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Executives

Martin Headley - EVP & CFO

Steve Schwartz - President & CEO

Analysts

Edwin Mok - Needham & Company

Olga Levinzon - Barclays

Darice Liu - National Securities

Ben Pang - Caris & Co

Brooks Automation Inc. (BRKS) F3Q12 Earnings Call August 9, 2012 4:30 PM ET

Operator

Good day ladies and gentlemen and welcome to the Brooks Automation Earnings Conference call.. Please be aware that this conference is being recorded. And at this time, I’d like to turn the call over to your presenter for today, Mr. Martin Headley, Chief Financial Officer. Sir, you may proceed.

Martin Headley

Thank you very much Chris and good afternoon everybody. I’d like to welcome each of you to the third quarter financial results conference call for Brooks in our fiscal 2012 year. We’ll be covering the results of that third quarter that ended on September the 30 and providing an outlook into the fourth fiscal quarter, which will end on September 30, 2012.

Our press release was issued after the close of markets today and is available at the investor relations page of our website www.brooks.com, as are the illustrative PowerPoint slides to be used with our prepared comments during today's call.

I’d 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’d 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 the company’s various filings with the SEC including Form 10-Q for the third quarter ended June 30, 2012. We make no obligation to update these statements, should future financial data or events occur that differ from forward-looking statements presented today.

I also would like to note that we make reference to a number of non-GAAP financial measures which are used to in addition to and in conjunction with results provided in accordance with GAAP.

Management believes these non-GAAP measures provide an additional way of viewing aspects of our operations and performance. When considered with the GAAP financial results and the reconciliations of GAAP measures provide a more complete understanding of the Brooks business.

Non-GAAP measures should not be relied upon till the exclusion of GAAP financials.

With me today is Brooks’ President and Chief Executive Officer, Steve Schwartz, who will follow my introductory remarks with commentary on the business environment and our current initiatives. I will then provide an overview of the third quarter financial results and a summary of our financial outlook for the quarter ended September 30, which is our fourth quarter of fiscal 2012. We’ll then take your questions.

During our prepared remarks, I will from time to time make reference to the slides available to everybody on your Investor Relations page. To frame the events of the quarter, a summary is provided on slide 3.

After opening the quarter with bookings largely in line with our expectations, we saw two events that substantially slowed down the bookings right in the quarter. First, as many of you will have heard from our customers and peers, semiconductors bookings got very weak very quickly late in the quarter.

Secondly we saw a contraction in Sample Storage and Management Systems projects being awarded largely through a slowdown in European funding. Together these combined to bring bookings down to a $128 million in the quarter. Offsetting the weakness in frontend Semi and Life Science systems was strong demand for our Polycold cryochillers supporting tablet and smartphone capacity build.

Our margins were adversely impacted by lower demand for tools with our high vacuum products that result in a proportionate increase in low margin atmospheric robots as compared to the more favorably contributing vacuum robotic and cryopump products. We also remain in negotiation with significant customers to establish timetables through introduction of alternately sourced components and sub systems. With that scene setting, let me introduce Steve Schwartz.

Steve Schwartz

Thank you, Martin. Good afternoon everyone and thank you for joining our call. We are pleased to be able to discuss our third quarter results with you and give you some color as to the progress we are making on our growth initiatives. Like others in our space who have already reported earnings, we too began to see a softening of the semiconductor business starting in early June when orders began to slow considerably.

But even in a challenging semiconductor environment, our revenue remained basically flat. We actually showed an increase of about 4% quarter-on-quarter in our BPS business unit led by the strength of our Polycold business which was driven by coding applications for active displays for tablets and smartphones. This increase was offset by a drop in revenue in our Life Science Systems business and I'll say more about that in a moment.

As we look forward different dynamics will take place in the September quarter when we expect to see Semiconductor revenue falling, Adjacent revenue holding and Services and Life Science Systems businesses also steady. Martin will give some more detail about our guidance but I want to take a time right now to speak to you about our progress and challenges going forward.

We had another very strong quarter of design win activity as we added 21 more OEM design wins, right about our quarterly average. The wins this time were highly weighted to adjacent markets where we closed on 13 new business opportunities which included six wins for non-MOCVD steps in LED manufacturing and two for semi backend packaging applications.

We also had six new wins for semiconductor frontend applications and two of the wins were for general vacuum applications. We added two new customers in the quarter. We continue to show steady progress in 450-millimeter systems and components as we shift three more new systems and head another two design wins.

This brings our 450-millimeter customer count to nine. We are encouraged by the increase in news about investment in 450-millimeter wafer size from the end user community and we will continue to work on design wins for customers who want to be equipment suppliers to this market.

Although we will continue to innovative on some novel system architecture designs, our product portfolio is already relatively complete and we are actively engaged with and able to deliver to customers on a relatively short-term basis.

