Ladies and gentlemen, thank you for standing by, and welcome to the Brooks Automation Q3 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Thursday, August 6, 2015. I’d like to turn the call over to Lindon Robertson, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you, Mickey, and good afternoon, everyone. We would like to welcome each of you to the third quarter financial results conference call for the Brooks fiscal year 2015. We will be covering the results of the third quarter ended `on June 30 and then we will provide an outlook for the fourth fiscal quarter ending September 30 of this year. A 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 the call. I would like to remind everyone that during the course of the call we will be making a number of forward-looking statements within the meaning of the Private 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 on the aforementioned PowerPoint presentation on our website and our various filings with the SEC, including the Form 10-K for the fiscal year ended September 30, 2014. We make no obligation to update these statements should future financial data or events occur that differ from the 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 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 an even more complete understanding of the Brooks business. Non-GAAP measures should not be relied upon to the exclusion of the GAAP measures themselves. On the call with me today is our Chief Executive Officer, Steve Schwartz. We will open with his remarks on the business environment and our third quarter highlights. Then we’ll provide an overview of the third quarter financial results and a summary of our financial outlook for the quarter ending September 30, which is our fourth quarter of the fiscal year 2015. We will then take your questions. During our prepared remarks, we will from time to time make reference to the slides I mentioned, available to everyone on the Investor Relations page of our Brooks website. 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 are pleased to have the opportunity to report the results of the third quarter of our 2015 fiscal year. Q3 was an excellent quarter for us as we continued to reap the benefits of the investments we’ve made in critical growth segments. Revenue was up 4% quarter over quarter and 23% over the same quarter one year ago. Bookings in the quarter were $152 million, up from $135 million in Q2. We expanded gross margin by more than 200 basis points and we reduced operating expenses by $1.6 million. At the same time, we advanced our new product development activities, gained important design wins, and made progress in some of the structural changes to our organization that will be important for our sustained profitable growth. On the semiconductor side of the business, we saw strength from a broad base of drivers. Deposition and etch applications fueled our semi front-end business, contamination control requirements in fabs drove another sequential increase in our automated FOUP cleaning business, the wins we’ve been accumulating in the advanced packaging space supported good growth in the quarter, and continued strength in 200 millimeter products to equip fabs making devices to supply the Internet of Things also contributed to our strength. We have focused our investments in automation in cryogenics on the important growth areas, and we continue to recognize the above industry growth rates associated with these sub segments. We see continued strength in all of these areas in the September quarter. We are similarly positive on our longer-term prospects for growth in our life sciences business, which was relatively flat for the quarter. We’re encouraged by the activity we’re seeing as a result of the launch of our first cryo product…

Thank you, Steve. Please refer now to the PowerPoint slides available on the Brooks website under our Investor Relations tab. I will draw your attention to slide 3, which is a consolidated view of our operating performance, to start the remarks. Top line revenue increased 4% sequentially to $145 million driven by higher revenue in the Brooks product solutions. Gross margins exceeded 36% this quarter on a non-GAAP get basis or 2.3 points of improvement reflecting costs improvements and growth with favorable mix. In addition to the growth in gross profit, a healthy reduction of expense has driven a near doubling of the bottom line net income. We will cover more on each of our business units in the subsequent charts. Let’s now look at our segment revenue briefly outlined on page 4. Brooks product solutions grew 6% sequentially as we saw growth in each area of automation, contamination control solutions and cryogenic vacuum products. Global services grew 3% sequentially, which was offset by a 4% decline in the life sciences business. We could go deeper into the segment starting with page 5. As Steve has highlighted, the continued growth of the product solutions business displays the strength of the portfolio. As I just said, growth in the quarter was driven by sales in automation, contamination control solutions, and cryopumps. The primary market drivers were the need for systems, both vacuum and atmospheric, for advanced packaging as well as the increased need for contamination control and the leading technology fab lines. The gross margin of the product solutions business increased 220 basis points from the prior quarter with improved manufacturing costs, higher volumes, and some favorable mix within the portfolio. You can see on page 6 that our global services revenue increased 3% from the prior quarter driven by revenue…

[Operator Instructions] Our first question comes from the line of Craig Ellis with B. Riley.

