Ladies and gentlemen, thank you for standing by. Welcome to the Brooks Automation Q1 2019 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 today, Tuesday, February 5, 2019. I would now like to turn the conference over to Lindon Robertson, Executive Vice President and Chief Financial Officer. Please go ahead.

Thank you, Dave, 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 2019 ended on December 31st. A press release was issued after the close of the markets today and is available at our Investor Relations page of our website, www.brooks.com, as are the illustrated PowerPoint slides that will be used during the prepared comments during the call. I would like to remind everyone that during the course of the call, we will be making a number of forward-looking statements within the meaning of the Private Litigation Securities Act of 1995. There are many factors that may cause actual financial results or other events to differ from those identified in such forward-looking statements. I would refer you to the section of our earnings release titled Safe Harbor Statement. The Safe Harbor slide on the aforementioned PowerPoint presentation on our website and our various filings with the SEC including 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. We may also refer 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 the 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 will provide an overview of the first quarter financial results and a summary of our financial outlook for the quarter ending March 31st, which is our second quarter of the fiscal year 2019. We will then take your questions at the end of those comments. Just before turning the microphone over to Steve, I would like to remind everyone that in our prior quarter, we moved the Semiconductor Cryogenics business into discontinued operations for reporting of results. The depending sale was announced on August 27, 2018 and continues to await approvals by government agencies. All reporting, commentary and guidance in this quarter focuses on our continuing operations. So, 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. We're pleased to be able to report to you on the results of the first quarter of our fiscal 2019. I have to say we're off to fast start to 2019 as we took more significant steps forward in the transformation of the Company. On our last call we described for you two significant changes that we triggered in the September quarter. We announced sale of our cryogenics vacuum business to Atlas Copco; and the acquisition GENEWIZ, a fast-growing, highly capable genomics and molecular biology company. Either of these transactions alone would have been transformative but the near simultaneous implementation simply accelerated the transition of our business toward high growth sectors in the semiconductor and Life Sciences market. We’re pleased with the progress that we’ve made in our transformation as GENEWIZ met our expectations for growth and exceeded our forecast for profitability in the first half quarter of ownership. And our semiconductor business meaningfully outperformed in a challenging market environment. I'll focus my comments today on our progress in each of our business segments including highlights from the December quarter, and I'll give some outlook as to how we see 2019 shaping up. All-in, our growth story continues. Revenue in the December quarter was $179 million, up $37 million or 26% year-over-year and $20 million or 12% sequentially. And though we have revenue in Q1 from partial quarter of GENEWIZ ownership, we still delivered solid organic growth across both segments. I'll begin my remarks of results in the Life Sciences segment. Revenue in Life Sciences was $67 million, an increase of $16 million over September with essentially all of the sequential growth being attributable to GENEWIZ, which was part of Brooks for half of Q1. As a…

Thank you, Steve. Please refer now to the PowerPoint slides available on the Brooks website under Investor Relations tab. Please turn with me to slide three. Revenue increased 12% in this first fiscal quarter of 2019 compared to the first quarter of ‘18, arriving in a $179 million. On a year-over-year basis, the growth was 26% including 9% overall organic growth and $16 million of growth from the newly acquired GENEWIZ business. I should highlight that we implemented the new revenue accounting guidance ASC 606 in this quarter. The net impact was small but affected each segment differently. In semiconductor, we realized a $400,000 of additional revenue in the period than if we continued the prior method. And in Life Sciences, we realized approximately $800,000 less in this period. In total, it was a nominal effect of about $400,000. We have adopted the change on a modified retrospective methodology, which means we've not restated prior periods for the effect. Looking at our GAAP earnings, continuing operations was $0.09 per share. We had 47% growth on the operating income line, driven by 12% revenue growth and margin expansion. More significantly, we had $5.8 million of tax benefit in the quarter on a GAAP basis, more than offsetting the increase of the interest expense recognized. Let's look over to the non-GAAP results on the right side to explain the performance more clearly. Adjusted gross margin expanded a 130 basis points sequentially and a 190 basis points year-over-year. The first 100 basis points reflects improvement, driven from the operations of the base business year-over-year and 90 basis points from the addition of the GENEWIZ business, which carry non-GAAP gross margins of 50%. Non-GAAP operating margin, as you can see, expanded 160 basis points on the sequential quarters and 240 basis points year-over-year. I'm…

Thank you very much, sir. [Operator Instructions] And first question comes from the line of Patrick Ho with Stifel. Your line is open.

