Ladies and gentlemen, thank you for standing by. Welcome to the Brooks Automation Q2 2018 Financial Results Call. During the presentation, all participants will be in a listen only mode. And afterwards, we will conduct a question and answer session. As a reminder, this conference is being recorded Tuesday, May 1, 2018.
And now, I would like to turn the conference over to Linton Robertson, Executive Vice President and CFO. Please go ahead.
Thank you, Scott, and good afternoon, everyone. We would like to welcome each of you to the Q2 financial results conference call for the Brooks fiscal year 2018. We will be covering the results of the Q2 ended on March 31, and then we will provide an outlook for this current fiscal quarter ended June 30, 2018. A press release was issued after the close of the markets today and is available at our Investor Relations page of our website, www.brooks.com, as are the illustrated PowerPoint slides that will be used during the prepared comments during the call. I would like to remind everyone that during the course of the call, we will be making a number of forward looking statements within the meaning of the Private Litigation Securities Act of 1995.
There are many factors that may cause actual financial results or other events to differ from those identified in such forward looking statements. I would refer you to the section of our earnings release titled Safe Harbor Statement, the Safe Harbor slide on the aforementioned PowerPoint presentation on our website and our various filings with the SEC, including our annual reports on Form 10 ks and our quarterly reports on Form 10 Q. We make no obligation to update these statements should future financial data or events occur that differ from the forward looking statements presented today. I would also like to note that we may make reference to a number of non GAAP financial measures, which are used in addition to and in conjunction with results presented in accordance with GAAP. We believe that these non GAAP measures provide an additional way of viewing aspects of our operations and performance, but when considered with GAAP financial results and the reconciliation of GAAP measures, they provide an even more complete understanding of the Brooks business.
Non GAAP measures should not be relied upon to the exclusion of the GAAP measures themselves. On the call with me today is our Chief Executive Officer, Steve Schwartz. We will open with his remarks on the business environment and our second quarter highlights. Then we'll provide an overview of the Q2 financial results and a summary of our financial outlook for the quarter ending June 30, which is our Q3 of the fiscal year 2018. We'll then take your questions at the end of those comments.
During our prepared remarks, again, we will from time to time make reference to the slides I mentioned available to everyone on the Investor Relations page of our Brooks website. With that, I'd like to turn the call over now to our CEO, Steve Schwartz.
Thank you, Lindon. Good afternoon, everyone, and thank you for joining our call. We're pleased to be able to have the chance to update you on the results of another strong quarter. In our Q2, growth and increased profitability remained the themes with revenue of $207,000,000 up 9% from the December quarter and 22% from last year. EPS increased to $0.40 per share and bookings in the quarter were $238,000,000 with semiconductor contributing 184 life sciences again above $50,000,000 at $54,000,000 We forecast more growth ahead.
And as you'll hear from us today, innovation, new product development and value added acquisitions continue to be the fuel that's accelerating our success. Although the stock market has been volatile of late due to uncertainty in the semiconductor supply chain, we could not be more secure in our strategy. We're gaining share with the strongest players in the market and in technology sectors where we add high value. In semiconductors, artificial intelligence, cloud computing, big data initiatives and 5 gs are technologies that are driving the tremendous semiconductor storage and computational needs of the data economy. It's the breadth of applications that include memory and logic that are propelling an expansion in capacity and a new threshold in wafer fab equipment spending that's unprecedented and may indeed be sustained.
We're bullish about the long term drivers in the semiconductor industry and we believe our critical technologies are proving to be enabling and necessary capabilities for OEMs and end users who will lead in these markets. Similarly, in life sciences, we are seeing the steady increase in our opportunity related to sample management and measurement as high quality biological samples are the keys to cures for the most serious diseases facing the human race. We believe this market will continue to expand for the foreseeable future. In the midst of these opportunities, our focus remains on value delivery and value capture in both of our end markets. And I'll use my prepared comments to give you an update on our performance in each of these sectors.
First for Life Sciences. Life Sciences revenue came in at $49,000,000 up 40% from 1 year ago. BioStorage was up 46% and other products including automation and consumables and instruments contributed 34%, representing strong growth across the portfolio offerings. Organic growth was 28% for BioStorage Services and 16% overall. Bookings at $54,000,000 gave us the best 2 consecutive quarter bookings in our history.
Our pipeline remains robust and we're confident about our forecast for greater than 30% growth this year. In the quarter, we added 32 new customers across a broad spectrum of biotech, pharma, clinical, consumer and academic and government customers. Notable among our wins, we received a multi year multimillion dollar sample management contract to support a UK based study for a major well funded life sciences company. The scope of our work includes storage, handling and transport, as well as laboratory services that we'll be providing out of our European sample hub in Germany. Cumulatively, we've received more than $30,000,000 in bookings since establishing this strategic relationship.
