Brooks Automation, Inc.
Q4 2014 Earnings Call Transcript

Published: 13 Nov 2014

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Brooks Automation Q4 and Year End Financial Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we’ll conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded Wednesday, November 12, 2014. I’d now like to turn the conference over to Lindon Robertson, Executive Vice President and Chief Financial Officer, Brooks Automation. Please go ahead sir.

[Lindon Robertson:]

Thank you, Mark, and good afternoon everybody. We would like to welcome each of you to the fourth quarter financial results conference call for Brooks fiscal 2014 year. We will be covering the results of the fourth quarter ended on September 30th and then we’ll provide an outlook for the first fiscal quarter ending December 31st of this year. The press release was issued after the close of the market today and is available at our Investor Relations page of our website, www.brooks.com as are the illustrated PowerPoint slides that will be used during the prepared comments during today’s call. I’d like to remind everybody that during the course of the call, we will be making a number of forward-looking statements within the meaning of the Private Litigation Securities Act of 1995. There are many factors that may cause actual financial results or other events to differ from those identified in such forward-looking statements. I would refer you to the section of our earnings release titled Safe Harbor statement, the Safe Harbor slide and the aforementioned PowerPoint presentation on our website and our various filings with the SEC, including the Form 10-Q for the third quarter ended June 30, 2014. We make no obligation to update these statements, should future financial data or events occur that differ from 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 the GAAP financial results and the reconciliation of GAAP measures, 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 Brooks’ Chief Executive Officer, Steve Schwartz. We will open with his remarks on the business environment and our fourth quarter and fiscal year highlights. Then we will provide an overview of the fourth quarter financial results and a summary of our financial outlook for the quarter ended December 31th, which is our first quarter of the fiscal 2015. We will then take your questions and during these prepared remarks, we will from time to time make reference to slides available to everyone on the Investor Relations page of our Brooks website. So with that, I would like to turn the call over now to our CEO, Mr. Steve Schwartz.

[Steve Schwartz:]

