Q4 2020 Brooks Automation Inc Earnings Call
Ladies and gentlemen, please standby the conference will begin momentarily. We thank you for your patience I said your PC minimum benign.
[music].
Greetings and welcome to the Brooks automation Q4, 2020 financial results during.
During the presentation, all participants will be not 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 comps you need to reach an operator. Please press star zero as a reminder, this campus is being recorded she was in November 10th 2020 I.
I would now like to turn the conference over to Mark Namaroff Director of Investor Relations. Please go ahead.
Thank you and good afternoon, everyone on the line today, we'd like to welcome you to our earnings conference call for the fourth quarter and year ending fiscal year 2020.
Our fourth quarter earnings release was issued after the close of the market today and is available on our Investor Relations website located at Brooks that Investor Real Dot Com. In addition to the supplementary Powerpoint slides that will be used during the prepared remarks today before.
Before we start I would.
I'd like to remind everyone that during the corporate 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 1990 fives.
Many factors that may cause actual results.
And 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, let's.
Safe Harbor slide on or after mentioned Powerpoint presentation on our website.
In our various filings with the FCC, including our annual reports on form 10-K on a quarterly reports on form 10-Q.
We make no obligation to update these statements should future financial results or events that occur that differ from our forward looking statements presented today.
We also may refer to a number of non-GAAP financial measures, which are used in addition to an a conjunction with results presented in accordance with GAAP we.
We believe that non-GAAP measures provide an additional way to view aspects of our operations at the formats, but when considered with GAAP financial results and a reconciliation of GAAP measures. They provide an even more complete understanding of the books business.
Non-GAAP measures should not be relied upon to the exclusion of the GAAP measures themselves.
On the call with me today is our president and Chief Executive Officer, Steve Schwartz.
Executive Vice President and Chief Financial Officer, London Robertson.
I'd like to open up the call with remarks from Steve on the highlights of the fourth quarter and the full year and then when they will provide a more detailed look into our financial results and our outlook for the first fiscal quarter of 2021.
Well then have time to take your questions. After the prepared remarks.
With that I'd like to turn the call over to our CEO Steve Schwartz.
Thank you Mark and good afternoon, everyone. It's a pleasure to be able to report to you today on results from another record quarter and a record year for Brooks.
In what remains an uncertain global economic environment, we continue to capitalize on sustained an accelerating demand for our capability.
Were a key contributor to what's powering the life Sciences discovery market. That's one of the critical provider of technologies for the semiconductor industry, they keep businesses and institutions functioning in this remote then interconnected work environment.
Our unique positions in these important technology markets is what keeps customers at our doorstep.
We're proud of our essential contributions and humbled by the request made about some of the world's most necessary company.
And it's what keeps all of us energized as we look to the days ahead.
Q4 was an outstanding quarter for the company semiconductor with a third consecutive record quarter continued on its toward expansion path. The result of years of R&D investment.
Let us to design wins and share gains to satisfy the demands of a market that's.
Being propelled by insatiable data rich applications.
The life Sciences market, which is also providing rapid expansion opportunities has reaccelerated after pandemic related perturbations that dramatically slowed demand from academic and research laboratories and at present, we're right back on the trajectory we were aiming toward prior to the pandemic.
All in were exercising our business model and capitalizing on our two businesses, which are leaders in their respective markets.
We're investing in new technologies, and adding capacity not only to win but the sustained share gains to ensure that we meet the demands of our robust markets.
We believe demand for our leading technologies and high quality offerings will remain strong for many years to come.
I'm eager to give you some color into the business and lenders will punctuate our results what specifics of our exceptional financial performance.
But before I continue I'd like to make a brief comment about the impact and implications of the COVID-19 pandemic on our business.
Since the end of the June quarter supply base has been stable and dependable and as long as Asia is not a hotspot and north American companies could continues to operate well remain at low risk to any interruption in our ability to deliver.
That said, we're also closely monitoring the locked down in Europe because of the potential it could have an impact our customers ability to order in except products and services from us.
Our forecasts reflect the current coal situation well, we'll remain vigilant in our decisions will be guidance first by human safety well, we comply with all regulations that continue to follow recommended guidelines.
In any case, we continue to exercise best known COVID-19 work practices.
And take extra care to ensure that our employees are safe and informed.
We believe that our prophecies are working and we are grateful to our employees for how they met the challenges and responsibilities of our essential work.
Now back to result.
Revenue for the quarter with $246 million up 24% year over year.
For the full fiscal year revenue of $897 million with an increase of 15% over 2019 with almost equal contributions from semiconductor and life Sciences.
And I'll give you some key highlights from each business beginning with life Sciences.
In Q4, we achieved a major milestone in our life Sciences business.
For the first time revenue crossed the 100 million dollar threshold jumping to $108 million and back on that for trajectory consistent with recent historical performance.
We set new records in both services and products and we're beginning to see the green shoot from synergies that will become increasingly more meaningful additions to revenue.
In the services segment revenue was $70 million was up 12% year over year with Jean was contributing a new record of $48 million up 21% from Q4 of 2019.
Specifically in the gene with business next generation sequencing delivered another record quarter, just shy of $18 million, which was up 34% sequentially and 21% year over year.
As customers come to us for our specialized library preparation and bio informatics solution.
Coupled with our fast turnaround time.
During the quarter, we had a healthy slug of revenue from one tranche of work from a multiyear multimillion dollar project that we won earlier this year.
Additionally, orders grew steadily through the quarter and we remain quite busy in our Ngs laboratories across the world.
Synthesis sustained its robust growth and delivered another record quarter at $13 million.
Up 5% sequentially and 34% year over year.
Our ability to deliver high quality construct in a timely fashion has attracted opportunities from larger customers, who are gaining confidence in our scale and capabilities.
We're making investments to increase capacity and expand our geographic footprint to be able to get in front of what we see as a long and strong demand profile.
Finally, we report that our Sanger sequencing business has largely recovered to pre cobot demand levels.
In our last call. We noted that as we exited the June quarter are saying or business had recovered to approximately 90% of pre cobot daily volumes.
And although not all of our academic and industrial labs are completely back to full speed.
