Azenta, Inc. (AZTA) Q4 2019 Earnings Report, Transcript and Summary

Greetings and welcome to the Brooks Automation Q4 2019 Financial Results Conference Call. [Operator Instructions] As reminder this conference is being recorded, Wednesday November 6, 2019. I will now like to turn the conference over to Mark Namaroff, Director of Investor Relations. Please go ahead, sir.

Thank you, Chris, and good afternoon, everyone on the line today. We would like to welcome you to our fourth quarter and yearend fiscal 2019 earnings conference call. Our earnings press release was issued after the close of the market today, and is available on our Investor Relations website, located at http://brooks.investorroom.com, as are our supplementary PowerPoint slides that we'll be using during the prepared remarks today. 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 Security 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 to you to the sections of our earnings release entitled Safe Harbor Statement, the Safe Harbor slide on our information 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 our forward-looking statements presented today. Also today we will be referring 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 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 President and Chief Executive Officer, Steve Schwartz; and Executive Vice President and Chief Financial Officer, Lindon Robertson. We will open up the call with remarks from Steve on and highlights of the fourth quarter on the fiscal year. Then Lindon will provide a more detailed look into the quarter and fiscal yearend financial results and provide a summary of our financial outlook for the first fiscal quarter of 2020. Then we will take your questions at the end of the call. Before turning the call over to Steve, I would like to remind everyone that we've completed the sale of our Semiconductor Cryogenics business on July 1st, the first day of our fiscal fourth quarter, reporting and commentary in this quarter focuses on our continuing operations. And with that, I would like to turn the call over to our CEO, Steve Schwartz.

