Ladies and gentlemen, thank you very much for standing by, and welcome to the Brooks Automation Inc., Q3 2018 Financial Results Call. During the presentation all parties will be in listen-only mode. Afterwards we will conduct a question-and-answer session. [Operator Instructions] As a reminder this conference is being recorded today Monday, August 6, 2018. I would now like to turn the conference over to Lindon Robertson, Chief Financial Officer. Please go ahead.

Thank you, David and good afternoon everyone. We would like to welcome each of you to the third quarter financial results conference call for the Brookes fiscal year 2018. We will be covering the results of the third quarter ended on June 30 and then we'll be providing an outlook for the fourth fiscal quarter ending September 30, 2018. A press release was issued after the close of the markets today and it's available at our Investor Relations page of our Web site www.brooks.com as are the illustrated PowerPoint slides that will be used to support our 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 The Safe Harbor statement. The Safe Harbor slide on the aforementioned PowerPoint presentation on our Web site and the 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 measures they provide an even more complete understanding of the Brooks business. Non-GAAP measures should not be relied upon to the exclusion of the GAAP measures themselves On the call with me today is our Chief Executive Officer, Steve Schwartz. We will open with his remarks on the business environment and our third quarter highlights then will provide an overview of the third quarter financial results and a summary of our financial outlook for the quarter ending September 30, which is our fourth quarter of the fiscal year 2018. 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 the slides I mentioned available to everyone on the Investor Relations page of our Brooks website. With that, I would like to turn the call over now to our CEO, Steve Schwartz.

Thank you, Lindon. Good afternoon everyone and thank you for joining our call. Were pleased to be able to have the chance to update you on the results of yet another strong quarter. But before I begin with my prepared remarks, I'd like to set the stage with our view on the current business environment. One of those moments in the semiconductor equipment industry when we resurrect all of the uncertainty vocabulary that includes words like pause, slow down, push out, dip and many others. These times are part of the nature of the semiconductor equipment business and they are common to all of us who supply the industry and will deal with any situations we have in the past. What we are certain of is that we built the semiconductor segment of our business to be able to quickly react to perturbations and to be able to ramp up and down in short order. These days our supply chain is conditioned to support this environment and it's an asset rather than a liability. Also we're confident in our market share position and that the investments that we've made and are making are securing our positions for the subsequent growth in the semiconductor business will deliver even greater growth in our business. I want to emphasize that we do not know more than our customers about the length or depth of any reduction in business that's occurring now. But I assure you that we're prepared for today. And more importantly we're preparing for tomorrow and we remain incredibly bullish about the growth prospects in the semiconductor industry that will fuel the explosion in AI, Virtual Reality, Automotive and IoT applications. But it's exactly in this kind of uncertain semiconductor business environment that I want to emphasize to you the value…

Thank you, Steve. Please refer now to the PowerPoint slide available on the Brooke's Web site under our Investor Relations tab. We begin with Slide 3, which is a consolidated view of our third quarter operating performance. Our top-line revenue grew 8% sequentially to $223 million. This represents growth of 23% year-over-year with organic growth of 14%. Both segments drove the growth. Sequentially semiconductor solutions expanded 9% and life sciences 2% which was the 12th straight quarter of sequential growth for life sciences. On a year-over-year basis semiconductor group 20%, while life sciences grew 35% inside this growth semiconductor solutions had organic growth of 15%, life sciences had organic growth of 13% year-over-year. In the GAAP results despite absorbing step-up charges and increased amortization of intangibles from the acquisition of Tec-Sem, we still saw operating margin expansion. Below operating margins, the line items are flat except for tax. In the second quarter, we reversed the valuation allowance reserve on the deferred tax assets, which drove the large tax benefit in higher earnings per share in that prior quarter. Let's turn over to non-GAAP results on the right side of the page. Non-GAAP gross margin came in at 41% which was 20 basis points below the second quarter results. This reflects semiconductor margins of 41.7% which improved 20 basis points sequentially offset by 170 basis point decline in life science margins at 38.1%. We will cover each of these as we get to the segment page. The modest 3% sequential growth of non-GAAP operating expenses is largely driven by the additional operating expense of the two acquisitions completed in the quarter. Non-GAAP operating margins expanded approximately 80 basis points. If we look back to the year-over-year comparison this non-GAAP operating income result was up 32% on the 23% revenue growth. The…

Thank you very much sir. [Operator Instructions] Our first question comes from the line of Paul Knight with Janney Montgomery Scott. Your line is open.

