Q3 2021 Brooks Automation Inc Earnings Call
And only 1 minute.
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And of automation and laboratory workflows as well as the worldwide shortage of consumables and instruments and was driven by high volume testing was the catalyst for us to add many new customers customers. We believe we can maintain post COVID-19. We believe our premise still holds that even in this environment of our long term position has strengthened because in the quarter, we added more than 50.
New consumables and instruments customers and thus far we've retained more than 80% of new COVID-19 customers, who continue to buy from us even if the availability of supply of consumables has improved the worldwide.
We will continue to monitor this closely but we believe that our service levels and quality of product will be the reasons. These customers will remain.
In stores, we saw strong momentum across the product lines, including large automated stores cryogenic stores and clinical stores, we saw strong demand for our bio store cryo systems, continuing the pattern of adoption of this critical technology for use and cell and gene therapy to date 38 different customers have now purchased multiple <unk> III.
Cryo units and were beginning to feel the momentum building for this innovative and enabling technology.
Q3 was another period of validation that our products business and exactly on target for the life Sciences sample management market requirements, we will remain vigilant as to the vagaries of the COVID-19 related market segment, but we're pushing forward with full confidence that our products are necessary and enabling across the life sciences field and not simply of Covid phenomenon.
As the life Sciences company, where at a meaningful juncture as we take the next step in our journey, we're ready to not only stand as an independent company, but a company capable to grow and invest to meet the needs of our market and customer base that needs us to grow spin.
Specifically across our services portfolio, we're landing larger commitments from larger customers. This is not only a testament to the capability we've proven over the years to be a dependable supplier of extremely high quality services, but also the fact that we've earned the right to be able to serve large volume needs of the world's most demanding pharma and biopharma companies.
And our life Science products segment, we've always had high market share of automated stores at large customers, but now because of the rapid increase in cell and gene therapy applications. Our innovative cryogenic product offerings are quickly gaining traction with companies that incorporate our solutions into their designated workflows and securely embed them into their standard operating procedure.
This is the critical role for which we are now completely ready.
We're proving ourselves to be up to these responsibilities and challenges and we're making the most of this position we're energized by the feeling that we are and the earliest days of this exciting opportunity to add tremendous value to this market.
I will now move to the semiconductor business, where we delivered another record quarter with revenue of 186 million.
Up 43% organically from 1 year ago, and 47% overall, including a contribution from precise automation, which we acquired part way into the quarter.
Overall of the semiconductor market continues to be robust with bullish near term and medium range projections. This demand goes far beyond making up for a chip shortage and the automotive space, but it's driven by myriad new applications that are driving a new level of demand that will not be completely satisfied by a 1 year boost of capacity, but rather will be met both by the acceleration of new <unk>.
Capacity at the leading edge and by capacity additions and existing and mature technology nodes there.
And there are numerous positive indicators of a healthy semiconductor environment.
Each of the top III capital spending chip companies have declared extraordinarily high levels of capital expansion over multiple years.
We had another standout bookings quarter with $250 million and new orders.
The demand forecasts continue to remain solid with the larger OEM scrutinizing their supply chains for the ability to ramp for the foreseeable future and.
And we foresee more continued expansion and the memory market, including DRAM, which will add even more growth to this environment and.
And although the market is very strong we will continue to extend our leadership position by aggressively investing in the future.
Our market presence and penetration continue at a torrid pace supported by our high level of design activity aggressive hiring across engineering and technology areas as well as significant additions to our manufacturing capacity.
And the quarter, we had another 50 design wins equivalent to the elevated pace, we experienced in Q2, expanding our footprint not only with existing customers, but with new customers as well.
This accelerated demand for front end semiconductor capital equipment combined with our significant market position lifted our automation business by 13% sequentially and 47% year over year.
Like to make a special note that included and this number is the contribution from wafer handling robots products sold directly to equipment Oems, which was up 73% year over year and validation of our continued share gains with Oems and the contamination control solutions business continues to strengthen.
Revenue of $51 million was up 36% sequentially and 46% year over year further emphasizing the pervasiveness of this technology, which has truly become a necessary capability and all manner of semiconductor manufacturing.