Our sanger business increased 50% quarter to quarter and deliberate $13 million of revenue, which was also a record quarter up 4% year over year.
This record revenue, even without full customer demand is consistent with our continued share gain and the persistent trend toward outsourcing more of the science to gene lists.
In the sample and repository solutions portion of the services business.
Redefining the value of World class sample and repository services.
Over the past six months, we have affected two significant changes to the Srs business, which impact our path forward.
Now for the better.
Specifically at a time when some more clinical trial sample traffic has slowed weve been engaged to help manage many COVID-19 related critical projects in support of the next breakthroughs in treatments.
We were active partners in the management of the entire discovery and treatment cycle.
As an example, and one that we're particularly proud of.
Our sample repository solutions team has been selected by Catalent biologics as a trusted partner for the storage and transport of one of their significant COVID-19 vaccine programs.
Catalent as an industry leader in developing and manufacturing solutions for the delivery of drugs biologics cell and gene therapies and consumer health products.
There are state of the art manufacturing facilities are producing high volumes of vaccine and require precise cold chain management, including temperatures ranging from minus 20 minus 80 degree Celsius.
We're providing catalent with a custom hybrid storage solution that manages the cold chain Carol vials containing doses at their production facility transfers.
Transportation for the finished specs seen bias to our secure storage low location and ultimately deliver them to the customer specific destination.
The work Weve done in our hubs strategies for the world's largest pharmaceutical companies provided a proven solution that has tried and tested.
We are quite proud to be a partner to catalyst in the fight against cobot 19th.
And then in addition to our work with Catlin were contractually engaged with several companies in the U.S. and Europe, we're working on the vaccine into the COVID-19 to your pipeline.
Revenue to date from these vaccine initiatives is modest, but thus far we've secured agreements that we believe will generate more than $10 million of incremental revenue for Srs in fiscal Twentytwenty one.
No vaccine related opportunities important and we believe that it will remain a valuable offering even beyond the current rush of COVID-19.
Our opportunity spaces literally into end support from research to cure and though it's been taken COVID-19 to accelerate this opportunity for our business. It is durable and something that we believe will be an integral part of our value offering to the industry going forward.
The second significant pivot in the SRX business relates to us concluding our bio storage Alliance agreement with our you CDR at Rutgers University.
This was the result of their change and business direction, and our addition of gene with.
This change leaves us free to expand our position in services that were previously performed by our you CDR and it clears the path for higher growth and better profitability in our services business.
Then it will give more information as to the financial implications of this change, but suffice it to say that if we exclude alliance revenue from our numbers our sample the repository services business was up 9% sequentially and up 18% year over year.
Across the services business. This new structure leaves us extremely positive about our forward momentum and we start 2021 with new opportunities in hands that promise another strong growth year.
Across the services Arena, we're particularly encouraged by the several new synergy opportunities that combine the offerings of Srs and gene with into high value solutions World.
We're already benefiting from the strength of our account team has two major pharmaceutical companies, who have been large bio storage customers each tripled their business levels with Jean was during the second half of Twentytwenty.
Similarly, we recently won two multimillion dollar sample management contract that have included our limits entity informatics Lynn's offering is a large part of the value proposition for the secure management of millions of critical samples.
We believe that these samples are representative of the kinds of opportunities we can capture and we anticipate using these successes as a model for how we can target and win incremental business in the coming year.
The lines between discrete elements of our value proposition are quickly combining into a very unique value proposition and the realignment of our services business unit is proving to be an exceptional vehicle to communicate and sell value to customers.
Finally, I want to emphasize the continued customer capture momentum that we've enjoyed over the past years.
We're cracking the code on how to continue to win new accounts in the distance cobot environment.
In Q4, we added 245, new customers across the services business.
Our reputation for reliable high quality offerings in the fact that we've been able to deliver for customers throughout the pandemic is a big contributor to both our business and to our standing at the height capable service provider.
Our outlook for services in Q1 this for another strong quarter with year over year growth EBITDA, we might see some softening sequentially historically.
Historically the December quarter is lighter than the September quarter due in large part to the holiday season in the Western World, but we nonetheless remain extremely busy at this time and we are confident in the vitality of the markets we serve.
In life Sciences products. We also had an exceptional quarter revenue was $39 million up 27% sequentially and 20% year over year.
As we stated COVID-19 has had a mixed impact on various sub segments of the products business, but in one meaningful way has accelerated what we believe will be a positive and lasting shift in our opportunity.
Specifically, we had a strong demand quarter for our consumables and instrument revenue was $24 million up 37% sequentially and 67% year over year demand.
Demand for PCR plates remained robust, but that was not the source for the sequential growth as we had similar demand at Q3.
Rather we've seen significant demand for our instruments products, which are used to format sample in automated workflows.
Capping handicapping ceiling and peeling readers and volume measurements are important elements in any work flow and automated instruments are critical components of high volume line.
Additionally, when I work flow with automated the selection of the consumable vial or to sample container becomes paramount.
The characteristics of the physical dimension the material that's made up and the identification markings are crucial to make sure. The workload is free from the possibility of human error.
So the COVID-19 high volume testing lines, which have been constructed over the past quarter have accelerated not only our instruments business, but also the need for higher quality higher fidelity consumables, which fit into these automated line.
In time, the COVID-19 related business will subside, but we do not envision a day when labs fall back to manual processing as the benefits to automation have just been given an adrenalin rush and there's no looking back.
In addition to the strong revenue results see an i. bookings were particularly healthy at $40 million, giving us confidence as to some sustained high level of demand in a supply constrained environment.
The automated stores business remained healthy, albeit with some continued revenue recognition delays because of limited access to customer sites to complete acceptance testing. Nonetheless, we booked five new large store projects during the quarter and we signed off on four projects that had been underway during the pandemic. So signs are improving.
Additionally, we had our second highest quarter for automated cryogenic stores with more than 20 units shipped we.
We continue to see the vast majority of systems destined for cell and gene application.
Momentum continues to build.
Our outlook for the life Sciences products businesses for sequential growth in the December quarter with continued strength in the consumables and instruments business and a more tepid pattern in stores is we're still feeling the effects of restricted travel impacting the speed and efficiency with which we can install new tool customer sites.