Thank you, Lindon. Good afternoon everyone and thank you for joining our call. We’re very pleased with our fourth quarter performances consistent with the significant progress we’ve made across the entire business during fiscal year 2014 and it gives a strong momentum as we head into fiscal ‘15. To recap some of the most significant highlights of the year, we demonstrated excellent traction in our business with growth of 14%. We continue to transform our product portfolio to position ourselves in businesses that we can grow profitably, with the divestiture of Granville-Phillips and the subsequent acquisition of DMS. We expect to benefit even more from the rapidly growing OEM market for deposition and etch processes and our product line that is proving to be very well suited for advanced packaging applications. We grew our life sciences business by 46% and we established ourselves as the clear market leader in applications, which relate to the cold chain of condition for biological sample handling and storage. In addition, we had another year of significant financial improvement as we boosted gross margins by 270 basis points over 2013 and we finished the year with almost $250 million in cash, leaving us well positioned to continue to make investments in future growth. I’ll give some highlights from Q4 and then the year and I’ll speak about some of the events that transpired subsequent to the end of the quarter before we give color about our outlook heading into our fiscal year of 2015. As I mentioned on our last call, we continue to build very strong momentum in our vacuum robot franchise. Fiscal 2014 was a record year for Brooks in the shipment of MagnaTran robot. Our vacuum robot business grew by more than 50% over fiscal year 2013. Our aggressive investment and single minded customer focus over the last three years is beginning to pay-off. We’ve been enhancing and reinventing the MagnaTran vacuum robot platform for more than 15 years. It’s the work force of the semiconductor equipment industry and the standard for productivity, cleanliness and reliability, with our investments during the last three years on the next generation of MagnaTran robot and are alignment with our customers that delivering some of the most important design win penetration that we had in more than a decade. Specifically, during fiscal 2014, we closed on eight new MagnaTran vacuum robot design wins at three of the largest five Tier 1 OEMs. Seven of those eight design wins were for deposition or etch tool applications. Deposition and etch being the fastest growing segments of wafer fabrication equipment market. Furthermore and most importantly, all of those seven deposition and etch wins displays robots previously designed and built by the OEM themselves. This ongoing transition from captive to merchant technology products is a testament to the capability that we’ve developed and have been able to demonstrate to these important customers over the last few years. And it represents a fundamental shift in how they concentrate their resources. Our OEM customers understand that the most critical value that they need to bring to their customers relates to new materials and enabling complex process technology. The automation capabilities are our strength and they can depend on us to deliver reliable and dependable handling systems. This fundamental shift with the Tier 1 OEMs does not come without certain obligations as we are required to stand in front of the equipment makers’ technology needs and development roadmaps. But we’re already fully engaged and in the process of getting our next generation technologies designed in the platforms that will serve 10 nanometer and 7 nanometer nodes. Fiscal year 2014 was also a pivotal year for us, penetrating products for the advanced packaging segment. At the close of the year, we counted 17 different customers and 21 different product configurations which have one or more of our vacuum robots, atmospheric systems or vacuum systems as a critical part of their tool architecture. Furthermore, we’ve already secured additional design wins which will increase this customer count to at least 22 and product configurations to more than 26 in fiscal year 2015. Although our revenue from advanced packaging was less than $20 million this fiscal year ‘14, we anticipate that year-on-year growth of approximately 50% based on forecast from our customers. In our automation systems products which consist of integrated atmospheric and vacuum robots that are built into systems, we grew more than 25% in the year. These higher value systems are largely sold to Tier 2 equipment makers where we’re able to demonstrate fast development of fab-ready automation for their process tools. We are pleased that in the areas where we are investing, we are able to demonstrate strong growth and we feel that our automation investment strategy is paying off. It is however important to note the impact of the atmospheric components business on our financial performance over the past years. Even though we deemphasize this business, its revenue decline has been substantial. A decade ago, this component business was a strong hold for Brooks. Today, this market is served by more than a dozen aggressive and very capable suppliers and is now quite commoditized as represented by the steep price declines that have occurred over the last years. To put this in perspective for Brooks, in 2007 this sub-segment represented more than $130 million of revenue for us, but at that time the price erosion had begun and the company elected to give up market share as we were not willing or able to chase price. Since then, the business has slowly wound down till today for 2014, it was only about $35 million of revenue. In terms of the recent impact of this wind down of the atmospheric component business from 2013 to 2014, our atmosphere component revenue decreased approximately $10 million while revenue from our focus areas of vacuum robots and integrated systems increased by $40 million. We believe that this is about the bottom for our atmospheric components business and the small amount of business that we continue to support is profitable. We have still very much in the atmospheric automation business but we’re now focused on integrated systems where our strategy is to employ the wafer engine technology from crossing automation which allows us to provide differentiated value to customers and respectable profitability to Brooks. This business is growing and is profitable. In our newly acquired DMS Business which has become the foundation for our contamination control solutions business, we had a good first full quarter. The integration is proceeding on schedule and we had $11.5 million in bookings which is already above the $40 million run rate that we anticipate for this business in our first year. We also had some important wins including our first FOUP cleaner for a memory maker which we believe will be the first of many. We received orders for two radical cleaning systems and we agreed to ship one FOUP cleaner evaluation unit to a new foundry customer. We’re generally pleased by the customer acceptance of our technology, our products and the field performance of the tools and the installed base. Revenue came in at $4.5 million, up from $1 million in Q3 which was a partial quarter but below the $6 million we’d forecasted. But the strong bookings quarter gives us confidence that revenue in December will be approximately $7 million. It’s worth noting that our Contamination Control Solutions products are proving to be critical in the flow of material in the factory and the products are performing well. We are executing a road map which will continue to improve the capabilities of next generation versions of these products. So, we are confident in our ability to extend our market leadership position into the future. Now, I’ll turn to the life sciences business. We had another strong building quarter in the life sciences business. We delivered $20 million in top line revenue, up about $1.6 million from Q3 and we improved operating income in this segment to breakeven. And gross margin improved getting back up to 40%. Bookings in the quarter were $12.5 million and although up from Q3 are below when sustainable for the revenue levels we are now achieving. However total lending backlog is $44 million and we have a line up site to several projects that we anticipate will close within a