Bruker Corp (BRKR) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Bruker Corporation Quarterly Earnings Conference Call. (Operator Instructions) I would now like to turn the conference over to your host for today, Ms Stacey Desrochers, Treasurer and Director of Investor Relations. Please proceed.

Thank you. Good morning and welcome to Bruker Corporation's Fourth Quarter and Full Year 2009 Financial Results Conference Call. I'm Stacey Desrochers, Treasurers and Director of Investor Relations.

With me on today's call are Frank Laukien, Bruker's President and Chief Executive Officer; Bill Knight, Bruker's Chief Financial Officer; Brian Monahan, Bruker's Chief Financial Officer, and Tom Rosa, the Chief Financial Officer of our Bruker Energy and Supercon Technologies, or BEST business.

Before we begin, let me briefly cover our Safe Harbor statement. Various remarks that we may make about the Company's future expectations, plans and prospects constitute forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those described in the Company's filings with the Securities and Exchange Commission. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change and therefore you should not rely upon these forward-looking statements as representing our views as of any date subsequent to today.

Today, Frank will provide an overview of the business and some financial highlights. Bill will talk about the objectives and certain initiatives in his new role as Bruker's COO. Tom will describe the progress and financial results for our BEST segment and then Brian will discuss the results of our Bruker Scientific Instruments, or BSI, segment and also discuss our financial goals for 2010.

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

Thank you Stacey and good morning everyone. We appreciate you joining us today. Before I provide a business update and discuss the financial highlights for the fourth quarter and the full year 2009, I would first like to welcome our new ACCEL side analyst, Jon Wood from Jefferies. I would also like to congratulate my colleagues Bill Knight and Brian Monahan on their February 1st promotions to Bruker Corporation's Chief Operating Officer and Chief Financial Officer, respectively.

So, as a reminder, while we ended up surpassing our revenue and earnings goals in 2009, we entered the year 2009 like many other companies, uncertain how the economic conditions would impact the markets we serve. As a result, we implemented cost reduction and control measures beginning in the second half of 2008, which continued into 2009.

The cost reduction initiatives included voluntary temporary top management salary decreases, selected staff reduction, salary freezes, short work week in Germany, and cuts in other discretionary spending. A portion of these savings were offset by incremental investments in market-specific, development and commercialization efforts intended to generate future growth. But the majority of these cost savings dropped to the bottom line in 2009 and we will continue to benefit from our lower cost structure going forward.

Starting with the financials, then. I believe most of you have read our earnings press release issued earlier this morning. In the fourth quarter of 2009, our revenue was a record high of $366.4 million, a GAAP increase of 16%, or a currency-adjusted increase 6.0% compared to the fourth quarter of 2008. Our fourth quarter 2009 revenue also was up 38% sequentially from the third quarter of 2009.

On earnings, in the fourth quarter of 2009 our GAAP EPS was $0.26 per diluted share. We've significantly exceeded both the Street expectations and prior year fourth quarter EPS of $0.16 per diluted share. Included in GAAP EPS for the fourth quarter 2009 and 2008 were non-cash stock-based compensation expenses of minus $0.01 per diluted share in the fourth quarter of each of these years.

For the full year 2009, our revenue was $1,114 million, up slightly from $1,107 million in 2008. Considering the difficult economic conditions that existed during 2009, we are pleased with our overall currency-adjusted revenue growth of 2.0%.

For the full year 2009 our GAAP EPS was $0.49 per diluted share, compared to EPS of $0.39 per diluted share in 2008. Included in GAAP EPS for the full year 2009 was non-cash stock-based compensation expense of negative $0.03 per diluted share, as compared to negative $0.02 per diluted share for the full year 2008. This information should allow you to construct our cash EPS.

So we generally like to focus on annual financial trends because we believe they are more meaningful than are any individual quarter and while we had an outstanding fourth quarter of 2009, let me provide a bit more full year 2009 analysis.

Our Bruker Scientific Instruments' segment GAAP operating margin increased by 250 basis points from 2008 to 2009, despite the recession. Our return on invested capital - defined as EBIT divided by average debt balances plus average equity balances, less average cash balances - increased from 29.7% in 2008 to 37.9% in 2009. And finally, our operating cash flow increased by 40%, while our full year free cash flow more than doubled from 2008 to 2009.

For our core Bruker Scientific Instruments, or BSI, segment in the fourth quarter of 2009 GAAP revenue increased by 13% year-over-year and for the full year 2009 GAAP revenue was down by approximately 1.0% for the BSI segment.

For BEST, GAAP revenue for our Bruker Energy & Supercon Technologies, or BEST segment, increased by 116% for the fourth quarter of 2009, year-over-year, and for the full year 2009 BEST GAAP revenue increased by 37% over 2008.

