May 6, 2011
Executives
Martin S. Headley – Executive Vice President and Chief Financial Officer Dr.
Stephen S. Schwartz – President and Chief Executive Officer
Analysts
David Duley – Steelhead Securities Farhan Rizvi – Credit Suisse Wenge Yang – Citigroup Benedict Pang – Caris & Company Ben Zhao – Talara Capital Management Edwin Monk – Needham & Company
Operator
Good morning and welcome to the Brooks Automation Earnings Conference Call. Please be aware that today’s conference is being recorded.
At this time, I will like to turn the call over to your speaker today, Mr. Martin Headley, Chief Financial Officer.
Please go ahead, sir.
Martin S. Headley
Thank you Katie and good afternoon everybody. I’d like to welcome each and every one of you to the Brooks Automation Fiscal 2011 Second Quarter Results call.
Our press release was issued after the close of markets and is available on our website www.brooks.com, as are the illustrative PowerPoint slides to be used during our call today. I’d like to remind everybody that during the course of the call, we’ll be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
There are number of factors that could cause actual financial results or other events to differ significantly from those identified in such forward-looking statements. And I would refer you to the section of our earnings release titled Safe Harbor Statement.
The Safe Harbor slide is on our website and to the Company’s various filings with the SEC. I’d also note that we will also be referencing to a number of non-GAAP financial measures, which are used in addition to, and in conjunction with results presented in accordance with U.S.
GAAP, and should not be relied upon to the exclusion of those GAAP measures. Management believes those financial measures provide an additional way of viewing aspects of our operations and, when viewed with our GAAP results and the reconciliations to GAAP measures, provide a more complete understanding of our business.
With me today on our call is Brooks President and Chief Executive Officer, Steve Schwartz. After I have provided an overview of the second quarter fiscal 2011 financials and a summary of our outlook for the June quarter, Steve will discuss our strategic initiatives and provide more detail on some of our business successes during the quarter and we will then take your questions.
During my prepared comments, slide references relate to the PowerPoint presentation posted on our website to accompany these remarks. Brooks continues to move forward with favorable momentum and as we reported in our press release issued after the market close, the net income attributable to Brooks for the second quarter of fiscal 2011 was $26.6 million.
Both GAAP earnings per diluted share and adjusted earnings per diluted share, excluding special charges were $0.41, significantly ahead of our expectations going into the quarter. Adjusted earnings increased by 13.2% to $26.8 million in the second quarter from $23.7 million in the first quarter.
In both the first and second quarters of fiscal 2011, the only items excluded from adjusted earnings are modest charges related to our past restructuring programs. These charges will all be depleted by the end of the fiscal year.
Revenues increased sequentially by 8% with approximately half of that increase coming from our sales of our CTI and Polycold brand products. In the case of CTI, we benefited in part from new product introductions.
Other designing wins that we’ve referred to in prior calls, as well as generally favorable demand across the variety of end applications. Our Polycold brand sales growth is in support of a number of end markets.
Most notably for the production of tablet computer and smartphone touch panels, but other secondary drivers include coating production of voltage converters, particularly for global automotive and photovoltaic applications. The concentration with our three largest customers remain roughly consistent with the prior quarter of 43% of sales.
Following the top – the sale of the contract manufacturing business, we will continue to track sales of our robotic components by OEM platform customers, rather than on the basis of the integrating contract manufacturer. Following that methodology, on completion of the sale of our contract manufacturing business, we would expect those top three OEMs to represent about 27% of our total sales.
Sales to semi-markets were 79% in the quarter with incremental growth in our sales to MEMS, LED and the full mantle touch panel and roll coating applications. We leveraged this revenue growth to generate the $3 million sequential increase in operating profits, which dropped to net income.
Operating profits of $27 million was $16.6 million higher than in the second quarter of fiscal 2010. I would remind listeners that the net income attributable to Brooks in the second quarter of fiscal 2010, including two significant non-recurring items.
