Azenta, Inc. (AZTA) Q1 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Brooks Automation Q1 Fiscal Year 2017 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 conference is being recorded, Wednesday, February 1, 2017. I will now turn the conference over to Lindon Robertson, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you, George. Good afternoon, everyone. We like to welcome each of you to the first quarter financial results conference call for the Brooks’ fiscal year 2017. We will be covering the results for the first fiscal year ending December 31st, and then, we will provide an outlook for our second fiscal year, which will end March 31st of this year. A press release was issued after the market closed this afternoon and is available at our Investor Relations page of our website, www.brooks.com as are the illustrated PowerPoint slides that we will use 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 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 our annual reports on Form 10-K and our quarterly reports on Form 10-Q. 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 measure, 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 first quarter highlights, and then we will provide an overview of the first quarter financial results and a summary of our financial outlook for the second quarter ended March 31st. We will then take your questions at the end of those comments. During our prepared remarks, again, we will from time-to-time make reference to 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 first quarter of our fiscal year 2017. After a strong finish in September to close out fiscal 2016, we’re off to a fast start in 2017. We completed a very successful first quarter with revenue of $160 million and earnings per share of $0.25. Bookings came in at $187 million and gave good support to our positive outlook, as you move into Q2 and Q3. Our semiconductor position continued to strengthen as measured by gross margin improvements, market share gains, and increased profitability. In life sciences, we delivered a sixth consecutive quarter of sequential growth, and we added to our already impressive list of customers. As planned, our product portfolio initiatives are delivering more opportunities, which we expect to drive profitability. Today, we’ll provide a summary of the results from our December quarter and give some color as to our expectations for the March quarter. I’ll begin with the recap of our life sciences business performance. Once again, the life sciences business performed as we had expected in the interim. [Ph] Reported revenue for the quarter increased 5% sequentially from September to more than $33 million, and again delivered positive operating income. Most significantly, bookings came in at a very healthy $64 million, and the mix of business was balanced across the offerings. This is a testament to the investments we’ve made in the strong and complete sample management portfolio and in building a very capable global sales team. Here are some highlights from the quarter. Helped in large part by our acquisition of BioStorage Technologies, revenue was up 60%, compared to the same quarter one year ago. On an organic basis, revenue was still up 27% from December 2015. We booked $16 million in large automated stores, and we now have more than 20 different stores projects on the books. These orders plus our stores backlog supported good year of growth for stores. $32 million of the bookings was for BioStorage services business. We shipped the first two units of our large capacity cryo systems to company store in the business of cell therapies, which is the sweet spot for our automated ultra-cold cryo systems. This market will still take time to build, but we’re seeing the kind of activity that reinforces our confidence in this market. In our consumables and instruments business, we believe we’re on the right track. Even though revenue was down approximately $1 million from September, new orders in the quarter increased at a level that we’ve not seen for two years, and we’re confident that the reorganizing of our go-to-market approach has begun to take hold. As we’ve said, revenue growth from the consumables and instruments business along with our new cryo stores, will determine how much above 40% growth, we will achieve this year. Our Q1 performance in both sub segments was a step in the right direction. It’s now a footrace from here out and we have a lot of work and opportunity in front of us. We added another 25 new customers in the quarter, consistent with our pace over the past year. The new customers span pharma, biotech, health sciences, government and academic customers. We completed the acquisition of Cool Lab products from BioCision. We know these products well as we’ve been an investor in BioCision for the last three years and jointly with BioCision, we developed the CryoPod carrier. The business is still small, but it was immediately accretive even in our first month of ownership. It’s a great fit for the portfolio of cold chain solutions, and we’re very pleased to have these products