Both of our business segments worked aggressively on winning global stimulus orders and during the second half of 2009 we received over 100 system orders from various global stimulus funding budgets. All five Bruker operating divisions received stimulus orders, with most of the orders coming in for high-end instrumentation, especially for NMR, preclinical MRI, high-end mass spectrometry and x-ray systems.

The cumulative of stimulus orders received in the second half of 2009 was greater than $70 million. We also expect to receive additional orders from various global stimulus programs, including U.S. ERA funding in 2010.

I'd like to now give you a little bit of additional annual analytical information, which many of our investors have requested, something that we don't do every quarter but like to do for the full year results. So the following provides more color on the overall revenue trends for the full year 2009, which may help our investors by providing a good annual baseline model for our business.

Within the BSI segment we include four divisions - AXS, BioSpin, Daltonics and Optics - and the contribution from each of these divisions to total BSI revenue in 2009 was 44% for Bruker BioSpin, 24% for Bruker AXS, 21% for Bruker Daltonics, and 11% for Bruker Optics.

Geographically, the breakdown of revenues by location of customers for the year 2009 was approximately as follows - 48% from Europe; 24% from Asia-Pacific, including Australia and New Zealand; 23% from the Americas; and 5.0% from India, the Middle East, and Africa. The region with the most growth in 2009 was Asia-Pacific, which increased from 20% of revenues in 2008 to 24% in 2009, in part due to the stimulus programs in Japan and China.

By customer end markets, the breakdown of revenues in the year 2009 was as follows. Approximately 58% from academia, medical schools and other nonprofits; 11% from governments; 11% from for-profit healthcare, pharma/biotech, and diagnostics companies; 16% from other industrial research and QAQC; and about 4.0% from applied markets.

Compared to 2008, our industrial end markets were down modestly due to the global economic crisis, while the percentage of revenue derived from academic and government accounts increased.

Lastly, for the full year 2009, about 75% of our revenue was derived from system sales; about 20% from service, upgrades, consumables, software, what I would call aftermarket; and about 5.0% from our BEST superconducting materials and devices segments. These percentages are generally inline with the split in 2008, although we did see a slight increase in aftermarket revenues and as you heard earlier, BEST grew very rapidly.

On the product front, in 2009 we introduced a record number of new products, 18 to be specific, and these introductions were distributed across the various divisions. The depth of our new products served us very well in a tough economic environment, allowing our businesses to take market share and kept us from experiencing a severe downturn.

Now in 2010, as Bruker celebrates its 50th anniversary, our goal is to build on our success over the past 50 years by remaining true to our innovation and profitable growth strategy. We believe that our commitment to R&D and our customer focus, coupled with emphasis on operational excellence, will generate further improvements in financial performance.

For 2010, we feel we are well positioned to continue above average organic growth and to make further improvements in our margins and balance sheet metrics, and with our solid cash flows we will also keep an eye open for smaller-focused bolt-on acquisition opportunities.

Thank you and I will now turn the call over to Bill Knight, our former Chief Financial Officer, who on February 1, 2010 became our Chief Operating Officer.

Okay. Thanks, Frank.

The Bruker Scientific Instrument gross profit margin was 52.9% in the fourth quarter of 2009, compared to 48.9% in the fourth quarter of 2008. Our BSI gross margin for the full year 2009 was 47.9%, compared to 46.9% for 2008. The BSI operating profit margin was 22.6% in the fourth quarter of 2009, compared to 16.5% in the fourth quarter of 2008. Our BSI operating margin for the full year 2009 was 13.3%, compared to 10.8% for 2008, an increase of 250 basis points.

Our continuing efforts in instrument design to increase growth in operating margins contributed to our improved gross margins, along with the installation and acceptance of the world's first 1GHz NMR, which had a positive one-time margin effect in the fourth quarter of 2009 and which Brian will describe in more detail later.

So, even during this tough economic environment, we have made significant progress on our margin improvement goals in 2009. I will be working directly with the four divisions of the Bruker Scientific Instruments segment over the next three years to drive us towards our goals of greater than 50% gross margin and greater than 15% operating margin by the end of 2012.

Some of the areas of opportunities that exist are to reduce the number of manufacturing locations, the creation of divisional and in some cases global purchasing activities, the use of common platforms within division where we can. Another benefit from these initiatives will be to further reduce our inventory, thus reducing working capital and increasing our free cash flow. Over the past few weeks I have selected the division operational managers that will lead our efforts to take advantage of the synergies and create significant cost savings within each division.

I will now turn the call over Tom Rosa, the CFO of our BEST segment.

Thanks, Bill. 2009 was a very active year for BEST and 2010 looks to be exciting as well, as we see many opportunities for rapid top-line growth.

On the commercial side, we continue to broaden our product offerings and the acquisition of the ACCEL Research Instruments business from Varian Medical Systems in the second quarter of 2009 enabled us to expand our superconducting devices business on top of our already world class superconducting materials business.

