Welcome to the Brooks Automation Quarter Two Financial Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded Thursday, May 8, 2014. I'd now like to turn the conference over to Mr. Lindon Robertson, Executive Vice President and Chief Financial Officer. Please go ahead sir.

Thank you, Jamie, and good afternoon everybody. We'd like to welcome each of you to the second quarter financial results conference call for Brooks, fiscal 2014 year. We will be covering the results of the second quarter ended on March 31st and we'll provide an outlook for the third fiscal quarter ending June 30 of this year. The press release was issued after the close of the markets today and is available at the Investor Relations page of our website, www.brooks.com as are the illustrative PowerPoint slides that will be used during the prepared comments during today's call. I would like to remind everybody that during the course of the call, we will be making a number of forward-looking statements within the meaning of the Private Litigation Securities Act of 1995. There are many factors that may cause actual financial results or other events to differ from those identified in such forward-looking statements. I would refer you to the section of our earnings release titled Safe Harbor statement, the Safe Harbor slide in the aforementioned PowerPoint presentation on our web site and our various filings with the SEC, including Form 10-Q for the first quarter ended December 31, 2013. We make no obligation to update these statements, should future financial data or events occur that differ from forward-looking statements presented today. I would also like to note that we may make reference to a number of non-GAAP financial measures, which are used to in addition to and in conjunction with results presented in accordance with GAAP. We believe that these non-GAAP measures provide an additional way of viewing aspects of our operations and performance, but when considered with the GAAP financial results and the reconciliation of GAAP measures, provide a more complete understanding of the Brooks business. Non-GAAP measures should not be relied upon to the exclusion of GAAP measures. On the call with me today is Brooks' Chief Executive Officer, Steve Schwartz. We will open with his remarks on the business environment and our second quarter highlights. Then we will provide an overview of the second quarter financial results and a summary of our financial outlook for the quarter ended June 30, which is our third quarter fiscal 2014. We will then take your questions. During his prepared remarks, we will from time to time make reference to the slides available to everyone on the Investor Relations page of the Brooks website. With that, I turn the call over to Steve Schwartz.

Thank you, Lindon. Good afternoon everyone and thank you for joining our call. Since our last quarterly call, we have made much progress in the continued transformation of the company, and will elaborate on the key milestones in my remarks today. First, a little bit about the March quarter. We booked $142 million of orders in the quarter, powered by a record $34 million of bookings from our Life Sciences business unit. Revenue was $133 million, up 7% quarter-over-quarter, with almost all of the increase from a strong selling in front-end semi. We had some key design wins in semi and we continue to establish ourselves in Life Sciences with an extremely important win, that validates our aggressive approach and the value of our new product design. We generated $27 million of cash from operations and built our cash position to more than $190 million, and we still have no bank debt. We anticipate that our cash position grow again in the June quarter, and will leave us in an even stronger position to continue to invest in more growth opportunities for the company. We also announced some meaningful changes to our products and capability portfolio, in the form of the pending divestiture of one non-core business unit, the acquisition of a company in the semiconductor equipment space, and a strategic investment in a Life Sciences company. We believe that each of these moves will generate significant shareholder value, and we are confident that these investments will drive more growth in the coming years. I will now discuss some of the specific highlights since our last call, and put more color on the strategic moves we have recently announced, then before I turn the call back over to Lindon, I will give some commentary about how we see the next…

