eted
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| |
☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| |
| For the quarterly period ended: December 31, |
| |
| OR |
| |
☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from __________ to _________
Commission File Number 000-25434
AZENTA, INC.
BROOKS AUTOMATION, INC.
(Exact name of registrant as specified in its charter)
| |
Delaware | 04-3040660 |
|
|
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
200 Summit Drive6th Floor
15 Elizabeth DriveBurlington, Massachusetts
Chelmsford, Massachusetts
(Address of principal executive offices)
0182401803
(Zip Code)
Registrant’s telephone number, including area code: (978) 262-2400(978) 262-2626
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value | AZTA | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| | | | ||
Large accelerated filer | ☒ | Accelerated filer | ☐ | ||
| | | | ||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||
| | | | ||
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date, January 26, 2018:February 8, 2023: common stock, $0.01 par value and 70,429,58369,103,352 shares outstanding.
AZENTA, INC.BROOKS AUTOMATION,
| PAGE NUMBER |
| |
| |
| |
3 | |
4 | |
5 | |
6 | |
7 | |
8 | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 34 |
Item 3. Quantitative and Qualitative Disclosures | 45 |
46 | |
| |
47 | |
47 | |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 47 |
48 | |
49 |
2
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
AZENTA, INC.
BROOKS AUTOMATION, INC.
(unaudited)
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
| December 31, |
| September 30, | ||
|
| 2017 |
| 2017 | ||
|
| (In thousands, except share and per share data) | ||||
Assets |
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 202,339 |
| $ | 101,622 |
Marketable securities |
|
| 15,658 |
|
| 28 |
Accounts receivable, net |
|
| 139,047 |
|
| 120,828 |
Inventories |
|
| 115,033 |
|
| 106,395 |
Prepaid expenses and other current assets |
|
| 24,782 |
|
| 23,138 |
Total current assets |
|
| 496,859 |
|
| 352,011 |
Property, plant and equipment, net |
|
| 60,294 |
|
| 58,462 |
Long-term marketable securities |
|
| 13,885 |
|
| 2,642 |
Long-term deferred tax assets |
|
| 1,642 |
|
| 1,692 |
Goodwill |
|
| 272,724 |
|
| 233,638 |
Intangible assets, net |
|
| 105,757 |
|
| 83,520 |
Equity method investment |
|
| 30,925 |
|
| 28,593 |
Other assets |
|
| 5,591 |
|
| 6,070 |
Total assets |
| $ | 987,677 |
| $ | 766,628 |
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Current portion of long term debt |
| $ | 1,993 |
| $ | — |
Accounts payable |
|
| 54,242 |
|
| 49,100 |
Deferred revenue |
|
| 25,701 |
|
| 24,292 |
Accrued warranty and retrofit costs |
|
| 8,218 |
|
| 8,054 |
Accrued compensation and benefits |
|
| 16,027 |
|
| 27,065 |
Accrued restructuring costs |
|
| 1,127 |
|
| 1,708 |
Accrued income taxes payable |
|
| 15,120 |
|
| 11,417 |
Accrued expenses and other current liabilities |
|
| 26,977 |
|
| 25,142 |
Total current liabilities |
|
| 149,405 |
|
| 146,778 |
Long-term debt |
|
| 195,276 |
|
| — |
Long-term tax reserves |
|
| 1,412 |
|
| 1,687 |
Long-term deferred tax liabilities |
|
| 8,290 |
|
| 3,748 |
Long-term pension liabilities |
|
| 1,995 |
|
| 1,979 |
Other long-term liabilities |
|
| 5,295 |
|
| 4,792 |
Total liabilities |
|
| 361,673 |
|
| 158,984 |
Commitments and contingencies (Note 16) |
|
|
|
|
|
|
Stockholders' Equity |
|
|
|
|
|
|
Preferred stock, $0.01 par value- 1,000,000 shares authorized, no shares issued or outstanding |
|
| — |
|
| — |
Common stock, $0.01 par value- 125,000,000 shares authorized, 83,891,452 shares issued and 70,429,583 shares outstanding at December 31, 2017, 83,294,848 shares issued and 69,832,979 shares outstanding at September 30, 2017 |
|
| 839 |
|
| 833 |
Additional paid-in capital |
|
| 1,879,721 |
|
| 1,874,918 |
Accumulated other comprehensive income |
|
| 19,335 |
|
| 15,213 |
Treasury stock, at cost- 13,461,869 shares |
|
| (200,956) |
|
| (200,956) |
Accumulated deficit |
|
| (1,072,935) |
|
| (1,082,364) |
Total stockholders' equity |
|
| 626,004 |
|
| 607,644 |
Total liabilities and stockholders' equity |
| $ | 987,677 |
| $ | 766,628 |
| | | | | | |
|
| December 31, |
| September 30, | ||
| | 2022 | | 2022 | ||
Assets |
| |
|
| |
|
Current assets |
| |
|
| |
|
Cash and cash equivalents | | $ | 608,304 | | $ | 658,274 |
Short-term marketable securities | |
| 522,897 | |
| 911,764 |
Accounts receivable, net of allowance for expected credit losses ($6,942 and $5,162, respectively) | |
| 201,920 | |
| 163,758 |
Inventories | |
| 145,939 | |
| 85,544 |
Derivative asset | | | 47,953 | | | 124,789 |
Short-term restricted cash | | | 7,070 | | | 382,596 |
Prepaid expenses and other current assets | |
| 85,901 | |
| 132,621 |
Total current assets | |
| 1,619,984 | |
| 2,459,346 |
Property, plant and equipment, net | |
| 217,271 | |
| 154,470 |
Long-term marketable securities | |
| 304,675 | |
| 352,020 |
Long-term deferred tax assets | |
| 298 | |
| 1,169 |
Goodwill | |
| 761,153 | |
| 513,623 |
Intangible assets, net | |
| 327,106 | |
| 178,401 |
Other assets | |
| 61,929 | |
| 57,093 |
Total assets | | $ | 3,292,416 | | $ | 3,716,122 |
Liabilities and stockholders' equity | |
| | |
|
|
Current liabilities | |
| | |
|
|
Accounts payable | | $ | 55,259 | | $ | 38,654 |
Deferred revenue | |
| 42,641 | |
| 39,748 |
Accrued warranty and retrofit costs | |
| 5,179 | |
| 2,890 |
Accrued compensation and benefits | |
| 34,524 | |
| 41,898 |
Accrued income taxes payable | |
| 24,529 | |
| 28,419 |
Accrued expenses and other current liabilities | |
| 86,894 | |
| 78,937 |
Total current liabilities | |
| 249,026 | |
| 230,546 |
Long-term tax reserves | |
| 1,696 | |
| 1,684 |
Long-term deferred tax liabilities | |
| 85,886 | |
| 64,555 |
Long-term pension liabilities | |
| 278 | |
| 261 |
Long-term operating lease liabilities | | | 52,494 | | | 49,227 |
Contingent consideration liability | | | 18,462 | | | — |
Other long-term liabilities | |
| 13,185 | |
| 6,463 |
Total liabilities | |
| 421,027 | |
| 352,736 |
| |
|
| |
|
|
Stockholders' equity | |
|
| |
|
|
Preferred stock, $0.01 par value - 1,000,000 shares authorized, no shares issued or outstanding | |
| — | |
| — |
Common stock, $0.01 par value - 125,000,000 shares authorized, 82,515,917 shares issued and 69,054,048 shares outstanding at December 31, 2022, 88,482,125 shares issued and 75,020,256 shares outstanding at September 30, 2022 | |
| 824 | |
| 885 |
Additional paid-in capital | |
| 1,489,554 | |
| 1,992,017 |
Accumulated other comprehensive loss | |
| (62,074) | |
| (83,916) |
Treasury stock, at cost - 13,461,869 shares at December 31, 2022 and September 30, 2022 | |
| (200,956) | |
| (200,956) |
Retained earnings | |
| 1,644,041 | |
| 1,655,356 |
Total stockholders' equity | | | 2,871,389 | | | 3,363,386 |
Total liabilities and stockholders' equity | | $ | 3,292,416 | | $ | 3,716,122 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
AZENTA, INC.
BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)
| | | | | | | | |
| | Three Months Ended | | | ||||
| | December 31, | | | ||||
|
| 2022 |
| 2021 |
|
| ||
| | | | | | | | |
Revenue |
| |
|
| |
|
|
|
Products | | $ | 85,798 | | $ | 45,869 | | |
Services | |
| 92,568 | |
| 93,783 | | |
Total revenue | |
| 178,366 | |
| 139,652 | | |
Cost of revenue | |
|
| |
|
| | |
Products | |
| 54,099 | |
| 24,523 | | |
Services | |
| 50,402 | |
| 48,085 | | |
Total cost of revenue | |
| 104,501 | |
| 72,608 | | |
Gross profit | |
| 73,865 | |
| 67,044 | | |
Operating expenses | |
|
| |
|
| | |
Research and development | |
| 7,536 | |
| 6,485 | | |
Selling, general and administrative | |
| 92,552 | |
| 60,711 | | |
Restructuring charges | |
| 1,461 | |
| 173 | | |
Total operating expenses | |
| 101,549 | |
| 67,369 | | |
Operating loss | |
| (27,685) | |
| (325) | | |
Interest income | |
| 10,708 | |
| 35 | | |
Interest expense | |
| (43) | |
| (455) | | |
Other income (expense) | |
| 1,145 | |
| (1,077) | | |
Loss before income taxes | |
| (15,875) | |
| (1,822) | | |
Income tax provision (benefit) | |
| (4,640) | |
| (4,680) | | |
Income (loss) from continuing operations | |
| (11,235) | |
| 2,858 | | |
Income from discontinued operations, net of tax | |
| — | |
| 40,462 | | |
Net income (loss) | | $ | (11,235) | | $ | 43,320 | | |
Basic net (loss) income per share: | | |
| |
|
| | |
(Loss) / Income from continuing operations | | $ | (0.15) | | $ | 0.04 | | |
Income from discontinued operations, net of tax | |
| — | |
| 0.54 | | |
Basic net income per share | | $ | (0.15) | | $ | 0.58 | | |
Diluted net income / (loss) per share: | | |
| | |
| | |
(Loss) / Income from continuing operations | | $ | (0.15) | | $ | 0.04 | | |
Income from discontinued operations, net of tax | |
| — | |
| 0.54 | | |
Diluted net income (loss) per share | | $ | (0.15) | | $ | 0.58 | | |
Weighted average shares used in computing net income per share: | |
|
| |
|
| | |
Basic | |
| 72,543 | |
| 74,630 | | |
Diluted | |
| 72,543 | |
| 74,866 | | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| ||||
|
| December 31, |
| ||||
|
| 2017 |
| 2016 |
| ||
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
Products |
| $ | 142,184 |
| $ | 122,114 |
|
Services |
|
| 47,144 |
|
| 37,841 |
|
Total revenue |
|
| 189,328 |
|
| 159,955 |
|
Cost of revenue |
|
|
|
|
|
|
|
Products |
|
| 84,177 |
|
| 75,679 |
|
Services |
|
| 29,936 |
|
| 27,333 |
|
Total cost of revenue |
|
| 114,113 |
|
| 103,012 |
|
Gross profit |
|
| 75,215 |
|
| 56,943 |
|
Operating expenses |
|
|
|
|
|
|
|
Research and development |
|
| 13,200 |
|
| 10,845 |
|
Selling, general and administrative |
|
| 41,175 |
|
| 31,962 |
|
Restructuring charges |
|
| — |
|
| 975 |
|
Total operating expenses |
|
| 54,375 |
|
| 43,782 |
|
Operating income |
|
| 20,840 |
|
| 13,161 |
|
Interest income |
|
| 149 |
|
| 68 |
|
Interest expense |
|
| (2,181) |
|
| (96) |
|
Gain on settlement of equity method investment |
|
| — |
|
| 1,847 |
|
Other expenses, net |
|
| (1,652) |
|
| (251) |
|
Income before income taxes and earnings of equity method investments |
|
| 17,156 |
|
| 14,729 |
|
Income tax provision |
|
| 2,850 |
|
| 2,800 |
|
Income before equity in earnings of equity method investments |
|
| 14,306 |
|
| 11,929 |
|
Equity in earnings of equity method investments |
|
| 2,180 |
|
| 1,942 |
|
Net income |
| $ | 16,486 |
| $ | 13,871 |
|
Basic net income per share |
| $ | 0.23 |
| $ | 0.20 |
|
Diluted net income per share |
|
| 0.23 |
|
| 0.20 |
|
Dividend declared per share |
|
| 0.10 |
|
| 0.10 |
|
Weighted average shares used in computing net income per share: |
|
|
|
|
|
|
|
Basic |
|
| 70,183 |
|
| 69,181 |
|
Diluted |
|
| 70,864 |
|
| 69,870 |
|
4
AZENTA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
(In thousands)
| | | | | | | |
| | Three Months Ended | | ||||
| | December 31, | | ||||
|
| 2022 |
| 2021 |
| ||
| | | | | | | |
Net income (loss) | | $ | (11,235) | | $ | 43,320 | |
Other comprehensive income / (loss), net of tax: | |
|
| |
|
| |
Net investment hedge currency translation adjustment, net of tax effects of $19,708 and $0 for the three months ended December 31, 2022 and 2021 | | | (57,127) | | | — | |
Foreign currency translation adjustments | |
| 77,414 | |
| 4,801 | |
Changes in unrealized losses on marketable securities, net of tax effects of $537 and $0 for the three months ended December 31, 2022 and 2021 | |
| 1,555 | |
| — | |
Actuarial gains (losses), net of tax effects of $0 and $0 for the three months ended December 31, 2022 and 2021 | |
| — | |
| (3) | |
| | | | | | | |
Total other comprehensive (loss) income, net of tax | |
| 21,842 | |
| 4,798 | |
Comprehensive income (loss) | | $ | 10,607 | | $ | 48,118 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
5
BROOKS AUTOMATION,AZENTA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME CASH FLOWS
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| ||||
|
| December 31, |
| ||||
|
| 2017 |
| 2016 |
| ||
|
|
|
|
|
|
|
|
Net income |
| $ | 16,486 |
| $ | 13,871 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
Cumulative foreign currency translation adjustments |
|
| 4,131 |
|
| (10,103) |
|
Unrealized losses on marketable securities, net of tax effects of $0 during each of the three months ended December 31, 2017 and 2016 |
|
| — |
|
| (11) |
|
Actuarial (losses) gains, net of tax effects of ($2), and $2 during the three months ended December 31, 2017 and 2016 |
|
| (9) |
|
| 11 |
|
Total other comprehensive income (loss), net of tax |
|
| 4,122 |
|
| (10,103) |
|
Comprehensive income |
| $ | 20,608 |
| $ | 3,768 |
|
| | | | | | | | |
| | Three Months Ended | |
| ||||
| | December 31, | | | ||||
|
| 2022 |
| 2021 |
|
| ||
Cash flows from operating activities |
| |
| | |
|
| |
Net income / (loss) | | $ | (11,235) | | $ | 43,320 | | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| | | |
Depreciation and amortization | | | 20,181 | | | 12,883 | | |
Stock-based compensation | |
| 2,105 | |
| 7,891 | | |
Amortization of premium on marketable securities and deferred financing costs | |
| (3,104) | |
| 56 | | |
Deferred income taxes | |
| (6,325) | |
| (3,084) | | |
Purchase accounting impact on inventory | |
| 2,869 | |
| — | | |
(Gain) loss on disposals of property, plant and equipment | |
| 17 | |
| (95) | | |
Changes in operating assets and liabilities, net of acquisitions and divestiture: | |
| | | | | | |
Accounts receivable | |
| (12,141) | |
| 1,121 | | |
Inventories | |
| (5,923) | |
| (32,150) | | |
Accounts payable | |
| 4,952 | |
| (2,219) | | |
Deferred revenue | |
| (59) | |
| 4,056 | | |
Accrued warranty and retrofit costs | |
| 504 | |
| (103) | | |
Accrued compensation and tax withholdings | |
| (14,015) | |
| (5,371) | | |
Accrued restructuring costs | |
| 1,139 | |
| — | | |
Other current assets and liabilities | | | (5,985) | |
| (10,687) | | |
Net cash (used in) provided by operating activities | |
| (27,020) | |
| 15,618 | | |
Cash flows from investing activities | | |
| |
|
| | |
Purchases of property, plant and equipment | |
| (12,842) | |
| (18,409) | | |
Purchases of marketable securities | |
| (166,374) | |
| (46) | | |
Sales and maturities of marketable securities | | | 607,205 | | | 30 | | |
Acquisitions, net of cash acquired | |
| (371,633) | |
| — | | |
Net cash provided by (used in) investing activities | |
| 56,356 | |
| (18,425) | | |
Cash flows from financing activities | |
|
| |
|
| | |
Principal payments on debt | |
| — | |
| (186) | | |
Common stock dividends paid | | | — | | | (7,494) | | |
Payment of finance leases | | | (91) | | | — | | |
Stock repurchase | | | (500,000) | | | — | | |
Withholding tax payments on net share settlements on equity awards | |
| (4,629) | |
| — | | |
Net cash used in financing activities | |
| (504,720) | |
| (7,680) | | |
Effects of exchange rate changes on cash and cash equivalents | |
| 49,941 | |
| (1,804) | | |
Net decrease in cash, cash equivalents and restricted cash | |
| (425,443) | |
| (12,291) | | |
Cash, cash equivalents and restricted cash, beginning of period |
|
| 1,041,296 |
|
| 285,333 |
|
|
Cash, cash equivalents and restricted cash, end of period | | $ | 615,854 |
| $ | 273,042 | |
|
Supplemental disclosures: | |
|
| |
|
| | |
Cash paid for interest | | $ | — | | $ | 333 | | |
Cash paid for income taxes, net | |
| 7,291 | | | 10,911 | | |
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets | | | | | | | | |
| | | December 31, | | September 30, | | ||
| | | 2022 | | 2022 | | ||
Cash and cash equivalents of continuing operations | | $ | 608,304 | | $ | 658,274 | | |
Cash and cash equivalents included in assets held for sale | | | — | | | — | | |
Short-term restricted cash | | | 7,070 | | | 382,596 | | |
Long-term restricted cash included in other assets | | | 479 | | | 426 | | |
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows | | $ | 615,854 | | $ | 1,041,296 | | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
6
AZENTA, INC.
BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSCHANGES IN STOCKHOLDERS’ EQUITY
(unaudited)
(In thousands)thousands, except share data)
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
| ||||
|
| December 31, |
|
| ||||
|
| 2017 |
| 2016 |
|
| ||
|
|
|
|
|
|
|
|
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income |
| $ | 16,486 |
| $ | 13,871 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 8,521 |
|
| 6,752 |
|
|
Gain on settlement of equity method investment |
|
| — |
|
| (1,847) |
|
|
Stock-based compensation |
|
| 4,809 |
|
| 2,498 |
|
|
Amortization of premium on marketable securities and deferred financing costs |
|
| 122 |
|
| 79 |
|
|
Earnings of equity method investments |
|
| (2,180) |
|
| (1,942) |
|
|
Deferred income tax benefit |
|
| (689) |
|
| (421) |
|
|
Other gains on disposals of assets |
|
| — |
|
| (109) |
|
|
Changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (16,157) |
|
| (11,137) |
|
|
Inventories |
|
| (5,518) |
|
| (2,930) |
|
|
Prepaid expenses and other current assets |
|
| 3,285 |
|
| (3,516) |
|
|
Accounts payable |
|
| 4,449 |
|
| 13,040 |
|
|
Deferred revenue |
|
| 1,376 |
|
| 10,737 |
|
|
Accrued warranty and retrofit costs |
|
| 87 |
|
| (4) |
|
|
Accrued compensation and tax withholdings |
|
| (11,145) |
|
| (6,884) |
|
|
Accrued restructuring costs |
|
| (592) |
|
| (2,538) |
|
|
Accrued expenses and other current liabilities |
|
| 362 |
|
| 3,061 |
|
|
Net cash provided by operating activities |
|
| 3,216 |
|
| 18,710 |
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
| (2,700) |
|
| (3,768) |
|
|
Purchases of marketable securities |
|
| (26,875) |
|
| — |
|
|
Sales and maturities of marketable securities |
|
| 100 |
|
| — |
|
|
Acquisitions, net of cash acquired |
|
| (65,074) |
|
| (5,346) |
|
|
Purchases of other investments |
|
| — |
|
| (170) |
|
|
Proceeds from sales of property, plant and equipment |
|
| 200 |
|
| — |
|
|
Net cash used in investing activities |
|
| (94,349) |
|
| (9,284) |
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Proceeds from term loan |
|
| 197,554 |
|
| — |
|
|
Payment of deferred financing costs |
|
| (318) |
|
| (27) |
|
|
Common stock dividends paid |
|
| (7,057) |
|
| (6,966) |
|
|
Net cash provided by (used in) financing activities |
|
| 190,179 |
|
| (6,993) |
|
|
Effects of exchange rate changes on cash and cash equivalents |
|
| 1,671 |
|
| (4,574) |
|
|
Net increase (decrease) in cash and cash equivalents |
|
| 100,717 |
|
| (2,141) |
|
|
Cash and cash equivalents, beginning of period |
|
| 101,622 |
|
| 85,086 |
|
|
Cash and cash equivalents, end of period |
| $ | 202,339 |
| $ | 82,945 |
|
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment included in accounts payable |
| $ | 865 |
| $ | 424 |
|
|
Deferred financing costs included in accounts payable |
|
| 143 |
|
| — |
|
|
Fair value of non-cash consideration for the acquisition of Cool Lab, LLC |
|
| — |
|
| 10,348 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | Common | | | | | Accumulated | | | | | | | | | | ||
| | Common | | Stock at | | Additional | | Other | | Retained Earnings | | | | | | | ||||
| | Stock | | Par | | Paid-In | | Comprehensive | | (Accumulated | | Treasury | | Total | ||||||
| | Shares | | Value | | Capital | | Income (Loss) | | Deficit) | | Stock | | Equity | ||||||
Balance September 30, 2022 |
| 88,482,125 | | $ | 885 | | $ | 1,992,017 | | $ | (83,916) | | $ | 1,655,356 | | $ | (200,956) | | $ | 3,363,386 |
Shares issued under restricted stock and purchase plans, net of shares witheld for employee taxes |
| 123,926 | | | — | |
| — | | | — | | | — | | | (4,629) | |
| (4,629) |
Accelerated share repurchase |
| (6,090,134) | | | — | | | — | |
| — | |
| — | |
| (500,000) | |
| (500,000) |
Retirement of treasury shares | | — | | | (61) | | | (504,568) | | | — | | | — | | | 504,629 | | | — |
Stock-based compensation | | — | | | — | | | 2,105 | | | — | | | — | | | — | | | 2,105 |
Net income (loss) | | — | | | — | | | — | | | — | | | (11,235) | | | — | | | (11,235) |
Net investment hedge currency translation adjustment, net of tax effect of ($19,708) | | — | | | — | | | — | | | (57,127) | | | — | | | — | | | (57,127) |
Foreign currency translation adjustments |
| — | |
| — | |
| — | |
| 77,414 | |
| — | |
| — | |
| 77,414 |
Changes in unrealized losses on marketable securities, net of tax effect of $537 |
| — | | | — | | | — | | | 1,555 | | | — | | | — | | | 1,555 |
Other | | — | | | — | | | — | | | — | | | (81) | | | — | | | (81) |
Balance December 31, 2022 |
| 82,515,917 | | $ | 824 | | $ | 1,489,554 | | $ | (62,074) | | $ | 1,644,041 | | $ | (200,956) | | $ | 2,871,389 |
| | | | | | | | | | | | | | | | | | | | |
Balance September 30, 2021 | | 87,808,922 | | $ | 878 | | $ | 1,976,112 | | $ | 19,351 | | $ | (470,051) | | $ | (200,956) | | $ | 1,325,334 |
Shares issued under restricted stock and purchase plans, net |
| 566,488 | | | 6 | |
| (6) | | | — | | | — | | | — | | | — |
Stock-based compensation |
| — | | | — | | | 1,465 | |
| — | |
| — | |
| — | |
| 1,465 |
Common stock dividends declared, at $0.10 per share |
| — | |
| — | |
| — | |
| — | |
| (7,494) | |
| — | |
| (7,494) |
Foreign currency translation adjustments |
| — | |
| — | |
| — | |
| 4,801 | |
| — | |
| — | |
| 4,801 |
Actuarial losses, net of tax effects of $0 |
| — | |
| — | |
| — | |
| (3) | |
| — | |
| — | |
| (3) |
Net income |
| — | |
| — | |
| — | |
| — | |
| 43,320 | |
| — | |
| 43,320 |
Balance December 31, 2021 |
| 88,375,410 | | $ | 884 | | $ | 1,977,571 | | $ | 24,149 | | $ | (434,225) | | $ | (200,956) | | $ | 1,367,423 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
7
AZENTA, INC.
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Nature of Operation
1.Azenta, Inc. (“Azenta”, or the “Company”) is a leading global provider of life sciences sample exploration and management solutions for the life sciences market. The Company supports its customers from research to clinical development with its sample management, automated storage, and genomic services expertise to help bring impactful therapies to market faster.
Risks and Uncertainties
The Company is subject to risks common to companies in the markets it serves, including, but not limited to, global economic and financial market conditions, fluctuations in customer demand, acceptance of new products, development by its competitors of new technological innovations, risk of disruption in its supply chain, the implementation of tariffs and export controls, inflation, dependence on key personnel, protection of proprietary technology, and compliance with domestic and foreign regulatory authorities and agencies.
The COVID-19 pandemic has had varying impacts on our financial results. In the first two years of the pandemic, any marginal adverse impact was more than offset by incremental orders related to virus research, COVID testing and vaccine development and commercialization in 2021 and through the first half of 2022. There has been limited COVID-related demand after the second fiscal quarter of 2022, and therefore, our revenue trends since then have been negatively impacted when compared to prior periods. Future impacts on the Company’s financial results are not fully determinable, as the continuing impact of the pandemic on the economy and markets which the Company serves is as yet unknown, but will be dependent, in part, on future variants of the virus and vaccine effectiveness against these variants and new or prolonged government responses to the pandemic. The Company’s financial results will also depend on variables including reduced demand from its customers, the degree that the supply chain may be constrained which could impact its delivery of products and services and the potential negative impact on its operations if there is an outbreak among the Company’s employees, as well as the amount of incremental demand caused by research and treatments in the areas of COVID-19 or related threats.
