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
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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. Read the rest of this transcript for free on seekingalpha.com