It is important to note that this is also not plateaued in terms of adoption and in Q3, we added 13, new design wins in the quarter and 5 of those design wins were for new customers.
And finally, we are rapidly assimilating the precise automation team and getting ramped on the promise for this exciting new growth vector we've already doubled the size of the technical team to allow us to more quickly realize some of the ambitions for multi market applications that take advantage of collaborative robot capability and high value added systems.
And we've begun to bring the precise robot manufacturing in house, leveraging our operational capability, while alleviating some of the manufacturing bottlenecks day had experienced.
Before we wrap up I want to take a moment to comment on the current supply chain dynamics as we see them.
<unk> been hearing a lot about challenges and the supply chain, which are expected to continue for the foreseeable future to date, our strong partnership with suppliers and customers has enabled us to proactively mitigate many risks and increased factory shipments as we look forward. We will continue to apply a risk mitigation strategies with the heightened focus on delivering for our customers.
We remain diligent as of the supply chain environment is dynamic and our ability to largely mitigate these headwinds could be impacted.
Overall of the semiconductor automation market remains strong and vibrant by all of our indicators, we are strengthening our positioning and advancing our technologies to be in front of what is necessary for the continued expansion of this market our relationships with our customers are closer and more interdependent, which leads to a shared endpoint and unprecedented collaboration and trust we are key.
And to expand our methods business model and our technical expertise into other market sectors that will benefit from the same types of engagement and innovation and the collaborative workflow space and Youll hear more about this in the near future.
To conclude our strategic direction for each of the businesses is clear our investments are consistent with these roadmaps our profitability continues to outpace our revenue growth and our balance sheet is clean and healthy.
All of these elements make us confident and each of the businesses and our ability to allow each to stand as independent companies.
And I want to thank all of the Brooks employees, whose hard work makes all of this possible. The entire team is working full steam ahead to complete the separation, which we continue to expect to be complete by the end of the calendar year and we thank you for your continued interest and support of Brooks and we hope to maintain your trust and interest and the next configuration of this powerful capability.
And now I'll turn the call over to Lindon.
Thank you, Steve and I'll refer you back to the slide deck available on our website turning to slide 3.
I wanted to reiterate for everyone that we will continue to reflect the total company results. As you are accustomed to seeing them until the separation culminates, which we still expect to occur by the end of the calendar year.
The third quarter was another record quarter for us on the top and bottom line with revenue of $315 million and 43% year over year growth and non-GAAP earnings per share of <unk> 70 to both sides of the business continued to show strong growth and profitability cash flow from <unk>.
Operations was 45 billion and the quarter and of $175 million over the past 12 months.
Non interest 12 month basis, we are now at $1.1 billion and $2.27 of non-GAAP, earning per share.
Moving on to slide 4 let's get into the details revenue was up 10% sequentially and 43% year over year, resulting in GAAP earnings per share from continuing operations of <unk> 53.
Up 34 cents year over year, and up 20 quarter over quarter.
Operating margins were up 530 basis points sequentially. The gross margin of 45, 8% shows 140 basis point improvement.
The call and the prior quarter, we recognized a $5 million increased liability for tariffs due to a change in estimate for the value of <unk> and our company imports and.
And the operating expense section SG&A was down quarter over quarter, primarily due to a lower spending with advisers and legal support and the preparation for the separation of the company.
The spending remains at $6 million and this third fiscal quarter.
All in the GAAP earnings per share was <unk> 53 for the quarter up 184% year over year.
Let's flip to the right side for the non-GAAP results.
Gross margins were 46, 9% expanding 340 basis points year over year, driven by life Sciences up 540 basis points and semi up 200 basis points year over year.
The revenue growth and gross margin expansion drove operating income upward of 127% operating margin was 21, 5% up 790 basis points year over year and adjusted EBITDA margin was 24, 8% up 650 basis points.
Below operating income the non-GAAP tax rate and the quarter was 18, 9% when you combine it all we saw 127% growth and the non-GAAP earnings per share demonstrating the profit leverage and strengthen the business model underlying both businesses.
Now please turn to page 5 for the results and our life Sciences business.
And the third quarter, our life Sciences business generated revenue of $129 million and increase of 38% year over year and flat on a sequential basis the.
