Brooks Automation, Inc. (Azenta, Inc.) — Fiscal 2020 Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2020. The filing identifies the registrant as Brooks Automation, Inc.; the request identifies the company as Azenta, Inc. Results include continuing operations after the July 2019 divestiture of the semiconductor cryogenics business.
Business context
- Semiconductor Solutions Group provides wafer-handling robotics, automation systems, contamination-control equipment, reticle storage, and related services.
- Life Sciences Products provides automated ultra-cold storage systems, consumables, instruments, and related support.
- Life Sciences Services provides genomic sequencing and synthesis, sample storage and transport, laboratory services, and informatics.
- Fiscal 2020 revenue mix was approximately 57% semiconductor and 43% life sciences. The company had 3,159 full-time employees and sales in more than 50 countries.
- The company acquired RURO, an informatics software provider, in February 2020 for approximately $15.6 million net of cash acquired.
Key financial metrics
| Metric | Fiscal 2020 | Fiscal 2019 | Change |
|---|---|---|---|
| Revenue | $897.3 million | $780.8 million | Up 15% |
| Gross profit | $380.0 million | $316.3 million | Up $63.8 million |
| Gross margin | 42.4% | 40.5% | Up 1.9 points |
| Operating income | $78.5 million | $46.0 million | Up 70% |
| Operating margin | Approximately 8.7% | Approximately 5.9% | Improved |
| Income from continuing operations | $65.0 million | $9.6 million | Up $55.5 million |
| Net income attributable to the company | $64.9 million | $437.4 million | Prior year included divestiture gain |
| Diluted EPS | $0.88 | $6.04 | Prior year included discontinued-operation gain |
| Cash flow from operations | $37.9 million | $90.9 million | Down $53.0 million |
| Capital expenditures | $39.9 million | $23.9 million | Up $16.1 million |
Segment performance
| Segment | Fiscal 2020 revenue | Year-over-year change | Adjusted operating income |
|---|---|---|---|
| Semiconductor Solutions | $508.7 million | Up 14% | $83.0 million |
| Life Sciences Products | $129.8 million | Up 9% | $9.4 million |
| Life Sciences Services | $258.8 million | Up 20% | $28.8 million |
Life Sciences Products margin improved primarily from cost reductions, installation efficiencies, and COVID-19-related demand for consumables and instruments. Life Sciences Services benefited from GENEWIZ ownership, organic growth, informatics revenue, volume leverage, and favorable service mix.
Liquidity, cash flow, and debt
- Cash, restricted cash, and marketable securities totaled $305.7 million at September 30, 2020, compared with $342.1 million a year earlier. Cash and cash equivalents were $295.6 million.
- Approximately $241.1 million of cash and cash equivalents was held outside the United States, and management stated that these funds were intended to remain invested abroad.
- Working capital was $143.4 million, compared with $36.4 million in fiscal 2019, when approximately $95 million of taxes payable related to the divestiture reduced working capital.
- Outstanding term-loan principal was $50.4 million, excluding $0.4 million of unamortized financing costs. The principal debt matures in October 2024, with approximately $50.0 million due in fiscal 2025.
- The $75.0 million revolving credit facility had approximately $45.5 million available and no borrowings outstanding at year-end. The company was in compliance with applicable debt covenants.
- Fiscal 2020 cash uses included $39.9 million of capital expenditures, $15.7 million for acquisitions, and $29.5 million of dividends. The company expects an additional $41 million to $46 million of capital expenditures over four years for its Suzhou, China facility.
- The board approved a subsequent quarterly dividend of $0.10 per share on November 5, 2020.
Material changes versus the prior comparable period
- Revenue increased 15%, led by semiconductor revenue growth of 14% and life sciences revenue growth of 15% in aggregate.
- Gross margin expanded 1.9 percentage points, while operating income increased 70% despite higher research and development and selling, general and administrative expenses.
