Feb 9, 2009
Executives
Michael W. McCarthy – Director of Investor Relations Robert J.
Lepofsky – President & Chief Executive Officer Martin S. Headley – Executive Vice President & Chief Financial Officer
Analysts
Christopher J. Muse – Barclays Capital Kate Kotlarsky – Goldman Sachs Hari Chandra – Deutsche Bank Patrick Ho – Stifel Nicolaus Timothy W Summers – Wunderlich Securities Ben Pang – Caris & Company Junaid Ahmed – Citi David Nierenberg – Nierenberg Investment Management
Operator
Please standby we are about to begin. Good afternoon and welcome to the Brooks Automation First Quarter Fiscal 2009 Earnings Conference Call.
Please be aware that today’s conference is being recorded. At this time, I would like to turn the call over to your speaker today, Mr.
Michael McCarthy, Director of Investor Relations at Brooks Automation. Please proceed Mr.
McCarthy.
Michael W. McCarthy
Thank you, Melissa and good afternoon everyone. My name is Mike McCarthy, Director of Investor Relations for Brooks Automation.
To welcome each of you who are joining us to discuss our fiscal 2009 first quarter results. Our press release and 10-Q were issued at about 4:00 pm Eastern Time and are available on our website as or copies of the slides used as background for the call this afternoon.
The URL is www.brooks.com. Before we begin I'd like to remind all participants that during the course of this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of ‘95.
At most there are number of factors that could cause actual results or events to differ materially from those indicated by such forward-looking statements. I refer to the section of our earnings release titled Safe Harbor Statement in the company's most recent filings with the SEC.
This call will remain archived for instant replay on our website until we report fiscal 2009 second quarter results in mid-May. Bob Lepofsky, our CEO, will open the call with some brief comments about our company's performance and strategic positioning.
He will be followed by Martin Headley, our CFO, who will provide a more detailed overview of our first quarter results after which he will turn the call back to Bob for a brief summary. Bob, will moderate the Q&A.
I will now turn the call over to Bob.
Robert J. Lepofsky
Thank you, Michael. Good day ladies and gentlemen.
We appreciate you taking the time to join us on our call today. The impact of the precipitous fall off of business in the global semiconductor capital equipment market has hit us and hit us hard in the December ending quarter.
As you know from the recent disclosures from some of the best names in the business Lam, Variant, KLA and Applied Materials business was not only down significantly in the last quarter, but is expected to be down further this quarter. Last quarter sequential revenues of our major customers fell off 25% to 35% and they are forecasting at least another 25% to 45% in the March ending quarter.
Each one of these companies is counted among our own largest customers. So, their under performance drives our under performance.
To give you some additional perspective on the current state of the industry, last quarter shipments to our top 10 OEM customers were of a staggering 67%, compared to just one year ago. But I will not use our time today to replay the reasons behind the declines, as I think everyone now well understands the dynamics driving the semiconductor capital equipment business rather I will focus my comments on Brooks specific issues.
Each of our business segments were negatively impacted in the quarter. The Automation Systems segment saw the biggest fall off, a 42% sequential revenue decline.
Our Critical Components segment saw a 21% decline, and our Global Customer Support segment saw a 23% sequential decline. Our extended factory business, which as its name implies is an extension of our OEM customers owned factories and is included in our Automation Systems segment saw a major fall off in business from ongoing Portland based business, consistent with OEM shipment fall off.
They were also negatively impacted as the anticipated shipment of new tools and support of two major OEM accounts from our Wuxi, China plant, which were expected to ramp in the December quarter were put on hold. The Wuxi plant capability is still considered critical to the go-forward strategy of these two customers and potentially one additional new customer was onsite in Wuxi this week to support their own Asian region initiatives.
However, today as these OEMs lack orders from the region for their newest tools, there is little current need for the output of the Wuxi factory. Our traditional Automation Systems business serves the needs of smaller OEMs, many who supply tools for non-semiconductor applications such as data storage products and LED manufacturing.
This group also saw a major fall off in business in the quarter. As we look forward, one of our challenges in planning shipments for both systems and components distends for new system builds at major OEM accounts is the number of finished tool sets currently on hand at our customer sites.
What little activity that is going on in our customer's factories today, is focused on reconfiguring almost finished systems rather than starting at a new system builds. We expect that this phenomenon will further depress our revenues for at least one more quarter giving our customers time to burn their work and process inventories.
