Azenta, Inc. (AZTA) Q1 2018 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Brooks Automation Q1 2018 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, February 1, 2018. I would now like to turn the conference over to Lindon Robertson, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you, Christopher, and good afternoon, everyone. We would like to welcome each of you to the first quarter financial results conference call for the Brooks fiscal year 2018. We will be covering the results of the first quarter ended on December 31, and then we will provide an outlook for the second fiscal quarter ending March 31, 2018. A press release was issued after the close of the market 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 our annual reports on Form 10-K and our quarterly reports on Form 10-Q. We made 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 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 ending March 31, which is our second quarter of the fiscal year 2018. We will then take questions at the end of those comments. During our prepared remarks, again 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'd like to turn the call over now to our CEO, Steve Schwartz.

Thank you, Lindon. Good afternoon, everyone, and thank you for joining our call. We are pleased to be able to have a chance to update you on the results of our first quarter. Coming off 2017 fiscal year in which we grew revenue by 24%, we delivered Q1 performance as is off to another fast start in our fiscal 2018. Revenue for the quarter was $189 million up 18% from a year ago with growth again coming from both Semiconductor and Life Sciences. And we entered the year positive about our outlook as bookings in the quarter were solid $225 million including $59 million from Life Sciences. We are encouraged by the projections and optimism that surround these two markets and our confidence comes from the fact that our offerings are targeted at critical technologies that are fueling much of the strength in these markets. In Life Sciences growth is a theme as the discovery process procures is driving a tremendous increase in the number of biological samples that are being collected and stored and an exponential rise in the number of analytical test and genomic sequencing measurements that are being performed on million of samples every month. The care and precision that's required to properly collect, store, track and transport these samples is a tremendous importance and is driving research organizations to move toward automated sample management and/or completely outsourcing the management of their samples to a full service provider like Brooks. We're still in the early innings of this rapidly evolving industry over extremely well positioned to both define and capture this opportunity. After a record year for the semiconductor equipment industry, we still see strong growth powered by an insatiable demand for solid-state memory and high-performance logic chips that support the next wave of mobile devices. Memory capacity expansion has been the driver of late but later this year we anticipate an increase in logic production which should sustain the high level of capital equipment purchases. So let’s talk about the quarter and the steps we're taking to win and grow. I’ll begin with a recap of our Life Sciences business performance. Life Sciences revenue was $47 million, a 10th consecutive quarter of sequential growth and up 42% from a year ago. Organic growth was 22%, driven by strong organic growth across the entire portfolio. Automation was up 40%, consumables and instruments up 30% and services and informatics up 15%. As I mentioned, bookings were $59 million increasing our backlog for this segment to $270 million, a new record level. Our order pipeline remains strong and supports our expected 30% revenue growth in 2018. We continue our aggressive growth trajectory by adding 37 new customers in the Biotech, Pharma, Clinical, Academic and Consumer driven market. We had 11 new customers for storage services including a contract for us to set up and manage a newly constructed large dedicated sample storage facility for prestigious research hospital. An example of the desire for owners of large diverse complicated sample collections to outsource to capable and competent stores of their invaluable assets. And significantly, we had first sales of our automated acoustic sample tools following two years of joint development with an acoustic dispensing liquid handling equipment manufacturer and the global pharmaceutical company. The acoustic tools will be stored and managed in our specialty built high density automated storage system. The integration of our two most recent acquisitions PBMMI and 4titude is progressing extremely well. We're pleased with both of these companies, whose performance is exactly on track with both accretive in the December quarter and meeting the performance that was committed and expected. In our Cryo business, we added seven new customers including large first time biopharma and biotech customers, a hospital network and universities and research institutes across their broad global mix. We now have B3C cryo system installed at 30 customers and a growing list of cell in gene therapy leaders who are adopting our cryo solutions into their SOPs. And we're steadily and confidently building our pipeline of companies who need the hardware and informatics capability that we've developed, if they're to be successful bringing innovative therapies to market. With Q1 revenue of $47 million, solid bookings and a clear path for additional strong growth this year we've created a substantial business that's on firm footing and is gaining momentum. Over the past years, we've invested to create a complete and comprehensive sample called Chain portfolio, that uniquely serves in expanding, an exciting market. We worked to capture customers, geographies, footprint, technologies and product expertise to secure both mindshare and market share. As we approach the $200 million annual revenue run rate, we're also in a position to affect the next level of performance in our Life Sciences business model. We've implemented operational improvements, sales infrastructure and R&D investments that will positively impact our operating results and sets the stage for us to improve profitability through the year and deliver 10% operating income by the September quarter and keeps us on track to deliver our 2019 target of 15% operating income. At this juncture, we're confident with our ability to continue to expand and without sacrificing growth this is also the time when we can begin to deliver more of the profit potential from our Life Sciences business, due to the signal of the strength and vitality of the business that we've created and will allow us to demonstrate robust growth and increased profitability. This is not a change in our direction, but rather the next stage in a revolution of a healthy Life Sciences business. That said, we