The $7.5 million gain net of tax on the sale of intangible property related to our former AMHS business and a $3.9 million one-time income tax benefit arising from favorable tax law changes. Slide four, shows the significant driver in sequential performance this quarter with the growth in the top line for $40.3 million.
With a $4.4 million build in gross profits, our gross margin rates were roughly flat, while we continued with our planned build in research and development spend and had an anticipated increase in G&A spend in the quarter with a non-cash expense of annual Directors stock ground. Operating margins once again improved sequentially this quarter by 80 basis points to 14%.
Slide five, sets out how the revenue and operating profits before non-recurring income and special charges, bridged from the December quarter to the March quarter. The Critical Solutions business provided additional variable contribution of $3.7 million on revenue increases of $7.9 million or a 47% drop through rate.
The System Solution business reported a $0.5 million variable contribution on $5.9 million of additional revenues. The majority of the revenue increase in this segment came from the contract manufacturing business with its much lower gross margin structure.
Our proprietary Systems Solutions suffered some late quarter shipment deferrals from the March quarter to the June quarter. Finally, our Service Business provided a 46% incremental contribution from the $0.5 million revenue growth.
That growth was halved by the complete shutdown of service and repair activities in Japan following the early March earthquake and tsunami tragedies. Slide six, updates our charts of revenue and adjusted EBITDA progression over the past eight quarters with $51 million of growth in adjusted EBITDA per quarter, while revenue expansion has been $148 million.
Adjusted EBITDA margins, yet again expanded and are now running at 17.7%. From a Reg G perspective, please note that the adjusted EBITDA reconciliations are provided as a supplement to each of our quarterly earnings releases.
Our cash generation was moderated below EBITDA levels by a $12 million increase in accounts receivable with very strong shipments in the month of March. Also as shown on slide seven, capital expenditures for the quarter were $1.5 million, the largest single item of which was associated with our successful Oracle conversion in Europe.
For the quarter, we further built our cash position by $20.6 million. Briefly looking the most significant operating balance sheet accounts, which are identified on slide number eight, cash and marketable securities grew from a $157.9 million to $178.5 million.
This includes those securities classified as long-term on our balance sheet, which are the never-the-less freely marketable and can be considered readily liquid. It also includes $3.9 million of cash that was in escrow at our attorneys and disbursed on April 1st, with the acquisition of RTS Life Sciences.
Our working capital velocity remained around 17% of annualized quarter sales as a result of the previously mentioned build in accounts receivable. Inventories were largely flat despite some build in inventories to manage supply chain challenges with printed circuit board components another Japan sourced components.
Despite this we managed other areas of inventory such that we're back above four terms Accounts payable reductions reflected the build of products earlier in the quarter and within accrued liabilities compensation accruals increased to reflect improved estimates for variable compensation payments across the organization. Slide nine shows how our focus on both the balance sheet, as well as the income statement provided results that an already very robust return on invested capital grows to an annualized rate of 40%.
In the next three slides I will briefly cover our sequential segment operating performance. On slide 10, we review the sequential results of our critical solutions segment where we drove operating margins to 20% in the quarter.
As previously mentioned, the larger part of the $7.9 million sequential revenue growth came from our vacuum products. Momentum in this area is strong with new product introductions and then market capacity requirements driven by growth in next generation mobile computing, telecoms, and automotive.
Gross margin expanded again and was 42.2% for the quarter. We increased engineering investment resulting in $0.7 million increase in segment operating expenses.
Segment operating income improved by $3 million to $16.5 million. On slide 11, we summarize the performance of this system solutions segment.
Revenues increased by $5.9 million with a $3.5 million growth in contract manufacturing revenues as one of our key OEM customers reverted demand to prior levels having worked through an inventory situation that adversely impacted our sales to them in the first fiscal quarter. The relative contribution of our contract manufacturing business and the mix within that contract manufacturing business held back the gross profit and operating profit performance of the segment and the company in the quarter.
