Ladies and gentlemen, thank you for standing by. Welcome to the Brooks Automation Q4 2018 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Monday, November 19, 2018. I would now like to turn the conference over to Lindon Robertson, Executive Vice President and Chief Financial Officer. Please go ahead.

Thank you, Operator and good afternoon, everyone. We would like to welcome each of you to the fourth quarter financial results conference call for the Brooks fiscal year 2018 ended on September 30 of this year. A press release was issued after the 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 The 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. We may refer to a number of non-GAAP financial measures, which are used in addition to and in conjunction with results presented in accordance with the GAAP. We believe the 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 we will provide an overview of the fourth quarter financial results as well as the fiscal year financial results and a summary of our financial outlook for the quarter ending December 31, which is our first quarter of our fiscal year 2019. We will then take your questions at the end of those comments. With that, I would like to turn the call over now to our CEO, Steve Schwartz.

Thank you, Lindon. Good afternoon, everyone and thank you for joining our call. We're pleased to report to you on the results from a strong Q4 and on another fiscal year of excellent performance. Fiscal 2018 was a very important period for the company as we believe that it's demonstrates a high level of operating and strategic agility. In the year, we grew revenue 19% and EPS by 27% and this was following our fiscal 2017 year when we grew revenue 24% and earnings by more than 150%. Additionally, in Q4, we announced two significant business transactions that will not only be transformative but which meaningfully repositioned the company on a trajectory that we've been aiming toward for a number of years. It's been no small feat to keep the business running with increased profitability, strong revenue growth above the rate of the underlying market opportunity and simultaneously implementing company changing transactions. It's a testament to a very capable and engaged Brooks' team and though our results have been exceptional what energizes us even more is that we have yet not yet begun to recognize the value of these transactions in our performance. We truly believe that we are in the earliest days of what's an opportunity of tremendous value creation from the capability that we've constructed. As we enter fiscal 2019, we're in the midst of an uncertain semiconductor equipment environment, but it's important to note that these are still historically very high levels of spending. We are making the most of it as we've retooled our product and technology offerings to take advantage of high growth sectors that continue to outperform the overall space. And you'll see in our results that the semiconductor portion of our business has performed much better than if we've been only a subsystem…

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, providing a quick snapshot of results and the GAAP results at the top, you will see a very different revenue numbers than what you are accustomed as we have moved to a split of the continued and discontinued operations view. The revenue of $160 million excludes revenue from the semiconductor cryogenics business, which is pending the closure of the sale that is expected to occur in our second fiscal quarter of 2019. Looking at the non-GAAP stated below, you can see that when we include the cryogenics business, our revenue came in at $208 million or 7% lower than Q3. It is also interesting that in the comparison of the year-to-year growth rates, when you remove the cryogenics revenue, the total growth is lifted from 14% to 19%. This will of course vary in any short period of time, but this is indeed the indication of the longer-term our portfolio will see faster growth as we move to the future. Non-GAAP earnings per share on the same definition of the business in which we have discussed and guided in the past, came in at $0.40. On Slide 4, we will dive deeper into the non-GAAP P&L as if the business remained entirely integrated, just as we guided at the end of last quarter. First, I'll connect you with the revenue, I just showed on the prior page. In the first column, you see fourth quarter results for the cryogenic revenue included in the $208 million. This result, as I said, was 7% lower than the third quarter, 14% higher than one year earlier and non-GAAP operating…

[Operator Instructions] One moment please for the first question, which comes from the line of Patrick Ho with Stifel. Please go ahead.

Thank you very much for the information, on a very busy time for you guys. Steve, maybe first off, on the semiconductor side, your outlook is very promising, particularly given some of the commentary from your component peers. Can you discuss, I guess on the vacuum automation side of things, what's the difference in terms of the inventory work down time period, where the buying habits or the purchasing habits of customers that lead you to bounce back sooner from this inventory work down that others are seeing?

