Azenta, Inc. (AZTA) Q3 2020 Earnings Report, Transcript and Summary

Greetings and welcome to the Brooks Automation Q3 2020 Financial Results. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, July 30, 2020. I would now like to turn the conference over to Mark Namaroff. Please go ahead.

Thank you. Thank you, Malika and good afternoon, everyone on the line today. We’d like to welcome you to our earnings conference call for the third quarter of fiscal 2020. Our Q3 earnings press release was issued after the close of the market today, and is available on our Investor Relations website located at brooks.investorroom.com, as our supplementary PowerPoint size that will be used during the prepared remarks today. Before we start, I’d just 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 Litigations and Securities Act of 1995. There are many factors that may cause actual financial results and 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 website and our various filings with the SEC, including our annual reports on Form 10-Q. We make no obligation to update these statements and should future financial data or events occur that differ from these forward-looking statements presented today. We may refer to a number of non-GAAP financial measures also during the call today, 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 a 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. 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 some remarks from Steve on the highlights of the quarter. And then Lindon will provide a more detailed look into our financial results for the quarter and our outlook for the fourth quarter. And then we’ll have some time to take your questions after the prepared remarks. So with that in mind, I’d like to turn the call over to our CEO, Steve Schwartz.

Thank you, Mark and good afternoon everyone. We are pleased to have you with us today as we report results of a strong third quarter. In spite of COVID headwinds and uncertainties, we delivered a solid top line, increased profitability and strengthened our market position in each segment, and we forecast strong growth again next quarter, further demonstrating the value of our unique product and services portfolio and our positions in 2 robust markets. Revenue of $220 million was flat sequentially with Q2 and up 8% year-over-year. Earnings per share of $0.32, was up 26% sequentially, reflecting our improvements in margins and overall resiliency in a tough environment. And different from our earnings call just 3 months ago when the business outlook was particularly uncertain, we believe that we found our footing in this current stage of the COVID-19 environment, and that gives us more confidence about our near-term guidance. When we last spoke with you, we were in the peculiar life sciences environment where academic demand had cratered, but industrial demand and anything related to COVID-19 work was accelerating. Additionally, at that time, while our semiconductor backlog and demand environment was extremely strong, the pandemic had exposed some cracks in the global supply chain, leaving us with some uncertainty as to our ability to deliver to our customer needs. In retrospect, it was a swift action to trigger our business continuity plans that allowed us to overcome this uncertainty and keep all of our 20 plus facilities open and productive. As we manage through the quarter, we had started as the temporary working conditions solidified to become our new normal method of work. We settled into those changes with discipline and new found enthusiasm for what’s possible in a more distant work environment, supported by a committed team of essential workers who made the necessary changes to deliver for our customers. We count ourselves fortunate that we’ll be able to sustain business in this mode for as long as necessary. We are pleased to say that we have seen a steady and substantial improvement in life sciences demand through the quarter, to run rates that are almost as they were pre-COVID and semiconductor demand and supply are robust and still appear to be on the upswing. And I’d like to highlight one unexpected outcome in this current environment. During the quarter, we continued to win an extraordinary number of new customers in Life Sciences as well as new design wins in semiconductor, setting us up for additional growth and share gains. I’ll give some additional commentary about each of the businesses, but it’s noteworthy that this new environment of limited customer contact seems to have enabled more opportunities for companies with strong brand and reputation. With this as a backdrop, I will give some color as to the performance of the Life Sciences and semiconductor business units, beginning with Life Sciences. At $93 million, Life Sciences revenue was stable from Q2, down only 2% sequentially, but up 6% compared to Q3 of 2019. Life Sciences services, was up 5% and Life Sciences products contributed an increase of 9%. As was the case in Q2, the results from each of the sub-segments within those business units vary depending upon whether COVID-19 was a headwind or a tailwind. But overall, performance was strong, and we finished June with positive momentum. In Life Science services, which consists of GENEWIZ, sample storage services and informatics, revenue was $63 million, up 5% year-over-year and down 2% sequentially. And despite the variability caused by the pandemic, our services business performed well in the quarter. GENEWIZ revenue was down approximately $4 million sequentially, but still managed to be up slightly year-over-year. The 3 major service lines, Sanger Sequencing, Next Generation Sequencing and Gene Synthesis have begun to stabilize. And based on the momentum over the past 6 weeks, we have confidence in our outlook. As we reported to you last quarter, when NGS and Synthesis had record quarters, Sanger Sequencing, which is heavily dependent on academic research, has been significantly impacted by a reduction of more than 50% of weekly run rate business that dropped abruptly in mid-March with the shutdown of academic laboratories. And although by late April, we’ve begun to see some slight rebound in our Sanger business. At that time, we didn’t have enough data to declare a trend. Since then, we’ve continued to experience a gradual increase in demand across the Sanger business to a level where, for the past 4 weeks, we have been running steadily at approximately 90% of our pre-COVID levels. To no surprise, Europe and China are at pre-COVID levels, but we are still somewhat lower in