Azenta, Inc. (AZTA) Q1 2008 Earnings Report, Transcript and Summary

Good afternoon and welcome to the Brooks Automation earnings conference. Please be aware that today’s conference is being recorded and a dial in replay will be available starting at 7:30 pm Eastern Standard Time this evening. At this time I’d like to turn the call over to your speaker today, Mike McCarthy, Director of Investor Relations at Brooks Automation. Please proceed, Mr. McCarthy.

Thank you, Jason, and good afternoon, everyone. My name is Mike McCarthy, Director of Investor Relations and Corporate Communications for Brooks Automation. I’d like to welcome each of you who are joining us to discuss our fiscal 2008 first quarter earnings results. The press release was issued at about 4:00 pm Eastern time and is available on our website, as our copies of slides used as background for the call this afternoon. The URL is www.brooks.com. Before we begin, I’d like to remind all participants that during the course of this call we will be making some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. There are a number of important factors that could cause actual results or events to differ materially from those indicated by such forward-looking statements. I refer you to the section of our earnings release entitled “Safe Harbor Statement” in the company’s most recent filings with the SEC including our 10-Q which was filed simultaneously with our issuing the press release this afternoon. This call will remain archives for instant replay on our website until we report fiscal 2008’s second quarter results in mid-May. Robert Lepofsky, our CEO, will open the call with some brief comments about the company’s performance and strategic positioning. He’ll be followed by Martin Headley, the company’s Chief Financial Officer, who will provide a more detailed overview of our first quarter results, after which he’ll turn the call back to Bob for a brief summary. He’ll then moderate the Q&A. I’ll now turn the call over to Bob.

Thank you, Michael and good day, ladies and gentlemen. We appreciate you joining us this afternoon to review our first fiscal quarter results and to give us an opportunity to comment on our expectations for Brooks in the second fiscal quarter and beyond. As Michael noted, with me today is Martin Headley, our new Chief Financial Officer. As previously announced, Martin joined us just two weeks ago and I must say that I think we have hired exactly the right person with exactly the right skills and experience at exactly the right time in the evolution of Brooks. Having a person like Martin joint us enhances the depth and breadth of our management team and in my opinion significantly improves the probability that we will achieve the aggressive goals we have for improved near term performance and for the development and successful implementation of the longer term growth plans we have for the company. Combined with the management restructuring that we announced at the end of December, I can say that we now have a strong senior leadership team that is focused, aligned, and totally committed to the success of this company. Now before I turn the call over to Martin to speak about our numbers, I would like to take a few minutes to comment on my first 100 days at Brooks. In our last conference call back in November, I said that the challenge ahead was to translate the potential of Brooks into a source of highly valued products and services for our customers, a source of challenge and growth opportunities for our employees, and a source of real growth in shareholder value quarter by quarter in the years ahead, and that remains the central theme of all of our work. I also said that there was a shared sense of urgency inside Brooks, that the Board and the management was, in a word, impatient to move forward, to seek progress, and to turn the potential into performance. I promised a pattern of action that would demonstrate our commitment to be thoughtful but deliberate and that we would act with a sense of urgency that moves us along a value-creating growth pattern. I also said that we had begun to re-order some priorities and reconsider others, that we were challenging our people to define where we could go, and at the time we were just launching a number of elements of a planning effort that would lay out a clear path forward with initial report due to our Board at their meeting in February which took place last Friday. We began to focus on ways to simplify our structure while leveraging the breadth of the Brooks platform. We set out to enhance accountability and begin creating a results-driven culture where aggressive but achievable goals will become the norm. Today I can tell you I am pleased with our progress. We have completed a comprehensive review of our current operations and have a clearer sense for our opportunities and our challenges. We are well along in the process of having simplified our organization while enhancing the accountability of our managers, and we are now in the process of taking specific actions to reduce our break even point and position Brooks for predictable and sustainable profitability going forward. To that end, we will be reducing the size of our global workforce by about 5% by the 1st of March, alone representing an annual cost savings in the range of $12 million to $15 million. We have also identified the potential that will accrue from additional reductions that will be made throughout the balance of the calendar year as we continue to transition to new and more effective ways of working inside Brooks. Looking back, I was not prepared at the time of our November conference for the level of uncertainty that our customers, both chip makers and equipment suppliers, would face as we wintered the new year. That uncertainty translated into reality in late December with delivery pushouts and order release delays that directly impacted our performance last quarter and may well do the same this quarter. The very responsiveness that allows our extended factory strategy to be so highly valued by major OEM accounts results in Brooks feeling the impact of demand shifts earlier than some other suppliers. Certainly our experience in the December ended quarter now tempers our own view of the current quarter. With that said, our depressed performance in the last quarter and potentially in this quarter as well only confirms that our near term course of action aimed at quickly and materially lowering our break even point is right on the mark. Against that backdrop, let me turn the call over to Martin who will review our performance last quarter and give you some insight into our current view of this quarter.

