability that exists in the marketplace. There are a lot of sensor applications, a lot of deep etches, if you will, and various kinds of transducers and a lot of sputtering capability at 200 millimeter for these particular applications. So pretty standard applications from what the process looks like. And some are pretty unusual from creating physical structures sometimes as much as creating electrical structures. And when you create physical structures, they're part of the sensor or the device. Sometimes the process challenges are more severe but the automation and pumping and system capabilities that we provide are quite similar.

However, if there's a different form factor, wafer that is contained in a frame, something that's been thin, then we have to do some special things from an automation standpoint. But again, we've been doing that for years.

But the applications are sometimes different. They are more often for us a very similar to what we already do for some of the front end customers.

Thanks so much.

(Operator Instructions) Farhan Ahmad, Credit Suisse.

Thanks for taking my question. I just wanted to clarify the September quarter guidance. In terms of different segments, how do expect the revenue mix to trend? Do you expect the product revenues to be flattish and life-sciences -- the product revenue to decline slightly and revenues in life-sciences to be flattish? I just wanted to kind of confirm the guidance.

We guided the life-sciences to be flat maybe slightly up, but basically flat. And on the semiconductor side of the business, we know that the CCS business will be up and that in the aggregate products the products that we shipped OEMs basically we anticipate will be slightly down, kind of consistent with what you heard from the equipment companies who have already reported as a number of those are our customers. Some are basically flat, some are slightly down. So the guidance that we gave is in the aggregate is slightly down from the June quarter -- at the midpoint is slightly down quarter that we just reported.

Got it. And I wanted to probe your CCS business a little bit more. Could you just help us, remind what the main drivers for the business are? And what are some of the reasons that you're seeing the strength in the business? Is it just that we have new flaps coming now and that's what's driving this strength? Because we have seen a significant pickup from the time that you acquired to now. So I just wanted to understand like is it a cyclical recovery or something structural going on here?

So a couple of things. We are learning about the business little bit, and it appears as though when we go from 28 nanometer to 20 nanometer to 16 to 14 that for logic applications it seems to be quite a bit more sensitive and for finding some customers who do cleaning of FOUPs more frequently at each technology node.

In particular right now for some 16 nanometer capacity, we're seeing some pretty significant demand. The business has indeed picked up since we've purchased it but before we purchased DMS, they also had a pretty big year before that supplying 20 nanometer that capacity expansion.

Got it, that's all I had, thank you.

Jairam Nathan, Sidoti.

So in your GAAP to non-GAAP adjustments, I saw that there's a liquidation cost related to a dissolution of a JV. I just was wondering what was that and would that impact the equity income that you get from the JV going forward?

Actually, this is just the final expense related to the closure of the joint venture, I should say closure and acquisition of the joint venture that we had last quarter. So we had closed that venture which was our YBA in Japan one quarter ago. And that was a distribution joint venture so we were already taking the revenue that we are selling into that venture that was distributing it then.

So you won't see a change in profits from this past quarter or this quarter going forward. What you've seen in the past, we have talked about profits and/or occasional loss in the past that hit us from the YBA joint venture in the past years but that was closed in the last quarter. That's just the final step of the --

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

And I'm showing no further questions from the phone lines. I'll turn the call back to you, Mr. Swartz.

Well, thank you, everyone, for your interest in Brooks. And we do look forward to speaking with you when we report our fourth-quarter of fiscal 2015. Thanks very much.

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