BRKS Brooks Automation Inc

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

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Commission File Number: 0-25434

Brooks Automation, Inc.

(Exact name of Registrant as Specified in Its Charter)

978-262-2400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes ☐       No ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.   Yes  ☐        No  ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☑        No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  ☑        No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).   Yes  ☐         No  ☑

The aggregate market value of the registrant’s Common Stock, $0.01 par value, held by non-affiliates of the registrant as of March 31, 2020, was approximately $1,641,753,726 based on the closing price per share of $30.50 on March 31, 2020 on the Nasdaq Stock Market. As of March 31, 2020, 73,752,753 shares of the registrant’s Common Stock, $0.01 par value, were outstanding. As of November 5, 2020, 73,831,841 shares of the registrant’s Common Stock, $0.01, par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement involving the election of directors, which is expected to be filed within 120 days after the end of the registrant’s fiscal year, are incorporated by reference in Part III of this Report.

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BROOKS AUTOMATION, INC.

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Information Relating to Forward-Looking Statements

Certain statements in this Form 10-K constitute forward-looking statements, which are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Certain, but not all, of the forward-looking statements in this report are specifically identified as forward-looking, by use of phrases and words such as “we believe,” “we estimate,” “we expect,” “may,” “should,” “could,” “intend,” “likely,” and other future-oriented terms. The identification of certain statements as “forward-looking” is not intended to mean that other statements not specifically identified are not forward-looking. 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, or R&D, 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 divestures and acquisitions, the material weaknesses identified in our internal control over financial reporting, including the impact thereof and our remediation plan, 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 are subject to risks, uncertainties, and changes in condition, significance, value and effect, including without limitation those discussed within Item 1A, “Risk Factors” and elsewhere in this report and other documents we file from time to time with the Securities and Exchange Commission, or SEC, such as our quarterly reports on Form 10-Q and our current reports on Form 8-K. Such risks, uncertainties and changes in condition, significance, value and effect could cause our actual results, performance or achievements to differ materially from those expressed in this report and in ways we cannot readily foresee. 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 report 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 report.

Unless the context indicates otherwise, references in this report to “we”, “us”, “our” and other similar references mean Brooks Automation, Inc. and its consolidated subsidiaries.

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Semiconductor

Since our founding in 1978, we have been a leading automation provider and partner to the global semiconductor manufacturing industry. We provide advanced, high precision, high throughput robots, vacuum automation systems, contamination control systems, and reticle storage solutions to the global semiconductor capital equipment industry. We sell our semiconductor products and services both to OEMs and directly to global semiconductor chip manufacturers.

We have significant investments in the engineering disciplines to design and advance capabilities in precise automation, high-speed, contaminant-free and vacuum environments, and contamination elimination. Our engineering organization develops new automation capabilities and product offerings, and partners with customers to integrate our offerings into their tools which are part of the semiconductor manufacturing process.

In April 2018, we supplemented our portfolio of offerings with the acquisition of Tec-Sem Group AG, a Switzerland-based manufacturer of reticle storage management systems that support the needs for advanced lithography. The reticle storage business is managed and reported as a part of our Contamination Controls Solutions reporting unit.

On July 1, 2019, we completed the sale of our semiconductor cryogenics business to Edwards Vacuum LLC (a member of the Atlas Copco Group) for approximately $675 million in cash subject to adjustments for working capital and other items.

Our semiconductor equipment business provided approximately 57% of our revenue in the fiscal year 2020. The semiconductor capital equipment market has delivered overall long-term growth in excess of global gross domestic product (GDP) while also experiencing short-term cycles of sequential decreases and increases of sales. The cycles are influenced by the technological trends of the semiconductor industry and sometimes by the economic trends of the global economy.

Life Sciences

We are a leading provider of life sciences services and products supporting the analysis, storage, and management of biological and chemical compound samples for pharmaceutical, biotech, clinical, healthcare and academic institutions worldwide. We offer advanced automated solutions for cryogenic sample storage, capable of efficiently handling and managing both small and immense populations of biological samples to ensure end-to-end “cold chain of custody” of customer samples. We are a leading commercial provider of fully outsourced storage and transport of biological samples. We offer a broad range of genomic services including sequencing, synthesis and gene editing.

We are a leading provider of automated cold sample storage systems, consumables, and instruments, and informatics solutions, enabling or enhancing our customers’ visibility into their sample inventories and help them to manage their laboratory workflows. We are also a leading life sciences service provider of outsourced sample storage and management, as well as genomic services which include Sanger sequencing, high throughput/next generation sequencing, bioinformatics, gene synthesis, molecular biology, and good laboratory practices, or GLP, regulatory services. Taken all together, we believe our life sciences sample management product and services offerings allow our customers to maintain a complete “cold chain of custody” and enhance efficiency of related workflows for their samples. With our genomic services offering, we can add more value to the samples under our care to assist our customers in advancing their research and discoveries.

Our research and development teams and our services teams possess significant specialized expertise in cryogenics, refrigeration, automation, biological and molecular sciences, and expertise for preparing and processing biological samples for analysis and testing. Our teams develop new products, enhanced workflow solutions, sample management software solutions, and innovative sample preparation protocols. As a result of these innovations, the business holds significant intellectual property and has enabled many loyal customer relationships.

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 acquisition, investment, and integration approach has allowed us to accelerate our

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internal development and that of the acquired entity, significantly decreasing our time to market. Our recent acquisitions include the following:

For further information on our acquisitions, please refer to Note 4, “Acquisitions” to our Consolidated Financial Statements included under Item 8, “Financial Statements and Supplementary Data” of this Form 10-K. Our life sciences businesses provided approximately 43% of our revenue in fiscal 2020.

As the market of cell-based research is vast and growing, it is driving continued growth in the services and product offerings for the analysis and management of samples. Our customer list numbers in the thousands and we address only a fraction of the industry. We serve the largest customers in the pharmaceutical industry, the most advanced research hospitals performing clinical research and therapy development, as well as some of the newest and leading-edge start-ups in the biotech space. We also serve academic and government institutions. We believe that the sample-based services and products business will continue to demonstrate a high growth trajectory and we do not observe cyclical characteristics in demand for these offerings.

Segments

We serve the semiconductor capital equipment market through one operating and reportable segment, our Semiconductor Solutions Group segment. We serve the life sciences market through two operating and reportable segments: Brooks Life Sciences Products and Brooks Life Sciences Services. Prior to the fiscal year 2020, we had only two reportable segments that consisted of the Brooks Semiconductor Solutions Group segment and the Brooks Life Sciences segment. The Brooks Life Sciences segment consisted of two operating segments, Sample Management and GENEWIZ.   During the fiscal year 2020, we realigned our life sciences businesses to combine the sample management services offerings under the leadership of our GENEWIZ genomic services business to form the Brook Life Sciences Services operating and reportable segment.  By combining these two service-based businesses we believe we can more effectively leverage the potential for synergies as customers engage us to manage a broad variety of sample-based services including gene sequencing, gene synthesis, lab analysis, sample kitting and preparation, transportation, and storage.  In the realignment we also formed our Brooks Life Sciences Products operating and reportable segment composed of product offerings of large automated ultra-cold stores, automated cryogenic storage systems, and consumables and instruments, and related product support services. 

For further information on our reportable and operating segments, please refer to Note 20, “Segment and Geographic Information” to our Consolidated Financial Statements included under Item 8, “Financial Statements and Supplementary Data” of this Form 10-K.

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Brooks Semiconductor Solutions Group Segment

Brooks Semiconductor Solutions Group is a leader in wafer automation, contamination controls solutions, and related support services. Our offerings are designed to enhance capabilities and efficiencies of the manufacturing process of semiconductor fabs through improved throughput, yield, and cost of ownership of complex processing equipment. 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. Our service network of expert application and field engineers, who are generally located close to our customers, provides 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.

Markets and Customers

The demand for semiconductors and semiconductor manufacturing equipment is cyclical, resulting in periodic expansions and contractions. While our semiconductor business services element is generally more stable, the cyclical nature of the capital equipment business causes sales from products to vary quarterly based on short-term market demands. It is not unusual for these variations in sales to be up or down 10% to 20% in sequential quarters. As a result, our quarterly and yearly semiconductor business sales have sometimes fluctuated. We expect future sales in this market will continue to fluctuate between quarters and year-over-year.

The principal markets served by the Brooks Semiconductor Solutions Group segment include the following:

Each year, the global semiconductor industry makes significant capital investments to keep up with advancements in technology, to add manufacturing capacity and to improve productivity within existing fabs. While the global market for semiconductor capital equipment is cyclical, we believe that it possesses a long-term growth profile driven by the demand for increasingly sophisticated consumer electronics, automotive and smart appliance products, growth in data centers, the expansion of the Internet-of-Things which increasingly connects various appliances and devices to servers, and mobile communications infrastructure such as 5G networks. The expansion of innovative applications in the market translates to higher demand for semiconductor devices that typically require higher performance, lower power consumption and reduced size. The increase in manufacturing capacity and advancements of the chip technology are ultimately enabled by advancements in the processes and technology utilized to produce these chips. We believe this trend continues to provide market opportunities for the Brooks Semiconductor Solutions Group to be a valued partner supporting the industry’s needs.

We have been a long-term partner to device manufacturers and OEMs who are the providers of tools to fabs. We maintain collaborative relationships with our customers for the innovative design of solutions that enable their equipment to have a process advantage and deliver improved cost of ownership in the fab. Our global network of technical specialists provides extensive support to our customers in all regions, including the key semiconductor markets in South Korea, Taiwan, China, Japan, Europe and the United States. We are recognized as a market leader in three critical sub-segments: vacuum automation for wafer handling; wafer automation for advanced packaging; and contamination control solutions.

The production of advanced semiconductor chips requires many complex and logistically challenging manufacturing activities. Silicon wafers must go through hundreds of process steps to create billions of microscopic transistors interconnected by a complex network of horizontal and vertical conducting layers to produce a functioning integrated circuit. These initial fabrication steps, which are referred to in the industry as front-end processes, are repeated many times on a single wafer to create the desired pattern on the silicon wafer. Up to 50% of these processes are performed in tools that operate under vacuum conditions, such as removing, depositing, or measuring materials on wafer surfaces. As semiconductors’ complexity has increased, the number of process steps that occur in a vacuum environment has also increased, resulting in a greater need for vacuum automation technology solutions.

The increase in packing density of components in mobile devices has led the industry to devise advanced packaging techniques for chip interconnectivity using what is called wafer level packaging, or WLP. This advanced packaging

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technology combines multiple wafers before cutting them into pieces and then forming them onto a packaging substrate where they are ultimately divided into a multitude of chips. The recent increased adoption of WLP has increased the need for a contaminant free and high purity manufacturing environment, resulting in higher demand for our semiconductor offerings tailored to handle full wafer forms. It is the handling of these packaging substrates, which are often more complex to handle than standard silicon wafers, which require our sophisticated advanced packaging automation systems that are often customized for a specific customer substrate.

There is an increased demand for equipment that performs cleaning and conditioning of the wafer carriers which are used in all advanced semiconductor fabs. These cleaning tools remove microscopic particles, molecular contaminates and moisture attracted to the inside surface of the carrier. Automated cleaning and conditioning of the wafer carriers and EUV reticle carriers are also in demand as customers look to improve overall manufacturing yields. Similarly, as lithography also requires cleaner controlled environments, our reticle solutions provide contamination control for highly valued reticles or masks used in standard and EUV lithography for printing the technological features onto the wafer.

There are a few adjacent capital equipment markets that employ manufacturing processes similar to the semiconductor manufacturing industry. These markets include microelectromechanical systems, or MEMs devices, light-emitting diodes, or LEDs, Organic Light Emitting Diodes, or OLEDs, and touch screen technology. These markets and the semiconductor capital equipment market share common customers and utilize similar technology applications. For example, LEDs are manufactured using vacuum systems and handling processes similar to those used in semiconductor manufacturing.

We believe the desire for efficient, higher throughput and extremely clean manufacturing for semiconductor wafer fabs, the chip packaging process and other industrial or high performance electronic-based products and processes have created a substantial market for us in the following offerings: (i) substrate handling automation, which is related to moving the wafers in a semiconductor fab, (ii) tool automation, which moves wafers from station-to-station, (iii) vacuum systems technology to create and sustain the clean environment necessary for fabricating various products, and (iv) automated contamination control systems to clean and condition substrate carriers.

Product and Service Offerings

The principal offerings of the Brooks Semiconductor Solutions Group segment consist of: (i) wafer handling robotics and integrated systems and (ii) semiconductor contamination control solutions. The segment also provides support services, including repair and refurbishment, diagnostics and installation, and spare parts and enhancement upgrades to optimize tool productivity.