Thank you very much, Bob, and good afternoon to everybody on our call. It’s a great pleasure for me to be a part of this new management team as we develop and drive through the actions to solidify our base at Brooks and then leverage that base. Given I am finishing up my 11th day at Brooks, my comments will be necessarily fairly brief. Our financial overview of the fiscal 2008 first quarter results will commence with a summary of the comparative profit performance in the quarter. As Bob has previously explained, we saw revenue declines with difficult market conditions. Revenues were $147.8 million as compared to $166.5 million and the sequentially prior quarter of near peak revenues of $191.4 million in the first fiscal quarter of 2007. Despite the sequential revenue decline of $18.7 million, gross margin fall off was held to $1.5 million. In part this was a result of the voidance of $3.4 million of one-time warranty and inventory charges previously disclosed for the fiscal fourth quarter of 2007. Research and development investment continues on a stream of projects and our continuing selling, general, and administrative expense run rate includes significant expenses to rough up option related issues. I’ve joined Bob and our team in an intensive review of the SG&A practices and cost structures to identify effective reductions on a go-forward basis. Our operating loss before special charges i.e. before restructuring expenses was $3.3 million as compared to a loss on $1.7 million in the last quarter and profits of $15.6 million in the prior year fiscal quarter. Restructuring charges paid in the quarter related to reducing administrative costs and [chelms] but [un in Europe] through elimination of in country administrative supports in the UK utilizing shared services out of our European headquarters in Germany. Forward-looking actions that Bob previously referred to have appropriately not been accrued in the first quarter. Net interest income increased both sequentially and over the prior year quarter despite commencing the stock buy back program reflecting the cash generation capabilities of the business. Our fiscal year results and us being the late adopter of many new accounting standards. We adoptee FIN 48 but described a more rigorous methodology for recognizing income tax uncertainties this quarter. On adopting this accounting standard, we accrued an additional $100,00 of income tax expense in the quarter. Our other income tax expense is mostly alternative minimum tax and interest accrued on those tax uncertainties. Bottom line, our GAAP earnings from continued operations were a loss of $0.02. Turning to the next slide in our segment, Revenues and Gross Profits Summary, sequentially the largest declines in revenues occurred in our Automated Systems group where a $15.3 million decline in revenues produced a $1 million decline in segment gross profits, in part because of high royalty revenues in the current quarter and the voidance of $2.8 million of higher inventory and warranty charges highlighted in our fourth quarter call. The Critical Components group saw sequential declines of $3.1 million with a $0.8 million reduction in gross profits while Global Customer Support group saw a mixed change in the composition of its revenues in favor of service activities. I’ve compared to the prior year first quarter clearly revenue declines have impacts on all three segments at marginal profit rates as the fixed cost base remained comparable for our product group, an increase for our Global Customer Support activities as we extended the foot print to support revenue growth goals. Turning to the next slide on our cash flow performance, our GAAP net loss from continuing operations of $1.4 million turns positive on a cash basis when adding back the $10 million of non-cash items principally depreciation, amortization, and stock based compensation charges. Our cash flow from operations was negative in the quarter from a $1 million payment to close out a previously accrued litigation settlement and from a first quarter only item of variable compensation payments $6 million this year. Capital expenditures were $4.5 million in the quarter, a reasonably good indication of our expected annual run rate. A significant portion of our capital expenditure costs are associated with the Oracle ERP implementation project which is planned to have the first functions go live in the third quarter of this year. Finally we continue to return cash to shareholders by following through on our November 9 announcement of a stock repurchase program. The next slide provides details on our progress to date. Through the end of the today we have settled the purchase of 6.5 million shares with an average price of $12.37 for total cash of $80.4 million. We have authority to buy back up to $200 million over a one year period. We are reviewing this activity closely in concert with the Board of Directors. The pace and extent of repurchases during the forthcoming quarter will be impacted by a number of factors including the market activity and our interpretation of business prospects. Turning to the next slide, we’re certainly within our customer base and the evolving nature of our own plans does create a relatively cloudy picture for the quarter. We can construct scenarios that would give earnings from continuing operations of between break even and a loss of $0.10. This guidance is predicated on revenues of between $135 million and $150 million and excludes those restructuring costs that will flow from the actions outlined earlier in our call. Our guidance does not include the charge for intangible asset amortization which is anticipated to be about $4 million. With that, I’ll turn the call back to you, Bob.

