Bruker Corp (BRKR) 2002 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Bruker Daltronics fourth quarter conference call. At this time, all participants are in a listen-only mode. My name is Mike and I will be your conference coordinator today. At any time during the call, if you require assistance please press star followed by a zero and the conference coordinator will be happy to assist you. As a remainder this conference is being recorded. I would now like to turn the program over to your hose for today’s conference CFO John Hulburt. Pleadings proceed, sir.

Thank you Mike, thank you and good morning everyone. I'm here with Frank Laukien our President and Chief Executive Officer. Before we begin the discussion of our year end results I would like to review our safe harbor statement. This discussion will include forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected including but not limited to risk and uncertainties relating to technological approaches, product development, manufacturing, market acceptance, cost and pricing of our products.

Dependence on collaborative partners, suppliers, competition, intellectual property, litigation and other risk factors discussed from time to time in our filings with the Securities and Exchange Commission. We expressly disclaim any obligation to release publicly any revisions to any forward-looking statements. These statements may not be rebroadcast, recorded, transcribed or otherwise used without the written consent of Bruker Daltronics. I will now give you some highlights and some additional explanations from our earnings release a short while ago. Our fourth quarter and year to date 2002 product revenues with $32.9m an $116.2m respectively. As compared to $24.2m and $91.8m respectively for the comparable period in 2001.

This translates to a product revenue growth of 26.6% for the year or 21.6% for the year on a constant currency basis. As previously announced, during the second quarter we incurred a restructuring charge related to our cost cutting program and personnel reduction in our US and German operations. Since the actual amounts to be paid were less than the original charge that was established in Q2 of ‘02, we had a partial reversal of this accrual of $.6m in the fourth quarter 2002. During the quarter we again analyzed our investment in several nonaffiliated proteomic content companies and reduced the carry in value of our investment by approximately $5.3m pretax.

As you may recall, we also took a charge during the second quarter 2002 for approximately $4.4m. Total write down of our investments for the year was $9.6m and our remaining investments as of Dec. 31, 2002 is a remaining value of $1.6m. We incurred a special charge during Q4 in connection with a contract our German and Swiss subsidiaries have with the UK ministry of defense. It's consistent of an additional reserve in the amount of $.7m which represents the proceed further increase in cost of rework, retesting on the contract due to various technical problems associated with meeting the contract requirements.

As you may recall, we previously incurred a charge on the same contract in Q4 of 2000. As we were required to make considerable design changing to our product then and this has increased the cost of the contract performance this early reserve from Q4 of 2000 was still on our books at $.8m. In addition we have previously recorded in Q3 of 2001 we have or our books a reserve of $1.7m in connection with the possible imposition of liquidated damages. Pursuant to this contract. Even though we strongly disputed their applicability and believe in fact that we are owed additional development funding by the UK MOD. At this time both our German and Swiss subsidiaries are making strong efforts to deliver product which is deemed acceptable by the UK MOD and further test are currently occurring under the [Inaudible] of the MOD.

Management will continue to monitor the situation closely. Interest income decreased during the year as a result of both the significant decrease in rates throughout 2002 and the overall decease in our cash. Interested income went from $3.8m in 2001 to $1.4m in 2002. Most of the cash decrease related to our facility's investments in both Germany and the US. During the month of December and throughout the year 2002, there were frequent changes in the Euro to dollar exchange rate, which had a negative impact on our other expenses. For the fourth quarter and year to date 2002 foreign currency transaction losses were $.2m and $.4m respectively.

2002 we are very pleased with our significant increase in operating income and EBITDA before special charges. Operating income was $5.7m for the year as compared to $3.3m for the comparable period in 2001. This translates to an increase of 75%. Similarly our EBITDA excluding the special charges for the year 2002 was $15m as compared to EBITDA for the year 2001 of $9m. This is an increase of 67%. GAAP net loss in 2002 was $6.2m or 11 cents per diluted share compared with a net income of $3.6m or 7 cents per diluted share in 2001. Net income excluding special charges for the year was $4.3m or 8 cents per diluted share compared with $3.6m or 7 cents per diluted share for the year 2001.