Thank you, Mark, and good afternoon everyone. We're pleased to report to you results from another strong quarter. Give you some summary comments about our performance from our fourth fiscal 2019 year and provide you with thoughts on our outlook for fiscal year 2020. Q4 captained another strong growth here for Brooks. Revenue of $200 million was up 25% year-over-year, driven mostly by the addition of GENEWIZ with organic growth overall in spite of down some equipment environment. For the full fiscal year revenue up $782 million was up 24% over business segment. As we’ve detailed for you over the past year we completed two M&A transactions in fiscal 2019 including the sale of our semiconductor cryogenic packing business and acquisition Of GENEWIZ. With [indiscernible] activity we’re main focused on our ongoing business and we delivered exceptional growth. We gained more market share across the board and we’ve answered technology and market leadership positions in both the semiconductor and life-sciences markets. We are keenly focused on growth and leadership on our markets, we believe we have positioned each of our businesses in vibrant markets with growth opportunities and we’ve invested in the advancement of our technology solutions to solve our customers’ most critical problems while we further distance ourselves from competitors. As we’re too many weeks from our analyst and investor day when we had a chance to give considerable exposure to our business segments. I use my time today to give highlights from the business and our thoughts about how we see fiscal 2020 shaping up. I begin with Life Sciences, we had an outstanding growth quarter in Life Sciences with revenue of $94 million, up $6 million or 7% sequentially. With strong contributions from Sample Management and GENEWIZ. And $94 million Life Sciences represented 47% of revenue for the quarter and though it may not be easy to continue to gain on semi during upcycle in the semiconductor market over the long term we do anticipate a steady increase in the percentage of our business that comes from Life Sciences because of the sheer size of the life sciences market opportunity and our prospects for additional share gains. In a look at the Life Sciences sub-segments I start with Sample Management where revenue was $54 million, up 7% sequentially and 10% year-over-year on an organic basis and importantly gross margin increased more than 200 basis points closing in on our model expectations for the year. Some highlights from the quarter give us confidence that we're turning the corner and getting back to our expected growth trajectory. We had a number of key wins including million-plus dollar deals with two biopharma companies that include both storage and laboratory services. This combination of capabilities is a key advantage that customers see as a differentiator and we're focused on increasing our GENEWIZ capabilities into a combined offering for customers and these synergy opportunities are beginning to be part of our targeted sales activities. The Cryo business was a standout in the quarter with product revenue of $3.6 million which was comprised of sales to nine new customers, 10 repeat customers and multi-unit shipments to a biopharma company for cell therapy manufacturing and to an IVF company that's building out a footprint of state-of-the-art clinics that will utilize our automation products for the most dependable solution available. The Cryo business continues to gain traction and though it will start, it will still fluctuate a bit from quarter to quarter until the early adopters become more regular repeat customers we're confident that our automated Cryo products and related services are here to stay and will prove to be transformative to the rapidly developing cell in gene therapy market. We also had two new customer wins for large automated stores in China after a lull during the trade related slowdown. We continue to see great promise from what will become enormous population sample collections that will be located in a number of large metropolitan areas across China. And finally, business capture was strong with bookings of $62 million and we have another 72 new customers across all of our Sample Management offerings. This is good news for us as we're making improvements inside of our sample management business. We're more focused in our go-to-market activities and we've identified some of the operational actions that are necessary to speed up our internal cycles. We're putting discipline in place to better manage some more predictable conversion of backlog into revenue with improved profitability as a byproduct of these actions. As we detailed at our Investor Day we have expectations to grow the Sample Management business approximately 7% in fiscal 2020 and we intend to be consistently delivering double-digit percentage growth by the fiscal fourth quarter. We anticipate some small amounts of variability during the next few quarters but we're beginning to have better visibility into stronger second half of 2020. Our outlook for Q1 is for revenues to be approximately flat to slightly down from Q4 as we do not expect as strong a quarter from the Cryo business but year-over-year Q1 revenue should still demonstrate growth and at this time we are exactly where we anticipated that we would be when we laid out our plans for 2020. That's to say we're off to a good start. We remain very positive about the Sample Management business and our position in this market. Our portfolio of capabilities exactly matched with the needs of our customers and as this market continues to evolve our solutions will both shape the direction and speed with which customers turn management of their samples over to us. In our GENEWIZ sub-segments we also had an exceptional quarterly result with contributions from all segments of the business. Revenue increased $3 million sequentially to $40 million, up 29% from the same quarter one year ago as measured on a pro forma basis with strong contributions from both Sanger and next-generation sequencing. Customer capture continued to accelerate as we added more than 270 additional customers in the quarter and we uncover opportunities at every turn. The business is set up to rapidly assimilate new customers and our fast turnaround high quality laboratory services capability secures customer loyalty. Our broad services portfolio was a key to our rapid and sustained growth in this business. Over time, customers who first engage with us for one service usually Sanger sequencing will typically procure additional services. When they realize that they received the same level of service and quality for those incremental services, the relationships become even more secure. It's in this way the GENEWIZ has a built-in mechanism for additional share gains that result from an initial penetration. In addition to the high-quality fast turn services customers expect from GENEWIZ they're particularly enthusiastic