Ladies and gentlemen, thank you for standing by. Welcome to the Brooks Automation Q3 and Fiscal Year 2016 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, July 28, 2016. I would now like to turn the conference over to Lindon Robertson, Executive Vice President and Chief Financial Officer. Please go ahead.

Thank you, Mike. And good afternoon, everyone. We would like to welcome each of you to the third quarter financial results conference call for Brooks’ fiscal year 2016. We will be covering the results of our third quarter ended on June 30, and then we will provide an outlook for the fourth fiscal quarter ending September 30th of this year. A press release was issued after close of the markets today and is available at our Investor Relations page of our website, www.brooks.com, as are the illustrated PowerPoint slides that will be used during the prepared comments during the call. I would like to remind everyone that during the course of the call we will be making a number of forward-looking statements within the meaning of the Private Litigation Securities Act of 1995. There are many factors that may cause actual financial results or other events to differ from those identified in such forward-looking statements. I would refer you to the section of our earnings release titled Safe Harbor statement, the Safe Harbor slide on the aforementioned PowerPoint presentation on our website and our various filings with the SEC, including our annual reports on Form 10-K and our quarterly reports on Form 10-Q. We make no obligation to update these statements, should future financial data or events occur that differ from the forward-looking statements presented today. I would also like to note that we may make reference to a number of non-GAAP financial measures, which are used in addition to and in conjunction with results presented in accordance with GAAP. We believe these non-GAAP measures provide an additional way of viewing aspects of our operations and performance. But when considered with GAAP financial results and the reconciliation of GAAP measures, they provide an even more complete understanding of the Brooks’ business. Non-GAAP measures should not be relied upon to the exclusion of the GAAP measures themselves. On the call with me today is our Chief Executive Officer Steve Schwartz. He will open with his remarks on the business and our third quarter highlights and will provide an overview of the third quarter financial results and a summary of our financial outlook for the quarter ending September 30th, which as I reminder is our fourth quarter of the fiscal year 2016. We will then take your question. During our prepared remarks, as I mentioned, we’ll be referring the to the slides, available to everyone on the Investor Relations page of our Brooks website. With that, I would like to turn the call over now to our CEO, Mr. Steve Schwartz.

Thank you, Lindon. Good afternoon, everyone, and thank you for joining our call. We are pleased to have the opportunity to report the results of the third quarter of our fiscal year 2016. Q3 was an excellent quarter for the Company, both in terms of financial performance and in the achievement of key operational objectives. We proved the capability of our new organization structure to deliver growth in revenue and profit. We reaffirmed the strength of our product offerings, which serve semiconductor and life sciences markets, as we continue to capture market share. We extended our streak of expansion in the high growth semiconductor areas of deposition and etch, contamination control, and advanced packaging. And propelled by another quarter of 10% sequential revenue growth, we delivered on our key life sciences objectives. Specifically June revenue increased to $148 million, up 9% from March with strong growth from both semiconductor and life sciences businesses, and most importantly quarter to quarter, earnings per share doubled on a non-GAAP basis, fueled by more than 200 basis points of gross margin increase. Because of our strong market position and as a result of the significant restructuring actions we took one quarter ago, we’re progressing on our growth and margin targets, as we head towards fiscal 2017. I would like to give some color on the progress in our key initiatives in both the semiconductor and life sciences business and share my thoughts as to how we see business in the coming quarters. I’ll begin with semiconductor. All in our Brooks Semiconductor Solutions Group segment revenue increased 9% in the quarter. Our semiconductor segment is the combination of what we formally referred to as Brooks Product Solutions and Brooks Global Services. Inside of BSSG, we’re benefiting from the positive upswing that’s coming from 3D NAND…