Our break out of revenue between life science systems revenue, substance detection systems revenue, and aftermarket revenue as a percentage of product revenue was 70%, 15%, and 15% respectively for the year ended Dec. 31, 2002. As compared to 74%, 10%, and 16% in 2001. As you may recall, in Q2 and Q3 of this year we're particularly strong quarters for ABC [Inaudible] revenue due to our CBMS contract with the United States government. I would like to now turn the discussion over to frank to talk about certain highlights and new developments during the quarter and our current expectations for the 2003 year.

Thank you, John. Good morning, this is Frank Laukien. As you have seen in our press release this morning, we expect to maintain our life science growth momentum in 2003 with anticipated life science and aftermarket revenue growth of again we are estimating 18-22%. Our EPS guidance for 2003 is between 11 to 14 cents per diluted share. This guidance is supported by our actual growth in new order books for life science systems, up 22% in the fourth quarter of 2002 cared compared to the fourth quarter '01 and we also saw 22% growth in new order bookings for life science systems for the full year 2002 compared to 2001. This gives us reasonable top line visibility certainly for the beginning of 2003.

Our smaller ABC detection or substance detection business is more difficult to forecast and we presently do not have any large follow-up contract to the CBMS contract from the US Department of Defense which we delivered mostly in Q2 and Q3 of last year. For 2003 our best revenue estimate for our ABC detection business is in the $12-15m range for the full year, although there certainly is potential for offsite if we are awarded some of the larger contracts for chemical and biological defense that we're bidding for. There is presently, as you might expect a lot of potential and activity in this detection business in part that is related to the buildup in the gulf.

Back on the life science side in 2003 in March of 2003 we will introduce several new products which we expect to be quite competitive and we expect them to be well received by customers and anticipate that they should contribute to our growth momentum certainly by the second half of 2003. We also anticipate additional product introduction later in the year. Looking back in 2002 our [MALDI TOF TOF] and [Electric Pray TOF/Electric Pray Q-TOF] products grew particularly rapidly and in 2003 we expected continued fast growth for these particular products. For 2003 we also expect an acceleration of growth of our overall [Protanear] solution sales and we also expect that high field [Inaudible] or high field [XPMS] particularly at 9.4 and 12 [Inaudible] for the new and very exciting methods of shotgun proteomic and [Inaudible] proteomic approached will attract quiet a bit of funding and accelerate the growth in that subfield.

My final comment after 2 years of heavy investment and capital expenditures we now have built much of the infrastructure that we expect to need for continued rapid organic growth in the next few years and for the next 2 to 3 years we expect much reduced CAPEX of in the range of $4-5m per year only, which along with our improving operating profitability should generate of the order of $20m per year in cash from operating activities and of the order of $10m per year in free cash flow. With this I'd like to invite you to submit any questions and John and I will try to answer your questions.

Ladies and gentlemen, if you wish to ask a question, please press star one or your telephone. If your question has been answered or you wish to withdraw your question please key star 2. Questions will be taken in the order they are received. Our first question comes from Ken Goalman with Lehman Brothers. Go ahead, sir

Good morning, congratulations. I'm a little confused as to the direct correlation between your order rates and your reported growth rates in revenues that on the last quarter call the -- it didn't line up and that's your growth rate and the life science mass spec was considerably lower than the order rates, in this quarter the rates were projected around 22% and by my calculations life science mass spec went up about 37%. So the question A is how do you correlate those two things and then going forward again I suspect you're not talking about going forward at this rate?

Right. You have observed that before, Ken, that’s exactly right. In the second and third quarter of 2002 if you looked at the life science systems revenue growth it was much lower than our average growth rate and in the last -- in the fourth quartered it was actually, according to our calculations about 40-40.4 %. So that can fluctuate a little bit, depending on the mix of what we deliver and recognize revenue on in any given quarter.

That was last year the reason why this didn't correlate with a much smoother 22% or so increase in new orders was that in Q2 and Q3 of last year we delivered a lot of this EBMS contract, the ABC detection system, as you know, and that pretty much was over in Q4 so Q4 was almost all life science systems and some aftermarket and so in the revenue line you see some fluctuations from quarter to quarter not so much more the overall revenue but if you look at what's underneath the revenue, if you follow -- it is not as useful we believe to follow very closely ABC systems in any quarter or life science systems because that will fluctuate quite a bit depending on how we use our capacity to ship and install and recognize revenue.

