Ladies and gentlemen, thank you for standing by. Welcome to the Brooks Automation Q1 2018 Financial Results Conference Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. As a reminder, this conference is being recorded Thursday, February 1, 2018.
I would now like to turn the conference over to Lindon Robertson, Executive Vice President and Chief Financial Officer. Please go ahead, sir.
Thank you, Christopher, and good afternoon, everyone. We would like to welcome each of you to the Q1 financial results conference call for the Brooks fiscal year 2018. We will be covering the results of the Q1 ended on December 31, and then we will provide an outlook for the 2nd fiscal quarter ending March 31, 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 10Q. 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 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 Q1 highlights. Then we will provide an overview of the Q1 financial results and a summary of our financial outlook for the quarter ending March 31, which is our Q2 of the fiscal year 2018. We will then take some 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 would like to turn the call over now to our CEO, Steve Schwartz.
Thank you, Linden. 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 our Q1. Coming off the 2017 fiscal year in which we grew revenue by 24%, we delivered Q1 performance has us off to another fast start in our fiscal 2018. Revenue for the quarter was $189,000,000 up 18% from a year ago, with growth again coming from both semiconductor and life sciences.
And we entered the year positive about our outlook as bookings in the quarter were a solid 225,000,000 dollars including $59,000,000 from Life Sciences. We're encouraged by the projections and optimism that surround these two markets and our confidence comes from the fact that our offerings are targeted at critical technologies that are fueling much of the strength in these markets. In Life Sciences, growth is the theme as the discovery process for Cures is driving a tremendous increase in the number of biological samples that are being month. The care and precision that's required to properly collect, store, track and transport these samples is of tremendous importance and is driving research organizations to move toward automated sample management and or completely outsourcing the management of their samples to a full service provider like Brooks. We're still in the early innings of this rapidly evolving industry, but we're extremely well positioned to both define and capture this opportunity.
After a record year for the semiconductor equipment industry, we still see strong growth powered by an insatiable demand for solid state memory and high performance logic chips that support the next wave of mobile devices. Memory capacity expansion has been the driver of late, but later this year we anticipate an increase in logic production which should sustain the high level of capital equipment purchases. So let's talk about the quarter and the steps we're taking to win and grow. I'll begin with a recap of our Life Sciences business performance. Life Sciences revenue was $47,000,000 our 10th consecutive quarter of sequential growth and up 40 2% from a year ago.
Organic growth was 22% driven by strong organic growth across the entire portfolio. Automation was up 40%, mentioned, bookings were $59,000,000 increasing our backlog for this As I mentioned, bookings were $59,000,000 increasing our backlog for this segment to $270,000,000 a new record level. Our order pipeline remains strong and supports our expected 30% revenue growth in 2018. We continue our aggressive growth trajectory by adding 37 new customers in the biotech, pharma, clinical, academic and consumer driven markets. We had 11 new customers for storage services including a contract for us to set up and manage a newly constructed large dedicated sample storage facility for a prestigious research hospital.
An example of the desire for owners of large diverse complicated sample collections to outsource to capable and competent stewards of their invaluable assets. And significantly, we had first sales of our automated acoustic sample tubes following 2 years of joint development with an acoustic dispensing liquid handling equipment manufacturer and a global pharmaceutical company. The acoustic tubes will be stored and managed in our specialty built high density automated storage system. The integration of our 2 most recent acquisitions, PBMMI and Fortitude is progressing extremely well. We are pleased with both of these companies whose performance is exactly on track with both accretive in the December quarter and meeting the performance that was committed and expected.
In our cryo business, we added 7 new customers including large first time biopharma and biotech customers, a hospital network universities and research institutes across a broad global mix. We now have B3C cryo system installed at 30 customers and a growing list of cell and gene therapy leaders who are adopting our cryo solutions into their SOPs. And we're steadily and confidently building our pipeline of companies who need the hardware and informatics capabilities that we have developed if they are to be successful bringing innovative therapies to market. With Q1 revenue of $47,000,000 solid bookings and a clear path for additional strong growth this year, we've created a substantial business that's on firm footing and is gaining momentum. Over the past years, we've and geographies, footprint, technologies and product expertise to secure both mindshare and market share.
As we approach the $200,000,000 annual revenue run rate, we're also in a position to affect the next level of performance in our Life Sciences business model. We've implemented operational improvements, sales infrastructure and R and D investments that will positively impact our operating results and sets the stage for us to improve profitability through the year and deliver 10% operating income by the September quarter and keeps us on track to deliver our 2019 target of 15% operating income. At this juncture, we are confident that our ability to continue to expand and without sacrificing growth, this is also the time when we can begin to deliver more of the profit potential from our Life Sciences business. This is a signal of the strength and vitality of the business that we've created and will allow us to demonstrate robust growth and increased profitability. This is not a change in our direction, but rather the next stage in our evolution of a healthy life sciences business.
