Ladies and gentlemen, thank you for standing by. Welcome to the Brooks Automation Q4 and Fiscal Year 2016 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Thursday, November 10, 2016. I would now like to turn the conference over to Lindon Robertson, Executive Vice President and Chief Financial Officer for Brooks Automation. Please go ahead sir.

Thank you, Nelson. Good morning, everyone. We would like to welcome each of you to the Fourth Quarter Financial Results Conference Call for the Brooks fiscal year 2016. We will be covering the results of the fourth quarter ending September 30, and then we'll provide an outlook for the first fiscal quarter ending December 31 of this year. A press release was issued earlier this morning and is available at our Investor Relations page of our website, www.brooks.com, as are the illustrated PowerPoint slides that we use during the prepared comments during the call. I'd 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 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 a 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 that 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. We will open with his remarks on the business environment and our fourth quarter highlights, and then we'll provide an overview of the fourth quarter financial results and a summary of our financial outlook for the quarter ending -- for the fourth quarter ending December 31 -- I'm sorry first quarter ending December 31, which -- we'll then take your questions at the end of those comments. During our prepared remarks, again, we will from time to time make reference to the slides I mentioned available to everyone on the Investor Relations page of our Brooks' website. With that, I'd like to turn the call over now to our CEO, Mr. Steve Schwartz.

Thank you, Lindon. Good morning, everyone, and thank you for joining our call. We are pleased to have the opportunity to report the results of the fourth quarter of our fiscal year 2016. Throughout the second half of this year, we've been describing that the company is at an inflection point. That is after construction of a total life sciences solution set, and the complete retooling of our semiportfolio, we're embarking on a new trajectory for top line growth and profitability. We filled in our life sciences offering, to be able to define and capture sample management opportunities that were never before provided by a single company. And in 2016, we drove life sciences past the $100 million revenue threshold. Our semiconductor product portfolio was focused to deliver on growth segments, and we eliminated lower-performing assets and restructured both businesses to make them more productive and efficient. What we hold now is a portfolio of strong product offerings in 2 businesses, where we have solid leadership positions in growing market, a strong balance sheet and engaged in aggressive management team and a customer base that is ready and eager for our support. These are the makings of an infection point if there ever was one. And Q4 was exactly the way we wanted to finish our fiscal year and move into a very promising fiscal 2017. Revenue was up 7% quarter-over-quarter to $158 million. Non-GAAP earnings were up 40%, a result of very solid performance in semiconductor and for the first time, a positive and meaningful contribution from our life sciences business. We've created a position in a rapidly growing segment of the booming life sciences market that provides us with double-digit percentage growth opportunities for the foreseeable future, and we positioned our semiconductor product portfolio to allow us to…

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 would like to draw your attention to Slide 3, which is a consolidated view of our operating performance. Top line revenue increased 7% sequentially to $158 million driven by growth in each segment. We made progress with additional cost reduction actions this quarter to consolidate the European refurbishment center into our North American manufacturing center. The consolidation project will be completed in the March quarter while the restructuring charges were accrued this quarter. As a result, compared to the third quarter, GAAP earnings per share is up 22% to $0.15. On the non-GAAP side of the page, you can see earnings per share of $0.22, a $0.06 increase. A little more than $0.01 of the increase came from the joint venture income and approximately $0.05 was driven from the operating income. As Steve referenced, the joint venture income is from our Japan-based UCI venture, which saw increased demand from the OLED market. Our operating income, up 29% from the third quarter, was driven by the higher revenue and a 4% reduction of operating expense. We saw softer gross margin primarily driven by the anticipated drop in IP income. We will address more on this as we get to the segments. On a segment basis, we're pleased to report each segment contribute just about equally to this profit growth with approximately $2 million of operating income improvement from each segment. Let's turn to the segments now. On Slide 4, we see a summary of the results for Life Sciences. The $32 million with 9% top line growth reflects the top initiatives continuing to drive the desired results. BioStorage grew 16% and the legacy business grew 4%.…

[Operator Instructions] Our first question comes from the line of Edwin Mok with Needham & Company.

