Brooks Automation's (BRKS) CEO Steve Schwartz on Q3 2014 Results - Earnings Call Transcript

Jul.31.14 | About: Brooks Automation, (BRKS)

Brooks Automation, Inc. (NASDAQ:BRKS)

Q3 2014 Results Earnings Conference Call

July 31, 2014 04:30 PM ET

Executives

Lindon Robertson - EVP and Chief Financial Officer

Steve Schwartz - Chief Executive Officer

Analysts

Craig Ellis - B. Riley

Edwin Mok - Needham and Company

Patrick Ho - Stifel Nicolaus

Farhan Ahmad - Credit Suisse

David Duley - Steelhead Securities

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Brooks Automation Q3 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. (Operator Instructions). As a reminder, this conference is being recorded Thursday, July 31, 2014.

I would now like to turn the conference over to Lindon Robertson, Executive Vice President and Chief Financial Officer. Please go ahead sir.

Lindon Robertson

Thank you, Albert, and good afternoon everybody. We'd like to welcome each of you to the third quarter financial results conference call for Brooks, fiscal 2014 year. We will be covering the results of the third quarter ended on June 30th then we'll provide an outlook for the fourth fiscal quarter ending September 30 of this year.

The 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 today's call.

I would like to remind everybody 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 in the aforementioned PowerPoint presentation on our website and our various filings with the SEC, including the Form 10-Q for the third quarter ended June 30, 2014. We make no obligation to update these statements, should future financial data or events occur that differ from 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 to 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 the GAAP financial results and the reconciliation of GAAP measures, provide even more complete understanding of the Brooks business. Non-GAAP measures should not be relied upon to the exclusion of the GAAP measures.

On the call with me today is Brooks' Chief Executive Officer, Steve Schwartz. We will open with his remarks on the business environment and our second quarter highlights. Then we will provide an overview of the third quarter financial results and a summary of our financial outlook for the quarter ended September 30th, which is our fourth quarter of fiscal '14. We will then take your questions. During these prepared remarks, we will from time to time make reference to the slides available to everyone on the Investor Relations page of the Brooks website.

So with that, I would like to turn the call over to our CEO, Steve Schwartz.

Steve Schwartz

Thank you, Lindon. Good afternoon everyone and thank you for joining our call. We're pleased to have the opportunity to report the results of the third quarter of our 2014 fiscal year.

Q3 was another very productive quarter at Brooks as we achieved several significant milestones against our strategic and operating objectives. Our semiconductor position continued to improve. Our product portfolio became more competitive and better aligned to our growth initiatives and we delivered on our Life Sciences targets, all the while putting in place the foundation for further performance improvements in the September quarter.

Our revenue in the June quarter was a $117 million, down 7% from March and consistent with our outlook and guidance. Our BPS business was down 16% quarter-to-quarter, exactly in line with our forecast of down 15% to 20% and reflective of what has been reported by other companies who also supply critical subsystems to the same customer base.

Our Global Services business was essentially flat but delivered another strong financial quarter with improved profitability. And we benefited from a 46% increase in revenue from our Life Sciences business which has become a significant portion of our portfolio and is positioned to be more positive contributor to the profitability going forward.

In the near-term, the market environment for semi remains somewhat soft. But with meaningful product penetration gains and a bullish outlook for 2015 coupled with our substantial improvements in our Life Sciences position, we’re positive about our future. I will address each of these markets in my remarks today.

First, I’ll give some color about our semi automation business. Over the last three years, we’ve steadily improved our automation portfolio and the profitability of this segment. At the top and bottom-line the changes have been gradual, however beneath the surface we’ve dramatically changed our focus and we very much like our position and the opportunities that lie ahead. I’ll provide some highlights and guidance for things to watch for in the coming year.

The nature of competition and the rapid and dramatic consolidation of our customer base have provided opportunities where success depends on our ability to adapt to this new environment. Specifically, we've doubled down on the investments in our vacuum automation franchise and we've acquired capabilities that add strength and new offerings to our atmospheric product line-up. We've made many moves that enable us to improve our market share and increase our relevance.

As a reminder and to serve as a definition, our OEM automation products principally consist of individual robots that operate in atmospheric pressure or under vacuum, and automated systems which are higher level, higher value-added platforms that contain one or more of our robust. The systems are also classified as atmospheric or vacuum depending upon the environment in which the robot functions.

I'll begin with the review of the status of vacuum robot products. We’ve made significant investments in our market leading vacuum robot technology portfolio to ensure that we're in front of the demands of next generation tools, better designed for FinFET and 3D NAND technologies. We've seen a surge in activity at Tier 1 OEMs for this critical capability.

