Bruker Corp (BRKR) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Bruker Corporation's quarterly earnings call. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (OPERATOR INSTRUCTIONS).

I would now like to turn the presentation over to your host for today's call, Mr. Bill Knight, Chief Financial Officer of Bruker Corporation. Please proceed.

Thank you. Good morning, and welcome to the Bruker Corporation fourth quarter 2007 financial results conference call. With me on today's call are Frank Laukien, President and CEO, and Brian Monahan, our Corporate Controller.

During the call today, we will discuss the combined financial results of Bruker Corporation, as it has legally existed now only since February 26, 2008. These combined Bruker financials, noted with a capital C in our earnings release, which we issued earlier this morning, now include the financial results of the Bruker BioSpin Group, which we acquired on February 26, 2008. These combined financial results will be compared in some cases to the historical stand-alone financial results of Bruker BioSciences Corporation, as it legally existed on December 31, 2007. We refer to these historical financials as our stand-alone financial results denoted with a capital F in today's earnings release.

During the call today, Frank will provide an overview of our combined financial results for the fourth quarter and full year 2007, as well as our financial goals for 2008. I will follow up with a more detailed discussion of our combined and stand-alone financial results for 2007. And then we will open up the line for any questions.

Before getting started, I would like to read our Safe Harbor statement. This discussion will include forward-looking statements. These statements are based on current expectations, but 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 the integration of businesses we have acquired or may require in the future; changing technologies; product development and market acceptance of our products; the cost and pricing of our products; manufacturing; competition; dependence on collaborative partners and key suppliers; capital spending and government funding policies; changes in governmental regulations; intellectual property rights; litigation; exposure to foreign currency fluctuations; and other risk factors discussed from time to time in our filings with the Securities and Exchange Commission.

We expressly disclaim any intent or obligation to update any forward-looking statements other than as required by law. As required under U.S. Generally Accepted Accounting Principles or U.S. GAAP, the acquisition of the Bruker BioSpin group has been accounted for as an acquisition of businesses under common control. And as a result, all transaction costs have been and are being expensed in the period in which they are incurred, rather than being added to goodwill.

In addition, now that the acquisition has been completed, all historical consolidated balance sheets, statements of operations, statements of cash flows, and notes to the consolidated financial statements and future filings with the Securities and Exchange Commission are being restated by combining the historical consolidated financial statements of Bruker BioSciences Corporation with those of the Bruker BioSpin Group.

However, for our 10-K for 2007, which we will be filing with the SEC later today, we will still show the stand-alone financials of Bruker BioSciences Corporation as it legally existed on December 31, 2007, while a summary of the combined Bruker Corporation financial statements will be reported in a financial statement footnote in our fiscal year 2007 10-K filing. It should be noted that, as required, the combined balance sheet as of December 31, 2007 and today's 10-K is a pro forma balance sheet and includes the $351 million of debt used to finance a portion of the acquisition, even though this was not borrowed until February 26, 2008.

In addition, we use $43 million of cash on hand to finance a portion of the acquisition when it was completed at the end of February. And as a result, the pro forma combined balance sheet balance in the 10-K has also been reduced by this amount.

On the other hand, the combined balance sheet included in our press release issued earlier today does not reflect the debt borrowed or cash on hand used to finance a portion of the acquisition, but instead, is the combined balance sheet that is required under U.S. GAAP and which will appear in all future SEC filings after today's 10-K filing. We apologized if this is a bit complicated, but in each case, we are fulfilling the exact accounting and SEC requirements.

During this call, we may refer to certain financial measures that are not in accordance with U.S. GAAP, such as a one-time tax benefit associated with a recent corporate income tax law change in Germany -- the charges incurred in 2007 associated with the acquisition of the Bruker BioSpin Group and the charges incurred in 2006 associated with our acquisition of Bruker Optics.

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.

I will now turn the call over to our President and CEO, Frank Laukien.

Thank you, Bill, and good morning, everyone. We appreciate you joining our earnings call today.

The combined financial results for Bruker Corporation in the fourth quarter and full year 2007 were very solid. For the full year 2007, we achieved rapid currently adjusted combined topline growth of 15%. Our adjusted combined operating margins, which exclude acquisition charges, expanded by 50 basis points, and our adjusted combined net income -- again, excluding acquisition charges -- grew by 31% compared to our combined 2006 results.

Our combined net income in the fourth quarter of 2007 was $37 million or $0.22 per diluted share compared to net income of $35.6 million or $0.22 per diluted share in the fourth quarter of 2006. Included in combined GAAP net income for the fourth quarter of 2007 were after-tax charges of $6.9 million or $0.04 per diluted share for expenses related to the acquisition of the Bruker BioSpin Group. Therefore, we had combined adjusted EPS of $0.26 per share in the fourth quarter of 2007, excluding the Bruker BioSpin Group acquisition charges.