And in the quarter, we added 22 new customers for a wide range of cold chain consumables and instruments, including FluidX Tubes, Fortitude Plates and Ceiling and Capping Products. And last week, we announced the acquisition of another biorepository business, Bio Specimen, a small Canada based company with storage facilities in Montreal and Pennsylvania. Bio Specimen is a high quality biorepository with 1st class sample management standards and is a good fit with our bio storage operations. It's a natural addition of more samples under management, it adds to our customer base and it gives us strong presence in the Canadian market where we believe there's more opportunity for expansion of our services. Integration activities are already underway and we anticipate the financial results from this acquisition will be accretive immediately in the June quarter.
You should anticipate that we will continue to deploy capital to build our offering in support of the sample management cold chain as we have a robust pipeline of potential acquisition targets of varying sizes. As I mentioned on our last call, we've established an operation that's of a size and capability that can be leveraged to add revenue without significant additional costs. We're on a trajectory for greater than 30% growth this year and we're also committed to delivering more profitability from this business. Toward that end, operating profit in the quarter increased to $3,000,000 or 6%, more than doubling our Q1 performance and giving us strong momentum and high confidence to deliver 10% operating income in the September quarter. For the June quarter, we forecast more growth with revenue reaching $50,000,000 and further expansion of operating margin.
It's easy to be enthusiastic about this business and the enormous potential value it brings to our shareholders. And now for a look at our semiconductor business, which continues to perform at a high level. Revenue in our semiconductor segment came in at $159,000,000 up 12% sequentially from the December quarter and 18% over the same quarter 1 year ago. And that's in spite of $9,000,000 less in CCS revenue that's a result of lower foundry spending. Bookings of $184,000,000 bring semiconductor orders for the first half of our fiscal twenty eighteen to $350,000,000 an indicator supporting our expectations for another robust year in semi capital equipment spending.
What might be most impressive is that the quarter we notched 28 new design wins across our semiconductor product portfolio. None of us can remember a quarter like this when so much engineering and design work resulted in so many important new orders. But we have the engineering and operational capability to adapt to these new product demands and we look forward to volume orders for these products are expected to increase next year. This strong showing is the result of our superior technology capability and the close interdependent relationships that we forge with our customers, both OEMs and end users. I'll give some color into our key semiconductor segments, beginning with some commentary about vacuum automation.
In Q2, we continued to see strong growth in our automation business. Our vacuum automation business represents approximately 1 third of our semiconductor revenue, with most of the revenue coming from deposition and etch process technologies, which includes some advanced packaging applications. In the quarter, our total vacuum automation business grew 18% from the December quarter and 29% year over year with the contribution from vacuum systems slightly outgrowing vacuum robots. As we indicated before, vacuum systems are enabling tools for Tier 2 OEMs who purchase process chamber ready automation platforms from us with the knowledge and trust that they will receive a system that will be readily accepted into a semiconductor fab. Over the years, we've been building a meaningful vacuum systems business with many Korean and Chinese OEMs.
We believe that these wins are important from a market share standpoint as these Asian OEMs are often advantaged when Korean and Chinese companies build fabs. And since the revenue we receive for each vacuum system is typically 3 to 5 times the revenue we would get if we sold only a vacuum robot, the benefit from Tier 2 equipment makers is meaningful. In Q2, revenue from vacuum systems sold to Korean and Chinese OEMs was just shy of 10% of our semiconductor product revenue. Meanwhile, we've continued to cement our long term relationships with Tier 1 OEMs where volumes are much higher. And in the quarter, we had 3 new vacuum automation design wins, including a new win for our MagLeap robot on another Tier 1 OEM platform.
Our forecast for automation product revenue is to increase again in the June quarter with record performance once again in vacuum robots and vacuum systems. Advanced Packaging revenue in the quarter was $11,000,000 down from $15,000,000 in the December quarter, bringing us $26,000,000 in the first half revenue compared with $43,000,000 for all of fiscal 2017. We had 4 new design wins in the quarter and we continue to capture share of this new market. As I mentioned in the past, this market segment is still difficult to forecast, because of our design win activity, we're well positioned for any advanced packaging capacity increases. Finally, we had a very active quarter in our Contamination Control Solutions business in terms of new business activity.
As we forecasted in the quarter, we began to see a pickup in CCF with revenue climbing 15% quarter over quarter to $16,000,000 though still down more than 30% from the same quarter 1 year ago due to reduced foundry spending. That said, we're encouraged by the breadth of customers we're developing for CCS products as we had a record 11 new CCS design wins in the quarter, including tools for 6 different new fab customers in China, doubling our number of China CCS customers to 12. Additionally, 3 of the 11 design wins were for new memory customers, 2 for NAND and 1 for DRAM, bringing the number of memory fabs we've penetrated to 10. Overall, the CCS market is developing as we forecasted with expansion beyond Tier 1 foundry coming through advanced memory fabs and new fabs in China. Just after the end of the March quarter, we announced the acquisition of Texem, a Swiss company with a long history and respected market position in the management of reticles that support the lithography steps in chip manufacturing.