Hi, guys. This is actually Mike [indiscernible] on for Paul. Congrats on the quarter, first of all, and then, can you speak to the 13% organic growth rate in the third quarter kind of where the drivers behind the slowdown and is the customer delays tougher comps et cetera? Thanks.

Hi, Mike. Steve. As we try to articulate the sample storage growth is still pretty high 22% organic on the sample collection, the stores and the consumables and instruments although pretty healthy, they were all of those businesses were about the 7% organic range, but it did help it down to about 23. So the samples we pay really close attention to, the stores make good progress, but in the aggregate it's 13% what we still see as really good. Again, the samples were 22% and consistent with the really healthy growth in the bio storage and storage related businesses.

Okay. Thank you.

[Operator Instructions] Our next question comes from the line of Edwin Mok with Needham & Company. Your line is open.

Hey, thanks guys for taking my question. And Steve thanks for the long list of fancy work [indiscernible] to a good quarter, near term environment in semiconductor. First question I have on semiconductor storage just to make that clear. How much of your guidance comes from the Tec-Sem acquisition?

Yes. Right now, we have put just over $5 million in for the quarter for our best estimate.

Okay. That's helpful. Just to the comp baseline. So even if I factor that I can see you're performing actually quite well in semiconductor storage better than some of your peers that we've seen, right? Is it just because of this kind of exposure outside of the Tier 1 OEMs, or you have some prepared remarks on that but is there any other driver that enables you to have a better performance than your peers?

Yes. Edwin, let me nail this, so that you can get anchored to something. On the vacuum robot business that goes exactly as you heard from Tier 1 OEMs. So that drop is really consistent with what you heard from the Tier 1 players in the 25%-ish range 25% to 30% quarter-on-quarter drop. And I suppose the thing that's probably most reassuring for us there is, when you imagine if Tier 1 OEM held a lot of inventory that could have been worse. But that feels really consistent with their shipments and revenue. On the Vacuum Systems those are Tier 2 and a lot of advanced packaging applications. And as I mentioned, the contamination control, it's a little bit out of step and I give you an example in the quarter, from a contamination control standpoint, we had one foundry, two wafer makers and eight memory customers. In the quarter and we're seeing that kind of pattern -- this variability of pattern going forward. So we saw some growth in the June quarter, we see a little bit more growth in the September quarter again because of the portfolio that we have. So as you mentioned vacuum robots right with the Tier 1 OEMs. But the variability in the other businesses has given us a lot of good support in semi.

Any color you can provide or any thoughts you have on the December quarter that you can talk about?

I wish, we could tell you Edwin but we were positive that -- we hope that September is the low point, but we would be irresponsible if we made estimate out in December right now.

Okay. That's very nice. Fully understand the limit of what you referred. On the life science side, actually Lindon is very helpful on the color, on the margin side. Just curious, is that what you think about gross margin on your mix, if you can't break it down between storage, system, stores versus consumables versus surplus, right? Is that the way to think about which part of your business has higher margin versus the other and maybe that will help us to think about long-term how your margin can trend?

Edwin, I've long said that we have the higher margins on the storage space services and lower margins on the large systems and that continues to be the case. And I threw in some additional color in my remarks to give an indication. We have higher margin -- in higher margin outlook going forward in the long-term around the cryo systems, around some of the consumables and instruments, around the software sales. But we have to get those software sales ramping further but all of this is going to be contributing nicely. And this is what we're really satisfied about is that, obviously, we're not looking for the systems the large systems to drag and they're not. But in terms of growth, we see really high propensity for the continuous expansion of the platform that's really anchored around storage services helping in the market as well with the software and as we work closer and closer with enterprise level relationships. The software is resonating much more as they look into our inventory that we're holding on their behalf I should say their inventory which we're holding on their behalf, but also that enterprise inventory that they're holding in multiple locations. So we're seeing some traction there. We've seen a little bit of traction on the FreezerPro assets that we acquired last year just contributing nicely to -- it's a little add every quarter. And then, the 4titude acquisition is bringing nice margin. So hopefully that helps with the color. But the big anchors in the portfolio is we've long said when you think about those cornerstones the storage services, think of it in the 45% range typically and in the systems 35% in most days. This past quarter we had a little dent on that and we expect it to be improving in this next quarter and being back to 40% as I outlined.

