Greetings, and welcome to the Brooks Automation Q3 2021 Financial Results. 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, August 5, 2021. I will now turn the conference over to Sara Silverman, Director of Investor Relations.

Thank you, operator, and good afternoon to everyone on the line today. We would like to welcome you to our earnings conference call for the third quarter of fiscal year 2021. Our third quarter earnings release were issued after the close of the market today and are available on our Investor Relations website located at brooks.investorroom.com, in addition to the supplementary PowerPoint slides that will be used during the prepared remarks today. 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. 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 the 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 our Executive Vice President and Chief Financial Officer, Lindon Robertson. We will open the call with remarks from Steve and highlights of the third quarter. Then, Lindon will provide a more detailed look into our financial results and our outlook for the fourth fiscal quarter of 2021. We will then take your questions at the end of the prepared remarks. With that, I would like to turn our call over to our CEO, Steve Schwartz.

Thank you, Sara, and good afternoon, everyone, and thank you for joining us today as we report on the results of another strong quarter from both Life Sciences and Semiconductor automation businesses. Revenue was $315 million, up 10% sequentially and 43% year-over-year with almost identical organic growth rates from each of the businesses and consistent with the rapid growth trajectory that we've been on for some time. This persistent trend of revenue and profitability expansion is the direct result of our targeted investments in the science and technology to satisfy the needs of our customers, especially in what's a robust demand environment for life sciences and semiconductor and as we approach the separation of the businesses, we continue to invest to position ourselves in front of customer needs and market opportunity. We believe that both life sciences and semiconductor automation markets will continue to expand and evolve for years to come, and we intend to lead with our solutions that require sustained investments in new product and new technology development, as well as acquisitions, investments that we are making and for which we're being rewarded by our customers, who are not only adopting our solutions, but also who are guiding our next development initiatives. Although there's a lot to be enthusiastic about, I'll just touch on some highlights from the quarter, starting with Life Sciences. Overall, Life Sciences revenue was up 42% organically year-over-year, and we added more than 300 customers, a reinforcement that not only are our offerings attractive but also paving the foundation for more future growth as our business increases at these new accounts. In Life Science Services, revenue was $80 million, up 28% year-over-year with growth delivered from each of the sub-segments. We once again delivered record revenue quarters in each of our three major sub-segments…

Thank you, Steve. I now refer you back to the slide deck available on our website. Turning to Slide 3, I want to reiterate for everyone that we will continue to reflect the total company results as you are accustomed to seeing them until the separation culminates, which we still expect to occur by the end of the calendar year. The third quarter was another record quarter for us on the top and bottom-line, with revenue of $315 million and 43% year-over-year growth and non-GAAP earnings per share of $0.72. Both sides of the business continued to show strong growth and profitability. Cash flow from operations was $45 million in the quarter and $175 million over the past 12 months. And on a trailing 12-month basis, we are now at $1.1 billion and $2.27 of non-GAAP earnings per share. Moving on to Slide 4. Let's get into the details. Revenue was up 10% sequentially and 43% year-over-year, resulting in GAAP earnings per share from continuing operations of $0.53, up $0.34 year-over-year and up $0.20 quarter-over-quarter. Operating margins were up 530 basis points sequentially. The gross margin of 45.8% shows a 140 basis point improvement Recall, in the prior quarter, we recognized a $5 million increased liability for tariffs due to a change in estimate for the value of past intercompany imports. In the operating expense section, SG&A was down quarter-over-quarter, primarily due to a lower spending with advisers and legal support in the preparation for the separation of the company. This spending remains at $6 million in this third fiscal quarter. All in, the GAAP earnings per share was $0.53 for the quarter, up 184% year-over-year. Let's look to the right side for the non-GAAP results. Gross margins were 46.9%, expanding 340 basis points year-over-year, driven by Life Sciences, up…

[Operator Instructions] First question is from David Saxon with Needham. Please go ahead.

Hi Steve and Lindon. Thanks so much for taking our questions and congrats on the quarter. I guess I'll start with the Life Sciences business. I mean a question I get a lot is just around this COVID-driven demand, particularly in the products category and kind of how quickly and how much that tails off. So, I know it's probably a hard question to answer, but can you just talk through about how you're thinking about that? And then relative to the fourth quarter guidance, total life science could be down. Is that kind of more about this COVID-related demand falling off quicker than maybe what you're seeing currently? And then I have a follow-up.