our U.S. facilities, reflecting the slower and less complete reopening of U.S. institutions. Still even with the somewhat reduced U.S. academic lab activity, our Sanger recovery is a positive indicator for us, and our continued share gains ought to allow us meaningfully – to meaningfully improve our Sanger performance in Q4. NGS was solid for the quarter, down slightly from Q2, but still up 7% from Q3 1 year ago. Importantly, we saw a return to more regular order patterns throughout the quarter, and we anticipate a return to growth for NGS in Q4. This business comes from a mix of academic, institutional and industrial customers as well as in support of cell and gene therapy, providing us with diversification and leaving us subject to less volatility. Finally, our Gene Synthesis services continued to be in high demand, and we delivered yet another record quarter because of our fast turnaround and high-quality product. At $12 million, Gene Synthesis was up 22% from Q2’s record quarter and up 31% year-over-year. We anticipate continued strength in Gene Synthesis in Q4. Overall, our GENEWIZ team has dealt well with the coronavirus pandemic. We’ve continued to serve customers who have taken extra advantage of the continuity and service that we provided throughout the pandemic, and we’ve continued to provide high-quality services with fast response and exceptional customer support. In the sample and repository services portion of the Life Sciences business, we had performance as expected. Storage revenue was steady as it provides a safe recurring revenue stream. That said, with much of the clinical trial activity on hold, our sample administration and registration and sample transport revenue was down as expected, though we anticipate an increase in this area in Q4. In the quarter, we closed three significant SRS contracts that are related to COVID-19, 1 for the storage of positive tested patient samples and two for vaccine management. Each of these deals represents multimillion-dollar revenue opportunities over the coming years, and we’re negotiating two more large contracts that have some urgency to close soon. And the recent realignment to form Life Sciences services business unit is already delivering meaningful sales synergies across the service offerings. In effect, we have expanded our sales footprint for GENEWIZ and sample repository services. And with the addition of RURO’s informatics capabilities, we not only increase the number of touch points we have with customer accounts, but we’ve also increased the value of our offerings. In addition to the SRS deals I mentioned a moment ago, we are also currently engaged in multimillion-dollar opportunities and include sample management and genomic services, with customers who initially engaged us for one of the services, who are pleased to have us deliver both of those services. We’re confident this will be a relatively fast uptake, and we’re enthusiastic about the potential from this added power. Overall, the Life Sciences services business is performing extremely well in this environment. We’ve adapted to our customers’ irregular work environment and even during a time when we’ve not been able to have direct contact with customers, we added more than 230 new customers in the quarter, essentially the same as our high rate of wins in the pre-COVID days when direct-to-customer contact was the norm. Some of these wins came via our usual channels, but many new customers came to us because of our ability to deliver results for them after they lost access to their prior sources. And these are customers that we fully intend to keep. With the current momentum exiting Q3, we anticipate growth in Q4 with sequential revenue increases from all areas of the services business. I’ll now turn to Life Sciences products, which consists of automated stores and service for that equipment as well as cryogenic sample management equipment and consumables and instruments. The products team delivered a very solid quarter. Revenue was essentially flat with Q2, but up 9% from Q3 1 year ago. The flat sequential result was made up of decreases in stores and on-site services revenue due mostly because of lack of access to customer sites caused by COVID restrictions, balanced by COVID-19 tailwinds in our consumables business, which includes PCR tubes for diagnostic kits, which was up 16% sequentially and almost 40% year-over-year. I’ll note that revenue from the stores and services business is simply postponed, and we forecast that we’ll make it up over the next few quarters. The products business unit also continued to improve gross margin performance, notching up another 40 basis points sequentially and more than 800 basis points from Q3 1 year ago. Additionally, we booked $20 million in large automated stores, including a significant project for a major global pharmaceutical company that will consolidate and fully automate a collection of compounds that spend decades in the making. Our outlook for Life Sciences products is for continued growth in Q4 of at least 10% sequentially, but with further upside to that number, if and as we’re able to have freer access to customer sites, so that we can continue our installation and commissioning work on stores. It’s important to note that the Life Sciences products business share gains were also very high as we added more than 120 new customers to our ranks, approximately 100 for consumables and instruments products and more than 20 new customers for cryogenic sample management products that serve predominantly cell and gene therapy customers. We are enthusiastic about the progress that this team is making and the market momentum they have generated as we close out fiscal 2020 and head into 2021. I also want to calibrate you on the performance against our targets for what we previously reported as the Sample Management business. We are pleased to report that even in this COVID environment, we have, to this point, tracked to our commitments for the year. In Q3, Sample management delivered 7% year-over-year revenue growth and gross margins continue to hold at the improved levels already at or above our targets. Furthermore, we see a clear path in life sciences products to achieve a 10% year-over-year growth in Q4, but we still need clinical trials to resume for us to register the same kind of gains in the sample storage portion of Sample Management. With the backlog we’re carrying into in Q4, there has plenty of opportunity, but we will be somewhat bounded on our ability to deliver unless customers can resume their sample