Think of a reticle as a photographic negative that's used to print an image on a silicon wafer. TechSim has a strong reputation and an A list of fab customers around the world who depend on their solid designs and reliable systems to store and protect their valuable collections of reticles. TechSim's products are in many ways complementary to the technologies we have in our CCS operations. Our CCS product portfolio includes tools that clean and decontaminate the carriers that are used to move wafers and reticles in a fab. TechSim gives us reticle storage systems or stockers that offer high density reticle storage and protection of these multimillion dollar mask sets.
We anticipate that with the expansion of EUV lithography as a critical technology and the increased value that must be placed on protecting and extending the life of the very expensive EUV reticles, there'll be an opportunity for our combined engineering teams to bring high value reticle protection solutions to bear on the burgeoning EUV ecosystem. The synergy opportunities between our CCS business and TechSEM are significant and we've combined these groups together into our CCS business unit. 4 years ago, we entered the contamination control business at time when we could feel that it was set to take off and indeed CCS revenue tripled in our 1st 3 years of ownership. Today, we have a similar feeling about an inflection in terms of the need for next generation of reticle management capabilities that are needed by our customers. The opportunity will be driven by needs beyond conventional reticle management, but especially for enabling capabilities surrounding and supporting EUV lithography.
In the June quarter, we're forecasting an increase in our CCS business to approximately $23,000,000 as foundry spending begins to percolate capacity expansions in existing factories. Included in our forecast are the first installations of automated carrier cleaners for 5 nanometer qualification. Overall, we're particularly pleased with the performance of our semiconductor business. Our exceptional design win quarter is a testament to our capabilities and that our strategic R and D investments for innovative new products are on the mark of what our customers are looking for to meet their requirements for 7 and 5 nanometer technology deliverables. We'll ride the wave of strong order demand into the June quarter and we anticipate that our semiconductor segment revenue will increase by approximately $10,000,000 in the quarter.
In total, our 2nd quarter performance was very strong as demonstrated by our revenue growth and the additional design wins that we've secured. And we're enthusiastic about our prospects for the future. In the June quarter, we look to demonstrate more results from our strong market positions with growth in both semiconductor and life sciences. And that concludes my formal remarks. I'll turn the call back over to Linden.
Thank you, Steve. Please refer now to the Power Point slides available on the Brooks website under our Investor Relations tab. We begin with Slide 3, which is a consolidated view of our 2nd quarter operating performance. Our top line revenue grew 9% sequentially to reach 207,000,000 dollars This brings us up to 22% growth year over year compared to the Q2 last year. Both segments drove the growth.
Sequentially, Semiconductor Solutions expanded 12% and Life Sciences expanded for the 11th consecutive quarter with 2% growth. On a year over year basis, Semiconductor grew 18%, while life sciences increased 40%. In the GAAP results, diluted earnings per share came in at $0.95 in the 2nd quarter. We had $46,000,000 of benefit on the bottom line from reversing the valuation allowance reserve, which had been recorded against our deferred tax assets in the U. S.
In our 2016 fiscal year. I fully acknowledge that this change in reserves provides more of an optics change than an economic earnings event in the quarter. However, I want to highlight the underlying drivers in determining the release of the reserve. First, it reflects a turnaround in the cumulative profit results in the U. S.
Over recent years versus the cumulative loss position the company had accumulated in the years leading up to the reserve being booked in 2016. 2nd, it reflects confidence in our outlook to generate U. S. Profits going forward and our ability to utilize the deferred tax assets. Finally, I will share that we arrived at this conclusion prior to applying impacts of the U.
S. Tax reform and then gained further confidence after considering the potential impacts of the tax reform. Now let's address the primary dynamics of the P and L as we look at the non GAAP results on the right side of the page. Non GAAP gross margin came in about 41% and up approximately 30 basis points compared to the prior quarter. The improvement was driven by life science margins, which increased approximately 40% in this quarter, consistent with our projections for improvement provided last quarter.
I will say more on the segments in the upcoming slides. SG and A expanded on a sequential increase of variable compensation accruals and some professional services expense, But you can see this was less than the revenue growth providing further margin expansion at the operating income line. Operating income was $32,000,000 an increase of $4,000,000 or 14% sequentially. We saw additional improvement in the non operating section of the P and L. Net interest expense was reduced modestly with interest income derived from conservative investments.
Foreign exchange losses were $1,500,000 less than the prior quarter. And our tax rate was adjusted downward due to a change in the jurisdictional mix of income. In this quarter, we had a non GAAP an approximate tax rate of 13% for the balance of the year. Partially offsetting the improvements was an $800,000 decline in the joint venture earnings in Japan, consistent with projections of softer capital spending in the OLED market. In total, we expanded the operating income margin 70 basis points and net income margin by 180 basis points.