To highlight some of our accomplishments, in the June quarter, we had four first time shipments for MagnaTran 7 and 9 robots to some of the largest OEMs in North America and Japan for next generation tool platforms. This continues our trend of capturing more share from the largest equipment makers as they shift the focus of their R&D more to the value they bring in new materials and process technology while challenging us to deliver more of their advanced automation needs. This doubling down by each of us in our respective areas of expertise is bringing the proper amounts of speed, resulting in shorter time to market.

As a measure of our momentum, we forecast that for our full fiscal year 2014, our vacuum robot business will be up more than 50% over fiscal 2013.

Additionally, where the larger OEMs primarily purchase our vacuum robots, many Tier 2 OEMs take full advantage of our integrated vacuum systems capabilities, as they do not have the scale to fully build the design and manufacture capabilities required to do it economically on their own. We have been aggressive in our new vacuum system platform development and customers have been receptive to our new systems designs.

We project for the full year 2014 our vacuum systems business will be up more than 25%. Unlike vacuum robots where we are uniquely differentiated and have very high market share, the atmospheric robot market is a very different story. For more than decade, the atmospheric wafer handling robotic space has been extremely competitive and crowded by more than a dozen suppliers, all of whom provide products that are capable to serve most semi-applications.

This bunching up of suppliers has commoditized the market and left price as almost the sole basis for competition. As a company, we elected not to chase this market down to zero and although we have managed this segment of our business to better profitability over the last several years, the revenue has decreased to where our atmospheric robot components represent only a small fraction of our total revenue from automation products.

However, we do believe in our ability to profitably grow our atmospheric automation business through our integrated systems and we are having success with this strategy. In particular we are now growing our atmospheric systems business with a new EFEM we call the jet common platform. It’s a next generation of our popular jet EFEM that now incorporates the low cost wafer handling system we acquired in the purchase of Crossing Automation.

We are winning new business and we are in the process of getting our customer base converted over to this new system. Because of it’s numerous performance benefits which include ultra high speed handling, extreme cleanliness and dramatically reduced power consumption, we currently count 12 customers in the design win column for this system and this number is growing each quarter.

We forecast that our atmospheric systems business will also grow more than 25% in fiscal 2014. As an important note, our focus on atmospheric systems rather than atmospheric robot components is consistent across our other automated product offerings, at the last orders which we acquired from Crossing Automation and the FOUP cleaners and reticle stockers from DMS are perfect examples of high value added systems, which are sold directly to IC makers.

I have a few more comments to add about DMS, the acquisition we closed in the quarter. As we have forecasted for the fraction of a quarter that we own DMS, we recognized modest revenue and a slight hit to EPS. However, we anticipate good contribution in the September quarter with a target of $6 million in revenue. We are bullish about the near and long-term prospects for this business and we anticipate that when fab purchasing activity begins to ramp again, our automated FOUP clean capability will drive a meaningful and measurable boost to revenue and earnings.

This business opportunity is growing quickly as the need for contamination control is much different from past years. The wafer carrier technology, which revolutionized the semiconductor factory automation beginning in the early 1990s, was readily adopted because of the benefits of wafer carriers to keep particle contamination in the fab from reaching the wafers. Now because of the sophisticated chemistries and materials that are part of the semiconductor manufacturing process, yield diminishing contaminants are added to the wafer from the process. Hence the substantial rise in the number of wafer cleaning steps at 28 nanometer and below and the increase in the cleaning requirements for wafer carrier boxes which are referred to as FOUPs.

At one logic customer alone, there are now more than 20 of our automated FOUP cleaners released to production compared to 0 only two years ago. Although logic fabs will continue to be the heaviest users of FOUP cleaners, we are beginning to see more qualification in leading memory factories as well. This FOUP cleaner is truly an example of a high value added atmosphere pressure automation system.

I'll now shift to some commentary about our life sciences business. Let me say what a difference a year makes. In our June quarter of fiscal year 2013 revenue for life sciences was $9 million and operating income for this segment was a loss of $3 million.

We had confidence in the prospects for our newly released Twinbank bio store product offering as we have just booked the first order at Tohoku University in Japan in a very competitive bid environment. One year later we booked our 20th Twinbank system and by our count the success of this new product has allowed us to capture more than 80% of the new large stores awarded during the last 12 months.