The COVID-19 related revenue and this quarter was again, primarily and the products business, which delivered an estimated $9 million of COVID-19 related orders and consumables and instruments. This was approximately $5 million and less in the second quarter.
The total life science business offset the softness was sequential expansion and the services segment and with strength and store systems within the products business the.
And the products business and total was $49 million and grew of meaningful 60% year over year. The increase was driven was 67% growth and consumables and instruments and strong growth across the other product areas.
As mentioned the C&I business continued to see the benefit from Covid related demand, but at a lower level as compared to the second quarter.
We continued to see Covid related research orders, but fewer orders for tubes used from Covid testing.
For the softer COVID-19 related demand and consumables and instruments the products business expanded sequentially with strength and systems.
The total products revenue, excluding the benefit of Covid revenue this quarter provided 30% year over year growth the.
Life Science services revenue was $80 million, which was growth of 4% sequentially and when excluding the impact of unwinding. The alliance grew 43% year over year.
This business is comprised of our <unk> genomic services business and our sample repository solutions offerings the.
And the genomic services business grew 56% year over year, and accelerated 7% quarter over quarter Q.
Q3 of last year was our most severely impacted quarter from Covid for the gene was business, primarily and the senior business. Excluding our estimates of last year's Covid impact the business still grew an impressive 26%.
Growth was driven by mgs and synthesis as well as strength and Sanger and our other services business.
Excluding the alliance revenue stream sample repository solutions also reported strong growth of 21% year over year.
The growth was primarily due to the sample storage and logistics.
Moving on to gross margin total of life Sciences was 50% for the quarter up 540 basis points year over year approximately.
Approximately half of this gross margin is driven by performance improvements and the current business operations and approximately half was driven by the exit of the lower margin alliance contract with <unk> and the fourth quarter of 2020 the.
The life Sciences products business gross margin was 47, 5%, a 300 basis points of improvement year over year, driven primarily by the strength and volume of our consumables and instruments and margin improvement and our automated cryo storage business the.
Life Sciences services business provided 51, and a 5% gross margin and the quarter of 680 basis points year over year, approximately 250 basis points of this improvement was driven by the performance of our current business streams and the remaining 430 basis points driven by the exit of the alliance contract.
And total the Q3 operating margin of 17, 8% expanded 10.7 percentage points over last year's results on.
And the last 12 month basis, adjusted EBITDA margin climbed to 24%.
And as we look into our fourth quarter of 2021, we expect life sciences revenue to be and the range of $127 million to $137 million. This range supports approximately 17% to 27% growth year over year.
Let's turn to the semiconductor business on slide 6.
Semiconductor solutions revenue of $186 million and the quarter increased 47% compared to the third quarter of 2020 and was up 19% sequentially with strong performance across the portfolio.
Automation products grew 47% year over year precise automation and our new collaborative automation product line acquired in April from a $3 million of this revenue.
Excluding this revenue from precise automation and the segment growth was 43%.
While all areas of the automation product group provided strong growth. The group was led by vacuum automation, including robots and systems with 71% growth year over year.
Revenue in our contamination control solutions business increased to a record $51 million and the quarter and an impressive 46% year over year performance and was up $13 million of 36% sequentially.
The strength and the business was supported with high year over year growth from both of the product sets wafer carrier cleaners and reticle stocker. This.
This business has produced $150 million of revenue on a trailing 12 month basis.
Semiconductor operating margins were 24, 1% up 560 basis points year over year and up 280 basis points sequentially gross margins were strong at 44, 7% of 200 basis points year over year, and up 30 basis points sequentially, driven by leverage and call.
Cost improvement across the all business lines.
The precise automation product line provided modest accretion to the gross margin line with gross margins higher than our average gross margin.
I can also confirm precise automation was accretive to bottom line earnings on a GAAP and non-GAAP basis and the quarter.
The last 12 month metrics on the right shows strong comparative performance and significant profit leverage with 29% topline growth and 70% adjusted EBITDA growth the momentum and the business also becomes clear as you can assess the current quarter run rate exceeded $700 million on an annual basis and <unk>.
<unk> to drive a higher accumulated adjusted EBITDA margin.
As we look toward our fourth and final fiscal quarter of 2021, we expect semiconductor revenue to be and the range of 201% to $211 million.