Then we can expect to climb back to a maintenance level of activity with our largest OEM accounts. Our Global Customer Support business also slipped in the last quarter.
You may recall that we discussed the cannibalization of parts from unused tools that was taking place in fabs during our November conference call. This has continued and with utilization levels falling down to 30% in some fabs, there just isn't a lot of need for replacement parts and preventive services at the present time.
That said, as utilization rates begin to increase, we expect our customer support business will be a leading indicator of better days ahead. At present, however there is little hope for a quick turnaround in business.
As many of our largest customers are suggesting revenue fall offs for the March quarter of as much as 50% sequentially, clearly Brooks could see a comparable level of decline and we are preparing ourselves for the worst. However, as we will discuss, Brooks has taken actions that will substantially contain the EBITDA fall off during this period.
But before I comment on our plans going forward, I'd like to ask Martin to take a few moments to review in more depth the quarter just ended. Martin?
Martin S. Headley
Thank you very much Bob. As Mike mentioned earlier we have again posted slides to the Brooks website that we believe will be useful in getting a clear understanding of our results.
During my prepared comments, I'll make reference to the appropriate slide. On slide number three, you will see that the accelerating decline in business conditions across nearly all our markets over the quarter resulted in a 31% decline in revenues that grow, the loss before special charges from $10 million or $0.16 per diluted share to $29.8 million or $0.48 per share.
Special charges in the quarter were restructuring charges of $4.1 million related both to our third quarter reduction in total headcount by 10%, and certain of the headcount actions taken in January and February as part of our further 20% reduction. We also incurred another 1.2 million write-down of the investments in a Swiss public company, whose significant operations are in the semiconductor capital equipment market.
Net losses up to these special charges were $35.1 million or $0.56 per share. Slide number four, shows the summary of sequential quarterly operating performance.
The 31% revenue decline translated into a $16.7 million decline in gross profits and a $19.1 million reduction in operating profits before special charges as we incurred inventory provisions for excess and obsolete inventory, made additional research and development and business development investments for the future. These dynamics are probably best understood by turning to slide number five, where we bridge from the operating performance in the fourth quarter of fiscal 2008 to the performance in the first quarter of fiscal 2009.
Revenue declines were most pronounced in our Automated System segment of 42% step down as demand for complete systems or subsystems continue to be canceled or pushed out. This impacted our full spectrum of customers with larger customers significantly shirking the demands on our extended factory group in Portland and China and smaller OEMs pushing out orders for Brooks design vacuum and atmospheric backbones.
Our Critical Components business, which hit the forehead only experienced meaningful declines in semiconductor business, now saw a significant reduction in business in all of its served markets except solar. This resulted in a 21% decline in sequential revenues.
Finally, our GCO business was down 22.5%, with significant reductions in spares, legacy 200-millimeter products and even cut backs in service contract activities. Looking at specific carriers of revenue and profit performance we recognize license income on receipt of statements from relevant licensees and this results in quarterly volatility.
In the quarter, license income increased 0.4 million with dollar-for-dollar impact on operating profit. Excluding the unfavorable impact of $3 million of additional excess and obsolete inventory provisions, the Automated Systems business saw a 40% drop through on the $21.5 million of non-license revenue decrease.
Within the Critical Component segment the mix of demand decreases resulted in a high variable contribution loss mostly as a result of declines in higher variable margin instrumentation products. The global customer organization took $900,000 of additional excess inventory provision at the end of the 2008 fiscal year, excluding this impact the GCO business experienced a 23% profits flow through on revenues, as headcount reductions and other operation performance efficiencies within the service and repair business partially towed back the volume impact.
We remain committed to appropriate investments for the future and we utilize more external resources on our new Critical Components developments during the quarter. However, moving forward we have identified efficiencies in the more sustaining development activities as a result of our new business integration strategy and we will see some throttling back on the R&D spending in this line going forward.
Maintaining momentum on the company's growth strategies, we took an important step as we utilize external services to collaborate and enhance our strategic and tactical analysis that will accelerate both organic growth and acquisition tracks. We incurred an additional $917,000 on those activities.