2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The unaudited consolidated financial statementsaccompanying Consolidated Financial Statements include the accounts of Brooks Automation, Inc.the Company and its majority-owned subsidiaries (“Brooks”, or the “Company”) included hereinand have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"(“GAAP”). All intercompany accountsbalances and transactions have been eliminated in consolidation.
In the opinion of management,the Company, the accompanying unaudited consolidated financial statements contain all material adjustments, which areconsisting of aonly normal and recurring nature andadjustments, necessary for a fair statement of theits financial position as of December 31, 2022, and results of operations and cash flows for the periods presented, have been reflected in the accompanying unaudited consolidated financial statements. Theits results of operations for the interim periods arethree months ended December 31, 2022, and 2021. The consolidated balance sheet at September 30, 2022 was derived from audited annual financial statements but does not necessarily indicativecontain all of the results of operations to be expected forfootnote disclosures from the full fiscal year.annual financial statements
Certain information and footnote disclosures normally included in the Company’s annual consolidated financial statements have been condensed or omitted and, accordingly, the accompanying financial information should be read in conjunction with the audited consolidated financial statements and notes thereto contained onin the Company’s Annual Report on Form 10‑K10-K filed with the United States Securities and Exchange Commission (the “SEC”) for the fiscal year ended September 30, 20172022 (the "2017“2022 Annual Report on Form 10‑K"10-K”). The accompanying Consolidated Balance Sheet as
8
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of unaudited consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements, andas well as the reported amounts of revenue and expenses during the reporting period. Significant estimates are associated with recording accounts receivable, inventories, goodwill, intangible assets other than goodwill, contingent consideration liabilities related to business combinations, long-lived assets, derivative financial instruments, deferred income taxes, warranty obligations, revenue recognized using the percentage of completion method, pension obligationsover time, and stock-based compensation expense. The Company bases itsassesses the estimates on historical experiencean ongoing basis and various other assumptions, includingrecords changes in certain circumstances, future projections that management believes to be reasonable underestimates in the circumstances. Although the Company regularly assesses these estimates, actualperiod they occur and become known. Actual results could differ from thosethese estimates.
The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, including results of operations and financial condition will depend on future developments that are highly uncertain. This includes results from new information that may emerge concerning COVID-19 and any actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets. The Company has made estimates of the impact of COVID-19 within its financials.
Business Combinations
The Company accounts for business acquisitions using the purchase method of accounting, in accordance with which assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date. The fair value of the consideration paid, including contingent consideration, is assigned to the assets acquired and liabilities assumed based on their respective fair values. Goodwill represents the excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed.
Significant judgment is used in determining fair values of assets acquired and liabilities assumed and contingent consideration, as well as intangibles and their estimated useful lives. Fair value and useful life determinations may be based on, among other factors, estimates of future expected cash flows and appropriate discount rates used in computing present values. These judgments may materially impact the estimates used in allocating acquisition date fair values to assets acquired and liabilities assumed, as well as our current and future operating results. Actual results may vary from these estimates that may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever occurs first. Adjustments to fair values of assets and liabilities made after the end of the measurement period are recorded within our operating results.
Changes in estimates are recordedthe fair value of contingent consideration resulting from a change in the periodunderlying inputs are recognized in which they occur and become known.results of operations until the arrangement is settled.
Foreign Currency Translation
Certain transactions of the Company and its subsidiaries are denominated in currencies other than their functional currency.
Foreign currency exchange lossesgains (losses) generated from the settlement and remeasurement of these transactions are recognized in earnings and presented within “Other expenses,income (expenses), net” in the Company’s unaudited Consolidated Statements of Operations. Net foreign currency transaction and remeasurement gains were $0.9 million for the three months ended December 31, 2022 and net foreign currency transaction and remeasurement losses totaled $2.0were $1.9 million and $0.5 million, respectively, during the three months ended December 31, 20172021.
The determination of the functional currency of the Company’s subsidiaries is based on their financial and 2016.operational environment and is the local currency of the Company’s foreign subsidiaries. The subsidiaries’ assets and liabilities are translated into the reporting currency at period-end exchange rates, while revenue, expenses, gains and losses are translated at the average exchange rates during the period. Gains and losses from foreign currency translations are recorded in “Accumulated other comprehensive income (loss)” in the Company’s Consolidated Balance Sheets and
9
presented as a component of comprehensive income or loss in the Company’s Consolidated Statements of Comprehensive Income (loss).
Derivative Financial Instruments
The Company has transactions and balances denominated in currencies other than the U.S. dollar.functional currency of the transacting entity. Most of these transactions or balances are denominatedcarry foreign exchange risk in Euros, British PoundsGermany, the United Kingdom and a variety of Asian currencies.China. The Company enters into foreign exchange contracts to reduce its exposure to currency fluctuations. The forward contract arrangements that the Company enters into typically mature in three months or less. These transactionsless and they do not qualify for hedge accounting. Net gains and losses related to these contracts are recorded as a component of "Other expenses, net"
7
“Other income (expenses), net” in the accompanying unaudited Consolidated Statements of Operations and are as follows for the three months ended December 31, 20172022 and 20162021 (in thousands):
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| ||||
|
| December 31, |
| ||||
|
| 2017 |
| 2016 |
| ||
Realized losses on derivatives not designated as hedging instruments |
| $ | (1,673) |
| $ | (1,003) |
|
| | | | | | | |
| | Three Months Ended | | ||||
| | December 31, | | ||||
|
| 2022 |
| 2021 |
| ||
Realized gains (losses) on derivatives not designated as hedging instruments | | $ | (1,580) | | $ | (70) | |
The fair values of the forward contracts are recorded in the Company’s accompanying unaudited Consolidated Balance Sheets as "Prepaid“Prepaid expenses and other current assets"assets” and "Accrued“Accrued expenses and other current liabilities"liabilities”. Foreign exchange contract assets and liabilities are measured and reported at fair value based on observable market inputs and classified within Level 2 of the fair value hierarchy described below due to a lack of an active market for these contracts.
10
Hedging Activities
On February 1, 2022, the Company entered into a cross-currency swap agreement to hedge the variability of exchange rate impacts between the United States dollar and the Euro. Under the terms of the cross-currency swap agreement, the Company notionally exchanged approximately $1.03 billion for approximately €915 million at a weighted average interest rate of approximately 1.196%. The designated notional amount is $960 million and the actual interest rate is 1.283%. The 1.283% rate was in the range of the market value for that day and is the true interest rate on the notional amount. The Company designated the cross-currency swap as a hedge of net investments against one of our Euro denominated subsidiaries which requires an exchange of the notional amounts at maturity. At the maturity of the cross currency-swap on February 1, 2023, the Company delivered a notional amount of €852 million and received a notional amount of $960 million at an exchange rate of 1.1261, which includes a gain of $29.2 million.
This cross-currency swap is marked to market at each reporting period, representing the fair values of the cross-currency swap and any changes in fair value are recognized as a component of “Accumulated other comprehensive items, net,” on the Consolidated Statements of Comprehensive Income (Loss). Interest accrued on the cross-currency swap is recorded within “Interest income” on the Consolidated Statements of Operations. For the three months ended December 31, 2022, the Company recorded a net loss of $57.1 million to “Accumulated other comprehensive income (loss)” and recorded “Interest income” of $3.1 million on this instrument for the three months ended December 31, 2022.
Fair Value MeasurementsMeasurement
The Company measures at fair value certain financial assets and liabilities, including cash equivalantsequivalents, available-for-sale securities, accounts receivable, accounts payable, contingent consideration liability and available for sale securities. FASB Accounringderivative instruments at fair value. The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“the ASC”) 820, Fair Value Measurement and Disclosures, (“ASC 820”) establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following levels of inputs may be used to measureAvailable-for-sale securities and derivative instruments are measured at fair value:
Level 1 Inputs: Quotedvalue based on quoted market prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset and liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 Inputs: Observableobservable inputs other than prices included in Level 1, including quoted market prices for identical or similar assets or liabilities; quoted prices in marketsliabilities. Contingent consideration liabilities that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 Inputs: Unobservable inputs that are significant to the fair value of the assets or liabilities and reflect an entity’s own assumptions in pricing assets or liabilities since they are supported by little or no market activity.
As of December 31, 2017, the Company had no assets or liabilities measured and recorded at fair value are based on level 3 inputs. The carrying amounts of cash equivalents, accounts receivable and accounts payable approximate their fair value due to their short-term nature.
Accounts Receivable and Allowance for Expected Credit Losses and Sales Returns
Trade accounts receivable do not bear interest and are recorded at the invoiced amount. The Company maintains an allowance for expected credit losses representing its best estimate of expected credit losses related to its existing accounts receivable and their net realizable value. The Company determines the allowance based on a recurringnumber of factors, including an evaluation of customer credit worthiness, the age of the outstanding receivables, economic trends, historical experience and other information over the payment periods. The Company reviews and adjusts the allowance for expected credit losses on a quarterly basis. Accounts receivable balances are written off against the allowance for expected credit losses when the Company determines that the balances are not recoverable. Provisions for expected credit losses are recorded in “Selling, general and administrative” expenses in the Consolidated Statements of Operations. The Company determines the allowance for sales returns based on its best estimate of expected customer returns. Provisions for sales returns are recorded in "Revenue" in the Consolidated Statements of Operations. The Company does not have any off-balance-sheet credit exposure related to its customers.
Leases
The Company has operating leases for real estate and non-real estate and finance leases for non-real estate. The classification of a lease as operating or finance and the determination of the right-of-use asset (“ROU asset”) and lease liability are determined at lease inception. The ROU asset represents the Company’s right to use an underlying asset for the lease term and the lease liability represents the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, an incremental borrowing rate is used based on the estimated rate of interest for collateralized borrowing over a similar
11
term of the lease payments at commencement date. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis using Level 3 inputs.over the lease term.
The Company’s lease agreements may contain lease and non-lease components. Non-lease components primarily include payments for maintenance and utilities. Fixed payments for non-lease components are combined with lease payments and accounted for as a single lease component which increases the amount of the ROU asset and liability.
The ROU asset for operating leases is included within “Other assets” and the ROU asset for finance leases is included within “Property, plant, and equipment, net” in the accompanying unaudited Consolidated Balance Sheets. The short-term lease liabilities for both operating leases and finance leases are included within “Accrued expenses and other current liabilities” in the accompanying unaudited Consolidated Balance Sheets. The long-term lease liabilities for operating leases and finance leases are included within “Long-term operating lease liabilities”, and “Other long-term liabilities”, respectively, in the accompanying unaudited Consolidated Balance Sheets.
Recently Issued Accounting Pronouncements
In March 2016,2020, the FASB issued an amendmentASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope. The ASUs provide temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The provisions of the ASUs are only available until December 31, 2022, when the reference rate replacement activity was expected to be completed. There were no significant accounting impacts on the Company’s consolidated financial statements and related disclosures as a result of the adoption of these ASU’s. In December 2022, the FASB issued ASU 2022-06,“Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848,” extending the relief offered in this series of ASUs through December 31, 2024. We have not adopted this guidance yet.
Recently Adopted Accounting Pronouncements
In November 2021, the FASB issued Accounting Standards Update (“ASU”) 2021-10, Government Assistance (Topic 832) – Disclosures by Business Entities about Government Assistance. The amendment in this ASU requires disclosures to simplifyincrease the transparency of transactions with a government accounted for by applying a grant or contribution accounting model by analogy, including (1) the types of transactions, (2) the accounting for share-based payment awardsthose transactions, and (3) the effect of those transactions on an entity’s financial statements. This ASU is effective for annual periods beginning after December 15, 2021. The Company will adopt the provisions of this ASU in fiscal 2023.
In October 2021, the FASB issued ASU 2021-08, Business Combinations(Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires an entity to employees. The amendment requires recognition of excess tax benefits or deficiencies within income tax expense or benefitrecognize and changes their presentation requirementsmeasure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification (“ASC 606”), Revenue from Contracts with Customers. Under current GAAP, an acquirer generally recognizes such items at fair value on the statementacquisition date. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The standard should be applied prospectively to business combinations occurring on or after the effective date of cash flows. Additionally, the entity can make an accounting policy election to either estimate the number of awards that are expected to vest, consistent with the current accounting guidance, or account for forfeitures as they occur.amendments. The Company adopted the guidance during the first quarter of fiscal year 2018 on its effective date. Please refer2022. The impact of the adoption of this ASU is immaterial to Note 9, “Income Taxes” and Note 11, “Stock-Based Compensation” and for further discussion.the Company’s consolidated financial statements.
In March 2016,October 2020, the FASB issued ASU 2020-10, Codification Improvements. The amendments in this ASU represent changes to clarify certain ASCs, correct unintended application of guidance, or make minor improvements to certain ASCs that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. ASU 2020-10 is effective for annual periods beginning after December 15, 2020 and interim periods within those annual periods, with early adoption permitted. The amendments in this ASU should be applied retrospectively. This ASU did not affect the Company's consolidated financial statements or disclosures. The Company adopted the provisions of this ASU in the first quarter of fiscal 2022.
12
In June 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and Other Options(Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). This standard simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an amendmententity’s own equity. We adopted this standard effective on October 1, 2022, the beginning of fiscal 2023 using the modified retrospective method. There was no impact to retained earnings at the date of adoption.
In August 2018, the FASB issued ASU 2018-14, Disclosure Framework — Changes to the accounting guidanceDisclosure Requirements for Defined Benefit Plans, which amends ASC 715 to simplify accountingadd, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The amendments require additional disclosure for embedded derivatives.the weighted-average interest crediting rates, a narrative description of the reasons for significant gains and losses, and an explanation of any other significant changes in the benefit obligation or plan assets. The amendment clarifies theremoves disclosure requirements for assessing whether contingent call (put) options that can accelerateaccumulated other comprehensive income (loss) expected to be recognized over the payment of principal on debt instruments are clearly and closely relatednext year, information about plan assets to be returned to the debt host contracts. An entity, performingand the assessmenteffects of a one-percentage-point change on the assumed health care costs and the effect of this change in accordance with this guidance is required to assessrates on service cost, interest cost, and the embedded call (put) options solely in accordance with the four-step decision process set forth in the guidance.benefit obligation for postretirement health care benefits. The guidanceASU is effective for fiscal years and interim periods within those years, beginningending after December 15, 2016.2020. Early adoption is permitted. The ASU does not amend the interim disclosure requirements of ASC 715-20. The Company adopted the guidance duringprovisions of this ASU in the first quarter of fiscal year 2018 which had2022. There is no significant accounting impact on itsthe Company’s consolidated financial positionstatements and resultsrelated disclosures as a result of operations.the adoption of this ASU.
8
In February 2016,December 2019, the FASB issued new accounting guidanceASU 2019-12, Simplifying the Accounting for reporting lease transactions. In accordance withIncome Taxes (Topic 740), which removes certain exceptions to the provisionsgeneral principles in Topic 740 and improves consistent application of the newly issued guidance, a lessee should recognize at the inceptionand simplifies GAAP for other areas of the arrangement a right-of-use assetTopic 740 clarifying and a corresponding lease liability initially measured at the present value of lease payments over the lease term. For finance leases, interest on a lease liability should be recognized separately from the amortization of the right-of-use asset, while for operating leases, total lease costs are recorded on a straight-line basis over the lease term. For leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying assets to forgo a recognition of right-of-use assets and corresponding lease liabilities and record a lease expense on a straight-line basis. Entities should determine at the inception of the arrangement whether a contract represents a lease or contains a lease which is defined as a right to control the use of identified property for a period of time in exchange for consideration. Additionally, entities should separate the lease components from the non-lease components and allocate the contract consideration on a relative standalone price basis in accordance with provisions of ASC Topic 606, Revenue from Contracts with Customers. The guidanceamending existing guidance. This ASU is effective for fiscal years, andannual periods, including interim periods within those years,annual periods, beginning after December 15, 2018 and should be adopted via a modified retrospective approach with certain optional practical expedients that entities may elect to apply.2020. Early adoption is permitted. The Company expects to adoptadopted the guidance duringprovisions of this ASU in the first quarter of fiscal year 2020 and2022. There is currently evaluating theno significant accounting impact of this guidance on its financial position and results of operations.
In June 2016, the FASB issued new accounting guidance for reporting credit losses. The new guidance introduces a new "expected loss" impairment model that applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities and other financial assets. Entities are required to estimate expected credit losses over the life of financial assets and record an allowance against the assets’ amortized cost basis to present them at the amount expected to be collected. Additionally, the guidance amends the impairment model for available for sale debt securities and requires entities to determine whether all or a portion of the unrealized loss on such debt security is a credit loss. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption of the newly issued guidance is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2018. The standard should be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company expects to adopt the guidance during the first quarter of fiscal year 2021 and is currently evaluating the impact of this guidance on its financial position and results of operations.
In July 2015, the FASB issued an amendment to the accounting guidance to simplify accounting for inventory. The amendment requires measuring inventory based on the lower of its cost or net realizable value. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company adopted the guidance during the first quarter of fiscal year 2018 which did not have a significant impact on its financial position and results of operations.
In May 2014, the FASB issued new accounting guidance for reporting revenue recognition. The guidance provides for the recognition of revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The Company expects to adopt the guidance during the first quarter of fiscal year 2019. The Company has initiated the evaluation of the potential impact of adopting the new guidance on its financial position and results of operations, but has not yet completed such assessment or determined the transition method that will be used to adopt the new guidance. The Company has established an implementation team to analyze its current portfolio of customer contracts and determine the impact of adopting the guidance. The implementation team is also responsible for evaluating and designing the necessary changes to the Company’s business processes, policies, systems and controls to support recognition and disclosure under the new guidance. The Company has established a project plan and substantially completed its preliminary contract assessment. The results of this assessment are currently being analyzed to determine the final impact of adoption on the Company’s operations, consolidated financial statements and related disclosures. The Company is currently in the process of completing this assessment and quantifying the implicationsdisclosures as a result of the new guidance adoption. Based on the preliminary assessment, the Company anticipates that the new guidance will impact the timingadoption of revenue recognition for a portion of its life science revenue which is currently accounted for under a percentage of completion method. The Company may be required to recognize revenue for a portion of these arrangements at the point in time it satisfies performance obligations by transferring control over promised deliverables to the customers in accordance with contractual terms of
9
each arrangement. Additionally, revenue generated from the sale of perpetual or term licenses may be required to be recognized at the point in time control is transferred to customers upon license delivery.this ASU.
Other
For further information with regard to the Company’s Significant Accounting Policies,significant accounting policies, please refer to Note 2 "Summary“Summary of Significant Accounting Policies"Policies” to the Company’s consolidated financial statements included in the 20172022 Annual Report on Form 10‑K.10-K.
3. Discontinued Operations
Disposition of Semiconductor Automation Business
On September 20, 2021, the Company entered into a definitive agreement to sell its semiconductor automation business to THL and the Company determined that the semiconductor automation business met the criteria to be classified as a discontinued operation and, as a result, its historical financial results are reflected in the Company’s financial statements as a discontinued operation, and assets and liabilities were classified as assets and liabilities held for sale. On February 1, 2022, the Company completed the sale of the semiconductor automation business for $2.9 billion in cash. As part of the transaction, the Company recorded an $18.1 million liability related to retention bonuses and cash settled stock-based awards for former employees of the Company that were conveyed with the transaction. The Company paid $0.6 million during the year ended September 30, 2022 and remitted the remaining payments to THL in November 2022, and THL directly paid the Company’s former employees. Following the completion of the sale, the Company no longer serves the semiconductor market.
In connection with the closing of the sale, the Company and THL entered into a transition services agreement, to which both the Company and THL will provide each other with certain transition services related to finance and accounting, information technology, human resources, compliance, facilities, legal and research and development support, for time periods ranging from three to 24 months. In addition, the Company entered into two separate lease agreements for leases back to the Company for portions of the facilities that previously served as its corporate headquarters in Chelmsford, Massachusetts, and were sold to THL as part of the sale agreement. Each lease provides for
13
a term of 24 months, which may be terminated earlier by the Company upon 90 days’ notice to THL. The transition services agreement and lease agreements approximate fair value and there is no material impact to the Company’s results.
The following table presents the financial results of discontinued operations with respect to the semiconductor automation business (in thousands).
| | | | | |
| | | | | |
| | | | Three months ended December 31, | |
| |
| | 2021 | |
Revenue | | | | | |
Products | | | | $ | 188,240 |
Services | | | | | 15,430 |
Total revenue | | | | | 203,670 |
Cost of revenue | | | | | |
Products | | | | | 107,597 |
Services | | | | | 8,309 |
Total cost of revenue | | | | | 115,906 |
Gross profit | | | | | 87,764 |
Operating expenses | | | | | |
Research and development | | | | | 13,740 |
Selling, general and administrative | | | | | 22,676 |
Restructuring charges | | | | | - |
Total operating expenses | | | | | 36,416 |
Operating income | | | | | 51,348 |
Other income, net | | | | | (46) |
Gain on divestiture | | | | | - |
Income before income taxes | | | | | 51,302 |
Income tax provision | | | | | 10,840 |
Net income from discontinued operations | | | | $ | 40,462 |
The following table presents the significant non-cash items and capital expenditures for the discontinued operations with respect to the semiconductor automation business that are included in the Consolidated Statements of Cash Flows (in thousands):
| | | | | |
| | | | Three months ended December 31, | |
| | | | | 2021 |
Depreciation and amortization | | | | $ | - |
Capital expenditures | | | | $ | 2,283 |
Stock-based compensation | | | | $ | 4,923 |
14
4. Marketable Securities
The Company invests in marketable securities that are classified as available-for-sale and records them at fair value in the Company’saccompanying unaudited Consolidated Balance Sheets. Marketable securities reported as current assets represent investments that mature within one year from the balance sheet date. Long-term marketable securities represent investments with maturity dates greater than one year from the balance sheet date. The
Unrealized gains and losses are excluded from earnings and reported as a separate component of “Accumulated other comprehensive income (loss), net of tax” in the accompanying unaudited Consolidated Balance Sheets until the security is sold or matures. Gains or losses realized from sales of marketable securities are valued using matrix pricing and benchmarking and classified within Level 2 of the fair value hierarchy because they are not actively traded. Matrix pricing is a mathematical technique used to value securities by relyingcomputed based on the securities’ relationship to other benchmark quoted prices.specific identification method and recognized as a component of "Other income (expenses), net" in the accompanying unaudited Consolidated Statements of Operations. The Company had sales and maturities of marketable securities of $607.2 million in the three months ended December 31, 2022. There were insignificant sales of marketable securities in the three months ended December 31, 2021.
The following is a summary of the amortized cost and the fair value, including accrued interest receivable as well as unrealized holding gains (losses) on the short-term and long-term marketable securities as of December 31, 20172022 and September 30, 20172022 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross |
| Gross |
|
| ||||
|
| Amortized |
| Unrealized |
| Unrealized |
|
| ||||
|
| Cost |
| Losses |
| Gains |
| Fair Value | ||||
December 31, 2017 : |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government agencies |
| $ | 14,911 |
| $ | (10) |
| $ | — |
| $ | 14,901 |
Bank certificates of deposits |
|
| 6,158 |
|
| — |
|
| 3 |
|
| 6,161 |
U.S. corporate securities |
|
| 4,749 |
|
| (1) |
|
| — |
|
| 4,748 |
Municipal securities |
|
| 3,710 |
|
| (6) |
|
| — |
|
| 3,704 |
Other debt securities |
|
| 29 |
|
| — |
|
| — |
|
| 29 |
|
| $ | 29,557 |
| $ | (17) |
| $ | 3 |
| $ | 29,543 |
September 30, 2017 : |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities |
| $ | 2,642 |
| $ | — |
| $ | — |
| $ | 2,642 |
Other debt securities |
|
| 28 |
|
| — |
|
| — |
|
| 28 |
|
| $ | 2,670 |
| $ | — |
| $ | — |
| $ | 2,670 |
| | | | | | | | | | | | |
|
| |
| Gross |
| Gross |
| | ||||
| | Amortized | | Unrealized | | Unrealized | | | ||||
| | Cost | | Losses | | Gains | | Fair Value | ||||
December 31, 2022: |
| |
|
| |
|
| |
|
| |
|
U.S. Treasury securities and obligations of U.S. government agencies |
| $ | 479,617 | | $ | (5,434) | | $ | 13 |
| $ | 474,196 |
Bank certificates of deposits | | | 10,549 | | | (174) | | | 5 | | | 10,380 |
Corporate securities | | | 341,317 | | | (6,941) | | | — | | | 334,376 |
Municipal securities |
| | 8,633 | | | (13) | | | — |
| | 8,620 |
| | $ | 840,116 | | $ | (12,562) | | $ | 18 | | $ | 827,572 |
September 30, 2022: | | |
| |
|
| |
|
| |
|
|
U.S. Treasury securities and obligations of U.S. government agencies | | $ | 804,774 |
| $ | (6,163) |
| $ | 21 | | $ | 798,632 |
Bank certificates of deposits | | | 8,335 | | | (158) | | $ | 1 | | $ | 8,178 |
Corporate securities | | | 406,270 | | | (8,113) | | | — | | | 398,157 |
Municipal securities | |
| 59,043 | | | (226) | | | — |
| | 58,817 |
| | $ | 1,278,422 | | $ | (14,660) | | $ | 22 | | $ | 1,263,784 |
The fair values of the marketable securities by contractual maturities at December 31, 20172022 are presented below (in thousands):
|
|
|
| ||||||||
|
| Fair Value | |||||||||
| | | | | | | | ||||
| | | | | | | | ||||
| | | Amortized | | | | |||||
|
| | | Cost | | | Fair Value | ||||
Due in one year or less |
| $ | 15,658 | | | $ | 525,787 | | $ | 522,897 | |
Due after one year through five years |
|
| 11,148 | | |
| 311,387 | |
| 301,734 | |
Due after five years through ten years | | | | — | | | — | ||||
Due after ten years |
|
| 2,737 | | |
| 2,942 | |
| 2,941 | |
Total marketable securities |
| $ | 29,543 | | | $ | 840,116 | | $ | 827,572 | |
Expected maturities could differ from contractual maturities because the security issuers may have the right to prepay obligations without prepayment penalties.