in our line-up. Finally, our operating profit rounded $1 million, and that’s an improvement of more than $4 million from the same quarter last year. I would like to take a moment to give some specifics about the $64 million in orders and explain how this is exactly the type of business we’ve come to expect. First, to makeup of the orders is consistent with our current business with 70% of the orders from recurring revenue. As I mentioned a moment ago, 25% was for large store systems, a reflection of our strong market position and also a testament to how this market segment continues to grow. Generally, we’re seeing larger individual orders than we did before we acquired BioStorage. This is in large part due to the fact that we are now full service provider for all things [ph] sample management, and we’re able to offer more value in a sample management solution than from a collection of components. To illustrate this, in the quarter, we had seven contracts of more than $2 million and three, which were each greater than $5 million. Increasingly, we are seeing contracts include multiple offerings that is bundled value from capabilities that we brought together. We’re pleased by the market reception we’ve received to-date, and we anticipate more and larger opportunities in the future. All-in, 2016 was a year of incredible maturation for the life sciences business. To put the accomplishment into proper perspective, it’s constructed to compare the dramatic improvement from calendar 2015 to calendar 2016. In 2015, revenue was $72 million with operating loss of $17 million. In 2016, revenue was $121 million and delivered breakeven operating profit for the year, a positive income swing of $17 million. Like any business start-up, we’re going to have many puts and takes as we develop the business, but we’re in this business to drive growth and create tremendous shareholder value. We’ll remain balanced and focused on taking the proper long-term actions to support the growth objectives of a great business. That said, by all measures, we plan to deliver outstanding results this year. The next steps you will see include a sequential revenue increase in March of another 5% to 10%, and a target to be above $40 million for the June quarter. We also plan to deliver an increase in profit each quarter this year. And as one final note, we continue to actively evaluate our pipeline of acquisition opportunities that we believe can help us to accelerate growth and profitability. I’ll now turn to the semiconductor business. As you are well aware, the semiconductor capital equipment market is quite strong. And based on inputs from our customers, we are positive about the business going into the March and June quarters, which I’ll speak about in a moment. In the December quarter, our BSSG business was up 27% compared to one year ago. When we remove the license and YBA distribution agreement revenue, we were up 38% in the businesses we still participate in today. These are robust times indeed. Although the total wafer fab equipment market opportunity has seemed rather stable over the past five years, those of us who are deep inside know there have been a lot of big movements under the surface. At Brooks, we’ve had success by purposely targeting product investments around important high growth sectors. But, it’s worth noting that we have semiconductor business from sectors which have not been growing. Specifically, our cryopump franchise has extremely high market share and volume from two key semiconductor tool platforms, ion implantation and PVD. In calendar 2016, ion plant, a high content tool that uses cryopumps and vacuum robots was down 20% from 2015, quite unusual in an up WFE market. In PVD business, though not down as much, was also smaller in 2016 compared to 2015. The reason, I mentioned this is not to make an excuse as we’ll never be apologetic about high market share in profitable business segments but rather to explain that while 3D NAND memory capacity has driven tremendous growth for parts of wafer fab equipment, it has not necessarily impacted all parts of the equipment supply chain. That said, we do forecast our business for both ion implant and PVD to grow in the current quarter. Now, I would like to talk about our high growth sectors. As we’ve highlighted for several quarters, we’ve targeted three specific growth areas in the semiconductor business where we’ve been able to take advantage of trends that are changing the way semiconductors are made. Specifically, vacuum automation is being accelerated because of the increased demand for deposition and etch. Our Contamination Control Solutions are key to device yield at sub-28-nanometer process technologies. In advanced packaging that’s driven by the pervasive expansion, and the number of mobile and connected devices has expanded our frontend semi-solutions into the backend. The implications of all three of these trends have been and will continue to be meaningful for Brooks. Specifically, our vacuum automation product revenues increased 15% quarter-over-quarter and 17% for the full calendar year 2016 