Q4 2019 Earnings Call
Ladies and gentlemen, things down by the conference will be getting momentarily.
Thank you for your patience. It adds that you. Please remain on the line.
Greetings and welcome to the Brooks automation Q4 financial results Conference call.
During the presentation, all participants will be in listen only mode.
Afterwards, we will conduct a question and answer session.
At that time, if you have a question. Please press the one followed by the four on your telephone.
If at any time during the conference you need to reach an operator, Please press star zero.
As a reminder, this conference is being recorded Wednesday November six 2019.
I would now like to turn the conference over to Mark Namaroff Director of Investor Relations. Please go ahead.
Thank you Chris Good afternoon, everyone I'm alive today.
I'd like to welcome you to our fourth quarter and year end fiscal 2000 lighting earnings conference call.
Earnings Press release was issued after the close of the market today, that's available on <unk> Investor Relations website, located at Brooks Dot Investor Road Dot Com as are the supplementary Powerpoint fly that will be used <unk> apparel remarks today.
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 litigations attorneys Act the 1995.
There are many factors that may cause actual financial results rather up at a different from those identified in such forward looking statements.
I would refer you to the sections of our earnings release title Safe Harbor statement, the Safe Harbor slide on the aforementioned Powerpoint presentation on our website.
And our various filings with the FCC, including around <unk> Form 10-K on a quarterly reports on Form 10-Q .
We make no obligation to update these statements <unk> future financial data or events occur that's different from our forward looking statements presented today.
Also today would be referring to a number of non-GAAP financial measures, which are used in addition to add in conjunction with results presented in accordance with GAAP.
We believe that non-GAAP measures, providing additional way appealing aspects of our operations performance when considered with GAAP financial results and the reconciliation of GAAP measures. They provide an even more complete understanding how brooks business.
non-GAAP measures should not be relied upon took exclusion of GAAP measures ourselves.
And on the call with me today is our President and Chief Executive Officer, Steve Schwartz had executive Vice President and Chief Financial Officer, London Robertson.
We will open up the call with remark from Steve on the highlights on the fourth quarter and the fiscal year and then Monday will provide a more detailed look into the quarter at fiscal year on financial results and provide a summary of our financial outlook for the first fiscal quarter up 2020.
That will take your questions at the end of the call.
Before turning the call over to Steve I would like to remind everyone that we are we completed the sale of the semiconductor cryogenics business on July 1st the first day of our fiscal fourth quarter reporting a commentary in this quarter focuses on our continuing operations.
And with that let's turn the call when our CEO Steve Schwartz.
Thank you Mark and good afternoon, everyone.
We're pleased to report to you results from another strong quarter.
Give me some summary comments about our performance from our full fiscal 2019 year and provide you with thoughts on our outlook for fiscal year 2020.
Q4 capped another strong growth year for Brooks revenue of $200 million was up 25% year over year, driven mostly by the addition of team with but with organic growth overall in spite of a down semiconductor environment.
For the full fiscal year revenue of $782 million was up 24% over prior year, and we delivered meaningful performance improvements in each business segment.
As we've detailed for you over the past year, we completed two M&A transactions in fiscal 2019, including the sale of our semiconductor cryogenic back in business and the acquisition of gene with.
But even admit image that activity, we remain focused on our ongoing business and we delivered exceptional growth we gave more market share across the board and we advanced our technology and market leadership positions in both the semiconductor and life Sciences markets.
We're keenly focused on growth and leadership in our markets. We believe we have positioned each of our businesses in vibrant markets with growth opportunities and were invested in the advancement of our technology solutions to solve our customers' most critical problems well, we further distance ourselves from competitors.
As we're not too many weeks removed from our analyst and Investor day, when we had a chance to give you considerable exposure tour business segments.
It was my time today to give highlights from the business and our thoughts about how we see fiscal 2020 shaping up.
Ill begin with life Sciences.
We had an outstanding growth quarter in life Sciences, with revenue of $94 million up $6 million or 7% sequentially with strong contributions for both sample management and gene was.
And at $94 million life Sciences represented 47% of revenue for the quarter.
Though it may not be easy to continue to gain on semi during it up cycle in the semiconductor market over the long term, we do anticipate a steady increase in the percentage of our business that comes from life Sciences because of the sheer size of the life sciences market opportunity and our prospects for additional share gains.
It look at the life Sciences sub segments I start with sample management, where revenue was $54 million up 7% sequentially and 10% year over year on an organic basis.
And importantly, gross margin increased more than 200 basis points closing in on our model expectations for the year.
Some highlights from the quarter give us confidence that we're turning the corner.
Getting back to our expected growth trajectory.
