Business Context and Reporting Period
This filing is a Form 10-Q for Brooks Automation, Inc., not Azenta, Inc. (which was the company’s later name), covering the fiscal second quarter and six months ended March 31, 2020. The company operated through Brooks Semiconductor Solutions Group and Brooks Life Sciences, serving semiconductor manufacturing and life-science sample-management markets. The filing states that approximately 3,000 employees operated across North America, Asia, and Europe.
The semiconductor cryogenics business was sold on July 1, 2019 and is presented as discontinued operations. Accordingly, continuing-operations comparisons exclude that business.
Key Financial Metrics
| Metric | Three months ended March 31, 2020 | Prior comparable period | Six months ended March 31, 2020 | Prior comparable period |
|---|---|---|---|---|
| Total revenue | $220.2 million | $198.4 million | $430.7 million | $377.8 million |
| Gross profit | $90.3 million | $80.5 million | $175.3 million | $152.6 million |
| Gross margin | 41.0% | 40.6% | 40.7% | 40.4% |
| Operating income | $14.6 million | $13.7 million | $25.2 million | $19.0 million |
| Income from continuing operations | $9.2 million | $(2.8) million | $22.4 million | $3.4 million |
| Net income | $9.1 million | $3.4 million | $22.2 million | $17.8 million |
| Diluted earnings per share | $0.12 | $0.05 | $0.30 | $0.25 |
| Cash flow from operating activities | Not separately provided | Not separately provided | $(40.1) million | $22.2 million |
- Revenue increased 11% in the quarter and 14% year to date. Products generated $139.1 million of quarterly revenue and services generated $81.1 million.
- Semiconductor Solutions revenue was $124.9 million for the quarter, up 11%, while Life Sciences revenue was $95.3 million, up 11%. Six-month revenue increased 8% and 23%, respectively.
- Adjusted segment operating income was $24.8 million for the quarter and $45.8 million year to date, excluding specified amortization, acquisition accounting, and restructuring items. This non-GAAP measure is defined by management; the filing does not provide a consolidated adjusted operating-income reconciliation to a single adjusted earnings figure.
- Cash and cash equivalents were $242.3 million at March 31, 2020. Including restricted cash and marketable securities, liquidity was $248.5 million, compared with $342.1 million at September 30, 2019.
- Total debt principal was approximately $51.2 million, consisting primarily of a $50.0 million term loan balance, with $50.8 million recorded net of deferred financing costs. No revolving-credit borrowings were outstanding, and approximately $44.7 million was available under the $75.0 million facility.
- Total assets were $1.479 billion and stockholders’ equity was $1.161 billion at March 31, 2020. Goodwill was $498.5 million and intangible assets were $236.1 million.
- Capital expenditures were $21.2 million, acquisition spending was $15.7 million, and dividends paid were $14.7 million during the six months ended March 31, 2020.
Material Changes Versus the Prior Comparable Period
- Quarterly operating income increased 7%, while six-month operating income increased 33%. Gross-margin expansion was modest overall, driven primarily by Life Sciences, partly offset by lower Semiconductor Solutions margins.
- Interest expense fell to $0.7 million in the quarter and $1.5 million year to date from $8.0 million and $13.3 million, respectively, because the company extinguished $495.3 million of debt in July 2019.
- The prior-year periods included a $9.1 million loss on debt extinguishment; no comparable charge occurred in 2020.
- Life Sciences growth benefited from GENEWIZ, acquired in November 2018, and RURO, acquired on February 11, 2020 for $15.6 million net of cash acquired. RURO contributed $0.4 million of revenue and a $0.2 million net loss after acquisition through March 31, 2020.
- Operating expenses increased to $75.7 million for the quarter and $150.0 million year to date, reflecting higher research and development and selling, general and administrative spending. Restructuring charges were $0.6 million for the quarter and $1.2 million year to date.
- Operating cash flow declined year over year largely because the company paid $91.5 million of taxes related to the prior-year semiconductor cryogenics disposition. Excluding that tax payment, management characterized operating activities as using approximately $3.5 million of cash.
- The company adopted the lease standard on October 1, 2019, recognizing a $28.1 million operating-lease right-of-use asset and a $27.1 million lease liability at adoption.
Guidance, Outlook, Risks and Unusual Items
- No formal revenue or earnings guidance is provided in the filing. Management stated that it believed existing resources were adequate for working capital, debt service, capital expenditures, and financing needs for the next twelve months.
- Management estimated that COVID-19 reduced revenue by approximately $8 million for both the quarter and six-month period, including approximately $5 million of Semiconductor Solutions impact and $3 million of Life Sciences impact. The company remained operational because both segments were classified as essential critical infrastructure.
- Management reported increased demand for genomic services and sample-management consumables and storage services related to virus research, partly offsetting customer slowdowns and supply-chain constraints.
- The company identified significant uncertainty from COVID-19, including customer-demand reductions, supplier and logistics disruptions, force majeure claims, delayed shipments, reduced customer liquidity, and potential pressure on cash flows and dividends.
- Non-cancellable commitments totaled $127.3 million, including $89.0 million of inventory purchase orders, $21.7 million of information-technology commitments, and $16.6 million related to the China facility. Letters of credit outstanding totaled approximately $1.2 million.
- The company had one customer representing 16% of quarterly revenue and 15% of six-month revenue, creating increased customer-concentration risk.
- Disclosure controls were ineffective as of March 31, 2020 because of a remaining material weakness involving the accuracy of revenue recorded by a Life Sciences business unit. A separate material weakness related to revenue occurrence and cutoff for contract-manufacturer shipments was deemed remediated during the quarter.
- Foreign-currency losses were $2.0 million for the quarter and $2.7 million year to date. A hypothetical 10% foreign-exchange movement was estimated to affect six-month net income by approximately $3.8 million.
- The board declared a $0.10-per-share dividend on April 29, 2020, payable June 26, 2020. Management noted that future dividends could be reduced, delayed, or canceled if market or COVID-19 conditions deteriorate.
Most Important Facts to Verify
- Verify the issuer identity: the supplied filing is for Brooks Automation, Inc., whereas the request identifies Azenta, Inc.
- Assess whether the cash decline and negative operating cash flow are primarily one-time effects from the $91.5 million disposition-related tax payment or indicate ongoing working-capital pressure.
- Monitor the remaining Life Sciences revenue-control material weakness and the effectiveness of the new billing and ERP controls.
- Evaluate the sustainability of Semiconductor Solutions margins, which declined despite revenue growth, and the extent of continuing COVID-19 supply-chain and demand effects.
- Review the $127.3 million of non-cancellable commitments, China facility spending, acquisition integration, and the concentration of revenue with one major customer.
- Confirm the treatment and final tax or working-capital adjustments associated with the 2019 semiconductor cryogenics divestiture.