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. 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 Thursday, February 1st, 2018. I would now like to hand the conference over to Lindon Robertson, Executive Vice President and Chief Financial Officer. Please go ahead, sir.
Thank you, Christopher. Good afternoon, everyone. We would like to welcome each of you to the first quarter financial results conference call for the Brooks fiscal year 2018. We will be covering the results of the first quarter ended on December 31st, we will provide an outlook for the second fiscal quarter ending March 31st, 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 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, 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, when considered with GAAP financial results and the reconciliation of GAAP measures, they provide an even more complete understanding of the Brooks business. Non-GAAP measures should not be relied upon to the exclusion of the GAAP measures themselves. On the call with me today is our Chief Executive Officer, Steve Schwartz. We will open with his remarks on the business environment and our first quarter highlights. We will provide an overview of the first quarter financial results and a summary of our financial outlook for the quarter ending March 31st, which is our second quarter of the fiscal year 2018. We will 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, Lindon. Good afternoon, everyone, and thank you for joining our call. We're pleased to be able to have the chance to update you on the results of our first quarter. Coming off a 2017 fiscal year in which we grew revenue by 24%, we delivered Q1 performance that has us off to another fast start in our fiscal 2018. Revenue for the quarter was $189 million, up 18% from a year ago, with growth again coming from both Semiconductor and Life Sciences. We enter the year positive about our outlook, as bookings in the quarter were a solid $225 million, including $59 million 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 a theme, as the discovery process for cures is driving a tremendous increase in the number of biological samples that are being collected and stored, and an exponential rise in the number of analytical tests and genomic sequencing measurements that are being performed on millions of samples every 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. 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 million, our 10th consecutive quarter of sequential growth and up 42% from a year ago. Organic growth was 22%, driven by strong organic growth across the entire portfolio. Automation was up 40%, consumables and instruments up 30%, and services and informatics up 15%.
As I mentioned, bookings were $59 million, increasing our backlog for this segment to $270 million, 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. Significantly, we had first sales of our automated acoustic sample tubes following two 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 two most recent acquisitions, PBMMI and 4titude, is progressing extremely well. We're 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 seven new customers, including large first-time biopharma and biotech customers, a hospital network, and 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. We're steadily and confidently building our pipeline of companies who need the hardware and informatics capabilities that we've developed if they're to be successful, bringing innovative therapies to market.
With Q1 revenue of $47 million, 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 invested to create a complete and comprehensive sample cold chain portfolio that uniquely serves an expanding and exciting market. We've worked to capture customers, geographies, footprint, technologies, and product expertise to secure both mind share and market share. As we approach the $200 million 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&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, keeps us on track to deliver our 2019 target of 15% operating income. At this juncture, we're confident in our ability to continue to expand, 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. We'll be disciplined in our approach to these 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 Solutions business in which we delivered another strong quarter and further enhanced our position for the future. Revenue at $142 million was up $4 million quarter-to-quarter. Bookings of $166 million 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 Solutions business came from the combined revenue of our three 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 Solutions revenue. The balance of our Semiconductor Solutions business remains strong but relatively flat quarter-to-quarter as our cryo vacuum business and Polycold 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 Solutions revenue growth will again come from our three key growth drivers.
Demand for our legacy leadership products will stay healthy with the potential for some upside. I'll give some color into our key Semiconductor Solutions segments. Once again, our vacuum automation business continued to strengthen because of the continued boom in the volume of deposition in 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 continued to build for our future as we captured additional key design wins for our next generation vacuum robots, the MagnaTran LEAP family. At tier 1 OEMs, we secured another three additional high-volume tool platforms by replacing their internal captive designs on previous generations of tool sets.
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 nine 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 seven and five 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'd anticipated, the end market for advanced packaging is now expanding to include meaningful opportunities beyond just TSMC's Integrated Fan-Out lines to now include outsourced assembly and test facilities and some specialty fabs. 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 broad mobile and IoT applications, and will become more the norm rather than the exception, leading to more growth from this sector. Advanced packaging revenue for the quarter was $14 million, up 13% sequentially, and up 50% from the same quarter one year ago.
We're confident in our ability to win in this segment, and we're 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 this 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'd guided, CCS revenue for the quarter came in just shy of $14 million, a decrease from September's $15 million, and the third 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 million of CCS revenue came from Tier 1 foundries. 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 processes, although not with the same capital intensity or carrier cleaning frequency as logic fabs. This scenario appears to be playing out as we gained more share with the first order for an automated FOUP cleaner from a new Chinese logic fab, and we established an evaluation agreement to install an automated FOUP cleaner at a Chinese memory factory.