That said, we also plan to remain acquisitive as we have a considerable pipeline of potential targets that will support the build out of our cold chain capabilities. But we will be disciplined in our approach to opportunities as we already possess a complete cold chain solution and any additions to our offerings will be to add more capabilities and or more customers that can help us to grow even faster. I'll now turn to a recap of our semiconductor business in which we delivered another strong quarter and further enhanced our position for the future. Revenue at $142,000,000 was up $4,000,000 quarter to quarter. Bookings of $166,000,000 support projections from our larger customers who look forward to another strong year in wafer fab equipment spending with the likelihood for more growth after a record 2017.
Nearly all of the increase in our semiconductor business came from the combined revenue of our 3 critical high growth segments of vacuum automation for deposition and etch, advanced packaging and contamination control, which increased 9% sequentially from the September quarter and that's inclusive of a decrease in our CCS business. These segments currently represent approximately half of our semiconductor revenue. Semiconductor business remains strong, but relatively flat quarter to quarter as our cryovacuum business and poly cold chiller business remains robust that is near record levels and product lines that include 200 millimeter products, load ports, RFID and other automation products were also steady and profitable. Looking into the March quarter, we anticipate the most significant part of our semiconductor revenue growth will again come from our 3 key growth drivers and demand for our legacy leadership products will stay healthy with the potential for some upside. I'll give some color into our key semiconductor segments.
Once again, our vacuum automation business continued to strengthen because of the continued boom etch applications. Overall, vacuum automation revenue was up 12% quarter to quarter, driven by continued high demand for vacuum robots from our Tier 1 OEMs, but also significant integrated vacuum system business from Tier 2 OEMs who are predominantly domiciled outside of the U. S. We also continue to build for our future as we captured additional key design wins for our next generation vacuum robots, the Magnetran LEAP family. At Tier 1 OEMs, we secured another 3 additional high volume tool platforms by replacing their internal captive designs on previous generations of toolsets.
This continued trend to outsourcing automation to us is accelerating among OEMs, not only because of our technical expertise, but also because of the significant improvements that we've made over the past years as a high volume, high quality supplier. Since the beginning of 2017, we've won 9 new tool designs for our next generation automation products. These wins will begin to generate meaningful revenue when the OEMs start to ship next generation process tools for production in 7 5 nanometer factories. We forecast yet another record quarter for vacuum automation products in the March quarter from across the entire spectrum of our customers, including more activity from Korean and Chinese OEMs, who are dedicated adopters of our automation solutions to serve the significant equipment opportunities they have selling process tools in their respective domestic markets. Our revenue from advanced packaging applications was again strong and is proving to be more steady growth opportunity.
As we had anticipated, the end market for advanced packaging is now expanding to include meaningful Although it's still Although it's still not an easy market to forecast, we do expect that this trend will continue as packaging technologies are becoming critical for a broad mobile and OT applications and will become more than norm rather than the exception leading to more growth from this sector. Advanced Packaging revenue for the quarter was $14,000,000 up 13% sequentially and up 50% from the same quarter 1 year ago. We are confident in our ability to win in this segment and we are investing in next generation technologies to be able to handle what will be even more sophisticated substrates in the near future. Although the market opportunity is still relatively small compared with front end equipment, it does provide us with a significant opportunity for continued growth in business, which has already become approximately 10% of our semiconductor product revenue. Our outlook for this segment is for more steady growth in 2018 and certainly for more design wins with new and existing customers.
As we guided, CCS revenue for the quarter came in just shy of $14,000,000 a decrease from September's $15,000,000 and the 3rd consecutive quarter of lower revenue, but still robust considering the lower level of Tier 1 foundry activity. We remain very positive about the contamination control market as it continues to develop as we predicted. Tier 1 foundries led the adoption of automated carrier cleaning beginning at the 28 nanometer device node and approximately half of last year's $84,000,000 of CCS revenue came from Tier 1 foundries. And we've been able to see that the market will continue to expand as Tier 2 foundries follow and adopt similar cleaning strategies. Furthermore, we predicted that memory fabs would also begin to include automated carrier cleaning into their manufacturing cleaning frequency as logic fabs.
This scenario appears to be playing out as we gained more share with the first order for an automated poop cleaner from a new Chinese logic fab and we established an evaluation agreement to install an automated poop cleaner at a Chinese memory factory. China is the last competitive battleground for automated food cleaning, but because of the strength of our offering coupled with the technology enhancements that we've made over the past year, we're confident in our market position and our ability to win. We've seen a pickup in bookings in CCS following 3 consecutive quarters of lower revenue. We anticipate growth again for the remainder of the fiscal year as we believe the foundry spending will likely increase in the second half of the year. In addition to CCS opportunities that are brought by current manufacturing technology, we're beginning to see the uptick in the need for the care of EUV reticles, both reticle carrier cleaning and stocking.
