Bruker Corp (BRKR) 2006 Q1 法說會逐字稿

And welcome to the first quarter earnings conference call. I'll be your coordinator for today. [OPERATOR INSTRUCTIONS] I would now like to turn the presentation over to your host for today's conference, Mr. Bill Knight, Chief Financial Officer. Please proceed.

Good morning and welcome to the Bruker BioSciences first quarter 2006 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 2006 results and then I will discuss the financial results in more detail. 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 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 revision 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 principals 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 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 on this call to the most directly comparable GAAP measure is available in our earnings press release.

Before I turn the call over to Frank to discuss highlights from the quarter, I would like to make a comment regarding our recent announcement of our definitive agreement to acquire Bruker Optics, which after the closing will be accounted for as a pooling of interests. Once the acquisition is completed, which is expected to occur in the summer of 2006, we need to restate our historical financial results, as if Bruker BioSciences and Bruker Optics had been one Company all along. Until the closing of the acquisition though, we need to continue to report results for Bruker BioSciences only.

So the first quarter 2006 results, released in our press release last night in our discussions today, do not include the financial results of Bruker Optics. Although certain pre-acquisition related charges incurred by Bruker Optics have been included in the first quarter 2006 results. With that I'll turn the call over to Frank.

Thank you, Bill, and good morning, everyone. We appreciate you joining us today. First off, I am pleased that the positive momentum experienced throughout 2005 is continuing in the first quarter of 2006.

Our GAAP net income improved year-over-year and in the first quarter of 2006 was 0.8 million or $0.01 per diluted share, compared to 0.4 million or $0.00 per diluted share in the first quarter of 2005. Included in our GAAP net income in the first quarter of 2006, are approximately 1.0 million of acquisition-related charges primarily related to our planned acquisition of Bruker Optics and 0.3 million of stock-based compensation expense. Excluding the acquisition related expenses, we reached our first quarter 2006 non-GAAP net income goal of $0.02 per diluted share. For the top line, we faced an unusually strong currency headwind of 8% this quarter, which reflects our strong international presence.

Excluding this unfavorable foreign currency translation, our revenue grew 7% in the first quarter of 2006 year-over-year. Our Q1 revenues were lighter than we anticipated and several system acceptances were delayed as a result of our customers' labs not being ready yet and delays with customer letters of credit. However, our Q1 orders and quarter end back log were both healthy and we don't look at any individual quarter as indicative of a trend. It is in the nature of our systems business that from time to time, we will experience quarterly fluctuations.

While we do not provide guidance, our financial goal for 2006 remain unchanged, with anticipated revenue growth of approximately 10% for the year compared to 2005 revenues. While a major focus from 2005, in the first quarter of 2006 and beyond has been and will be to improve our profitability, equal efforts are dedicated to generate revenue growth through our innovative and performance leading products and solutions. We continue to expand our portfolio of products and solutions both organically and recently also through some very attractive acquisitions.

Recent introductions from our Bruker AXS division includes the new S8 TIGER x-ray spectrometer for high performance elemental analysis in various industrial applications including petrochemistry, cement and mining. The SA TIGER was designed to provide solutions to our customers needs in demanding industrial processes and quality control environments.

We also recently introduced the D8 SCREENLAB, which we developed in combination with our Bruker Optics affiliate, which combines the analytical power of two dimensional x-ray defraction and optical Raman spectroscopy. Our new QUANTAX QUAD ultrafast and sensitive EDS system, for x-ray microanalysis on electron microscopes, is the first new product introduction from our newly acquired Bruker AXS Microanalysis Group.

On the other side, Bruker Daltonics continues our push into clinical research solution and in molecular diagnostic research markets. We recently introduced a novel MALDI BioTyper system and the MALDI molecular imager. First, the MALDI BioTyper system identifies and classifies microorganisms using protein fingerprints measured by MALDI mass spectrometry. And is an excellent compliment to classical microbiological identification and classification techniques, as well as to modern PCR-based techniques.