So in the long term, of course, there is a good correlation but from quarter to quarter that can change quite a bit and we focus more on obviously delivering products to our top line, our overall revenue growth steadily rather than focusing on say the life science systems or the ABC systems. That's why you have a good long term correlation but from quarter to quarter it obviously can look rather difficultly with 10% growth rate in the third quarter and 40% growth rates in the fourth quarter.

Frank it’s follow up with one question of what you mentioned. If in fact it's this sort of delicate balance and capacity between the ABCD business and the life science mass spec business, at one point one would think that you know, a company would develop a capacity to grow both when there is opportunity rather than have [Inaudible]. I don't think that's what you meant to say, there's always a trade-off, but that's the way it came out. So I assume with the decease in CAPEX you think you have enough capacity to sort of smooth things out and not have to do that trade-off.

And then my last question would be again, correlation is a little bit difficult because all of the major competitors in the mass spec arena decreased their growth rate in the fourth quarter, actually 2 of them basically being negative, and I wondered did you take market share or is this an [Inaudible] or how did that happen that you grew robustly and everything else [Inaudible].their growth rate.

To get to rather different question if I go back to your first question, if you look at our quarterly total product revenue you see that that's been growing rather smoothly over the four quarters of 2002 and that's what we're trying to aim at as we manage our capacity, and that's what we will also aim for in the future. It's not really a trade-off. We would rather do that than kind of managing just the life science systems revenue or the ABC systems revenue and then as a result potentially having signature fluctuations in our total revenue from quarter to quarter.

We don't think that's going to be desirable, even though we potentially could have a capacity to, you know, have incredible revenue in one quarter and then less the next one. We might be able to do that capacity wise, but it's not that we're giving away any business, I mean the business that we're generating on the front, on the sales -- not revenue but on the sales and new order booking side we're obviously going after all business that's out there without any, you know, change in level. But on the revenue side we're looking at our total revenue quarterly revenue and obviously would be desirable from our point of view if we can manage our capacity so that our total quarterly revenue rather than one of the buckets underneath has a relatively smooth growth.

Having said that, your second question was why did we accelerate. I believe we continue to gain some market share, I think our products are well received. Clearly I -- we're looking at the overall quarterly growth rate, not the 40% growth rate for life sciences. That growth rate was mostly because we are not shipping as much life science systems relatively speaking in Q3 and therefore there was more of a buildup of that to be delivered in Q4. I wouldn't pay attention to that life science growth rate but more the overall growth rate for the quarter which never the less was quite healthy. We're obviously quite pleased with that

Thank you.

You welcome Ken.

Next question comes from Ray Clark (ph) from Grayson Financial. Go ahead, sir.

Congratulations on the quarter. One of the things you said on the detection side there would be a $12-15m range. Is that with the fact that you got the bidding on contracts right now, or is that will be added on if you guys are awarded the contracts that are going?

Good question. That's sort of a steady state increasing volume that we see from a lot of smaller contract. Obviously we have many small contracts, one system here, a small number of systems or services somewhere else. So that steady state volume is in that range that I had quoted earlier. Some years on top of that we end up getting some additional large contract and those we can predict once we get them we can usually predict the revenue of that one or two quarters ahead of time but I can't predict when and how they will come in 2003 and 2004 and so on. So what I was quoting was sort of our steady state volume that we tend to get based on a lot of small contracts, the steady state business volume.

One of the things like you said with the current build up in Iraq, I got to believe you aren't bidding on bigger as far as larger contracts. Am I insinuating that.

No, there certainly is a lot of activity, it's not all huge contracts but it's a very fast moving scenario that we're bidding on lots of small -- we're supplying all sorts of small contracts, including services and consumables and yes, there are clearly some larger contracts pending that -- however, it's nearly impossible to predict which ones ultimately will get the full funding and when they will be awarded and also we cannot guarantee that they will be awarded to us. For each contract there is usually a competitor somewhere. So hard to predict the large contracts but we can certainly predict and that's what I have endeavored to do a certain steady state volume that we have resulting from the on ongoing smaller contracts. They add up to this number that I quoted earlier. To be specific I was not quote that, that could be the additional off sight with [Inaudible] on top of that sort of steady state volume that I mentioned earlier. I hope that clarifies it.