Okay, great. So one last question I have. So I assume all of these will cost you any change your long-term target I think 2021 target models were 18% CAGR and then 20% on margin for life science side. Should we still stick with those targets?

Yes. We really believe so and in fact if they just go down the P&L, we have a revenue traction we think we're going to grow faster than the 30% that we outlined this year from the beginning of the year throughout. We think we're on track for this year they sets us up to 240 target next year. And then, on the gross margin, we will be up above 40 next year. We said 42 to 44. I completely acknowledge that our gross margin traction has been less than we expected as we acknowledge here. So I think that's the line item to watch, but we think we have the roadmap to get it to 40 and get on up to 42 to 44 next year. And then, onward toward the 2021 target. So we have a lot of confidence in the model and that next aspect that you highlighted is one of the most reassuring elements not because we don't have confidence in the system but it's because the mix is really the expansion of the platform just the way we thought it would be.

Great. That was extremely helpful. That's all I have. Thank you.

Thanks Edwin.

Our next question comes from the line of Amanda Scarnati with Citi. Your line is open.

Thanks for taking my question. Can you just start on the semiconductor side [indiscernible] order moment than was last quarter, I remember last quarter you had very strong orders, could just help how that translated to revenue this quarter or when you expect to see revenue from that and how you were able to manage that throughout this quarter?

So Amanda, I appreciate the question, Steve and I talk about that this quarter and you will notice that it was absent in our earnings release and we didn't comment on it. So let me just make a clarifying comments here. We have found the bookings to be, one, let me just start the bookings have been pretty consistent with what you expect in the industry, but also with our trends so far. And we had a nice add to our life sciences bookings. And so I'm just going to give you the general color. But now I want to comment that we've decided to drop sharing the bookings and the backlog you except on a periodic basis we may update people on backlog on the life sciences business it depends how meaningful that becomes. But the reason for this is, we just continuously see a less -- I would say connection to the short-term forecast. As you know on semi, we have the next 90 days forecast and in the supply chain tightness has put orders on us sometimes. And then, in the short-term we've been able to deliver revenue without the orders as you saw this quarter. So I would just highlight to you that more we explained it, the more convinced we become that it is not as meaningful as an indicator. So we decided not to continue publishing them on a quarterly basis.

Okay. And then, in terms of China can you just remind us about the growth opportunity in life sciences business there. And what’s your expectations are on life sciences. And then, separately can you just talk about the tariffs and any impact that you're seeing in either the semiconductor or in the life sciences business? Thanks.

So, Amanda, the life sciences opportunity is pretty significant. What we find is that the breadth of the offering that we bring the bio store -- the large automated bio stores as well as the automated cryogenic systems are being readily accepted in China. So we’ll -- we have a strong presence there from no business to about an $8 million business this year and we anticipate next year that will go up considerably more. So as we win opportunities we'll be able to articulate those to you. But the opportunity you would imagine from ‘17 to ’18, is kind of a double and maybe that same kind of opportunity on a trend for 2019. So we're learning this territory, we're starting to get extremely well connected into the networks of people who are making decisions in China. What we find is that a single penetration then sets us up for expansion from Beijing or Shanghai area than into other provinces. And that's what we hope to benefit on in 2019. So as we win that business will we'll be really clear with you about the potential, but we do see it is -- without question on a percentage basis the fastest growing opportunity. And the amount of acceptance that we've seen is really exceptional so far in China.

[Operator Instructions] Our next question comes from the line of Craig Ellis with B. Riley FBR. Your line is open.

Yes. Thanks for taking the question. And congratulations on the financial performance in the quarter and the detailed and candid remarks on life sciences gross margin. Just related to that point, Steve and Lindon, can you just walk through some of the milestones for software sales ramp not so much in the next quarter or two? You're not looking for guidance, but just from milestone standpoint as we look out through 2019 and into 2020 what are the big things that we're looking for since that's such a significant potential gross margin driver.