collections. Nonetheless, we are confident that the elements that make up what was Sample Management are all delivering on their potential. To summarize the Life sciences business, time and again, we have proven the value of our unique portfolio of Life Sciences capabilities. We added 350 new customers in a no-contact quarter. We continue to weather this unusual environment and have positioned ourselves for a very strong Q4. Energy and enthusiasm are high, and we’re pleased with both performance and our position in Life Sciences. In the Semiconductor business, we had another record quarter. Revenue at $127 million was up 2% sequentially and up 9% year-over-year. This business has the momentum that comes with high and still expanding market share that’s compounded by the increased need for the technologies that we develop as well as the geographic expansion of the customer base in Asia, where we are particularly strong. On our last call, we mentioned that we had backlog and demand to allow us to deliver another record quarter, but at the time, we had some uncertainty in our ability to secure all of the parts we needed from our supply chain as well as some questions about our customers’ ability to accept products from us if their manufacturing lines did not need what we could produce. By the middle of the quarter, our supply chain team had worked upstream and downstream to ensure that we have adequate supply and our teams were able to meet all customer demand. Noteworthy is the fact that we also had a significant mix change in our output with automation products filling in the gap from a reduction in Contamination Control Solutions. And we are forecasting Q4 to be the third consecutive record quarter for the Semiconductor business. For some time now, we have outperformed the overall market for semiconductor capital equipment because of our share gains have been compounded by strong secular growth drivers, namely the increase in the number of vacuum process steps and the relatively recent and necessary introduction of contamination control process steps that are now required to produce a leading-edge semiconductor. And we see this strong growth continuing into the future. Over the years, we’ve been speaking with you about our design win capabilities and the importance of working on products and technologies that are still several years from high-volume production. The increased market share and elevated business levels that we have today were, for the most part won several years ago when our products were designed into processing equipment for 7- and 5-nanometer technology nodes. Our market capture formula is straightforward, but not simple. Our engineers and scientists engage our customers to work on their future road maps. Our capabilities are designed into process tools, which go to pilot production lines and chip makers, and these tools are ultimately qualified for volume production. After what sometimes 2 or 3 years from a design win, chip makers then ramp volume production and the process tools and technologies that were qualified for these stringent capabilities are the ones that are ultimately purchased in volume. So effectively, today’s business is from yesterday’s work. This same technology qualification practice holds true today, and it’s what makes us particularly enthusiastic about the future of our Semiconductor business. By any past measure, Q3 was an exceptional quarter for design wins, with 51 new design-in wins, including 16 new wins for CCS products and 7 for advanced packaging. This is future market share secured today. I’ll now give some specific color from our major Semiconductor business drivers, tool automation, advanced packaging and contamination control solutions. Our automation products accelerated in the quarter with a 20% sequential jump from Q2, up 5% from 1 year ago, more than making up for the digestion period we experienced in contamination control. Both vacuum robots and vacuum systems exhibited strong sequential growth driven by 5G expansion and European and Chinese customers. Furthermore, our Q4 outlook is for vacuum automation to grow again and surpassed the previous high quarter revenue from the June quarter in 2018. We had more solid performance in our advanced packaging product sub-segment with revenue at a very healthy $14 million, up 4% sequentially, but 30% below Q3 2019’s record quarter. In addition to the design wins mentioned above, we’re beginning to see increased activity in this space, and we’re in a strong position to benefit as more advanced packaging capacities brought online. We’re still in a moderately calm environment as automotive is in a lull, but we anticipate reinvigoration in this area in 2021. The Contamination Control business continues to demonstrate characteristics of an exciting new technology with high-growth and rapid new customer adoption. Coming off a torrid first half of 2020, which delivered $90 million of revenue, Q3 moderated to $35 million, but was still our third highest quarter ever for CCS. This is an important result for many reasons and one that gives a strong indication about the future for this business. Over the past 4 years, we have doubled the number of customers for CCS products. By and large, this increase was driven by the need to add CCS technologies into the manufacturing process flow for companies to be able to yield at new technology nodes. We have continued to win these new adoptees as we have exceptionally high market share at leading-edge device technology nodes. In total, we anticipate Q4 to be another growth quarter in the Semiconductor business. Share gains in new product and technology development, our deferent pace, and the organization is humming. We are putting the largest strains ever on our engineering and manufacturing teams, but we trained for this, and we are ready for this business and take it to the next level. All-in, we are extremely positive about our near-term outlook. Life Science is returning to a ramp and semiconductor demand remains strong and our factories are busy. Following on a very solid Q3, we are positioned extremely well in two great markets and we are aiming for Q4 to be a record high in both segments. Our market position is the best it’s ever been, and we feel it getting stronger by the day. We thank our employees for living up to all the responsibilities and privileges that come with being an essential business and we thank you as well for your support of Brooks. That concludes my formal remarks about the quarter and I will turn the call back over to Lindon.