China is the last competitive battleground for automated FOUP cleaning. 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 three consecutive quarters of lower revenue. We anticipate growth again for the remainder of the fiscal year, as we believe that 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 seven and five 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 five EUV pod cleaners, which are operating at leading fabs that are developing EUV process technology. Cleaning specifications for EUV reticle pods is meaningfully more difficult than for FOUP 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 five EUV reticle stockers, which are used to store these valuable reticles in ultra-clean environments. We have more of these tools in backlog, we anticipate some acceleration of orders in the second half of 2018. Overall, our high level of design win activity is strong validation that the investments that we've been making in R&D are delivering capabilities and technologies that are right on the mark in terms of technical and productivity needs for seven nanometer and five nanometer semiconductor manufacturing.
When these technology nodes hit high volume, we'll be ready 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, 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 and years. We're beginning to hit our stride in semi, 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.
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 three, which is a consolidated view of our first quarter operating performance. Our top-line revenue grew 4% sequentially to $189 million. This represents growth of 18% year-over-year. Both segments drove growth. Sequentially, Semiconductor Solutions expanded 3%, 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 five 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 first quarter. 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% growth at the operating income line and healthy expansion of operating margin. If I take you back to the year-over-year comparison, this non-GAAP operating income result is up 52% year-over-year on the 18% revenue growth. I need to spend a moment in the non-operating section of the P&L, as this is where we saw the combination of three dynamics uniquely impacting the sequential leverage this quarter. Some of these are temporary in terms of their impact on our earnings.
As explained in our previous earnings call, in the first week of this quarter, we established a $200 million term loan at attractive rates. The loan currently drives $2 million 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. This is the primary reason we took the debt to do further acquisitions. As we do, we anticipate it will lift our non-GAAP earnings more than the $2 million in total and more than the $0.03 per share. From there, it should grow. We experienced foreign exchange losses of $2 million in this quarter, which was $1.4 million more than the prior quarter. This is a $0.02 impact quarter-to-quarter.
The FX losses were largely driven by movement in the GBP and the EUR against the USD. We 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 U.K. operations to purchase 4titude. Generally, we have a mixture of foreign exchange gains and losses for different currencies, which often offset. 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. The non-GAAP tax rate of 15% increased approximately two percentage points from 13% in the fourth quarter.
The change cost us approximately $0.01 at our current level of earnings. In this case, the 15% is consistent with our expectation for the year, we expect this impact to remain in our quarterly results going forward. In total, these non-operating items reduced our sequential earnings by $0.06. If foreign exchange returns to a more normal range, $0.02 of this will subside quickly, and we plan to make up more than the $0.03 of interest expense, will take a little time as we remain disciplined in our path of acquisitions. The joint venture earnings were flat this quarter, with sustained strength in the OLED tools market. At the bottom line, we produced $23 million of non-GAAP net income, $0.32 per share, and $36.5 million in adjusted EBITDA.
As noted on the chart, we see these results as being on track and progressing toward our 2019 model. Taking you back to the year-over-year comparison, the adjusted EBITDA of $36 million increased 42%, and non-GAAP EPS increased 28%. Let's turn to page four to begin discussion of the segment results. In the first quarter, Life Sciences revenue was $47.4 million, 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 on an easy compare, as we reported 27% organic growth at this time one year ago. The health of the past one and two year growth track for Life Sciences is seen across our entire portfolio. System sales 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 BioStorage customers. Further, our services and informatics business 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 Sciences revenue, which was up three and a half million, had two lines of significant growth compared to the fourth quarter. The 4titude acquisition added $3.4 million, and genomic services, a seasonal driver inside storage services for December, expanded $2.8 million. These increases were partially offset in two other areas.
