Azenta, Inc. (AZTA) Q1 2015 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Brooks Automation First Quarter Financial Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this call is being recorded Thursday, February 5, 2015. I would now like to turn the conference over to Lindon Robertson, Executive Vice President and Chief Financial Officer. Please go ahead.

Thank you Grant, and good afternoon everyone. We would like to welcome each of you to the first quarter financial results conference call for Brooks’ fiscal year 2015. We will be covering the results of the first quarter ended on December 31st, and then we’ll provide an outlook for the second fiscal quarter ending March 31st of this year. The press release was issued after the close of the markets today and is available at our Investor Relations page of our website, www.brooks.com as are the illustrated PowerPoint slides that will be used during the prepared comments during today’s call. I would like to remind everybody that during the course of the call, we will be making a number of forward-looking statements within the meaning of the Private Litigation Securities Act of 1995. There are many factors that may cause actual financial results or other events to differ from those identified in such forward-looking statements. I would refer you to the section of our earnings release titled Safe Harbor statement, the Safe Harbor slide and the aforementioned PowerPoint presentation on our website and our various filings with the SEC, including the Form 10-K for the fourth quarter ended September 30, 2014. We make no obligation to update these statements, should future financial data or events occur that differ from forward-looking statements presented today. I would also like to note that we may make reference to a number of non-GAAP financial measures, which are used to in addition to and in conjunction with results presented in accordance with GAAP. We believe that these non-GAAP measures provide an additional way of viewing aspects of our operations and performance, but when considered with GAAP financial results and the reconciliation of GAAP measures, they provide even more complete understanding of the Brooks business. Non-GAAP measures should not be relied upon to the exclusion of the GAAP measures. On the call with me today is our Chief Executive Officer, Steve Schwartz. We will open with his remarks on the business environment and our first quarter highlights. Then we’ll provide an overview of the first quarter financial results and a summary of our financial outlook for the quarter ended March 31st, which is our second quarter of the fiscal year 2015. We will then take your questions and during these prepared remarks, we will from time to time make reference to slides I mentioned available to everyone on the Investor Relations page of our Brooks’ website. So with that, I would like to turn the call over now to our CEO, Mr. Steve Schwartz.