Wafer handling robotics and integrated systems - include vacuum robots, atmospheric robotic modules, and tool automation systems that provide precision handling and clean wafer environments. In the semiconductor industry, wafer handling represents a critical technology that is an integral component of highly complex production tools that run in the world’s most advanced wafer fabs. A typical customer tool is designed and built around a process chamber and uses automation technology to move wafers in and out of the chamber. We specialize in developing and building these automated handling systems and the vacuum technologies used in these tools. We provide individual automation components within an OEM customer system as well as complete integrated handling systems. We provide automation products designed to improve manufacturing performance and productivity for both atmospheric pressure and vacuum-based tools.

Contamination control solutions - include automated cleaning and inspection systems for wafer carriers, reticle pod cleaners, and stockers, which are automated systems that store wafers or reticles. Our products are used to remove contaminants that result from critical airborne contamination within the workflow of the manufacturing process. Our solutions contribute to improved yields, productivity and process stability in the manufacturing process which requires an ultra-clean manufacturing environment for leading-edge chips with geometries below 20 nanometers.

We sell our products and services to the world’s major semiconductor chip makers and to OEMs, who provide process tools to those same chip makers. Our customers outside the semiconductor industry are broadly diversified. We

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have major customers in North America, Europe and Asia. Although we ship much of our equipment to OEMs in the United States, many of these OEM tools are ultimately installed in semiconductor fabs that are outside of North America. Thus, we also provide support services to leading OEMs, fabs and foundries across the globe.

Brooks Life Sciences Products and Brooks Life Sciences Services

Our life sciences businesses are comprised of two reportable segments, Life Sciences Products segment and Life Sciences Services segment.

Our Life Sciences Products business is a leading provider of automated ultra-cold storage solutions for biological and chemical compound samples. Our storage systems provide reliable automation and sample inventory management at temperatures down to -196°C and can store anywhere from thousands to millions of samples. Our sample management solutions include consumable vials and tubes, PCR plates, instruments for supporting workflow, and informatics, all of which focus on providing customers with the highest level of sample quality, security, availability, intelligence and integrity throughout the lifecycle of samples providing customers with complete end-to-end “cold-chain of custody” capabilities.

Our Life Sciences Services business is a leading provider of solutions addressing the many needs of customers in the area of genomic analysis and the management and care of biological samples used in pharmaceutical, biotech, healthcare, clinical, and academic R&D markets. Millions of samples are processed every year, each containing valuable information that must be preserved with the sample. Through our genomic services we provide a broad capability to customers for sequencing and synthesis of genes. Our sample management services include off-site storage services, transport services, laboratory services, and interactive informatics solutions. We also provide expert-level consultation services to our clients throughout their experimental design and implementation. Our services also include short- and long-term sample storage and management of the “cold chain of custody” from collection, to storage, to retrieving the sample which ultimately may go back into the customer’s research workflow.

As referenced above, in November 2018, we completed the acquisition of GENEWIZ, a leading global provider of genomic analysis and gene synthesis services. In February 2020, we acquired RURO, a software company providing innovative solutions for managing biological sample inventory and workflows for the life sciences market. We believe the combination of our broad sample-based offerings, including genomic analysis, sample management services, automated storage systems, and informatic solutions has meaningfully enhanced our ability to meet our customers’ demands with a single and more comprehensive relationship.

Life Sciences Market

Our life sciences businesses serve a broad range of end markets within the life sciences industry to address a confluence of life sciences trends, such as technology, information management and new sophisticated tools and applications. With the advent of biologics and personalized medicine, biological samples have become critical assets to the success of drug and therapy pipelines, and the proper management and protection of these samples has gained increased importance to our customers. We believe this trend has created a sizable market opportunity for Brooks to provide comprehensive sample management and genomic solutions.

Since the successful mapping of the full human genome at the turn of this century, the market for genomic services has grown in support of research in biologic drug development, personalized medicine and cell/gene therapy. Top pharmaceutical and biotechnology companies can use their in-house laboratory resources to sequence the millions of genes needed as part of their research workflow. Still, many companies look to outsource their gene sequencing to independent laboratories that provide expedited results and expert consultative services. Other companies and institutions have fewer or no in-house options and make use of outsourced capabilities as their primary solution. GENEWIZ participates in this market as a value-added laboratory services provider, offering high quality genetic testing services with fast turnaround time.

The Brooks life sciences businesses currently serve customers worldwide, including all of the top-20 global bio-pharmaceutical companies. Due to the comprehensive nature of our sample management and genomic services solutions,

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we are continuing to expand our customer base and geographic reach. We have more than 7,000 customers globally, and we continue to add new customers each quarter.

Brooks Life Sciences Products Offerings

The principal offerings of the Brooks Life Sciences Products segment include the following:

Automated ultra-cold storage systems – provides stand-alone systems that typically store one to two million samples each in temperature ranges from +4°C to -196°C. Our systems provide high throughput capability and optimized storage of multi-format tubes and plates and increased storage capacity while maintaining consistent temperature profiles across stored samples. We also offer support services for our installed base of storage systems.

Consumables and Instruments - includes a complete range of consumables, including multiple formats of racks, tubes, caps, plates and foils, which are used for storage and handling of samples in ambient and ultra-cold storage environments. A comprehensive range of instruments used for labeling, bar coding, capping, de-capping, auditing, sealing, peeling, and piercing tubes and plates complement our consumables. Our offerings include a range of products aimed at the genomic sample preparation and services market for polymerase chain reactions, or PCR, & sequencing, imaging, plate sealing, liquid handling, and sample processing.

Brooks Life Sciences Services Offerings

The principal offerings of the Brooks Life Sciences Services segment include the following:

Genomic Services - provides gene sequencing and gene synthesis services, enabling the fast-expanding research of gene-based healthcare discoveries and therapies. These service offerings include Next Generation sequencing, or NGS, Sanger sequencing, gene synthesis, bioinformatics, and GLP regulatory services. The sequencing services are available with both standard and custom services for extraction, library preparation, sequencing, and bioinformatics, supported by Ph.D.-level project managers providing consultations, updates, and post-delivery assistance. The gene synthesis offerings provide production of a wide range of sequence lengths and structural complexity, DNA cloning, gene fragment synthesis, and oligo synthesis.

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Sample Repository Solutions - includes a complete range of services consisting of on-site and off-site sample storage, cold chain logistics, sample transport and collection relocation, bio-processing solutions (inclusive of sample preparation, and genomic and cell culture analysis), disaster recovery and business continuity, as well as project management and consulting.

Informatics - provides sample intelligence software solutions and integration of customer technology. Our informatics suite supports laboratory workflow scheduling for life science tools and instrument work cells, sample inventory and logistics, environmental and temperature monitoring, clinical trial and consent management, and planning, data management, virtualization, and visualization of sample collections. The addition of RURO's capabilities and offerings enables us to offer enhanced on-site and off-site management of biological sample inventories and integration solutions to our customers for their increasingly distributed workflow.

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Sales, Marketing and Customer Support

We market and sell most of our semiconductor products and services in Asia, Europe, the Middle East and North America through our direct sales organization. The sales process for our products is often multilevel, involving a team comprised of individuals from sales, marketing, engineering, operations and senior management. In many cases we assign a team to a customer who engages the customer at different levels of its organization to facilitate planning, provide product customization when required, and ensure open communication and support.

The majority of our life sciences sales are completed through our direct Brooks Life Sciences sales force, particularly our store systems, storage services, and genomic services. We supplement the sale of consumables and instruments with distributors that reach a broad range of customers. In regions with emerging life science industries such as China, India and the Middle East, we leverage local distributors to assist with the sales process for store systems. Our

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larger sample management systems sales process may take months to complete and may involve a team from sales, marketing, and engineering. Sales of genomic services are generally generated with on-line orders from the customer lab and delivered via a courier service, with the simplest of sequencing completed in less than 24 hours and more complex synthesis tasks within weeks.

We typically provide product warranties for a period of one to two years depending on the product type.

Our marketing activities include participation in trade shows, seminars, participation in industry forums, creation and distribution of sales literature and white papers, publication of press releases and articles in business and industry publications. We maintain sales and service centers in Asia, Europe, the Middle East and North America to enhance our customers’ support and communication.

Competition

Brooks’ Semiconductor Solutions Group segment operates in various market segments of varying breadth with differing competitors and competitive dynamics. The semiconductor and adjacent technology markets, and process equipment manufacturing industries, are highly competitive and characterized by continual changes and technology improvements. A significant portion of equipment automation is still done by the OEMs themselves. Our competitors among merchant vacuum robot automation suppliers include primarily Japanese companies, such as Daihen Corporation, Daikin Industries, Ltd., Rorze Corporation, and Sumitomo Heavy Industries, as well as Korea-based RaonTech. Atmospheric tool automation is typically less demanding technologically, has fewer barriers to entry and has a larger field of competitors. We compete directly with other equipment automation suppliers of atmospheric modules and systems, such as Hirata Corporation, Kawasaki Heavy Industries, Ltd., Genmark Automation, Inc., Rorze Corporation, Sankyo Seisakusho Co., Ltd., TDK Corporation and Sinfonia Technology Co., Ltd. Our Contamination Control Solutions business competes with suppliers of automated wafer carrier cleaning equipment such as Device Engineering and Hugle.

We believe our customers will purchase our equipment, automation products and vacuum subsystems as long as our products continue to provide the necessary throughput, reliability, contamination control and accuracy at an acceptable price. We believe our semiconductor offerings are competitive with respect to all of these factors. However, we cannot guarantee that we will be successful in selling our products to OEMs who currently satisfy a portion of their automation needs in-house or from other independent suppliers, regardless of the performance or price of our products.

Given the breadth of the sample management solutions and genomic services offered by the Brooks Life Sciences segments, there are no direct competitors for the comprehensive set of product and service solutions we provide to our customers. Each of the business lines within the Brooks Life Sciences segments, however, has unique competitors in their area of offerings. This includes Hamilton Company and Liconic AG for automation systems, Thermo-Fisher for consumables and services, Covance and LabCorp for storage services, and BGI, Eurofins, GenScript, Integrated DNA Technologies, and Twist for genomic services.

Research and Development

Our research and development efforts are focused on developing new products and enhancing the functionality, degree of integration, reliability and performance of our existing products and service offerings. Our engineering, marketing, operations and management personnel leverage their close collaborative relationships with their counterparts in customer organizations to proactively identify market demands that helps us refocus our research and development investment to match our customers’ demands. With the rapid pace of change that characterizes the markets we serve, it is essential for us to provide high-performance, reliable products in order to maintain our leadership position in our Brooks Semiconductor Solutions Group and Brooks Life Sciences segments.

Within our Brooks Semiconductor Solutions Group we invest in research and development initiatives to maintain our leadership positions in the market we serve as well as to expand our market opportunity. Our investments in Vacuum Automation and Contamination Control include ramping our intelligent vacuum robot platform, MagnaTran LEAP, with new designs at customers releasing tools for 10 nanometers and below. In addition, our new PuroMaxx LEAP carrier clean initiative is well positioned to handle the contamination challenges at 5 nanometers and below, while

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having modularity to address the emerging need for carrier clean in the memory markets. As the demand for extreme ultraviolet (EUV) lithography expands, Brooks continues investment in EUV POD cleaning and reticle storage. Our initiatives with Guardian LEAP for EUV reticle storage will provide new innovation to solve many contamination challenges with EUV reticles.

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. We have a complete line up of automated storage from -20°C to -190°C.  Our BioStore™ II’s unique design allows controlled temperature storage down to -80°C with the industry’s highest throughput of sample retrieval.  We recently launched the BioStore™ III V 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.

Manufacturing and Service

Our manufacturing operations include product assembly, integration and testing. We implement quality assurance procedures that include standard design practices, reliability testing and analysis, supplier and component selection procedures, vendor controls, manufacturing process controls, and service processes that ensure high-quality performance of our products. Our major manufacturing facilities are located in Chelmsford, Massachusetts; Yongin-City, South Korea; and Manchester, United Kingdom. Our manufacturing operations are designed to provide high quality, optimal cost, differentiated products to our customers in short lead times through responsive and flexible processes and sourcing strategies. We utilize lean manufacturing techniques for a large portion of our manufacturing, including the manufacture of assemblies that we have outsourced to competitive regions, including Asia. We also believe the continued sourcing of portions of our manufacturing processes in these regions allows us to better serve our customers who have operations in these regions.

We have service and support locations near our customers to provide rapid response to their service needs. Our principal product service and support locations include Chelmsford, Massachusetts; Fremont, California; Chu Bei City, Taiwan; Yongin-City, South Korea; Yokohama, Japan; Shanghai, China; Singapore; Manchester, United Kingdom; and Kiryat-Gat, Israel.

