Ladies and gentlemen, thank you for standing by and welcome to the Brooks Automation Q2 2018 financial results call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded Tuesday, May the 1st, 2018. Now I would like to turn the conference over to Lindon Robertson, Executive Vice President and CFO. Please go ahead.
Thank you, Scott. Good afternoon, everyone. We would like to welcome each of you to the second quarter financial results conference call for the Brooks fiscal year 2018. We will be covering the results of the second quarter ended on March 31st. Then we will provide an outlook for this current fiscal quarter ended June 30th, 2018. A press release was issued after the close of the markets today and is available on 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 Securities Litigation Reform 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-K 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, Stephen Schwartz. We will open with his remarks on the business environment and our second quarter highlights. We'll provide an overview of the second quarter financial results and a summary of our financial outlook for the quarter ending June 30th, which is our third quarter of the fiscal year 2018. We'll 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, 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 million, up 9% from the December quarter and 22% from last year. EPS increased to $0.40 per share, bookings in the quarter were $238 million, with Semiconductor contributing $184 million and Life Sciences again above $50 million, at $54 million. We forecast more growth ahead, 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's 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 in technology sectors where we add high value. In semiconductors, artificial intelligence, cloud computing, big data initiatives, 5G 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 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, 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, 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 million, up 40% from one year ago. Bio storage was up 46%, other products, including automation and consumables and instruments, contributed 34%, representing strong growth across the portfolio offerings. Organic growth was 28% for bio storage services and 16% overall.
Bookings at $54 million gave us the best two 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 U.K.-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 million in bookings since establishing this strategic relationship. In the quarter, we added 22 new customers for a wide range of cold chain consumables and instruments, including FluidX tubes, Fortitude plates, and sealing and capping products.
Last week, we announced the acquisition of another biorepository business, BioSpeciMan, a small Canada-based company with storage facilities in Montreal and Pennsylvania. BioSpeciMan is a high-quality biorepository with first-class sample management standards and is a good fit with our biostorage 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 million, 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 million 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. 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 million, up 12% sequentially from the December quarter and 18% over the same quarter one year ago. That's in spite of $9 million less in CCS revenue, that's a result of lower foundry spending. Bookings of $184 million bring Semiconductor orders for the first half of our fiscal 2018 to $350 million, an indicator supporting our expectations for another robust year in semi capital equipment spending. What might be most impressive is that this 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.
We have the engineering and operational capability to adapt to these new product demands, and we look forward to when volume orders for these products are expected to increase next year. This strong showing is a 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 one-third of our Semiconductor revenue, with most of the revenue coming from deposition and etch process technologies, which include 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've 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. Since the revenue we receive for each vacuum system is typically three to five 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. In the quarter, we had three new vacuum automation design wins, including a new win for our MagnaLEAP robot on another Tier 1 OEM platform. Our forecast for our 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 million, down from $15 million in the December quarter, bringing us $26 million in the first half revenue, compared with $43 million for all of fiscal 2017. We had four 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 CCS, with revenue climbing 15% quarter-over-quarter to $16 million. Though still down more than 30% from the same quarter one 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 six different new fab customers in China, doubling our number of China CCS customers to 12.
Additionally, three of the 11 design wins were for new memory customers, two for NAND and one for DRAM, bringing the number of memory fabs we've penetrated to 10. Overall, the CCS market is developing as we'd 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 Tec-Sem, 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. Tec-Sem 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.
Tec-Sem'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. Tec-Sem 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 Tec-Sem are significant, we've combined these groups together into our CCS business unit.
Four years ago, we entered the contamination control business at a time when we could feel that it was set to take off, indeed, CCS revenue tripled in our first three 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 million, as foundry spending begins to percolate for 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 that our strategic R&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, we anticipate that our Semiconductor segment revenue will increase by approximately $10 million in the quarter. In total, our second quarter performance was very strong, as demonstrated by our revenue growth and the additional design wins that we've secured. 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. That concludes my formal remarks. I'll turn the call back over to Lindon.
