Bruker Corp (BRKR) 2005 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Bruker Biosciences quarterly earnings conference call. I would now like to turn the presentation over to your host for today's call, Mr. Bill Knight, Chief Financial Officer. Please proceed, Sir.

Thank you. Good afternoon and welcome to the Bruker Biosciences first quarter 2005 financial results conference call. With me on the call is Frank Laukien, President and CEO of Bruker Biosciences, and Brian Monahan our Corporate Controller. During the call today, Frank will provide an overview of the first quarter results of Bruker Biosciences, and then I will discuss some financial details, and provide some thoughts on the remainder of 2005. After that, we will open it up for questions and answers. Before we begin, though, I'd like to start off by reading the 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 risks and uncertainties relating to technological approaches, product development, manufacturing, market acceptance, cost and pricing of our products, exposure to currency fluctuation, 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, reported, transcribed or otherwise used without the written consent of Bruker Biosciences. During this call we may refer to certain financial measures that are not in the accordance with general accepted accounting principles or GAAP. Non-GAAP financial measures are not meant to be a better presentation or substitute for results of operations prepared in accordance with U.S. GAAP. We believe that discussing these measures help investors to gain better understanding of our core operating results and future prospects, consistent with how management measures and forecasts the Company's performance. Especially when comparing such results to previous periods or forecasts. A reconciliation of non-GAAP financial measures used on this call to the most directly comparable GAAP measure is available in our press release. With that, I would like to turn the call over to Frank Laukien to discuss highlights from the quarter, and progress at Bruker Biosciences.

Thank you Bill, and good afternoon, everyone. We appreciate you joining our call today. I would like to start off by highlighting some key results for the first quarter of 2005. We are pleased to report that we had another quarter of healthy top line growth, and that we also continue to improve our operating and net income, as we focus on becoming more profitable. Revenue in the first quarter grew by approximately 10%, and this includes about 3.6% of currency translation effect, but even excluding this current effect, we still grew at approximately or at 6.3% organically. Our organic revenue growth in the first quarter of 2005 was contributed about equally by both of our two operating Company's, Bruker Daltonics and Bruker AXS. We also experienced improvements in overall growth profit margins year-over-year, increasing from 39.9% in the first quarter of 2004, to 41.6% in the first quarter of 2005. Moreover, income from operations and net income as a percentage of revenue has improved sequential for the third straight quarter. These improvements are a result of our continued efforts to control spending, and through cost cutting efforts which have been implemented globally over the past several quarters. We expect that the full effect of these productivity initiatives, combined with continued revenue growth and growth margin expansion, should result in steady improvement in our profitability, also during the remainder of 2005.

On the top line, we remain somewhat cautious about the remainder of 2005, particularly in view of the apparent slowdown reported by many other companies in our industry. Our own new order bookings in the first quarter had a bit of a slow start, but the pace of business has certainly picked up considerably in the last couple of months. With that, we believe that we can continue to expect above average, above industry average growth rate, and we will obviously continue our focus on our bottom line improvement. I'll finish off with just a couple of selective highlights. I believe our Pittcon product introductions have been discussed at length, and I believe it's fair to say that in both of our operating Company's we're probably the most innovative in terms of new product introduction, which further improves our competitive position. Since Pittcon at the '96 annual meeting of the American Association For Cancer Research, we had an additional important product introduction on the Bruker Daltonics site, where we introduced our new bench top ClintonProt Microsystem, which is an affordable easy to use and compact clinical research system, dedicated to peptide and protein by profiling, biomarker discovery, and importantly, it has the reproducibility for biomarker validation. This ClintProt Microsystem offers a dedicated and scalable system for biomarker discovery, which we believe will substantially increase the ability of cancer and other clinical researcher to discover, validate,and identify new multi-marker panels with hopefully higher disease specificity. As the field of clinical proteomics continues to develop, our ClineProt microsolution will offer clinicians and cancer researchers, a truly coherent integrated and routine work flow ,with excellent data quality and confidence in its interpretation. As you can gather from these remarks, clinical proteomics and molecular diagnostic research, continues to be an important focus for our company.

One last highlight is progress that we are making at Bruker Daltonics with our NBC detection system. In the first quarter for instance, we had about $1.8 million in revenue from the U.S. Department of Defense, chemical agent standoff detection system, which is now being evaluated by the Department of Defense with potentially large contract opportunities in the future. We also very recently received a second phase II follow up contract from the Department of Homeland Security, which is for the so called ARFCAM system, which stands for autonomous rapid facility chemical agent monitor. Quite a mouthful. Nevertheless, this is intended as the next generation chemical agent monitor for many government facilities against chemical attacks, and we clearly believe that this is a potentially very large market, even outside of our government facilities, potentially for all public buildings in the more distant future. So we are very excited about that. With those somewhat selective remarks, I would like to turn it back over to Bill, our CFO to give you more additional details.