about some of the new service offerings that have been developed by our GENEWIZ R&D team. Most recently, a new innovation that enables us to read through a very complex genetic construct quickly and reliably. This method of continuous improvement of process technology which is focused on critical scientific challenges is what our customers have grown to expect from GENEWIZ as one of the attributes that makes this stand out in the market. I'd like to summarize a few highlights from our first year together with GENEWIZ. On a pro forma basis fiscal year revenue grew to $144 million, up 20% from fiscal 2018. We added more than 800 new customers to the approximately 4,000 customers who were part of GENEWIZ one year ago. And in preparation for continued high growth we've been making investments across the globe. We expanded capacity at two North American sites. We opened a new facility in Germany to serve continental Europe and we've broken ground on our new building in Suzhou, China which is expected to come online in spring 2021. In addition as we begin to exploit the synergies promised by the combination of GENEWIZ and sample management capabilities we have initiated the creation of a GENEWIZ lab inside of our Indianapolis bio storage facility. All of these are welcome necessary investments that we believe will allow us to sustain an achievable 20% growth rate for GENEWIZ. I will now move to highlights from the semiconductor business where we delivered a fourth-quarter much as expected but once again the makeup consisted of some volatility. Revenue was $106 million, down 9% sequentially and down 3% on a year-over-year comparison. And different from our pure companies in the semiconductor equipment space this is our first sequentially down quarter in a year. Furthermore we believe that this is also a bottom in the semiconductor revenue for the cycle. We are particularly encouraged by our semiconductor bookings in Q4 which tops $145 million leading to what we see as a more vibrant semiconductor environment at least in the near term and I'll give you some color here. In our automation systems business we saw the first sequentially down quarter in a year that was due largely to a slowdown in China business which was a record high in Q3 in a four year low in Q4. Our market share remains very high in China but there's been a pause as the OEM shipped their systems into new fab projects. That said we saw a 30% sequential increase in our vacuum robots shipments mostly the tier one OEMs as they prepare to ship products to support tier one foundry investments. Our outlook for vacuum robots is for some sustained improvements in the December quarter and we believe that our systems business will improve as the market for memory equipment recovers. The most significant impact of the reduction in our systems business was apparent in the advanced packaging segment were revenue decreased to $10 million from a record $19 million in Q3. Overall in the year we finished with $63 million for this segment of the market, an increase of 12% year-over-year but it's clear that some digestion going on in the advanced packaging space at this time. We forecast that Q4 should be a bottom but that it might be early calendar 2020 before we see a meaningful pick up in advanced packaging activity. In contamination control we're as busy as ever as we set a record for revenue per quarterly revenue at $33 million. As we mentioned on our last call we've seen a surge in orders for contamination control systems and we've ramped capability to be able to meet this demand. A majority of which is to satisfy tier one foundry expansion for seven nanometer and new capacity for five nanometer technologies. But it's important to note that the breadth of our customer and application base continues to expand as Q4 revenue came from ten different customers, 15 different fabs and four different types of manufacturing effect that bodes well for the future of this business. Moreover, we are forecasting another record in the December quarter and continue to strengthen to March as we satisfy unprecedented demand for these new technologies. We're confident that both logic and memory will take more advantage of our contamination control capabilities in the future. For the year CCS revenue came in at $119 million, up 62% over fiscal 2018 and with incredibly strong momentum heading into fiscal 2020. Across all of our semiconductor business our assessment of the market is at the positive momentum in the first half of fiscal 2020 is being driven by foundry spending for seven and five nanometer capacity additions. However, we're also becoming more positive about memory spending awakening in the second half of fiscal 2020 as we've begun to receive orders from some tier two Korean OEMs for the first time in several quarters. For the most part these OEMs largely provide equipment to Korean memory trends. For the year it's noteworthy that our semiconductor revenue was up 3% when the capital equipment industry was down approximately 20%. We knew that our position and contamination control solutions and advanced packaging as secular growth drivers would help us to outgrow the semi market but we did not have a good way to predict just how fast these technologies would take off. For sure we're positioned well heading into 2020 as we had a record 130 design in wins that secured more gains in market share. And although we have very strong market share positions we're not sitting still. And each and every area of the semiconductor product portfolio across automation and contamination control we're currently developing the next generation of products with the latest technologies which will replace our current market leading products but will also increase the capability gap between us and our competitors. As with our life sciences business our technologies are out in front of our customer needs but closely aligned to the roadmaps for solutions they need in the future. To summarize our position we just concluded another transformative year with a very strong fourth quarter that propels us into another year where we forecast more growth, more profitability and more share gains from the investments that we've made in products and services that are ahead of our markets. We're enthusiastic about our prospects and committed to delivering on the promise of our exciting markets. We're poised for strong growth from all of our businesses. In addition, we have a strong pipeline of prospective acquisition targets and a reset balance sheet that supports more inorganic growth and we have strong core capability inside Brooks to absorb and integrate new capabilities as a matter of course. It's with these tools and capabilities that we look into fiscal year 2020 with optimism and confidence and we look forward to reporting to you on our successes. That concludes my formal remarks and I'll turn the call over to Lindon for more specifics about the quarter and our outlook for Q1.

