Greetings, and welcome to the Brooks Automation Q2 2020 Financial Results. During the presentation, all participants will be in a listen-only mode. Afterwards, we’ll conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded, Thursday, April 30, 2020. I would now like to turn the conference over to Mark Namaroff. Please go ahead.

Thank you, Malika. Good afternoon everyone on the line today. We hope everyone is staying healthy in this environment. We'd like to welcome you to our earnings conference call for the second quarter of fiscal 2020. Our Q2 earnings press release was issued after the close of the market today and it is available on our Investor Relations' Web site located at brooks.investorroom.com as are the supplementary PowerPoint slides that we'll be using during the prepared remarks. I would like to remind everyone that during the course of the call today, we'll be making a number of forward-looking statements within the meaning of the Private Litigation and 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 our aforementioned PowerPoint presentation on our Web site, 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 will also refer to a number of non-GAAP financial measures which are used in addition to and conjunction with results presented in accordance with GAAP. We believe 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 GAAP measures themselves. So 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 up with remarks from Steve on the highlights of the second quarter and then Lindon will provide a more detailed look into our financial results for the quarter and an outlook for the third fiscal quarter of 2020. We will then have time to take your questions at the end of the prepared remarks. And with that, now I’d like to turn the call over to our CEO, Steve Schwartz.

Thank you, Mark, and good afternoon, everyone. We’re glad to have you with us today. As we’ve already published preliminary results in a press release we issued on April 13th, I’ll recap those results briefly and focus my remarks on some extra color at the segment level to give you some indication about how we see the current and near-term business environment. I’d like to start by discussing our priorities during this pandemic. First is the safety and well being of our employees and their families as well as our partners, including our suppliers and customers. Second, our ability to serve our customers that are deemed essential businesses with specific focus on any and all urgent COVID-19 requests and there have been many. And finally, the ongoing health of the company for the long term and actions we’re taking to ensure that we emerge from this crisis stronger than ever. With the exceptions of only a few brief work interruptions, all of our 20-plus factories, laboratories and repair centers were up and running throughout Q2 and all are currently operating. Of our approximately 3,300 global employees, about 1,800 have jobs that require them to be on-site. The rest of our employees are working from home. We are particularly proud of the way that each and every employee has embraced the new work practices that include social distancing, the diligent use of PPE, temperature screening, staggered shifts and other practices which have allowed us to continue serving customers. All have adapted to this new work environment and we could not be more pleased with the resiliency of our operations during these turbulent times. We’ve consistently met our delivery commitments to customers as they struggled with their supply chains, and in many instances on the Life Sciences side we stepped up to…

Thank you, Steve. I’d like to refer your attention to the slides on our Web site, starting with Slide 3. Since Steve hit on these messages in his remarks, I will also be brief on what we see as the headlines of our performance. First, we had excellent momentum that has only modestly slowed by COVID-19 disruptions. We have performed remarkably well with double digit year-over-year revenue growth in both segments and have established ourselves truly as a top, reliable supplier in every market we serve. Next, we expanded earning substantially with continued performance enhancements in the Life Sciences segment. To put a finer point on it, gross margins in the Sample Management business are up nearly 600 basis points from a year ago. And third, we are well-equipped for what lies ahead. Our liquidity is strong with 198 million of net cash on the balance sheet and healthy cash generation. To this point, our year-to-date cash flow from operations, when you exclude the taxes paid on the sale of the Semi cryo business, are $51 million. This is a year-to-date improvement of 29 million over the prior year. The business is helping and both sides are contributing growth, profit and cash flow. Let’s move on to Slide 4 to review the overall P&L. Let me first point you to the GAAP earnings and highlight what is different in that comparison. The growth of revenue and operating income is similar to that shown in the non-GAAP profile on the right side. But what is different on the left side is in the tax line. In the first fiscal quarter, as guided under GAAP, we recognized the windfall tax benefit of approximately 6 million which is related to long-term incentive stock units divested in the first quarter. That allowed deduction, resulted…

Thank you. [Operator Instructions]. Our first question is from the line of Patrick Ho with Stifel. Please go ahead. Your line is open.

Thank you very much and hope everyone is well and congrats on a really nice quarter in these challenging circumstances. Steve, maybe first off in terms of the disruptions and the volatilities you’ve been seeing. Can you give a little bit of color on your end how you were able to manage a very fluid environment and making sure that your top Tier customers got what they needed? What were some of the steps you took, how did the business continuity plans work, if you could just give a little bit of color on that first?