The first question is on the product solutions business, in the comments, you remarked that it was both advanced packaging and then front-end leading edge that was driving the strength. Can you just help us with the mix of those two in the quarter and how do you think about the sustainability of trends along those parameters as you look ahead?

The back end is still relatively small part of the business, but it’s growing and important. We have pretty long list of customers, and we really like the position. But you heard us on prior calls talk about the $25 million annual run rate for the back end. And we’re higher than that, but it’s still a relatively small fraction of the BPS business which is much closer to $100 million. But the strength in the back end in advanced packaging is important to us. And as that business continues to grow, we will participate more significantly. It’s actually a perfect opportunity for us because the products fit extremely well and the fact that we sell a significant fraction of the business that we sell to systems, both atmospheric systems and vacuum systems, gives us higher content for any of those applications. In terms of the growth of the business, we hear some talk of slowing in the December quarter anyway, probably be down a little bit in September, we don’t have great visibility there. But we’ll continue to work on gaining share in the back end. And on the front-end side, we talked about being able to sustain overall revenue somewhere around the level that we were in the June quarter. The acceptance of the contamination control systems and the growth of the contamination control systems business is helping to hold up a little bit of a downward trend, if you will, from some of our OEM customers who take the front-end semi applications. But again, we’re almost guiding to a flat quarter.

The follow-up is for Lindon, very nice gross margin performance in two of the segments, product solutions up $200 million and services up $400 million. Are those either of them, benefited by one-time items that would not recur in the fiscal fourth quarter, and is there anything that would be an adverse headwind as we look ahead to the outlook quarter?

Those two businesses, we don’t see anything unique on that quarter. Frankly, we had an absence of cost issues. In other words, the previous two quarters, as we highlighted, we had some higher costs and we had a little bit modestly improved mix this quarter. But I wouldn’t call that out as unique. It’s basically returning to the same levels that we were seeing much of fiscal year 2014, so we’re very happy with where those are and our expectation is we are in this range going forward.

Our next question comes from the line of Patrick Ho with Stifel.

Steve, maybe first on semiconductor side of things, typically you had short lead times with a lot of your OEM customers, but your order flow was quite strong in the June quarter. Can you give a little color whether it’s the timing of orders or – again, you usually have turns business or do you believe the OEMs were building a little bit of inventory given some of the dynamics on their end with 3D NAND picking up and potentially foundries picking up in 2016? Can you give a little bit of color of your order flow and how that kind of worked out?

You hit it on the head here. We generally have pretty short lead times. We continue to have short lead times but we do get a pretty good forecast from our OEMs so that we can continue to supply them in a timely fashion. I think the one major difference here is we have pretty significant orders in the contamination control solutions, and we do get a longer look at that business. So we get, I won’t say it’s incredibly long, but we do get bookings likely more than a quarter in advance for most of that business. So when we build some backlog, it generally comes from the CCS business.

Maybe as a follow-up to CCS that you just mentioned and I understand you can’t get specific with customers, but there’s a lot of noise out there regarding 10 nanometers, Moore’s law, cadence being pushed out somewhat particularly related to 10 nanometers. I think it was an encouraging sign that you said you saw started seeing activity there for CCS. Can you give a little bit of color what the customers are looking for and how that actually plays out for 2016 for you?

As you can imagine, very similar to inspection tools, you need to have a FOUP cleaner and lots over in those kinds of things in an early line to be able to do some qualification for a technology, so the products that we are shipping now for 10 nanometer to get qualified probably for the first test runs, if you will, for 10 nanometer. So we’re not surprised that we’d have some. Our expectations are at that volume though – there won’t be any volume shipments certainly in the rest of 2015 for us and we’re not sure even when in 2016 they might come. We don’t have too much visibility there.

