Greetings, and welcome to the Brooks Automation Q2 2019 Financial Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question-and-answer session. [Operator Instructions] This conference is being recorded, Monday, April 29, 2019. And now I'd like to turn over to Mark Namaroff, Director of Investor Relations. Please go ahead.

Thank you, Scott, and good afternoon to everyone on the line today. We would like to welcome you to our second quarter earnings conference call for Brooks for fiscal 2019, ended March 31. Our earnings press release was issued after the close of the market today and is available on our Investor Relations website located at www.brooks.com, as are the supplementary PowerPoint slides that will be used during the prepared remarks today. 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 and 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 those 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 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 President and Chief Executive Officer, Steve Schwartz; and Executive Vice President and Chief Financial Officer, Lindon Robertson. We will open the call with remarks from Steve on the business environment and the highlights of the quarter. And Lindon will provide a more detailed outlook into our second quarter financial results and provide a summary of our financial outlook for the fiscal third quarter ending June 30. We will then take your questions at the end of those comments. Before turning the call over to Steve, I would like to remind everyone that in our first quarter, we've moved Semiconductor Cryogenics business into discontinued operations for reporting purposes. The pending sale was announced on August 27, 2018 and continues to await approvals by government agencies. We expect that the sale will close during our third fiscal quarter. All reporting, commentary, and guidance in this quarter focuses on continuing operations. With that, I'd like to turn the call over to our CEO, Steve Schwartz.

Thank you, Mark, and good afternoon everyone. I'm pleased to report on results that demonstrate the significant transformation we've achieved toward our goal of being in two high growth profitable businesses. Revenue for the quarter was $198 million, up 11% sequentially and 26% year-over-year with strong Life Sciences growth from both sample management and GENEWIZ, an equally impressive another growth quarter for semiconductor which is still resisting the downdraft in the semi equipment market. I'll give some detail as to what was behind our performance and why those factors are important to our go-forward plans. But before, I'll comment on the individual segments. Let me remind you about our approach to serve these two markets. On the semiconductor side, we leverage our automation expertise to enable our customers to economically produce 7-nanometer and 5-nanometer technology devices that will be key to the rollout of 5G and fuel the further explosion of the data economy. Our automation solutions that enable wafer handling operation under extreme temperature, pressure and contamination conditions are unique in the industry and are key to our strong market leading positions. In Life Sciences, we leverage our automation and cryogenic expertise to provide solutions to a problem that was triggered when the Human Genome was sequenced in the early 2000. Over the past two decades, bio-sample collections have grown from thousands of samples to millions and now we're in a world where hundreds of millions of samples are collected every year, and the volume is still expanding. The value of these samples depends upon precise handling, storage and traceability, issues that are compounded by the size of the collection and the temperature sensitivity of the samples under management. We've had much early success in building cold chain sample management solutions for customers who increasingly rely on this capability…

Thank you, Steve. Please refer now to the PowerPoint slides available on the Brooks' website under our Investor Relations tab. I draw your attention to Slide 3. Steve has shared significant color with you regarding the recent changes, the innovation behind our offerings, the customer expansion and the growth momentum. We have moved the business to have 80% of our revenue portfolio in high growth areas. With 4% growth, our semi business is a stand out in the market, showing the growth even in downward cycle and even with our strength, Life Sciences has moved up to the 43% of our revenue this quarter. This segment grew 76% fueled by the GENEWIZ acquisition and 11% organic growth in sample management. Momentum is with us and our customers are calling on us for more. We see the revenue continuing to ramp in the second half and getting us up to the $800 million for the year as Steve referenced. Let me move onto Slide 4 to review the income statement. Looking at our GAAP earnings, we are reporting $0.05 earnings per share on a total Company basis. As a reminder, we're reporting the semiconductor cryogenics business in discontinued operations as we await the closure of the sale. On the continuing operations, we had a loss of $0.04 per diluted share, which is $0.13 below the prior quarter. As you can see, the operating margin improved significantly and the negative impact for the quarter are all below the operating income line, and are broken out. $8 million of interest expense is associated with a full quarter's impact of the debt utilized to fund the GENEWIZ acquisition which was about $3 million increase sequentially. We expect this to come down in our plans to reduce debt. This impact was approximately $0.03 per share…

Thank you. [Operator Instructions] We have a question from the line of Craig Ellis with B.Riley, FBR. Please go ahead.