over 2015. As the large OEMs are setting records for shipments into the deposition and etch technology segments, so naturally are we. Furthermore, we see another increase in the March quarter as the equipment ramp continues, and we will set another record for vacuum robots with our production forecast up more than 30% in the quarter, a very aggressive ramp indeed. While the largest OEMs are bellwethers for the growth in deposition and etch, our vacuum automation continues to outgrow the opportunity, as we’re gaining share in the space by serving smaller equipment makers who are growing in China, Korea and Taiwan. It’s important to note that we count them on our customers, 13 different makers of frontend deposition and etch vacuum equipment. So their gains, albeit individually small, collectively contribute meaningfully to our growth. We are also gaining more share from large OEMs as platform-by-platform they discontinue their own legacy automation solutions in favor of ours. On the contamination control side, all the indications are pointing to another strong year ahead. We had a record $24 million in revenue in the quarter, up 10% from the September quarter, as we ship the majority of product to equip 10-nanometer foundry production. On a calendar year basis, CCS revenue came in at $68 million, up 50% from 2015, mostly driven by the accelerated growth of the need for this technology. Modest gains in market share do contribute to our growth, but we already capture most business at the fabs that are investing. In terms of outlook for CCS, we forecast that the March quarter should stay at approximately the same revenue level as December, as we’re beginning to ship more tools for 7-nanometer production capacity. Advanced packaging was solid in the December quarter, down slightly to $10 million. For the calendar year, our advanced packaging business increased more than 30% in 2016 to $42 million. Our forecast for this segment is to be down a few million dollars in March as there is no major backend factory capacity expansion, but we remain very active on the product development front and in position to benefit from the growth in this nascent market. Specifically, we had three more design wins in the quarter, so that we now have won 33 different tool platform across 28 different customers. We anticipate, there will be additional backend capacity started before the end of the calendar year, led by TSMC and their info two line. It is remarkable, how these three high growth segments have advance over the past years. In calendar 2016 alone, our revenue from these product segments combined to grow 27% over 2015, far outpacing the growth in frontend wafer fab equipment spending, and these segments now collectively represent 62% of the revenue in our semiconductor product portfolio. All-in, the semiconductor business is very healthy and the significant changes that we made to our portfolio over these past years has us position to take advantage of the strong growth in the most important trends that are driving the winners in the space. In terms of outlook for the semiconductor business, March will be another strong quarter. And despite an expected reduction in advanced packaging and flat CCS revenue, we look for semi to be up by at least $5 million in the March quarter. Suffice it to say that we’re positioned to grow and we’re capturing more of the markets that we serve. We remain persistent in the exercise of the actions that have carried us to this point and to this level of performance; product portfolio alignments and new product developments around growth opportunities and cost reduction and organizational efficiency. Overall, we have good momentum. We’ve put ourselves in the strong positions in two industries that are very healthy and which we serve with leadership products. We are very much where we set ourselves up to be and we expect to deliver on the top and bottom-line. That concludes my formal 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. Start the remarks, I would like to draw your attention to slide three, which is a consolidated view of our operating performance. Our top-line revenue increased 2% sequentially to $160 million in the first quarter of our fiscal year. GAAP based earnings per share came in at $0.20, an increase of 31% compared to the fourth quarter. And the GAAP results, we have $1.8 million special gain recognized on the closure of BioCision equity investment. Reduced restructuring charges in this quarter provided additional momentum to the bottom-line. On the non-GAAP side of the page, adjusted earnings per share is up 12% to $0.25. I want to highlight that we have remove the special gain that I just mentioned from these results. Revenue growth and lower operating expense drove $1 million or 6% improvement in operating income. Non-GAAP gross margin was 36.3%, approximately 0.4-point softer than the prior quarter. Improved gross margins in the semiconductor segment were offset by lower gross margins in life sciences. We will go further into this in a moment on the segment pages. An additional $1 million improvement