next couple of quarters. So, we believe that this revenue level of $20 million per quarter is a new threshold from which we can and will deliver improvements in operating performance. Since our last conference call, we’ve registered several important milestones that are significant for continued growth in this business. First, we’re on schedule with our store installations for the U.K. Biocentre. We have recognized most of revenue from this project over this quarter and the March quarter, a sign that we’ve made dramatic improvements to our installation process and that we learned many valuable lesions from our experience with the Tohoku systems. Second, we announced the acquisition of FluidX, A UK based consumable company that provides various formats of tubes and vials for the storage of biological materials in cryogenic systems. As we’ve described to you over the last few calls, we’ve had a tremendous success with the launch of our new Twinbank automated store architecture, which can be configured for use at both minus 20C and minus 80C. Our minus 20 degree C temperature [Technical Difficulty] is primarily for the [Technical Difficulty] compounds, the primary customers for these systems are pharmaceutical companies. In the chemical compound area, we’re able to offer the cold store and a complete set of tubes and well plates that hold the sample at minus 20 degree C. These consumables are an important part of our business and typically the value of consumables purchased with the store can be in the order of 30% of the system price. And over the life of the store, the amount of revenue associated with these consumables can add up to as much as the original store purchase price. It’s an important to end valuable part of our product offering. The storage of biological samples at colder temperatures minus 80 degree C and below poses a different set of questions at the seal between the vial and the cap must be of much higher integrity and usually involves a more complex design and sealing method. The types of consumables in our portfolio were ideal for compounds, but unsuited for the storage of biological samples. This is where the addition of FluidX is perfect for Brooks as now more than 50% of our Twinbank [Technical Difficulty] the storage of biologic [Technical Difficulty]and until we acquired FluidX, we did not have a biological sample storage product that we could offer with our systems. FluidX is recognized for the high quality and innovative product designs to bring an impressive customer lift and a loyal following. It grown quickly since their inception in 2006 and we are making some incremental investments in FluidX, so that they can grow even faster. Additionally, now, not only are we able to offer bio-storage systems with complete sets of consumables, we will have the in-house capability to adapt and modify products that can be used more beneficially by our stores, particularly as it relates to improvements in storage density and reliability in speed of automated handling with the format of the tube has a big impact on system performance. This captive capability will become even more important as we push our product offerings down to the minus 150 degree C temperature range and the challenges and opportunities for specialized consumables become more significant. Overall, we remained extremely pleased with the acceleration of our life sciences business over the past four quarters. We’ve driven top-line growth, market position and profitability and simultaneously strengthened the product offerings and the management team. We continue to spend a material amount on next generation products. We have ambitious goals for product launches in the coming calendar year. For that end, we are making a conscious decision to step up our spending in life sciences by approximately $1 million in each of the December and March quarters as the progress made by our development team has been such that we are prepared to bring a couple of our products to launch readiness, faster than we had originally planned. Most of this expense will be in SG&A to enable us to bring the product launch in by a couple of quarters and to increase the investment in our channel to expand the FluidX business. These increased costs will come before we fully wind down the last of the engineering activity related to the Twinbank products where we believe that it’s absolutely the right approach to accelerate the opening of new market opportunities. We feel very confident in this approach as the product development has gone extremely well. And the customer response from those with whom we’ve shared our development activity is to encourage us to bring these products to them as quickly as possible. This is a moment to be seized. We fully recognize that in the absence of spending on next generation products, which is now more than $2 million per quarter, even at $20 million of revenue per quarter, our life sciences business will be nicely profitable. However, the products that we are developing will deliver real growth in differentiation and we are committed to bringing them to market as quickly as possible. Finally and perhaps as important as any other life sciences news we’ve had in the past two years. Last week we announced that Dusty Tenney had joined us in the role of President, of our Life Science business. Dusty comes to us from life sciences tool company, PerkinElmer where he was responsible for various business units over his 13 year career. He’s the highly accomplished life sciences business leader who understands the life sciences tool industry, has a strong record of highly profitable business growth and who keenly understands the opportunity that we’re exploiting as we develop a business in the fast growing cold chained condition market. Dusty has full responsibility for the business and we’re fortunate to have an executive of his stature and track record with us at Brooks and we’re already feeling the positive impact of his presence. We’re understandably bullish in our sentiments about this sector and we look forward to another year of significant progress in 2015 for life sciences in terms of top and bottom-line growth. From operating standpoint, we continued to show the improvements that are being driven by our business model. We delivered another 20 basis points of gross margin improvement and we closed the year with a full year improvement in gross margin of 270 basis points. We continue to have active plans to further improve upon this performance in 2015. And we believe that we’re adequately sized from a cost and infrastructure standpoint to be able to add meaningful revenue without adding [appreciably] to the infrastructure cost in a company. All-in, we feel that we’re in about the third inning of this journey and we’re bullish about the improvement that we have yet to deliver from a profitability standpoint. In terms of our outlook, we do see that things in the semiconductor side of the business have begun to pick up. Bookings in semi are rising and we’re beginning to see an increasing demand that will keep us busy late in this quarter and into the March quarter. We do not have all of the granularity to know of specific products that we delivered to OEM are for foundry or memory, but we do have some indication from a IC marker touch point, there are lots of orders in our Contamination Control Solutions products, but the spending environment is beginning to improve at various fabs in Asia and not just at biggest of the semiconductor chip makers. We forecast that our BPS product group will be up in December and that the life sciences business unit ought to be approximately flat at around $20 million in revenue. We’re counting this number approximately $3 million from FluidX, so on a competitive basis, we see a modest decrease in life sciences in the quarter. All in we’re encourage by the signs that we received that indicate that 2015 ought to be a healthy year in the semi business. We are positioned well in segments of this market that have the potency and potential grow faster than the overall market. We’re extremely pleased by our presence in the life sciences market, our recruitment of Dusty Tenney, the acquisition of FluidX and the potential for next steps as we define and capture the market for cold chain solutions there are so desperately needed by the marketplace. That concludes my prepared remarks and I’ll now turn the call back over to Lindon.