also plan to remain acquisitive as we have a considerable pipeline of potential targets that will support the build-out of our cold chain capabilities, but we'll be disciplined in our approach to these opportunities as we already possess a complete cold chain solution and any additions to our offerings will be to add more capabilities and/or more customers that can help us to grow even faster. I will now turn to recap of our semiconductor business in which we delivered another strong quarter and further enhanced our position for the future. Revenue at $142 million was up $4 million quarter-to-quarter. Bookings of $166 million, support projections from our larger customers who look forward to another strong year in wafer fab equipment spending with the likelihood for more growth after a record 2017. Nearly all of the increase in our semiconductor business came from the combined revenue or three critical high growth segments a vacuum automation for deposition and etch, events packaging and contamination control which increased 9% sequentially from the September quarter and that's inclusive of a decrease in our CCS business. These segments currently represent approximately half of our semiconductor revenue. The balance of our semiconductor business remains strong, but relatively flat quarter-to-quarter as our cryo vacuum business and Polycold chillers business remains robust, that is near record levels and product lines that include 200 millimeter products, load ports our FID and other automation products were also steady and profitable. Looking into the March quarter, we anticipate the most significant part of our semiconductor revenue growth will again come from our three key growth drivers and demand for our legacy leadership products will stay healthy with the potential for some upside. I'll give some color into our key semiconductor segments. Once again our vacuum automation business continues to strengthen because of the continued boom in the volume of deposition and etch applications. Overall, vacuum automation revenue was up 12% quarter-to-quarter driven by continued high demand for vacuum robots from our Tier 1 OEMs, but also significant integrated vacuum system business from Tier 2 OEMs who are predominantly domiciled outside of the U.S. We’ll also continue to build for our future as we capture additional key design wins for our next generation vacuum robots, the megatrend leap family. At Tier 1 OEMs, we secured another three additional high volume tool platforms by replacing their internal captive's designs on previous generations of tool sets. This continued trend outsourcing automation to us is accelerating among OEMS, not only because of our technical expertise but also because of the significant improvements that we've made over the past years as the high volume, high quality supplier. Since the beginning of 2017, we have won 9 new tool designs for our next generation automation products. These wins will begin to generate meaningful revenue when the OEMs start to shift next generation process tools for production in 7 and 5 nanometer factories. We forecasted another record quarter for vacuum automation products in the March quarter from across the entire spectrum of our customers, including more activity from Korean and Chinese OEMs, who are dedicated adopters of our automation solutions to serve the significant equipment opportunities they have, selling process tools in their respective domestic markets. Our revenue from advanced packaging applications was again strong and it's proving to be more steady growth opportunity. As we had anticipated the end market for advanced packaging is now expanding to include meaningful opportunities beyond just TSMC’s integrated outlines to now include outsourced assembly and test facilities and some specialty fabs. Although, it's still not an easy market to forecast, we do expect that this trend will continue as packaging technologies are becoming critical for a broad, mobile and O.T. applications and become more the norm rather than the exception leading to more growth from this sector. Advanced packaging revenue for the quarter was $14 million up 13% sequentially and up 50% from the same quarter one year ago. We're confident in our ability to win in this segment and we're investing in next generation technologies to be able to handle what will be even more sophisticated substrates in the near future. Although, the market opportunity is still relatively small compared with front end equipment, it does provide us with a significant opportunity for continued growth in this business which has already become approximately 10% of our semiconductor product revenue. Our outlook for this segment is for more steady growth in 2018 and certainly for more design wins with new and existing customers. As we guided CCS revenue for the quarter came in just shy of $14 million, a decrease from September’s $15 million and the third consecutive quarter of lower revenue, but still robust considering the lower level of Tier 1 foundry activity. We remain very positive about the contamination control market as it continues to develop as we predicted. Tier 1 foundries led the adoption of automated carrier cleaning beginning at the 28 nanometer device node and approximately half of last year's $84 million of CCS revenue came from Tier 1 foundries. And we've been able to see that the market will continue to expand, as Tier 2 foundries follow and adopt similar cleaning strategies. Furthermore, we’ve predicted that memory fabs would also begin to include automated carrier cleaning into their manufacturing processes, although not with the same capital intensity or carrier clearing frequency as logic fabs. This scenario appears to be playing out as we gained more share with the first order for an automated tooth cleaner from a new Chinese logic fab. And we established an evaluation agreement to install our automated tooth cleaner at a Chinese memory factory. China is the last competitive battleground for automated tooth cleaning but because of the strength of our offering coupled with the technology enhancements that we've made over the past year, we’re confident in our market position and our ability to win. We've seen a pickup in bookings and CCS following three consecutive quarters of lower revenue. We anticipate growth again for the remainder of the fiscal year as we believe the foundry spending will likely increase in the second half of the year. In addition to the CCS opportunities that are brought by current manufacturing technology, we’re beginning to see the uptick in the need for the care of EUV radicals both radical carrier cleaning and stocking. At 7 and 5 nanometer notes, we're positioned to expand our market as the EUV technology begins to be introduced at leading-edge logic fabs. To-date we've already installed five EUV pod cleaners which are operating at leading fabs that are developing EUV process technology. Cleaning specifications for EUV radical [indiscernible] is meaningfully