15
The Company reviews the marketable securities for impairment at each reporting period to determine if any of the securities have experienced an other-than-temporary decline in fair value. The Company considers factors, such as the length of time and extent to which the market value has been less than the cost, the financial condition and near-term
10
prospects of the issuer, the Company’s intent to sell, or whether it is more likely than not it will be required to sell the investment before recovery of its amortized cost basis. If the Company believes that an other-than-temporary decline in fair value has occurred, it writes down the investment to its fair value and recognizes the credit loss in earnings and the non-credit loss in accumulated other comprehensive income or loss. As of December 31, 2017, the aggregate fair valueUnrealized losses from fixed-income securities are primarily attributable to changes in interest rates. Management does not believe any unrealized losses represent impairments based on our evaluation of the marketable securities in an unrealized loss position was $20.3 million and was comprised of U.S. Treasury securities and obligations of U.S. government agencies, U.S. corporate securities, municipal securities and bank certificates of deposits. Aggregate unrealized losses for these securities were insignificant as of December 31, 2017 and are presented in the table above. There were no marketable securities in an unrealized loss position as of September 30, 2017.available evidence.
Cash equivalents of $64.2 million and less than $0.1 million, respectively, at December 31, 2017 and September 30, 2017 consist of money market funds and are classified within Level 1 of fair value hierarchy because they are valued using quoted market prices in active markets. Cash equivalents of $9.1 million and less than $0.1 million, respectively at December 31, 2017 and September 30, 2017 consist primarily of U.S. government agency obligations, municipal securities and bank certificates of deposits with original maturities of less than 90 days and are classified within Level 2 of the fair value hierarchy because they are not actively traded.
4. Acquisitions
Acquisitions Completed in Fiscal Year 2018
Acquisition of 4titude Limited
On October 5, 2017, the Company acquired all of the outstanding capital stock of 4titude Limited (“4titude”), a U.K.-based manufacturer of scientific consumables for biological sample materials used in a variety of genomic and DNA analytical applications. The acquisition of 4titude will expand the Company’s existing offerings of consumables and instruments within the Brooks Life Sciences segment. The aggregate purchase price of $65.2 million, net of cash acquired, consisted primarily of a cash payment of $64.7 million subject to working capital adjustments and the assumption of the seller’s liabilities of $0.5 million.5. Business Combinations
The Company used a market participant approach to recordrecorded the assets acquired and liabilities assumed inrelated to the 4titude acquisition. Thefollowing acquisitions at their fair values as of the acquisition date, from a market participant’s perspective. While the Company uses its best estimates and assumptions as part of the purchase price allocation is based on a preliminary valuation and is subjectprocess to further adjustments withinvalue the measurement period as additional information becomes available related to the fair value of such assets acquired and liabilities assumed.assumed on the acquisition date, its estimates and assumptions are subject to refinement. Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results of operations. The finalization of the assignment of fair values will be completed within one year after the respective acquisition date.
Acquisition Completed in Fiscal Year 2023
B Medical Systems S.á r.l.
On October 3, 2022, the Company acquired B Medical Systems S.á r.l. and its subsidiaries ("B Medical"), for a purchase price of inventory, property, plant and equipment, intangible assets, accrued liabilities, tax-related matters and residual goodwill were preliminaryapproximately $432.2 million including contingent consideration, which the company estimated the fair value to be $17 million as of December 31, 2017.the measurement date. B Medical is a market leader in temperature-controlled storage and transportation solutions that enables the delivery of life-saving treatments to more than 150 countries worldwide. B Medical’s results of operations are reported in the Company’s Life Sciences Products reportable segment from the date of acquisition. The Company will refine such fair value estimatespaid a total initial cash purchase price at closing of $424 million, as new information becomes available duringadjusted for cash acquired and other items pursuant to the measurement period. Any adjustmentsAgreement. B Medical Systems Holdings S.A (the “Seller”) is eligible to earn up to approximately €50 million in contingent consideration based upon achievement of certain financial metrics by B Medical and its subsidiaries. Included in the purchase price, allocation will be madethe Company repaid B Medical’s outstanding debt of $43.1 million prior to September 30, 2022 which was classified in prepaid assets as soonof September 30, 2022. In addition, as practicable but no later than one year fromof September 30, 2022, the Company had recorded $381 million in short-term restricted cash, which was reserved to complete the acquisition date.on October 3, 2022.
The preliminary amountscontingent consideration payment is based on achievement of certain revenue targets over the one-year period from October 3, 2022 to September 30, 2023. Pursuant to ASC 805, Business Combinations (“ASC 805”), the Company recorded were as follows (in thousands):
|
|
|
|
|
| Fair Value of | |
|
| Assets and | |
|
| Liabilities | |
Accounts receivable (approximates contractual value) |
| $ | 1,581 |
Inventories |
|
| 2,667 |
Prepaid expenses and other current assets |
|
| 140 |
Property, plant and equipment |
|
| 1,555 |
Intangible assets |
|
| 27,212 |
Goodwill |
|
| 38,033 |
Accounts payable |
|
| (286) |
Accrued liabilities |
|
| (624) |
Deferred tax liabilities |
|
| (5,090) |
Total purchase price, net of cash acquired |
| $ | 65,188 |
11
Fair values of intangible assets acquired consisted of customer relationships of $21.4 million, completed technology of $5.2 million, backlog of $0.4 million and trademarks of $0.2 million. The Company used the income approach in accordance with the excess-earnings method to estimate the fair values of customer relationships, backlog and trademarks equal to the present value of the after-tax cash flows attributable to each intangible asset. The Company used the income approach in accordance with the relief-from-royalty method to estimate the fair value of the contingent consideration liability utilizing the Monte Carlo simulation based on future revenue projections, revenue growth rates of comparable companies, implied volatility and applying a risk adjusted discount rate. Each quarter, the Company is required to remeasure the fair value of this liability as assumptions change over time and any resulting adjustments in the fair value of this liability are recorded in “Operating expenses” in the Company’s Consolidated Statements of Operations. This fair value measurement was based on significant inputs not observable in the market and thus represented a Level 3 measurement as defined in ASC 820, Fair Value Measurements. This fair value measurement is directly impacted by the Company’s estimate of future incremental revenue growth of the business. Accordingly, if actual revenue growth is higher or lower than the estimates within the fair value measurement, the Company would record additional charges or gains. As of December 31, 2022, the contingent consideration liability was $18.5 million.
The total purchase price was allocated to B Medical’s tangible and identifiable intangible assets and liabilities based on the estimated fair values as of October 3, 2022, as set forth below:
16
| | | |
|
| Fair Value of | |
| | Assets and | |
| | Liabilities | |
Accounts receivable | | | 19,549 |
Inventory | |
| 49,700 |
Other assets | |
| 20,330 |
Property plant and equipment | |
| 55,170 |
Identifiable Intangible Assets: | |
| |
Completed technology | |
| 100,200 |
Trademarks | |
| 5,500 |
Customer relationships | |
| 36,700 |
Backlog | |
| 600 |
Other liabilities | |
| (31,699) |
Deferred income taxes, net | | | (42,974) |
Goodwill | | | 219,085 |
Total purchase price, net of cash acquired | | $ | 432,160 |
In performing the preliminary purchase price allocation, the Company considered, among other factors, the intended future use of acquired assets, analysis of historical financial performance and estimates of future performance of B Medical’s business. The allocation of the purchase price is preliminary as the Company continues to gather information supporting the acquired assets and liabilities. As part of the purchase price allocations, the Company determined the identifiable intangible assets were completed technology, which is equal to the presenttrademarks, customer relationships and backlog. The fair value of the after-tax royalty savings attributableintangible assets was estimated using the income approach, and the cash flow projections were discounted using a 13% rate. The cash flows were based on estimates used to owning that intangible asset.price the transaction, and the discount rate applied was benchmarked with references to the implied rate of return from the transaction and the weighted average cost of capital. The weighted average amortization periods for intangible assets acquired are 13 years forlife of completed technology is 10 years, for customer relationship intangible assets,relationships is 16 years, trademarks is 5 years and backlog is 1 year for backlog and 1 year for trademarks.. The intangible assets acquired are amortized over the totaltheir respective weighted average period of 10.4 yearslife using methods that approximate the pattern in which the economic benefits are expected to be realized.
At the closing The calculation of the acquisition of 4titude, a cash payment of $0.4 million was placed into escrow which was ascribed to the purchase price. The escrow was related to potential working capital adjustments and the sellers’ satisfaction of general representations and warranties. The escrow balance was $0.4 million as of December 31, 2017.
Goodwill represents the excess of the consideration transferredpurchase price over the estimated fair value of the tangible net assets and intangible assets acquired was recorded to goodwill. Goodwill of $219.1 million largely reflects the potential expansion of the Company's cold chain capabilities by adding differentiated solutions for reliable and has been assignedtraceable transport of temperature controlled specimens in the Company's Life Sciences Products reportable segment. The goodwill is not expected to be deductible for income tax purposes.
The revenues and net loss from B Medical included in the Company's consolidated results for the reporting period since acquisition were $41.8 million and $4.7 million, respectively. The Company incurred $8.7 million in transaction costs related to the Brooks Life Sciences segment. Goodwill is primarily the resultacquisition of expected synergies from combining the operations of 4titude with the Company’s operations and is not deductible for tax purposes.
The operating results of 4titude have been reflected in the results of operations for the Brooks Life Sciences segment from the date of the acquisition, which included approximately three months of activity$4.7 million was incurred during the first quarter of fiscal year 2018. During the three months ended December 31, 2017, revenue and net loss from 4titude recognized in the Company’s2022.
The following unaudited pro forma information reflects our consolidated results of operations were $3.4 millionas if the acquisition had taken place on October 1, 2021. The unaudited pro forma information is not necessarily indicative of the results of operations that we would have reported had the transaction actually occurred at the beginning of these periods nor is it necessarily indicative of future results.
| | | | | | | | |
| | | | |||||
| Three Months Ended, December 31, | |||||||
| | 2022 | | 2021 | ||||
| | | (pro forma) | | | | (pro forma) | |
| | | | | | | | |
Revenue | | $ | 178,366 | | | $ | 178,621 | |
Net loss | | | (5,845) | | | | (33,526) | |
| | | | | | | | |
17
The unaudited pro forma information is based on historical information and $1.1 million, respectively. Duringis adjusted for items including, but not limited to, the application of our accounting policies, GAAP adjustments, additional transaction costs, depreciation and amortization related to fair value adjustments to property, plant and equipment, inventory and intangible assets, and reversal of interest expense on acquisition related debt fully repaid. Non-recurring acquisition related items and significant GAAP adjustments included in the three months ended December 31, 2017,2021 include $8.7 million of transaction costs, $5.4 million of reversal of debt interest expense and $1.6 million expensed as a reversal of R&D capitalization. The pro forma information does not include any anticipated costs savings or other effects of the net lossintegration of B Medical. Accordingly, the unaudited pro forma information does not necessarily reflect the actual results that would have occurred, nor is it necessarily indicative of future results of operations.
Acquisition Completed in Fiscal Year 2022
Barkey Holding GmbH
On July 1, 2022, the Company acquired Barkey Holding GmbH and its subsidiaries (“Barkey”), a leading provider of controlled-rate thawing devices for customers in the medical, biotech and pharmaceutical industries, head quartered in Leopoldshöhe, Germany. The Company has included non-recurring charges of $1.2 million related to the step-up in valuefinancial results of the acquired inventories and recurring charges of $1.0 million related to amortization expense of acquired intangible assets.
During the three months ended December 31, 2017, the Company incurred $0.5 million in non-recurring transaction costs with respect to the 4titude acquisition which were recorded in "Selling, general and administrative" expensesoperations within the accompanying unaudited Consolidated StatementsLife Sciences Products segment. The total cash purchase price of Operations.the acquisition was approximately $84.8 million, net of cash acquired. The acquisition brings innovative products and capabilities that extend the Company’s extensive cold chain of condition portfolio of products and services, while also expanding our customer reach in the fast-growing cell and gene therapy space. The allocation of the consideration included $3.0 million of customer relationships, $29.0 million of technology, $57.8 million of goodwill, $9.8 million of deferred tax liabilities, and several other assets and liabilities. The weighted useful life of all the intangible assets acquired is 15 years. The goodwill and intangibles are not tax deductible.
The Company did not present a pro forma information summary for its consolidated results of operations for the acquisitions completed in fiscal year ended September 30, 2017 as if the acquisition of 4titude occurred on October 1, 20162022 because such results were immaterial.
Acquisitions Completed in Fiscal Year 2017
Acquisition of Pacific Bio-Material Management, Inc. and Novare, LLC
On July 5, 2017, the Company entered into an asset purchase agreement with Pacific Bio-Material Management, Inc. (“PBMMI”) and Novare, LLC, a wholly owned subsidiary of PBMMI (collectively, the “sellers”), pursuant to which the Company acquired substantially all of the assets and liabilities of the sellers’ business related to providing storage, transportation, management, and cold chain logistics of biological materials. The Company paid to the sellers cash consideration of $34.3 million, net of cash acquired and subject to working capital adjustments. As of December 31, 2017, the purchase price allocation is based on a preliminary valuation and subject to further adjustments when the Company obtains additional information during the measurement period.
At the closing of the acquisition of PBMMI, a cash payment of $3.3 million was placed into escrow which was ascribed to the purchase price. The escrow balance of $3.3 million included $2.9 million related to satisfaction of the sellers' indemnification obligations with respect to their representations and warranties and other indemnities, as well as $0.4 million payable to the former owner of Novare as a compensation for a sale of his ownership interest. This escrow arrangement is administered by the Company on behalf of the sellers. The escrow balances were $2.9 million and $0.3 million, respectively, as of December 31, 2017.
12
The operating results of PBMMI have been reflected in the results of operations for the Brooks Life Sciences segment from the date of the acquisition. During three months ended December 31, 2017, revenue and net loss from PBMMI recognized in the Company’s results of operations were $2.3 million and $0.1 million, respectively. During the three months ended December 31, 2017, the net loss included recurring charges of $0.4 million related to amortization expense of acquired intangible assets. Please refer to Note 3, "Acquisitions" to the Company's consolidated financial statements included in the 2017 Annual Report on Form 10-K for further information on PBMMI acquisition.
Acquisition of Cool Lab, LLC
On November 28, 2016, the Company acquired 100% of the equity of Cool Lab, LLC ("Cool Lab") from BioCision, LLC ("BioCision"). The Company held a 20% equity ownership interest in BioCision prior to the acquisition. The Company used a market participant approach to record the assets acquired and liabilities assumed in the Cool Lab acquisition. The purchase price allocation were finalized as of December 31, 2017. Please refer to Note 3, “Acquisitions” to the Company’s consolidated financial statements included in the 2017 Annual Report on Form 10-K for further information on this transaction.
The Company recorded a liability of $0.7 million in the purchase price allocation that represented a preacquisition contingency incurred on the acquisition date. The obligation is related to a rebate that is due to a particular customer if the annual product sales volume metrics exceed threshold amounts under the provisions of the contract assumed by the Company. Fair value of such liability was determined based on a probability weighted discounted cash flow model. The carrying amount of the liability was $0.8 million and $0.7 million, respectively, at December 31, 2017 and September 30, 2017.
The operating results of Cool Lab have been reflected in the results of operations for the Brooks Life Sciences segment from the date of the acquisition, which included approximately one month of activity during the first quarter of fiscal year 2017. During the three months ended December 31, 2017, revenue and net loss from Cool Lab recognized in the Company’s results of operations were $1.0 million and less than $0.1 million, respectively. During the three months ended December 31, 2016, revenue and net loss from Cool Lab recognized in the Company’s results of operations were $0.3 million and $0.1 million, respectively. During the three months ended December 31, 2017 and 2016, the net loss included recurring charges of $0.4 million and $0.1 million, respectively, related to amortization expense of acquired intangible assets.
5.6. Goodwill and Intangible Assets
Goodwill represents the excess of net book value over the estimated fair value of net tangible and identifiable intangible assets of a reporting unit. Goodwill is tested for impairment annually or more often if impairment indicators are present at the reporting unit level. The Company elected April 1st as its annual goodwill impairment assessment date and performs additional impairment tests if triggeringdate. If the existence of events occur. If events occur or circumstances changeindicates that wouldit is more likely than not reducethat fair values of the reporting units are below their carrying values, the Company performs additional impairment tests during interim periods to evaluate goodwill will be evaluated for impairment between annual tests.impairment. No triggering events indicating goodwill impairment occurred during the three months ended December 31, 2017.2022. Please refer to Note 6,8, "Goodwill and Intangible Assets" to the Company's consolidated
13
financial statements included in the 20172022 Annual Report on Form 10-K for further information on the goodwill impairment testing performed during fiscal year 2017.2022.
In accordance with ASC 350, Intangibles-Goodwill and Other, the Company initially assesses qualitative factors to determine whether the existence of events or circumstances indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the Company determines, based on this assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying value, it performs a quantitative goodwill impairment test by comparing the reporting unit’s fair value with its carrying value. An impairment loss is recognized for the amount by which the reporting unit’s carrying value exceeds its fair value, up to the total amount of goodwill allocated to the reporting unit. No impairment loss is recognized if the fair value of the reporting exceeds its carrying value.
18
The components ofchanges in the Company’s goodwill by operatingreportable segment atfor the three months ended December 31, 2017 and September 30, 20172022 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Brooks |
|
|
|
|
|
|
|
|
| |
|
| Semiconductor |
|
|
|
|
|
|
|
| ||
|
| Solutions |
| Brooks |
|
|
|
|
|
| ||
|
| Group |
| Life Sciences |
| Other |
| Total | ||||
Gross goodwill, at September 30, 2017 |
| $ | 655,762 |
| $ | 166,820 |
| $ | 26,014 |
| $ | 848,596 |
Accumulated goodwill impairments |
|
| (588,944) |
|
| — |
|
| (26,014) |
|
| (614,958) |
Goodwill, net of accumulated impairments, at September 30, 2017 |
|
| 66,818 |
|
| 166,820 |
|
| — |
|
| 233,638 |
Acquisitions and adjustments |
|
| (15) |
|
| 39,101 |
|
| — |
|
| 39,086 |
Gross goodwill, at December 31, 2017 |
|
| 655,747 |
|
| 205,921 |
|
| 26,014 |
|
| 887,682 |
Accumulated goodwill impairments |
|
| (588,944) |
|
| — |
|
| (26,014) |
|
| (614,958) |
Goodwill, net of accumulated impairments, at December 31, 2017 |
| $ | 66,803 |
| $ | 205,921 |
| $ | — |
| $ | 272,724 |
| | | | | | | | | |
|
| |
| | |
| | | |
| | Life Sciences | | Life Sciences | | | | ||
| | Products | | Services | | Total | |||
Balance, at September 30, 2022 | | $ | 154,612 | | $ | 359,011 | | $ | 513,623 |
Acquisitions | |
| 219,085 | |
| — | |
| 219,085 |
Currency translation adjustments | | | 28,420 | | | 24 | | | 28,445 |
Balance, at December 31, 2022 | | $ | 402,117 | | $ | 359,035 | | $ | 761,153 |
During the three months ended December 31, 2017,2022, the Company recorded a goodwill increase of $39.1 million primarily related to the B Medical acquisition of 4titude which represented the excess$219.1 million and an increase in goodwill of the consideration transferred over the fair value of the net assets acquired. Please refer$28.4 million related to the Note 4 "Acquisitions" for further information on this transaction.foreign currency translation adjustments.
The components of the Company’s identifiable intangible assets as of December 31, 20172022 and September 30, 20172022 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
| December 31, 2017 |
| September 30, 2017 | ||||||||||||||||||||||||||||||||||
|
|
|
| Accumulated |
| Net Book |
|
|
| Accumulated |
| Net Book | ||||||||||||||||||||||||||
|
| Cost |
| Amortization |
| Value |
| Cost |
| Amortization |
| Value | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||||
| | December 31, 2022 | | September 30, 2022 | ||||||||||||||||||||||||||||||||||
| | | | Accumulated | | Net Book | | | | Accumulated | | Net Book | ||||||||||||||||||||||||||
|
| Cost |
| Amortization |
| Value |
| Cost |
| Amortization |
| Value | ||||||||||||||||||||||||||
Patents |
| $ | 9,028 |
| $ | 7,806 |
| $ | 1,222 |
| $ | 9,028 |
| $ | 7,729 |
| $ | 1,299 | | $ | 1,225 | | $ | 1,123 | | $ | 102 | | $ | 1,225 | | $ | 1,106 | | $ | 119 | ||
Completed technology |
|
| 67,032 |
|
| 55,668 |
|
| 11,364 |
|
| 61,662 |
|
| 54,777 |
|
| 6,885 | |
| 212,205 | |
| 42,718 | |
| 169,487 | |
| 99,525 | |
| 37,991 | |
| 61,534 | ||
Trademarks and trade names |
|
| 9,405 |
|
| 5,241 |
|
| 4,164 |
|
| 9,244 |
|
| 4,969 |
|
| 4,275 | |
| 6,373 | |
| 416 | |
| 5,957 | |
| 400 | |
| 41 | |
| 359 | ||
Non-competition agreements | | | 681 | | | 471 | | | 210 | | | 681 | | | 439 | | | 242 | ||||||||||||||||||||
Customer relationships |
|
| 152,797 |
|
| 63,790 |
|
| 89,007 |
|
| 130,655 |
|
| 59,594 |
|
| 71,061 | |
| 291,201 | |
| 140,340 | |
| 150,861 | |
| 246,949 | |
| 130,802 | |
| 116,147 | ||
|
| $ | 238,262 |
| $ | 132,505 |
| $ | 105,757 |
| $ | 210,589 |
| $ | 127,069 |
| $ | 83,520 | ||||||||||||||||||||
Other intangibles | | | 854 | | | 365 | | | 489 | | | 202 | | | 202 | | | — | ||||||||||||||||||||
| | $ | 512,539 | | $ | 185,433 | | $ | 327,106 | | $ | 348,982 | | $ | 170,581 | | $ | 178,401 | ||||||||||||||||||||
During the three months ended December 31, 2022, the Company recorded intangible assets related to B Medical acquisition of $143 million.
Amortization expense for intangible assets was $5.5$11.5 million and $4.1$8.0 million, respectively, duringfor the three months ended December 31, 20172022 and 2016.2021.
Estimated future amortization expense for the intangible assets for the remainder of fiscal year 2018 and2023, the subsequent four fiscal years and thereafter is as follows (in thousands):
|
|
|
|
Fiscal year ended September 30, |
|
|
|
2018 |
| $ | 16,454 |
2019 |
|
| 20,810 |
2020 |
|
| 19,021 |
2021 |
|
| 13,240 |
2022 |
|
| 10,553 |
Thereafter |
|
| 25,679 |
|
| $ | 105,757 |
| | | |
2023 | | $ | 35,512 |
2024 | |
| 49,107 |
2025 | |
| 47,749 |
2026 | |
| 44,474 |
Thereafter | | | 150,264 |
Total | | $ | 327,106 |
1419
7. Leases
The Company has operating leases for real estate and non-real estate and finance leases for non-real estate in North America, Europe, and Asia. Non-real estate leases are primarily related to vehicles and office equipment. Lease expiration dates range between 2023 and 2042.
The components of lease expense were as follows (in thousands):
| | | | | | | | | | |
| | | | | Three Months Ended December 31, | | ||||
| | | | | 2022 | | 2021 | | ||
| | | | | | | | | | |
Operating lease costs | | | | | $ | 3,064 | | $ | 2,171 | |
Finance lease costs: | | | | | | | | | | |
Amortization of assets | | | | | | 91 | | | 75 | |
Interest on lease liabilities | | | | | | 4 | | | 3 | |
Total finance lease costs | | | | | | 95 | | | 78 | |
Variable lease costs | | | | | | 2 | | | 518 | |
Short-term lease costs | | | | | | 184 | | | 354 | |
Sublease income | | | | | | (2) | | | | |
Total lease costs | | | | | $ | 3,343 | | $ | 3,121 | |
Supplemental balance sheet information related to leases is as follows (in thousands, except lease term and discount rate):
| | | | | | | | | | |
| | | | | December 31, 2022 | | September 30, 2022 | | ||
Operating Leases: | | | | | | | | | | |
Operating lease right-of-use assets | | | | | $ | 57,005 | | $ | 54,059 | |
| | | | | | | | | | |
Accrued expenses and other current liabilities | | | | | $ | 7,334 | | $ | 6,924 | |
Long-term operating lease liabilities | | | | | | 52,494 | | | 49,227 | |
Total operating lease liabilities | | | | | $ | 59,828 | | $ | 56,151 | |
| | | | | | | | | | |
Finance Leases: | | | | | | | | | | |
Property, plant and equipment, at cost | | | | | $ | 3,678 | | $ | 2,476 | |
Accumulated amortization | | | | | | (2,367) | | | (2,276) | |
Property, plant and equipment, net | | | | | $ | 1,311 | | $ | 200 | |
| | | | | | | | | | |
Accrued expenses and other current liabilities | | | | | $ | 423 | | $ | 96 | |
Other long-term liabilities | | | | | | 893 | | | 98 | |
Total finance lease liabilities | | | | | $ | 1,316 | | $ | 194 | |
| | | | | | | | | | |
Weighted average remaining lease term (in years): | | | | | | | | | | |
Operating leases | | | | | | 10.79 | | | 10.82 | |
Finance leases | | | | | | 3.71 | | | 2.19 | |
| | | | | | | | | | |
Weighted average discount rate: | | | | | | | | | | |
Operating leases | | | | | | 4.11 | % | | 3.93 | % |
Finance leases | | | | | | 2.47 | % | | 1.29 | % |
20
Supplemental cash flow information related to leases was as follows (in thousands, unaudited):
| | | | | | | | | | |
| | | | | Three Months Ended December 31, | | ||||
| | | | | 2022 | | 2021 | | ||
Cash paid for amounts included in measurement of liabilities: | | | | | | | | | | |
Operating cash flows from operating leases | | | | | $ | 2,569 | | $ | 1,659 | |
Operating cash flows from finance leases | | | | | | 4 | | | 3 | |
Financing cash flows from finance leases | | | | | | 87 | | | 190 | |
| | | | | | | | | | |
ROU assets obtained in exchange for lease liabilities: | | | | | | | | | | |
Operating leases | | | | | $ | (766) | | $ | 186 | |
Finance leases | | | | | | 790 | | | | |
6. Equity Method Investments
TheFuture lease payments for operating and finance leases as of December 31, 2022 were as follows for the remainder of fiscal year 2023, the subsequent five fiscal years and thereafter (in thousands):
| | | | | | | | | | |
| | | | | | Finance Leases | Operating Leases | | ||
| | | | | | | | | | |
2023 | | | | | $ | 301 | | $ | 7,225 | |
2024 | | | | | | 399 | | | 8,795 | |
2025 | | | | | | 322 | | | 8,477 | |
2026 | | | | | | 224 | | | 6,921 | |
2027 | | | | | | 121 | | | 6,497 | |
Thereafter | | | | | | 17 | | | 37,552 | |
Total future lease payments | | | | | | 1,384 | | | 75,467 | |
Less imputed interest | | | | | | (68) | | | (15,639) | |
Total lease liability balance | | | | | $ | 1,316 | | $ | 59,828 | |
As of December 31, 2022, the Company accounts for certain of its investments using the equity method of accounting and records its proportionate share of the investee’s earnings in its results of operations with a corresponding increasedid not have significant leases that have not commenced or not recorded in the carrying value of the investment.accompanying unaudited Consolidated Balance Sheets.