Thank you, Steve. Please refer now to the PowerPoint slides available on the Brooks website under our Investor Relations tab. We begin with Slide three, which is a consolidated view of our second quarter operating performance. Our top-line revenue grew 9% sequentially to reach $207 million. This brings us up to 22% growth year-over-year compared to the second quarter 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 second quarter. We had $46 million 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. Second, 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&L as we look at the non-GAAP results on the right side of the page. Non-GAAP gross margin came in above 41% and up approximately 30 basis points compared to the prior quarter. The improvement was driven by Life Sciences margins, which increased to 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&A expanded on a sequential increase of variable compensation accruals and some professional services expense. You can see this was less than the revenue growth, providing further margin expansion at the operating income line. Operating income was $32 million, an increase of $4 million or 14% sequentially. We saw additional improvement in the non-operating section of the P&L. Net interest expense was reduced modestly with interest income derived from conservative investments.
Foreign exchange losses were $1.5 million 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 tax rate of 10% and foresee 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 second quarter 2017. Let's turn to page four to begin discussion of segment results. In the second quarter, Life Sciences revenue was $49 million, 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 sides, 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 million and added to our backlog. I should once again emphasize that our Life Sciences bookings are a mix of short-term and long-term estimated realizable revenue, 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 second quarter came in at 39.8%, up 340 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 fourth quarter. As indicated previously, revenue growth, cost improvements, and favorable mix is the roadmap to get us to 10%. Our next step is in the third quarter when we expect to have $50 million to $52 million of revenue. Let's turn over to slide five. Semiconductor Solutions revenue increased 12% compared to the first quarter. 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 one year ago and reflects significant structural improvements in cost and throughput achieved in the operations of our business. Let's now turn to the balance sheet on page six. Accounts receivable increased by a modest 2% with an improvement in day sales outstanding by five days. The inventory and payables balances increased commensurately, supporting growth in both businesses in a particularly tight supply chain in the Semiconductor space. We ended the quarter with $245 million in cash equivalents, and marketable securities, up $13 million from the December 31st, 2017 balance. Let's turn now to cash flow on slide seven.
Operating cash flow in the quarter was $20 million. The benefit of the valuation allowance and net income is a non-cash event, so it's deducted in the cash equation. You will see the investment in working capital of $10 million as mentioned, and the other lines show up as modest changes 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 two businesses for cash. The cash used for both purchases, net of cash received, has totaled approximately $16 million to date. Let's turn to slide eight to see an overview of those two acquisitions. We believe we have picked up two gems that complement our current offerings nicely.
The Tec-Sem business fits into our contamination control solutions business and comes at the right time. We expect the 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 exceeds 30% of our total semi revenue. This acquisition will be incremental in that diversification of our customer weighting. The Canadian-based biorepository, BioSpeciMan, expands our customer and geographic reach of the BioStorage Technologies business in Life Sciences. The profile is very easy to integrate into BioStorage Technologies, 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 three- to five-year horizon. Let's now turn over to slide nine and consider the guidance for our third fiscal quarter. Revenue is expected to be in the range of $215 million-$225 million. Adjusted EBITDA is anticipated to be $43 million-$49 million. Non-GAAP EPS is expected to be $0.40-$0.46 per share. This guidance reflects an approximate $0.01 dilution to the Non-GAAP EPS driven by the Tec-Sem acquisition in the quarter. By the fourth quarter, we expect EPS will be benefiting from both of those acquisitions.
The GAAP earnings per share is expected to come in at $0.28-$0.34. That concludes our remarks as prepared. I'll now turn the call back over to Scott to take questions from the line.
Thank you. Ladies and gentlemen, if you would like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. If you are using a speakerphone, please lift your handset before entering your request. Once again, that's one, four to register for a question. One moment please for the first question. 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's been 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 will accelerate the growth for CCS?
Can I just make sure I'm understanding, Farhan, which business you're referring to?
Contamination control.