With a number of key wins, including million plus dollar deals with two biopharma companies that include both storage and laboratory services. This combination of capabilities as a key advantage that customers see as a differentiator.
And we're focused on increasing our gene was capabilities into a combined offering for customers and these synergy opportunities are beginning to be part of our targeted sales activities.
The cryo business was a standout in the quarter with product revenue of $3.6 million, which was comprised of sales to nine new customers 10 repeat customers and multi unit shipments to a bio pharma company for cell therapy manufacturing and to what I VF company, that's building out a footprint the state of the art clinics that.
We utilize our automation products. So the most dependable solution available.
The CRO business continues to gain traction the mill and though it will start it will still fluctuate a bit from quarter to quarter until the early adopters become more regular repeat customers. We're confident that our automated cryo products and related services are here to stay.
And will prove to be transformative to the rapidly developing cell and gene therapy market.
We also had two new customer wins for large automated stores in China. After a low during the trade related slowdown.
We continue to see great promise from what will become enormous population sample collections. There will be located in a number of large metropolitan areas across China.
And finally business capture was strong with bookings of $62 million.
We have another 72, new customers across all of our sample management offerings.
This is good news for us as we're making improvements inside of our sample management business.
We're more focused in our go to market activities and we've identified some of the operational actions that are necessary to speed up our internal cycles.
We're putting disciplined in place to better manage the more predictable conversion of backlog into revenue with improved profitability as a byproduct of these actions.
As we detailed at our Investor day, we have expectations to grow the sample management business approximately 7% in fiscal 2020, and we intend to be consistently delivering double digit percentage growth by the fiscal fourth quarter.
We anticipate some small amount the variability during the next few quarters, we're beginning to have better visibility into stronger second half of 2020.
Our outlook for Q1 this for revenue to be approximately flat to slightly down from Q4, as we do not expect as stronger quarter from the cryo business, but year over year Q1 revenue should still demonstrate growth and at this time, we are exactly where we anticipated that we would be when we laid out our plans for 2020.
That's to say we're off to a good start.
We remain very positive about the sample management business and our position in this market our portfolio of capabilities exactly matched with the needs of our customers.
And that this market continues to evolve our solutions will both shape, the direction and speed with which customers turn management of their samples over to us.
In our gene with sub segment. We also had an exceptional quarterly result with contributions from all segments of the business.
Revenue increased $3 million sequentially to $40 million up 29% from the same quarter, one year ago as measured on a pro forma basis with strong contributions from both singer and next generation sequencing.
Customer capture continued to accelerate as we added more than 270 additional customers in the quarter.
And we uncover opportunities at every turn.
The business has set up to rapidly assimilate new customers and our fast turnaround high quality laboratory services capability Securus customer loyalty.
Our broad services portfolio was a key to our rapid and sustained growth in this business.
Overtime customers, who first to engage with us for one service usually sanger sequencing will typically procure additional services.
When they realize that they receive the same level of service and quality for those incremental services the relationships become even more secure.
It's in this way that gene with has a built in mechanism for additional share gains that result from an initial penetration.
In addition to the high quality fast turn services customers expect from gene was there, particularly enthusiastic about some of the new service offerings that have been developed by our gene was R&D team.
Most recently, a new innovation that enables us to read through a very complex generic construct quickly and reliably.
This method of continuous improvement to process technology, which is focused on critical scientific challenges is what our customers have grown to expect from gene was as one of the attributes that makes us a standard standout in the market.
I'd like to summarize a few highlights from our first year together with gene was.
On a pro forma basis fiscal year revenue grew to $144 million up 20% from fiscal 2018.
We added more than 800, new customer city, approximately 4000 customers, who were part of gene was one year ago.
And in preparation for continued high growth, we've been making investments across the globe.
We expanded capacity at two North American sites.
We opened the new facility in Germany to serve Continental Europe , and we've broken ground on our Newbuilding and so Joe China, which is expected to come online in spring 2021.
In addition, as we begin to exploit the synergies promised by the combination of gene was and sample management capabilities. We've initiated the creation of a gene with lab inside of our Indianapolis biased storage facility.
All of these are welcome necessary investments that we believe will allow us to sustain and achievable 20% growth rate for gene was.
Ill now move to highlights from the semiconductor business, where we delivered a fourth quarter much as expected, but once again. The makeup consisted of some volatility.
Revenue was $106 million down, 9% sequentially and down 3% on a year over year comparison.
And different from our peer companies in the semiconductor equipment space. This is our first sequentially down quarter in a year.
Furthermore, we believe that this is also a bottom in the semiconductor revenue for the cycle.
We're particularly encouraged by our semiconductor bookings in Q4, which topped $145 million leading to what we see as a more vibrant semiconductor environment at least in the near term.
