Bruker Corp (BRKR) 2005 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Bruker BioSciences third quarter earnings conference call. At this time, all participants are in listen only mode. We'll be facilitating a question and answer session towards the end of this conference. If at any time during the call you require assistance, please press star followed by zero and a coordinator will be happy to assist you. As a reminder this conference is being recorded for replay purposes. 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 third 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 third quarter, and then I will discuss some financial details. After that, we will open it up for Q&A.

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 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 any publicly -- any revisions to our forward-looking statements. These statements may not be rebroadcast, recorded, transcribed, otherwise used without the written consent of Bruker BiosSiences.

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 a substitute for results of operations prepared in accordance with U.S. GAAP. We believe that discussing these measures helps investors to gain a 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 in this call to the most directly comparable GAAP measures is available in our press release. With that I would like to turn over the call over to Frank to discuss highlights from the quarter and progress at Bruker Biosciences.

Thank you Bill, and good afternoon, everyone. We appreciate you joining us today. I would like to start off by highlighting some key financial results for the third quarter of 2005. First off, I am pleased that we've continued to make progress with our various ongoing gross margin improvement initiatives and continued expense control which together resulted in improved profitability during the third quarter, both year-over-year and sequentially. Our commitment to improved profitability is evident in our third quarter and year-to-date financial performance, and we expect these positive trends to continue as we work towards our longer term financial goal of industry standard profitability.

As for the top line, we experienced revenue growth of 6.4% in the third quarter of 2005 compared to the third quarter of 2004 and the effects of foreign currency translations on our growth rate was negligible during the quarter. For the year-to-date, first nine months, year-to-date period, our revenue grew by a little over 9% or approximately 7% when you exclude foreign currency translation benefits. Throughout the year, we have continued to invest heavily in new products, more complete customer solutions, as well as in additional marketing and customer support capabilities which we expect to contribute to our top line growth into the future. In 2006, we also expect additional top and bottom line contributions from our recently announced X-ray Software and X-rays Microanalysis acquisitions which are expected to close in the near future.

Later on, Bill Knight will bring you through the financials in more detail, but I wanted to call out a couple of items I'm particularly pleased with. First off our cash position increased from 77.7 million at the end of 2004 to 95.3 million at September 30, 2005 on strong operating cash flow of approximately 26 million during the first nine months of 2005. While our outstanding debt balances continue to decrease. Moreover, our gross margin, gross profit -- gross margins continue to improve as we have experienced modest growth margin improvements during 2005 and, at the same time, our operating expenses as a percentage of revenue continue to decrease due to the productivity initiative we announced last fall.

Going forward, we expect the combination of continued gross profit margin expansion and reduced operating expenses as a percentage of revenue to result in further steady improvements in our profitability. I'd like to highlight just a couple of recent events and press releases that you presumably have seen, but we -- as you have seen with the two nearly simultaneous acquisitions, we are -- our Bruker AXS subsidiary is entering the $150 million per year X-ray microanalysis market with the acquisition of Roentec AG in Berlin and the acquisition of the Princeton Gamma Tech or PGT X-ray microanalysis business based in Rocky Hill, New Jersey. Both of these acquisitions are under agreement, and we expect to close them in the fourth quarter. They will get our Bruker AXS operating company into a fourth and for us new area in X-ray materials, research, and analysis. We believe those two acquisitions are very complementary in terms of what -- in terms of putting the two best features of the product lines together, and they're also very complementary in terms of sales, service, and customer support capabilities. We're very pleased with those acquisitions and we think they will contribute strongly to our business in 2006.

In addition, just yesterday we had a press release about further organizational development in our Bruker Daltronics management team. A very experienced individual, Mr. Sebastian Meyer-Plath has joined us as Vice President of our NDC detection business, and I simply refer to our press release from November 1. I hope this provides the summary of our third quarter highlights. I will now turn the discussion back over to Bill to discuss the financial results in more detail.

Thanks, Frank. I'd like to at this time take the next few minutes to provide a little more information on the third quarter and year-to-date 2005 financial results. Our third quarter 2005 revenues increased by 6.4% to 70.7 million compared to revenues of 66.5 million in the third quarter of 2004. As Frank mentioned earlier, foreign currency translation effects were negligible this quarter. Revenue for the Bruker Daltronics business increased 8% to 36.9 million, and revenues for the Bruker AXS business increased 5.2% o 33.9 million in the third quarter of 2005. For the nine months ended September 30, 2005, revenues increased by 9.2% to 217 million compared to revenues of 198.8 million in the comparable period of 2004. Excluding favorable currency effects, net sales increased by approximately 7% year-over-year.

Revenues for the Bruker Daltonics business increased 8.4% to 117 million during the first nine months of 2005, an increase of 5.6% after excluding the effects of foreign currency translations. Revenues for the Bruker AXS business increased 10.6% to 100.5 million during the first nine months of 2005, an increase of 8.1% after excluding the effects of foreign currency translation. Gross profit margins on products and services for the first nine months of 2005 were at 42%, up from 40.3% for the first nine months of 2004. Gross margins for the Bruker Daltronics business were 43.5% during the first nine months of 2005 compared to 42.9% for the comparable period in 2004. Gross margins for the Bruker AXS business were at 40.1% during the first nine months of 2005 compared to 37.1% for the comparable period in 2004.