Thanks for the question and congratulations on strong execution in a tough semi CapEx environment. Lindon, Steve, I want to start off just by clarifying operating expenses in the reported quarter, they came in quite a bit lower than had expected by about $5 million. So Lindon, how much of that may have been either a timing issue or just better than expected execution and other factors, if you could break that up for us? Thanks.

I think the operating expense came in to touch lighter on -- in, say the sample management and the semi side. A piece of this, by the way, was also reduction of some variable comp accruals in the quarter on a year-to-date basis. I would emphasize we maintained investments, we maintain investment GENEWIZ for expansion and both semi and sample management operating units also made selective investments probably to tight expense control.

All right, that's helpful. Turning more to forward-looking items. Steve, thanks for the color on the different parts of the business and some of the dynamics there. You're clearly outperforming industry in a number of various on the semi side and especially in vacuum robotics versus our expectation. So can you just talk about what's happening across the opportunity set that you see and what's helping you outperform in such a difficult environment here in the calendar second quarter?

Sure, Craig, thanks. So let me just rehash a little bit. I'll add a little bit more color. So the vacuum robots from the Tier 1 OEMs are down but we see this kind of bottoming out. So we've had three quarters of sequential decrease in the amount, but we think that's bottomed out. We think part of that's inventory and part of it's just volume picking up. So we're - we're encouraged by that. I can't tell you what that looks like for the back half of the calendar year. But, we see it bottoming here for the -- at least for the June quarter and we anticipate that will begin to be up. However, as we've talked in the past, we have vacuum automation that we sell to some Tier 2 equipment makers, who've taken entire vacuum system from us and there the content that we provide, the ASPs are considerably higher, that business continued to be up for us, and we saw particular strength in China. So Chinese OEMs both for semi applications and IC fabs and because of pretty strong market share, they have an advanced packaging, a lot of vacuum automation is going into China. So we're helped by that. And we do believe that that will persist throughout the rest of 2019 because if you think those market positions have been established and they'll continue. On contamination control, we had a big quarter when we add up the carrier for the wafers and for the radical stocking, we're almost $30 million in revenue. And we anticipate something similar in the June quarter. And we attribute that more to the breadth of the customer base now, we're in a period where next quarter we might ship products to 10 different customers. And, Craig, a year or two years ago we were shipping to three or four customers in a quarter so, and the applications are five and six different applications doing, foundry, logic memory, discrete devices and even wafer makers. So we think the breadth is expanding. We need a few more cycles there, not cycles, we need few more quarters there to understand the sustainability, but we are pleased with how that's expanding. And the wild card for us although it seems to be pretty steady it's a little bit tougher for us to predict the advanced packaging business, but to-date that's been a steady grower for us and have a record $17 million quarter feels particularly good. So we believe it will sustain. We're not ready to call it an upturn here, but we think the business that's come to us over the past quarters will sustain and we are encouraged though that perhaps there'll be some incremental high-end Tier 1 foundry spending that comes our way, kind of toward the end of calendar '19 or early 2020.

That's helpful. Thanks, Steve. And can I follow up with just further clarification on the point you made on advanced packaging. So one of the larger IDMs globally announced a product strategy that included chiplets is part of its product road map and really a reliance on more packaging technologies to bring together true bleeding edge elements of a system with trailing edge to best optimize its manufacturability and its capabilities. If that were to become more prevalent across IDMs and fabless companies, what would that mean for the advanced packaging business in Brooks?

Yes, Craig, I think we feel confident about our ability to capture. We feel confident about our market share opportunities and handling almost any kind of capability, we think will be good for us. But I think -- I got to say, I think we need to find out a little bit more about what drives some of these specific opportunities. But I could be a little more informed as I respond to that one. But we're -- again, we're confident in share, we are confident in position. I won't say that we have the best handle on specific manufacturing sites going in right now.

Okay. Lastly for me. You expressed confidence in closing the cryogenic steel, which is encouraging, but can you just help us with some color on the factors that are giving the company confidence that will close here in the June quarter. And then as we look beyond that close, any thoughts on what we would expect, either with respect to operating expense or some of the other line items that might be able to be further optimize once that business does close?

Yes, Craig, I wish we could give some more color. It's -- the process is confidential, but I can tell you that there's been a lot of good cooperation and we're going to wait now. We're in a waiting mode and again, both parties are fully engaged in when we were confident about our ability to move forward, but it's all we could say at this time.