Sure, Patrick, and thanks for the question. Specifically on the Semi side, we do a lot of credits to the large OEM customers. They give us a good look at the business. They adjust it quite frequently, so we’re able to get out in front of the supply chain. And then our team managed the supply base extremely well. I think this is something over the past years that’s become really fluid. When we get a signal from our Tier 1 OEMs, we’re able to transmit that quickly to our suppliers to get them prepared and I think the team managed it really well. It wasn’t without problems for sure, but everybody knew how to accelerate and get the job done. And Patrick, inside the company, everybody knows that the deliveries for the customers are top priority. So if we go over time what we spend, if we do something for it to get shipments there, we do it. And so I think that’s just – it’s a successful model that played out through the COVID period. And I think the business continuity plans that we have in place, we kicked them into action and I think they played out extremely well. I don’t know if anybody could have anticipated the magnitude of what everybody was going to be faced with, but I think the team responded well. We’re functioning completely differently just even two weeks into the shutdown period. Two weeks into the shutdown period, we were operating with the same fluidity but in a really different mode. So in general, the things that should have happened did and we continue to manage going forward the supply base. There are air pockets we’re finding coming from India, from Malaysia that we’ve been trying to work through now for the past five weeks. I think we’re doing very well. But when you hear uncertainty from everybody in and around the supply chain, I think we’re all dealing with the same kinds of things but I do believe the team is in front of it and we seem to be weathering it pretty well.

Great, that’s helpful. And maybe as my follow-up question staying on the Semi side, maybe Steve or Lindon in terms of the margin profile, it’s actually holding up very well given a lot of the moving pieces that are occurring on the Semi side of things. Can you discuss your I guess inventory management and what we’re going to see [indiscernible] your supply chain as well as your customers are all building a little bit of buffer inventory given the uncertainty that’s out there. How are you managing it internally both to ensure your customer delivery as well as keeping a little bit of buffer for yourself given the market uncertainty?

It’s a good question. So on the inventory front, I have to say the one thing that has been the most satisfying to see and hopefully the biggest change is the fluid communications on all fronts. So the communications on a daily basis with customers as well as supply chain is happening and I think the leader of our supply chain I would say is pretty intense on this. So he’s operating multiple time zones. So this has been the key aspect is tying out [ph] what our priorities and if we don’t have particular parts, we’re exercising those supply chain and most of them have been resolvable. We’ve had modest constraints and we marry that then with our labor force. And our labor force, we’ve been very – we’ve given our labor force latitude that if they have a concern or if they have a specific high-risk situation at home that they are not required to be here. However, in large part our force has been here. So we marry those things to the priorities of the customers. Now, to your point where is the buffers? We have decided to put in a couple of million, I’d call it 2 million to 5 million of investment in the third quarter as we go into third quarter into inventory in the supply chain to make sure that we’re securing what we need not because – we do see strong momentum which suggest we have to ramp, but it’s as much about making sure that we have what we need when we need it in this environment. So we’re exercising putting some buffers in ours. I think on our customer front, we’re seeing respectable inventory levels. We’re not seeing anybody slow down but we’re not seeing anybody put high demands just to pull things in either. So I think it’s pretty balanced on that front. Patrick, did you have another part of your question there that I missed? I want to make sure I covered your question.

No, that was – you’ve answered that very well. You answered it clearly in terms of how managing your own inventory levels given the uncertain marketplace or so. That’s it from me. Thank you very much.

Thank you, Patrick.

Thank you. Our next question is from the line of Jacob Johnson with Stephens. Please go ahead. Your line is open.

Thanks for taking the questions. I guess first question just be interested on your latest thoughts on the synergies between the Sample Services business and GENEWIZ. Now that these businesses I guess are now being managed as a single unit, are you seeing more overlap between these customer bases? And is there any way to quantify if GENEWIZ customers are beginning to use your Sample Management services or vice versa?

