Bruker Corp (BRKR) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Bruker BioSciences first quarter 2007 earnings conference call. My name is Latisha and I will be your coordinator for today. At this time, all participants are in a listen-only mode. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

At this time, I will turn the presentation over to Mr. Bill Knight, Chief Financial Officer. Please proceed, sir.

Thank you, Latisha. Good morning and welcome to our Bruker BioSciences first quarter 2007 financial results conference call. With me on today's call are Frank Laukien, the 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 and I will follow up with more detailed discussions of our financial results and then we will open it up for questions. Before getting started, I would like to read our 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, acquisition integration, manufacturing, market acceptance, cost and pricing of our products, exposure to currency fluctuations, dependence on collaborative partners, suppliers, competition, intellectual property, litigation, changes in governmental regulations, capital spending and government funding policies 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 re-broadcast, 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 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. Before turning the call over to Frank, I would like to give a brief reminder as to how we accounted for our acquisition of Bruker Optics, which was completed in the third quarter of 2006. Because of the common ownership between the companies, the acquisition was required to be accounted for in a manner similar to a pooling of interest. As a result, the financial statements for the first quarter of 2006 in our earnings press release include the results of Bruker Optics. This unique pooling treatment for an acquisition 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.

During the call today, we will refer to these charges in Q1 of 2006 because we believe calling out these charges and the effect they had on our GAAP earnings helps investors to gain a better understanding of our core operating results, consistent with how management measures the Company's performance. With that, I will turn the call over to our President and CEO, Frank Laukien.

Thank you, Bill, and good morning, everybody. We appreciate you joining us this morning. Let me start off by saying that we're pleased that the positive momentum generated throughout 2006 continued in the first quarter of 2007, with strong year-over-year revenue growth and solid improvements in our gross margins and operating income. So let me cover the highlights of this quarter starting with the financial results. On a pooled basis for both periods, our revenue in the first quarter of 2007 increased by 16.5% compared to the first quarter of 2006. GAAP first quarter 2007 operating income grew by 59.5% year-over-year and, excluding acquisition-related charges of $1.2 million in the first quarter of 2006, our operating income grew 28.4% year-over-year. Our net income in the first quarter of 2007 was $3.9 million or $0.04 per diluted share, compared to pooled net income of $3.3 million or $0.03 per diluted share in the first quarter of 2006. As for the markets, we continue to see healthy demands and new order bookings across the various markets we serve, with particularly strong growth in materials research, as well as in our expanding industrial and applied analysis markets.

Recently at Pittcon 2007 in Chicago, our three operating companies introduced numerous innovative systems and products for these market segments for life science and clinical research, as well as for Homeland Security. And I'll mention just a few examples of our recent product introductions here. Our Bruker AXS business, which had the highest growth in the first quarter, introduced its next generation MICROSTAR ULTRA highest brilliance laboratory X-ray source for protein crystallography. Bruker AXS also introduced several products and solutions originating from our recent acquisitions, including high performance spark optical emissions spectroscopy instruments for metals analysis and a handheld XRF spectrometer with light element capabilities for art and conservation analysis. Our Bruker Optics business expanded its product line in Fourier transform infrared spectro -- (Inaudible) and launched several innovative spectrometers, most notably the new Alpha, the world's smallest entry level FT-IR spectrometer.

Bruker Optics also displayed its pharma process analytical technology, or PAT, product line, along with dedicated analyzers for the fast-growing biofueled food and feed analysis market. Finally, our Bruker Daltonics business also introduced several new life science products, including the APEX Ultra as the new performance leader in Fourier transform mass spectrometry, or FTMS, for Top-Down Proteomics applications and complex mixture analysis. Bruker Daltonics also introduced exciting new products for pathology research and drug development using MALDI molecular imaging and for autonomous chemical threat detection in facilities and large buildings for Homeland Security. We have been successful over the years by keeping focused on our overall strategy, which is to be a well-recognized differentiated provider of innovative, high-performance products and information rich solutions for selected applications. Our recent product introductions are in-line with this strategy and should only further strengthen our positions in the market segments we serve. Now, here's our CFO, Bill Knight, again, with a closer look at our financial results.

