Bruker Corp (BRKR) 2006 Q3 法說會逐字稿

(technical difficulty) At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session toward the end of today's conference. (OPERATOR INSTRUCTIONS).

At this time, I would like to turn the call over to your host for today, Mr. Bill Knight, Chief Financial Officer. Please proceed, sir.

Thank you. Good morning and welcome to the Bruker BioSciences third-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 our third quarter and then I will discuss the financial results in more detail. After that, we will open it up for questions.

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 cost actual results to differ materially from those projected, including but not limited to risks and uncertainties relating to technological approaches; product development; acquisition; integration; 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 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 US 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 I to briefly describe how we accounted for our recent acquisition of Bruker Optics. Due to the Laukien family majority ownership of both companies, this acquisition was required to be accounted for as a pooling of interests. Since the acquisition was completed in the third quarter, all historical financial statements, including those in our earnings press release issued earlier today, include the results of Optics for all periods presented.

Future filings with the Securities and Exchange Commission will also include the results of Bruker Optics for all periods presented. The pooling treatment also required us to expense all acquisition-related charges such as legal, investment banking and accounting fees, instead of recording them as goodwill on the balance sheet, which is the more typical way to handle acquisition-related expenses.

With that, I will turn the call over to Frank.

Thank you, Bill, and good morning, everyone. We appreciate you joining us today. The third quarter was a very exciting quarter for us, with the large acquisition of Bruker Optics, as well as with two targeted smaller acquisitions of handheld XRF and spark-OES product lines to strengthen our industrial analysis business. We also experienced good progress in many of our core product lines, which now include Bruker Optics.

The continued performance improvements from our pooled core business, complemented by our recent smaller acquisitions, have resulted in strong double-digit growth of our revenue, and more importantly, in significantly improved profitability.

For the third quarter of 2006, our revenue increased by 22.1% to $104.9 million, compared to pooled revenue of $85.9 million in the third quarter of 2005. Revenue in the third quarter of 2006 increased by 48.2%, compared to the pre-pooling BRKR revenue of $70.7 million for the third quarter of 2005, as reported to the SEC prior to the acquisition of Bruker Optics.

GAAP net income in the third quarter of 2006 was $3.0 million, or $0.03 per diluted share, compared to pooled net income of $2.1 million or $0.02 per diluted share in the third quarter of 2005. Included in our third-quarter 2006 GAAP net income were $0.4 million of stock-based compensation expense and $1.0 million of Bruker Optics acquisition-related charges net of tax.

Excluding the Bruker Optics acquisition-related charges associated with the acquisition of Bruker Optics, third-quarter 2006 non-GAAP net income was $3.9 million or $0.04 per diluted share. Pre-pooling BRKR net income in the third cord of 2005, as we actually reported it to the SEC prior to the acquisition of Bruker Optics, was $1.1 million or $0.01 per diluted share.

Looking at the nine months year-to-date period for the first nine months ended September 30, 2006, our revenue increased 12.9% to $300.2 million, compared to pooled revenue of $265.5 million for the same nine-month period last year. Excluding the effects of foreign currency translation, revenue for the nine months ended September 30, 2006 increased by 15.0% year over year. Revenue for the nine months ended September 30, 2006 increased by 38.3%, compared to the pre-pooling BRKR revenue of $217.0 million for the nine months ended September 30, 2005, as was actually reported to the SEC prior to the acquisition of Bruker Optics.

Finally, GAAP net income for the nine months ended September 30, 2006 was $8.8 million or $0.09 per diluted share, compared to pooled net income of $4.8 million or $0.05 per diluted share during the nine months ended September 30, 2005. Included in our GAAP net income for the nine months ended September 30, 2006 were $0.7 million of stock-based compensation expense and $5.0 million of acquisition-related charges net of tax.

Now, excluding the Bruker Optics acquisition-related charges, our non-GAAP net income for the nine months ended September 30, 2006 was $13.6 million or $0.13 per diluted share. We compare this to pre-pooling BRKR net income for the nine months ended September 30, 2005, as reported to the SEC prior to the acquisition of Bruker Optics, of $1.8 million or $0.02 per diluted share.

As you have seen from our press release tables, our pooled adjusted EBITDA for the first nine months of this year was at $34 million, which is up 25% or up $6.9 million, compared to the pooled adjusted EBITDA for the same period in the prior year. For the last 12 months, our pooled adjusted EBITDA was $48.5 million.

Overall, our core product groups are performing very well, and the integration of our recent acquisitions is progressing even faster than we had anticipated. Our innovative products and solutions for life science and clinical research, as well as for advanced materials and industrial analysis, have been strengthened further by various internal business initiatives, new collaborations as well as the mentioned acquisitions. We expect to leverage this broader technology base and our increased market access for further steady progress in our financial performance.

So in summary, we believe the drivers are in place and opportunities exist to continue the positive momentum generated over the last two years into the fourth quarter of 2006 and into 2007 and beyond.

Now with that, here is our CFO, Bill Knight again, with a more detailed overview of our financial results.