In Life Sciences, the new order bookings were light particularly in Europe with just a few pieces of new business awarded in the quarter. In that list of systems, there was only a single large store and we did not win it. As the market leader in this space, it's unusual for us to lose business at minus 80 degrees and frankly we did have it included in our forecast.

On the positive side, we released a new upgrade program that enhances the productivity of older installed stores and we won a first order for a European customer under this upgrade program.

We're also making the appropriate investments in new products as we see it is a means to extend our reach in this space from innovative designs. We fully anticipate that Life Science systems orders will improve in Q4 and we’re encouraged by a strong pipeline of meaningful customers as we look into the back half of the calendar year.

Revenue in this business will likely be above flat in our Q4. We do remain cautious as to the timing of some of the European opportunities historically a little over 40% of the cold store system market has been in Europe. We believe that this issue is only one of timing related to the macro environment as the demand to store cold samples is only increasing.

As you heard from us before, we’ve been very aggressive going after new design wins even when we know that there is usually a significant gap between when we receive an order for the initial penetration and when follow-on orders are realized.

As a wide range of variability as sometimes we receive repeat orders, early as one quarter later or as late as two years or more after the initial order depending upon the market acceptance rate for the OEMs tools.

However, on balance, we noticed that about half of the design wins generate repeat orders within four quarters of the initial win and higher volume adoption can typically begin about four quarters after that. More specifically, when we look at the business we've generated to date from our 79 design wins from fiscal year 2011, we count more than $30 million in cumulative bookings over a seven-quarter period.

From the 60 design wins so far in the first three quarters of fiscal year 2012, we already have $15 million in bookings. As these designs are part of successful OEM products, which typically have long qualification time, we anticipate additional accelerated growth from this hard one design investment.

As you can imagine the implications of 20 new design wins per quarter puts a strain on the delivery side of the company as we procure, assemble, test, ship and start our first article at a higher cost and will incur for higher volume repeat business. Nonetheless we believe these investments are securing the right type of business that will provide growth and share gain in the come quarters in years.

To summarize our Q3, we are pleased by the topline strength that's coming from our new share gains and although we cannot avoid the impact of a slowdown in semiconductor we will come out even stronger when the next ramp up comes. We still have much work to do to improve gross margin, but the right action have been and are being taken and we stand firm on our long-term objectives for quarterly improvements.

Our products and our development activities are exactly in the right areas to take advantage of growth opportunities driven by changing customer needs, we remain aggressive in our capture of near-term business and patient in our development of new market opportunities.

Each of the market segments in which we participate provides us with the opportunity to grow significantly, both by internal product development and by acquisition. We will continually weigh these options as we drive our aggressive growth initiatives quarter to quarter and year to year. I will now turn the call back over to Martin

Martin Headley

Thank you very much, Steve. Slide no 4 shows that for the third quarter of fiscal 2012 which we've achieved a $140.4 million in revenues compared to a $139.3 million in the second quarter of fiscal 2012. Revenues for the Brooks' Product Solution segment increased 4.1% on a sequential basis compared to that of second fiscal quarter of 2012.

Revenues for the Brooks Life Science Systems segment decreased 23.6% sequentially due to delays in sample storage management systems predominantly in awarded tenders in Europe.

The Brooks Global Services segment generated a 1.4% increase in revenues. Also as shown on slide four, our gross profit margin was 33% in the third quarter of fiscal 2012 compared to 35% in the second quarter of fiscal 2012 and 30.8% for the third quarter of fiscal 2011.

This year-over-year improvement was primarily due to revenue mix with higher Brooks Life Science Systems revenue from the divestiture to a lower margin contract manufacturing segment business. On a core play basis sequentially gross profit margin was down 200 basis points primarily due to the atmospheric versus vacuum revenue mix in our product solutions segment as well as some cost additions in our global services activities which had not been supported by revenue growth.

Sequentially, operating expenses were approximately flat with reductions in R&D spending offsetting unfavorable comparisons for SG&A expenses. Overall, sequential operating profits before special charges were $9.2 million. Turning to slide four, the waterfall chart reiterates the impact the adverse margin headwinds impacting the quarter’s results with variable contribution from Brooks Product Solutions of $300,000 on $3 million of additional revenues and reduced contribution from Brooks Global Services on a slight increase in revenues.

The reduced contribution from Brooks Global Services on a slight increase in revenues. The reduced contributions from Life Science Systems reflect a 50% drop through from lower store revenues.

SG&A expenses were reduced by nearly $2 million to offset the unfavorable impact on the March quarter comparison of the legal cost recovery on closing out or remaining stock litigations and insurance matters.