[Lindon Robertson:]

Thank you Steve. Please refer to the PowerPoint slides now available on the Brooks website under our Investor Relations tab. I draw your attention to slide three to start the remarks. Earlier in the year, we disclosed the roadmap to 2017 and the key milestones for 2014 to ensure we stay on the path to achieve our goals. The focus is growth and profitability. As you can see in our growth commitments for the year, we far exceeded life science systems revenue growth with 46% year-to-year. That contributed $20 million of top line revenue to our business in 2015. And the backlog expansion for life sciences was similar, 40% expansion keeping us on the path for growth. But it’s not all about life sciences; 85% of our business is in the semiconductor space and our best measure of the future is the active design wins. We had many wins, but not all design wins are created equally. We are assessing those with the criteria of driving incremental growth in 2015 and beyond. Early in the year, we had 12 identified but followed through on 18. How do we know that they generate growth? As Steve referenced, they are coming from the packaging space, or our opportunities coming back from captive OEM suppliers, so they are new areas for the merchant business. Finally, we didn’t state a goal on dividends but we’re happy to support an increased dividend on the confidence of our ongoing operating cash flow. Now, let’s focus on the fourth quarter results for a few minutes, turning to page four. The top-line revenue came in at $123 million, an increase of 4% sequentially; and at the bottom-line, non-GAAP earnings per share came in at $0.07. We had another quarter of solid execution. In summary on this page you’re seeing the gross margin expansion, primarily driven by the 9% sequential growth and improved margins of the life science systems, which finished with an adjusted gross margin of 40.2% in the fourth quarter compared to just 38.4% in the third quarter. And you’re also seeing a prioritization of investments. The primary driver of the R&D expansion as contamination control systems investment with three full months of R&D spend this quarter and we continued our investment in life sciences. But overall, you can see, we can contain the incremental spend of CCS with the reductions in SG&A. You’ll see further evidence of our strategic directions as we go through segment results. So looking at page five, you can see each segment achieving revenue in line with our strategy, steady expansion in product solutions with the CCS acquisition and healthy growth in the life sciences segment. Let’s go deeper into the segments on page six. You can see improved profitability in the product solutions with the growth on the top-line with stable margins and expense management. As just mentioned, the 5% growth is driven by CCS business which turned in $4.5 million of revenue. This is a little lower than expected. Margins are on track with this level of revenue. So with the bookings of 11 million as Steve referenced, we have confidence that CCS stays on track to be a profit driver in 2015. We maintain our full year goal of $40 million and reaching 40% margin on CCS business. On page seven, Global Services continues to show a very stable picture with solid margins above our 35% objectives for the segment. We’re happy with the performance in this segment. Turning on to page eight. If we look at the Life Science Systems, its track in line with our expectations, 9% in the top line, margins above 40% and breakeven operating income for the quarter providing $0.6 million of improved profits. Results reflect the broad based business with a significant portion coming from the UK Biobank project, the largest of its kind in our history. The backlog has changed shape over the past year. At the end of 2013, nearly all of our backlog that we’d signed was within 12 months. So, we have expanded our services contracts to capture extended opportunity and now have 10 million of backlog greater than 12 months. This momentum is fueled by the Twinbank platform if the FluidX acquisition will start in this coming quarter. Now turning back to a consolidated view on page nine. You can see again at the top of the page, the non-GAAP operating income expanded to 4.7% nearly two full points. And you can see $3 million of improvement in our GAAP net income from continuing operations. The restructuring done in the third quarter is beginning to pay back in the fourth quarter. We took another $1.6 million of restructuring in the fourth quarter. Income tax has been a contributor to our results in both the third and fourth quarters. The tax benefit shown on the chart is the total GAAP tax benefit. Within that, we also had a low 16% effective tax rate in the fourth quarter for our non-GAAP results as some discrete items expired and were taken in the quarter. Our cash performance is shown on slide 10. Operating cash flow for the fourth quarter of fiscal 2014 was $13 million and for the full year $54 million. This is the second year of cash flow from operations at this level. Dividends, which increased 25% in the September payment represented a 43% payout ratio to the operating cash flow. As a reminder, in the other financing investing line we reflect the divestiture of the Granville-Phillips business for $87 million earlier this year and the acquisition of the DMS business for $32 million, which we now refer to as Contamination Control Solutions business. At the end of the year our balance of cash and equivalents reached $245 million. This again is prior to the acquisition of FluidX, which we acquired on the 1st of October for approximately $16 million cash payment. Slide 11, displays the balance sheet summary. In the quarter, we saw cash flow driven by a healthy $10 million decrease in inventory. Healthy not just because of the size, but it was driven by some reduction in each area of the business. On the page you see inventory is flat, but remember that we acquired the CCS business, which carried about $10 million of inventory. So, we did see significant improvement in working capital management through the year. DSO for the year was 60 days compared to 65 days in 2013 and inventory turnover was 3.3, up from 3 turns in 2013. Life science systems drives the deferred revenue line reflecting the momentum of our advanced bookings through the year. I’m very pleased with the increasing strength of this balance sheet and the flexibility it provides in pursuing our strategies. Turning to slide 12, we provide a summary of our annual operating performance. Revenue for the fiscal year was $483 million, an increase of $60 million or 14% compared to 2013. Non-GAAP operating income increased to $20 million and EPS to $0.25 per share. This is an increase of $0.13 per share and it’s primarily driven by the top-line growth and margin expansion of 274 basis points. Operating expenses increased, but in line with our expectations. We are carrying the R&D for life sciences, as well as the operating expense of the new CCS business. We also moved from quite small amount of performance-based compensation expense in 2013 to a full year performance compensation in 2014. As indicated by the EBITDA growth of 56%, the strength of the business has significantly improved. Let’s turn to the segments to see where the improvement materialize on page 13 across the year. Full year revenue growth shows up in each segment as does the margin expansion of operating income. Our revenue growth was significant, 46% in life science systems, 12% in product solutions and 6% global services. In summary, we saw top-line growth, margin expansion in each segment, cash balance growth and expansion of the market opportunity with our acquisition of the CCS business and the strategic expansion of life sciences in our portfolio. It was indeed a pivotal year for performance and for positioning us for further valued growth. Turning to slide 14, we provide our guidance estimates for the first fiscal quarter of 2015. Revenue is expected to be in the range of $125 million to $130 million. The higher revenue is driven by the recent acquisitions CCS and FluidX, each providing approximately $3 million of additional revenue in the quarter. They’re not dilutive, but not yet bringing profit to the bottom-line. And as mentioned by Steve, we’re making the SG&A investments I mentioned to expand the life science sales and [channel] capability. So, the profit drop through from the revenue may not be what you would normally expect. At the same time, our effective tax rate is returning to a more normal 30% to 35% level in the first quarter, which is more than one penny per share impact compared to the fourth quarter. So, non-GAAP diluted earnings per share is expected to be in the range of $0.05 to $0.07. That completes our prepared remarks. I’ll now turn the call back over to Mark to take questions from the line.