And I'll give you some color here.
In our automation systems business, we saw the first sequentially down quarter any year that was due largely to a slowdown in China business, which was a record high in Q3 and a four year low.
In Q4.
Our market share remains very high in China, but theres been a pause as the Oems ship their systems into new fab projects.
That said, we saw 30% sequential increase in our vacuum robots shipments, mostly the tier one Oems as they prepare to ship products to support tier one foundry investments.
Our outlook for vacuum robots is for some sustained improvements in the December quarter, and we believe that our systems business will improve as the market for memory equipment recovers.
The most significant infective the reduction in our systems business was apparent in the advanced packaging segment, where revenue decreased to $10 million from a record $19 million in Q3.
Overall in the year, we finished with $63 million for this segment to the market an increase of 12% year over year, but it's clear that some digestion going on in the advanced packaging space at this time.
We forecasted Q4 should be a bottom, but that it might be early calendar 2020 before we see a meaningful pickup in advanced packaging activity.
In connection in contamination control, we're busy as ever.
As we set a record for revenue.
For quarterly revenue at $33 million as we mentioned on our last call. We've seen a surgeon orders for contamination control systems, and we've ramped capability to be able to meet this demand a majority of which is to satisfy tier one foundry expansion for seven nanometer and new capacity for five nanometer technologies.
But it's important to note that the breadth of our customer an application base continues to expand as Q4 revenue came from 10 different customers 15 different fabs.
For different types of manufacturing effect that bodes well for the future of this business.
Moreover, we're forecasting another record in the December quarter, and continued strength into March as we satisfy unprecedented demand for these new technologies.
We're confident that both logic and memory will take more advantage of our contamination control capabilities in the future.
For the year Ccs revenue came in at $119 million up 62% over fiscal 2018, and with incredibly strong momentum heading into fiscal 2020 .
Across all of our semiconductor business our assessment of the market is that the positive momentum into first half of fiscal 2020 is being driven by foundry spending for seven and five nanometer capacity additions.
However, we're also becoming more positive about memory spending awakening in the second half of fiscal 2020 .
As we've begun to receive orders from some tier two Korean Oems for the first time in several quarters.
For the most part these Oems largely provide equipment to Korean memory fence.
For the year, it's noteworthy that our semiconductor revenue was up 3% when the capital equipment industry was down approximately 20%.
We knew that our position in contamination control solutions and advanced packaging as secular growth drivers would help us to outgrow the semi market.
We did not have a good way to predict just how fast these technologies would take off.
For sure we're positioned well heading into 2020 as we had a record 130 design wins that secure more gains in market share.
And although we have very strong market share positions, we're not sitting still.
In each and every area of the semiconductor product portfolio across automation and contamination control. We're currently developing the next generation of products with the latest technologies, which will replace our current market leading products, but will also increase the capability gap between us and our competitors.
As with our life Sciences business, our technologies are out in front of our customer needs, but closely aligned to the roadmaps for solutions they need in the future.
To summarize our position we just concluded another transformative year with a very strong fourth quarter, there propels us into another year, where we forecast more growth more profitability and more share gains from the investments that we've made in products and services that are ahead of our markets.
We're enthusiastic about our prospects and committed to delivering on the promise of our exciting markets.
We're poised for strong growth from all of our businesses.
In addition, we have a strong pipeline a prospective acquisition targets and a reset balance sheet that supports more or inorganic growth.
And we have strong core capability inside of bricks to absorb and integrate new capabilities as a matter of course.
Yes, with these tools and capabilities that we look into fiscal year, 2020 with optimism and confidence and we look forward to reporting to you on our successes.
That concludes my formal remarks, and I'll turn the call over to London for more specifics about the quarter and our outlook for Q1.
Thank you Stephen I read I refer you to the slides on our website.
I'll start with summary highlights on slide three.
On a full year basis, our 2019 revenue was 24% higher than 2018 supported by growth in both segments of semiconductor and life Sciences.
Our full year operating margin expanded 130 basis points as we saw performance improvements in each of our segments semiconductor and the life Sciences sample management business results each improved year over year and we were further supported by the addition of gene was to our portfolio.
And we ended the year on a strong note with Q4 delivering revenue growth and margin expansion too.
Revenue grew 25% year to year fueled by life Sciences, with double digit organic growth and simple management and strong pro forma growth in gene was semiconductor business provided relative stable stability compared to the industry with just a modest decline year over year.
I will give you more color on the details we go through the church.
Our Q4 operating margin expanded 140 basis points compared to one year ago.
This improvement was driven by life Sciences, which recorded 580 basis points expansion year over year, while semiconductor operating margins were stable on lower revenue.