more difficult than for tooth cleaning and we've been working closely with the OEM and fabs on the development to the process specification. To-date, we're the only company to be production qualified. In addition, we've delivered five EUV radical stalkers which are used to store these valuable radicals in ultraclean environments. We have more of these tools in backlog and we anticipate some acceleration of orders in the second half of 2018. Overall, our high level of design win activity is strong validation that the investments that we've been making in R&D are delivering capabilities and technologies that are right on the mark in terms of technical and productivity needs for 7 nanometer and 5 nanometer semiconductor manufacturing and when these technology notes hit high volume, we will be ready and with even higher market share than we have today. In the near term we have many positive indicators about the marketplace and demand. We forecast another quarterly increase in our semiconductor business in the March quarter with vacuum automation leading the way and we see reawakening in the CCS business. All in, the December quarter was yet another important period of expanding our leadership and additional validation of our strategy and technology prowess. We've positioned ourselves for more and more profitable growth in the next quarters and years. We're beginning to hit our stride in semi and we're investing in Life Sciences to ensure that we deliver not only on the growth opportunity in the space but also that we recognize more of the profit potential that exists in this new and exciting market. And that concludes my formal remarks. 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. We'll begin with Slide 3 which is a consolidated view of our first quarter operating performance. Our topline revenue grew 4% sequentially to $189 million. This represents growth of 18% year-over-year both segments drove growth. Sequentially, Semiconductor Solutions expanded 3% and Life Sciences 8%. On a year-over-year basis, Semiconductor grew 12% while Life Sciences grew 42%. Inside this growth, Life Sciences had organic growth of 22% year-over-year and maintained the high organic growth trajectory we've seen for the past five quarter. In the GAAP results, we see significant leverage of the operating income level unimproved operating expenses. Diluted earnings per share were $0.23 in the first quarter which addressed the primary dynamics as we look at the non-GAAP results on the right side. Non-GAAP gross margin came in at 41% which is a half-point lower than the prior quarter. This reflects stable Semiconductor margins above 42% and lower Life Science margins at 36.5%. We will cover each of these as we get to the segment pages. With total non-GAAP operating expenses essentially flat, we see 9% growth at the operating income line and help the expansion of operating margin. If I take you back to the year-over-year comparison, this non-GAAP operating income result is up 52% year-over-year on the 18% revenue growth. I need to spend a moment in the non-operating section of the P&L as this is where we saw the combination of three dynamics uniquely impacting the sequential leverage this quarter. Some of these are temporary in terms of their impact on our earnings. First, as explained in our previous earnings call, in the first week of this quarter we established a $200 million term loan at attractive rates. The loan currently drives 2 million of quarterly interest expense. While the interest expense will remain with us and weigh down EPS approximately $0.03 per quarter, the cash is not yet been put to work on our acquisition pipeline. But this is the primary reason we took the debt to do further acquisition. And as we do, we anticipate it will lift our non-GAAP earnings more than the $2 million in total and more than $0.03 per share and from there it should grow. Secondly, we experienced foreign exchange losses of $2 million in this quarter which was $1.4 million more than the prior quarter. This is a $0.02 impact quarter-to-quarter. The FX losses were largely driven by movement in the British pound and the euro against the U.S. dollar. We hedged our expected exposures this quarter as we always have but saw a higher volatility in our intercompany balances relative to the hedges we put in place which was exacerbated by funding to our U.K. operations to purchase 4titude. Generally, we have a mixture of foreign exchange gains and losses for different currencies which often offset. However in the December quarter we experienced losses in nearly each instance adding up to this unusual level of impact. While this is an exposure and cost us an extra $0.02 compared to the prior quarter, it is not expected to recur at this level. Third, the non-GAAP tax rate of 15% increased approximately two percentage points from 13% in the fourth quarter. The change cost us approximately $0.01 at our current level of earnings. In this case the 15% is consistent with our expectation for the year so we expect this impact to remain in our quarterly results going forward. In total, these nonoperating items reduced our sequential earnings by $0.06. The foreign exchange returns to a more normal range, $0.02 of this will subside quickly and we plan to make up more than $0.03 of interest expense but will take a little time as we remain disciplined in our path of acquisitions. The joint venture earnings were flat this quarter with sustained strength in the OLED tools market. So at the bottom line, we produced $23 million of non-GAAP net income, $0.32 per share and $36.5 million in adjusted EBITDA. As noted on the chart, we see these results as being on track and progressing toward our 2019 model. Again taking it back to the year-over-year comparison, adjusted EBITDA of $36 million increased 42% and non-GAAP earnings per share increased 28%. Let's turn to Page 4 to begin discussion of the segment results. In the first quarter, Life Sciences revenue was $47.4 million which was an increase of 8% sequentially. On a year-over-year basis, Life Sciences grew 42% including organic growth of 22%. And this result was not an easy comparison we reported 27% organic growth at this time one year ago. The health of the past one and two year growth track for Life Sciences is seen across our entire portfolio. System sales have seen strong growth driven by the need for automated infrastructure to manage biological samples and cryogenic environment. Consumables and instruments growth is driven by the adoption of Brooks technologies to enhance and enable advanced workflow of sample management solutions. We see this expanding with both our automation and bio storage customers. Further our services and informatics business continues to expand on our bias towards platform coupled with expanded software offerings for both small labs and enterprise solutions. All of these areas have seen high double-digit growth over the past year. On a sequential basis Life Science revenue which