Thank you, Steve. Please refer now to the PowerPoint slides available on the Brooks website under our investor relations tab. To start the remarks, I draw your attention on slide three, which is a consolidated view of our operating performance. Top-line revenue increased 9% sequentially to $147.5 million, driven by 10% increase in life sciences and a 9% increase in semiconductor solutions. The GAAP net income was $8.6 million or $0.12 per share supported by top line growth, the improved gross margins, and reduced operating expense, driven by the recent restructuring. As a reminder, in the previous quarter, we also put a non-cash reserve against our U.S. deferred tax assets, which drives a significant change quarter to quarter on the tax provision line. Let’s discuss the non-GAAP picture on the right. Non-GAAP gross margins increased 2.2 percentage points to 37.5%, reflecting higher margins in both, life sciences and semiconductor solutions. We also saw lower R&D spending and lower SG&A. In the prior quarter, we had 1.6 million benefit to operating expense from the reversal of accrued incentive base compensation for employee separated from the Company. We only have 200,000 of this effect in this third quarter, as we finished up our restructuring but we now have the ongoing savings from the reduction of the workforce. At the bottom line, we produced $11.1 million of non-GAAP net income or $0.16 per share, more than double the prior quarter. As we look at our segment revenue outline on slide four, I highlight the change of reporting segments, as a result of our recent restructuring. Beginning this quarter, we’re reporting operating results in two segments, the Brooks Semiconductor Solutions Group, which includes all products and services that support the semiconductor in adjacent markets and the Life Science segment which remains unchanged from the…

Thank you. [Operator Instructions] One moment please for the first question which comes from the line of Edwin Mok with Needham and Company. Please go ahead.

So, my first question is on life science. Every quarter you guys had guided for $38 million for the fourth quarter, and I think you’re guiding now 10% growth would imply up for accounts 22 million. [Ph] Can you tell me what’s the difference share why is it the lower number?

Edwin, first the point on Q4 is $33 million that’s what we are planning to. And with what we had indicated in June was about $35 million run rate as we exited but 35, to be fair 35 to 37 would have to get us to the 115. But we did run into two things that are effecting, one, slower ramp on cryo and we didn’t -- we had a range on it inside our business that could have put us higher. And we’re just being a little more cautious as we point to the fourth quarter now. And the second thing is I got about 1 million, it rounds up to 1 million but almost 1 million of impact in the fourth quarter just related to the recent shifts in exchange rates. So, I think the $33 million is really balanced now. When we first set this out, the $35 million was our targeted exit rate that sets up for 2017. And while the cryo system is just ramping a little less in revenue, just to remind you, we’re seeing orders start to percolate. So, we think that we still are well supported going into 2017 on the objectives we have. But, so, we’re going to call out that double-digit growth now for fourth quarter and track that going into 2017.

Okay, that’s helpful. You guys did provide a 30% growth for the business next year. On the BioStorage, it’s still growing as you guys suggest. What could -- is there any kind of -- I guess two-part question, first, is there any seasonality for that business that we should expect over the next two quarters? And also as you guys build this pretty strong booking pipeline right? What should we look out for potential hiccups for that continued growth?

Edwin, we missed the very first part of your question, you said what indications we would have one BioStorage business, what kind of indications did you say?

Yes, basically one what kind of seasonality, any kind of seasonality we should expect for the BioStorage business?

So, in large part, we’ll say no. However, we’ve highlighted that the genomics mapping services does fluctuate. And in general one, I got to put a caveat on that. We’re very new to this equation and we’re still going to observe it. But I just want to call out, so you’ll recall in December we had a substantially high month and the very first month that we owned the business. And we believe that that’s reflective of customers using the year-end budget, using their year-end budget to accomplish some of those services. So, if there is a seasonality, we believe it tends to be based on the confluence of customers’ budget years, finishing at the end of the year but just on the top level of it. But, fundamentally what we like about this model is the steadiness and that the bulk of our revenue, the base of it is already sitting in the freezers. I’d remind you that in this quarter, while we signed $41million of new contract value, we saw expansion on the BioStorage side as well as on the other side on the base business. And so, we’re adding that new business for the future for growth. So, we see no indication that the largest part of this would be steady and supports some sequential growth each quarter for the near term.