The slide number six shows GAAP net income for the third quarter of fiscal 2012 was $8 million or $0.12 per diluted share which includes special charges, predominantly restriction charges of $900,000. Adjusted net income excluding these restructuring charges was $8.9 million or $0.14 per diluted share.

GAAP earnings compared to second quarter of fiscal 2012 net income of $9.7 million or $0.15 per diluted share and $66.9 million or $1.03 per diluted share in the third quarter of fiscal 2011, which included $42.6 million of gain from the sale of the contract manufacturing business.

Brooks generated $17.2 million of adjusted EBITDA for the third quarter of fiscal 2012 which compares to $20.9 million in the second quarter of fiscal 2012, a decrease of 18% sequentially.

A reconciliation of non-GAAP measures to the appropriate GAAP comparison is included as an attachment to our press release. As illustrated on slide number eight, the EBITDA performance produced cash flows from operations of $10.9 million in the quarter, after some increases in networking capital.

After capital expenditures of $2 million, a $3 million loan to a strategic partner in the life sciences industry and our quarterly dividend we are approximately net cash breakeven as we ended the third quarter with total cash and marketable securities of $203.7 million as of June 30, 2012. We consider approximately $202 million of these balances to be readily liquid and available for our strategic deployment.

As shown on slide number nine, our balance sheet is very healthy with a $105 million of networking capital although we are targeting lower inventory holdings. We may add a significant asset to the balance sheet in the fourth quarter when it may be appropriate for us to release the valuation allowance against over a $100 million of deferred tax assets associated with tax loss carry forward with. The judgment will become clearer as we close out the fourth quarter financial statements.

Beginning on slide 10, we break out the results for each of our three business segments in the third quarter of fiscal 2012. Brooks Life Science Systems business recognized $11.2 million of revenues in June quarter, as previously noted a 23% sequential decline as compared to $14.6 million in the previous quarter.

Although the pipeline of sample storage and management system project awards is temporarily constricted with European activity much reduced, we continue to receive many strong indications of the recognition of the benefits of those automated solutions for bio sample applications. We remain infused about the growth prospects going into fiscal 2013 despite the business contraction during the back half of this year.

Actions that creates a meaningful infrastructure reductions around the business our (inaudible) will significantly reduce the breakeven point of fiscal 2013.

Turning to slide number 11, revenue for the Brooks Product Solution segment increased to $107.7 million for the third quarter of fiscal 2012 up 4% compared to a $103.5 million in the second quarter of fiscal 2012. Gross profits of $36.2 million represented a $ 33.6 % gross margin rate. The 110 basis points decline from the second quarter of fiscal 2012 might arise as mostly from an increasing mix flavoring the lower margin atmospheric products. Back on our operating expenses also assisted in the build of our operating profits in the segment from $6.6 million in the March quarter to $10.7 million in the June quarter.

On slide number 12, we see the revenue from the Brooks Global Services segment increased slightly to $21.5 million compared to $21.2 million in the second fiscal quarter 2012 with the growth in pump repair revenues.

Our gross margin in this segment was unfortunately down from 31.5% to 27.3% with field cost increases that were not that much by revenue increases. New divisional management are working on better matching these resources. Operating profit in our global services segment was $2 million or $9.2% operating margin.

Looking forward, we see a sharp slowdown in the activity levels of our technology OEM customers. This is most pronounced in semiconductor front but also extends to a lesser extent into other end markets. We also see the limitation of European opportunities also restricting recovery of our Life Science Systems business in the September quarter.

Accordingly as summarized on slide number 13, we look to a 15% to 20% decline in revenues from the June quarter to the September quarter with biggest reductions in products focused on semiconductor front end.

With that reduction in activity, we are taking appropriate cost reduction actions plus ensuring our business is ready for potential bring back in the December or March quarters of our fiscal 2013.

We project adjusted non-GAAP earnings of between breakeven and $0.06. We are not providing GAAP guidance given uncertainties surrounding the one-time items that may occur in the September quarter, namely the large tax credit that may arise from releasing the majority of the deferred tax assets valuation allowance and the charge associated with the termination of the US defined benefit pension plan.

Finally, we announced that our Board of Directors had declared a dividend of $0.08 per share payable on September 28, 2012 to stockholders of record as of September 7, 2012. Future dividend declarations as well as the record and payment dates associated for such dividends are subject to the final determination for the company's Board of Directors.

At this time I will now turn the call over to Chris for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Edwin Mok with Needham & Company. You may proceed.

Edwin Mok - Needham & Company

My first question is, if I look at your guidance revenue, I assume, how the direction that you mentioned regarding the various pieces of your business. It kind of imply that your Semicap business could potentially or business of your Semicap customers could potentially be down in the high 20% sequentially, maybe as high as 30% sequentially that seems in the high end of your peers. I was wondering what cost that is it just because of the kind of mix of customer you have or how do you think about?