In any case, we're very positive about our market position across our products portfolio and encouraged by the 100, new customers we added in the quarter.
The products organization he used to make operational progress in terms of the speed with which we can deliver products.
We've never been in a stronger position as we are today, we anticipate good growth end market capture to continue in 2021.
Overall, we're very pleased by the outstanding performance of our life Sciences team as they continue to build momentum and adapt products and service offerings to bring more value to customers.
I'll now turn my remarks to the semiconductor business segment, where we continue to deliver outstanding results remained dependably ahead of the growth in the market.
Revenue in the quarter with another record at $138 million up 9% sequentially and 31% year over year.
Our key technologies vacuum automation and contamination control remain as long term secular growth drivers.
Where ccs powered growth in the first half of Twentytwenty growth in the second half has come from equipment level automation and a reinvigoration of the advanced packaging sub sector.
We're particularly pleased by the performance in each of the areas in which we're focused on to give some color here.
As you're all aware the market for semiconductor capital equipment is robust and forecasts are for this momentum to continue into 2021.
To put some performance numbers for the quarter, our vacuum automation products, including vacuum robots and vacuum subs and mechem systems products that we sell to Oems was up sequentially, 23% and up an impressive 68% year over year.
We attribute this outsized growth to three compounding factors.
The first is persistent secular growth drivers each generation of semiconductor technology requires more process steps that are performed under vacuum conditions, particularly deposition and etch steps.
And it's a higher percentage of process equipment requires vacuum automation.
The second is market share gains we're.
We're gaining market share by winning more business from Oems, who are replacing their robots with our robots and we're displacing legacy competitive designs with our more capable products.
And finally, there is an additional expanding market for our products.
As Asia continues to be the geography, where most of the semiconductor manufacturing occurs, particularly Taiwan Korea, and China. There are significant number of Asian equipment makers, who are gradually winning more share in their domestic markets.
And we have a very high share of vacuum automation with these Asian equipment makers take.
Taken together these factors have compounded our growth rate to be significantly above the rate for the semiconductor equipment market over the past five years, and what drove our 68% year over year growth in vacuum automation in Q4.
And even though we're currently running at record levels for vacuum robots are forecasted for continued strong growth again in the December quarter.
We also had a solid quarter for advance packaging with revenues of $17 million up 30% sequentially and 68% year over year after.
After a somewhat softer first half of 2020, we have begun to see a pickup in this segment driven primarily by automotive and Fiveg markets.
I turn now to the contamination control business, where we're clearly at a new threshold.
Revenue for the quarter was a very solid $33 million down approximately $2 million sequentially, but up 4% year over year.
Moreover, $33 million was the lowest revenue quarter of fiscal 2020, but still higher than any quarter prior to 2020.
This illustrates the coming of age of the Ccs business its expanded beyond tier one foundry into almost all other device application types, including memory logic and even wafer manufacturing.
The need for precise contamination control of airborne molecular contamination now spans all aspects of device manufacturing and very different from even a few years ago. When only sub 20 nanometer foundry needed Ccs products and any volume, we now count approximately 100 different device makers as customers for our products and technologies and the number.
More of our tools required to yield that each technology node continues to increase.
In fiscal Twentytwenty, our Ccs business delivered a $158 million in revenue up 33% over fiscal 2019, we.
We continue to develop new products and cleaning technologies for future device generations, and we're confident that we have an expanding market opportunity in front of us that will be enhanced by the more stringent requirements for reticle management that have brought about by the world of UBI technology.
All in we're extremely bullish about our semiconductor business the market trends continue to favor our technology in.
In fiscal Twentytwenty, we had a record year for design in wins at 144, which came from 55 different Oems in 30 to end users.
This was up 15% from a record 2019.
Increases a testament to the value that we bring to customers in the strength of our position in these markets.
We currently forecast another strong quarter in December with growth and automation products, and a strong but slightly down quarter in CCF.
Fit indications are that we are in for another meaningful growth year on 2021, and we think that we're positioned exactly where we ought to be once again to outgrow the wafer fab equipment market.
In both life Sciences, and semiconductor businesses, we've established clear leadership positions in markets that will provide fuel for many years to come.
We're gaining share in putting more space between us and our competition as were even closer to customers that out in front of their critical needs in roadmaps.
We're resolving their problems before they come before they become obstacles.
We entered 2021 with much of the same energy and momentum that we felt that this time in each of the past three years our.
Our markets are robust our business model is solid and our employees are energized by and enthusiastic about all the potential that lies in front of us.
Our outlook for 2021 is for more strong growth more share capture and the continued build up of strong value propositions that are the foundation for our exceptionally high growth rate and accelerated profitability.
That concludes my formal remarks about the quarter and I'll now turn the call over to London.
Thanks, Steve I call your attention over to the slides on our website and will begin with the summary highlights on slide three.
Q4, Indeed was a strong finish for the year revenue grew 24% year over year fueled by the strong performance in life Sciences up 15% and an acceleration in semiconductor solutions to 31% growth year over year.
As we dig in you will see that the doubling of our non-GAAP, Yes has no unusual anomalies in the prior or current periods as they say we aren't at the old fashioned way just pure operating margin expansion.
On a full year basis, 2020 revenue was 15% higher than 2019 at $897 million.
Again supported by double digit growth in both businesses of semiconductor and life Sciences. It was comparable between the two businesses with life Sciences, growing 16% and semiconductor 14 or so.
Despite the turmoil in the environment through the year, the non-GAAP earnings per share for the year landed rather precisely in the range. We described a year earlier and $1.26 or an increase of 65% over 2019.
As you might expect with the acceleration of earnings comes cash flow operating cash flow of $52 million for the fourth quarter to a record quarter for the company. We ended the year with $306 million of total cash cash equivalents and marketable securities on the balance sheet.
We are in a net cash position of $255 million.
Those of you that have been with US know, we continuously track ourselves to a three year model.
For our most.
Recent model was defined in our September 2019, Investor day event.
I am pleased to confirm that in our estimation, we had achieved the results thus far to put us solidly on track for the 2022 target revenue of $1.1 billion to $1.2 billion and non-GAAP earnings per share of $2 to $2.40.