Thanks, Frank. As Frank mentioned earlier, on a pooled basis for both periods, our revenues in the first quarter of 2007 increased by 16.5%, or by 10.6% excluding the effects of foreign currency translation. Our gross profit margin improved by 150 basis points, from 46.1% a year-ago to 47.6% in the first quarter of 2007, primarily as a result of volume leverage, by higher margin businesses acquired in the second half of 2006, and our on-going productivity programs, which include redesigned of cost activities, component sourcing and improving manufacturing efficiencies. These productivity initiatives will be ongoing as we work towards our goal of greater than 50% gross profit margins. Our overall operating expenses for the first quarter of 2007 were 40.6% of revenue, down 40 basis points from 41% in the first quarter of 2006. Excluding Bruker Optics' acquisition-related charges of $1.2 million in the first quarter of 2006, our overall operating expenses, as a percentage of revenue in the first quarter of 2007, increased by 80 basis points.

We continue to get volume leverage in our G&A and R&D expenses, while we have made additional investments in sales and marketing worldwide, which we expect to contribute to our top-line growth going forward. The combination of our higher gross profit margins and lower operating expenses as a percentage of revenue resulted in improved operating margins of 7% in the first quarter of 2007, compared to 5.1% in the first quarter of 2006, with an absolute increase in operating income of 59.5% year-over-year. Excluding the Bruker Optics acquisition-related charges in Q1 of 2006, operating margins in the first quarter of 2006 would have been 6.3% and our operating income, excluding acquisition charges, increased 28.4% year-over-year. A few noteworthy items to illustrate our improved operating margins and our reduced dependency on interest income, or FX gains, in the first quarter of 2007, when compared to the first quarter of 2006.

For comparison, included in our first quarter 2006 results were interest and other income of approximately $1.9 million, consisting of $1.1 million of gains on derivative financial instruments and $0.8 million of interest income. In the first quarter of 2007, we only recorded $0.1 million of gains on derivative financial instruments and overall had $643,000 of interest and other expenses after we used most of our cash for the acquisition of Bruker Optics, as well as several smaller acquisitions in the middle of 2006. In the first quarter of 2007, we incurred $3.2 million of income tax expense on pretax income of $7.1 million, resulting in an effective tax rate of 44.3%, compared to an effective tax rate of 49.5% in the first quarter of 2006. We expect our effective tax rates to continue to come down during 2007. Overall, we're very pleased with our first quarter 2007 growth and our improving gross and operating margins. We expect to continue these trends during the second quarter of 2007. With that, we would like to open it up for questions and answers.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Derik De Bruin with UBS. Please proceed.

Hi, good morning.

Good morning.

So could you give us just some idea of how the different segments grew just generally, how Mass spec, X ray and optics grew?

Yes, Derik, this is Frank. The fastest growth in the first quarter was clearly our Bruker AXS business. They had -- they grew, actually north of 20% and even organic growth was still in the very high teens. And we had typically single-digit growth at -- for Bruker Daltonics and Bruker Optics. However, both also with double-digit new order bookings growth, certainly for Bruker Optics and for Bruker Daltonics with even high-teens bookings growth for all instruments that we distribute directly. That was somewhat offset by reduced OEM sales from Bruker Daltonics via one of our strategic OEM partners. So that gives you a qualitative feeling of how -- where the fastest -- where the growth was in the first quarter in revenue as well as in bookings.

Great, that is helpful. I guess -- certainly you're spending a little bit more on SG&A, but I also, based upon my estimates, R&D is going to be up sequentially. Is $13 million to $14 million a quarter a good run rate for R&D?

