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 Quarterly 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 and nine months ended June 30, 2021 and 2020.
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 and nine months ended June 30, 2021 as compared to the
three and nine months ended June 30, 2020.
Liquidity and Capital Resources. This section provides an analysis of our
? liquidity and changes in cash flows as well as a discussion of available
borrowings and contractual commitments.
You should read the MD&A in conjunction with our unaudited consolidated
financial statements and related notes included elsewhere in this Quarterly
Report on Form 10-Q. 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" below for a discussion of
important factors that could cause our actual results to differ materially from
our expectations.
Sale of Semiconductor Cryogenics Business
In the fourth quarter of fiscal year 2018, we entered into a definitive
agreement to sell our semiconductor cryogenics business to Edwards Vacuum LLC (a
member of the Atlas Copco Group), or Edwards, for approximately $675.0
million in cash, which was subject to customary adjustments. We originally
acquired the semiconductor cryogenics business in 2005 as part of the
acquisition of Helix Technology Corporation. On July 1, 2019, we completed the
sale of the semiconductor cryogenics business. Any results related to the
semiconductor cryogenics business have been classified as discontinued
operations.
Separation
On May 10, 2021, we announced our intention to separate our business into two
independent, publicly traded companies. We plan to spin -off our semiconductor
business, which operates as our Semiconductor Solutions Group segment through a
pro rata distribution of shares to our common stockholders. Completion of the
proposed spin-off is subject to certain conditions, including final approval by
our Board of Directors. We are targeting to complete the separation of the
business before the end of calendar year 2021.
Impact of the COVID-19 Pandemic
During the COVID-19 pandemic, our facilities have remained operational with only
required personnel on site, and the balance of employees working from home.
Both our semiconductor and life sciences segments fall within the classification
of "Essential Critical Infrastructure Sector" as defined by the U.S. Department
of Homeland Security and have continued operations during the COVID-19 pandemic.
We have followed government guidance in each region and
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country and have implemented U.S. Centers for Disease Control and Prevention
social distancing guidelines and other applicable best practices to protect the
health and safety of our employees. In the Life Sciences business, our
operations are accepting customer orders for all of their offerings and are fast
tracking customer requests which support research and development and testing
related to the COVID-19 virus. The Semiconductor Solutions business continues to
supply critical chip manufacturing equipment and support services globally. The
COVID-19 pandemic has not had a substantial negative impact on our financial
results and a portion of the impact has been mitigated by our realignment of
resources to satisfy incremental orders related to virus research. As states
safely reopen the economy, get people back to work, and ease social restrictions
while minimizing the health impacts of COVID-19, future impacts on our financial
results will depend on future variants of the virus and vaccine effectiveness
against the variants, which are not fully determinable, as the full impact of
the pandemic on the economy and markets which we serve is as yet unknown. 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 product and the potential impact to our operations if
there is a significant 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-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, 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 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, the impact
of the COVID-19 pandemic, the expected benefits and other statements relating to
our divestitures and acquisitions, including the separation of our business into
two independent, publicly traded companies, our adoption of newly issued
accounting guidance, the levels of customer spending, general economic
conditions, the sufficiency of financial resources to support future operations,
and capital 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 our Annual Report on Form 10-K for the fiscal year ended September
30, 2020, or the 2020 Annual Report on Form 10-K , filed with the U.S.
Securities and Exchange Commission, or SEC, on November 18, 2020, as updated
and/or supplemented in subsequent filings with the SEC, including under Item 1A
"Risk Factors" in Part II of this 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 to reflect events or circumstances that
occur after the date of this Quarterly Report on Form 10-Q or to reflect the
occurrence or effect of 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. Any additional precautionary statements made in our 2020 Annual
Report on Form 10-K should be read as being applicable to all related
forward-looking statements whenever they appear in this Quarterly Report on
Form 10-Q.
Unless the context indicates otherwise, references in this Quarterly Report on
Form 10-Q to "we", "us", "our" and "the Company" refer to Brooks
Automation, Inc. and its consolidated subsidiaries.
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OVERVIEW
We are a leading global provider of semiconductor manufacturing automation
solutions for the semiconductor industry, and life science sample-based services
and solutions for the life sciences market. In the semiconductor manufacturing
market, we provide precision robotics, integrated automation systems and
contamination control solutions to semiconductor fabrication plants, or fabs,
and original equipment manufacturers, or OEMs, worldwide. In the life sciences
market, we offer a full suite of services and solutions for analyzing, managing,
and storing biological and chemical compound samples to advance research and
development for clinical, pharmaceutical, and other scientific endeavors. Our
life sciences solutions include gene sequencing and synthesis, a broad suite of
high-throughput automated cryogenic storage products, related consumables,
sample inventory software, as well as fully outsourced solutions for sample
storage, transport, and inventory management. Our leadership positions and our
global support capability in each of these markets make us a valued business
partner to the largest semiconductor and semiconductor capital equipment
manufacturers and pharmaceutical and life sciences research institutions in the
world. In total, we employ approximately 4,000 full-time employees worldwide and
have sales in more than 80 countries. We are headquartered in Chelmsford,
Massachusetts and have operations in North America, Asia, and Europe.
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 vacuum environments. We are a
leader in wafer automation and contamination controls solutions and services
that are designed to improve throughput, yield, and cost of ownership of tools
in semiconductor fabs. Our product offerings include vacuum and atmospheric
robots, turnkey vacuum and atmospheric wafer handling systems, as well as wafer
carrier cleaning and reticle storage systems. We also capture the complete life
cycle of value through our global service network of expert application and
field engineers who are located close to our customers. Our services include
rapid refurbishment of robots to stringent specifications, upgrades to improve
equipment productivity, and proactive monitoring and diagnostics for predictive
risk management and improved up-time of the installed base. A majority of our
research and development spending advances our current product lines and drives
innovations for new product offerings. We invest in research and development
initiatives within the Brooks Semiconductor Solutions Group segment to maintain
continued leadership position in the markets we serve. Our investments in Vacuum
Automation and Contamination Control include ramping our intelligent vacuum
robot platform, MagnaTran LEAPTM, with new designs at customers releasing tools
for semiconductor technology nodes at 10 nanometers and below. In addition, our
new PuroMaxx LEAPTM carrier clean product line brings new innovation to handle
new contamination control challenges at 3nm and below. As the market for extreme
ultraviolet, or EUV, lithography expands, we will continue our investment in EUV
pod cleaning and reticle storage. Our initiatives with our Guardian LEAPTM
product line for EUV reticle storage will employ new innovation to solve many
contamination challenges with EUV reticles. In the third quarter of fiscal year
2021, we acquired collaborative robots and automation subsystems developer
Precise Automation, Inc., or Precise, a leading developer of collaborative
robots and automation subsystems headquartered in Fremont, California. The
acquisition is expected to expand our existing offerings within the Brooks
Semiconductor Solutions Group segment.