Thanks, Frank. I would like to take the next few minutes to provide a little more information on the first quarter results, by taking you through the P&L and discussing certain information on our business segment. Our first quarter 2005 revenues increased by 9.9%, to $74.9 million, compared to revenues of $68.2 million in the first quarter of 2004. Excluding the favorable currency effects, net sales increased 6.3% year-over-year. Revenues for the Bruker AXS business increased 10.9% to $32.5 million in the first quarter of 2005, an increase of 6.4% after excluding the effects of foreign currency translation. In the first quarter of 2005, revenue for Bruker Daltonics businesses increased 9.8% to $42.6 million, an increase of 6.3%, after excluding the effects of foreign currency translation. Gross margins for the first quarter were 41.6%, up from 39.9% for the same period in 2004. Gross margins for the Bruker Daltonics business were at 41.9% in the first quarter, compared to 40.4% for the comparable period in 2004. Gross margins for the Bruker AXS business were at 40.9% in the first quarter of 2005, compared to 39.1% for the comparable period in 2004. We are continuing our efforts to bring overall gross margins up to industry standard levels over the next several years.

Selling, general and administrative expenses as a percent product revenue, increased 23.9% for the first quarter 2005, as compared to 23.5% in the first quarter of 2004. Research and development expenses increased to 14.8% of product revenues during the first quarter of 2005, compared to 14.6% in the comparable period of 2004. The improvements in gross profit margins and continued focus on controlling spending, resulted in operating income of $2.5 million, or 3.4% of product revenue in the first quarter of 2005, compared to operating income of $1.4 million, or 2.1% of product revenue in the first quarter of 2004. For the quarter we incurred $1.9 million of income tax expense on pre-taxed income of $2.4 million, representing an effective tax rate of 80%. The high effective tax rate is primarily driven by net operating losses in the United States, which currently cannot be benefited. We expect that as we drive to become more profitable in the U.S., our effective tax rate will decrease. We are also finalizing a new transfer pricing policy, which will be fully implemented in the second quarter of 2005. Net income for the first quarter in 2005 was $0.04 million, or $0.00 per diluted share, compared to a net income at $.0.05 million, or $0.01 per diluted share in the first quarter of 2004.

Due to the fact that both of our businesses mostly sell capital equipment, we may from time to time experience fluctuations between our anticipated and actual results. As a result of these limitations to our visibility, we are not providing specific guidance for the second quarter of 2005, but do remain optimistic that we will achieve our management targets for revenue growth and profitability for the full year 2005. With that we would like to open it up for questions.

: Thank you, Sir. And, Sir, our first question is from the line of Derik DeBruin.

Hi.

Hi, Derik.

Derik, we can't hear you. I don't know whether you're asking a question right now.

Sir, our next question is from the line of Sara Michelmore.

Hello.

Hello, Sara.

If you could just go into a little bit more detail, it sounds - just in terms of geographies and maybe even AXS versus Daltonics where you saw some of the weaker bookings in the quarter, and if it indeed has come back for both businesses and if there's any differences in demands for either the Daltonics versus the AXS products.

Sara, this is Frank. There doesn't -- we didn't detect any significant differences in demand or growth thereof for AXS and Daltonics. If you recall last year, AXS was growing much faster than Daltonics, and the year before it was the reverse. Right now there seems to be about even similar growth and similar demand. We geography, Asia Pacific continues to be, including Japan, included to be probably have the strongest growth geographically. The U.S. and Europe were comparable, with actually Europe a little bit stronger than North America.

Okay. So Europe was actually relatively strong for you guys this quarter?

Europe was similar to North America, but a little bit stronger. And Asia Pacific still has the strongest growth.

Okay. And could you just talk about some specific trends in the mass spectrometry market, if you're seeing any differences in demand from your end customers, particularly in the proteomics part of the market?

Quite honestly, Sara, when we look at full-year data, and you don't have the fluctuation that you simply get when you only have one quarter of data points, I think we can usually discern meaningful trends. I did not notice any new trends in as a result of Q1 relative, within the relative mass spec landscape, so I don't think I have any new insights about any in trends that we've noticed in Q1.

Okay.

I would say it's within the mass spec field, it's a continuation of the trends we saw last year, or at least it's too early for us to really see the trends clearly, if there are any new trends.

Okay. That's very helpful. Thanks so much.

Sir, our next question is from the line of Larry Neibor.

Thank you. Good afternoon.

Hi, Larry.