Thank you, Lindon. Good afternoon everyone and thank you for joining our call. We’re glad to have the opportunity to report the results of the first quarter of our fiscal year 2015. Today I’ll briefly cover some our key accomplishments and results for the quarter and then give some specifics about our next actions and outlook. In the December quarter, we continued to advance on all market and product fronts. We gained more market share in important growth segments and we’re particularly pleased that our two most recent acquisitions delivered strong above planned performance. However, total revenue came in later than our expectations which left earnings at the low end of our guidance. But even with the top-line shortfall, all elements of our business remain intact for a good 2015. Our growth strategy continues to be validated by our customer wins and share gains in important markets. But we do have some hurdles to overcome to be certain that we capitalize on the opportunity that we’ve created. For us, it’s all about execution and delivering on the tremendous potential that exists. We do forecast revenue growth of approximately 8% but we also forecast approximately flat earnings per share while we complete some operational improvement initiatives and important restructuring actions. After that we expect to be back to a more normal drop-through for profit from revenue. I’ll now give some color on the results of the quarter. In the quarter we continue to advance our semiconductor product portfolio and market position. Our BPS products group revenue grew 5% quarter-over-quarter led by front-end semi business which increased by 13% over the September quarter. As the semiconductor business continues to strengthen, we believe that our strong product line-up provides us the opportunity to grow above the overall rates that’s expected for the semiconductor capital equipment. And we forecast double-digit growth in BPS in the March quarter led by our strong position in the semi front-end applications. As we’ve discussed on previous calls, the growth of our vacuum robot franchise continues to outpace the market as we are heavily entrenched on both deposition and Edge product platforms which are exhibiting extremely robust growth as the number of layers and process steps requiring these technologies is growing much faster than other process steps. We had another record quarter for vacuum robots as we filled orders for platforms that we’ve been serving for years, and we saw the start of a meaningful ramp in demand for new platforms that we were designed into over the past eight quarters. Additionally, we continue to be the supplier of choice in this space by winning the vacuum robot on yet another legacy CVD system at the Tier-1 OEM who is replacing another of their captive robot designs with ours. Our first quarter vacuum robot revenue was up 30% compared with the prior quarter and our current build plan for the March quarter is that it will be yet another record quarter for vacuum robots, again driven by the fast growth in deposition and Edge tools and compounded by our recent market share gains of more tool platforms with Tier-1 OEMs. In contrast but consistent with the overall semi-cap related markets, our systems business which includes both vacuum and atmospheric systems was down approximately 5% in the quarter. Our systems business is driven by our Tier-2 OEM customers who serve the front-end semiconductor market as well as the advanced packaging and MEMS device technologies. As you are aware, many of these Tier-2 customers are Korean OEMs whose products mostly serve Korean customers. We forecast that our March and June quarters will increase for both vacuum and atmospheric systems as business begins to pick-up. We do want to note here that it’s becoming difficult for us to make a specific claim as to the exactly size of our advanced packaging business, as it appears that over the last few quarters, some of our Tier-1 OEM customers have begun to take more share in this market. When we ship product to these Tier-1 OEMs we cannot be certain as to whether our systems will be used for front-end or backend tools. As a result we only have clarity for customers who we know make products only for advanced packaging and our sales to these dedicated advanced packaging customers was down in the quarter by almost half. That said, for the same advanced packaging customers, we forecasted our sales would rebound somewhat in the current quarter and the good news is, that in most cases, we are the beneficiaries of the business irrespective of which OEM has won the business. It’s interesting to note that we’re also seeing, a resurgence in 200 mm tool automation and although modest, it will result in a few million dollars of business over the next couple of quarters, most of this would be for wafer fabs in China. We are pleased to report that our new contamination control systems business has performed above our expectations and we continue to make significant advances in this market. CCS revenue was just over $7 million for the quarter up 60% from the September quarter and more importantly delivered positive operating profit on higher gross margin. The CCS business is performing slightly ahead of our plan and we continue to see good growth opportunities especially as capacity is added this year at fabs for 16 nanometer and smaller technology nodes. In our cryogenic vacuum space, business was flat in the quarter as the higher demand for semiconductor front end business for cryopumps was offset by a seasonally lower quarter for our Polycold products. The semiconductor cryopump business was up 23% led by shipments for ion implantation and PVD tools which are by far the highest users of cryopumps. In contrast, the Polycold business is up by 35% quarter-over-quarter, which is consistent with our results for December quarters over the past several years and very much aligned to the cyclical pattern of this business. It’s also important to note that the December quarter was a particularly high cost quarter for the Polycold business as we completed the transition of all manufacturing from our facility in Petaluma, California, to our outsource contract manufacturer in Malaysia. The factory in California is now closed. However in the quarter, we carried the costs of both manufacturing entities but with production only coming from the new factory. We’ve now incurred the last of the costs for our California operations and the extra approximately $1 million cost that we reported in December will not be a gross margin drag on the business going forward. And we now have the right supply chain for this business. As we look forward, we anticipate further growth in our Cryo-vacuum business in march that will be driven by semiconductor front-end strength and even more growth in the Polycold business as the demand for mobile device coatings continues to drive volume. Now we’ll turn to the Life Science business but I’ll start by summarizing our current position in terms of our long-term trajectory rather than just quarter-to-quarter as we’ll continue to see some variability along the way to steady success. Thus far we’ve been able to demonstrate that we have a unique and unchallenged position in a very exciting growth market. In calendar year 2014, we grew our Life Sciences business by 55% organically. And when we include the December quarter revenue contribution from the FluidX Acquisition we closed on October 1, our revenue growth year-over-year was 64%. We’ve demonstrated that we can develop market leading products to address the large automated cold-store market as we’ve won more than 80% of the opportunities we bid on that only five years ago were contested by eight different automated cold-store companies. The Twinbank architecture has been launched for multiple storage temperatures and is now anchored in a very strong base of customers around the world. Simultaneously we’ve continued to develop other segments of recurring revenue which support our automated stores, like services and consumables. Our Life Sciences services business has continued to grow steady both as we increase the opportunity that comes with our growing installed base but also as we develop additional value adding services. To great effect, we have worked to reach out to significant install base of systems that came to us through acquisitions, to customers who did not always have the type of service support and coverage that they would have been willing to pay for. And in 2014, although our installed base of large automated stores grew by just under 10%, we grew our services revenue by 26% over the same period. Similarly, the December quarter