Thank you Steve and I refer you to the slides on our website. I'll start with summary highlights on slide 3. On a full-year basis our 2019 revenue was 24% higher than 2018 supported by growth in both segments of semiconductor and life sciences. Our full-year operating margin expanded 130 basis points as we saw performance improvements in each of our segments. Semiconductor and the life sciences sample management business results each improved year-over-year and we were further supported by the addition of GENEWIZ to our portfolio. And we ended the year on a strong note with Q4 delivering revenue growth and margin expansion to. Revenue grew 25% year-to-year fueled by life sciences with double-digit organic growth and sample management, a strong pro form of growth in GENEWIZ. The semiconductor business provided relative stability compared to the industry with just a modest decline year-over-year. I will give you more color on the details as we go through the charts. Our Q4 operating margin expanded 140 basis points compared to one year ago. This improvement was driven by life sciences which recorded 580 basis points expansion year-over-year while semiconductor operating margins were stable on lower revenue. Cash flow from operations followed suit with a strong Q4 finish. We're reporting operating cash flow of $33 million for the fourth quarter but this includes absorbing $13 million of deal fees related to the closure of the semiconductor cryogenic sale. Excluding these one-time fees adjusted cash flow from operations was $46 million making it one of the strongest quarters of cash generation the company has seen in many years. As a final summary point you will hear a positive outlook as we are reiterating our targets for 2020 provided during our Investor Day in September with our confidence only increasing given the positive data points in the semiconductor market and the momentum of our life sciences business. Let's now move on to slide 4 for details of the quarter. Our top-line revenue increased 25% from a year ago to $200 million for the quarter, this was driven by an 85% increase in life sciences more than offsetting a 3% decline in semiconductor solutions. In our life sciences business organic growth increased the double digit range reaching 10% this quarter. On a sequential basis the revenue decline of 2% was driven by a 9% sequential decline in semiconductor solutions in a very strong 7% quarter-to-quarter growth in life sciences. Looking at the GAAP earnings on the left side of the page we're reporting $5.69 in earnings per share for the total company basis largely driven by the gain on the sale of the semiconductor cryogenics business in the discontinued operations line. The sale closed for 675 million approximately 4.5 times the revenue generated in the final 12 months of ownership. Inside the continuing operations P&L I will highlight that we recorded a $5 million charge or $0.06 per diluted share on the July 1 debt extinguishment with the proceeds from the cryo sale. Earnings per share from continuing operations were $0.08 per diluted share compared to one penny per share last quarter and a loss of 2 pennies in Q4 2018. Let's shift over to the right side and address the non-GAAP results. Non-Gaap gross margin came in at 42%, an improvement of 160 basis points from a year ago. This reflects a 480 basis point improvement in life sciences gross margins and a 20 basis point decline in semiconductor gross margins year-over-year. Gross margin improvement and operating expense management yielded a 140 basis point year-over-year improvement in operating margins to reach 10.8% for the quarter. Sequentially gross margins were lowered by 60 basis points with similar level pressure in each segment on a sequential basis. In operating expenses, the increased year-to-year was largely driven by the addition of the GENEWIZ operating structure partially offset with a decline in variable compensation for the company. On a sequential view operating expense increased 3% with investments in GENEWIZ SG&A and semiconductor research and development. As highlighted mid-year, the lower cycle and the semiconductor business and the slower growth and sample management this year drove lower variable compensation accruals for our fiscal 2019. If we look into next quarter we will see approximately 2 million additional operating expense due to resetting variable compensation accruals for the fiscal year 2020 being set back to an expectation or the full target achievement in 2020. Below operating income the P&L benefited from lower interest expense from both comparisons sequentially and year-over-year. In total net income for the quarter was $17 million or $0.24 per share a 43% increase year-over-year and 20% increase compared to sequentially to Q3. Let's turn over to slide five to review the full year 2019 performance. We finished the year with revenue of $782 million, a 24% increase over last year GENEWIZ drove growth in dollars of $126 million. Sample management drove growth of $11 million and that was 8% organic growth for the year and semiconductor $13 million in growth the 3% reported growth for the year. As the semiconductor equipment market has been down approximately 20% this year we've been very pleased with our level of growth in the semi environment. On the gap side of the page we see a healthy 100 basis points expansion of operating margin on the strength of gross margins and below operating income we see the higher interest expense, the debt extinguishment charges noted earlier and a larger difference in tax expense year-over-year due to the $43 million impact of the reversal of the U.S. based valuation allowance in the prior year. On the non-GAAP side you also see solid margin expansion and gross margins and operating income. This reflects performance improvements in semiconductor and sample management as well as a benefit from adding GENEWIZ to the portfolio. Below operating income we had $13 million of higher net interest expense and on the tax line our rate was 19% for the year 2.2 percentage points higher than 2018. We expect a non-GAAP tax rate in 2020 at 21% to 25%. In total we delivered $0.77 of earnings per share, up 20% from last year. Let's turn now over to page 6 and begin our discussion of the segments results. In the fourth quarter of life sciences revenue was $94 million which was an increase of 85% year-over-year including the addition of GENEWIZ revenue at $40 million and 10% organic growth and sample management driving debt business to another $54 million. The higher growth and sample management was driven by strength and consumables and instruments and the B3 cryo store systems which Steve highlighted. GENEWIZ performance was impressive with revenue growth at 29% over Q4 last year on a pro-forma basis supported with double-digit growth on both sequencing and synthesis. Next generation sequencing growth has been particularly strong this quarter as we've seen growth from the combination of new customer wins and the existing GENEWIZ customers who are now