Our Brooks Life Sciences segments provide sample management storage and transportation services in Indianapolis, Indiana; Fresno, California; El Segundo, California; Torrance, California; Bronx, New York; Canada, Germany, China, and Singapore. We have a network of 13 laboratories that provide genomic services, including seven in the United States, three in China, and one each in Japan, Germany, and the United Kingdom.

Patents and Proprietary Rights

We rely on patents, trade secret laws, confidentiality procedures, copyrights, trademarks and licensing agreements to protect our technology. Due to the rapid technological change that characterizes the life sciences, semiconductor, adjacent technology markets and related process equipment industries, we believe that the improvement of existing technology, reliance upon trade secrets, unpatented proprietary know-how and the development of new products may be as important as patent protection in establishing and maintaining a competitive advantage. Our policy is to require all employees to enter into proprietary information and nondisclosure agreements to protect trade secrets and know-how. We cannot guarantee that these efforts will meaningfully protect our trade secrets.

As of September 30, 2020, we owned approximately 360 issued U.S. patents, with various corresponding patents issued in foreign jurisdictions. We also had approximately 100 pending U.S. patent applications, with foreign counterparts of some of these applications having been filed or which may be filed at the appropriate time. Our patents will expire at various dates through 2038.

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Backlog

Backlog for the Brooks Semiconductor Solutions Group segment offerings totaled approximately $175 million as of September 30, 2020, as compared to approximately $127 million at September 30, 2019. Backlog for the Brooks Semiconductor Solutions Group segment includes all purchase orders for which our customers have scheduled delivery, regardless of the expected delivery date, and consists principally of orders for products and service agreements. Substantially all of this backlog consists of orders scheduled to be delivered within the next 12 months.

Backlog for the Brooks Life Sciences Products segment offerings totaled $92 million as of September 30, 2020, as compared to approximately $51 million at September 30, 2019. Backlog for the Brooks Life Sciences Products segment includes all purchase orders for which customers have scheduled delivery, regardless of the expected delivery date, and consists of orders for products and service agreements. 

Backlog for the Brooks Life Sciences Services segment offerings totaled $235 million as of September 30, 2020, as compared to approximately $252 million at September 30, 2019. Backlog for the Brooks Life Sciences Services segment includes all purchase orders for which customers have scheduled delivery, regardless of the expected delivery date, and consists of orders for products and service agreements. In addition, it includes estimated revenue for future services related to our BioStorage business for which contracts have been secured. Final revenue realized will vary based on volumes, prices, duration, and other factors. Storage contracts vary in length of time, with some being short term and some indefinite. We include the estimated value for time periods in the contract up to a maximum of 5 years.

Environmental Matters

We are subject to federal, state, local environmental laws and regulations, and the environmental laws and regulations of the foreign national and local jurisdictions in which we have manufacturing facilities. We believe we are in compliance in all material respects with such laws and regulations.

Compliance with foreign, federal, state, and local laws and regulations has not had, and is not expected to have, an adverse effect on our capital expenditures, competitive position, financial condition or results of operations.

Employees

At September 30, 2020, we had 3,159 full time employees. In addition, we employ part time workers and contractors. We consider our relationships with our employees to be good.

Available Information

We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the internet at the SEC’s website at http://www.sec.gov. We also maintain a website at www.brooks.com, through which you can access our SEC filings. The information found on our website is not part of this or any other report we file with or furnish to the SEC.

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Risks Relating to the COVID-19 pandemic

Our financial condition and results of operations could be adversely affected by the COVID-19 Pandemic.

In December 2019, a novel strain of coronavirus, causing a disease referred to as COVID-19, was first identified in Wuhan, Hubei Province, China, resulting in shutdowns of manufacturing and commerce in the months that have followed. Since then, COVID-19 has spread worldwide, including in the United States, and has resulted in authorities implementing numerous measures to try to contain the disease, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns. We have followed the guidelines from the U.S. Center for Disease Control (CDC) and implemented the recommended safety protocols, and the spread of COVID-19 has also caused us to modify our business practices (including curtailing employee travel and mandatory work-from-home policies where necessary), and we may take further actions as required by government authorities or that we determine are in the best interests of our employees, customers, partners and suppliers. There is no certainty that such measures will be sufficient to mitigate the risks posed by the disease, and our ability to perform critical functions could be harmed.

As a result of the COVID-19 pandemic and the measures designed to contain its spread, our suppliers may not have the materials, capacity, or capability to supply our components according to our schedule and specifications. Further, there may be logistics issues, including our ability and our supply chain’s ability to maintain production, as well as transportation demands that may cause further delays. If our suppliers’ operations are curtailed, we may need to seek alternate sources of supply, which may be more expensive. Alternate sources may not be available or may result in delays in shipments to us from our suppliers and subsequently to our customers. In addition, the COVID-19 pandemic and the measures designed to stop the spread of the virus may have similar effects on our customers. The current pandemic may also give rise to force majeure contractual protections being asserted by customers and/or suppliers that we maintain contracts with, potentially relieving contractual obligations these parties have to us. In any case, any disruption of our suppliers’ or customers’ businesses would likely negatively impact our sales and operating results.

While the disruptions and restrictions on the ability to travel, quarantines and other measures taken as a result of the COVID-19 pandemic are expected to be temporary, the duration of any of these measures, and related financial impact, cannot be estimated at this time. Should these measures continue for an extended period of time, the impact on our supply chain and customers could have a material adverse effect on our results of operations and cash flows. Further, while the potential impact and duration of the COVID-19 pandemic on the global economy and our business in particular may be difficult to assess or predict, the COVID-19 pandemic has resulted in, and may continue to result in, significant disruption of global financial markets and an economic downturn that may affect demand for our products and services, reduce our ability to access capital or our customers’ ability to pay us for past or future purchases, impact our operating results, and have a negative impact on our liquidity and stock price. In addition, an extended recession or an additional financial market correction resulting from the spread of COVID-19 could decrease overall technology manufacturing spending, adversely affecting demand for our products and services, in particular in the Brooks Semiconductor Solutions Group segment, our business and the value of our common stock. The global pandemic of COVID-19 continues to rapidly evolve, and we will continue to monitor the COVID-19 situation closely. Although the magnitude of the impact of the pandemic on our business and operations remains uncertain, the continued spread of COVID-19 and actions taken to mitigate such spread or the occurrence of other outbreaks of contagious diseases could adversely impact our business, financial condition, operating results and cash flows.

Risks Relating to Our Industries

Due in part to the cyclical nature of the semiconductor manufacturing industry and related industries, as well as due to volatility in worldwide capital and equity markets, we have previously incurred operating losses and may have future losses.

A significant portion of our business is largely dependent on capital expenditures in the semiconductor manufacturing industry and other businesses employing similar manufacturing technologies. The semiconductor manufacturing industry in turn depends on current and anticipated demand for integrated circuits and the products that use them. These businesses have experienced unpredictable and volatile business cycles due in large part to rapid changes in demand and manufacturing capacity for semiconductors, and these cycles have had an impact on our business, sometimes causing declines in revenue and operating losses. We could experience future operating losses

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during an industry downturn. If an industry downturn continues for an extended period of time, our business could be materially harmed. Conversely, in periods of rapidly increasing demand, we could have insufficient inventory and manufacturing capacity to meet our customers’ needs on a timely basis, which could result in the loss of customers and various other expenses that could reduce gross margins and profitability.

We face competition which may lead to price pressure and otherwise adversely affect our sales.

We face competition throughout the world in each of our product and service areas, including from the competitors discussed in Part I, Item 1, “Business - Competition” as well as from internal automation capabilities at larger OEMs and other internal capabilities at our other customers and potential customers. Many of our competitors have substantial engineering, manufacturing, marketing and customer support capabilities. In addition, in our semiconductor business, strategic initiatives in China to encourage local semiconductor manufacturing and supply chain could increase competition from domestic equipment manufacturers in China. We expect our competitors to continue to improve the performance of their current products and services and to introduce new products, services and technologies that could adversely affect sales of our current and future products and services. New products, services and technologies developed by our competitors or more efficient production of their products or provisions of their services as well as increased and more efficient internal capabilities at our customers and potential customers could require us to make significant price reductions or decide not to compete for certain business. If we fail to respond adequately to pricing pressures or fail to develop products with improved performance or better-quality services with respect to the other factors on which we compete, we could lose customers or orders. If we are unable to compete effectively, our business and prospects could be materially harmed.

Risks Relating to Our Operations

Our operating results could fluctuate significantly, which could negatively impact our business.

Our revenue, operating margins and other operating results could fluctuate significantly from quarter-to-quarter and year-to-year depending upon a variety of factors, including:

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As a result of these risks, we believe that reference to past performance for comparisons of our revenue and operating results may not be meaningful, and that these comparisons may not be an accurate indicator of our future performance.

If we do not continue to introduce new products and services that reflect advances in technology in a timely and effective manner, our products and services may become obsolete and our operating results will suffer.

Our success is dependent on our ability to respond to the technological changes present in the markets we serve. The success of our product development and introduction of products and services to market depends on our ability to:

If we cannot succeed in responding in a timely manner to technological and/or market changes or if the new products and services that we introduce do not achieve market acceptance, our competitive position would diminish which could materially harm our business and our prospects.

The global nature of our business exposes us to multiple risks.

During fiscal years ended September 30, 2020, 2019 and 2018, approximately 62%, 58% and 63% of our revenue was derived from sales outside of North America. We expect that international sales, including increased sales in Asia, will continue to account for a significant portion of our revenue for the foreseeable future, and that in particular, the proportion of our sales to customers in China will continue to increase, due in large part to our acquisition of GENEWIZ, which maintains a significant presence in China. Additionally, we intend to invest additional resources in facilities in China, which will increase our global footprint of sales, service and repair operations. As a result of our international operations, we are exposed to many risks and uncertainties, including:

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Negative developments in any of these areas in one or more countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, threats to our intellectual property, difficulty in collecting receivables, and a higher cost of doing business, any of which could materially harm our business and profitability.

Our business could be materially harmed if we fail to adequately integrate the operations of the businesses that we have acquired or may acquire.

We have made in the past, and may make in the future, acquisitions or significant investments in businesses with complementary products, services and/or technologies. Our acquisitions, including the acquisition of GENEWIZ in November 2018, present numerous risks, including:

If we acquire a new business, we may expend significant funds, incur additional debt or issue additional securities, which may negatively affect our operations and be dilutive to our stockholders. In periods following an acquisition, we will be required to evaluate goodwill and acquisition-related intangible assets for impairment. If such assets are found to be impaired, they will be written down to estimated fair value, with a charge against earnings. The failure to adequately address these risks or the impairment of any assets could materially harm our business and financial results.

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Expanding within current markets introduces new competitors and commercial risks.

A key part of our growth strategy is to continue expanding within the life sciences sample management and genomic services markets. As part of this strategy, we expect to diversify our product sales and service revenue by leveraging our core technologies, which requires investments and resources which may not be available on favorable terms or at all when needed. We cannot guarantee that we will be successful in leveraging our capabilities into the life sciences sample management and genomic services markets to meet all the needs of new customers and to compete favorably. Because a significant portion of our growth potential may be dependent on our ability to increase sales within each of the Brooks Life Sciences Product and Brooks Life Sciences Services segments, our inability to successfully expand within the markets serviced by these segments may adversely impact future financial results.

Changes in key personnel could impair our ability to execute our business strategy.

The continuing service of our executive officers and essential engineering, technical and management personnel, together with our ability to attract and retain such personnel, is an important factor in our continuing ability to execute our strategy. There is substantial competition to attract such employees and the loss of any such key employees could have a material adverse effect on our business and operating results. The same could be true if we were to experience a high turnover rate among engineering and technical personnel and we were unable to replace them.

Our failure to protect our intellectual property could adversely affect our future operations.

Our ability to compete is significantly affected by our ability to protect our intellectual property. We rely upon patents, trade secret laws, confidentiality procedures, copyrights, trademarks and licensing agreements to protect our technology. Existing trade secret, trademark and copyright laws offer only limited protection. Our success depends in part on our ability to obtain and enforce patent protection for our products both in the United States and in other countries. We own numerous U.S. and foreign patents, and we intend to file additional applications, as appropriate, for patents covering our products and technology. Any issued patents owned by or licensed to us may be challenged, invalidated or circumvented, and the rights under these patents may not provide us with competitive advantages. In addition, the laws of some countries in which our products are or may be developed, manufactured or sold may not fully protect our products. Due to the rapid technological change that characterizes the semiconductor and adjacent technology markets, we believe that the improvement of existing technology, reliance upon trade secrets and unpatented proprietary know-how and the development of new products may be as important as patent protection in establishing and maintaining competitive advantage. To protect trade secrets and know-how, it is our policy to require all technical and management personnel to enter into nondisclosure agreements.