Martin Headley

I don't think that the high end of the guidance is as heavy as that for semiconductor front end reductions, Edwin, but you will note that the guidance is in fact from very high end in terms of some of the OEM customers into the 30% range, not less than about 15% for most of the people that represent our customers. So we maybe being fairly cautious here in our guidance but we’re clearly seeing an increasingly soft picture for the business levels for this quarter.

Steve Schwartz

And when as we watch the business here even over the last week, there is just not any good news and so we are a little bit cautious here in terms of what the semi side will look like for the quarter.

Edwin Mok - Needham & Company

Yeah, so actually this is my next question I guess, so incrementally over the last few weeks or I guess after SEMICON until now, incrementally you have seen your business deteriorate especially on the semicon side; is it fair to say?

Steve Schwartz

Yeah it’s getting softer and for us to be a little bit cautious there aren’t things that are getting full back in.

Edwin Mok - Needham & Company

Interesting so, may be some of your peers haven’t seen that one that you provided guidance. So my next question actually related to design, and so again very strong designing activity this quarter and Steve we appreciate providing some color in terms of how those designing translate to your booking number that was very, very helpful here.

Just a question about how you think that about potentially impacting business that you have with your existing customer, meaning that how much of those designing are for new opportunity versus opportunity for designing something that maybe a customer just changing to hardware and therefore you’re designing. That’s the first part of the question?

And then second part is, are those numbers over $7 million of backlog for last year design and I think $15 million for this year. Are those incremental revenue opportunity that you think you have generated or does that also include some of these replacing opportunity that I just mentioned?

Steve Schwartz

For the most part these are new designing wins. If we have a win already on a particular configuration they switch from one version of our robot to another version of our robot; we don’t count that. So by and large these are incremental and so when we talk about year-on-year ranging 200 to 300 basis points in market share it’s largely from these opportunities and a lot of these things have come from new customers and customers new to the markets actually.

Edwin Mok - Needham & Company

One last question and I’ll leave it for the other guys. On the Life Science side you mentioned that you have the timing issue and impacted you for the quarter and off the last quarter and likely for the coming quarter remain at similar level. How are you counting -- do you think that’s more of a short-term issue that seems to improve and in terms of that timing of revenue, does that have any impact on how you think about your future contract opportunity in Europe and maybe any impact on pricing if there any?

Steve Schwartz

Let me go backward, I don't think this is a, this is not a pricing issue. This is a matter of contracts being let; these are pretty big capital items. They are queued up for a long period of time and the fact that project will slip one quarter or two quarters based on the ability to get financing or to get the budget is what we seem to be seeing here.

So these aren't cancellations of projects, but natural delays and in this macro environment with a lot of uncertainty if people have incremental samples so they can do it by manual means as they have done it for the past years, but it doesn't mean that they will ultimately not go to automation once they have made that decision generally well. But right now the environment is such that we are seeing a pretty significant pause in the project commitments that are going on in Europe.

Operator

Our next question comes from the line of Patrick Ho with Stifel Nicolaus. You may proceed.

Unidentified Analyst

Hi, it’s [Richard] on for Patrick. I guess my question relates back to Life Science business what you were just saying. So that business you are describing that won't be coming in the next several quarters. Can we think about that as far as it being pushed out into 2013 or is it something that just actually might not come back to the macro economic environment in Europe improves?

Steve Schwartz

Yeah, Richard, its not that firm. So I wish I could tell you that. We’re still are paying close attention to the opportunities; it’s just what we watched happen in the June quarter; well we sensed will happen in the September quarter. We don’t want to get ahead of ourselves here in terms of what might happen in December, but at some point, it doesn’t mean projects are dried up completely, but it just means that we need to be a little bit more prudent about how we size the business around those opportunities. I don’t sense that it requires complete recovery in Europe at all. Eventually, these projects, the sample seem to be stored, eventually the projects need to go forward, but we think it’s prudent right now to imagine the business will be less robust here in the next couple of quarters.

Unidentified Analyst

And as revenues seem to be declining a bit over the quarter, and I understand that’s happening mostly in the semi-cap front. How do you view OpEx going forward, R&D, SG&A, I know you tried to pull on the R&D; how about SG&A going forward?

Martin Headley

I think you would expect to not see any particular movement on R&D. We have some important projects moving forward and we want to sustain and build the business going forward and continue to support our design win activities so that we remain robust. So the level of work that we’re actually doing there is as busy as it ever has been.

In terms of our OpEx I made some reference to some initiatives that we’re looking at, actively working, particularly on the Life Science Systems side. It won’t have a meaningful reduction in the September quarter, but it will have meaningful impact on fiscal 2013 and obviously in an environment like this we are nimble and to adjust our cost structure as best you should not be looking for something that’s dramatically different.