using those next-generation services for the first time. The gross margin trend you see in the fourth quarter reflects higher performance by sample management on both comparisons quarter to quarter and year to year. The GENEWIZ business contributes favorably to mix and the year-over-year margin improvement. The sequential gross margin decline was driven by investments in GENEWIZ while gross margins and sample management improved. Life Sciences operating margins came in at the 7.2% that you see an increase of 580 basis points year-over-year and approximately flat quarter-to-quarter. The year-to-year improvement reflects gross margin improvement and sample management and the leverage benefit of top-line revenue and stable operating expense. The addition of GENEWIZ was of course also benefited the operating margin line. The life science summary for the full year shows revenue growth of 70%, organic revenue growth of 8% and segment profit that was five times greater than fiscal 2018. We have highlighted the transformational dynamics of our GENEWIZ acquisition and in the fourth quarter the addition of GENEWIZ and its continued growth along with the growth of sample management has driven Life Sciences to be the 47% of total revenue and carried with it an improved gross margin profile. As we look towards our first fiscal quarter of 2020 we expect Life Sciences revenue to be in the range of $92 million or better. As referenced last quarter we are setting our expectations for revenue on a lower basis of expectation than we see as potential for the market growth until we see solid signs of consistent incremental progress and sample management. Our analysis currently indicates Q1 revenue to be flat to down 3% sequentially but if more importantly this supports 10% year-over-year organic growth for the segment. This in line and on track with our, is in line and on track with our full year model shared in September at our Investor Day. Let's turn to the semiconductor business now on slide 7. Semiconductor solutions revenue of $106 million in the quarter decreased 9% compared to the third quarter of 2019 and 3% year-over-year. This was consistent with our expectations, continued strength in our contamination control solutions on the wafer carrier side and sequential improvement in vacuum robots support stability in the business but it was not enough does offset the software shipments and automation system as an end in the CCS [indiscernible]. We are encouraged by the sequential pickup within the robots business which primarily represents our tier 1 OEM sales and which is expected to continue to pick up in this coming quarter. The continued signs of momentum at the OEM customer front and strong bookings and contamination control solutions provides a good starting position for the first order of our 2020 fiscal year. The semiconductor adjusted gross margin was down about 60 basis points sequentially this quarter at 41.1% with a result primarily a function of product mix as a result of lower volumes in our systems business. For the full-year adjusted gross margins increased 60 basis points year-over-year reflecting slightly favorable mix towards the tier 2 OEMs and systems and fab end users on the contamination control site. This margin performance combined with expense controls resulted in full year operating income increase of 13% and 140 basis points and operating margin expansion compared to fiscal 2018. As we look toward our first fiscal quarter of 2020 we expect semiconductor revenue to be in the range of $112 million to $119 million. We're very encouraged by the backlog strength and the industry indicators which align to support our 2020 growth objectives outlined in September. Let's turn now over to slide 8 for the summary of cash flow. Operating cash flow in the fourth quarter achieved 33 million. As referenced earlier GAAP accounting requires the payment of M&A fees that were entirely contingent on the closure of the cryo sale to be reflected as the use of operating cash. So if we remove this I'm happy to report again cash from operations was $46 million, one of the strongest quarters of cash flow in many years. Many categories of inventory and purchase applications were worked down in the first half of the year and in this quarter we saw an absolute reduction in fourth-quarter inventory by $5 million, an increase of payables of $12 million making working capital a significant contributor along with the earnings from sales. As we close the year, the total of our cash and marketable securities at September 30, 342 million and excluding debt we carry a net cash position of $291 million. Let's now turn over to slide 9 and allow me to comment further on this cash position and what to expect as we review the balance sheet. You can see that $342 million of cash equivalents restricted cash markable securities at the top of the yearend column. Let me draw your attention down towards current liabilities which shows an increase to $183 million. This includes $95 million of taxes payable due in January for the gain on the sale of the cryo business. So net of settling those payments we have approximately $195 million of cash available for investment in addition to a significantly larger capacity to take on debt if and when it is appropriate. The balance sheet as strong as we enter 2020. Let's turn to Slide 10 for our guidance for the first fiscal quarter of 2020. Revenue is expected to be in the range of $204 million to $214 million with semiconductor range between that $112 million to $119 million level in life sciences $92 million or better. Adjusted EBITDA is anticipated to be $29 million to $35 million. Non-GAAP earnings per share to be [$0.20] to $0.27 per share and the GAAP earnings per share is expected to be $0.09 to $0.17. In addition we provide some additional guidance on this page for the year expecting a non-GAAP tax rate somewhere between 21% to 25% and capital expenditures will be in the range $50 million to $60 million which includes the building expenditure in China for $20 million an interest expense we expect to be negligible. Before I turn the call back over to the operator for Q&A I will reflect on our view of 2020. As indicated in the segment commentary we're very encouraged with a momentum of the business in the markets as we enter 2020. We always view our semiconductor projections that reach out any further than the next quarter as a model based on our product plans or indicators from our design ends and the customer commentary. More specifically we generally have little backlog beyond the current quarter and semi but in this case we have seen some longer-term orders come in to reserve capacity for contamination control solutions and we're encouraged by the projections of the tier one OEM customers. For these reasons and with momentum in life sciences we've gained additional confidence in our 2020 model is shared in September. So that concludes our prepared remarks. I'll now turn the call back over to Chris the operator to take questions from the line.