ULVAC Cryogenics, Inc.
8. Income Taxes
TheCompany and ULVAC Corporation recordedanincometaxbenefitof Chigasaki, Japan each own a 50% stake in the joint venture, ULVAC Cryogenics, Inc (“UCI”). UCI manufactures and sells cryogenic vacuum pumps, principally to ULVAC Corporation.
The carrying value of the investment in UCI was $30.9 $4.6million and $28.6 million, respectively, at December 31, 2017 and September 30, 2017. Duringduring the three months ended December 31, 2017 and 2016, the Company recorded income of $2.2 million and $2.4 million, respectively, representing its proportionate share of UCI’s earnings. Management fee payments received2022. The benefit was primarily driven by the Companypre-tax loss from UCI were $0.3operations and a $1.3 million during eachdeferred tax benefit resulting from the extension of the three months ended December 31, 2017 and 2016.
7. Line of Credita tax incentive in China.
The Company maintains a revolving linerecorded an income tax benefit of credit with Wells Fargo Bank, N.A. and JPMorgan Chase Bank, N.A that provides for revolving credit financing of up to $75 million, subject to borrowing base availability, as defined in the line of credit agreement. The line of credit matures on October 4, 2022 and expires no less than 90 days prior to the term loan expiration. The proceeds from the line of credit are available for permitted acquisitions and general corporate purposes.
On October 4, 2017, the Company entered into a $200.0 million Senior Secured Term Loan Facility (the “term loan”) with Morgan Stanley Senior Funding, Inc., JPMorgan Chase Bank, N.A. and Wells Fargo Securities, LLC (collectively, the “lenders”). Coincident with the entry into the term loan agreement, the Company amended certain terms and conditions of the credit agreement and entered into an arrangement with Wells Fargo Bank, N.A. and JPMorgan Chase Bank, N.A. Based on the amended terms of the credit agreement, the line of credit continues to provide for revolving credit financing of up to $75 million, subject to borrowing base availability. Borrowing base availability under the amended line of credit excludes collateral related to fixed assets and is redetermined periodically based on certain percentage of certain eligible U.S. assets, including accounts receivable and inventory. The sublimits for letters of credit were reduced to $7.5 million under the amended terms of the credit agreement. All outstanding borrowings under the credit agreement are guaranteed by the Company and BioStorage Technologies, Inc., its wholly-owned subsidiary (“Guarantor”), and subordinated to the obligations under the term loan which are secured by a first priority lien on substantially all of the assets of the Company and the Guarantor, other than accounts receivable and inventory. Please refer to Note 8, “Debt”, for further information on the term loan transaction.
There were no amounts outstanding under the line of credit as of December 31, 2017 and September 30, 2017. The Company records commitment fees and other costs directly associated with obtaining line of credit financing as deferred financing costs which are presented within "Other assets" in the accompanying unaudited Consolidated Balance Sheets. At December 31, 2017 and September 30, 2017, deferred financing costs were $0.6 million and $0.5 million, respectively. Such costs are amortized over the term of the related financing arrangement and are included in “Interest expense” in the accompanying unaudited Consolidated Statements of Operations. The line of credit contains certain customary representations and warranties, a financial covenant, affirmative and negative covenants, as well as events of default. The Company was in compliance with the line of credit covenants as of December 31, 2017 and September 30, 2017.
15
8. Debt
On October 4, 2017, the Company entered into a $200.0 million term loan with the lenders. The term loan was issued at $197.6 million, or 98.8% of its par value, resulting in a discount of $2.4 million, or 1.2%, which represented loan origination fees paid at the closing. The Company incurred additional deferred financing costs of $0.4$4.7 million during the three months ended December 31, 2017.2021. The loan proceeds are be usedtax benefit was primarily driven by a $4.8 million discrete stock compensation windfall benefit for general corporate purposes, including acquisitions. tax deductions that exceeded the associated book compensation expense.
The loan principal amount may be increased Companyevaluatestherealizabilityofitsdeferredtaxassetsby tax-payingcomponent andassesses theneed fora valuationallowanceonan aggregate amount equal to $75.0 million plus any voluntary repayments of the term loans plus an amount such that the secured leverage ratio of the Company is less than 3.00 to 1.00.
Under the terms of the loan agreement, the Company may elect for the loan to bear an interest rate as Eurodollar Borrowings or as Alternate Base Rate, or ABR Borrowings. Interest applicable to Eurodollar Borrowings is based on the Adjusted LIBO Rate plus applicable margin of 2.50%. The Adjusted LIBO Rate is the rate appearing on Bloomberg screen LIBOR01 which gets reset at the beginning of each selected interest period based on LIBOR rate then in effect. Interest applicable to Alternate Base Rate Borrowings is based on the Alternate Base Rate plus applicable margin of 1.50%. Alternate Base Rate is determined based on the highest of: (a) the federal funds effective rate plus 0.50%, (b) prime rate plus 1.00%, or (c) one-month LIBOR rate plus 1.00%.
The Company’s obligations under the term loan are guaranteed by the Company’s wholly-owned subsidiary, BioStorage Technologies, Inc. (the “guarantor”), subject to the termsannual and conditions of the term loan agreement. a quarterly basis.The Company and evaluatesthe guarantor granted the lenders profitability ofeachtax-paying componentona perfected first priority security interest in substantially all of the assets of the Company historicalcumulativebasisand the guarantor to secure the repayment of the term loan.
The term loan matures and becomes fully payable on October 4, 2024. The principal is payable in installments equal to 0.25% of the initial principal amount of the term loans on March 31st, June 30th, September 30th and December 31st of each year, with any remaining amount of principal becoming due and payable on the maturity date. The Company is required to begin making principal payments commencing with the second quarter of fiscal year 2018. All accrued and unpaid interest on ABR Borrowings shall be due and payable at the same time as the loan principal installments. All accrued and unpaid interest on Eurodollar Borrowings shall be due on the last day of each interest period elected by the Company for such Eurodollar Borrowings, except for interest periods of more than three months in which case all accrued and unpaid interest shall be due and payable every three months.
Subject to certain conditions statedaforward-lookingbasis in the term loan agreement, the course ofperformingthisanalysis.TheCompany may redeem the term loan at any time at its option without maintainsa significant premium or penalty, except for a repricing transaction, as defined in the term loan agreement, which is subject to a premium of 1.00% of the loan principal amount during the first six months of the loan term. The Company would be required to redeem the term loan at the principal amount then outstanding upon occurrence of certain events, including (i) net proceeds received from the sale or other disposition of the Company’s or guarantor’ assets, subject to certain limitations, (ii) casualty and condemnation proceeds received by the Company or the guarantor, subject to certain exceptions, (iii) net proceeds received by the Company or the guarantor from the issuance of debt or disqualified capital stock after October 4, 2017. Commencing on December 31, 2018, the Company will be required to make principal payments equal U.S.valuationallowancerelatedto the excess cash flow amount, realizability ofcertainstate taxcredits andstatenetoperating loss carry-forwards,as defined in the term loan agreement. Such prepayments are equal to 50% of the preceding year excess cash flow amount reduced by voluntary prepayments of the term loan, subject to certain limitations.
The Company records commitment fees and other costs directly associated with obtaining term loan financing as deferred financing costs which are presented wellas a reduction of the term loan principal balance in the accompanying unaudited Consolidated Balance Sheets. Such costs are accreted over the term of the loan using the effective interest rate method and are included in “Interest expense” in the accompanying unaudited Consolidated Statements of Operations. At December 31, 2017, valuationallowanceagainst netdeferred financing costs were $2.7 million.
During the three months ended December 31, 2017, the weighted average stated interest rate paid taxassetson the term loan was 4%. During the three months ended December 31, 2017, the Company incurred aggregate interest expense of $2.1 million in connection with the term loan borrowings, which included $0.1 million of deferred financing costs amortization.
16
The term loan agreement contains certain customary representations and warranties, covenants and events of default. If any of the events of default occur and are not waived or cured within applicable grace periods, any unpaid amounts under the term loan agreement will bear an annual interest rate at 2.00% above the rate otherwise applicable under the terms and conditions of such agreement. The term loan agreement does not contain financial maintenance covenants. As of December 31, 2017, the Company was in compliance with all covenants and conditions under the term loan agreement.
The following are the future minimum principal payment obligations under the term loanforeigntax-paying components as of December 31, 2017:
|
|
|
|
|
| Amount | |
Fiscal year ended September 30, |
|
|
|
2018 |
| $ | 1,496 |
2019 |
|
| 1,978 |
2020 |
|
| 1,958 |
2021 |
|
| 1,938 |
2022 |
|
| 1,919 |
Thereafter |
|
| 190,711 |
Total outstanding principal balance |
|
| 200,000 |
Unamortized deferred financing costs |
|
| (2,731) |
|
|
| 197,269 |
Term loan, current portion |
|
| 1,993 |
Term loan, long-term portion |
| $ | 195,276 |
As of December 31, 2017, estimated fair value of the term loan outstanding principal balance approximates its carrying value. The fair value was determined based on observable market inputs and classified within Level 2 of fair value hierarchy due to a lack of an active market for this term loan or a similar loan instrument.
9. Income Taxes
2022. The Company recordedhas generated recent pre-tax tax losses but is in an overall deferred tax liability position where future taxable temporary differences are sufficient to offset future deductible temporary differences. The Company continues to monitor historical cumulative income tax provision of $2.9 million and $2.8 million, respectively, during the three months ended December 31, 2017 and 2016. The tax provision for the three months ended December 31, 2017 was primarily driven by the foreign income generated during the quarter. This provision is partially offset by $0.3 million of tax benefits relatedmay record an adjustment to the reduction of reserves for unrecognized tax benefits and $0.7 million of tax benefits relatedvaluation allowance if there is a shift to the re-measurement of net U.S. deferred tax liabilities at the reduced 21 percent federal income tax rate. asset position in a future period.
The income tax provision for the three months ended December 31, 2016 was primarily driven by foreign income generated during the quarter, partially offset by $0.7 million of tax benefits related to the reduction of reservesCompany maintains liabilities for unrecognized tax benefits.
During These liabilities involve judgment and estimation, and they are monitored based on the first quarterbest information available. The Company recognizes interest related to
21
unrecognized tax benefits or tax deficiencies not previously recorded. This adjustment resulted in asa $4.0 million increase to retained earnings and deferred tax asset for net prior year excess tax benefits, with a corresponding decrease to retained earnings for the establishment componentof valuation allowance against the deferred tax asset. During the three months ended December 31, 2017 this change had no impact to our income statement or tax rate as a result of the full valuation allowance which exists against U.S. deferred tax assets.
During the three months ended December 31, 2017, the Tax Cuts and Jobs Act (“Tax Reform”) was enacted in the U.S., making significant tax law changes affecting the Company. The SEC has issued Staff Accounting Bulletin 118 (“SAB 118”), which has provided guidance for companies that have not completed the accounting for the income tax effects of Tax Reform. Under SAB 118, a company may report provisional amounts based on reasonable estimates
17
where provisionor benefit.The Company recognized minimal interestexpenserelatedtoits unrecognized tax benefits duringthe accounting is incomplete. These amounts are subject to adjustments during a measurement period of up to one year beginning in the reporting period of the enactment date.threemonthsendedDecember 31, 2022.
Upon the enactment of Tax Reform, the TheCompany is subject to a toll charge in the U.S. on its previously untaxed accumulated foreign earnings. The toll charge is treated as an inclusion of the company’s accumulated foreign earnings in U.S. taxable income during the tax year ended September 30, 2018. Any taxes due associated with the toll charge will be payable over an eight year period. The Company has estimated that its accumulated foreign earnings are $120 million which is a provisional amount subject to the measurement period described in Staff Accounting Bulletin 118. There are still incomplete components related to the accumulated foreign earnings calculations for older tax years that require additional time to complete the calculations. The Company also has a history of foreign mergers and acquisitions and proper determination of the impact on the accumulated earnings is complex. The Company has not recorded any provision for currently estimated tax inclusion associated with the toll charge as sufficient previously un-benefited tax attributes, with valuation allowances, exist to offset the inclusion income or resulting tax.
As a result of Tax Reform, the Company calculated its U.S. tax provision for the three months ended December 31, 2017 using a blended U.S. statutory tax rate of 24.5% which is a prorated allocation of the 35% rate which was in effect prior to tax reform through December 31, 2017 and the 21% rate which will be in effect for the remainder of the fiscal year. The Company recorded a discrete benefit of $0.7 million in the three months ended December 31, 2017 due to the impact of the U.S. rate change on its net U.S. deferred tax liabilities.
As of December 31, 2017, the Company maintains its indefinite reinvestment assertion on foreign earnings until the Company can complete its assessment of Tax Reform impacts on reinvestment plans, which will continue to be evaluated during the measurement period described in SAB 118. While the toll charge is a forced deemed repatriation of foreign earnings and an inclusion in U.S. taxable income, there are still additional costs of repatriating the foreign earnings such as foreign withholding taxes and state taxes.
The Company evaluates the realizability of its deferred tax assets by tax-paying component and assesses the need for a valuation allowance on a quarterly basis. The Company evaluates the profitability of each tax-paying component on a historic cumulative basis and on a forward looking basis in the course of performing this analysis. As described below, the Company’s evaluation of all positive and negative evidence and corresponding conclusion regarding maintaining a valuation allowance at December 31, 2017 in the U.S. will be a part of its assessment during the measurement period under SAB 118 of the future impacts Tax Reform will have on its positive and negative evidence to support the reversal of all or some portion of these allowances. Please refer to Note 10, "Income Taxes" to the Company’s consolidated financial statements included in the 2017 Annual Report on Form 10-K for further information on the valuation allowance.
As previously described, the Company maintains a full valuation allowance on its U.S. deferred tax assets. During the three months ended December 31, 2017, the Company considered the impacts of Tax Reform that will be immediately effective and those that will be effective for future years. In consideration of the effects of Tax Reform, the Company is still in the process of fully evaluating, during the measurement period under SAB 118, all future impacts of the changes as they relate to the need for the U.S. valuation allowance. The final determination of the various impacts of Tax Reform could have a significant impact to U.S. tax obligations, and could require the Company to change its U.S. valuation allowance conclusion in a future period. As of the time of this filing, the Company believes a full valuation allowance on its U.S. deferred tax assets is required until a full analysis of the impact of Tax Reform is finalized.
The Company is subject to U.S. federal, income tax and various state,local and internationalforeign income taxes in variousjurisdictions.The amountofincometaxespaidissubjecttotheCompany’sinterpretationofapplicabletaxlawsinthejurisdictionsin which it files tax returns. files.
Inthenormal course ofbusiness,theCompany issubjecttoincome taxaudits invariousglobaljurisdictionsin whichitoperates.TheyearssubjecttoexaminationvaryfortheU.S.andinternationaljurisdictions,withtheearliest taxyear being 2011.2017. Based on theoutcomeoftheseexaminationsortheexpirationofstatutesoflimitationsfor specific jurisdictions,itis reasonably possible that the related unrecognized tax benefits could change from those recorded in the Company’s unaudited Consolidated Balance Sheets. The Company currently anticipates that it is reasonably possible thatthe unrecognizedtax benefitsandaccruedinterest on those benefits will be reduced by approximately $0.2 $1.6million within in the next twelve months.months due tostatute of limitations expirations. Theseunrecognized tax benefits would impact theeffective tax rate if recognized.
18
10.9. Other Balance Sheet Information
The following is a summary of accounts receivable at December 31, 20172022 and September 30, 20172022 (in thousands):
|
|
|
|
|
|
|
| |||||||
|
| December 31, |
| September 30, |
| |||||||||
|
| 2017 |
| 2017 |
| |||||||||
| | | | | | | | |||||||
| | December 31, | | September 30, | | |||||||||
|
| 2022 |
| 2022 |
| |||||||||
Accounts receivable |
| $ | 140,490 |
| $ | 122,868 |
| | $ | 208,862 | | $ | 168,920 | |
Less allowance for doubtful accounts |
|
| (1,384) |
|
| (1,959) |
| |||||||
Less allowance for sales returns |
|
| (59) |
|
| (81) |
| |||||||
Less allowance for expected credit losses | |
| (6,942) | |
| (5,162) | | |||||||
Accounts receivable, net |
| $ | 139,047 |
| $ | 120,828 |
| | $ | 201,920 | ��� | $ | 163,758 | |
The allowance for expected credit losses for the fiscal years ended December 31, 2022 and September 30, 2022 (in thousands):
| | | | | | | | | | | | |
| | Balance at | | | | | Reversals of | | Balance at | |||
| | Beginning of | | | | | Bad Debt | | End of | |||
Description |
| Period |
| Provisions |
| Expense |
| Period | ||||
Fiscal year 2023 allowance for expected credit losses | | $ | 5,162 | | | 2,716 | | | (936) | | $ | 6,942 |
Fiscal year 2022 allowance for expected credit losses | |
| 4,318 | | | 3,020 | | | (2,924) | | | 4,414 |
The following is a summary of inventories at December 31, 20172022 and September 30, 20172022 (in thousands):
|
|
|
|
|
|
|
| |||||||
|
| December 31, |
| September 30, |
| |||||||||
|
| 2017 |
| 2017 |
| |||||||||
| | | | | | | | |||||||
|
| December 31, |
| September 30, | | |||||||||
|
| 2022 |
| 2022 |
| |||||||||
Inventories |
|
|
|
|
|
|
|
| |
|
|
|
|
|
Raw materials and purchased parts |
| $ | 76,389 |
| $ | 73,819 |
|
| $ | 80,269 |
| $ | 39,685 | |
Work-in-process |
|
| 11,729 |
|
| 10,548 |
|
| | 4,740 |
| | 4,816 | |
Finished goods |
|
| 26,915 |
|
| 22,028 |
|
| | 60,930 |
| | 41,043 | |
Total inventories |
| $ | 115,033 |
| $ | 106,395 |
|
| $ | 145,939 |
| $ | 85,544 | |
Reserves for excess and obsoleterelated to write downs or adjustments of inventory to net realizable value were $22.9$4.3 million and $23.5$4.1 million, respectively, at December 31, 20172022 and September 30, 2017.2022.
During the three months ended22
At December 31, 20172022 and the fiscal year ended September 30, 2017,2022, the Company had cumulative capitalized direct costs of $5.0$27.9 million and $4.7$26.9 million, respectively, associated with the development of software for its internal use whichuse. As of December 31, 2022, this balance included $9.7 million associated with software assets that are included within "Property, plant and equipment, net"still in the accompanying unaudited Consolidated Balance Sheets.development stage and not yet placed in service. During the three months ended December 31, 2017,2022, the Company capitalized direct costs of $0.3$1.1 million, associated with the development of software for its internal use.
The Company establishes reserves for estimated costs of product warranties based on historical information. Product warranty reserves are recorded at the time product revenue is recognized, and retrofit accruals are recorded at the time retrofit programs are established. The Company’s warranty obligation is affected by product failure rates, utilization levels, material usage, service delivery costs incurred in correcting a product failure and supplier warranties on parts delivered to the Company.
The following is a summary of product warranty and retrofit activity on a gross basis for the three months ended December 31, 20172022 and 20162021 (in thousands):
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Activity -Three Months Ended December 31, 2017 | |||||||||||||||||||||||
| | | | | | | | | | | | | | ||||||||||
Activity -Three Months Ended December 31, 2022 | Activity -Three Months Ended December 31, 2022 | ||||||||||||||||||||||
Balance | Balance |
|
|
|
|
|
|
| Balance | Balance | | | |
| | |
| | |
| Balance | ||
September 30, | September 30, |
|
|
|
|
|
|
| December 31, | September 30, | | | | | | | | | | | December 31, | ||
2017 |
| Accruals |
| Costs Incurred |
| 2017 | |||||||||||||||||
2022 | 2022 | | | Adjustments for Acquisitions | | Accruals | | Costs Incurred | | 2022 | |||||||||||||
$ | 8,054 |
| $ | 2,336 |
| $ | (2,172) |
| $ | 8,218 | 2,890 | | | 2,303 | | $ | 307 | | $ | (321) | | $ | 5,179 |
| | | | | | | | | | | | | | ||||||||||
Activity -Three Months Ended December 31, 2021 | Activity -Three Months Ended December 31, 2021 | ||||||||||||||||||||||
Balance | Balance | | | |
| | |
| | |
| Balance | |||||||||||
September 30, | September 30, | | | | | | | | | | | December 31, | |||||||||||
2021 | 2021 | | | Adjustments for Acquisitions | | Accruals | | Costs Incurred | | 2021 | |||||||||||||
$ | 2,330 | | | — | | $ | 673 | | $ | (660) | | $ | 2,342 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
Activity -Three Months Ended December 31, 2016 | ||||||||||
Balance |
|
|
|
|
|
|
| Balance | ||
September 30, |
|
|
|
|
|
|
| December 31, | ||
2016 |
| Accruals |
| Costs Incurred |
| 2016 | ||||
$ | 6,324 |
| $ | 2,507 |
| $ | (2,614) |
| $ | 6,217 |
19
11.10. Stock-Based Compensation
The Company may issue to eligible employees options to purchase shares of the Company’s stock, restricted stock units and restricted stock awards (collectively "restricted stock units") and stock optionsother equity incentives which vest upon the satisfaction of a performance condition and/or a service condition. In addition, the Company issues shares to participating employees pursuant to an employee stock purchase plan, and unrestricted stock awards and deferred restricted stock units to its directors in accordance with its director compensation program.
The stock-based compensation expense for restricted stock units for continuing operations was $1.9 million and $2.6 million, for the three months ended December 31, 2022 and 2021, respectively. The stock-based compensation expense for employee stock purchase plan for continuing operations was $0.3 million and $0.3 million, respectively, for the three months ended December 31, 2022 and 2021.
The information included within the remaining note is on a total company basis, and includes amounts related to our discontinued operations.
The following table reflects the total stock-based compensation expense recorded during the three months ended December 31, 20172022 and 20162021 (in thousands):
|
|
|
|
|
|
|
|
|
| Three Months Ended December 31, |
| ||||
|
| 2017 |
| 2016 |
| ||
Restricted stock |
| $ | 4,602 |
| $ | 2,365 |
|
Employee stock purchase plan |
|
| 207 |
|
| 133 |
|
Total stock-based compensation expense |
| $ | 4,809 |
| $ | 2,498 |
|
| | | | | | | |
| | Three Months Ended December 31, | | ||||
|
| 2022 |
| 2021 |
| ||
Restricted stock units | | $ | 1,759 | | $ | 7,197 | |
Employee stock purchase plan | |
| 346 | |
| 694 | |
Total stock-based compensation expense | | $ | 2,105 | | $ | 7,891 | |
The fair value of restricted stock units is determined based on the number of shares granted and the closing price of the Company’s common stock quoted on the Nasdaq Stock Market on the date of grant. TheFor awards that vest based on
23
service conditions, the Company recognizes stock-based compensation expense on a straight-line basis net of estimated forfeitures, over the requisite service period. Additionally,For awards that vest subject to performance conditions, the Company recognizes stock-based compensation expense ratably over the performance period if it is probable that performance condition will be met and adjusted for the probability percentage of achieving the performance goals. The Company makes estimates of stock award forfeitures and the number of awards expected to vest. The Company considers many factors in developing forfeiture estimates, including award types, employee classes and historical experience. Each quarter, the Company assesses the likelihoodprobability of achieving the performance goals against previously established performance targetsgoals. Current estimates may differ from actual results and future changes in accordance with the Company’s long-term equity incentive plan for stock-based awards that vest upon or after the satisfaction of these goals.
During the first quarter of fiscal year 2018, the Company adopted the Accounting Standard Update (“ASU”) 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” Upon adoption of ASU 2016-09, the Company made an accounting policy election to continue accounting for forfeitures by applying an estimated forfeiture rate. The adoption of ASU 2016-09 did not have an impact on the stock compensation expense amount recognized during the three months ended December 31, 2017 and accumulated deficit at December 31, 2017.estimates.