In November of 2009 we announced that AREVA and BEST had successfully designed, built and tested a single module of a 13MVA Inductive Superconducting Fault Current Limiter, or ISFCL. This design utilizes a proprietary cryogenic model incorporating BEST second generation, high temperature superconductors. Faster self-recovering FCLs are expected to address a multibillion-dollar potential market need for Smart Grid-related products that limit damage caused by electrical system fault currents and allow existing grids to be run at higher capacity.

In the fourth quarter of 2009, BEST announced the largest individual order in Bruker's history for $36 million of niobium-tin wire that will be used in the ITER fusion energy project. Moreover, in 2009 BEST received several multimillion-dollar contracts for linear accelerators and superconducting RF cavities, as well as other major contracts for state of the art big science infrastructure projects.

Our investments in BEST are paying off and at the end of 2009 the division saw a 368% increase in backlog to almost $90 million, compared to less than $20 million of backlog at the end of 2008. In 2010 we will continue to invest significantly in BEST in order to further develop our broad technology platform and superconducting materials and devices and to address potentially large emerging markets in clean tech, alternative energy and big science infrastructure.

On the financial side, revenues for the BEST segment during the fourth quarter of 2009 increased by 116% to $23.8 million, compared to $11 million in the fourth quarter of 2008. For the full year, BEST revenue increased by 37% to $59.8 million from $43.5 million in 2008.

The BEST net loss in the fourth quarter of 2009 was $1.9 million, or $0.01 per share, compared to a net loss of $2.1 million or $0.01 per share in the fourth quarter of 2008. The BEST net loss for the full year 2009 was $6.9 million, or $0.04 per share, compared to a net loss of $8.9 million or $0.05 per share for the full year 2008.

Included in the 2009 operating results was a one-time gain associated with the acquisition of the research instruments portion of ACCEL of $1.3 million, or $0.01 per share. For BEST, our growth goals and investment plan for 2010 are currency adjusted revenue growth greater than 25%, continued growth of our backlog and an operating loss of $7.0 million to $8.0 million.

I will now turn the call over to the new CFO of Bruker Corporation, Brian Monahan.

Thanks, Tom.

As a quick recap on the top-line for Bruker Corporation during the fourth quarter of 2009, revenues increased by 16% to $366.4 million, compared to $315.2 million in the fourth quarter of 2008. For the full year, revenue increased by approximately 1.0% to just over $1.1 billion. Excluding the effects for foreign currency translation, revenue increased by 6.0% in the fourth quarter of 2009 and by 2.0% for the full year.

On the top-line for the BSI segment, during the fourth quarter of 2009, revenues increased by 13% to $346.2 million compared to $306.8 million in the fourth quarter of 2008. For the full year, revenue decreased by approximately 1.0% to $1.06 billion. Excluding the effects of foreign currency translation, revenue increased by 3.0% in the fourth quarter of 2009 and remained constant for the full year.

Now, moving further down the income statement, for BSI gross profit margin in the fourth quarter of 2009 was 52.9%, compared to 48.9% in the fourth quarter of 2008. For the full year, gross margin was 47.9%, compared to 46.9% in 2008. In addition to various ongoing initiatives to increase gross margins, in the fourth quarter of 2009 the acceptance of the world's first 1GHz NRM system also contributed positively to our gross and operating margins.

The development of the 1GHz NMR took a number of years and due to the uncertainty of the commercial viability for such a challenging scientific project, a majority of the costs associated with the system were expensed in prior years through research and development expense. If more typical gross margins had been realized on this order, adjusted gross margins would have been 50.9% for the fourth quarter of 2009 and 47.2% for the full year 2009.

GAAP operating profit for the BSI segment in the fourth quarter of 2009 was $78.3 million or 22.6% of revenue, compared to $50.5 million or 16.5% of revenue in the fourth quarter of 2008. For the full year, GAAP operating profit was $141.7 million or 13.3% of revenue, compared with $116.2 million or 10% of revenue in 2008.

The recognition of the 1GHz NMR system also had a positive one-time impact on operating margin and again, had typical gross margins been realized on this system the BSI operating margin would have been 20.6% for the fourth quarter and 12.6% for the full year of 2009.

Net income for the BSI segment in the fourth quarter of 2009 was $45.5 million or $0.28 per diluted share, compared to net income of $28.2 million or $0.17 per diluted share in the fourth quarter of 2008. For the full year BSI net income was $87.2 million, or $0.53 per diluted share, compared to net income of $73.5 million, or $0.44 per diluted share, for the full year 2008.

Before I provide our financial goals for 2010, I wanted to cover a few additional details that relate to overall Bruker Corporation.

During the fourth quarter of 2009 we incurred $1.7 million of net foreign currency losses, which compares to $5.4 million of net foreign currency losses in the fourth quarter of 2008. For the full year 2009 we incurred net foreign currency losses of $1.9 million, compared with $11.2 million of net foreign currency losses in the full year 2008.