[Operator:]

Thank you. (Operator Instructions). And our first question comes from the line of Patrick Ho with Stifel Nicolaus. Please proceed with your question.

[Patrick Ho:]

Thank you very much. Congratulations to nice end of your fiscal year. Steve, first on the DMS business, when you look at it traditionally logic and foundry customers typically have kind of a tighter discipline and control on the contamination side of things. You mentioned a memory win. Is that being driven by their now, I guess, more aggressive push just smaller shrink say, the 25 and 29 nanometer node as well as the migrations to new device structures like 3D NAND; what’s driving I guess memory customers looking at some of these solutions as well?

[Steve Schwartz:]

Yes. First, it’s the node, actually the [land width] right now is the first one. And we anticipate that perhaps in 3D structures, we’ll begin to see more of that but that’s been slow to start. But we do see it as an artifact of the [land width] being driven down.

[Patrick Ho:]

Great. And maybe…

[Steve Schwartz:]

And just most of the business so today has been logic and foundry.

[Patrick Ho:]

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

[Steve Schwartz:]

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

[Patrick Ho:]

Great. And one question on the life sciences side. With the FluidX business now being integrated into your life sciences operations as a whole, what are some of the key market drivers there? Is there a level -- I will say seasonality when spending trend or is that highly dependent on when some of your biostore sales occur that will drive I guess subsequent FluidX sales? What are some of the drivers there in terms of their trends?

[Steve Schwartz:]

Yes, what we see from the FluidX team is they worked very hard to win and account. And once they get their tube or the vial established as the device that will be used for the handling of samples, then it’s very sticky. So they get repeat the business if you will as customers need more tubes and vials. Interestingly we have in our entire installed base very have very little overlap to-date of our stores and FluidX tubes as we haven’t pushed the customer one way or another but the ability to go win and sell together we think provides a tremendous opportunity for us. And the other thing as we talked about an increased investment in FluidX, they’re very well penetrated in Europe and much less so because they didn’t have quite the footprint in North America. And so some of the investments that we want to make are to give them coverage in North America to help expand a really excellent business model where they just didn’t have resources to expand quite as quickly in North America yet.

[Patrick Ho:]

Great, thank you very much.

[Operator:]

And our next question comes from the line of Edwin Mok with Needham and Company. Please proceed with your question.

[Edwin Mok:]

Hey great, thanks for taking my question. Good job on all the growth initiatives this year. So, firstly I’m particularly interested in your commentary about displaying robot design by the OEM themselves in kind of their internal design, right? I was wondering is this a trend that you see across the board or is it just one or two particular customer? And do you think this is a sustainable trend that you go for into advance mode?