Yes, Patrick. So, we know we burned some inventory in the September quarter, but we're continuing to ship components to the Tier 1 OEMs. So, we think we're in pretty good balance there and we've been able to meet the requirements they have. So, I don't know that there was as much inventory build, because if we sell a robot for each particular configuration, it's specific to a tool type. So, it's not like they can use a single robot for seven or eight different platforms. So, we think we've been pretty tight and pretty close there. Indeed, there was some excess inventory, but we think that part is largely been burned off. In terms of the additional automation components that we ship, in addition to Tier 1 OEM robots, we ship systems, vacuum systems to Tier 2. Suppliers in those markets are not necessarily all front-end. So, some of those are advanced packaging applications, and so when we look at the next quarter health of the business, we believe that we're starting to see in December, and maybe even the March quarter some expansion of the vacuum automation systems that go to non-North America equipment maker, Tier 2 who supply to back-end providers in Asia, if you will.

And my follow-up on the life sciences then, I know obviously, you just closed the GENEWIZ acquisition that's going to be additive on a going forward basis. But driving to that 20% target growth rate that you have for fiscal year '19, how do you look at it based on the visibility, and I guess, some of the road map that you have today, is it going to be driven really by a lot of your services business? Or is it, are you going to see more systems sales in fiscal year '19 to get to that target growth rate?

Yes, so Pat, we got a couple of elements here. For sure, we anticipate that the services business will continue to march steadily along. We are in the high teens and 20% range for the sample management business. And from a GENEWIZ standpoint, yes, indeed it's additive and they've been growing at a rapid rate and they don't see a slowdown. So their next-gen sequencing, the gene synthesis, the Sanger business has been pretty dependable and so we think those components will remain strong. From a store standpoint, I'll give you a little bit of perspective here, because we know this is a little bit heavier lift, the backlog remains strong. We've got some operational issues to continue to work through, Dusty and his team are really focused on this, but as I mentioned, we're a couple of quarters behind but we do have 20 projects underway and even though the year-on-year, quarter-in September was 7% down from a year ago, the business in the aggregate was up 14% and that's the kind of growth opportunity that exists in the stores business and we think we'll be able to sustain that. One of the reasons that we've brought attention also to the backlog is the customer base, we increase the customer base by almost 20% to 200 more customers on a base of about 1,000 that we had a year ago. And we have increased backlog and in a couple of instances, we're just waiting for - I think we are more aggressive in our assumptions about when some of the collections and trials would start and we know those have been pushed so far one by a quarter and another by two quarters so that business is in backlog and we'll start to see that out in the Q2, Q3 timeframe in terms of even a boost to the services business. So, we have some proof to bring to the table here, but we're pretty confident about the backlog that exists and the opportunities there but 20% still feels like the right growth rate and again, we can see it in the customer base and in the backlog.

[Operator Instructions] The next question comes from the line of Paul Knight with Janney. Please, go ahead.

Hi Lindon, what's the operating margin of GENEWIZ non-GAAP?

Yes. Paul we haven't gone to the operating margin level on public, so we'll get to know the company more before we put that out, but as I said, it will be accretive to nearly offset the interest expense, so I'd say it would be incremental in the quarter, $2 million, $3 million. So it gives you a pretty good indication against the $15 million of revenue range.

How much of GENEWIZ revenue in the September quarter?

I'm sorry, Paul in the September quarter?

Yes, I'm sorry, you're guiding to for the current quarter, sorry, ending December?

In the December quarter, thank you. So in the December quarter, we have them for a half a quarter so we picked them up on November 15 and we are guiding $13 million to $16 million for now.

And then on your EPS range, you're guiding to, I think I'm looking here at slide 11, you're guiding to what, operating profit margins of 15.5% or greater, when in FY20?

Yes, that would be as we get to 2020. And so, our point there, Paul, it's a good one, is that we recognize as we set aside the cryogenics business, it sets us back, as I mentioned about five points to six points, five points at the operating margin level, and you'll see about six points in the net income level. And so what I've outlined at an operating level, is first we see a very clear path to replace the revenue within this year between the acquisition of GENEWIZ, the growth of the life science business and the traction that we're seeing in semi. And then the second step for us is replacing the profit by 2020 and that we have a pretty sharp trajectory on the growth of both the top line and the bottom line as we leverage that. So that's why we outlined the 2020 target and so I think that's a good objective for us for the second year out.

I mean, an operating margin of 15.5% suggests a lot more than $1, but I guess that you're letting us figure that one out?

Let me highlight, no, the $1 is in 2019, okay? So, we won't get there in 2019 on the 15.5%, we'll get there in 2020.

The 2019 number is what, what are you suggesting on earnings per share for 2019 then? More than $1 or less than $1?