This guidance reflects another expansion of $15 million to $25 million sequentially and supports year over year growth of 46% to 53%.
Let's turn over to slide 7 for the summary of cash flow for the quarter.
Operating cash flow and the third quarter was $45 million over the past year, we have generated operating cash flow of $175 million capital expenditures for this quarter totaled $9 million, including $2 million per the gene was China building project as.
As an update to the building project. The Covid environment has caused the logistical delays of various times across the past year and of accumulated now to a point to shift our estimated completion date to the first calendar quarter of 2022 and to be transitioned operationally by June of 2022.
Delays will not cause operational disruptions as we have secured appropriate extensions on the current lease sites.
Providing $7 million of dividends back to shareholders and the quarter, we closed with $286 million of total cash, including approximately $50 million of debt and $236 million of net cash.
Let's turn over to slide 8 for a quick view of the balance sheet.
As just noted at the end of the third quarter, we had the $286 million of cash restricted cash and marketable securities we added $83 million of goodwill and intangibles and the quarter driven by M&A. It is notable that inventory increased $27 million and payables $20 million with it.
Like many we have made aggressive moves to secure inventory, where we are foreseeing long lead times or industry shortages. The support our ability to meet the continued growing demand for our products and services our supply chain management has a sharp competitive edge and manage this well for us with a variety of thoughtful actions.
With that stable at $50 million, we finished the quarter with $236 million of net cash.
Let's turn to slide 9 per our guidance on the fourth fiscal quarter of 2021.
Revenue is expected to be in the range of 328 to 348 million for the year to year of growth and the 33, the 41% range.
Semiconductor revenue expected to range between 201% to $211 million and life Sciences revenue is expected to be $127 million to $137 million.
Adjusted EBITDA is anticipated to be $79 million to $89 million non-GAAP earnings per share is expected to be 71% to 81 per share and the GAAP earnings per share is expected to be 50% to 60.
For the full year, we expect capital expenditures of approximately $60 million and our non-GAAP tax rate to be and the range of 20% to 22%.
Finally, as an update we continue to make progress and our work to separate into 2 independent companies all functions and our business are working towards the subjective and all plans are on track to complete the separation by the end of the calendar year as you can see from the performance picture both businesses are performing with high growth.
And have significant profit leverage as the top line progresses, each business will launch with the strong balance sheet affording ample capacity to pursue the additional growth vectors. When we have a more clear line of sight to the separation date, we will announce the investor day the.
This concludes our prepared remarks, I will now turn the call back over to the operator to take your questions.
Thank you so to register a question perhaps of the 1 followed by the 4 on your keypad and you will hear 3 total prompt the acknowledges the request for your question has been answered and you would like the withdraw your registration and press. The 1 followed by the 3 so again for questions. Its 1 of 4.
First question is from David Saxon with Needham. Please go ahead.
Yes, Hi, Stephen Linda and thanks, so much for taking the questions and congrats on the quarter.
I guess I'll start with the life Sciences business.
A question I gave a lot of surround this COVID-19 driven demand.
And particularly in the product category and kind of how quickly and how much debt that tailed off so.
The man, but business feels healthy all of the services all of the other portions of the product line continue to grow and we're really pleased by that and I think you can sense from us a little bit of uncertainty.
Nothing that we can envision but just the fact that we went through that from cue to the queue..3 I think it's good just to be a little bit cautious there, but we anticipated this moment.
Sustaining kind of of the levels that we have right now for the for the consumables and instruments quarter of court.
Okay. That's helpful. And then I guess my my second question is just an Ccs I mean, it's really nice to see see that kind of return to growth I think last quarter, you kind of cold out $45 million.
The so just wondering kind of.
And what's driving that demand and should we kind of expect.
Sequential growth and in that category and thanks, so much for taking the questions sure. So the ccf's business and as healthy as you said we have enough.
Capacity that when customer needs and you just to accelerate something we've been able to we've been able to satisfy that and and at this moment, yes, we anticipate sequential growth.
And the fourth quarter and the Ccs business.
Great. Thank you.
Yep.
So again for questions. It's the 1.4 and your Keypad next question is from Paul Night, with Cuba and capital markets and please go ahead.