Combined net income for the full year 2007 was $97.2 million or $0.59 per diluted share compared to combined net income of $74.8 million or $0.47 per diluted share during 2006. Included in our combined GAAP net income for the full year 2007 were after-tax charges of $7.4 million or $0.05 per diluted share for expenses related to the acquisition of the Bruker BioSpin Group. For comparison, included in our combined GAAP net income during 2006, were after-tax charges of $5 million or $0.03 per diluted share for expenses related to the acquisition of Bruker Optics, which was completed on July 1, 2006.

As you can see from our combined 2007 financials reported this morning, the addition of the Bruker BioSpin Group to Bruker Corporation represents a significant step-up in our combined financial performance level. We are very pleased that our broad based, rapid growth in all four of our life science and analytical instruments product platforms has enabled the combined Bruker to cross the $1 billion revenue threshold already in 2007.

Moreover, we have reached new levels of profitability and cash flow with combined 2007 Bruker net income of $97 million and combined free cash flow of $102 million. Our combined 2007 GAAP earnings per share of $0.59 were nearly twice the previously reported stand-alone 2007 EPS of $0.30 of Bruker BioSciences Corporation, making the acquisition of the Bruker BioSpin Group almost 100% accretive in 2007.

Our new combined Bruker Corporation includes an impressive portfolio of products and solutions, and offers additional opportunities to further strengthen our leadership position in high performance scientific instrumentation. We believe that we are very well positioned to continue to serve our customers with innovative, high performance and high quality products and solutions.

Most recently, our product development teams received some much appreciated recognition at the PITTCON 2008 tradeshow in New Orleans, where Bruker announced 21 new products. Our breakthrough benchtop SMART X2S Crystal-to-Structure small molecule X-ray system for the first time allows chemists without crystallography training to obtain routine small molecule three-dimensional structures under full automation. This SMART X2S product won top place, earning this year's PITTCON Editor's Gold award.

This honor was followed by Bruker AXS also winning the Bronze award with our completely novel and unique benchtop S2 PICOFOX TXRF, which stands for total reflection X-ray fluorescence system, for easy-to-use and robust ultratrace elemental analysis with very straightforward and cost-effective sample preparations. This transportable S2 PICOFOX system is expected to complement or replace atomic absorption and/or inductively coupled plasma systems in many pharma, geological, mining, environmental and food testing applications.

Moreover, the PITTCON Editors also gave an honorable mention to Bruker Daltonics' new unique high performance APEX Ultra, MALDI 4A transfer mass spectrometer for drug and metabolized tissue imaging at therapeutic dosing levels. This APEX Ultra is our top-of-the-line FTMS mass spectrometer for ultrahigh resolution analysis.

As we have previously stated, we believe that a combined single public Bruker Company will be beneficial to our customers and employees and partners, and that it will also be very advantageous to all Bruker shareholders due to its significantly higher combined operating margins, net income margins, EPS, and cash flows.

We believe the drivers are in place and opportunities exist to continue the positive momentum from 2007 into 2008 and beyond. While we do not give financial guidance, under the assumption that the overall market conditions we face will not deteriorate significantly, our combined financial goals for the full year 2008 are -- our first goal is revenue growth greater than 8%; our second goal is an operating margin greater than 14%, excluding any expenses associated with the acquisition of the Bruker BioSpin Group. Concerning our operating margin, please note that we expect to increase our gross margin in 2008 and that we also expect modest leverage in our sales and marketing expenses in 2008. But including acquisition integration costs, we expect our combined G&A and R&D expenses to increase slightly in 2008 as a percentage of revenue.

Further out, in 2009 and 2010, we expect our gross margin to improve further, and we also believe that we will see leveraging in all of our operating expenses after the integration efforts required in 2008. Our medium-term goal for 2010 is to reach an operating margin of 17%.

Our third goal for 2008 is a net income margin greater than 9%, excluding expenses associated with the acquisition of the Bruker BioSpin Group. And note that in 2008, we expect significantly higher interest expenses due to the new $351 million in acquisition debt under our senior credit facility versus combined interest income in 2007. Moreover, for 2008, we expect a somewhat higher effective tax rate than our combined 2007 effective tax rate, due to significant interest expense in the United States and due to certain intracompany dividend withholding taxes that will be triggered as we move cash internally for debt repayments.

Again, further out in 2009 and 2010, we expect our debt and interest expense to come down. And we also expect gradually lower tax rates. For 2010, we have a medium-term net income margin goal of 12%. Finally, our fourth goal for 2008 is to reach improved balance sheet metrics and operating cash flows.

We want to remind everyone that the nature of our business can cause quarterly fluctuations. And with the addition of the Bruker BioSpin Group, these fluctuations may increase because Bruker BioSpin sells certain big ticket items, some with systems prices of $5 million or more.

Now, here is our CFO, Bill Knight, again with a more in-depth look at our combined financial results for 2007 and 2006.

Thank you, Frank. During the fourth quarter of 2007, combined revenues grew by 31% or by approximately 22% when we exclude foreign exchange tailwinds. For the full year 2007, our combined revenues grew by 21%, which included approximately 1% from acquisitions, 6% from foreign exchange tailwinds, and 14% organic growth. Combined fourth quarter 2007 revenue of $343.1 million was 87% higher than the stand-alone fourth quarter 2007 revenue of $183.7 million, as previously reported by Bruker BioSciences Corporation.