Unidentified Analyst

And kind of a final question, as far as cash spending going forward is there any particular areas within the market where you seeing a special weakness or any kind of indications you have in terms of customer segments that may be dropping off a bit fast than others?

Martin Headley

I don t see things that we see meaningful change. We see a lot of caution across the whole spectrum of the activity and may be in one or two of our adjacent markets we see less of a pull back than we do in the front end markets.

Steve Schwartz

And sometimes I think it’s already been reported the inspection metrology a little bit healthier than some of the other parts of business.

Operator

And next question comes from the line of CJ Muse with Barclays. You may proceed.

Olga Levinzon - Barclays

Hi this is Olga Levinzon calling in for CJ, thank you for taking my question. Just wondering a little bit on the gross margin side; in your press release I think you talked about expectations for gross margins to be up sequentially off of revenues coming down about 15% to 20% and it sounds from your comments that’s really on the product side. So just wanted to get a better sense for you know how you plan to achieve the sequential gross margin improvement off of fuller revenues; may be any color you can provide on the individual line segments and the gross margins and will it largely be driven by a mix of towards vacuum or will there be any sort of cost savings that should drive that as well?

Martin Headley

I think what you can say is we wouldn't expect any further decline in margins from where we are now; even at the bottom end of our guidance, in the middle and that was part of our guidance range that implies with the absorption impacts and expansion. We get some favorable impacts from our supply chains and operations activity that we have been working on now for a number of quarters. As those start to move through the financial, some of them have been caught up on the balance sheet with capitalized variances. We also will get some benefits from working the Life Science systems cost reductions that we talk about, not huge amounts, but some benefits there and we really think that we've probably seen the worse mix that we are likely to see at this stage.

Olga Levinzon - Barclays

And then on the Life Sciences side, you talked about tracking some large projects which should come out towards in the upcoming quarter and may drive sequential growth in your Life Science business in the December quarter and beyond. I guess could you provide a range in terms of what kind of revenue opportunity that could pose for December or March; maybe some sort of range well at end high end, so we can have a view as to how that should trend going forward?

Steve Schwartz

Sure. And I will use the trend analysis here. This is a business that we anticipate about now when its relatively steady; it ought to be about $60 million per year business for us and the opportunity continues to grow about 20% per year and we would at least keep up with that if not gain share. So that's about where we anticipate the business will be when it’s a little bit more regular in terms of balance if you will.

Olga Levinzon - Barclays

And just a final housekeeping question; what sort of tax rate or tax expense are you embedding in your guidance?

Martin Headley

We’re embedding in the guidance a relatively modest tax credit for the fourth quarter of this year. So that’s with respect to the valuation allowance release, but we have some uncertainties that we believe will expire by statue to the end of the fiscal year.

Operator

The next question comes from the line of Darice Liu with National Securities [Brigantine Advisors]. You may proceed.

Darice Liu - National Securities

I was wondering if you could provide an update on your non semi-cap business?

Martin Headley

By that for you I presume Darice the principle areas would be the other what we refer to as our other adjacent markets.

Darice Liu - National Securities

Yeah, thank you, we think of that.

Martin Headley

I would say if you look at LED, we are starting to see some order activity. You would recall that’s a very moribund level of activity. So it’s modest at this stage and wouldn’t I say be indicative of a significant market uptick, but it is clear that the inventories worked out of the pipeline and there is interest in LED investment at this time. But we probably see it's a little bit more robust in the areas other than MOCVD at the moment. We see the MEMS business starting to invest a little bit more and starting to move forward some. We remain very strongly enthused by the level of interest and activity within those designing wins around backend opportunities and the seriousness that everybody is talking about applying wafer level or wafer handling techniques into what has previously being die automation.

Data storage and solar remained at very, very low levels of activity not much activity there. We are actually seeing a pull back in fairly modest levels of activity in our analytic area. Our industrial business was buoyed by the Polycold business in the June quarter and the industrial business is following the previous trends of trailing what happens in semiconductor by a quarter to two. So it is not declining at the same pace going into the September quarter.

Steve Schwartz

And Darice, just to add one more thing of 140 design wins in seven quarters, half are for these adjacent spaces.

Darice Liu - National Securities

And then I guess on the Life Science business, two housekeeping questions. In the past you've talked about targeting that segment to be accretive in 2013. I am wondering whether or not you are on track for that even if the macro continues to be at the state that it is right now. And secondly you mentioned in your prepared remarks, Martin that you are making a lot of efforts in cutting the cost profile of Life Sciences to improve the breakeven level, can you provide more color on that?