And the final calendar quarter completion.
And moving to a first calendar quarter completion, and the move and will occur between then and the month of June and.
I think we're and really solid shape operationally, so we're not concerned about constraints.
And Steve just on the the vaccine contract with the federal government and can you kind of unpack that a little bit more I mean, I know you did some work with cattle and helping Madonna for their vaccine storage and logistics, but maybe.
Maybe a little bit deeper is this the new opportunity for you guys to kind of expand this into also a commercial customer base as well.
Yes. It is.
The different from Covid, certainly unrelated and it's something that had been and motion for quite some time, we have the ability to manage the logistics and the care of vaccines that need to be called and then ultimately get them distribute and this happens to be for reservists.
It's a pretty significant program and will run a long time and.
And it's it's got just the kind of complexity and care that were that were prepared for and we've been geared up for this for quite some time.
Great. Thanks for the time, guys you bet Mike.
Next question is from Patrick Ho with Stifel. Please go ahead.
Alright, Thank you very much.
Okay.
Steve maybe first on the semiconductor side of things.
Based on your results and your outlook it looks like you manage the.
The industry supply constraints very well.
1 maybe if you can just qualitatively give a little more color on the situation for you guys because I'm sure you are experiencing some challenges.
And then maybe secondly, what are you doing on your rents and mitigate the situation as best as possible because during this earnings season, we've seen mixed results in terms of some companies managing it well and some companies.
I guess poorly managing it. So I was just trying to get a little bit of color and your and given the strong results and outlook.
Yes, Thanks Patrick.
So Patrick of few things Theyre always supply issues, even in any environment, but they are particularly acute now as youre aware and everybody in this industry is aware.
Specifically when you have thousands of parts any 1 can hold up.
Our manufacturing line.
I think the team's done a great job and they're geared for it in terms of managing the environment getting out in front of the <unk>.
<unk> that we could anticipate and doing supplier checks about their both their capacity and their capability. We have some that are volume related and some that are related to their ability to operate in the COVID-19 environment, but I think the team has done an exceptional job and ill give you a couple of examples sometimes win.
Facilities not capable to provide the part or a sub assembly. Our teams have gone to quantify additional vendors and this isn't something that happened over the past month has put in over the past quarter. So that we're usually quite of bit out in front of it and.
And we've been we've been conveying large demand to our suppliers for some time now anticipating.
The volume ramp was going to be significant and I think we got that part right and we geared our suppliers up for it on the on the chip shortage of those exist too and as an example, when we talk about the relationship we have with our customers and with our suppliers.
We've had to go to alternate sources of.
Things that ought to be done I think we're managing that really well.
Great. That's really helpful and as my follow up question I apologize I missed some of your initial remarks from the life Sciences business, but given a lot of the the fluidity and the the moving parts right now with the Pope and.
Can you characterize it.
Okay.
All of them you know maybe a couple of near term on Covid related type of business or are some of your traditional kind of research and analysis business coming back both on the products and services side.
Yeah sure Patrick so on the on the services side we.
The this the researchers who moved the focus of our activity towards the Covid continue to use us. So we really believe that the the shift toward COVID-19 toward the true.
Treatment and toward the vaccine and as the researchers to go back to the other activity, we think that business will sustain and we've seen it and the it just and the steady growth of the of the services business and so we feel pretty confident thats the situation.
If you Werent.
On for some of the comments we did have.
A $5 million of reduction in some of the consumables and instruments related to.
Covid.
And the briefing on the consumable side from the from the <unk>.
From Q2 to Q3, and the services business propped it up the rest of the products businesses continued their momentum, but we did take about a $5 million reduction quarter on quarter sequentially as a result of.
The Covid consumables.
Hurting us last year, what was benefiting us this year and those are the 2 primary we had other puts and takes of someone referenced we are doing some vaccine management, but those are more modest impacts around the business edges, but the most severe was the lack of some of the academics and and customers and place last year at this.
Time, and then this year the positives on the product site.
So those are the 2 biggest normalizing factors.
Great. Thank you very much again.
But.
Next question is from Jacob Johnson with Stephens that line is open.
Hey, thanks.
And just to start off and the sticking with kind of the COVID-19 the questioning Linda on the hunt.