First, just a housekeeping question. Did you guys have any FX impact on revenue this quarter, on either the semi cap or the Life Sciences?

I'm sorry, Edwin, any impact from what?

From foreign exchange?

We did have a modest foreign exchange impact in the fourth quarter on Life Sciences. We saw about $1 million on a year-over-year basis and we saw less than -- a little less than $500,000 in the quarter compared to the third quarter. You may recall, we spoke a little about this, just Brexit hit us at the end of the previous quarter, and so it was more of a full quarter impact Q3 to Q4.

Okay, that's helpful. On the Life Science -- since we mentioned Life Science will stay with that, on Life Science, I noticed that booking was down sequentially. Can you help us solve a little bit of the bookings? What portion of that was BioStorage? And given the slightly down booking, what give you the confidence that you can grow to this $33 million to $35 million revenue for the December quarter?

Yes, one, we wouldn't split it out, but let me explain it this way. The bookings on both the projects for stores as well as our storage business remain really solid for us. I'll make the observation that year-over-year, we actually finished about the same backlog on stores as we started last year. So but remember that the second half of the year that still back in, and we see a really strong pipeline now what we should see as a good bookings quarter in the first quarter on the stores side as well as on the storage side. So it's -- we're not bothered by this. The $32 million says we didn't burn any backlog. And we're really content with where that backlog sits. And then on our ability to project the business headwind, we have a lot of confidence in the steadiness of the storage business. Obviously, you understand that most of the backlog already sits in the freezers, so it's not something that has to be incrementally delivered, although we're seeing incremental expansion in the storage projects that are sitting there ready for execution as well. So we feel pretty solid on our line of sight in our business today. You'll recall, a couple years ago, it was a little more up and down, of course. But right now this is pretty solid position.

Edwin, as Lindon mentioned, we had a strong October and we've a really good look at the pipeline. And because the revenue comes a lot from the backlog, there's nothing that we ever want to do, that's unnatural at the end of the quarter, just to book some business. So we're really confident about how Q1 will be and what the nature of revenue profile looks like.

Great, and very helpful. Question on just kind of the profitability or how we think about the business. Now that the business is profitable, should we assume comp Reg-E from revenue stay at around this $30 million range? And that as you grow, what kind of incremental margins should we assume in our model?

On the Life Sciences side, we're not going to start guiding profit, but we're really confident in this staying profitable and as the top line grows, we expect we'll get a little more leverage. I would highlight that on the gross margin side, we believe that it's reasonable to expect these margins in this range, which are a little better than 39%, up into the 40s. And as we set our objective for 2017, we told you that we expect it to be 40% and better, and that's where we're executing to, we believe, as we go into 2017. And then on the expense investments, we'll continue to invest some on this business. So I -- while I expect business to stay profitable and to increase modestly with revenue, we're going to continue to invest for growth that does not -- I want to make sure there's clarity. We're not taking an investment so that this goes negative, but we're going to support it for growth, for profitable growth going forward.

Great. So last question I have on the -- just on the semi side, actually, I guess, 2-part question. First is since you have $2 million of IP revenue in the September quarter, are you assuming that will go to 0 in the December quarter? And then, I guess, a more important question, I'll look beyond the current quarter. You guided for flat on that business overall on the December quarter. Any kind of visibility you have in the March quarter or at least into the first half of '17 in terms of how you think the business can trend?

Edwin, I'll take both. The $2 million, you're correct between Yaskawa robot distribution and the IP, that will go to 0. We anticipate to go to 0 in the December quarter. And on the other side, the business still remains strong. We don't have a tremendous amount of visibility. But order patterns we're getting from customers do extend out into the March quarter. So really no visibility beyond that, but we feel comfortable how this calendar year will end and how the March quarter will begin. And I did mention that we think advanced packaging, we're down a little bit, but their strength in the other businesses are driven by the front-end OEMs. And that's why we give a roughly flat guide from September to December. But we feel like there's not a let up yet. But as you know, we do not much visibility beyond March.