Earnings per share increased 26% compared to the prior quarter and was 42% above the EPS from Q2 2017. Let's turn to Page 4 to begin discussion of segment results. In the Q2, Life Sciences revenue was 49,000,000 dollars an increase of 2% sequentially. On a year over year basis, Life Sciences grew 40%, including the organic growth of 16%. The growth was well supported on both sites in storage services and in storage product offerings.
The 2% sequential growth reflects 8% expansion across the business, except for genomic services, which has a seasonal spike in December and declines in the March quarter. The total bookings for Life Sciences came in at 54,000,000 and added to our backlog. I should once again emphasize that our Life Science bookings are a mix of short term and long term estimated realizable revenue. So similar to our comments last quarter, while this continues to show strong demand, it does not translate meaningfully into a book to bill ratio indicator. Life Sciences adjusted gross margin in the 2nd quarter came in at 39.8%, up 3 40 basis points from the prior quarter.
Margin expansion in the quarter was primarily driven by improvement in product margins and an improved mix within services. In total, Life Sciences achieved record revenue and operating income. At 6.4%, we are on track to achieve our 10% operating income target by the Q4. As indicated previously, revenue growth, cost improvements and favorable mix is the roadmap to get us to 10%. Our next step is in the Q3 when we expect to have $50,000,000 to $52,000,000 of revenue.
Let's turn over to Slide 5. Semiconductor Solutions revenue increased 12% compared to the Q1. We saw growth across all product lines sequentially, including vacuum automation, cryogenic vacuum products, contamination control and services. We also saw strong growth year over year of 18%, which was supported by all areas except the contamination control solutions. While this area was down more than 30%, the automation and cryo products were each up more than 30%, highlighting the strength and diversity of our portfolio.
The adjusted gross margin for semiconductor was 41.5% and operating income margins are nearing 20%. This is more than 400 basis points above 1 year ago and reflects significant structural improvements at cost and throughput achieved in the operations of our business. Let's now turn to the balance sheet on Page 6. Accounts receivable increased by a modest 2% with an improvement in days sales outstanding by 5 days. The inventory and payables balances increased commensurately supporting growth in both businesses and a a particularly tight supply chain in the semiconductor space.
We ended the quarter with $245,000,000 in cash, cash equivalents Let's turn now to cash flow on Slide 7. Operating cash flow in the quarter was $20,000,000 The benefit of the valuation allowance and net income is a non cash event, so it's a deducted in the cash equation. You will see representative of a normal quarter. While we have had working capital increases in support of both segments this year, the largest share is supporting the semiconductor expansion. As Steve indicated, since the close of the quarter, we have acquired 2 businesses for cash.
The cash used for both purchases, net of cash received, has totaled approximately $16,000,000 to date. Let's turn to Slide 8 to see an overview of those Sim business fits into our contamination control solutions business and comes at the right time. We expect reticles will be increasing in volume and usage with EUV and will become a larger dependency for contaminant free yields. Since entering the contamination control business, our revenue direct with fabs has grown and regularly The Canadian based biorepository, biospecimen, expands our customer and geographic reach of the BioStorage Services business in life sciences. The profile is very easy to integrate into BioStorage Services and our joint teams are already in motion to do so.
I remind you that we continuously look for acquisition opportunities. Our primary focus is to build out the life sciences cold chain offerings and reach, but we remain diligent to pick up opportunities in the semi space, which complement our technology offerings or our customer relationships. Our internal model drives us to seek out returns, which exceeds 13% return on invested capital within a 3 to 5 year horizon. Let's now turn over to Slide 9 and consider the guidance for our 3rd fiscal quarter. Revenue is expected to be in the range of $215,000,000 to $225,000,000 Adjusted EBITDA is anticipated to be $43,000,000 to $49,000,000 Non GAAP EPS is expected to be $0.40 to $0.46 per share.
This guidance reflects an approximate $0.01 dilution to the non GAAP EPS driven by the TexSim acquisition in
the quarter.
By the Q4, we expect EPS will be benefiting from both of those acquisitions. The GAAP earnings per share is expected to
come in at $0.28 to $0.34 And
so that concludes our remarks as prepared. I'll now turn the call back over to Scott to take questions from the line.
Thank Our first question is from the line of Farhan Ahmad with Credit Suisse. Please go ahead.
Hi, thanks for taking my question. My first question is on the CCS business that seemed a little weak recently. Can you just talk about how we should think about the growth in CCS going forward and what are the main drivers that can accelerate the growth for CCS?
Could I just make sure I'm understanding Farhan, which business you're referring to?
Contamination Control.