Let's now move on to slide four for the details of fourth quarter.
At 24% growth, we had $47 million of revenue year over year to arrive at the $246 million in this fourth quarter.
On a sequential basis, the revenue growth of 12% added $26 million.
Both businesses have significant momentum life sciences added $15 million of that 26, let's.
On a sequential growth of 16% and semi added the other 11 million with sequential growth at 9% both businesses saw attractive margin expansion at the gross margin and operating margin line.
As is our tradition, let's just serve our GAAP earnings profile first they carry similar dynamics as highlighted in the summary gross margin expansion leverage on the operating expense structure, bringing earnings per share for the quarter to 39.
More than double what we reported in the third fiscal quarter.
Now I'll turn your attention over to the non-GAAP results on the right side of the page.
Non-GAAP earnings per share for the quarter came in at 47 cents per share or 100% higher than last year, and 48% higher sequentially driven by strong gross margin and operating margin expansion across our business grow.
Gross margins came in at 46.6% expanding 490 basis points year over year significantly driven like 790 basis points improvement in life Sciences, but also supported by semi with 260 basis points improvement year over year.
Perhaps most notable in these dynamics, our life science business, which consistently demonstrates the higher growth capabilities earned non-GAAP gross margins and that's in excess of 50% for the quarter.
Operating expenses for the quarter increased by 13% as compared with Q4 2019, yes, DNA increase year over year was driven primarily by compensation expense most of which was higher variable compensation accruals type formats, and a smaller elements like two an increase of headcount.
Sequentially, the operating expense chit change was driven by the variable compensation accrual.
The aggregate of 490 basis points of year over year gross margin expansion combined with the leverage of much faster revenue growth and operating expense results in that operating income growing 112% and the margin structure significantly enhance at 18.2% up 760 basis points.
Below operating income there was not much change in the other expenses non-GAAP tax rate, however increased year over year from 18% to 22%, but still net income is up 104% and earnings per share doubled to 47 cents.
As we turn to page five we can see similar summary for the year.
We ended fiscal 2020 with revenue of $897 million, an increase of 15% from 2019 and the GAAP results. The total pre tax income increased 66 million half or more.
Sorry half or more precisely 32 million came from improved operating income.
With improved operating margin structure.
The other half came as a result of our 2019 paydown of debt, which drove the significant reduction of interest expense and we had no charges for debt extinguishment of 2020.
Looking at the non-GAAP side, you can see that the operating structure has improved substantially and we do have the impact. We do also have the impact of lower interest expense all producing.
Significant increase in the earnings per share I.
I think there are two key points highlight for you.
First results the year have significant momentum from the second half, which we expect to continue.
Notably the 78 cents, we delivered in the second half.
More than all 2019 these Pos.
Second considered the source of growth behind the revenue and profit.
The semiconductor business up 14% drove 62 million of the revenue growth, while the life Sciences was up 16% and drill 54 million.
Clearly we have two growth engines at work.
And at the operating income line, where we grew $32 million, we had $13 million of that come from the semiconductor business and $18 million that come from the life Sciences, which saw a material improvement in gross margin along with the growth.
We have two very strong profitable growth engines.
In total we delivered a $1.26 earnings per share up 65% from last year.
Now please turn it over to page six of our segment results starting with life Sciences.
Addressing the fourth quarter first our life science business generated revenue of $108 million, an increase of 15% compared with Q4, 2019, and an increase of 16% sequentially.
Let me break this down for you the products business as Steve referenced grew 20% year over year, driven by strong demand in consumables and instruments. This highly transactional area of the business was already on a nice broke up prior to Cove. It but it has benefited from additional tailwinds as researchers around the globe Thunder PCR plates are broad.
Line of automation capable tubes, and our automation instruments to be of high value to them in the fast pace of today's cope with environment and the pursuit of testing in vaccine development.
The cnine business crossed over for the first time to be more than half of our products revenue for the quarter.
Life Science service business, Excluding alliance revenue grew 20% year over year.
This business is comprised of gene was and our sample repository solution service offerings.
The gene was business grew 21% year over year and 29% sequentially.
Shifting a healthy rebound in the areas previously held that cycle that.
This was primarily in the senior based sequencing services.
We've described this recovery occurred through the quarter and fueled the sequential expansion.
The year over year growth was heavily driven by continued strong next generation sequencing and the synthesis demand.
And is still soft, though positive thing or year to year comparison.
The complement of life science services or sample repository solution services.
When excluding the alliance revenue stream.
Sample repository services was up 18% year over year.
Hi, its revenue resulted from an arrangement selfless years ago, Steve This is Greg and the bias towards technologies business.
We managed and administered that customer contracts, taking on the role of billing and collection, while sub contracting the alliance partner to provide genomic analysis.
Total it drove about $21 million of revenue in all 2019, very low gross margin.
In light of our comprehensive gene was genomic service offering we have mutually agreed with our alliance partner to dissolve the agreement and it substantially exited the relationship as previously defined there.
There are two net impacts from unwinding. This arrangement inside these fourth quarter results.
Revenue growth was dampened.
Secondly, average gross margins benefited from our improvements.
So let me summarize revenue trend succinctly.
First our total of life science business in the fourth quarter, when excluding that alliance revenue grew 20% instead of the 15% show.
The life science products as we said the 20% as reported.
In the life Science services business, excluding the alliance revenue also grew 20%.
Within that services business metric gene was again grew 21% and sample repository solutions service fee 18%.
So when we additionally, justice overall metric for growth are investing.
That being the adjustment for currency, removing the revenue generated from our rural acquisition and the impact that this alliance.
Unwinding and the organic growth of our total life science was 17% year over year.
One more revenue metric for you to before we move on to gross margin and our life Sciences business. Prior to the recent realignment we had in our business. We had shown our total like science simply split between gene was versus sample management.
We had described and track ourselves to an objective to have sample management growing this year double digit by the fourth quarter.
On the as reported basis with Alliance revenue included the business grew 11%, but on an organic basis, excluding the alliance revenue stream that the rural acquisition and the currency it grew 14% year over year.
So it's a very strong finish which I believe reflects a very healthy market and excellent execution of the recovery roadmaps. Despite a very rocky cobot environment throughout the year.