Thank you, Martin. Looking beyond the numbers, we really have been making discernible progress day by day. We have been scoring important design in wins with key customers in every segment of our business. We have sharpened the focus of our new product development and introduction plans. In the quarter we acquired some new technology, moved along beta demonstrations with increasing customer collaborations, and continued to transition customers to our newer platforms and importantly, customers have already confirmed that our renewed focus on customer responsiveness is having the desired positive impact. Brooks has an impressive platform, well positioned for significant future growth. Our core robotic expertise, our product portfolio in the vacuum technology space, our global customer support activity, and our unique extended factory manufacturing capabilities are all aligned with the changing and evolving needs of the semiconductor capital equipment market. While our principal focus is on the global semiconductor manufacturing equipment sector, we are frequently asked about our activities in adjacent markets. We do participate in the flat panel manufacturing sector through component sales to select OEM accounts and through our joint venture activities in both Korea and Japan. In the solar arena, we are a supplier of critical components and are evaluating a number of emerging situations that might accelerate our activity in this sector in the future. Let me be clear in closing, we are not pleased with our current financial performance, but I am very pleased with the broad commitment to change and the pace that change is being implemented at Brooks. As I said last quarter, while our revenues are currently depressed, and the external challenges continue, we are managing the business we have, pursuing new opportunities for cost reduction, developing new business, and leveraging R&D investments. We continue to have those critically important design in wins and our expanding our current business relationships with major OEMs. Those initiatives combined with our immediate focus on achieving profitability at lower revenue run rates position us well for materially improved performance once we get through this current quarter. In closing, let me assure you that while our efforts would be easier working against a back drop of a stronger market, we are on track in implementing our three step plan. First, taking the steps necessary to simplify our organization and business processes, enhance our customer responsiveness, and improve our financial performance. Second, focusing resources on initiatives that will harness the potential anticipated from the investments we have made over the past couple of years from the synergies that have yet to be fully realized from acquisitions to the increased revenues in profits expected from new product development programs. Third, as we demonstrate our ability to deliver on these commitments, bringing forward initiatives to expand the breadth and scope of Brooks to further leverage the strong base we are in the process of building today. With that perspective, Operator, we would now like to open the lines for questions.

Thank you. The question and answer session will be conducted electronically. (Operator Instructions) We’ll proceed in the order that you signal us and we’ll take as many questions as time permits. We’ll pause just one moment to give everyone an opportunity to signal for questions. We’ll take our first question from Satya Kumar with Credit Suisse.

Thanks for taking my question, Bob. Can you give us a sense of what the inventory levels of Brooks products that your customer is manufacturing [inaudible] at this time?

Actually fairly low and again, we have to look at that in two dimensions. First in our Critical Components area principally the CTI cryopump products, those have extremely short cycle times and therefore customers tend not to have virtually any inventory. In our Automation products, and again this was the reference I was making to year end, we act as truly an extended factory for our customers where the front ends, the [efroms], the robotic and automation systems, are literally configured very late in the cycle and are subject to literally last minute changes be that for designation to a particular customer by a given OEM or a stretch out or a pull in. So they don’t have inventory of product but we have work in process on the floor and that gives us this end of quarter uncertainty that we saw in the December ended quarter.

Okay, that’s helpful. Switching gears to margins a little bit, a couple of things there. Some of your OEM customers have talked a little bit more than normal about seeing pricing pressures in their business. Can you elaborate on how pricing trends are for you guys and is the margin declines that we have seen purely a function of mix and volume and not much to do with pricing, and the follow up to that also, if you can quantify, it appears that your breakeven right now is about $150 million. How much lower do you think you can take it to by the end of this year?