Yeah. Okay. Contamination control is in the semi business, and is underneath our General Manager, David Jarzynka. We do continue to have much optimism there. I'm going to comment initially and let Steve chime in here. Last year, in 2017, it had reached $84 million, and that was up from $52 million 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 second quarter modestly. In the third quarter, fourth quarter, 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. We think that we're in the hunt for another solid year.
Got it. Then, in regards to your Chinese and Korean equipment suppliers, can you just talk about how much of the 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?
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 two to three years. What we see is that as they get more capability, they win more of the process steps, the volumes generally are increasing. 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.
Our next question is from the line of Edwin Mok with Needham & Company. Please go ahead.
Thanks for taking my question, guys. First, just quickly, housekeeping. Tec-Sem, you said there's a $0.01 impact. Is that just for GAAP or both GAAP and non-GAAP? Can you just roughly tell us how much the two acquisition, how much revenue the two acquisition add to your June guidance?
This last year, the estimated revenue was about $13 million on a GAAP basis, and we ended up paying approximately $14 million after netting down the working capital. Not all of that payment's 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 million a quarter or so I think is the right expectation about what we have folded in.
The $0.01 impact, is that just from lower margin of the business overall or just on GAAP because of the current valuation?
Yeah. I'm sorry, that's a non-GAAP dilution point of about a penny. I'll go back to the amortization after the Q, and it'll be spelled out for you there. 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 there's good opportunities. By the time we get to the fourth quarter and we do see demand ramping in the near term, that with that demand and with our integration activities, you'll see it become accretive on a non-GAAP basis.
Great. That's helpful. 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 vacuum automation business can still continue to grow. We've obviously heard from some of your large customers talking about kind of lower levels of NAND spending in the coming quarters. Just curious, what's driving the growth in the June quarter, and how do you guys see that business go on beyond the June quarter?
Yeah. Edwin, we're also a little bit curious because we've heard mixed results, but the order book's 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. The bookings are strong and the demands for customers, at least over the next months, are pretty solid. 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. 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. Just kind of quickly on Life Sciences. You guys did this acquisition of this Canadian depository, and then it seems like 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 has been based in the U.S., is that correct, and is there a lot of room to expand into international sample storage opportunities?
That's correct, Edwin. Basically, it was an opportunity that came up because it happened to be a really good biorepository in Canada. It's not all Canadian samples. They have a storage facility in Pennsylvania. 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. Irrespective of where the biorepositories are, the samples are from all over the world, and that's pretty consistent with the model. You'll find that at almost any size biorepository, they have samples from many countries. 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. One last one, if you don't mind me squeezing in. Just, I've heard a lot of talk about the compound bio storage equipment or store that you guys have talked about before. How's that progressing?
Let me comment on this. If I'm understanding your question, I think you're asking are we progressing in storing chemical compounds. In general-
Yeah, sorry. Let me just 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.
Yeah.
Excuse me. Low temperature.
The BioStore III Cryo. That's at the cryogenic temperature. Yeah, Edwin, we keep making progress there. We did another $1 million in the quarter, again, that's at a pretty low level, but consistent with where we've been. A little bit up from last year. This is really steady, slow progress, we win those one customer at a time on the automated systems. I think on the last call, we did talk about two pretty good size installations that will go in toward the end of 2018, early 2019, where we actually provide some automation to fully automate these cryogenic systems and connect them together. We're really bullish about the opportunity. This one continues to be at a slower pace than we'd anticipated, but steady as we'd reforecasted for 2018.
Okay, great. That's all I have. Thank you.
I'm going to follow up on your question now, Edwin. 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 $1.2 million on a GAAP basis. While we said it'd be about $0.01 hurt on the non-GAAP, it'd 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.
I'll start with just a housekeeping question, looking back and clarifying an issue in my model for the reported quarter. Linden, I know you mentioned the segment operating expenses, but I missed those. Can you just walk me through what drove the sequential increase in OpEx in the quarter?