So Edwin, just to be clear, if bookings were zero or bookings doubled in a quarter, the perturbation to revenue in the subsequent quarter would be minimal. As Lindon said, we have most of the revenue in freezers and backlog.

Okay, great. Thanks for clarifying that. Moving on to your semi part of the business. If I back out the $6 million delta from the two changes that you guys have in your business, right? It seems like that semi business outside of that is only growing low single digit, right, based on your guidance. But semiconductor market is pretty strong and you talk about your growth driver there, like contamination control and wafer level packaging which you expect continuing to grow. Is there any one or two areas that you are seeing softness in that part of the business?

We don’t see softness but we’re pretty clear that the services business and the cryopump and industrials business is pretty flat. So, those are steady and stable profitable business but relatively flat. The growth that we see is almost exclusively attributable to the three areas that we focused on. So, we do have a significant amount of revenue, as you know in service and on the vacuum pump side.

Okay, great. Last question I have for you, Lindon, you mentioned about the gross margin improvement coming from some reorganizing of your manufacturing and your pump repair business. How much incremental margin improvement we should expect from that asset once it’s done?

Well, first let me just highlight that the project is in motion and we expect it to be fully in place by the middle of 2017. And as we do that, you could think about that as being roughly four-tenth of a point on a quarter. It would be may be three to four-tenths of a point. So, it’s going to be incremental steps. And so what we are highlighting right now, we talked to you about -- and by the way the three to four-tenths of a point I mean on the semi solutions business. But, just as a reminder as we met with you at the Analyst Day, everyone, we highlighted some cost take out as go into 2017. So, this is the first of those steps. And over the course of the year, we’ll update you on this. But going in midway into 2017, we think that this savings on an annual basis could be -- it will hit a run rate of about three to four-tenths of a point.

Your next question comes from the line of Paul Knight with Janney Montgomery Scott. Please go ahead.

Hi guys. Thanks for taking the call. My question is regarding you’re seeing increased bookings, what’s the source of it, is it pharmaceutical, biotechnology, is it academic? And then, the follow-up of course will be where do you see this -- are you seeing the increased NIH budget yet in these orders?

Yes. So, we see the strength in orders from all of the segments that you mentioned, Paul. So, we have pharma, biopharma, academic and government. The largest customers we have obviously would be pharma and biopharma, but we see expansion now coming from other areas. We had some success in academic space recently and we intend to continue to build that out. So, we think we have a very solid offering there. And we see growth across the space. I don’t say that we can attribute anything specifically to an NIH budget because the conversations that we have with customers are generally -- they are quite long. And so by the time the customers done their diligence, they’ve inspected the facilities, they have made a decision that they will or won’t take on some of this outsourcing, the budgeting ultimately may have an impact, but right now these are decisions customers make about how they intend to handle samples. And they have an internal budget obviously for it. And sometimes they elect to outsource it. But there is a lot of strength and momentum in the business from across all segments.

What do you think, is that the capacity shortages they may face or they just want to move to outsourcing in general?

We’re seeing both actually. So, when people get to the point where they have internal storage that might be ageing, we had over the last couple of years, we had a lot of refurbishment activity. And I think some of the customers elect not to refurbish existing capacity but move it. And that’s one of them. The other thing is that as they recognize this is critical but not core, they’re really intent upon focusing their core resources internally on the work that they do that adds value and giving the sample management capabilities to people who do that as a profession and reliably manage the samples for them. So, they really focus their core spend on the places where they add value and they are content, and looking forward to the opportunity to give it company like Brooks BioStorage.

The next question comes from the line of Patrick Ho with Stifel Nicolaus. Please go ahead.

Thank you very much. Steve, just a clarification in terms of the guidance because they were few moving parts. Did I hear correctly that you said excluding the $6 million of some of the legacy business that goes away that’s reflected in the guidance?