So the initiatives we put in place during 2008 decreased our exposure to foreign currency fluctuations in a meaningful way.

In the fourth quarter of 2009 our effective tax rate was 40.5% and for the full year 2009 it was 37.3%. In the second half of '09 we repatriated cash to the U.S. in order to reduce our debt level and this triggered U.S. GAAP tax charges of approximately $4.0 million. Excluding this charge, our GAAP tax rate for the full year 2009 would have been 34%.

Cash flow from operations in 2009 was $149.8 million, compared to $106.9 million in 2008. Free cash flow, which we define as cash flow from operations less capital expenditures, was $131.7 million in 2009 compared to $59.5 million in 2008. Our strong cash flow has enabled us to aggressively pay down debt and during 2009 we repaid $86.1 million of debt.

We ended the year with cash, cash equivalents and restricted cash of $209.1 million and net cash of $71.4 million. This compares to a net debt position of $56.1 million at the end of 2008.

Now, moving on to our financial goals for 2010. We expect economic conditions to improve gradually as we move through the year. Geographically, Asia continues to be solid and in the Americas, Europe and Japan we expect to see continued gradual improvements, as the macroeconomic environment recovers.

Looking at our customer base, in 2010 we expect low single-digit growth from our industrial customers and mid-to-high single-digit from our healthcare, pharma, government and academic customers. Historically we have experienced quarterly fluctuations in revenues and we believe 2010 will be similar. Although we continue to work on reducing these fluctuations, our customer buying habits and the fact that we sell big-ticket items makes some level of volatility inevitable.

In 2010 we expect approximately 45% of our annual revenue to be generated in the first half of the year and 55% in the second half of the year. We would expect the least amount of revenue in the first quarter, with Q4 being the strongest and Q2 and Q3 being roughly comparable with one another.

With that as a backdrop, our financial goals for the year 2010 are total Bruker currency adjusted revenue growth of greater than 5.0%; BSI operating margin improvement of greater than 125 basis points, excluding the one-time favorable 60-basis point impact from the 1GHz NMR system recognized in 2009. BSI net income and EPS increase of greater than 15% and lastly, BSI working capital decrease of more than 5.0%.

So, with that, I'll turn the call back over to the operator for Q&A.

(Operator Instructions) Vijay Doradla, Deutsche Bank

Hi gentlemen, this is Vijay on for Ross. Congratulations on a great quarter. Just a quick housekeeping question. I mean, could you reconcile the organic and the sort of growth numbers, what's specifically was the contribution from FX, M&A? And I have quick follow-up, what was the organic growth rate for the BSI and BEST segments?

Yes, the organic, the FX impact in the fourth quarter was significant. It was approximately 10% and for the year it was about 1.0%, but for the BSI segment in particular, for the full year 2009 revenues were essentially flat year-over-year.

Got it and on the stimulus front, I mean, given the strength in FY09, is it fair enough to say that the potential stimulus dollars now available were greater than originally (inaudible - heavily accented language) them? And as a follow-up, back in '09 it was mostly the global stimulus (inaudible - heavily accented language), which led the strength. I mean, what are we seeing now from the U.S. and have you seen a pick up on them? And as we think about the quarterly progression, I mean, when are we likely to see the stimulus even throughout the year or maybe in the second half and back?

This is Frank Laukien. I'll take that question. As we had indicated before on stimulus funding are special supplementary budgets or funding (inaudible - heavily accented language) seem to move faster in Europe and Japan and China than in the U.S. In the U.S. we have seen stimulus orders also in 2009 and they're continuing into 2010. But in the U.S., generally, the availability of these funds or that turning into orders and then eventually into revenue is slower than overseas.

(Inaudible - multiple speakers)

I don't have a crystal ball either, but we believe that in terms of orders probably most of the U.S. stimulus funding, most for us, mostly the NIH and NSF, but to some extent also at SNFs and Department of Energy and USDA and various other government branches. And of course, indirectly, the grant funded by NIH and NSF has been coming from various universities and medical schools. We believe that most of the orders will occur in the first half of 2010, which for us then would put most of the revenue for the U.S. ERA funding into the second half of 2010 and then also into calendar 2011.

Thank you.

But we had -- it is difficult to predict that. We cannot say that with certainly, but that's our present impression.

I understand. Thanks for the color, Frank, and just a quick last follow-up, probably for Bill. I mean, congratulations on your transitioning to the role of COO.

Thank you.

Could you just give us some additional color on your priorities or focus areas as you sort of transition into your new role?

Sure. I mean, broadly speaking, as we said earlier, operating margins, starting with gross profit margins are a key focus area and then capital management, in particular inventory turns. Bruker has always done, I think, very well on its receivables, its DSO management, but we still have significant opportunity remaining on our inventory turns. So -- and as that -- we think that we have a significant opportunity to pull significant amounts of cash off the balance sheet and then redeploy that cash into other revenue-producing activities, which could further fuel the bottom line. So those are broadly speaking, the areas that I will be focused on.