We cannot guarantee that the steps we have taken to protect our intellectual property will be adequate to prevent the misappropriation of our technology. Other companies could independently develop similar or superior technology without violating our intellectual property rights. In the future, it may be necessary to engage in litigation or like activities to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of proprietary rights of others, including our customers. This could require us to incur significant expenses and to divert the efforts and attention of our management and technical personnel from our business operations.

The expiration of our patents over time could lead to an increase of competition and a decline in our revenue.

One of our main competitive strengths is our technology, and we are dependent on our patent rights and other intellectual property rights to maintain our competitive position. Our current patents will expire from time to time through 2038 which could result in increased competition and declines in product and service revenue.

We may be subject to claims of infringement of third-party intellectual property rights, or demands that we license third-party technology, which could result in significant expense and prevent us from using our technology.

There has been substantial litigation regarding patent and other intellectual property rights in the industries in which we do business. We have in the past been, and may in the future be, notified that we may be infringing intellectual property rights possessed by third parties. We cannot guarantee that infringement claims by third parties or other claims for indemnification by customers or end-users of our products and services resulting from infringement claims will not

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be asserted in the future or that such assertions, whether or not proven to be true, will not materially and adversely affect our business, financial condition and results of operations.

We cannot predict the extent to which we might be required to seek licenses or alter our products or services so that they no longer infringe the rights of others. We also cannot guarantee that licenses will be available or the terms of any licenses we may be required to obtain will be reasonable. Similarly, changing our products, services or processes to avoid infringing the rights of others may be costly or impractical and could detract from the value of our products and services. If a judgment of infringement were obtained against us, we could be required to pay substantial damages and a court could issue an order preventing us from selling one or more of our products or offering certain of our services. Further, the cost and diversion of management attention brought about by such litigation could be substantial, even if we were to prevail. Any of these events could result in significant expense to us and may materially harm our business and our prospects.

Unexpected events could disrupt our sample storage operations and adversely affect our reputation and results of operations.

Unexpected events, including fires or explosions at our facilities, natural disasters, such as tornadoes, hurricanes and earthquakes, war or terrorist activities, unplanned power outages, supply disruptions and failure of equipment or systems, could adversely affect our reputation and results of operations. Our Brooks Life Sciences’ service customers rely on us to securely store and timely retrieve and transport their critical samples, and these events could result in service disruptions, physical damage to one or more key storage facilities and the customer samples stored in those facilities, the temporary closure of one or more key operating facilities or the temporary disruption of service, each of which could negatively impact our reputation and results of operations. Our primary storage facility is located in Indianapolis, Indiana, an area of the United States that can be prone to tornado and other severe weather events.

If our manufacturing sites were to experience a significant disruption in operations, our business could be materially harmed, while the failure to estimate customer demand accurately could result in excess or obsolete inventory.

We have a limited number of manufacturing facilities for our products and we have moved portions of our manufacturing to third parties, including some in lesser developed countries. If the operations at any one of these facilities were disrupted as a result of a natural disaster, fire, power or other utility outage, work stoppage or other similar event, our business could be seriously harmed because we may be unable to manufacture and ship products and parts to our customers in a timely fashion. The impact of any disruption at one of our facilities may be exacerbated if the disruption occurs at a time when we need to rapidly increase our manufacturing capabilities to meet increased demand or expedited shipment schedules.

Moreover, if actual demand for our products is different than expected, we may purchase more/fewer component parts than necessary or incur costs for canceling, postponing or expediting delivery of such parts. If we purchase inventory in anticipation of customer demand that does not materialize, or if our customers reduce or delay orders, we may incur excess inventory charges. Any or all of these factors could materially and adversely affect our business, financial condition and results of operations.

Our business could be materially harmed if one or more key suppliers fail to continuously deliver key components of acceptable cost and quality.

We currently obtain many of our key components on an as-needed, purchase order basis from numerous suppliers. In some cases we have only a single source of supply for key components and materials used in the manufacturing of our products. Further, we are increasing our sourcing of products in Asia, and particularly in China, and we do not have a previous history of dealing with many of these suppliers. Our inability to obtain components or materials in required quantities or of acceptable cost and quality and with the necessary continuity of supply could result in delays or reductions in product shipments to our customers. In addition, if a supplier or sub-supplier suffers a production stoppage or delay for any reason, including natural disasters such as the tsunamis that affected Japan in 2011 and Thailand in 2004, this could result in a delay or reduction in our product shipments to our customers. Any of these contingencies could cause us to lose customers, result in delayed or lost revenue and otherwise materially harm our business.

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Our business could be adversely affected by a decline in the availability of raw materials.

We are dependent on the availability of certain key raw materials and natural resources used in our products and various manufacturing processes, and we rely on third parties to supply us with these materials in a cost-effective and timely manner. Our access to raw materials may be adversely affected if our suppliers’ operations were disrupted as a result of limited or delayed access to key raw materials and natural resources which may result in increased cost of these items. While most of the raw materials used in our products and various manufacturing processes are commercially available, we rely in some cases on materials that have a limited supply and are considered rare Earth elements. If the supply of these elements is drastically reduced, it may lead to price increases which could result in higher costs of our products and corresponding revenue declines and have a material adverse impact on our business, financial condition and results of operations.

Our outsource providers may fail to perform as we expect.

Outsource providers have played and will continue to play a key role in our manufacturing operations and in many of our transactional and administrative functions, such as information technology and facilities management. Many of these outsourced service providers, including certain hosted software applications that we use for confidential data storage, employ cloud computing technology for such storage. These providers’ cloud computing systems may be susceptible to “cyber incidents,” such as intentional cyber-attacks aimed at theft of sensitive data or inadvertent cyber-security compromises, which are outside of our control. Although we attempt to select reputable providers and secure their performance on terms documented in written contracts, it is possible that one or more of these providers could fail to perform or adequately protect our data from cyber-related security breaches as we expect and any such failure could have an adverse impact on our business.

Our business relies on certain critical information systems and a failure or breach of such a system could harm our business and results of operations and, in the event of unauthorized access to a customer’s data or our data, incur significant legal and financial exposure and liabilities.

We maintain and rely upon certain critical information systems for the effective operation of our business. These information systems include telecommunications, the internet, our corporate intranet, various computer hardware and software applications, network communications and e-mail. These information systems may be owned and maintained by us, our outsource providers or third parties such as vendors and contractors. These information systems are subject to attacks, failures, and access denials from a number of potential sources including viruses, destructive or inadequate code, power failures, and physical damage to computers, hard drives, communication lines and networking equipment. To the extent that these information systems are under our control, we have implemented security procedures, such as virus protection software and emergency recovery processes, to mitigate the outlined risks. However, security procedures for information systems cannot be guaranteed to be failsafe and our inability to use or access these information systems at critical points in time, or unauthorized releases of confidential information, could unfavorably impact the timely and efficient operation of our business.

Confidential information stored on these information systems could also be compromised. If a third party gains unauthorized access to our data, including any information regarding our customers, such security breach could expose us to a risk of loss of this information, loss of business, litigation and possible liability. These security measures may be breached as a result of third-party action, including intentional misconduct by computer hackers, employee error, malfeasance or otherwise. Additionally, third parties may fraudulently attempt to induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our customers’ data or our data, including our intellectual property and other confidential business information, or our information technology systems. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any security breach could result in a loss of confidence by our customers, damage our reputation, disrupt our business, lead to legal liability and negatively impact our future sales.

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Our goodwill and intangible assets may become impaired.

As of September 30, 2020, we had $501.5 million of goodwill and $218.3 million in net intangible assets as a result of our acquisitions. We periodically review our goodwill and the estimated useful lives of our identifiable intangible assets, taking into consideration any events or circumstances that might result in either a diminished fair value, or for intangible assets, a revised useful life. These events and circumstances include significant changes in the business climate, legal factors, operating performance indicators, advances in technology and competition. Any impairment or revised useful life could have a material and adverse effect on our financial position and results of operations and could harm the trading price of our common stock.

Changes in tax rates or tax regulation could affect results of operations.

As a global company, we are subject to taxation in the United States and various other countries. Significant judgment is required to determine and estimate worldwide tax liabilities. Our future annual and quarterly effective tax rates could be affected by numerous factors, including changes in the following: applicable tax laws; composition of pre-tax income in countries with differing tax rates; and/or establishment of a valuation allowance against deferred tax assets based on the assessment of their realizability prior to expiration. In addition, we are subject to regular examination by the U.S. Internal Revenue Service and state, local and foreign tax authorities. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. Although we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be materially different from the treatment reflected in our historical income tax provisions and accruals, which could materially and adversely affect our financial condition and results of operations.

International trade disputes could result in additional or increased tariffs, export controls or other trade restrictions that may have a material impact on our business.

We sell a significant number of products outside the United States, including in China, Taiwan, Japan and South Korea. Based on the complex relationships among these countries and the United States, there is inherent risk that political, diplomatic and national security influences might lead to trade disputes, impacts and/or disruptions, in particular, with respect to those affecting the semiconductor industry. The United States and other countries have imposed and may continue to impose trade restrictions and have also levied tariffs and taxes on certain goods. Increases in tariffs, additional taxes or other trade restrictions and retaliatory measures may increasingly impact customer demand and customer investment in manufacturing equipment, increase our manufacturing costs, decrease margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary equipment and supplies, which could have a material adverse effect on our business, results of operations, or financial condition.

In particular, China is a significant market for the semiconductor equipment industry, and the ongoing “trade war” between the United States and China is unpredictable. The U.S. may impose more restrictive measures, including increasing the requirement to obtain export licenses, and the Chinese government may impose measures against the U.S. through its own import and export-related regulations. If export licenses are required for any of the Company’s products, or for shipment of products to any particular customers in China, the failure of the U.S. government to approve such export licenses could adversely affect our business, financial condition and results of operations, and may decrease our competitive position with our non-U.S. competitors.

We are subject to numerous governmental regulations.

We are subject to federal, state, local and foreign regulations, including environmental regulations, regulations relating to the design and operation of our products and control systems and regulations relating to certain of our service offerings in the Brooks Life Sciences segments. We might incur significant costs as we seek to ensure that our products meet safety and emissions standards, many of which vary across the states and countries in which our products are used. In the past, we have invested significant resources to redesign our products to comply with these directives. Compliance with future regulations, directives, and standards could require us to modify or redesign some products, change our

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service offerings, make capital expenditures, or incur substantial costs. If we do not comply with current or future regulations, directives, and standards:

Any of these events could materially and adversely affect our business, financial condition and results of operations.

Regulations and customer demands related to conflict minerals may adversely affect us.

The Dodd-Frank Wall Street Reform and Consumer Protection Act imposes disclosure requirements regarding the use in components of our products of “conflict minerals” mined from the Democratic Republic of Congo and adjoining countries, whether the components of our products are manufactured by us or third parties. This requirement could affect the pricing, sourcing and availability of minerals used in the manufacture of components we use in our products. In addition, there are additional costs associated with complying with the disclosure requirements and customer requests, such as costs related to our due diligence to determine the source of any conflict minerals used in our products. We may face difficulties in satisfying customers who may require that all of the components of our products are certified as conflict mineral free and/or free of numerous other hazardous materials.

Unfavorable currency exchange rate fluctuations may lead to lower operating margins, or may cause us to raise prices, which could result in reduced sales.

Currency exchange rate fluctuations could have an adverse effect on our sales and results of operations, and we could experience losses with respect to forward exchange contracts into which we may enter. Unfavorable currency fluctuations could require us to increase prices to foreign customers, which could result in lower net sales by us to such customers. Alternatively, if we do not adjust the prices for our products and services in response to unfavorable currency fluctuations, our results of operations could be materially and adversely affected. In addition, most sales made by our foreign subsidiaries are denominated in the currency of the country in which these products are sold or these services are provided and the currency they receive in payment for such sales could be less valuable as compared to the U.S. dollar at the time of receipt as a result of exchange rate fluctuations. From time to time, we enter into forward exchange contracts to reduce currency exposure. However, we cannot be certain that our efforts will be adequate to protect us against significant currency fluctuations or that such efforts will not expose us to additional exchange rate risks, which could materially and adversely affect our results of operations.