[Steve Schwartz:]

Yes, Edwin, we’ve seen -- it’s been a few years of work to try to get to this point, but I think we see it across the several of the large OEMs that they recognize that an automation company that can keep up with their needs and demands is more than they opt to be investing on their own. And so, the next generation of robots that we’re able to deliver, we think are very sophisticated, we think they need the cleanliness and material requirements and I think the OEMs understand very clearly that their incremental spend or incremental engineering really opt to be around process technology. And I think they’ve become very comfortable with us as a supplier. But as I mentioned in my remarks, one of the demands that they have is that we also keep up with the next generation road map and we’ve made investments to make sure that we’re able to serve not just the products that we’re winning, but also the ones that they’re working on.

[Edwin Mok:]

I see. Okay, great. Good color there. And then I was curious if I -- listening your commentary, it sounds positive about the [semi cap] spacing you talked about improved bookings that are going through this quarter. But excluding CCS you actually got flat BPS business, why is that the case?

[Steve Schwartz:]

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

[Edwin Mok:]

I think it’s just a [point] in the revenue, that’s great color. And then just quickly moving to our life sciences, can you tell share with us at least in kind of rough terms for the last fiscal year. What is the mixed up system sales versus consumable sales for the last year? And then more specifically to FluidX. Can you give us some idea about margin profile of that business. Is it in line with this 40% that you just trend or is it above, below on the gross margin basis? Thank you.

[Steve Schwartz:]

Yes. Edwin, it’s a good question. We continue to have it up till now seen about 50% of our revenue in systems in round numbers. And it does vary really consistently around 25% and vary between 23% to 26% in any given period to be consumables and instruments, we group those together. And then the balance of that 25% is in services. When we look forward to this year, obviously the FluidX business helps to pick that up a bit and we anticipate that the consumables and instrument business, which FluidX brings both to us as well would probably come up to about 30%. Now we’re optimistic that our services will continue to build with the placements of our stores and so the final arithmetical come out at the end, but I think we’re going to see our consumables and instruments come up to be a nicer piece of continuous business supporting our base business. Now in terms of margins, I wouldn’t very off of our current profile and that is range about 40% to 45% gross margin expectations in each of these spaces. So, we haven’t seen a significant differentiation between the three as of yet. We do believe that as we go towards our 2017 goals then we build this business toward that objective out of that timeframe to be $120 million that we’re going to see some margins change, because we will have; one, stronger top-line business and we will have gone through the integration of our business equation and we will have also brought on the ultra-low temperature product capability, which will be kind of standalone in the market. So for now we would reiterate think 40% to 45% across the life sciences business without much differentiation between the three sub-components, but we’re optimistic that when we’re talking to a year to two years from now we’ll be talking about a different level of margin.

[Edwin Mok:]

I see. Okay, great. Just I mean quickly just finish up on life science then. I think you guys mentioned that bookings is a little lighter this quarter or at least lighter, book-to-bill is below 1 this quarter. And, but you said that you believe that $20 million revenue run rate is sustainable. Is it because some of these bigger project that you guys are bidding on will come on pretty shortly in the New Year or is it possible that -- little more than we might see a quarter or two of softness before it can come back?

[Lindon Robertson:]

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

[Edwin Mok:]

Great. One last question and I’ll go. Just on the OpEx side you mentioned the increase $1 million in life science kind of investing in general. Is that call it a new level of spending we should expect or is it just short-term two quarter scenario?

[Steve Schwartz:]

I think the investments that we’re putting in will be something that’s sustained and around the life science business. And then however later in this year, you will see some I think cost improvements by the end of the year as we have and our plan to take some integration steps of the businesses we’ve acquired it. What we’ve said in the past that we still hold strongly and that is our first priority was to integrate the platform and the technology and capabilities of our teams, now we’re seeing the opportunity to take some actions on real estate and things like that to take out as we’ve stabilized and actually matured quite nicely across the capabilities of our team.

[Edwin Mok:]

Great. That’s all I have. Thank you.

[Operator:]

And our next question comes from the line of Jairam Nathan with Sidoti & Company. Please proceed with your question.

[Jairam Nathan:]

Hi, thanks for taking my question. First, I kind of wanted follow-up on the SG&A question. So, is that anyway related to the minus 150 biostore or what is about the projects, if you could give some more details on you’re trying to bring forward?

[Steve Schwartz:]

Yes, Jairam it’s both. We have some minus 150 capabilities that we’re bringing to market a little bit earlier than we’d anticipated. So that’s the real plus for the company. So, this we’re spending that company will make at some point, the fact that we can accelerate that by couple of quarters is good for us from a product to market position standpoint. And then as I mentioned before, some of it is to expand the capability from the -- of the FluidX team, so they can go out and capture more market, so expand their distribution capability. But the new product acceleration and bring it to market is related to indeed next generation store technology.

[Jairam Nathan:]

Okay. And my other question, sticking on the life sciences front and as far as the bookings go, is there any seasonality here with respect to number of bids out there or has there been change in the competitive environment?