And, Craig, I'll comment on the balance of your question. We still have our teams fully engaged to support the entire business and as well the transition of the sale. So you're -- the implication of your question is exactly right. Once the sale is completed, then we really look at that structure and we're already in mode of doing some of that and making plans and having a framework for leaning out the business. And at the same time, as I highlighted just a moment ago, making the right investments to support the growth of the business. So you're going to see more commentary and color on this later in the year as the deal closes, but until that happens, we probably should -- describing too much about that. Thank you.

Got it. Thanks, guys.

Thanks, Craig.

[Operator Instructions] And we have a question from Patrick Ho with Stifel. Please go ahead.

Thank you very much and congrats on a nice quarter. Steve, maybe first off, in terms of the semiconductor business, you talked a little bit about second tier foundries and some of the opportunity there. I understand how leading edge will continue to be a driver for most of your semi business. But can you give a little color in terms of the trailing edge and some of the opportunities there, because that segment seems to be holding up its spending from a CapEx perspective across the board and there's emerging opportunities for some of the equipment vendors as well. So if you could give a little color on that first.

Sure, Patrick. I think, first of all the things that Tier 1 foundries discovered about the benefits of contamination controls apply exactly to anybody going below 28-nanometer. And I'm not sure how to comment on specifically what they're putting through the foundry, but in general we see something that looks like a replication of what we've seen in Tier 1 foundry. So we're encouraged by that and as I mentioned, the breadths of the opportunity brought by the Tier 2 foundry is helping to add and broaden the customer base for us in the contamination control area.

Great. And maybe as my follow-up on the Life Sciences side, you got a good strong quarter coming out of the bat with GENEWIZ and you mentioned the number of customers. What I'm getting I guess on a quantitative basis, but maybe more qualitative, are you seeing any leverage yet between the existing customer bases on your sample management side of things? Or a lot of these customer wins with GENEWIZ, I guess are with customers that they had been dealing with when they were an independent company, have you seen any of the leverage yet?

Patrick, we haven't seen leverage yet but it's between the sample management team and the GENEWIZ teams, they are developing strategies, exchanging leads, and I think there's a lot of energy behind it. So we are confident that we will begin to close opportunities here. And maybe even as early as this current Q3 but the teams are really active and very enthusiastic about the opportunities. And as I mentioned in my remarks, specifically around some of the clinical capabilities that GENEWIZ just launched and that Duffy [ph] and his team has been working on now for sometime, we think those might be some of the earliest opportunities for us. So we're encouraged by it. We'll be sure to report back when we start to get something meaningful. But we do want to be able to explain to everybody on the call what fraction looks like between those two ends, and we're really positive that -- as the teams are positive that there are opportunities here for revenue synergies, and we're looking forward to delivering some before year end.

Great. And maybe my final question, for either you Steve or Lindon. In terms of the progress you've made on the Life Sciences' margin side, part of it is obviously due to GENEWIZ being a contributor, a higher gross margins. But what can you I guess specifically say on the sample management side, that's helped improve the overall Life Sciences' margin profile over the last few quarters and I guess your expectations is that it continues to improve as we go forward.

Yes, Patrick, it's a good question, and let me add some color on that. So as we've described in the past, we've had lagging margins on the store systems side and pretty good stability on the balance of the portfolio particularly driven by BioStorage services and sample management. So when you look at that in total, we continue to -- I think I'd say rest of group advisors on the store systems and we anticipate more progress on that going forward. So the 60 basis points improvement we had actually was driven as much by other areas. So in this next quarter, we anticipate to see step up in the gross margin and it will be primarily driven by the store systems improvement, that's our expectation. And you combine that with what I think off of this quarter, we'll look at something pretty stable on the GENEWIZ business as we've described before will be in the range of 47% to 51% this quarter ended up about 49%. So I think we're in the right range. I think you'll see a healthy gross margin profile next quarter, again driven on the improvement of sample management.

Great. Thank you very much.

Thanks, Patrick.

Thanks, Patrick.

There are no further questions. And I'll turn it back to Lindon Robertson for closing remarks.

Great. Thank you, Scott, and thank you everybody for joining. As we reflect on the quarter, it really indeed was a milestone quarter for us in the path for transformation. We saw the shift going above 40% on Life Sciences and meanwhile, we are outperforming the market on semiconductor. This is exactly the design of the portfolio changes we've been striving to make. We're excited about where we are. We look forward to the closure of the sale on the Semiconductor Cryogenics business, which gives us an opportunity to reset the balance sheet, make aggressive and ambitious plans. Going forward, and we look forward to the opportunities we mentioned to share more about that in our Investor Day in September. Meanwhile, we'll look forward to seeing you next quarter on this earnings call. So thank you very much for being with us.

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