2019, more than $1.

Okay.

And see, in the specific quarter guidance, we're only starting out with $0.17, and this on a continuing operations basis. So, we'll pick up and we're in a - we're admittedly sort of transition related spending and carrying some staff to and consulting to help us along on that path. We're making some investments in IT for the life science business currently to help with this. So, as we take the steps, you're going to see the momentum of the profit pickup as we move towards the second half of the year, but we think by the time we finish 2019, that being the September quarter, we will have added up to something more than $1 on earnings per share.

And then lastly, just a couple of quick ones. The tax rate we should assume on FY '19 and then GENEWIZ growth rate, 33% in FY18, should we assume 20% in the future or what are you kind of baking in there?

Yes. I've got - on the tax rate, in fact you can, if you pick up the slide 12, on the guidance, it might be a good summary for you, but on the tax rate, I put in 21% to 25% and point to a mid-point of 23% on the tax rate for the year. And on the growth rates in the life science, it's equivalent, what we've got in here is about 17% growth for this objective that we said we were very specific that in this year, the 10.5 months will contribute $120 million of revenue from GENEWIZ, that's our expectation, that's just 10.5 months. It took 12 months for them to do that this last year, but that's a growth rate of about 17% on an annualized basis and then we had met, as we said on the acquisition call, we're being a little conservative there, we know the team is driving for a higher growth there. We'll get to know the business, we're always a little conservative and certainly in the first six months when we first own a business but yes, 17% to 20%, I think is the right range to think about.

And total life science revenue in FY '19 you're - what's the range there?

Yes, so the balance of the business is 20%. So it's the aggregate of that range, round numbers 18% and 19%.

Life science revenue of around what, 2.35 or greater, 3.35 rather?

Yes, well 2.35 on sample management and 120. So 3.55.

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

Hi, this is actually Peter Peng in for Craig Ellis and thanks for taking our question. On your semi business, can you kind of talk about your half-on-half, some of your larger cap peers talking about a flash to slightly up half-on-half just given that you have some significant foundry and logic exposure from your advanced packaging and contamination control, how should we kind of think about your profile against that backdrop?

Yes. Peter. So, we are already going out a little bit ahead of what we normally do, giving you some idea about March, but there are --our order backlog is building reasonably well to give us some confidence there. So again, we imagine about a flat December, we see growth in March and we have to rely on the commentary both from our customers and from people like you about what the back half looks like. So, we're positive certainly based on the commentary about an expansion in the - expansion opportunity in the second half, but we're kind of giving you some guidance as to what the first calendar quarter looks like, it begins to be up for us, but if indeed there is front-end wafer fab spending for capacity additions in the second half that will be a benefit to us for sure, but we don't have much insight to that other than the commentary that's coming.

And then your contamination control, can we talk about your EUV exposure, so if the SML is kind of from 18 to 30 EUV tools, how does that affect your business in the contamination control?

Yes. So, we're sure we're having some reticle-related business for the reticle pod cleaners and the reticle stockers that are associated with EUV. So we're seeing some pickup. We haven't quantified it specifically, but after a low couple of quarters, we're starting to see some more units go out. We'll try to provide a little bit more color to that and indeed, we'll try to correlate it with the number of EUV tools that are shipped out. So we're starting to see that pick up a little bit, we don't have a huge amount of EUV business in our plan, but it's something that could generate in the $10 million to $20 million a year, if the business does, indeed, pickup in '19.

And can you just comment on the interest expense line throughout fiscal '19? Is $5 million the run rate or is it going to go down to some number?

Yes, we expect that to go down. That's why we put the annual there of $12 million to $15 million, but in this quarter, it'd be about $5 million and that has only about $200 million of debt for the first half of the quarter, but $550 for the second half. So then, depending on the closure timing of the cryogenics business, which we expect to be inside the March quarter, then we may get a partial or whole quarter of expense there. And then we expect to carry some remaining debt for the second half, but much smaller amount. So you'll see a bubble this quarter and second quarter, and then you'll see it come down significantly in the second half.

And I wonder, more question on M&A, can you talk about where there's path for further M&A in 2019? Is that a possibility? Or is this focused mostly on just debt reduction and so forth?

