Brooks Automation, Inc. (NASDAQ:BRKS) <\/p>\n
Q3 2017 Earnings Conference Call <\/p>\n
August 2, 2017 4:30 P.M. ET <\/p>\n
Executives <\/p>\n
Lindon Robertson - Executive Vice President and Chief Financial Officer <\/p>\n
Steve Schwartz - President and Chief Executive Officer <\/p>\n
Analysts <\/p>\n
Paul Knight - Janney Montgomery Scott <\/p>\n
Amanda Scarnati - Citi <\/p>\n
Operator <\/p>\n
Ladies and gentlemen, thank you for standing by and welcome to the Brooks Automation Q3 Fiscal Year 2017 Financial Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded, Wednesday, August 2, 2017. I would now like to turn the call over to Lindon Robertson, Executive Vice President and Chief Financial Officer. Please go ahead. <\/p>\n
Lindon Robertson <\/p>\n
Thank you, Ash, 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 2017. 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. <\/p>\n
A press release was issued after the close of the markets today and is available at our Investor Relations page of our website, http:\/\/www.brooks.com<\/a>, as are the illustrated PowerPoint slides that will be used during the prepared comments during the call. <\/p>\n 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 or other events to differ from those identified in such forward-looking statements. <\/p>\n 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 our annual reports on Form 10-K and our quarterly reports on Form 10-Q. <\/p>\n We made 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. <\/p>\n 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 a 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. <\/p>\n 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 2017. <\/p>\n We will then take your questions at the end of those comments. During our prepared remarks, again 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. <\/p>\n With that, Id like to turn the call over now to our CEO, Steve Schwartz. <\/p>\n Steve Schwartz <\/p>\n Thank you, Lindon. Good afternoon, everyone, and thank you for joining our call. We're particularly pleased to announce the results from a very strong June quarter in part because the results that weve delivered, but more importantly because were able to demonstrate the earnings power of our business, which is made up of a portfolio of strong market leading technology positions and key growth segments of the semi-conductor and Life Sciences markets. A foundation that we strongly believe will continue to deliver going forward. <\/p>\n Revenue at $182 million was up 7% from March and up 23% over the prior year. Gross margins increased sequentially by 100 basis points to reach 40%, which is a very meaningful threshold for the company, and a heavy lift from the 32% to 33% gross margins we delivered in fiscal 2011, the year we first entered the Life Sciences space and began to restructure our semiconductor product portfolio. <\/p>\n The top line and gross margin performance led to a non-GAAP earnings per share of $0.36, more than double what we delivered in the June quarter one year ago, and up 27% from the March quarter. Growth came from both segments as we delivered our eighth consecutive quarter of growth in Life Sciences and semiconductor, which is riding the wave of strong momentum in the capital equipment space, also benefited from our expanding market share position in our key growth segments. <\/p>\n The part that we find most energizing is the momentum that weve established inside the company to continually ratchet down on costs and improve efficiency, while we advance new product development and sales activity to deliver top line growth. We continue to see more potential and thats what drives us even harder. <\/p>\n Today, we report on some of the highlights from the quarter and give color as to what makes us enthusiastic about the prospects from the very solid positions weve captured in two important markets. Ill begin my comments today with a recap of our Life Sciences business performance. <\/p>\n Revenue came in at a robust $37 million, thats up 6% from March and represents organic growth of 27% from the June quarter one year ago. And including organic growth and revenue from acquisitions was our seventh consecutive quarter of greater than 25% growth. <\/p>\n Bookings at $42 million had another $7 million to backlog, which now stands at $260 million. And though gross margin was slightly softer on mix, Life Sciences delivered $2 million of operating profit in the quarter even as we made additional investments to expand our global sales team. <\/p>\n Ill add just a few additional highlights from the quarter. Our automated storage systems business grew 63% versus prior year coming from both bio and cryo automation solutions we delivered to compound and bio-banks, cell therapy, and regenerative medicine applications. <\/p>\n In a particularly positive sign, our BioStore three cryo system bookings topped $2 million for the quarter with account penetrations in North America, Europe, China, and the Middle East. We had 26 new customers expanding our base across a