Yes. Hi, Jacob. So let me give you a little bit of background here and then talk to you about the future. So, historically, we’ve had a business that’s related to this in the alliance we have with Rutgers University, and this is something that came with the BioStorage team when we did the acquisition in 2015. And the business is called the BioStorage alliance. And there, there are a number of studies, a number of projects that are ongoing related often to a particular disease study. And the combination of the team at Rutgers in Indianapolis would prepare the kit, work with the collection, get the samples in, prepare the samples, often do measurements on those particular samples, give the data to the customer and then store the samples for long-term storage. So it’s a business model that we understand. And what we have now is with the acquisition of GENEWIZ, you can imagine for the – with any acquisition there’s a time and there’s a speed with which you go about integration. GENEWIZ was on such a growth tear that intentionally we left them without a full integration and we allowed them to continue to get their roots. We did three large capital expansions to allow them to keep growing, but all the time we had an idea and an eye for the synergies that we get between Sample Management and GENEWIZ which would be a much bigger version of the alliance. In other words, a much broader sales force, an incredible increase in the amount of laboratory and scientific capability that we would add to the global presence we have in the services business. So we’ve always had an eye to it. And now with the focus putting this business unit – both of these businesses under…

Got it. Thanks for the color, Steve. I’ll leave it there.

Okay.

Thank you. Our next question is from the line of Steve Unger with Needham. Please go ahead. Your line is open.

Hi. Thanks. I just had one question. I wanted to understand the performance of the gene synthesis of GENEWIZ. Are these all COVID related projects and how are you doing relative to the expanded capacity that just came online?

Here’s what I would highlight is that one thing that made the team so proud was the fact that in – nobody likes the tragedy obviously, but what makes the team proud is that we were the first – well, we were the first impacted in China, we were the first call not just in China but the U.S. and the UK. And gene synthesis was the necessary element from GENEWIZ from the beginning. There was also sequencing done to help through analysis, but synthesis took on demand for COVID. It is [indiscernible] demand on COVID research and it has continued, but it is not solely that. We are seeing demands on other projects continue. And I would highlight as well we’re seeing engagements for gene synthesis to continue. So this is a core part of our business. It’s got a nice mix. It’s a record quarter. I think the record there reflects the momentum in the business and the usefulness that that service provides in the research step. Now in terms of capacity to expand, our expansion of labs has been a critical factor for us from day one. It’s the most capacity sensitive equation that I have. I will say those who have been with us know that I characterize our storage business as variable capital as we put freezers in place. That’s a pretty steady run and we put freezers in row after row as the samples are scheduled to come in. But on the lab space, you have to make sure that you have the labs, the equipment for sequencing on that other side. And then on synthesis, you have to have skills, the reagents and we continue to do fair amount of lab work just in our own R&D around the reagent. So all of this factors into it, but we make sure the capacity is there in each region.

To be clear, the COVID projects were important but they were relatively small dollar volume, so it’s not what moved the needle in the synthesis business. And the capacity as we put into place, one, we set up the European lab where we do not synthesis. So that was purely analysis for Sanger and for NGS. New Jersey, we did a major NGS expansion. So you saw some of that in the ability for us to deliver NGS. And the other major investment is in the building in Suzhou, China which is not yet functional. We already had Sanger – so we already had synthesis capacity in place and we still have more capacity already in place. So we can continue to grow that business without having to add capital on the synthesis side for right now.

Great, all right. Thank you.

Thank you. Our next question is from the line of Amanda Scarnati with Citi. Please go ahead. Your line is open.

Hi. Thanks for taking the question. I just want to talk a little bit about Semiconductor demand and where you expect to see that coming from this year. I know earlier in the year – at the start of the year, we talked about Tier 2 demand in Korea picking up and sort of replacing some of that Tier 2 in China from 2019. Have you seen any of that pickup at all or should we just expect to see more sort of Tier 1 demand if that were to continue on?

So, Amanda, we see both actually. We do see China activity picking up. We had a lull two quarters ago. We were on the call. We talked about a lull in China. It was pretty significant, but we had an uptick over the last two quarters. So the Q2 results remain pretty healthy. And in our backlog, it’s very representative of what we see in Q3. It’s tough to see any further than that. We don’t have any different visibility from what we normally have. But we’d say China activity is healthy these days both for the – at the end user factory level for products like CCS and certainly for the Tier 2 OEMs.

Great. Thank you.

Thanks, Amanda.

Thank you. Our next question is from the line of Paul Knight with Janney Montgomery. Please go ahead. Your line is open.