Thank you, gentlemen.

Brandon Couillard, Jefferies & Co.

Hi, good morning, this is Brandon Couillard in for Jon. How should we think about operating cash flow and CapEx in 2010? Is CapEx in the $20 million range, annually, sustainable in your view and then, given the end of the year and the net cash position, what are your, I guess, priorities for excess capital deployment in 2010?

Yes. As far as the first part of the on CapEx, yes. We would expect $20 million to $30 million in 2010. In 2008 it was much higher. It was, I believe, around $50 million. We had done some facility expansions, particularly in Germany, and then in 2009 we were actually well below our historical annual run rate and basically we just tightened our belt at the back half of the year due to the uncertainty and pulled back as much as we could. But in 2010 I think the number you said, $20 million to $30 million is a good number to use.

Okay and any sense guidance on the tax rate that we should use for next year?

Yes. We expect to be able to bring our tax rate down by a point or two in 2010 and that's going from our adjusted tax rate in 2009, which was 34%. Our effective tax rate was 37%, but earlier in my comments I talked about the one-time charge that we incurred. So adjusted rate of 34%, in 2009, we're targeting to decrease that by a point or two.

Okay and Frank, could you give us a sense of perhaps the organic growth by the BSI sub-segments between Daltonics, AXS and Optics, etc?

Gladly, Brandon. As you might have expected and as we've said throughout the year the divisions with more of an industrial exposure had typically in the single-digit declines in revenue. I don't think any division declined by more than 10%, which is really excellent. So Bruker AXS and Bruker Optics had some declines in revenue in 2009, but I think they were relatively modest, so single-digit declines.

Bruker BioSpin and particularly the Life Science business of Bruker Daltonics were faster growing, where revenue and orders were growing between the mid-single-digits or single-digits at BioSpin to above 10% for the Bruker Daltonics Life Science business.

Thanks and then could you tell us what the ACCEL acquisition contributed in terms of revenue in the period?

Yes. This is Tom Rosa speaking. It was above $20 million for the year and for the fourth quarter it was between $10 million and $11 million, approximately $10.5 million. So they had a very good Q4 and of course a part of our results for only the last three quarters of 2009.

But I would caution, because we have very much integrated that business. It's really not that differentiable anymore. We've also transferred certain activities for superconducting device development into the engineering teams that came with the ACCEL acquisition. So even in the fourth quarter and certainly going forward, you really will not be able to differentiate anymore where a certain dollar of revenue or revenue growth came from, previous or post acquisition. So, with that word of caution, going forward, at least.

Great. Thanks.

Justin, Leerink Swann

Hey guys, this is actually Jeff in for Isaac. Thanks for taking the question. Just looking at gross margin in the fourth quarter, can you --I mean, it was helpful given what you did for the one-time costs for the BSI segment. But looking at overall gross margin what would it have been on more of a right-sized year?

I'm sorry. I couldn't hear the end of your question.

Overall gross margin if you backed out the contribution from the one-time sale, what would overall gross margin have looked like?

Overall gross margins, give me a second. For the full year you're looking for or for the fourth quarter?

Fourth quarter.

Yes. The fourth quarter the gross margins, excluding the 1GHz they would have been 50.9% in the fourth quarter and 47.2% for the full year.

And that's for BSI.

That's for BSI, correct.

You don't have BSI -- okay. Thanks and then looking at the margin guidance for next year of $125 million debt leverage in BSI, what are the biggest variables there aside from volume leverage?

Oh, I think this is not just volume. This is volume, this is gross margin improvement, this is expense discipline. There's really many, many things that come together here. I don't think there is just one that one should focus on, but it certainly isn't all just a volume-driven model.

Okay, that's helpful and then looking at Asia-Pacific, does the -- it looks like it grew about 21% year-over-year. Can you talk about how China did this quarter and then given the tighter lending standards recently enacted there can you comment on any changes in purchasing patterns in recent months?

China in the fourth quarter or the present status? I couldn't understand the rest of your questions.

Yes, China in the fourth quarter and then given tighter lending standards recently, can you comment about any changes in recent ordering patterns?

I don't know the answer for China in the fourth quarter versus for the year, but China throughout the year 2009 was quite strong or essentially, I don't know, for really all of our Scientific Instrument divisions. So I don't know it by quarter, but it was generally strong. We did not detect any big change in that. Usually these macro headline news don't really affect us all that much in the orders. So business, until the Chinese New Year and orders this is the first six weeks of this year were actually quite strong in China, so continued momentum.

All right and then switching to (inaudible - background noise) margins, which segment of BSI are you getting the margin improvement versus like Daltonics or BioSpin and have the new products like maXis and solariX been hopeful to margins there?