broad spectrum of customers in the Pharma, Biotech, healthcare clinical, and academic end markets. <\/p>\n We also delivered on some important milestones that will generate future revenue. We launched BioStudies, a bioinformatics platform that enables customers to virtualize and visualize all of their global samples. And we received a first order from a major bio-bank by demonstrating the utility of this configurable sample management software platform. <\/p>\n We completed and commercially launched two new configurations of a BioStore III cryo automation products, one that stores a common Life Sciences industry standard sample container called an SPS rack and the other a variable temperature version of the BIII C for customers select the automated configuration and liquid nitrogen sample security, but would want the store at user selectable temperature set points anywhere between minus 80 and minus 190 Celsius. Initial units of both new products have already been shipped to a major customer. <\/p>\n In our consumables and instruments sector, we released a universal instrument that will allow customers to simultaneously cap and de-cap 96 sample tubes of various types and brands. This is the first in the market. And we just recently developed a new small footprint minus 80 degree C automated store that expands our customer universe to include those who need automated minus 80 storage, but for whom up to 300,000 samples is adequate storage capacity. <\/p>\n And at the beginning of last month, we completed the acquisition of Pacific Bio-Material Management or PBMMI, a highly regarded biological sample transport and storage company with customers that include Memorial Sloan Kettering and Mount Sinai Hospital, plus an a list of research and academic institutions that they won because of their high quality and outstanding service capability. <\/p>\n Along with the strong and talented team we had more East and West Coast geographic footprints and more than 250 customers that meaningfully expands our academic market presence. And with each sample under management, we have the possibility to deliver more value to customers from the broader portfolio of offerings that weve developed at Brooks over the years. <\/p>\n Our cold chain sample management portfolio is proving its value, as we provide customers with a one-stop shop for all of their cold sample needs. Were working to increase the depth and breadth of all of our offerings along the cold chain. Our new product development initiatives and the addition of PBMMI are all representative examples of this strategy in action. <\/p>\n In Life Sciences, our priority is growth. We continue to invest in new products additional go-to-market sales capability and acquisitions that allow us to grow in this important and expanding space of sample management. And although were focused on growth, were careful to strike the right balance to maintain profitability as we grow. This business has tremendous earnings leverage and we know that if we elected to slow investment for growth, we could deliver much higher profitability. <\/p>\n As a matter of fact, we maintain our position that the potential profit margin of Life Sciences is greater than in our semiconductor opportunity, but for now we believe that the best thing that we can do for shareholders is to continue to make investments to capture more of this market through targeted investments in organic and inorganic growth opportunities. We believe that were taking the right steps, and I illustrate with two examples. <\/p>\n First, weve meaningfully expanded our customer base over the years. When we started in the automated stores and services space, we acquired companies that gave us approximately 200 customers. At the beginning of fiscal 2015, when we acquired FluidX, a consumables and instruments company, we added another 300 customers. BioStorage Technologies came with an additional 300 customers and PBMMI 250 more bringing the number of customer relationships to more than 1000. <\/p>\n Over the past three years, this represents a five-fold increase in the number of potential opportunities we have to expand our cold chain offerings. Weve already started to leverage this portfolio to win more business at many of these customers who are eager to streamline their sample management solutions. <\/p>\n In terms of results, Life Sciences revenue for the first three quarters of fiscal 2017 was $105 million, almost equal to the $108 million of revenue we delivered in all of fiscal 2016. That represents 37% growth over the same period one year ago, and for the fiscal year-to-date bookings totaled $154 million, up 35% over the same period last year. <\/p>\n Were forecasting another strong quarter for Life Sciences and we expect to deliver double-digit sequential revenue growth in Q4 with revenue above $40 million and we expect revenue will continue to grow in every quarter of 2018. <\/p>\n Ill now turn to the semiconductor business, which remains our main cash and profit engine. In our semiconductor business, we set a number of new