in net income came from strengthened joint venture earnings. Our Japan-based UCI joint venture contributed $2.4 million of income, approximately $0.03 of our EPS line in this period. This joint venture with ULVAC produces cryogenic pumps used in the manufacturing process of OLED displays. The offsetting 300,000 loss in the joint venture line was driven by the negative income from equity in the BioCision business. We will no longer see the segregation going forward from BioCision as we dissolve the BioCision equity investment in the final terms of acquiring their Cool Lab business on November 28th. Newly acquired business was accretive to operational earnings on a non-GAAP basis in the very first month of ownership. Let’s now spend some time to go through each segment. On slide four, we see a summary of the Life Science Systems results. Revenue grew $1.7 million or 5% sequentially to $33.3 million, showing six consecutive quarters of growth in life sciences. As Steve highlighted, $64 million of new contract value booked in this quarter, underscores the continued momentum the segment is experiencing. Interestingly, both the revenue and the bookings were evenly split this quarter between the BioStorage side and the core business of life sciences. BioStorage reported revenue of $16.6 million. This is 16% sequential growth, up $2.2 million from our fourth quarter. In this quarter, we saw the seasonal dynamics of genomic services affecting our business. Just as we saw last year, the genomic services spiked up in the December month as customers in this space consumed their remaining yearend budgets. While the revenue from the peripheral services will vary, the core storage has and will continue to provide good growth. The core side of life science business was $16.7 million, 3% lower than the fourth quarter. But, to keep this in perspective, this is 16% higher year-over-year compared to the first fiscal quarter of 2016. Let me add some specifics and also provide some reassurance on the backlog going forward. First, the softness we saw this quarter was primarily driven in lower consumables and instruments. This area has been stable in the past. We have made investments and as Steve pointed out, the backlog we’ve added, indicates growth going forward. The bookings in this quarter for consumables and instruments were higher than any quarter of 2016. In the systems area, we were up 2%; this includes some softness in our large system projects due to timing of the projects which is supported by the new BioStore III Cryo products, which achieved $0.8 million of revenue in the quarter. Again, the bookings in the systems area were higher this quarter than any quarter in 2016. The services business for our systems customers was lower by 7%, reflecting some upgrade and relocation services completed in the prior quarter. The bookings in this quarter, yes, they were larger than any quarter in 2016. In the first month of owning Cool Lab, we saw approximately $300,000 of revenue. As we disclosed previously, this business had trailing 12-month revenue of $5 million. It was accretive immediately this past month on a non-GAAP basis, and is expected to contribute nicely going forward. In total, our life sciences revenue increased 5% sequentially. But again, on a year-over-year basis, we grew 60% that is 27% growth organically, and we added another $8 million from acquisitions. We had a record bookings quarter and the backlog closed at a high point. As you can see, gross margin was down to 36%, resulting in less gross margin dollars for the quarter. The lower margin percentage, primarily attributable to the mix dynamics in BioStorage while the lower dollars in total is due to lower consumables and services. We expect life sciences to return to approximately 40% gross margin in the second quarter. We made modest investments in SG&A this quarter with but primary driver of the operating expense growth was the commissions on the record setting bookings quarter. We continue to be very pleased with the life science business and see ourselves nicely positioned for profitable growth through the rest of the year. We expect the second quarter to drive approximately $35 million to $37 million of revenue. Within this projection, we will see the seasonal drop in genomics but anticipate the targeted growth to be driven by storage, the momentum of the core business in the full quarter of the Cool Lab product sales. On slide five, let’s look into the Semiconductor Solutions Group. The sales trend was modestly affected by the final effects of our exit of the distribution agreement of YEC and the IP income streams, which was about $2 million in the prior quarter and are now zero. As Steve has outlined, the drivers of the remaining $3 million growth can be attributed to Contamination Control Solutions, which increased approximately $2 million and other automation and cryo products which grew approximately $3 million. The offset for this growth was a decline of service revenue by approximately $2 million. The gross margin for the semi business increased 0.4-point to 36.4%, driven with