Yes. The solariX is only really beginning to kick in, in terms of revenue and margin improvement, in 2010. It had a probably negligible affect still, because it started shipping late in the year and but maXis and a number of other products clearly had by far the biggest improvement in 2009 did occur in our Life Science mass spec business.

So a number of the new products, those that are shipping and new solutions - it's not always just hardware platforms - are contributing positively and of course the volume leverage helps as well. We traditionally have spent a lot on R&D and we have cut back on that very significantly, but we now have better volume leverage, so.

All right. Thanks a lot.

We mentioned 18-plus new product introductions in 2009. Every new product that has been coming out from 2009 on, even in the 2008, does carry much better margins that its predecessor product, better quality standards, easier serviceability. So clearly, as we continue to introduce new products in the future, we fully expect that to be a positive margin activity as well.

All right. Thanks a lot, guys.

You're welcome.

Andrea Bici, Schroder Investment Management

Hi, congratulations. Just -- your fourth quarter cash flow is outstanding, but a little bit down from last year. Do you think kind of does it -- is there a certain level where cash flow peaks out or were there DSO or inventory changes in the quarter? And can you drill down on your 5.0% working capital improvement to see, maybe, how much of that 5.0% is inventory or other items? Thanks.

Yes, Andrea, this is Brian. Yes, as we talked about earlier, it's tough to really zero in on any individual quarter. Our cash flows in the fourth quarter of this year and last year were greater than $80 million. So a really strong cash flow generation, both year-over-year and that's a tribute to the order flow that we had during the quarter and the customer deposits that go with that, the profitability during the quarter, etc.

So really we tend to look at the full year. That's a lot more meaningful and that in there we performed much better in 2009 than over 2008. The major drivers there are improved profitability. We also had some improvements in our inventory levels, which was a source of cash versus a use of cash and then also customer deposits increased from 2008 into 2009. So those are really the three main drivers in the cash flows of 2009 compared to 2008.

But cash flow in any given quarter, Andrea, is really, I mean, the fluctuations in cash flow from quarter-to-quarter are very significant. I wouldn't read anything into one cash flow for any one, any given individual quarter compared to another quarter. It's really -- the annual number is really far more meaningful.

Yes.

Just so I heard you correctly, free cash flow year-over-year was $131.7 million versus $59.9 million?

That's correct.

Okay. Congratulations.

Thank you, Andrea.

As far as working capital improvements, the real primary focus will be inventories. Maybe we can get an extra day or two or DSOs, but I think we do a pretty decent job there. But it is inventory turns and that is where most of my focus and the operating team's focus will be for the next three years.

Are there any divisions where the inventory turns are kind of up to snuff and exemplary for the rest of the Company and any -- the one where you see more opportunity for improvement?

Well, I think the --all the divisions still have opportunities. The ones typically with the more mature product lines - Optics - is in pretty good shape. We have -- BioSpin is the most vertically integrated from a production standpoint and probably has, well it has more opportunity. It has more challenges, but the focus is going to be on all four divisions within BSI and I think that'll be, over the next three years, be able to generate a significant amount of cash.

So maybe as a little bit more color, our Bruker BioSpin division is by far the largest division and its working capital ratio is still relatively high. It's also the most recent addition to the public company, if you recall, and there in absolute dollars we have the most opportunity for improvement.

Thanks. Lastly, have you gone through the product portfolio to determine, as you're going through inventory, the appropriate kind of pricing or is this product, do we get enough scale or are we appropriately compensated to produce this product, given the margin contribution? Or kind of what you might be sacrificing in inventory turns to have that product and where does that rank in terms of initiatives?

I mean, we won't discuss individual products, but I can assure you that we're just -- we're doing that for a living pretty regularly and we make decisions on where to invest more and where to slow down. It's what you do in this industry, so yes we are doing that.

Great. Thanks so much.

You're welcome.

Dan, UBS

Good morning. This is actually Dan in for Derik. Thanks for taking the questions. I just wondered if you could talk broadly about some of the trends that you're seeing in the mass spec and NMR business as far as orders and lead times go? And then, maybe on the BioSpin business, any comments on the competitive landscape and what customers are saying given the change of control that's going on with regards to your key competitor there?

Okay, Dan, this is Frank. The mass spectrometry market has been and continues to be extremely competitive. I don't really know what to add on that. We're trying to be extremely competitive too. We've introduced a lot of new products, many of them we believe are performance leaders or sometimes very clear performance leaders.

We're working a lot on also adding the applications-driven solutions on top of those platforms, so you'll see more of an emphasis on that this year than necessarily new hardware boxes. But of course we will also maintain and continue to advance or base mass spec technology. It remains very competitive. I'm not going to try to discuss competitors.