At 7 5 nanometer nodes, we're positioned to expand our market as EUV technology begins to be introduced at leading edge logic fabs. To date, we've already installed 5 EUV pod cleaners, which are operating at leading fabs and that are developing EUV process technology. Cleaning specifications for EUV reticle pods is meaningfully more difficult than for poop cleaning and we've been working closely with the OEM and fabs on the development of the process specification. To date, we're the only company to be production qualified. In addition, we've delivered 5 EUV reticle stockers, which are used to store these valuable reticles in ultra clean environments.
We have more of these tools in backlog and we anticipate some acceleration of orders in the second half of twenty eighteen. Overall, our high level of design win activity is strong validation that the investments we've been making in R and D are delivering capabilities and technologies that are right on the mark in terms of technical and productivity needs for 7 nanometer and 5 nanometer semiconductor manufacturing. And when these technology nodes hit high volume, we'll be ready and with even higher market share than we have today. In the nearer term, we have many positive indicators about the marketplace and demand. We forecast another quarterly increase in our semiconductor business in the March quarter with vacuum automation leading the way and we see a reawakening in the CCS business.
All in, the December quarter was yet another important period of expanding our leadership and additional validation of our strategy and technology prowess. We've positioned ourselves for more and more profitable growth in the next quarters years. We're beginning to hit our stride in semi and we're investing in life sciences to ensure that we deliver not only on the growth opportunity in the space, but also that we recognize more of the profit potential that exists in this new and exciting market. And that concludes my formal remarks. I'll now 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 3, which is a consolidated view of our first quarter operating performance. Our top line revenue grew 4% sequentially to $189,000,000 This represents growth of 18% year over year. Both segments drove growth. Sequentially, Semiconductor Solutions expanded 3% and Life Sciences 8%.
On a year over year basis, semiconductor grew 12% while life sciences grew 42%. Inside this growth, Life Sciences had organic growth of 22% year over year and maintained the high organic growth trajectory we have seen for the past 5 quarters. In the GAAP results, we see significant leverage at the operating income level on improved operating expenses. Diluted earnings per share were $0.23 in the Q1. Let's address the primary dynamics as we look at the non GAAP results on the right side.
Non GAAP gross margin came in at 41%, which is a half point lower than the prior quarter. This reflects stable semiconductor margins above 42% and lower life science margins at 36.5%. We will cover each of these as we get to the segment pages. With total non GAAP operating expenses essentially flat, we see 9 percent growth at the operating income line and healthy expansion of operating margin. If I take you back to the year moment in the non operating section of the P and L I need to spend a moment in the non operating section of the P and L as this is where we saw the combination of 3 dynamics uniquely impacting the sequential leverage this quarter.
Some of these are temporary in terms of their impact on our earnings. First, as explained in our previous earnings call, in the 1st week of this quarter, we established a $200,000,000 term loan at attractive rates. The loan currently drives $2,000,000 of quarterly interest expense. While the interest expense will remain with us and weighs down EPS approximately $0.03 per quarter, the cash has not yet been put to work on our acquisition pipeline. But this is the primary reason we took the debt to do further acquisitions.
And as we do, we anticipate it will lift our non GAAP earnings more than the $2,000,000 in total and more than the $0.03 per share. And from there, it should grow. Secondly, we experienced foreign exchange losses of $2,000,000 in this quarter, which was $1,400,000 more than the prior quarter. This is a $0.02 impact quarter to quarter. The FX losses were largely driven by movement in the British pound and the euro against the U.
S. Dollar. Hedged our expected exposures this quarter as we always have, but saw a higher volatility in our intercompany balances relative to the hedges we put in place, which was exacerbated by funding to our UK operations to purchase Fortitude. Generally, we have a mixture of foreign exchange gains and losses for different currencies, which often offset. However, in the December quarter, we experienced losses in nearly each instance, adding up to this unusual level of impact.
While this is an exposure and cost us an extra $0.02 compared to the prior quarter, it is not expected to recur at this level. 3rd, the non GAAP tax rate of 15% increased approximately 2 percentage points from 13% in the 4th quarter. The change cost us approximately $0.01 at our current level of earnings. In this case, the 15% is consistent with our our expectation for the year, so we expect this impact to remain in our quarterly results going forward. In total, these non operating items reduced 0 point of acquisitions.
The joint venture earnings were flat this quarter with sustained strength in the OLED tools market. So at the bottom line, we produced $23,000,000 of non GAAP net income, dollars 0.32 per share and Again, taking you back to the year over year comparison, adjusted EBITDA of $36,000,000 increased 42% and non GAAP earnings per share increased 28%. Let's turn to Page 4 to begin discussion of the segment results. In the Q1, Life Sciences revenue was $47,400,000 which was an increase of 8% sequentially. On a year over year basis, Life Sciences grew 42%, including organic growth of 22%.