In the life sciences sample management market, we utilize our core technology
competencies and capabilities in automation and cryogenics to provide
comprehensive bio-sample management solutions to a broad range of end markets
within the life sciences industry. Our offerings include automated ultra-cold
storage freezers, consumable sample storage containers, instruments which assist
in the workflow of sample management, and both on-site and off-site full sample
management 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, we have acquired and developed essential capabilities
required to strategically address the sample management needs across multiple
end markets within the life sciences industry.
Our life sciences portfolio includes products and services that we acquired to
bring together a comprehensive capability to service our customers' needs in the
sample-based services arena. We continue to develop the acquired products and
services offerings through the combined expertise of the newly acquired teams
and our existing research and development resources. This approach of
acquisition, investment, and integration has allowed us to accelerate our
internal development and that of the acquired entity, significantly decreasing
our time to market.
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We have also strengthened and broadened our product portfolio and market reach
by investing in internal product development. For the fiscal years ended 2020,
2019 and 2018, more than 29% of our cumulative research and development spending
was focused on innovating and advancing solutions in the life sciences market.
We expect to continue investing in research and development and making strategic
acquisitions with the objective of expanding our offerings in the life sciences
market. Within our Life Sciences Products segment, we have developed and
continue to develop automated biological sample storage solutions for operating
in ultra-low temperature environments. Our customers are using our automated
storage solutions from room temperature to -196°C. Our BioStore™ II's unique
design allows dual temperature storage down to -80°C with the industry's highest
throughput of sample retrieval. We recently launched the BioStore™ IIIv that
compliments the BioStore™ III Cryo product line and offers improved data
management and sample security for vaccines and biologics stored at -80°C.
Within our Life Sciences Services segment, our GENEWIZ business advances
research and development activities in gene sequencing, synthesis and related
services to meet market demands. Recently, enabled by newly developed
proprietary technologies, GENEWIZ launched a portfolio of new services,
targeting analysis of adeno-associated virus, a common vector used in cell and
gene therapy. We will continue to focus on developing processes and technologies
that can streamline sample to data workflow.
Business and Financial Performance
Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020
Results of Operations - Revenue for the three months ended June 30, 2021
increased 43% to $315.3 million, as compared to the corresponding period of the
prior fiscal year. Gross margin was 45.8% for the three months ended June 30,
2021, as compared to 42.1% for the corresponding period of the prior
fiscal year, an increase in gross profit of $51.6 million. Operating expenses
were $94.2 million during the three months ended June 30, 2021, as compared to
$73.7 million during the corresponding period of the prior fiscal year, an
increase of $20.5 million. Operating income was $50.2 million during the third
quarter of fiscal year 2021, as compared to $19.1 million for the corresponding
period of the prior fiscal year. Income from continuing operations was $39.2
million for the third quarter of fiscal year 2021, as compared to $13.7 million
for the corresponding period of the prior fiscal year.
Nine Months Ended June 30, 2021 Compared to Nine Months Ended June 30, 2020
Results of Operations - Revenue for the nine months ended June 30, 2021
increased 31% to $851.4 million, as compared to the corresponding period of the
prior fiscal year. Gross margin was 45.2% for the nine months ended June 30,
2021, as compared to 41.2% for the corresponding period of the prior fiscal
year, an increase in gross profit of $116.7 million. Operating expenses were
$273.1 million during the nine months ended June 30, 2021, as compared to $223.7
million during the corresponding period of the prior fiscal year, an increase of
$49.4 million. Operating income was $111.7 million during the nine months ended
June 30, 2021, as compared to $44.3 million for the corresponding period of the
prior fiscal year. Income from continuing operations was $90.1 million for the
nine months ended June 30, 2021, as compared to $36.1 million for the
corresponding period of the prior fiscal year.
June 30, 2021 Compared to September 30, 2020
Cash Flows and Liquidity - Cash, cash equivalents, restricted cash and
marketable securities were $286.3 million at June 30, 2021, as compared to
$305.7 million at September 30, 2020. The decrease of $19.4 million from
September 30, 2020 was comprised of cash inflows of $122.7 million from
operating activities; offset by outflows from investing and financing activities
which include $92.4 million for acquisitions, $34.6 million for capital
expenditures, and $22.3 million for dividends. Cash inflows from operating
activities was comprised of $148.9 million of earnings, including $88.9 million
of net income and $60.0 million of adjustments to net income for non-cash items,
partially offset by $26.2 million of cash used for the changes in operating
assets and liabilities.
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
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judgments that affect the reported amounts of assets, liabilities, revenue and
expenses, and related disclosure of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates, including those related to revenue,
intangible assets, goodwill, inventories, income taxes, 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,
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 Quarterly Report on Form 10-Q
and in the Notes to our audited consolidated financial statements included in
Part II, Item 8 "Financial Statements and Supplementary Data" in our 2020 Annual
Report on Form 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 Quarterly Report on Form 10-Q.