Together, we have increased R&D spending by the proprietary Brooks business. The result was a flat bottom line for the segment.
The global customer operations result set out on slide 12 shows the impact of the second consecutive quarter of double-digit robust service revenue growth. The leverage of our service structure resulted in growth of the segment gross margins to 32.4% and the segment reported improved operating profits for the quarter of $1.4 million.
On April 1st, we closed our first transaction in the Life Science systems market space acquiring RTS Life Sciences, a business based in Manchester U.K., which also has an aftermarket service presence in the U.S. Side number 13 shows some shows some pertinent financial facts relative to this business.
RTS Life Sciences was a privately held company recently spun out of a U.K. public company that was liquidating its operating assets.
The company had its roots in Life Science automation systems, but had diversified in recent years. We’ve already commenced refocusing its activities on Life Science automation applications.
We have expectations that the current annual revenue run rate would be in the $10 million to $12 million range. This is currently a breakeven business whose operating performance can be significantly improved over time.
For fiscal 2011, we would expect that RTS will be less than $0.01 diluted. The purchase price for RTS was $3.3 million net of cash on hand in the business at closing.
The impacts of our two strategic initiatives, the RTS acquisition and the contract manufacturing business sale to Celestica potentially made for a complicated revenue and earnings guidance story. Slide 14 shows how we buildup revenue guidance for the third fiscal quarter.
As we noted in our press release, order bookings in the March quarter were $193.7 million, 4.7% increase over the prior quarter and book-to-bill ratio of 101. Accordingly, we move forward into the June quarter, our third fiscal quarter with a robust backlog.
We also have continued to secure technology wins across a broad spectrum of OEM’s. However, this [positive] momentum, it held back slightly by moderating demand from some of the larger OEMs.
We are also disappointed that the pace of next generation LED tool sale is behind our previous estimates; and, accordingly, at this time, we are moderating the rate of the previously anticipated revenue run. Thus we currently see our core business driving revenues of $138 million to $145 million in the June quarter, as compared to $144.3 million in the March quarter.
The contract manufacturing business, the sale of which should close during the quarter provided $48.4 million of revenues in the March quarter. Depending on the timing of the sale transaction, we would expect to include anywhere between $25 million and $50 million of revenues in our June quarter.
Finally, we anticipate $2 million to $3 million of revenues from our life science systems business. Put together, these components result in GAAP revenue guidance for the June quarter of a $165 to $195 million.
Our margin on earnings guidance is summarized on slide number 15. The timing of the sale of the contract manufacturing business, obviously has significant impacts on our gross margins for the quarter.
In making our guidance, we’ve assumed that the sale transaction would not close before mid-May. Our guidance is for gross margins of between 31% and 35%.
The bottom end of that margin guidance range would reflect increased cost that may arise in managing supply chain issues arising from the dislocation of parts of Japan’s manufacturing community. Thus far we’ve managed to prevent significant disruptions of the business, but are incurring additional costs in securing certain components.
Operating expenses reflect continuing engineering build, potential G&A reductions if the contract manufacturing sales occurs before the end of the quarter and some additional infrastructure related to the Life Science Systems business. We anticipate operating expenses will be between $33.5 million and $35 million.
Rolling all of this together, our earnings guidance is for adjusted diluted earnings per share, excluding non-recurring items and special charges to be between $0.35 and $0.40. With that I’ll turn the call over to Steve.
Dr. Stephen S. Schwartz
Thank you, Martin. Today, I’m very pleased to be able to give an update on the progress we made this quarter in our share initiatives and also to give some color about the strategic initiatives we’ve announced during the past few weeks.
Since the close of last quarter, we’ve made some very significant progress that advances the company along our strategic road map to be a nimble and high valued provider of technology solutions to markets that need automation and controlled environments. Specifically, we’ve continued to secure new design wins across our semiconductor and adjacent market.