Yeah. With the accelerating performance, one item is the accruals of variable compensation. When we talk about variable compensation, this isn't merely cash and an executive. Well, it's across all employees. All employees participate in a variable compensation. 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. The second element is we had some professional service expense that we incurred in the quarter. 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'll level out a little more. It wouldn't be with us structurally other than on a par performance years, right? Which we were already accruing.
On the professional expenses, we also don't see that as being a structural add to the business.
Is the accrual driver revenues or core 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. Yeah. That's on the cash base. When you go to the long term, you'd see the executive plans shift more to an ROIC weighting, including the operating income as well, but a heavier weight. 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. Then, Steve, you mentioned in your prepared remarks 28 Semiconductor segment design wins in the quarter, which was an unusually high number. I don't recall your mentioning that data in the past. Can you give us some context around where that number might have been over the last four quarters or so? Then 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. Craig, just to give you, this is a metric with very specific targets that we set out at the advance of every year. 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, some just come along, and we'll take them, but they may not have been as strategic. The historical average for us is about half of that. Just to give you an idea, in a typical quarter, 15 to 17 would be pretty normal. 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.
There's a deliberate set of wins that we set out to achieve, we had a really unusual quarter and a real testament to a lot of the capability. 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. 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. We want to make sure that we don't just get designed in, that we participate in all the volume that comes too. 11 CCS wins in China is a huge accomplishment for us in the quarter.
Yeah, that is, congrats to David's team overall for the performance with the design wins. Connecting that activity and your comments that that really lent confidence to the business's 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? Are there any parts of the business that would stand out, CCS, advanced packaging, vacuum automation, et cetera?
Across the board, Craig, the indications we have are strong. We really get orders by quarter in advance. 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. 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. Again, anything can happen, we remain confident about what we hold orders for. 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. 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. Again, I think that's going on probably across the industry.
Got it. Lastly, goodness, I'm not sure if this is for you or for Lindon, there was a reiteration of the 10% operating margin target for the Life Sciences business. I think from the most recent quarter, our GAAP there is about 350 basis points. 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 350 basis point objective. Thank you.
I think you're going to see the balance of it come through a split of gross margin and operating expense leverage. We still have progress to make in the gross margin, and this is partly in the cost of our footprints and operations as we consolidated in Manchester. By the way, we made substantial progress over the last two quarters. We made it in two, what I would call half steps to get to here thus far in the manufacturing cost of the operations in Manchester. They're doing a great job in progress. We still have a list of opportunities to close in on. Similarly, we've got operating expense, as we described before. We'll 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.
You'll see, I believe, the three and a half points will be roughly half shared by the time you get to fourth quarter between gross margin and OpEx leverage.
Thanks for that, Lindon. Good luck, guys.
Thanks.
Thanks, Craig.
We have a question from Paul Knight with Janney Montgomery. Please go ahead.
Hi, Steve. Hi, Linden. Could you talk about the B3C uptake and kind of the capital equipment side of the Life Sciences business, kind of how it wrapped up in the quarter?
Yeah. The B3C, again, 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, takes a considerable amount of conversation. When we find customers take a B3C, they don't go back and buy a manual tool. This is one that's really encouraging for us. 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 million of revenue. Between the B3C, around $1 million, and the automated stores around $9 million, 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.
We are accumulating the right kind of customer base, and we supplement that with the Cryo Carrier that we have, and the filling station allows them to not just store the samples in an automated system, but also transport them through the facility at safe cryo temperatures.
Steve, with the BioSpeciMan 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?
We have six sites right now. 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. After we have the samples for a number of years, they're very comfortable moving them to another location. It gives us economies to put them into a more economical site. In terms of winning business, the proximity does seem to help for first time wins on the business. We're at six 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, that's an important one for us.
You may see us when there's a site that has enough economic advantage that can be large enough, that we may put them close to customers here in the near term. Again, we have to drive economies for it, we'll always evaluate each one case by case. Six now, going to seven, we may consolidate back to six by the time we get to a year from now.