Cash flow from operations, followed suit with a strong Q4 finish we're reporting operating cash flow of $33 million for the fourth quarter, but this includes absorbing 13 million of deal fees related to the closure of the semiconductor cryogenic sale.
Excluding these one think teach adjusted cash flow from operations was 46 million, making it one of the strongest quarters of cash generation the company's seen in many years.
As a final summary point you will hear positive outlook as we are at or reiterating our targets for 2020 provided during our Investor day in September whether competence only increasing given the positive data points in the semiconductor market and the momentum over life Sciences business.
Let's now move on to slide four for details of the quarter.
Our topline revenue increased 25% from a year ago to 200 million for the quarter. This was driven by an 85% increase in life sciences more than offsetting a 3% decline in semiconductor solutions and our life Sciences business organic growth increased double digit range, reaching 10% this quarter.
On a sequential basis. The revenue declined 2% was driven by a 9% sequential decline in semiconductor solutions and a very strong 7% quarter to quarter growth in life Sciences.
Looking at the GAAP earnings on the left side of the page where reporting $5.69 an earnings per share for total company basis, largely driven by the gain on the sale the semiconductor cryogenics business in the discontinued operations line.
The sale closed for $675 million, approximately four and a half times the revenue generated in the final 12 months of ownership.
Insight the continuing operations PML I will highlight that we recorded a $5 million charge or six cents per diluted share on the July onest debt extinguishment with the proceeds from the prior sale.
Earnings per share from continuing operations were eight cents per diluted share compared to one penny per share last quarter and a loss of two pennies in Q4 2018.
Let's shift over to the right site.
And address the non-GAAP results.
non-GAAP gross margin came in at 42% an improvement of 160 basis points from a year ago. This reflects a 480 basis point improvement in life Sciences gross margins and a 20 basis point decline in semiconductor gross margins year over year.
Gross margin improvement in operating expense management yielded 140 basis point year over year improvement in operating margins to reached 10.8% for the quarter.
Sequentially gross margins were lower by 60 basis points with similar similar level pressure in each segment on a sequential basis.
And operating expenses the increase year to year was largely driven by the addition of the gene was operating structure, partially offset with the decline in variable compensation for the company.
On a sequential view operating expense increased 3% with investments in gene was SGN, ne and semiconductor research and development.
As highlighted mid year that lower cycle in the semiconductor business and the slower growth in sample management. This year drove lower variable compensation accruals for fiscal 2019.
If we look into next quarter, we will see approximately 2 million additional operating expense due to resetting variable compensation accruals for the fiscal year 2020 being set back to an expectation for the full targeted achievement in 2020.
Below operating income the PML benefited from lower interest expense in both comparisons sequentially and year over year.
In total net income for the quarter was $17 million or 24 cents per share a 43% increase year over year, and 20% increase compared to see sequentially to Q3.
Let's turn it over to slide five to review the full year 2019 performance.
We finished the year with revenue of $782 million, 24% increase over last year gene was drove growth in dollars of $126 million.
Sample management growth.
Drove growth of $11 million.
And.
8% organic growth for the year and semiconductor 13 million in growth, 3% reported growth for the year.
As the semiconductor equipment market has been down approximately 20%. This year, we've been very pleased with our level of growth in the semi environment.
On the GAAP site of the page, we see a healthy 100 basis points expansion of operating margin on the strength that gross margins.
And below operating income, we see the higher interest expense the debt extinguishment charges noted earlier and a larger difference and tax expense year over year due to the 43 million dollar impact of the reversal of the us based valuation allowance in the prior year.
On the non-GAAP site, you also see solid margin expansion in gross margins and operating income.
This reflects performance improvements in semiconductor and sample management as well as a benefit from adding genes to the portfolio.
Although operating income we had $13 million of higher net interest expense and on the tax line our rate was 19% for the year 2.2 percentage points higher than 2018.
We expect to non-GAAP tax rate in 2020.
21%, 25%.
In total we delivered 77 cents of earnings per share up 20% from last year.
Let's turn now over to page six and begin our discussion of the segment results.
In the fourth quarter life Sciences revenue was $94 million, which was an increase of 85% year over year, including the addition of gene was revenue $40 million and 10% organic growth and sample management driving that business to it another 54 million.
The higher growth in sample management was driven by strength in consumables and instruments and the be Threeq cryo store systems, which Steve highlighted.
Gene was performance was impressive with revenue growth of 29% over Q4 last year on a pro forma basis.
Supported with double digit growth on both sequencing and synthesis.
Next generation sequencing growth has been particularly strong this quarter as we've seen growth from the combination of new customer wins and the existing gene with customers who are now using those next generation services for the first time.