RESULTS OF OPERATIONS
Three and Nine Months Ended June 30, 2021 Compared to Three and Nine Months
Ended June 30, 2020
Revenue
We reported revenue of $315.3 million for the three months ended June 30, 2021,
as compared to $220.4 million for the corresponding period of the prior
fiscal year, an increase of $95.0 million, or 43%. We reported revenue of $851.4
million for the nine months ended June 30, 2021, as compared to $651.1 million
for the corresponding period of the prior fiscal year, an increase of $200.4
million, or 31%. The COVID-19 pandemic has had varying impacts on our business
for the three and nine months ended June 30, 2021. Further discussion of these
impacts by each segment are discussed in the paragraphs below.
Our Brooks Semiconductor Solutions Group segment reported revenue of $186.3
million for the three months ended June 30, 2021, compared to $127.1 million for
the corresponding period of the prior fiscal year, an increase of $59.2 million,
or 47%. During the three months ended June 30, 2021, Automation revenue
increased $43.2 million, driven by vacuum robots and systems, and services
revenue increased $2.3 million. The acquisition of Precise in April 2021 added
$3.3 million of revenue. Contamination control solutions revenue increased $16.0
million primarily driven by our carrier clean solutions and reticle stocker
solutions product lines. For the nine months ended June 30, 2021, our Brooks
Semiconductor Solutions Group segment reported revenue of $474.7 million,
compared to $370.8 million for the corresponding period of the prior
fiscal year, an increase of $103.9 million, or 28%. During the nine months ended
June 30, 2021, Automation revenue increased $111.2 million, driven by vacuum
robots and systems, and services revenue increased $5.3 million. The acquisition
of Precise added an additional $3.3 million of revenue. These increases were
partially offset by a decline in contamination control solutions revenue of $7.3
million. The semiconductor markets are cyclical and may fluctuate significantly
from quarter to quarter. Demand for our Brooks Semiconductor Solutions Group
segments' products and services is affected by these cycles and a prolonged
effect of the COVID-19 pandemic could negatively impact demand for our products
and services in this segment. To date, we have experienced some disruption in
our supply chain and operations as a result of the COVID-19 pandemic, which has
impacted the timing of some shipments to customers. We do not believe, however,
that COVID-19 pandemic has resulted in a negative impact to our bookings or
demand for our products in this segment.
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Our Brooks Life Sciences Products segment reported revenue of $48.6 million for
the three months ended June 30, 2021, as compared to $30.4 million for the
corresponding period of the prior fiscal year, an increase of $18.2 million, or
60%. For the nine months ended June 30, 2021, our Brooks Life Sciences Products
segment reported revenue of $146.5 million, as compared to $91.1 million for the
corresponding period of the prior fiscal year, an increase of $55.4 million, or
61%. The increase in revenue for both the three and nine months ended June 30,
2021 as compared to the same periods in the prior year was primarily driven by
demand for consumables and instruments. Revenue related to our automation cold
sample management systems and infrastructure services also contributed to the
increase in revenues in these periods.
Our Brooks Life Sciences Services segment reported revenue of $80.5 million for
the three months ended June 30, 2021, as compared to $62.9 million for the
corresponding period of the prior fiscal year, an increase of $17.6 million, or
28%. Revenue from GENEWIZ increased $21.1 million, or 56%, as compared to the
prior period. All service lines increased with the most significant impact
coming from next generation sequencing, Sanger sequencing and gene synthesis
services. We reported a decrease in revenue from Sample Repository Services of
$3.5 million due to a decline in outsourced genomic services which were provided
through an alliance with Infinity BiologiX LLC, formerly RUCDR, that was
terminated in the fourth quarter of fiscal year 2020. Offsetting this decrease
were increases in revenue across several product lines, including storage
services and sample administration. The acquisition of Trans-Hit
Biomarkers Inc., or THB, in December 2020 added $0.9 million of revenue for the
three months ended June 30, 2021. For the nine months ended June 30, 2021, our
Brooks Life Sciences Services segment reported revenue of $230.3 million, as
compared to $189.1 million for the corresponding period of the prior
fiscal year, an increase of $41.1 million, or 22%. Revenue from GENEWIZ
increased $45.4 million, or 38%, as compared to the prior period. All service
lines increased with the most significant impact coming from next generation
sequencing and gene synthesis services. We reported a decrease in revenue from
Sample Repository Services of $4.3 million due to the decline in outsourced
genomic services as described previously. Offsetting this decline were increases
across several product lines, including storage services and informatics, which
was driven by the acquisition of RURO. In total, the acquisitions of RURO and
THB added $4.4 million of revenue for the nine months ended June 30, 2021 as
compared to the prior year period.
We estimate the impact of the COVID-19 pandemic on our two life sciences
segments' revenue for the three and nine months ended June 30, 2021, an increase
to revenue of approximately $12 million and $39 million, respectively.
Revenue generated outside the United States was $206.6 million, or 66% of total
revenue, for the three months ended June 30, 2021, as compared to $141.3
million, or 64% of total revenue, for the corresponding period of the prior
fiscal year. Revenue generated outside the United States was $541.6 million, or
64% of total revenue, for the nine months ended June 30, 2021, as compared to
$342.4 million, or 59% of total revenue, for the corresponding period of the
prior fiscal year. We had no individual customer that accounted for more than
10% of our consolidated revenue for the three and nine months ended June 30,
2021. We had no individual customer that accounted for more than 10% of our
consolidated revenue for the three months ended June 30, 2020.We had one
customer that accounted for more than 10% of our consolidated revenue for the
nine months ended June 30, 2020.
Operating Income
We reported operating income of $50.2 million for the three months ended June
30, 2021, as compared to $19.1 million for the three months ended June 30, 2020.
The increase of 163% was driven by higher gross profit of $51.6 million,
partially offset by an increase in operating expenses of $20.5 million. Within
operating expenses, selling, general, and administrative expenses increased
$16.2 million, and research and development expenses increased $4.3 million.
Restructuring expenses were essentially flat compared to the prior year period.