Lastly, can you compare and contrast this quarter with the December quarter in terms of customer interest, demand on BioStorage and services?
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, you can imagine we added somewhere around 1 million 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. What we find is more and more, the customers are very comfortable with outsourcing and they're making that asset decision, and we continue to see the trend building. We're really bullish. The fact that we had 28% growth in the bio storage 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's 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?
Amanda, it's relatively linear. We see bigger weeks and not, we look at the data once a week.
What we see is a pretty steady pattern. I'll give you an example. Four weeks into the quarter, we were on a trajectory to end up about where we ended up. It was pretty steady through the quarter. That's something that happened to us. It's not something that's a normal pattern necessarily. Generally, in this particular quarter, we had an indication from the start that it was going to be a pretty good sized quarter, we're never sure until the last week of order taking.
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?
To give you an example, we're looking at the means by which we put the samples in the most economical place right now. 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. If customers need some nearby, we'll empty space in a biorepository, maybe move those samples to Indianapolis and free up space at a regional site for the customer. That's a daily activity that Dusty and his team go through. We make sure that when we go to pick up a biorepository, that it's a good margin business if it's a business model to begin with. 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. Right now, Indianapolis is one of the best sites that we could imagine, and we still have a lot of capacity in Indianapolis. The margin of the business is really good. The way Dusty and his team manage it is for 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 from me. Looking at the 10% op margin metric that you talked about to exit the year on, Linden, you kind of mentioned the possibility of scaling back some investment spend in the fourth quarter 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, 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. That's why we have confidence that as we grow, we're not going to be adding expense structure. Under the covers, there's still a little bit of coming out and going in, and we're not sacrificing top growth opportunity for expense savings here.
Thanks, guys.
Drew, thanks very much.
Once again, if you'd like to register for a question, please press one, four. We have a question from the line of David Dooley with Steelhead Securities. Please go ahead.
Yes. Thanks for taking my questions. Congratulations on nice results. A couple questions from me. As far as this new acquisition, I guess, Tec-Sem, could you perhaps take a stab at what you think the size of this market's going to be in a year or two, or help us understand what the potential market opportunity is?
Dave, it's a really good question. I think if we put a peg on this one, we'd guess that this is a $30 million opportunity that could grow to $50 million here in the next few years. It'll depend on the products that we put together in and around EUV. We know about the size of their reticle storage market, probably around $30 million today, and we feel really good about that.
Again, depending on the amount of acceleration we get from the EUV side, that'll determine how big and how fast this can grow. The market expansion is mostly EUV driven. At least the $50 million. The incremental market from today, that's right. Because the Tec-Sem team has a really strong presence in the reticle management market today, and we think that additional growth will come from the products that we develop in and around EUV. We have a EUV carrier cleaner already in the CCS business, but we think that the value and the complexity of handling the reticles for EUV might bring us other opportunities in terms of how the reticles are stored. That leads me to my next question as far as the FOUP cleaning business. What impact does EUV have on that business? Does it expand the size of that market?
We don't anticipate that it will expand the size of the FOUP cleaning business. That'll be a volume and process step-driven capability, but I don't have a good assessment of that yet, Dave. It's a good one for us to think about, but we don't know why that 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. I can't say that we know the impact of EUV on something like that yet. As far as the FOUP business, because 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 quarters are driven by memory versus the foundry logic space? 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? We don't have that specificity of the breakout right now, the foundry business is beginning to increase, so you'll see some from that. We always continue to forecast that the number of these cleaners going into memory fabs will be significantly less than go into a high-end foundry. We don't have that specificity to give you yet. We are pleased by the breadth and the number of different customer applications we have besides just tier 1 foundry.
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. We'll see some revenue beginning in the Q4 period of our fiscal Q4, I don't know what to tell you about when it'll 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.
Scott, I think we can wrap up then. 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. Thank you very much.
Ladies and gentlemen, that concludes the call for today. We thank you for your participation, and lastly, please disconnect your line.