And as you tie those together, Edwin, that's part of the reason why I went to the point of pointing out the $2 million that we had. We exceeded our guidance a little bit and that $2 million contributed, right? We had a really strong quarter in delivery, but that $2 million was something that kind of fell in for us. And if you're taking that out, you're going to see us up a little bit while it shows flat, but you take out that $2 million, which we're not taking it out, but when you do, it would show a little improvement in Q1. So, that's why took things to point that out for you.

Our next question comes from the line of Patrick Ho with Stifel.

First off, in the semiconductor the supply chain, with business ramping up pretty much across the board, how are you balancing some of your working capital needs with regards to inventory and supply chain and making sure that you're able to meet your customers' changing demands?

This is really good question, and I would tell you that this is the topic really on a weekly basis across management team, but on a day-to-day business with our supply chain management. We have really focused on supply chain, both internally in our manufacturing capability, in some cases contract manufacturers to support key parts of our business and then, of course, the deeper supply chain. And we are in a focus to manage the lead times from our suppliers to start matching up to more demanding lead times that we face on our customers. So in that we believe we've got a position to support the forecast coming in. We are -- it's a really good point, we are dealing with some shortages right now in the quarter that we feel will help solve in the quarter and that's part of the range on this revenue that we give you is the -- if we didn't get some of that supply, we might find ourselves at the lower end of the range. But we believe that we'll get it. It's really a steep question though because as the industry is that a little more robust today, the supply chain does tighten up a little bit, Patrick. So but in terms of balancing, I would expect our inventories to come up just a little bit in the first quarter as we try to ensure that we're ready for this quarter and making sure that the supply chain is there. So I think that addresses your question, but let me know if you have more on that.

No, that's helpful. And, Steve, maybe as a follow-up on the semiconductor side of things, you talked about the growth in contamination control but you also talked about some of the second-tier foundries over the next few years going to have more of the advanced technology nodes. I'm assuming you also mean the opportunities in China where you see new fab investment. Maybe broadly speaking, in terms of both contamination control as well as your traditional OEM business, how do you see China and especially the rise of new fabs, both leading-edge as well as even on the mature technology node? How do you see that opportunity for Brooks over the next couple of years?

So we, Patrick, we see that it'll do much the same as we have in the Taiwanese foundries, the leading-edge foundries. We have shipped CCS products, the 28-nanometer foundries in China so they have capacity. What we find is as they go to smaller and smaller line with the number of those steps, the number of cleaning steps increases. So we see roughly a 50% increase in the tool requirement going from 28 to 20, then again from 20 to 14. And so we anticipate that as those fabs become more sophisticated, then they go to lower line with. They will have a very similar CCS market opportunity profile as the factories in Taiwan, which are actually driving so much business for us right now. So the coming years in China are, we think, very positive for us for exactly the same reason that we've been driving business through Taiwan.

Great. And final question on Life Science, again. You saw pretty good strength in your BioStorage business quarter-over-quarter. Can you just give qualitatively whether that growth came from what I would categorize traditional BioStorage customers and business? Or are you starting to see the leverage in the combination of legacy storage business helping to drive BioStorage revenues because of the combination?

Patrick, for sure the growth comes from the traditional customers, the conventional ones. We hit a couple of milestones. Now we have 20 out of the top 20 pharma companies, so we're now part of the portfolio. So that's one source of growth. But what's becoming conventional that was not so much in the past, there's a lot of these biopharma companies and some very interesting studies that are coming up because those are starting fresh, the thought for them to outsource some of the management to the samples is a lot easier. So we're at the starting point than a couple of big programs. And so we're just beginning to see those ramp. So in the coming quarters you'll see some meaningful bookings from some of these new programs, but that's first revenue from some new customers when we talk about BioStorage adding 5 new customers in the quarter, we'll start to see some of that revenue showing up here in 2017.

Our next question comes from the line of Paul Knight with Janney Montgomery Scott.

Steve, can you talk about the cash, your thoughts on dividend, repurchase and M&A? And specifically, more stuff to do, see, opportunity in life science?