Yes. Okay. So contamination control is in the semi business and is underneath our General Manager, Dave Jarzinca. And we do continue to have much optimism there. I'm going to comment initially, I'll let Steve chime in here.
Last year in 2017, it had reached $84,000,000 and that was up from $52,000,000 the previous year. While it's still down, we have been talking and we continue to see the demand picking up here in the second half. It picked up in the Q2 modestly. In the Q3, Q4, we expect it to continue. Whether we make it all the way to a growth year still remains to be seen on what investments are determined by the fab, but we think that we're in the hunt for another solid year.
Got it. And then in regards to your Chinese and Korean equipment suppliers, can you just talk about how much of your business is coming from sort of the newer equipment suppliers in Korea and China and how do you see the trajectory of that growth going forward?
So Farhan, we had Korean equipment makers now for quite some time. A lot of the Chinese equipment makers are relatively new. So I'd say in the last 2 to 3 years. But what we see is that as they get more capability, they win more of the process steps. And so the volumes generally are increasing.
And also there's a lot of enthusiasm as you can imagine around some of the opportunities that exist in China where some of the equipment makers are putting some pretty significant forecasts out there.
Got it. Thank you. That's all I have.
Thanks, Farhan.
And our next question is from the line of Edwin Marck with Needham and Co. Please go ahead.
Thanks for taking my question, guys. So first, just quickly housekeeping. TechSEM, you said there's $0.01 impact. Is that just for GAAP or both GAAP and non GAAP? And can you just kind of roughly tell us how much the 2 acquisition how much revenue does the 2 acquisition add to your guidance?
Yes. So this last year, the estimated revenue is about $13,000,000 on a GAAP basis and we ended up paying approximately $14,000,000 after netting down the working capital. Not all of the payments made because as we shared at the press release time, we first acquired 93% from primary holders. We still have about 7% to close out with minority holders. In the guidance, we're careful on this.
We do have good orders that we have visibility to, but with the experience that we've had being limited, the run rate of about $3,000,000 a quarter or so I think is the right expectations about what we have folded in.
And then the $0.01 impact, is that just some low margin or resistance overall or is it just on GAAP because of current amortization?
Yes, I'm sorry, that's a non GAAP dilution point of about $0.01 And I would expect I'll go back to the amortization after the Q and it'll be spelled out for you there. But Edwin, our expectation is that as we move through this quarter, we've got some integration to do. As Steve mentioned, the approximate location of this is really close to our CCS business in Germany. And so we see some synergies and some opportunities there. And it will there is good opportunity.
So by the time we get to the Q4 and we do see demand ramping in the near term that with that demand and with our integration activities, you'll see it to become accretive on a non GAAP basis.
Great. That's helpful. And then just kind of sticking with semi, I think your guidance at the midpoint even backing out the growth in CCS, it seems like you guys are suggesting that your back end automation business can still continue to grow. We've obviously heard from some of your large customers talking about lower levels of NAND spending in the coming quarters. Just curious what's driving the growth in the June quarter and how do you see that business going on beyond the June quarter?
Yes. Edwin, we're also a little bit curious because we've heard mixed results, but the order book is pretty strong and some customers are still more bullish than others and our order book remains one that gives us pretty high confidence in growth again in the June quarter. So the bookings are strong and the demands for customers at least over the next months are pretty solid. So we're busy and it's a little bit surprising to us that we have probably the biggest variance we can remember in a while amongst the various OEMs, but we're pretty confident about at least what the next quarter looks like and especially in the vacuum automation side.
Okay, great. That's extremely helpful. And then kind of just quickly on Life Science. You guys did this acquisition of this Canadian depository and then since you guys are doing some work in Europe, I'm just curious, is geographic expansion a big driver there? From what I remember, most of your sample storage capabilities there has been based in U.
S. Is that correct? And is there a lot of room to expand into international sample storage opportunities?
That's correct, Edwin. So basically, it was an opportunity that came up because it would happen to be a really good biorepository in Canada. It's not all Canadian samples. They have a storage facility in Pennsylvania. And as a matter of fact, even in Indianapolis and our European sites, we have samples from at least dozens of different countries in any one of those sites.
So irrespective of where the bio storage biorepositories are, the samples are from all over the world. And that's pretty consistent with the model. And you'll find that at almost any size biorepository, they have samples from many countries. So geographically, it's a benefit for Canada because I think about half the customers are Canadian customers, but only half of the customers were Canadian customers.
Okay. Actually, that's helpful color. One last one, if you don't mind me squeezing in. Just have you heard a lot of talk about the compound bio storage equipment or store that you guys have talked about before? How is that progressing?
The chemical compounds in let me comment on this. If I'm understanding your question, I think you're asking how are we progressing and storing chemical compounds. In general Yes, sorry,
I'm Yes, let me correct. I'm talking about the low temperature sample storage equipment that you guys have talked about historically that you guys are trying to grow in that market?