Yes, I think, it's - Peter, I think it's more bandwidth than anything else right now. I think, we stressed the team pretty hard, we've got two transactions going on simultaneously. There is a really rich pipeline of opportunity and we think we have access to capital, if indeed something came by that we - that is there were deals that we wanted to do. So, when Lindon talks about the amount by which we'll - the amount of debt that we'll retire with our cash, we still want to keep cash position to be able to quickly move on some opportunity. So, pipeline is strong. Really, first priority right now is for us to make sure that we give to Atlas Copco a fully functioning cryo business that we bring GENEWIZ in and assimilate them, and get the revenue synergies fired up. And then move onto the next acquisition opportunities after we've completed those. That's really the objective for us right now. But we think we'll have capital to continue to build out as we have opportunities that fit the roadmap.

We now have a question from the line of Drew Jones with Stephens Incorporated. Please go ahead.

Steve, I'd love to get a little more color on the life science cryo order, maybe just activity there, how much of the backlog that you talked about in life sciences is from the cryo side, and maybe is that where some of the product growth this year is predominantly going to come from?

So, Drew, thanks. We hope so. I mean, this for us internally, it's a small amount of business because the unit price on the B3C is considerably smaller than the large stores. So, we're - when we look at the backlog, it's a few million dollars, it's not more than that. But for us, we're really excited because of the momentum and to have a customer who has an approved cell therapy that they need to begin to manage their whole cryogenic cold chain through manufacturer and ultimately delivery, it provides a tremendous opportunity for us. So, when we look eight years ago at the life sciences business, this was really one of the focus areas, and so it was a pretty major milestone for us in the company. But to give you a little bit more perspective, we now have more than 100 units in the field, and we have 30 customers who have multiple units. So, the momentum is beginning to build, we're positive about what the outlook is. We still have modest growth planned in the $235 million of revenue that we have because we still think most of the units will be penetration units. But the few more orders like - a few more orders like the one for cell therapy will have the potential to move the needle here before year-end. But we don't have those - we don't have more of those really baked into the $235 million forecast at this moment.

And then, Lindon maybe just to simplify it again, in terms of profitability as we exit the year, is there a portion of the reallocated costs that are going to evaporate post the cryo deal closing? And is there a way to isolate between the puts and takes of interest expense, the reallocated cost, maybe what our run rate of profitability is in the second half of the year?

Yes, those are good questions. And I think, the first step of clarity that I should highlight is that the real specific transaction costs, we exclude those from the non-GAAP results. So, for example, the cost related to the banker fees, as well as any direct cost related to supporting the deal or for example, the carve-out work that we do. But there are still some remaining overheads related to the staff support that we don't take the staff and charge it out to exclude it from non-GAAP. So, we're supporting a team here, and in some cases, we use outside services to support some of the challenges, in particular, work related to integrate the new acquisition, GENEWIZ will be - we will incur some expenses there that will moderate as we get through the first half of the year. And then probably more notable as one of the earlier questions asked about the interest expense, when debt goes away, which we would expect that to happen inside the March quarter, presuming that the deal closes smoothly inside the quarter that you'll see that interest go down and I'll be more specific than I was before, but our $12 million to $15 million, you could see that is $5 million to $6 million between Q1 and Q2, each quarter and then dropping to the $1 million to $2 million each of the following quarters. So, you'll see a $3 plus million, and think of that, about $0.03 pickup just from interest expense going from Q2 to Q3. And I would like to think, and I always get a little tailwind as we move through the year on tax rates, we make sure that we're accruing, so we put a range on that $21 million to $25 million, but [indiscernible], exceeding…

Mr. Robertson, there are no further questions at this time. I'll now turn the call back to you, please continue with the presentation, and/or closing remarks.

All right, well, thank you very much. And we very much appreciate everybody's time and interest in Brooks. And the questions are really quite helpful to bring added clarity. I will unusually point you all to the tables behind our flowcharts this time in that we have a lot of information, and I know that's the challenge, and we try to service that challenge in these flowcharts, in terms of helping you to adjust your models for planning and estimating what you would expect for Brooks. And if you look at those tables, I think you'll see some good explanations between the GAAP and non-GAAP but lot of the details that make up our business as well, but look forward to talking to you as we move forward and we certainly wish everyone a happy holiday as you get into the Thanksgiving holiday this week and look forward to see you next quarter. 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.