Our indebtedness may adversely affect our ability to operate our business, generate cash flows and make payments on such indebtedness

On October 4, 2017, we entered into a $200.0 million Senior Secured Term Loan Facility, or 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. At September 30, 2020, the outstanding term loan principal balance was $50.4 million, excluding unamortized deferred financing costs of $0.4 million. The term loan matures and becomes fully payable on October 4, 2024. We are required to redeem the term loan at the principal amount then outstanding upon occurrence of certain events, as described in the credit agreement. For further information on this transaction, please refer to Note 11, "Debt" to our Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

Our ability to pay interest and repay the principal for our indebtedness, including the term loan, is dependent upon our ability to manage our business operations and maintain sufficient liquidity to service such debt. The loan borrowings are subject to variable interest rates which create exposure to interest rate risk. Interest rate increases may result in higher cost of servicing our loans and reduce our profitability and cash flows. The terms of our debt covenants in the credit agreement for the term loan could limit our ability to raise additional funds and the manner in which we conduct our business. We have the ability to refinance the term loan and obtain additional indebtedness as long as we maintain a certain level of liquidity and earnings, as specified in the credit agreement for the term loan. If our liquidity and earnings

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are reduced below a certain level, we will have limited ability to service the term loan and obtain additional debt financing. Our failure to comply with the restrictive covenants under the term loan and our other indebtedness could also result in an event of default under the term loan which, if not cured or waived, could result in the acceleration of all or a portion of our indebtedness, including under the term loan. Accordingly, a default under the term loan would have a material adverse effect on our business and our lender would have the right to exercise its rights and remedies to collect, which would include the right to foreclose on our assets.

Risks Relating to Our Customers

Because we rely on a limited number of customers for a large portion of our revenue, the loss of one or more of these customers could materially harm our business.

We receive a significant portion of our revenue in each fiscal period from a relatively limited number of customers, and that trend is likely to continue. Sales to our ten largest customers accounted for approximately 33%, 28% and 34%, respectively, of our total revenue in the fiscal years ended September 30, 2020, 2019 and 2018. The loss of one or more of these major customers, a significant decrease in orders from one of these customers, or the inability of one or more customers to make payments to us when they are due could materially affect our revenue, business and reputation. In addition, there has been and may continue to be significant consolidation among some of our largest OEM customers, which could lead to increased pressure to reduce the price of our semiconductor products and/or decreased market share of our semiconductor products with the combined companies.

Because of the lengthy sales cycles of many of our products, we may incur significant expenses before we generate any revenue related to those products.

Our customers may need several months to test and evaluate our products. This increases the possibility that a customer may decide to cancel an order or change its plans, which could reduce or eliminate our sales to that customer. The impact of this risk can be magnified during the periods in which we introduce a number of new products, as has been the case in recent years. As a result of this lengthy sales cycle, we may incur significant research and development expenses, and selling, general and administrative expenses before we generate the related revenue for these products, and we may never generate the anticipated revenue if our customer cancels an order or changes its plans.

In addition, many of our semiconductor products will not be sold directly to the end-user but will be components of other products manufactured by OEMs. As a result, we rely on OEMs to select our semiconductor products from among alternative offerings to be incorporated into their equipment at the design stage; so-called design-ins. The OEMs’ decisions often precede the generation of volume sales, if any, by a year or more. Moreover, if we are unable to achieve these design-ins from an OEM, we would have difficulty selling our semiconductor products to that OEM because changing suppliers after design-ins involves significant cost, time, effort and risk on the part of that OEM.

Customers generally do not make long term commitments to purchase our products and our customers may cease purchasing our products at any time.

Sales of our products are often made pursuant to individual purchase orders and not under long-term commitments and contracts. Our customers frequently do not provide any assurance of minimum or future sales and are not prohibited from purchasing products from our competitors at any time. Accordingly, we are exposed to competitive pricing pressures on each order. Our customers also engage in the practice of purchasing products from more than one manufacturer to avoid dependence on sole-source suppliers for certain of their needs. The existence of these practices makes it more difficult for us to increase price, gain new customers and win repeat business from existing customers.

We may face claims for liability related to damages of customer materials attributed to the failure of our products or services, exposing us to significant financial or reputational harm.

Our automation products for the semiconductor manufacturing market are used in the handling and movement of silicon wafers at various points in the production process, and our automated cold storage systems for the life sciences sample management market are used in the handling, movement and storage of biological and chemical samples. We also provide sample storage services to customers where we store their biological and chemical samples at our facilities and other genomic services at our facilities. In any case, inaccurate or faulty testing services or damage to our customers’

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materials attributed to a failure of our products or services could lead to claims for damages made by our customers and could also harm our relationship with our customers and damage our reputation in each of these industries, resulting in material harm to our business.

Risks Relating to Owning Our Securities

Our stock price is volatile.

The market price of our common stock has fluctuated widely. From the beginning of fiscal year 2019 through the end of fiscal year 2020, our stock price fluctuated between a high of $56.69 per share and a low of $22.69 per share. Consequently, the current market price of our common stock may not be indicative of future market prices, and we may be unable to sustain or increase the value of an investment in our common stock. Factors affecting our stock price may include:

In addition, the stock market has in the past experienced significant price and volume fluctuations. These fluctuations have particularly affected the market prices of the securities of high technology companies like ours. These market fluctuations could adversely affect the market price of our common stock.

We may not pay dividends on our common stock.

Holders of our common stock are only entitled to receive dividends when and if they are declared by our Board of Directors. Although we have declared cash dividends on our common stock for the past several years, we are not required to do so and may reduce or eliminate our cash dividends in the future. This could adversely affect the market price of our common stock.

Provisions in our charter documents and Delaware law may delay or prevent an acquisition of us, which could decrease the value of your shares.

Our restated certificate of incorporation and by-laws and Delaware law contain provisions that could make it harder for a third party to acquire us without the consent of our Board of Directors. These provisions include limitations on actions by our stockholders by written consent, the inability of stockholders to call special meetings and the potential for super majority votes of our stockholders in certain circumstances. In addition, as discussed below, our Board of Directors has the right to issue preferred stock without stockholder approval, which could be used to dilute the stock ownership of a potential hostile acquirer.

Our restated certificate of incorporation makes us subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits publicly held Delaware corporations to which it applies from engaging in a “business combination” with an “interested stockholder” for a period of three years after the

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date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. This provision could discourage others from bidding for our shares of common stock and could, as a result, reduce the likelihood of an increase in the price of our common stock that would otherwise occur if a bidder sought to buy our common stock.

Although we believe these provisions provide for an opportunity to receive a higher bid by requiring potential acquirers to negotiate with our Board of Directors, these provisions apply even if the offer may be considered beneficial by stockholders. If a change of control or change in management is delayed or prevented, the market price of our common stock could decline.

Our restated certificate of incorporation authorizes the issuance of shares of blank check preferred stock.

Our restated certificate of incorporation provides that our Board of Directors is authorized to issue from time to time, without further stockholder approval, up to 1,000,000 shares of preferred stock in one or more series and to fix and designate the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, redemption rights and terms of redemption and liquidation preferences. Such shares of preferred stock could have preferences over our common stock with respect to dividends and liquidation rights. Our issuance of preferred stock may have the effect of delaying or preventing a change in control. Our issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights, of the holders of common stock. The issuance of preferred stock could have the effect of decreasing the market price of our common stock.

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material adverse effect on our consolidated financial condition or results of operations. In the event of unexpected subsequent developments and given the inherent unpredictability of these legal proceedings, there can be no assurance that our assessment of any claim will reflect the ultimate outcome and an adverse outcome in certain matters could, from time-to-time, have a material adverse effect on our consolidated financial condition or results of operations in particular quarterly or annual periods.

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The stock price performance on the graph below is not necessarily indicative of future price performance.

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The information included under the heading “Comparative Stock Performance” in Item 5 of "this report" shall not be deemed to be “soliciting material” or subject to Regulation 14A, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or under the Exchange Act.

Issuer’s Purchases of Equity Securities

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 to be repurchased under this program will be based on market and business conditions, legal requirements and other factors and may be commenced or suspended at any time at our discretion. There were no shares repurchased under this program during the fiscal year ended September 30, 2020.

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You should read the MD&A in conjunction with our Consolidated Financial Statements and related notes in this Form 10-K. In addition to historical information, the MD&A contains forward-looking statements that involve risks and uncertainties. You should read “Information Related to Forward-Looking Statements” and Item 1A, “Risk Factors" included above in this Form 10-K for a discussion of important factors that could cause our actual results to differ materially from our expectations.

OVERVIEW

General

We are a leading global provider of 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 fabs and 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 the semiconductor capital equipment market, equipment productivity and availability are critical factors for our customers, who typically operate equipment under demanding temperature and/or pressure environments. 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. Although the demand for semiconductors and semiconductor manufacturing equipment is cyclical resulting in periodic expansions and contractions, we expect the semiconductor equipment market to remain one of our principal markets as we continue making investments to maintain and grow our semiconductor product and service offerings. 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 LEAP, with new designs at customers releasing tools for 10 nanometers and below. In addition, our new PuroMaxx LEAP carrier clean product line is well positioned to handle the contamination challenges at 5 nanometers and below. As the market for EUV lithography expands, we will continue our investment in EUV pod cleaning and reticle storage. Our initiatives with Guardian LEAP for EUV reticle storage will provide new innovation to solve many contamination challenges with EUV reticles. In April 2018, we acquired Tec-Sem, a Switzerland-based provider of semiconductor fabrication automation equipment with a focus on reticle management. The acquisition has enhanced our contamination controls solutions offerings.

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

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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. Our recent acquisitions are as follows:

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. We have a complete line up of automated storage from -20°C 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™ III V 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.

Sale of the 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) for approximately $675.0 million in cash, subject to customary adjustments. We originally acquired the cryogenics business in 2005 as part of the acquisition of Helix Technology Corporation. The semiconductor cryogenics business has been classified as discontinued operations and, unless otherwise noted, the description of our business in this report relates solely to our continuing operations and does not include the operations of our semiconductor cryogenics business.

On July 1, 2019, we completed the sale of the semiconductor cryogenics business for $661.5 million which excludes $6.3 million retained by the buyer at closing based on an estimate of net working capital adjustments, which are currently pending finalization. Net proceeds from the sale were $553.1 million, net of taxes and closing costs paid and remaining taxes payable. As part of this sale, we transferred our intellectual property, for our cryogenics pump products, but not our intellectual property related to our semiconductor automation or life sciences businesses.

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On July 1, 2019, in connection with the completion of the sale of our semiconductor cryogenics business, we used $495.3 million of the cash proceeds to extinguish debt. As a result of the debt extinguishment we recorded a loss on extinguishment of debt of $5.2 million in the fourth quarter of fiscal year 2019. Refer to “Liquidity and Capital Resources” for further discussion of the debt extinguishment.

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Segments

We serve the semiconductor capital equipment market through one operating and reportable segment, our Semiconductor Solutions Group segment. We serve the life sciences market through two operating and reportable segments: Brooks Life Sciences Products and Brooks Life Sciences Services. Prior to the fiscal year 2020, we had only two reportable segments that consisted of the Brooks Semiconductor Solutions Group segment and the Brooks Life Sciences segment. The Brooks Life Sciences segment consisted of two operating segments, Sample Management and GENEWIZ.   During the fiscal year 2020, we realigned our life sciences businesses to combine the sample management services offerings under the leadership of our GENEWIZ genomic services business to form the Brook Life Sciences Services operating and reportable segment.  By combining these two service-based businesses we believe we can more effectively leverage the potential for synergies as customers engage us to manage a broad variety of sample-based services including gene sequencing, gene synthesis, lab analysis, sample kitting and preparation, transportation, and storage.  In the realignment we also formed our Brooks Life Sciences Products operating and reportable segment composed of product offerings of large automated ultra-cold stores, automated cryogenic storage systems, and consumables and instruments, and related product support services.

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Our prior period reportable segment information has been reclassified to reflect the current segment structure and conform to the current period presentation.

For additional information on our segment revenues and their operating results, please refer to Note 20, "Segment and Geographic Information" to our Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

The Brooks Semiconductor Solutions Group segment provides a variety of products, services and solutions that enable improved throughput and yield in controlled operating environments, as well as an extensive range of support services. The solutions include atmospheric and vacuum robots, robotic modules, tool automation systems, and contamination control of wafer carriers. The support services include repair services, diagnostic support services, and installation services in support of the products, which enable our customers to maximize process tool uptime and productivity. This segment also provides end-user customers with spare parts and productivity enhancement upgrades to maximize tool productivity.

The Brooks Life Sciences Products and Brooks Life Sciences Services segments provide comprehensive life cycle sample management solutions to life science and bioscience customers including complete end-to-end “cold chain of custody” solutions and sample-based lab services such as genomic sequencing and gene synthesis to advance scientific research and support drug development. The Brooks Life Sciences Products segment’s offerings include automated cold sample management systems for compound and biological sample storage, equipment for sample preparation and handling, consumables and instruments that help customers manage samples throughout their research discovery and development workflows. The Brooks Life Sciences Services segment’s offerings include sample storage services, genomic sequencing, gene synthesis, lab processing services, lab analysis, informatics and other support services provided to a wide range of life science customers, including pharmaceutical companies, biotechnology companies, biorepositories and research institutes.