addition of FluidX nearly doubled the consumables and devices revenue compared to our quarterly average over the last two years. And consumables like services, provides a more repeatable and recurring revenue stream. FluidX with their offering for biological sample storage products expands the size of our served market opportunity by almost $200 million, and we intend to gain share in the near-term by expanding our sales organization in North America and Europe. We’re also driving new product offering opportunities by combining FluidX’s skills in the development of biological sample storage containers with our Brooks Automation engineering team to create new products which will give even more advantage to automated storage systems. This will be particularly beneficial for customers who store samples of cryogenic temperatures where new consumable designs were proved to be enabling in terms of sample handling reliability, traceability and sample storage density. Now let’s look at our Life Sciences results for the quarter and outlook for March. In the December quarter, we had a number of puts and takes in this business. And after a couple of softer quarters, bookings rebounded to $19 million. We still have the swings that come from the timing of some rather large projects, but we have a very robust project pipeline that goes out over the next two years with reasonable visibility. That said, revenue and income in Q1 were below where we wanted to be as we spent more to ensure we met all of the deliverables for our large installation at the U.K. Biocentre, the preeminent automated biostorage facility in the world, where we are fulfilling almost 20 million samples worth of automated cold storage capacity. Our performance at the U.K. Biocentre is important in terms of our results for the quarter, and for our future. On the positive side, our systems are performing extremely well. The tools are starting up on time to a very aggressive schedule and the customer is quite pleased with our performance to our commitments. However, the additional significant costs we incurred to make sure that we delivered this large project as schedule had a large impact on our earnings in December. We are confident that this spending was the right investment to secure our position and reputation as the best choice for this global industry. And I cannot overemphasize the importance of the U.K. Biocentre as the global reference site for any of the large Biobanking projects that are now being planned. But we are also committed to continue to make improvements to our processes and performance so that our subsequent systems are not only on schedule but also on budget. Before I address some of the changes that we’re working on in the business, let me mention some notable highlights from the quarter that continue to build our momentum going forward. We’re proud to announce our collaboration with Chart Industries, whose biomedical division is the leader in storage systems for samples that are kept at temperatures of minus 150 degree C and below. They have a strong brand of broad customer base and a global distribution channel that will be advantageous in the roll-out of our new products. All our Chart’s product offerings are for manual storage and retrieval so we believe that the combination of our expertise with theirs will be quite powerful. For more than a year we’ve been working together with Chart to develop our first automated minus 150 degree C system. When we officially launched this product line toward the middle of calendar 2015, we will have a full complement of automated capabilities that span all necessary storage temperatures for chemical pump compounds and biological samples. With a good bookings quarter plus the addition of FluidX to our portfolio, we exited the December quarter with more than $50 million in backlog, which gives us confidence in the reacceleration of this business in the second half of the fiscal year. I want to spend a moment to describe a significant change that we’re making in the Life Sciences business that will dramatically improve our ability to grow and the efficiency of our operations. In the middle of Q1, we welcomed Dusty Tenney to Brooks as the President of our Life Sciences business. With a rapid thorough and decisive survey of the business situation, Dusty has determined the number of significant changes to the bliss structure that are right for the long-term profitable growth of the business and for the near term improved operations of the organization. Over the past three and half years we’ve built a strong Life Sciences business. We acquired four companies and formed them into one business unit. We’ve used all the market knowledge and technical talent that we acquired plus some of the core engineering and scientific capabilities already residing in Brooks to develop a new market leading platform and we’ve established a high-performing new product team to develop product offerings for new markets which has allowed us to establish a great position in an exciting market. However, we still have an awkward structure that’s inefficient as it includes sites in California, Washington, Massachusetts, Switzerland and two in the U.K. This structure has long been a candidate for compression and better focus but we believe that we were right to prioritize our market position over the internal structure of the business as we wanted to establish our products, our technology and our brand in the marketplace as quickly as possible. We’ve held the view that we’ve needed to pull the cost structure down and now with a successful and stable product offering in the field, a solid position with a strong customer base and the right staffing in our business, we can accelerate the structural changes that are needed in Life Sciences. It’s important to note that none of these actions will impact the growth prospects of the business. We’ve hired additional sales resources for FluidX and we have plans to continue to add more sales reps this year. And we are very pleased with the leadership and talent in our new product development team and this team will not be impacted by the restructuring. Even at current revenue levels, the Life Sciences business is capable of much better profit. A smaller size and fewer sites will also make us more nimble and provide better focus on meeting our customer system solution’s requirements. We have high confidence in the leadership team running this business and their ability to successfully implement this restructuring over this quarter and next. The result of these actions is that we will reduce operating expenses in this business unit by $1.5 million per quarter, by the September quarter. Going forward, what you’ll see is a streamlined Life Sciences business unit with costs better aligned with the size of the business. A footprint that allows us to be more efficient and focused and a concentration of technology capability collocated with next generation product development. By the end of this year, we will have launched new products for the addressing increment to $200 million of available market opportunity and we will extend our partnerships to include a new and broader channel and to more co-development with other partners like Chart and BioCision. We continue to examine and explore additional capabilities that we would like to add to Brooks and we are finding that the opportunities are expanding as we increase our presence and footprint in the cold chain of condition market, as we enable new capabilities in the field of cell therapy and regenerative medicine. In terms of our outlook, we see the overall semiconductor business continuing to grow in the March quarter and are receiving indications from both our OEM and end-user customers that the June quarter ought to be at least at the same levels as March. The wildcard for us in terms of ability for an even greater acceleration of our semi-business will be in the billboard of foundry and logic capacity at smaller geometries which would drive significant more CCS business. In Life Sciences, we currently forecast a relatively flat to slightly up revenue quarter. And despite the operational changes, some improvement at the operating line as we believe that the projects in our pipeline for revenue in March are solid and that our operating performance were once again improved on our large installation projects. We’re on schedule to complete the sign-up of the remainder of the eight-storage we shipped to the U.K. Biocentre and we do consider the completion of this project to be a tremendous customer and market success. That concludes my prepared remarks. And I’ll now turn the call back over to Lindon.