We announced the pending divestiture of our contract manufacturing business and we’ve taken the first step toward our stated objective to branch into other vertical markets, while we’re able to leverage our core technical capability. While we understand that the orders in revenue projections for many of the large semiconductor equipment suppliers have entered a period of some uncertainty, we continue to see healthy business levels into the next two quarters.
One reason for this is that the investments we’ve made in the adjacent spaces like active display, LED and Wafer-level packing are now beginning to become meaningful. To put this in the perspective, when we exclude the contract manufacturing business from our portfolio, these adjacent markets represent more than 25% of our revenue and this percentage is growing even as we gain share in our core semiconductor markets.
In Q2, our new product developments and market share penetration thrust continue to bare fruit. In the quarter, we received first time purchase orders for 14 new design-ins opportunities for robots, systems and pumps, for semiconductor, LED, MEMS and Wafer-level packaging.
I’ll highlight a few of these wins to illustrate the breadth of these opportunities. In our systems business, we continue to gain share in Europe with two separate systems penetrations in our adjacent semi markets with one of our largest OEM customers.
We also received our first order for our vacuum system from an OEM customer in Korea for a front end semiconductor application. This is one of six Korean OEMs that we count as a customer for our vacuum systems products.
In the quarter, we also secured our first EFEM order from a wafer-level packaging customer after we had won a robot application in the prior quarter. We had two multiple unit orders for our high capacity MagnaTran 8 robot from OEMs in China.
Additionally, the demand for our large vacuum pumping solutions that are used to manufacture active displays resulted in another record bookings quarter and we continue to ramp that production line, which in the month of April ran at level 25% higher than last quarter and more than 50% higher than in the December quarter. We had a number of qualifications at major OEMs and end users for our higher capacity series of cryopumps that improves semiconductor fab productivity by allowing a much longer time between regeneration cycles.
At the same time, we had more qualifications of our IS 2000 V compressor, that is showing energy savings of greater than 30%, compared with any other offerings. In Q2, we also passed a major product milestone when we shipped our 10,000 MagnaTran vacuum robot.
A product that's been enhanced and adapted to continue to service semiconductor industry for many device generations. Lastly, we closed a joint service agreement with a large equipment OEM to provide our services together to a major European maker of logic devices.
At the end of this fiscal year, we will have added approximately $10 million to our RD&E spending worth more than 75% of that going to develop new products that serve our core semiconductor and adjacent markets. We’re pleased with the results of this investments and our momentum in the marketplace continues to build.
On April 21st, we announced the planned divestiture of the contract manufacturing portion of our business to Celestica. Over the past six years, we’ve grown the extended factory business in support of five OEMs and although the business has been quite successful, we felt that it was not core to the direction that we want to continue to evolve the company and that our customers will be better served by our focus on the developments and enhancements of high value components and systems that are critical to their product and technology success.
Celestica is a highly capable contract manufacturer with whom we’ll continue to work very closely as they will become both a customer and a supplier to Brooks as well. Finally in the quarter, we also announced the acquisition of RTS Life Sciences, a company based in Manchester U.K.
With this addition to Brooks, we’ve taken one of our first steps that is part of a well defined plan to expand the application of our core technology capability into another vertical market. RTS Life Sciences has been providing automation solutions to the life science industry since the 1990s.
Eight out of the top 10 companies in the pharmaceutical industry use RTS products for the automation and storage of chemical compounds utilized for drug development. More recently, RTS has developed automation products for the bio banks, which collect, store, and distribute biological materials for basic science and clinical research activities.
In RTS, we’ve acquired a strong team which has roots in the life sciences automation space, a history of successful market leading products and excellent market knowledge and customer relationships. We’ve already begun to develop definitions for products that will enhance the market position of some of the RTS systems by utilizing some of the technical expertise that we developed at Brooks, particularly in the areas of sample moment and controlled environments and cryogenic cooling.