Yes, sure. Thanks, Paul. So without question, we see a lot of opportunity continue to build out the Life Sciences portfolio. So when Lindon talks about us growing to $160 million in fiscal '17, that's where the portfolio that we hold today. But we do have a number of opportunities that we're looking at in terms of how do we build out the current capability, add more of the kinds of things that are in the portfolio already. There are opportunities that are related to the BioStorage businesses. There are a number of smaller companies out there providing life services, not at the same level that we believe we have at BioStorage, but we will continue to look at those opportunities. The balance sheet is strong. Our ability to make those investments is strong. And so we will continue to be on the lookout for those opportunities because we do, we think, we provide a unique capability. And if we had an expanded customer base to whom we could offer the BioStorage kind of capabilities, we would take full advantage. The other opportunity for us on the build-out side is related to informatics. We have a very strong informatics portfolio in the company right now. But the offerings beyond inventory management and content management we think are also substantial. We're pretty familiar with the neighborhood of the companies who provide those kinds of services, and we're getting to know each other a lot better. But we have a strong growth profile organically, a strong pipeline inorganically, and we're really enthusiastic about what the opportunity will bring. And I'll ask Lindon to actually talk about the cash and the dividend.

Yes, Paul, the cash flow, we're getting increasingly confident in both the profit outlook for '17 as you've seen and connected to that cash capability, we feel, will be improved in '17 again. So while we finish the year with about $40 million of operating cash, we expect to improve upon that in '17. What I will say, we traditionally in the first quarter, we'll see just a little bit of burn of cash because we do a couple of things in the first quarter in terms of paying out bonuses, things of that nature, supply chain, and the growth we see in first quarter will probably take a little bit in the investment. So don't be surprised in the first quarter we take that little cash out. But for the year, we expect the cash capability to improve. And what I'll say on the dividend and on repurchases, you'll recall, we've been very steady on the dividend. We have philosophy to build the cash to use a first and foremost, first our organic funding. Secondly, for these acquisitions, as Steve refers to, to build out strategic portfolio. And then we have a tradition of looking and seeing if we should increase dividends, and we have an approved buyback program of $50 million if we determine to do a special disbursement in that form. So we have some flexibility there. We have a track record of relooking at that and taking action on that. But for now, I would say at $91 million of cash, we like that position, gives us a little flexibility if we face a semi-downturn and still playoff into -- on the M&A side. So I think the investors in general should expect us to stay steady right now in our dividend and look for us to generate more cash for investment.

And then in regards to guidance on life science specifically, are you guiding to life science out margin in the upcoming quarter? And any change in organic growth from what was just posted?

So the $33 million to $35 million in the coming quarter would put us in the range of the same type of growth and there are some dynamics that we're anxious to see what happens in December. A year ago, we bought the BioStorage business on the first -- November 30, and we live with that business that final month of December, and we saw genomics really mix up and it takes our margins down when that happens, but it's incremental revenue on the top of the business, so to speak. So I have modeled in just a little softer margin for the quarter, and that's why you see this center around that $0.20 midpoint on EPS, we're just flat up revenue. And it depends on where this thing mixes, but we see organic revenue to be just about this consistent with us last quarter on the life science side and hopefully we please you when it comes out, but we have a little variability in the December time frame.

Our next question comes from the line of Amanda Scarnati with Citi.

Just going back to the storage business. I think you mentioned that you're delivering at target margins in the storage business. Is this due to specific cost savings on your end? Or is this stronger ASPs had better mix? Kind of what's going on in that business?

Yes, Amanda, I think what we did, we got back to what we knew we're capable to do, so just really tight management to projects and programs, adequate planning for the installation. And I think a really good knowledge about the material costs. So this -- the expectation is that where we're ought to be and that was really just tighter management of the operational aspects of delivering on the system. So not a significant change in pricing, but really management to a price we'd been before.

And then on the semi side of the business, do you think that Q4 was sort of peak ordering for your product lines? Or do you see strong orders continuing? I know you've been kind of saying that you see orders continuing. But is this kind of status quo, or do you see improvements in orders going forward drop in fiscal 2017?