Now for gross margin in the quarter at 50.5% for the quarter were higher by 790 basis points year over year, excluding the low margin alliance revenue streams from both periods. We would show 650 basis points of improvement year over year instead of the seven night, primarily performance driven.
The 350 basis points improvement compared to third quarter instead of 580 as shown on the chart.
Again, primarily performance driven.
So, but this is bridging from where we came in the important point is to recognize that this is where we are now with everything and showing a 50% gross margin business.
Margin improvement for the quarter and for the year are substantial and supported by both the products and the services business.
The life science products business as demonstrate continuous improvement in gross margins all year. This quarter, it's stabilized sequentially at 44%, which sustain 390 basis points improvement year over year.
The life Science services business provided 54% gross margin in the quarter, reflecting the higher revenue and improved labor utilization and as a reminder, in the third fiscal quarter, we paid a premium to our lab personnel that came in daily through the early days of the cold environment. We discontinued this in June as the.
Protocols and the general practices settled into a new normal.
Fourth quarter operating margin of 16.2% overall expansion 900 basis points over last year continues to show the leverage of the total business model that life Sciences.
For the full year life Sciences reported $389 million in revenue or a 16% increase.
As the alliance revenue did not have a substantial impact until the fourth quarter want to elaborate on that too. Much. However, let me provide you the Sussex summary, which I provided for the quarter total segment as reported is 16%, but if I exclude the alliance in both 2019 2020 and show 18% growth.
The products business shows 9% growth for the year the services business, excluding that alliance revenue grew 24%.
Under the services business gene was provided 32% growth and the sample repository solutions provided 8%.
As we look at our first quarter of 2021, we expect life science revenue to be in the range of $105 million to $111 million.
This range show stable revenue from the quarter.
From the fourth quarter, and again, it'll support approximately 20% growth year over year.
Let's turn it over to the semiconductor business on slide seven.
Semiconductor solutions revenue for $138 million in the quarter increased 31% compared to the fourth quarter of 2019.
9% sequentially on the continued strength in the global semiconductor equipment market.
Our vacuum robots and systems growth, both sequentially and year over year highlight the critical needs for advanced front end.
Quitman Oems.
Our combined automation product set in total all in Thats vacuum and atmospheric provided 50% growth year over year and 15% sequentially.
Revenue in our contamination control business was up 4% year over year and services was up 3%.
We maintain our strong market position across all our offerings and B 2021 will likely be another growth year in the market.
Meaningfully semiconductor operating margins crossed over the 20% threshold for the first time since the third quarter of 2018.
Just prior to the sale of the cryo business and we did it this time with $36 million less revenue.
Which highlights the value and margin profile of this growth engine.
Gross margins.
This period expanded 720 basis points compared with last year.
Hundred 70 basis points sequentially.
Gross margin expansion on volumes and related absorption health.
Helped to drive the gross and operating margin improved.
As we look forward to our first.
Fiscal quarter of 2021, we expect semiconductor revenue to be in the range of $132 million to $140 million.
So, let's turn it over to slide eight with summary of cash flow for the quarter.
Operating cash flow in the fourth quarter was 52 million.
As a reminder, in the full year, our fiscal year 20 column, we paid $92 million of taxes and this year related to the prior year gain on the sale of the cryo business.
Excluding this onetime payment operating cash for the year was $129 million up $25 million compared to the same metric in 2019.
The net change in cash related accounts shows a reduction of $36 million, but simply stated we generated 129 million of cash and then we paid the 92 million tax Bill we invested 40 million in Capex, which included $8 million.
For the suit, Joe China building, which will replace our lease spaces and provide the growth for gene was business we.
We invested $16 million in the acquisition of the we're a software business. This business by the way generated $4 million of revenue and seven months of ownership and was accretive to GAAP and non-GAAP earnings.
And then we paid out $30 million of dividends to our shareholders.
Setting aside the tax on the prior year divestiture, our operations afforded the significant growth investments and dividends, while adding 56 million of cash to the balance for future investments.
Let's turn it over to slide nine for a quick view of the balance sheet.
You can see the 306 million of total cash equivalents marketable securities at the top of the year end column.
Looking at the working capital line I would highlight that except for the 92 million payment of taxes on the cryo sale, which was shown as a current liability when we when we first entered the year, we had a very modest change in working capitals for 24% growth in the in the revenue.
The balance sheet remains quite strong as we enter 2021.
Let's turn it over to slide 10 for our guidance on the first fiscal quarter 2021 ready.
Revenue is expected to be in the range of $237 million to $251 million with semiconductor range between.
The $132 million to $140 million and life Sciences at a 105 to 111 million.
Adjusted EBITDA is anticipated to be 46 to 56 million nine.
Non-GAAP earnings per share is expected to be 37 47 cents per share.
And the GAAP earnings per share is expected to be 27 to 37 cents.
In addition for the fiscal year 2021, we expect the non-GAAP tax rate as noted on the page between 22% to 26% and capital expenditures of 60 to 70 million inclusive of 25 million as we complete our CECO China building projects.
And before we turn the call back over to the operator for question and answers we would reflect a little more on the view of our future.
As most of you know again, our longer term model to which we currently tracked as of 2022 target.
We'll take a very long to observe that revenue is on track gross margin is already running at the target levels of 2022.
And Opex appears a little higher than the model indicates.
This indeed is our observation and may warrant adjusting expectations, a little bit higher gross margin offset a little bit higher opex ratio we.
We do have great confidence that we are on track for the top line and the earnings per share range, we have provided.
Some of you may even be thinking to adjust those more positively but for us we're still here accounting ballots and we'll stick to those ranges.
That provides a compounded growth rate of 13% for revenue and approximately 30% for EPS from the 2020 results and I think you can see that the momentum is with us and delivering that rate base.
So that concludes our prepared remarks, I'll now turn the back or the call back over to the leak. Our operator, we'll take some questions from the line.
Thank you.
Ladies and gentlemen, if you would like to register for a question. Please press. The one followed by the four telephone you have U.S.D., Tom Tom Technologies request. If your question has been answered and you would like to withdraw your registration. Please press. The one followed by the <unk> and again. It is one for if you have a question.