Third and $27 million to $137 million of life Sciences revenue as you're guiding to and the fourth quarter should we expect the composition of force the fourth quarter. The kind of look like the third quarter of meaning strength and gene was and Srs and maybe.
Weaker life Sciences products.
The revenues and in the fourth quarter and if you can or want to can you just talk about kind of the COVID-19 assumptions that are embedded in the fourth quarter guidance.
Yeah, and and not the tend to be down on the line by line guidance here, but I'll give you the color.
We see momentum on both products and services that could support expansion of <unk>.
Both products and services at the.
The midpoint and up to the upper end and in but and the down on the downside.
And if we're not expanding and and I.
I want to emphasize the midpoint showing expansion sequentially and significant growth year over year right and.
And the entire range, but.
But if we're at the lower and it just it probably accounts for a little bit of softness and the consumables again, we're uncertain on that and I keep a little.
Cushing and there because as everybody recognizes certain geographies are facing COVID-19 spikes currently and the and sometimes that constrains us from accomplishing certain projects with customer installs and things, but but both products as well as services has the potential to be expanding.
The sequential basis and that that's connected to the demand that we expect it for enough fulfilling and and this quarter, we're fulfilling and eventually so so its strength for us.
Got it Super helpful. Thanks for that and.
And then.
For Steve or for Linda.
Just on the Srs side.
You had a large pharma win earlier this year. It sounds like you had a couple of more wins this quarter and when you think about the growth of the U S.
<unk> business is it being driven more by growing samples under management.
And you also finding ways to kind of increase your revenue per sample I guess thinking about things like the synergies with genius.
Yes, right now gigabits, both so mostly what you see right now is mostly samples under management of getting them registered and.
And increasing the size of the collection, but at the same time the synergies are beginning to develop but its still small compared to the growth and the samples, but the right kinds of initiatives are in place and I think the sales teams and the customers are really beginning to understand it but it's modest yet but they are the right things are happening.
Got it thanks for the C. Thanks for taking the questions.
Patrick.
Next question is from Amanda <unk> with Citi. Please go ahead.
Hi, good afternoon, and the first question I had the.
And the non Covid related business with your consumable and instrument companies and you mentioned.
You mentioned that some of your COVID-19 related customers have been purchasing more even though the supply chain of loosening up are they starting to purchase non COVID-19 related products or is it still really just and that COVID-19 footprint.
Yes.
1 of the colors that we added to this as we added 50 customers and the quarter.
And the consumable space and we also.
Continue to.
And deliver to some of those customers on other.
<unk> the site from Covid. So when there is supply shortfalls youre able to delight some customers with supply.
And they get the they get the first experience with you and they like it. So we do have retention efforts with those customers.
And what we do see is some of the Covid demand itself has come down but I mean.
Let me address your question, but the but we're seeing are our opportunity is here and now and ability to meet these demands and the reliable supplier, but I think we've done a good job with that and we see opportunities.
Present themselves and then and this is Steve I'll put 1 more thing on top of the.
The thing we are seeing is that as we mentioned the lines become more automated the instruments the.
The automation of instruments are staying at a relatively elevated level compared to where we were pre COVID-19. So even if some of the consumables are down when lines are being constructed for any of lab work it seems that the.
Instruments business continues to stay at a very healthy level.
Great. Thank you and then just on the semiconductor side can you just talk a little bit.
Total of finer point on sort of the supply side of things how are you.
Able to ship to total demand at this point are you seeing any issues and meeting demand and more.
Any changes there and the dynamics on the demand side.
Right now we're meeting all of the customer demand and we're in regular conversations because they want to know are we able to satisfy so I won't tell you that it's the man and I won't tell you that it's easy it's been quite a ramp but we've been way ahead of the hiring and training.
Manage the supply base.
I think particularly well.
We had.
We had more free flowing.
The parts, we could probably can.
To build a little bit more of a right now we're on a really good path satisfying customers.
And it hasnt been easy for sure, but we think we of the supply chain managed really well and certainly we have the capacity to meet the ramp that's coming and were trained and ready and facilities have been rearranged and.
And.
We continue to see really strong demand and we believe we are prepared to meet it.
Thank you.
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Yes.