Martin Headley

Well certainly, the first point of the question. We will remain committed in our plans for fiscal 2013 for this business to be accretive. So we don't see movement or any step backwards on our longer-term goals with this business. In terms of what we are going through now, we are going through things such as a lot of back office integration that is dependent on a lot of hard work with our systems folks. That could only be done in this timeframe and that will enable us to get efficiencies as we integrate the business from the back office point of view more closely into Brooks as a whole.

We are also looking at the location footprint that we have in the [slice] footprint and significantly reducing that footprint. So between those two levels as well as sourcing initiatives, we can significantly improve the cost profile of the business.

Darice Liu - National Securities

Can you just help translate that into numbers though, Martin? In terms of what the new breakeven level for Life Sciences would be, what the new margin target we should be looking at and OpEx targets we should be looking at for Life Sciences in 2013 post all these actions?

Martin Headley

If you look to all of these actions, as we have said we are looking for the business to be in the low to mid 40% gross margins and that it should be producing segment operating margins in the low single digits.

Steve Schwartz

I just wanted to emphasize these costs reductions are a part of synergies that have been planned since the acquisition of the company, so whether the business was going up or going down, these were actions that were underway and taking place as a means to run the business better.

Operator

Our next question comes from the line of Ben Pang with Caris & Co.

Ben Pang - Caris & Co

First a follow-up on a previous question and answer. On the Polycold you guys mentioned that, that started to rebound in the June quarter. Do you expect it to go down again in the second half of the calendar year?

Martin Headley

It's rate of growth is clearly going to modify significantly from what we've seen in the last couple of quarters. Whether this will cycle down, entirely possible. It is not sufficiently clear to us exactly how the capacity for these requirements are, so it's entirely possible it may cycle down. But to what extent it's not clear to us at this juncture.

Steve Schwartz

Ben, if you recall last year we had a record quarter in the Polycold business in the quarter when the semiconductor business was turning down. And we are kind of at those levels again today in terms of manufacturing levels for the Polycold because business is really strong. Though we watch it cautiously, we don't anticipate it to go up, but anything can happen here. But we are almost at a replay of where we were three quarter ago.

Ben Pang - Caris & Co

And then on the Life Sciences, I was a little bit confused about the quarter. Did you lose -- I think you guys mentioned that you lost a contract, that you had a competitive loss.

Steve Schwartz

Yeah, Ben let me be very specific about this. We delivered a quarter at $140 million in revenues. So we had a strong semi and adjacent side here and we look at this as a missed opportunity. We had a chance to win a big store. Within our forecast, we thought we had it, this one we just missed. It was a good gross margin piece of business. We like the Life Sciences business. It would have kept the momentum going. We have a good platform. This was in our sweet spot and we just missed it.

And so we really missed a chance to add a good system at good revenue and good gross margin and you know, we made some changes and we’re moving forward. But yeah, we did miss the large store that came through in the June quarter.

Ben Pang - Caris & Co

The company that you lost that too is kind of your [technical] competitor or was there some difference in the competitive nature of this decision. Yeah, I don’t want to get in too much detail. They are a cold store supplier, the competitor and it's one of those things that get repaired here and I wouldn’t anticipate we will have that kind of thing again.

Martin Headley

Ben, just as a clarification point, why that's more important was because the pipeline that constricted because of the European slowdown in funding, winning everything became more important. Not that it isn’t important normally, but it had much more of an impact.

Ben Pang - Caris & Co

Right, I am just more interested from a competitive nature. I mean the cycles like economic conditions go up and down, right. And then finally on the Brooks Semiconductor Solutions, the vacuum versus atmospheric mix. I think you answered the question earlier, but is that sort of a (inaudible) or is that a cost to run mix or something going on in the industry?

Martin Headley

It's a little bit a mix of customers and the particular kinds of tools who happen to be winning pieces of business.

Ben Pang - Caris & Co

So that could continue for a couple quarters if the industry is down?

Martin Headley

It could do but as we look we haven’t changed anything in the way of particular pieces of business that we have won or loss and it’s the particular customer piece that drives the strength in atmospheric. We think he is probably a strong component of our mix as it could be in the June quarter.

Operator

Our next question comes from the line of (inaudible). You may proceed.

Unidentified Analyst

Yeah just a couple of quick ones from me, do you have any 10% customers in the quarter?

Martin Headley

In terms of end customers we had one more than 10% customer that was less than 20 more than 10.

Unidentified Analyst

And with the weakness in the semiconductor business broad based amongst your big OEMs and small OEMs profitable, is it everybody or it wasn’t more concentrated?

Steve Schwartz

The weakness is turning out to be very broad based across the breadths of our OEMs wherever they are located and whatever their size, so it has a fairly negative field from that form that point of view.

Unidentified Analyst

Okay. Final thing from me is could you just talk a little bit more about the service gross margins I think they were down sequentially, what was the exact reason for that?

Martin Headley

We had both field cost structure in place and have not had a level of revenue that supported that so we will be revisiting what the appropriate cost structure for the revenue levels that we see at the moment are.