We have established ourselves as the leader in this rapidly growing market and it enables us of technology and economic improvement in this field we are also responsible for contributing to the outsized growth of this segment. Q3 also marked a significant turning point in life sciences as we increased revenue in the quarter to $18 million, up 46% from Q2.

Moreover, operating income came in near breakeven at a loss of 600k an improvement of $2.5 million from the previous quarter. Our forecast for life sciences revenue for the September quarter is to remain in the range of $18 million to $19 million and for profitability to improve again.

Gross margin for the life sciences business was 38% and although this is in a range for life sciences at these revenue levels margin was weight down by the full recognition of the Tohoku project which delivered $3.6 million in revenue at single digits gross margin.

We had always estimated a low gross margin on the strategic first of a kind project and we occurred some cost over runs related to the facility and installation that pushed us above our original cost estimate. What’s very encouraging is that the remainder of the Life Sciences business excluding Tohoku was approximately $15 million at a gross margin of 47%. All three of the system at Tohoku are up and running and both we and the customer consider this project to be a great success. Our Tohoku installation has already proven to be a tremendous reference site as it’s already been toured by several other prospective customers in Japan.

In our Life Sciences business we’ve also gained confidence in our prospects and our ability to capture the opportunities that present themselves. Following the $34 million in bookings we received in the March quarter bookings in June were just over $9 million for the quarter giving us a trailing 12 month bookings total of $74 million and the current 12 month backlog of $38 million. Although the order patterns are lumpy, at present we’re tracking a business opportunity pipeline that’s close to $200 million of potential orders that we expect to be issued over the next two to three years.

What’s more as we get closer to our customers we’ve surfaced more and more critical unmet needs that exist in tracking, handling and transporting samples at cryogenic temperatures. We’re in this market to win. We plan to continue to grow the existing minus 20 and minus 80 degree business and drive profitability in this segment, as it is a growth market. Simultaneously, we continue to invest aggressively to develop automation products for minus 150 degree technologies that serve cancer research and the rapidly growing field of cell therapies. As we believe that the potential market for solutions at these temperatures is even larger than from the existing minus 20 and minus 80 degree storage market opportunity.

From an operation standpoint we’ve made numerous improvements which Lindon will highlight in his remarks. I do however want to specifically note that even what could considered as start up cost related to the Tohoku project and the addition of DMS, our gross margin improved and we're definitely backed on the steady and meaningful improvement track that we've been on for the last two years. You will see the results of these initiatives showing up again in the next quarters and the roadmap and actions are clearly defined and we're making tremendous progress against our aggressive targets. Our cash position leaving the June quarter is a very strong at $244 million and we have the appetite and good opportunities for more strategic investments.

In terms of business outlook for the September quarter, we expect revenue to be relatively flat with June at approximately $117 million plus or minus a few million and we currently forecast each of our business segments to be approximately flat. Inside of our BPS segment, we anticipate that there may be a small decrease in front-end semi that will likely be countered by an uptick in backend revenue. The increase in the backend business is meaningful, but still not backup to the $25 million per year run rate, we achieved one year ago.

As I mentioned Life Sciences revenue will be flat to up slightly and for the first time is poised to make a positive contribution to the bottom-line. We remain confident about the strength of our product portfolio and the results were beginning to show from our R&D spending. And we look forward to strong profitable growth as a semiconductor market picks up. We're hopeful that we near the bottom of the semi-cycle and we're bullish that 2015 is shaping up to be a good year for semi, another growth year for Life Sciences and a very good year for Brooks.

That concludes my prepared remarks, and I'll now turn the call back over to Lindon.

Lindon Robertson

Thank you, Steve. Please refer to the PowerPoint slides now available on the Brooks website under our Investor Relations tab. I draw your attention to slide three and as a reminder we close the sell of Granville-Phillips during the third quarter. Consistent with GAAP, we have category for the Granville-Phillips business as a discontinued operation in both current period and the comparative periods reported. And we have excluded the contributions from these discontinued operations from our non-GAAP results.

We also closed on our acquisition of DMS on April 30th which we refer to as our Contamination Control Solutions business or CCS in this presentation. That business is included in our Brooks Product Solutions business.

At the top line, the revenue came in at $117 million, a decline of 7% sequentially and in line with guidance and at the bottom line, the non-GAAP earnings per share came in at $0.05, a little higher than our guidance range.

In summary, the quarter results reflect solid execution on the revenue and gross margin expectations while under running somewhat in operating expenses. As we step through the results, we see progression in our business model that is we see a more resilient semi P&L while expanding the Life Sciences business.