During the nine months ended June 30, 2021, we reported operating income of
$111.7 million, compared to $44.3 million for the corresponding period of the
prior fiscal year. The increase of 152% was driven by higher gross profit of
$116.7 million, partially offset by an increase in operating expenses of $49.4
million. Within operating expenses, selling, general, and administrative
expenses increased $42.8 million, and research and development expenses
increased $7.6 million. Restructuring expenses decreased $1.0 million. Operating
income for the nine months ended June 30, 2021 included $5.5 million of cost
accrued for tariff liabilities on intercompany import activity in fiscal years
2016 through 2020. The costs resulted from an internal review of the
transaction value used to calculate tariffs on intercompany
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imports of samples shipped from our GENEWIZ business. The drivers of the
changes in gross profit, research and development, and selling, general and
administrative expenses for the periods presented are discussed in further
detail below.
Operating income for our Brooks Semiconductor Solutions Group segment was $43.5
million for the three months ended June 30, 2021, as compared to $22.7 million
for the corresponding period of the prior fiscal year. Operating income for the
three months ended June 30, 2021 included $1.2 million of charges for
amortization related to completed technology, as compared to $0.7 million of
these charges incurred during the corresponding period of the prior fiscal year.
Operating income for the three months ended June 30, 2021 also includes a $0.1
million charge related to the purchase accounting impact on inventory. Adjusted
operating income for our Brooks Semiconductor Solutions Group segment, which
excludes the charges mentioned above, was $44.8 million for the three months
ended June 30, 2021, as compared to $23.4 million for the corresponding period
of the prior fiscal year. Operating income for our Brooks Semiconductor
Solutions Group segment was $97.6 million for the nine months ended June 30,
2021 as compared to $52.9 million for the corresponding period of prior fiscal
year. Operating income for the nine months ended June 30, 2021 included $1.9
million of charges for amortization related to completed technology, as compared
to $2.2 million of these charges incurred during the corresponding period of the
prior fiscal year. Operating income for the three months ended June 30, 2021
also includes a $0.1 million charge related to the purchase accounting impact on
inventory. Adjusted operating income for our Brooks Semiconductor Solutions
Group segment, which excludes the charges mentioned above, was $99.6 million for
the nine months ended June 30, 2021, compared to $55.1 million for the
corresponding period of the prior fiscal year. Please refer to Note 15, "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.
Operating income for our Brooks Life Sciences Products segment was $8.7 million
for the three months ended June 30, 2021, as compared to $2.2 million for the
corresponding period of the prior fiscal year. Operating income for our Brooks
Life Sciences Products segment includes charges for amortization related to
completed technology of $0.4 million and $0.3 million for the three months ended
June 30, 2021 and 2020, respectively. Adjusted operating income for our Brooks
Life Sciences Products segment, which excludes the charges mentioned above, was
$9.1 million for the three months ended June 30, 2021, as compared to $2.5
million for the corresponding period of the prior fiscal year. During the nine
months ended June 30, 2021, operating income for our Brooks Life Sciences
Products segment was $27.3 million, as compared to $4.1 million for the
corresponding period of the prior fiscal year. Operating income for our Brooks
Life Sciences Products segment includes charges for amortization related to
completed technology of $1.0 million and $0.9 million, respectively, for the
nine months ended June 30, 2021 and 2020. Adjusted operating income for our
Brooks Life Sciences Products segment, which excludes the charges mentioned
above, was $28.3 million for the nine months ended June 30, 2021, as compared to
$5 million for the corresponding period of the prior fiscal year. Please refer
to Note 15, "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.
Operating income for our Brooks Life Sciences Services segment was $12.2 million
for the three months ended June 30, 2021, as compared to $2.0 million for the
corresponding period of the prior fiscal year. Operating income for our Brooks
Life Sciences Services segment includes charges for amortization related to
completed technology of $1.7 million and $1.8 million for the three months ended
June 30, 2021 and 2020, respectively. Adjusted operating income for our Brooks
Life Sciences Service segment, which excludes the amortization expense was $13.8
million for the three months ended June 30, 2021, as compared to $4.1 million
for the corresponding period of the prior fiscal year. During the nine months
ended June 30, 2021, operating income for our Brooks Life Sciences Services
segment was $30.9 million, as compared to $10.2 million for the corresponding
period of the prior fiscal year. Operating income for our Brooks Life Sciences
Services segment includes charges for amortization related to completed
technology of $5.2 million for both the nine months ended June 30, 2021 and
2020. The nine months ended June 30, 2021 also includes $5.5 million of cost
accrued for tariff liabilities in the nine months ended June 30, 2021 discussed
above. Adjusted operating income for our Brooks Life Sciences Service segment,
which excludes the charges mentioned above, was $41.5 million for the nine
months ended June 30, 2021, as compared to $15.6 million for the corresponding
period of the prior fiscal year. Please refer to Note 15, "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.
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We estimate that the impact of the COVID-19 pandemic on our two life sciences
segments' operating income was a net increase of approximately $7 million and
$22 million during the three and nine months ended June 30, 2021, respectively.
The increase was primarily driven by the revenue impacts to the life sciences
segments noted above and lower expenses related to travel and trade shows.
Gross Margin
We reported gross margins of 45.8% for the three months ended June 30, 2021, as
compared to 42.1% for the corresponding period of the prior fiscal year. Gross
margin for the third quarter of fiscal year 2021 as compared to the
corresponding period of the prior fiscal year increased in all segments. The
Brooks Life Sciences Services segment gross margins increased by 8.1 percentage
points, the Brooks Life Sciences Products segment gross margins increased by 3.0
percentage points and the Brooks Semiconductor Solutions Group segment gross
margins increased by 1.9 percentage points as compared to the corresponding
period of the prior fiscal year. Cost of revenue for the three months ended June
30, 2021, included $3.4 million of charges related to amortization of completed
technology, as compared to $2.8 million during the corresponding period of the
prior fiscal year. The three months ended June 30, 2021 also included a charge
of $0.1 million related to the purchase accounting impact on inventory. There
were no such charges in the same period in the prior year. Excluding
amortization and the purchase accounting impact on inventory, gross margin
expanded 3.4 percentage points during the three months ended June 30, 2021, as
compared to the corresponding period of the prior fiscal year. During the nine
months ended June 30, 2021, we reported gross margins of 45.2%, as compared to
41.2% for the corresponding period of the prior fiscal year. Gross margins
increased in all segments. The Brooks Life Sciences Services segment gross
margins increased by 5.3 percentage points, the Brooks Semiconductor Solutions
Group segment gross margins increased by 3.6 percentage points and the Brooks
Life Sciences Products segment gross margins increased by 3.1 percentage points,
as compared to the corresponding period of the prior fiscal year. Cost of
revenue for the nine months ended June 30, 2021 included $8.1 million of charges
related to amortization of completed technology, as compared to $8.2 million
during the corresponding period of the prior fiscal year, and charges of $6.1
million accrued for the tariff liabilities discussed in the "Operating Income"
section above. The nine months ended June 30, 2021 also included a $0.1 million
charge related to the purchase accounting impact on inventory. There were no
such charges for the nine months ended June 31, 2020. Excluding amortization,
the purchase accounting impact on inventory, and the $5.5 million of tariff
charges related to prior fiscal years, margins expanded 4.3 percentage points
during the nine months ended June 30, 2021, as compared to the corresponding
period of the prior fiscal year.
