Bruker Corp (BRKR) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Bruker Corporation quarterly earnings conference call. My name is Troy and I will be your operator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn your conference over to your host for today, Ms. Stacey Desrochers, Treasury -- Director of Investor Relations. Please proceed.

Thank you. Good morning and welcome to Bruker Corporation's first-quarter 2010 financial results conference call. I'm Stacey Desrochers, Treasurer 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 Operating 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 statements. 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 update on the business and certain overall Bruker Corporation financial highlights. Tom will describe the financial results of our BEST segment, and then Brian will just discuss the financial results of our Bruker Scientific Instruments, or BSI, segment.

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 first quarter of 2010, I would like to welcome our new sellside analysts, Jose Haresco from Brean Murray, Carret & Co., and Stephen Unger from Lazard Capital Markets. Welcome, gentlemen.

Now, starting with the financial highlights, which most of you may have read in our earnings press release issued earlier this morning. In the first quarter of 2010, our revenue was $277.7 million, a GAAP increase of 20.5% or a currency-adjusted increase of 12.4% when compared year over year to the first quarter of 2009.

On earnings in the first quarter of 2010, our GAAP EPS was $0.10 per diluted share, which exceeded Street expectations and which doubled from our first-quarter 2009 EPS of $0.05 per diluted share. Included in GAAP EPS for the first-quarter 2010, as well as for the first-quarter 2009, were non-cash stock-based compensation expenses of negative $0.01 per diluted share in each of those first quarters, 2009 and 2010.

In the first quarter of 2010, all four operating divisions in our Scientific Instruments segment delivered double-digit growth year over year, which translated into GAAP revenue increase of 16.4% for our Scientific Instruments, or BSI, segment.

Our BEST segment has triple-digit growth for the second quarter in a row, increasing 156% for the first-quarter 2010 compared to a year ago.

Concerning new order bookings in the first quarter of 2010, new order bookings from our healthcare, pharma, government, and academic customers remains healthy, and the industrial and applied markets continue to improve gradually. Even though we delivered significant year-over-year revenue growth in the first quarter of 2010, we enter the second quarter of 2010 with very strong backlog.

In the first quarter of 2010, we received more than $10 million in U.S. stimulus orders and we continue to expect additional orders from U.S. ARRA funding during the remainder of 2010.

Thus far in 2010, we launched a number of innovative, high-performance, analytical solutions which fit well into the -- in the various markets we serve, and we're aimed at customers in the pharma, industrial, and applied markets primarily. The new systems introduced are focused on bringing robust, easy-to-use, affordable yet best-in-class performance turnkey solutions to routine and industrial analysis, as well as on -- as we do traditionally, opening new scientific horizons for advanced research customers.

Just last week at ENC, Bruker launched its new Ascend series of compact superconducting magnets to make high-field NMR even more powerful, and at the same time, more convenient and accessible for numerous NMR laboratories. This new magnet line offers further innovations for superior performance and greater convenience. The Ascend magnets feature advanced superconductor technology, enabling a smaller coil design and thus resulting in a significant reduction in the size of the magnets. The new Ascend magnets are, therefore, easier to site, even safer to run, and they offer reduced operating costs.

The Ascend magnet series is in full production and is shipping to customers. We've already delivered and then successfully installed the first Ascend single-story 850 MHz magnet for a customer in Taiwan during the first quarter of 2010.

In late March 2010 at the Analytica conference held in Munich, we launched a number of new products that we believe will increase our access to broader markets and expand our presence in many routine, quality control, applied, and industrial market segments. Multiple new products and solutions were introduced from all across of our scientific instruments divisions, and they address an expanding array of applied, food, petrochem, pharma biotech, solar, advanced materials, and nanotechnology, as well as academic research and teaching markets.

So, as you see, we continue to leverage our high-performance technologies and applications know-how, plus our close customer collaborations, to really pioneer innovative and unique analytical solutions that are more compact, easier to use, that increase productivity and other performance attributes such as sensitivity, specificity, and so on.

As you know, in early March 2010, we also announced that we entered into a definitive asset purchase agreement with Agilent Technologies to acquire three product lines of Varian Inc., which Agilent is committed to divest. The product lines to be acquired by Bruker are Varian's ICP-MS business, Varian's laboratory gas chromatography business, and Varian's GC triple quadrupole mass spectrometry business.

This transaction is subject to customary closing conditions and regulatory approvals, and is expected to close shortly after Agilent completes its acquisition of Varian, which Agilent now anticipates to occur in May. Other than the agreed purchase price for these to be acquired assets, we have not publicly disclosed any projections for the three businesses and we plan to present our financial goals for these three product lines after the closing of the acquisition.

In conjunction with the announcement to acquire these three product lines from Agilent, Collin D'Silva, a member of the Bruker Board of Directors for 10 years, agreed to lead the new -- newly created chemical analysis division for Bruker. In order to assume his new management responsibilities as division president, Mr. D'Silva stepped down from Bruker's audit committee on March 9 and he also resigned from Bruker's Board of Directors on March 31, 2010.

As a result, the Bruker Board and audit committee temporarily are not in compliance with all NASDAQ listing requirements. Bruker has informed NASDAQ accordingly and Bruker intends to regain compliance within the applicable 180-day cure period.

We are excited and very fortunate to have an experienced industry executive such as Collin to lead the new division and the many talented and motivated managers and employees expected to join Bruker from Varian at the closing in the next few weeks.

With that, I will now turn the call over to Tom Rosa, the Chief Financial Officer of our BEST segment.

Thanks, Frank, and good morning, everyone. Revenues for the BEST segment during the first quarter of 2010 increased by 156% to $20.7 million, compared to $8.1 million in the first quarter of 2009.