Yes. So the MyoStor 3 cryo, so that's at the cryogenic temperature. Edward, we keep making progress there. We did another $1,000,000 in the quarter. And again, that's at a pretty low level, but consistent with where we've been, a little bit up from last year.
But this is really steady, slow progress and we win those one customer at a time on the automated systems. I think on the last call, we did talk about 2 pretty good sized installations that will go in toward the end of '18, early 'nineteen, where we actually provide some automation to fully automate these cryogenic systems and connect them together. So we're we're really bullish about the opportunity. And this one continues to be at a slower pace than we'd anticipated, but steady as we'd forecasted for 2018.
Okay, great. That's all I have. Thank you.
And Edwin, I'm going to follow-up on your question now. I was able to confirm that the extra amortization step up and other costs that would be in the GAAP results related to the acquisitions would be about another $1,200,000 on a GAAP basis. So while we said it would be about $0.01 hurt on the non GAAP, it would be about another $0.015 round numbers on a GAAP basis.
Great. Thanks for clarifying that.
You bet.
We have a question from Craig Ellis with B. Riley FBR. Please go ahead.
Yes. I'll start with just a housekeeping question looking back and clarifying an issue in my model for the reported quarter. Lindon, I know you mentioned the segment operating expenses, but I missed those. So can you just walk me through what drove the sequential increase in OpEx in the quarter?
Yes. With the accelerating performance, one item is the accruals of variable compensation. And when we talk about variable compensation, this isn't merely cash in an executive, it's across all employees, all employees participate in a variable compensation. Compensation. So we've taken the accruals up.
And when you see the acceleration of the annual performance in the middle of the year and you increment that, you're picking up the year to date adjustment for this current year. And then the second element is we had some professional service expense that we incurred in the quarter. So what I would highlight about this is while the variable compensation accruals will, to some degree, provide some continued expense in the second half, not on a catch up basis, it will level out a little more. It wouldn't be with us structurally other than on a par performance years rates, which we were already accruing. And then on the professional expenses, we also don't see that as being structural adds to the business.
And is the accrual driver revenues or gross profit dollars or operating profit? What's the driver to the accrual trigger?
It's largely the operating profit as well as revenue growth. Yes. And that's on the cash base. When you go to the long term, you'd see the executive plan shift more to an ROIC weighting, including the operating income as well, but heavier weight. But in these accruals that I'm referring to, it's on the current year, which is operating income, revenue and gross margin is in there.
Thanks. And then Steve, you mentioned in your prepared remarks 28 semiconductor segment designs wins in the quarter, which was an unusually high number. I don't recall you mentioning that data in the past. So, can you give us some context around where that number might have been over the last 4 quarters or so? And was there any particular segment of the ones that you talked about, whether it's vacuum robotics or CCS or advanced packaging that really stood out in terms of generating all those design wins?
Sure. So Craig, just to give you, this is a metric with very specific targets that we set out at the advance of every year. So the account teams and the engineering teams are aligned on the ones that we consider to be really important. Of the ones that are on our list that we did 28 design wins, 21 were targeted at the beginning of the year and some just come along and we'll take them, but they may not have been as strategic. So the historical average for us is about half of that.
So just to give you an idea, in a typical quarter, 2015 to 2017 would be pretty normal. And so to double it in a quarter is pretty outstanding. It's something we used to report on the call years ago. And back then, it was in that 15% to 17% range too. But it's a deliberate there's a deliberate set of wins that we set out to achieve and we kind of we had a really unusual quarter and a real testament to a lot of the capability.
And on the terms of the wins, we think it's really important to make the same presence in CCS in China that we have in the other regions. And so, we're not sure at what rate the expansions will take place, but we want to be there and we want our tools in those fabs, because we also think that the model for some of the foundry activity is going to be what takes place in Taiwan. And so we want to make sure that we don't just get designed in that we participate in all the volume that comes to. So 11 CCS wins in China is a huge accomplishment for us in the quarter.
Yes, that is. And congrats to David's team overall for the performance with the design wins. Connecting that activity in your comments that, that really lent confidence to the business' performance in 2019 and some of the comments about very near term dynamics, you enter the quarter with strong backlog performance. Can you comment on the visibility that you either do or don't have for the back half of the calendar year? How is it looking for you?
And are there any parts of the business that would stand out CCS advanced packaging, vacuum automation, etcetera?
So across the board, Craig, we across the board, the indications we have are strong. We really get order by order in advance, but all of our customers give us an indication to make sure that we're ready, especially in these days when the supply chain is really tight. So the indications and the requests for us and the audits on us to be prepared are pretty significant. They would indicate that there's continued strength in the back half of the calendar year, but again anything can happen. And so we remain confident about what we hold orders for.