Our first question is from the line of Steve anger with.
Needham. Please go ahead. Your line is now open.
Great. Thanks, Congrats on really a truly exceptional quarter, particularly in life Sciences.
Gross margin might soon that correctly, that's 50%.
They Didnt think you would get there this soon.
I'm going to ask you a is there still wood to chop there in 2021, and what should we think about as far as reinvestment now that the margin.
Uh huh.
50% or higher are you expecting now to guidance to more expansion of your commercial teams or research and development.
Yes, Steve it's it's a really good question and it's a multi layered equation behind gross margin of course in the early part of the year. The products business kept took in taking out costs quite a bit and we gained a lot of traction on cost takeout, but throughout the year. We also captured a lot of value.
In our offerings with our customers, meaning in some cases.
Our products, we leased up discounting some.
And and held our price and value, but in other cases, we we provided more sophisticated higher value offerings. In total. So weve described the hub strategies. We've described the special care in the custom offerings sample management and of course in the gene was space. We've described to you the proprietary.
Capabilities that weve developed in.
In the IDR space. So all of these do translate not just the higher demand, but also higher value margins. So when we see these things happen, it's energizing to us and yes. It does keep our team.
Thinking and developing new ideas new.
Innovations we have.
Maintained our operating expense investments behind our R&D line in the <unk>.
Particularly in gene was in energy services space around the integration and the value that we can provide as a as a total offering there and and I think most notably I think we've captured the attention of the spaces around cell and gene therapy and.
And Thats got value wrapped around it. So I think all of these contribute I think when you say is there more with the chop I just want to make sure. It's not misconstrued I think we'll continue to always as a company have the inherent habits of taking out costs, but at this point, it's more about the growth of the value offerings more about.
Developing those proprietary edges and demonstrating the value in the marketplace.
Great and then my second question is in life Sciences in the bio stores area are you still carrying a backlog of.
Projects to implement and with the recent resurgence we are seeing and co. Good.
Are you expecting the whole.
Are you getting access to to implement those systems and then what is your outlook.
For bio stores I know, we're going to start.
Distributing vaccine products is there opportunity there.
Brooks to be a part of that on the distribution or admin.
Administration side.
Yes, so I my instincts are that I think you read it correctly, but let me let me just.
Correct some of the labeling a little bit so it doesn't confuse people. So first you are asking about store systems and our ability to install systems and we that's clearly in our product set and we are carrying some backlog as we go into 2021 that.
Whit definitively been installed in place.
Or further and progress as without the cobot environment as Steve noted in his remarks, we we signed up new systems, and we've got systems and progress already and we closed some business. So we've been able to close some but not everything and it has slowed us down so that that's been a headwind for the year and on.
Flip side on the product side the Cnine.
He has been a nice tailwind and in our assessment the capture of the customer names there may be a sustaining factor for us is coal that is.
Bringing demand, but we think that that relationship expansion is substantive for us for the long term now lets say if I move over to the storage services or the sample repository solutions.
Of course, we carry some backlog there what we what we believe is there is less about backlog, but customers overall have been reluctant to move let's say archiving and.
General hygiene things that we'll continue that picked up over the year.
I think in 2021, but we wouldn't call it out as.
A material swing, what we would say is the engagements that were driving our still substantial they carry.
A lot of upswing on the hub strategies and on top of.
Vaccine management, but yes.
Yes, so Steve I'll add on a little bit to that so in the <unk>. We think there is a critical place for us in the U.S.
On the distribution of vaccines right now we do store for pharmaceutical companies manufactured product and the fill finish product that ultimately gets distributed or our play in logistics standpoint will be to hand, it to the companies who do that distribution. So we play a critical link in the middle of the chain and that's a really cool.
Comfortable places, we think we had tremendous value there because of the precise temperature control the volumes that we can handle but ultimately the jets and trucks and the.
And the places the company that ultimately distributed to clinics or hospital will be true.
Parts of the supply chain that already exists.
Got it Okay and then that's excellent and then one last one on on semiconductor is.
Is there any way you can characterize the impact of the export controls on Esa might see.
I'm not asking for specific details and things like that but just perhaps a broad characterization of what that impact was for you and what you see it to be.
So Steve So right now we the impact is that we're we're cautious we pay close attention to it the environment that we're in now where licenses are required as an environment that we had years ago. So it's not new to the to the semiconductor.
Equipment industry, but it's something that haven't yet had an impact but you know how we set the potential.
That the manufacture of those semiconductor would go to another company and then we serve those other companies, but something that we pay attention to but without impact today and it's in it's an environment that we are that we're familiar with all of us are familiar with.
Okay, great. Congratulations thanks, Thanks, Steve Thanks, Steve.
Thank you. Our next question is from the line of Patrick Ho with Stifel. Please go ahead. Your line is now open.
Thank you very much and congrats on a nice quarter, Steve maybe just to follow up on the question regarding China I'll ask it a little bit differently.
Given you our growing presence in the region, particularly with the local equipment vendors in China do you.
Any changes in their call buying patterns or their behavior, and what I'm kind of getting at is given the localization efforts overall.
Cross the semiconductor food chain.
Seen any changes in terms of.
I guess.
Then trying to find local vendors on the automation side or all your products that differentiate enough, where it's going to be difficult for them to make that type of a switch.
Yeah, Patrick we're always we're always we always care about that but what are the things that we're pretty confident about is the uniqueness of our products.
I think we I think almost everybody in the semiconductor robot business has tried to replicate what we've done and that's been going on for 20 plus years.
And so we think the capabilities we have a really unique we also do have we think enough capability in China.
It might set our products up uniquely to be able to serve China from China. So these are things that were exploring from a number of different angles. The connections that we have with customers think they the equipment makers in China and Korea. They understand that uniquely we provide automation that is going to be accepted by the semiconductor fabs immediately.
Because its a brand in the <unk> and the technology that the.
That the IC makers trust and so I think there will be a lot of.
Pressure from all sides.
The end customers from the equipment makers.
And certainly from us that we'd be able to continue to supply. So we're.
We're really close to it our connections with the customers are extremely strong and we spend you know there's not there's not a day that goes by when people from our company aren't in contact with them.