The Company grants restricted stock units that vest over a required service period and/or achievement of certain operating performance goals. Restricted stock units granted with performance goals may also have a required service period following the achievement of all or a portion of the performance goals. The following table reflects restricted stock units and stock awards, granted during the three months ended December 31, 20172022 and 2016:2021:
|
|
|
|
|
|
|
|
|
|
|
|
| Time-Based |
|
|
| Performance- |
|
| Total Units |
| Units |
| Stock Grants |
| Based Units |
Three months ended December 31, 2017 |
| 471,151 |
| 190,266 |
| 546 |
| 280,339 |
Three months ended December 31, 2016 |
| 951,266 |
| 362,113 |
| 815 |
| 588,338 |
| | | | | | | | |
|
| |
| Time-Based |
| Stock |
| Performance- |
| | Total Units | | Units | | Grants | | Based Units |
Three months ended December 31, 2022 |
| 485,880 |
| 225,139 |
| — |
| 260,741 |
Three months ended December 31, 2021 |
| 149,348 | | 59,776 |
| 24 |
| 89,548 |
Time-Based Restricted Stock Unit Grants
Restricted stock units granted with a required service period typically have three yearthree-year vesting schedules in which one-third of awards vest at the first anniversary of the grant date, one-third vest at the second anniversary of the grant date and one-third vest at the third anniversary of the grant date, subject to the award holders meeting service requirements.
Stock GrantsStock-Based Awards – Board of Directors
During the three months ended December 31, 2017 and 2016, the CompanyThe stock-based awards granted and issued 546 and 815 units, respectively, to the members of the Company’s Board of Directors which were related toinclude stock awards, restricted stock awards, deferred quarterly dividends. The valuestock and restricted stock units.
Certain members of the units granted was equalBoard of Directors have elected to the value of cashdefer receiving their annual stock awards and related quarterly dividends that would be paid on the number of deferred shares based on the closing price of the Company’s stock on the dividend record date. Such units vested upon their issuance, but receipt of the Company shares is deferred until the holdersthey attain a certain age or cease to provide services
20
to the Company as Board members. There were no annual awards of unrestricted sharesa member of the Company stock and compensation-relatedCompany’s Board of Directors. Annual deferred restricted stock units granted to the members of the Company's Board of Directors during the three months ended December 31, 2017fiscal years 2023 and 2016, respectively.2022 were vested upon issuance.
Performance-Based Restricted Stock Unit Grants
Performance-based restricted stock units are earned based on the achievement of performance criteria established by the Human Resources and Compensation Committee ofand approved by the Board of Directors. The criteria for performance-based awards are weighted and have threshold, target and maximum performance goals.
Performance-based awards granted in fiscal year 20172023, 2022 and 2021 allow participants to earn 100% of a targeted number ofthe restricted stock units if the Company’s performance meets or exceeds its target goal for each applicable financial metric, and up to a maximum of 200% of the restricted stock units target if the Company’s performance for such metrics meets or exceeds the maximum threshold.or stretch goal. Performance below the minimum threshold for each financial metric results in award forfeitures.forfeiture. Performance goals will be measured over a three yearthree-year period for each year’s awards and at the end of fiscal year 2020the period to determine the number of units earned by recipients who continue to meet athe service requirement. Units held by recipients who fail to meetAround the continued service requirement are forfeited. Earned units for recipients who continue to meet the service requirements vest on thethird anniversary of each year’s awards’ grant date, the Company’s Board of Directors determines the number of units earned which will be approximatelyfor participants who continue to meet the third anniversaryservice requirements on the vest date.
24
Table of the grant date.Contents
Performance-based awards granted in fiscal year 2016 also include provisions that allow participants to earn threshold, target and maximum awards ranging from 0% of the award for performance below the minimum threshold, 100% of the award for performance at target, and up to a maximum of 200% of the award if the Company achieves the maximum performance goals.
Restricted Stock Unit Activity
The following table summarizes restricted stock unit activity for the three months ended December 31, 2017:
|
|
|
|
|
|
|
|
|
| Weighted | |
|
|
|
| Average | |
|
|
|
| Grant-Date | |
|
| Shares |
| Fair Value | |
Outstanding at September 30, 2017 |
| 2,474,011 |
| $ | 12.34 |
Granted |
| 471,151 |
|
| 34.25 |
Vested |
| (586,352) |
|
| 12.42 |
Forfeited |
| (14,737) |
|
| 16.48 |
Outstanding at December 31, 2017 |
| 2,344,073 |
| $ | 16.75 |
2022:
| | | | | |
|
| |
| Weighted | |
| | | | Average | |
| | | | Grant-Date | |
| | Shares | | Fair Value | |
Outstanding at September 30, 2022 |
| 538,238 | | $ | 71.99 |
Granted |
| 485,880 | | | 59.57 |
Vested |
| (178,859) | | | 70.63 |
Forfeited |
| (40,056) | | | 80.35 |
Outstanding at December 31, 2022 |
| 805,203 | | | 68.95 |
The weighted average grant date fair value of restrictedrestricted stock units granted during the three months ended December 31, 20172022 and 20162021 was $34.25$59.57 and $13.93,$114.42, respectively. The fair value of restricted stock units vested during the three months ended December 31, 20172022 and 20162021 was $19.0$7.0 million and $11.3$64.8 million, respectively. During the three months ended December 31, 20172022 and 2016,2021, the Company remitted $6.3$4.6 million and $3.8$24.9 million, respectively, for withholding taxes on vested restricted stock units, of which $0.1$4.6 million and $0, respectively, was paid by the Company during the three months ended December 31, 2016. There were no taxes on vested restricted stock units paid by the Company during the three months ended December 31, 2017.Company. During the three months ended December 31, 2017 and 2016,2021, the Company received $6.3collected $24.9 million and $3.7 million, respectively, in cash proceeds from employees to satisfy their tax obligations as a result of share issuances.
As of December 31, 2017,2022, the unrecognized compensation cost related to restricted stock units that are expected to vest is $33.2$37.6 million and will be recognized over an estimated weighted average service period of approximately 1.92.2 years.
21
Employee Stock Purchase Plan
The Company maintains an Employee Stock Purchase Planemployee stock purchase plan that allows its employees to purchase shares of common stock at a price equal to 85% of the fair market value of the Company’s stock at the beginning or the end of the semi-annual offering period, whichever is lower. There were no shares purchased by employees or issued by the Company under the employee stock purchase plan during the three months ended December 31, 20172022 and 2016.2021.
11. Stockholders’ Equity
On November 4, 2022, the Company’s Board of Directors terminated the Company’s $50 million share repurchase program and authorized a new program to repurchase up to $1.5 billion of shares of the Company’s common stock from time to time through open market or through privately negotiated transactions (including under an accelerated share repurchase, referred to as an ASR, agreement), or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, subject to market and business conditions, legal requirements, and other factors. The program can be discontinued at any time.
On November 4, 2022, the Company executed an Accelerated Share Repurchase Agreement (the “ASR Agreement”) with JPMorgan Chase Bank, National Association (the “Dealer”) to repurchase an aggregate of up to $500.0 million of the Company’s common stock. Under the terms of the ASR Agreement, the Company made a payment of $500.0 million to the Dealer on November 28, 2022 and received an initial delivery of approximately 6.1 million shares of common stock from the Dealer, representing approximately 70% of the total shares of common stock expected to be repurchased under the ASR Agreement. The final number of shares to be repurchased by the Company will be based on the average of the daily volume-weighted average price of the Company’s common stock during the term of the ASR Agreement, less a discount and subject to adjustments pursuant to the terms and conditions of the ASR Agreement. At settlement, the Dealer may be required to deliver additional shares of common stock to the Company, or under certain circumstances, the Company may be required to deliver shares of common stock or to make a cash payment, at its election, to the Dealer. The final settlement of the transactions under the ASR Agreement is scheduled to occur by the end of the Company’s third fiscal quarter ended June 30, 2023, subject to earlier termination under certain limited circumstances, as set forth in the ASR Agreement. The Company evaluated the nature of the forward contract
25
aspect of the ASR Agreement under ASC 815, Derivatives and Hedging, and concluded equity classification was appropriate. The shares of common stock repurchased by the Company on November 28, 2022 were retired, accounted for as a reduction to stockholders’ equity in the Company’s Consolidated Balance Sheets and treated as a repurchase of common stock for purposes of calculating earnings per share.
As of December 31, 2022, after giving effect to the ASR Agreement, approximately $1.0 billion of the amount authorized under the new repurchase program remained available for additional repurchases of the Company’s common stock.
12. Earnings per Share
The calculations of basic and diluted net income (loss) per share and basic and diluted weighted average shares outstanding are as follows for the three months ended December 31, 20172022 and 20162021 (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| ||||
|
| December 31, |
| ||||
|
| 2017 |
| 2016 |
| ||
Net income |
| $ | 16,486 |
| $ | 13,871 |
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding used in computing basic earnings per share |
|
| 70,183 |
|
| 69,181 |
|
Dilutive common stock options and restricted stock units |
|
| 681 |
|
| 689 |
|
Weighted average common shares outstanding used in computing diluted earnings per share |
|
| 70,864 |
|
| 69,870 |
|
|
|
|
|
|
|
|
|
Basic net income per share |
| $ | 0.23 |
| $ | 0.20 |
|
Diluted net income per share |
| $ | 0.23 |
| $ | 0.20 |
|
| | | | | | | |
| | Three Months Ended | | ||||
| | December 31, | | ||||
|
| 2022 |
| 2021 |
| ||
Income (loss) from continuing operations | | $ | (11,235) | | $ | 2,858 | |
Income (loss) from discontinued operations, net of tax | |
| — | |
| 40,462 | |
Net income | | $ | (11,235) | | $ | 43,320 | |
| | | | | | | |
Weighted average common shares outstanding used in computing basic income (loss) per share | |
| 72,543 | |
| 74,630 | |
Dilutive restricted stock units | |
| — | |
| 236 | |
Weighted average common shares outstanding used in computing diluted income (loss) per share | |
| 72,543 | |
| 74,866 | |
| | | | | | | |
Basic net income (loss) per share: | |
|
| |
|
| |
Income / (loss) from continuing operations | | $ | (0.15) | | $ | 0.04 | |
Income from discontinued operations, net of tax | |
| — | |
| 0.54 | |
Basic net income (loss) per share | | $ | (0.15) | | $ | 0.58 | |
| | | | | | | |
Diluted net income (loss) per share: | |
|
| |
|
| |
Income (loss) from continuing operations | | $ | (0.15) | | $ | 0.04 | |
Income from discontinued operations, net of tax | |
| — | |
| 0.54 | |
Diluted net income (loss) per share | | $ | (0.15) | | $ | 0.58 | |
| | | | | | | |
During the three months ended December 31, 2017, 190,000 antidilutive2022, restricted stock units of 64,122 were excluded from the computation of diluted loss per share as their effect would be antidilutive to earnings per share for continuing operations based on the treasury stock method. There
26
13. Revenue from Contracts with Customers
Disaggregated Revenue
The Company disaggregates revenue from contracts with customers in a manner that depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The following is revenue by significant business line for the three months ended December 31, 2022 and 2021(in thousands):
| | | | | | | |
| | | Three months ended December 31, | ||||
| | | 2022 | | 2021 | ||
Significant Business Line | | | | | | | |
Life Sciences Products, excluding B Medical | | | $ | 47,839 | | $ | 49,877 |
B Medical | | | | 41,822 | | | - |
Sample Repository Solutions | | | | 27,616 | | | 25,871 |
Genomic Services | | | | 61,089 | | | 63,904 |
| | | | | | | |
Total | | | $ | 178,366 | | $ | 139,652 |
Contract Balances
Accounts Receivable, Net. Accounts receivable represent rights to consideration in exchange for products or services that have been transferred by the Company, when payment is unconditional and only the passage of time is required before payment is due. Accounts receivable do not bear interest and are recorded at the invoiced amount. The Company maintains an allowance for expected credit losses representing its best estimate of probable credit losses related to its existing accounts receivable and their net realizable value. The Company determines the allowance for expected credit losses based on a number of factors, including an evaluation of customer credit worthiness, the age of the outstanding receivables, economic trends, historical experience and other information through the payment periods. Accounts receivable, net were no such awards$201.9 million and $163.8 million at December 31, 2022 and September 30, 2022, respectively.
Contract Assets. Contract assets represent rights to consideration in exchange for products or services that have been transferred by the Company, when payment is conditional on something other than the passage of time. These amounts typically relate to contracts where the right to invoice the customer is not present until completion of the contract or the achievement of specified milestones and the value of the products or services transferred exceed this constraint. Contract assets are classified as current as they convert to cash within one year. Contract asset balances which are included within “Prepaid expenses and other current assets” on the Company’s Consolidated Balance Sheet, were $19.6 million and $18.2 million at December 31, 2022 and September 30, 2022, respectively.
Contract Liabilities. Contract liabilities represent the Company’s obligation to transfer products or services to a customer for which consideration has been received, or for which an amount of consideration is due from the customer. Contract assets and liabilities are reported on a net basis at the contract level, depending on the contracts position at the end of each reporting period. Contract liabilities are included within “Deferred revenue” on the Company’s Consolidated Balance Sheet. Contract liabilities were $42.6 million and $39.7 million at December 31, 2022 and September 30, 2022, respectively. The Company recognized $11.1 million and $13.8 million in revenue during the three months ended December 31, 2016.2022 and December 31, 2021 from contract liability.
13. Restructuring Charges
There were no restructuring charges recorded byRemaining Performance Obligations. Remaining performance obligations represent the transaction price of unsatisfied or partially satisfied performance obligations within contracts with an original expected contract term that is greater than one year and for which fulfillment of the contract has started as of the end of the reporting period. The aggregate amount of transaction consideration allocated to remaining performance obligations as of December 31, 2022 was $89.8 million. The following table summarizes when the Company expects to recognize the remaining performance
27
obligations as revenue; the Company will recognize revenue associated with these performance obligations as transfer of control occurs (in thousands):
| | | | | | | | | |
| | As of December 31, 2022 | |||||||
| | Less than 1 Year | | Greater than 1 Year | | Total | |||
Remaining Performance Obligations | | $ | 53,018 | | $ | 36,749 | | $ | 89,767 |
| | | | | | | | | |
Cost to Obtain and Fulfill a Contract
The Company capitalizes sales commissions when incurred if they are (i) incremental costs of obtaining a contract, (ii) expected to be recovered and (iii) have an expected amortization period that is greater than one year. As part of the Company’s cumulative effect adjustment upon the initial adoption of ASC 606, incremental costs associated with obtaining a contract were capitalized and have been classified as deferred commissions within the Company’s Consolidated Balance Sheet. These amounts primarily relate to sales commissions and are being amortized over a 60-month period, which represents the average period of contract performance. The Company did not capitalize any sales commissions during the three months ended December 31, 2017. During2022 and 2021 as the three months ended December 31, 2016,amount of sales commissions that qualified for capitalization during the reporting period was insignificant. Sales commissions incurred during the reporting period have been expensed as incurred. These costs are recorded within “Selling, general and administrative” expenses on the Company’s Consolidated Statement of Operations. The Company recorded restructuring chargeshas concluded that none of $1.0 million related to severance. Such charges were comprised of: (i) $0.7 millionits costs incurred in fulfillment of costs relatedcustomer contracts meet the capitalization criteria. The Company will account for shipping and handling activities as fulfillment activities and recognize the associated expense when control of the product has transferred to the Company-wide restructuring action, (ii) $0.2 million of costs attributable to the Brooks Semiconductor Solutions Group segment related to the integration of Contact Co., Ltd. after its acquisition by the Company, and (iii) $0.1 million of costs attributable to the Brooks Life Sciences segment related to streamlining the segment's management structure, integrating acquisitions and improving profitability.customer.
The following is a summary of activity related to the Company’s restructuring charges for the three months ended December 31, 2017 and 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Activity -Three Months Ended December 31, 2017 | ||||||||||
|
| Balance |
|
|
|
|
|
|
| Balance | ||
|
| September 30, |
|
|
|
|
|
|
| December 31, | ||
|
| 2017 |
| Expenses |
| Payments |
| 2017 | ||||
Total restructuring liabilities related to workforce termination benefits |
| $ | 1,708 |
| $ | — |
| $ | (581) |
| $ | 1,127 |
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Activity -Three Months Ended December 31, 2016 | ||||||||||
|
| Balance |
|
|
|
|
|
|
| Balance | ||
|
| September 30, |
|
|
|
|
|
|
| December 31, | ||
|
| 2016 |
| Expenses |
| Payments |
| 2016 | ||||
Total restructuring liabilities related to workforce termination benefits |
| $ | 5,939 |
| $ | 975 |
| $ | (3,687) |
| $ | 3,227 |
As of December 31, 2017, accrued restructuring costs of $1.1 million were primarily attributable to the restructuring actions within the Brooks Semiconductor Solutions Group segment and comprised primarily of $0.8 million related to the consolidation of the Jena, Germany repair facility and $0.2 million related to streamlining field service operations. Accrued restructuring costs are expected to be paid within the next twelve months. Please refer to Note 15, “Restructuring and Other Charges” to the Company’s consolidated financial statements included in the 2017 Annual Report on Form 10-K for further information on the restructuring actions discussed above.
14. Segment and Geographic Information
Operating segments are defined as components of an enterprise that engage in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and to assess performance. The Company’s Chief Executive Officer is the Company’s chief operating decision maker.
The Company reports its financial results foroperates in two operatingreportable segments: the Life Sciences Products segment and the Life Sciences Services segment. These reportable segments which consist of Brooksalso represent the Company’s operating segments. The Company previously operated in three reportable segments: the Semiconductor Solutions Group segment, and Brooksthe Life Sciences Products segment, and the Life Sciences Services segment. Please refer
The Company’s Life Sciences Products segment provides automated cold storage solutions for biological and chemical compound samples. The Company’s storage systems provide reliable automation and sample inventory management at temperatures down to Note 18, "Segment-190°C and Geographic Information"can store anywhere from one to millions of samples. The Company’s sample management solutions include consumable vials and tubes, polymerase chain reaction, or PCR, plates, instruments for supporting workflows, and informatics. This portfolio provides customers with the Company’s consolidated financial statements includedhighest level of sample quality, security, availability, intelligence, and integrity throughout the lifecycle of samples providing customers with complete end-to-end “cold-chain of custody” capabilities. The Company also provides controlled rate thawing devices for customers in the 2017 Annual Reportmedical, biotech and pharmaceutical industries. On October 3, 2022, the Company acquired B Medical Systems S.a.r.l, a market leader in temperature-controlled storage and transportation solutions that enables the delivery of life-saving treatments to people in more than 150 countries worldwide.
The Company’s Life Sciences Services business is a leading provider of solutions addressing the many needs of customers in the area of genomic analysis and the management and care of biological samples used in pharmaceutical, biotech, healthcare, clinical, and academic research and development markets. The Company’s processes millions of samples every year, each containing valuable information that must be preserved with the sample. The Company’s genomic services provide a broad capability to customers for sequencing and synthesis of genes. The Company’s sample management services include off-site storage services, transport services, laboratory services, and interactive informatics solutions. The Company also provides expert-level consultation services to our clients throughout their experimental
28
design and implementation. The Company’s services also include short- and long-term sample storage and management of the “cold chain of custody” from collection, to storage, to retrieving the sample which ultimately may go back into the research workflow.
The Company considers adjusted operating income, which excludes charges related to amortization of completed technology, the acquisition accounting impact on Form 10‑K for further information oninventory contracts acquired, restructuring related charges and other special charges, such as impairment losses, as the operating segments’ description and accounting policies.primary performance metric when evaluating the business.
The following is the summary of the financial information for the Company’s operating and reportable segments for the three months ended December 31, 20172022 and 20162021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
| Brooks |
|
|
|
|
| ||
|
| Semiconductor |
| Brooks |
|
|
| ||
|
| Solutions Group |
| Life Sciences |
| Total | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2017: |
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
Products |
| $ | 120,203 |
| $ | 21,981 |
| $ | 142,184 |
Services |
|
| 21,683 |
|
| 25,461 |
|
| 47,144 |
Segment revenue |
| $ | 141,886 |
| $ | 47,442 |
| $ | 189,328 |
Gross profit |
| $ | 59,453 |
| $ | 15,762 |
| $ | 75,215 |
Segment operating income (loss) |
|
| 26,362 |
|
| (140) |
|
| 26,222 |
Depreciation expense |
|
| 1,149 |
|
| 1,549 |
|
| 2,698 |
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2016: |
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
Products |
| $ | 109,395 |
| $ | 12,719 |
| $ | 122,114 |
Services |
|
| 17,221 |
|
| 20,620 |
|
| 37,841 |
Segment revenue |
| $ | 126,616 |
| $ | 33,339 |
| $ | 159,955 |
Gross profit |
| $ | 45,468 |
| $ | 11,475 |
| $ | 56,943 |
Segment operating income (loss) |
|
| 17,371 |
|
| 112 |
|
| 17,483 |
Depreciation expense |
|
| 1,275 |
|
| 1,090 |
|
| 2,365 |
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
December 31, 2017 |
| $ | 340,367 |
| $ | 382,884 |
| $ | 723,251 |
September 30, 2017 |
|
| 325,408 |
|
| 306,666 |
|
| 632,074 |
| | | | | | | |
| | | Three Months Ended December 31, | ||||
| | | 2022 | | 2021 | ||
Revenue: |
| | | | | |
|
Life Sciences Products | | | $ | 89,661 | | $ | 49,877 |
Life Sciences Services | | |
| 88,706 | |
| 89,775 |
Total revenue | | | $ | 178,366 | | $ | 139,652 |
| | | | | | | |
Operating income / (loss): | | |
| | |
| |
Life Sciences Products | | | $ | (3,798) | | $ | 4,388 |
Life Sciences Services | | |
| (4,612) | |
| 7,883 |
Reportable segment adjusted operating income | | | | (8,410) | | | 12,271 |
Amortization of completed technology | | | | 4,168 | | | 1,773 |
Purchase accounting impact on inventory | | | | 2,869 | | | — |
Amortization of other intangible assets | | | | 7,372 | | | 6,272 |
Restructuring charges | | | | 1,461 | | | 173 |
Other unallocated corporate expenses | | | | 3,405 | | | 4,378 |
Total operating loss | | | | (27,685) | | | (325) |
Interest income | | | | 10,708 | | | 35 |
Interest expense | | | | (43) | | | (455) |
Other income (expense) | | | | 1,145 | | | (1,077) |
Loss before income taxes | | | $ | (15,875) | | $ | (1,822) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Assets: | | | | Life Sciences Products | | | Life Sciences Services |
December 31, 2022 | | | $ | 886,409 | | $ | 887,310 |
September 30, 2022 | | |
| 378,790 | | | 849,603 |
23
The following is a reconciliation of the Company’s operating and reportable segments’ operating income and segment assets to the corresponding amounts presented in the accompanying unaudited Consolidated Balance Sheets as of December 31, 2022 and Consolidated StatementsSeptember 30, 2022 (in thousands):
| | | | | | |
|
| December 31, |
| September 30, | ||
| | 2022 | | 2022 | ||
Segment assets |
| $ | 1,773,719 |
| $ | 1,228,393 |
Cash and cash equivalents, restricted cash, and marketable securities | |
| 1,443,424 | |
| 2,305,081 |
Deferred tax assets | |
| 298 | |
| 1,169 |
Other assets | | | 74,975 | | | 181,479 |
Total assets | | $ | 3,292,416 | | $ | 3,716,122 |
29
Revenue from external customers is attributed to geographic areas based on locations in which customer orders are placed. Net revenue by geographic area for the three months ended December 31, 20172022 and 20162021 (in thousands):
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| ||||
|
| December 31, |
| ||||
|
| 2017 |
| 2016 |
| ||
Segment operating income |
| $ | 26,222 |
| $ | 17,483 |
|
Amortization of acquired intangible assets |
|
| 4,589 |
|
| 3,064 |
|
Restructuring charges |
|
| — |
|
| 975 |
|
|
| 793 |
|
| 283 |
| |
Total operating income |
| $ | 20,840 |
| $ | 13,161 |
|
|
|
|
|
|
|
|
|
| December 31, |
| September 30, | ||
|
| 2017 |
| 2017 | ||
Segment assets |
| $ | 723,251 |
| $ | 632,074 |
Cash, cash equivalents and marketable securities |
|
| 231,882 |
|
| 104,292 |
Deferred tax assets |
|
| 1,642 |
|
| 1,692 |
Equity method investments |
|
| 30,902 |
|
| 28,570 |
Total assets |
| $ | 987,677 |
| $ | 766,628 |
are as follows:
15. Significant Customers
| | | | | | | | |
| | | Three Months Ended December 31, | | | |||
|
| 2022 | | 2021 | | | ||
Geographic Location: | | | | | | | | |
North America | | $ | 88,935 | | $ | 90,083 | | |
Rest of Europe | | | 39,422 | | | 19,700 | | |
Africa | | | 17,210 | | | 548 | | |
China | | | 13,408 | | | 13,041 | | |
Asia Pacific/ Other | | | 13,978 | | | 7,968 | | |
United Kingdom | | | 5,413 | | | 8,312 | | |
Total | | $ | 178,366 | | $ | 139,652 | | |
The Company had one customer within
Revenue for the Brooks Semiconductor Solutions Group segment that accountedUnited States comprises 99% of the revenue for 10% or more of its consolidated revenue, at 11%, during each ofNorth America for the three months ended December 31, 20172022 and 2016. As2021.
15. Significant Customers
The Company had one individual customer that accounted for 20% of the Company’s consolidated revenue for the three months ended December 31, 2022. This individual customer is a distributor shipping to end users in 17 countries. This customer also accounted for 12% of the Company’s accounts receivable balance as of December 31, 2017 and September 30, 2017, the2022. The Company had no customersindividual customer that accounted for 10% or more of the Company’s total receivables.
For purposes of determining the percentage ofconsolidated revenue generated from any of the Company’s original equipment manufacturer (the "OEM") customers, the Company does not include revenue from products sold to contract manufacturer customers who in turn sell to the OEMs. If the Company included revenue from products sold to contract manufacturer customers supporting the Company’s OEM customers, the percentage of the Company’s total revenue derived from certain OEM customers would be higher.