But by and large, the health of the backlog and the pressure from our customers give us an indication that at least readiness is the order of the day. So that's about all I can say. I wish I could be more concrete. You can tell a little bit from the bookings again that people want to make sure that they're in the supply chain with claims to product. But again, I think that's going on probably across the industry.
Got it. And then lastly, goodness, I'm not sure if this is for you or for Lindon, but there was a reiteration of the 10% operating margin target for the Life Sciences business. And I think from the most recent quarter, our gap there is about 3.50 basis points. So between where we are now and that 10 percentage point target, what are the things that really close the gap? How much of that is either organic revenue growth or inorganic revenue growth or just gross margin expansion in closing the 3.50 basis point objective?
Thank you.
Yes. So I think you're
going to see the balance of it come through a split of gross margin and operating expense leverage. So we still have progress to make in the gross margin and this is partly in the cost of our footprint and operations as we consolidated in Manchester. By the way, we made substantial progress over the last two quarters. We made it into what I would call half steps to get to here thus far. It's in the manufacturing cost of the operations in Manchester.
So they're doing a great job in progress. And we still have a list of opportunities to close in on. And then similarly, we've got operating expense as we described before. Will yield some out of that in terms of holding our investments flat and continuing to work our integrations into the mix of what we have for efficiency. So you'll see, I believe, the 3.5 points of beat roughly half shared by the time you get to 4th quarter between gross margin and OpEx leverage.
Thanks for that, Lyndon. Good luck, guys.
Thanks, Craig.
We have a question from Paul Knight with Janney Montgomery.
Could you talk about the BC3 uptake and kind of the capital equipment side of the life science business has kind of how it wrapped up in the quarter?
Yes. So the B3C, again, it makes steady we're making steady progress there, Paul. What we're finding is that there's a lot of evaluation that goes on when people take a B3C. So, it takes a considerable amount of conversation, but when we find customers take a B3C, they don't go back and buy a manual tool. So, this is one that's really encouraging for us.
And on the larger automated store side, that was a really healthy quarter for us. It was up 25% year over year and it generated about $9,000,000 of revenue. So between the B3C around $1,000,000 and the automated stores around $9,000,000 it was a pretty healthy quarter for us. Again, we're going to continue to focus on the B3C. There are customers who absolutely want that technology.
And just the need is a scientific one right now, but it's not a huge volume driver, but we are accumulating the right kind of customer base and we supplement that with the cryo carrier that we have in the filling station allows them to not just store the samples in an automated system, but also transport them through the facility.
Steve, with the biospecimen acquisition, what are your number of physical locations now globally? And is it making the sales cycle easier? I mean, what is it doing for you guys to have a network that is probably not matched by anybody else?
Yes. So we have 6 sites right now. It gives us Paul, what happens is it gives customers who think they need samples close by, it gives them comfort to put them into a rather local biorepository. And after we have the samples for a number of years, they're very comfortable moving them to another location. So it gives us economies to put them into a more economical site.
But in terms of winning business, the proximity does seem to help for first time wins on the business. So we're at 6 right now. We're going to continue to do some consolidation. We talked on the last call about another site that we're building for a customer, very close to a customer. And that's an important one for us.
You may see us when there's a site with that has enough economic advantage that can be large enough that we may put them close to customers here in the near term. But again, we have to drive economies for it. And so we'll always evaluate each one case by case. But 6 now go into 7 and we make it solid back to 6 by the time we get to a year from now.
And then lastly, can you compare and contrast this quarter with the December quarter in terms of customer interest demand on bio storage and services?
Again, I think the demand continues to increase. We see a steady increase in the amount of outsourcing. We're not very specific about the sample count, but you can imagine we added somewhere around 1,000,000 samples from existing customers in the quarter and that's a really good quarter for us. And we're going to continue to build that way. But what we find is more and more, the customers are very comfortable with outsourcing and they're making that asset decision and then we continue to see the trend building.
So we're really bullish the fact that we had 28% growth in the BioStorage business. We think that's the path for us going forward.
Thank you.
We have a question from Amanda Scarnati with Citi. Please go ahead.
Hi. Just a quick question on the semiconductor business. As you look at the linearity of the orders throughout the quarter, I know it was a really strong quarter in terms of orders. How did that progress? Was there a bigger push later in the quarter or was it sort of evenly spread out?
Got you, Amanda. It's relatively linear. I mean, we see bigger weeks and not, but we look at it, we look at the data once a week and what we see is a pretty steady pattern. So when we were, I'll give you an example, 4 weeks into the quarter, we were on a trajectory to end up about where we ended up. And so it was pretty steady through the quarter, but that's something that happened to us.
It's not something that's a normal pattern necessarily. But generally, we had an indicate in this particular quarter, we had an indication from the start that it was going to be a pretty good sized quarter, but we're never sure until the last week of order taking.