Patrick, let me take that just to make sure. So, we’ve given you a range of 146 million to 151, so at the midpoint we’re just about flat. We’ve seen the opportunities to be a little better. But frankly, let me just add a little more color for everyone. When we walked in to this quarter on the semiconductor solutions side, our backlog was actually just a little lighter than what we walked into Q3, but already we’re seeing some acceleration and we’re really sorting out whether customers will take things this quarter versus the December quarter. And so, we’re putting a little range around this. And I think the best estimate right now is flat. And yes, it comprehends the swift of the IP and the drop in the atmospheric. And so underneath, this there is absolute growth on both sides of the business when you [indiscernible] or the IP income and the atmospheric.

I was just going to add, the key point, and we had described this for the last well, really three quarters, I think we’ve address this but we’ve really put a coin on this at the Analyst Day. And this is, we really hope that our investors understand this that we saw this coming in -- that’s as all comprehended in our model. When we describe our inflection point, it’s these things, piecing, the IT and the atmospheric, we knew was coming down and is going to come to an end as we finish our 2017 fiscal year, and it’s almost -- it’s essentially finished. We’ll have just to drive more in this coming quarter, but very little. And so, that’s -- now we’ve got a clean base of growth portfolio. When I say that, we have a services business that’s stable, and as Steve said, the cryopump business, it cycles with the industry a little bit. But, the rest of the business, we’re seeing a really strong growth due to contamination, the etch and the advanced packaging and then of course on the life sciences side.

Okay, I think I’ve got that. Maybe first -- two questions on the semiconductor front. First, given the acceleration that we’re starting to see, particularly in the equipment side where if anything, we’re starting to see some pull-ins from various chip makers. How is your visibility -- or maybe the question is, is your visibility actually improving for the December quarter, given that a lot of activity is starting to pick up? How would you characterize at least qualitatively what you are seeing for the December quarter?

So, Patrick, we’re feeling more bullish about the December quarter. And I’ll give you one specific example. When we talk about some of the Korean OEMs starting to push things through quickly and the fact that we haven’t had a lot of business from them over a period of time, it means we need to make tools that are configured specifically for them. And so, as much as they would love to have it in September, we may or may not be able to accommodate that. So right now, it’s going be at the late September or early October. But that gives you an idea in terms of the kind of capability that we’re trying to get going here in the Company. We are starting to see more positive signs about NAND build out and we have some indications that 10-nanometer capacity will go in palace that will cost shipments for us in December quarter. So, we’re feeling better about December than we -- certainly than we were even a month ago.

Great, that’s helpful. And on a big picture basis, with the consolidation and the reorganization within your Company particularly in the semiconductor side of things bringing new services and products group together, how are you I guess aligning their goals together? And I guess what I’m trying to get at is, life science services and systems tend to have their own targets and goals, was part of that reorganization trying to get them aligned on the same kind of targets and goals?

It’s exactly it. And we’re finding actually that by pulling two groups together, the responsiveness to customers is enhanced by -- we’re probably twice as fast getting to customers. So that’s one part. And a lot of the services business that we have is actually the reconditioning, the refurbishment of the pumps and the repair of the robots. So, those are jointly linked in almost every way. And when Lindon talks about some of the consolidation that we’re talking about from a fair operation, we are now putting the refurbished cryopumps right in the same line as the new pump manufacturing. So, there is a lot of streamline impact there from just by putting the two organizations together; it pulls down any barriers that exist. So we’re seeing operating improvement and a much closer alignment between the services and the product groups.

And final question from me on the life sciences is with some of the -- I guess I don’t want to say push-outs but with some of the delays in revenue recognition for the BioStore III product. From a customer standpoint that you’re seeing, what are some of the I guess the final things that customers needs to see with the product, what’s causing some of the timing delay, is them getting more comfortable with the product itself or is it just making sure that they meet the specs that they are looking for?