Transportation service was $1.3 million lower, and sales in our cryo products achieved $1 million in the quarter, down $1.3 million from the fourth quarter. The remaining lines were stable sequentially. The total bookings for Life Sciences picked up again in the first quarter, coming in at $59 million and adding to backlog. I should 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 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 first quarter 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, 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. The lower transportation in the December quarter left the fixed cost of our fleet underutilized. In regards to this current second quarter, we see revenue growth overcoming the seasonal drop of genomic services and reaching a range of $48 million-$50 million. Gross margins will benefit from further cost improvements and the improved mix. As Steve highlighted, we expect Life Sciences to be at 10% operating income by the fourth 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, 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 five. Semiconductor Solutions revenue increased 3% compared to the fourth 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. As anticipated, we did see softness in contamination control solutions this quarter and are seeing the indication of higher demand coming back by the second half of our fiscal year. In total, the $142 million of revenue is 12% higher than one year earlier. The Semiconductor Solutions adjusted gross margin was essentially flat this quarter at 42.3%, and operating expenses improved largely on reduced variable compensation accruals in this first 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. Let's turn to the balance sheet on page six. As previously referenced, we established the first 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 4titude business and provides fuel for a robust M&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 Solutions product and the expansion of growth in Life Sciences. Let's now turn to slide seven.
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 million 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 million we used for the acquisition of 4titude. You can also see our commitment to the dividend payment. We started paying the dividend in 2011 and have since returned $160 million in dividends to shareholders. Let's turn it over to slide eight. 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 first quarter, 4% sequential top-line growth drove operating margin expansion.
Both operating income and bottom-line earnings per share are much stronger than one year ago, and our profit model is still progressing. In this past quarter, we saw our first quarter 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 million in net operating losses, which we carry forward from the past. These provide tax credits that can be used against U.S. tax obligations for some time to come. 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 zero 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. Even this will be lower than 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 2019 fiscal year. In the future, if we were to exclude the impact of reserved NOLs, we would expect our global tax rate to be approximately 20%-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 operate with a fully reserved NOLs, which provide U.S. tax credits for some time to come. Now for the guidance of our second fiscal quarter. Revenue is expected to be in the range of $195 million-$205 million. Adjusted EBITDA is anticipated to be $39 million-$46 million. Non-GAAP earnings per share expected to be $0.33-$0.41 per share. The GAAP earnings per share is expected to come in at $0.24-$0.32.
That concludes our remarks. I'll now turn the call back over to Christopher to take questions from the line.
Ladies and gentlemen, if you'd like to register a question, please press the one followed by the four on your telephone. You'll hear a 3-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're using a speakerphone, please lift your handset before entering your request. One moment please for our first question. Our first question comes from the line of William Marsh with Janney Montgomery Scott. Please go ahead.
Hey, guys. How are you?
Hey, Bill.
Hey, Bill.
First question, could you give an update on 4titude and Pacific Bio following the integration, what you've seen since they've been integrated? In conjunction with that, Steve, can you maybe talk about the M&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, a couple of things about the acquisitions. When we took on the 4titude group, we anticipated around the $3 million and change, and they delivered exactly that. Their outlook for Q2 is equally strong, maybe up a little bit. They're right on schedule, right on track and fitting in extremely well. The integration activities Dusty has going on 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, and it was a pleasant surprise.
The summer period for transport services we know to be high, we found out in December, it dropped to about $1 million from the September quarter, again, anticipated. That progress is going extremely well, and I'd say from our outlook, the storage is a little bit higher than we'd anticipated. They seem to be integrating without skipping a beat, and Dusty's team is all around it, and the teams are integrating really well. We're really pleased. Those two have gone well. When we look at the pipeline, obviously, we're interested in continuing to add high-quality samples and capability in the pipeline. We'll always look for additional biobanking 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, there are some capabilities we'd like to add. Right now, the progress we've made with some large customers gives us high confidence that we're on a really good path. We continue to look at the analysis capabilities. We think we're pretty secure from a hardware standpoint. There are some other transport capabilities that we're in the process of make versus buy decisions, because we do think that expanding our cryogenic cold chain beyond what goes on inside the facility or the factory, that includes transport's also a meaningful capability to add. There are a lot of opportunities, there are a lot of options. We're weighing all those carefully.
We do have a very rich pipeline, and 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. Maybe Lindon, just talking about the Life Sciences outlook and reaching that 10% margin by the fourth quarter. Gross margins expanded almost 100 basis points year-over-year on what's sequentially or what is the lowest seasonally. 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.
That's good, Bill. At 36.5% on gross margin, we've been saying that we'll execute to above 40% on average for this year. You can see that's a solid five-point improvement there. We need seven points to get from 3% to 10%. I think one is we continue to lean out cost and expense. That's going to help with the gross margin a little bit on operating expense. 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. We're confident, we're actually excited about the path, and it puts us right on a trajectory as well for the 2019 model that we've discussed to be in the 42%-44% gross margin range, and at a 15% operating margin.