Thank you, Steve. And I refer you to the PowerPoint slides available on the Brooks web site. I draw your attention to slide 3; as Steve referenced, we entered a definitive agreement to sell our Granville-Phillips business and we expect us to close within the third quarter. Consistent with GAAP, we will treat the Granville-Phillips business as discontinued operations in our 10-Q or the report on the second quarter. This treatment is also applied on a pro forma basis in the prior periods used for comparisons. So on this page, you can see our second quarter results in two views. The aggregate view at the top, combines continuing operations with the discontinued operations of Granville-Phillips, so that you may see it compared to our past historical reference and our prior guidance. When including Granville-Phillips, revenue expanded 7% and exceeded the top end of our revenue guidance range by $3 million for the quarter. The non-GAAP earnings per share on this aggregate view was $0.08 per share, consistent with the guidance. I will address the performance drivers in a few moments. In a continuing operations view, you can see the GAAP reported revenue and EPS. In this treatment, the Granville-Phillips is excluded from the revenue gross margin and other detailed lines of the P&L. However, the net income from the discontinued operations is reflected as a single line item, and therefore it is in the GAAP diluted EPS. On this basis, excluding the Granville-Phillips business, revenue expanded 7.5% compared to the first fiscal quarter. For the non-GAAP view of continuing operations, we have removed certain charges, including restructuring and amortization, as well as this income from the discontinued operations. On slide 4; we display the aggregate view of the second quarter results, including Granville-Phillips. In this view, revenue expanded 7% compared…

Thank you. (Operator Instructions) Our first question comes from the line of Patrick Ho with Stifel Nicolaus. Please go ahead.

Thank you very much. You noticed that the DMS acquisition will be accretive in the first half of your fiscal year 2015. What are some of the actions you need to take to get that business to be accretive to the overall business model? Is this just simply restructuring, and eliminating some duplicate costs or are there other types of, what I would consider, major moves like a manufacturing shift, product development, rationalization, that's going to help you get to that accretion level that you are talking about?

Patrick, I think you're really tuned in to what it takes to take on a new business like this. Obviously the first thing we need is the revenue, and so -- but to get the accretive step into the first half, this is about absorbing the business. There is a transition. There is infrastructure in that business that we already have, and so we will be eliminating some of that. But we also have some synergies that carries on into 2016, as we said, that will produce about $4 million of benefits to us, in sharing our infrastructure. As you said, rationalizing further as we move along. And furthermore, we think that their synergies between the sales equation and our existing sales equation with the customers you addressed.

Patrick, this is Steve. So as Lindon said, there is lot of field overlap between the sales and service, and it looks very much like the infrastructure that's in place to support the cost in automation products. And the company already outsources their manufacturing. So whether or not and how we transition those from one contract manufacturer to other, that's not something that needs to be done, and that gives -- we have a little bit of a time to work through that. So we already have a very efficient model that we like very much, but of course, we have a company capability, that ultimately might allow us to transition into other CMs that we use.

Great. That's helpful. Maybe moving to the Life Sciences side. You guys are really closer to a really nice quarter in terms of the orders. Can you just remind us again on the revenue recognition policy as it relates to the Twinbank portfolio? Are revenues recognized upon shipment, or are they still dependent on each individual customers' acceptance and sign-offs, and when do you think that transitional curve, because I am assuming most of your semis are based off of shipments. When does that have policy change on an accounting basis of shipments?

That's a great question, and that helps explain why you saw, you know, only 3% revenue this quarter. This isn't unique to the Twinbank platform, this is unique to a customer contract that we signed, and that will just become more explicit, as we referenced about a year ago, we stepped into contracts with Tohoku in Japan and we highlighted beginning of the last quarter, we would be working substantively on that contract, in the mix of other businesses, but -- our other contracts. But some of these contracts and that one in particular was on a completed contract basis, and when you do that kind of contract, you take the revenue, once you have delivered and satisfied. But predominantly, most of our contracts, we come to terms, industry standard terms, and that usually allows us not to wait for the final steps and we take our revenue on a percentage of completion basis. So this is more of an exception, and so, that's why you are seeing a slower step in ramp towards that $19 million. You only had $12.6 million. We are happy with that. Its where we expected. We foresaw it coming. But the terms of the contact is what really determines this. So now going forward, what should you expect? You should expect that in general, you are going to have a predominantly percentage of completion basis and we are able to show revenue builds with bookings that you would expect. But its still going to be a little lumpy depending on which contracts we sign and what those terms are.

Great. That's helpful. And last question for me, and I think you have kind of briefly touched it in your prepared remarks about the services opportunity with Life Sciences. Now that the systems business is beginning to grow, what are some of the potential opportunities on the consumables, the replacements and the upgrade business within Life Sciences, and how do you plan to grow that over time?