I think the issues are multiple but they’re all very much related. So, you can imagine somebody who had budgets for manual cryo system now going in for three times the budget to put the same store in. The thing that we’re absolutely certain of is the pipeline begins to grow; we manage this very carefully on a weekly basis. So, the customer pipeline is growing. The acceptance of the tools when we ship them is rapid and the customers are delighted with the product. We just see that there is a little bit extra time required to get some of the budgets pulled through. And there are no hold-ups actually from anything related to the product performance, as just a matter of the customers being able to take them. And in addition, one of the things that Lindon mentioned referred to very specifically about some revenue that we planned for the quarter. We actually had books in business; we increased the scope of it, which prohibited us from recognizing revenue on it. So, the it’s something that will come back better when we finally recognize revenue on it but because we changed scope and expanded the project, we weren’t able to recognize revenue in the quarter.

The next question comes from the line of Craig Ellis with B. Riley. Please go ahead.

Yes. Thanks for taking the questions gentlemen. I will start with one that’s a follow-up to an earlier question. So, if BioStorage III is ramping a little bit later than you had previously thought and if on the semi side some of the indications that you’re getting from Korea and other places leads you to be a little bit more confident in the December quarter, your fiscal first quarter, does that all mean that with the guidance that we have for fiscal fourth quarter that we really have a flatter fiscal fourth and fiscal first quarter trajectory that’s setting up then we would normally see, given some of the [indiscernible] you’re feeling that we’re getting on the semi side and what should be by the end of the year recovery in BioStorage III?

Gosh, Craig, that’s a tough question to answer. We see it flat as we outlined and as we said in the September quarter; in December, it’s really too early for us to call. I think the thing that we can count on is the life sciences business generally is improving; we will see an increase in the BioStore III revenue from where we are today. And I’d be hard-pressed to tell you how many million dollars that might be. But the thing that we do feel differently about and for the earlier question, we do feel that the December quarter this year looks to be shaping up much better than the December quarter last year. So, whether it’s flat or up, it’s a little bit too early to call; we just don’t have that kind of visibility.

Sure, I understand that. I was looking for the kind of the bigger picture sense of things, Steve.

Hey Craig, I think just to add to that too, one, the semi does cycle more, right? But let’s talk about life sciences front. We still have a lot of confidence in the 2017 model that we just put out. So, in other words, while we just said we feel little of exchange rate impact and a slower ramp in Q4, which is the September quarter, when we step in the December quarter, we’re still seeing that objective of getting to 160, which we’d say we’re on a trajectory of averaging a quarter of $40 million per quarter next year. So, one, it’s got cyclical and it ramps and we think it’s well supported both on some of the robust signings we’ve had earlier this year on store systems but also continues to add a net new business in that space as well as the BioStorage. So, I think we’re still pretty strong and even our guidance here is double-digit growth on the life sciences side. Now, on the semi side, I want to be a little more clear that we are seeing growth in the bulk of our portfolio here. And we just are being very crisp with you all that this quarter is our pretty much our last step down from the atmospheric arrangements we’ve had with a partner and the IP. But from there if the bullishness of the semi industry is there, which you seem to be referencing with confidence and we said that there is reason to think that in the December quarter but we don’t see the orders yet, then we think that the December quarter will expand from there, assuming that that’s the case. We continue to maintain the robust growth of our portfolio, albeit two to four-point on average over a period of time better than the semi industry. So, I know I am starting to repeat some of what Steve said, but I just want to make sure because I think that the nature of the question is kind of what’s premised. When Steve said it’s difficult to answer that question, because it was premised [indiscernible] flat. Well, I don’t see it flat; I see -- I have this offset of the last step down of the piece, but the bulk of our portfolios growth. And then, when we look into December quarter, I don’t really see anything slowing us down to participate right at the industry or better.

Okay, that’s helpful for the additional detail. Lindon, you anticipated my next question, which was the confidence and the target model for next year both for life sciences and the overall piece. But, following up on a point you made with confidence in life sciences, is your confidence in that target retained because you are seeing levers in either the services business or the consumables business that can offset what might be a lower start and a lower run through the year with BioStorage III or is it because the customer feedback that you are getting on BioStorage III really means that at some point in the year, there’s just going to be a steeper slope on that ramp than you had thought earlier?