Our Brooks Semiconductor Solutions Group segment reported gross margins of 44.0%
for the three months ended June 30, 2021, as compared to 42.1% for the
corresponding period of the prior fiscal year. The increase of 1.9 percentage
points was driven by volume leverage from our automation products and favorable
product mix. Cost of revenue for the three months ended June 30, 2021 included
$1.2 million of charges for amortization related to completed technology, as
compared to $0.7 million of these charges incurred during the corresponding
period of the prior fiscal year. In addition, the three months ended June 30,
2021 included a charge of $0.1 million related to the purchase accounting impact
on inventory. There were no such charges in the corresponding period of the
prior fiscal year. Excluding the impact of the amortization of completed
technology and the purchase accounting impact on inventory, gross margins
increased 2.0 percentage points during the three months ended June 30, 2021, as
compared to the corresponding period of the prior fiscal year. During the nine
months ended June 30, 2021, our Brooks Semiconductor Solutions Group segment
reported gross margins of 43.6%, as compared to 40.0% for the corresponding
period of the prior fiscal year. The increase of 3.6 percentage points was
driven by volume leverage from our automation products and favorable product
mix. Cost of revenue for the nine months ended June 30, 2021 included $1.9
million of charges for amortization related to completed technology, as compared
to $2.2 million of these charges incurred during the corresponding period of the
prior fiscal year. The nine months ended June 31, 2021 also included a $0.1
million charge related to the purchase accounting impact on inventory. Excluding
the impact of the amortization of completed technology and the purchase
accounting impact on inventory, gross margins increased 3.4 percentage points
during the nine months ended June 30, 2021, as compared to the corresponding
period of the prior fiscal year.
Our Brooks Life Sciences Products segment reported gross margins of 46.6% for
the three months ended June 30, 2021, as compared to 43.6% for the corresponding
period of the prior fiscal year. The increase of 3.0 percentage points
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was primarily driven by volume leverage related to increased sales in our
consumables and instruments product lines. Cost of revenue included $0.4 million
of charges for amortization related to completed technology for the three months
ended June 30, 2021, as compared to $0.3 million for the corresponding period of
the prior fiscal year. Excluding the impact of the amortization of completed
technology, margins expanded 3.0 percentage points during the three months ended
June 30, 2021, as compared to the corresponding period of the prior fiscal year.
During the nine months ended June 30, 2021, our Brooks Life Sciences Products
segment reported gross margins of 45.9%, as compared to 42.8% for the
corresponding period of the prior fiscal year. The increase of 3.1 percentage
points was primarily driven by volume leverage related to increased sales in our
consumables and instruments product lines. Cost of revenue for the nine months
ended June 30, 2021 and 2020 included $1.0 million of charges for amortization
related to completed technology, as compared to $0.9 million in the same period
of the prior fiscal year. Excluding the impact of the amortization of completed
technology, margins expanded 2.8 percentage points during the nine months ended
June 30, 2021, as compared to the corresponding period of the prior fiscal year.
Our Brooks Life Sciences Services segment reported gross margins of 49.4% for
the three months ended June 30, 2021, as compared to 41.4% for the corresponding
period of the prior fiscal year. The increase of 8.1 percentage points was
driven by volume leverage, as well as the favorable benefit of 4.4 points from
the reduction of outsourced genomic services under the alliance contract
referenced above. Cost of revenue for the three months ended June 30, 2021 and
2020 included $1.7 million of charges for amortization related to completed
technology, as compared to $1.8 million in the corresponding period of the prior
fiscal year. Excluding the impact of the amortization of completed technology,
margins expanded 6.8 percentage points during the three months ended June 30,
2021, as compared to the corresponding period of the prior fiscal year. During
the nine months ended June 30, 2021, our Brooks Life Sciences Services segment
reported gross margins of 47.9%, as compared to 42.6% for the corresponding
period of the prior fiscal year. The improvement of 5.3 points was driven by
volume leverage and revenue mix, partially offset by the impact of the $5.5
million of cost accrued for the tariff liabilities as discussed above. The
revenue mix benefit included 3.6 points from the reduction of outsourced genomic
services under the alliance contract referenced above. Cost of revenue for the
nine months ended June 30, 2021 and 2020 both included $5.2 million of charges
for amortization related to completed technology and $5.5 million related to the
tariff charges discussed above. Excluding the impact of the amortization of
completed technology, and the $5.5 million of tariff charges related to prior
periods, margins expanded 7.1 percentage points during the nine months ended
June 30, 2021, as compared to the corresponding period of the prior fiscal year.
Research and Development Expenses
Research and development expenses were $18.3 million and $51.3 million,
respectively, during the three and nine months ended June 30, 2021, as compared
to $14.0 million and $43.7 million, respectively, during the corresponding
periods of the prior fiscal year. The increase of $4.3 million and $7.6 million,
respectively, during the three and nine months ended June 30, 2021 as compared
to the corresponding periods of fiscal year 2020, was driven by all three
operating segments. Incremental research and development expenses related to
acquisitions were $0.4 million and $0.7 million, respectively, for the three and
nine months ended June 30, 2021. The drivers of the increase to research and
development expenses by segment are discussed in more detail below.