improved margins in the cryogenic products and increased leverage on a lower cost structure in total. Regarding this structure, I want to update you on our restructuring progress at this point. We completed the $15 million restructuring announced last March within the September quarter, and we have shared previously that we were in process of taking out another $8 million by the end of this March of this year. We are on track with getting the $8 million reduction. In our semiconductor business, this quarter, we have completed the operational exit of the Jena, Germany location, consolidating refurbishment operations into our Chelmsford center to have one single new manufacturing and refurbishment center for North America and Europe. The building leased for the Jena site, expires this month. And we are in process of closing our Japan CCS location which we will be integrated into supply chain management of our German CCS team. In the life science business, we completed the transition of our life science’s team from the Oberdiessbach, Switzerland building which we sold back in the fourth quarter. And we have transitioned our FluidX headquarters into our single manufacturing center in the Manchester, UK location as of January. This largely completes the planned resource and site integration of the past acquisitions in life sciences. The charges for these actions were take over the course of the recent three quarters. The actions outlined will in total drive approximately $6 million of the targeted $8 million of annual cost take up. In terms of the timing of the $6 million of benefits, we have seen approximately $0.5 million of benefits accumulated into the quarterly run-rate already and anticipate another $0.5 million in the second quarter. We will update you again on this in the full $8 million of restructuring next quarter. Let’s turn to the balance sheet on page six. There are three dynamics that standout on the balance sheet this quarter. Inside working capital, which you can see is flat to last quarter, we have an increase in accounts receivable and a related increase to deferred revenue. As we book new projects in life sciences, we often build customers in advanced or portion of the project and then earn this over the course of the project. Most of the increase remains in receivables this quarter but will convert to cash according to payment terms, not always driven by life sciences. We also carry deferred revenue for semiconductor systems including the CCS systems, which are built upon shipment. But if there is a first time system shipment to a new customer, we do not book the revenue until we see final customer acceptance. In this quarter, we had initial shipments to a new memory customer. You’ll also see an increase of trade payables driven by our current levels of production and a decrease in other liabilities, which includes accrued compensation. The reduction in other liabilities was driven primarily by the payment of variable compensation for the 2016 fiscal year. Finally, we executed the acquisition of Cool Lab in the quarter. This removed the BioCision investments in equity, the related debt and bridge loan instruments from the balance sheet. Some of these based on fair value and $4.8 million cash disbursement, put the value of the acquisition $15.2 million in total. Of this amount, $14.6 million went to the goodwill and amortizable intangibles. Let’s turn to the cash flow summary now on slide seven. Cash flow from operations was $19 million in the first quarter. As I mentioned, we held working capital flat. In free cash flow of $15 million, we typically build cash after covering the $7 million of dividends paid. As noted on the balance sheet, we used $4.8 million for the acquisition of Cool Lab. We closed the quarter with $89 million of cash, cash equivalents and marketable securities. We carry no long-term debt on our balance sheet. Most of our investors recognize the momentum we’ve seen in our earnings throughout this past year, but I take this opportunity to highlight to you that cash flow has been healthy too. For the 2016 calendar year, our operating cash flow accumulated $71 million and our free cash flow was $57 million. We returned $28 million of this back to investors in the form of dividends. We’re very pleased with the strength of this balance sheet. Let’s go on to slide eight and address the outlook for our second quarter of fiscal year 2017. Second quarter revenue in total is expected to be in the range of $165 million to $170 million. This reflects approximately $35 million to $37 million in life sciences with balance in semiconductor. Non-GAAP earnings per share is expected to be in the range of $0.24 to $0.27. This reflects the growth combined with lower expectations on the joint venture earnings. GAAP earnings per share is expected to be in the range of $0.18 to $0.21. Our GAAP estimated numbers include that impact of amortization of intangibles, restructuring and any special charges. That concludes our prepared remarks. I’ll now turn the call back over to George, our operator, to take questions from the line.