Okay. Hi, David, it's Steve. So, thanks for the question. I think you had it right in terms of the dynamics that took place between Q2 and Q3. We had approximately $5 million out of $14 million that was COVID consumables and instruments related, and it's really tough for us from a visibility standpoint. But in all other aspects of the business, we saw growth. We saw it in all of the services portions of the business and on the remainder of the product side. So, from that standpoint, also the guide that we have going forward, if there's anything that's down quarter-on-quarter, if we did come in at the lower end, it would be related to the consumables and instruments because we think we have a pretty good bead on everything else. And it would certainly be because of COVID demand. But business feels healthy. All the services, all the other portions of the product line continue to grow. We're really pleased by that. And yes, I think you can sense from us a little bit of uncertainty, nothing that we can envision that, but just the fact that we went through that from Q2 to Q3, I think it's good just to be a little bit cautious there. But we anticipate at this moment sustaining kind of the levels that we have right now for the consumables and instruments quarter-to-quarter.

And then I guess my second question is just on CCS. I mean, it's really nice to see that kind of return to growth. I think last quarter, you kind of called out $45 million as base. So, just wondering kind of what's driving that demand. And should we kind of expect sequential growth in that category? And thanks so much for taking the questions.

Sure. So, the CCS business is as healthy as you said. We have enough capacity that when customers need us to accelerate something, we've been able to satisfy and at this moment, yes, we anticipate sequential growth in the fourth quarter in the CCS business.

[Operator Instruction] Next question is from Paul Knight with KeyBanc Capital Markets. Please go ahead.

Mike on for Paul. Just a quick question on the GENEWIZ China delay. I mean where are you guys at with capacity now with GENEWIZ? And the delay until 2022, does that impact growth at all looking forward into 2022? I know I'm trying to get guidance on 2022, but just your thoughts on the delay of the GENEWIZ facility?

No, it's really manageable for us. As we've described, the current lease buildings are good size, and we've gained productivity. So we - of course, we manage with some buffer in these things, and we have the flexible leasing partners that we dealt with there and been able to extend those sites. So we're equally excited, as we always have been, in terms of what the project looks like. I'll share with you that we're moving into the fit-up stages here. And we see what the outside of the building is looking like from the street view. Everything is looking good. I think the employees and the company they're getting very excited about what's about to come. But the COVID issues are real in the environment there, and we've had periods just delays. Early on, it was a little bit about labor moving from one province to another or them being able to sustain people on site. We had that cushion built in. We've had other delays, sometimes on materials. And just as it accumulated, it moved from the final calendar quarter completion and move into a first calendar quarter completion. And the move-in will occur between then and the month of June. And I think we're in really solid shape operationally. So we're not concerned about constraints.

And Steve, just on the vaccine contract with the federal government, can you kind of unpack that a little bit more? I mean, I know you did some work with Catalent, helping Moderna for their vaccine storage and logistics. But maybe a little bit deeper. Is this a new opportunity for you guys to kind of expand this into also a commercial customer base as well?

Yes, it is. It's different from COVID, certainly unrelated, and it's something that has been in motion for quite some time. We have the ability to manage the logistics and the care vaccines that need to be cold and then ultimately get them distributed. This happens to be for service. So it's a pretty significant program. It will run a long time. And it's got just the kind of complexity and care that we're prepared for, and we've been geared up for this for quite some time.

Next question is from Patrick Ho with Stifel. Please go ahead.

Thank you very much. Steve, maybe first on the semiconductor side of things. based on your results and your outlook, it looks like you managed the industry supply constraints very well. One, maybe if you can just qualitatively give a little more color on the situation for you guys because I'm sure you're experiencing some challenges. And then maybe secondly, what are you doing on your end to mitigate the situation as best as possible? Because during this earnings season, we've seen mixed results in terms of some companies managing it well and some companies, I guess, poorly managing it. So, I'm just trying to get a little bit of color on your end given the strong results and outlook.