It looks good to us.
Thanks, guys.
Our next question comes to the line of Edwin Mok with Needham & Company. Please go ahead.
Great. Thanks for taking my question. Let me stay Life Sciences first. I remember last quarter you guys guided for $47 million-$49 million, and you did $47 million. Was the $1 million 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 $47.4, so it's less than a $1 million difference, and we're in the range. Edwin, I think, overall, we're pretty pleased with the mix and the stability, and honestly, we don't get too hung up on the quarter-to-quarter, although we press hard to get it every quarter. 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, Colin. Can you help us out in terms of telling us how much of your business is now coming from recurring versus store sales? You guys have a very nice booking quarter. Sounds like bookings rebounding really strongly this quarter. How much of that is coming from a large contract from these recurring revenue business?
Yeah. It continues to range 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 would tweak 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 service as recurring. I'd say it's steady as it goes, 53% from last year. If it moves dramatically, we'll update The Street.
Edwin, also the stores business has been pretty strong. The infrastructure is growing so that we know what the sample business looks like, which has been great, the stores business has been particularly strong. Okay, that's helpful. Steve, on your commentary around a 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 next to that hospital, or did I misunderstand that comment?
There's a large research hospital. As we're able to name it, we will, but a little bit premature right now. We're under agreement literally to build a facility very close to and 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. I think that's what the customer's looking for, that order, that ability to manage that specificity of purpose and care of samples. Within a year, we'll be largely on the way to having that facility up and running. It's a real testament, we think, to the capabilities that they see. It's a really good size 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. We're also delighted to have a chance at this opportunity and putting it close by the customer. It's literally more of our capability in yet another location and quite large enough to justify the facility from a single customer. We anticipate this won't be the last time we do something like this.
I was going to say, this seems like a potential new business opportunity for you guys, right? I would imagine some of your customers that historically might be buying these stores will look at the 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.
Edwin, sorry. If you could just one more time.
I mean, just basically got to look at this, right? Is this an example of potentially a new growth factor for you guys in terms of this opportunity of building a storage facility for a customer that historically might be just buying equipment themselves or try to store it themselves?
We anticipate some customers will do this. What'll 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'll 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. We'll see differences here, but we fully understand that some customers want to make sure that they have not just proximity, but can able to look out and see where their samples are.
We would anticipate there'll be both, I think that this will be a sign to some customers who are still contemplating outsourcing the management of samples, that when they see a dedicated facility serving a site particularly well, that it indeed might be a new business opportunity for us.
Very interesting. I have a question on, just quickly, one question on the semi cap side. One of your large customer, or one of the large front-end equipment customer that sell into etch and dep space. Talk about second half more flattish to the first half of this year, but you sound a bit 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 second half or any kind of other color you can provide on that?
Edwin, this is a good question. I'll just put the part in perspective, because you hit it exactly on the head. Our CCS business at $14 million was down $10 million from a year ago, same quarter. The rest of our business has grown significantly. If and as the Tier 1 foundries begin the more spending in the second half, that'll provide an additional opportunity for us, is kind of how we look at it. The business that we sell to serve the Tier 1 OEMs will go exactly as they go. 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.
Great. That's all I have. Thank you. Appreciate it.
Thanks, Edwin.
Our next question comes from the line of Farhan Ahmad with Credit Suisse. Please go ahead.
Hi, this is Darren on for Farhan. Just first question is about your operating margin mix. I see that you had 19% this quarter. Could you provide some guidance on how you see that moving forward throughout the year?
Sorry, guidance on how we what?
How you think about the semiconductor business margin, operating margin moving forward. Do you think-
Oh, I see. We only guide semi on a revenue basis 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 one. In 2019, we give you a model that we're tracking for. In 2019, we've described that it would be 16%-19% 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. Yeah, that's what I was getting at, was just kind of understand that guidance that you gave is going to be towards the top half because you guys are already kind of there, so thanks for the color on that. With regards to sort of the EUV aspect that you guys mentioned, can you provide some further color on sort of the timeline of how that will impact your semiconductor business moving forward? I know you had five tools that you said that were already kind of in place, what do you think about that as heading forward?