high water marks as we successfully tested our operational capabilities against another surge in customer demand. We delivered revenue of $145 million, up 8% sequentially and up 22% versus the same quarter one year ago. <\/p>\n Its important to note that this 8% quarter-over-quarter growth was net of reduction in our CCS revenue of approximately $5 million, due to the decrease in leading-edge foundry spending that some of our OEM customers have already mentioned. This makes the growth in our semi business all the more impressive as its driven mostly by 3-D memory capacity and advanced packaging. <\/p>\n Ill provide a quick update on these three growth drivers, starting with vacuum automation. The tremendous growth in vacuum process technologies, primarily deposition and etch led us to yet another record in vacuum robots with revenue up 14% from this previous record we delivered in March. These are unprecedented times and were reaping the benefits of our powerful market position in the vacuum automation space. <\/p>\n Year-over-year our vacuum robot business was up 56% and indications are that were in for a period of sustained strength in the equipment industry and that vacuum process steps that serve 3-D memory will continue to be in high demand into 2018. Our leading market position at more than 15 OEMs who supply vacuum equipment virtually assures that if any capacity additions are a benefit for Brooks. <\/p>\n In advanced packaging, we saw a 60% increase in automation solutions, from $9 million in March to more than $14 million in the June. Advanced packaging growth was driven by strong investment by Chinese OEMs, as well as increased shipments of 200 mm vacuum systems to support the unique packaging needs for MEMS, power, and plasma dicing markets. We also added to our share by winning the automation design for an advanced packaging lithography tool. <\/p>\n Looking forward, we see positive momentum for additional investment in leading-edge foundry to support integrated fan-out. The advanced packaging business is robust and the in the opportunities that exist are expanding to a broader number of companies, which are building lines to adapt these new technologies. As a result, we feel that were at a step change from the $40 million annual run rate that we sustained from most of the last couple of years to something that can be meaningfully higher. <\/p>\n The only part of our semiconductor business that was not up in the June quarter was contamination control solutions, which still came in at a healthy $20 million, but was down from record $25 million in the March quarter. This reduced level was expected as leading-edge 10 and 7 nm foundry spending, which drove extremely high shipments in December and March has subsided as that manufacturing capacity is brought online. <\/p>\n On the positive side, we believe we have one 100% market share for all 10 nm and 7 nm manufacturing capacity thats being installed and in these technology nodes ramp, so too will our CCS business, but were forecasting CCS to be down again in the September quarter by another $6 million to $8 million as leading-edge foundry spending is expected to remain low. <\/p>\n That said, we are counting on new factory capacity in China and the restart of foundry spending to be meaningful drivers of additional market opportunities in 2018 and our forecast, which are based on new fab capacity expansion plans are for CCS business to grow again in 2018. <\/p>\n Finally, in the quarter we also supported another jump in our cryo vacuum pump business, which was up 10% from the prior quarter and up more than 50% from the prior year as both ion implantation and PVD activity has strengthened. Our Polycold cryochillers business that supports applications for advanced displays was similarly in very high demand, more than double the level of the same quarter one year ago, and at levels weve not seen for several years. <\/p>\n We anticipate similar revenue for our cryo vacuum products in the September quarter. In total, we forecast our semiconductor business to be down approximately 7% to 8% at September, after our record June quarter, which included a couple million dollars of pull-ins to help customers who wanted more product in June, but even with the pause in September, well be very busy in manufacturing operations as we will be preparing for what we are forecasting to be some high demand quarters after that. So although revenue will be slightly less, well be no less busy in our preparedness for a strong demand outlook. <\/p>\n Overall, were extremely pleased with our performance. Were in two growth businesses that are supported by strong market dynamics in which we hold defensible positions that we continue to build. Our outlook for Life Sciences for more quarters and years of accelerated top line and margin expansion as we continue to build a growth engine centered in the sweet spot of sample management. <\/p>\n This market is exploding as bio samples are the key elements to support drug discovery, cell therapy, regenerative medicine, and cancer