Business Context and Reporting Period
This filing is a Form 10-Q for Brooks Automation, Inc. (the company later associated with Azenta, Inc.), covering the fiscal quarter and nine months ended June 30, 2016. The filing identifies the registrant as Brooks Automation, Inc.; the requested metadata names Azenta, Inc. Investors should verify the corporate-name and issuer mapping.
The company provided semiconductor automation, cryogenic and contamination-control solutions, as well as life-science sample-management systems and services. During the quarter, it operated through two reportable segments: Brooks Semiconductor Solutions Group and Brooks Life Science Systems.
Financial Performance and Position
| Metric | Three months ended June 30, 2016 | Three months ended June 30, 2015 | Nine months ended June 30, 2016 | Nine months ended June 30, 2015 |
|---|---|---|---|---|
| Revenue | $147.5 million | $144.9 million | $402.8 million | $406.9 million |
| Gross profit | $54.2 million | $51.2 million | $141.5 million | $136.3 million |
| Gross margin | 36.7% | 35.3% | 35.1% | 33.5% |
| Operating income (loss) | $8.5 million | $10.2 million | $(6.2) million | $6.7 million |
| Net income (loss) | $8.6 million | $7.7 million | $(80.0) million | $7.7 million |
| Diluted earnings (loss) per share | $0.12 | $0.11 | $(1.17) | $0.11 |
Quarterly revenue increased 2%, while nine-month revenue declined 1%. Product revenue decreased to $111.6 million for the quarter from $120.8 million, while services revenue increased to $35.9 million from $24.1 million. Quarterly gross margin improved 140 basis points; nine-month gross margin improved 160 basis points.
- Semiconductor Solutions: quarterly revenue was $118.4 million, down from $128.1 million; nine-month revenue was $326.3 million, down from $355.9 million. Segment operating income was $13.1 million for the quarter and $22.7 million for the nine-month period.
- Life Science Systems: quarterly revenue was $29.1 million, up from $16.8 million; nine-month revenue was $76.4 million, up from $51.0 million. Segment operating loss improved to $0.7 million for the quarter and $7.6 million for the nine-month period.
- Cash flow: operating cash flow was $16.1 million for the nine months, compared with $21.5 million in the prior-year period. Capital expenditures were $9.4 million, dividends paid were $20.6 million, and net cash used in investing activities was $10.4 million.
- Liquidity: cash and cash equivalents were $66.1 million and marketable securities were $6.1 million at June 30, 2016, versus combined cash and marketable securities of $214.0 million at September 30, 2015.
- Debt and credit: no borrowings were outstanding under the new $75.0 million senior secured revolving credit facility. Management reported approximately $49.0 million of borrowing availability and compliance with covenants.
- Balance sheet: total assets were $682.3 million and total liabilities were $139.3 million at June 30, 2016. Goodwill increased to $202.4 million and intangible assets increased to $85.6 million, principally due to the BioStorage acquisition.
Material Changes Versus the Prior Comparable Period
- BioStorage Technologies was acquired on November 30, 2015 for $125.5 million, net of cash acquired. It contributed $12.4 million of quarterly revenue and $30.3 million of nine-month revenue.
- Life Science Systems revenue and margins increased substantially following the BioStorage acquisition, restructuring actions and improved product and service mix.
- Semiconductor revenue declined, particularly in robotic automation and cryogenic pump products, reflecting cyclical market conditions and lower demand.
- The company recorded a $79.3 million tax provision in the second quarter to establish a full valuation allowance against U.S. net deferred tax assets. This drove the nine-month net loss and reduced U.S. deferred tax assets from $87.1 million at September 30, 2015 to $5.1 million at June 30, 2016.
- Restructuring charges increased to $9.8 million for the nine months from $3.7 million. The company expected the principal company-wide restructuring program to generate approximately $13.5 million of annual pretax cost savings, with approximately $2.7 million realized during the quarter.
- The company realigned its reporting structure from three segments to two and reclassified prior-period segment information accordingly.
- A classification error in product versus service cost of revenue was corrected in prior-period presentations. The company stated that the error did not affect total cost of revenue, gross profit, operating income, net income, earnings per share, balance sheets or cash flows.
Guidance, Outlook, Risks, Contingencies and Unusual Items
- Management stated that semiconductor demand is cyclical and may fluctuate materially from quarter to quarter. It expected continued growth in Life Science Systems through internally developed products, services and acquired businesses.
- Management believed available cash, marketable securities, operating cash flow and the revolving facility were sufficient to fund planned requirements for at least the next twelve months, while noting uncertainty in longer-term liquidity needs.
- Royalty income was $2.6 million for the quarter and $7.5 million for the nine months, down from the prior-year periods. Management expected royalty income to decline as certain patents expired.
- Polycold goodwill remained sensitive to forecasts and valuation assumptions. Its fair value exceeded carrying value by 12% at the latest assessment; a hypothetical 126-basis-point increase in the discount rate would have caused the reporting unit to fail the first impairment-test step.
- Foreign-currency exposure remained material: 34% of nine-month sales were denominated in currencies other than the U.S. dollar, and management estimated that a hypothetical 10% exchange-rate movement would change net loss by approximately $0.7 million.
- The company identified Brexit-related currency, economic, customer-spending, legal and regulatory risks, although its reported third-quarter impact was immaterial.
- Letters of credit totaled approximately $1.5 million, primarily supporting customer advances and performance obligations. None had been called.
- The company had ordinary-course legal proceedings but stated that none was expected to have a material adverse effect, while acknowledging that outcomes remain inherently uncertain.
- A $0.10-per-share dividend was declared on July 27, 2016, payable September 23, 2016. Future dividends remained discretionary and could be reduced, delayed or canceled during a severe cyclical downturn.
- The company filed a Form S-3 registration statement on July 27, 2016 permitting potential future offerings of equity, debt and other securities; the filing does not state that an offering had occurred.
Most Important Facts for Investors to Verify
- Verify the issuer identity and corporate-name transition between Brooks Automation, Inc. and Azenta, Inc.
- Assess the sustainability of improved gross margins and the expected $13.5 million of annual restructuring savings.
- Separate the $79.3 million deferred-tax valuation allowance from recurring operating performance and evaluate the likelihood of future reversals.
- Monitor semiconductor demand, Polycold goodwill headroom and the effect of foreign-exchange movements.
- Evaluate BioStorage integration, profitability and the preliminary purchase-price allocation, including goodwill and acquired intangible assets.
- Confirm borrowing-base availability under the $75.0 million secured revolver, covenant requirements and the effect of pledged U.S. assets.
- Review the expected decline in royalty income, pending restructuring obligations, tax audits and ordinary-course legal contingencies.