was up $3.5 million had two lines of significant growth compared to the fourth quarter. The 4titude acquisition added $3.4 million and genomic services a seasonal driver inside storage services for December expanded $2.8 million. These increases were partially offset in two other areas, transportation service was $1.3 million lower and sales in our cryo products achieved $1 million in the quarter down $1.3 million from the fourth quarter. The remaining lines were stable sequentially. The total bookings for Life Sciences picked up again in the first quarter coming in at $59 million and adding to backlog. I should emphasize that our Like Science bookings are a mix of short-term and long-term estimated realizable revenue. So similar to our comments last quarter but this is a strong showing of demand it does not translate meaningfully into a book-to-bill ratio indicator. Life Sciences adjusted gross margin in the first quarter came in at 36.5% down 170 basis points in total from the prior quarter. Margins in the infrastructure sales and services area improved 160 basis points sequentially but the improvement was a bit short of the progress we had anticipated/ This level of improvement was offset by the mix impact of the higher genomic services which carry lower margins. Also the lower transportation in the December quarter left the fixed cost of our fleet underutilized. In regards to this current second quarter, we see revenue growth overcoming the seasonal drop of genomic services and reaching a range of $48 million to $50 million. Gross margins will benefit from further cost improvements and the improved mix. As Steve highlighted, we expect Life Sciences to be a 10% operating income by the fourth quarter. In terms of cost and expense structure, except for the potential of further acquisitions we believe our investments for this year largely in place now and we continuously lean out all areas of our business. The revenue growth, cost improvements, favorable mix, and leverage provide a roadmap to get to 10%. Let's turn now to the semiconductor business on Slide 5. Semiconductor Solutions revenue increased 3% compared to the fourth quarter. As Steve shared our automation offerings which include robots and systems was the principal driver of this increase. We continue to experience strong demand in advanced packaging, as well as in deposition and etch applications. As anticipated, we did see softness in contamination control solutions this quarter and are seeing the indication of higher demand coming back by the second half of our fiscal year. In total, the applications $142 million of revenue is 12% higher than one year earlier. The semiconductor adjusted gross margin was essentially flat this quarter at 42.3% and operating expenses improved largely on reduced variable compensation accruals in this first fiscal quarter. The operating margins of 19% are running at the high-end of our target model and give us continued confidence in delivering on our 2019 model. Now let's turn to the balance sheet on Page 6. As previously referenced, we established the first debt instrument for Brooks in many years. It was the right time to take on the debt as an insurer liquidity as we acquired the 4titude business and provides fuel for a robust M&A pipeline ahead of us. I’ll draw your attention to the working capital line and highlight that are receivables were largely affected by timing of sales which we would expect to moderate in future quarters. In addition to inventory, its driven by both segments split between ensuring the supply chain of semiconductor product and the expansion of growth in Life Sciences. Let's now turn to Slide 7. Our first fiscal quarter inherently provides lower cash flow as this is the quarter we pay out our annual variable compensation from the prior year results. With that pay-out and the investment on working capital behind us, I believe the 3 million is a strong start and provides promise of strong cash flow ahead of us. In the area of investments, you can observe that the $65 million we used for the acquisition of 4titude. You can also see our commitment to the dividend payment. We started paying the dividend in 2011 and have since returned $160 million in dividends to shareholders. Let's turn over to Slide 8. Before we wrap up and discuss our guidance, let me first summarize our results and provide commentary on the impact of tax reform. In the first quarter 4% sequential topline growth drove operating margin expansion. Both operating income and bottom-line earnings per share are much stronger than one year ago and our profit models still progressing. In this past quarter, we saw our first quarter of interest expense in our new debt and we experienced an unusual level of foreign exchange losses which in total dampened the sequential momentum at the EPS level. The interest expense will stay with us in future quarters but the FX impact should not and as we make further acquisitions, we expect the interest expense to be more than covered by the operating income of the businesses we acquire. Combining those potential acquisitions with the continued growth we are seeing in each segment and with the path where profit improvement in Life Sciences and I think you can see why we're in a strong position for future profitable growth and have confidence in our 2019 model. The tax reform will also help us in the future as most of you understand we have nearly $100 million in net operating losses which we carry forward from the past. These provide tax credits that can be used against U.S. tax obligation for some time to come. So here are the key points of affect on us for now, we will see approximately 15% as a global tax rate since our U.S. taxes will be near zero as long as we have the NOLs and as long as they are fully reserved. Behind this dynamic our incremental 2018 U.S. tax liabilities will be calculated at blended rate for this December quarter at 35% and Q2 through Q4 periods at 21%. This will be 24.5% for 2018 but even this will be lowered in the future as more than half of our U.S. income is driven by exports. Profit from U.S. exports will benefit from a lower rate in our 2019 fiscal year. In the future if we were to exclude the impact of reserved NOLs we would expect our global tax rate to be approximately 20% to 25% which reflects the U.S. at approximately 17% the global rate is approximately 10 points lower than our past experience. For now it is important to know we continue to operate with a fully reserved NOLs which provides U.S. tax credits or something to come. So now for the guidance of our second fiscal quarter revenue is expected to be in a range of $195 million to $205 million. Adjusted EBITDA is anticipated to be 39 million to 46 million. Non GAAP earnings per share expected to be $0.33 to $0.41 per share. And the GAAP earnings per share is expected to come in at $0.24 to $0.32. That concludes our remarks. I’ll now turn the call back over to Christopher to take questions from the line?