Amanda, it's really tough because the lead times that we have are pretty short. So we're mostly -- we get forecasts from our customers that give us an indication that's stronger than the order pattern. So we're preparing in advance of the orders that we actually get. So we think it's -- it remains relatively strong. We can't go by the bookings to know specifically, but we'll report on them every quarter for you, but that's not the indicator for us as much as the events forecast we get from our customers. But it feels like right now, we'll come out in December and start March with a very healthy semi business.

Great. And then the last question I have is just on overall corporate gross margin. They were down a little bit sequentially. Was this partly due to just mix differential? And where do you see corporate gross margins trending through fiscal '17? You mentioned that Life Sciences should be around the 40% range. And then I guess the up-and-down would be in the semiconductor group. But what are you looking at in terms of margins there?

Yes, we had this little headwind in this quarter with the drop of IP income on BSSG side. And as I said, just a little softer mix on the BST or in the BioStorage side. And as I referenced a minute ago, I have modeled them just a little bit about the same, but just a little bit softer margin, so we still think it'll be above 36% at the midpoint of my model. But with that said, let me emphasize a couple of things. We have described a model to the Street that says in 2017 that we see for the year that we'll get this thing to 38%, and we're dead set to do that. There's a couple of actions that we referenced in the comments such as we're in the midst of integrating our repair operations out of Europe into North America. On the life sciences side, Dusty's closed the site in Switzerland at beginning of last quarter and we're going to see just a little more benefit from that in this quarter. We continue to look at the structure and fine tune that. We have a few more operations that we're going to continue to fine-tune. We referenced in our Analyst Day that by the time we get into the middle of '17, that we would reduce a total of about $8 million of cost and expense out of the business, on top of the $15 million annual cost that we took out last year. We think that with these actions that we just described that we're just about half way there, we'll give you an update as we get into next quarter again. But my point being, while our margins may come in flatter, a little soft this coming quarter, we have a road map to see improvement as go through '17 and we've got a lot of confidence in that. I appreciate that question really.

Our next question comes from the line of Craig Ellis with B. Riley.

As I start, let me just take a step back and say congratulations guys on your ability to manage a very positive evolution in the business. It's been a strategy that you had in play for some time, and we're starting to see the real fruits of good execution there. The first question is a follow-up on some of the life sciences commentary noting quarter-on-quarter growth expectations through next year. Can you just provide some color on where there might be both better relative strength or discontinuities in growth, things that might start off a little bit weaker, but accelerate later in the year? Just fill in what the expectation is for that sequential growth?

Thanks, Craig. Lindon, I will share this one, but I'll start with the commentary that I had in my prepared remarks. The BioStore III Cryo system is a product we think has tremendous promise. We've introduced it to the market. There seems to be tremendous interest, the traction from a commercial standpoint has been slow. And one of the reasons is as customers put real samples in, they need to be exactly sure that this is going to be a tool that they know how to operate and the samples will be safe. And we hadn't anticipated the amount of testing and verification that would go into that. So one of the things that you'll see that is necessary for us to get the ramp in the business that we expect is to get traction on the BioStorage III Cryo. We have very little of that built into the December quarter. And but we do have high expectations for this as we exit the year. So that's a very important part of the portfolio. It's still modest. It's not the driver of the $160 million, but it is an important component about the future growth for the life sciences operation.

So, Craig, I'll just say when you think about perturbations, we had lots of confidence on the storage and on the storage side. And I think in the 160 target, I think, what the trajectory that still yet to change for us is around that Cryo store, the B III Cryo, the minus 150, and we're seeing still a lot of conviction and a lot of value at the customer engagement site. Conviction and excitement is really confirmed when it turns to revenue, we fully recognize that, so we're anxious to see that. That's a trajectory that really needs to change for us. And as Steve said, we're going to be patient, and we're going to see that happen. We're convinced but that's what the trajectory needs to change. And then we're also looking for uptick in our consumables revenue. So when I look at the 160, I see really solid trajectories on stores and storage. And then I'm looking for trajectory incremental on these other 2 pieces that are smaller but important for us.