With the equipment makers in Asia.
We'll always watch to see but we don't we don't think it's easily replicable.
Just a copy the technology goes a lot beyond the just the hardware in the physical devices. The experience that we have in 800 degrees corrosive environment the controls.
Technologies, we have we think a really unique.
So.
I hope that gives you the hope it gives you the answer.
No yeah. It does give the color on that.
No the China situation I think is evolving.
So you gave great color that in terms of my follow up question on the life Sciences and.
You had a very strong quarter on the services than it was a mix of both bio storage as well as the.
The gene which business.
Given some of the coal opportunities our heads that you mentioned in terms of.
The logistics the transport and the coal shores, how do you see that potentially.
Being a potential benefit or a driver for synergies on your product and are there opportunities for automated storage systems that you can call Sal.
Some of these middle the middle made that you mentioned.
We think they're likely are Patrick we'll have to see where it's going to come out in there we're talking about billions of samples to start and.
And so likely this soon whose products are manufactured there will ultimately be distributed and given to patients.
So short of that but let people will be looking for extremely large volumes and won't be individual freezers necessarily stores that might be entire rooms, but we do think that in time there may be.
Applications for that.
But right now in the billions of samples level I think large pharmaceutical companies are managing that by different means.
Great. Thank you very much.
Thanks, Patrick.
Thank you. Our next question is from the line of Craig Ellis with B. Riley. Please go ahead. Your line is open.
Hey, guys. This is carlin on for Craig Congrats on the nice quarter, I guess I want to start with the revenue upside in the quarter I'm wondering as you looked at.
The various businesses what's the.
What specifically surprise the upside and what degree to what degree of the upside was maybe catch up versus you know new inflection growth given kind of some of the cobot related slowdowns, we saw earlier in the year.
Yes, one if you went back to our guidance you would you'd say well your your semiconductor business was kinda solidly in it at the higher end of the range, but it was in the range and it was the life science business that was over the top of the high end of our range and.
Behind that.
What we did expect gene was to come back.
Well, we Didnt no one was just how solid the ngs in the synthesis business would continue to perform saying are paying back.
Somewhat on our projections, we saw a modest ramp starting as we referenced three months ago, and we kind of expected that it was about to cross over to a to a pre cobot level. You know, it's still not caught up to the growth potential it did it.
It has and has performed so so we would still say, it's it's a touch lower than head cobot never happen, but its front and back in but really what what drove that was the ngs and the and the synthesis services.
Spring back in addition to that.
As we highlighted in the products business.
So both in instruments came in a bit stronger than what we expected.
We and I would highlight that we have put some additional capital in behind that not not significant for anybody to.
So think about a sinking capital dollars, but it was additional capital and tooling to facilitate additional demand in that space and so we've got that will well oiled or additional growth.
And and we're looking for for this to continue but those are the primary areas that generated the upsides that we did in fourq.
Forecast.
Got it that's really helpful. And then as I look at gross margin just want to follow up on an earlier question, obviously super strong gross margin in the quarter, even better gross margins the outlook.
I guess as we think about gross margin gross margin sustainability moving forward kind of beyond fiscal first quarter is it fair to say that Weve established a new.
I guess, maybe a new floor and everything will be moving off of this or how do we think about gross margin sustainability moving forward.
Well.
So let me address both sites for semi and then life Sciences and in semiconductor I think we've demonstrated this level of gross margin of passing Reebok and and we so we think this is a is pretty typical of our capability and we think it continues to advance as more and more people adopt our.
Leap technologies in more and more designs and we demonstrated that highlighted I guess I'm a lot of design wins, which will be just done and that will produce gross margin as we progress forward.
On the life Sciences side I think your characterization is a fair one that that theres, a new benchmark here for a floor as I highlight is the only modestly raised it was raised but modestly raised in proportion.
From the remix with excluding that alliance revenue, but the but but now we're here with this new mix and the new performance level I've always highlighted that Jean Louis has a more of a variation in margins.
In the past that I put about five point variations and they are at the higher end of what I call now and so there there could be a mix impact in future quarters, but it.
If it's 40.
48% to 52% range, you know I would say that's what to expect 50% I don't think is going to be a surprise. If we continue that but they certainly wouldn't want investors to be disappointed if the drop back the 48 and bounce back and forth that range will continue to drive forward and we think we've got a business.
That will continue to generate value in the over the next couple of years that though the sustain something above 50% in the longer term.
Got it all right, thanks, guys and congrats on the nice quarter again.
Thank you next caller.
Thank you once again, ladies and gentlemen, as a reminder, it is one for if you have a question.
Our next question is from the line of Jacob Johnson of Stephens. Please go ahead. Your line is open.
Hey, Thanks, guys and I'll add my congrats on a nice quarter, maybe bigger picture question for Steve balance sheets in a really good place operations seem to be humming, along so would be curious on latest thoughts on M&A and maybe broader thoughts on capital allocation.
Yes, so I'll add to your list. There you know we have an appetite and there are opportunities for us So we're pretty active in.
In pursuit, but these things take time and we're.
We're going to make sure that we do something that that fits the company we've.
Strong interest to continue to expand the capability or I remind you as you as you're well aware. The fact that we have gene was not really expand the view that we have in terms of what what fits particularly well and there was a question earlier, we have a really an exceptional sales organization onto which we can put.
A lot more products and services and they're extremely capable and it's one of the reasons were capturing synergies. So we were eager to look at what else. We can add to the company and take advantage of a lot of infrastructure capabilities that will make it successful.
Got it thanks for that and then maybe just a quick kind of nitpicky modeling question. For then then when and just on that are you CDR relationship.
Sounds like it was kind of doing 5 million a quarter I just as we think about the next few quarters should we expect this to be a headwind through the first three quarters of F. Y 21, and then obviously yield then lap it in the fourth quarter next year is that kind of the math.
So a headwind in a year over year growth rate, yes, but but on a sequential basis it'll have a about a one or 2% headwind in this first quarter and it's going to be really nominal. We'll we'll continue to provide a little bit of service to them, but on a recovery basis, it's not a.
It's not in the same definition of what we do and as it will round to zero.