You do maintain that there is a lot of activity, especially with the buildup in the gulf, correct.

There has been a lot of activity obviously since 9/11, although this is like to very rapid capital expenditures on the airport and explosive side in which we are not involved, it has not led to any large scale chemical or biological contracts, a lot of smaller stuff and now in addition there is sort of a shorter term effect of the gulf build up where people are besides the long term acquisition and procurement programs that are always in place and take quite a bit of time, there is an opportunity for short term smaller acquisitions to support immediate needs.

One last question. Do you see further exchange rate problems as far as currency losses.

You know, it's hard to predict what the exchange rate will do. It's not been obviously with $5.4m last year for the full year it's not percentage wise not been enormous and we're trying to do more to hedge and avoid those but with exchange rates changing so significantly and so rapidly between across the Atlantic, you cannot always avoid them altogether. In some years of course we have had benefit from that and we try to minimize them but it's hard to anticipate these large fluctuations or changes as we had recently between the EURO and the dollar in particular.

Thank you very much.

Sure.

Next question comes from David Cohen (ph) with [Inaudible]. Go ahead.

Good morning and congratulations on the quarter. And when did you get first talk a bit about working capital on the rise and working capital.

A big think of the working capital Dave is related to inventory. Year-over-year inventory grew approximately $20m, but included in that is probably about $8m, which is just straight foreign currency effects. Also, we, as because of the new facilities in United States and Germany, we have expanded our DEMO instruments and also in some of the other established marketing, sales and marketing subsidiaries such as Japan, France, we have actually increased the DEMO units in those locations also significantly.

So the increase in DEMO inventory was probably about $6m and then we had a lot of shipments in the end of the fourth quarter of 2002 which increased our in-transit inventory. As you may recall, our revenue recognition policy, we don't recognize revenue until it's been accepted by the customer. So the component of increase and in-transit as compared to about a year ago is about $3m. But that relates to our normal inventory consistence of raw material working progress service inventory for the year increased by $3.3m, which is about 7%, meaning that increased more slowly than our overall revenue growth and obviously that's one of our goals to manage that, to bring that down to increase the number of inventory turns for our first standard production and service inventory.

So that means when you talked about the free cash flow $10m you're assuming next year working capital actually declines a bit or just --

It will grow less slowly than our overall top line growth and we are doing a lot of measures on reducing our in-process and production inventory, whereas the DEMO inventory threw the marketing investment and the in-transit inventories always a very healthy sign, that’s the best visibility we have out there [Inaudible] our systems ship but not yet recognized as revenue, they obviously, if that's at a high level that means pretty good visibility for the next quarter.

Can you also talk about aftermarket for '03?

Sure. Aftermarket is going to kind of go in line with the life sciences, in the range of 18-22% . So we would imagine aftermarket in '03 to be around $20m or so.

And then if you could just give depreciation and CAPEX for fourth quarter and for the year.

For the year, depreciation amortization was about $8.2m, so that translated into the quarter about $2.3m.

And CAPEX?

And CAPEX for the quarter came in at about really small, about 300 thousand as compared to the year was almost $16m. And most of that $16m was incurred in Q2 and Q3.

Thank you very much.

You welcome David.

Next question comes from Larry Neighbor (ph) with Robert W. Baird.

Good morning Frank and John. I have several questions. Could you give us some idea of the geographic split in your order flow between Europe, North America and Asia?

For 2002 on the revenue, the revenue split was about across all products was about 31% Americas, about 53% Europe, and about 16% Asia Pacific, Australia, rest of the world. In terms of new orders, I don't have the exact numbers but there is more of a trend. We have had very strong orders in the last half year in Asia. So we expect a stronger growth in -- and a higher percentage for 2003 certainly for Asia pacific.

Could you give us some idea of --.

It could be that Asia Pacific might go from 16% of revenue last year to 20% or thereabouts of revenue this year.

And in terms of the customer split between commercial, academic and government?

On new orders for life science systems, obviously the ABC detection systems go entirely almost entirely to -- they are funded by the government or indirectly via the government. For the life science systems the [Pherma Bio] and chemical industry in 2002 was about 35% of orders, university medical schools about 52%, and the governments of the world about 13%. Obviously some shift compared to 2001. And this excludes sales that we do to [Inaudible] because we don't know always who their final customer is. But clearly both of those strategic partners also have a mix of industrial versus nonprofit, academic customers.