So Craig, I don't want to overstate the software because we haven't -- we've not put a number on those target for you. We have obviously [indiscernible] and then we have some models in. But I think it's premature for us to put targets out there and track toward what we have seen is expansion this year over 2017 and we expect that over the -- in the 2021 to be contributing more so. But I think it would be a misalignment of clarity in terms of us projecting for you a 2019 milestones to get there. So what I would look for is, as we get closer to 2021, we'll start shedding more light on that. But I've often said to-date that it's probably early to start modeling, but if you were to start putting 2% to 5% of our revenue in software out to 2021, I don't think it would be far off. And that's pretty low of the 2% and 5% starts to be pretty significant at the margin level. So we're going to temper that in a very broad range. And I appreciate the question, the interest in it because we do think it helps in the flavor of the mix. I think what's more important to see is that we are becoming an enterprise solution for our customers both on the storage onsite, offsite and an accelerator for the research and that we're helping to bring quick access to those samples whether they are onsite or offsite and that software starts to become part of that solution. So avoiding a very specific answer, but I think it's the right answer for analyst right now to think about that it's a really modest point. And before we get too far ahead of ourselves let us get some more traction on it.

Got it. Thanks Lindon. Steve you mentioned the expected modest increase in CCS and it seems like we're in a pretty important inflection here, somewhat similar question as you look out over the next two to four quarters. How do you see the CCS business evolving? What are the puts and takes in that business now that it seems like we're starting to move up the bottom?

Okay. Obviously, we think the potential is strong, we need some fab activity to drive it. But we're shipping tools for 7 nanometer, we started to ship some tools for 5 nanometer. But, I think is that expansion that will drive from a foundry side. We're really pleased with the memory acceptance and the question will be, does the memory factory take 3 tools or 6 tools and that'll help to drive volume pressure. But, I think the thing that pleases us most is, as Tier 2 foundries come online as the memory factories begin to adopt it. We think that at least be more stability in the business and that will have participation from basically all makers of ICs as opposed to just Tier 1 foundry when we initially got into the business four years ago. So we're getting close again to $100 million run rate which is kind of how we guided the business. And for us when we look out into 2019 and 2020, the opportunity probably grows from $110 million, $120 million toward $150 million or $200 million. So we're really bullish on it. And that's as yet without the impact of EUV which has the potential to be an accelerator for us but not something that we model into the business too much as yet as we have tools wherever customers have EUV systems. But still unless and until that market expands that will be a slow grower for us.

Got it. And then, lastly you mentioned the difference in performance for your vacuum robotics to run into customers, is that normal when we see the kind of spending dynamics that we're seeing now or is it something that's a newer development, how would you characterize what you're seeing relative to similar such periods in the past?

So I think that the nature of the tools businesses is unbelievably competitive, there are not just a Tier 1 OEM portfolios which are getting to be quite similar and really competitive. But the Tier 2 makers really enter into the mix. So we think it's more competitive, we think it's more active than at any time that we can remember. And Craig, we also think that there might be one more dynamic that's in play here. You'll hear a lot of the equipment makers’ talk about adding value to the installed base. The tools that at one time might have become obsolete continue to run and they're going to be repurposed and reused and used in other productive fashion. And we believe that even some of the value that will bring to installed base of some of these Tier 1 OEMs might use a new vacuum robot and existing tool. So we see opportunities everywhere, new tool configurations, existing configurations with where the robot could be replaced out. In other words to enhance the performance of a tool that might have been on the market for five or 10 years. The performance of that tool can be improved by putting in one of our next generation robots. But we also have an eye toward the installed base and where we might be able to add value in the coming years by a [form fit] [ph] function replacement of a higher performing robot. So we're busy everywhere. The design activity is at a speed that we've never seen before. But the team seems to be absorbing it pretty well and we're really bullish about what the future looks like in vacuum robot.

Great. Thank you. And then lastly, Lindon would it be fair to say as we look at the outlook that given the volume dynamics in the semi business that it would be fair to think that gross margin would decrease in the quarter and potentially dip down into the high 30s. And then maybe some operating expense flexibility, but very little given that I think in earlier comments the company mentioned, it was persisting with all these investment programs. Thanks guys.