Thank you. [Operator Instructions] Our first question is from the line of Craig Ellis with B.Riley, FBR. Please go ahead.

Thanks for taking the question and congratulations on the strong performance in the business guys. Steve, I'll just start with the follow-up to some of your prepared remarks. So it seems like there are some very encouraging things that are happening in sample management. You outlined at analysts day a number of things that you saw in the business that you wanted to improve and it sounds like you're making progress there. The question is relative to where you'd like that business to be operating when it's firing on all cylinders if you will where are we now and what's left to do to get the business to where you'd like it to be?

Yes. Thanks Craig. I think your observations are right. We feel good about the business. We're going to need a couple of quarters’ approved points for you but generally the go-to-market approach is good. We're streamlining some activities inside and we feel confident that as we come out of 2020 that we'll be back in double-digit growth rates. So our assessment is that the opportunity is absolutely still there. The customer demand is there and from the standpoint of the engagement of the team and engagement of the customers, things are generally positive. I mentioned that the revenue in the current quarter December quarter will be flat to maybe slightly down. We just, we want to build a little more confidence in as we're building backlog would build more confidence in that we can deliver the revenue but it feels like a positive term for us.

That's really helpful then the next question I had is related to semi. So some of your commentary on semi in the fact that the visibility now shows just one quarter of downward would explain why David was smiling at analysts day but as you look at the business one can you frame for us, one how comfortable you are with just that the near-term production capacity and the CCS business given the strength that you're seeing with the orders? Do you have enough capacity? Do you need to make any changes and then secondly you noted that advanced packaging would be a little bit more muted near-term maybe flatter, what trajectory do you see coming off of some of these more stable near term trends in that part of the business.

Thanks Craig. First of all I think maybe the business is always strong because David smiles. So I think maybe that's the causal part. A couple things that we got out in front of the contamination control capacity. We started that months ago as we knew that that it was coming I think that we're keeping up pretty well but I can tell you that it's tight but customers if we could build one more unit customers will take one more unit but I think that we have a good understanding of what it looks like for December and March and we spent a lot of time going out to customers and it's probably one of the reasons the orders are strong. We've gone to customers and let them know that capacity was going to be constrained and I think that's where people are trying to get into the queue but by and large the opportunities aren't going by but the factory is really full I can tell you that but it feels like a good balance right now and it's heavily foundry loaded but as I meant and the balance of customers and the breadth of the applications is really good. On the advanced packaging again we've always said that we don't have particularly good visibility there but we know that we continue to get new design in wins and it feels like just a pause right now so dropping down to a 10 million level is the low so we've been in quite some time but likely as China business begins to pick up and some of the manufacturers for the advanced packaging continue to go. We feel confident about the business and I just wish we had more visibility than we do. It feels like it might be a relatively flat December quarter before we see some pick up hopefully in early 2020 but we are really confident about the share positions that we have and the amount of design activity that we have to support the next generation of advanced packaging. I think the team is all over it and customers know that we're in the front position there.

And that's great and then if I could just ask Lindon clarification. Lindon thanks for all the financial color you noted that expenses in the first fiscal quarter would be up as the model embeds more of a full bonus accrual or variable comp impact. The question is are there any other items in expenses that would be either positive or negative sequentially and how should we think about the multi quarter impacts of that line item given that around the corner in the first calendar quarter we would typically have FICA and other things that would come into the model?

