Brooks Automation, Inc. ( BRKS)

F4Q2010 Earnings Call Transcript

November 9, 2010 4:30 pm ET

Executives

Martin Headley – CFO and EVP

Steve Schwartz – President and CEO

Analysts

Edwin Mok – Needham & Company

Srini Sundararajan – Barclays Capital

Darice Liu – Brigantine Advisors

Wenge Yang – Citigroup

Hari Chandra – Deutsche Bank

Satya Kumar – Credit Suisse

David Duley – Steelhead Securities

Ben Pang – Caris & Company

Presentation

Operator

Good afternoon, and welcome to the Brooks Automation fourth quarter financial results conference call. Please be aware that today's conference is being recorded.

At this time, I'd like to turn the call over to your speaker for today, Mr. Martin Headley, Chief Financial Officer. Please go ahead, sir.

Martin Headley

Thank you very much, Jonathan, and good day everybody. I'd like to welcome each of you to the Brooks Automation fiscal 2010 fourth quarter results call. Our financial press release was issued at about 4:00 pm Eastern Time this afternoon, and is available on our website at www.brooks.com, as are the illustrative PowerPoint slides to be used during our call today.

I would like to remind everybody that during the course of the call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. There are a number of factors that cause actual financial results or other events to differ significantly from those identified in such forward-looking statements, and I refer you to the section of our earnings release titled Safe Harbor Statement, the Safe Harbor slide on our website and to the company's various filings with the SEC. I would also note that we also make reference to a number of non-GAAP financial measures, which are used in addition to and in conjunction with results presented in accordance with GAAP, and should not be relied upon to the exclusion of GAAP measures.

Management believes those financial measures provide an additional way of viewing aspects of our operations, but when viewed with our GAAP results and the reconciliations to GAAP measures provide a more complete understanding of our business.

Joining me on our call today is our President and Chief Executive Officer, Steve Schwartz. After I provide an overview of the fourth quarter and 2010 financials and a summary of our outlook for the December quarter and beyond, Steve will discuss our strategic thrust and how that impacts our positive outlook for the future. We will then take your questions.

During my prepared comments, slide references relate to the PowerPoint presentation posted on our website to accompany these remarks. As we reported in our press release, issued after the market closed, the net income attributable to Brooks for the fourth quarter of fiscal 2010 was $24.2 million, both GAAP and non-GAAP adjusted earnings per diluted share were $0.38. Adjusted earnings improved 44% sequentially from $16.9 million or $0.26 per share.

In both the third and fourth quarters of fiscal 2010 the only items excluded from adjusted earnings are modest restructuring charges related to our past actions. Our revenues were stronger than expected as production de-bottlenecking activities in our components business gave momentum later in the quarter. Earnings were stronger than our guidance as a result of the leverage of those increased revenues, and we also benefited from favorable currency settlements, strong performance from our joint ventures in the quarter, and a tax benefit arising from certain tax regulation changes in the US. This likely change will also benefit our go forward tax rate.

Slide 4 shows the significant (inaudible) in sequential performance this quarter with very strong with $24.8 million or 15.8% increase in revenues. This was translated into $9.3 million increase in gross profits, and a resulting 30.4% gross margin rate for the quarter. The drop through to the operating profit line was moderated to $5.8 million as a result of increased operating expenses.

The operating margin performance at 12.4% further improved on the previous record quarterly operating margin rate performance we set in the third quarter. Our components in Brooks design system revenues were the strongest areas of growth during the quarter, and as a result we saw the extended factory proportion of revenues ease slightly to 33%. The strength in semiconductor demand and fulfillment during the quarter resulted in an increase in the core semiconductor content of the revenue mix increasing from 81% to 84%. This mix change was largely at the expense of data storage and LED revenues.

We saw a typical model gross margin drop through of $9.3 million on $24.8 million of revenues, bringing our gross margin rates to 30.4% in the quarter. Research and development spending increased modestly again to $8 million, as we continue to build the competencies in breadth to support our goals for ongoing innovation. Higher selling, general and administrative expenses included both an increase in the amounts we invested to develop long-term growth strategies, and higher performance based incentive compensation accruals, reflecting the strength with which we closed out the fiscal year.

Slide number 5 sets out how the revenues and operating profits, before non-recurring income and special charges, bridge from the June quarter, our third quarter of fiscal 2010 to the September quarter. The Critical Solutions business provided additional operating profit of $4.8 million on $10.9 million of increased revenues, a 44% drop through of profits from the higher revenues.

The Systems Solutions business provided $3.8 million of incremental profits on $12.6 million of incremental revenues. The 30% drop through was impacted approximately 400 basis points by lower license revenues reflected in the quarter. We anticipate those revenues to recover in the December quarter.

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