The all actions against the company related to equity incentive matters are being resolved for a couple of quarters we continue to incur costs associated with contractual indemnification of a former officer and those cost levels have escalated as trial dates get closer. Excluding those matters SG&A expenses increased very slightly with continued investments in our IT systems overhaul.
Actions taken to simplify our infrastructure are starting to take an impact in reducing SG&A expenses in the second fiscal quarter. Slide number six summarizes what happened below the operating profit line, comparative to significantly impacted by the $203 million intangible asset impairment charge taken in the fourth quarter.
Net interest income was moderated in a declining rate environment and various strict full actions were executed to significantly reduce our foreign currency risk with a resulting $1 million reduction in other expense. Since we have a valuation allowance against our significant carry forward tax losses, we do not recognize an income tax benefit related to current period losses.
And thus there was a tax provision for the quarter of $391,000 all of which was non-cash met typical of the non-cash provision we would expect to record on a quarterly basis for the balance of the year. On slide number seven, we report on the components of the $17.6 million cash burn during the quarter.
We’ve taken adjusted EBITDA as a starting point reconciliation of net loss to adjusted EBITDA is shown as an appendix to our press release. For those modeling depreciation and amortization, amortization of intangibles was $4.2 million with $2.3 million recognized in cost of goods sold and depreciation was also $4.2 million.
We incurred restructuring cash flow of $3.3 million as compared to a $4.1 million provision. The interest income and strong balance sheet actions helped the cash out flow from operations to $14.5 [billion].
Capital expenditures of $5.1 million were principally related to the IT implementation and some deferred maintenance actions we were committed to before the extent of this downturn became so evident. Our cash commitments to finish out the IT implementation should only be meaningful in the fiscal second quarter, and as a result the cash expenditure run rate will reduce for the balance of the year.
Finally, we got a $937,000 cash benefit from currency translation of cash held offshore. On slide number eight, you will note that the cash and marketable securities moved from a $177.3 million to $159.7 million.
Our cash burn mitigation actions going forward focus on both the income statement and the balance sheet. I have to complement our sales organization credit collection and controllership leadership on their strong performance in managing receivables in this very tough environment where business failures amongst the customer base have already started, not only have our bad debt requirements being modest, but our receivables, days sale outstanding were driven down to 50 days.
Our inventory management was not a stellar with an increase in inventories of $3.6 million mostly associated with our ramp up of the Chinese extended factory facility that suffered significant customer delivery expansions as we are ready to operate at volume. Our traction on reducing inventory has been limited by the mismatch of our supply base lead times particularly from low cost sources and the overnight push outs and cancellations imposed by our customers.
The throttling back on our purchases is demonstrated by the $7.5 million reduction in accounts payable this is more pronounced when you realize the days purchases outstanding increased from 51 days to 52 days. Accrued restructuring cost increased as a result of provision for future expenditures made in the quarter.
This accrual should come down as significant restructuring payments are made over the current fiscal quarter. Over the next three slides, I will briefly cover our sequential segment performance.
On slide number nine, we set out the sequential performance of our Critical Components segment, where the impact of improved solar revenues was won by the intensity of semiconductor capital equipment and industrial market downturns. Gross margins reduced from 39.8% to 30.5% with significance under absorption of fixed costs including those intangibles amortization of these much lower activity levels.
Sequentially, operating expenses increased from $9.1 million to $10.9 million as a result of increased research and development expenditures outlined earlier and the higher shared service cost allocations resulting from declined activity levels in the Automated System segment. On the slide number 10 review the Automated Systems segment.
Revenue declines for this business were not only driven by declines in the end market for semiconductor capital equipment, but its also from inventory adjustments of major OEMs, who are reconfiguring inventories as part of that cash flow mitigation. Gross margins went negative with $3 million of inventory provisions, and under absorption on a business that is at 35% of the levels three quarters ago.
Operating expenses were reduced by $600,000 sequentially with the impacts of broader based restructuring activities across the whole company and a reduction in shared service cost allocations. On slide number 11 as previously noted spares and 200-millimeter legacy product declines grow much of the 22.5% reduction in GCO revenues.
The gross margin increase from fourth quarter levels of 9.2% depressed by inventory provisions to 13% in the first quarter reflects the continuing improvements in operations efficiencies and cost structures. Operating expenses increased by $600,000 as higher allocations of corporate cost given the higher automated systems decline, offset progress in streamlining the GCO overhead cost structure.