Thank you, Steve. I would like to refer your attention to the slides on the website starting with Slide 3. Certainly, the stable revenue on a quarter-to-quarter basis stands out against the backdrop of the COVID environment as does the expansion of the earnings profile. We have some really good signals in the business dynamics that I want to summarize here, which I believe you’ll see as we step through the details. First, the near-term stability translates the year-to-year revenue growth of 8%. You will see that our semiconductor business results reflect the demand ramp as expected and supply chain execution better than we could have hoped for when we started the quarter. And the Life Sciences business is seeing areas of exciting growth as well as areas that are still impacted by the COVID operating environment. All in, both areas show stronger at the end of the third quarter than at the start and finished on a higher ramp-up demand as we entered Q4. Next, the earnings expansion on the stable revenue brings some clarity to the potential of the business profitability. Gross margin strength in the semiconductor segment and the Life Sciences Products business provides strong operating margin expansion. And while the Life Sciences Service business has been lower in the COVID environment, it’s easy to see there is further potential in the gross margin expansion when services, strengthens. The non-GAAP earnings per share grew 26% sequentially and is 60% higher than the same quarter last year. Finally, while the business model shows its resiliency, the revenue and income growth is producing incremental cash. We have a strong balance sheet and liquidity to weather storms, but more importantly, to continue to make investments. Let’s move on to Slide 4 and review the details of the overall P&L. From a GAAP perspective, earnings per share of $0.19, was $0.06 better than last quarter. Revenue was the same at $220 million, but expansion came with stronger gross margins and reduced operating expense. Below the operating income line, other income was a quarter-to-quarter benefit of $1.7 million, principally driven by more favorable foreign exchange. Looking to the right side of the page, you can see the non-GAAP performance. The gross margin line shows more than 100 basis points expansion on both compares of year-to-year and sequential. When we get to the segment pages, you will see stronger margins in semiconductor and continued strength in Life Sciences in the product side, which drove the expansion. During the quarter, our cost and expenses in the business had varying dynamics. We have kept all employees on board through the crisis, and we paid employees a premium through the month of May if their presence was required on-site to meet demands. Labor was well utilized on the semiconductor side of the business, but less so on the Life Sciences Services business with the COVID headwinds. Meanwhile, we saw lower expenses in travel and other discretionary lines as well as in some employee-related benefits. The R&D expense line saw a lower spending in semiconductor with the completion of certain projects in the second quarter. And of course, the result of expanded gross margins and these lower operating expenses brings us significant growth in the operating income line, which is at $30 million, up 15% sequentially and 15% year-over-year. Moving below the operating income line, you can see the net interest expense was $0.8 million, lower by about $7 million compared with last year when we were carrying debt associated with the GENEWIZ acquisition. And as mentioned earlier, we experienced lower FX impacts this quarter. The non-GAAP tax rate for the quarter came in at about 21%, and the bottom line, non-GAAP earnings per share grew at 26% sequentially and again, 60% year-over-year. Perhaps it helps just to take a moment to put the $0.32 per diluted per share – per diluted share for this quarter into perspective of where we are in terms of the leverage ramp. For all of 2019, the EPS was only $0.76. Let’s turn over to Slide 5 to discuss the segment results, starting with Life Sciences. In the third quarter, Life Sciences revenue was slightly lower sequentially at $93 million and demonstrated 6% growth compared with the third quarter last year with some moderate headwinds due to COVID-19. On an organic basis, Life Sciences grew 5%. Growth this quarter was led by our Life Science products business, which consists of our automated cold storage systems, consumables and instruments and associated post-warranty service. The products business experienced 9% growth, driven by higher demand across all consumable lines and in particular demand for our 96 well PCR plates, which are fundamental to research for the COVID vaccine. The automated store systems business experienced some headwinds as anticipated with the continued constraints in accessing customer sites for the installation process. In our Life Science Services business, we achieved 5% year-over-year growth. This was driven with 1% growth in GENEWIZ genomic services and 12% in sample repository solutions formerly referred to as BioStorage. In GENEWIZ, where we continue to see the strongest headwinds of the COVID environment, Sanger and NGS sequencing were lower quarter-to-quarter, while Gene Synthesis expanded. The COVID impact was most pronounced with the extended closure of academic research institutions and reprioritization of projects by commercial labs. As Steve noted, we started the quarter with our global daily run rate for Sanger running less than 50% of that of the pre-COVID days of January and February. The orders have shown a steady pickup week by week, and are now just approaching the pre-COVID levels. It is our assessment that this level of order rate is still coming from a subset of the market with the academic sector only partially back to work in their labs. Gene Synthesis, on the other hand, demonstrated nice growth during the quarter and is supporting orders from COVID research activity. In total, the GENEWIZ business was lower by approximately 9% or $4 million on a quarter-to-quarter basis, but still finished 1% higher than a