[Operator Instructions] And our first question comes from the line of Edwin Mok with Needham. Please go ahead.

Hey, thanks for taking my questions. Congrats for the great quarter. First, I have on the semi-cap side. Steve, I just wanted to clarify, did you say that you expect your June quarter be as strong as your March quarter for the semi-cap business? And among the drivers that you highlight, what are driving that strength in the June quarter?

So, Edwin, we know March is going to be strong, and what we’re getting as signals from our customers is that we need to be prepared for kind of a same level of activity in June. So, orders always come a little bit later, but supply chain ramps have begun. And so, we don’t anticipate a big fall off to queue up for June. So, it’s little bit early to call it, but all the requests we’re getting from our customers is we are able to sustain in June like we are in March.

Okay, that’s helpful. I think Lindon mentioned in his prepared remarks that you guys got an order for the CCS system or the shipment of CCS system to a memory customer. Can you talk about a memory opportunity for this business? I think historically, you guys are predominantly foundry and logic, just curious how do you think about -- is that really sem [ph] expansion story behind this offering?

Yes. So, Edwin, I think the memory is still going to be a lot less than we see in foundry and logic. But we have four memory customers right now, and shipments are few tools as opposed to tens of tools. But we don’t know where that will go ultimately and we don’t know also about the complexity of the multi-layer 3D NAND. But right now, we look at memory as a modest opportunity, certainly a transistor formation; it’s pretty critical, but we’re not sure if it will drive any additional expansion. But, it’s going to be a good steady business for us but not like foundry.

Okay, great. Let me ask you a question on the life science. You mentioned that you have signed much larger deals with more bundles. I was wondering the stat -- is there any risk on pricing because customers want to buy more from you of these different surfaces, they might be asking [indiscernible] and should we start to -- is there any concern that that might ultimately have some -- put some pressure on margin?

Well, we haven’t seen any so far. I think the customers actually, Edwin, at this point are pretty delighted to be able to get capability from us that could serve a lot of their need. So, it’s not a pressure point so much; it’s really take on more things that they didn’t know we were able to do. So, no, it’s not a price pressure issue; I think it’s a tremendous value add what we’re finding out so far.

Okay. Last question I have -- I’ll let the other guys ask, just on in terms of directionally your gross margin and OpEx for the March quarter. If I understand you correctly, it sounds like you expect gross margin to recover, especially on life science side, but seems like you also expect OpEx to increase in the March quarter. Can you help to clarify that and what’s driving that?

Yes, you read that exactly right. We have some margin improvement we anticipate, driven primarily from the life sciences but we also think will have little strength on the semi side; in total we think will be up above 1 point. And then on the operating expense, we are making some continued investment that will be in the life sciences and we are also doing some strategy work to make sure that we grow that business completely.

Our next question comes from the line of Patrick Ho with Stifel. Please go ahead with your question.

Steve, given the current semi environment and the outlook that you’ve provided for March and June, I know your lead times are generally short to begin with. But, do you see any supply constraints on your end, given the activity that’s out there, especially in the entire food [ph] chain? How comfortable do you feel that you’ll be able to meet the strong demand over the next two quarters with your own supply chain?

We’re working really hard but we feel pretty confident that we have good touch points everywhere. But I do hear that the supply chain is pretty strange everywhere. But, we’ve been out months in advance trying to get everybody ready, anything could happen. But I think things are tight, but we’re all working to make sure that we meet the requirements from our customers right now. So, we think we’re prepared, how about that?

Fair enough. Going to the life sciences side, a really strong bookings quarter. I know this is probably something that you don’t have to quantify, but maybe qualitatively talk about. Given your broad product portfolio now that you’re offering, can you give instances where you’re now starting to see the leverage of okay, now a purchasing of the storage solution also leverage some consumable buys and things of that nature. How much of that contributed to the really strong bookings quarter on the life sciences end?