What is notable for this business is that excluding the impacts of those inventory charges and increased corporate cost allocations the business delivered the same dollar bottom line on $6.3 million less in revenues. Finally, on slide 12 some thoughts about the future.
Bookings for the first quarter were $43.7 million, a 54% decline over the fourth quarter of fiscal 2008. Together with public revenue or shipment guidance from our revenue, larger OEMs customers that project declines of anywhere from 20% to 45% this confirms that the top line picture for Brooks will be challenging in the fourth quarter.
As Bob will explain shortly, we continue to work through a major comprehensive bridge structuring that is more than a scale back of what we do today. The impact of this is that we are targeting exiting the June quarter a cash break-even of $80 million to $85 million.
Robert F. Lepofsky
Thank you, Martin. As Martin noted, we have put in place a number of actions to emerge from this period a more focused and more integrated company than we have ever been before.
We look to deliver profitable results and cash generation from a significantly reduced break-even point. To give you a sense of our progress along this path, I might note that at September 30, we had a quarterly cash break-even of a $105 million, today it is under $95 million, and by June it will approach $80 million.
That is a 24% reduction and represents about $100 million reduction in annual spending levels. Importantly, the majority of the savings are permanent resulting from changes in how we operate our business.
By taking advantage of this downturn to really integrate historically separate parts of our company, we have been able to begin to reduce headcount, floor space, and spending. Over the past couple of months, we have taken a hard look at a broad range of opportunities for cuts and spending across Brooks.
At the same time, we committed to continue to make important investments in areas we think are critical to our longer-term success. For example, we see significant payoff in our continued implementation of the new business systems platform, and that work is continued.
We remain excited about the prospect for several key product development programs and that work is continued. We believe we must broaden the base of our product portfolio and reach of our served markets so work to support those initiatives have also been fully funded.
Each of these decisions is added to our near term under performance, but each is a decision that we made after considerable thought and an eye to the future. As you may know, last month we announced the consolidation of our Chelmsford based pump and robotics activities into a single Critical Solutions Group.
That move will harness capabilities in two formally separate groups resulting in a linear more responsive organization. While we now have significantly fewer positions in both engineering and operations, the new organization will better leverage the skills and the experience of the people who remain.
The new group will operate in one existing facility, while freeing up another. And the savings we accrue from these kinds of structural change are also permanent.
We've also taken a number of temporary actions that are important in helping us balance capacity and reduce cash burn. Across the company spending has been reduced.
Our Board step forward by reducing their cash compensation by about 20%, executive compensation has been reduced, work weeks in some locations has been reduced by 20% or more and discretionary spending has now been curtailed. In addition, this quarter we have already taken two weeks of shutdown and we are planning for one more.
We've also advised our people of additional plant shutdown weeks over the next two quarters. We will return to full work schedules as business recovers and the capacity of our plants is once again needed.
We ended last quarter with about $160 million in cash and marketable securities and our balance sheet remains debt free. Even with the prospect of severely constrained revenues we believe we are on-track to reduce our cash burn.
At quarterly revenue levels as low as $40 million, we project that by the June quarter our cash burn will be no more than $10 million per quarter.
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We intend to use the current period as a time of positioning Brooks for long-term success. While this period has been painful and will remain challenging, we do have the capital and the conviction to be successful, and we will continue to seek the right balance between achieving short-term performance while positioning the company for longer-term success.
We want to thank you for your continuing support and for your interest in Brooks. Operator, we can now open the lines for any questions.
Operator
Thank you, sir. (Operator Instructions).
And our first question will come from C.J. Muse with Barclays Capital.
I do apologize that there will be one moment before we do open the line for C.J. Muse.
Just a moment please. And C.J.
Muse, your line is open now please.
Christopher J. Muse – Barclays Capital
Hello, can you hear me?
Robert J. Lepofsky
Yes, we can hear you C. J.
Christopher J. Muse – Barclays Capital
Great. Thank you for taking my question.
I guess first off in terms of guidance, are you providing guidance, and if not what kind of revenue run rate internally are you planning for the first quarter?
Martin S. Headley
We're not providing guidance I'd just say that I think as both my comments and Bob's prepared comments would say, you can look at what our large OEM customers have been projecting anything in the kind of the 30% to 50% down kind of range, and we ought to be mimicking that kind of decline is the best intelligence that we could provide to people at this juncture.