year – on a year-over-year basis. Now shifting over to the sample repository solutions, which again was formally referred to as BioStorage that business, was 10% higher on a sequential basis and 12% higher year-over-year. This growth includes $1.9 million from the RURO software acquisition that we made earlier this year and also 4% organic growth. Under the covers of the 4% growth year-over-year, we saw a year-over-year expansion from the alliance and from storage billings, but transactional services, which depend on the movement of samples by customers, were dampened and mitigated the growth. As Steve described, while we have been pleased with the ongoing engagements for storage services, we are not seeing storage collections being managed as aggressively in this COVID environment, except in the vaccine and research initiatives. Life Sciences gross margin for the quarter was down 120 basis points sequentially, but still showed marked improvement of 140 basis points year-over-year. As in the past, I will highlight that when we carry more revenue from the RUCDR alliance, we do see a negative mix impact. Except for this negative mix impact, we have very stable margins quarter-to-quarter and even higher improvement on a year-over-year basis than you see on the page. That year-over-year improvement was significantly driven by the products business, which is held on to all the progress it has made over the past year and is up 870 basis points year-over-year. Meanwhile, the remaining portion of the services business, excluding the alliance, was also relatively stable sequentially, but is performing 130 basis points below the levels 1 year ago due to the lower labor utilization in this COVID environment. So as a reminder, we have kept all employees on board during this environment, and we provided that premium pay to employees coming onsite until the first of June. So except for these aspects, we see no substantial changes in our pricing and cost and expect service margins to move higher as we recover the additional revenue. Looking forward to our fourth quarter, we see some recovery in Life Sciences, in fact, occurring. We are starting this quarter at a higher level of throughput, and the range depends on the extent of the continued recovery. At this point, we expect Life Sciences to deliver revenue of $95 million to $100 million. Sequentially, this would be up about 2% to 7%. Let’s turn over to Slide 6 and review the semiconductor business. Semiconductor solutions, shows nothing, but strength for the quarter, generating $127 million, a 2% ncrease sequentially, 9% growth year-over-year. The sequential growth, even though not a large number was an outstanding accomplishment, given the supply chain challenges we faced last quarter. Customer demand remained high during the quarter despite COVID as fab capital spending plans continued. Our ability to meet the demand was a testament to the hard work of our semi-operations team in order to satisfy the needs of our customers. Within the automation growth, which Steve described vacuum systems to Tier 2 OEM customers were up 26% from the second quarter and now is at a level of 5% above the prior year period. On the other hand, Contamination Control Solutions revenue, as expected, was lower by 24% sequentially, but this one still remains 22% higher year-over-year. This high level of CCS revenue, $35 million in total, demonstrates less dependency on foundry and increased growth capability from the broad design wins and qualifications across many customers. So, we expect the demand of our food cleaners and reticle stockers at leading-edge fabs will continue throughout this year as we are qualified in memory as well as advanced logic fabs. The profitability – I am sorry, the profitability is another feather in the cap of the semi business. Operating margins were up 510 basis points sequentially, reaching 18.4%. This was on a 320 basis point improvement in gross margin, which reached 42.7% in the quarter. The gross margin improved sequentially and on a year-over-year basis, driven by improved factory absorption on higher robots and vacuum systems production and improved mix in the Contamination Control business as we shift to a more diversified customer set this quarter. Looking to the fourth quarter, demand for semiconductor products remains high, and we will need to deal with continued supply chain challenges associated with the risk of COVID, we expect our semiconductor business to deliver revenue of approximately $134 million to $141 million. Sequentially, this would be up 5% to 11%. So now let’s turn over to Slide 7 for a summary of our cash flow for the quarter. We generated $26 million of operating cash flow while affording expansion of working capital for the ramp in semiconductor solutions. We used approximately $9 million for CapEx, resulting in $18 million of free cash flow. On a year-to-date basis, we have generated $78 million of adjusted operating cash, which is $19 million higher than the year-to-date period of 2019. On Slide 8, you will see a summary of the balance sheet. We increased our cash position by $15 million in the quarter, and we are now carrying $263 million of cash, cash equivalents and marketable securities. With the $51 million of debt, you can see we have $213 million of net cash for operations and investments going forward. Now if you will turn over to Slide 9 with me, I will wrap up with the guidance for the fourth fiscal quarter of 2020. Revenue is expected to be in the range of $229 million to $241 million. Adjusted EBITDA is anticipated to be $41 million to $49 million and non-GAAP diluted earnings per share to be $0.32 to $0.40. The GAAP diluted earnings per share is expected to be at $0.20 to $0.28. As noted on the chart, we are, of course, still operating in a COVID environment with some headwinds and certainly, the risk of some changes around the world, but in all, we are seeing we expect growth to continue for both segments in the fourth fiscal quarter as described. So this now concludes our prepared remarks, and I will turn the call back over to Malika, the operator, to take questions from the line.