Yes. It's a great question. So to fine-tune on that I don't think you're going to see any more than the 2 million pressure. In fact we're working on some of the structure around sample management and our overall corporate on the stranded cost concept that we've talked about since the divestiture was announced. So I would say we're not going to make it all up but think of it as 1 million and 2 million of pressure and the quarter probably quarter to quarter. Implications on the year we're not going to constrain investments in GENEWIZ or in the R&D space to do design wins and we're going to continue to lean things out but I think you should take the Q1 and probably extrapolate off of that and I'll just highlight to you that gives us pretty close to the model that we described previously. We afford all that, we afford that Q1 result extrapolated for the year in the model that we described and as we tweak it going forward and as margins evolve we're going to manage this or manage to optimize growth but very focused on operating markup. So yes.

Very helpful. Thanks guys.

Great.

Our next question is from the line of Paul Knight with Janney. Please go ahead.

Hi Steve. Congrats on the quarter. Can you talk about well how much of life science would you attribute to the cell and gene market right now if you can? And what steps you have taken on the large stores business? Is it or you half done there to get profitability up?

So Paul I probably owe you an answer a little bit later on the fraction that's cell and gene but out of a $94 million I think we could probably attributed $5 million to that just to give you a rough idea. However, the investments we're making as you're aware in the B3 Cryo in the cryopod in the transport and handling is pretty significant. We store in Indianapolis and bio storage now a considerable amount of customer cell lines and cells in Indianapolis and the offerings that we have in GENEWIZ are now getting more redirected around some of the applications that support cell and gene. So I think it's a really good question for us to give you a little bit better answer but right now it's certainly in the 5% range and will be a little more crystal about that as we go forward.

And then on the stores business –

On the large automated stores they were making good progress. I think there's a lot of focus on that over the past quarters anyway but the activity related to the installations, the activity related on the purchasing and on the manufacturing side I think are getting streamlined and when you start to see gross margin improvements a lot of that is coming from the activities in stores. We're 25% if I had to guess we are 25% of the way that we're going to be and as we exit 2020 there will be a lot more fit business but that team is really focused around the kinds of things that improve the efficiency that bring the cost down and specifically getting the performance of the tools out of the chute in the install phase and I think there's a lot of good activity there. So I'd say we're 25% accomplished but 75% energized around it.

And then lastly Steve it seems like GENEWIZ with that 29% year-over-year pro-forma was, I think that's the best number I've heard coming out of GENEWIZ. Is it you've added square footage on the lab space? What would you attribute that level of growth to?

Hey Paul, every day we're impressed more and more by the service level capability of the GENEWIZ team. These are incredibly strong scientists solving important problems for customers and every time they solve one customer brings them another one and in what we find is we talked about adding 270 new customers just in North America and Europe, the customer capture speaks for the capabilities of this team and like Lyndon said we're not going to constrain them. We're going to just keep adding capacity capability because they seem to be able to bring it in and deliver. So we're really pleased by the performance. We don't know how long we will sustain it but it's as good a team as the numbers show.

Well, I will add a little color to that too just operationally this is a space where we have the conversation pretty regularly is what is the capacity requirements for the next quarter. And are we making, do we see any pinch points and so this is a focus that we never turn away a customer in that sequencing space because we know once we turn somebody wait you've got to invite them back pretty wholeheartedly. So we'd like to keep them. So we watch the capacity pretty carefully.

Thanks.

Our next question is from the line Patrick Ho with Stifel. Please go ahead.

Thank you very much. Steve maybe first off on the life sciences, you mentioned the go-to-market strategy seeing some tangible effect particularly on consumables and service side of things. Is that strategy having an impact across the board and that would is giving you more confidence that 2020 is heading for a potential growth year?

Yes Patrick, I think it's a combination of everything. I think the offerings are really strong and when we were at the investor and analysts say we talk specifically about how do we have the people who are out capturing business doing more of that and how do we support them internally so that they don't spend so much time inside the company but rather out with customers and that we can support the things that they bring in with the internal capability. I think that's been the first part of it the salespeople go South. And I think that's been had the biggest impact and I think we streamline the offerings to make sure that we're going after business that we really ought to be capturing and we have more work to do. That's not something we turn particularly quickly but the team has really engaged the go-to-market activities that we have we think are solid and we do have more sales people to add to the company and with active right now we've made some progress and we're going to keep bringing some people who can help us to add more to the backlog and then ultimately get product shipped to customers.

Right. That's helpful and my follow-up on the semiconductor side of thing here you mentioned that you're starting to see recovery on the top tier of vacuum robots business which is not a major surprise given some of the turns that we're starting to see in the wafer fab equipment spending market. Given that we're starting to also see some new tools both on the [action] deposition side I guess hit high-volume at these leading-edge nodes. Can you characterize, how you're seeing design is that you may have had over the past year or two now starting to hit high-volume with your top tier customers?