Yes, we're very comfortable with that. There is some basically more or less inflationary adjustments, but we're not investing in additional R&D, so that is a very good run rate of where we are right now and so we think that will leverage off compared to growing revenue, obviously, as we go forward. And it already has leveraged off. I think, a year ago R&D expense was 12.7% and this first quarter '07, it was 12.3%. So that has leveraged off as has G&A. We also expect sales and marketing to begin to leverage off again. But as we had announced recently, we have invested somewhat more in sales and marketing because we were probably a little bit under invested in some of those areas.

Okay. And what was the contribution from acquisitions during the quarter?

I think the acquisition contribution was around 4% to the growth of the -- to the overall growth.

Great. And finally, what was the share count at the end of the quarter?

Brian, can you take this one?

Yes, sure. Derek, the share count at the end of the quarter was 105.4 million outstanding, but the actual share count is about 104 million. That 105 includes dilution from the outstanding options. So 104 million is a good share count.

Great. Thank you.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of John Sullivan with Leerink Swann. Please proceed.

Hi, guys, good morning.

Morning, John.

A couple of quick questions. You just mentioned some incremental sales and marketing investment. And I am just wondering, is that now all in place or is there more incremental sales and marketing investment that has to occur over the next couple of quarters?

In absolute dollars, there is still some incremental sales and marketing investment that will trickle in throughout the year, as the sales and marketing for some of the newer acquisitions increases and also some of the sales and marketing on the Bruker Daltonics side continues to increase slightly. So there will be some absolute. The present run rate will go up probably a little bit. As a percentage of revenue, we expect it to come down.

Okay. And then secondly, can you just talk for a second about integration of the 2006 acquisitions. Are there any additional cost-cutting benefits that might be seen from integrating last year's acquisitions?

These -- John, it's Bill Knight. The -- what any cost-cutting synergies that we had expected, I think, are reflected and it's -- these were really much more growth strategies and more of a top-line focus, new markets, new products.

Okay, great. And then last of all, can you have your orientation toward cost-cutting for 2007. Is it a primary initiative of the Company to become more efficient and if so, are there areas within the Company's expense base that look like they could be sources of some benefits in that area?

Well, clearly compared to last year, we don't have -- expect the acquisition-related charges. They were obviously a significant expense throughout the first three quarters of last year in our GAAP statements. That is perhaps obvious. Beyond that, the driver of our operating income increases that we're looking for are clearly about improving gross margins and we have had a nice example of that in the first quarter. We hope to see more of that throughout the year, as well as leveraging off of our expenses with G&A and R&D, as I said earlier, remaining more or less at constant levels, perhaps a minor inflation adjustment and, therefore, leveraging off. And I think the run rate that we have for those in Q1, sure there will be some fluctuations but those are not bad numbers, probably going forward.

Sales and marketing, we still expect that run rate to inch up a little bit but to come down as a percentage of revenue throughout the quarters of the year. So, total operating expenses we expect to, as a percentage of revenue, we obviously expect to leverage off probably more strongly even than in Q1. And I think those are the drivers. We're not looking at any significant restructuring or anything like that. I think the trends that we have in place, the fast growth, gross margin expansion and leveraging of our expenses, we believe will lead to solid operating income expansion.

We do expect to continue to be pulling costs out of our products as these margin improvement initiatives go forward. So there is -- that's where the real opportunity for us lies.

And the final point that you have heard from us and you've seen the steady trend is obviously also a steady reduction in our income tax expense as a percentage of our income before taxes and that is going down steadily, it is not yet where we want it to be, at 44.3% in Q1 '07. We weren't completely pleased with that. We think we can do better rather quickly.

Thank you very much.

Thank you, John.

There are no further questions. At this time, I will turn the call over to Mr. Knight for closing remarks.

We thank everybody for joining the call and we look forward to speaking with you again on our Q2 call later this year. Thank you.

Thank you for your participation in today's conference. Ladies and gentlemen, this concludes the presentation. You may all disconnect and have a good day.