Are you seeing any difference in demand between your academic customers and your drug discovery customers here, Europe, Asia? Could you give us a little more color or detail on what you're seeing for mass spec?

We're keeping an eye open for that, but certainly academic demand including academic demand in North America has continued to be good. And there's more in the pipeline. I think a lot of budgets are now out there where people are looking. And so we've also have some promising sales to big bio-tech and Pharma. We have not seen some of the trends that have been reported by others. However, I'd have to say that since we are somewhat diversified with bio-tech, Pharma but also other industrial customers particularly the ER Bruker AXS business, we may not be the first company to see these types of trends. But our academic business and medical school business that's related to that non-profit business continues to be quite strong.

Okay. Thank you.

Sure, Larry.

Sir, we have a question from the line of Derik De Bruin.

Hi, Sorry about that earlier, I hung up on myself. Looking at the overall guidance that you've given for the year, correct me if I'm wrong, that was from around 10 to 12% revenue growth and 3 to 5% in operating income, correct?

That's correct.

Okay. And I guess when you're looking at cost savings and things that go on, are you through making cuts, or do you expect to be additional changes in the latter part of the year?

At this point based on what we're seeing, we think we have made the cuts and would not anticipate or presently not planning additional cuts, but clearly maintain our discipline in cost savings, and fully implement all the steps that we had previously announced already.

Now, a number of those changes that you were going to be making were going to be to the manufacturing, particularly trying to put standardize a lot of the processes. How has that gone? How has the manufacturing upgrade been going?

A lot of these are ongoing longer term processes and much of the cost cutting steps having taken or has been implemented, but they are further optimization steps that don't involve cost cutting but that hopefully can improve our productivity and efficiencies and, there's additional steps we're taking at several of our factories to further improve reduce inventories, improve cashflow, improve quality, redesign to cost efforts, those are ongoing and, in fact, they will probably be ongoing for the next two to three years, and probably beyond that.

Looking at cash flow for the year, what do you think you can do for operating cash flow?

Don't think we've given guidance on that. We've been nicely cashflow positive in the last couple of quarters, but I don't think we've set a specific target for cashflow for the year.

Okay.

And there are clearly, I should say that sometimes depending on the timing of payments or tax payments or tax rebates, there clearly will be significant fluctuations in cash flow from quarter to quarter.

Which leads me to the next point on the taxes. I know you had said that you brought in some consultants to discuss some potentially lowering the tax rate. How is that going?

That has gone well. We have reached a point where we have our initial preliminary data, and we got begun implementation in the first quarter as far as making some adjustments and while certainly still being in compliance on both sides of the Atlantic and Pacific with the various taxing authorities, and we expect to have the program fully implemented by the end of the second quarter. So we anticipate that that will have a -- help with the bottom line profitability as well. Having said that as well, we still have a U.S. operation that we continue to improve upon, and we want to get that profitable going forward as well.

I think Derik we will not drop to a 40%or lower tax rate quickly, but I think we'll make considerable progress. The outside study that you're referring to is clearly going to be an element, but fundamental other business drivers and cost improvements are and revenue growth are all necessary, and those obviously take a little bit longer.

Okay.

It's a gradual process. It's not going to all hit us in one quarter.

No, of course not. Just two other quick questions. Do we need to expect any Sarbanes-Oxley higher charges or are you fully compliant?

We did have some extra procedures in the first quarter and maybe, Bill, you would like to comment some more on that.

We did some extra work because of the opinion we received at year end, and that certainly had an impact on the first quarter results. We probably do not expect anything significantly different from the previous year. Possibly some cost savings as it will be the second time around, and I think both sides fully understand the process. But it's an ongoing process, and it will continue to be expensive for us as it is with other companies.

Right. And just one final question. So one of the more interesting products you launched at Pittcon was the microQ top, the bench top quadrupole system. It looked really interesting. What's the initial feedback been from customers, and I guess just any information on that and some of the new products, just how they've been received?

The micro-top Q that you're referring to Derik has been well received. I think our sales force is enthusiastic about explaining its benefits to our customers. We've begun to do customer demonstrations as well, and we expect that to see that shipping in the second half of the year. So these things always take some time to get going, but I think the reception of customers to whom we've been able to present that is very positive. And I would think that's also true for many of the other products that we have introduced at Pittcon also, of course, on the x-ray side where the new detector technology and new source technologies are really getting excellent reception, and have greatly improved our competitive positioning.

Great. Thank you very much.

Thank you, Derik.

Gentlemen, we have no further questions at this time.

We would like to thank all of you again for joining us this afternoon. Have a good day. Thank you. Bye-bye.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes your presentation, and you may now disconnect.