Did that change in the second half of the year when your order flow picked up some?

[Inaudible] I'm not aware of a shift, but we didn't slice it by quarter. Those numbers for us tend to become somewhat meaningful for the year but by quarter it can fluctuate quite a bit so we didn't slice it that precisely. My feeling is that it hasn't changed dramatically over the year.

What's your foreign currency expectation for '03 if rates were the same as they were today? What impact would that have on you.

We tend to model it without make any assumptions about currency, so -- our forecasting or our crystal balance is on currency exchange rates we just don't know. So basically we do our anticipation in modeling sort of as if exchange rates were constant after 12-31, 2002. Which they are not. But that's sort of the assumption we're looking at.

So even with that, I would assume that foreign currency would have a positive impact?

It's likely to have a positive impact certainly early in the year as it has improved or as the EURO has strengthened against the dollar so far this year, you're right

Is that built into your guidance?

No, we don't know whether it will last and for how long and ultimately I think people will look the our effects corrected growth rates.

Okay. The charges that you have taken in '02 to reduce your cost structure, will that be seen in costs of goods sold or in SG&A, the benefit going forward?

A little bit more on the SG&A and R&D side, more on the slowing of expenses, lower growth of expenses.

So you hope to get some operating leverage from SG&A going forward? i.e. more of both. We expect a further leverage from the R&D which we expect, I think it was at 17.9% right in 2002. We expect that to come down another percent or so in 2003. We also saw some leveraging off already of the SG&A by a little bit more then a percent in 2002 and we expected that trend to continue in the next few years, also, including 2003.

Final question. The capital spending that you've done in '02, I assume that's increased your capacity during the year?

It has certainly increased our latent capacity in terms of [infrastructure]. We obviously have not filled all these new facilities with people, but we have the basic ability to add the capacity and we have the infrastructure. So yes, it has increased our capacity, but of course we have slowed down in fact this year in terms of personnel growth. We had a restructuring where we reduced number of personnel, we have since begun to increase a little bit personnel primarily on the marketing and sales side again but at a slower rate but in previous years. So our capacity has increased and our capacity -- we have the infrastructure to increase our capacity further by adding people and so on over the next few years.

Great. Thank you.

Thanks Larry.

Next question comes from Scott Willcon (ph) with SG Cowen. Go ahead

Thank you. Just a little housekeeping here. Could I get the split on the life sciences versus aftermarket in detection for Q4. You did give it for the year but not for Q4.

Yes. I think for life science it was 72%, for ABCD systems, 15% and aftermarket about 13%.

13.5% or so.

Okay. Great. And just so I got the P&L right, what was the total year net of the write down for interest other in the quarter in

The break down in the interest income was about $1.4m and interest expense was about $1.2m and then we had the FX loss of about $.4m. That's for the year.

Those were all for the year?

Yes.

Okay. So for the quarter it's .2 on the FX side, right?

.2 on the FX and basically it was break even on both interest income and interest expense.

Okay. So it should be a $200,000 expense. Okay. In the tax rate I assume it's just 40%?

Yes. We are very conservative and feel comfortable in the range of 39-40%.

For the quarter if I adjust it, assuming 40% you get 700,000 in taxes.

Taxes was a little more conservative in the fourth quarter due to kind of the true up of the analysis but the taxes are going to be a little less than that.

Just so I got it for the quarter right though, what should I use for taxes after the -- with the a-adjustment out, about 700,000?

I would lean more towards about 600.

Okay, and just in terms of operating income you gave a figure of 5.7 for the year [Inaudible] for what I had for the quarter. I come up with about $1.3m operating income?

For the quarter?

And what was the operating income for the quarter, maybe that's the right --

Yes, 1.3.

All right. Just on the cash flow, you know, CAPEX was minimal for the quarter and it looks like you burned about $6m in cash. You know, mostly working capital I would guess, is that where a lot of this went?

Yes, basically it's another factor of the working capital of accounts receivable. AR compared to last year increased about $11m and again the foreign currency translation change represented about $5m and so that -- so you had the change of AR of about $6m. Now included in that $6m is we had some shipments to the US Department of Defense in Q4. They're extremely slow pair payers, so there was about $3m related to that. So the true change without the foreign currency is about $3m which translates to about a growth of 19%.