The adjusted gross profit margin for the quarter was 36.1% compared to just 36% for the second quarter. This is after absorbing the cost associated with the new CCS acquisition. If we hold the CCS business aside, both the Product Solutions business and the Global Services segment had good quarter-to-quarter margin improvement.

Life Sciences had softer margins, primarily driven by the contracts Steve referenced and which were strategic for our business expansion. The Life Sciences growth and margin supported the near breakeven quarter for that segment and it is important to note on a continuing operations basis that if we exclude the CCS products, our total adjusted gross margins reached a new high point of recent years.

In net, we had underlying improvement in all segments and we invested in two key areas for the future, Contamination Control Solutions and semi and Life Sciences store growth in our Life Sciences business.

Operating expense declined by $0.6 million. Again, this is after absorbing two full months of R&D and SG&A from the new CCS business. Some reductions you see in this quarter were anticipated when we came into the quarter. Operating expense typically peaks in the second fiscal quarter for Brooks on higher stock compensation payroll taxes.

In the quarter, we did see less expense from BPS than expected as the CCS integration is ahead of plan. And we have taken another step in restructuring our operations this quarter to reduce future cost and expense. $3.1 million was charged to restructuring which I remind is excluded from our non-GAAP results on this page.

These actions included headcount reductions in each segment and some real estate consolidation. The payback will begin in the fourth fiscal quarter in both areas of cost and expense and we will see at least the same amount of $3.1 million savings within one year. This is one more step on a continuous path to reduce our structural cost.

In total, the adjusted operating income declined modestly with the 7% decline in revenue, cushioned by the improved performance and portfolio of our business model. We believe this progress will continue.

Let's look at our revenue portfolio briefly on slide four. The portfolio effects are evident. The stability of our global services revenue and the 46% growth in Life Sciences had significantly mitigated downward pressures of the semi market affected the Production Solution space.

The combination of Global Services and Life Sciences exceeded 35% of our revenue for the quarter and total revenue for Brooks declined only 7%, despite a much softer semiconductor market.

Let's move on to each segment. Slide five you can see the pressure of the semi front end market on the Brooks Product Solutions segment. Revenue declined 16% sequentially while operating income declined $5.2 million results include two months of CCS operations which delivered $1 million of revenue and $1.9 million loss at the non-GAAP operating income line.

When you peel this away, the improved resilience of the segment is apparent. In the base business, before we add in the CCS business, revenue declined $16 million and non-GAAP operating profit declined $3.4 million.

On this basis, adjusted gross margins improved 0.6 point. As our CCS business ramps into 2015, we expect it to become an additional source of margin expansion. The third quarter operating expense in this segment benefited from the reduced stock compensation and the beginning of operational reductions.

On slide six, revenue in the Global Services segment was up 1% compared to the prior quarter and adjusted operating profit increased over 60% to 3.9 million with gross margins above our target of 35% and expense improvement in the quarter. The gross profit margins benefited from improved cost absorption and efficiencies.

Now turning to slide seven and you can see the results from our Life Sciences segment. Revenue grew 46% sequentially and 109% year-over-year to $18.4 million. And adjusted operating income improved $2.5 million sequentially to nearly breakeven in the quarter. The revenue expansion was largely driven by deliveries of the new Twinbank platform and brings the segment to 16% of Brooks’ total revenue in the quarter.

Adjusted gross profit margins were below our target range of 40% to 45% due to the single contract Steve highlighted and which came in at single-digit margins in the quarter. As Steve mentioned without that $3.6 million contract, the remaining $14.8 million of revenue came with 47% adjusted gross margins, well above our target range.

You can see this 2.5 million improvement in our operating income was the driving reason our profits did not drop with the semi market softness. We’re pleased with the progression of this segment and expect to see similar revenue of 18 million to 19 million again in the fourth quarter with further improvement in non-GAAP operating income.

Now on slide eight, GAAP net income for the second quarter of $24.5 million or $0.36 per diluted share includes the gain on the Granville-Phillips sale of $27 million. It also reflects special charges that include the restructuring charge of $3.1 million and a $2.6 million impairment charge for a note receivable that we’ve carried. Again the restructuring positions us to yield at least this much spending $3.1 million on an annual basis going forward.

Our cash position is shown on slide nine. Operating cash flow for the third quarter of fiscal 2014 was $4.7 million. This cash from operations combined with cash from other financing items was sufficient to cover company’s capital expenditures and pay dividends to shareholders. On a year-to-date basis, we’ve generated $40 million of operating cash flow. It is worth noting that the Life Sciences business had contributed positive cash flow year-to-date and it is on track to do so for the year.