[Steve Schwartz:]

Yes, Jairam, no changes that we have in the competitive environment. Give us a few more seasons before we have to quote on seasonality. But the one thing we do that we are prepared for is that our understanding and our experience has been that smaller items like consumables and instruments are sometimes -- sometimes there is acceleration for year-end budgets to be spent. And we’re standing by, but that’s -- those are smaller items; it doesn’t really impact the procurement to the stores necessarily.

[Jairam Nathan:]

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

[Lindon Robertson:]

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

[Jairam Nathan:]

Okay, thanks. That’s all I had. Thank you.

[Operator:]

(Operator Instructions). And our next question comes from the line of Ben Rose with Battle Road Research. Please proceed with your question.

[Ben Rose:]

Yes, good afternoon. Couple of questions for Steve. When you talk about being in the third inning of the transition for the company, I guess that’s paraphrasing from you. Could you talk a little bit about whether that’s third inning from the perspective of executing against the market opportunity or are we in the third inning in terms of your anticipated acquisitions and divestitures going forward.

[Steve Schwartz:]

Ben, it’s probably -- I’m going to split, probably right in between. From the same point of the cost reductions, our ability to integrate companies that we’ve required to get them on to common platforms and systems and for us to manage streamlined business model that applies to all of the product businesses, that’s the third inning portion. We’re working on low-cost region, transition, footprint utilization as Lindon mentioned. But in terms of our streamlining the cost structure and putting the efficiencies in place to improve the gross margin as much as possible, it’s more from an operating standpoint at that level. We like the product portfolio very much. We do intend to put the balance sheet to work to continue to grow the business where as you know we’re making pretty significant investments from an R&D standpoint, but there will be capabilities that we continue to add to fill in both on the semi side and in the life sciences. So, we will continue to be acquisitive as it suits the business that we’ve laid out here. So, we like the portfolio and the platform and the direction of the products that’s rather far along in terms of direction. And Vector is correct, we’ll make investments there. But most of the reference was to the kinds of things that we’re doing from a common operating platform and developing the business model here for us.

[Ben Rose:]

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

[Steve Schwartz:]

Well, Ben that’s a tough one for us. Let me just give you, because it would be speculative. But these are next tier foundries if you will. And so the devices that they continue to make, they seems to be the customers here, I wouldn’t know specifically what those are. But you’d know the names of all of them. But I’d say they are next tier foundries.

[Ben Rose:]

Okay. And then just going back, I guess question for Lindon on slide 13 where you’ve laid out the improvement made on the operating margin side. Could we anticipate a like operating margin improvement for Brooks Product Solutions in the coming fiscal year in terms of what happened in fiscal ‘14?

[Lindon Robertson:]

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

[Ben Rose:]

Okay, great. Thanks very much.

[Steve Schwartz:]

Thank you.

[Operator:]

And our next question comes from the line of John Pitzer with Credit Suisse. Please proceed with your question.

[Farhan Ahmad:]

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

[Steve Schwartz:]

Hang up Farhan, we’re struggling to find any numbers, but it’s pretty low level at this moment just to give you an idea. So, this is not one of the big quarters.

[Farhan Ahmad:]

Okay. So, you have not seen a pick up from demand from the Korean OEMs yet?

[Steve Schwartz:]

We didn’t have it in the fourth quarter.

[Farhan Ahmad:]

Got it.

[Lindon Robertson:]

Yes. I would add a comment just looking back across the year we’ve talked that early in ‘14 it was actually a significant source of the growth. And we are seeing interest in the CCS product line across several spaces including Korea. And so, as we step forward, we’re going to see some benefits there. But I think Steve has captured it correctly that we wouldn’t call out Korea as being the primary growth driver right now.

[Farhan Ahmad:]

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

[Steve Schwartz:]

Yes, it is.

[Farhan Ahmad:]

Okay. And then just one quick question in terms of the September quarter, you had a very strong quarter in terms of the semi products and I just wanted to understand relative to your expectations, clearly you’ve done better than expected there. So, what I wanted to understand was, was it throughout the quarter that you see better than expected orders and revenue or was it more in the latter half of the quarter that you started to see a pick up?

[Lindon Robertson:]

It’s a great question. I would say that it was very mass coming through the quarter towards this end of the quarter. We didn’t know coming into the last month if we would be at these levels or not. And what we saw was a little pickup in both automation and cryogenics, but we also saw a little bit in the life science space. As we mentioned on the call, we were little short on the CCS, a couple of systems that didn’t go that we expected. So, I think it’s hard to tell where the decision timing is at the customer side, but in terms of our realization of what was happening was more in the last month of the quarter.

[Farhan Ahmad:]

Thank you. That’s all I have.

[Operator:]

And our next question comes from the line of Craig Ellis with B. Riley Financial. Please proceed with your question.