Patrick, we think they are pretty significant historically, if we look at any four quarter period, from a revenue standpoint. About half if systems, and then there is a mix of about 25% of the business, specifically services, and then 25% specifically consumables, and then smaller devices or things that are -- often we consider to be repeat. So there is a -- half systems, and then very significant opportunity on the consumable side, and as we have spoken before, we have a lot of focus on how we continue to grow that business. You can imagine, that when we sell a cold store with capacity for millions of samples, we certainly want to be able to also, half the consumables are still in those samples inside the cold store. So we think there are significant opportunities, but that's a pretty typical ratio, if you will. 50% systems and 50% other, more granular opportunities, and for repeat business.

Great. Thank you very much, and congrats.

Thank you.

Thank you. Our next question comes from the line of Ben Pang with Northland Capital Markets. Please go ahead.

Thanks for taking my questions. First, on the Life Sciences, as you book some of these larger orders, is there -- are you seeing some pricing? I mean, do you have to give a volume discount, does that impact the gross margin?

Ben, I think its -- although the environment is pretty competitive, we have very differentiated products. And I think when you see the kind of market share that we are getting, we are winning about all the significant stores that -- store opportunities that come up. The product is very differentiated, and there is a -- we have [indiscernible] on a little bit, because we can't -- we don't have free rein here, but the pricing is fair, the contracts are competitive, but its weighed certainly on a lot more than price. So that's not the pressure point here. We think we constructed a very different design that meets the flexibility needs for most of these customers, who are uncertain about what their future collections would look like. Its not a single format, and our stores are capable of storing any number of formats. So when they consolidate a large collection, necessarily they have vials and tubes and jars and containers of different sizes and our store accommodates that better than -- far better than any other competitive products.

Great. And one question on the VTS; you mentioned, the strength in the vacuum robots and the goal year-over-year? Can you refresh us on what is the share of Brooks versus internally made robots?

Ben, they are of roughly equal size, just to give you an idea. Its tough for us to know exactly what the share is. We have -- we certainly have a majority of the merchant market, and we continue to make gains by converting the captive supply into Brooks products. So I don't have a good number, but just to give you -- it gives you a rough idea.

So if I understand correctly, the non-merchant is equal to the merchant opportunity?

On the vacuum side, its probably close.

Okay, okay. And then the final question is, with the acquisition of DMS, what percentage of the VTS is sold directly to the fabs and not to OEMs?

Ben one more time? On the DMS products?

Well, DMS, I think you mentioned Crossing also sells directly to the fabs, right?

Yes. So a little bit more than half of crossing; and Ben, we will give you the DMS number, when we have a little bit more DMS revenue. But a majority of the historical DMS revenue has gone directly to the fabs. So we mentioned that 2013 revenue was about $28 million. And those products are mostly sold, directly to the fab, when we have a little bit of our revenue history, we will be able to report that more clearly.

Fair enough> Thank you very much.

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

Well hi. This is Farhan, asking a question on behalf of John. My question is on the gross margin study and as you are projecting a very significant improvement in gross margins, moving from 25% to 45%. Can you just talk about what are some of the drivers that are leading to an increase in gross margin, and what are some of the things that you plan to do to improve the gross margins?

Yeah, thanks for the question. It’s a good one to clarify. Really, this is just about absorbing fixed structure, as we pick this up with little revenue at the beginning, and as we ramp the revenue, we are overcoming that fixed costs. The business has been shipping products and taking revenue through the year, and you know, when you pick up a new business from a seller, of course, they shift what they can, and we take this up and start from here. That's why in fact, you will rarely see us give you any guidance one year away, and so we point out the fiscal year 2015, we see about $40 million in this equation and about 40% gross profit margins, and that's the target that we expect to get to, pretty quickly, as we step through next year.

So Farhan, to put a final point under the products that are a lot closer to 40% today, than they are to 25 -- for the --

Variable structure.

Yeah, for the shipments.

Got it. So incremental margins are much better, and you're taking the fixed costs as kind of constant, so you can improve the margin. Then in terms of your revenue growth for DMS. What are some of the -- is there any risk to it for FY 2015? What are some of the factors that can cause like upside or downside to that expectation?