Christopher J. Muse – Barclays Capital
Okay. So, I guess what you're saying is that in terms of excess inventory, they're impacting service and some of the other lines that's mostly behind us and so you should track your customers going forward?
Martin S. Headley
If anything it would tend to suggest that we may go towards the lower-end of our customers' revenue projections.
Robert J. Lepofsky
Two sides of that C.J.
Christopher J. Muse – Barclays Capital
Okay.
Robert J. Lepofsky
That actually puts you into that somewhat broad range of 30% to as much as 50% down and you are absolutely correct that in terms of the service support side, we think that the issues of inventory burn are behind us, but within the new system side there is still work-in process inventory to be burned in our OEM customers facilities. And so the rate of their burn will determine what our ultimate result is.
That's the reason for the uncertainty and such a broad range from 30% down to as much as 50% down in the worst case.
Christopher J. Muse – Barclays Capital
Okay, very helpful. And if I could ask one quick follow up, on the cost cutting side, when you're thinking about that getting close to the 80 million cash break-even level.
What does that look like on a GAAP basis in terms of gross margin and OpEx, whether that's exiting June or for the September quarter?
Robert J. Lepofsky
We are not really providing guidance as we are working through those kinds of equations it does take us back to positive gross margin territory through taking out quite an element of the fixed infrastructure cost that's in cost of good sold currently. And in terms of looking to GAAP based statements that's assuming that the levels of D&A are consistent with what they are today, which is as I said in my prepared remarks just over $4 million of amortization just over $4 million of depreciation, you will see stock compensation and other non-cash elements about $1.5 million as I indicated the tax number would be a fairly small nominal non-cash item of $200,000 to $300,000.
And then really the only other element you got to put in there is the interest piece, which would be similar to or very slightly moderated from the levels we currently run at.
Christopher J. Muse – Barclays Capital
Great. Very helpful.
Thank you.
Operator
And our next question will come from Satya Kumar from Credit Suisse.
Unidentified Analyst
Robert J. Lepofsky
The non-semiconductor piece was pretty expensive during the course of the quarter, in the CCG group it was about 50% plus or minus, and the mix of that business depends on the relative health of the various industries that we serve obviously we had a modest increase in solar, which was the only real end market that saw improvement during the quarter, and it's been a question of the relative mix of the declines following the general financial conditions.
Unidentified Analyst
And then how do you see this kind of in the near term?
Martin S. Headley
How do we see what, the mix of the product?
Unidentified Analysts
No, yeah how do you see, the revenues in this group, in the CCG group?
Martin S. Headley
I think the CCG group is subject to similar kinds of declines, as our business as a whole because it have a substantial portion, which is not semiconductor it is perhaps not quite subject to the same declines, but equally we are seeing weakness in general industrial markets somewhat later than the semiconductor market declines, but equally a degree of caution about capital expenditures across the board in this particular business environment.
Unidentified Analysts
Okay. Thank you very much.
Operator
Our next question will come from Jim Covello with Goldman Sachs.
Kate Kotlarsky – Goldman Sachs
Hi. This is Kate Kotlarsky for Jim Covello.
I just have two question, one question is on your services business, if you think about the levels of the business today relative to where your customer utilization rates are, where do you think utilization rates have to go for you to start seeing a pick up in the services part of the business?
Robert J. Lepofsky
Well, we model extensively utilization against our installed base, as we noted back in our November call, at the present time and we believe still going on we noted it in November, we see it continuing is the cannibalization factor. So, I think that you have to start to see and it's therefore a real mix, we have some fabs as you know that are operating at utilization factors in the 30% and 40% range.
For those people it's very easy for them to cannibalize unused tools or even balance off used and unused tools. It's a matter of, as those tools come back and we'd suggest you get into the 60%, 70% range we would start to see a pickup, as you had to bring back the cannibalized tools into full operation.
That's why we note that we think our services business will be a leading indicator although there is nothing at the present time to suggest that dynamic has begun.
Kate Kotlarsky – Goldman Sachs
Okay, that's helpful. And then a separate question just on the model again, obviously you're not giving guidance, but I was just curious, if we were to assume that revenues in March were sort of at the 45ish level.
Could you give us a sense as to what gross margins and maybe OpEx would be at those revenue levels?