Thank you, Frank. I would like to take the next few minutes to provide a little more information on our pooled financial results for the third quarter and first nine months of 2006. Our third quarter 2006 revenues grew by 22% to $104.9 million from $85.9 million in the third quarter of 2005. For the nine months ended September 30, 2006, our revenues grew by 12.9% to $300.2 million from $265.5 million in the comparable period of 2005.

Gross profit margins in the third quarter of 2006 were 44%, compared to 45.1% in the third quarter of 2005. For the nine months ended September 30, 2006, our gross profit margins improved to 45.4% from 44.7% in the comparable period of 2005. Sales and marketing expenses as a percentage of revenue decreased to 18.2% in the third quarter of 2006 from 18.7% in the third quarter of 2005.

For the nine months ended September 30, 2006, sales and marketing expenses as a percentage of revenue increased to 19.7% from 19.1% in the comparable period of 2005.

Research and development expenses as a percentage of revenue decreased to 11.4% in the third quarter of 2006 from 13.6% in the third quarter of 2005. For the nine months ended September 30, 2006, research and development expenses as a percentage of revenue decreased to 12.2% from 13.9% in the comparable period of 2005.

General and administrative expenses as a percentage of revenue decreased to 6.9% in the third quarter of 2006 from 7.5% in the third quarter of 2005. For the nine months ended September 30, 2006, general and administrative expenses as a percentage of revenue decreased to 6.8% from 7.2% in the comparable period of 2005.

During the third quarter of 2006, we incurred approximately $1 million of acquisition-related charges, net of tax, associated with our acquisition of Bruker Optics. For the nine months ended September 30, 2006, we incurred approximately $5 million in Bruker Optics acquisition-related charges net of tax. The third-quarter results included the final Optics acquisition-related charges we will incur, so there will be no further charges in the fourth quarter of 2006.

Our GAAP operating income for the third quarter of 2006 improved to $7 million or 6.7% of revenue from $4.9 million or 5.8% of revenue in the third quarter of 2005. Excluding the Bruker Optics acquisition-related charges, our third-quarter operating income was $7.9 million or 7.6% of revenue.

For the nine months ended September 30, 2006, our GAAP operating income improved to $14.7 million or 4.9% of revenue from $12.7 million or 4.8% of revenue in the comparable period of 2005. Excluding the Bruker Optics acquisition-related charges, operating income for the nine months ended September 30, 2006 was $20.6 million or 6.8% of revenue.

For the third quarter of 2006, we incurred $3.5 million of income tax expense on a pretax income of $6.5 million, resulting in a GAAP effective tax rate of 54.4%, compared to a GAAP effective tax rate of 59% in the third quarter of 2005. Excluding the Optics acquisition-related charges, which were not tax-deductible, our effective tax rate in the third quarter of 2006 was 47.4%.

During the nine months ended September 30, 2006, we incurred $9.4 million of income tax expense on a pretax income of $18.2 million, resulting in a GAAP effective tax rate of 51.5%, compared to a 60% rate in the comparable period of 2005. Excluding the Bruker Optics acquisition-related charges, our effective tax rate for the nine months ended September 30, 2006 was 42.5%. While our effective tax rate excluding the Bruker Optics acquisition-related charges represents a substantial improvement over the same period in 2005, we still have significant opportunities to reduce our rate to an even lower level.

To conclude, so far in 2006, we have generated solid revenue growth, improved gross profit margins, we have leveraged our operating expenses and reduced our effective tax rate. All of these combined have resulted in significantly improved earnings, and we believe the drivers are in place for these trends to continue.

With that, we would like to open it up for questions.

(OPERATOR INSTRUCTIONS). Derik De Bruin, UBS.

What was the organic revenue growth in terms of ex-Optics, [ex-FX], ex- all the other smaller acquisitions?

That was about 17%.

Excluding Optics? I think with Optics --

That was with Optics.

With Optics, yes. Because we have to pool it in under this accounting. So the core businesses that now include Bruker Optics had 17.1% organic growth in the third quarter.

Certainly, third quarter last year, the core Bruker BioSciences businesses, the Daltonics and the AXS businesses, you had a relatively light third quarter last year. Could you just talk about what was the biggest growth driver this year? Have you seen a pick up in the end markets and such?

The fastest growth right now is at Bruker Optics. Bruker AXS is growing very rapidly as well, and Bruker Daltonics is going as well, but more in the -- year to date has been growing in the high single digits, although orders are up in the double digits. So Bruker Optics is the fastest-growing company right now, followed by Bruker AXS.

You don't want to give any granularity on that number?

No, we don't break that out.

Some of your competitors are talking about a pickup in European sales and a pickup in big pharma. Did you see similar things in the quarter?

Europe certainly was strong. We had healthy pharma and biotech spending. I don't know that it was a big pickup. We just had generally healthy demand in life sciences, but also particularly in our industrial analysis business.

So what was impacting the gross margin this quarter, that it was down from the 46% level the prior quarter?

It was a bit of product mix at this point, and products that we continued to have margin improvement programs that we expect to see improved results in the coming quarters.

You expect a pickup in -- I just was looking at -- based on the combined model, I would say that it probably had a similar trend last year. You expect a pickup in the fourth quarter, though?

