Business Context and Reporting Period
This Form 10-Q is for Brooks Automation, Inc. (the filing entity associated with the requested 2013 Q3 period), covering the three and nine months ended June 30, 2013. Brooks provided automation, vacuum, instrumentation, services, and life-science sample-management solutions. Approximately 53% of revenue for the first nine months came from semiconductor capital equipment markets, which were experiencing a cyclical downturn.
The company reported three segments: Brooks Product Solutions, Brooks Global Services, and Brooks Life Science Systems. The financial statements are unaudited and prepared under U.S. GAAP.
Key Financial Metrics
| Metric | Three months ended June 30, 2013 | Three months ended June 30, 2012 | Nine months ended June 30, 2013 | Nine months ended June 30, 2012 |
|---|---|---|---|---|
| Revenue | $118.1 million | $140.4 million | $332.7 million | $400.0 million |
| Gross profit | $39.7 million | $46.2 million | $105.5 million | $134.9 million |
| Gross margin | 33.6% | 32.9% | 31.7% | 33.7% |
| Operating income (loss) | $4.4 million | $8.3 million | $(9.6) million | $18.2 million |
| Net income (loss) attributable to Brooks | $1.5 million | $8.0 million | $(8.2) million | $20.6 million |
| Diluted earnings (loss) per share | $0.02 | $0.12 | $(0.13) | $0.31 |
| Cash flow from operations | Not separately provided for the quarter | Not separately provided for the quarter | $29.6 million | $32.6 million |
| EBITDA | $10.8 million | $14.3 million | $9.1 million | $36.5 million |
| Adjusted EBITDA | $12.0 million | $17.2 million | $24.5 million | $48.7 million |
At June 30, 2013, cash and cash equivalents were $61.9 million, marketable securities were $88.8 million, and total cash, cash equivalents, and marketable securities were $150.7 million. Current assets were $311.4 million versus current liabilities of $84.1 million. The filing does not identify material borrowings or debt balances. Letters of credit outstanding totaled approximately $5.0 million.
Total assets were $720.4 million, including $114.9 million of goodwill and $61.8 million of net intangible assets. Total liabilities were $96.6 million and total equity was $623.8 million.
Material Changes Versus the Prior Comparable Period
- Third-quarter revenue declined 16%; year-to-date revenue declined 17%, primarily because of weaker semiconductor equipment demand.
- Product Solutions revenue declined 20% in the quarter and 21% year to date. Crossing Automation contributed $12.1 million of quarterly revenue and $32.8 million year to date.
- Global Services revenue increased 6% in the quarter and 2% year to date, although revenue excluding Crossing declined.
- Life Science Systems revenue declined 21% in the quarter and 17% year to date because customers delayed automated sample-management purchases.
- Quarterly gross margin improved to 33.6% from 32.9%, reflecting product mix and service cost reductions. Year-to-date gross margin fell to 31.7% from 33.7%, primarily due to acquisition-related inventory step-up charges, higher amortization, and lower fixed-cost absorption.
- Year-to-date operating results moved from $18.2 million of operating income to a $9.6 million operating loss. Restructuring charges increased to $6.1 million from $1.1 million, while prior-year results included $3.0 million of in-process research and development expense.
- Operating cash flow decreased to $29.6 million from $32.6 million despite a $17.3 million inventory reduction and a $6.4 million increase in deferred revenue.
- Cash declined from marketable-security sales and operating cash generation being used for the $59.0 million Crossing acquisition and $16.0 million of dividends; ending cash nevertheless increased $7.3 million from September 30, 2012.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expected semiconductor capital-equipment demand to continue recovering into the fourth quarter of fiscal 2013 and fiscal 2014.
- Management expected the Life Science Systems business to recover by the end of fiscal 2013, but noted that delayed recovery or unsuccessful new products could require impairment of its $40.3 million of goodwill and approximately $40.1 million of other long-lived assets.
- The company substantially completed its restructuring plan by June 30, 2013. The plan included workforce reductions, Crossing integration, Polycold manufacturing outsourcing, and facility consolidation. Remaining accrued restructuring costs were $1.8 million and were expected to be paid within twelve months; an additional $0.4 million of Polycold-related costs was expected in the fourth quarter.
- The Crossing acquisition was completed October 29, 2012 for $59.0 million net of cash acquired. Year-to-date results included $2.7 million of acquired-inventory step-up expense and $2.7 million of amortization expense.
- On August 1, 2013, the company acquired Matrical for approximately $10.5 million. On July 31, 2013, it agreed to sell part of its Chelmsford campus for $11.4 million, subject to customary closing conditions.
- The board declared a quarterly dividend of $0.08 per share, approximately $5.3 million, payable September 27, 2013. Future dividends remain discretionary and may be reduced, delayed, or canceled during a downturn.
- The company filed an S-3 registration statement permitting potential offerings of up to $200 million of securities; no specific offering was reported in this filing.
- Legal proceedings arose in the ordinary course. Management did not expect them to have a material adverse effect, while acknowledging that outcomes are inherently uncertain.
- Foreign sales represented 25% of first-nine-month revenue. Management estimated that a hypothetical 10% foreign-exchange-rate change would affect net income by approximately $0.8 million.
- Income taxes were unusually volatile: the third-quarter tax provision was $3.7 million, or a 73.5% effective rate, while the nine-month period recorded a $0.1 million tax benefit. The company maintained valuation allowances against certain U.S. tax attributes.
Most Important Facts to Verify
- Whether semiconductor equipment demand actually recovered as projected in the fourth quarter and fiscal 2014.
- Whether Life Science Systems revenue and profitability recovered sufficiently to avoid goodwill or long-lived-asset impairment.
- The final costs and realized savings from restructuring, Polycold outsourcing, and Crossing integration.
- The financial contribution, purchase accounting, and integration performance of the Matrical acquisition.
- Cash deployment, dividend sustainability, and whether the $200 million securities registration is used.
- Exposure to customer concentration, semiconductor cyclicality, foreign exchange, tax audits, and potential legal contingencies.