Business Context and Reporting Period
This filing is Brooks Automation, Inc.’s unaudited Form 10-Q for the quarter ended December 31, 2019, the first quarter of fiscal 2020. The request identifies Azenta, Inc.; however, the filing text identifies the registrant as Brooks Automation, Inc. The company operated through Brooks Semiconductor Solutions Group and Brooks Life Sciences, providing semiconductor manufacturing automation and life-science sample management, genomics, sequencing, and gene-synthesis services.
The semiconductor cryogenics business was sold on July 1, 2019 and is presented as discontinued operations. Accordingly, continuing-operations comparisons exclude that business.
Key Financial Metrics
| Metric | Q1 FY2020 | Q1 FY2019 | Change |
|---|---|---|---|
| Revenue | $210.5 million | $179.4 million | Up 17% |
| Gross profit | $85.0 million | $72.1 million | Up $12.9 million |
| Gross margin | 40.4% | 40.2% | Up 0.2 percentage points |
| Operating income | $10.7 million | $5.3 million | Up 100% |
| Income from continuing operations | $13.2 million | $6.3 million | Up $6.9 million |
| Net income | $13.1 million | $14.4 million | Down $1.4 million |
| Diluted EPS | $0.18 | $0.20 | Down $0.02 |
| Cash flow from operations | $25.7 million | $6.3 million | Up $19.5 million |
- Revenue from Brooks Semiconductor Solutions increased 5% to $118.8 million. Brooks Life Sciences revenue increased 38% to $91.7 million, including $20.0 million from acquisitions and $5.0 million of internal growth.
- Life Sciences gross margin increased to 42.2% from 39.3%, while Semiconductor Solutions gross margin declined to 39.0% from 40.7%, primarily due to product mix.
- Research and development expense increased to $14.4 million from $13.1 million. Selling, general and administrative expense increased to $59.3 million from $53.5 million.
- Interest expense declined to $0.7 million from $5.3 million after the company extinguished $495.3 million of debt in July 2019.
- The $3.0 million income-tax benefit primarily reflected a $5.8 million stock-compensation tax windfall and a $0.5 million reduction in deferred tax liabilities related to a China tax incentive.
- Cash, cash equivalents, restricted cash, and marketable securities totaled $353.1 million at December 31, 2019, compared with $342.1 million at September 30, 2019. Cash and cash equivalents were $335.3 million.
- Capital expenditures were $9.6 million, including $1.3 million for a planned China facility. The company expects total China facility capital expenditures of $50 million to $55 million over five years, including $15 million to $20 million during fiscal 2020.
- Total debt was $50.7 million, net of $0.5 million of deferred financing costs. The company had no revolving-credit borrowings and approximately $43.6 million of borrowing availability.
- Total assets were $1.56 billion and stockholders’ equity was $1.16 billion at December 31, 2019.
Material Changes Versus the Prior Comparable Period
- Consolidated revenue and operating income improved substantially, driven by Life Sciences growth, the inclusion of a full quarter of GENEWIZ, and higher gross profit.
- GENEWIZ contributed approximately $40.0 million of revenue in Q1 FY2020 versus $16.4 million in the comparable post-acquisition period of Q1 FY2019.
- Operating results benefited from lower corporate merger-and-acquisition costs, which declined by approximately $6.1 million, partly offset by higher audit and legal costs.
- Net income and EPS declined despite higher continuing-operations income because Q1 FY2019 included $8.1 million of income from the now-discontinued semiconductor cryogenics business. Q1 FY2020 included a $0.1 million loss from discontinued operations.
- Foreign-currency translation increased accumulated other comprehensive income by $9.6 million during the quarter.
- The company adopted the lease standard effective October 1, 2019, recording a $28.1 million operating lease right-of-use asset and a $27.1 million operating lease liability. The adoption did not affect reported operating results or cash flows.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management stated that it expects sufficient resources to fund working capital, debt service, capital expenditures, and financing requirements for at least the next twelve months, but noted that semiconductor-market cyclicality makes longer-term liquidity needs difficult to predict.
- Management expects continued investment in semiconductor products, Life Sciences offerings, research and development, acquisitions, and the China facility. No specific revenue or earnings guidance was provided in the filing text.
- The company declared a quarterly dividend of $0.10 per share on January 24, 2020, payable March 27, 2020. Future dividends remain discretionary and could be reduced, delayed, or canceled during a severe cyclical downturn.
- The filing identifies the December 2019 coronavirus outbreak as a new risk that could disrupt travel, facilities, suppliers, customers, sales, and operating results, particularly in China.
- Two material weaknesses in internal control over financial reporting remained outstanding: controls over pricing and quantity data for revenue at a Life Sciences business unit, and controls over occurrence and cutoff of revenue shipped from contract manufacturers. Disclosure controls were therefore deemed ineffective as of December 31, 2019. Remediation efforts had begun, but management had not yet concluded that the weaknesses were remediated.
- Non-cancellable commitments totaled $130.2 million, including $84.9 million for inventory purchases, $25.0 million for information technology, and $18.6 million for China facility commitments.
- The company had approximately $1.2 million of letters of credit outstanding, primarily supporting customer advances and performance obligations. Management did not expect these to be called.
- Management disclosed ordinary-course legal proceedings but stated that none was expected to have a material adverse effect, while noting that outcomes remain inherently unpredictable.
- The company paid $93 million of taxes in January 2020 related to the sale of the semiconductor cryogenics business and expects to pay an additional approximately $2 million in future periods.
Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied filing is for Brooks Automation, Inc., not Azenta, Inc.
- Assess the sustainability of Life Sciences growth and the extent to which revenue and profitability depend on GENEWIZ and other acquisitions.
- Monitor semiconductor-market cyclicality, product mix, and the decline in Semiconductor Solutions gross margin.
- Track remediation and auditor testing of the two material weaknesses affecting revenue recognition controls.
- Evaluate liquidity after the $93 million tax payment, planned China facility spending, dividends, purchase commitments, and variable-rate debt obligations.
- Consider the potential effects of coronavirus-related disruptions, foreign-exchange movements, and customer concentration; one customer represented 15% of quarterly revenue and 11% of accounts receivable.