Operator

Our next question comes from the line of (inaudible) with Sidoti. You may proceed.

Unidentified Analyst

I just wanted to get some clarification on the Life Sciences, from what I understood it looked like you had a lot of visibility and a long lead time as far as orders go in this segment. So what happened like and the fact that this quarter was lower and in other words if you can tie the sequential of decline to, was the delay or the business loss that was, that had the impact?

Steve Schwartz

This is Steve, part of that, one, we missed some revenue from the system that we described that we lost and other business that's in valid pipeline, those systems were not awarded in the quarter.

Martin Headley

We still have a very strong backlog for delivery of systems into fiscal ’13. There is a good and solid underpinning of business for fiscal ’13 from the bookings gains that we secured earlier in the fiscal year. We needed a degree of some wins in the quarter that turn over provide some of the current within quarter turn to make the revenue goals that we have for the quarter and we did not secure that.

Unidentified Analyst

Okay, and can you just remind me of what the backlog is on Life Sciences, right now?

Steve Schwartz

I have to get back to you on that.

Unidentified Analyst

Okay, and can you give us anymore details on the order that didn’t, the timing related order that didn’t go through. Is it a University, a government kind of related order or that would be helpful?

Steve Schwartz

Yeah, we don’t have a single order. We've got a pipeline with bunch of systems with different probability. So it is a combination. All of those types of systems are in the backlog.

Unidentified Analyst

Okay, my last question is on, you mentioned a loan of $3 million to life sciences company. So that is not one of the subsidiaries?

Martin Headley

No, this is a loan that’s facilitating the development of a strategic partners we see it, not anything more that we can talk about at this juncture but an appropriate and exciting opportunity for us which we believe sometime in the future.

Unidentified Analyst

Okay.

Steve Schwartz

It’s a loan to an independent external third party that we regard as business partner.

Operator

Next question comes from the line of (inaudible) You may proceed.

Unidentified Analyst

Just I guess a little bit more on life sciences, as everyone else has but, did you guys said there was softness in Europe and I was just wanted to get a sense of how after domestic business in that segment will look for the quarter; can you add a little color there?

Martin Headley

I would say that in terms of the pipeline and the opportunity US by far the greatest of current place of those being generated. I would say that the fastest growth rate is actually in Asia. So we are always think that this business to be healthy, there would be down ratings of this European businesses happen to be much more severe in the current quarter with the macroeconomic situation that they face.

We just see tremendous amounts of interest with some awards not in the quarter but some awards just after the end of the quarter that are very exciting in terms of the acceptance and the growing acceptance the need for our kind of solutions to ensure sampling integrity. And the volume there has been in place and encouraged by some of the leading thinkers within the industry. So that’s the kind of strength and endorsement that we have seen from the US side. The US side by far, going to be by far the biggest spender in the bio sample area.

Unidentified Analyst

Okay, do you by chance, please remind if you guys do (inaudible) I guess if you would just put that segment, can do that for me in terms of the different regions like Life Sciences segment for the quarter or revenue distribution?

Martin Headley

No, I can't give you that I am afraid.

Unidentified Analyst

Okay, that's not a problem. Secondly, I asked more about the domestic Life Sciences segment because there was some recent news about (inaudible) failure in a hospital actually near Boston in the McLean Hospital, a lot of the brain samples that were donated to the Autism Research Foundation, they were severely damaged, I was wondering if you guys have any insight about that and I guess what are your thoughts regarding that?

Steve Schwartz

Yeah so Patrick we are aware of it. It was certainly a product that was not ours, it was our understanding that a manual mechanical freezer and that was really an unfortunate incident because you are making incredibly valuable samples were lost but not an automated store manual and you really I think a pretty significant loss for the research institute.

Martin Headley

An advantage should somebody be using one of our stores is in most configurations we have at least one if not two levels of redundancy. So I think the degree of importance of the capital investment to secure your samples and ensure their integrity is having an increasing level of importance we believe attributed to amongst decision makers.

Unidentified Analyst

If I may just one last one, taking a look at the order bookings for the quarter is it at all possible to just get I guess an understanding of how the distributor across the front business segment that you guys have, I just want to get a sense of that?

Steve Schwartz

No, we've not traditionally provided that information but we do provide the list between our technology bookings as we put them and our bookings for Life Sciences business and our bookings were down most significantly in the Life Sciences business, bookings with [$7.6 million] in the Life Sciences business the $120.4 million in the technology business.

Operator

The next question comes from the line of Satya Kumar with Credit Suisse. You may proceed.

Unidentified Analyst

Hi, this is [Farhan] asking the question on behalf of Satya. I just wanted to ask you regarding the shipment growth in the quarter in some of your OEM customers have suggested that they could potentially see an increase in shipment in December. And I was just wondering if Brooks has seen any order pattern which would suggest that could indeed happen that you would have a broken number?