I appreciate that question. I would tell you that our expectation is stability in the semi margins this quarter while we're down a little bit for a little pressure on us. We do have Tec-Sem improvements to be made in the quarter and overall we will expect some stability in margins than improvement on the life science side will help bolster the total. With that said your comments exactly right on the operating expense, we're keeping the team on the field. We see this as key to our franchise in terms of responsiveness to the customers in the short-term. So we're going to maintain that position and our investment. Appreciate that question. Thanks Craig.

Thanks Lindon. Thanks Steve.

Our next question comes from the line of John Stewart with Credit Suisse. Your line is open.

Yes. Good afternoon guys. Thanks for letting me ask questions. Steve, my first question on the semi business just going back to the contamination and control you said you would expect that business to grow sequentially into the September quarter is that with and without or without tax number. Is that mainly an organic growth? And then just relative to your comments around EUV, I'd be curious to get a sense of how you think this market could play out. I mean if you think about EUV being adopted for maybe know 2 to 3 layers and 7 nanometer and 5 to 10 and sort of 5 nanometers. How would that translate into your potential market opportunity?

Sure, John. Thanks for asking the questions. I think both are great. Let me start with the CCS. So we delivered just above $4 million on Tec-Sem and were kind of forecasting a little bit more than $5 million. So in the core business and in the Tec-Sem portion we see modest growth. So we want to be cautious here that this is not off to the races yet, but we'll see -- we anticipate growth from both portions of that. And so it will be organic and obviously inorganic growth, modest for the September quarter, but good growth nonetheless. So that's a positive for us. On the EUV side. We have products now for the EUV pod cleaning and we've established that capability everywhere someone has EUV installed. And now we have vertical management and so we believe that as the EUV systems go into place this combination of the pod storage -- the pod cleaning and ultimately maybe even a different type of EUV vertical management. We think that provides opportunities for us and whether it's done at atmospheric pressure or done under vacuum has yet to be determined. But we do see opportunities in EUV, but as I mentioned to you, we're not forecasting strong growth yet but we are hearing positive signals about the adoption of EUV. We don't know in the ecosystem how many vertical management tools and how many pod cleaners will be associated with -- will be with a single EUV exposure tool or will it be with -- will those tools serve multiple EUV systems we're just not sure yet.

That’s helpful. And then, Lindon, just on the gross margin profile for life sciences, appreciate all the information. I think there were three major leverage you kind of talked about, redesign, supply chain efficiency and mix. As you think about sort of the intermediate term goal of going from 38 to 40 and then sort of 40 to 44, is each one of those sort of an equal factor in the gross margin expansion or is one more significant than the other. And then as a follow on there, Steve, as you think about the landscape for M&A in that part of your business. Would any M&A sort of still be consistent with kind of those gross margin targets?

John thanks for the question. I think this one too is a good one. First and foremost, the immediate return to 40% in life sciences will come from the systems improvement and the biggest element of that is the redesign of some module production that has taken longer to get both the design as well as the implementation in an efficient manufacturing process. This is connected to modules that we had outsourced in early 2017 and then middle and late 2020. I should say by the end of 2017 and early 2018 we have of bringing them back in-house it just wasn't effective in an outsourced equation. And so we had some redundant costs and now it's our reimplementation that is snagged us a bit. We believe that we would make more progress this last quarter. That's not to dismiss that we have some improvement as I mentioned on the schedule project management as well as freight optimization and those projects, so that will be the quick help we believe going into the fourth quarter and into this next year. But then, the mix will be of continuous traction that we'll watch. And as I said just one year difference almost one year difference we're seeing about one point health in the flavor mix and that's attributed to the consistency and the traction that the storage platform -- storage services platform has brought in.

And John, this is Steve on the topic of gross margin, for the types of targets that we're looking at. I would anticipate that you'd see gross margin improvement from any of those opportunities.

Perfect. Thanks guys.

Thanks John.

And gentlemen, there are no further questions. Please continue with your presentation or closing remarks. Thank you.

All right, David. Thank you very much. And we thank all of our investors and our analysts for listening in and the interest that you take and we look always to service you with the information we bring to the call. We look forward to talking with you again next quarter. Thank you very much.

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