[Craig Ellis:]

Thank you for taking the question and congratulations on the revenue trends in the business, guys. My first question was just to clarifying the development spending on the life sciences side. Was that an incremental million in the December quarter and the March, so a total of $2 million incremental or just $1 million incremental for both quarters.

[Steve Schwartz:]

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

[Craig Ellis:]

Okay. And then the follow-up to that is since that’s pulling in products that you had to expected to ship, what’s the timing on revenue recognition on the product that is now coming to development a little bit sooner? Are we going to see that in fiscal ‘15 or is that really fiscal ‘16 revenue materiality, Steve?

[Steve Schwartz:]

Craig, I’d put it into ‘16. And the reason I say it is the first units will be the beta units and the terms have not yet been worked out. We talked originally about by the end of the calendar year having a couple of units in the field. We’d likely have more than that. But we’ll be more clear on what to expect from revenue standpoint. But right now, say for to put it out into ‘16.

[Craig Ellis:]

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

[Lindon Robertson:]

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

[Craig Ellis:]

Thanks Lindon. Thanks guys.

[Operator:]

And our next question comes from the line of David Duley with Steelhead Securities. Please go ahead with your question.

[David Duley:]

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

[Steve Schwartz:]

Yes, Dave. For us, it’s a matter of only timing on units we think. Parts of the business are really busy and parts are not as much. It’s unusual times when all of the parts of the business don’t go together. For example, the cryopump business generally is for one of two semi-processes, PVD or implant, but automation systems go with all the tools. And so we have -- unusually, we have patterns that are not as regular from the standpoint of Etch and CVD or driving some outsized growth whereas in implanted CVD for example don’t experience the some kind of revenue rise. So, parts of business are up. And we believe this is because of the device structure both FinFET, the 3D NAND kind of devices but other parts of our business are not up in the same way used to be five years ago when part of the business was up, all of the business was up.

[David Duley:]

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

[Steve Schwartz:]

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

[David Duley:]

Okay. You gave some great detail on the segments of this business in your prepared remarks like how couple of them were up pretty substantially last year and then atmosphere components business being down and now has bottomed then you also talked about all these, I think significant design wins in etch and deposition and in advanced packaging. So, maybe help us understand what you think of growth trajectory of your Product Solutions business is or any color that you can give us will be helpful? Thanks.

[Steve Schwartz:]

Yes David, it’s really tough for us to call the market, but we do feel that we’re in a good position that if the semiconductor capital equipment market is up, we will be up higher than that from a percentage standpoint because of the positions that we have in some of the higher growth segments. So, it’s really tough for us to call as we don’t have any more visibility than anybody else does. But you can anticipate that if equipment is up, we believe that the portfolio we’ve put into place will be in a growth rate higher than that.

[David Duley:]

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

[Steve Schwartz:]

Dave, perhaps one we think the big different maker for us inside our business will be CCS as we ramp that. As I said, we have $4.5 million this past quarter and we think it will get to $7 million. But we do think we’ll hit $40 million for the year. So, we think that it’s going to be a significant difference maker particularly on the year-to-year growth basis. But we also see the increasing application across the front-end and in the packaging space. And I’ll just come back to your point, just in the near-term there is some seasonality in industrial spaces for us. So, we see a little bit of softness typically when we go into this December quarter, because all of the ramp around glass treatment and coatings is already behind us in the year for the retail space in the December quarter. So, in this coming quarter we’ll see a little softness in that and that’s very typical for us, we see that every year at this time. So, and on a year-to-year basis we don’t see that business particularly breaking out into growth pattern or incremental applications. We have other high share there that depends on the applications of that retail space. But I think the applications in the front-end, as well as in the packaging are significant for us in the CCS.

[David Duley:]

So, great, you have several drivers, that’s good. One thing just final thing question for me is you seem to have a lot or talk a lot more emphasis on design wins with the OEMs on the robotic, new vacuum robotic front. Maybe you could give us an idea about how big that business is and what the growth trajectory is or any sort of details to help go with the design wins? I always have a difficult time understanding how design wins translate into revenue and how much revenue. So, maybe if you -- whatever you could provide in that will be great?

[Steve Schwartz:]

Yes, David, it’s tough for us to break it down to that level of granularity right now. But 50% growth is pretty substantial, it’s a good, it’s a really good and healthy business for us. But we’re not at a point where we’re fear to breakout at that level of granularity.

[David Duley:]

Okay, thanks.

[Steve Schwartz:]

Thanks David.

[Operator:]

And there are no further questions at this time. I’ll now turn the call back to Steve Schwartz.

[Steve Schwartz:]

Well, thank you everyone. We appreciate your interest in Brooks and we do look forward to speaking with you on the reported results from our fiscal first quarter of 2015. Thank you very much.

[Operator:]

And ladies and gentlemen that does concludes the conference call for today. We thank you for your participation and ask that you please disconnect your line.