Business and Financial Performance

Fiscal Year Ended September 30, 2020 Compared to Fiscal Year Ended September 30, 2019

Results of Operations - We reported revenue of $897.3 million for fiscal year 2020 compared to $780.8 million for fiscal year 2019, an increase of $116.4 million, or 15%. Gross margin was 42.4% for fiscal year 2020 compared to 40.5% for fiscal year 2019, an increase in gross profit of $63.8 million. Operating expenses were $301.6 million for fiscal year 2020 compared to $270.2 million for fiscal year 2019, an increase of $31.3 million. Operating income was

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$78.5 million for fiscal year 2020 compared to $46.0 million for fiscal year 2019, an increase of $32.4 million, which was primarily attributable to the revenue growth and gross margin improvement, partially offset by higher operating expenses. We generated income from continuing operations of $65.0 million during fiscal year 2020 as compared to $9.6 million in fiscal year 2019. This increase was primarily attributable to our increase in operating income as well as a loss on extinguishment of debt of $14.3 million and higher interest expense of $19.3 million in fiscal year 2019. Please refer to the “Results of Operations” section below for a detailed discussion of our financial results for the fiscal year 2020 compared to fiscal year 2019.

Cash Flows and Liquidity - Cash and cash equivalents, restricted cash and marketable securities were $305.7 million at September 30, 2020 as compared to $342.1 million at September 30, 2019. The decrease of $36.4 million was primarily comprised of outflows of $39.9 million for capital expenditures, $15.7 million for acquisitions, and $29.5 million for dividends, partially offset by cash inflows from operating activities of $37.9 million. Cash flows from operating activities was comprised of $64.9 million of net income and $77.2 million of adjustments to net income for non-cash items, partially offset by $91.5 million of cash taxes paid for the gain on the sale of the semiconductor cryogenics business and $12.7 million uses of cash from the changes in operating assets and liabilities. The prior fiscal year cash flows included $661.6 million related to proceeds from the sale of our semiconductor cryogenics business and cash inflows of $90.9 million generated from our operating activities, partially offset by net cash outflows of $442.7 million to acquire GENEWIZ, net cash outflows of $163.8 million related to principal payments made on and proceeds received from our term loans, cash dividends paid of $28.9 million and capital expenditures of $23.9 million. Please refer to the “Liquidity and Capital Resources” section below for a detailed discussion of our liquidity and changes in cash flows for fiscal year 2020 compared to fiscal year 2019.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of the Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. 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.

We believe that the assumptions and estimates associated with the following critical accounting policies involve significant judgment and thus have the most significant potential impact on our Consolidated Financial Statements.

Revenue Recognition

We generate revenue from the sale of products and services. A description of our revenue recognition policies is included in the Note 2, “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

Although most of our sales agreements contain standard terms and conditions, certain agreements contain multiple performance obligations or non-standard terms and conditions. For customer contracts that contain more than one performance obligation, we allocate the total transaction consideration to each performance obligation based on the relative stand-alone selling price of each performance obligation within the contract. We rely on either observable standalone sales or an expected cost-plus margin approach to determine the standalone selling price of offerings, depending on the nature of the performance obligation. Performance obligations whose standalone selling price is estimated using an expected cost-plus margin approach relate to the sale of customized automated cold sample management systems and service-type warranties within the Brooks Life Sciences Products segment.

Revenue from the sales of certain products that involve significant customization, which primarily include automated cold sample management systems is recognized over time as the asset created by our performance does not

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have alternative use to us and an enforceable right to payment for performance completed to date is present. We recognize revenue as work progresses based on a percentage of actual labor hours incurred on the project to-date and total estimated labor hours expected to be incurred on the project. The selection of the method to measure progress towards completion requires judgment. We have concluded that using the percentage of labor hours incurred to estimated labor hours needed to complete the project most appropriately depicts our efforts towards satisfaction of the performance obligation. We develop profit estimates for long-term contracts based on total revenue expected to be generated from the project and total costs anticipated to be incurred in the project. These estimates are based on a number of factors, including the degree of required product customization and the work required to be able to install the product in the customer’s existing environment, as well as our historical experience, project plans and an assessment of the risks and uncertainties inherent in the contract related to implementation delays or performance issues that may or may not be within our control. We estimate a loss on a contract by comparing total estimated contract revenue to the total estimated contract costs and recognize a loss during the period in which it becomes probable and can be reasonably estimated. We review profit estimates for long-term contracts during each reporting period and revise the estimate based on changes in circumstances.

If our judgment regarding revenue recognition proves incorrect, our revenue in particular periods may be adversely affected and could have a material impact on our financial condition and results of operations.

Business Combinations

We account for business acquisitions using the purchase method of accounting, in accordance with which assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date. The fair value of the consideration paid, including contingent consideration, is assigned to the assets acquired and liabilities assumed based on their respective fair values. Goodwill represents the excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed.

Significant judgment is used in determining fair values of assets acquired and liabilities assumed, as well as intangibles and their estimated useful lives. Fair value and useful life determinations are based on, among other factors, estimates of future expected cash flows, royalty cost savings and appropriate discount rates used in computing present values. Particularly for GENEWIZ, management applied significant judgment in estimating the fair value of the acquired intangible assets, which involved significant estimates and assumptions with respect to forecast revenue growth rates, gross margin percentage, selling, general and administrative expense percentage and the discount rate. These judgments may materially impact the estimates used in allocating acquisition date fair values to assets acquired and liabilities assumed, as well as our current and future operating results. Actual results may vary from these estimates that may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever occurs first. Adjustments to fair values of assets and liabilities made after the end of the measurement period are recorded within our operating results.

Changes in the fair value of contingent consideration resulting from a change in the underlying inputs are recognized in results of operations until the arrangement is settled.

Intangible Assets, Goodwill and Other Long-Lived Assets

We have identified intangible assets and generated significant goodwill as a result of our acquisitions. Intangible assets other than goodwill are valued based on estimated future cash flows and amortized over their estimated useful lives. Goodwill is tested for impairment annually or more often if impairment indicators are present, at the reporting unit level. Intangible assets other than goodwill and long-lived assets are subject to impairment testing if events and circumstances indicate that the carrying amount of an asset or a group of assets may not be recoverable.

The goodwill impairment test is performed at the reporting unit level. A reporting unit is either an operating segment or one level below it, which is referred to as a “component.” The level at which the impairment test is performed requires an assessment of whether the operations below an operating segment constitute a self-sustaining business, in which case testing is generally performed at this level.

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We have three operating and three reportable segments consisting of Brooks Semiconductor Solutions Group, Brooks Life Sciences Products and Brooks Life Sciences Services. We have six reporting units, including three reporting units within the Brooks Semiconductor Solutions Group operating segment, one reporting unit within Brooks Life Sciences Products operating segment and two reporting units within the Brooks Life Sciences Services operating segment.

We perform our annual goodwill impairment assessment on April 1^st of each fiscal year. We evaluate a reporting unit’s goodwill for impairment between annual tests if events occur or circumstances change that would more likely than not reduce the fair value of such reporting unit below its carrying value. In accordance with ASC 350, Intangibles- Goodwill and Other, we initially assess qualitative factors to determine whether the existence of events or circumstances indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying value. If we determine, based on this assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying value, we perform a quantitative goodwill impairment test by comparing the reporting unit’s fair value with its carrying value. An impairment loss is recognized for the amount by which the reporting unit’s carrying value exceeds its fair value, up to the total amount of goodwill allocated to the reporting unit. No impairment loss is recognized if the fair value of the reporting unit exceeds its carrying value.

We determine fair values of our reporting units based on an income approach in accordance with the discounted cash flow method, or DCF Method. The DCF Method is based on projected future cash flows and terminal value estimates discounted to their present values. Terminal value represents a present value an investor would pay on the valuation date for the rights to the cash flows of the business for the years subsequent to the discrete cash flow projection period. We consider the DCF Method to be the most appropriate valuation technique since it is based on management’s long-term financial projections. In addition to determining the fair value of our reporting units based on the DCF method, we also compare the aggregate values of our net corporate assets and reporting unit fair values to our overall market capitalization and use certain market-based valuation techniques to assess the reasonableness of the reporting unit fair values determined in accordance with the DCF Method. The key inputs used in the DCF Method include revenue growth rates, gross margin percentage, selling, general and administrative expense percentage and discount rates that are at or above our weighted-average cost of capital. We derive discount rates that are commensurate with the risks and uncertainties inherent in the respective reporting units and our internally developed projections of future cash flows.

Application of the goodwill impairment test requires judgment based on market and operational conditions at the time of the evaluation, including management’s best estimates of the reporting unit’s future business activity and the related estimates and assumptions of future cash flows from the assets that include the associated goodwill. Different assumptions of revenue growth rates, gross margin percentage, selling, general and administrative expense percentage and the discount rate used in the DCF model could results in different estimates of the reporting unit’s fair value as of each testing date.

We completed our annual goodwill impairment test as of April 1, 2020 for our six reporting units: Automation Solutions, Contamination Control Solutions and Global Semiconductor Services within the Brooks Semiconductor Solutions Group segment, as well Life Sciences Products, Sample Repository Solutions and GENEWIZ within the life sciences businesses. Based on the test results, we determined that no adjustment to goodwill was necessary. We conducted a qualitative assessment for the three reporting units within the Brooks Semiconductor Solutions Group segment and determined that it was more likely than not that their fair values were more than their carrying values. As a result of the analysis, we did not perform the quantitative assessment for these reporting units and did not recognize any impairment losses. We performed the quantitative goodwill impairment test for the three reporting units within the life sciences businesses. We determined that no adjustment to goodwill was necessary for these three reporting units. The Life Sciences Products and the Sample Repository Solutions unit’s fair values significantly exceeded book value. The GENEWIZ reporting unit, which was acquired in the first quarter of fiscal year 2019, also had a fair value in excess of its book value.

We are required to test long-lived assets, other than goodwill, for impairment when impairment indicators are present. For purposes of this test, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If we determine that indicators of potential impairment are present, we assess the recoverability of the long-lived asset group by comparing its undiscounted future cash flows to its carrying value. If the carrying value of the long-lived asset group

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exceeds its future cash flows, we determine fair values of the individual net assets within the long-lived asset group to assess potential impairment. If the aggregate fair values of the individual net assets of the group are less than their carrying values, an impairment loss is recognized for an amount in excess of the group’s aggregate carrying value over its fair value. The loss is allocated to the assets within the group based on their relative carrying values, with no asset reduced below its fair value. We did not test our long-lived assets for impairment during fiscal years 2020 and 2019 since no events indicating impairment occurred during the periods then ended.

Inventory

We state our inventory at the lower of cost or market amount and make adjustments to reduce the inventory cost to its net realizable value by providing estimated reserves for obsolete or unmarketable inventory. The reserves are established for the difference between the cost of inventory and its estimated market value based on assumptions related to future demand and market conditions. We fully reserve for inventories and non-cancelable purchase orders for inventory deemed obsolete. We perform periodic reviews of our inventory to identify excess inventories on hand. We compare on-hand inventory balances to anticipated inventory usage based on our recent historical activity and anticipated or forecasted demand for our products developed through our planning systems and sales and marketing inputs.

We adjust the reserves for obsolete or unmarketable inventory and record additional inventory write downs based on unfavorable changes in estimated customer demand or actual market conditions that may differ from management projections.

Deferred Income Taxes

We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We consider recent historical income, estimated future taxable income, carry-forward periods of tax attributes, the volatility of the semiconductor industry and ongoing tax planning strategies in assessing the need for the valuation allowance. We evaluate the realizability of our deferred tax assets by tax-paying component and assess the need for a valuation allowance on an annual and quarterly basis. We evaluate the profitability of each tax-paying component on a historic cumulative basis and on a forward-looking basis while performing this analysis. After evaluating all the relevant positive and negative evidence as of March 31, 2018, we concluded that it was more likely than not that a substantial portion of the U.S. deferred tax assets would be realized. In the second quarter of fiscal year 2018 we reached a significant level of cumulative profitability in the U.S., coupled with an improved outlook of U.S. earnings. During the full fiscal year 2018, we reduced our U.S. valuation allowance against our U.S. net deferred tax assets resulting in a tax benefit of $77.2 million. In the fourth quarter of fiscal year 2020 we reduced our U.S. valuation allowance by an additional $1.0 million based on our conclusion that it is more likely than not that there will be sufficient future foreign source income to realize the foreign tax credit carryover balance held in the U.S. The remaining portion of our U.S. valuation allowance is related to the realizability of certain state tax credits and net operating loss carry-forwards. We also continue to maintain valuation allowances against net deferred tax assets in certain foreign tax-paying components as of the end of fiscal year 2020.