This result was not an easy compare as we reported 27% organic growth at this time 1 year ago. The health of the past 1 year and 2 year track growth track for life sciences is seen across our entire portfolio. System sales have been have seen strong growth driven by the need for automated infrastructure to manage biological samples and the cryogenic environment. Consumables and instruments growth is driven by the adoption of Brooks Technologies to enhance and enable advanced workflow of sample management solutions. We see this expanding with both our automation and continues to expand on our BioStorage platform coupled with expanded software offerings for both small labs and enterprise solutions.
All of these areas have seen high double digit growth over the past year. On a sequential basis, Life Science revenue, which was up $3,500,000 had two lines of significant growth compared to the 4th quarter. The Fortitude acquisition added 3,400,000 dollars and Genomic Services, a seasonal driver inside storage services for December, expanded 2 point $8,000,000 These increases were partially offset in 2 other areas. Transportation service was $1,300,000 lower and sales in our cryo products achieved $1,000,000 in the quarter, down $1,300,000 from the 4th quarter. The remaining lines were stable sequentially.
The total bookings for life sciences picked up again in the Q1 coming in at $59,000,000 and adding to backlog. I should 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 is a strong showing of demand, it does not translate meaningfully into a book to bill ratio indicator. Life Sciences adjusted gross margin in the Q1 came in at 36.5%, down 170 basis points in total from the prior quarter. Margins in the infrastructure sales and services area improved 160 basis points sequentially, but the improvement was a bit short of the progress we had anticipated.
This level of improvement was offset by the mix impact of the higher genomic services, which carry lower margins. Also the lower transportation in the December quarter left the fixed cost of our fleet improved mix. As Steve highlighted, we expect Life Sciences to be a 10% operating income by the 4th quarter. In terms of cost and expense structure, except for the potential of further acquisitions, we believe our investments for this year are largely in place now and we continuously lean out all areas of our business. The revenue growth, cost improvements, favorable mix and leverage provide the roadmap to get to 10%.
Let's turn now to the semiconductor business on Slide 5. Semiconductor Solutions revenue increased 3% compared to the 4th quarter. As Steve shared, our automation offerings, which include robots and systems, was the principal driver of this increase. We continue to experience strong demand in advanced packaging as well as in deposition and etch applications. And etch applications.
As anticipated, we did see softness in contamination control solutions this quarter and are seeing the indication of higher coming back by the second half of our fiscal year. In total, the $142,000,000 of revenue is 12% higher than 1 year earlier. The semiconductor adjusted gross margin was essentially flat this quarter at 42.3 percent and operating expenses improved largely on reduced variable compensation accruals in this 1st fiscal quarter. The operating margins of 19% are running at the high end of our target model and give us continued confidence in delivering on our 2019 model. Now let's turn to the balance sheet on Page 6.
As previously referenced, we established the 1st debt instrument for Brooks in many years. It was the right time to take on the debt as it ensured our liquidity as we acquired the Fortitude business and provides fuel for a robust M and A pipeline ahead of us. I draw your attention to the working capital line and highlight that our receivables were largely affected by timing of sales, which we would expect to moderate in future quarters. The addition to inventory is driven by both segments split between ensuring the supply chain of semiconductor product and the expansion of growth in life sciences. Let's now turn to Slide 7.
Our first fiscal quarter inherently provides lower cash flow as this is the quarter we pay out our annual variable compensation from the prior year results. With that payout and the investment in working capital behind us, I believe the 3,000,000 is a strong start and provides promise of strong cash flow ahead of us. In the area of investments, you can observe that the 65,000,000 the acquisition of Fortitude. You can also see our commitment to the dividend payment. We started paying the dividend in 2011 and have since returned 100 and $60,000,000 in dividends to shareholders.
Let's turn it over to Slide 8. Before we wrap up and discuss our guidance, let me first summarize our results and provide commentary on the impact of tax reform. In the Q1, 4% sequential top line growth drove operating margin expansion. Both operating income and bottom line earnings per share are much stronger than 1 year ago, and our profit model is still progressing. In this past quarter, we saw our Q1 of interest expense in our new debt and we experienced an unusual level of foreign exchange losses, which in total dampened the sequential momentum at the EPS level.
The interest expense will stay with us in future quarters, but the FX impact should not. And as we make further acquisitions, we expect the interest expense to be more than covered by the operating income of the businesses we acquire. Combine those potential acquisitions with the continued growth we are seeing in each segment and with the path for profit improvement in life sciences, and I think you can see why we are in a strong position for future profitable growth and have confidence in our 2019 model. The tax reform will also help
us in the
future. As most of you understand, we have nearly $100,000,000 in net operating losses, which we carry forward from the These provide tax credits that can be used against U. S. Tax obligations for some time to come. So here are the key points of effect on us.
For now, we will see approximately 15% as a global tax rate since our U. S. Taxes will be near 0 as long as we have the NOLs and as long as they are fully reserved. Behind this dynamic, our incremental 2018 U. S.