Yes, and we expect improving trends over the next several quarters.

I guess the last question is also SG&A -- is 25.1% a reasonable -- 25 percentage or so SG&A levels -- is that a reasonable number projection, or do expect it to trend back -- was there anything unusual this quarter?

I would expect as we grow this business, we hope to leverage all operating expenses. You may see some modest uptick in the sales marketing area. We certainly believe on the G&A level, we can leverage our existing base and also leveraged our R&D side.

Finally, the combined tax rate -- the effective tax rate for the Company was in the 47.4%, I believe you said?

Yes.

Do you think you can get that down to the nominal tax rate -- the high 30's eventually?

Yes, as we continue to improve the profitability of these US operations, that tax rate should get down to the statutory level are better.

And as you have seen, excluding the Optics acquisition for the first nine months, the effective tax rate is already at 42.5%, not where we want to end up. We think we can drive this down quite a bit further, but obviously significant progress compared to where we have come from.

Steve Unger, Bear Stearns.

First off, just to follow up on Derik's last question, is the US operations now profitable? If not, how far away are we?

We are modestly profitable, and that is a trend that we hope to continue to improve upon.

Then what is the year-to-date operating cash flow for the combined pooled company?

The year-to-date operating cash flows were $18 million.

Then year-to-date capital expenditures?

A little over $5 million.

Then is there a way -- I know I can probably back into this from the prospectus from before, but could you tell us what the fourth quarter of 2005 pooled revenue is and the GAAP EPS?

Let us look for that for a minute.

Then I'll move on to -- Frank, in the mass spectrometry business for you, what do you think is holding back growth this year? Some of the other companies in the space are doing a little bit higher in terms of growth. What is holding back your revenue growth in the mass spectrometry area?

I think we have seen in our life science mass spectrometry area, we have seen bookings increase with double digits year to date. That has been getting progressively stronger. It was weaker in Q1, double digit in Q2, even higher and double digit in Q3, and it is double digit year to date in our new order bookings.

Our revenue is lagging behind a little bit in life sciences. Our mass spec revenue growth was in the high single. Our life science mass spec revenue growth was in the high single digits year to date. But our new order bookings are growing at double digits -- actually pretty healthy double digits.

Then in terms of the market, is the academic spending environment -- I know that has historically been a strong driver of your business. Is that where you want it to be right now?

I would say it that it is constrained and growing flat to growing modestly, so that's not a strong part of the funding right now. But there's other sources of funding and I think competitively, our instruments are doing really quite well.

Then I thought I would ask one more accounting question, just given the changes to the model. The second quarter of last quarter -- I didn't get a pooled cash balance. Can I have that?

You had asked for the Q4 revenues and earnings -- Q4 2005 pooled. The revenues were $106.8 million and the earnings were $0.05.

That was a very strong Q4 last year, in the pooled sense, as well.

Then my last question -- the two acquisitions in the quarter -- could you go into a little bit more detail as to strategically how those fit into the AXS business? Then what was the impact on revenues from those two acquisitions in this third quarter here?

I will start with the strategic rationale. We have been looking to get into handheld XRF for quite some time. We saw a very good opportunity, a company with excellent technology. That really broadened our product line. It gets us into a fast-growing area.

I think that is widely known, that handheld XRF has been doing very well in metals analysis, environmental and analysis, RoHS analysis and so on. It is clearly an area and a part of the market that we were not in and wanted to participate in, directly and with partners. We have accomplished that. We think we have some excellent technology and a good team there.

That acquisition closed early in the quarter. My colleagues will give you an approximate revenue contribution in a moment.

The second acquisition, of the spark-OES company, Quantron in Germany, further strengthens our industrial analysis business and particularly our metals market expertise, market access, and obviously gives us a very important complementary technology. Spark-OES, or arc/spark-OES as it is sometimes called, and x-ray fluorescence are the two key complementary analysis technologies in the metals market.

As we more and more look at not only -- we look at our markets and applications much more then necessarily what particular technology we are using. So this was a perfect strategic marketing fit for our industrial analysis business and metals analysis, in particular.

(Multiple speakers). It was acquired very late in the quarter. So there, the revenue contribution was immaterial for the third quarter.

Were you addressing the metals market significantly before with x-ray fluorescence?

We were addressing the metals market with x-ray fluorescence. We have a growing business there. But I don't think that we were particularly strong in metals analysis. I think both of these strategic acquisitions make us much, much stronger with our core technologies and product lines, and also marketing expertise of the individuals that have joined us from those companies with a lot of metals market experience.

Then the contribution from them in the quarter?

The revenue was about $1.9 million.

Steve, you had a question, I believe, on cash? At the end of the second quarter, on a pooled basis, all three companies, we had approximately $109.4 million. Then early in July, we invested $74 million on our Bruker Optics acquisition.

Our net debt position at the end of the third quarter was $12 million of net debt at the end of Q3 2006.

There are no more questions at this time.

Then we would like to thank you for participating in this earnings call this morning and wish everybody a good day. Thank you very much.

This concludes today's presentation. You may now disconnect.