Yes. Thanks, Patrick. Let me give you maybe a little example here. As we’ve been talking with everybody, we have more than 900 active customers right now for life sciences including all of the 20 of the largest pharma companies. We help them manage tens of millions of samples in various ways. And we probably shouldn’t call them samples, these are really priced assets that provide the path for how these guys are going to make cures. And so, they’re critical assets for these companies. And to say, we really don’t have a single solution, for example for the products that we provide to Merck or to AstraZeneca or to GSK, they’re all different. But they’re always tailored to the specific needs and whatever handling protocols they have. And likewise, we do things for biotech and healthcare institutions that are pretty different. So, what we do for Grail and what we do for Duke University are again capabilities that we bring that are similar elements but always packaged pretty differently. But, we do have one, probably one really good example I can refer to is the capability we provide to Bristol-Myers Squibb. So, BMS is a customer for about everything that we offer. So, they are customer of the large automated compound stores; they have our automated BioStore III Cryo systems. And those are both for onsite sample storage. We also provide to them onsite and off-site sample management services through BioStorage and we also provide them genomic analysis solutions. One other capability that they buy from us that something you’ll hear about more as we continue to build out this business is they also use our Informatics software both to manage their workflows and to connect their pretty distributed sample inventory collections that they have around the world. And frankly, they also use our consumables and instruments for collection and storage. So, as we build, this is a pretty broad range of offerings. Some of the large pharma companies are beginning to use more and more of the capability, but we’re also offering this to academic to the biotech companies, and we do see the capability building. So, the reason we think that some of the contracts are getting larger, some of the opportunities are getting larger is because we’re able to bundle these capabilities and really solid workflow issues around these kinds of assets. So, we’re really bullish about it. The customer base is helping us to define what those things are, but as a pretty flexible Company, we’ve been able to put those things together into really high value packaging. And we anticipate more coming.

And final question from me on the BioStore III, the small sample storage where you have the initial slow traction and adoption of it. Do you feel that you’ve not reached that inflection point and that that would be an area of growth for that product in 2017?

It will be growth in 2017, but we haven’t hit the position yet. So, Patrick, I’m going to anticipate the pressure from you every quarter for a while, and we’ll deserve it. But we’re working really hard. But, I think the thing that’s most encouraging for us is we developed a larger capacity version of it, and we sold units to two different cell therapy companies this quarter. And they have a very specific need for this, which is exactly the reason why we defined it. But it will take them some time to evaluate, and we’ll look for the next customers to get into evolution mode. And there is definitely volume capacity behind, but they will have to test this for some months yet. But, we are really positive about the opportunity; we’ll be bigger in 2017 than we were in 2016. That’s not a difficult feat. But, we do want to exit the year with a lot more momentum. We think the right things are happening, the right things happen in Q1, and we will absolutely report every quarter how we’re doing. But I won’t say we have tremendous attraction, but where we have those tools in place is exactly where they should be. So, we’ve got a lot of work to do. But we’re encouraged by it. We have some pretty aggressive objectives for this year, we haven’t led up on them, but we do have work to do.

And our next question comes from the line of Paul Knight with Janney. Please go ahead with your question.

Hi, guys. This is actually Bill on for Paul. How are you doing?

Hi, Bill.

First, just on the life science business with the seasonality associated with the genomic services, could you give us a sense of how much that impacted margins in the business in the quarter?

Yes. Bill, it’s safe to say that we would have been approaching already 40% without that mix impact. We had a little softness in the consumables. So that’s piece of the mix as well, but the BioStorage. We saw this last year in December as well as. Last year, it stood up, because we only owned them for the month of December and it was like half of that revenue that we had last year. And we saw growth on both sides year-over-year -- the full quarter of this year, but it was pretty substantial. And I would tell you, we do not see that we have a margin issue in the business in any one of these segments and some of our investors have been with us for a long time would recognize that we did two years ago. We don’t have that now; we are at that 40% level in a normal quarter.

Got it. And then maybe just back to the commentary around bundling. Could you just talk about whether that has -- those conversations have been happening with existing customers that were either using the legacy products or BioStorage, and just maybe about the cross-selling conversations you have been having with the customers?