Martin Headley

Sorry, Farhan, we didn’t pick that up, could you -- you’re talking about shipment patterns?

Unidentified Analyst

What I wanted to know was from the order pattern quarter-to-date, does it reflect the view that Q4 shipments could be up for OEM?

Martin Headley

It would not indicate to us that shipment patterns are bullish at all for the September quarter from the order patterns that we are seeing. Now, somebody may have an inventory of our products but may particularly if they have the contract manufacturers that may enable a trend different than that, but we're not seeing direct from our own bookings and or on planning of manufacturing plans consistency with that observation.

Unidentified Analyst

One of your peers reported yesterday and they mentioned that they had seen some order brush outs on memory and even as remarks also mentioned that there was weakness more recently, is it fair like most of the weakness is coming from memory, is it fair to say that or are you seeing it in other segments as well?

Steve Schwartz

Yeah Farhan, we are not sure because we supply it to the equipment -- because we don’t have precise visibility if you will into what the drivers are; we usually could that out after the fact but not immediately.

Unidentified Analyst

And one last question on the mix of revenue for your June quarter. How much your it from semi and how much was adjacent and industrial, you have in fact provided that number and I was just wondering if you can provide that?

Martin Headley

Yes, in fact with that weakness of semiconductor revenues were down in the quarter very slightly. They were 58% were semi front-end products of our business; service was 15.3%, Life Sciences was 8%, industrial was 11.8% and the balance was in our adjacent markets.

Operator

And next question comes from the line of Edwin Mok with Needham & Company. You may proceed.

Edwin Mok - Needham & Company

Just kind of clarify one thing on your answer to your last caller. I think he was asking for your calendar fourth quarter regarding the December quarter, have you guys seen an indication that December quarter should may be up?

Steve Schwartz

Edwin not yet, we hear that it’s a potential, but we haven’t seen indications that would indicate that December is up yet.

Edwin Mok - Needham & Company

And then the second question I have regarding your service business; if I look at your service operating margins, the decline over the last few quarters and I think had mentioned that you guys are making some investment for that group I guess partially also to support Life Science. But I was wondering, if we kind of go back historically as your operating margins run to the mid-teens right, or even high-teens in one quarter and I was wondering, with this new investment now what the revenue level do you need to get to for your service business for you to go back to that operating margin structure and frankly how will you get there?

Martin Headley

Some of it is determination as to whether all the additional infrastructure is necessary and going through that evaluation taking appropriate levels of adjustment. It is our target to be back to low to mid teen operating margins in this business without significant revenue growth above the levels that it's currently at.

Edwin Mok - Needham & Company

And how long do you think it would take for you to make that adjustment to investing right?

Martin Headley

I think it’s a couple of quarters.

Edwin Mok - Needham & Company

And then I guess I’ll go back to a question regarding gross margin for the coming quarter imply, your guidance implies high gross margin to the coming quarter; is that a trend that you expect to continue going beyond the September quarter?

Martin Headley

Growing gross margins is an important objective for all of the management in this company; one of which we do place a lot of emphasis and we do know, not speculate we know with the initiatives in place and underway besides securing those benefits. It may be frustrating that we are not achieving them as earliest we would wish, but we do remain convinced that we will see sequential gross margin improvements we move forward recognizing that we can have headwinds in given quarters from the level of activity that we may have to operate within.

Operator

Our next question comes from the line of Darice Liu with National Securities. You may proceed.

Darice Liu - National Securities

I just have a follow up question to Ben’s earlier question on the Polycold business; some of that business has been joined by touch or smartphones and tablets and there is no recent pick-up by touch makers for the OTS ramp. But I was wondering what the impact to Brooks when the touch business transitions from the touch manufacturers to LCD makers with the move to (inaudible) also?

Martin Headley

It has no impact because you still have a touch interface that’s on glass that requires the same levels of coatings as you currently have today. So that particular technology development has no known impact to us at this stage.

Darice Liu - National Securities

I guess I mean in terms that your customer base would differ because you are going to see the LCD makers take more control of the supply chain?

Martin Headley

Our customer base probably doesn’t change; it’s who they themselves are selling to because in this instance we are selling to coating equipment manufactures. We are integrating that into complete systems, so they will then be selling to a different customer base, so there can be a different customer base in that chain, but our share is so significant we don’t see any particular reason for any mix change with that changing customer base for our customers.

Operator

We have no further questions. At this time, I would now like to turn the call back over to the speakers for any closing remarks.

Steve Schwartz

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

Operator

Ladies and gentlemen that concludes today’s conference. Thank you so much for your participation. You may now disconnect. Have a great day.

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