Thank you very much and congrats on a nice quarter. Steve, maybe first off on the Life Sciences side of things, it was very encouraging to see the gains on the margin front and the operating model improvement. We saw the gains also coming on the Sample Management side of things. Can you I guess discuss some of the tactics there that show -- that display the improvement? And maybe more importantly, how sustainable are they? Can you continue to get more improvements over the next couple of quarters in that side of the business?

Yes, sure. Patrick, thanks a lot. Patrick, let me emphasize that we keep talking about bringing the samples in. We’ve built capability and capacity for a considerably larger business. So, we have infrastructure, people laboratory space and assets that are awaiting for better utilization. So, that's one that as we bring samples as we bring more business in the company we can accommodate. So, we'll get a lot of leverage from that, and we do believe it's sustainable. So, we got a lot of proof to continue to deliver but we're encouraged by where we are, what the action plans we have in place. And as we bring, both samples and more store business, if you will, we think it's sustainable and will continue to grow.

That's a great example.

I was just going to also supplement that on the margins traction as well. We're seeing a really nice input from the GENEWIZ business that we've taken on. But I'll also highlight, we had a half a quarter there. And so, as we move forward, I mentioned in the commentary that we have some variability on the gross margin that we foresee as we invest and then they realize revenue traction there on a cost basis. So, I want to just put it in that context, keep it in that context that 12% operating margin that business brought in, it will have a little bit of variability. I don't want people to be alarmed that it varies little lower or little higher and then lock in on that as the specific. But then, secondly, we're seeing really good inputs, but we haven't delivered as many proof points on the traction of the margin on the Sample Management side. But, we're seeing the indications of inside the business that improvements are there. And that is in the structural manufacturing of the systems. And the team is really focused and committed on seeing, those start to show up in the bottom line over the right next quarter, so very encouraged on the margin side.

And my follow-up question on the semiconductor side of things, it was also encouraging to see the activity from the Tier 2 vendors as well as the vacuum systems business that you have, but which as you noted has higher ASPs and are larger. Some of the activity in that front, I'm assuming is coming from China. But, given a lot of the market uncertainty in that region, how do you look at that business, both near term and maybe for 2019 as a whole because you provided us some support near term. But is this something that maybe is a one-time thing that you just saw this past quarter or do you believe that there's some sustainability in that business as well?

Patrick, you can imagine, we're paying close attention to this. We’re mostly encouraged by it. A lot of that vacuum systems that are going in the place are for advanced packaging applications or some of the non-mainstream applications. And you know the capability of these suppliers gets better every quarter and better every year. So, right now, they are winning applications that aren't dependent on a large memory fab or large logic fab. But, as they continue to develop more capabilities, we believe that when they are capable to perform a process to have deposition or an etch, in the Tier 1 mega factory for some of the less demanding process that we think they have a high likelihood that they win. So, we think gaining share and gaining position with them for these non-mainstream applications is valuable now and that adds large memory factories come up in China or additional foundry capacity comes up in China. These Tier 2 manufacturers as they are able to capture some of those process that we think that will drive more of our business. So, we’re encouraged by it and we think these are customers that stay very close too. We've been building this business for years and where we are starting to see meaningful volume come from this.

Our next question comes from the line of Paul Knight with Janney Montgomery. Your line is open.

Could you talk to the delays you mentioned on the storage business? You said you had a contract, was it NIH funding, was it customer specific issues? So, that's first Life Science question. And then, you had also mentioned on the life science side that you had 60 customers in Sample Management. What was that like one year ago, to give us a frame of reference?