That's helpful, guys. And then the follow-up is on the fiscal '17 target financial model that was presented at the Analyst Day. So in the fiscal fourth quarter of '16, annualized earnings were $0.88. The target model is $0.90. Lindon, you outlined $8 million in efficiencies that will be coming into the model. Is the performance of the business really showing a trajectory that would push above that $0.90? Or is there mix shift in the business as we go through the year towards life sciences that would mean, even with the efficiencies, that $0.90 number is still the right bogey to be focused on?

Yes, this is a really good question. So I was careful every time we talk about that model to emphasize that it is a model and what you and the other analysts and the investors are going to see is that we will stop showing that page only because I don't want it to be confused as guidance. This is really good point for clarity. In the semi business, we all know that the business has about 90 days of visibility. We still believe that we're in that range. You can see that this quarter, we're at $0.22. We gave you a range of $0.80 to $1. And we just gave you guidance for our first quarter that continues to support that run rate. We have every reason to believe that we're in that range. And at the same time, I got to be really hesitant with you in that the semi business cycles. Right now, we're in a good cycle. In the second half, we don't have the visibility yet. So as we've always said, we use this range in semi and you know, Craig, it could be better, it could be worse. But right now I don't have any indication to pull back from that model and to guide differently. I'm just not going to guide on the full year. So that said -- let me give you a couple of points that we have really good conviction on. Life sciences, we've already said, $160 million. I reiterate it, we're holding to that target and Dusty is dead set on it. And we have a lot of line of sight on the largest portions of that. And as I just mentioned, we need the trajectory on the smaller pieces. The second point is on gross margins. I mentioned earlier 38% is our target for the year. We believe that we got all the actions plumed, including the $8 million that we said by as we get to the second half -- or I should say to the first half that we've got half of it underway and we got more coming. So, yes, we believe those 2 key points are under there. The third point is what does semi revenue do for the year. That will have some bearing on it, but no reason for us to tell you it's not going to be in that range of $0.80 to $1.

I appreciative that. The next question is really a longer-term question and it relates to some of the areas of growth that are smaller but really helping the semi business. So advanced packaging has been a real success story as you take in your front-end technology and moved it into the back end. You mentioned OLED on the call. Our view is that industry's capacity has to move up to handle a 5x increase in units between here and 2020. So it seems like the secular dynamics for that business for Brooks would be quite strong. As we think about smaller opportunities but secularly advantaged opportunities, how do those 2 opportunities play into the company's thinking about longer-term financial performance, specifically the fiscal '19 target model if laid out at Analyst Day back in the first half?

Craig, we think they're really important so I think you hit it right on the head. Advanced packaging is a really important sector for us, and we found a way to employ core technologies in a really unique way to address advanced packaging. And when we apply these on the very standard, very commoditized semi front-end at the top business, at advanced packaging, we've distanced ourselves from competition because of the nature of what we do specifically for that industry, so that's a really important one. We, too, see strong growth in the OLED. The other thing that I would add to the 2 that you listed is the contamination control is extremely important. And we're finding that is as now half of the periodic table is being used to manufacture the semiconductor devices. The new chemistries and capabilities that are employed really require a different level of cleanliness and contamination control from anything we've seen before. And that frankly, we're even surprised by the amount of the cleaning technology that goes into some of these factories, and we see that continuing to grow very quickly as we push down toward 10, 7 and 5-nanometer. So for us as we go to 2019, these smaller opportunities, which are becoming bigger, are extremely important for us in the growth profile and the profitability of the company.

[Operator Instructions] And Mr. Robertson, I'm showing no further questions at this time. I'll now turn the call back to you.

Okay, thank you, Nelson. And I am very cognizant. We're just a couple of minutes away from the market open. We really appreciate everybody's attention, and the questions are all really good and they help fill on the color of our business. We couldn't be more pleased with where we said as we enter 2017. We're excited about both our customer set and the outlook for the business, but we're also really pleased with the investment base that you guys all help to facilitate with us so we appreciate that, and look forward to talking to you next quarter. Hope you all have a great day in the market.

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