Thank you, Steve. Please refer now to the PowerPoint slides available on the Brooks website under our Investor Relations tab. I draw your attention to slide 3, the consolidated view of our operating performance to start the remarks. Top line revenue was flat compared to the prior quarter at $123 million, as a decline in Life Sciences was offset by growth in our Brooks products solutions business. Gross margins were weak this quarter in Life Sciences as Steve noted, we will cover more on each business - on each of our business units in the segment charts. As a reminder, we closed our acquisition of FluidX at the beginning of the quarter that business is included in our Life Science systems business. This acquisition as well as the April Acquisition of Contamination Control Systems or CCS was accreted to our overall gross margin levels and to the non-GAAP EPS in this quarter. We continue to be pleased with the addition of each of those businesses. Let’s look now at our segment revenue briefly outlined on page 4. Brooks’ products solutions grew 5% sequentially. As Steve described vacuum robots and contamination control solutions were key drivers here. Within that product solutions group, we did have some headwinds with the normal seasonality of the industrial segment which uses our Polycold offerings deep in the manufacturing supply chain for smartphones and tablets. We also saw that paused this quarter in the advanced packaging space. We had seen good growth in the advanced packaging in the two prior quarters and our team sees a clear path of growth here in the next two quarters, which is why I use this term pause. In Life Sciences, revenue was down 17% sequentially as our base business was lower than expected. However, FluidX offset some of this decline and added $3.6 million of revenue. Revenue realized from the significant Biostorage systems contracts are expected to be lower this quarter, but we saw a more softness in our base consumables business than we anticipated. As we have said before, our Life Science business is not going to be linear on a quarter-to-quarter basis, and we are very pleased with the positioning that this business as we look throughout this year and beyond. Let’s go deeper into the segment starting with page 5. Product solutions business saw continued growth but with softer margins. The margin reflects slower IP license income compared to the fourth quarter and the final transition cost of shifting our Polycold manufacturing to an outsource provider. As previously mentioned, growth in the quarter is driven by sales of vacuum robots and the expansion of the contamination control solutions which turned in $7.2 million of revenue. The gross margins for the CCS business achieved 44% this quarter, exceeding our full year target of 40%, we expect CCS to continue to be a profit driver in 2015. Page 6, global services continue to show a very stable picture with solid margins above our 35% objectives for the segment. We’re happy with the performance in this segment. Turning to page 7, let’s address the Life Science systems business. We’re not pleased with our revenue in this segment, though at the same time we continue to make important steps in the build-out of this business. First, revenue was softer than anticipated. We expected flat revenue with the acquisition making up the difference for the anticipated roll-off of the backlog of the systems projects. While the FluidX business performed well, our base business came in below expectations. The systems project came in a little softer, but the consumables and instruments business also saw a decline that we had not experienced previously. As Steve described, further pressure on the margins came from cost overruns on projects where we added premium labor and expedited cost to meet customer commitments. Our operations leadership is focused on correcting this but it will take some time before we completely clear the issues from impacting the P&L. The combined impact of lower revenue and the increase of project cost, resulted in disappointing margins and a deeper impact to operating income than anticipated. The positives in this business remain. We booked $19 million of new business adding $2 million to backlog, the FluidX business acquired on October 1, contributed $3.6 million of revenue well ahead of our expectations and was accretive to operating income in the first quarter of ownership with strong gross margins. Please turn your attention to page 8, to see a building of backlog over the past two years. This is specific to the Life Science business. Understanding that the Q2 peak reflects the very large $15 million contract which we had shared with you on the U.K. Biocenter, an important point to note is that the trajectory throughout the time to Q4 even excluding the peak remained quite healthy. And we added $2 million for that backlog from new orders this quarter and $8 million from the acquisition of FluidX. Total backlog now is at $53 million and $38 million of that is estimated to be in the coming 12 months. We are excited to have Dusty Tenney now leading this segment for us. And we believe his experience is enabling us to optimize this opportunity. On Slide 9, you can see we have more dynamics driving the EPS results this quarter, special charges increased $1 million as we took restructuring actions of $2.7 million in the quarter continuing the path to reduce redundancies on workforce and facilities. A portion of this was the final closure of our Petaluma site, which had previously contained Polycold operations now perform by a Malaysia based third party manufacturer. Other income includes net gains from foreign exchange that benefit on the income tax lines reflects a normal tax-rate of by to a loss position but also has $1.4 million benefit from discreet items. The largest of the discreet items was the 2014 tax credit authorized by Congress during the quarter. Slide 10 shows our cash performance. Operating cash flow for the first quarter of fiscal year ’15 was $3 million. We used $7 million for dividend payments in the quarter and investments included $15 million of cash for purchase of FluidX and $2.5 million for the funding - for funding BioCision and exchange for convertible debt securities. Also, following the quarter closing, we’ve also funded a second half of this arrangement with BioCision which is another $2.5 million for additional convertible debt securities. BioCision and Brooks are in joint development of products aimed at the Cryostorage market in anticipation of the minus 150 degree systems reaching the market later this year. At the end of the quarter, our balance sheet shows a balance of cash, cash equivalents and marketable securities of $219 million, we continue to be very pleased with the strength of the balance sheet. Slide 11, displays that balance sheet summary. Working capital remains healthy. We have an operational decrease of inventory offsetting the addition of approximately $2 million of FluidX inventory acquired in the quarter. We also had improved accounts receivable performance with the DSO of 55 days, 3 days better than the fourth quarter. Our net deferred tax asset now sits at $86 million. The strength of the balance sheet reflects the cash generating strength of the business and provides significant flexibility to pursue strategic investments in the future. Now turning to slide 12, we provide our guidance estimates for the second fiscal quarter of 2015. Revenue is expected to be in the range of $130 million to $135 million, and our non-GAAP EPS is expected to be in the range of $0.04 to $0.06 per share. That completes our prepared remarks. I’ll now turn the call back over to Grant to take questions from the telephone lines.