And one life science question from me, you highlighted your BioStore III product and the CryoPod and the work you’re doing there to get qualifications. Is there any leverage for the CryoPod product related to the BioStore that’s drawing customers or do you really need to get adoption of the BioStore to pull in the CryoPod acceptance as well?

Actually, they can be independent. The fact that – Patrick to give you an idea, we have taken some orders already for the CryoPod for people who won’t be early adopters of the BioStore III cryo. It’s a great instrumented carrier that anybody who store samples at minus 150 degrees C will have tremendous use for this as a product. We as a – I won’t say consumable, but as a small device. But if people are also customers for the BioStore III cryo, they’ll definitely want to have the CryoPod as the transport mechanism between store and bench or store and store. So they’re independent. You don’t need one with another, but each one enhances the other.

Our next question comes from the line of Edwin Mok with Needham & Company.

First question I have is actually going back to – follow-up to Patrick’s question on the CCS business, right, I think you mentioned on the near-term this transaction more driven by 16 nanometer FinFET product with some 10 nanometers shipments, right. To the extent that those 16 nanometers investments finish, do you expect to maybe see a little bit of the gap before the 10 millimeter comes in, or do you think this level that you expect in the September quarter is sustainable?

So Edwin, it was a little bit tough to hear. I think you asked is the 16 nanometer level sustainable for a while?

Yes, exactly.

So we anticipate more editions. We had some shipments obviously in the June quarter; we’ll have some more in September. And frankly, we don’t have too much visibility beyond that, but the fact that we’re getting qualified at 10 nanometer, we believe that if capacity gets added we will participate at any line with certainly from 2016 on down.

And then can ask you about the semi, I think you mentioned about the Korean OEMs and your wins at some of the Korean OEMs. Are you seeing those customers coming back with increased volume at those customers or is that share gain kind of helping drive some of the growth you have in the front end?

Yes, for us this is purely a share gain that we talked about, right now the Korean OEMs go up and down with some of the opportunities that exist in Korea. So it’s a little bit more local as opposed to participating in a broader expansion. But we have good position at three, and we hope 12 months from now to have good position at four, but the business that we have with them really is driven by Korean semiconductor manufacturers.

And then on the life science side, it seems like the compound store business that you guys had traditionally like relationship with Twinbank has actually come down, right, because I think you guys highlight growth and the related FluidX in the consumable side, right, is that just kind of part of the market dynamics and is that business more stabilized on a lower level, or do you expect at some point down the road like you might see it?

Edwin, let me try that one. You’re right, the revenue there has trailed off and the large store systems we think are down at a level – by the way, versus the market, it reflects the market. So we’re still winning deals and the deals that are in play were very strong. So it’s reflective of the market more than anything else. The backlog clearly has us weaker in our revenue and that’s what’s trailing off right now. We do have a pipeline that we are pleased with and we see it being more of a global pipeline. There’s not a concentration in any one space. So I would just reflect on that and suggest to you that as we’ve said in the past it is a lumpy business and we’re looking to pick each piece of it up, but right now the market has been slower. We don’t attribute it necessarily to any type of cycle nor any type of event globally, it’s just that the market has been a bit slower and what business to pick up recently in the store side. The converse of that, I’d just highlight one of the comments that Steve made in his prepared remarks, and you and the other analysts occasionally bring this up, and that is, does the consumables and services business pick up when you have more store systems? Well, of course, that helps us to build that business, but as Steve highlighted, the non-stores business, even if you took out the acquisition of FluidX, was up year over year about 5%, which reiterates the point that that business continues to be something that we build out for a stream of business to support our customer base, either when they’re buying stores or not buying stores. It’s a continuous service opportunity on the services as well as consumables. And that’s why we’re so enthusiastic about that side of the business and we’re pleased with the momentum that the FluidX business is building. So I’m not trying at all to discount the importance of store systems, but I just underscore that if you went back a year ago, two years ago, we were talking about – well, is this business $9 million or $10 million, now we’re talking about $16 million to $18 million business right now at a low point. And so we’ve got a very different low point now than you saw back at that time, and it’s much stronger in the consumables and services space. And as we pick up the storage business, we’re very encouraged what the model has to offer. That’s why we continue to have a lot of confidence in that 2017 business model that we’ve talked about previously.

