Bruker Corp (BRKR) 2005 Q2 法說會逐字稿

Good Day, ladies and gentlemen and welcome to the Bruker BioSciences quarterly earnings conference call. My name is Andrea and I will be your coordinator for today. At this time, all participants are in a listen only mode. We will be conducting a question and answer session towards the end of today's conference.

[Operator Instructions]

I would now like to turn the presentation over to the host of today's call, Mr. Frank Laukien, Chairman and CEO of Bruker, please proceed, sir.

Good morning, this is Bill Knight, I am the CFO of Bruker BioSciences and I would like to welcome you to the Bruker BioScience second 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 second quarter 2005 results of Bruker BioSciences and then I will discuss some financial details. After that, we will open it up for Q&A.

Before we begin though, I would 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 the 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 fluctuations, 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 BioSciences. During this call, we may refer to certain financial measures that are not in accordance with generally 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 US GAAP. However, we believe that discussing these measures helps 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 morning everyone. We appreciate you joining us today. I would like to start off by highlighting some key results for the second quarter of 2005. We are very pleased to report that we had another quarter of double-digit top line growth and continued to improve our operating and net income as we continue to focus on becoming more profitable. Revenue in the second quarter grew by 11.3% compared to Q2 '04. This includes about 3.3% of currency translation benefits, but excluding this effect, we still grew organically at approximately 8%.

Both of our operating businesses experienced above industries average revenue growth during the second quarter of 2005, with Bruker AXS growing faster at 16.4%. In addition, our cash position increased from $77.7 million at December 31, 2004 to $92 million at June 30, 2005 on strong operating cash flows of $23.8 million during the first half of 2005 while our outstanding debt balances decreased. We also experienced improvements in overall gross profit margins year-over-year, increasing from an exceptionally low 36.5% in the second quarter of 2004 to 42.3% in the second quarter of 2005.

These improvements are a result of our various ongoing gross margin improvement initiatives as well as our better capacity utilization. We also expect that the effects of our productivity initiatives combined with anticipated revenue growth and gross margin expansion will continue to result in steady improvements in our profitability during the remainder of 2005 and beyond. We are pleased to have achieved these results despite some geographical weakness in spending in the U.S. and in Germany. Our steady investments in additional sales, marketing, and customer support capabilities over the last few years, particularly in Japan, and in Asia-Pacific, have made our businesses geographically more balanced. We are also very proud at Bruker AXS that our Vantec 2000 two-dimensional X-ray detector for advanced materials sciences applications has recently been selected for a 2005 Research and Development 100 Award which recognizes the most technologically significant product introduced into the market place.

Moreover, just at the beginning of this week, at the Denver X-ray Conference, which is presently taking place, again, our Bruker AXS operating business also introduced the new so-called LynxEye one-dimensional detector for fast X-ray diffraction measurements in Materials Research as well as Process Analysis. Together, we believe that we can now offer the most advanced X- ray diffraction detectors across the complete price performance bandwidth of this field. These innovations are both based on truly new technologies, and should give our products sustainable competitive advantages. I think the underlying, as an example, that our strategy of investing in the fundamentals of our business, including R&D and our technology platforms, is generating more and more tangible benefits, not only for our customers but also for our financial performance and ultimately for our shareholders. I hope this provides a few highlights from our second quarter. I will now turn the discussion back to our CFO, Bill Knight, to discuss the financial results in more detail.

Thank you, Frank. I would like to take the next few minutes to provide a little more information on the second quarter and first half of 2005 by taking you through the P&L and discussing certain information on our business segments. Our second quarter 2005 revenues increased by 11.3% to $71.4 million, compared to revenues of $64.1 million in the second quarter of 2004. Excluding favorable currency effects, net sales increased 8% year-over-year. Revenues for the Bruker AXS business increased 16.4% to $34.1 million in the second quarter of 2005, an increase of 13.3% after excluding the effects of foreign currency translation. In the second quarter of 2005, revenue for the Bruker Daltonics business increased 7.1% to $37.4 million, an increase of 3.6% after excluding the effects of foreign currency translation.

For the 6 months ended June 30, 2005, revenues increased by 10.6% to $146.3 million, compared to revenues of $132.3 million in the comparable period of 2004. Excluding favorable currency effects, net sales increased 7.2% year-over-year. Revenues for the Bruker AXS business increased 13.6% to $66.6 million during the first half of 2005, an increase of 9.8% after excluding the effects of foreign currencies. Revenues for the Bruker Daltonics businesses increased 8.5% to $80 million during the first half of 2005, an increase of 5% after excluding the effects of foreign currency translation.