[Operator Instructions]. And the first question is from the line of Edwin Mok with Needham. Please proceed with your question.

Hi, thanks for taking my question. So, first question on the Life Science side, on the restructuring you guys mentioned that you take some costs out of model. Any way you can kind of give us some rough idea on breakeven after you reach, what is your breakeven revenue level after restructuring? And you mentioned that within a few quarters to kicked-in, is it more linear cost improvement across this year or how you’re thinking about that?

On the restructuring Edwin, we have, this quarter was $2.7 million. So I would estimate that the payback on that is going to be about close to, well, less than a year but it will be about more than $0.5 million of savings on a quarterly basis. Your question on breakeven, it moves for us because we have the Life Science investments. So it has to take to put a number on table at this point. But here is our focus. Our focus is to continue to reduce the structure that our semi business is running on. And we’ve been improved that point. And our breakeven point on our Life Science business while we lost money in this quarter is something, we’re very focused on in getting back to as we move through the year.

I see. So, with a bigger mix of consumable or service revenue on the Life Science now, is it - why are you doing restructuring, is it also that you need to actually invest in yourselves or service organization to support that? And would that cost slow down your comp improvement in make on the offering line?

So, Edwin, the addition on the sales for example for the consumables is a pretty quick return. You build that out incrementally. And so as the market opportunities expand, the sales people can capture it. So, generally the cost that we incur there, are covered by the incremental sales. And what we do is we watch the sales people as their territory or their region, the opportunity they have continues to grow. That’s when we add people to it. So generally those costs go with that, generally those costs grow and are covered by the revenue and gross margin. From the services standpoint, generally we follow the installed base and we’ve been pretty successful selling service agreements with the tools as they go out. We’re selling upgrades, we’re selling software upgrades so there are number of things that we do again, where our revenue goes along with the cost structure, we don’t have to build out costs for services either in advance of being able to cover those costs.

I see, okay. Lastly just on Life Science, just quickly you guys have this target of $80 million revenue over this year or within fiscal ’15, is that’s still the target right now?

Yes, Edwin. We stand by that right now. We had a slow start in the year for sure and we’re going to have something like that in the March quarter, Dusty’s got his work cut out for him. He’s got that as a target and he’s working to pull that through how we get the backlog balanced against that’s going to be our challenge. But we’re not given up on that target yet.

I see, okay, that’s fair. And then just quickly on the product, Brooks product business group. So on the Polycold side is that just seasonality, I don’t remember every year this quarter you always weakness on that part anyway, but eventually how you balance that as you get to March and beyond. So, is that how we should think about that? And then, I guess, two last questions. The second part is, you mentioned that AP revenue came down a lot, is that just a call of timing thing or you worry that revenue is not materialized in this year?

Yes, so Edwin, couple of things. One, the Polycold is exactly the same circle for Brooks we’ve seen for the last years. And interestingly, almost the same revenue level for the December quarter. So, we don’t see any difference in the seasonality of that business. And so that’s pretty consistent. So we saw December behave like it did. We do see the business coming up some in March and generally June is a stronger quarter, we don’t have so much visibility to that. But that’s what the seasonal pattern has been. Edwin, sorry, you mentioned which revenue had come down, we didn’t catch that?

The second part is, I’m sorry, advanced packaging?

Advanced packaging?

Yes, what’s going on there?

Yes. So we saw advanced packaging drop by almost half in the December quarter. Our forecast and our build plans are forward to rebound somewhat this quarter. And then be even higher in the June quarter. But indeed we did see advanced packaging down. And as I mentioned in my comments, we’re not as certain about the size of that opportunity as we once were as, it’s a little bit clouded by some of the Tier-1 OEMs who ship our products into some of their backend market share gains.

I see. Last question I have. Taken to your guidance, what kind of - how do we start to think about gross margin?

In that guidance we expect good improvement coming back this quarter. As we’ve said, it will take a little bit of time to get out from under some of the cost pressures we’re seeing in the installation stages of Life Sciences. But we’ll see a significant improvement as our expectation, perhaps not all the way back to the 40% to 45% target that we established but most of the way. And we expect that BPS returns to a more normal level as well.

Great. That’s all I had. Thank you.

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

Thank you for taking the question. The first is, just a clarification on the shortfall and Life Sciences in the quarter, with base systems and consumables. What was the cause of that with that deals that were pushed out or went to a competitor, what was the variance?

So, Craig, actually we had shortfall a little bit from a number of elements of the business, some was from systems. But probably the one that had the biggest impact was the instruments and consumables and devices from the regular course of business, not FluidX. FluidX really was outstanding and these not only met their numbers, they had one of the best quarter they’d ever had in their history. But we’d anticipate it more from the consumables and devices and instruments, and it just didn’t come, it didn’t come through. Those are things we can turn pretty quickly. We’d anticipate that revenue would be a little bit higher and it didn’t come through in the December quarter.

Thanks Steven. And Lindon on the optimization program in the same segment, how much of the benefit is expected to come through in the COGS line versus OpEx for the $1.5 million that you’re looking for two quarters out?

Yes. Most of that will come, actually I guess, I would say, about two thirds of that will come through the costs and then about a third through expense. It’s going to spread across the Life Science segment. And I would emphasize that the restructuring that we discussed this quarter, it had a little bit of but more of that was on other parts of our business. It wasn’t as much of the Life Sciences. So the Life Sciences actions that we’re talking about something that we’re going to be executing between now and the time we get to that September quarter that we talked about. So, a key point there is, that is an integration effort really of the sites that we’re carrying in Life Sciences. And I think we’ve talked about this before, our focus there has been integrating the - on the platform which we did with the Twinbank development. And we’ve turned our focus toward integrating the sites. And frankly there was a caution here now with Dusty here there is a lot of clarity of exactly which direction we want to go on the integration of this. So I think it’s helping us quite a lot with his leadership.