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

Hi. Patrick, how are you?

Good. Thank you very much and congrats on the really nice quarter. Maybe first off, in terms of the Semiconductor business, obviously, you are seeing some strength continuing into the September quarter. You have talked about the supply chain issues becoming better as the June quarter progressed. As you look at those two variables, how much do you believe the supply chain constraints that you have seen improvements in are on your end versus your customers getting some alleviations on their manufacturing side of things, which allows you to deliver products at a more quicker pace? Is it more on your end that you have seen the improvement or is it more on the customer end?

Patrick, if I understood the question. I think we know our supply chain the best. So we had some discomfort about the ability to supply. We had some product coming from Malaysia, some coming from India, places that became hotspots in the quarter, but we think we managed it pretty well. We went so far sometimes is to help some of those suppliers secure shipping and transportation to be able to get parts to us, but the thing that we didn’t know was, would that same supply chain back things up in our customers and just have them not need our products. So I think we were fine securing our supply chain and being able to meet the demand, we weren’t sure that the demand would necessarily hold up from the customers, but indeed everything loosened up and we were able to ship everything that the customers wanted from us in the quarter.

No, great. That’s really helpful and that color. On the Life Sciences and I think, we are seeing how diversified the portfolio and services offerings are that’s allowed you to kind of meet expectations or exceed expectations given the various moving pieces. You mentioned you saw some surprises to the upside. Some areas were weaker. How does this play into, I guess, the longer-term strategic vision of your Life Sciences portfolio? Is this diversification of what you were looking for in terms of offsetting potential strength and weaknesses depending on the market environment?