Sure. For sure, the conversations are going on with all the customers who are existing customers. So, if they -- Bill, I’ll give you an example. When customer has a cold store, even if they hadn’t been a BioStorage customer, when they get to the point where the cold store is beginning to be full, some of those samples really ought to be archived. And so rather than having them build or purchase another large store, they may be able to free up capacity by taking some of the samples that really ought to be archived and moving them off site into Indianapolis. Sometimes they have a move that they want to do. Sometimes they want to take a distributed collection and centralize it. Actually with every customer, we could have a conversation around additional capabilities we can bring to them. So, if they are services customer or they are infrastructure, conversations to have -- if there is an infrastructure customer, we can talk to them about services. And with almost all of them, we can have the conversation around things like genomics, around consumables, around instruments and informatics. So the richness of the conversations has expanded. And we spent a lot of time training an excellent sales force on the elements of the offering that they are not familiar with. So, we’re learning how to do it. Some people are really excellent at. If we were building a sales team that’s able to have a conversation about the customer’s sample issues, and with almost every conversation, we have something to offer them that will provide a benefit. So, we’re learning how to do it but we’ve had a lot of success so far.

Great, and just one last one. Just strategically, the decision to acquire Cool Labs and bring that in house as opposed to keeping the JV structure, kind of what the rational was that and how that’s progressing? Thanks guys.

So for both us, it actually was a product line that fits exactly into our sweet spot. The founder of the business also had thoughts about what to do with different portion of the business. So, the timing worked out well for something that we’d always been close to and it worked out just perfectly for us to be able to take that part of the business and for the foundry to go off and take the other portion of the business to run that separately.

[Operator Instructions] We have a question from Ben Rose with Battle Road Research. Please go ahead with your question.

Question, I was running pretty feverishly on the vacuum automation commentary that you had. Did you quantify, and I apologize if you did, the revenues from vacuum automation this quarter versus last year?

Ben, we gave the growth rates to give indicative trends, but we don’t split out the elements of the portfolio specifically in dollars.

Okay. And those growth rates were only on a sequential basis. Is that right?

Yes, that’s right.

Okay. You mentioned that there was strength from both the large OEMs and some smaller OEMs for vacuum automation. Looking out regarding the commentary that you had about March and June, is that -- are those kind of stronger indications coming from the large OEMs or from the smaller ones?

Yes, right now from the larger OEMs only.

Okay. And with regard to the life sciences business, I know you’ve talked about restoring a 40% gross margin this quarter. What do you think would be -- what would be a reasonable gross and operating margin target exiting fiscal 2017?

Well, what we had indicated and we still have conviction around is that for the year, we will be at something north of 40%. And so, we just did one quarter at 36%. So, you could take it from there on the arithmetic, but somewhere north of 40%. And I won’t put a specific number on an exit rate. You can see we’ve got some revenue ramp ahead of us with that growth; I think you are going to see improved margins in the second half at the operating margin off of leverage and gross margins I think goes [ph] up above 40.

Okay. And on the operating margin line, any color beyond sort of incremental operating margin improvement?

No, we haven’t laid that out. I appreciate the desire for it. Last fiscal year, in total that operating income was a negative $5 million; we were profitable in the second half of the year but first half, we were down about $6 million. This year, we’re profitable staring off the year and we expect it to continue. We have flexible leverage to improve, but I won’t put a number on it as we continue to make some investments. Thanks.

And Lindon, sorry, just one final question and looking onto the cash flow on slide seven, I think there is a notation on the bottom that $4.8 million was for the Cool Lab acquisition and yet acquisitions are listed as $5.3 million. I’m just trying to reconcile the two figures.

Yes, we had a remaining payment that was just first related to our prior acquisition on an earn-out that was related to our Japan acquisition in the CCS business. But, the bulk of that was as dispersed for the Cool Lab purchase.

There are no further questions at this time.

Alright. Well, we thank everyone for their interest and the time that they spent with us. And we always look forward to seeing as we move through the quarter. And for now, we’ll look forward to talking to you at the end of our second fiscal quarter. Thank you very much, George, for your help.

Ladies and gentlemen, that does conclude our conference call for today. We thank you for your participation and ask that you please disconnect your lines.