I’ll take the first part and let Martin take the second part. The pricing pressure issue, you’re absolutely right, our dynamic in the last quarter was mix and volume as opposed to pricing pressure. The overall pressure that remains on us particularly relative to the component level by OEMs is always substantial and we certainly do not see any loosening of that demand. In our Automation Systems group, there the pricing issues again are always intense but the metrics are very much about in-house, out-house decisions in terms of where automation takes place and it is about performance at given price points. So we actually in a portion of our Automation products, may be the higher priced alternative but that’s weighed heavily against performance. Martin, do you want to comment about break even point?

I think in terms of our break even goals, when we’ve got through the processes we’re in the midst of now and not just what we’re referring to doing by March 1, but some of our goals for further on in the year, we would hope our break even is between $130 million and $135 million a quarter at that juncture.

That’s helpful. Thank you.

Thank you. We’ll take our next question from Jenny Yu with JP Morgan.

Hi. That putout you were just talking about, will that shift in this current quarter and maybe you could tell us the size and where it was being shipped to for an end customer, maybe geography or something like that?

Yes, it does shift one quarter to the next, but one should not get too encouraged by that. A shift from the December ended quarter into the March quarter is the good news, the question then becomes what happens for the shift from the March quarter into the June quarter, and as you well can imagine, in the current environment, the shifts are very substantial. We actually took a look at two very important customers and what the dynamic was in terms of sequential quarter performance and there is no consistency customer by customer, meaning for our OEMs, in terms of those patterns of either shipments or shifts, and again it is very, very dynamic, so what I’m suggesting to you is that we’ll report the facts to you which is in the December quarter we saw a substantial late in quarter shifts and those shifts did go from last quarter into this quarter, however, and this is part of the wide range of possible outcomes that Martin referred to in our guidance, it is still at this point of this quarter unclear how that will play out for the balance of this quarter.

Okay great, then also one more question. In your flat panel I thought that last quarter you had said or Bob Woodward, the former CFO, had said that Brooks had exited flat panel. So are you still in it given that you said you supply some components to flat panel? I just wanted to get some clarity on that.

No, you’re absolutely right, and Bob’s comment that we exited flat panel is in reference to our major automation products for the flat panel market, which those of you who have followed Brooks for some time know that that was an important part of Brooks a couple of years ago but also a painful part of Brooks’ automation products area in terms of the rapid build up, low margins, and then the subsequent collapse. What I was referring to was the fact that we continue to participate at the Critical Component level, number one, and as you know, particularly in our vacuum systems one of our joint venture partners is Ovac Corporation who is a major player in flat panel, so we have Critical Components that go to the flat panel manufacturing side. We participate as well through the joint venture but in the automation products we are out of that business at present.

Okay, great. Thank you.

We’ll take our next question from CJ Muse with Lehman Brothers. Go ahead, please.

Yeah, thank you for taking my question. I guess first question here is, when you look out to the next quarter, can you talk a little bit about what kind of mix you anticipate across the three different segments, whether we should see any shifts there and what impact that might have on gross margins?

I think the view on mix is that it will not be as significant. Hopefully the impacts of our cost reduction matters will reduce the fix costs, so we will be looking to see that balance of taking down the fixed cost be a more important impact on our gross margins than we would our total mix factor.

And on the top line, I think that again the biggest variability is in the automated systems group for all the reasons that I just commented on vis a vi the extended factory. So I think you could expect to see some relative stability in the Critical Components area and our global customer support is about being more selective about what business we take and that again will affect the top line and the bottom line.

Okay and then I guess specific to mix around service you talked about a greater percentage of service there rather than spares I guess. Do you see that continuing in this type of environment where [inaudible] your customers are so focused on cost or can that gross margin track back up to the low 20s in the March quarter?

The improvement of our gross margin in the global customer service area is a high priority, one of the areas that we are looking at very closely in our right sizing and simplification operation and review.

Okay, and then a question for you on new products. If the current environment persists, what kind of revenue target could you imagine for that line item, call it three to four quarters from now?

Could you repeat your question one more time? I’m sorry, CJ/

Yeah, I’m sorry. If the current environment persists, what kind of revenues could you imagine seeing three to four quarters from now from your new product line category?

That sounds like an easy question but it’s actually a tough one because the bad news is obviously a continued difficult external marketplace continues to push our total revenues down and delays new tool introductions. That said, we also during periods that things are down see that the outsourcing trend actually would increase and new products for us are an important part of the outsourcing story. There’s what we have historically referred to as the CDA portion, that portion which is essentially extended factory contract manufacturing, which people will make decisions based on their own internal needs versus our capability and then the ability for our value added solutions where people are moving to our newer generation particularly again automation products. That’s one that in the depressed market gives people more time to get through qualification and make those commitments to those new products. I know I’m giving you somewhat of a circular answer but it is a very difficult picture to model in terms of the various behavior patterns of OEMs against different external market conditions.