Okay. Gross margin question in global services, 37.2% were there any one-offs there? And related to that, is that a sustainable level or should we expect to move back towards 35.5%?

I’ve been extremely pleased with the last three quarters of the margins in global services. My expectation is this generally is between 35% to 36%, I keep pressing them that, they did it for me this quarter, you guys do it for me again. But I wouldn’t suggest to you to model it 37%, I would say 35% to 36% is where we would have a general momentum. This quarter we are observation as did have some materials under run, I wouldn’t call it one time Craig, I just recall a little bit of the mix of the business that we participated in.

Thank you. And then lastly from me, a longer term question for Steve on product solutions. Steve, I think a quarter ago you were thinking it was a business that could outgrow the industry this year. Is that still your view?

Yes, we really think so Craig. We’re bullish on the slots that we’ve taken if you will with contamination control solutions and the vacuum robotics really set to outgrow other elements of the business will grow with the business. But we feel very confident that we’re in a position to outgrow.

Thanks guys.

Great.

And the next question comes from the line of Patrick Ho with Stifel Nicolaus. Please proceed with your question.

Thank you very much. Steve, maybe first a question in terms of you highlighted on the semiconductor side about some of the increasing capital intensity trends related to Edge and deposition. As you see those market trends transpire, do you also see new opportunities where you can gain additional share from corporate captive capabilities that these suppliers have or is it more just benefiting from the number of tools that they’ll be shipping over time?

Yes, Patrick, we do see both actually. So we’re - on next design tours, we probably had more wins and a higher percentage than any time in the company’s history. Over the past four quarters, we penetrated a very large Japanese OEM for - to replace their captive robots not just on too difficult platforms but also we’re working with them on even replacing the common platform robot. And in the quarter, I might not have been clear in my comments, in the quarter we actually won another legacy CVD robot from Tier-1 OEM where we replaced their captive robot on a pretty high volume runner. So, we continue as we perform at the next generation products, we continue to have opportunities to go into legacy products with really dependable vacuum robots. And we’re benefiting from both of those things. So the growth in the market itself and as I mentioned, compounded by some of these newer wins on older products if you will.

Great, that’s helpful. Maybe sticking one more question on the semiconductor side of things. Obviously you’ve seen the pick-up on the OEM side of things with the tool vendors. Are you also seeing sustainable growing trends on the chipmaker side given that there are several fair projects that need to be filled out over the next couple of quarters?

Yes. Patrick we’re seeing it, we’re on the edge here. We anticipate that if the fab commitments are made that we’ll have orders. But we’re on the edge between how much material do we order, how ready do, we get so we can meet some of these delivery requirements which we know will be short. But we were in pretty close contact. We understand what the demands will be we’re not as clear on the exact timing. But we are getting prepared at the fabs where there is 16 and 14 nanometer and even smaller production, the things that we do specifically and directly for those fabs which include lots orders and the CCS products that will definitely benefit the business.

Great. And a final question on the Life Sciences side. You mentioned the services business, there are some of the opportunity is there. Given your expertise and your long-experience in the semiconductor side, there is obviously different kind of I guess variable on services front. What are the Life Sciences customers looking for on the services side that you can provide that others can’t?

Patrick, a few things. One, when we move to automated systems, suddenly we’re talking with the customers about workflows as opposed to discreet events where we couldn’t add quite as much value. For example, when there was always a manual insertion and retrieval of a sample from a cold store, the kinds of things that we’ll be able to do to guarantee the temperature, to guarantee their reliability samples, to guarantee the safety and security of the samples are the kinds of things that we can offer that weren’t available to the marketplace before but are direct results of the products that we bring to the market. And Dusty has a lot of experience here growing a very successful services business at Brooks and Elmer. And the principles and practices and things that he’ll bring to the team will just continue to enhance that. So we’re bullish about the opportunity. We’re laying it out and defining it. But you will see that includes more, not just about the physical handling of samples but also the logistics and informatics that go along with delivering secure samples. So we’re encouraged by what could be, but just what we’ve been able to accomplish in the last 12 months has made us, enabled us to make the services organization much more productive than we have been.

Great, thank you very much.

Patrick, I think I’ll add to that too. Because we’ve seen a lot of momentum over this last year, we’ve talked about at some, just on the global presence that we have in the service field as well, supporting the sales of our system. And there is a tremendous amount of momentum and synergy between those two. I think our customers have highly valued Brooks having a global presence and capability to service various markets readily and being near them. And you can see the evidence of that as I’ve highlighted in the past on service contracts that we signed with the upfront sale of the system more so this past year than ever before.

Great. Thank you very much.

Thanks Patrick.

[Operator Instructions]. And the next question comes from the line of Jairam Nathan from Sidoti. Please proceed with your question.

Hi guys, thanks for taking my question. First, I might have missed this but did you explain, given the revenues increased wisely the EPS kind of declining?