The net cash increase of $51.5 million in the third quarter was driven by the net cash proceeds from the sale of Granville-Phillips and the acquisition and the acquisition of CCS. This increase brings our total balance of cash and equivalents to 243.8 million available for future strategic investments.

Slide 10 displays the balance sheet summary. The net working capital increase of $11 million was driven by higher inventory. At end of the quarter, our inventory balance increased 9.3 million compared to second quarter, but this includes 10.3 million of additional inventory from CCS acquisition.

I'll take a moment to highlight also the dynamics in our deferred tax assets. We were able to use net operating losses from the past to offset the gain from the Granville-Phillips sales. This lower is the balance of deferred tax assets, but we still have 81 million on our balance sheet. This will continue to benefit our cash equation going forward.

Turning to slide 11, we provide our guidance estimates for the fourth fiscal quarter of 2014. As Steve described, we expect the softness in the semi front-end to continue through the September quarter. In total, we expect our Brooks Product Solutions business to be flat to modestly lower in the fourth quarter.

Life Sciences still carries momentum and activity but we'll provide similar revenue in the fourth quarter. We expect gross margins to improve to nearly 37% in total as the CCS business begins to produce positive gross margins. We will absorb some additional operating expense as we have a full quarter of CCS, but it will be mitigated with the benefits from our restructuring.

In total, we expect that revenue should be approximately flat and in the range of 114 million to 120 million with non-GAAP earnings per share to be in the range of $0.04 to $0.07 per share. Finally, we are happy with the momentum of our operating cash flow and the ability to support an increase of our dividend that’s been declared for $0.10 per share in the upcoming dividend payout.

That completes our prepared remarks and I will now turn the call back over to Albert to take questions from the line.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question comes from the line of Craig Ellis with B. Riley. Please go ahead.

Craig Ellis - B. Riley

Thanks for taking the question and congratulations on a good margin performance. Lindon, I just wanted to follow up on the comment about the restructuring as we think about the benefit you said it’s -- the action is going to be pretty broad based, but to what extent is that going to be seen in COGS versus operating expense for the 3 million in savings?

Lindon Robertson

Yes a smaller amount in COGS most of this was resource driven with a little bit of consolidation in real estate at this point so I would tell you I think of this as 75% or more in SG&A and R&D so in the OpEx area.

Craig Ellis - B. Riley

Okay, that’s helpful. And then with Life Sciences, excluding that one contract you are running at a very strong level and it looks like we are going to have a breakthrough quarter and the current quarter profitability, what are the headwinds that would cause gross margin in the future to go back towards the middle or within the current target range for Life Sciences?

Lindon Robertson

Yes, this is a really good question, at this point we don’t point to any substantive headwind that we keep aside of our strategic range target that we have identified as being 40% to 45% at this point in the business. And we see this business really on a going forward basis in the longer-term exceeding that 45%, but for now on the 40% to 45%.

But in general, it's a lumpier business and it does vary on our delivery and the installation and on what the makeup of each of the bits are. So couple of contracts can sway a quarter and as you can you see this quarter it was about 3.6 million contract that weighed us down.

Craig Ellis - B. Riley

Okay, thank you. And then the last question for Steve. Steve you mentioned three businesses that have very strong growth rates. Vacuum robot, vacuum system and atmospheric robots and think the ranges year-on-year were 50%, 25% and 25%. So, what percent of mix are those businesses? And you also made a comment that potentially we're at the bottom here and maybe we're seeing some signs of bouncing along the bottom. What do you think that might be an indication that this could be a bottom but for a potential [adaptor]?

Steve Schwartz

Yes. Okay. Let me address the issue about automation. So I want to clarify one thing that vacuum robot components are up 50%, vacuum systems and the atmospheric systems, we anticipate 25% growth year-on-year, that atmospheric robotic components will continue its downward trend. So that's the first point of clarification.

The robots and vacuum systems are a significant portion of an automation business. We don't break that out specifically, but just to give you an idea the automation business in the company runs in excess of $200 million per year.

Craig Ellis - B. Riley

Okay. And then what are the signs that you are seeing that we could be near a bottom?

Steve Schwartz

So, in 2015, we're starting to get some ideas from the end users’ end, from our customers about preparation for the potential for higher bookings here towards the end of the calendar year. Everyday we get a little bit different signal, but we are bullish from the standpoint of the interactions that we're having with our customers that we're hopeful that order activity will begin to pick up.