That was helpful. Thank you.

Thank you. We’ll take our next question from Timothy Arcuri with Citi.

Hi, a couple things. First of all, I guess I’m curious why you wouldn’t pre-announce the results. I believe you missed the guidance and I’m wondering what was the decision around not pre-announcing?

I think that there’s really a couple of things there. Again, if you take the timing issues, I said that the actual results that we were seeing were a result of very late in December activities in the putout area, step ones, so by the time one begins to close books, scrub numbers, we start to get very close to the first week in February, which is reviewing the numbers internally and in concert with this call.

Okay, then I guess second question is given that it seems like for the last couple weeks at least you’ve known that the results were light of expectations and it looks like in the press release you said that you’ve been buying back stock in the interim, and I’m wondering why you’d buy back stock if you knew that the results were going to miss your guidance.

I think the stock program at that time was under a 10-B-5 program and that particular program would have required a complete stop to the program which we were in the process of reviewing the results and the implications thereof as well as our forward-looking plans which not just this quarter’s results, but what is our outlook going forward and we determined that it wasn’t necessary to do so.

Okay, so I guess you’re saying that you weren’t aware of the results until recently and so that’s why you were buying back the stock? Is that what you’re saying?

No, I’m saying that just the quarterly result is not the only factor that determines whether or not you go through the... This was not a positive decision to buy back stock at that stage. You are in a locked in program to be buying back during such a blackout period, a 10-B-5-1 program and we were taking other factors into account including our longer term expectations for the stock.

Do you have any plans to alter the way you buy back stock and maybe be a little more opportunistic and not so systematic?

Absolutely and that’s what my remarks earlier in the prepared remarks made reference to. We’re clearly going to at this juncture be considering both market conditions as well as our own business performance and business expectations as we go along. We’ve been doing that all along and you certainly do outside of that lock in window.

Great, thanks and then last thing for me, what was the bookings number for the quarter? Thanks.

The bookings number for the quarter was relatively... did we not... I’ll have to get back to you on that one.

Thank you, and we’ll take our next question from Hari Chandra with Deutsche Bank. Go ahead, please

Thank you. Can you elaborate about your long term growth plans and that you talk about? Are they going to come from acquisitions, new segments, and new products, and if so, what is the time line to that?

As I noted, we have a three step process and the first step obviously is the immediacy of getting our house in order and getting our break even down and our profitability up. That second step which is a step that is already begun I think will clearly be focus of efforts for the nearer term and you could call that through the balance of this year is harnessing the payoffs from investments we’ve made over the last two years. I think with those two pieces in place and a demonstrated track behind us, we’ll be then willing to talk about expanding the scope of the business through external development. One of the elements of our planning process over the last couple of months was to re-look and be comfortable at the growth prospects within the businesses that we have and we continue to believe that those growth prospects are in fact quite substantial so for us it is about both priorities, focus, and ordering that sets the time table.

How does the growth plan you talked about tie into the share repurchases that have happened in the last six months? You talk about outlook being clouded and things shifting away yet your repurchases seems to be going forward continuously at higher prices than where the stock prices are currently coming through. It happened in the last quarter, you purchased at $18 plus and stocks came down to $12, then you purchased at $12, now stock is coming somewhere around $10.40 or $10.50. So is there a method to the madness to does it just like we need to buy it because we have cash?

Let me separate the two buy backs. First of all the first buy back I think we have communicated was essentially the distribution of proceeds from the sale of our software business and the timing was associated with that transaction at the beginning of the year. In October we had completed an analysis to define what were the cash requirements of this company and what was the cash that we believed was in excess of the needs of the company and we went through numerous scenarios and those scenarios were both scenarios on the upside and downside of the core business as well as acquisition scenarios. The conclusion of that analysis was that we had our estimate was as much as $200 million in excess of the business needs to implement our forward plans. With that analysis in hand which did include both upside and downside scenarios, which did include analysis of business conditions getting bad enough that we would turn to negative cash flow, not our current basically stable and cash generation mode at current levels. We completed that analysis that led to the $200 million authorization and beginning in November we began a, and I certainly wouldn’t characterize it as a go-for-broke but rather a tempered acquisition program acquiring stock beginning in November through December. Did we predict the current market conditions as well as we might have? Absolutely not, but it was not our purpose to try to time our purchases in any given one period. We actually implement the program and take very hard looks in $25 million increments and we went through nominally three of those increments. As Martin said obviously we will continue to evaluate the stock purchase plan against both market conditions, business conditions, and the capital. I should also suggest that we today still have in excess of $200 million of cash in the company and we will manage that prudently.