And the NMR business, overall it's slower growing, but of course in 2009 and especially also in 2010 it is benefiting from stimulus funding, as are some of our other divisions. No question about that. The competitive change is on the horizon, but hasn't occurred yet, so I really don't know. Do you have a specific question in that regard? I'm not sure it's going to have such an enormous affect on us either way, just like some of the transactions in the mass spectrometry space. You have the same competitors but they're part of different companies and it doesn't change things so dramatically overnight, so.

Yes. I guess I was just asking more along the lines because of the fact that there are so many fewer players in NMR relative to mass spectrometry and the fact that the Variant acquisition has been a little bit longer than I think some people thought. So I was wondering whether you're looking at opportunities for a market share gain here that maybe you haven't in the past.

We always try, but I think has more to do with products and solutions than necessarily with the corporate reengineering amongst our competitors. I don't know that that has an enormous affect or represents such a big opportunity for us. Even during those transitions our competitors stayed very competitive and very aggressive.

Okay. That's helpful. And then on your energy and supercon units, just looking at the stimulus spending that you guys have benefited from there. Has visibility with regards to funding by the DOE and the National Science Foundation been sort of inline with what your expectations have been? How do inquiries and orders tend to track there?

The biggest individual order that BEST received related to the stimulus funding was a $6.0 million order for superconducting RF cavities for Jefferson Labs. Other than that, we haven't. We keep track of what's out there and available, but we haven't received a broad number of new orders related directly to the stimulus bill. Hard to quantify how much indirect benefit we may get.

I think for BEST it's really more the longer-term trends of new markets emerging, new technologies that we can hopefully capitalize on. I think BEST is not so much driven by shorter-term stimulus funding at this point.

I see. Okay. And then just lastly, you've seen a significant impact from currencies on the quarter and there have been some significant movements in FX in the last, I'd say, month or so. But I was wondering whether you could give us a feel for what you're thinking about FX contribution this year?

Yes. I mean, where the FX rates are today we expect about a one point contribution to our revenues for the full year of 2010.

Okay, thanks.

But if you recall, we're giving our -- so this would be a one point contribution to GAAP revenues, whereas we try to give our annual goals on the currency adjusted basis and that's what we did this year as well in our press release as well.

Appreciate it.

Jon Wood, Jefferies & Co.;

Hey, can you hear me?

Yes we can.

It's Jon Wood.

Hi Jon.

I think this should be for Bill. Just wondering if you could discuss some background, how or if Bruker is historically incentivized the operating folks, through compensation metrics, to focus on the balance sheet metrics? And then in your new role, any plans to formally change or modify the metrics that you managed to achieve some of the goals that you've communicated to us? And then how much more difficult does it become to take working capital out as the growth rate accelerates?

Sure. Historically, I mean, if you go back 50 years working capital management was not a high priority. It was the science, the technology, getting products into the marketplace, grabbing market share. In two or three of the divisions, the last three or four years, we have started focusing operating management on working capital metrics.

We do have a standard template now across all four divisions and BEST that rewards top-line growth. That will always be important. It rewards both gross profit and operating margin improvements year-over-year. And then there's a significant piece that's related to working capital.

So all operating management has working capital management and for us that primarily means inventory improvements as part of their pay scheme. And this variable piece of their pay, everybody has affixed an incentive comp and stock options. The variable piece of their pay is significant. So we do and it also includes everybody that's sitting at the table I'm sitting at today. So it is important that we make these continuous improvements. It does get -- yes.

There's certainly low hanging fruit. Some divisions have more of an assembly focus than a pure manufacturing focus. Some things are a little easier. The incentive compensation plans now are typically across the global operations of each division, not just in a particular legal entity. So there is less of an inclination just to shift from legal entity to another to improve a local bonus. It's based upon what that division does on a worldwide basis and its just good education of why working capital is important and so we are probably much more sensitized to that than we were four or five years ago.

It's certainly a cultural shift. I mean, that previously was not the case and in fact Bill is still rolling that out in some of the divisions, these types of incentives that he was just discussing and for many of those divisions and production and logistics managers, that is a new aspect. So I think you'll see the benefits of that in the years to come. We've already seen quite a bit benefit over the last three years, but we think we can make very significant continued progress with working capital ratios over the next three years or so.

Okay, great. That was great. Thanks a lot.

Sung Ji Nam, JPMorgan Chase & Co.

Hi. This is Sung Ji Nam sitting in for Tycho Peterson. Thank you for taking the questions and congratulations on a great quarter. The first question is just a point of clarification. I believe you had mentioned for 2010 previously, in terms of revenue growth outlook of greater than 5.0% coming from stimulus. And given your guidance today, was just kind of wondering if there has been some shift of stimulus expectation into the fourth quarter of last year and if there's any update to what your expectations are coming from the stimulus for 2010?

I think -- no. I don't think there's any real shift here. Most of the stimulus revenue is still expected for 2010 and going into 2011. I believe, Brian correct me if I'm wrong, I think so far its maybe stimulus revenue that's made it into the second half of last year was maybe [$20] million (technical difficulty). So it's not an enormous figure.