[Operator Instructions] And our first question comes from the line of William March with Janney Montgomery Scott. Please go ahead.

So first question could you give a update on 4titude and Pacific Bio following the integration what you've seen since they been integrated and then in conjunction with that, Steve can you maybe talk about the M&A pipeline and as you think about adding consumable versus a software versus sample storage kind of how you're ranking potential acquisitions?

Bill so couple things about the acquisitions. When we took on the 4titude Group we anticipated around 3 million in change and they delivered exactly that. Their outlook for Q2 is equally strong maybe up a little bit. So they’re right on schedule, right on track and fitting in extremely well. The integration activities Dusty is going with the team are progressing really well and it’s been a smooth integration so far and then we're really positive about how the outlook is. In the PBMMI acquisition, we were pretty secure on the storage business it turns out in the September quarter. We were right on track in December we were up a little bit it was a pleasant surprise. The summer period for transport services we know to be high and we found out in December it dropped to about $1 million from the September quarter again anticipated but that progress is going extremely well. And I’d say from our outlook of the stewards is a little bit higher than we had anticipated. So they seem to be integrating without the skip and beat and Dusty's team is all around it and the teams are integrating really well. So we’re really pleased. So those two have gone well. And when we look at the pipeline obviously we’re interested in continuing to add the high quality sample and capability in the pipeline. So we’ll always look for additional Bio-banking opportunities there. From Informatics platform we have really strong capabilities that exist and when we evaluate the capabilities from Informatics standpoint that's usually make versus buy. We have really a capable team, but there are some capabilities we’d like to add but right now the progress we made with some large customers gives us high confidence that we’re on a really good path. We continue to look at the analysis capabilities, we think we’re pretty secure from a hardware standpoint and there are some other transport capabilities that we're in the process of make versus buy decisions because we do think that expanding our cryogenic cold chain beyond what goes on inside the facility of the factory that includes transport also a meaningful capability to add. But there are a lot of opportunities, there a lot of options we’re weighing all those carefully. So we do have a very rich pipeline and you know why would – it's hard to comment on any of it specifically but certainly in 2018 we would imagine we’ll continue to be active and as Lindon mentioned we have some dry powder and it wraps around the size of the acquisition we’re looking at pretty well.

And then maybe Lindon just talking about the Life Science outlook and reaching that 10% margin by the fourth quarter, gross margins expanded rough almost 100 basis points year-over-year and what's sequentially or what is the lowest seasonally. Kind of how do we get from the low single digit margin to 10%, is that going to come more from gross margin is that operating cost coming out just help us walk through that bridge? Thanks guys.

That's good. Yes, so at 36.5% in gross margin we've been saying that we’ll execute to above 40% on average for this year. And so you can see that's a solid five point improvement there. And we need seven points to get from 3% to 10%, and so I think one is we continue to lean out cost and expense that’s going to help with the gross margin a little bit on operating expense. But the rest will come through leverage as we said our current investments we think sustain the current business the way it is and we’ll gain the benefit of the revenue growth. So we're confident, we’re actually excited about the path and it puts us right on the trajectory as well for 2019 model that we’ve discussed to be in the 42% to 44% gross margin range and at a 15% operating margin. So it looks good to us.