The gross margin trends you see in the fourth quarter reflects higher performance by sample management on both comparisons quarter to quarter and year to year.
The gene was business contributed favorably to mix in the year over year margin improvement and the sequential gross margin decline was driven by investments in gene was while gross margins and sample management improved.
Life Sciences operating margins came in at the 7.2% that you see an increase of 580 basis points year over year, and approximately flat quarter to quarter.
The year to year improvement reflects gross margin improvement in sample management and the leverage benefit of topline revenue on stable operating expense.
Addition of gene was of course also benefited the operating margin line.
The life Science summary for the full year shows revenue growth of 70% organic revenue growth of 8% and segment profit that was five times greater than fiscal 2018.
We have highlighted the transformational dynamics of our June was acquisition and in the fourth quarter. The addition of gene lists and its continued growth along with the growth of sample management has driven life sciences to be the 47% of total revenue and weather and carried with it and improved gross margin profile.
As we look toward our first fiscal quarter of 2020, we expect life sciences revenue to be in the range of 92 million or better has referenced last quarter. We are setting our expectation for revenue on a lower basis of expectations than we see as potential for the market growth until we see solid signs of consist.
Incremental progress and sample management.
Our analysis currently indicates Q1 revenue could be flat to down 3% sequentially, but more importantly, this supports 10% year over year organic growth for the segment. This in line and on track with our.
It is in line and on track with our full year model shared in September at our Investor Day.
Let's turn to the semiconductor business now on slide seven.
Semiconductor solutions revenue of 106 million in the quarter decreased 9% compared to the third quarter, 2019, and 3% year over year.
This was consistent with our expectations continued strengthen our contamination control solutions on the wafer carrier side and sequential improvement in vacuum robots support stability in the business, but it wasn't enough to offset the softer shipments and automation systems as attended the Ccs Rep Stuffers.
We are encouraged by the sequential pickup within the robotics business, which primarily represents our tier one OEM sales and which is expected to continue to pickup in this coming quarter.
The continued signs of momentum at the OEM customer front and strong bookings and contamination control solutions provides a good starting position for the first quarter of our 2020 fiscal year.
The semiconductor adjusted gross margin was down about 60 basis points sequentially.
This quarter at 41.1%, where the result, primarily a function of product mix as result of lower volumes in our systems business.
For the full year adjusted gross margins increased 60 basis points year over year, reflecting slightly favorable mix toward the tier two Oems and systems.
And.
Fab end users on the contamination control site.
This margin performance combined with expense controls resulted in full year operating income increased 13% and 140 basis points and operating margin expansion compared to fiscal 2018.
As we look toward our first fiscal quarter 2020, we expect semiconductor revenue to be in the range of $112 million to $119 million.
We're very encouraged by the backlog strength and the industry indicators, which aligns us for 2020 growth objectives outlined in September .
Let's turn now over to slide a summary of cash flow.
Operating cash flow in the fourth quarter achieved $33 million as referenced earlier GAAP accounting requires the payment of bank M&A fees that were entirely contingent on the closure of the cryo sale to be reflective as use of operating cash. So if we remove this I'm happy to report again cash from operations was $46 million one of the stock.
On this quarters of cash flow in many years.
Many categories of inventory and purchase obligations for work down in the first half of the year and in this quarter. We saw an absolute reduction in fourth quarter inventory by $5 million and an increase of payables of $12 million thinking working capital significant contributor along with the earnings from sales.
As we close the year.
The total of our cash and marketable securities at September Thirtyth stood at 342 million and excluding debt, we carry a net cash position of 291 million.
Let's turn now to slide nine and allow me to comment further on this cash position on what to expect as review the balance sheet, you could see the $342 million of cash cash equivalents restricted cash marketable securities at top of the year end call.
Let me draw your attention down toward current liabilities, which shows an increase to 183 million. This includes $95 million of taxes payable due in January or the gain on the sales of cryo business. So net of settling those payments, we have approximately $195 million of cash available for investment in addition to.
Finally larger capacities take on debt, if and when it is appropriate.
Our balance sheet as strong as we entered.
2020.
Let's turn to slide 10 for our guidance for the first fiscal quarter 2020.
Revenue is expected to be in the range of $204 million to $214 million with semiconductor range between that 112 to 119 million level in life Sciences 92 million or better.
Adjusted EBITDA is anticipated to be 29 to 35 million non-GAAP earnings per share.
To be 20% 27 cents per share.
And the GAAP earnings per share is expected be nine to 17 cents.
In addition, we provide some additional guidance on this page for the year expecting a non-GAAP tax rate somewhere between 21% 25%.
And capital expenditures will be in the range 50, $60 million, which includes the building expenditure in China for $20 million and interest expense, we expect to be negligible.