Tax liabilities will be calculated at a blended rate for this December quarter at 35% and the Q2 through Q4 periods at 21%. This will be 24.5% for 2018. But even this will be lowered in the future as more than half of our U. S. Income is driven by exports.
Profit from U. S. Exports will benefit from a lower rate in our our expect our global tax rate to be approximately 20% to 25%, which reflects the U. S. At approximately 17%.
The global rate is approximately 10 points lower than our past experience. For now, it is important to note, we continue to So now for the guidance of our 2nd fiscal quarter. Revenue is expected to be in the range of $195,000,000 to $205,000,000 Adjusted EBITDA is anticipated to be $39,000,000 to $46,000,000 Non GAAP earnings per share expected to be 0.3 $3 to $0.41 per share and the GAAP earnings per share is expected to come in at $0.24 to 0.32 dollars dollars That concludes our remarks. I'll now turn the call back over to Christopher to take questions from the line.
And our first question comes from the line of William March with Janney Montgomery Scott. Please go ahead.
Hey, guys. How are you?
Hey, Bill. Hey, Bill.
What you've seen since they've been integrated? And then in conjunction with that, Steve, can you maybe talk about the M and A pipeline? And as you think about adding a consumable versus a software versus sample storage kind of how you're ranking potential acquisitions?
Sure. Bill, so a couple of things about the acquisitions. We when we took on the Fortitude group, we anticipated around $3,000,000 in change and they delivered exactly that. Their outlook for Q2 is equally strong, maybe up a little bit. So they're right on schedule, right on track and fitting in extremely well.
The integration activities Dussie has going with the team are progressing really well and it's been a smooth integration so far and we're really positive about how the outlook is. In the PBMMI acquisition, we were pretty secure on the storage business. It turns out in the September quarter, we were right on track. In December, we were up a little bit. It was a pleasant surprise.
The summer period for transport services, we know to be high and we found out in December, it dropped to about $1,000,000 from the September quarter, again anticipated. But that progress is going extremely well. And I'd say from our outlook, the storage is a little bit higher than we'd anticipated. So they seem to be integrating without skipping a beat and Dusty's team is all around it and the teams are integrating really well. So we're really pleased.
So those 2 have gone well. And when we look at the pipeline, obviously, we're interested in continuing to add high quality samples and capability in the pipeline. So we'll always look for additional bio banking opportunities there. From an informatics platform, we have really strong capabilities that exist. And when we evaluate the capabilities from an informatics standpoint, that's usually a make versus buy.
We have a really capable team, but there are some capabilities we'd like to add. But right now, the progress we've made with some large customers gives high confidence that we're on a really good path. We continue to look at the analysis capabilities. We think we're pretty buy decisions, because we do think that expanding our cryogenic coal chain beyond what goes on inside the facility or the factory that includes transports also a meaningful capability to add. But there are a lot of opportunities there, a lot of options.
We're weighing all those carefully. So we do have a very rich pipeline. And why would it's hard to comment on any of them specifically, but certainly in 2018, we would imagine we'll continue to be active. And as Lindon mentioned, we have some dry powder and it wraps around the size of the acquisition we're looking at pretty well.
Got it. Thanks. And then maybe, Linden, just talking about the Life Science outlook and reaching that 10% margin by the 4th quarter, gross margins expanded rough almost 100 basis points year over year and what's sequentially or what is the lowest seasonally. Kind of how do we get from the low single digit margin to 10%? Is that going to come more from gross margin?
Is that operating cost coming out? Just help us walk through that bridge. Thanks guys.
Yes, that's good, Bill.
Yes, so at 36.5% on gross margin, we've been saying that we'll execute to above 40% on average for this year. And so, And we need 7 points to get from 3% to 4% to 4% to 4% to 4% to 4% to 4% And we need 7 points to get from 3% to 10%. And so I think, one, as we continue to lean cost and expense, that's going to help with the gross margin a little bit on operating expense. But then the rest will come through leverage. As we said, our current investments, we think sustain the current business the way it is and we'll gain the benefit of the revenue growth.
So we're confident. We're actually excited about the path and it puts us right on a trajectory as well for 2019 model that we've discussed to be in the 42% to 44% gross margin range and at a 15% operating margin. So it looks good to us.
Thanks, guys.
And our next question comes from the line of Edwin Mok with Needham and Company. Please go ahead.
Great. Thanks for taking my question. So let me state Life Science first. I remember last quarter you guys guided for $47,000,000 to $49,000,000 You did $47,000,000 Was the $1,000,000 difference from the midpoint just from this transport that was a little lower than expected?
It never comes out exactly as you said. That's when we range it. We hit $47,400,000 So it's less than $1,000,000 difference and we're in the range. I think the transport drop it's priced us a little bit on the magnitude of it. But Edwin, I think, overall, we're pretty pleased with the mix and the stability.