Sure, Paul. So, let me start with the large contract. It's consumer contract, if you will. And we’re just -- we're simply waiting for samples. So, this is one that is in the books for quite some time. We -- actually as part of the obligation, we put some lab capacity in place to do sample preparation as well. So, not only did we -- are we delayed on the receipt of the samples for the start of the study, we put some laboratory capacity in place to be ready last summer and the samples just haven’t come. So, everything is still happening. So, it's not a cancelled contract by any mean, but there is certainly delay as there are number of things that go into getting a study started. But we’re pretty positive that sometime later this quarter samples begin to arrive and then hopefully we’ll not just begin to receive the samples, put them in the storage, we’ll also be able to utilize laboratory for sample prep. So, it's not a government contract, it's from a commercial enterprise, and we remain confident. The other question is on the customer count; that was particularly high customer count for us. We've been announcing -- exactly a year ago, but we are always in 20 to 30 customers per quarter capture on the Sample Management business, so that was a little bit unusually high, if you will, but we've always been doing kind of at 100 customers a year run rate in Sample Management over the last couple of years.

And then maybe this is a question for Lindon, but I'm assuming there are some costs occurring that are duplicative, as you separate the two businesses. Can you tell us what those costs are or is it just us having to assume that the outer years margins get better, but can you frame it up at all in terms of these duplicative costs that don't occur as onetimers?

Yes. I appreciate the question. So, those that are structural to our business, I wouldn't describe them as onetimers, but we have that stranded cost aspect of -- we're looking at the business of -- we have a management structure in place that managed across multiple lines. And as -- when the sale closes we look at that structure. When we have people that are not 100% dedicated to that semiconductor cryo business that we're in the process of selling, and so we don't give up that person but we'll be looking at reworking the workflow so that we bring down that. We have it inherent in our business that we look at the footprints and to reduce the cost throughout all processes, the manufacturing, the back office. So, that is our focus. So, that's one. That’s the stranded cost aspect. I’ll highlight what we shared previously is that put about $20 million of pressure on us that is still with us on an annual basis, but we'll be -- planning is in some place, the work will start I will say moving in earnest, once we close the deal, because as of now, we're still managing, in fact the more complex equation than when you run in a fully integrated basis. So, that will start lifting off, I would call it in the second half, and more substantively in 2020. Now, we have an interesting point that we just brought in GENEWIZ and the GENEWIZ business has brought in some really nice capabilities for us as well. But, of course, we're looking at that equation, what we have in our base life sciences and in our total corporate structure and how to integrate that effectively. And we’ve highlighted before, we look at some IT investment that we're putting in place that we think we will be able to bring more centralization of that infrastructure together, and it remains to be seen. But, I will tell you that both the GENEWIZ business and the business that does get [ph] built, both bring really core capabilities. And in GENEWIZ, we also have some capabilities in China in the shared service sector that we can begin leveraging in critical mass. So, we're encouraged on that side too that we can improve some gross margin. I only -- I should say operating margins. But, what I would emphasize to our investor base is that we have that in our sight as we get into the second half and into 2020. We think that starts to materialize more readily, but there is right ground there to take advantage of.

[Operator Instructions] Our next question comes from the line of Amanda Scarnati with Citibank. Your line is open.

Hi. Good evening. I just had a quick follow-up question on expected growth in semis in 2019. You spoke last quarter about approximately an 8% growth rate in semis, which is quite different than with the peers in the components base are saying. And just kind of looking off the down 2% growth in 2019, it looks that could be possible. But could you just talk a little bit about how those expectations have changed over the last couple of months? I mean, is that 8% range is still something that you view as viable? And if so, would that be more second half weighted or could you see return to growth in the June quarter, based on your current bookings and backlogs there?

Hi, Amanda. I appreciate the question. And I hope you’ll appreciate my non-answer. But, let me give it a try. Amanda, we’re really confident about the share gains about the position of the products. We have a good look on the systems business we talked about on the contamination control. It's tough for us to know because I think things have become a little bit less positive in the last couple of months, as you say. We had -- going from a 50 billion WFE to 40 or 42. That’s certainly down a lot more; if you go down there, it’s a lot more than we have forecasted. But, we are still confident. I mean, if the business is in the flat to down 5% or 10% range, we still are confident about growth. We have a number of market share wins; the semi team has launched new products to address pretty significant gains that we can get done in a relatively short order. So, the 20% would be tough to imagine, flat to down 5% to 10%, we think we’re still in the hunt. But, it's hard -- that would be hard for us to tell you where I think it's going. But, those would be assumptions that we put into place when we started growth forecast for our 2019 business. And by the way, we’re still positive about the second half of the year. But again, we don’t have too much to base it on and we do pay attention to everybody's forecast, all the equipment forecast, all the capital spending forecast, just as you do.