So you believe the current $200 million plus in cash that you have is enough for running the company and also looking to acquisitions as they come by?

Absolutely.

I appreciate it. Thank you.

To clarify, the cash vies is currently about $150 million.

I’m sorry.

Thank you. We’ll take our next question from Jim Covello with Goldman Sachs. Go ahead, please.

This is Kate [Cuthlorksy] for Jim Cavello. I just had a couple of housekeeping items. First, did you have an amortization charge this quarter, and if so, how did it break out between [cogs] and SG&A?

Just amortization of intangibles?

That’s right. The amortization of intangibles was $4 million as I made reference to in my prepared comments.

And then could you... Typically I believe that’s been split out between SG&A and [cogs]. Would you be able to comment on what the break down was?

I may. $2.3 million in gross margin and the balance in SG&A.

Okay and just on the tax rate for the year, do you have a sense of what we should expect for taxes for 2008 and then 2009?

Certainly for the balance of this year, you should expect nearly nominal taxes that will arise from the kinds of facts I referred to before, alternative minimum tax, a little bit of foreign tax, so it ran us about half a million dollars this quarter, something similar to that on a quarterly basis. Our tax rate in the future will depend upon the turn around of the business and the pace that we should turn around and whether a valuation allowance comes off so it’s very difficult at this juncture to be able to comment on the 2009 actual book tax rate. Our cash tax rates will continue at about that same level of close to about half a million dollars a quarter.

Okay, thank you.

Thank you. We’ll go next to Ben Pang with Caris and Company. Benedict Pang - Caris & Company : Thank you for taking my question. First off, do you still expect that you can get a premium on your growth rate due to outsourcing in 2008?

Yes we do and the question is quantifying that. As I suggested in the answer to the previous question, we thin that the current market conditions and projected difficult market conditions will actually suggest that OEMs will accelerate their outsourcing plans as they tend to manage their own internal operations. Benedict Pang - Caris & Company : Okay and the second question kind of relates to an earlier question that you answered, did you see an equal weakness in your Critical Components as well as tool automation for this past quarter?

There was a greater weakness in the tool automation than there was in the critical components business. Benedict Pang - Caris & Company : Can you help me understand that a little bit? I understand that your critical components were kind of just on time, right, kind of just in time, but did you have a different projection then for the critical versus the tool automation?

Yeah, and again the issue on the tool automation is the share value of a given unit on the tool automation really exacerbates the swings there so the volume of dollars that can swing in the final days of a quarter just make the relative comparisons larger. Benedict Pang - Caris & Company : Okay and final question, if you roll up all of the stuff that you sell to flat panel, can you give a rough idea of the revenue contribution?

I’m sorry, could you say again? I’m sorry to ask you to repeat. Benedict Pang - Caris & Company : For your flat panel products, if you combine everything that you would sell into the flat panel industry, what is the revenue contribution that you expect for 2008?

All in and again some of it is in our own revenues, some of it flows through joint ventures, but it’s certainly significantly less than 10%. Benedict Pang - Caris & Company : Thank you very much.

Thank you. We’ll take our next question from Tim Summers with Stanford Group Company. Go ahead, please.

Thanks for taking my question. Bob, if you think back two or three quarters, the prior management team was suggesting that Brooks was taking shares from some large OEMs and therefore that could cause Brooks’ growth going forward to be a little bit better than its peers and it looks like over the last two quarters you were kind of trolling along the bottom end of what your peers are doing and I’m wondering has anything changed in terms of Brooks’ ability to gain market share or to hold market share?

I’ll only be able to comment on the last part of your question. Has something changed in terms of our ability to gain market share, and I think there the answer is no, as a matter of act, we are gaining market share across all of the product lines.

Okay and if I can follow up, your guidance of $135 million to $150 million you said was a function of market demand plus the evolving nature of your plan. What does the evolving nature of your plan --

That referred to the profit element of our guidance range for the next quarter in terms of the timing and exact nature of implementation of various restructuring actions that we take and how much will fall into the quarter.