We're not ready to call anything towards the end of the September quarter or December quarter, but 2015 calendar year. We're getting a sense that ought to be ready from a ramp standpoint.

Craig Ellis - B. Riley

Thanks guys.

Operator

Our next question comes from the line of Edwin Mok with Needham and Company. Please proceed with your question.

Edwin Mok - Needham and Company

Hey thanks congratulations for good quarter. So first thing actually I have just a follow up on last question. If I look at those growth rates that you laid out for vacuum robot, vacuum systems, atmospheric systems, those are obviously very strong number and you mentioned that aggregate automation business is $200 million per year. So what happened to the rest of the $100 million, are those businesses got in line with semicap or semi industry in general, do you expect that those areas to see a little bit more pressure, especially on the cryogenic side.

Steve Schwartz

Yes. So we didn't break this -- so Edwin, the automation business is different from the cryogenic business. So we didn't put that in there nor do we put in for the services business. The automation business that the reason for us to call it out was the automation business growth is not as consistent with what we see in those particular platforms because we do have some down graphs over the past years and the atmospheric side of the business and the atmospheric robot side of the business. But we do see tremendous strength in the automation platforms particularly for activity with the Tier 1 OEM.

Edwin Mok - Needham and Company

I see. But is it fair to say that the cryogenic side of the business is more stable or in line to semicap industry is that how we think about that?

Steve Schwartz

That’s correct. On the cryo side the position is almost exactly with what’s happening in the semicap equipment side.

Edwin Mok - Needham and Company

Okay. That’s fair, very helpful. And then I guess stick with the product here. I think previously you guys have guided for Life Science to come back in a little bit maybe closer to $15 million and $18 million to $19 million now guided for the September quarter. Is anything changed there because I can see a big booking number this quarter, is it just timing of revenue or is it something incremental that you’re seeing in the market?

Lindon Robertson

Specific to the Life Sciences or are you talking about our total business?

Edwin Mok - Needham and Company

Yes, sorry. On the Life Sciences I think previously you have said that this quarter you get $18 million to $19 million, this meaning to June quarter and then in September quarter you expect it to come back in a little bit because just a little timing of revenue. Now you’re guiding for flattish, I was wondering if there is anything changed there?

Lindon Robertson

Yes, no it’s a great question and I try to give some more clarity on this. So, if you recall from Q1 to Q2 we showed pretty flat revenue I think it was $12.3 million to go into $12.6 million. So 12 to 12 it was very flat but at the same time we forecasted that in the second quarter told you we are working on some contracts that we’re going to be recognized in the third quarter. That contract came through in the third quarter and helped us quite a bit in the third quarter. So you see this significant step up in the third quarter 46% and we had described this from beginning of Q2 we’re going to be pure flat and then a large step up in Q3 and so now you’re looking at what appears to be another flat quarter. The level of activities actually have been quite smooth on this point. So you might think on activity basis that maybe this went from 12 to 14 to 16 then going back up to 18, 19 this next quarter. But GAAP revenue, I’m not at all trying to disagree with the GAAP revenue accounting of this; it just has the appearance that in this quarter we got the significant step-up because we had to recognize the revenue on a project to-date basis on that particular contract.

Edwin Mok - Needham and Company

And now that you’ve finished that contract or you mentioned in Japan, you expect your revenue to stay at this level, because of some order contract that you guys booked purposely or just some contract that you expect to book this quarter?

Lindon Robertson

We continue to work the momentum that we have built in the year and our signings. As Steve pointed out, we had $74 million of signings over the last 12 months. And I think, you could see that’s substantial growth opportunity for us and it's been building with the second quarter and third quarter bookings we still have a lot to work on. So we see the revenue being pretty solid in this coming quarter and the pipeline, we expect will continue to produce opportunity.

Steve Schwartz

Yes, Edwin, if I can add a little bit to that. The systems and services business, the revenue that we recognized is generally already booked. So we have a pretty good look at that. The consumables and some of those things turn in the quarter, so we don't have as much visibility to that. But we're talking about as something close to 70% of the next quarter revenue, we understand pretty well. And we generally have a good idea on the consumables in devices side what that revenue will be. So we’re pretty confident in what the revenue outlook ought to be for September.

Edwin Mok - Needham and Company

Great, that's helpful color. And then on the guidance, I noticed that you guys made point, it's similar in terms of revenue from June to September but it kind of implied me little bit better profitability. And I know noticed in the June quarter you actually have a very low non-GAAP tax rate right? I was wondering what are the moving parts on the guidance; is it the gross margin coming back because of this Life Sciences contract you mentioned or is that other pieces that drive to slightly better profitability for the quarter?