16. Commitments and Contingencies
Letters of Credit
At each of December 31, 2017 and September 30, 2017, the Company had approximately $3.5 million of letters of credit outstanding related primarily to customer advances and other performance obligations. These arrangements guarantee the refund of advance payments received from our customers in the event that the product is not delivered or warranty obligations are not fulfilled in accordance with the contract terms. These obligations could be called by the beneficiaries at any time before the expiration date of the particular letter of credit if the Company fails to meet certain contractual requirements. None of these obligations were called duringfor the three months ended December 31, 20172021. There were no customers that accounted for more than 10% of the Company’s accounts receivable balance as of September 30, 2022.
16. Commitments and theContingencies
Tariff Matter
In fiscal year ended September 30, 2017, and2021, as part of the Company’s continued integration of GENEWIZ, which was acquired in November 2018, the Company currentlyinitiated a review during the first quarter of fiscal year 2021, with the assistance of a third party consultant, of the transaction value that the Company has used to calculate tariffs on inter-company imports of samples shipped from its GENEWIZ business. As a result of the third-party review and in light of a new interpretation surrounding the valuation method used to calculate the estimated transaction value, the Company revised its estimate of the tariffs owed as a result and recorded a liability of $6.1 million in the second quarter of fiscal 2021. The Company submitted a payment in the amount of $5.9 million to the customs authorities during 2022, related to November 2021 and prior periods. The customs authorities will review the Company’s calculation of tariffs for these periods and determine if any further tariffs are owed. The Company does not anticipateexpect to incur any of these obligations to be called insignificant penalties associated with the near future.tariffs.
Purchase Commitments
TheAt December 31, 2022, the Company hashad non-cancellable contracts andcommitments of $65.4 million, comprised of purchase orders for inventory of $128.6$38.7 million and $122.0 million, respectively, at December 31, 2017 and September 30, 2017.information technology related commitments of $26.7 million.
Contingencies
The Company is subject to various legal proceedings, both asserted and unasserted, that arise in the ordinary course of business. The Company cannot predict the ultimate outcome of such legal proceedings or in certain instances provide
24
reasonable ranges of potential losses. The Company may also have certain indemnification obligations pursuant to claims made under the definitive agreement it entered into with Edwards Vacuum LLC (a member of the Atlas Copco Group) in connection with the Company’s sale of its semiconductor cryogenics business in the fourth quarter of fiscal
30
year 2018. However, as of the date of this report, the Company believes that none of these claims will have a material adverse effect on its consolidated financial position or results of operations. In the third quarter of fiscal year 2020, Edwards asserted claims for indemnification under the definitive agreement relating to alleged breaches of representations and warranties relating to customer warranty claims and inventory .In addition, in January 2023, Edwards filed a lawsuit against the Company in the Supreme Court of the State of New York in the County of New York seeking indemnification from the Company under such definitive agreement with respect to a third-party warranty claim, that was included as part of their initial claims, of approximately $1.0 million and other related damages, including interest and attorney’s fees.The Company cannot determine the probability of any losses or outcome of these claims including the amount of any indemnifiable losses, if any, resulting from these claims at this time, however, the Company believes that none of these claims will have a material adverse effect on its consolidated financial position or results of operations. If the resolution of these claims results in indemnifiable losses in excess of the applicable indemnification deductibles and indemnification escrow established under the definitive agreement, Edwards would be required to seek recovery under the representation and warranty insurance Edwards obtained in connection with the closing of the transaction. The Company believes that any indemnifiable losses in excess of the applicable deductibles and indemnification escrow established in the definitive agreement would be covered by such insurance. If Edwards is unable to obtain recovery under its insurance, however, it could seek recovery of such indemnifiable losses, if any, directly from the Company. In the event of unexpected subsequent developments and given the inherent unpredictability of these legal proceedings,matters, there can be no assurance that the Company’s assessment of any claim will reflect the ultimate outcome, and an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company’s consolidated financial position or results of operations in particular quarterly or annual periods.
17. Subsequent EventsFair Value Measurement
DividendThe fair value measurement guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following levels of inputs may be used to measure fair value:
On January 31, 2018, the Company’s Board of Directors declared a cash dividend of $0.10 per share payable on March 23, 2018 to common stockholders of record
Level 1 Inputs: Quoted prices in active markets for identical assets or liabilities as of Marchthe reporting date. Active markets are those in which transactions for the asset and liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 2018. DividendsInputs: Observable inputs other than prices included in Level 1, including quoted prices for similar assets or liabilities; quoted prices in markets that are declared atnot active; or other inputs that are observable or can be corroborated by observable market data for substantially the discretionfull term of the Company’s Boardassets or liabilities.
Level 3 Inputs: Unobservable inputs that are significant to the fair value of Directorsthe assets or liabilities and depend onreflect an entity’s own assumptions in pricing assets or liabilities since they are supported by little or no market activity.
The Company measures certain assets, including the Company’s actual cash flows from operations, its financial conditioncost and capital requirements and any other factors the Company’s Board of Directors may consider relevant. Future dividend declarations, as well as the record and payment dates for such dividends, will be determined by the Company’s Board of Directorsequity method investments, at fair value on a quarterly basis.nonrecurring basis when they are deemed to be other-than-temporarily impaired. The fair values of these investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections. An impairment charge is recorded when the cost of the investment exceeds its fair value and this condition is determined to be other-than-temporary.
2531
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables summarize assets and liabilities measured and recorded at fair value on a recurring basis in the accompanying Consolidated Balance Sheets as of December 31, 2022 and September 30, 2022 (in thousands):
| | | | | | | | | | | | |
| | | | | Fair Value Measurements at Reporting Date Using | |||||||
|
| | |
| Quoted Prices in |
| | |
| Significant | ||
| | | | | Active Markets for | | Significant Other | | Unobservable | |||
| | December 31, | | Identical Assets | | Observable Inputs | | Inputs | ||||
Description | | 2022 | | (Level 1) | | (Level 2) | | (Level 3) | ||||
Assets: |
| |
|
| |
|
| |
|
| |
|
Cash equivalents | | $ | 443,240 | | $ | 443,240 | | $ | — | | $ | — |
Available-for-sale securities | |
| 827,572 | |
| 284,015 | | | 543,557 | |
| — |
Foreign exchange contracts | |
| 146 | |
| — | |
| 146 | |
| — |
Net investment hedge | |
| 47,953 | |
| — | |
| 47,953 | |
| — |
Total assets | | $ | 1,318,911 | | $ | 727,255 | | $ | 591,656 | | $ | — |
Liabilities: | |
|
| |
|
| |
|
| |
|
|
Contingent consideration liability | | $ | 18,462 | | $ | — | | $ | — | | $ | 18,462 |
Foreign exchange contracts | | | 276 | | | — | | | 276 | | | — |
Total liabilities | | $ | 18,738 | | $ | — | | $ | 276 | | $ | 18,462 |
| | | | | | | | | | | | |
| | | | | Fair Value Measurements at Reporting Date Using | |||||||
|
| | |
| Quoted Prices in |
| | |
| Significant | ||
| | | | | Active Markets for | | Significant Other | | Unobservable | |||
| | September 30, | | Identical Assets | | Observable Inputs | | Inputs | ||||
Description | | 2022 | | (Level 1) | | (Level 2) | | (Level 3) | ||||
Assets: |
| |
|
| |
|
| |
|
| |
|
Cash equivalents | | $ | 374,804 | | $ | 374,055 | | $ | 749 | | $ | — |
Available-for-sale securities | |
| 1,263,782 | |
| 651,800 | |
| 611,982 | |
| — |
Foreign exchange contracts | |
| 634 | |
| — | |
| 634 | |
| — |
Net investment hedge | | | 124,789 | | | — | | | 124,789 | | | — |
Total assets | | $ | 1,764,009 | | $ | 1,025,855 | | $ | 738,154 | | $ | — |
Liabilities: | |
|
| |
|
| |
|
| |
|
|
Foreign exchange contracts | | | 230 | | $ | — | | | 230 | | | — |
Total liabilities | | $ | 230 | | $ | — | | $ | 230 | | $ | — |
Cash Equivalents
Cash equivalents consist of money market funds and are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets. The Company considers all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. The fair values of these investments approximate their carrying values.
Available-For-Sale Securities
Available-for-sale securities primarily consist of municipal securities, bank certificate of deposits and U.S. government-backed securities, and as such are classified as Level 1. Investments classified as Level 2 consist of debt securities that are valued using matrix pricing and benchmarking because they are not actively traded. Matrix pricing is a mathematical technique used to value securities by relying on the securities’ relationship to other benchmark quoted prices.
32
Foreign Exchange Contracts
Foreign exchange contract assets and liabilities are measured and reported at fair value based on observable market inputs and classified within Level 2 of the fair value hierarchy due to a lack of an active market for these contracts.
Net Investment Hedge
Net investment hedge assets are measured and reported at fair value based on observable market inputs and classified within Level 2 of the fair value hierarchy due to a lack of an active market for these contracts.
Acquisition-related Contingent Consideration
Acquisition-related contingent consideration is measured and reported at fair value using the real options method based on the unobservable inputs that are significant to the fair value and classified with Level 3 of the fair value hierarchy. The amount is contingent based on the acquired business’ performance for a one-year period from October 3, 2022 through September 30, 2023. Please refer to Note 5, “Business Combinations” for further detail. Changes in the fair value of contingent consideration resulting from a change in the underlying inputs are recognized in results of operations until the arrangement is settled. There were no changes to the fair value of contingent consideration for the period ended December 31, 2022.
Financial Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
During the three months ended December 31, 2022 and 2021, the Company did not record any material other-than-temporary impairments on financial assets required to be measured at fair value on a nonrecurring basis.
18. Subsequent Event
On February 2, 2023, the Company acquired Ziath Ltd and its subsidiaries (‘Ziath’). Based in Cambridge, United Kingdom, Ziath is a leading provider of 2D barcode readers for life sciences applications. Founded in 2005, Ziath’s innovative 2D barcode readers are a key component of the laboratory automation workflow serving pharmaceutical, biotech and academic customers worldwide. The acquisition was completed for a purchase price of $16 million, subject to working capital and other customary adjustments.
33
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, describes principal factors affecting the results of our operations, financial condition and liquidity as well as our critical accounting policies and estimates that require significant judgment and thus have the most significant potential impact on our unaudited consolidated financial statements included elsewhere in this QuartelyQuarterly Report on Form 10-Q. Our MD&A is organized as follows:
| Overview. This section provides a general description of our business and operating segments as well as a brief discussion and overall analysis of our business and financial performance, including key developments affecting the Company during the three months ended December 31, |
| Critical Accounting Policies and Estimates. This section discusses accounting policies and estimates that require us to exercise subjective or complex judgments in their application. We believe these accounting policies and estimates are important to understanding the assumptions and judgments incorporated in our reported financial results. |
| Results of Operations. This section provides an analysis of our financial results for the three months ended December 31, |
| Liquidity and Capital Resources. This section provides an analysis of our liquidity and changes in cash flows as well as a discussion of |
You should read the MD&A in conjunction with our unaudited consolidated financial statements and related notes beginning on page 3 ofincluded elsewhere in this Quarterly Report on Form 10-Q.10-Q and the consolidated financial statements and notes thereto and the related MD&A contained in our Annual Report on Form 10-K for the year ended September 30, 2022, filed with the U.S. Securities and Exchange Commission, or the SEC, on November 25, 2022, or the 2022 Annual Report on Form 10-K. In addition to historical information, the MD&A contains forward-looking statements that involve risks and uncertainties. You should read “Information Related to Forward-Looking Statements” included below for a discussion of important factors that could cause our actual results to differ materially from our expectations.
Impact of the COVID-19 Pandemic
We have implemented business continuity plans designed to address the COVID-19 pandemic and minimize the disruption to ongoing operations. The COVID-19 pandemic has had varying impacts on our financial results. In the first two years of the pandemic, any marginal adverse impact was more than offset by incremental orders related to virus research, COVID testing and vaccine development and commercialization in 2021 and through the first half of 2022. There has been limited COVID-related demand after the second fiscal quarter of 2022, and therefore, our revenue trends since then have been negatively impacted when compared to prior periods. During the third quarter ended June 30, 2022, we experienced a two-week facility closure in Suzhou, China. as a result of local government protocols and mandates. We will continue monitoring and assessing the effects of the COVID-19 pandemic on our business, including as a result of the elimination of COVID-related restrictions in China. Our financial results will also depend on variables including reduced demand from our customers, the degree that the supply chain may be constrained which could impact our delivery of products and services and the potential negative impact on our operations if there is an outbreak among our employees, as well as the amount of incremental demand caused by research and treatments in the areas of COVID-19 or related threats.
Information Related to Forward-Looking Statements
This Quarterly Report on Form 10‑Q10-Q contains statements that are, or may be considered to be, forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995, as amended, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.amended, or the Exchange Act. All statements that are not historical facts, including statements about our beliefs or expectations, are forward-looking statements. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “likely” or similar statements or variations of such terms. Forward-looking statements include, but are not limited to, statements that relate to our
34
future revenue, margins, costs, earnings, profitability, product development, demand, acceptance and market share, competitiveness, market opportunities and performance, levels of research and development, the success of our marketing, sales and service efforts, outsourced activities, operating expenses, anticipated manufacturing, customer and technical requirements, the ongoing viability of the solutions that we offer and our customers’ success, tax expenses, our management’s plans and objectives for our current and future operations and business focus, our recently announced share repurchase program, our ability to retain, hire and integrate skilled personnel, the impact of the COVID-19 pandemic on our operations and results, our ability to identify and address increased cybersecurity risks, including as a result of employees working remotely, the anticipated growth prospects of our business, the expected benefits and other statements relating to our divestitures and acquisitions, including sale of the semiconductor automation business and the semiconductor cryogenics business, the adequacy, effectiveness and success of our business transformation initiatives, our ability to continue to identify acquisition targets and successfully acquire and integrate desirable products and services and realize expected revenues and revenue synergies, our adoption of the newly issued accounting guidance, the levels of customer spending, our dependence on key suppliers or vendors to obtain services for our business on acceptable terms, including the impact of supply chain disruptions, general economic conditions, the sufficiency of financial resources to support future operations, and capital expenditures and future acquisitions, divestitures and other strategic transactions.expenditures. Such statements are based on current expectations and involve risks, uncertainties and other factors which may cause the actual results, our performance or our achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include the Risk Factors which are set forth in ourthe 2022 Annual Report on Form 10‑K for10-K, as updated and/or supplemented in subsequent filings with the fiscal year ended September 30, 2017 and which are incorporated herein by reference.SEC, including under Item 1A “Risk Factors” in Part II of our Quarterly Report on Form 10-Q. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are based on information currently and reasonably known to us. We do not undertake any obligation to release revisions to these forward-looking statements which may be made to reflect events or circumstances that occur after the date of this Quarterly Report on Form 10‑Q10-Q or to reflect the occurrence or effect of
26
anticipated or unanticipated events. Precautionary statements made herein should be read as being applicable to all related forward-looking statements wherever they appear in this Quarterly Report on Form 10‑Q.10-Q. Any additional precautionary statements made in our 20172022 Annual Report on Form 10‑K10-K should be read as being applicable to all related forward-looking statements whenever they appear in this Quarterly Report on Form 10‑Q.10-Q.
Unless the context indicates otherwise, references in this Quarterly Report on Form 10‑Q10-Q to "we"“we”, "us"“us”, "our"“our” and "the Company"“the Company” refer to Brooks Automation,Azenta, Inc. and its consolidated subsidiaries.
OVERVIEW
We are a leading global provider of automationlife sciences sample exploration and cryogenicmanagement solutions for multiple applications and markets.the life sciences market. We primarily serveentered the semiconductor capital equipmentlife sciences market and sample management market for life sciences. Our leadership position and global support structure in each2011, leveraging our in-house capabilities of these markets makes us a valued business partner to the some of the world’s largest semiconductor capital equipment and device makers, as well as pharmaceutical and life science research institutions in the world. Our offerings are also applied to industrial capital equipment and other adjacent technology markets.
In the semiconductor capital equipment market, equipment productivity and availability are critical factors for our customers who typically operate equipment under demanding temperature and/or pressure environments. Ourprecision automation and cryogenics capabilities are demonstrated in our various robotic automation and cryogenic vacuum pump offerings, both of which are used by semiconductor manufacturersthat we were then applying in the processingsemiconductor market. These led us to provide solutions for automated ultra-cold storage. Since then, we have expanded our life sciences offerings through internal development investments and through a series of silicon wafers into integrated circuits. Althoughacquisitions. We now support our customers from research to clinical development with our sample management, automated storage, and genomic services expertise to help our customers bring impactful therapies to market faster. We understand the demand for semiconductorsimportance of sample integrity and semiconductor manufacturing equipment is cyclical, resulting in periodic expansionsoffer a broad portfolio of products and contractionsservices supporting customers at every stage of this market, we expect the semiconductor equipment market to remain onelife cycle of our principal markets as we continue making investments to maintainsamples including procurement and grow our semiconductor productsourcing, automated storage systems, genomic services and service offerings. We invest in researcha multitude of sample consumables, informatics and development initiatives within the Brooks Semiconductor Solutions Group segment to maintain continueddata software, and sample repository solutions. Our expertise, global footprint and leadership positions enables us to be a trusted global partner to pharmaceutical, biotechnology, and life sciences research institutions. In total, we employ approximately 3,700 full-time employees, part-time employees and contingent workers worldwide as of December 31, 2022 and have sales in approximately 180 countries. We are headquartered in Burlington, Massachusetts and have operations in North America, Asia, and Europe.
Our portfolio includes products and services offerings developed by us internally as well as many offerings we have added through multiple acquisitions designed to bring together a comprehensive capability to service our customers’ needs in the markets we serve. A majoritysample-based services arena. We continue to develop new products and services offerings and enhance existing and acquired offerings through the expertise of our research and development spending advancesresources. We believe our current product linesacquisition, investment, and drives innovations for new product offerings.integration approach has allowed us to accelerate internal development and significantly accelerate time to market.
In the life sciences sample management market,35
Within our Life Sciences Products segment, we utilize our core competencieshave developed and capabilities in automation and cryogenicscontinue to provide comprehensive bio-sample management solutions to a broad range of end markets within the life sciences industry. Our offerings includedevelop automated ultra-cold storage freezers, consumablebiological sample storage containers, instruments which assistsolutions for operating in low temperature environments. We have a complete line up of automated stores from ambient temperatures to -190°C. Our BioStore’s ™ unique design allows controlled temperature storage down to -80°C with the workflowindustry’s highest throughput of sample management,retrieval. On October 3, 2022, we acquired B Medical Systems S.á r.l and both complete on-siteits subsidiaries, or B Medical, a market leader in temperature-controlled storage and off-site full sample managementtransportation solutions that enables the delivery of life-saving treatments to more than150 countries worldwide. This acquisition complements our cold chain capabilities, adding differentiated solutions for reliable and traceable transport of temperature-sensitive specimens.
Within our Life Sciences Services segment, our genomics services business advances research and development activities by gene sequencing, synthesis, editing and related services. We expect the life sciences sample management market to remain one of our principal markets for our product and service offerings and provide favorable opportunities for the growth of our overall business. Over the past several years,offer a comprehensive, global portfolio that we have acquired and developed essential capabilities required to strategically address the sample management needs across multiple end markets within the life sciences industry. In October 2017, we acquired all of the outstanding capital stock of 4titude Limited, or 4titude, a U.K.-based manufacturer of scientific consumables for biological sample materials usedbelieve has both broad appeal in a variety of genomic and DNA analytical applications, for a total purchase price of $65.2 million, net of cash acquired. The acquisition will expand our existing offerings of consumables and instruments within the Brooks Life Sciences segment. Please refer to Note 4, “Acquisitions” in the Notes to the unaudited consolidated financial statements included in Item 1 "Consolidated Financial Statements" of this Quarterly Report on Form 10‑Q for further information on this transaction. Since entering the life sciences industry we have also strengthened and broadened our product portfolio and market reach by investing in internal product development. During fiscal years 2017 and 2016, more than 23% of our cumulative research and development spending was focused on innovating and advancing solutions in the life sciences sample management market. In fiscal year 2016, we commercialized the internally developed Biostore III Cryo, an automated system which incorporates sample retrieval, archiving, monitoring, tracking, inventory control, and related enterprise systems connectivity with the industry’s leading cryogenic sample storage freezers. In fiscal year 2017, we launched BioStudies, a bioinformatics sample intelligence software platform that enables customers to manageselect the best solution for their global samples. We expect to continue investing in research challenges. This portfolio also offers unique solutions for key markets such as cell and gene therapy, antibody development, and making strategic acquisitionsbiomarker discovery by addressing genomic complexity and other investmentsthroughput challenges. Our sample repository solutions business is a global leader in sample storage and management and provides a full suite of reliable cold and ultra-cold chain solutions.
Sale of the Semiconductor Automation Business
In the fourth quarter of fiscal year 2021, we entered into a definitive agreement to sell our semiconductor automation business to Thomas H. Lee, Partners, L.P., or THL, and completed the sale on February 1, 2022, for $2.9 billion in cash. In connection with the objectiveplanned divestiture of expandingthe semiconductor automation business and our offerings in thecontinued focus on our life sciences sample managementbusinesses, we changed our corporate name from “Brooks Automation, Inc.” to “Azenta, Inc.” and our common stock started to trade on the Nasdaq Global Select Market under the symbol “AZTA” on December 1, 2021.
Since our founding in 1978, we had been a leading automation provider and partner to the global semiconductor manufacturing industry. With the completion of the sale of the semiconductor automation business, we no longer serve the semiconductor market. The semiconductor automation business has been classified as a discontinued operation and, unless otherwise noted, this MD&A relates solely to our continuing operations and does not include the operations of our semiconductor automation business.
We report our financial results for two operating and reportable segments which consist of Brooks Semiconductor Solutions Group segment and the Brooks Life Sciences segment.
2736
Business and Financial Performance
Our performance for the three months ended December 31, 2022 and 2021 are as follows:
| | | | | | | | |
| | Three Months Ended December 31, | | | ||||
Dollars in thousands | | 2022 | | 2021 | | | ||
Revenue | | $ | 178,366 | | $ | 139,652 | | |
Cost of revenue | |
| 104,501 | |
| 72,608 | | |
Gross profit | |
| 73,865 | |
| 67,044 | | |
Operating expenses | | | | | | | | |
Research and development | |
| 7,536 | |
| 6,485 | | |
Selling, general and administrative | |
| 92,552 | |
| 60,711 | | |
Restructuring charges | |
| 1,461 | |
| 173 | | |
Total operating expenses | |
| 101,549 | |
| 67,369 | | |
Operating loss | |
| (27,685) | |
| (325) | | |
Interest income | |
| 10,708 | |
| 35 | | |
Interest expense | |
| (43) | |
| (455) | | |
Other expense, net | |
| 1,145 | |
| (1,077) | | |
Loss before income taxes | |
| (15,875) | |
| (1,822) | | |
Income tax provision (benefit) | |
| (4,640) | |
| (4,680) | | |
Income / (loss) from continuing operations | | $ | (11,235) | | $ | 2,858 | | |
Income from discontinued operations, net of tax | |
| — | |
| 40,462 | | |
Net income / (loss) | | $ | (11,235) | | $ | 43,320 | | |
Three Months Ended December 31, 20172022 Compared to Three Months Ended December 31, 20162021
Results of Operations- – Revenue for the three months ended December 31, 20172022 increased to $189.3 million, or by 18%,28% as compared to the corresponding period of the prior fiscal year.year period driven by an 80% increase in our Life Sciences Products segment primarily due to the acquisition of B Medical and Barkey. Gross margin was 39.7%41.4% for the first quarter of fiscal year 2018three months ended December 31, 2022, as compared to 35.6% for the first quarter of fiscal year 2017, which resulted in an increase in gross profit of $18.3 million. Operating expenses were $54.4 million during the first quarter of fiscal year 2018 as compared to $43.8 million during the first quarter of fiscal year 2017, an increase of $10.6 million. Operating income was $20.8 million during the first quarter of fiscal year 2018 as compared to $13.2 million48.0% for the corresponding period of the prior fiscal year. Revenue growthOperating expenses increased $34.2 million during the three months ended December 31, 2022 compared to the three months ended December 31, 2021, mainly driven by increases in selling, general and gross margin improvement drove higher gross profits of $18.3 million, partially offset by anadministrative expenses, with some increase in research and development expenses. We reported an operating expenses. Net income was $16.5loss of $27.7 million for the three months ended December 31, 20172022, as compared to $13.9operating loss of $0.3 million for the corresponding period of the prior fiscal year. The increase of $2.6 million was primarily attributableyear period mainly due to the increase in operating income of $7.7expenses. Loss from continuing operations was $11.2 million as noted above, partically offset by the impact of non-operating expenses which reduced net income by $5.3 million compared to the corresponding period of the prior fiscal year.
Cash Flows and Liquidity- Cash and cash equivalents and marketable securities were $231.9 million at December 31, 2017 as compared to $104.3 million at September 30, 2017. The increase in cash and cash equivalents and marketable securities of $127.6 million was primarily attributable to cash inflows of $197.6 million related to proceeds from the term loan and cash inflows of $3.2 million generated from our operating activities, partially offset by cash outflows related to acquisition payments of $65.1 million, dividend payments of $7.1 million made to our shareholders during the first quarter of fiscal year 2018, as well as capital expenditures of $2.7 million. Cash inflows of $3.2 million generated from operating activities during the three months ended December 31, 2017 were comprised primarily of earnings of $27.1 million, including net income of $16.5 million and the impact of non-cash related charges of $10.6 million, partially offset by uses of cash of $23.9 million related to the changes in our operating assests and liabilities, net of acquisitions. Please refer to "Liquidity and Capital Resources" section below for a detailed discussion of our liquidity and changes in cash flows for the three months ended December 31, 20172022 as compared to a profit of $2.9 million for the three months ended December 31, 2016.2021. During the three months ended December 31, 2022, we recorded a $0.0 million net income from discontinued operations as compared to income of $40.5 million for the three months ended December 31, 2021.