Yes, so, Jairam, if you noted in this prior quarter here that we just discussed, we had a benefit from foreign exchange as well as we had income tax benefits in this quarter. And we don’t project that to happen in this coming quarter. So while we’re trying to get some revenue growth and we’ll see some return of margins in the Life Sciences. It doesn’t quite offset getting the, say, of getting income tax benefits as well as the FX. So, we’ll also face just a little bit of expense in, I always hate addressing this but in the March quarter of the year, two things happens with us. But we just have the little bubble of expense as we pay our board on an annual basis in that quarter. And we also have above or on our payroll expenses, tax expenses. So, by the end of the year, not everybody is paying a favorable tax, so they’ve already capped out. So we just have a bubble that we always face this time of the year, and that puts a little pressure on it as well. But that’s, that was out over the year.

Okay. And Steve, just on - with regards to the agreement with Chart Industries, can you guys give us some more understanding of how your revenue will flow? Is it, do you, I’m guessing you use their distribution networks, do you kind of - should we expect the same amount of operating margins from the products that are sold through Chart?

Yes, so Jairam, I can’t go into the details yet. We’ll be clear after we are able to launch the product. But our intention and our target and our path is that you’ll see this similar kinds of operating markets for the revenue we recognized from the products that we sell with Chart.

And you see, would you be recognizing what you sell and they are recognizing what they sell or would it be like a joint effort?

Jairam, we have us in Chart and our channel partners. And after we work out not just two but three of the parts here, we could communicate a little bit more clearly with you. We’re still in discussions on how all of this will flow. We’ll be as clear as we are able once all the contracts are in place.

Okay, my last question.

A little bit fast for us yet, but we’ll be clear as we launch the product.

Okay, okay. And lastly, on, over the past two or three years, Brooks has seen a decline in revenue primarily because of Samsung putting their capital-spend a bit here on the logics side. And as Samsung is reportedly winning some more Apple business and so do you see that reverse a bit here?

Yes, Jairam. It’s, we won’t comment on any specific end users. But I think as you’re aware, as Korean suppliers spend more, it drives a specific portion of our business as we supply to a lot of the Korean OEMs who have very strong presence in the Korean fab. So, again, we can’t get down to that level of granularity but absolutely Samsung drives an outside portion of our business.

Okay, thank you. That’s all I had.

Thanks Jairam.

And the next question comes from the line of Farhan Ahmad with Credit Suisse. Please proceed with your question.

Thanks for taking my question. My first question is on the product gross margin. If I look at the trend from September of 2013, the gross margins back then were about 38% and they have declined every quarter and now they’re close to 34%. So, I just wanted to get a sense of like what’s happening there? And also, if one of your big customers has been talking about using more of the Japanese suppliers and the yen has the value that it is putting some pressure on pricing?

Yes. So, I think one thing Farhan, you need to do in the gross margins that you’re looking at, is looking on a continuing operations basis. We’ve done some changes in our portfolio so I just caution you on that. And either of you is fair to ask us questions and I’m not only just saying the question but just on an absolute basis in our portfolio of 2013 the product solutions margins increased from like 32% level up to by the end of the year of 36%. And now we’re looking at this level, that 34%. So, we truck with from this 36% kind of 34% in this quarter. And as we’ve explained I think this, returns. So, I think essentially you saw a strong improvement through ’13. And then in ’14, you saw us make some portfolio adjustments and we’re investing in the CCS business, we’ve just seen that come up and we expect more revenue energy from that business. We’ve also seen on the Life Sciences as we’ve explained in more detail here that we generally expect 40% to 45% below, clearly running below that in the low 30s now. But we’ll be bringing that back. So, that’s the trend I see, recall but we did, make the sale of the Granville-Phillips business last year, three times revenue we got $87 million back to the shareholders for investments in strategic businesses. So, that was the trade-off that we made and I think most of our investors appreciated that trade that we made in the portfolio.

Hi, Farhan, it’s Steve. I just wanted to comment also on the nature of the strength of the yen. In the days when we had a larger atmosphere of robot portfolio we likely would have suffered some pricing pressure there. But as we’ve spoken recently, the atmospheric robot portfolio is quite small now from Brooks standpoint on the systems and on the vacuum robots who really don’t - we really don’t compete against Japanese competitors there. So, we neither see the, either a pressure or a benefit from that as we stand alone in those particular markets.

Got it, thank you. And then in regards to your OpEx trajectory going forward, like if I look at the OpEx, obviously like you have made lot of acquisitions and have been risking a lot to grow the business. How should we think about OpEx going forward over last one year, I see the OpEx has grown about 5%-ish and how should I think about OpEx over next year?