Farhan, it will be fab buildout. So these are tools that go into support, additional capacity. So therein lies the risk.

Okay. So and what sort of assumptions are you making, when you are thinking about like a $40 million run rate. Is this like -- this new fab buildout is at the same rate as today, or is it, like you're expecting, somewhat like 10% pickup or is it like doubling of new fab buildout?

So Farhan, if the fab capacity goes to the WFP, its of the order of 32 billion, then its consistent with that being a $40 million business.

Got it. Thank you. And then, in terms of your Life Sciences, it was very strong bookings. And now that you have had bookings above your billing rate for a while, and you're projecting now your revenues going up to $90 million in the June quarter. How should we think about in the back half of this year? Can we get like revenue run rates in excess of $25 million?

Farhan probably -- with the current businesses that we have, that will be on the high end. But if we are in the $16 million to $20 million range for a couple of quarters, that feels pretty right based on the backlog we have. If incremental business can be pulled in, we could raise that level.

Got it.

When we talk about the bookings, by the way; sometimes we take orders for things that won't ship. When you quote the backlog, some of the orders that we took are for services revenue, for example, that might be satisfied outside of 12 months.

Got it. And just in terms of, like you have a very strong growth bookings in Life Sciences, and I just want to understand, is there like a big inflection happening here that's driving the change? Is this something happening on the market, that suddenly, that industries are migrating towards the products that you are making, or is it just like a onetime events? We are seeing like a very strong increase in the bookings on the Life Sciences. So just want to understand, like a big picture, what are you seeing?

Farhan, I will do my best here. There is a tremendous growth in the storage of biological samples, that's a known. It’s the conversion, if you will, from manual storage and handling for some of these larger collections to automated systems. So even the people who buy automated cold stores, they all have manual storage systems, which are liquid-nitrogen tanks or mechanical freezers. But what we see is, as they need more capability from the safety and security of the sample, from automated tracking, handling, monitoring, and as they integrate automation and some more of their lab systems, there is a conversion, if you will, during these high growth rate phase, there is a conversion to automated systems. Some of these we know about years in advance. Some, like the Tohoku Biobank was set up very specifically to study a population, and that happened, basically, when the earthquake hit three years ago, this was put in motion, and the store was put into place. So we see the trend happening where there are more automated systems. But already and for the last 15 years, there has been a significant growth that would certainly -- it certainly has added a lot of storage capacity. But only now, over the last few years, as more and more of the storage moves to automation and then that trend will continue.

Thank you. That's all I had.

Thank you. (Operator Instructions) Our next question comes from the line of Jairam Nathan with Sidoti and Company. Please go ahead.

Hi. Thanks for taking my questions. I was wondering if you could shed some light on the adjacent markets, what was the environment looking like there? Earlier in the year, you had talked about, seasonally these things start picking up -- starting in second and June quarter, so I just wanted to -- what's your take there?

So Jairam, we had -- I will just give you a couple of data points, and they are small. The backend business was indeed down, quarter-on-quarter, and what we see for the third quarter, for the June quarter, is some recovery, but its really modest. Our expectations are that, by the fourth quarter, it will pick up more significantly. And for example, in the LED space, meaningful on a percentage basis, but still small, in terms of an incremental growth. So our expectations for Q3 are some recovery so up off the bottom, but still modest gains on a dollar basis, if you will.

Okay. And my next question, the $34 million in orders, if you take out the U.K. Biobank, you still have a significant chunk of $20 million. Were there any big pieces there or was there a mix of smaller orders there?

Generally, normal course. So we had some refurbishments, we had another brand new cold store win, the services component, if you will, was significant. But again, in normal course, out of $24 million, it was just over half was stores, and the remainder was services consumable, and small devices.

Okay, thanks. That's all I had.

Thank you. That does conclude the question-and-answer portion at this time. I will now turn the conference back over to Mr. Schwartz. Please go ahead sir.

Thank you, Jamie, and thanks to everyone for listening to today's conference call. For sure, we look forward to seeing you at upcoming conferences, and we will update you on the progress of our third quarter conference call shortly. Thank you so much.