Research and development expenses in our Brooks Semiconductor Solutions Group
segment were $12.8 million and $35.5 million, respectively, during the three and
nine months ended June 30, 2021, as compared to $9.6 million and $30.6 million,
respectively, during the corresponding periods of the prior fiscal year. The
increase of $3.2 million and $4.9 million, respectively, during the three and
nine months ended June 30, 2021 as compared to the corresponding periods of
fiscal year 2020 was driven by higher payroll related costs and project spend to
support new product development initiatives in our product sets, as well as the
expense structure added from the Precise acquisition.
Research and development expenses in our Brooks Life Sciences Products segment
were $2.7 million and $7.4 million, respectively, during the three and nine
months ended June 30, 2021, as compared to $2.0 million and $6.5 million,
respectively, during the corresponding periods of the prior fiscal year. The
increase of $0.8 million and $1.0 million, respectively, during the three and
nine months ended June 30, 2021 as compared to the corresponding period of
fiscal year 2020 was driven by higher program and outside services costs.
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Research and development expenses in our Brooks Life Sciences Services segment
were $2.8 million and $8.4 million, respectively, during the three and nine
months ended June 30, 2021, as compared to $2.4 million and $6.7 million,
respectively, during the corresponding periods of the prior fiscal year. The
increase of $0.4 million and $1.7 million, respectively, during the three and
nine months ended June 30, 2021 as compared to the corresponding period of
fiscal year 2020 was primarily driven by higher payroll related costs and
project costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $75.9 million for the three
months ended June 30, 2021, as compared to $59.7 million for the corresponding
period of the prior fiscal year. The increase of $16.2 million was driven by
$10.2 million from segment selling, general and administrative expenses, $5.9
million from corporate expenses not allocated to our segments and $1.0 million
of incremental costs related to acquisitions. The segment selling, general and
administrative expenses are discussed in further detail below. The increase in
unallocated corporate expenses was primarily driven by mergers and acquisition
related expenses, which were $6.3 million for the three months ended June 30,
2021, compared to nominal charges for the three months ended June 30, 2020.
Merger and acquisition expenses for the three months ended June 30, 2021
included $5.8 million of costs related to the separation of the Company.
Unallocated corporate expenses also include amortization primarily related to
customer relationship intangible assets, which were $7.7 million and $7.6
million for the three months ended June 30, 2021 and 2020, respectively.
In connection with the announcement of the separation of our business into two
publicly-traded companies, we announced that the Automation company will retain
the Brooks Automation, Inc. name and the Life Sciences company will be rebranded
at the time of the separation. In connection with the rebranding, management is
assessing the utility, remaining useful life and fair values of the Life
Sciences trademark and tradename assets. The total net book value of these
intangible assets is $14.3 million as of June 30, 2021. The conclusion of
management's assessment of the impact of the rebranding could result in an
impairment charge of the asset values or an acceleration of amortization expense
in future periods.
Selling, general and administrative expenses were $221.6 million for the nine
months ended June 30, 2021, as compared to $178.9 million for the corresponding
period of the prior fiscal year. The increase of $42.8 million was driven by
$21.6 million from the segment selling, general and administrative expenses,
$21.2 million from corporate expenses not allocated to our segments and $2.7
million of incremental costs related to acquisitions. The segment selling,
general and administrative expenses are discussed in further detail below. The
increase in unallocated corporate expenses was primarily driven by mergers and
acquisition related expenses, which were $21.1 million for the nine months ended
June 30, 2021, compared to $0.5 million for the nine months ended June 30, 2020.
Merger and acquisition expenses for the nine months ended June 30, 2021 included
$19.6 million of costs related to the separation of the Company. Unallocated
corporate expenses also include amortization primarily related to customer
relationship intangible assets, which were $22.7 million and $23.1 million for
the nine months ended June 30, 2021 and 2020, respectively.
Selling, general and administrative expenses at the segment level, which are
discussed below, include corporate allocations from shared corporate function
which include finance, information technology, human resources, legal,
executive, governance, logistics and compliance, and variable compensation.
During the three and nine months ended June 30, 2021, corporate allocated
expenses increased $3.8 million and $7.4 million respectively, compared to the
corresponding prior periods, primarily due to higher variable compensation
accruals and IT infrastructure costs.
Selling, general and administrative expenses in our Brooks Semiconductor
Solutions Group segment were $25.7 million and $74.1 million, respectively, for
the three and nine months ended June 30, 2021, as compared to $21.2 million and
$65.0 million, respectively, for the corresponding periods of the prior fiscal
year. The increase of $4.5 million and $9.1 million, respectively, for the three
and nine months ended June 30, 2021 is primarily related to higher variable
compensation expense and corporate allocated costs, which were driven by the
factors discussed above, as well as the Precise acquisition which added $0.5
million of costs for the three and nine months ended June 30, 2021. These
increases were partially offset by lower travel and trade show expenses.
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Selling, general and administrative expenses in our Brooks Life Sciences
Products segment were $11.2 million and $32.5 million, respectively, for the
three and nine months ended June 30, 2021, compared to $9.0 million and $28.4
million, respectively, for the corresponding periods of the prior fiscal year.
The increase of $2.2 million and $4.1 million, respectively, for the three and
nine months ended June 30, 2021 over the corresponding periods of the prior
fiscal year was primarily driven by higher sales commission expenses, variable
compensation expense and corporate allocated costs, which were driven by the
factors discussed above. These items were partially offset by lower expenses
related to travel.
Selling, general and administrative expenses in our Brooks Life Sciences
Services segment were $24.9 million and $71.1 million, respectively, for the
three and nine months ended June 30, 2021, compared to $21.6 million and $63.6
million, respectively, for the corresponding periods of the prior fiscal year.
The increase of $3.3 million and $7.5 million, respectively, for the three and
nine months ended June 30, 2021 over the corresponding periods of the prior
fiscal year was primarily driven by variable compensation expense and
infrastructure costs related to acquisitions, partially offset by lower travel
expenses and lower bad debt expense.