But then, moving into the life sciences, it looks like March quarter, the growth that we’re seeing there is also pretty much all tied to GENEWIZ acquisition. So, how should we look at second half growth? You mentioned the bookings should come back on line in the second half that were kind of delayed out. But how imperative to growth are those delays in bookings that you mentioned earlier or are there opportunities to kind of drive that organic growth rate as well?

Amanda, I'm going to start off and if Steve needs to, he could -- he’ll supplement me on this. You are right on the GENEWIZ that that's been more, obviously $16 million being added in the quarter and another half quarter being added that outweighs everything. But, I will tell you that in our guidance, we gave guidance on the Sample Management sequentially of flat to 4% growth here. And that will start to support a range of what I estimate to be about 8% to 12% organic growth. So, we think will be tipping this up to the range of the double-digit organic growth, what's trapped out as we get to the next quarter. And then, on the underpinnings of that, what we see is in that backlog, the team has secured some good wins on the systems side, which I’ve always said is the -- is what sometimes can give us a headwind versus a tailwind. But, we also have some of storage customers that are set to deliver some of samples that Steve mentioned on this call. And he’s very focused on as how many samples have we brought in every month. And so, we have a schedule ahead of us, those samples start coming in on some of those larger contracts. Those are the two places that I always anchor in on the Sample Management. It's the large system backlog and it's the momentum of bringing samples in. It's not to suggest that consumables and instruments is an important to us or post-warranty services and important. We’ve seen actually good traction on both of those over the course of the past year, but those aren't point to be -- those aren’t anchor franchises that drive the strength; it comes down to the samples we're bringing in and adding value to as well as those projects. So, we'll update you as we go into the second half. But, we're pretty encouraged in the traction that team has in hand. Our next question comes Craig Ellis with B. Riley. Your line is open.

Hi. This is actually Peter Peng calling in for Craig Ellis, and thanks for taking our question. Starting with the semi, can you just talk about your -- it seems like the tone has been more constructive. Can you talk about how that would impact your sales as ASML kind of ramps from some 18 to 30 to 40 tools?

So, Peter, it's a good question, one that we have too. What I can tell you is, wherever there are EUV tools, we have pod cleaners and now we're moving to our reticle storage, the density will be the question for us. We're not precisely sure what the ratio will be for the pod cleaners and the number of EUV tools, but the one thing that we're pretty confident about it, as utilization of those tools increases, then the number of pod cleaners and reticle stockers will increase. So, the activity, I think without question that we're seeing stepped up because of the increased activity from ASML. We don't have a good handle yet on what number of tools of ours will go with the number of tools that are shipped by ASML. So, we'll pay close attention to it. But, without question is momentum coming our way because the adoption of the technology.

Okay. And maybe just touch on also in semi, the advanced packaging. It seems like, TSMC sounds kind of bullish on the outlook. Can you talk about your exposure there and where your expectations are for calendar ‘19?

So, again, I think this is probably the only time in the last four quarters that we didn’t say it’s tough business to forecast, and I probably should have mentioned that. But, what I can tell you is that it's beyond TSMC. When all of us put tools into the info line, I think we saw a pretty significant uptick in business, but there are number of manufacturers now looking at advanced packaging capabilities, including assembly and test houses but also European manufacturers putting in some advanced packaging capabilities. So, we'll try to get a better handle on how to forecast that. But, we're seeing a broader range of customers than just waiting for a TSMC expansion of an info line. And I think it's probably borne out by the fact that if you look over the past five quarters, when we’d announced the advanced packaging revenue, it's been in the $10 million to $14 million range per quarter. And so, it's a more stable base line, if you will of opportunities that are coming from just an occasional factor.