One last question I have. This quarter you guys have reported lower SG&A expenses, right, so [indiscernible] and I think you talked about life science potentially can see some improvement in the September quarter. How do you guys think about OpEx longer-term? And assuming these drivers kicked in and you guys have a high revenue level, is there a way for us to think about either through incremental margin or maybe OpEx is sustainable at the current level. Any color you can provide on that?

I’ll pick that up. One, think of our business in the two pieces, for sure. In the semi business, we significant a leverage point in our expense structure, both in our semi business as well as our G&A structure. On that side, both of those pieces should remain steady and as you’ve seen, we continue to restructure and reduce that structure. That’s where we’re picking up some of the benefits. Meanwhile, on the life science business, we have two things in motion. We’re trying to restructure that business – well, we are restructuring that business, but it’s mostly around the manufacturing and operations costs. In the SG&A, just know that we are focused on the SG&A on the growth and support of the business and right now the focus is around building out the sales and channel capabilities around the new cryo products as well as expansion of the FluidX sales team, which as a reminder was based in Europe when we picked it up and has opportunity for us to take to the rest of our business with significant scale. But it takes some resources to put on the street for the sales. And then a final point there is on the R&D side, you’re seeing the R&D reduce as we curtail the development initiatives around the Twinbank. We got over the hump on that, and even the cryo development, while we continue to invest there, now that we’re at the threshold of launching a product and doing our first commercial shipment soon, you’re seeing that some of that. That will moderate on the R&D side, but you’ll see SG&A still be fueling some growth, and so you see a little bit of variability of SG&A with revenue on that side. So in net, I think you’re going to see operating expense at our current levels pick up a little bit over time driven by sales side of life sciences and possibly moderated on the continued effort to reduce on the semi and central.

Our next question comes from the line of Jairam Nathan with Sidoti.

Just a couple of questions, first on the CCS side, is there an opportunity to kind of go beyond logic into 3D NAND, you’re seeing a lot of new fab out there and is there an opportunity to penetrate that market?

Jairam, we believe so. Just to give you an idea, in the contamination control systems business, we have FOUP cleaners, automated and manual, and we also have reticle stockers, some very high level capability in the reticle business as well. So we think we have CCS opportunities that almost every leading-edge factory right now. Some of the requirements in memory are not as stringent as they are in the foundries, so there will be some level of automated FOUP cleaning there, but maybe not at the same density if you will that goes into a logic fab.

And on the life-sciences side, twofold question, first just thinking about an early lead for fiscal 2016, the large store still weak, you will get incremental minus 150 sales, so is there any early lead you can give on sales for revenue for next year on fiscal 2016, what should we think of?

Jairam, we’re not ready to guide that yet. I think we’re really enthusiastic about what we anticipate will be great customer acceptance from the early adopters, but we are going to learn a lot from that. And the two points will be, is the product – how ready is the product as a result of these 10 beta sites, if you will, and does it require any modification before we are really satisfied with the product? And we will find out. So within two quarters, we’ll have a really good understanding about the readiness of the product for higher volume release, and then hopefully at that time will be able to give a little bit better feel for what we think the ramp will be. But we really are positive on the product, our customers really positive on the product, but we’re a little reluctant at this point to give any guidance in terms of revenue. When we can, we will.

Lastly for you, Lindon, you mentioned life sciences still sticking to 45% goal gross margin for 2017. How should we think about the cadence here going forward? Do you expect a step function increase in early 2016 with the restructuring done or how should we think about that?