Non-Operating Income (Expenses)
Interest income - During the three and nine months ended June 30, 2021, we
recorded interest income of $0.4 million and $0.5 million, respectively, as
compared to less than $0.1 million and $0.9 million, respectively, during the
corresponding periods of the prior fiscal year.
Interest expense - During the three and nine months ended June 30, 2021, we
recorded interest expense of $0.5 million and $1.5 million, respectively, as
compared to $0.8 million and $2.2 million, respectively, during corresponding
periods of the prior fiscal year.
Other income (expenses), net - During the three and nine months ended June 30,
2021, we recorded other expense net of $1.6 million and $0.1 million,
respectively, compared to other income, net of $0.5 million for the three months
ended June 30, 2020 and other expense, net of $1.3 million for the nine months
ended June 30, 2020. The primary driver of the increase in other expenses, net
in the three months ended June 30, 2021 as compared to the same period in the
prior year was due to an increase in foreign currency exchange losses of $1.5
million. The primary driver of the decrease in other expenses, net for the nine
months ended June 30, 2021 as compared to the same period in the prior year was
due to a decrease of foreign exchange losses of $1.6 million.
Income Tax Provision
We recorded an income tax provision of $9.4 million and $20.4 million,
respectively, during the three and nine months ended June 30, 2021. The tax
provision for the three months ended June 30, 2021 was primarily driven by the
provision on earnings from operations during the period. The provision was
partially offset by a $1.5 million benefit from the reversal of uncertain tax
positions during the quarter. The provision for the nine months ended June 30,
2021 was primarily driven by the provision on earnings from operations during
the period and was partially offset by a $2.7 million discrete stock
compensation windfall benefit for tax deductions that exceeded the associated
book compensation expense.
We recorded an income tax provision of $5.1 million and $5.6 million,
respectively, during the three and nine months ended June 30, 2020. The tax
provision for the three months ended June 30, 2020 was primarily driven by the
provision on earnings from operations during the period. The tax provision for
the nine months ended June 30, 2020 was primarily driven by the provision on
earnings from operations during the period. The tax provision was offset by a
$6.1 million discrete stock compensation windfall benefit for tax deductions
that exceeded the associated compensation expense in the period. During the nine
months ended June 30, 2020, we also recorded a discrete benefit of $0.5 million
from a reduction of deferred tax liabilities related to the extension of a tax
rate incentive in China.
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Discontinued Operations
On July 1, 2019, we completed the sale of the semiconductor cryogenics business
which we include as a discontinued operation in our unaudited consolidated
financial statements included elsewhere in this Quarterly Report on Form 10 Q.
During the first quarter of fiscal year 2021, the final net working capital was
determined which resulted in our payment of an additional $1.8 million to
Edwards in the nine months ended June 30, 2021. We generated a net loss from
discontinued operations, net of tax of $1.2 million for the nine months ended
June 30, 2021 related to our semiconductor cryogenics business. We recorded a
nominal loss related to our semiconductor cryogenics business for the three
months ended June 30, 2021. We did not record income or loss related to our
semiconductor cryogenics business for the three months ended June 30, 2020. We
generated a net loss from discontinued operations of $0.2 million for the nine
months ended June 30, 2020 related to our semiconductor cryogenics business. The
net loss from discontinued operations only includes direct operating expenses
incurred that (1) are clearly identifiable as costs being disposed of upon
completion of the sale and (2) will not be continued by us on an ongoing basis.
Indirect expenses which supported the semiconductor cryogenics business, and
which will remain as part of our continuing operations, are not reflected in net
loss from discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
Our semiconductor solutions business represents slightly more than half of our
revenue and is dependent on the demand for semiconductor capital equipment which
historically has experienced periodic downturns. We believe that we have
adequate resources to satisfy our working capital, financing activities, debt
service and capital expenditure requirements 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.
The discussion of our cash flows and liquidity that follows does not include the
impact of the disposition of the semiconductor cryogenics business and is stated
on a total company consolidated basis.
Overview of Cash Flows and Liquidity
Our cash and cash equivalents, restricted cash and marketable securities as of
June 30, 2021 and September 30, 2020 consist of the following (in thousands):
June 30, 2021 September 30, 2020
Cash and cash equivalents $ 269,862 $ 295,649
Restricted cash 12,710 6,877
Short-term marketable securities 101 67
Long-term marketable securities 3,637 3,101
$ 286,310 $ 305,694
Our cash is held in numerous locations throughout the world. As of June 30,
2021, we had cash and cash equivalents of $269.9 million, of which $206.1
million was held outside of the United States. If these funds are needed for our
U.S. operations, we would need to repatriate these funds. Although under current
tax laws any repatriation of these fund to the United States would likely not
result in further U.S. federal income tax, it is uncertain whether this will be
the case in the future based on changes to the tax laws that may be enacted. Our
intent is to 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. As of June 30, 2021 and September 30, 2020, we had marketable
securities of $3.7 million and $3.2 million, respectively. Our marketable
securities are generally readily convertible to cash without an adverse impact.
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Nine Months Ended June 30, 2021 Compared to Nine Months Ended June 30, 2020
Overview
Cash, cash equivalents, restricted cash and marketable securities were $286.3
million at June 30, 2021, as compared to $305.7 million at September 30, 2020.
The decrease of $19.4 million from September 30, 2020 was comprised of cash
inflows of $122.7 million from operating activities; offset by outflows from
investing and financing activities which include $92.4 million for acquisitions,
$34.6 million for capital expenditures, and $22.3 million for dividends. Cash
inflows from operating activities was comprised of $148.9 million of earnings,
including $88.9 million of net income and $60.0 million of adjustments to net
income for non-cash items, partially offset by $26.2 million of cash used for
the changes in operating assets and liabilities.
Operating Activities
Cash flows from operating 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 provided by operating activities was $122.7 million during the nine months
ended June 30, 2021 and was comprised primarily of $148.9 million of earnings,
including $88.9 million of net income and $60.0 million of adjustments to net
income for non-cash items. Partially offsetting these items was the net use of
cash of $26.2 million for the increase in net operating assets and liabilities.