And our next question comes from the line of Edwin Mok with Needham and Company. Please go ahead.

So let me take Life Science first, I remember last quarter you guys guided for $47 million to $49 million, 47 million was the one million difference from the midpoint just from this transport tells it’s a little lower than expected?

It never comes out exactly as you said that’s one of your ranges. We had 47.4 million so it’s less than 1 million difference than we’re in the range. I think the transport drop since its prices is a little bit on the magnitude of it but Edwin I think overall we’re pretty pleased with the mix and the stability and we don’t get - honestly we don't get too hung up on the quarter-to-quarter although we pressed hard to get it every quarter but the substance of the growth year-over-year and the pipeline and the bookings we had this quarter, the interest and the demand that we’re seeing it gives us a lot of confidence that while we executed in the range and we’re on the track that we need for the year.

And can you kind of help us all in terms of kind of how much of your business is now coming from recurring versus slight store sells. And you guys have a very nice booking quarter onsite booking rebounding very strongly this quarter. How much of that is coming from large contract from this recurring business, recurring revenue business?

So it continues to range in the - above the 50% level. We updated at the end of the year it was 53% this past year and we’re in that similar range right now. I don't think it's that productive to go quarter-by-quarters. By the way it would tweak down modestly but still above the 50% level and the reason it tweaks down because we see the spike in genomics and we don't count that services as recurring. But I'd say, studies as it goes 53% from last year that moves dramatically, will update the street.

Even also the stores, this is pretty strong. So the infrastructure is growing, so that we knew what the sample business look like which has been great, but the stores business has been particularly strong.

Steve on your comments new store customer you mentioned large hospital that you guys have secure, did I understand correctly that, you guys are building a new facility next to that hospital or is that - did I understand that comment?

There is a large research hospital and as we’re able to name it, we will, but little bit premature right now. But we’re under agreement to literally to build facility very close to the premises of this large research hospital, pretty well known. And literally, to take the sample collection that are distributed all around this facility into a central repository and run it as we do as Brooks Life store, you know that’s what the customer is looking for that order, that ability to manage that specificity of purpose and care of samples. And so, within a year we’ll be largely on the way to have in that facility up and running and it's a real testament we think to the capability that they see. And it's really a good size collection, large enough to justify its own facility. And they are keen to have it close by. We think we can serve them from the locations that we have, but we are also delighted to have a chance of this opportunity and putting it close by the customer. And it is literally, more of our capability in yet another location and quite large enough to justify the facility from a single customer. And we anticipate this won’t be the last time, we do something like this.

Yes, so I was going to say, since you presented new business opportunity if you guys, I would imagine some of your customer that might be buying stores who look at the kind of cost analysis in terms of having you manage it versus managing themselves. Do you see this as potentially a new growth factor for the company, obviously long term not today, but longer term?

Edward sorry, if you could just, one more time?

Yes. Just basically if I was looking at this, right. Is this is an example of potentially a new growth factor you guys in terms of optional building storage facility for customer that historically might be buying, just buying equipment themselves or try stores themselves?

So we anticipate some customers will do this. What will happen is, when the word spread that a facility like this was able to satisfy their sample needs with the capability that we put in place we anticipate that it will provide more of a business opportunity. That said, customers who have been our customers for a while are quite content that the samples can be located in Indianapolis or in Dumpsters and Singapore that it can retrieve them quickly that they can archive them quickly. And so, we’ll see differences here, but we fully understand that some customers want to make sure that they have not just proximity but been able to look out and see where their samples are, so we would anticipate there will be both. But I think that this will be sign to some customers who are still contemplating outsourcing the management the samples that when they see a dedicated facility serving site particularly well, but it indeed might be a new business opportunity for us.

I have a question on - just quickly one question on semi GAAP side. One of your large customer or one of the large front end equipment customer that sells, adept space right. Talk about second half more flattish to the first half of this year. But you sounded more optimistic about growth on your business in the second half. Is that a way to kind of think all the differences that because of the CCS ramping in second half or all the colleagues right now.

This is a good question. I will just put the parting perspective, because you hit it exactly on the head. Our CCS business of $14 million was down $10 million from a year ago same quarter, but the rest of our business has grown significantly. So if and as the Tier 1 founders begins to more spending in the second half that will provide an additional opportunity for us, is that how we look at it. So the business that we sell will serve the Tier 1 O&M, will be - we'll go exactly as they go. But there is a bit of difference on the makeup of the fab just because of the propensity that they have to use more of this CCS product.

Our next question comes from the line of Farhan Ahmad with Credit Suisse. Please go ahead.

Hi, this is [Darren] on and Farhan. Just first question is about your operating margin. So I see they had 19% this quarter. Could you provide some guidance on how you see that moving forward throughout the year?

