Business Context and Reporting Period
This filing is Brooks Automation, Inc.’s unaudited Form 10-Q for the quarter and nine months ended June 30, 2020. The request metadata identifies Azenta, Inc.; however, the filing itself is for Brooks Automation, the company later associated with the Azenta name. Brooks operated two reportable segments: Semiconductor Solutions and Life Sciences, with approximately 3,000 employees and sales in more than 50 countries.
The semiconductor cryogenics business was sold to Edwards Vacuum on July 1, 2019 and is presented as discontinued operations. Continuing operations therefore exclude that business.
Financial Performance and Position
| Metric | Three Months Ended June 30, 2020 | Year-over-Year Change | Nine Months Ended June 30, 2020 | Year-over-Year Change |
|---|---|---|---|---|
| Revenue | $220.4 million | Up 8% | $651.1 million | Up 12% |
| Gross profit | $92.8 million | Up $9.3 million | $268.1 million | Up $31.9 million |
| Gross margin | 42.1% | Up from 41.0% | 41.2% | Up from 40.6% |
| Operating income | $19.1 million | Up 16% | $44.3 million | Up 25% |
| Income from continuing operations | $13.7 million | Up from $0.9 million | $36.1 million | Up from $4.4 million |
| Net income | $13.7 million | Up from $7.3 million | $35.9 million | Up from $25.1 million |
| Diluted EPS | $0.19 | Up from $0.10 | $0.49 | Up from $0.35 |
- Segment revenue was $127.1 million for Semiconductor Solutions, up 9% year over year, and $93.3 million for Life Sciences, up 6%. Nine-month revenue increased 9% and 17%, respectively.
- Adjusted segment operating income was $30.0 million for the quarter and $75.8 million for the nine-month period. Adjusted results exclude specified amortization, acquisition accounting, restructuring, and other items.
- Cash, cash equivalents, restricted cash, and marketable securities totaled $263.3 million at June 30, 2020, compared with $342.1 million at September 30, 2019. Cash and cash equivalents alone were $256.6 million.
- Operating cash flow was negative $13.9 million for the nine months, compared with positive $58.2 million in the prior-year period. The current period included $91.5 million of cash taxes paid on the semiconductor cryogenics divestiture.
- Capital expenditures were $29.7 million, acquisitions used $15.7 million, and dividends paid were $22.1 million during the nine months.
- Total debt principal was approximately $50.8 million, with $49.6 million classified as long-term debt. The company had no borrowings under its $75.0 million revolving credit facility and approximately $39.6 million of borrowing availability.
- Total assets were $1.504 billion and stockholders’ equity was $1.175 billion at June 30, 2020.
Material Changes Versus the Prior Comparable Period
- Revenue and profitability improved despite COVID-19-related disruptions. Gross margin expanded 110 basis points in the quarter and 60 basis points for the nine-month period.
- Operating expenses increased $6.6 million in the quarter and $23.0 million for the nine-month period, primarily from higher selling, general, and administrative expenses and increased investment in the business.
- Interest expense declined sharply to $0.8 million for the quarter and $2.3 million for the nine-month period, compared with $8.0 million and $21.3 million, respectively, due to the repayment of $495.3 million of debt in July 2019.
- The prior-year nine-month results included a $9.1 million loss on extinguishment of debt; there was no comparable charge in 2020.
- Life Sciences benefited from additional GENEWIZ ownership periods, organic growth, COVID-19-related demand for consumables and instruments, and the February 2020 acquisition of RURO for $15.6 million net of cash acquired.
- Inventories increased to $117.7 million from $99.4 million at September 30, 2019, while accounts receivable increased to $183.2 million from $165.6 million.
- The company adopted lease accounting guidance 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, Contingencies, and Unusual Items
- Management stated that COVID-19 had not substantially affected financial results through June 30, 2020, but estimated net revenue reductions of approximately $11 million for the quarter and $14 million for the nine months. Life Sciences operating income was estimated to have been reduced by approximately $6 million and $8 million, respectively.
- COVID-19 supported incremental demand for virus-related research, including gene synthesis services and consumables, but also caused customer workforce reductions, delayed installations, academic research delays, and supply-chain constraints.
- Management believed liquidity was adequate for working capital, debt service, capital expenditures, and financing needs for the next twelve months, while noting uncertainty from semiconductor cyclicality and the pandemic.
- The company had $151.3 million of non-cancellable commitments, including $111.3 million for inventory, $24.1 million for information technology, and $16.0 million for a China facility. It also had $1.2 million of outstanding letters of credit.
- Edwards asserted indemnification claims relating to the divested semiconductor cryogenics business. The company could not determine the probability or amount of potential losses but did not expect a material adverse effect; recovery may be available under representation and warranty insurance.
- Internal control over financial reporting remained subject to a material weakness related to revenue accuracy within a Life Sciences business unit. A separate weakness involving revenue cutoff for contract-manufacturer shipments was considered remediated as of March 31, 2020.
- The company had one customer representing 11% of nine-month consolidated revenue. No customer represented at least 10% of quarterly revenue.
- The board declared a $0.10 per-share dividend on July 29, 2020, payable September 25, 2020. Management stated that future dividends could be reduced, delayed, or canceled depending on market conditions, cash flow, and COVID-19 effects.
Most Important Facts for Investors to Verify
- Confirm the company-name transition from Brooks Automation to Azenta and ensure comparisons use continuing operations rather than pre-divestiture consolidated results.
- Assess the sustainability of revenue growth and margins after separating COVID-19-related demand from underlying semiconductor and Life Sciences trends.
- Reconcile negative operating cash flow with reported earnings, particularly the $91.5 million divestiture-related tax payment and increasing working-capital balances.
- Review the remaining internal-control material weakness and whether remediation was completed and tested in subsequent filings.
- Monitor Edwards’ indemnification claims and any potential cash exposure despite management’s expectation that insurance coverage will apply.
- Evaluate exposure to semiconductor cyclicality, supply-chain disruptions, foreign currency movements, variable-rate debt, customer concentration, and the $151.3 million of contractual commitments.