That doesn’t necessarily refer to you perhaps discontinuing certain products or things of that nature?

That’s correct.

Okay, thank you.

Thank you. We’ll take our next question from Dave Duley with Merriman. Go ahead, please

Just a couple of housekeeping questions. Do you have any 10% customers in the quarter and what percentage were they?

Unfortunately we’ll have to get back to you. We don’t have that data in front of us here today. My apologies.

Okay, and what did you say the cash flow fro operations was in the current quarter? I think you said it was a loss but could you just review that for us again?

The cash flow used in operations was $6.1 million during the quarter and that was driven significantly by a $1 million settlement of a previously accrued legal action and about $6 million of variable compensation payments that we only have in the first quarter of the year.

Those are compensation payments related to the prior year that actually are paid out in the first quarter.

Okay, just two other kind of clarification things from me. One, could you give us what the deferred tax asset balance is, and the other thing is, in your prepared comments you referred to the avoidance of warranty and some other costs. I was trying to figure out, if you could just review the impact in the current quarter and will there be impact going forward from that warranty issue that you were referring to? Martin S. Headley I’m referring to $3.4 million of exceptional warranty and inventory of select charges that were called out on the fourth quarter call as being exceptional to the fourth quarter of FY ’07. Those relate to issues that are behind us. In terms of your first question, we have no deferred tax assets or liabilities given that we have a valuation allowance because of our carry forward tax losses.

That’s an off balance sheet item, you know, isn’t there a number, like you won’t be paying taxes for the next 20 years? I’m just trying to figure out what the dollar number is.

That’s not something I have to hand them at this juncture.

Okay, thanks.

Thank you. We’ll go next to Patrick Ho with Stifel Nicolaus. Go ahead, please.

Thanks a lot. Given what you’ve talked about in terms of reducing your cost structure, you’re also developing new businesses and you’re trying to leverage your R&D? How does this goal get rationalized in these cost cutting efforts or are there major strategic reassessments that you’re going to take over the next few quarters?

I think that as I had commented in the previous call and we’ve discussed along the way that we think that it was obvious to us that one of the opportunities for profit improvement was the simplification of the way we do business. Brooks over the past several years has become somewhat complex and cumbersome in its infrastructure and so the roughly $12 million to $15 million of head count reduction that we are talking about taking as of March 1st really is a result of how we have chosen to do business. It does not relate to changing strategic direction, it does not relate to cutting back on programs. An example of one of the moves that we made that we’ve already announced was the consolidation of our automated systems activity into a single group, the automated systems group. Previously that had been two separate and distinct operations. There are some synergies by bringing those two groups together. Another area has been how our global customer support activities have been structured and operating with a very large Massachusetts based central organization. We’ve now restructured our customer facing operations, including our global support activities, under a single leadership in a closer to customer regional aspect and that will again result in simplifying our organization, improving our responsiveness, and significantly saving us dollars.

Okay, so just to make it clear from my end, I know you’ve been at the company for only about 5 months or so, and a lot of these changes occurred before you got there. Those strategic initiatives are ones that you support, it’s how you do business internally that you’re trying to correct?

That’s correct and as I said in our three step program, the first part is to improve our performance profitability and responsiveness. The second element is to actually harness the latent capability in those investments that had been made over the last two years of which shareholders, customers, and employees have yet to see much of the benefit.

Great and then a final question for me. When you commented about your global customer segment, you said something about being more selective. Will there be a change in how you deal with your customers? Will you “walk away” from business at the expense of revenues if it doesn’t fit your profitability model?

Well again I think there the point that I have discussed relative to our global customer support activity the principal measure of performance in our global customer support business was a mandate to increase revenues and to increase revenues substantially. We think that that is not the appropriate principal mandate but rather to increase profitable revenues and therefore we will be selective and this deals principally with the Asian marketplace which people in this sector know is a much more difficult marketplace. It has substantial opportunity but it’s also one that one needs to be careful particularly relative to service agreements and people on site. We want to leverage the successful parts of our model which deals with proactive and relationships as opposed to transactional activities that are solely dollar based.

Great, thank you.

Thank you. We’ll take our next question from CJ Muse with Lehman Brothers. Go ahead please.

Yeah, I was hoping to clarify one thing. In terms of your EPS guide for March, does that include or exclude the roughly $4 million of amortization?

That guidance has that charge applied against the guidance number.

So it’s included.

Yes.

Okay and then what share assumption are you making for that EPS guide?