Before I turn the call back over to the operator for Q in a I will reflect on our view of 2020.
As indicated in the segment commentary, we're very encouraged with the momentum of the business in the markets as we enter 2020.
We always view, our semiconductor projections that reach out any further than the next quarter as a model based on our product plans are indicators from our design wins and the customer commentary more specifically, we generally have little backlog beyond the current quarter in semi but in this case, we have seen some longer term orders come in to reserve.
Capacity for contamination control solutions, and we're encouraged by the projections of the tier one OEM customers for these reasons and with momentum in life Sciences. We've gained additional confidence in our 2020 model is shared in September .
So that concludes our prepared remarks, I'll now turn the call back over to Chris the operator to take questions from the line.
Thank you.
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One moment please for the first question.
Our first question is from the line of Craig Ellis with B. Riley FBR. Please go ahead.
Thanks for taking my question and congratulations on the strong performance in the business guys. Steve I'll just start with a follow up to some of your prepared remarks. So it seems like there are some very encouraging things that are happening and sample management you outlined at analyst day.
A number of things that you saw in the business that you wanted to improve and it sounds like you're making progress. There. The question is relative to where you'd like that business to be operating when its firing on all cylinders. If you will where are we now and what's left to do to get the business to where you'd like it to be.
Thanks, Craig.
I think your observations are right we feel good about the business, we're going to meet a couple of quarters approved points for you, but generally the go to market approach is good we're streamlining some activities inside.
And we feel confident that we'll as we come out of 2025, we back in double digit growth rates. So the that the our assessment is that the opportunity is absolutely still there the customer demand is there and from the standpoint of the engagement of the team and engagement to the customers if things are generally pay.
Positive.
I mentioned that the revenue in the current quarter December quarter be flat to maybe slightly down we just we want to build a little more confidence in as were building backlog were built more confidence in that we can deliver the revenue, but but it feels like.
Feels like a positive turn for us.
Thats really helpful and then.
Next question I had is related to semi so.
Some of your commentary on semi in the fact that visibility now shows just one quarter downturn would explain why David was smiling at analyst day, but.
As you look at the business. One can you can you frame for us.
One how we how comfortable you are with just the near term production capacity in the Ccs business given the strength that you're seeing with two orders do you have enough capacity do you need to make any changes and then secondly, you noted that advanced packaging would be.
Little bit more muted near term maybe flatter.
What trajectory do you see coming off of some of these more stable near term trends in that part of that business.
Thanks, Greg.
First of all I think maybe the business is always strong as Dave Smile. So I think I think maybe that the causal part.
A couple of things that we got out in front of the contamination control capacity, we started that months ago as we knew that that it was coming I think the that we're keeping up pretty well, but I can tell you that it's tight but customers. If we if we could build one more unit customers would take one more unit.
I think that we have a good understanding of what it looks like for December in March.
We spent a lot of time going out to customers and it's probably one of the reasons. The orders are strong we've gone to customers and let them know that capacity was going to be constrained and I think thats, where people are trying to get into the queue, but by and large the opportunities aren't going by but the factory is is really fall. They can I can tell you that but it feels like a good ballot.
That's right now.
And it's heavily foundry loaded, but as I mentioned that the balance of customers and the breadth of the applications is really good.
On the advanced packaging again, we we've always said that we don't have particularly good visibility there, but we know that we continue to get new design wins and it feels like just a pause right now so dropping down to a $10 million level is the low so we've been in quite some time.
But likely as as China business begins to pick up and some of the manufacturers for the advanced packaging continue to go we feel confident about the business and I just wish we had more visibility than we do it feels like it might be.
Relatively flat December quarter before we see some pickup hopefully in the in early 2020, but we are really confident about the share positions that we have.
And the amount of design activity that we have to support the next generation of advanced packaging I think I think the teams all over it and customers know that were in the in the front position there.
That's great and then if I could just ask lender that clarification when to thanks for all the financial color you noted that expenses in the first fiscal quarter would be up.
As the model Embeds more of a fault bonus accrual or variable comp impacted the question is are there any other items and.
In expenses that would be either positive or negative sequentially in and how should we think about the multi quarter impacts of that top line item given that around the corner in the first calendar quarter, we would typically have FICA and other things that would come into the model.
Yes, it's.
Great question, so to fine tune on the.
I don't think youre going to see any more than the 2 million pressure effect, we're working on some of the structure around sample management and our overall corporate.
On the stranded costs concept.
That we've talked about since the divestiture was announced so I wouldn't say, we're not going to make it all up but think of it as one to 2 million of pressure in the quarter probably quarter to quarter implications on the year, we're not going to constrain investments in.