Yes, it’s a fair question. So, remember, we’ve added two acquisitions and so that’s kind of fair amount of the operating expense increases this year on our quarterly run-rate. And our objective is when we take an acquisition where there is synergies we exercise those synergies. So for example, the contamination control business, we took on an additional structure initially. And what we said is we acquired that over a two-year period we would integrate more of this both in the sales and the operations. And so, over that period of time, you will see us pretty much fully absorbed inside our structure I expect, both on an expense G&A structure as well as an inner-cost structure. It’s been really, I would add to that by the way, we got tremendous teamwork and integration with our team to meet in Germany they’re so very happy with us thus far. On the FluidX, it’s just a little bit different because it’s a different business right now, I mean small in terms of the engine that it’s provided. We are taking that and looking to leverage that equation in energy that they have in two directions. One, take more of our consumable business follow with that channel was well into model our business after that. But secondly, to take their product and expand their channel reach. So, in that case, we would expect more investment behind that, more so than synergistic reduction. So that would be an investment area for us. And we see growth in FluidX coming back as we said in very first quarter of ownership it’s accretive at the non-GAAP level. And I believe it will get accretive at the GAAP level very shortly. So, now, overall in operating expense, I’ll remind you that our objective is to keep our development expense to about $50 million envelop. We’ve got $13.5 million in this quarter, so we’re not at that $50 million, we’re running at about $52 million level if you annualize that. It’s improved and it’s gone through quite a bit of trade-offs and prioritizations this past quarter and we’re still focused on doing that as we go through this year. So, it’s running just still a little hot right now, but it’s in that $50 million range in our objective as you asked over the next couple of years as to keep it approximately at that envelope. Absent, I should say absent significant acquisition that we changed there but we don’t see that as we defining today that that would change. On SG&A, we would see our SG&A structure again two pressure points. One is, I look at this a good cloistral or bad cloistral equation. So we’re focused on driving productivity on all lines with helping to reduce our G&A, making it productive and leveraging it. But at the same time making wise investments on our S&A making sure that we’re investing behind the sales equation that drives our business. Our particular focus this year, making sure we’re supporting that consumables business that I already mentioned but also getting ready with the channel in the minus 150 Life Science space. So, we’ll see a little investment there.

Got it. And just one clarification in regards to the June shipment level looking flat. Was that specific to the semi-business or was that kind of for the overall company?

Specific to semi, Farhan.

Got it. Thank you. That’s all I had.

Thank you, Farhan.

And the next question comes from the line of Ben Rose with Battle Road Research. Please proceed with your question.

Good afternoon. Question either for Steve or for Lindan. Just looking back at the sales patterns in the Life Sciences business over the last several quarters, can you comment on the level of repeat versus new customers either quantitatively or qualitatively?

Yes, so I’ll start, Lindon is going to maybe look through some specifics Ben.

Okay.

Generally when we sell systems to customers they do an install. So we get all of the systems if it’s one or eight systems, we get all those in a single order. And with very few I would say, maybe a handful of instances, a customer already has an automated cold store from us that they filled up and they come back for another one. But often they’ll plan that in advance. But a few times we’ll have an incremental one. And it’s generally incumbency is very important but capacity is what drives another store. And generally it will take a customer, a year, two years, three-years sometimes to fill a store. But we do have a number of customers over 15 years old installed base with multiple systems at even in multiple locations.

Okay.

I’ll just add to that not a lot more specific but some additional context. I mean, we have more than 100 customer relationships in that space. And it is as Steve said it’s an incremental capacity but not something they add on a semi-annual or even an annual basis. We estimate that in general, about half of our business or a little more is from the pharmaceutical space. And so they continue to add and they have multiple locations. So it’s not unusual for us to be working on more than one project for a pharmaceutical company or to have them come back in the same year for a different location. On the other hand, if you look at the fastest growing part, the customers are in the Biobank space and could be around the cell research. And so in those cases, it’s first time. And those large installations we wouldn’t see nor would we expect it to come back within the next one, maybe even two years. But we do have ongoing service contracts with them.

Okay. And You mentioned with regard to the U.K. Biocentre project, do you believe that most of the cost absorption for the project is behind you and then you start to see some margin improvement on the implementation in the next couple of quarters?

Well, we won’t talk about specifics of our accounting to you, but just a remind-in in general. We do share that our practices percentage of completion. So the cost impact to some degree will be with us until we finish that project and the fact that the margin is on that contract gets realized as we complete it. However, when we have a cost increase in the middle of the project like this, you realize the percentage already been completed in more than half way through, so there is a little bit, I hate to refer to the sketch because it’s not a change to part period, it’s just that the total project you recognize more of that cost in this current period. But it will, that’s why we say we’ll carry a little more into next quarter, it takes a little while for us to get out from the P&L impacts of this. And we still have more revenue to deliver in systems to close in that space this coming quarter.

Okay, sorry. And then finally, on the FluidX, I know you had mentioned at the time of acquiring the company. And you alluded to some of your goals going forward. A big goal I suppose was increasing their sales in the U.S. and with a strong quarter that they just reported, was some of that in fact from the U.S. or is that still to be realized going forward?

Yes. I would say the benefits that we’ve seen so far is their existing channel.

Okay.

So, if that’s very pleased, both with the team they did as in the example we set inside Brooks and how to get that done. And they’ve really leveraged the channel by half. We’re still looking at the strategic opportunities and how fast to expand them through other channels. And that’s something that’s near the top of the list for Dusty as he’s completing the framework of this business model going forward.

Okay, thanks very much.

Thank you.

There are no further questions at this time. I will now turn the call back to you Mr. Schwartz. Please continue with your presentation or closing remark.

Thanks Grant. Thanks everyone for your interest in Brooks. We do look forward to speaking with you when we report results from second quarter of fiscal 2015. Thanks very much.