Martin S. Headley
We can't really provide that guidance because we're in the process of iterating that plan, and I would say that I think in response to the question earlier at that kind of level, we would be around about a gross margin of break-even from the actions that we've taken elsewhere. I think what in kind of piece of guidance that might help you with the modeling is that, if we were to see a revenue decline of 50%, we think the EBITDA decline that we would have be less than 20%, and in fact we are very confident about that and so maybe that's the best way in guidance I can give you to help provide you putting together your models.
Kate Kotlarsky – Goldman Sachs
Yeah that's very helpful. And just maybe a quick question, as it relates to OpEx on the R&D side should we expect, cost coming out of R&D as well or just mostly SG&A?
Martin S. Headley
No, hours of research and development as well as I mentioned in my comments, there were some costs within R&D that are of a more sustaining nature that are not critical to some of the active programs that we have that we can eliminate as we put together the former robot module business and the CTI pump business in our Critical Solutions Group. So, we can't leverage those costs.
Kate Kotlarsky – Goldman Sachs
Okay, great. Thank you.
That's it for me.
Operator
And our next question will come from Hari Chandra from Deutsche Bank.
Hari Chandra – Deutsche Bank
Thank you. A quick question on the backlog, and how much is it shippable in the next six months?
Martin S. Headley
The backlog is pretty small it's about $20 million at this juncture, the question of shippable I think is all potentially shippable within the quarter, how much was in that backlog at December 31 that has remained for shipment in the quarter and not being pushed out is not something I have specifically tracked so I can't really help you on that one.
Hari Chandra – Deutsche Bank
Sure. And a quick followup...
Robert J. Lepofsky
The other thing to remember in our business model as you go across the portfolio of products and services, you find major segments that typically carry no backlog at all. Our extended factory doesn't operate on a backlog based methodology obviously neither does our services business.
So, backlog is not a very relevant number relative to Brooks.
Hari Chandra – Deutsche Bank
All right. On a different note, if you consider the present business conditions persisting for a while, is the time for you to revisit unprofitable businesses like Synetics?
Robert J. Lepofsky
Absolutely, part of our overall restructuring is the examination of each of our product lines, their cost structures, their positions in market, their competitive positions and that's part of the ongoing process, we are involved in.
Hari Chandra – Deutsche Bank
Okay. Thank you.
Operator
Next we'll go to Patrick Ho with Stifel Nicolaus.
Patrick Ho – Stifel Nicolaus
Martin S. Headley
Patrick Ho – Stifel Nicolaus
Okay. Now that‘s fair enough.
Bob this is probably just a question for you given your long tenure in the industry as a whole, in terms of the sharp declines that we seen over the past quarter and what your customers are seeing right now. I know you guys implemented a restructuring plan actually probably two quarters ago, they are taking their effect right now, do you feel you cut enough early on or are you playing a little bit of catch up right now on the cost cutting front?
Robert J. Lepofsky
Yeah, we have never seen, I have never seen anything like what we are seeing now, and the real issue was the pace of downward change that we saw in December into January, it's been absolutely striking, how far and how fast and how many revisions on almost a weekly basis downward. Our response to that is that yes we are now making changes that are deeper, but basically because we now have the time to do the kinds of things that we're doing such as the integration of the two activities on the Chelmsford campus.
We recognize that we will take advantage of this downturn to make changes that we would otherwise not be able to take. So, if there is any silver lining in a very depressed situation, it's the fact that we have the gift of time to make changes, implement substantial restructuring, take the risks that go along with that and have the time to correct missteps along the way.
So, I think that's the fundamental difference from where we were in the fall whereas we were headed into a refined mode. This means that we can actually go deeper and have bigger payoffs for the long-term.
Patrick Ho – Stifel Nicolaus
Great, thanks a lot guys.
Operator
And next question will come from Tim Summers from Wunderlich Securities.
Timothy W Summers – Wunderlich Securities
Hey thanks for taking my question. Hey can you update us on the status of the YEC (sic) [YBA] joint venture.
And if you guys decide to peer back Synetics charges or just jettison totally, that put the JV in jeopardy?
Robert J. Lepofsky
First of all, welcome back Tim. It's good to hear from you.
And with regard to the YBA, Yaskawa Brooks joint venture in Japan. We continue to be extremely pleased with what is happening at YBA, the progress they are making in design-in wins and actually tool shipments into select new platforms in Japan.