In gene Whiz or in their R&D space to do design wins, and we're going to continue to lean things out, but but I think you should take the Q1 and probably extrapolate off of that and I'll just highlight to you that that.
That gives us pretty close to the model that we described.
Previously we afford all that we afford that Q1 results extrapolated for the year.
In the model that we described and as we get going forward and as margins evolve we're going to manage this where advantages to optimize growth, but very focused on operating mark so our so yes.
Very helpful. Thanks, guys.
Our next question is from the line of Paul Knight with Janney. Please go ahead.
Yes, Steve Congrats on the quarter can you talk about.
Well how much you bought online find would you attribute LNG market right now you can and what steps do you view taken on the large stores businesses that are you have done there good profitability up.
So Paul.
I, probably on an answer a little bit later on the fraction that cell and gene, but out of a $94 million I think we could probably attribute 5 million to that just to give you a rough idea.
However, the investments, we're making as you're aware in the B three cryo in the Cryopod and the transport and handling is pretty significant we store in Indianapolis and Biostorage now a considerable amount of.
Customer cell lines and.
And sales in Indianapolis and the offerings that we have been gene was are now getting more redirected around some of the applications that supports LNG and so I think it's a really good question.
For us to give you a little bit better answer, but right now it's certainly in the in the five 5% range will be a little more Chris about as we go forward.
And then on the stores business. It on the on the fund the large automated stores that were making good progress I think there's a lot of there's been a lot of focus on that over the past.
Over the past quarters anyway.
But the activity related to the installations activity related on the purchasing it on the manufacturing side I think are getting streamlined and when you. When you start to see gross margin improvements a lot of that's coming from the activities in stores were 25% invited guests were 25% of the way that we're going to be and as we exit 2020.
That will be a lot more fit business, but the that team is really focused around the kinds of things that improve the efficiency that bring the costs down.
And specifically getting the performance of the tools out out of the shoot in in the installed base and I think there's a lot of good a lot of good activity. There. So I'd say, we're 25% accomplished but 75%.
Energized around it.
And then lastly, the seemed like gene was would that 29% year over year pro forma Weve I think thats, the best number I've heard coming out of gene with.
You've added square footage on the lab, the what would you attribute that level of growth do.
Yes, Paul everyday we are press more and more by the service level capability. The gene with team. These are these are incredibly strong scientists solving important problems for customers and every time they solve one customer brings them another one and in what we find that we talk about adding 270 new customers.
Just in North America in Europe , the customer capture speaks for the capabilities of this team and like limit said, we're not going to constrain them, we're going to just keep adding capacity and capability because they seem to be able to bring it in and deliver so we're really pleased by the by the performance when and how long will sustain it but but it's as good a team is that.
Number show.
Well I'll add a little color to that to just operationally. This is a space where we have the conversation pretty regularly is what is the capacity requirements for the next quarter and are we making do we see any pinch points and so this is a focus that we never turn away a customer in that Tom sequencing space because.
As we know once we turn somebody weight, you've got to invite him that pretty wholeheartedly. So we'd like to keep them. So we watch the capacity pretty carefully.
Thanks.
Our next question is from the line of Patrick Ho Stifel. Please go ahead.
Thank you very much Steve maybe first off on the life Science, Suzanne mentioned that go to market strategy.
Intangible thanks, a bunch of Glenn the consumables and service side of things.
Is that strategy, having an impact across the board and that is giving you more confidence that 2020 is heading for a potential growth year.
Yes.
I think it's a combination everything if the I think the offerings are really strong and when we when we're at the Investor and Analyst Day, We talk specifically about how do we how do we have the people who were out capture and business doing more of that how do we support them internally. So that they don't spend so much time inside the company better at our out with customers and that we can support the things that they buy.
King in with the internal capability I think thats been the first part of it is having the salespeople go sell and I think thats the.
That's been had the biggest impact.
And and I think we've we've streamlined the offerings to make sure that we're going after business that we're realistic that we really ought to be capturing and we have more work to do the thats something we turn particularly quickly but the team is really engaged the go to market activities that we have we think are solid and we do have more we do have more salespeople.
Oil to add to the company and what's active right now we've made some progress and we're going to keep bringing some people who can help us to to add more.
To the backlog and then ultimately get product shipped to customers.
Right that's helpful and my follow up on the semiconductor side of things, you're you mentioned that you're starting to see recovery on the top tier.
Vacuum robots business, which is not a major surprise given some of the turns.
That we're starting to see in the wafer fab equipment spending market given that we're starting to also see some new tools, both on the etch and deposition side.
Yes, hi volume at the leading edge nodes.
Can you characterize how you're seeing design wins that you may have had over the past year or two now starting to hit high volume with your top tier customers.