So, I’ll answer and then, if Steve’s wants to Chime, but I will tell you that it this way. I will say our confidence is led on the two biggest pieces of the business that being BioStorage and our store systems bookings that we’ve already had in the pipeline that we see. So, both, the largest elements of that portfolio are looking really good for us. The cryo store product is a little slower right now. We’re seeing the pipeline build. The question, we’ve always said, it’s an adoption rate and we’ve got to get the decisions made. So, if it ramps a little later, we don’t know how fast it might ramp. We will still hold that objective. We’ve said that in general, the 2017 business model will depend on that revenue element; it’s somewhere between $10 million to $20 million of revenue. So that would give you the range. If I don’t hit a $2.5 million run rate, I’m not going to be at $10 million for the year. So, that’s why they would watch for as a milestone as we get to the December and January quarter -- I must say December and March quarter that’s what I’d be looking for 2.5 million to 4 million run rate to stay on that model. And we think that’s not anywhere out of the woods. As a reminder, we just booked 1.7 million of bookings, so we have that feasibility. And then the last piece is the consumables portion of that business. And consumables has provided fuel in the past. It’s been a little slower over the past here, but we see -- we have investments in place and we have a strategy and a consolidation of our offering and putting it in front. And one of the beauties of our business right now, and this is different than before we bought BioStorage, we could face any customer, and whatever they need for samples we have -- their needs, we have the opportunity to meet their needs, whether it would be an outsource, whether it would be a storage system infrastructure, whether it would be the service or the consumables. So, we’re positioned really well to answer every customer. And so, our sales team is in the process now in the integration step of being trained across the platform on both sides. And we see a real level of effectiveness that Dusty and his leadership team is really putting in place.

I appreciate that. And then, lastly, on the operating expense side, I’d anticipated that given some of the initiatives that have been put in place over the last few quarters that there would be a step down in the September and December quarter, I’m not sure if that was the right assumption, but that’s what I had in the model. Can you just address operating expense in the guidance and talk about how that sets you up to close the calendar year?

So, in that inside the guidance, I actually like you asked the question. So, I think we’re going to see just about flat operating expense in the coming quarter. And what I anticipate that to be is about 1 million more in stock comp and about 1 million less in spend spikes. We had some spending spikes this quarter that we don’t see the need for the next quarter. That’s just events of the business. Now, in terms of the restructuring, the restructuring, the savings essentially got accelerated last quarter because we had the stock comp reversals. And this quarter we had reductions driven by the restructuring, but because of the benefits last quarter, it accelerated the appearance of it in our numbers. But, if you were to look at our expense now and compare to a year ago, remember that we have observed the BioStorage structure into that as well, over the same time period. So, we’re getting that benefit. We estimate that -- and this quarter, we had about 2.7 million total structural benefits. And so, we’re not knocking at the door of getting to a 4 million run rate as we go into the fourth quarter.

And do you capture all that in the fourth quarter?

It will be fully captured in the fourth quarter on the past restructuring. Then the pending restructuring on the repair center is [indiscernible] the middle of ‘17.

[Operator Instructions] And we now have a question from the line of Farhan Ahmad with Credit Suisse. Please go ahead. Mr. Ahmad, your line is open. Please go ahead. Mr. Ahmad, perhaps your line is muted.

It’s okay. Mike, I know it’s a busy day for the analysts, there are several companies. So, he may have had to drop. And we covered a lot of questions here. So, maybe we covered his question.

There are no further questions at this time. [Operator Instructions] There are still no further questions at this time. I’ll now turn the call back to you. Please continue with the presentation and/or closing remarks.

Alright. Mike, thank you very much and we appreciate your assistance. And we always appreciate everybody participating on our call, listeners and participants and then specially appreciated Paul Knight of Janney joining today and chiming in. And we certainly have a high respect for your firm. To everyone here on the call with us, thanks for your time and your interest. And we hope that we service your needs. So, let me know how we can better do that going forward. And we look forward to reporting our results of our fiscal fourth quarter and our full year next quarter. So, thank you very much.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for participation and ask that you please disconnect your line.