Brooks Automation Inc. ( BRKS)

Q1 2011 Earnings Call

February 4, 2011 10:00 am ET

Executives

Stephen Schwartz – President, Chief Executive Officer

Martin Headley – Chief Financial Officer

Analysts

Patrick Ho – Stifel Nicolaus

Edwin Mok – Needham & Company

Srini Vadlamani – Barclays Capital

Wenge Yang – Citigroup

Ben Pang – Caris & Company

David Duley – Steelhead

Satya Kumar – Credit Suisse

Presentation

Operator

Good morning and welcome to the Brooks Automation Earnings conference call. Please be aware that today’s conference is being recorded.

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

Martin Headley

Thank you very much, Katina, and good morning everybody. I’d like to welcome each of you to the Brooks Automation Inc. Fiscal 2011 First Quarter Financial Results call. Our press release was issued after the close of markets last night and is available on our website at www.brooks.com as are the illustrative PowerPoint slides to be used during our call today.

I’d like to remind everybody that during the course of the call, we’ll be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. There are a number of factors that could cause actual financial results or other events to differ significantly 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 our website, and to the Company’s various filings with the SEC.

I would also note that we make reference to a number of non-GAAP financial measures which are used in addition to and in conjunction with the results presented in accordance with GAAP, and should not be relied upon to the exclusion of the GAAP measures. Management believes these financial measures provide an additional way of viewing aspects of our operations that, when viewed with our GAAP results and 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 have provided an overview of the first quarter fiscal 2011 financials and a summary of our outlook for the March quarter, Steve will discuss our major accomplishments and near-term areas of focus and the way they impact our positive outlook for the future; and 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 first quarter of fiscal 2011 was $23.5 million. While GAAP earnings per diluted share were $0.36, adjusted earnings per diluted share excluding special charges were $0.37. Adjusted earnings were down slightly on a sequential basis at 23.7 million from $24.4 million. In both the first quarter of fiscal 2011 and the fourth quarter of fiscal 2010, the only items excluded from adjusted earnings are modest charges related to our past restructuring programs.

As anticipated and indicated by our guidance for the quarter, revenues declined slightly on a sequential basis with reduced demand from a large OEM following their accumulation of significant inventory of certain of our subsystems in fiscal 2010. Excluding the impact of this item, we had modest revenue growth for the quarter. Our revenue growth was driven by demand from our smaller customers, and the percent of our revenues to our largest three customers declined from 46% to 43%.

We drove margin expansion, and this resulted in an improvement in operating profits before special charges from $22.6 million in September quarter, the fourth quarter of our fiscal 2010, to 23.9 million in the December quarter, the first quarter of fiscal 2011.

The $1.5 million increase in our income tax provision was in line with our expectations, and together with reductions in foreign currency related gains within other income resulted in the $0.7 million sequential decline in net income attributable to Brooks.

As Slide 4 shows, the significant driver in sequential performance this quarter was 170 basis point improvement in gross margin, taking gross margins to 32.1%. The gross margin improvements were secured across each of our segments, and I’ll describe these more fully in a short while.

We continued with our investment in increasing engineering activities with both the hire of additional engineers and the commencement of a significant engineering outsourcing program. As a result, research and development expenses increased sequentially by $900,000. Operating margins improved by 100 basis points to 13.2%.

The OEM inventory-related revenue reduction arose in our extended factory business, and as a result we saw the extended factory proportion of revenues ease slightly to just shy of 32%. The semiconductor components of our business remained at 84%, of which 3% is MEMS. LED revenues improved whilst we encountered a reduction in industrial end market revenues.

Slide no. 5 shows how the revenues and operating profits before non-recurring income and special charges bridged from the September quarter to the December quarter. The critical solutions business provided additional operating profit of $600,000 despite a modest reduction in revenues of $600,000, driven by margin improvements and a favorable mix of products. The system solution business reported a flat profits profile on a $3.5 million revenue reduction. This is the segment where we experienced the reduction in extended factory revenues. But as we projected in our last conference call, we had an increase in royalty revenues that offset the profits impact from revenue reductions elsewhere in the segment.

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