Stock-Based Compensation

We measure compensation cost for all employee stock awards at fair value on the date of grant and recognize compensation expense over the service period for awards expected to vest. The fair value of restricted stock units is determined based on the number of shares granted and the closing price of our common stock quoted on Nasdaq on the date of grant, and the fair value of stock options is determined using the Black-Scholes valuation model. Such fair values are recognized as expense over the service period, net of estimated forfeitures. The estimation of stock awards that will ultimately vest requires significant judgment. We consider many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. In addition, for stock-based awards where vesting is dependent upon achieving certain operating performance goals, we estimate the likelihood of achieving the performance goals. Actual results, and future changes in estimates, may differ from our current estimates.

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Recently Issued Accounting Pronouncements

For a summary of recently issued accounting pronouncements applicable to our Consolidated Financial Statements which is incorporated here by reference, please refer to Note 2, “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of this Form 10-K.

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markets served by our Brooks Semiconductor Solutions Group segment. Our sales into the semiconductor and adjacent technology markets are substantially driven by our customers’ significant capital investments. These markets are cyclical, often fluctuating significantly from quarter to quarter. Demand for our Brooks Semiconductor Solution Group products is affected by these cycles.

Revenue generated outside the United States amounted to $559.9 million, or 62% of total revenue, for fiscal year 2020 compared to $455.6 million, or 58% of total revenue, for fiscal year 2019.

Operating Income

We reported operating income of $78.5 million for fiscal year 2020 compared to $46.0 million for fiscal year 2019. The increase of 70% was driven by higher revenue and gross profit, partially offset by an increase in both research and development expenses and selling, general and administrative expenses compared to the prior fiscal year. Drivers of the increases to research and development and selling, general and administrative expenses are described below.

Operating income for our Brooks Semiconductor Solutions Segment was $80.0 million for fiscal year 2020 compared to $66.2 million for fiscal year 2019. Operating income includes charges for amortization related to completed technology of $2.9 million and $3.6 million for fiscal years 2020 and 2019, respectively. Fiscal year 2019 also includes inventory step-up charges of $0.2 million. There were no such charges in fiscal year 2020. Adjusted operating income for our Brooks Semiconductor Solutions Group segment, which excludes the charges mentioned above, was $83.0 million for fiscal year 2020 compared to $70.0 million in fiscal year 2019. Please refer to Note 20, “Segment and Geographic Information”.

Operating income for our Brooks Life Sciences Products segment was $8.2 million for fiscal year 2020 compared to an operating loss of $3.1 million for fiscal year 2019. Operating income for our Brooks Life Sciences Products segment includes charges for amortization related to completed technology of $1.2 million in each of the fiscal years 2020 and 2019. Adjusted operating income for our Brooks Life Sciences Products segment, which excludes the charges mentioned above, was $9.4 million for fiscal year 2020 compared to an operating loss of $1.8 million in fiscal year 2019. Please refer to Note 20, “Segment and Geographic Information”.

Operating income for our Brooks Life Sciences Services segment was $21.6 million for fiscal year 2020 compared to $16.6 million for fiscal year 2019. Operating income for our Brooks Life Sciences Services segment includes charges for amortization related to completed technology of $6.9 million and $5.6 million for fiscal years 2020 and 2019, respectively, and restructuring related charges of $0.3 million in each of the fiscal years 2020 and 2019. Adjusted operating income for our Brooks Life Sciences Services segment, which excludes the charges mentioned above, was $28.8 million for fiscal year 2020 compared to $22.5 million in fiscal year 2019. Please refer to Note 20, “Segment and Geographic Information”.

Gross Margin

We reported gross margins of 42.4% for fiscal year 2020 compared to 40.5% for fiscal year 2019, an increase of 1.9 points. Gross margin increased 6.3 points in the Brooks Life Sciences Products segment, 2.7 points in the Brooks Life Sciences Services segment and 0.2 points in the Brooks Semiconductor Solutions segment. Cost of revenue for fiscal year 2020 included $11.0 million of charges for amortization related to completed technology as compared to $10.4 million incurred during fiscal year 2019. Cost of revenue for both fiscal year 2020 and 2019 included $0.3 million of restructuring related charges. Additionally, fiscal year 2019 included $0.2 million of inventory step-up charges from acquisitions. There were no such charges in the current year period. Excluding these charges, margins expanded 1.7 percentage points in fiscal year 2020, as compared to fiscal year 2019.

Our Brooks Semiconductor Solutions Group segment reported gross margins of 40.9% for fiscal year 2020 compared to 40.7% for fiscal year 2019. The gross margin improvement of 0.2 percentage points was primarily driven by volume leverage and lower amortization expense related to completed technology, partially offset by adverse impact from product mix. Cost of revenue during fiscal year 2020 included $2.9 million of amortization related to completed technology as compared to $3.6 million during fiscal year 2019. During fiscal year 2019, cost of revenue included $0.2 million of inventory step-up charges, which were attributable to the acquisition of Tec-Sem. There were no such charges

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in fiscal year 2020. Excluding these charges, margins declined 0.1 percentage points in fiscal year 2020, as compared to fiscal year 2019, primarily due to adverse product mix.

Our Brooks Life Sciences Products segment reported gross margins of 42.9% for fiscal year 2020 compared to 36.6% for fiscal year 2019. The improvement of 6.3 points was driven by material and labor cost reductions related to large stores and BIII Cryo systems, efficiencies realized installing large stores and performing infrastructure services, and volume leverage.  Cost of revenue in each of the fiscal years 2020 and 2019 included $1.2 million of amortization related to completed technology.  Excluding these charges, margins expanded 6.2 percentage points in fiscal year 2020, as compared to fiscal year 2019.

Our Brooks Life Sciences Services segment reported gross margins of 45.0% for fiscal year 2020 compared to 42.3% for fiscal year 2019. The improvement of 2.7 points is due to volume leverage, cost performance, and favorable service mix.  Cost of revenue during fiscal year 2020 included $6.9 million of amortization related to completed technology as compared to $5.6 million incurred during fiscal year 2019. Cost of revenue for both fiscal year 2020 and 2019 included $0.3 million of restructuring related charges. Excluding these charges, margins expanded 2.8 percentage points in fiscal year 2020, as compared to fiscal year 2019.

Research and Development Expenses

Research and development expenses were $59.1 million in fiscal year 2020 compared to $56.4 million in fiscal year 2019. The increase of $2.7 million was due to increased expense of $2.5 million within the Brooks Life Sciences Services segment and $2.2 million within the Brooks Semiconductor Solutions segment, partially offset by a decline of $2.0 million within our Brooks Life Sciences Products segment.

Research and development expenses in our Brooks Semiconductor Solutions Group segment were $41.3 million in fiscal year 2020 compared to $39.1 million in fiscal year 2019. Higher research and development expenses were primarily attributable to employee related costs and outside services, driven by product development initiatives related to our vacuum robotics platform, contamination control solutions for lower technology nodes and reticle storage for EUV.

Research and development expenses in our Brooks Life Sciences Products segment were $8.8 million in fiscal 2020 compared to $10.8 million in fiscal year 2019. The decline in research and development expenses were primarily attributable to lower outside service costs and lower temporary employee costs supporting product development initiatives.

Research and development expenses in our Brooks Life Sciences Services segment were $9.1 million in fiscal 2020 compared to $6.5 million in fiscal year 2019. The increase of $2.5 million was primarily driven by acquisitions. The timing of the GENEWIZ acquisition added an additional $1.1 million of expense in fiscal year 2020 and the RURO acquisition added $0.6 million of additional expense. Investments in employee related costs and outside services to support development initiatives in our service offerings drove the remainder of the increase.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $241.1 million in fiscal year 2020 as compared to $212.0 million in fiscal year 2019. The increase of $29.2 million was due to increased expense of $17.9 million within the Brooks Life Sciences Services segment, $10.2 million within the Brooks Semiconductor Solutions segment, and $2.9 million within the Brooks Life Sciences Products segment. Our segment selling general and administrative expenses include allocations for Corporate general and administrative functions which drove $15.1 million of the $29.2 million increase. The increase in Corporate expenses were driven by legal and audit fees, and finance and IT department expenses. Corporate expenses, not allocated to segments, were $30.0 million in fiscal year 2020, compared to $31.8 million in fiscal year 2019. Unallocated corporate expenses included amortization expense related primarily to customer relationships of $30.8 million and $24.7 million, during fiscal years 2020 and 2019, respectively, and merger and acquisition related expenses of $0.5 million and $6.7 million, during fiscal years 2020 and 2019, respectively.

Selling, general and administrative expenses in our Brooks Semiconductor Solutions Group segment were $86.6 million in fiscal year 2020 as compared to $76.4 million in fiscal year 2019. The increase of $10.2 million was primarily

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due to an increase in corporate allocated costs and segment employee payroll costs, partially offset by decreases in employee travel, trade shows and conferences.

Selling, general and administrative expenses in our Brooks Life Sciences Products segment were $38.8 million in fiscal year 2020 as compared to $35.9 million in fiscal year 2019. The increase of $2.9 million is primarily due to higher corporate allocated costs and higher sales commissions partially offset by decreases in employee related costs as a result of restructuring actions taken in 2019 and 2020 and decreases in expenses related to employee travel, trade shows, and conferences.

Selling, general and administrative expenses in our Brooks Life Sciences Services segment were $85.8 million in fiscal year 2020 as compared to $67.9 million in fiscal year 2019. The increase of $17.9 million is primarily related to acquisitions, corporate allocations, and bad debt expense, partially offset by lower employee travel expense. The timing of the GENEWIZ acquisition added an additional $5.1 million of expense in fiscal year 2020 and the RURO acquisition added $1.2 million of additional expense in fiscal year 2020.

Non-Operating Income (Expenses)

Interest income – During fiscal years 2020 and 2019, we recorded interest income of $0.8 million and $1.5 million respectively, which primarily represented interest earned on our marketable securities.

Interest expense – During fiscal years 2020 and 2019, we recorded interest expense of $2.9 million and $22.2 million, respectively. The decrease in interest expense in the current fiscal year compared to the prior fiscal year is due to carrying less debt. We extinguished $495.3 million of debt during the fourth quarter of fiscal year 2019.

Loss on extinguishment of debt - During fiscal year 2019, we recorded losses on extinguishment of debt of $14.3 million of which $9.1 million was in connection with the syndication of the incremental term loan secured during the first quarter of fiscal 2019. The syndication to a new group of lenders during the second quarter of fiscal 2019 met the criteria of a debt extinguishment and therefore the amortization of the deferred financing costs associated with the origination of the incremental term loan was accelerated and recorded as a loss on extinguishment of debt in our statement of operations. In addition, as a result of the $495.3 million extinguishment of debt during the fourth quarter of fiscal year 2019, we recorded an additional $5.2 million loss on extinguishment of debt.

Other expenses, net – During fiscal years 2020 and 2019 we recorded other expenses, net of $1.4 million and $1.5 million, respectively.

Income Tax Provision

We recorded an income tax provision on continuing operations of $9.9 million in fiscal year 2020 compared to an income tax benefit of $0.1 million in fiscal year 2019. The income tax expense for fiscal year 2020 was primarily driven by the provision on earnings from operations during the year. The expense was partially offset by a $6.4 million stock compensation windfall benefit for tax deductions that exceeded the associated compensation expense, a $2.0 million benefit from research tax credits, and a 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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The income tax benefit during fiscal year 2019 was driven primarily by benefits in the U.S. jurisdiction related to continuing operations losses, research tax credits, and stock compensation deductions in excess of book expenses. We also recorded a $1.4 million benefit due to a state tax change that resulted from the acquisition of GENEWIZ. We also recorded a tax provision of $3.0 million during the year related to changes in the toll charge based on a change in tax legislation and the completion of all accounting of the charge under SAB 118. The overall benefit for fiscal year 2019 was partially offset by the tax provisions on earnings in our foreign jurisdictions during the year.

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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. We recorded $0.2 million of net loss from discontinued operations for fiscal year 2020. We recorded revenue of $109.5 million and $427.9 million of net income from discontinued operations for fiscal year 2019,

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which includes the net gain on sale of the business of $408.6 million. The net income is also inclusive of income from the ULVAC Cryogenics, Inc. joint venture in 2019. The income 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 the Company on an ongoing basis. Indirect expenses which supported the semiconductor cryogenics business, and which remained as part of the continuing operations, are not reflected in income from discontinued operations.

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income for non-cash items, partially offset by $91.5 million of cash taxes paid for the gain on the sale of the semiconductor cryogenics business and $12.7 million uses of cash from the changes in operating assets and liabilities.