The net increase in operating assets and liabilities consisted primarily of
increases in accounts receivable and inventory, partially offset by increases to
accrued expenses and other liabilities and accounts payable. Cash used in
operating activities was $13.9 million during the nine months ended June 30,
2020, comprised primarily of $91.5 million of cash taxes paid for the gain on
the sale of the semiconductor cryogenics business and a use of cash of $12.1
million related to increases in net operating assets and liabilities partially
offset by $89.6 million of earnings, comprised of $35.9 million of net income,
and $53.7 million of adjustments to net income for non-cash items. The net
increase in operating assets and liabilities consisted primarily of an increase
in inventory partially offset by increases in accrued expenses and other
liabilities, accrued compensation and accounts payable.
Investing Activities
Cash flows used in 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 $128.8 million during the nine
months ended June 30, 2021 and included cash outflows for acquisitions of $92.4
million and capital expenditures of $34.6 million. Cash used in investing
activities was $12.6 million during the nine months ended June 30, 2020. Cash
used in investing activities during the nine months ended June 30, 2020 included
cash outflows for capital expenditures of $29.7 million, $15.7 million for the
acquisition of RURO, and $10.8 million for the purchases of marketable
securities. These outflows were partially offset by cash inflows from the
maturities and sales of marketable securities of $44.7 million.
Financing Activities
Cash outflows for financing activities were $21.4 million during the nine months
ended June 30, 2021 which primarily consisted of cash outflows for cash dividend
payments of $22.3 million. Cash used in financing activities was $21.6 million
during the nine months ended June 30, 2020 which primarily consisted of cash
outflows for cash dividend payments of $22.1 million.
China Facility
In April 2019, we committed to construct a facility in Suzhou China, to
consolidate the Suzhou operations of the GENEWIZ business and provide
infrastructure to support future growth. The facility is being constructed in
two
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phases. We have incurred $23.2 million of capital expenditures to date related
to the construction of the facility, which includes $6.2 million and $13.8
million, respectively, for the three and nine months ended June 30, 2021.
Capital Resources
Term Loans
On October 4, 2017, we entered into a $200.0 million term loan with Morgan
Stanley Senior Funding, Inc., JPMorgan Chase Bank, N.A. and Wells Fargo
Securities, LLC pursuant to the terms of a credit agreement 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 loan principal amount may be increased by an aggregate
amount equal to $75.0 million plus any voluntary repayments of the term loan
plus any additional amount such that our secured leverage ratio is less than
3.00 to 1.00.
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. Subject to certain
conditions stated in the credit 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 credit agreement. We are required to
redeem the term loan at the principal amount then outstanding upon the
occurrence of certain events, as set forth in the credit agreement.
On July 1, 2019, in connection with the completion of the sale of our
semiconductor cryogenics business, we used $147.0 million of the cash proceeds
from the transaction to extinguish a portion of the outstanding balance at July
1, 2019 of the term loan.
The credit agreement, as amended, contains certain customary representations and
warranties, covenants and events of default. As of June 30, 2021, we were in
compliance with all covenants and conditions under the credit agreement, as
amended.
At June 30, 2021, the outstanding principal balance of the term loan was $49.7
million, excluding unamortized deferred financing costs of $0.3 million.
Borrowings under the term loan are subject to a variable interest rate. As a
result, we may experience exposure to interest rate risk due to the potential
volatility associated with the variable interest rate 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.
In connection with our acquisition of GENEWIZ Group in November 2018, we assumed
three five-year term loans, which matured and were repaid in full on June 30,
2021.
During the nine months ended June 30, 2021, the weighted average stated interest
rate on the term loans was 2.8%. During the nine months ended June 30, 2021, we
incurred aggregate interest expense of $1.3 million on the term loans, including
$0.2 million of deferred financing costs amortization. Our debt service
requirements are expected to be funded through our existing sources of liquidity
and operating cash flows.
Line of Credit
Facility
We maintain a revolving line of credit under a credit agreement with Wells Fargo
Bank, N.A. and JPMorgan Chase Bank, N.A. that provides for a revolving credit
facility of up to $75.0 million, subject to borrowing base availability, as
defined in the 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.
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As of June 30, 2021, we had approximately $49.8 million available for borrowing
under the line of credit. There were no amounts outstanding pursuant to the line
of credit as of June 30, 2021. The amount of funds available for borrowing under
the credit agreement may fluctuate each period based on our borrowing base
availability. The credit agreement 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 credit agreement as of
June 30, 2021. Although 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, and for strategic investments or
acquisitions.
Dividends
On August 3, 2021, our Board of Directors declared a cash dividend of $0.10 per
share payable on September 24, 2021 to common stockholders of record as of
September 3, 2021. Dividends are declared at the discretion of our Board of
Directors and depend on actual cash flow from operations, our financial
condition, debt service and capital requirements, and 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 or the impact of
the COVID-19 pandemic. We may reduce, delay or cancel a quarterly cash dividend
based on the severity of a cyclical downturn or if the effects of the COVID-19
pandemic are prolonged.
Share Repurchase Program
On September 29, 2015, our Board of Directors approved a share repurchase
program for up to $50.0 million worth of our common stock. The timing and amount
of any shares repurchased will be based on market and business conditions, legal
requirements and other factors and repurchases may be commenced or suspended at
any time at our discretion. There were no shares repurchased under this program
during the nine months ended June 30, 2021 and there have been no shares
repurchased under this program since its inception.
Contractual Obligations and Requirements
At June 30, 2021, we had non-cancellable commitments of $288.0 million,
including primarily purchase orders for inventory of $254.6 million, information
technology related commitments of $18.0 million, and China facility commitments
of $15.2 million.
At June 30, 2021, we had approximately $1.3 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 we fail to meet certain
contractual requirements. None of these obligations were called during the nine
months ended June 30, 2021, and we currently do not anticipate any of these
obligations to be called in the near future.
Off-Balance Sheet Arrangements
As of June 30, 2021, we did not have any off-balance sheet arrangements, as
defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
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