And then on the life sciences side, if you continue to add these smaller storage companies that have locations in various sites around the world, is there an opportunity to gain additional margin scale? Or is it difficult to take out costs as the storage facilities are kind of spread out?
So to give you an example, we're looking at the means by which we put the samples in the most economical place right now. So what we can do is, as we begin to fill a site, there are some samples that are truly archived that can be moved to less expensive sites. And if customers need some nearby, will empty space in a biorepository maybe move those samples to Indianapolis and free up space at a regional site for the customer. So that's a daily activity that Dusty and his team go through. And we make sure that when we go to pick up a biorepository, that it's a good margin business if it's the business model to begin with.
But then there are things that we can do in terms of making good decisions about adding additional storage capacity. We always want to put that in the place where it makes the most sense. And right now, Indianapolis is one of the best sites that we could imagine. We still have a lot of capacity in Indianapolis. But the margin of the business is really good.
The way Dusty and his team manage it is for good long term growth, good long term profitable growth in this business.
Great. Thank you.
Thanks, Amanda.
We have a question from Drew Jones with Stephens Inc. Please go ahead.
Thanks, guys. Just one for me. Looking at the 10% op margin metric that you talked about to exit the year on, And Lindon, you kind of mentioned the possibility of scaling back some investment spend in the Q4 to get there. Are there any growth opportunities that could be impacted or restricted from that sort of cost containment, just to get to the operating margin bogey? No.
And I appreciate the question because what we've said is, Dusty and the team will be making some specific pockets of investment, but they will also be realizing some savings and efficiencies out of other areas. In large part, the sales structure, the team is in place to deliver through this year and even going into next year. And so that's why we have confidence that as we grow, we're not going to be adding expense structure. But under the covers, there's still a little bit coming out and going in and we're not sacrificing top growth opportunity for expense savings here.
Thanks, guys.
Drew, thanks very much.
And we have a question from the line of David Duley with Steelhead Securities. Please go ahead.
Yes. Thanks for taking my questions. Congratulations on nice results. A couple of questions from me. As far as this new acquisition, I guess, Texan, could you perhaps take a stab at what you think the size of this market is going to be in a year or 2 or help us understand what the potential market opportunity is?
So, David, it's a really good question. I think if we put a peg on this one, we'd guess that this is a $30,000,000 opportunity that could grow to $50,000,000 here in the next few years. So it will depend on the products that we put together in and around EUV. We know about the size of the reticle storage market, probably around 30 today, and we feel really good about that. And again, depending on the amount of acceleration we get from the EUV side that will determine how big and how fast this can grow.
Okay. So the market expansion is mostly EUV driven?
The incremental market from today, that's right. Because the TechSEM team has a really strong presence in the radical management market today. And we think that additional growth will come from the products that we develop in and around EUV. We have an EUV carrier cleaner already in the CCS business, but we think that the value and the complexity of handling the reticles for UV might bring us other opportunities in terms of how the reticles are stored.
That leads me to my next question as far as the food cleaning business. What impact does EUV have on that business?
Does it expand the
size of that market? We don't
cleaning business. That will be a volume and process step driven capability. But I don't have a good assessment of that yet, Dave. It's good one for us to think about, but we don't know why wet would necessarily change meaningfully. I will tell you that the impact of the ion implant, for example, on the photoresist process does cause different contamination that people make sure to clean the wafers and clean the FOUP.
And I can't say that we know the impact of EUV on something like that yet.
Okay. And then as far as the food business goes, you're forecasting a nice bump up in the June quarter and I'm assuming September quarter would be up as well. How much of the increases that you expect over the next couple of quarters are driven by memory versus the foundry logic space? And then also as another vein, how much do you expect the Chinese wins in this business to contribute to revenue in calendar 2018 or however you'd like to characterize
it? Yes. We don't have that specificity of the breakout right now. But the foundry business is beginning to increase. So you'll see some from that.
But we and we always continue to forecast that the number of these cleaners going into memory fabs will be significantly less that go into a high end foundry. But we don't have that specificity to give you yet. But we are pleased by the breadth and the number of different customer applications we have besides just Tier 1 foundry.
And just perhaps an idea of when you might see more Chinese revenue or any sort of guess as to when you start to see significant revenue from that geographic region in FOUP?
So we'll see some revenue beginning in the Q4 period of our fiscal Q4, but I don't know what to tell you about when it will be appreciable because again we'll have orders as other equipment companies have orders for populating those fabs.
Thank you very much.
Thanks, Dave. Thanks, Dave.
There are
no further questions at this time.
Okay, Scott, I think we can wrap up then. And I'll just extend my thanks to all the analysts and investors that have listened in with us and we look forward to talking to you again this time next quarter. And thank you very much.
Ladies and gentlemen, that concludes the call for today. We thank you for your participation and ask that you please disconnect your line.