Our MALDI molecular imager is a system for in vitro imaging of peptide and protein biomarker distributions. And addresses the need for high sensitivity imaging of the spatial distribution of protein biomarkers, both in direct development as well as in clinical research. For example, in oncology and/or pathology research. Finally we also introduced our unique Apollo II dual electrospray and MALDI source. And our R series of convenient refrigerated magnets which are used with our FTMS mass spectrometers.

In addition, our highly regarded product for nuclear, biological and chemical threat detection continue to provide us with solid recurring revenues and we are encouraged by it's growth opportunities. Such as the announcement we made at the end of March on the $14 million new contract for various NBC systems for Rheinmetall Landsysteme for the ultimate customer, United Arab Emirates. And lastly, on the acquisition front, our acquisitions of Roentec and the PGT microanalysis business in November of 2005, which together now comprise our new Bruker AXS Microanalysis Group, are off to a very good start.

We continue to be excited about the additional market segments these acquisitions provide us access to. Our Bruker AXS Business also completed the acquisition SOCABIM in January 2006, which will strengthen our proprietary x-ray analysis software technology. And is expected to improve our gross margins at Bruker AXS.

We are looking forward to the planned acquisition of Bruker, which will present a great opportunity from a combined customer and strategic perspective and also from a Bruker Biosciences' financial and shareholder point of view. We believe this acquisition will increase our critical mass in many of the markets we serve, create revenue synergies, diversify our customer and revenue base, and expand our product and service offerings.

All of this should provide us with growth opportunities on the top line and accelerate our drive to increase our margins, net income, and operating cash flow. As we stated in our press release announcing the definitive agreement to acquire Bruker Optics, in the second half of 2006, we expect the planned Bruker Optics acquisition to be accretive to our non-GAAP net income, which excludes the acquisition related charges.

So in summary, we believe the drivers are in place and opportunities exist to continue the positive momentum generated over the last five quarters throughout the remainder of 2006 and beyond. Now here is our CFO, Bill Knight, again, with our detailed overview of our Q1 financial results.

Thanks, Frank. I would like to take the next few minutes to provide a little more information on the financial results for the first quarter of 2006. Before I get into the details though, I wanted to address why historically, we have provided more detailed financial results for each of the operating divisions but did not this quarter.

This change is really a reflection of how we currently manage our business and will continue to manage our business once the acquisition of Bruker Optics is closed. We look at ourselves as a provider of instrumentation and solutions to the life sciences and industrial businesses throughout the world. We continue to broaden our focus to address the needs of our various customers including; pharmaceutical, biotechnology, advanced and raw materials companies, academic and governmental institutions.

So, because we are really focusing more on our customers' needs and markets, and less on individual products and technologies, we will be providing results in the future on a consolidated basis. With color commentary on significant trends and events that impact our overall business. Now, for the first quarter, our 2006 revenues were 74.4 million, compared to 74.9 million in the first quarter a year ago. Excluding foreign currency effects, our revenues grew by 7% with approximately 3% of this growth coming from acquisitions.

Those profit margins on products and services in the first quarter of 2006 showed solid improvements both year-over-year and sequentially. Improving to 43.7% in the first quarter of 2006, from 41.6 in the first quarter of 2005 and 41.4% in the fourth quarter of 2005. We are pleased with the progress we have been making with our gross profit margins over the last several quarters and expect this trend to continue going forward. Sales and marketing expenses as a percentage of revenue increased to 18.8% from 16.2% in the first quarter of 2005. Reflecting incremental investments in sales and marketing initiatives related to both our recent acquisitions and also our core operations.

Research and development expenses, as a percentage of revenue, decreased to 13.9% of revenue in the first quarter of 2006, from 14.7% in the first quarter of 2005. This decrease is a result of the cost savings initiatives announced at the end of 2004, partially offset by investment to new product developments, such as the products Frank talked about earlier. General and administrative expenses remained flat at 7.5% as a percent of revenue. During the remainder of 2006, we expect G&A to continue to decline modestly, both in dollars and as a percentage of revenue.