And we don't get honestly, we don't get too hung up on the quarter to quarter, although we press hard to get it every quarter. But the substance of the growth year over year and the pipeline and the bookings we had this quarter, the interest and the demand that we're seeing gives us a lot of confidence that while we executed in the range and we're on the track that we need for the year.
Okay, great. That's helpful color. Can you kind of help us out in terms of tell us how much of your business is now coming from recurring versus like store sales? And you guys have a very nice booking quarter. It sounds like bookings rebounding really strong this quarter.
How much of that is coming from large contract from this recurring business, recurring revenue business?
Yes. So it continues to range in the above the 50% level. We updated at the end of the year, it was 53% this past year and we're in that similar range right now. I don't think it's that productive to go quarter by quarter. By the way, it was tweaked down modestly, but still above the 50% level.
And the reason it tweaks down is because we see the spike in genomics and we don't count that services as recurring. But I'd say it's steady as it goes, 53% from last year. If it moves dramatically, we'll update the
street. And also the stores business has been pretty strong. So the infrastructure is growing so that we knew what the sample business looked like, which has been great, but the stores business has been particularly strong.
Okay, that's helpful. On the Steve, on your commentary around new store customer, you mentioned a large hospital that you guys have secured. Did I understand correctly that you guys are building a new facility in Exeter Hospital or is that did I misunderstand that comment?
Yes. So there's a large research hospital and as we're able to name it, we will, but a little bit premature right now, but we were under agreement to literally to build a facility very close to on the premises of this large research hospital, pretty well known. And literally to take the sample collections that are distributed all around this facility into a central repository and run it as we do as Brooks Biostorage. And I think that's what the customer is looking for, that order, that ability to manage, that specificity of purpose and care of samples. And so it's a it's a real testament, we think, to the capabilities that they see.
And it's a really good sized collection, large enough to justify its own facility and they're keen to have it close by. We think we could serve them from the locations that we have, but we're also delighted to have a chance at this opportunity and putting it close by the customer. And it's literally more of our capability in yet another location and quite large enough to justify the facility from a single customer. And we anticipate this won't be the last time we do something like this.
Yes. So I was going to say, this seems like a new potentially a new business opportunity for you guys, right? I mean, I would imagine some of your customers that historically might be buying these stores who look at the kind of cost analysis in terms of having you manage it versus them managing themselves. Do you see this as potentially a new growth factor for the company, obviously, longer term not today, but longer term?
Edward, sorry, if you could just one more time.
Yes, I mean, just basically looking at this, right, is this an example of potentially a new growth factor for you guys in terms of these opportunities of building storage facility for a customer that historically might be buying, just buying equipment themselves or try to store it themselves?
Yes. So we anticipate some customers will do this. And what will happen is when the word spreads
that a facility like this was able to satisfy their sample needs with the
capability that we put in place, we anticipate that it will provide more of a business opportunity. That said, customers who have been our customers for a while are quite content that the samples can be located in Indianapolis or in Darmstadt or in Singapore, they can retrieve them quickly, that they can archive them quickly. And so we'll see differences here. Can able to look out and see where their samples are. So we would anticipate there'll be both.
But think that this will be a sign that to some customers who are still contemplating outsourcing the management of samples that when they see a dedicated facility serving site particularly well that it indeed might be a new business opportunity for us.
Interesting. I have a question on just quickly one question on the semi cap side. 1 of your large customer or one of the large front end equipment customers that sell in the edge and depth space, right, talk about second half more flattish to the first half of this year, but you sounded more optimistic about growth on your business in the second half. Is there a way to kind of think about the differences because of CCS ramping in the second half or any kind of other color you provide on that?
Yes. Edwin, we this is a good question. I'll just put the part in perspective because you hit it exactly on the head. Our CCS business, the $14,000,000 was down $10,000,000 from a year ago same quarter, but the rest of our business has grown significantly. So if and as the Tier 1 foundries begin to more spending in the second half, that will provide an additional opportunity for us, kind of how we look at it.
So the business that we sell to serve the Tier 1 OEMs will be will go exactly as they go. But there is a bit of difference on the makeup of the fab just because of the propensity that they have to use more of the CCS product.
Our next question comes from the line of Farhan Ahmad with Credit Suisse.
This is Darren on for Farhan. Just first question is about your operating margin mix. So I see that you had 19% this quarter. Could you provide some guidance on how you see that moving forward throughout the year?
So guidance on how we what?
How you think about the semiconductor business margin, operating margin moving forward? Do you think
you can I see? So we only guide semi on a revenue base for the current quarter. We've not broken into such confidence that we're out of cycles in semi that we wouldn't point to 1. But in 2019, we give you a model that we're tracking for. So in 2019, we've described that it would be 16% operating margin.
And that's why I clarified that we're already operating at the high level of those operating margins and it gives us increased confidence that we'll be well on top of that model and perhaps even a little stronger if the CapEx equation in semi continues to show strength.