We could not be more pleased with the activity obviously the current depressed market conditions pushes out the payoff from that activity, but we do continue to ship new tools, YBA actually made a critical shipment as recently as two weeks ago of a tool to a critical customer. So, the YBA activity continues and we are actually engaged in discussions about how to refine and improve that joint venture.
You should not take anything from any comment that we have made about an intention to jettison I think was the word that you may have used, our Portland/Wuxi extended factory business. We are actually quite pleased with that business from the vantage point of what it brings to the company strategically, it is a low gross margin, high return on invested capital business and yes it is causing us pain at the present time when we have situations like we did in the last quarter, where we facilitized Wuxi, we were ramped to go with major new tools, the bottom falls out of the marketplace and we are stopped with an under absorbed factory.
But we think that that capability is unique in the industry and uniquely positions us with customers. And so we do not have any intention of pulling back and I think the management of that part of our business is actually doing an incredibly good job under adverse conditions, managing work schedules, using this period for training and development and process improvement and we think those are appropriate investments for the long-term albeit they're painful.
Timothy W Summers – Wunderlich Securities
How much of that business that you might have been doing two years ago in Portland, what percent has now been moved over to Wuxi?
Robert J. Lepofsky
That's the interesting pieces that not a lot of what is in Portland move to Wuxi, but Wuxi, when we retooled Wuxi last year from a plant that was oriented to do very different work and handed it over to our extended factory people that was to take on new business and new mandates. And in fact the tools that would have been coming out of that factory in the fourth quarter were completely new platforms.
The customer I made reference to who is onsite in Wuxi today is another major OEM, which would represent completely new book of business. So, the Wuxi factory was positioned to be new and expanded business as opposed to just moving what was in Portland over to Wuxi.
So, you can think about Wuxi as being the plant that will support our customers' Asian strategies and the Portland plant is almost a mirror image, but supports those customers that have U.S. that still ship systems back to the United States and support U.S.
requirements, U.S. European requirements.
What it has also allowed us to do is not expand Portland and during this downturn, we're actually contracting some of the facility requirements in the Portland facility. But, you can basically look at Wuxi as part of an investment in an extension for the future.
Timothy W Summers – Wunderlich Securities
Okay. Got it.
Thanks.
Robert J. Lepofsky
Thank you.
Operator
Our next question will come from Ben Pang with Caris & Company.
Ben Pang – Caris & Company
Thanks for taking my question. If you [little picture] restructuring activities by division, which one is furthest a long to achieving your desired break-even level?
Robert J. Lepofsky
Well the one, let me answer it a little bit around the loop here. The one that offers us the greatest opportunity is the consolidation of our Chelmsford based robotics and pump business.
And that restructuring activity, the planning has been going on now for about 60 days, the implementation has now begun. They are actually be moving in to the combined single facility beginning with our plant shutdown that we will have starting next week and ready to roll.
So, that piece has the greatest opportunity, and when you look at the, certainly the Chelmsford based automation side it was on a relative scale the lesser performer of our other businesses. Elsewhere in the company, they are currently operating pretty close or above cash break-even levels.
So, the real work was focused here.
Ben Pang – Caris & Company
Robert J. Lepofsky
You mean in terms of inventory adjustment within our customer base in non-semi customers?
Ben Pang – Caris & Company
Correct.
Robert J. Lepofsky
It’s being nowhere near as evidences it has been in the semiconductor businesses. So, I couldn't say there might not be a modest impact, but I don't think it will be anything like the same significant impact that we've seen in our SCE business.
Ben Pang – Caris & Company
Well, perfect. Thank you very much.
Operator
Our next question will come from Timothy Arcuri from Citi.
Junaid Ahmed – Citi
Yeah. Hi this is Junaid Ahmed, calling in for Tim.
Couple of questions, firstly could you just please tell me again the reasons for the OpEx slight increase from the previous quarter got down later on the call?
Robert J. Lepofsky
Okay. The increase in the operating expenses there are two elements, one was that we increased the level of research and development spending to fund some critical programs in our Critical Components Group.
The impact there was about $608,000. We incurred about $917,000 extra in consulting investments that we've made to strategically identify tactical and strategic expansion of both organic and acquisition opportunities, very important to our forward thinking and actions there.