Yes, I think that I think the answers in the question there Patrick So we I think without question, we've been able to gain share some of the technologies that we brought in the latest generation of robots really relate to.
Much higher temperature much more severe contamination.
In a tool in particular, the very precise placement of the wafers and those are wins that we've been accumulating over the past couple of years in a d., we are beginning to see those tools.
Shipped so we the share gains that Dave George I think I talked about are beginning to to show up and we anticipate that as those new tools begin to hit the market here in 2020 that that will be able to report increased share gains and better profitability out of the vacuum robot business.
Great. Thank you very much.
Thanks, Patrick.
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Our next question is from the line Jacob Johnson with Stephens. Please go ahead.
Hey, thanks.
Steve maybe following up on your.
Sales people commentary just now these new salespeople, you're adding and sample management is this working to sell more into existing customers or is this more about adding new customers.
In terms of those initiatives.
Yes, Jacob I think the thing that we want to focus on a particular is we mentioned that we've got some large accounts that we can.
Expand to have other accounts of like.
Interest expense that'll be large accounts for us so it's mostly for new and deeper penetrations at customers, where we ought to have a greater presence.
So that the teams that are covering accounts currently are doing an exceptional job and they'll continue to win more business from those accounts, but we're really after how do we how do we continue to approach customers who are not currently customers in the same way the some of the large accounts are.
Got it and then obviously really nice great organic growth from the sample management business this quarter.
But I'd be interested if you could kind of tease out how that slowed down to sample management margins in the quarter.
Yes.
Tick up could you.
Hi that question back together for me, Yes, I guess my questions that.
You saw nice margin expansion in life Sciences in the quarter I think unless we have a help.
And I think sample management margins, probably also expanded but predicts that you would want to quantify that and just interested to kind of understand how how simple management margins performed on a year over year basis.
Yes, so actually it's a it's a good question because we didnt, how we didnt have simple met our gene we as a year ago. So end of quarter, we're up.
Almost.
600 basis by 580 basis points year over year on in the segment and.
And our op income this quarter at 7.2%, it's really similar operating income margins between the two businesses. This quarter. Some fluctuation in June was still taking place one quarter to the next.
But they happen to be pretty similar this quarter, we're encouraged exactly on the point that.
The strength in.
Sample management.
And we're equally encouraged by the amount of profit. The gene was brought into the company is one thing to note that just year over year. If you look at the operating income and the company.
It was up a total about 26 million 17 million of that on the year to year difference came from life Sciences. The addition of gene was but also significant improvement in sample management so its own.
The diversification.
Going to finishing the year, 47% of our revenue in life Sciences I know early in our lifecycle of this transformation people question. What is this going to have the impact when we'll have the impact will I think we're seeing the impact now. So I think your margin question is absolutely right I'll highlight.
That sample management still has more leveraged to be had as we grow it we don't see the need as much for the operating expense structure to expand on.
Gene was where we have higher gross margins.
We will continue to fuel that with SGN and you'll continue to see leverage out of that but it's out of topline growth and higher gross margins.
I appreciate that Linden and maybe last question and give you a chance to answer Paul's question. If you have answered, but just on cell and gene therapy, obviously, a lot of going on there I'd just be interested what areas of your life Sciences segment, where you're seeing sort of the most strength from these customers.
So right now the what we can quantify that on the bio storage. So on the cryo stores and in bias towards or we're beginning to handle the more sales and what we find is that.
The cell and gene therapy research institutions understand that that handling. This samples is really critical and again, we need a breakdown for the gene with side of the business. It's not it's not as obvious source clear, but we'll work on that for sure, but what we're seeing is in the development than the handled.
And the storage of retains on the cell therapy side, we think along the manufacturing chain and.
Ultimately on the on the dosing side, there's going to be an opportunity for a significant expansion in the automated stores.
Got it congrats on the quarter, thanks for taking the questions.
Thanks, Jay Thanks, Jason.
And there are no further questions on the phone lines at this time.
So Chris with that I'd, just like to express my thanks to you but.
The audience here that gives us their attention the research hours as well as investments and confidence in Brooks, we couldn't be more pleased to wave, we wrapped up fiscal year.
We're excited obviously two weeks before we finished this we outlined the.
Investor day, so it shouldn't be any surprises that there were no surprises to us as we wrapped up as well as you know.
We're on track in this first quarter.
We feel like we're in a really good spot and we just so appreciate the time and confidence that you all give us we wish you all best as you head toward a holiday season, we look forward to talking to yet.
In the January timeframe. Thank you very much.
That does conclude the conference call for today.
Thank you for your participation and ask that you. Please disconnect your lines.
Yes.
Okay.
So.
Okay.
Okay.
Okay.
Sure.
Sure.