Brooks Automation, Inc. ( BRKS)

F2Q 2011 Earnings Call

May 5, 2011 4:30 pm ET

Executives

Martin S. Headley – Executive Vice President and Chief Financial Officer

Dr. Stephen S. Schwartz – President and Chief Executive Officer

Analysts

David Duley – Steelhead Securities

Farhan Rizvi – Credit Suisse

Wenge Yang – Citigroup

Benedict Pang – Caris & Company

Ben Zhao – Talara Capital Management

Edwin Monk – Needham & Company

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 will like to turn the call over to your speaker today, Mr. Martin Headley, Chief Financial Officer. Please go ahead, sir.

Martin S. Headley

Thank you Katie and good afternoon everybody. I’d like to welcome each and every one of you to the Brooks Automation Fiscal 2011 Second Quarter Results call. Our press release was issued after the close of markets and is available on our website 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 number of factors that could cause actual financial results or other events to differ significantly from those identified in such forward-looking statements. And I would refer you to the section of our earnings release titled Safe Harbor Statement. The Safe Harbor slide is on our website and to the Company’s various filings with the SEC.

I’d also note that we will also be referencing to a number of non-GAAP financial measures, which are used in addition to, and in conjunction with results presented in accordance with U.S. GAAP, and should not be relied upon to the exclusion of those GAAP measures. Management believes those financial measures provide an additional way of viewing aspects of our operations and, when viewed with our GAAP results and the reconciliations to GAAP measures, provide a more complete understanding of our business.

With me today on our call is Brooks President and Chief Executive Officer, Steve Schwartz. After I have provided an overview of the second quarter fiscal 2011 financials and a summary of our outlook for the June quarter, Steve will discuss our strategic initiatives and provide more detail on some of our business successes during the quarter 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. Brooks continues to move forward with favorable momentum and as we reported in our press release issued after the market close, the net income attributable to Brooks for the second quarter of fiscal 2011 was $26.6 million.

Both GAAP earnings per diluted share and adjusted earnings per diluted share, excluding special charges were $0.41, significantly ahead of our expectations going into the quarter.

Adjusted earnings increased by 13.2% to $26.8 million in the second quarter from $23.7 million in the first quarter. In both the first and second quarters of fiscal 2011, the only items excluded from adjusted earnings are modest charges related to our past restructuring programs. These charges will all be depleted by the end of the fiscal year.

Revenues increased sequentially by 8% with approximately half of that increase coming from our sales of our CTI and Polycold brand products. In the case of CTI, we benefited in part from new product introductions. Other designing wins that we’ve referred to in prior calls, as well as generally favorable demand across the variety of end applications.

Our Polycold brand sales growth is in support of a number of end markets. Most notably for the production of tablet computer and smartphone touch panels, but other secondary drivers include coating production of voltage converters, particularly for global automotive and photovoltaic applications.

The concentration with our three largest customers remain roughly consistent with the prior quarter of 43% of sales. Following the top – the sale of the contract manufacturing business, we will continue to track sales of our robotic components by OEM platform customers, rather than on the basis of the integrating contract manufacturer. Following that methodology, on completion of the sale of our contract manufacturing business, we would expect those top three OEMs to represent about 27% of our total sales.

Sales to semi-markets were 79% in the quarter with incremental growth in our sales to MEMS, LED and the full mantle touch panel and roll coating applications. We leveraged this revenue growth to generate the $3 million sequential increase in operating profits, which dropped to net income.

Operating profits of $27 million was $16.6 million higher than in the second quarter of fiscal 2010. I would remind listeners that the net income attributable to Brooks in the second quarter of fiscal 2010, including two significant non-recurring items. The $7.5 million gain net of tax on the sale of intangible property related to our former AMHS business and a $3.9 million one-time income tax benefit arising from favorable tax law changes.

Slide four, shows the significant driver in sequential performance this quarter with the growth in the top line for $40.3 million. With a $4.4 million build in gross profits, our gross margin rates were roughly flat, while we continued with our planned build in research and development spend and had an anticipated increase in G&A spend in the quarter with a non-cash expense of annual Directors stock ground. Operating margins once again improved sequentially this quarter by 80 basis points to 14%.

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