And we have $513,000 additional in costs associated with indemnifying a former Director in actions that come outside as a result of the equity compensation issues that go back a number of years, not related to the company, this is our indemnification obligations for a former Director.
Junaid Ahmed – Citi
Okay, thanks. And those costs for indemnification will they carry on at that rate or?
Robert J. Lepofsky
Very difficult to predict, we had thought that the rate would have moderated significantly before now and it has not, and it depends upon future trial dates not getting pushed out again. There is a future trial date in early March.
So, a best-case situation would see the burn on this particular situation being behind us within this quarter, but we're talking about our legal system, so it's very difficult to predict.
Junaid Ahmed – Citi
Okay. And almost $1 million consulting that's done or is that going to continue?
Robert J. Lepofsky
That particular investment, a very important investment, very helpful investment is behind us at this juncture.
Junaid Ahmed – Citi
Okay, great. And a follow on, just on a larger industry question, given that, we have seen the industry is going to likely go through consolidation amongst the chip makers and which is probably going to drive lower tool shipments for the large OEMs, which you were very directly correlated to, I mean, how do you see these headwinds impacting Brooks as opposed to earlier cycles, and going forward how would you be able to deal with those, how you are positioning yourselves for a period of basically lower tool shipments, given 300 millimeter now well kicked almost basically mainstream, which also reduced this tool shipment?
Robert J. Lepofsky
I think that there is really two aspects of that. With regard to the top line this is totally consistent with the position that we've taken over the course of last year of having a principle objective of not running away from the semiconductor industry, but broadening the base of our served markets.
Most of our new product development activity, some of the work that Martin just made reference to is all aimed at this objective we have of being a critical components and subsystem supplier to multiple markets. We've had reasonably good traction there with existing products to broaden markets, and we continue to accelerate new product development aimed at new markets.
The other side of that picture is rather than hoping that things will return to the days that they were and that revenue levels will just go through the cycle and return back to the hay day, this is the reason for our attention to the restructuring and significantly lowering and changing our cost break-even. So, that we can have superior performance at reduced revenue levels and in fact we believe that we can deliver bottom line performance that has never been seen by this company at revenue levels significantly below those that we had historically achieved.
Junaid Ahmed – Citi
That was very helpful. Thank you.
Operator
Our next question will comes from David Nierenberg from Nierenberg Investment Management.
David Nierenberg – Nierenberg Investment Management
Hi, guys.
Robert J. Lepofsky
Hello, David.
Martin S. Headley
Hello, David.
David Nierenberg – Nierenberg Investment Management
One can only complement you on in a environment in which revenues may decline 75% to 80% from its peak, and the cash burn would only be down to $10 million a quarter that's an amazing feet of survival. I doubt seriously that some of your domestic and foreign competitors in your existing businesses are capable of lasting through that kind of decline.
Do you see when the worm does turn, share gain opportunity in the core businesses for this company as a result of that?
Robert J. Lepofsky
I think that's a reasonable expectation, David. We intend to be here at the other end of this cycle.
And we intend to be broader and stronger and as you know some may not make it.
David Nierenberg – Nierenberg Investment Management
But you definitely will. Congratulations.
Robert J. Lepofsky
Thank you, sir.
Operator
And next we've a followup question from Patrick Ho from Stifel Nicolaus.
Patrick Ho – Stifel Nicolaus
Just a quick followup in terms of your operating break-even I think you mentioned in the past it was down to a $125 million per quarter. Do you have an update on that target?
Robert J. Lepofsky
Yes, operating break-even, I'm sorry.
Patrick Ho – Stifel Nicolaus
Yeah. Operating break-even, yeah.
Martin S. Headley
The operating break-even when you get through about $80 million is about $95 million operating break-even.
Patrick Ho – Stifel Nicolaus
Operating, what is it today then?
Martin S. Headley
Today, it's about a 110.
Patrick Ho – Stifel Nicolaus
Great. Thanks a lot.
Operator
And at this time we have no further questions and I'll turn the call back over to you gentlemen for any further closing or additional remarks.
Robert J. Lepofsky
We just close today by reiterating our appreciation for those of you who follow Brooks. And we look forward to continuing our communication and our dialogue with you.
Thank you very much and have a good day.
Operator
That concludes today's presentation. And thank you for attending and have a wonderful afternoon.