Okay. And just on the inventory, it was real helpful to get the break down of the adjustments but you still run the calculation after that and your inventory is still a year, it's like 350 days.

It's about, if you take the average days of our normal inventory and the way other companies use their inventory it's come from 238 days in 2001 to 226 days in 2002. It's still on the high side, but we're obviously beginning to drive that down

Okay. Is that just -- I mean, what's the big component of that?

DEMO inventory and basically our in-transit inventory which is shipped but not accepted.

The way we take that out, I think Scott it turns -- obviously we have a fairly deep manufacturing debt’s and so the -- and you also tend to have -- lower inventory turns and higher average days in inventory when you build big ticket items if you compare this to an LC company or a company what has a high consumable components.

There is room for improvement. We have seen some improvement in the inventory already and there's further room for improvement but it won't reach the industry average if you look at benchmarking because that has a lot of companies that manufacture very differently with a lot more outsourcing and also companies that build $50,000 LCs or have a large consumable components will always have higher inventory turns than a company that builds big ticket items.

Last question I will get back--Just the gross margin looks like it's down a hundred basis points year-over-year. Can you comment on what’s going on there.

Year-over-year as you recall back in Q2 of '02 we basically beefed up our inventory reserve about $700,000. So if you kind of take out the Q2 charge of 700 margins would have been around the 52.

In Last year's period

Yes.

In Q4 of last year?

Q4 of this year was --

It was 52.7?

And it's right in line with Q4 of last year

But the 700,000 charge you said was in Q2 in

Looks like Q4 hasn't changed much but for the full year it was at 52% in 2002 versus 52.5% in 2001.

Okay. Thank you.

You welcome Scott.

Next question comes from John Sullivan with Stephens Incorporated. Go ahead.

Hey guys. Can you just talk for a second regarding the high field FTMS that you talk about for being an area of potential focus for customers in 2003? You talked about shotgun proteomics. Can you just give me kind of 30 seconds worth on how I should think of that in terms of the performance advantage in FTMS that drives those buyers potentially and who are the types of buyers that are specifically interested in this type of a tool in your eyes? Thank you.

Sure, John. A few years ago FTMS grew pretty quickly to primarily based on small molecule metabolite analysis with a mix of industrial and academic customers. In the last couple of years FTMS was -- has lower growth because of the new applications which we had been develops and which some of our academic collaborators and [natural lab] collaborators had been developing for the shotgun proteomic and are now the new top down proteomics for another term at you, they had been published but they really had not been offered commercially yet.

But not only the higher field strength, the higher field strength magnet that has become available with the 9.4 and 12 plasma magnet are important but equally important are additional improvements in the way the system gets MSMS information which is very important for both of these proteomic techniques and they are sort of the traditional approaches of what you do on a TOF like a QQ TOF, you can do a QQFTMS, but there's also additional technologists that you may not have heard about before, they are very unique for a [Inaudible] and not available on any other kind of [mass spectrometer] that allow these TOF down associations of proteins to get structural information which is very exciting right now.

To throw some [Inaudible] at you, one of the techniques that's being used is ECD or electron capture disassociation which is a very exciting field of research in recent years which we have now commercialized on these high field systems amongst other things to make them very capable for this new application of large molecule or protein analysis.

So FTMS in addition to it's more existing established small molecule applications market is now opening up to funding and to pretty rapid growth we believe with a number of improvements in associating proteins in a unique way not available from any other type of mass spec and that's in the fundamentally of the physics of how the mass spec works, that's not just a development item, in combination with the higher magnetic fields that you do need to take advantage of these new capabilities for protein analysis. And I apologize I was more than 30 seconds.

Fine by me. I'll be calling you on the inside to find out exactly what it was you were saying.

We'll be talking a lot more about that also at [Inaudible]. So to some extent you'll learn more about that [Inaudible].

Okay, terrific. And then separately my last question is can you just chat for a second about customer groups an kind of changes at the margin that you foresee for customer groups in 2003?

I'm not sure I understand the question, what do you mean by margin. Are we talking about financial margins?