During the first quarter of 2006, we incurred approximately 1 million in acquisition-related charges, net of tax, related primarily to our expected acquisition of Bruker Optics. As I stated earlier, since this acquisition will represent a business combination of companies under common control due to a majority ownership by certain individuals in both Bruker BioSciences and Bruker Optics; this acquisition will be accounted for as a pooling of interests. As a result, transaction costs are expensed as incurred rather than being included in goodwill through purchase accounting once the acquisition is consummated.

In a typical unrelated party acquisition, these expenses would not hit the income statement but would instead be added to goodwill. For the first quarter 2006, we incurred 1.7 million of income tax expense on a pre-tax income of 2.5 million, resulting in an effective tax rate of 66.6%, compared to a tax rate of 79.9% in the first quarter of 2005. The high effective tax rate is primarily driven by net operating losses in the United States, including charges related to our expected acquisition of Bruker Optics incurred in the United States, which currently cannot be tax benefited.

Excluding the acquisition related charges, our effective tax rate for the first quarter of 2006 was 48.1%, which represents a considerable improvement both year-over-year and sequentially. I am pleased with the progress we have made over the last several quarters. And remain confident that we will be successful in 2006 at reducing our effective tax rate to be more in line with statutory levels.

Moving on to the bottom line. GAAP net income for the first quarter of 2006 was 0.8 million or $0.01 per diluted share and included 0.3 million of stock based compensation charges, compared to net income of 0.4 million or $0.00 per share in the first quarter of 2005. Excluding the acquisition related charges described by Frank earlier, the non-GAAP EPS for first quarter 2006 was 1.8 million or $0.02 per diluted share.

Lastly, we ended the first quarter of 2006 with 96 million in cash, which is down slightly from 99.6 million at the end of 2005. During the first quarter 2006, we completed our acquisition of SOCABIM, which resulted in net cash out flows of approximately 3 million. And we also used cash and operations of 1.8 million. Our adjusted EBITDA for the first quarter of 2006 was 6.6 million, compared to 6.5 million in the first quarter of 2005. With that, we would like to open it up for questions.

[OPERATOR INSTRUCTIONS] Our first question comes from the line of Derik De Bruin of UBS. Please proceed.

Hi, good morning. So, could you just provide a little bit more color on the delays your customers that are seeing? I assume they're trying to build out labs and they aren't able to take delivery on some of your complex systems because they have to add space or reinforce space?

Yes, Derik, hi this is Frank. That's correct. We actually had those in both operating businesses. And for instance, for some of the big FTMS systems you really need to prepare a lab and we've had some delays on that. We also for some of the large semiconductor solutions that we deliver or sell from Bruker AXS, that usually also requires considerable preparation on the customer's side and sometimes those are delayed. We've seen that before and we had a few of those in Q1. Also some -- one sizeable letter of credit. In some parts of the world, we do letter of credit business and we have the order, we have the systems ready but sometimes the letter of credit takes longer. And we have that case also for a sizeable NBC order at Bruker Daltonics.

Okay.

But I think that this is stuff that we will catch up on. So that's why our overall growth forecast for the year or goals for the year have not really changed.

Okay. Could you just provide a little bit of color on the general trend -- without giving specific information in the different segments just talk about, the trends in the mass spec business and the trends in the x-ray business and just what your customers are seeing, were these businesses up year-over-year?

Without trying to read too much into it because usually based on one quarter the fluctuations may mask the trends. But we've done particularly well with our electrospray ToF and electrospray QToF, relatively new product where we're growing rapidly. Of course we're growing from a smaller basis. So that's been a highlight, certainly, on the Daltonics business, as well as of course the very large NBC order that we had reported previously. Although if you recall, most of that will be '07 and 08 revenue. On the AXS side, it's the microanalysis business that we acquired is definitely doing very well and it's exceeding expectations. So, we're pleased with that. Everything else seems to be solid. It seems that actually the crystallography business has been quite healthy in the order bookings in the first quarter, both including the small molecule chemical crystallography business. But I hesitate to call that a trend because sometimes it fluctuates from quarter to quarter. Overall, one general trend that we see is that pharma and biotech business, which had been rather subdued last year, it's far from booming but I think it seems to have picked up a little bit in the last couple of quarters perhaps . And one other highlight perhaps or one other bit of color is that Japan was rather weak for us last year. And Japan has picked up nicely both on the x-ray and on the Daltonics side more recently. So, that seems to be recovering nicely.