Guidance on how we what?

How you think about the semiconductor business margin, operating margin moving forward? Do you think you can…

We only guide semi on our revenue basis for the current quarter. You know we've not broken into such confidence that we're out of cycles in semi that we wouldn’t point to one. But in 2019, we give you a model that we're tracking forward. So in 2019, we've described that it, it would be 16% to 19% operating margin and that's why I clarified that we're already operating at the high level of those operating margins. And it gives us increased confidence that will be well on top of that model. And perhaps even a little stronger, if the CapEx equation in semi continues to show strength.

That's what I was getting at was just to kind of understand you know the guidance that you gave, it's going to be towards top-half because you guys are already kind of there. So, thanks for the color on that. And then with regards to sort of the EUV aspect that you guys mentioned, can you provide some further color on how you know sort of the timeline of how that will impact your semiconductor business moving forward. I know you had five tools that you said that were already in place, but what do you look at - what you think about that as heading forward.

We put tools in, now over the past few years and the question that we have is, how many - what will be the density of our tools or the radical cleaners, in the radical storage systems when customers add additional EUV tool. So we have some products in the backlog. We anticipate we may have a couple of new customers this year. The thing that we can't gauge yet, and we have not put into our own projections are if there's a line-up of a number of EUV tools, how many of the radical support tools will be part of that infrastructure. And something that we just don't know yet, as we know we'll inform. But what we can imagine that, we would not imagine to have a single dedicated EUV, spot cleaner EUV stocker for large numbers of EUV tool. We would imagine that, the ratio will be more favorable.

[Operator Instructions] And our next question comes from the line of Patrick Ho with Stifel. Please go ahead.

Steve, maybe first off on the semiconductor side of things. I know you've talked about potential expansion of the CCS business to the memory makers. Do you believe that transition or the inflection point maybe when the industry gets 96-layers on the 3D NAND side of things? Or I guess, what's the key catalyst that's going to be needed for adoption by the memory player?

So it's a question that we still wonder. We certainly know that, well, I give you an example of the tools that we shift in the quarter about a dozen half for memory and half for logic. So that's the biggest ratio we've had. And it was to a number of different memory makers. We would anticipate Patrick as the chemistry's change, so maybe related to layer's, maybe related to the complexity of the etch technology, we think is that, as a chemistry change likely that may require more foot cleaning, but that's an unknown for us right now. So there's some there's some level of cleaning and it will certainly be also volume driven, but there's not a catalyst right now that there's a particular technology is driving higher density of foot clean. But again, these are early days for us.

And maybe as my follow up question for Lindon in terms of the investments that are still needed on the Life Sciences and you're setting the target of 10% operating margins for the September quarter. As you're starting to grow revenues and they're starting to ramp up it's probably more investments are going to be needed both for supporting these customers especially some of the news ones you highlighted in your prepared remarks. How do you balance I guess some of these new investments versus your target of getting to that 10% target goal you set.

I appreciate the question. I want to clarify. We’ve been bullish on this market for the past five years and we've been putting the investment in place. And as we've acquired business it has been exactly as you just described, we would put additional investment in place, but we would also pick some cost out as we integrated acquisitions. And so that's been our mode to this point and what we've highlighted here today is that we feel like our organic investment or the investment needed to support the businesses that we own today is largely in place. And so we think the rest of this year will benefit from what’s in our structure today and it will be very modest if any changes in any additions. But meanwhile we’ll continue to work out and clean out our business and - specifically we think we have some cost improvements to make on the store and infrastructure side of the business. But we’re pretty happy with the structure we have. We added a little headcount this past quarter, you see that in the expense line and I think from this 3% operating margin we’re going to see the benefit of revenue growth and it’s already supported with what we have on again.

And our next question comes from the line of Drew Jones with Stephens. Please go ahead.

Kind of piggy backing off of that last question. Can you give us an update or reminder on where the Life Sciences sales force is at this point and maybe the average Brooks tenure there?

It will be the guess because we acquired higher - but the average tenure from the companies I would - boy it would be really hard to press but we're now six or seven years in the business. But we have just over 100 sales people in the company right now and all of them whether they’ve been with Brooks or not they’re generally pretty experienced sales people in and around Life Sciences. So we’re not yet at a place over hiring and training brand new people, there a lot of - I guess I have to say and we’ve been really pleased about it. We’ve had a lot of really talented people eager to join the company and they’ve generally come from consumable space from capital equipment space from prior in and around the space. So I think if they’re really experienced sales organization the things that we’re learning and developing are really about selling the portfolio of capabilities that we have and offering solutions to customers. And generally we think really solid from that standpoint but we’re about 105 sales people up 50% from one year ago Drew.

And then Steve can you give us an update on that large Beijing customers that you called out last quarter just where they are in their ramp?