Our combined gross profit margins were 45.5% for the full year 2007 versus 46.8% in 2006, in part due to the weak dollar as we manufacture a majority of our products in European countries. Although our combined gross margins were lower year-over-year, our combined operating margin for the full year of 2007 was 13.1%, up 50 basis points from 12.6% in the year 2006 as a result of volume leverage across all our operating expenses.

During the year of 2007, on a combined basis we incurred $43.3 million of income tax expense on pretax income of $140.8 million, resulting in an effective tax rate of 30.8% compared to a combined effective tax rate of 33% in 2006. Our combined 2007 effective tax rate dropped, primarily due to the revaluation of certain deferred tax assets and liabilities as a result of a corporate tax law change in Germany enacted in the third quarter of 2007.

Combined net income for the full year 2007 was $97.2 million or $0.59 per diluted share compared to combined net income of $74.8 million or $0.47 per diluted share during the year 2006. Included in GAAP net income for the full year 2007 were after-tax charges of $7.4 million or $0.05 per diluted share for expenses related to the acquisition of the Bruker BioSpin Group.

For comparison, included in combined GAAP net income during 2006, were after-tax charges of $5 million or $0.03 per diluted share for expenses related to the acquisition of Bruker Optics, which was completed on July 1, 2006.

Combined 2007 net income of $97.2 million was 208% higher than the stand-alone 2007 net income of $31.5 million, as previously reported by Bruker BioSciences Corporation. Combined 2007 earnings per diluted share of $0.59 were 97% higher than the stand-alone 2007 earnings per diluted share of $0.30, as previously reported by Bruker BioSciences Corporation.

For the full year 2007, combined operating cash flow was $127.1 million compared to $82.8 million in the year 2006. Combined free cash flow, defined as operating cash flow less capital expenditures, was $101.8 million during 2007 compared to $61.7 million during 2006. As of December 31, 2007, the combined Bruker Corporation had net cash of $290.4 million.

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

(OPERATOR INSTRUCTIONS). Derik De Bruin, UBS.

So, just a couple of housekeeping questions, I guess. So, I was just a little bit curious in terms of what the gross margin impact was from the U.S. dollar in Q4 and '07 for the combined Company? How much did a strong dollar negatively hurt you?

We don't have, I guess, a number that we want to give. I want to emphasize that we do produce most of our products in Europe. And that strong dollar does impact the costs that we incur here in the U.S.. We also sell, in various parts of the world and parts of Asia with U.S. dollar-based contracts. And so there is an impact with that strong dollar. (multiple speakers)

We also have a lot of our expenses in dollars and some more of our manufacturing in dollars. So we cannot exactly quantify it, but it generally hurts our gross margins but benefits our expenses.

Well, it doesn't look like it's going to get any stronger any time soon. And take this as a question -- the top line guidance of greater than 8% total sales growth -- is that an all-in number including the FX impact?

Yes.

That is an as-reported -- that is at current exchange rates.

All right. So, the step -- what the implied step-down from the 14% organic growth in the combined Company in 2007 to the 2008 number implies what's going on with the core business? Is it more concerned with just the end markets or --?

Our goal for 2007 was revenue growth greater than 10%. We reached much higher than that. Our goal for 2008 is revenue growth greater than 8% due to general concerns about the economic situation. We are always happy to try to beat our own goals, but this is what we're setting ourselves as goals this year.

Okay. Bill, there's usually an eliminations line that goes in with the -- on the revenue. What was in 4Q in 2007 for the combined Company? And will this remain going forward?

The elimination for revenue in the fourth quarter was a little over $12 million -- $12.2 million.

Okay. And for the full year?

Full year, it was a little over $38 million -- $38.5 million.

Okay. And does that number kind of stay the same going forward?

Historically, probably a reasonable ballpark figure. But there certainly can be fluctuations, so, it's as good a number to use as anything.

And Frank, just on current market conditions, have you -- I mean, I realize we just had your conference call and saw you at PITTCON, but have you seen anything in the end market that's making you a little bit nervous in terms of any change in tone in your customers?

No, it's really the front page of the Wall Street Journal that makes us a little bit cautious. We don't really have large data and Q1 data, as I also mentioned at PITTCON. So, Q4 was very strong. For Q1, we don't really have any meaningful data yet. So far, we have not seen any significant deterioration of our markets, but clearly one has to approach this year with more caution about general economic conditions than previous years.

Right. And then obviously there will be the usual seasonal step-down from 4Q to 1Q in revenues, just because of the strong year-end finish.

That, we always expect. That is correct. Q4 is always seasonally very high.

Great. Thank you very much.

(OPERATOR INSTRUCTIONS). There are no more questions at this time.

Okay. We'd like to thank everybody again for joining us this morning. And we look forward to speaking to you after our first quarter. Thank you and have a good day. Bye bye.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.