That's particularly helpful. Do you still expect to maintain improvements in gross margins going through the rest of the year?

That is correct. They do fluctuate from quarter to quarter also depending on product mix but overall we expect an improvement.

Right.

We continue -- again, management continues to have incentivized for margins, along with revenue growth. But we also continue to have several margin improvement projects ongoing both in our plants and the R&D groups, so that remains a high priority.

And you do see the tax rate continuing to come down for the rest of the year?

Yes. As we gain profitability in the U.S, We did make -- while we weren't quarterly profitable, we did make significant improvements this quarter. And so our expectations is that that rate over the next two or three quarters will be approaching the statutory levels.

Okay.

I think maybe I'd add a little bit of color here. Obviously the acquisition related expenses in GAAP, they will be primarily incurred in the first quarter. I think they were exclusively occurred but they will even be going forward, primarily incurred in the U.S. So, we will be looking at our normalized operating tax rate, which is coming down quite nicely. But it will be a little bit distorted this year because of the acquisition related expenses. In this pooling of interests, being expensed rather than going to goodwill and so our GAAP effective tax rate, including the acquisition related expenses will still be -- will be higher than our operating effective tax rate. And we'll be reporting both at least in our earnings script.

Great. That's very helpful. And could you just remind us what you're expecting in terms of the Bruker Optics related acquisitions in the second and third quarters?

We don't have an expectation yet of what the exact acquisition related expenses will be. But we expect them to incur the bulk of that in -- well in Q2 and Q3 obviously.

Okay.

Including certain fees such as investment banking fees and so on, but we haven't given a forecast yet on what those will be.

And you're still looking for a close sometime in the third quarter?

We're looking to close this summer.

Okay. So Q2 or Q3 somewhere in that range?

In that range, yes.

Okay. And I --?

By the way related to that as soon as we have our 10-Q filed, we will also then shortly thereafter expect to file our proxy within the next couple of weeks.

Great.

That will have a lot of new information for everyone who follows us, as it will obviously -- I should let my financial team explain that, have the -- Why don't you explain how the financials will like in the proxy.

Yes. Derik in the proxy, which as Frank said, we'll be signing the next two weeks or so, we will actually include standalone Bruker Optics' financials for the years 2003, 2004, and 2005. And then also, we'll present the Bruker Optics' financials for the first quarter of '05 and the first quarter of 2006. In addition to that information, we'll present financials for those same periods had Bruker BioSciences and Bruker Optics been one Company all along. So, quite a bit of financial information will be available in the proxy.

Great. No, that's going to be very helpful. Could you just talk about anything in terms of competition within the mass spectrometry market? With Agilent making noise about introducing new products, have you seen any hesitation in overall sales to customers as they await new products? Also Watters is talking about introducing new products at ASMS this year.

Well, obviously, Agilent getting into the triple quad market, as you know we don't participate in that. And so we don't really have any comment or insight, quite honestly, into that. But I believe that the electrospray ToF and the Electrospray QToF market, there have been further announcements from us and from others. But we think that's a healthy market, so we hadn't really seen any effects in terms of delays or anything like that.

Great. Thanks a lot.

Our next question comes from the line of Steve Unger with Bear Stearns. Please proceed.

Hi, good morning. First question, I guess I missed this. What was the impact of the acquisitions on revenue and what were the additional costs to the business from the acquisitions?

This quarter it was about 3% impact on the top line. And then your question on cost?

Exactly. The acquisitions added cost to the business and the quarter.

We haven't broken that out before.