Divestiture and Extinguishment of Debt

In the fiscal year 2019, we completed the sale of the semiconductor cryogenics business for $661.5 million which excludes $6.3 million retained by the buyer at closing to preliminarily settle net working capital adjustments. Net proceeds from the sale were $553.1 million, net of estimated taxes payable and closing costs. In connection with the completion of the sale of our semiconductor cryogenics business, we used $348.3 million of the cash proceeds from the sale to extinguish the total remaining outstanding balance of the incremental term loan and $147.0 million of the cash proceeds from the sale to extinguish a portion of the outstanding balance of the term loan. The total amount of debt extinguished was $495.3 million.

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 charges impact reported cash flows.

Cash flows provided by operating activities were $37.9 million during fiscal year 2020 and were comprised primarily of $50.5 million of earnings, which included $64.9 million of net income and a $77.2 million impact of non-cash related items, partially offset by $91.5 million of cash taxes paid for the gain on the sale of the semiconductor cryogenics business. Cash flows provided by operating activities also included $12.7 million in uses of cash from the changes in operating assets and liabilities. The changes in operating assets and liabilities that resulted in a use of cash consisted primarily of an increase in accounts receivable and inventory levels. These uses of cash were partially offset by an increase in accrued expenses and other liabilities, accrued compensation and tax withholdings and increased prepaid expenses and other assets. Cash flows provided by operating activities were $90.9 million during fiscal year 2019 and comprised primarily of earnings of $84.6 million and sources of cash provided by changes in operating assets and liabilities of $6.3 million. Earnings of $84.6 million consists of net income of $437.4 million offset by the impact of non-cash related charges of $352.8 million which includes the net gain on the sale of our semiconductor cryogenics business of $408.6 million and $13.4 million of contingent transaction fees paid related to the closing of the sale of the cryogenics business. The changes in operating assets and liabilities which results in sources of cash consisted primarily of an increase in accrued expenses and other liabilities which includes accrued taxes of approximately $95.0 million related to the sale of our semiconductor cryogenics business, as well as decreases in accounts receivable, prepaid expenses and other current assets and an increase of deferred revenue. These sources of cash were partially offset by decreased accrued compensation and tax withholdings.

Discontinued operations contributed $0.2 million loss and $427.9 million gain for fiscal years ended 2020 and 2019, respectively, in the net income referenced for the respective periods above. Net income for fiscal year 2019 includes the net gain on sale of the semiconductor cryogenics business of $408.6 million. The sale of the semiconductor cryogenics business was completed on July 1, 2019.

Investing Activities

Cash flows from investing activities consist primarily of cash used for acquisitions, proceeds from divestitures, 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 $22.7 million during fiscal year 2020 and consisted of $39.9 million for capital expenditures and $15.7 million for acquisitions, partially offset by $33.9 million of net proceeds from the purchases, sales and maturities of marketable securities. Cash provided by investing activities was $211.3 million during fiscal year 2019 and consisted of $661.6 million related to the proceeds from the sale of our semiconductor cryogenics business, partially offset by net cash outflows of $442.7 million to acquire GENEWIZ, $23.9 million of capital expenditures, and net purchases, sales and maturities of marketable securities of $16.2 million.

Capital expenditures were $39.9 million during fiscal year 2020 as compared to $23.9 million during the fiscal year 2019. Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting new product development and improving information technology infrastructure. Capital expenditures for the fiscal year 2020

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included $8.3 million for construction in process of a building site in Suzhou, China. The site is intended to replace space currently leased in three different buildings in the same city and to allow for growth.

Financing Activities

Cash used for financing activities was $27.0 million during fiscal year 2020 and included net cash outflows for cash dividends paid of $29.5 million. Cash used for financing activities was $191.2 million during fiscal year 2019 and included net cash outflows of $163.8 million primarily related to the extinguishment of debt and principal payments on our term loans totaling $850.2 million offset by proceeds of $686.4 million. Proceeds from the incremental term loan in the first quarter of fiscal year 2019 were $340.5 million. In the second quarter of fiscal year 2019, we syndicated the incremental term loan which resulted in an extinguishment of the incremental term loan of $349.1 million and proceeds from syndication of $345.2 million. Cash outflows also included cash dividends paid of $28.9 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 phases.  We have incurred $9.0 million of capital expenditures to date related to the construction of the facility, which includes $8.3 million and $0.7 million, respectively, for fiscal years 2020 and 2019. We expect to incur an additional $41 to $46 million of capital expenditures related to this facility over the next four years.

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 November 15, 2018, we entered into an incremental amendment to the credit agreement under which we obtained an incremental term loan in an aggregate principal amount of $350.0 million, issued at $340.5 million. The proceeds of the incremental term loan were used to pay a portion of the purchase price for our acquisition of GENEWIZ. On February 15, 2019, we entered into the second amendment to the credit agreement and syndicated the incremental term loan to a group of new lenders. The syndicated incremental term loan was issued at $345.2 million. Except as provided for in the amendments, the incremental term loan was subject to the same terms and conditions of the initial term loan.

On July 1, 2019, in connection with the completion of the sale of our semiconductor cryogenics business, we used $348.3 million of the cash proceeds from the transaction to extinguish the outstanding balance at July 1, 2019 of the incremental term loan and $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 total amount of debt extinguished on July 1, 2019 was $495.3 million.

The credit agreement, as amended, for contains certain customary representations and warranties, covenants and events of default. As of September 30, 2020, we were in compliance with all covenants and conditions under the credit agreement, as amended.

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In connection with our acquisition of GENEWIZ in November 2018, we assumed three five-year term loans and two one-year term loans. At September 30, 2020, we had an aggregate outstanding principal balance of $0.8 million under the three five-year term loans. The two one-year short term loans matured and were repaid in full as of September 30, 2019.

At September 30, 2020, the aggregate outstanding principal balance of all outstanding term loans was $50.4 million, excluding unamortized deferred financing costs of $0.4 million. Borrowings under the term loans bear variable interest rates. As a result, we may experience exposure to interest rate risk due to the potential volatility associated with the variable interest rates on the term loans. If rates increase, we may be subject to higher costs of servicing the loans which could reduce our profitability and cash flows. During the year ended September 30, 2020, the weighted average stated interest rate on the term loans was 4.1%. During the year ended September 30, 2020, we incurred aggregate interest expense of $2.4 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.

As of September 30, 2020, we had approximately $45.5 million available for borrowing under the line of credit. There were no amounts outstanding pursuant to the line of credit as of September 30, 2020. 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 September 30, 2020. 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, as well as for strategic investments and acquisitions.

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On November 5, 2020, our Board of Directors approved a cash dividend of $0.10 per share of our common stock. The total dividend of approximately $7.4 million will be paid on December 17, 2020 to shareholders of record at the close of business on December 4, 2020. 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

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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 are based on market and business conditions, legal requirements and other factors and may be commenced or suspended at any time at our discretion. There were no shares repurchased under this program during fiscal year 2020.

The letters of credit of approximately $1.3 million are related primarily to customer advances and other performance obligations at September 30, 2020. 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 fiscal year 2020, and we currently do not anticipate any of these obligations to be called in the near future.

As of September 30, 2020, the total amount of net unrecognized tax benefits for uncertain tax positions and the accrual for the related interest was $19.2 million, all of which represents a potential future cash outlay, in comparison to September 30, 2019 where the balance was $18.3 million. The increase in the balance over the year was primarily driven by normal interest accruals on our preexisting unrecognized tax benefits for uncertain tax positions. We are unable to make a reasonably reliable estimate of the timing of the cash settlement for these liabilities since the timing of future tax examinations by various tax jurisdictions and the related resolution is uncertain, however, $15.3 million of this liability is indemnified by the sellers of GENEWIZ.

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Off-Balance Sheet Arrangements

As of September 30, 2020, 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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Interest Rate Exposure

Our term loan bears variable interest rates which subjects us to interest rate risk. Our primary interest rate risk exposure results from changes in the short-term LIBOR rate, the federal funds effective rate and the prime rate. As of September 30, 2020, the weighted average stated interest rate on all of our term loans, including the three five-year term loans assumed in connection with our acquisition of GENEWIZ in November 2018, was 4.1%. At September 30, 2020, the outstanding term loan principal balance was $50.4 million, excluding unamortized deferred financing costs of $0.4 million. During fiscal year 2020, we incurred aggregate interest expense of $2.4 million on all of our term loans. A hypothetical 100 basis point change in interest rates would result in a $0.5 million change in interest expense incurred during fiscal year 2020.

Our cash and cash equivalents and restricted cash consist principally of money market securities which are short-term in nature. At September 30, 2020 and 2019, our aggregate short-term and long-term investments were $3.2 million and $37.0 million, respectively, and consisted mostly of highly rated corporate debt securities and municipal securities. At September 30, 2020 and 2019, the unrealized loss position on marketable securities was insignificant, which is included in “Accumulated other comprehensive income” in the Consolidated Balance Sheets. A hypothetical 100 basis point change in interest rates would result in an annual change of approximately $0.2 million and $0.3 million, respectively, in interest income earned in fiscal years 2020 and 2019.

Currency Rate Exposure

We have transactions and balances denominated in currencies other than the U.S. dollar. Most of these transactions or balances are denominated in Euros, British Pounds and a variety of Asian currencies. Sales in currencies other than the U.S. dollar were 38% and 35%, respectively, of our total sales for fiscal years ended September 30, 2020 and 2019. These sales were made primarily by our foreign subsidiaries, which have cost structures that substantially align with the currency of sale.

In the normal course of our business, we have liquid assets denominated in non-functional currencies which include cash, short-term advances between our legal entities and accounts receivable which are subject to foreign currency exposure. Such balances were approximately $142.9 million and $117.7 million, respectively, at September 30, 2020 and 2019, and related to the Euro, British Pound and a variety of Asian currencies. We mitigate the impact of potential currency translation losses on these short-term intercompany advances by the timely settlement of each transaction, generally within 30 days. We also utilize forward contracts to mitigate our exposures to currency movement. We incurred foreign currency losses of $3.4 million and $1.8 million, respectively, in fiscal years 2020 and 2019, which related to the currency fluctuation on these balances between the time the transaction occurred and the ultimate settlement of the transaction. A hypothetical 10% change in foreign exchange rates would result in a change of $1.4 million and $0.2 million, respectively, in our net income during fiscal years 2020 and 2019.

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The supplementary quarterly financial information required by this Item 8 is included in Part II, Item 6, “Selected Financial Data”, and is incorporated herein by reference.

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Definition and Limitations of Internal Control over Financial Reporting

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A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Critical Audit Matters

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The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Goodwill Impairment Assessment – GENEWIZ Reporting Unit

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As described in Notes 2, 4 and 8 to the consolidated financial statements, the Company’s consolidated goodwill balance was $502 million as of September 30, 2020, of which $235 million relates to the GENEWIZ reporting unit. Goodwill is tested for impairment annually or more often if impairment indicators are present at the reporting unit level. The Company elected April 1st as its annual goodwill impairment assessment date. If the existence of events or circumstances indicates that it is more likely than not that fair values of the reporting units are below their carrying values, the Company performs additional impairment tests during interim periods to evaluate goodwill for impairment. As disclosed by management, the fair values of the reporting units are determined based on an income approach in accordance with the discounted cash flow method, or DCF method. The DCF method is based on projected future cash flows and terminal value estimates discounted to their present values. Application of the goodwill impairment test requires judgment based on market and operational conditions at the time of the evaluation, including management’s best estimates of the reporting unit’s future business activity and the related estimates and assumptions of future cash flows from the assets that include the associated goodwill. Different assumptions of revenue growth rates, gross margin percentage, selling, general and administrative expense percentage and discount rates used in the DCF model could result in different estimates of the reporting unit’s fair value as of each testing date.

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The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the GENEWIZ reporting unit is a critical audit matter are the significant judgment by management when determining the fair value of the GENEWIZ reporting unit, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence relating to management’s significant assumptions related to revenue growth rates, gross margin percentage, selling, general and administrative expense percentage and discount rate. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.

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Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the goodwill impairment assessment, including controls over management’s determination of the revenue growth rates, gross margin percentage, selling, general and administrative expense percentage and discount rate. These procedures also included, among others, (i) testing management’s process for determining the fair value of the GENEWIZ reporting unit, (ii) evaluating the appropriateness of the DCF model, (iii) testing the completeness and accuracy of the underlying data used in the model, and (iv) evaluating the reasonableness of significant assumptions used by management related to revenue growth rates, gross margin percentage, selling, general and administrative expense percentage and discount rate. Evaluating management’s assumptions related to the revenue growth rates, gross margin percentage and selling, general and administrative expense percentage involved evaluating whether the assumptions used were reasonable considering the past performance of the reporting unit and industry data. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the DCF model and the reasonableness of the discount rate.

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/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

November 18, 2020

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We have served as the Company’s auditor since 2016.

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The accompanying notes are an integral part of these consolidated financial statements.

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