Lindon Robertson

Yes, there is a couple of dynamics there. You are right, so we think that the revenue could be approximately flat and plus or minus some. And margins actually, we expect to continue to gain traction at the flat level of revenue that will get almost a point of traction as we expect. We do have little pressure on expense but mostly mitigated by the restructuring action. And then as you very astutely point out, we had some pretty good tax benefit in the third quarter, partly from the charges that we took. And in the fourth quarter, we’ll return to a more normal tax rate. And just to give a little more color on the tax rates that you might want to use, we are still headed to about a 30% tax rate for the year on a non-GAAP basis without the tax discrete items -- without the tax discrete but we see that opportunity to go to 20% overall for the year. But in the fourth quarter this will be pretty close to 30% to possibly having an opportunity to get to 25% whereas in the third quarter it was low single-digit with discrete items that we were able to take benefits on.

Edwin Mok - Needham and Company

Great. That’s all I have. Thank you.

Lindon Robertson

Thank you Edwin.

Operator

Our next question comes from the line of Patrick Ho with Stifel Nicolaus. (Operator Instructions).

Patrick Ho - Stifel Nicolaus

Thank you very much. And I also like to echo my sentiments on a nice quarter, especially on the Life Sciences. And Steve, first off on the semiconductor side, post SEMICON West, there was a increasing chatter regarding advanced packaging once again and we’ve heard some positive commentary coming out of some of the sub-cons regarding the traction in that growing market. Based on some of the comments you said about the backend slightly being up offsetting the frontend in September, is that being driven by advanced packaging? And I guess maybe as a follow up to that, what do you see in terms of the growth prospects of that marketplace; do you see a hockey stick type of curve or more of a gradual step up?

Steve Schwartz

Patrick, I wish I could answer the second part, but we are not sure. We do see growth in the advanced packaging, so that's the driver for us. So that part feels healthy, even during this period where things have been a little bit slower, we've also been out gaining a little bit of share. We're pretty bullish on what that could be, but the market seems to be little bit muted yet. So we are standing by, we are encouraged by the position that we have. But we still - it feels like we're going to need at least another quarter to see a real uptick here.

Patrick Ho - Stifel Nicolaus

Okay. So Steve, you guys are seeing like the big volume buys that maybe the pure play equipment guys are starting to see in that marketplace.

Steve Schwartz

We anticipate that we'll hopefully see some of that during this quarter.

Patrick Ho - Stifel Nicolaus

Okay, great. On the Life Sciences and can you give an update on I guess some of the development work you have been doing on the minus 150 degrees? And maybe update us on kind of the timing of when you would like to get kind of data products out there for customers to evaluate?

Steve Schwartz

Sure, I’ll -- Patrick I’ll say what I’m comfortable to say right now. We’re investing pretty significantly. We have very strong team, people working on the next generation minus 150 product, we have two actually that we're working on, and we anticipate that we will -- our target is to have two beta systems in the field in calendar 2015 and we're schedule for that. So we’re very pleased by the performance customers have seen, the work that we've done, the systems that we have. And we’re positive that we'll begin to get some real customer feedback before the end of calendar ‘15.

Patrick Ho - Stifel Nicolaus

Great, that's all I have for now. Thank you.

Steve Schwartz

Okay. Thanks Patrick.

Operator

Our next question comes from the line of John Pitzer with Credit Suisse. Please go head.

Farhan Ahmad - Credit Suisse

Hi, this is Farhan asking the question on behalf of John. My first question like on the bookings for Life Sciences, did you mention it this quarter; I didn't see it on the presentation?

Lindon Robertson

Yes, the bookings is about $9 million this quarter. And we said that there is a backlog of about $38 million and the 12 month backlog and then we have some additional go beyond one year ahead of us.

Farhan Ahmad - Credit Suisse

Got it. And Steve you’ve talked about the atmospheric robots business being not very attractive for Brooks, and you guys exiting or like de-prioritizing that market. I just wanted to understand like in terms of the business impact in terms of how large that business was say two years ago and how much is that right now. It will help us to understand like what rest of your business has done over that period of time.

Steve Schwartz

Yes. So Farhan, I can give you a general idea. So three years ago actually to give you a marker, three years ago it was in excess of 15% of the automation portfolio and this year we anticipated it will be just under 5%.

Farhan Ahmad - Credit Suisse

Got it. So, and your automation portfolio is about $200 million a year?

Steve Schwartz

Yes, that’s in rough numbers a little bit bigger than that.