research. The demands for our capabilities are accelerating and our ability to define standards of handling and transport are going to be essential for our success and to the benefit of the industry. <\/p>\n In the semiconductor space, were benefiting from the strong growth in 3-D memory and all of the vacuum equipment that requires. We are well positioned for advanced packaging automation opportunities where we have shown our capability to capture share and were far and away to market choice for CCS solutions for wafer and radical carrier cleaning. All-in, we see another strong quarter in September, even with the pause in the semiconductor business. We remain extremely bullish about our position in both markets and we anticipate growth in the December quarter from both segments. <\/p>\n That concludes my formal remarks, and Ill now turn the call back over to Lindon. <\/p>\n Lindon Robertson <\/p>\n Thank you, Steve. Please refer now to the PowerPoint slides available on the Brooks website under our investor relations tab. To start the remarks, I would like to draw your attention to Slide 3, which is consolidated view of our operating performance. Our top line revenue increased 7%, sequentially to $182 million, driven by an 8% increase in semiconductor solutions, and a 6% increase in Life Sciences. <\/p>\n In the GAAP results, operating income expanded 27%, driving GAAP based earnings per share upwards $0.05 to $0.25 per share. Looking at the non-GAAP picture, adjusted earnings per share was $0.36 per share, an increase of 27% from second quarter. Non-GAAP gross margin increased 100 basis points to 40%, driven by improvement in the semiconductor segment. <\/p>\n At the bottom line, we produced 25 million of non-GAAP net income and 37 million in adjusted EBITDA. Comparing these results on a year-over-year basis to third quarter of fiscal 2016, revenue was 23% higher and our adjusted EBITDA has increased 93%. <\/p>\n Turn with me over to Slide 4 to start our discussion of segment results. The Life Science business grew 6% sequentially and 26% year-over-year with $37 million of revenue. BioStorage revenue increased 9%, sequentially, while the remaining core Life Sciences revenue grew 4%.Gross margins came in at 38%, 2 points lower than the prior quarter. Softness occurred on both the storage and the infrastructure business. <\/p>\n On the BioStorage services side, the result was driven by mix as genomic services revenue came in higher. Storage service margins remained very strong. On the infrastructure side, the business had certain projects driving a lower margin this quarter. We expect margins to return to 40% next quarter. In the third quarter, new orders in contracts totaled $42 million adding backlog to the business. <\/p>\n Year-to-date, Life Science bookings totaled $154 million, up 35% compared to just $114 million for the same year-to-date period in 2016. The fuel is there to continued organic growth above 20% year-over-year, and we will have the added benefit of our latest acquisition of PBMMI in the BioStorage space. They had $10 million of revenue in the past 12-months and are also growing. This latest acquisition fits the margin profile of our current BioStorage business that being about 40% to 45%. <\/p>\n Lets turn to those semiconductor business on Slide 5. This business accelerated with 8% sequential revenue growth this quarter. As Steve indicated, we saw some customers pulling product through in the final weeks ahead of our anticipated schedules. Across the product lines, we saw double-digit sequential expansion in vacuum robots and atmospheric robots and cryopumps and services and in our Polycold line. The offset bringing us down to 8% was in contamination control solutions, which was still above $20 million. <\/p>\n As we have shared previously, these systems sell for approximately 1 million each. So, the timing of the fab line expansions can cause a swing in our quarterly revenue. Based on our fab customer schedules, we anticipate another drop in contamination control shipments again in our fourth quarter and are rebounded in the 2018 calendar year, just as Steve outlined. <\/p>\n As the strikes some variability in our revenue lines well continue to give you visibility to the specifics, but I also want to emphasize the moment this business has provided. We acquired this business in 2014 for 32 million from an owner that saw 28 million of revenue in their prior year. In 2015, we had $44 million of revenue and in 2016 $52 million and we will be above $80 million when we finish 2017. We foresee another year of growth in our fiscal 2018. <\/p>\n The adjusted gross margins for semiconductor solutions struck above 40% this quarter. The value of our newest products and the reduction of fixed cost over the past 18 months have made 40% possible. The additional volumes this quarter had drove over the line on improved absorption of overhead. <\/p>\n Let me drop a highlight around this point. Our $10 million of expansion in the top line dropped through to operating income at a rate above 60%. In