So Patrick, I think, indeed, that’s the case. A couple of things were accelerated here. I will give you an example. When we combine to form the Life Sciences services business unit by putting in the BioStorage capability in with the GENEWIZ team, what we found is an expansion to something that was on the radar for us, but one that simply accelerated because of the COVID environment, and it’s in the name change. We used to be the BioStorage services. Now it’s sample and repository. We took on some vaccine contracts. So we are taking on some manufactured product and some other capabilities to be able to distribute finished product, if you will, as part of the business unit. The contracts that we are forming between the customers who had either genomic services or sample storage, the sales teams are now engaged in one or the other, and then they ask the customer for example, in storage projects, what will you do with those things kind of help you with the measurement, and we are discovering that there are an abundance of opportunities there. So things that we suspected, we are now putting to contract and we are discovering that, indeed, there are a lot of opportunities we can have to simplify the customer supply chain and to provide just a tremendous amount of this combined service, if you will. On the Life Sciences product side, I think the team has a lot of momentum from an operating standpoint, the margin improvements continue, the confidence in the ability to go sell really reliable products is also helping from a market share standpoint. That team has got a lot of momentum.

Great. And final question for me, Lindon, obviously, you have probably gotten some benefits from the OpEx line due to lower travel and other, I guess, expenses that probably aren’t occurring right now. As you get to a more normalized environment, one, where do you see expenses potential to increasing to or are you able the expense in the current levels given the current environment can be applied at a future date?

It’s a really good question, Patrick. And as I mentioned in my remarks, we had some projects pause or so finish, I should say, in the semiconductor space and the R&D and SG&A, you are exactly right, I had some light areas in this environment. We do see a couple of million pressure going forward in the near-term. And we think it should be safe to be in that range, a couple of million higher, but we also don’t expect all the discretionary to come back right away.

Great. Thank you very much and congrats again.

Thanks, Patrick.

Thanks, Patrick.

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

Hey, thanks and I will echo Patrick’s comments. Congrats on a strong quarter. I guess, first question, can we just get an update on the synergies between the BioStorage business and GENEWIZ now that these businesses are managed under one roof? It sounds like you guys have seen some initial wins, but any other color in kind of realizing the synergies from these two businesses?

Yes. Thanks, Jacob. Lindon and I will share the response. I think we are starting to see top line synergies, but frankly, the business is not performing at a high-speed yet, so we won’t see some of those cost synergies yet, but we are really bullish. The combination of the teams, the fact that the leader of the – sample or proprietary services business came from GENEWIZ. She is one of the GENEWIZ leaders. She knows how to operate inside the environment. So, the connections with sales, the connections with the account teams and customers so far has been outstanding. We are looking to get volume built up in both sides of the business as a result of this combination. And there, we will be able to be a little bit more articulate about what some of the profitability synergies are. But right now, we are starting to see it on the top line. We mentioned three contracts. We called out three contracts that over the next 3 years, each of them exceeds $1 million. So a small start, but all meaningful and really representative of what we think is possible by the combination of these businesses.

Yes. Jacob, I would just add, what we see is mostly in the people in our business, pulling this together and taking the leadership from GENEWIZ, integrating with the leadership from the BioStorage background. We have got people from the science. We have got people from precision medicine backgrounds. We got people from the infrastructure background working together and this – the strategies that we have had around the hub – the sample hub, the strategies we have had around sample processing and the insight that they are all bringing from the customer side of things, the science side of things, has just been really impactful on how we can propose to these customers further than on the cost and synergy there. We are seeing how we can combine and propose cross offerings to customers and then make that a synergistic sale from the same sales team as well as leverage the value statement. And of course, we have got some lab space being developed inside BioStorage, which GENEWIZ will make you of and some lead opportunities going back and forth. So it’s starting to happen. We are not – we have said so far, we wouldn’t surface numbers for a model, but we are certainly seeing it start to happen.

It sounds like you have had some nice wins there. Maybe just one more for me, your Analyst Day last year, you talked about some efforts to expand your penetration into the academic and government markets. With academic labs kind of closed, I guess, they are opening back up or opened back up, is this still a focus or have you reallocated resources to kind of focus on pharma and biotech clients in the current environment?

Jacob, it was still very much a focus. And we look forward to report on some meaningful results as we get into 2021. So it’s still a real area for focus and an area for great traction actually.

Great. Thanks, Steve and Lindon.

You bet.

Thanks, Jacob.