I realize that. That's why I'm asking the question.

I think that you've seen the improvements on the bottom line, so they clearly have added earnings and value.

I think maybe generally just to give you some color, the acquisition, the gross margin of the microanalysis business tends to be in the high 40%, close to 50%. And we're investing quite a bit there in additional marketing and selling infrastructure. So, the gross margins are healthy and the marketing and selling expenses for the newly acquired business are somewhat higher than our average.

Okay. That's helpful. And then in terms of the acquisition related expenses in the quarter, could you give us some sense as to what those are?

Yes, Steve, this is Brian. During the quarter we had about 1 million in acquisition related expenses and they vary. We will incur similar expenses in Q2 and Q3. The charges in the first quarter were really related to legal fees associated with structuring the transaction. Some other Hart-Scott-Rodino filing fees for anti-trust regulation. And then also some fees paid to our special committee of the Board of Directors. Were those were the major components in the charges this quarter. We'll incur similar and additional fees in future quarters, as Frank mentioned, the investment banking fees as well.

So, those are outside fees and not internal allocations?

That's correct. All external.

Okay, great. And then in terms of your guidance for the year of 10% revenue growth, is that constant dollar revenue growth or is that overall revenue growth?

As you know, we don't give guidance but our goal of 10% revenue growth is as reported.

As reported. Okay, great. And then moving --?

That of course is we will keep an eye on currencies. But I'm hedging a little bit on that answer depending on what currencies do. And we're obviously very much dependent on how the yen and the euro behave in every given quarter, as you've seen from the particularly strong currency headwinds that we actually had in Q1.

Okay. And then I realize that you guys are removing the segment reporting from the press releases. Is that something that you'll remove also from the 10-Q and the proxy?

I think you'll see that over time go away. This quarter it will remain in there. But it is really a function of as we bring in the Optics group and with the other acquisitions we've made, we really do manage and look at the business differently than we had historically.

Okay. So we will be seeing segment reporting in the 10-Q when it's filed?

This particular one, yes.

Okay, great. And then will the Company be rebranding Bruker AXS and Bruker Optics and Bruker Daltonics to just Bruker BioSciences? Is that what I should infer from that?

No. We do not plan on rebranding, these names, no.

So, you'll still be going to market with those brands?

Yes, and many of course -- many customers simply think of our brand as Bruker. But they are also used to these sub-brand, that kind of clarifies what type of instrumentation people may be getting. But many pharmaceutical or other customers tend to think of us, if we did a quick survey, what instrument do you own? Very often they say I own a Bruker rather than a Bruker Daltonics mass spec or so.

And then last question, just in terms of your sales in the quarter meaning orders, how did you guys do relative to plan for both Bruker AXS and Bruker Daltonics? Do you have a book-to-bill ratio or any other color would be helpful?

Well, the Bruker Daltonics life science and Bruker AXS of new order bookings were on plan. We had very high NBC bookings of the Bruker Daltonics business due to that one very large order. But -- it's a wonderful order but of course it will be -- the revenue of that will be spread out over probably eight to ten quarters in '07 and '08 primarily. So we had one area, the Bruker dal Daltonics NBC that had very high order bookings. Obviously unusual, and a delight. And Daltonics life science and Bruker AXS overall where according to our plans.

So bookings were on plan in the quarter. And then you characterized the backlog as healthy. Could you give us some sense as to what that means, healthy? Is that healthy relative to your forward forecast or healthy in terms of year-over-year growth? I just don't know what healthy means.

Yes. I would say healthy relative to our forecast.

Okay. So it supports your goal, at least as it stands right now, of delivering 10% revenue growth?

That is correct.

Great. Thank you very much.

[OPERATOR INSTRUCTIONS] There are no further questions at this time. I'll turn it back to management for any closing remarks.

Okay, well we appreciate you all joining our call today and we look forward for your continued interest in the Company, as we look forward to future operations. Have a good day!

Thank you for your participation in today's conference. This does conclude today's presentation. You may now disconnect. Have a great day!