December 31, 2022 Compared to September 30, 2022
Cash Flows and Liquidity - Cash and cash equivalents and restricted cash as presented on our Consolidated Statements of Cash Flows is on a total company basis and were $1.4 billion as of December 31, 2022 compared to $2.3 billion as of September 30, 2022. The decrease of $861 million was attributable primarily to outflows of $373 million related to the purchase of B Medical and $500 million related to the accelerated share repurchase agreement we entered into in November 2022. Cash outflows for operating activities for the three months ended December 31, 2022 were $27.0 million, primarily due to payment of retention bonuses and cash settled stock-based awards for the semiconductor automation business. Investing inflows of $56.4 million include $607 million of sales and maturities of marketable securities, offset by $12.8 million for capital expenditures and $371.6 million paid for the acquisition of B Medical. Financing activities for the three months ended December 31, 2022 include the outflows related to the accelerated share repurchase agreement. The effects of foreign exchange rate fluctuations reduced our cash balance by $50 million as of December 31, 2022.
37
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our unaudited consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles, or GAAP. The preparation of the interim consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. WeOn an ongoing basis, we evaluate our estimates, on an ongoing basis, including those related to revenue, bad debts, inventories, long-lived assets, derivative instruments, goodwill, intangible assets, other than goodwill, inventories, income taxes, warranty obligations, pensions and stock-based compensation. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. We evaluate current and anticipated worldwide economic conditions, both in general and specifically in relation to the semiconductor and life science industries,industry, that serve as a basis for making judgments about the carrying values of assets and liabilities that are not readily determinable based on information from other sources. Actual results may differ from these estimates under different assumptions or conditions that could have a material impact on our financial condition and results of operations.
For further information with regard to our significant accounting policies and estimates, please refer to Note 2, "Summary of Significant Accounting Policies" in the Notes to the unaudited consolidated financial statements included in Item 1 "Consolidated Financial Statements" of this QuartelyQuarterly Report on Form 10‑Q10-Q and in the Notes to our audited consolidated financial statements included in Part II, Item 8 “Financial Statements and Supplementary Data” in our 20172022 Annual Report on Form 10‑K.
28
10-K.
Recently Issued and Adopted Accounting Pronouncements
For a summary of recently issued and adopted accounting pronouncements applicable to our unaudited consolidated financial statements, please refer to Note 2, "Summary of Significant Accounting Policies" in the Notes to the unaudited consolidated financial statements included in Item 1 "Consolidated Financial Statements" of this QuartelyQuarterly Report on Form 10‑Q.10-Q.
RESULTS OF OPERATIONS
Three Months EndedPlease refer to the commentary provided below for further discussion and analysis of the factors contributing to our results from operations for the three months ended December 31, 2017 Compared2022 as compared to Three Months Endedthe three months ended December 31, 20162021.
38
Revenue
Our revenue performance for the three months ended December 31, 2022 and 2021 is as follows:
| | | | | | | | | | | | |
| | Three Months Ended December 31, | | | ||||||||
Dollars in thousands | | 2022 | | | 2021 | | % Change | | | |||
Life Sciences Products | | $ | 89,661 | | | $ | 49,877 | | 80 | % | | |
| | | | | | | | | | | | |
Life Sciences Services | | $ | 88,706 | | | $ | 89,775 | | (1) | % | | |
| | | | | | | | | | | | |
Total revenue | | $ | 178,366 | | | $ | 139,652 | | 28 | % | | |
Three months ended December 31, 2022 compared to three months ended December 31, 2021
Revenue for the three months ended December 31, 2022 increased 28% as compared to the corresponding prior year period, driven by an 80% increase in our Life Sciences Products segment, partially offset by a 1% decline in our Life Sciences Services segment.
Our Life Sciences Products segment revenue for the three months ended December 31, 2022 increased 80% as compared to the corresponding prior year period driven by the acquisitions of B Medical and Barkey. Excluding B Medical and Barkey, we experienced decreased demand and associated revenue for COVID-19 related consumables and instruments; which was partially offset by increased revenue in our automated cold sample management systems.
Our Life Sciences Service segment revenue for the three months ended December 31, 2022 decreased 1% as compared to the corresponding prior year period driven by a 4% year-over-year decrease in our genomics business; mainly from lower synthesis revenue. Sample repository solutions revenue increased 7% year-over-year, attributable to higher revenue from storage services.
We reportedestimate that revenue related to the COVID-19 pandemic for the three months ended December 31, 2022 was approximately $1 million in the aggregate as compared to COVID-19-related revenue of $189.3approximately $11 million for the three months ended December 31, 2017,2021. The decrease in this revenue was primarily due to lower demand for consumables related to COVID-19 testing.
Revenue generated outside the United States was $90.6 million, or 51% of total revenue, for the three months ended December 31, 2022, as compared to $160.0$50.1 million, or 36% of total revenue, for the corresponding period of the prior fiscal year. One customer accounted for 20% of our consolidated revenue for the three months ended December 31, 2022. This individual customer is a distributor shipping to end users in 17 countries. There were no customers with more than 10% of the Company’s consolidated revenue for the three months ended December 31, 2021.
39
Operating Loss
Our operating income performance for the three months ended December 31, 2022 and 2021 is as follows:
| | | | | | |
| Three Months Ended December 31, | |||||
Dollars in thousands | | 2022 | | 2021 | ||
Revenue: | |
|
| |
|
|
Life Sciences Products | $ | 89,661 | | $ | 49,877 | |
Life Sciences Services |
| 88,706 | |
| 89,775 | |
Total revenue | $ | 178,366 | | $ | 139,652 | |
| | | | | | |
Operating income: |
| | |
| | |
Life Sciences Products | $ | 3,330 | | $ | 4,388 | |
Life Sciences Products adjusted operating margin | | 4 | % | | 9 | % |
Life Sciences Services | $ | (3,290) | | $ | 7,883 | |
Life Sciences Services adjusted operating margin | | (4) | % | | 9 | % |
Segment adjusted operating income | $ | 40 | | $ | 12,271 | |
Total segment adjusted operating margin | | 0 | % | | 9 | % |
| | | | | | |
Amortization of completed technology | | 4,168 | | | 1,773 | |
Purchase accounting impact on inventory | | 2,869 | | | — | |
Amortization of acquired intangible assets | | 7,372 | | | 6,272 | |
Restructuring charges | | 1,462 | | | 173 | |
Other unallocated corporate expenses | | 11,854 | | | 4,378 | |
Total operating (loss)/ income | $ | (27,685) | | $ | (325) | |
Total operating margin | | (16) | % | | (0) | % |
Three months ended December 31, 2022 compared to three months ended December 31, 2021
We reported an operating loss of $27.7 million during the three month period ending December 31, 2022, compared to an operating loss of $0.3 million in the prior fiscal year period. The increase in operating loss was due to an increase in operating expense of $29.4$34.2 million, or 18%. We reported revenue growthpartially offset by an increase in gross profit of $6.8 million. Within operating expenses, research and development expenses increased $1.1 million and selling, general, and administrative expenses increased $31.9 million. Selling, general and administrative expenses increased due to higher merger and acquisition costs and costs related to the accelerated share repurchase agreement we entered into in November 2022, as well as continued investment in the business to build out the commercial and laboratory support infrastructure.
Life Sciences Products segment adjusted operating income decreased $1.1 million and adjusted operating margin decreased 5.1 percentage points for the three months ended December 31, 2022 compared to the corresponding prior fiscal year period. The decrease in adjusted operating income was driven by an increase in operating expenses of $18.3 million (primarily due to the addition of B Medical), partially offset by an increase in gross margin of $10.3 million. Adjusted operating income for our Life Sciences Products segment excludes charges for amortization related to completed technology of $2.9 million and $0.2 million for both the three months ended December 31, 2022 and 2021, and $2.8 million purchase accounting impact on inventory for the three months ended December 31, 2022. Please refer to Note 14, “Segment Information” in the Notes to the unaudited consolidated financial statements included in Item 1 "Consolidated Financial Statements" of this Quarterly Report on Form 10-Q.
Life Sciences Services segment adjusted operating income decreased $10.9 million and adjusted operating margin decreased 12.5 percentage points for the three months ended December 31, 2022 compared to the corresponding prior fiscal year period. The decrease in adjusted operating margin was driven by higher operating expenses of $7.4 million and a decrease in gross margin of $3.5 million. Adjusted operating income for our Life Sciences Services segment excludes charges for amortization related to completed technology of $1.3 million and $1.6 million for the three months ended December 31, 2022 and 2021, respectively. Please refer to Note 14, “Segment and Geographic Information” in the Notes to the unaudited consolidated financial statements included in Item 1 "Consolidated Financial Statements" of this Quarterly Report on Form 10-Q.
40
Gross Margin
Our gross margin performance for the three months ended December 31, 2022 and 2021 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Life Science Products | Life Science Services | Azenta Total | ||||||||||||||||||||
| | Three Months Ended December 31, | Three Months Ended December 31, | Three Months Ended December 31, | ||||||||||||||||||||
Dollars in thousands | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | ||||||||||||
Revenue | | $ | 89,661 | | | $ | 49,877 | | | $ | 88,706 | | | $ | 89,775 | | | $ | 178,366 | | | $ | 139,652 | |
Gross profit |
| | 32,981 |
| | | 22,690 |
| | | 40,885 |
| | | 44,354 |
| | | 73,865 |
| | | 67,044 |
|
Gross margin | | | 36.8 | % | | | 45.5 | % | | | 46.1 | % | | | 49.4 | % | | | 41.4 | % | | | 48.0 | % |
Adjustments: | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of completed technology | |
| 2,846 | | |
| 203 | | |
| 1,322 | | |
| 1,570 | | |
| 4,168 | | |
| 1,773 | |
Purchase accounting impact on inventory | | | 2,868 | | | | — | | | | — | | |
| — | | | | 2,868 | | |
| — | |
Adjusted gross profit | | $ | 38,695 | | | $ | 22,893 | | | $ | 42,207 | | | $ | 45,924 | | | $ | 80,901 | | | $ | 68,817 | |
Adjusted gross margin | | | 43.2 | % | | | 45.9 | % | | | 47.6 | % | | | 51.2 | % | | | 45.4 | % | | | 49.3 | % |
Three months ended December 31, 2022 compared to three months ended December 31, 2021
Total gross margin decreased 6.6 percentage points for the three months ended December 31, 2022 to 41.4% compared to the corresponding prior fiscal year period driven by decreased gross margin in both the Brooks Semiconductor Solutions Groupour Life Sciences Products segment and the Brooksour Life Sciences Services segment.
Life Sciences Products segment gross margin decreased 8.7 percentage points for the three months ended December 31, 2022, as compared to the corresponding fiscal year period. The decrease was primarily driven by the impact of changes in foreign currency exchange rates favorably affectedamortization of intangible assets and purchase accounting inventory basis for B Medical. Cost of revenue by $2.4included $2.9 million amortization of completed technology and $2.9 million for purchase accounting impact on inventory for the three months ended December 31, 2022, and $0.2 million of charges for amortization related to completed technology for the three months ended December 31, 2021. Excluding the impact of the amortization of completed technology and purchase accounting impact on inventory, margins decreased 2.7 percentage points during the three months ended December 31, 2017 when2022, as compared to the corresponding period of the prior fiscal year.year, primarily due to the mix of products sold in our consumables and instruments and cryogenic stores businesses.
Our Brooks Semiconductor Solutions GroupLife Sciences Services segment reportedgross margin decreased 3.3 percentage points driven by decreased gross margin in both the genomic services business and sample repository solutions business. The decrease in the genomic services business was due to the impact of lower sales, higher labor costs and continued investment in the business. The decrease in gross margin in the sample repository solutions business is mainly driven by higher labor costs and lower transport sales. Cost of revenue included $1.3 million and $1.6 million of $141.9 millioncharges for amortization related to completed technology for the three months ended December 31, 2017 compared to $126.6 million for2022, and 2021, respectively. Excluding the corresponding periodimpact of the prior fiscal year. The increaseamortization of $15.3 million, or 12%, reflects increases in sales of cryogenic pump products, robotic automation products and services and related spare parts, partially offset by a decline in sales of contamination controls systems. The increase in revenue includes the favorable impact of changes in foreign currency exchange rates of $1.9 millioncompleted technology, Life Sciences Services margins decreased 3.6 percentage points during the three months ended December 31, 2017. The semiconductor markets are cyclical, and often fluctuate significantly from quarter to quarter. Demand for our Brooks Semiconductor Solution Group products is affected by these cycles.
Our Brooks Life Sciences segment reported revenue of $47.4 million for the three months ended December 31, 2017 compared to $33.3 million for the corresponding period of the prior fiscal year. The increase of $14.1 million, or 42%, was primarily from internal growth of $7.7 million, principally in sample storage services, automated storage systems, consumables and instruments, and software. Additionally, the acquisitions of 4titude, Pacific Bio-Material Management, Inc. and Novare, LLC, or PBMMI, and Cool Lab, LLC, or Cool Lab, contributed incremental revenue of $6.4 million. Brooks’ Life Sciences internal revenue growth was favorably affected by foreign currency exchange rates which increased revenue by $0.5 million during the three months ended December 31, 20172022, as compared to the corresponding period of the prior fiscal year.
Revenue generated outside the United States amounted to $117.2 million, or 62%
41
Research and Development Expenses
Our research and development expense for the three months ended December 31, 2017 compared to $106.8 million, or 67% of total revenue, for the corresponding period of the prior fiscal year. We have one customer within the Brooks Semiconductor Solutions Group segment that accounted for approximately 11% of our consolidated revenue during each of the three months ended December 31, 20172022 and 2016.2021 is as follows:
Gross Margin
| | | | | | | | | |
| | Three Months Ended December 31, | | ||||||
Dollars in thousands | | 2022 | | 2021 | | | |||
Life Sciences Products | | $ | 4,369 | | | $ | 3,411 | | |
Percent-Segment Revenue | | | 4.9 | % | | | 6.8 | % | |
| | | | | | | | | |
Life Sciences Services | | $ | 3,167 | | | $ | 3,075 | | |
Percent-Segment Revenue | | | 3.6 | % | | | 3.4 | % | |
| | | | | | | | | |
Total research and development expense | | $ | 7,536 | | | $ | 6,485 | | |
Percent-Total Revenue | | | 4.2 | % | | | 4.6 | % | |
We reported gross margins of 39.7%Research and development expenses for the three months ended December 31, 20172022 increased $1.1 million as compared to 35.6% for the corresponding periodthree months ended December 31, 2021, primarily driven by the acquisition of the prior fiscal year. Gross margin increased in the Brooks Semiconductor Solutions Group segment by 6.0 percentage pointsB Medical.
Selling, General and declined in the Brooks Life Sciences segment by 1.2 percentage points. Cost of revenueAdministrative Expenses
Our selling, general and administrative expenses for the three months ended December 31, 20172022 and 2016 included $0.9 million and $1.0 million, respectively, of charges for amortization related to completed technology,2021 is as well as $1.2 million and $0.1 million, respectively, of charges related to the sale of inventories obtained in acquisitions to which a step-up in value was applied in purchase accounting. Excluding the purchasing accounting impact and the amortization of completed technology, margins expanded 4.6 percentage points.follows:
| | | | | | | | | | |
| | Three Months Ended December 31, | | | ||||||
Dollars in thousands | | 2022 | | 2021 | | | ||||
Life Sciences Products | | $ | 32,410 | | | $ | 15,095 | | | |
Percent-Segment Revenue | | | 36.1 | % | | | 30.3 | % | | |
| | | | | | | | | | |
Life Sciences Services | | $ | 42,330 | | | $ | 34,978 | | | |
Percent-Segment Revenue | | | 47.7 | % | | | 39.0 | % | | |
| | | | | | | | | | |
Corporate | | $ | 17,812 | | | $ | 10,638 | | | |
Percent-Total Revenue | | | 10.0 | % | | | 7.6 | % | | |
| | | | | | | | | | |
Total selling, general and administrative expense | | $ | 92,552 | | | $ | 60,711 | | | |
Percent-Total Revenue | | | 51.9 | % | | | 43.5 | % | | |
29
Our Brooks Semiconductor Solutions Group segment reported gross margins of 41.9% for the three months ended December 31, 2017 as compared to 35.9% for the corresponding period of the prior fiscal year. The increase is driven by a favorable mix, volume leverage, lower costs related to materials and our service operations and a favorable impact of
changes in foreign currency exchange rates. Cost of revenue during the three months ended December 31, 2017 and 2016 included $0.5 million and $0.6 million, respectively, of amortization related to completed technology. Excluding the amortization of completed technology, margins expanded 5.9 percentage points.
Our Brooks Life Sciences segment reported gross margins of 33.2% for the three months ended December 31, 2017 as compared to 34.4% for the corresponding period of the prior fiscal year. The decrease was a result of higher production costs and higher charges related to the sale of inventories obtained in acquisitions to which a step-up in value was applied in purchase accounting. Such charges were $1.2 million during the three months ended December 31, 2017 compared to $0.1 million during the corresponding period of the prior fiscal year. These increases were partially offset by a more favorable mix of products and services, volume leverage and higher margins on automated storage systems, consumables, and sample storage services. Cost of revenue during each of the three months ended December 31, 2017 and 2016 also included $0.4 million of amortization related to completed technology. Excluding the purchasing accounting impact and the amortization of completed technology, margins expanded 0.7 percentage points.
Research and Development
Research and development expenses were $13.2 million during the three months ended December 31, 2017 as compared to $10.8 million during the corresponding period of the prior fiscal year. The increase of $2.4 million reflects higher costs of $1.4 million within the Brooks Semiconductor Solutions Group segment and $1.0 million within the Brooks Life Sciences segment which were primarily attributable to higher employee-related costs and project spending to support new product development and the growth of our business.
Selling, General and Administrative
Selling,Total selling, general and administrative expenses were $41.2increased $31.9 million for the three months ended December 31, 20172022 as compared to $32.0 million for the corresponding period of the prior fiscal year. The increase of $9.2 million was primarily attributable to: (i) higher employee-related costs driven by increased incentive bonuses and higher salaries resulting from hiring additional personnel to support the growth of our business, (ii) higher stock-based compensation expense driven mostly by higher estimates of the expected payout related to the achievement of performance goals for our performance-based awards, as well as (iii) higher expenses related to the acquisitions of PBMMI and 4titude. Amortization expense related primarily to customer relationships was $4.6 million during the first quarter of fiscal year 2018 as compared to $3.1 million during the corresponding period of the prior fiscal year. Merger-related costs were $0.6 million and $0.2 million, respectively, during the three months ended December 31, 20172021, driven by increases in both our segments and 2016.an increase in corporate expenses.
30
Restructuring Charges
There were no restructuring charges recorded duringWithin our segment expenses discussed below, we allocate certain corporate general and administrative expenses including costs related to shared corporate functions which include finance, information technology, human resources, legal, executive, governance, logistics and compliance. In total, corporate general and administrative expense allocated to segments increased $4.4 million for the three months ended December 31, 2017. During the three months ended December 31, 2016, we recorded restructuring charges of $1.0 million which were related to severance and comprised of: (i) $0.7 million of costs related to the Company-wide restructuring action, (ii) $0.2 million of costs attributable to the Brooks Semiconductor Solutions Group segment related to the integration of Contact Co., Ltd. which we acquired in fiscal year 2015, and (iii) $0.1 million of costs attributable to the Brooks Life Sciences segment related to streamlining the segment's management structure, integrating acquisitions and improving profitability. Please refer to Note 15, “Restructuring and Other Charges” to our consolidated financial statements and “Restructuring Charges” to our consolidated financial statements included under Item 8, “Financial Statements and Supplementary Data” included in our 2017 Annual Report on Form 10-K for further information on these restructuring actions.
Non-Operating Income (Expenses)
Gain on Settlement of Equity Method Investment- During the three months ended December 31, 2016, we recognized a gain of $1.8 million on the settlement of the equity method investment in BioCision which was included as a part of the non-cash consideration for an acquisition of Cool Lab in November 2016. Please refer to Note 3, “Acquisitions” to our consolidated financial statements included in our 2017 Annual Report on Form 10-K for further information on this transaction.
Interest Expense- During the three months ended December 31, 2017, we recorded interest expense of $2.2 million which was primarily related to the term loan originated on October 4, 2017. Please refer to the “Liquidity and Capital Resources” section below for further information on the term loan.
Other expenses, net. During the three months ended December 31, 2017 and 2016, we recorded other expenses, net of $1.7 million and $0.3 million respectively. The increase of $1.4 million was primarily attributable to an increase in foreign currency exchange losses during the three months ended December 31, 20172022, as compared to the corresponding period of the prior fiscal year.
Life Sciences Products segment selling, general and administrative expenses increased $17.3 million, for the three months ended December 31, 2022, as compared to the corresponding prior fiscal year period primarily related to the addition of B Medical. Selling, general and administrative expenses included $1.4 million and $0.0 million of charges for amortization related to customer relationship and trademark assets for the three months ended December 31, 2022 and 2021, respectively. Excluding the impact of the amortization of these assets, selling, general and administrative expenses increased $15.9 million for the three months ended December 31, 2022.
Life Sciences Services segment selling, general and administrative expenses increased $7.4 million for the three months ended December 31, 2022, as compared to the corresponding prior fiscal year period, which increase was related
42
to investments in the commercial organization and laboratory support personnel. In addition, receivable reserve expense was higher for the three months ended December 31, 2022 as compared to the three months ended December 31, 2021, due to a reversal that occurred in the first fiscal quarter of 2021.
Unallocated corporate expenses increased $7.2 million for the three months ended December 31, 2022 as compared to the corresponding prior fiscal year period primarily due to higher merger and acquisition costs and costs related to the accelerated share repurchase agreement we entered into in November 2022.
Restructuring Charges
Restructuring charges increased by $1.3 million for the three months ended December 31, 2022 as compared to the three months ended December 31, 2021. The three months ended December 31, 2022 includes restructuring charges related to the separation of personnel. Costs savings from these actions are expected to be realized in the next twelve months.
Non-Operating Income (Expenses)
Interest income – We recorded interest income of $10.7 million for the three months ended December 31 2022, as compared to $0.0 million for the corresponding period of the prior fiscal year. This increase in interest income is due to interest earned on the proceeds from the sale of the semiconductor automation business, including interest accrued on a net investment hedge, during the three month period ended December 31, 2022. Please refer to Item 3. “Quantitative and Qualitative Disclosures About Market Risk – Currency Rate Exposure”the Derivative Financial Instruments section of Note 2, “Summary of Significant Accounting Policies” in this Quartely Report on Form 10-Q for additional information about these currency exchange losses. Additionally, we recognized higher losses of $0.2 million during the first quarter of fiscal year 2017 relatedNotes to fair value measurement of convertible debt securities in BioCision. Please refer to Note 3, “Acquisitions” to ourthe unaudited consolidated financial statements included in Item 1 “Consolidated Financial Statements” of this Quarterly Report on the 2017 Annual Report in the Form 10-K for further information on this transaction.10-Q.
Income Tax Provision
Interest expense –During the three months ended December 31, 2017 and 2016,2022 we recorded an income tax provisioninterest expense of $2.9$0.0 million and $2.8 million, respectively. The tax provision for the three months ended December 31, 2017 was primarily driven by the foreign income generated during the current quarter. This provision is partially offset by $0.3 million of tax benefits related to the reduction of reserves for unrecognized tax benefits and $0.7 million of tax benefits related to the re-measurement of net U.S. deferred tax liabilities at the reduced 21 percent federal income tax rate. The income tax provision for the three months ended December 31, 2016 was primarily driven by foreign income generated during the quarter, partially offset by $0.7 million of tax benefits related to the reduction of reserves for unrecognized tax benefits. For additional discussion of the calculation of our income tax liabilities, please refer to Note 9, "Income Taxes", in the Notes to the unaudited Consolidated Financial Statements included in Item 1 "Consolidated Financial Statements" of this Form 10-Q.
During the three months ended December 31, 2017, the Tax Cuts and Jobs Act (“Tax Reform”) was enacted in the U.S., making significant tax law changes affecting us. The SEC has issued Staff Accounting Bulletin 118 (“SAB 118”), which has provided guidance for companies that have not completed the accounting for the income tax effects of Tax Reform. Under SAB 118, a company may report provisional amounts based on reasonable estimates where the accounting is incomplete. These amounts are subject to adjustments during a measurement period of up to one year beginning in the reporting period of the enactment date.
31
Upon the enactment of Tax Reform, we are subject to a toll charge in the U.S. on our previously untaxed accumulated foreign earnings. The toll charge is treated as an inclusion of our accumulated foreign earnings in U.S. taxable income during the tax year ended September 30, 2018. Any taxes due associated with the toll charge will be payable over an eight year period. We have estimated that our accumulated foreign earnings are $120 million, which is a provisional amount subject to the measurement period described in Staff Accounting Bulletin 118. There are still incomplete components related to the accumulated foreign earnings calculations for older tax years that require additional time to complete the calculations. We also have a history of foreign mergers and acquisitions, and proper determination of the impact on the accumulated earnings is complex. We have not recorded any provision for currently estimated tax inclusion associated with the toll charge as sufficient previously un-benefited tax attributes, with valuation allowances, exist to offset the inclusion income or resulting tax.
As a result of Tax Reform, we calculated its U.S. tax provision for the three months ended December 31, 2017 using a blended U.S. statutory tax rate of 24.5%, which is a prorated allocation of the 35% rate which was in effect prior to tax reform through December 31, 2017 and the 21% rate which will be in effect for the remainder of the fiscal year. The Company recorded a discrete benefit of $0.7 million in the three months ended December 31, 2017 due to the impact of the U.S. rate change on its net U.S. deferred tax liabilities.
Equity in Earnings of Equity Method Investments
During the three months ended December 31, 2017, we recorded income of $2.2 million from our equity method investments as compared to $1.9$0.5 million during the corresponding period of the prior fiscal year. The increase of $0.2 millionOur previously outstanding term loan was primarily attributable to higher income generatedsettled on February 1, 2022 using the proceeds from ULVAC Cryogenics, Inc., or UCI, during the first quarter of fiscal year 2018 as compared to the corresponding periodsale of the prior fiscal year.semiconductor automation business.