At present, this represents a small financial investment, but a meaningful directional change as we begin to enter into this multi-billion dollar market for automated Life Sciences equipment. We'll have more to say on this exciting new opportunity on subsequent conference calls, but suffice to say, we’re encouraged by the chance to leverage our core capabilities directly into another rapidly growing vertical industry.
We’re also pleased to welcome the RTS team into Brooks and we look forward to their continued success on behalf of our shareholders. That concludes our prepared remarks and now we will be pleased to take your questions.
Operator?
Operator
Thank you. (Operator Instructions) Your first question comes from the line of David Duley from Steelhead.
Please proceed.
David Duley – Steelhead Securities
Yes. Couple of questions from me.
First on your revenue guidance for the June quarter, I think you highlighted $165 million to 195 million. If you held the contract manufacturing business from the whole quarter, is that what you are saying you would do at the upper end of that range or help us understand the moving parts of the topline?
Martin S. Headley
Yes, you are really quite right with your assumption, which is if we hold contract manufacturing for the full quarter, our guidance would be about $195 million for the current quarter of the top end of the range. Maybe a range slightly off of that if the core business was slightly lower than that.
It is in that range of up to $195 million, David.
David Duley – Steelhead Securities
Okay. And then you mentioned that you are moderating your expectations on the LED side of things.
Could you talk a little bit about what your new expectations are and why is there a Delta at this point?
Martin S. Headley
I think it’s just the pace of which the next generation tools appear to being adopted at this very early stage. Having said that, the pace of which that curve of adoption might accelerate is unclear to us and we’ve been advised by customers we work with to be ready for that pace, and a curve to move up at any point in time.
So, I would say it’s a pace that’s impacted us a little bit this quarter and certainly for the June quarter. We cannot assess when we might get back onto the similar level of pace that we previously projected.
David Duley – Steelhead Securities
Do you think – so you are adjusting your expectations for the ramp-up of your customers business. Is that more you overshooting the targets as to what you thought the ramp-up of the tool is, or was it that the market just hasn’t adopted those tools as rapidly as the customers thought?
Martin S. Headley
I think it was always our assessments of what the rate would be for adoption. Our customers were always very cautious of providing us clear guidance there for reasons that anyone could well expect on a new product introductions.
So, it may have been us being slightly more optimistic. It’s equally just that very difficult phase of understanding when people really are going to say that they are going to go with this next-generation tool which represents a very different capital investment paradigm for them than they were previously used to.
David Duley – Steelhead Securities
So your – I guess just on the outlook then, you still think that the industry will adopt these cluster tools, it’s just the timing of which is difficult to determine, but it’s coming?
Martin S. Headley
It’s our belief when you look at the productivity gain improvement that our customers talk about, but it’s clear, that those are perhaps even higher than was previously imagined by ourselves. And therefore it seems highly likely that there will be a reasonable level of acceptance.
David Duley – Steelhead Securities
Okay. One final question from me and I’ll turn it over to other folks.
You mentioned you are seeing some moderation from your top three OEM customers. And if you hold this contract manufacturing business for the whole quarter, your revenue theoretically would be up a little bit.
So, if your three biggest customers are going down a bit, what are the exact areas that you’ve made up revenue to show either flat revenue or some revenue growth?
Martin S. Headley
The areas are across our broader range of OEMs. Steve gave some examples of the kind of the breadth of our customer base, particularly in other semiconductor and adjacent markets, where those OEMs have a much more positive outlook in the near term than some of our larger customers.
David Duley – Steelhead Securities
Okay, thank you.
Martin S. Headley
Thank you.
Operator
Your next question comes from the line of Satya Kumar from Credit Suisse. Please proceed.
Farhan Rizvi – Credit Suisse
Hello, thanks for taking my question. This is Farhan calling in for Satya.