Listen, Darren, we've put tools in now over the past few years, the question that we have is what will be the density of our tools, the reticle cleaners and the reticle storage systems when customers add additional EUV tools? 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, 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 it's something we just don't know yet. As we know, we'll inform. We would not imagine to have a single dedicated EUV pod cleaner or EUV stocker for large numbers of EUV tools. We would imagine that the ratio will be more favorable.
Okay. Thank you.
Ladies and gentlemen, as a reminder, to register for a question, please press the one followed by the four on your telephone keypad. 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 Solutions 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 3D NAND side of things, or I guess, what's the catalyst that's going to be needed for adoption by the memory players?
It's a question that we still wonder. I give you an example. Of the tools that we shipped in the quarter, about a dozen, half were for memory and half were for logic. That's the biggest ratio we've had. It was to a number of different memory makers. What we would anticipate, Patrick, as the chemistries change, it may be related to layers, it may be related to the complexity of the etch technology. We think as the chemistries change, likely that may require more FOUP cleaning, but that's an unknown for us right now. 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 FOUP clean. Again, these are early days for us.
Great. That's helpful. Maybe as my follow-up question for Lindon 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. 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 five years, and we've been putting the investment in place. 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 cost out as we integrated acquisitions. That's been our mode to this point. 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. We think the rest of this year will benefit from what's in our structure today, and it'll be very modest if any changes in any additions. Meanwhile, we'll continue to work out and lean out our business.
Specifically, we think we have some cost improvements to make on the store and infrastructure side of the business. 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% 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.
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 Sciences 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 be really hard pressed, but we're now six or seven years in the business. We have just over 100 salespeople in the company right now. All of them, whether they've been with Brooks or not, they're generally pretty experienced salespeople in and around Life Sciences. We're not yet at a place where we're hiring and training brand new people. I have to say it, 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. I think it's a 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. Generally, we think really solid from that standpoint. We're about 105 salespeople, up 50% from one year ago, Drew.
Perfect. 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 the installation will be late in this year, early next year, just to stay on their timing, actually. We'll be quite ready. Three large stores and I remind you, they have eight of the large automated cryo stores. 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.
Our next question comes from the line of Craig Ellis with B. Riley. Please go ahead.
Thanks for taking the questions, thanks for all the very detailed commentary thus 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 impacts 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 two onto what you have now in Life Sciences?
Craig, this is really good because this is really central to what we've been doing on a regular basis. When we acquire, a couple things happen. One, we're very focused on how fast it becomes accretive. I'm happy to say PBMMI became accretive immediately. 4titude was accretive immediately, both on a non-GAAP basis. Our past acquisitions have either been immediate or very soon after. What we do find is it's not always the level of what I would say is steady state. As we expand this business, as we integrate, because they're carrying the infrastructure that they needed, as we integrate, we're able to expand those margins. We would anticipate that as we acquire another business, it takes somewhere between one to two quarters.
Sometimes if it's a larger business, it 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 two quarters on average. While it might pull the margin down, I expect it's going to be fully accretive. You take the business that we own today, expect 10% on it, add dollars to that, whether it pulls it down from 10% or helps it stay at or better than 10%, remains to be seen, depending on the timing of the acquisition.
That's helpful color. Thanks, Lindon. 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-over-year growth, given last year's profile.
Yeah, 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 in plants and PVD. 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. 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 it's just because of the overall robust environment. 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 wild card for us is, I remind you, we have strong OEM customers in Korea who sell predominantly in Korea. That goes up and down based on the spending in Korea. That's one area that could fluctuate. If there's a Samsung SK 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'll be really good business for us. They don't have a lot of business outside of China, and if the Chinese fabs don't continue to materialize, that business could slow down. That's how we look at the business.
Those are the things we really pay attention to from an outlook standpoint. 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. 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 and 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. We support about 15 different OEMs. Our understanding and our observation, actually, is that it appears as though some of the newer and less mature equipment makers are certainly getting a very serious look at some of the technologies that they can serve. They may not be getting the most critical etch or dep applications, but some of the rather straightforward or mundane or simpler process technologies, they'll likely have an outsized share of that business. That is very meaningful for us because we have extremely high share, especially around the vacuum automation, and high share on the cryogenic pumps in China. Their unfair share would translate into really good share position for us.
That's helpful.
Chinese factories by Chinese companies would certainly drive the business.
Thanks, Steve. Thanks, Lindon.
You bet, Craig.
There are no further questions at this time. I will now turn the call back to the 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 I ask that you please disconnect your lines.