DuringOther income (expenses), net – We recorded other income of $1.2 million for the three months ended December 31, 2016, we incurred2022, as compared to other expense of $1.1 million for the three months ended December 31, 2021. The change for the three months ended December 31, 2022 as compared to the corresponding prior fiscal year period is primarily due to foreign exchange gains in the 2022 period, but losses of $0.5 million from our investment in BioCision which was settled the 2021 period.
Income Tax Provision / Benefit
We recordedanincometaxbenefitof$4.6millionduring the first quarterthree months ended December 31, 2022. The benefitwas primarily driven by the pre-tax loss from operations and a $1.3 million deferred tax benefit resulting from the extension of fiscal year 2017a tax incentive in China.
We recorded an income tax benefit $4.7 million during the three months ended December 31, 2021. The tax benefit was primarily driven by a $4.8 million discrete stock compensation windfall benefit for tax deductions that exceeded the associated book compensation expense.
Discontinued Operations
There was no revenue from discontinued operations for the three months ended December 31, 2022. Revenue from discontinued operations was $203.7 million for the three months ended December 31, 2021. There was no net income from discontinued operation for the three months ended December 31, 2022. Net Income from discontinued operations was $37 million for the three months ended December31, 2021. The income from discontinued operations only includes direct operating expenses incurred that (1) are clearly identifiable as acosts being disposed of upon completion of the sale and (2) will not be continued by our company on an ongoing basis. Indirect expenses which supported the semiconductor automation business, and which remained as part of the non-cash consideration for the acquisitioncontinuing operations, are not reflected in income from discontinued operations.
43
LIQUIDITY AND CAPITAL RESOURCES
A considerable portion of our revenue is dependent on the demand for semiconductor capital equipment which historically has experienced periodic downturns. We believe that we have adequate resources to fundsatisfy our currently planned working capital, financing activities, and capital expenditure requirements as well as to service debt and pay interest for the next twelve months. The cyclical nature of our served markets and uncertainty in the current global economic environment, including the uncertainty related to the COVID-19 pandemic, make it difficult for us to predict longer-term liquidity requirements with sufficient certainty. We may be unable to obtain any required additional financing on terms favorable to us, if at all. If adequate funds are not available to us on acceptable terms or otherwise, we may be unable to successfully develop or enhance products and services, respond to competitive pressure or take advantage of acquisition opportunities, any of which could have a material adverse effect on our business, financial condition and operating results.results
The discussion of our cash flows and liquidity that follows stated on a total company consolidated basis and excludes the impact of discontinued operations.
Overview of Cash Flows and Liquidity
Our cash balances are held in numerous locations throughoutand cash equivalents, restricted cash and marketable securities as of December 31, 2022 and September 30, 2022 consist of the world, with substantial majorityfollowing (in thousands):
| | | | | | | |
| | | | | | | |
|
| December 31, 2022 |
| September 30, 2022 |
| ||
Cash and cash equivalents | | $ | 608,304 | | $ | 658,274 | |
Restricted cash | | | 7,549 | | | 383,023 | |
Short-term marketable securities | |
| 522,897 | |
| 911,764 | |
Long-term marketable securities | |
| 304,675 | |
| 352,020 | |
| | $ | 1,443,425 | | $ | 2,305,081 | |
| | | | | | | |
Our cash and cash equivalents, restricted cash and marketable securities were $1.4 billion as of those amounts located in the United States.December 31, 2022. As of December 31, 2017,2022, we had cash, and cash equivalents and restricted cash of $202.3$615.9 million, of which $81.2$521.8 million was held outside of the United States. If these funds are needed for U.S.the United States operations, we would be required to accrue withholding tax liabilitiesneed to repatriate these funds. As a result of recent changes in U.S. tax legislation, any repatriation in the future would likely not result in U.S. federal income tax. Our intent is to permanently reinvest these funds outside of the United States and our current operating plans do not demonstrate a need to repatriate these funds for our U.S. operations. At December 31, 2017 and September 30, 2017, weWe had marketable securities of $29.5$828 million and $2.7 million, respectively, which were held in the United States.$1.3 billion as of December 31, 2022 and September 30, 2022, respectively. Our marketable securities are generally readily convertible to cash without ana material adverse impact. We believe that our current cash balance, marketable securities portfolio, access to the revolving line of credit, as well as to debt and capital markets along with cash flows from operations will satisfy working capital, financing
Cash outflows for operating activities debt service and capital expenditure requirements for the next twelve months.
32
On October 4, 2017, we entered into a $200.0 million Senior Secured Term Loan Facility, or the term loan, with Morgan Stanley Senior Funding, Inc., JPMorgan Chase Bank, N.A. and Wells Fargo Securities, LLC, or collectively, the lenders. The term loan was issued at $197.6 million, or 98.8% of its par value, resulting in a discount of $2.4 million, or 1.2%, which represented loan origination fees paid at the closing. We incurred additional deferred financing costs of $0.4 million during the three months ended December 31, 2017. At December 31, 2017,2022 were $27.0 million, primarily due to payment of retention bonuses and cash settled stock-based awards for the outstanding term loan principal balance was $200.0semiconductor automation business. Investing inflows of $53 million netinclude $607 million of unamortized deferred financing costssales and maturities of $2.7 million. The loan proceeds will be used for acquisitions and general corporate purposes. As of December 31, 2017, we had approximately $51.1 million available for borrowing under the line of credit. There were no amounts outstanding pursuant to the line of credit as of December 31, 2017 and September 30, 2017. The amount of funds available for borrowing under the line of credit arrangement may fluctuate each period based on our borrowing base availability. Please refer to the “Capital Resources” section below for further information on the term loan and the line of credit.
Overview of Cash Flows and Liquidity
Our cash, cash equivalents and marketable securities, as of December 31, 2017 and September 30, 2017 consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
| December 31, 2017 |
| September 30, 2017 |
| ||
Cash and cash equivalents |
| $ | 202,339 |
| $ | 101,622 |
|
Short-term marketable securities |
|
| 15,658 |
|
| 28 |
|
Long-term marketable securities |
|
| 13,885 |
|
| 2,642 |
|
|
| $ | 231,882 |
| $ | 104,292 |
|
Three Months Ended December 31, 2017 Compared to Three Months Ended December 31, 2016
Overview
Cash and cash equivalents and marketable securities were $231.9 million at December 31, 2017 as compared to $104.3 million at September 30, 2017. The increase in cash and cash equivalents and marketable securities of $127.6 was primarily attributable to cash inflows of $197.6 million related to proceeds from the term loan and cash inflows of $3.2 million generated from our operating activities, partially offset by cash outflows related to acquisitions of $65.1$12.8 million dividend payments of $7.1 million made to our shareholders during the first quarter of fiscal year 2018, as well asfor capital expenditures and $372 million paid for the acquisition of $2.7 million.
Operating Activities
Cash flows from operatingB Medical. Financing activities can fluctuate significantly from period to period as earnings, working capital needs and the timing of payments for income taxes, restructuring activities and other operating charges impact reported cash flows.
Cash flows provided by operating activities were $3.2 million during the three months ended December 31, 2017, comprised primarily2022 include $500 million of earnings of $27.1 million, including net income of $16.5 million and the impact of non-cash related charges of $10.6 million, partially offset by the uses of cash of $23.9 millionoutflows related to the changes inaccelerated share repurchase agreement. The effects of foreign exchange rate fluctuations reduced our operating assets and liabilities. The changes in operating assets and liabilities that resulted in a use of cash consisted primarily of an increase in accounts receivable as a result of higher revenue and timing of billings, a decrease in accrued compensation and tax withholdings as a result of year-end cash incentive bonus payments and an increase in inventory levels to support the growth of our business. These uses of cash were partially offsetbalance by sources of cash related primarily to increases in accounts payable and prepaid expenses and other current assets.
Cash flows provided by operating activities were $18.7$50 million during the three months ended December 31, 2016 and comprised primarily of earnings of $18.9 million, including net income of $13.9 million and the impact of non-cash related charges of $5.0 million, partially offset by the uses of cash of $0.2 million related to the changes in our operating assets and liabilities. The changes in operating assets and liabilities that resulted in a use of cash were comprised primarily of an increase in accounts receivable as a result of higher revenue and timing of billings and decreased accrued
33
compensation and tax withholdings as a result of year end incentive bonus payments. These uses of cash were partially offset by sources of cash related primarily to increases in accounts payable and deferred revenue due to the timing of customer billings.
Investing Activities
Cash flows from investing activities consist primarily of cash used for acquisitions, capital expenditures and purchases of marketable securities, as well as cash proceeds generated from sales and maturities of marketable securities.
Cash used in investing activities was $94.3 million during the three months ended December 31, 2017 as compared to $9.3 million during the corresponding period of the prior fiscal year. Cash used in investing activities of $94.3 million during the first quarter of fiscal year 2018 included cash payments of $65.1 million for the acquisitions, $26.9 million for the purchases of marketable securities and $2.7 million of capital expenditures.
Cash used in investing activities of $9.3 million during the three months ended December 31, 2016 included a cash payment of $5.3 million for the acquisitions and $3.8 million of capital expenditures.
Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting new product development and improving information technology infrastructure. Capital expenditures were $2.7 million during the first quarter of fiscal year 2018 as compared to $3.8 million during the corresponding period of the prior fiscal year. The decrease of $1.1 million was primarily attributable to lower investments made in our capital asset infrastructure during the first quarter of fiscal year 2018 compared to the corresponding period of the prior fiscal year.
Financing Activities
Cash provided by financing activities was $190.2 million during the three months ended December 31, 2017 as compared to cash of $7.0 million used in financing activities during the corresponding period of the prior fiscal year. Cash provided by financing activities was $190.2 million during the first quarter of fiscal year 2018 and included cash inflows of $197.6 million related to proceeds from the term loan originated in October 2017, partially offset by cash dividend payments of $7.1 million.
Cash used in financing activities was $7.0 million during the first quarter of fiscal year 2017 related to cash dividend payments.
Capital Resources
Senior Secured Term Loan Facility
On October 4, 2017, we entered into the $200.0 million term loan with the lenders. The term loan was issued at $197.6 million, or 98.8% of its par value, resulting in a discount of $2.4 million, or 1.2%, which represented loan origination fees paid at the closing. We incurred additional deferred financing costs of $0.4 million during the three months ended December 31, 2017. The loan proceeds are used for acquisitions and general corporate purposes. Please refer to Note 8, "Debt" in the Notes to the unaudited consolidated financial statements included in Item 1 "Consolidated Financial Statements" on this Form 10-Q for further information on the terms and conditions of the term loan.
At December 31, 2017, the outstanding term loan principal balance was $200.0 million, excluding unamortized deferred financing costs of $2.7 million. The term loan matures and becomes fully payable on October 4, 2024. Installment principal payments equal to 0.25% of the initial principal amount of the term loan are payable on the last day of each quarter, with any remaining principal amount becoming due and payable on the maturity date. We will begin making principal payments under the term loan starting with the second quarter of fiscal year 2018. Subject to certain conditions stated in the term loan agreement, we may redeem the term loan at any time at our option without a significant premium or penalty, except for a repricing transaction, as defined in the term loan agreement. We would also be required to redeem the term loan at the principal amount then outstanding upon occurrence of certain events, as set forth in the term loan agreement. Commencing on December 31, 2018, we will be required to make principal payments
34
equal to the excess cash flow amount, as defined in the term loan agreement. Please refer to Note 8, "Debt" in the Notes to the unaudited consolidated financial statements included in Item 1 "Consolidated Financial Statements" on this Form 10-Q for further information on future minimum principal payment obligations under the term loan as of December 31, 2017.2022.
Borrowings under the term loan bear variable interest rates, at our option, based on either LIBOR, the federal funds effective rate, as well as the prime rate plus an applicable percentage. As a result, we may experience exposure to interest rate risk due to the potential volatility associated with the variable interest rates on the term loan. If rates increase, we may be subject to higher costs of servicing the loan which could reduce our profitability and cash flows. The applicable interest rate was initially set at 4% upon the term loan issuance and established based on the six-month LIBOR rate applicable at that time plus a margin of 2.50%. During the three months ended December 31, 2017, the weighted average stated interest rate on the term loan was 4% which will remain in effect until March 4, 2018. During the three months ended December 31, 2017, we incurred interest expense of $2.0 million on the term loan which will be paid in the second quarter of fiscal year 2018. Our debt service requirements are expected to be funded through our existing sources of liquidity and operating cash flows.
The term loan agreement contains certain customary representations and warranties, covenants and events of default. As of December 31, 2017, we were in compliance with all covenants and conditions under the term loan agreement.
Line of Credit Facility
We maintain a revolving line of credit with Wells Fargo Bank, N.A. and JPMorgan Chase Bank, N.A that provides for revolving credit financing of up to $75.0 million, subject to borrowing base availability, as defined in the line of credit agreement. The line of credit matures on October 4, 2022. The proceeds from the line of credit are available for permitted acquisitions and general corporate purposes. Please refer to Note 7, "Line of Credit" in the Notes to the unaudited consolidated financial statements included in Item 1 "Consolidated Financial Statements" on this Form 10-Q for further information on the terms and conditions of the line of credit.
As of December 31, 2017, we had approximately $51.1 million available for borrowing under the line of credit. There were no amounts outstanding pursuant to the line of credit as of December 31, 2017 and September 30, 2017. The amount of funds available for borrowing under the line of credit arrangement may fluctuate each period based on our borrowing base availability. The line of credit contains certain customary representations and warranties, a financial covenant, affirmative and negative covenants, as well as events of default. We were in compliance with the line of credit covenants as of December 31, 2017 and September 30, 2017. We believe we will be able to generate sufficient cash in the United States and foreign jurisdictions to fund future operating costs. We secured the revolving line of credit as an additional assurance for maintaining liquidity in the United States during potentially severe downturns of the cyclical semiconductor market, as well as for strategic investments and acquisitions.
Shelf Registration Statement
On July 27, 2016, we filed a registration statement on Form S-3 with the SEC to sell securities, including common stock, preferred stock, warrants, debt securities, depository shares, purchase contracts and purchase units in amounts to be determined at the time of an offering. Any such offering, if it does occur, may happen in one or more transactions. The specific terms of any securities to be sold will be described in supplemental filings with the SEC. This registration statement will expire on July 27, 2019.
Dividends
On January 31, 2018, our Board of Directors approved a cash dividend of $0.10 per share of our common stock. The total dividend of approximately $7.0 million will be paid on March 23, 2018 to shareholders of record at the close of business on March 2, 2018. Dividends are declared at the discretion of our Board of Directors and depend on actual cash
3544
flow from operations, our financial condition, debt service and capital requirements, as well as any other factors our Board of Directors may consider relevant. We intend to pay quarterly cash dividends in the future; however, the amount and timing of these dividends may be impacted by the cyclical nature of certain markets we serve. We may reduce, delay or cancel a quarterly cash dividend based on the severity of a cyclical downturn.Capital Resources
Share Repurchase Program
On September 29, 2015, our Board of Directors approved a share repurchase program for up to $50 million worth of our common stock. The timingstock, or the 2015 Repurchase Program. On November 4, 2022, our Board of Directors terminated the 2015 Repurchase Program and amountapproved a new share repurchase program authorizing the repurchase of any shares repurchased willup to $1.5 billion of our common stock, or the 2022 Repurchase Program. Repurchases under the 2022 Repurchase Program may be based onmade in the open market or through privately negotiated transactions (including under an accelerated share repurchase, or ASR, agreement), or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, subject to market and business conditions, legal requirements, and other factorsfactors. We are not obligated to acquire any particular amount of common stock under the 2022 Repurchase Program, and share repurchases may be commenced or suspended at any time at our discretion. There were no sharesAs part of the 2022 Repurchase Program, we entered into an ASR agreement for the repurchase of up to $500 million of our common stock on November 23, 2022, and repurchased underand retired 6.1 million shares. See Note 11, “Stockholders’ Equity” in the Notes to the unaudited consolidated financial statements included in Item 1 "Consolidated Financial Statements" of this program duringQuarterly Report on Form 10-Q for additional information about the three months ended December 31, 2017.ASR agreement.
Contractual Obligations and Requirements
Our inventory purchase commitments were $128.6 million and $122.0 million, respectively, at December 31, 2017 and September 30, 2017. Except as disclosed below regarding letters of credit, there have been no material changes to our contractual obligations set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in our 2017 Annual Report on Form 10‑K.
At December 31, 2017,2022, we had approximately $3.5non-cancellable commitments of $65.4 million, comprised primarily of letterspurchase orders for inventory of credit outstanding$38.7 million, and information technology related primarily to customer advances and other performance obligations. These arrangements guarantee the refundcommitments of advance payments received from our customers in the event that the product is not delivered or warranty obligations are not fulfilled in accordance with the contract terms. These obligations could be called by the beneficiaries at any time before the expiration date of the particular letter of credit if we fail to meet certain contractual requirements. None of these obligations were called during the three months ended December 31, 2017, and we currently do not anticipate any of these obligations to be called in the near future.$26.7 million.
Off-Balance Sheet Arrangements
As of December 31, 2017,2022, we did not have anyhad no obligations, assets or liabilities which would be considered off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.arrangements.
36
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a variety of market risks, including changes in interest rates affecting investment return on our cash and cash equivalents, restricted cash and short-term and long-term investments and fluctuations in foreign currency exchange rates and changes in interest rates affecting interest payments on our term loan and investment return on our cash, cash equivalents and marketable securities.rates.
Interest Rate Exposure
Our cash and cash equivalents and restricted cash consist principally of money market securities that are short-term in nature. At December 31, 2022, our aggregate short-term and long-term investments were $828 million, consisting mostly of highly rated corporate debt securities and municipal securities. At December 31, 2022, we had $783 million amount of securities in an unrealized loss position. A hypothetical 100 basis point change in interest rates would result in an approximate $0.8 million change in interest income earned during the three months ended December 31, 2022.
On February 1, 2022, in connection with the completion of the sale of its semiconductor automation business, we used $49.7 million of the cash proceeds from the sale of the semiconductor automation business to extinguish the total remaining outstanding balance of our former term loan. We also closed our revolving credit facility of which had no borrowings. The term loan bearshad a variable interest ratesrate which subjectssubjected us to interest rate risk. Our primary interest rate risk exposure resultsresulted from changes in the short-term LIBOR rate, the federal funds effective rate and the prime rate. As of December 31, 2017, the weighted average stated interest rate on the term loan was 4%. At December 31, 2017, the outstanding term loan principal balance was $200.0 million, excluding unamortized deferred financing costs of $2.7 million. During the three months ended December 31, 2017, we incurred interest expense of $2.0 million on the term loan. A hypothetical 100 basis point change in interest rates would result in a $0.5 million change in interest expense incurred during the three months ended December 31, 2017.
Our cash and cash equivalents consist principally of money market securities that are short-term in nature. Our short-term and long-term investments consist mostly of highly rated corporate debt securities, U.S. Treasury securities, and obligations of U.S. Government Agencies and other municipalities. At December 31, 2017, $20.3 million of marketable securities were in net unrealized loss positions which were included in "Accumulated Other Comprehensive Income" in the unaudited Consolidated Balance Sheets included elsewhere in this Quarterly Report on Form 10 Q. A hypothetical 100 basis point change in interest rates would result in $0.3 million increase in interest income earned during the three months ended December 31, 2017.
Currency Rate Exposure
We have transactions and balances denominated in currencies other than the U.S. dollar.functional currency of the transacting entity. Most of these transactions or balancescarrying foreign exchange risk are denominated in Euros, British PoundsGermany, the United Kingdom, and a variety of Asian currencies.China. Sales in currencies other than the U.S. dollar were approximately 29%24% and 37%38% of our total sales, respectively, during the three months ended December 31, 20172022 and 2016.2021. These sales were made primarily by our foreign subsidiaries, which have cost structures that substantially align with the currency of sale.
45
In the normal course of our business, we have liquid assets denominated in non-functional currencies which include cash, short-term advances between our legal entities and accounts receivable which are subject to foreign currency exposure. Such balances were approximately $129.5$102.8 million and $51.6$80.4 million, respectively, at December 31, 20172022 and September 30, 2017,2022, and relatedprimarily relate to the Euro, British Pound, and a variety of Asian currencies.the Chinese yuan. We mitigate the impact of potential currency translation losses on these short-term intercompany advances by the timely settlement of each transaction, generally within 30 days. We also utilize forward contracts to mitigate our exposures to currency movement. We incurred foreign currency gains of $0.9 million and losses of $2.0$1.9 million and $0.5 million, respectively, during the three months ended December 31, 20172022 and 2016,2021, respectively, which related to the currency fluctuation on these balances between the time the transaction occurred and the ultimate settlement of the transaction. A hypothetical 10% change in foreign exchange rates at December 31, 20172022 and 20162021 would result in an approximate change of $0.6$1.4 million and $0.3less than $3.1 million, respectively, in our net income during the three months ended December 31, 20172022 and 2016.2021.
37
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, and pursuant to Rules 13a‑15(e)13a-15(e) and 15d‑15(e)15d-15(e) under the Securities Exchange Act, of 1934, the Company’s management, including our chief executive officer and chief financial officer, has concluded that our disclosure controls and procedures are effective.
In October 2022, we acquired B Medical Systems S.á r.l. and its subsidiaries (“B Medical”). We are in the process of evaluating the existing controls and procedures of B Medical and integrating B Medical into our internal control over financial reporting. In accordance with SEC Staff guidance permitting a company to exclude an acquired business from management’s assessment of the effectiveness of internal control over financial reporting for a period of one year following the date on which the acquisition is completed, we have excluded B Medical’s internal control over financial reporting from our assessment of disclosure controls and procedures as of the end of the period covered by this report. The total assets and total revenues of B Medical represent 11% and 23%, respectively, of the related consolidated financial statement amounts as of and for the three months ended December 31, 2022. Refer to Note 5, “Business Combinations – Acquisition Completed in Fiscal Year 2023” in the Notes to the unaudited consolidated financial statements included in Item 1 “Consolidated Financial Statements” of this Quarterly Report on Form 10-Q.
Change in Internal Controls. ThereExcept for the acquisition of B Medical noted above, there were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
3846
PART II. OTHER INFORMATION
We are subject to various legal proceedings, both asserted and unasserted, that arise in the ordinary course of business. We cannot predict the ultimate outcome of such legal proceedings or in certain instances provide reasonable ranges of potential losses. However, as of the date of this Quarterly Report on Form 10‑Q,10-Q, we believe that none of these claims will have a material adverse effect on our consolidated financial condition or results of operations. In the event of unexpected subsequent developments and given the inherent unpredictability of these legal proceedings, there can be no assurance that our assessment of any claim will reflect the ultimate outcome and an adverse outcome in certain matters could, from time-to-time,time to time, have a material adverse effect on our consolidated financial condition or results of operations in particular quarterly or annual periods.
You should carefully review and consider the information regarding certain factors that could materially affect our business, consolidated financial condition or results of operations set forth under Item 1A. Risk Factors in our 20172022 Annual Report on Form 10‑K.10-K. There have been no material changes from the risk factors disclosed in our 20172022 Annual Report on Form 10‑K. 10-K. We may disclose changes to risk factors or additional factors from time to time in our future filings with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
| | | | | | |
Period of Repurchase | Total Number of Shares Purchased | | Average Price Paid Per Share | Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs (#) (2) (3) | | Maximum Number |
October 1 – 31, 2022 | - | | - | - | | 50 |
November 1 – 30, 2022 | 6,090,134 | $ | 57.47 | 6,090,134 | $ | 1,000 |
December 1 – 31, 2022 | - | | - | - | | 1,000 |
Total | 6,090,134 | $ | 57.47 | 6,090,134 | $ | 1,000 |
Share Repurchase Program
On September 29, 2015, our Board of Directors approved a share repurchase program for up to $50 million worth of our common stock. The timing and amount of any shares repurchased are based on market and business conditions, legal requirements and other factors and may be commenced or suspended at any time at our discretion. There were no shares repurchased under this program during the three months ended December 31, 2017.
| (1) | On November 4, 2022, our Board of Directors approved a new share repurchase program authorizing the repurchase of up to $1.5 billion of our common stock, or the 2022 Repurchase Program, and terminated our previously authorized $50 million share repurchase program. On November 23, 2022, as part of the 2022 Repurchase Program, we entered into an accelerated share repurchase agreement, or the ASR Agreement, with JPMorgan Chase Bank, National Association, or the Dealer, for the repurchase of up to $500 million of our common stock. Approximately 6.1 million shares of common stock, representing approximately 70% of the total shares of common stock expected to be repurchased under the ASR Agreement were received by us and retired and the Average Price Paid Per Share is calculated based on 70% of the amount we initially paid under the ASR Agreement and the number of shares of common stock initially delivered to us. The total number of shares to be repurchased under the ASR Agreement, and the average price paid per share, will be determined at the settlement of the ASR Agreement and will be based on the average of the daily volume-weighted average price of our common stock during the term of the ASR Agreement, less a discount and subject to adjustments pursuant to the terms and conditions of the ASR Agreement. See Note 11, “Stockholders’ Equity” in the Notes |
3947
| to the unaudited consolidated financial statements included in Item 1 "Consolidated Financial Statements" of this Quarterly Report on Form 10-Q for additional information about the ASR Agreement. |
| (2) |
The following exhibits are included herein:
| | |
Exhibit No. |
| Description |
| |
|
10.1 | ||
| | |
| ||
| ||
| ||
| ||
| ||
| ||
| ||
31.01 | | |
| | |
31.02 | | |
| | |
32 | | |
| | |
101 | | The following material from the Company’s Quarterly Report on Form |
| | |
104 | | Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101). |
| | |
* | | |
4048
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
|
|
| |
Date: February | /s/ Lindon G. Robertson |
| Lindon G. Robertson |
| Executive Vice President and Chief Financial Officer |
| (Principal Financial Officer) |
| |
Date: February | /s/ |
|
|
| Senior Vice |
| (Principal Accounting Officer) |
4149