We're in the process of manufacturing those tools. We anticipate the installation will be late in this year, early next year just to stay on their timing actually, but we’ll be quite ready but three large stores and they have - I’ll remind you they have eight of the large automated cryo stores. So it’s a large customer and we are in with cryo and on the large automated bio stores those are on track for about a year from now for delivery.

And our next question comes from the line of Craig Ellis with B. Riley. Please go ahead.

I just wanted to start going back to Life Sciences I think the operating margin target makes a ton of sense and very logical path to get there about equally between what you want to do with gross margins and optimizations along with volume. The question is given that you intend to be acquisitive, how should we think about acquisition impact to the 10% operating margin goal. Would we expect that - it would be retained through acquisitions or revisit the timing of 10% operating margin of payment once we potentially add another business or even two out of what you have now in Life Science?

Craig this is really good because this is really central to what we’ve been doing on a regular basis. So when we acquired couple of things happened, one we're focused on how fast it becomes accretive and I am happy to say PBMMI became accretive immediately, 4titude was accretive immediately both on a non GAAP basis. And past acquisitions have either been immediate or very soon after. What we do find is it's not always the level of what I would say steady state and as we expand this business and then as we integrate without carrying the infrastructure that they needed and as we integrate we’re able to expand those margins. So we would anticipate that as we acquire another business it takes somewhere between one to two quarters sometimes it’s the larger business that may take a little bit longer time to get to a run rate of where we’re going to keep the business but I’d say that’s the right expectation probably two quarters on average. And so while it might all the margin down and I expect it’s going to be fully accretive. So you take the business that we own today expect 10% on it, and then add dollars to that and whether it pulls it down from 10% or helps it stay at or better than 10%, it remains to be seen depending on the timing of acquisition.

I’ll turn it to the semi-business and then go back to some of the intermediate-term comments that Steve had. Steve given the inflection that it seems like we’ll start to see in CCS in the relatively near future and with a stronger second half based on foundry and steadier growth in advance packaging and some of the other growth there is. Are there any meaningful negatives that we would see in the back half of year in the legacy portfolio because it seems the semi-business is set up not only for good sequential growth through the year but for accelerating year-on-year growth given last year’s profile?

Yes so it’s a good question an unknown to us. I’ll remind you Craig I think you’re pretty familiar but the cryo business - the cryo vacuum business is generally implant in PVD. So if that’s sustains that will remain a strong business for us. We do have legacy tools and we serve a lot of 200 millimeter business that happens to be driven by right now the Internet-of-Things. I mean there is lot of 200 millimeter capacity that sustains at a pretty healthy level four to eight quarters now. Anything can happen there, but the level has been pretty strong, and I think it’s just because of the overall robust environment, but those are unknown to us and difficult for us to forecast. But right now those feel also like there they also sustain through the year. The one area that’s always been a little bit of a wild card for us I’ll remind you we have strong OEM customers in Korea who sell predominantly in Korea. So that goes up and down based on the spending in Korea. So that’s one area that can fluctuate so if there's a Samsung high net slowdown of any kind sometimes we see that business slowdown very quickly because they are - they really are relegated to their business in Korea. We are however developing a pretty meaningful OEM customer base in China and the same kind of dynamic is setup where as long as the factory activity expands that will be really good business for us but they don't have a lot of business outside of China and if the Chinese fabs don't continue to materialize that business would slowdown. So that’s how we look at the business those are things we really pay attention to from an outlook standpoint and anything else, yes, of course anything it impact the industry generally impacts us but we do have some unique segments that don’t move generally with the industry that being the CCS related to foundry and the OEM business in Korea and now in China.

And then just following up on the China comments Steve, there's a lot of focus on the region topically for understandable reasons. Can you just go a little bit further out and talk about where you see Brooks now with the engagements that you have and business that is coming in. And what would be possible for Brooks not quantitatively but qualitatively if we looked ahead to the 2019 and 2020 timeframe based on some of the engagements that your sales people would be having now?

We have more than 50 customers in China for the - it was how much semi now for the semi business. And we support about 15 different OEMs and our understanding and our observation actually is that it appears though some of the newer and less mature equipment makers are certainly getting a very serious look at some of the technologies that they can serve. So they may not be getting the most critical etch or depth application but some of the rather straightforward or mundane or simpler process technologies they’ll likely have an outsize share of that business. And that is very meaningful for us because we have extremely high share especially around the vacuum automation and high share around the cryogenic pumps in China. And so their unfair share would translate into really good share position for us. Chinese factories by Chinese companies would certainly drive the business.

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

Christopher, thanks very much. Look we really appreciate everyone's time with us and your interest in Brooks. We’re really excited about the environment around both of our segments and we're gaining even greater confidence for the past overhead not just for this year but in 2019 on the model that we've outlined and we look forward to keeping you up-to-date on that. We look forward to talking to you again this time next quarter. Thank you.

Ladies and gentlemen that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.