- Interest expense declined to $2.9 million from $22.3 million because the company used proceeds from the 2019 divestiture to repay debt. Fiscal 2019 also included a $14.3 million loss on debt extinguishment.
- Fiscal 2019 net income was unusually high because it included a $408.6 million after-tax gain from the sale of the semiconductor cryogenics business. Fiscal 2020 included a $0.2 million loss from discontinued operations.
- Operating cash flow declined because fiscal 2020 included $91.5 million of cash taxes paid on the divestiture gain and increased working-capital investment in receivables and inventory.
- Semiconductor backlog increased to approximately $175 million from $127 million. Life Sciences Products backlog increased to $92 million from $51 million, while Life Sciences Services backlog declined to $235 million from $252 million.
- The company reorganized its life sciences reporting structure into separate Products and Services reportable segments and reclassified prior-period information accordingly.
- The previously identified material weakness involving revenue billing controls was remediated through a new billing and ERP system and enhanced controls. Management and the auditor concluded that internal control over financial reporting was effective as of September 30, 2020.
Guidance, outlook, risks, and unusual items
- No formal quantitative fiscal 2021 revenue or earnings guidance is provided in the filing. Management expects continued growth in Life Sciences Products and Services and intends to pursue further market expansion and strategic acquisitions.
- Management stated that COVID-19 reduced life sciences revenue by an estimated net $11 million, primarily through customer workforce restrictions and lower genomic and transportation activity, but increased demand for gene synthesis, consumables, and instruments partly offset the impact. Semiconductor demand and bookings were not materially affected through the reporting date, although supply-chain constraints delayed some shipments.
- COVID-19 remains a material uncertainty affecting supply availability, logistics, customer demand, employee operations, liquidity, and global economic conditions.
- Semiconductor capital-equipment demand is cyclical, with quarterly sales potentially varying materially. Customer concentration is significant: the ten largest customers represented approximately 33% of fiscal 2020 revenue.
- International sales represented 62% of fiscal 2020 revenue. The company is exposed to foreign-exchange movements, tariffs, export controls, trade disputes, and geopolitical risks, particularly involving China.
- Goodwill was $501.5 million and net intangible assets were $218.3 million at year-end. No goodwill impairment was recorded, but the GENEWIZ impairment assessment depends on significant estimates of revenue growth, margins, expenses, and discount rates.
- Edwards asserted indemnification claims related to the divested semiconductor cryogenics business. The company could not determine the probability or amount of any loss, but believed applicable insurance would cover losses above contractual deductibles and escrow, subject to the buyer’s ability to recover under that insurance.
- Total contractual cash obligations were $221.2 million, plus $1.3 million of letters of credit. Non-cancelable purchase commitments totaled approximately $163.9 million.
- The company reported no material adverse legal proceedings and no off-balance-sheet arrangements, while noting that legal and indemnification outcomes remain inherently uncertain.
Important facts for investors to verify
- Confirm the company’s current legal name and reporting identity relative to the filing’s Brooks Automation designation.
- Separate continuing-operation performance from the prior-year $408.6 million divestiture gain when evaluating earnings trends.
- Assess the sustainability of the 42.4% gross margin and the improvement in Life Sciences Products profitability.
- Monitor semiconductor backlog conversion, cyclical capital-equipment demand, customer concentration, and exposure to China-related trade restrictions.
- Evaluate COVID-19 effects on supply chains, customer-site access, genomic services, and demand for virus- and vaccine-related products.
- Review goodwill and intangible-asset sensitivity, particularly the $235 million of GENEWIZ goodwill and the critical audit matter concerning its impairment assessment.
- Verify the timing and funding of the approximately $50.0 million term-loan maturity, planned Suzhou facility spending, and ongoing dividend payments.
- Follow the Edwards indemnification claims and the company’s $19.2 million of unrecognized tax benefits, of which $15.3 million was indemnified by GENEWIZ sellers.