I had a question on your gross margins for September quarter. If we assume that the core business is flat in September, how will the gross margins look like in September?
Martin S. Headley
In September, so beyond our guidance outlook that we have provided at this stage, I think you could fairly say that our expectations would be for north of 38% when we talked about what the gross margins of our business would be without the contract manufacturing business. We said they would have been 38% for the first six months of the year.
We continue to see as we would refer to as gross margin expansion. The whole Life Sciences space as a whole is expected to have growth margins above our corporate average.
So we would expect it north of 38% and clearly, in the not too far distant future, we want a number beginning with a four.
Farhan Rizvi – Credit Suisse
Thank you. And I had a follow-up on the acquisition on Varian by AMAT, how do you see that changing the opportunity for Brooks over a longer period of time?
Martin S. Headley
I think we have excellent relationships with both of those customers and we would be looking to remain a critical supplier to them, a critical solutions provider, and hopefully this provides us the opportunity to actually increase our level of business.
Farhan Rizvi – Credit Suisse
Thank you. That’s all I have.
Martin S. Headley
Thank you.
Operator
Your next question comes from Timothy Arcuri from Citigroup. Please proceed.
Wenge Yang – Citigroup
Hi. This is Wenge for Tim.
Thank you for taking my question.
Martin S. Headley
Hi Wenge.
Wenge Yang – Citigroup
Hi. The first thing regarding the closing date of your contract business sales, it’s already in May and you initially mentioned about mid-May as the closing time.
Is there any update on what is the likely closing because that’s going to effect what revenues I see in the quarter?
Martin S. Headley
Right, well I think the clarity, or lack of it, revolves around really the critical gating item, which relates to a consent from a government agency, it’s a very routine consent, but it is a government agency. So, the timing for those things is subject to a degree of uncertainty.
And so we will obviously provide an update when we’ve any greater clarity than this. At this stage, the best we know is it’s unlikely to be before the middle of May.
And it’s highly likely to be before the end of June. So, that’s really what provides us with this range that we have provided in our guidance.
Wenge Yang – Citigroup
Okay, for the modeling purpose we should push it towards the June time-frame instead of mid May, right?
Martin S. Headley
I can’t say that. It’s really uncertain at this stage, it is probably somewhere in the middle.
Wenge Yang – Citigroup
Okay. I understand.
So, regarding the core semi business, you mentioned about some of the large OEMs showing some kind of moderations. Have you got any indications from your forecast discussion with those OEMs that what the second half is going to look like for the core semi’s?
Martin S. Headley
I think they are trying to evaluate it. I think – we hear the same things that are said publicly in public forums, which is, you know we really don’t know.
I don’t think they see a weakening of business. I think they’ve eased back from perhaps any great bullish expectations for second quarter or second half.
Wenge Yang – Citigroup
I understand. My last question is regarding your Life Science business.
And, obviously, you already acquired RTS and it seems like you have maybe more deals coming up. So, I just want to understand what is your strategic plan for the Life Sciences, why you think Brooks should get into that business?
Is it faster revenue growth or better margin profile? What is your final target?
Dr. Stephen S. Schwartz
Hi Wenge. We think the Life Sciences systems opportunities are pretty significant for us.
We spent a lot of time looking at those markets and what we found, where we think we can add some real value, is where we do same things very similar to what we do in and around the semiconductor space. We’re talking about the protection and movement of high-value material in clean environments that requires precision movement and the tracking of tens of thousands, up to millions of samples in controlled environments.
And so when we assess the capabilities with Brooks against some of the challenges that have been satisfied by a company like RTS, we think that there is a very significant opportunity here for us to enhance those product offerings. And to participate in a market, our market segment anyway, that we believe is growing somewhere in the range of 20% to 30% per year.
So, the initial market opportunity at the sweet spot where RTS participates, with a number of other competitors, if you will, is something that we size in the range of $140 million to $150 million right now. But with a relatively high growth rate and a market that’s really just beginning and one that will benefit from the things that we’ve been able to develop for the semiconductor industry.