Yes. I think the answer is in the question there Patrick. So, I think without question we've been able to gain share. Some of the technologies that we brought in the latest generation of robots really relate to much higher temperature, much more severe contamination that's in a tool and in particular the very precise placement of the wafers and those are wins that we've been accumulating over the past couple of years and indeed we're beginning to see those tools shift. So the share gains that Dave talked about are beginning to show up and we anticipate that as those new tools begin to hit the market here in 2020 that we will be to report increased share gains and better profitability out of the vacuum robot business.

Great. Thank you very much.

Thanks Patrick.

[Operator Instructions] Our next question is from the line of Jacob Johnson with Stephens. Please go ahead.

Hey thanks. Steve maybe following up on your sales people commentary just now these new sales people you're adding in sample management is this working to sell more into existing customers or is this more about adding new customers in terms of those initiatives?

Yes. Jacob I think the thing that we want to focus on a particular is we mentioned that we've got some large accounts that we can expand to have other accounts of like characteristics also to be large accounts for us. So it's mostly for new and deeper penetrations at customers where we have to have a greater presence. So the teams that are covering accounts currently are doing an exceptional job and they'll continue to win more business from those accounts but we're really after how do we continue to approach customers who are not currently customers in the same way that some of the large accounts are.

Got it and then obviously really nice organic growth on the sample management business this quarter but I would be interested if you could kind of tease out how that flow down to sample management margins in the quarter?

Jacob could you tie that question back together for me again?

Yes. I guess my questions is you saw nice margin expansion life sciences in the quarter. I think GENEWIZ was a help and I think sample management margins probably also expanded but to the extent you would want to quantify that and just interested to kind of understand how sample management margins performed on a year-over-year basis?

Yes. So actually it's a good question because we didn't have simple GENEWIZ a year ago so in the quarter we're up almost 600 basis points, 580 basis points year-over-year in the segment and our op income this quarter at 7.2% it's really similar operating income margins between the two businesses this quarter. So fluctuation in GENEWIZ is still taking place one quarter to the next but they happen to be pretty similar this quarter. We're encouraged exactly on the point that the strength in sample management and we're equally encouraged by the amount of profit the GENEWIZ has brought into the companies. One thing to note that just year-over-year if you look at the operating income of the company it was up a total about 26 million, 17 million of that on the year-to-year difference came from Life Sciences addition of GENEWIZ but also significant improvement in sample management. So it's a diversification going to finishing the year 47% of our revenue in life sciences. I know early in our life cycle of this transformation people question was is this going to have the impact, when will it have the impact? Well, I think we're seeing the impact now. So I think your margin question is absolutely right. I'll highlight the sample management still has more leverage to be had as we grow it we don't see the need as much for the operating expense structure to expand on GENEWIZ where we have higher gross margins. We'll continue to fuel that with SG&A and you'll continue to see leverage out of that but it's at a top-line growth and higher gross margins.

I appreciate that Lindon and mabye last question and give you a chance to answer Paul's question if you have the answer but just on cell and gene therapy obviously a lot going on there. I just be interested what areas of your life sciences segment where you're seeing sort of the most strength from these customers?

So right now the one we can quantify is that on the bio storage, so on the cryo stores and in bio storage. So we're beginning to handle the more cells and what we find is that the cell and gene therapy research institutions understand that handling the samples is really critical and again we need a breakdown for the gene which side of the business it's not as obvious or as clear but we'll work on that for sure. But what we're seeing is in the development in the handling and the storage of retains on the cell therapy side we think along the manufacturing chain and ultimately on the dosing side there's going to be an opportunity for a significant expansion in the automated stores.

Got it. Congrats on the quarter. Thanks for taking the questions.

Thanks Jacob.

And there are no further questions on the phone lines at this time.

So Chris with that I just like to express my thanks to you but the audience here that gives us their attention, their research hours as well as the investments and competence in Brooks. We can be more pleased the way we wrapped up the fiscal year. We're excited obviously two weeks before we finish this. We outlined the investor day so it shouldn't be any surprise that there were no surprises to us as we wrapped up as well as that we're on track in this first quarter. We feel it like we're in a really good spot and we just so appreciate the time and confidence that you all give us. We wish you all best as you head toward a holiday season. We look forward to talking to you in the January time frame. Thank you very much.

That does conclude the conference call for today. we thank you for your participation and ask that you please disconnect your lines.