Azenta, Inc. (then Brooks Automation, Inc.) — Fiscal 2012 Q3 Form 10-Q
Reporting period: Three and nine months ended June 30, 2012; filed August 9, 2012. The filing identifies the registrant as Brooks Automation, Inc., the predecessor name of Azenta, Inc. Financial statements are unaudited and presented under U.S. GAAP.
Business Context
The company provided automation, vacuum, instrumentation, global services and life-science systems, serving semiconductor capital equipment, life sciences and adjacent industrial markets. Semiconductor-related revenue represented approximately 56% of revenue for the first nine months of fiscal 2012, down from 65% in fiscal 2011. The company reported four segments: Product Solutions, Global Services, Life Science Systems and Contract Manufacturing.
- Contract Manufacturing was sold on June 28, 2011 and therefore contributed no comparable fiscal 2012 revenue.
- The Celigo cell-cytometer product line was acquired for approximately $9.2 million, including deferred consideration, and was integrated into Life Science Systems.
- The company acquired primarily intellectual property from Intevac for $3.0 million and expensed essentially all of it as in-process research and development.
Key Financial Metrics
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Revenue | $140.4 million, down 25% | $400.0 million, down 28% |
| Gross profit | $46.2 million | $134.9 million |
| Gross margin | 32.9%, versus 30.6% | 33.7%, versus 31.6% |
| Operating income | $8.3 million | $18.2 million |
| Net income attributable to Brooks | $8.0 million | $20.6 million |
| Diluted earnings per share | $0.12 | $0.31 |
| EBITDA | $14.3 million | $36.5 million |
| Adjusted EBITDA | $17.2 million | $48.7 million |
| Cash flow from operations | Not separately provided for the quarter | $32.6 million |
Balance Sheet, Liquidity and Capital Allocation
- Cash and cash equivalents were $61.6 million at June 30, 2012, compared with $58.8 million at September 30, 2011.
- Marketable securities totaled $142.1 million, consisting of $87.6 million current and $54.5 million long term. Cash, cash equivalents and marketable securities totaled approximately $203.7 million.
- Total assets were $645.3 million and total liabilities were $119.8 million. The filing does not present material interest-bearing debt; interest expense was only $5,000 for the quarter and $12,000 for the nine months.
- Operating cash flow was $32.6 million. Investing cash flow was negative $14.4 million, primarily reflecting the Celigo acquisition, capital expenditures and a $3.0 million strategic investment. Financing cash flow was negative $14.9 million, primarily from $15.7 million of dividends.
- Capital expenditures were $6.4 million for the nine months, including facility, research and development, manufacturing and information-technology investments.
- The company had approximately $3.3 million of letters of credit outstanding and stated that it expected adequate resources to fund planned working capital and capital expenditures for the next twelve months.
Material Changes Versus the Prior Comparable Period
- Revenue declined $45.7 million in the quarter and $157.2 million year to date. The divestiture reduced comparable revenue by $42.3 million and $137.3 million, respectively; weaker demand reduced revenue by approximately $11.4 million and $56.3 million. RTS and Nexus acquisitions partially offset the decline by $9.0 million and $36.5 million.
- Product Solutions revenue declined 10% in the quarter and 16% year to date, primarily because of lower semiconductor equipment shipments. Global Services revenue declined 5% in the quarter and was essentially flat year to date. Life Science Systems revenue increased substantially following the RTS and Nexus acquisitions.
- Overall gross margin improved because of a more favorable mix, including higher-margin life-science activities, and the removal of lower-margin Contract Manufacturing. However, Product Solutions and Global Services segment margins declined because of lower volumes, unfavorable mix, excess and obsolete inventory charges, and service-infrastructure investments.
- Operating income fell from $22.2 million to $8.3 million in the quarter and from $72.6 million to $18.2 million year to date. The prior-year periods benefited from the $45.0 million pretax gain on the Contract Manufacturing sale.
- Net income declined from $66.9 million to $8.0 million in the quarter and from $117.7 million to $20.6 million year to date. The prior-year results included the contract-manufacturing gain and related effects.
- Research and development expense increased to $11.7 million for the quarter and $36.2 million year to date. Stock-based compensation increased to $6.9 million year to date from $5.2 million.
Guidance, Outlook, Risks and Unusual Items
- Management stated that semiconductor capital-equipment demand had recently declined and expected lower near-term revenue compared with the first nine months of fiscal 2012.
- Revenue concentration remained significant: two customers represented 14% and 11% of quarterly revenue, while one customer represented 14% of year-to-date revenue.
- The company recorded $0.9 million of restructuring charges in the quarter and $1.1 million year to date for workforce reductions affecting 46 employees. The remaining restructuring accrual was expected to be paid over six months.
- The company intended to settle its frozen Helix pension obligation during fiscal 2012, requiring approximately $6 million of cash payments and potentially accelerating approximately $8 million of prior pension-loss amortization.
- A $3.0 million loan to a life-science strategic partner bears interest at 9% and is payable in May 2015. The company received warrants and had first-priority security interests; its exposure was stated to be limited to outstanding principal and interest.
- The company maintained a full valuation allowance against deferred tax assets. A reduction could produce a significant non-cash tax benefit if profitability continues; approximately $2.5 million of unrecognized tax benefits could be reduced within twelve months as statutes of limitation expire.
- Prior-period financial information was revised for errors in accounting for the ULVAC Cryogenics joint venture. Management concluded the errors were not material to previously reported periods, and no amended filings were required.
- The Board declared a subsequent quarterly dividend of $0.08 per share, or approximately $5.2 million, payable September 28, 2012.
- The company reported ordinary-course legal proceedings without expected material adverse effects. It also received approximately $3.3 million of net insurance proceeds related to historical litigation costs during the second quarter.
Investor Verification Items
- Verify the effect of the Contract Manufacturing divestiture and semiconductor-cycle weakness on normalized revenue and earnings comparisons.
- Assess whether the gross-margin improvement is sustainable after excluding divestiture and acquisition mix effects.
- Review life-science acquisition integration, Celigo performance and the strategic-partner loan for execution and credit risk.
- Monitor the planned Helix pension settlement, accelerated amortization and related cash requirements.
- Evaluate customer concentration, inventory and accounts-receivable trends, and the company’s ability to maintain dividends during a semiconductor downturn.
- Reconcile revised ULVAC joint-venture results with prior filings and future comparative periods.