Okay. Yes, that's what I was getting at was just kind of understand that guidance that you gave is going to be towards top half because you guys are already kind of there. So thanks for the color on that. And then with regards to sort of the EUV aspect that you guys mentioned, can you provide some further color on how sort of the timeline of how that will impact your semiconductor business moving forward? I know you had 5 tools that you said that were already kind of in place.
But what do you look at what do you think about that as heading forward?
So, Dara, we put tools in now over the past few years. And the question that we have is how many what will be the density of our tools, the reticle cleaners and the reticle storage systems when customers add additional EUV tool? So we have some products in the backlog. We anticipate we may have a couple of new customers this year. The thing that we can't gauge yet and we have not put into our own projections are if there's a lineup of a number of EUV tools, how many of the reticle support tools will be part of that infrastructure and some we just don't know yet.
As we know, we'll inform. But we can imagine that we would not imagine to have a single dedicated EUV pot cleaner or EUV stocker for large numbers of EUV tools. We would imagine that the ratio will be more favorable.
And our next question comes from the line of Patrick Ho with Stifel. Please go ahead.
Thank you very much. Steve, maybe first off on the semiconductor side of things. I know you've talked about potential expansion of the CCS business to the memory makers. Do you believe that transition or the inflection point may be when the industry gets to 96 layers on the 3 d NAND side of things? Or I guess what's the catalyst that's going to be needed for adoption by the memory players?
So it's a question that we still wonder. We certainly know that, well, I'll give you an example of the tools that we shipped in the quarter of about a dozen, half were for memory and half were for logic. So that's the biggest ratio we've had. And it was to a number of different memory makers. We would anticipate, Patrick, as the chemistries change, so it may be related to layers, it may be related to the complexity of the etch technology.
We think that if the chemistries change, likely that may require more food cleaning, but that's an unknown for us right now. So there's some level of cleaning and it'll certainly be also volume driven, but there's not a catalyst right now that says a particular technology is driving a higher density of flu clean. But again, these are early days for us.
Great. That's helpful. And maybe as my follow-up question for Linden, in terms of the investments that are still needed on the life sciences and you're setting the target of 10% operating margins for the September quarter. Yet as you're starting to grow revenues and they're starting to ramp, there's probably more investments that are going to be needed both for supporting these customers, especially some of the new ones you highlighted in your prepared remarks. How do you balance, I guess, some of these new investments versus your target of getting to that 10% target goal you set?
I appreciate the question. I want to clarify. We've been bullish on this market for the past 5 years, and we've been putting the investment in place. And as we've acquired business, it has been exactly as you just described. We would put additional investment in place, but we would also take some point.
And what we've highlighted here today
is that we feel
that we point. And what we've highlighted here today is that we feel like our organic investment or the investment needed to support the businesses that we own today is largely in place. And so we think the rest of this year will benefit from what's in our structure today. And it will be very modest if any changes in any additions. But meanwhile, we'll continue to work out and lean out our business.
And we think we're specifically, we think we have some cost improvements to make on the store and infrastructure side of the business. But we're pretty happy with the structure we have. We added a little headcount this past quarter. You see that in the expense line. And I think from this 3 percent operating margin, we're going to see the benefit of revenue growth and it's already supported with what we have on hand.
Great. That's helpful. Thank you very much.
Thanks, Patrick. Thanks, Patrick.
And our next question comes from the line of Drew Jones with Stephens. Please go ahead.
Thanks guys. Kind of piggybacking off of that
last question, can you give us an update or reminder on where the life is sales force is at this point and maybe the average Brooks tenure there?
Gosh, it'll be a guess because we've acquired and hired. But the average tenure from the companies, I would well, I'd be really hard pressed, but we're now 6 or 7 years in the business. But we have just over 100 salespeople in the company right now. And all of them, whether they've been with Brooks or not, they're generally pretty experienced salespeople in and around life sciences. So we are we're not yet at a place where we're hiring and training brand new people.
There are a lot of I guess I have to say is and we've been really pleased about it, we've had a lot of really talented people eager to join the company. And they've generally come from consumable space, from capital equipment space, from cryo in and around the space. So I think it's really experienced sales organization. The things that we're learning and developing are really about selling the portfolio of capabilities that we have and offering solutions to customers. And generally, we think really solid from that standpoint.
But we're about 105 salespeople, up 50% from 1 year ago. Perfect. And then, Steve, can you give us an update on that large Beijing customer that you called out last quarter,
just where they are in their ramp?
Sure. We're in the process of manufacturing those tools. We anticipate installation will be late in this year, early next year, just to stay on their timing actually, but we'll be quite ready. But 3 large stores and they have I remind you, they have 8 of the large automated cryo stores. So it's a large customer and we are in with cryo and on the large automated bio stores, those are on track for about a year from now for delivery.
Thanks, guys. Thanks, Drew.
And our next question comes from the line of Craig Ellis with B. Riley. Please go ahead.