On any line, so I call it a headwind, but but we only had a couple of million dollars of revenue in this quarter as.
As we did to unwind.
Got it thanks for taking the questions.
Thank you.
Thank you.
Our next question is from the line of Paul Knight with Keybanc. Please go ahead. Your line is open.
Hey, guys.
Could you talk to the capital equipment instruments side of the life Science business, what was your growth rate there.
And then as a follow on the bio stores growth rate of 18%. What do you think normalized growth rate is of that market.
So Paul while linden's looking up the [noise].
Instrument part.
Let me just take a crack at that.
The bio storage portion we did some.
Modeling, we brought some outside help I think if you recall, we estimate that the opportunity grows there about 10% per year.
So estimates range between eight to 12, but I think we zeroed in on something we think thats about an about a 10%.
Opportunity growth in terms of of samples.
Samples to be stored.
And when you think about the bile stores business. Steve do you think that you can do you need to expand is to more sites per customer demand and you would you can you do that greenfield versus paying.
What I think deals demand right now how do you envision you expanding bio stores. So we have a lot of flexibility Paul and so we're we have a pretty good geographic footprint right now what we find is that some customers still aren't ready to have the samples off site, but we do a lot on site management actually.
So we almost set up.
The capability that we haven't won over by a repository inside a customer site and we manage it as if so we're we're very flexible here in terms of how we add value. We're certainly open to additional bio repositories, but we find that once a customer.
Becomes comfortable with the service that we provide management to their samples whether it's in the building next door around the building 1000 miles away our ability to manage it and retrieve the samples from the customer put him into our protection and to get the samples back to the customer in 24 hours is is some of the customers grow into.
And it's it's becomes less of an issue once they have the experience. So we still see.
A broad range and we offer a broad range of capabilities for customers.
Okay. Thanks.
And Paul this year.
I'm going to I'm going to take your question to be.
Everything other than the Cnine the product side of the business, which makes up our store systems, our kras systems.
And overall, it's down it was down about eight or 9% for the year offset.
Offset with 67% growth in the a and the C and not and.
And this split this remember this is where we carry a little bit of backlog into 2021 on the store systems and we're seeing nice momentum on the engagement and and continued growth in the in the cryo space.
Yes.
Okay. Thanks, yes.
Thank you.
Next question is from the line of John Pitzer with Credit Suisse. Please go ahead.
Your line is open.
Yeah. Good afternoon, guys. Thanks for let me ask questions congratulations on solid results.
Steve you talked about on the semi side of the business still expectations for growth next year at the industry level from WFC I'm just kind of curious do you think that your record of outgrowing the market stays and try on track next year well next year be a similar rate about growth that you've seen over the last three and if so what do you see driving that.
Yes, so John it will be tough for me to be any more accurate than anybody else on the.
On the magnitude of the opportunity a couple of things though.
We delivered a $158 million in contamination control.
When we got into that business six years ago. The trailing 12 months revenue was about 30 million. So this is a secular growth driver. The fact that contamination control continues to to explode because it's a necessary capability that was not necessary. Even 10 years ago. So we think thats a considerable driver if.
We if we anticipate that there will be an expansion in memory.
The deposition and etch characteristics, there will continue to propel the vacuum automation. So we're we remain confident just because of the the product portfolio that we have to serve the and the advanced semi market and all of the products that we sell for the most part Theyre all capacity expansions, we believe that the amount of.
Vacuum automation in the month of contamination control will be a higher fraction of the WFP and the high market share positions that we have means that we'll we'll capture that and we'll we'll be at a higher growth rate than WFP. So.
And I wish I could tell you other than the forecast that we get both from the customers and from.
People like you who forecast the.
Dissipated growth in the market that we feel good about going into 2021, and we are certainly more confident about our position to outperform.
And then Steve as my follow up on the life science understanding that the situation is very fluid, but to the extent that you are optimistic that a covert vaccine to represent an incremental revenue opportunity for you guys. Next year is there any way to size the opportunity when would you have more confidence to be able to kind of be more confident that opportunity.
And is it really a function of a pfizer type vaccine that needs cold storage or would you see any vaccine of cove, it providing incremental market opportunity for you.
John that's a really good question because we use spend a lot of time on that we want to make sure that we're not building capacity for a one timer and there are other vaccine.
There are there other pieces of vaccine business that we have that are not cobot related and so we've begun to establish.
Growth vector if you will in the support of that.
Particular area and we happen to be able to apply that also to some of these COVID-19 opportunity. So when we when we talk about what we think is.
Oh already in our backlog that will give us approximately a 10 million dollar opportunity. That's for vaccines generally some of that is cobot for for 2021, and we do try to do that is that we are we are already full speed ahead on the course that we have related to the sample management and the other bio repository business. We have all of the lab served.
As we provide we do treat the co bid opportunities as additive and we want to make sure that we haven't defocus from the biological sample business that really is the heart of all that we do.
And Steve just for my own education on the vaccine distribution.
The key characteristic cold storage or does it not matter.
Oh, it's cold storage into matters a lot. So we also have transport capability. So we can.
For example.
In the Catalent example, they.
They have us both transporting and storage and then re transporting when they ultimately want to send that onto the people who will do the final distribution of their of their products. So we perform those functions in that cold chain at pretty significant volumes.
Perfect. Thank you.
Thanks, John.
Thank you and there are no further questions at this moment I will turn it back over to you. If you have any closing remarks.
Okay. Thank you very much everyone. We so appreciate your attention and these are.
Really you know tumultuous times for everyone and the fact that we've got two essential businesses that keep demanding our own.
Our offerings, our attention is really energizes us as a team safety is always our first priority for employees and for our customers in fact, as we upgrade on their premises and will always own break that number one but it's full steam ahead for us and we feel like we have the momentum behind us out of this.
Last year the demand you know, we're making the investments to step up to this environment.
And and we're quite proud of our team mates and at the same time. We're we're looking forward to these new opportunities to step up and be part of the solution. So with that we look forward to talking to you next quarter and welcome to our 2021 fiscal year. Thank you very much.
Thank you, ladies and gentlemen that does conclude today's call. We thank you for your participation I ask that you. Please disconnect your lines.
[music].