Actually, Jairam, you’ve hit it exactly, that as we step out of the fiscal year into the beginning, you’re going to start to see the pickup in the margins. The very first pickup will be the restructuring will be behind us and we will have some of that fixed cost structure out. To be very specific, we’re still pairing real estate and some resources in the California area that is supporting and has done a great job supporting us to this point on the platform. As we go forward, our objectives and our execution here is putting the center of competency and our Manchester site in the UK. And we have a more flexible structure. So we’ll be into that flexible structure in the first fiscal quarter of 2016, that being the December quarter. So not yet in the September quarter, but in the December quarter. And then, obviously, we anticipate that while we continue to expand the consumables and services, we continue to take up business on the store site. Of course, we know we have a very quick hop to expand on the cryo, the new cryo product site, but also on the large stores and that will help then fill in the model for that 45% gross profit by the time we get to 2017.

Our next question comes from the line of David Duley with Steelhead. Q - David Duley Just as a follow-on to the previous question, I think you mentioned the number earlier, when you’re done restructuring how much lower cost will you have in the life science business? I think you gave a number earlier of $1.5 million or something like that. Maybe you can help frame how this current restructuring will change the gross margins. I realize you need revenue to grow to get to 45%, but help us understand what the cost cutting will do?

I was just reflecting and those who have been with our story here for the year, as we left the first fiscal quarter earlier this year, we described that we were on a path to restructure and describe the plan to consolidate our sites and that would produce about $1.5 million per quarter, about $6 million on an annual run rate, by the time we were finished. And so in other words, when you compare 2015 fiscal year going into 2016, we will have taken about $6 million of cost and expense out on an annual basis. And that’s in rough numbers, that’s going to be almost half and half in terms of expense versus cost. So I guess the way to model it, if it’s half costs, you put $3 million into the annual budget next year for some help. You’re going to see as we go into the first quarter, I just share that I anticipate I’ll be describing this and confirming it as to get into the first quarter for you, and that you’ll see that as investments we’ve highlighted in FluidX and as well as the cryo stores that we’ll make that clear, but you’ll see some decline in the R&D overall levels and some investment sustaining and perhaps picking up the SG&A levels. So the OpEx, you may see less difference than I described, but it’s shifted tremendously toward fueling an expansion of FluidX and the cryo business, but taking out structure around stores side. And then on the cost side, it would just be a pure cost take out in terms of taking out around stores business.

And on the semiconductor business, Steve, where besides the FOUP cleaning business, it looks like you’re gaining share in some other segments. Could you just talk about where you think you’re picking up business from some of your large OEMs, and perhaps why you are?

Probably the primary spot is in the vacuum automation. I think that the franchise the company has owned for very long time and the demands as we get to some of the ALD applications, some of the thinner films, different chemistries, really require a number of different capabilities, including high-temperature – the ability to operate at high temperature, different corrosive environments and I think those are the things that as a company we’ve stayed out in front of. We’ve added a number of benefits also in the latest generation of the automation design, which we think even at the next generation node will continue to add more value. But in staying in front of the requirements of chemistry and temperature and throughput, we think we’ve done a really good job there. So we win on new platforms from the larger OEMs and we also win on legacy platforms when there’s a modification or revision or a chance to come in and displace an incumbent design with a much more capable robot. We’ve been winning some of these legacy platforms. And they’re of adequate volume that is good business for us. So I think that the engineering connections a very strong between Brooks and our OEMs. Our understanding of their process and their problems is probably the best that it’s ever been. And I think the relationships, the working relationships, and our ability to deliver has been really enhanced. And the fact that as the industry continues to consolidate the problems start to become more similar, the customers are fewer, the amount of focus we can give for some real technical expertise is allowing us to be a lot more successful than we have ever been.

And final one from me is you mentioned the 200 millimeter business, is there supply chain there to be able to address the demand for those legacy tools, number one? And number two maybe just talk bit about Internet of Things, what are you exactly seeing that is driving this increase in business there?