Thanks for taking the questions and thanks for all the very detailed commentary this far, guys. Very helpful. I just wanted to start going back to Life Sciences. I think the operating margin target makes a ton of sense and very logical path to get there about equally between what you want to do with gross margins and optimizations along with volume. The question is, given that you intend to be acquisitive, how should we think about acquisition impact to the 10% operating margin goal?
Would we expect that it would be retained through acquisitions or revisit the timing of 10% operating margin attainment once we potentially add another business or even 2 by what you have now in Life Science?
Yes. Perry, this is really good because this is really central to what we've been doing on a regular basis. So when we acquired, a couple of things happened. 1, we're very focused on how fast it becomes accretive. And I'm happy to say GBMMI became accretive immediately, Fortitude was accretive What we What we do find is it's not always the level of what I would say is steady state.
And as we expand this business and then as we integrate because they're carrying the infrastructure that they needed. And as we integrate, we're able to expand those margins. So we would anticipate that as we acquire another business, it takes somewhere between 1 to 2 quarters. Sometimes it's a larger business that may take a little longer time to get to a run rate of where we're going to keep the business. I'd say that's the right expectation, probably 2 quarters on average.
And so while it might pull the margin down, I expect it's going to be fully accretive. So you take the business that we own today, expect 10% on it and then add dollars to that and whether it pulls it down from 10% or helps us stay at or better than 10%, it remains to be seen depending on the timing of the acquisition.
That's helpful color. Thanks, Linden. I'll turn it to the semi business and go back to some of the intermediate term comments that Steve had. Steve, given the inflection that it seems like we'll start to see in CCS in the relatively near future and with a stronger second half based on foundry and steadier growth in advanced packaging and some of the other growth areas. Are there any meaningful negatives that we would see in the back half of the year in the legacy portfolio?
Because it seems that semi business is set up not only for good sequential growth through the year, but for accelerating year on year growth given year's profile?
Yes. It's a good question and unknown to us.
I'll remind you, Craig, I think you're pretty familiar. But the cryo business, the cryo vacuum business is generally implants and PVD. So if that sustains, that will remain a strong business for us. We do have legacy tools and we serve a lot of 200 millimeter business that happens to be driven by right now the Internet of Things. I mean, a lot of there's a lot of 200 millimeter capacity that's sustained at a pretty healthy level for 4 to 8 quarters now.
Anything could happen there, but the level has been pretty strong. And I think just because of the overall robust environment, but those are unknowns to us and difficult for us to forecast. But right now, those feel also like they ought to sustain through the year. The one area that's always been a little bit of a wildcard for us is, I remind you, we have strong OEM customers in Korea who sell predominantly in Korea. So that goes up and down based on the spending in Korea.
And so that's one area that could fluctuate. So if there's a Samsung Hynix slowdown of any kind, sometimes we see that business slow down very quickly because they really are relegated to the business in Korea. We are, however, developing a pretty meaningful OEM customer base in China. And the same kind of dynamic is set up where as long as the factory activity expands, that will be really good business for us. But they don't have a lot business outside of China.
And if the Chinese fabs don't continue to materialize, that business could slow down. But that's how we look at the business. Those are the things we really pay attention to from an outlook standpoint. And anything else that of course, anything that impacts the industry generally impacts us. But we do have some unique segments that don't move generally with the industry, that being the CCS related to foundry and the OEM business in Korea and now in China.
That's helpful. And then just following up on the China comment, Steve. There's a lot of focus on the region topically for understandable reasons. Can you just go a little bit further out and talk about where you see Brooks now with the engagements that you have and business that is coming in? And what would be possible for Brooks, not quantitatively, but qualitatively, if we looked ahead to the 2019 2020 timeframe based on some of the engagements that your salespeople would be having now?
We have more than 50 customers in China for the and we're talking about just semi now, for the semi business. And we support about 15 different OEMs. And our understanding and our observation actually is that it appears though some of the newer and less mature equipment makers are certainly getting a very serious look at some of the technologies rather straightforward or mundane or simpler process technologies, they'll likely have an outsized share of that business. And that is very meaningful for us because we have extremely high share, especially around the vacuum automation and high share around the cryogenic pumps in China. And so their unfair share would translate into really good share position for us.
Chinese factories by Chinese companies would certainly drive the business.
Thanks, Steve. Thanks, Linden.
You bet, Craig. Thanks, Craig.
There are no further questions at this time. I will now turn the call back presenters. Please continue with your presentation or closing remarks.
Christopher, thanks very much. Look, we really appreciate everyone's time with us and your interest in Brooks. We're really excited about the environment around both of our segments and we're gaining even greater confidence the path that we're headed not just for this year, but in 2019 on the model that we've outlined. And we look forward to keeping you up to date on that. We look forward to talking to you again this time next quarter.
Thank you.
Ladies and gentlemen, that does
conclude the conference call for today. We thank you for your participation and ask that you please disconnect your