That's correct.

So most of it is still expected going further and we always have ambition and we just simply stated that we believe we -- hopefully we can -- our goal is to have currency-adjusted revenue greater than 5.0%.

Okay, great. Thank you and also thank you very much for the detailed information on the sub-segments of your BSI business. I was wondering if you could kind of provide the outlook for 2010 by sub-segment as well? You talked about -- you touched on BioSpin and Daltonics, but in terms of your growth expectation for AXS and Optics?

We will give, we intend to give and many of the investors and ACCEL side analysts have encouraged us. We will give a retrospective annual baseline, because we know that helps everybody in looking at the models. But we would prefer not to give an outlook going forward or our goals for each of the product lines and divisions. That is too much detail.

Okay.

For competitive reasons we'd prefer to do -- with the historical review and when we do this a year from now, we'll try to give you that for the year 2010. I hope (inaudible - multiple speakers).

Okay, thank. Okay, thank you and one last question is you had mentioned bolt-on acquisitions and kind of if you could comment on what your priority is there, what your priorities might be?

Well, we're not a very acquisitive Company. We're not on the acquisition trail, but we do keep our eyes open and we're going to stay very focused. We look at -- we're a GARP investor there, so and we would look at acquisitions that fit into our instrument space and help us be perhaps an even better focused Company, focusing on the four Scientific Instruments divisions that we have.

So if there were any acquisitions I would expect them to be smallish to mid-sized and with not only paying attention to non-cash measures but also to GAAP operating income and net income and to return on invested capital. So our acquisition philosophy there is somewhat different than for others in the industry.

Great. Thank you very much.

You're welcome.

Do you want to take one last question?

Certainly.

Isaac Ro, Leerink Swann

Hey guys, just real quick. Thinking about some of the initiatives this year and looking at BEST, can you kind of give us an idea of how to think about R&D throughout the year versus last year? I mean, a stepped down in '09. Should we look to step back up and closer to the '08 level or maybe above?

At BEST or in general or was that (inaudible - multiple speakers)?

In general.

In general. I think at BEST we'll ramp up R&D or keep it high and if anything, it may accelerate further and for the rest of the business we generally keep it constant or maybe just an inflation adjustment. Whereas -- so that would imply a leveraging off of the R&D expense as a percentage of revenue in general in the years going forward. That's not a 2010 special. That's sort of a comment that would apply for the foreseeable next two or three years.

Okay. So the primary increase is going to be coming from the investment in BEST then.

As a percentage.

Okay.

Obviously the other Scientific Instruments business, if that goes up 2.0% or 3.0% and it grows faster than 5.0% you'll some leveraging there. So in absolute dollars I wouldn't model it as a -- with perhaps just an inflationary increase, meaning we'd like it to leverage off for the Scientific Instruments business to towards 10% and eventually below 10% of revenue.

Do you guys have as much leverage on the sales and marketing line?

With some delay. We're still continuing to invest more and real incremental investments in marketing and selling and sort of business development in some areas. As we, for instance, in the mass spec world, see opportunities for more applied solutions we often sort of need small markets, focused teams that go after certain applications and market sub-segments that we previously maybe have not been in. So there we continue -- we have continued throughout 2009 and will continue to do some incremental investments. So we see leveraging, volume leveraging opportunities on the SG&A, certainly on the G&A side. I mean, there's really no -- we had the big SAP introduction for Bruker BioSpin in 2009, so there's no imminent major investment.

So G&A leveraging should continue on the marketing and sales side, as I said, there are some incremental deliberate investments that I think are good for our growth and for our margins. And you'll see some leveraging off on that but probably with some delay, compared to R&D and G&A. SG&A we had set ourselves -- I think we're at, in 2008, we were at about 23% or above that and we think that longer-term, let's say by 2012, we can bring that to 21% or lower, again for the Scientific Instruments business. The P&L appearance of BEST is very different from the Scientific Instruments business and so.

Okay and then just --.

(Inaudible - multiple speakers)

That was really helpful and then just real quick just making sure I have the numbers right. You said the guidance of 125 basis points of leverage in the DSI division, so that'd be what, 85 net, because there's a 61 time in '09? Is that correct?

That's correct.

Okay. All right. Thanks a lot.

You're welcome.

Gentlemen, there are no further questions.

Okay. Then we'll wrap it up. Thank you very much again to all of you for joining us today. I would like to invite you to our press conferences in March. It's in Orlando, on Tuesday, March 2nd at 12:00 p.m. Eastern Time, 12 noon. And we will exhibit at Analytica and launch and show most of our new products at Analytica in Munich on Tuesday, March 23rd at 2:30 p.m. Central European Time. Please contact Stacey if you are interested in attending and this concludes our earnings call. Goodbye and thank you very much.

Ladies and gentlemen, that concludes today's conference. Thanks for your participation. You may now disconnect and have a great day. 16