Wenge Yang – Citigroup
That’s very helpful. Thank you.
Operator
(Operator Instructions) Your next question comes from the line of Ben Pang from Caris & Company. Please proceed.
Ben, you are in the queue, you may proceed with your question.
Benedict Pang – Caris & Company
Sorry about that. Thanks for taking my question.
First, on the service organization, you mentioned a joint venture, or not a joint venture, but I guess the collaboration in Europe. How does that impact a margin for that segment?
Steve Schwartz
Hi, Ben. This is Steve.
It’s a margin that’s very consistent with the rest of the business that we have in service. Probably it’s the structure of a different business model that’s important to us.
We are providers to an OEM who has responsibility for a greater portion of the service. But it’s good to be a part of it.
And the thing that’s most encouraging for us, it’s, hopefully, the start of a new services business opportunity for us and maybe a model that will employ at a lot of other fabs around the world.
Benedict Pang – Caris & Company
In general, when I look at your business model after the Celestica deal closes, is it a service organization where the margin is going to start to lag and that’s going to become a bigger part of your revenues?
Martin S. Headley
I think the important point is that there’s a great volume leverage and margin leverage out of our service business. We have a greater leverage point over a fixed cost infrastructure, therefore when you’re looking at opportunities that, on a variable contribution basis are probably at the higher end of many of our opportunities.
It will actually drive a higher variable contribution even though it starts from lower absolute gross margin and operating margin rates.
Benedict Pang – Caris & Company
Can you give some metrics about how to think about the incremental gross margin on that?
Martin S. Headley
You should think about 50% incremental gross margin out of this business currently.
Benedict Pang – Caris & Company
Okay. And then on the vertical opportunities you mentioned, who are the competitors in the Life Sciences area?
Martin S. Headley
Competitors are largely smaller companies, no big names in that. In the space that we’re mostly focused in, $150 million to $200 million market, there’s kind of a handful of smaller players there.
So, it’s a space that we already know many of those players and we feel very comfortable about our ability to create a winning proposition in this space.
Benedict Pang – Caris & Company
Okay. And the last question for me.
You commented on the customer concentration of your top three. What’s the customer concentration of like your top 10?
Martin S. Headley
If you were to take our top 10 OEMs, they represent, before the sale of the contract manufacturing business, about 60% of our business, and after the sale of the contract manufacturing business, slightly less than 50%. So, it greatly diversifies our business.
Benedict Pang – Caris & Company
Great. Thank you very much.
Martin S. Headley
Thank you, Ben.
Operator
Your next question comes from Ben Zhao from Talara Capital Management. Please proceed.
Ben Zhao – Talara Capital Management
Hello. Just one quick question on the acquisition of Varian Semiconductor, any impact on your business?
Any comments on that? Thank you.
Martin S. Headley
As we said in response to an earlier question, we’ve got good relationships with both of these companies. They are both important customers to us and we would trust that we can use and leverage that situation as they valued our supplier and solutions provider to effect across the joint business.
Operator
The next question comes from David Duley from Steelhead. Please proceed.
David Duley – Steelhead Securities
Yes. I was just wondering once you do sell this business, do you have any plans for the total cash balance?
Martin S. Headley
I would just maybe make reference to the fact that we did in our prepared remarks indicate we may make further acquisition in the Life Sciences area and so we have that. We have other discrete technology capabilities that we could see adding to our core capabilities that would enhance our offering into some of our adjacent markets as well.
So, we have a runway to making control, but effective use of that capital in acquisitions, so that would be our principal and first use for such cash. We’d clearly consider other alternatives if those pathways are not successful or appropriate.
David Duley – Steelhead Securities
And then as a follow-up, you mentioned – could you just give us the percentages of the top three customers in the quarter that just finished? And you mentioned how those percentages would be adjusted downward for the sale of the business.