The fact that we’ve been in the 200 millimeter business for a long time and it never stopped, we’ve always had a live supply chain. The volume issues we’re dealing, but we’ve always had capability. We have a lot of that outsourced already for quite some time now. And so, making sure that we awaken and invigorate the supply chain was a little bit of a challenge, but everybody in the industry had the same challenge. So we’ve done a very good job keeping up with it, but we never lost the formula or the secret sauce or the talent and ability to do it because it’s always been in the manufacturer. And we’ve always had some volume of 200 millimeter production over the last 10 years. In terms of how we see it going forward, the applications, there seem to be a number of applications very suitable and economically suitable for the 200 millimeter capability that exists in the marketplace. There are a lot of sensor applications, a lot of deep etches, if you will, to make various kinds of transducers and a lot of sputtering capability at 200 millimeter for these particular applications. So pretty standard applications from what the process looks like. And some are pretty unusual from creating physical structures sometimes as much as creating electrical structures. And when you create physical structures, they’re part of the sensor or the device. Sometimes the process challenges are more severe, but the automation and pumping and system capabilities that we provide are quite similar. However, if there’s a different form factor, wafer that is contained in a frame, something that’s been thin, then we have to do some special things from an automation standpoint. But again, we’ve been doing that for years. But the applications are sometimes different. They are more often for us a very similar to what we already do for some of the front end customers.

[Operator Instructions] Our next question comes from the line of Farhan Ahmad with Credit Suisse.

I just wanted to clarify the September quarter guidance. In terms of different segments, how do expect the revenue mix to trend? Do you expect the product revenues to be flattish and life sciences – the product revenue to decline slightly and revenues in life sciences to be flattish? I just wanted to kind of confirm the guidance.

We guided the life sciences to be flat maybe slightly up, but basically flat. And on the semiconductor side of the business, we know that the CCS business will be up and that in the aggregate the products that we ship to OEMs basically we anticipate will be slightly down consistent with what you heard from the equipment companies who have already reported as a number of those are our customers. Some are basically flat, some are slightly down. So the guidance that we gave is in the aggregate is slightly down from the June quarter – at the midpoint is slightly down quarter that we just reported.

And I wanted to probe your CCS business a little bit more, could you just help us remind what the main drivers for the business are and what are some of the reasons that you’re seeing the strength in the business? Is it just that we have new flaps coming now and that’s what’s driving this strength, because we have seen a significant pickup from the time that you acquired to now, so I just wanted to understand is it a cyclical recovery or something structural going on here?

So a couple of things, we’re learning about the business little bit, and it appears as though when we go from 28 nanometer to 20 nanometer to 16 to 14 that for logic applications it seems to be quite a bit more sensitive and for finding some customers who do cleaning of FOUPs more frequently at each technology node. In particular, right now, for some 16 nanometer capacity, we’re seeing some pretty significant demand. The business has indeed picked up since we’ve purchased it, but before we purchased DMS, they also had a pretty big year before that supplying 20 nanometer fab capacity expansion.

Our next question is a follow-up from the line of Jairam Nathan with Sidoti.

So in your GAAP to non-GAAP adjustments, I saw that there’s a liquidation cost related to a dissolution of a JV, I just was wondering what was that and would that impact the equity income that you get from the JV going forward?

Actually, this is just the final expense related to the closure of the joint venture; I should say closure and acquisition of the joint venture that we had last quarter. So we had closed that venture which was our YBA in Japan one quarter ago. And that was a distribution joint venture. So we were already taking the revenue that we are selling into that venture that was distributing it then. So you won’t see a change in profits from this past quarter or this quarter going forward. What you’ve seen in the past, we have talked about profits and/or occasional loss in the past that hit us from the YBA joint venture in the past years, but that was closed in the last quarter. That’s just the final step of that.

I’m showing no further questions from the phone lines. I’ll turn the call back to you, Mr. Swartz.

Thank you, everyone, for your interest in Brooks, and we do look forward to speaking with you when we report our fourth quarter of fiscal 2015. Thanks very much.