Okay. Thanks for that. And one more question. The interest expense, just given the update and closing, what are the expectations on that line item for June and September quarter?

Our expectation is that in the June quarter, we end up closing the sale and we pay down the debt. The timing remains to be seen. And since I haven't guided the quarter, I think I’ll hold back on answering just when in the June quarter we would expect that. It's hard for us to predict what the agencies might require of us. So, that's our status at this point. I can tell you that more broadly on our debt intentions -- a couple of updates there. One, as I said, we would expect that as we bring in the proceeds that we think it's about 540 million as we've been consistent our net of tax and proceeds -- tax and fees, and then we would pay down $350 million incremental debt that we've taken on and we’ll evaluate our need to that time. As the calendar elongates, we continue to look at potential acquisitions; and if it elongates more, we might have the horizon of seeing opportunities that we keep some of it on the balance sheet, some of the debt and cash. And if not, if we don't see those opportunities in the near term, then we may pay down more of some this, upto $200 million. So, the nice thing is, it's in the solution that we have with the term structure, we have that flexibility. And then, as a final comment, I'll just -- I'll mention that we have taken the current term loan, which we did on the balance sheet of Morgan Stanley and a bridge situation, bridge to loan situation, we're now in the process of taking that just indication and we've gotten -- it's in the middle of marketing but we’re seeing pretty good support so far. So, it remains to be seen what we end up closing in the next couple of weeks, but we’re encouraged by the support we’re seeing in the debt market.

[Operator Instructions] Next question comes from the line of John Pitzer with Credit Suisse. Your line is open.

Could you maybe give a little bit more color on what you are expecting for gross margin and operating expenses for next quarter?

Yes. I can add a little bit to that. Overall, we would expect some improvement on the Sample Management side and the gross margin. But we see that in the semi side, we probably will expect the mix just to be a little bit softer. And so, overall, on the base business, we’ll expect that to soften a bit. But the nice thing is, the portfolio that we’re exercising will see one more benefit because as we bring in GENEWIZ coming in at 50% gross margin, you'll see favorability and perhaps in the range of one point improvement overall, and maybe a half-a-point to a point. And so, that's at the gross margin level. And at the operating margin level, again, I know, it remains to be seen and at that point we do have additional structured expense that we’re putting into the GENEWIZ. And while we haven't guided that line, I wouldn’t expect to see improvement. We might see a little bit lower operating margin with the investment we're putting in. And that's what's factoring into some of the guidance there. I'll highlight though, as you think about this in the gross margins, we're building a solid revenue business strong gross margins, higher growth trajectory. And this is the key to our strategy as we move into the second half. We think we're supporting a life science business that continues to expand and grow as move across these. I'll highlight that I think we're in the 14th consecutive quarter of growth, not on a year-over-year basis but on a sequential basis in the life science space. And so, we're building something that has continuous ways for growth. And so, with the improved margins, we'll get leverage out of that. And then, finally, as we get into the second half, we'll be working on the stranded costs. So, it's a really good question. We're seeing just a little softness in the operating margin in our guidance. And we'll watch that during the second quarter. And then, you're seeing that heavier interest expense that’s below those operating margin. But, we're positioning ourselves for the second half that ramps without the interest and the growth off of those investments.

And Mr. Robertson, there are no further questions at present time. I'll turn the call back to you, sir. Please continue with your presentation or closing remarks.

Dave, thank you very much. And to all of our shareholders and those listening, we appreciate your attention very much. And I think I’d just wrap up and this last question is actually good opportunity. And what you heard on the call is that you're seeing the exact effects of the transformation that we put in place over the last seven years. We really think things take different shape over the last three years with the results of what we've built into semi-around adding the contamination control capability, we've taken the Sample Management business and built it into a robust platform around the BioStorage services and now adding the additional services that we can add on the genomic analysis; it's adding value to the samples, adding value to the customers on a continuous growth. we think these last few transactions are just the transformative of establishing those two stronger platforms, that being putting us into a higher growth mode and to a trajectory and with a margin profile that will produce higher profit growth for the future as well. So, with that, I think that's the right summary to leave this call. We appreciate the support and interest. And we look forward to seeing you in our next conference. Thank you very much.

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.