One of our top priorities is to bring our overall gross profit margins up to industry standards levels over the next several years. Although we have some work ahead of us, the results during the first nine months of 2005 indicate we are headed in the right direction. For the nine months ended September 30, 2005, selling, general, and administrative expenses as a percentage of revenue decreased to 25.1% as compared to 27% in the comparable period of 2004, reflecting our cost savings generated through the productivity initiatives that Frank mentioned earlier. For the nine months ended September 30, 2005, research and development expenses decreased to 14.9% of revenue compared to 15.7% of revenue in the comparable period of 2004. The improvements in gross profit margins and continued focus on controlling operating expenses resulted in operating income of 2.9 million in the third quarter of 2005 compared to an operating loss of 86,000 in the third quarter of 2004. For the nine months ended September 30, 2005, our operating income was 6.4 million compared to an operating loss of 3.7 million in the comparable period of 2004.

For the third quarter, we incurred 2.4 million of income tax expense on a pre-tax income of 3.5 million, resulting in an effective tax rate of 68.4%. The high effective tax rate is primarily driven by net operating losses in the United States which currently cannot be benefited. Although our effective tax rate has gradually decreased each quarter during 2005, we are not where we should be yet and expect that, as we drive to become profitable in the U.S., our effective tax rate will continue to decrease. Moving on to the bottom line, net income for the third quarter of 2005 was 1.1 million or $0.01 per diluted share compared to a net loss of 3.1 million or $0.03 per diluted share in the third quarter of 2004. For the nine months ended September 30, 2005, our net income was 1.8 million or $0.02 per diluted share compared to a net loss of 7 million or $0.08 per diluted share during the comparable period in 2004.

Before we open the line for questions, I would like to briefly highlight some trends when comparing our balance sheet as of September 30, 2005 to our balance sheet as of December 31, 2004. First off, our cash increased by almost 18 million. As Frank described, this increase in cash was driven by strong operating cash flows of approximately 26 million during the first nine months of 2005. We also experienced meaningful decreases in our accounts receivables, inventory, and debt balances, all positive trends and some of them certainly contributed to our strong operating cash flow performance. With that, we would like to open it up for questions.

[OPERATOR INSTRUCTIONS] Your first question comes from the line of Peter MacDonald. Please proceed.

Hi. Could you maybe give a little bit more detail about the demand you're seeing across some of your key academic, biotech, and pharma customers? Are you expecting a big uptick in fourth quarter spending?

Peter, this is Frank. The demand is generally a mixed picture. Certainly the pharma, biotech industry so far this year has been not as strong as we would have hoped, but on the other hand other industrial customers, their spending it's reasonable, and demand is not bad there. Our government -- demand from government continues to be good, actually a bit of an uptick so far this year. We were somewhat concerned about maybe a reduction in academic spending, but that has been offset, if there is any, by us having more access to medical school via research funds. So no particular trends to report here. I think it's mostly that pharma biotech is not as strong as we had expected globally for the year, year-to-date, not necessarily in third quarter, and other industrial customers are stronger than what we had seen in the prior year.

So are you guys looking to see kind of the seasonality repeat itself from last year or?

We always have some seasonality, although last year I think it was particularly pronounced, which had a little bit of, not so much to do with the market but with our own company. In Q2 and Q3 we had some delays in product introductions, so last year we saw a somewhat exaggerated seasonality, but we generally tend to have a stronger fourth quarter. I think last year that was a bit extreme compared to the second and third quarter.

And could you maybe talk a little bit about your FX impact possibly in the fourth quarter? It was negligible this quarter. But could it be a head wind in the fourth quarter?

On currency?

Yes.

Yes. It looks like there could be a slight head wind there going forward. But we generally have broken out the tailwind and will break out the headwind, too, so that people can take a look at our currency-corrected growth rate.

Thanks.

You're welcome.

[OPERATOR INSTRUCTIONS] And your next question is a follow-up from the line of Peter MacDonald. Please proceed.

Seem to be monopolizing this call today. Could you kind of maybe give us an update on how the recent acquisitions fit into Bruker AXS. Do you have to expand the sales force, your marketing efforts, or does it dovetail pretty nicely?

Well, first of all, they haven't closed yet. They have all been announced, and they're under agreement. And they are really very -- the French software acquisition, really there is not that much integration. It really just fits their products and their technology fits perfectly into our X-ray R&D infrastructure. Other than co-locating them with our Paris based, French subsidiary, there isn't a lot of restructuring or anything like that involved with that. It's really additive. It doesn't add to our revenue, but this will add to our gross margins and bottom line. And the two complementary acquisitions in the X-ray microanalysis field, obviously we're entering a new field. I think we're doing it in a way that is -- that we expect will show both top and bottom line contributions. I would expect to provide a little bit more detail on that, Peter, when we announce the closing of those transitions, and I think at that point we probably will issue another press release that may give a little bit more detail on what we're expecting.

Okay. And then finally, the tax rate in '06, you're still expecting it to kind of trend down?

We -- as we work on the profitability issues in the U.S -- and that is a fairly intense focus here -- we will be able to shelter income. We are carrying NOLs. As that profitability comes in, you would certainly see the effective tax rate go down.

How long do you actually have to be sustainably profitable before you can start recognizing those?

It's a judgment call, but if there's reasonable expectations that once you get profitable it will continue on, then we should start to see some benefit.

Our expectation is that next year we will get much closer towards statutory tax rates. This year obviously we're still quite a bit higher so far. We do expect that to trend down further, and things have been put in place that are beginning to have their effects, but they have not seen the full effect yet.

Great. Thanks a lot.

[OPERATOR INSTRUCTIONS] I'm showing no further questions at this time. Ladies and gentlemen, this concludes today's question and answer session. I would now like to turn the call back over to Mr. Frank Laukien for any closing remarks.

No closing remarks at this time, but we'd like to thank you for joining our earnings call, and we're looking forward to speaking to you after the end of the year. Thank you very much. Bye-bye.

Ladies and gentlemen, thank you for your participation in today's event. This concludes the presentation. You may now disconnect. Good day.