No, I'm talking about changes in demand relative to the demand you saw in 2002 for example. As you look to 2003 by customer group what is your opinion of the changes that might occur in demand?

You know that US is hard to read. We have had a good fourth quarter we believe and activities, you know reasonably healthy but it's harder to read what's happening in the US. And in Asia Pacific we expect continued growth or faster growth relatively speaking and Europe perhaps somewhere in the middle in terms of growth rate. In terms of industrial, we're somewhat optimistic that Farma and Biotech will -- I mean, they still have huge R&D budgets and we're not that dependent on the growth of their R&D budget.

More important for us is how they allocate it and do we have tools that are information rich that help them not only in the drug discovery but also into the drug development and I think our tools satisfy that so even when their budget for R&D may grow a couple of percentage points less there still are enormous budgets and if they allocate more of that to [Inaudible] technology, and solutions we provide to them. We're guardedly optimistic that we'll see Farma and Biotech world wide again as a higher percentage of our new order bookings than last year.

Thank you very much.

Next question comes from Tyco Peterson (ph) from J .P. Morgan. Go ahead.

Following up on John’s question on FTMS, can you give us an idea of how big that market is now and how quickly you think it will grow and then I guess if you anticipate going forward will there be any shift away [Inaudible] in academic market now, whether you think it will be shifting towards the industrial application?

Yes, in recent years it has been perhaps a $25-30m market depending on how much you count aftermarket and so on. With a small molecule application we could see that -- we can't really predict the future either. But our hunch, if you like, is that that could very well bubble in the next three years or so. It's not purely an academic market, after all there have been a fair number over years of industrial accounts and pharmaceutical companies and biotech companies some of them like [Inaudible] have two or in some cases three instruments meaning they didn't just try it because they thought it was something, a novel tool they should try but because it was really useful for them. More than half the buyers are academic but they are certainly healthy biotech and pharmaceutical component in there as well. And from what we see in terms of activity and pipeline we expect that to continue and perhaps even strengthen as far as FTMS customer segments.

Geographically is there any color you can add there?

Traditionally years ago it was mostly the US and the UK for some reason that were pushing FTMS. In recent years Europe has caught up quite a bit an maybe it's not as -- its use is not as prevalent yet in Asia Pacific. But that may change also. It maybe slicing it too finally again to be meaningful here. Some of the traditional trends I would think. But whether they predict the future remains to be seen.

Thank you.

Next question comes from Ken Goldman with Lehman Brothers. Go ahead

Frank, you touched on several times on the new instruments at [Inaudible] that are anticipated. Will this be enhanced platforms or they be new platforms and specifically I'm thinking of perhaps some of the competitor pressures you may have come under with the new instrument platforms that for instance ABI came out with the [hyperdiesed] ion trap. So I wonder if you could comment on where the strength is going to be and where the punctuations is going to be in your competitive array of instruments.

You may not be very satisfied with the answer I'm going to give you Ken [Inaudible], but we will bring out both new platforms and enhanced systems from existing technology platforms. But we would respectfully decline to give many more details prior to [Pittcon].

I'm very satisfied. You have [Inaudible] my appetite now. I am anxious to go.

There are no other questions in queue. Once again if you would like to ask a question please key star one or your telephone. Question here from Tim Young with Thomas Wisel and Partners.

This is Tim Young calling from Thomas Weisel and Partners. I'm calling on behalf of Paul Knight. How are you doing? I have just a financial question. These quarters [Inaudible] revenue increased 300 basis points. Would you tell us what accounted for the increase?

It's a couple of factors in the sales and marketing. Basically it's basically driven from a commission -- you know, the commission structure, a lot of sales reps have quotas and when they exceed those quotas they can actually get a little more in commissions and basically in the Q4 that's when you tend to see that. Plus we had a very strong Q4 in revenue. The commissions went up a little bit. We have also analyzed our accounts receivable. Due to the growth rates, and we have kind of taken a very conservative increase to our allowance and that was roughly $.3-.4m in the fourth quarter and then on the G&A side there has been basically a little increasing in such as legal and accounting during the fourth quarter.

Okay. Thank you.

You're welcome.

There are no other questions in cue, sir.

Thank you very much to all of you and we'll see some of you at [Pittcon]. Thank you, bye.

This concludes your conference call. You may now disconnect.