the year-to-date picture, our semiconductor revenue has grown 24%, and has dropped through to operating profit at a rate of 50%. <\/p>\n Lets turn to the balance sheet on Page 6. With the growth of the business, weve seen expansion of receivables and inventory. The increase in deferred revenue reflects the life science bookings that often carry advance payments. We finished the quarter with $120 million of cash, cash equivalents, and marketable securities and no debt. We carried $49 million of this cash in the U.S. at the close of the quarter, which enable closing the $34 million acquisition of PBMMI at July without touching a credit revolver. <\/p>\n Lets turn over to Slide 7. Net income of $17 million drove cash flow from operations of $18 million. Were in our seventh year of paying a dividend returning $7 million to shareholders in this quarter alone. Capital expenditures were $2 million, bringing the total for our first three quarters to $7 million. <\/p>\n Cash from operations has accumulated to $61 million for the nine months ended June 30, rounding out free cash flow to $55 million year-to-date. In total, our cash balances expanded by $29 million since the beginning of the year to $120 million on this report. I will highlight again that this is prior to using $34 million on the acquisition of our latest BioStorage acquisition on July 5. <\/p>\n Slide 8 addresses the outlook of our fourth fiscal quarter of 2017. Fourth quarter revenue is expected to be in the range of $172 million to $178 million. Adjusted EBITDA is anticipated to be between $30 million to $33 million. Non-GAAP earnings per share is expected to be $0.27 to $0.31 per share. And the GAAP earnings per share is expected to be $0.17 to $0.21. <\/p>\n As we drive to this guidance, were very cognizant of the step change, our business has made in this past year. The annual numbers represent a 22% growth at the top line, the non-GAAP earnings per share is more than double the $0.47 we turned in 2016. <\/p>\n So that concludes our prepared remarks, so I will now turn the call back over to Ash, our operator, to take questions from the line. <\/p>\n Question-and-Answer Session <\/p>\n Operator <\/p>\n [Operator Instructions] And our first question comes from the line of Paul Knight with Janney Montgomery Scott. Your line is now open. Please proceed with your question. <\/p>\n Paul Knight <\/p>\n Hi Steve, could you put some color around the equipment versus the service size, the revenue in the quarter and any attributes on why maybe a little softer, was it capital equipment? And then lastly, the Pac bio deal was closed, correct? <\/p>\n Steve Schwartz <\/p>\n The Pac bio deal was indeed closed. So Paul let me give you a little bit on the quarter. So out of the 37 million, I'm going to give you a really rough numbers, the stores was about 20%, a little bit more 25%. The consumables and instruments was probably about 15%, and the bulk of the business was the services and the service combined. So when we look at the bio storage and service combined that was about half. <\/p>\n Paul Knight <\/p>\n Okay. And then you are offering genomic services as part of your strategy obviously, is that your fastest growing business? <\/p>\n Steve Schwartz <\/p>\n It turns out that all of the elements are growing pretty significantly. The genomics is a little bit, is not as steady. In the aggregate it is growing, but the samples that we provide to that are growing considerably. So thats a business thats still up and down for us, but year-on-year well see growth in the genomic services, but we find the activity there is sometimes budget -related and so there are bursts in that business, more so than the steady annuity that we get from the consumables and from the storage elements. <\/p>\n Paul Knight <\/p>\n And youve been posting somewhere in the 20s on organic growth, do you see that as a number thats ahead of this? <\/p>\n Steve Schwartz <\/p>\n We do. So for the foreseeable quarters we see that continuing to grow in the 20% plus range. <\/p>\n Paul Knight <\/p>\n Okay. Thank you. <\/p>\n Steve Schwartz <\/p>\n Thanks Paul. <\/p>\n Operator <\/p>\n Our next question comes from the line of Amanda Scarnati with Citi. Your line is now open. Please proceed with your question. <\/p>\n Amanda Scarnati <\/p>\n Hi thanks for taking the question. Just continuing on the Life Sciences business, Steve I think you mentioned that profitability could be greater than semi down the road, and what are the puts and takes to get there, is it adding more scale into the business, is it continuing to integrate the acquisitions that have been done or are there other things that are already in process that are helping to drive profitability up. <\/p>\n Steve Schwartz <\/p>\n <\/p>\n See original here:<\/p>\n Brooks Automation's (BRKS) CEO Steve Schwartz on Q3 2017 Results - Earnings Call Transcript - Seeking Alpha<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" Brooks Automation, Inc. (NASDAQ:BRKS) Q3 2017 Earnings Conference Call August 2, 2017 4:30 P.M. Continue reading