Thank you .And our next question is from the line of John Pitzer with Credit Suisse. Pleases go ahead, your line is open.

Hi. John.

Hey, guys. This – sorry, this is Dalya Hahn. I am here for John right now, but congrats on a great quarter, guys. I just had a question about the semiconductor solutions side of the business. We have heard a lot recently about worries of WFE spending sustaining into the second half. Memory spot pricing was a little bit weak, Intel pushing out CapEx. Just wondering what are some drivers you can kind of point us to how this business has kind of historically outgrown the industry or been relatively insulated, whether that’s on the product side, design wins, kind of the diversified set of your customers. Just kind of would love to hear a little bit more about that going forward?

Dalya, thanks. It’s a really good question. It’s the one that we ask every day, but let me give a little bit of color. So we had really strong foundry drivers. And anything that’s at the leading-edge technology has a high content of vacuum technologies where we have particularly high share, and of course, the Contamination Control is essential and pervasive. So that’s been a driver to date. When we look forward, we would anticipated that at the end of 2020, maybe early 2021, where we might begin to see some additional Tier 1 foundry spending for even 3-nanometer, but we understand that will be pushed a little bit. That said, any activity in China, just to give you some indication, is an outsized driver for us because there are a number of OEMs who are dependent upon our vacuum automation technologies, both at the robot and systems level. And it’s something that we don’t see in a big way, maybe measuring overall WFE, but because we have such high content that it doesn’t take a whole lot of that spending to move the needle for Brooks. And I think you have seen that over the past years as we continued to expand outside of WFE just because of the content we have. Similarly, actually, the region with the largest number of CCS customers for us in the world is China, by a lot. So the number of CCS customers is highest in China, and that’s been really an exceptional region for us. And so when we mentioned 16 design wins for CCS products, you noted a pretty significant win base in China in the quarter.

Great. Thank you very much.

Thanks, Dalya.

[Operator Instructions] Next question is from the line of Joseph Conway with Needham. Please go ahead. Your live is open.

Hi. Joe.

Hi, guys. Thanks for taking the questions. So for the first one, I appreciate the color on GENEWIZ. Nice to see Sanger bouncing back a little bit, but given the slower return of academic research, I guess, first question, do you have a view of the percentage of academic – of the academic customer base that has returned to normal? And then where do you see that by the end of the calendar year? Thanks.

So Joe, we are hopeful that we will be back to 100% of where we were pre-COVID. Right now, here’s the dilemma for us, is we don’t know if some of the things that we received were just pent up, things that people finally got back, and we saw a pretty strong surge, but I will tell you that we have had about 5 consecutive weeks at almost flat levels that are about 90% of the level that we had before. So we are still digesting in the customer base, in particular, but the academic labs are not uniformly back. It’s still pretty regional, but we anticipate that if we get – to be within 10% of where we have been, is already what we think is really strong performance. We are modeling that in our future, but we are hopeful that we will be higher than that by the time we get to year-end, just to give you an example, but that’s how we based our forecast, kind of staying at these levels for now.

Okay, great. Great. And then last question, we have been getting a lot of questions from investors on Intel and their delay of the 7-nanometer chips. So we are just curious, how does that affect your business? And does this have an impact on the outlook for contamination control or design in wins? Thanks.

Yes. And so for us, it’s difficult to say in the near-term, what would happen, but the capacity will go somewhere. And the technologies that are required to manufacture those devices, whether by Intel or by somebody else, we will still – we will go to manufacturing capabilities. So we will catch up to it. We are just not sure in what country and what fab, but we are pretty confident in the technologies that are required in our market share and market position. And so ultimately, we care some, but we don’t have to care necessarily, where it ends up to be secure in our market position about serving.

Okay, great. Great. Thanks for that and congrats on a great quarter to you guys.

Thank you, Joe.

Thank you, Joe.

Thank you. And there are no further questions after this one. Thank you.

Malika, thank you very much for coordinating us and to all the analysts and investors, we really appreciate the attention and the time that you give us. And we will take one last opportunity to just say thank you for the employees of Brooks around the globe that have not just participated, but they remain diligent and dedicated to everything we had to deliver throughout this crisis and it’s still tense and is still stressful. So we appreciate them every day. More importantly, or equally important, I should say, our customers still need us and they are looking for us to do more this next quarter than what we did this last quarter. So we look forward to doing it again and talking to you all again this time next quarter. So thank you very much.

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