Yes. Thanks, Patrick. Patrick, a few things. There are always supply issues even in any environment, but they're particularly acute now, as you're aware and everybody in this industry is aware. Very specifically, when you have thousands of parts, anyone can hold up a manufacturing line. But I think the team has done a great job, and they're geared for it. In terms of managing the environment, getting out in front of supply uses that we could anticipate and doing supplier checks about their - both their capacity and their capability. We have some that are volume-related and some that are related to their ability to operate in a COVID environment. But I think the team has done an exceptional job. And I'll give you a couple of examples. Sometimes when a facility is not capable to provide a part or a subassembly, our teams have gone to qualify additional vendors. And this isn't something that happened over the past month. It's over the past quarter. So that we're usually quite a bit out in front of it, and we've been conveying large demand to our suppliers for some time now, anticipating that the volume ramp was going to be significant. And I think we got that part right, and we've geared our suppliers up for it. On the chip shortage, those exist, too. And as an example when we talk about the relationship we have with our customers and with our suppliers, we've had to go to alternate sources of chips, if you will, redesigned boards to get an equivalent functionality, and that's not something that is done lightly. But when we work with the supplier and we go to the customer, who are - they're also acutely aware of the situation, they trust the design engineers. They validate…

Great. That's really helpful. And as my follow-up question, I apologize I missed some of your initial remarks on the Life Sciences business. But given a lot of the fluidity and the moving parts right now with hope and, can you characterize, maybe pick up near term on COVID-related type of business? Or are some of your traditional kind of research and analysis business coming back, both on the products and services side?

Yes. Sure, Patrick. So, on the services side, the researchers who moved the focus of their activity toward COVID continued to use us. So we really believe that the shift towards COVID, toward the treatment, toward the vaccine - and as researchers go back to their other activity, we think that business will sustain, and we've seen it in the - just in the steady growth of the services business. And so, we feel pretty confident that's the situation. If you weren't on for some of the comments, we did have a $5 million reduction in some of the consumables and instruments related to COVID especially on the consumables side, from the - from Q2 to Q3. And the services business propped it up. The rest of the products business has continued their momentum, but we did take about a $5 million reduction quarter-on-quarter sequentially as a result of COVID consumables.

Patrick, I'll add. We provide a couple of data points and I think everybody probably interested in these, so I'll just reiterate them. On the - if you think about the impacts in 2020 versus 2021, 2020, we were dealing more with the impact of customers being absent and the lockdown. And what we shared was that in this quarter, when you look back at last year, GENEWIZ had a little easier compare this year, they're on a nice ramp this year sequentially and year-over-year. But the significant growth, if I was to take the impact that we discussed last year out of the quarter. In other words, raised the number last year without any COVID downside last year, we estimate that business grew about 26%. And so we're really pleased with the trajectory and the continued build on the customer base this year. And we highlighted earlier that Sangers had another record level and is showing 10% growth. So it's really solid. On the product side, as Steve alluded, that slowdown in consumables still has about $9 million of what we see as COVID demand in this quarter that we delivered. And if you take that out, that total products business still grew about 30% year-over-year. So again, we're seeing really strong growth on both sides. If you try to normalize what was hurting us last year, what was benefiting us this year, and those are the two primary. We had other puts and takes. As someone referenced, we are doing some vaccine management, but those are more modest impacts around the business edges, but the most severe was the lack of some of the academics and customers in place last year at this time and then, this year, the positives on the product side. So those are the 2 biggest normalizing factors.

Next question is from Jacob Johnson with Stephens. Your line is open.

Good afternoon everybody. Just to start off and sticking with kind of the COVID questioning. Lindon, on the $127 million to $137 million of Life Sciences revenues you're guiding to in the fourth quarter, should we expect the composition of the fourth quarter to kind of look like the third quarter, meaning strength in GENEWIZ and SRS and maybe a little bit weaker, Life Sciences products revenues in the fourth quarter? And if you can or want to, can you just talk about kind of the COVID assumptions that are embedded in the fourth quarter guidance?