Farhan Ahmad - Credit Suisse

Got it. And you’ve talked about Life Sciences opportunity of automated gross stores of about $200 million over the next two to three years. How should we think about that progressing, is it something like that is going to be bigger in the later part of the second quarter and is it smaller right now or do you expect like that where the business is right now?

Steve Schwartz

Yes. It’s a part and that’s what that’s the current look and I think every day we add and subtract from this prospect list but these are real opportunities identified by all of our account execs around the world. So, the real names associated with this we’ll keep working that and over the next couple of quarters we will determine the level of confidence there. But the real opportunity is in as we can in them into near-term and further out will be then and try to give some color to it.

Farhan Ahmad - Credit Suisse

Got it. Thank you. That’s all I have.

Operator

(Operator Instructions). Our next question comes from the line of David Duley with Steelhead Securities. Please go ahead.

David Duley - Steelhead Securities

Thanks for taking my question. Steve, if customers like Applied and Lam see shipment growth in the December quarter, is there any reason to think that your revenue won’t also increase in the semiconductor space in December?

Steve Schwartz

Yes, David. We try not to comment too much on specific customers, but whatever drives their business certainly drives our business.

David Duley - Steelhead Securities

Yes. Those are just the biggest customers in the industry I can think of so I didn’t mean to it…

Steve Schwartz

Right.

David Duley - Steelhead Securities

I was wondering if the funding guys start to shipment growth in December is there anything hurdles to keep your revenue from growing during that same quarter?

Steve Schwartz

No, absolutely not. We’re prepped and we would to grow quickly.

David Duley - Steelhead Securities

Okay. And as far as the Life Sciences, you mentioned there is going to I guess in the profitability in this upcoming coming quarter, congratulations on that, that's a great thing after the drag that it's been over last few quarters. And do you expect that to be ongoing and what gross margin levels would we anticipate let's say throughout 2015?

Steve Schwartz

Yes. We're going to try to keep the expectation here bit in the range of this kind of revenue level, where we're still not quite $100 million run rate 40%, 45% is a good estimate for gross margin, we'll continue to work to improve it. But as we continue to put new stores out there and new customers there is necessarily some cost will incur they want to pay close attention to. But I think 40% to 45% is a really good range. As Lindon mentioned, our expectations are that we get $100 million in higher that we have to be able to routinely exceed 45% gross margin for that business.

David Duley - Steelhead Securities

And as you already mentioned, you are kind of already at this 40% to 45% on your backup, but the impact of that one contract?

Steve Schwartz

Yes.

David Duley - Steelhead Securities

So kind of going forward, when we're modeling things, whatever revenue number we get we've taken in gross margin in the low-40s I guess?

Lindon Robertson

Dave what I would say about this is so much in my comments earlier, this is a lumpier business and the contracts can sway a quarter, that's why ranges in the 40% to 45% expectation. Actually if you go back a couple of quarters, a few quarters, we've exceeded 45% and we've been down in that 40% range and pretty consistently right in that target range of 40 to 45 on average and we just because of the lumpiness we just say that the right place to be modeling us. But we see opportunity as we scale with broader synergies and being able to leverage our structure.

And finally as we continue future track of doing more integration of the acquisitions that we have done that we think there is opportunity to get it above that 45% range in the strategic horizon, but for now 40%, 45% is a very reasonable range for to move around it.

David Duley - Steelhead Securities

And how do you view the gross margins of the Brooks Product Solutions group, can you get to a 40% gross margin rate in that business overtime sometimes the biggest business that’s the biggest delta?

Lindon Robertson

I probably wouldn’t call out 40% but we see it getting better, if 38%, 39% is what we set our sights on and next call it one to two years, and as I said we were pretty pleased with this quarter, we think the CCS business as we add that in, I just we described last quarter when we acquired it that we would see in 2015 approximately an estimate for next year for us is about 40 million was about 40% margins. So we are pretty happy with our outlook with our portfolio to continue to expand this.

David Duley - Steelhead Securities

Well you just answered my final question which is what is the clean business target for next year. So with that thank you very much.

Lindon Robertson

Alright. Thank you Dave.

Operator

Mr. Schwartz there are no further questions at this time I will now turn the call back to you for closing remarks.

Steve Schwartz

Well thank you everyone for your interest in Brooks and we certainly look forward to speaking with you when we report results from our fiscal 2014 fourth quarter. Thank you.

Operator

Ladies and gentlemen that does concludes the conference call for today. We thank you for your participation and ask that you please disconnect your line.

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