We’re making the assumption that the share count is roughly equivalent to what we have currently as the outstanding with the disclosed buy back through today.

And where is that please?

That is approximately on a weighted average basis is going to be something of the order of $65.5 million.

Okay and then final question for me, your long term securities bumped up a bit and I guess my question is did you give any credit issues there where you moved short term securities to long term securities?

No. We have not credit issues. We as we always do and in conjunction with our Board take a detailed review of the risk profile of our securities and we feel very comfortable about the caliber of those securities.

Great, thank you.

Thank you. We’ll go next to David Nierenberg with Nierenberg Investment Management. Go ahead, please.

Thank you. Earlier in the call, gentlemen, you had a questioner asking you about how much cash you would have net of your share repurchases and I just wanted to remind everyone on the call now that you’ve already filed your 10-Q for the first fiscal quarter that according to that Q the company still owns $4.678 million worth of unencumbered real estate in addition to all of the cash and investments on the balance sheet and I don’t think anybody should lose sight of the fact that that also is an asset which could be monetized as many other companies have done so. The second thing I’d like to do is ask Bob Lepofsky, if he could please update us about the progress of the company’s joint venture in Japan in the robotics business.

Yes, thank you David. My apologies for not commenting earlier on that. The Yaskawa Brooks joint venture again is part of that stage 2 that I referred to of leveraging and capitalizing on investments made. YBA made substantial progress in the last quarter. We are quite pleased with both the operation and the cooperation between what were two former competitors in the marketplace. We are bringing capabilities to each other, Brooks to Yaskawa and Yaskawa to Brooks and most importantly and to the point, we are seeing doors opened that had historically been closed. I did make reference without detail to design in wins and activities with customers and some of those would not have taken place had we not had the YBA joint venture in place, so we are quite pleased with the progress. That said, the only note of caution is realize that that is focused on the Japanese market and that does take time to move from having it work right to having doors open to having a material impact on the top and bottom lines.

Thank you Bob.

Thank you. We’ll take our next question from Darice Lie with Maxim Group.

Good afternoon, guys. Just some housekeeping questions. Martin, as we’re modeling the March quarter, is approximately 22% what we should be assuming for gross margins, and how should we model the impact of your cost initiatives in OpEx going forward and will that be slightly offset by increased efforts for your new product initiatives?

If I first take the gross margins, I think we would hope that our gross margins would not decline significantly from where we have seen them. That will be dependent upon the pace with which we get our final actions in place during the course of the quarter so there’s a degree of uncertainty. In terms of our spending on operating expenses, our R&D should not escalate. We have a lot of projects going but we’ve had this at this peak level for a few quarters here and there should then be the opportunity as I say which we haven’t got precisely framed at the moment to make an impact on the level of our SG&A spending going forward.

And part of what we’re -- and we know we make your life difficult to model with our less-than-precise answers to these kinds of questions -- but we do have a lot of moving parts. One of the things that will be happening is that a number of programs that had been R&D programs are moving into pre-production and now production. So the actual number in the R&D line may vary a bit. There is also the issue of some real focus on leveraged R&D programs. I think we have a good portfolio of what is coming out of beta what is going into the factory, and what is shipping to customers, but at this point, it’s a little difficult to give you clarity. I think you’ll start to see that in next quarter and the following quarter, the sorting out and the leveling that deals with both the cost reductions, some of which do impact engineering activities, but as a result of focus as opposed to terminating programs.

Maybe I’ll ask my first question in a different way. As you’re modeling out for the March quarter of $135 million to $150 million revenue, and break even to a loss of $0.10, what should the assumption range for gross margins be and what should the assumption of the OpEx range be?

I would say continue the operating expense at the same dollar level and basically the difference forces through your gross margin level.

So basically 22% to 24%.

Towards the higher end of that range, yes.

And then Martin do you have that bookings and backlog number and were there any cancellations in backlog?

There were no cancellations in backlog. The backlog number is filed in the Q. Basically our backlog went to $106 million from $112.6 million so basically that meant that our bookings were basically $5 million less than our revenues of $147.8 million. So $142.6 million.

Thank you very much.

Thank you. That concludes today’s question and answer session. I would now like to turn it back over to the speakers on today’s call for any additional or closing remarks.

Thank you, operator. In closing we just want to thank all the participants for joining us today and we appreciate your continued interest in Brooks. Thank you very much.

This concludes today's’ teleconference. You may now disconnect and have a good day.