Yes. And not to pin me down on line-by-line guidance here, but I'll give you that color. We see momentum on both products and services that could support expansion on both products and services at the midpoint and up to the upper end. And - but in the down - on the downside, if we're not expanding, and I want to emphasize midpoint showing expansion sequentially and significant growth year-over-year, right, in the entire range. But if we're at the lower end, it just - it probably accounts for a little bit of softness in the consumables. Again, we're uncertain on that. And I keep a little cushion in there, because, as everybody recognizes, certain geographies are facing COVID spikes currently. And sometimes that constrains us from accomplishing certain projects with customer installs and things. But both products as well as services has the potential to be expanding on a sequential basis. And that's connected to demand that we expect. If we're not fulfilling it in this quarter, we're fulfilling it eventually. So it's strength for us.

Got it. Super helpful. Thanks for that, Lindon. And then, for Steve or Lindon. Just on the SRS side, you had a large pharma win earlier this year. It sounds like you had a couple more wins this quarter. So when we think about the growth of the SRS business, is it being driven more by growing samples under management? Or are you also finding ways to kind of increase your revenue per sample, I guess, thinking about things like the synergies with GENEWIZ?

Yes. Right now, Jacob, it's both. So mostly, what you see right now is mostly samples under management, getting them registered and increasing the size of the collection. But at the same time, the synergies are beginning to develop, but it's still small compared to the growth in the samples. But the right kinds of initiatives are in place, and I think the sales teams and the customers are really beginning to understand it. But it's modest yet, but the right things are happening.

Next question is from Amanda Scarnati with Citi. Please, go ahead.

The first question I have is on the non-COVID-related business with your consumable instruments companies. You mentioned that some of your COVID-related customers have been purchasing more even as the supply chain is loosening up. Are they starting to purchase non-COVID related products? Or is it still really just in that COVID footprint?

Yes. I'll comment. One of the colors that we added to this is, we added 50 customers in the quarter in the consumable space. And we also continue to deliver to some of those customers on other opportunities aside from COVID. So when there is supply shortfalls, you're able to delight some customers with supply and they get the first experience with you and they like it. So we do have retention efforts with those customers. What we do see is some of the COVID demand itself has come down. But Amanda, let me know if I address your question, but we're seeing our opportunities here and now and our ability to meet these demands and be a reliable supplier, but I think we've done a good job with that, and we see opportunities present themselves.

And Amanda, this is Steve. I'll put one more thing on top. The thing we are seeing is that, as we mentioned, as lines become more automated, the instruments, the automation instruments are staying at a relatively elevated level compared to where we were pre COVID. So even if some of the consumables are down, when lines are being constructed for any lab work, it seems that the instruments business continues to stay at a very healthy level.

And then just on the semiconductor side, can you just talk a little bit, put a little finer point on sort of your supply side of things? Are you able to ship to full demand at this point? Are you seeing any issues in meeting demand? Or any changes there in the dynamics on the demand side?

Right now, we're meeting all the customer demand, and we're in regular conversations because they want to know are we able to satisfy. So I won't tell you that it's - Amanda, I won't tell you that it's easy. It's been quite a ramp. But we've been way ahead of the hiring and training. We manage the supply base, I think, particularly well. If we had more free flowing parts, we could probably continue to build a little bit more. But right now, we're on a really good path satisfying customers. It hasn't been easy for sure, but we think we have the supply chain managed really well. And certainly, we have the capacity to meet the ramp that's coming, and we're trained and ready, and facilities have been rearranged. And we continue to see really strong demand, and we believe we're prepared to meet it.

We have nothing further from the phones. I'll turn it back to our presenters.

All right. We appreciate everyone's attention and support. These are high momentum days for us where the team around the world has been really responsive to our customer needs and our customers have been responding to our ability and capabilities of the business, which we can't be more proud of. But we really appreciate the investor table here and the attention and support you all provide. We look forward to delivering on the fourth fiscal quarter, which is the end of our fiscal year, September 30. And we will also keep you up to date on the outlook going forward. on a potential Investor Day as we see line of sight to the effective separation of the company, which we're very excited about launching two strong companies, the semiconductor, the automation company, and also, of course, the new life sciences company. So with that, thank you very much. I hope you have a good evening.

That does conclude our call for today. We thank everyone for participating, and you may now disconnect.