Hi, Steve. I guess you would say that the Sanger part of GENEWIZ was what was most impacted in the quarter, right, or will be here in 2Q?

Yes, it feels like that for the June quarter. Again, I think Lindon put it really well. Since this seems to be pretty steady and healthy and some volatility to NGS which could swing either way, but Sanger unless and until the academic facilities pick up and some of the industry gets going, that’s a swinger for us and it’s just at a relatively low level. We know share is good. We know customer capture has been tremendous. But if the labs aren’t open, that would really slow us down.

Okay. Thanks.

Thanks, Paul.

Thank you. Our next question is from the line of John Pitzer with Credit Suisse. Please go ahead. Your line is open.

Good afternoon, guys. Congratulations on the good results given the operating environment. I’m just kind of curious. It sounds like from your prepared comments that COVID was perhaps a 4 million to 5 million hit to revenue in the March quarter. I’m just trying to get a better understanding of what your embedding for the June quarter and is that March number right? And then just relative to the Semi business, I’m just kind of curious of your view on what the commerce department came out and said earlier this week about intensifying some licensees potentially into China and what risk that might pose for your business directly or indirectly?

Yes. So the first – the 4 million to 5 million that you referenced is more on the Semi side of shipments that we could have made had it not been disrupted from one factor or another. Generally it’s a supply chain or prioritization in talking with customers on what we could provide most fluidly. But in total on our business, we estimate it rounds to about 8 million in total including the impacts on the Life Sciences and that’s a netted impact, net of some of the opportunities that were also driven on research of COVID and consumable shift for PCR plates in the DNA analysis. So you asked, well, how does that shape up for Q3? Frankly, John, it gets more challenging to put a number on Q3 because Q2, the demand equation was quite defined and we know what disrupted us and we know coming into Q3 demand has been reshaped a bit by the absence of the market. So I will tell you without question both Life Sciences elements were expected to grow sequentially absent the COVID environment. And I can say that without any hesitation at all. And so when we talk about being down flat to 8% -- I’m sorry, 5% to 10%, it’s a pretty significant impact for us sequentially. We don’t think it’s an impact to us when we get through this that the market and in fact I think we’ve embraced a significant number of new customers on Life Sciences. On Semiconductor, similarly as you well know, it’s a design in business and we don’t see it impacting us. However, we all know that everybody’s watching the global economy to see what happens with semiconductor investments. For now, we haven’t had any one ask for a reschedule or a delay or a change in demand. In fact, our customers are more active in reiterating their demand to us and emphasizing to us, we still need it. Our customers still need it. What help do you need? How can we ensure that it’s coming? So all messages to us from our customer endpoints in Semi are full steam ahead. And we’re also conditioned that if a crisis is in the making that full steam ahead sometimes is long lived and sometimes it changes. So that’s why we say it’s a vulnerable time economically. Let me pause on that one and see if you have a question and I’ll address the regulations.

That’s a perfect answer. If you can just talk about the commerce, BIS regulations?

Yes. So we are assessing it but our preliminary reading is, is it’s not affecting us very much. So we anticipate that – most notably, if you went back three plus years ago, we had systems that were under scrutiny and under license requirement and we don’t have that any longer. We were able to qualify those to not require individual licenses. And for that and other – early assessments is that we won’t be directly affected.

Thank you, guys.

All right. Thanks, John.

Thank you. And there are no further questions at this time.

Okay. If no more questions, let me just finish the way we started. One, we’re really pleased to hear all the analysts on the call with us and we hope that that’s an indication that you and your families are healthy and solid in this environment. It’s without question unusual times. I will tell you we couldn’t be more proud to be working with an unusual team that has marched straight through it and has stayed fully engaged. And these are disturbing times but at the same time energizing in the mission that we have; two essential businesses, Semiconductor and Life Sciences and their response from our customers and what they need and what they want is support from us has been very energizing for us and encouraging. And we look forward to walking through this quarter stronger and delivering on this guidance. And we certainly hope that it continues to improve faster than what we anticipate, and then we’ll talk about the end of the year when we get through this quarter and what the longer term shapes up. But we have a lot of confidence that our fundamentals stay in place and we’re excited that we’re in a position that we are. So thank you very much for your interest with us.

Thank you. Ladies and gentlemen, this does conclude today’s call. We thank you for your participation and ask that you please disconnect your lines.