Could you just kind of walk us through that so we understand in greater detail?
Martin S. Headley
I think given the sensitivity of that information, I’d just indicate we have three greater than 10% customers that cumulatively accumulate 43% in the quarter. If we had not had the contract manufacturing business in the quarter, we would only have had one 10% customer and cumulatively they would have been 27%.
David Duley – Steelhead Securities
Okay. Thank you.
Martin S. Headley
Thanks.
Operator
Your next question comes from Edwin Monk from Needham and Company. Please proceed.
Edwin Monk – Needham & Company
Hi. Thanks for taking my question.
So first question is regarding your commentary about some moderation from your key OEMs, I was wondering which part of your business, you know be it critical solution, system solution or servers that is seeing more impact from that change. And a tie to that question; is it more – are those changes more concentrated on one or two specific customer or are you seeing that across-the-board?
Martin S. Headley
I don’t really want to talk about specific customer situations, Edwin. So, I’d just say what we are seeing is consistent with public pronouncements that customers themselves have made.
In terms of impact across all of our business, if you were to look at what the implied growth in our core business is kind of flat to up very slightly, I think you could expect to see that situation apply across all three of our segments of the business.
Edwin Monk – Needham & Company
I think so similar magnitude. And then on, just kind of looking on operating expense in your guidance of $33.5 million to $35.0 million, how much of that is driven by this contract manufacturing?
Is any OpEx tied to that?
Martin S. Headley
There is some OpEx tied to it. As I kind of said in my prepared remarks, there are some operating expenses that go away.
There is probably some transition expenses, that means that it doesn’t disappear as quickly in the current quarter as it would for the full amount of the contract manufacturing business. And so, we will see further gains in our operating expenses in the September quarter as well.
Edwin Monk – Needham & Company
But the further gains come from more in the R&D side, which is the investment that you [guys talked] about, right?
Martin S. Headley
Well, if you were to look at the guidance there, there’s an intrinsic reduction in our spend rate because we had an increase in the second quarter of non-cash stock compensation expense that’s always reflected in our second quarter associated with a particular direct to grant that spikes that versus a run rate, so that – it’s down again. Other than that, you have a relatively modest portion of operating expense disappear from the contract, from a partial part of the quarter of the contract manufacturing business.
You equally have an equally modest amount coming in from the Life Sciences business, which has its own infrastructure currently. And a net-net those are going to end up with somewhere – with slightly below to about the same level of operating expenses we had in the March quarter.
Edwin Monk – Needham & Company
I have one more question on this Life Science company that you acquired, you talked about the market opportunity to potentially $150 million to $200 million. I’m just wondering what kind of share you guys target to (Inaudible) let’s say longer-term, let’s say three to five years from now.
Just try and get a sense of in terms of the ramp from what you’ve guided in the last quarter for the coming quarter over this I think $2 million or $3 million versus where we think revenue can get to for this piece of business.
Dr. Stephen S. Schwartz
Hi Edwin. We would imagine that within two years we would have more than 50% share of this particular segment.
Edwin Monk – Needham & Company
Okay, then maybe follow-up for that is, is that just all come from this one acquisition or would acquire additional company to achieve that 50% of basically what you are implying $75 million to $100 million a year revenue?
Dr. Stephen S. Schwartz
Edwin, probably for sure there will be internal developments and we are also looking at other potential add-on’s that could help us to grow this business.
Edwin Monk – Needham & Company
Great. That’s all I have.
Thank you.
Operator
At this time, I’m showing we have no further questions. I would like to hand the call back over to management for closing remarks.
Dr. Stephen S. Schwartz
Okay, thanks Katie. We thank everyone for your interest in Brooks Automation and certainly we look forward to an opportunity to speak with you again next quarter.
Thanks everyone.
Operator
Ladies and gentlemen, thank you very much for your participation in today’s conference call. You may now disconnect, have a wonderful day.