Gross margins for the first half of 2005 were 41.9%, up from 38.9% for the first half of 2004. Gross margins for the Bruker Daltonics business were 42.4% in the first half of 2005, compared to 40.3% for the first half of 2004. Gross margins for the Bruker AXS business were 41.2% in the first half of 2005, compared to 37.1% for the comparable period in 2004. One of the top priorities to bring our overall growth profit margins up to industry standard levels over the next several years, and I think the first half of 2005 indicates that we are headed in the right direction. For the 6 months ended June 30, 2005, selling, general and administrative expenses as a percentage of revenue decreased to 25.1%, as compared to 26.6% in the comparable period of 2004.

For the 6 months ended June 30, 2005, research and development expenses decreased to 15.1% of revenue compared to 15.4% of revenue in the comparable period of 2004. The improvements in gross profit margins and continued focus on controlling spending, resulted in operating income of $0.9 million in the second quarter of 2005, compared to an operating loss of $5 million in the second quarter of 2004. For the 6 months ended June 30, 2005, operating income was $3.5 million, compared to an operating loss of $3.6 million in the comparable period of 2004. For the quarter, we incurred $1.1 million of income tax expense on a pretax income of $1.5 million, representing an effective tax rate of 78.2%. 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 also recently finalized a new transfer pricing policy and took other initiatives which should reduce our effective tax rate gradually during the remainder of 2005. Net income for the second quarter of 2005 was $0.3 million, or $0.00 per diluted share compared to a net loss of 4.4 million or $0.05 per diluted share in the second quarter of 2004. For the six months ended June 30, 2005, our net income was $0.7 million, or $0.01 per diluted share, compared to a loss of $3.9 million, or $0.04 per diluted share during the first half of 2004. Moving on to the balance sheet, I would like to briefly highlight some trends when comparing our balance sheet as of June 30, 2005 to our audited balance sheet as of December 31, 2004.

First off, our cash increased by a little over $14 million. The increase in cash was driven by strong operating cash flows of just under $24 million during the first half of 2005. We also experienced decreases in our accounts receivable, inventory, accounts payable, and debt balance, all positive trends and some of them certainly contributed to a strong operating cash flow performance. 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 quarterly guidance anymore but do remain optimistic we will achieve continued financial improvement also during the second half of 2005. With that, we would like to open it up for questions.

[Operator instructions]

My first question comes from Derik DeBruin. Please proceed.

Hi, good morning. Congratulations on getting the growth margin up, that is a nice improvement sequentially and year-over-year. Now, looking at the SG&A line, the sequential increase was chiefly due to ASMS, is that a good reason?

On the --?

On the SG&A.

I did not hear you Derik.

I was just asking if the SG&A increase sequentially between first quarter and second quarter was related to the cost of the ASMS component?

No, I think we had some additional commissions that were paid, finishing some Sarbanes-Oxley expenses, and that was I think pretty much it.

Do you see that trending back down towards the first quarter levels the rest of the year?

Certainly, I mean the commissions are always variable with the top line, but certainly the Sarbanes-Oxley expenses, we would expect to moderate.

Okay.

We also had some additional audit expenses and review expenses that were related to our auditor that we also would expect to decrease in the future.

Okay, that is helpful. With respect to the tax rate, I know that we expect decline going for the rest of the year and when do you expect that to see more normalized levels in 2006?

It is going to be heavily dependent upon when we get the operations in the US to a profitable level and that certainly is receiving a very aggressive focus here in the US. I do not want to predict which quarter that is going to turn, but as we do and when it does, we will certainly be able to do those earnings that we do generate in the US will be sheltered with an NOL for a certain period of time and at that point, we will have I guess I would say a very attractive tax rate.

The 3.6% organic growth rate in the Daltonics division, you said you had seen some weakness in the US and Germany specifically related to the mass effect of business [inaudible]?

Derrick, I think Germany is a little weak right now across the board and I think it will remain so until probably six to eight weeks until after the election and that is a temporary effect that has to do more with the German market than with our product lines we believe. The weakness in the US due to reduced academic spending because they get fewer budgets from Washington or less growth in budgets from Washington is not limited to Daltonics, but we have seen that in both the operating businesses.

Okay and would it also be fair to say that there is probably an overall slowdown in the masse effect market this quarter because of a lot of new products coming out of the ASMS?

Yes, I would concur with that. I believe there is a little bit dislatency attitude towards - you know, in the six weeks before ASMS and then decisions are still not made the week after. So I think the ASMS dampening demand, I think that is actually a scene that you have heard from other companies as well and certainly for the high end research systems, that is just a fact of life and we see that as well.

Great, I will get back in the queue, thank you.

[Operator instructions]

At this time, gentlemen, I have no further questions in the queue. Ladies and gentlemen this does conclude your question and answer portion for today's call. I would turn it back to Frank Laukien for closing remarks.

Well, thank you very much to all of you for joining us this morning, we appreciate your interest and we will talk to you again next quarter. Thank you very much and have a good day, bye-bye.

Ladies and gentlemen, thank you very much for your participation in today's call. This does conclude your presentation and you may now disconnect, good day.