Filing context and reporting period
The supplied filing is Brooks Automation, Inc.’s unaudited Form 10-Q for the quarter and nine months ended June 30, 2021, filed August 5, 2021. The request metadata identifies Azenta, Inc.; however, the filing text identifies the registrant as Brooks Automation, Inc. and describes the planned separation of its semiconductor and life sciences businesses.
Brooks operated through three reportable segments: Semiconductor Solutions Group, Life Sciences Products, and Life Sciences Services. The company employed approximately 4,000 people and sold in more than 80 countries.
Financial performance and condition
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Nine months ended June 30, 2021 | Nine months ended June 30, 2020 |
|---|---|---|---|---|
| Revenue | $315.3 million | $220.4 million | $851.4 million | $651.1 million |
| Gross profit | $144.4 million | $92.8 million | $384.8 million | $268.1 million |
| Gross margin | 45.8% | 42.1% | 45.2% | 41.2% |
| Operating income | $50.2 million | $19.1 million | $111.7 million | $44.3 million |
| Income from continuing operations | $39.2 million | $13.7 million | $90.1 million | $36.1 million |
| Net income | $39.2 million | $13.7 million | $88.9 million | $35.9 million |
| Diluted EPS | $0.53 | $0.19 | $1.20 | $0.49 |
| Cash flow from operations | Not separately provided | Not separately provided | $122.7 million | $(13.9) million |
- Quarterly revenue increased 43%; nine-month revenue increased 31%. Quarterly operating income increased 163%, and nine-month operating income increased 152%.
- Quarterly revenue consisted of $215.8 million of products and $99.5 million of services. Nine-month revenue consisted of $565.8 million of products and $285.6 million of services.
- Revenue growth was led by Semiconductor Solutions Group, up 47% in the quarter and 28% year to date; Life Sciences Products, up 60% and 61%; and Life Sciences Services, up 28% and 22%, respectively.
- At June 30, 2021, cash and cash equivalents were $269.9 million, restricted cash was $12.7 million, and marketable securities were $3.7 million, for total cash, restricted cash, and marketable securities of $286.3 million versus $305.7 million at September 30, 2020.
- Accounts receivable increased to $234.1 million from $188.3 million, and inventories increased to $154.7 million from $114.8 million at September 30, 2020.
- Total debt was $49.7 million, consisting primarily of a term loan with $50.0 million of principal due in fiscal 2025. No amounts were outstanding under the $75.0 million revolving credit facility; approximately $49.8 million was available.
- Operating lease liabilities totaled $52.5 million. Non-cancellable commitments totaled $288.0 million, including $254.6 million of inventory purchase orders.
- The company paid $22.3 million of dividends during the nine months and declared a further $0.10-per-share dividend payable September 24, 2021.
Material changes versus the prior comparable period
- Gross margin expanded 3.7 percentage points in the quarter and 4.0 percentage points for the nine-month period, driven primarily by volume leverage, product mix, and improved segment performance.
- Operating expenses increased to $94.2 million from $73.7 million in the quarter and to $273.1 million from $223.7 million year to date. The increase included higher selling, general and administrative costs, research and development, acquisition costs, and separation-related expenses.
- Separation-related costs were $5.8 million in the quarter and $19.6 million year to date. Management also recorded $6.1 million of tariff liabilities related to GENEWIZ intercompany imports, including $5.5 million attributed to prior fiscal years. The tariff matter reduced nine-month basic and diluted EPS by $0.07.
- Operating cash flow improved from an outflow of $13.9 million to an inflow of $122.7 million, substantially reflecting higher earnings and the absence of the $91.5 million of cash taxes paid in the prior year on the semiconductor cryogenics divestiture.
- Investing cash outflows increased to $128.8 million from $12.6 million, primarily due to $92.4 million of acquisitions and $34.6 million of capital expenditures.
- The company acquired Precise Automation for approximately $69.6 million and another life sciences business for approximately $19.3 million, including $9.4 million of contingent consideration. It also acquired Trans-Hit Biomarkers for approximately $15.1 million in December 2020.
- Goodwill increased to $551.3 million from $501.5 million, primarily from acquisitions. The annual goodwill impairment test resulted in no impairment charge.
Guidance, outlook, commentary, risks and unusual items
- Management targeted completion of the separation into two independent publicly traded companies before the end of calendar year 2021, subject to conditions including final Board approval. The semiconductor business was intended to be spun off pro rata to existing stockholders.
- The company stated that COVID-19 had not substantially negatively affected results through the reporting period. Management estimated that COVID-19-related demand increased life sciences revenue by approximately $12 million in the quarter and $39 million year to date, and increased life sciences operating income by approximately $7 million and $22 million, respectively.
- Future COVID-19 effects remained uncertain, including potential supply-chain constraints, reduced customer demand, employee outbreaks, virus variants, vaccine effectiveness, and changes in research-related demand.
- Semiconductor demand is cyclical and may fluctuate significantly. The company reported some supply-chain and shipment-timing disruption but did not believe COVID-19 had negatively affected semiconductor bookings or demand.
- The proposed separation could be delayed or not completed, could cost more than anticipated, and could produce smaller, less diversified companies that are more exposed to market volatility. The company also warned that anticipated strategic benefits may not occur.
- The planned rebranding of the life sciences company could result in impairment of, or accelerated amortization for, life sciences trademark and tradename assets with a June 30, 2021 net book value of $14.3 million.
- Edwards asserted indemnification claims related to the 2019 sale of the semiconductor cryogenics business. The company could not determine the probability or amount of any loss, but believed the claims would not materially affect its financial position or results.
- The company maintained approximately $1.3 million of letters of credit, none of which had been called, and reported no off-balance-sheet arrangements.
- Management concluded that disclosure controls and procedures were effective and that there were no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the registrant identity: the supplied text is a Brooks Automation filing, notwithstanding the Azenta metadata.
- Verify the timing, structure, financing, tax treatment, and expected benefits of the proposed semiconductor and life sciences separation.
- Assess the sustainability of revenue and margin growth after separating COVID-19-related life sciences demand and other temporary benefits.
- Monitor semiconductor-cycle exposure, supply-chain constraints, inventory growth, and the $288.0 million of non-cancellable commitments.
- Review acquisition integration, contingent consideration, goodwill and intangible-asset valuations, and the potential life sciences rebranding impairment.
- Track the GENEWIZ tariff matter and the unresolved Edwards indemnification claims, including any future cash or earnings effects.
- Evaluate liquidity after acquisitions, capital expenditures, dividends, and the remaining $50.0 million term-loan principal due in fiscal 2025.