This is the second quarter in a row of triple-digit topline growth at BEST. Excluding the effects of foreign currency translation, first-quarter 2010 revenue increased by 141%.

The BEST operating loss in the first quarter of 2010 was $0.5 million, compared to a BEST operating loss of $2.4 million in the first quarter of 2009. EPS for the first quarter of 2010 for the BEST segment was $0.00 per share, compared to a BEST net loss of $0.02 per share in the first quarter of 2009.

Losses in the first quarter were lower than projected, due to higher-than-expected revenues as well as lower-than-anticipated R&D costs.

Our development and commercialization efforts at BEST have been paying off, and in the past six weeks we announced three significant new contracts, a $7.7 million contract from the U.S. Department of Energy's Brookhaven National Laboratory, or BNL, for a 200 MeV electron injection linear accelerator for BNL's next-generation National Synchrotron Light Source.

Number two, a $5.7 million contract from the South Korea-based Pohang Accelerator Laboratory for two superconducting accelerator modules. And third, a $2.4 million contract from the Brazilian Synchrotron Light Laboratory for a state-of-the-art turnkey beamline.

All of these projects help to further develop our broad technology platforms that address potentially large emerging markets in clean tech, alternative energy, and big science infrastructure, and help expand BEST's position as a leading global provider of superconductivity-enabled devices and technologies.

We also received significant orders from other customers during the first quarter of 2010 and ended the quarter with more than a 500% increase in backlog to over $90 million, compared to just under $15 million of backlog at the end of the first quarter of 2009.

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

Thanks, Tom. Since Frank already commented on the first quarter financial highlights for overall BRKR, and Tom provided a summary of BEST, I will focus primarily on our Bruker Scientific Instruments, or BSI, segment.

On the top line for the BSI segment, during the fourth -- first quarter of 2010, revenues increased by 16.4% to $260.3 million, compared to $223.6 million in the first quarter of 2009. Excluding the effects of foreign currency translation, BSI revenue increased by 8.6% year over year.

As Frank said earlier, all four operating divisions within BSI delivered topline GAAP growth with higher growth rates from the divisions which benefited more from stimulus-related orders, specifically Daltonics and BioSpin.

Now moving further down the income statement, gross profit margin for BSI in the first quarter of 2010 was 47.1%, compared to 45.3% in the first quarter of 2009. BSI GAAP operating margins expanded by 340 basis points year over year, with operating income in the first quarter of 2010 of $27.7 million, or 10.6% of revenue, compared to operating income of $16.1 million, or 7.2% of revenue, in the first quarter of 2009.

The operating margin expansion at BSI is the result of a number of factors, including higher margins associated with revenues from high-end instrumentation, some of which is directly attributable to the various global stimulus programs. Additionally, a ramp in volume of recently introduced products which were designed to carry higher gross margins than previous generations of products, continued strict cost controls, and lastly, leveraging fixed costs with higher revenue volume.

On the bottom line, GAAP net income for the BSI segment in the first quarter of 2010 was $17.2 million, or $0.10 per diluted share, compared to net income of $10.2 million, or $0.06 per diluted share, in the first quarter of 2009.

Before I turn the call back over to the Operator for Q&A, I wanted to briefly discuss certain cash flow and balance sheet metrics that relate to overall Bruker Corporation. Operating cash flow in the first quarter of 2010 was $5.5 million, compared to $13.1 million in the first quarter of 2009. We ended the first quarter of 2010 with cash, cash equivalents, and restricted cash of $206.6 million and net cash of $73.4 million.

During the quarter, we realized additional improvements in our working capital metrics. We define working capital as Accounts Receivable plus inventory, less accounts payable. On a trailing 12-month basis, we reduced working capital further to $0.48 per dollar of revenue at the end of the first quarter of 2010, compared to $0.50 per dollar of revenue at the end of the fourth quarter of 2009.

Accounts Receivable days' sales outstanding, or DSOs, in the first quarter of 2010 was 54 days, improving from 59 days in the fourth quarter of 2009. Total inventory turns, also on a trailing 12-month basis, remained constant at 1.4 times in the first quarter of 2010 and fourth quarter of 2009. We continue to identify areas of opportunity of improved inventory turns, balance sheet management, and cash flow generation.

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

(Operator Instructions). Jon Wood, Jefferies & Company.

Is it possible to quantify the revenue impact from the ACCEL acquisition?

Jon, this is Tom Rosa. The revenue associated with ACCEL was around $6.5 million in Q1, but one thing I'll just caution is that the lines between what was ACCEL and what is the rest of BEST are starting to blur. We've done some integration of R&D personnel between the two companies and -- but roughly $6.5 million, which was about in line with the average of the three quarters from 2009.

Thanks a lot. Frank, is it possible also to quantify whatever stimulus-related -- is it possible to parse out the stimulus-related revenue in the first quarter?

Jon, that's also getting very difficult. We had some revenue, for instance, for Japan, in the first quarter from stimulus or their special supplementary budgets. There is still other inventory in transit, in Japan as well, and in Asia and Europe that hasn't been recognized yet. So we've -- no, we had some -- we now probably every quarter will have some inventory -- sorry, some stimulus-related revenue, but we cannot really break it out.

Okay, thanks. And then, just in AXS and optics, were these two divisions up on an organic basis in 1Q 2010? I guess what I'm getting at is, were any of your more cyclical or industrial product lines still down in the first quarter?

They were all up, all quite healthy. They all had GAAP revenue growth in the double digits.

And did you see (multiple speakers)

(Multiple speakers) take out currency, they were all up in the first quarter.

Okay, great. How is the momentum tracking? Do you see industrial -- the industrial-related markets continuing to improve into the second quarter?

Yes, Jon, I think that's our impression. And so, particularly at AXS, which is always most sensitive to that, even though they have some academic and research customers as well, and some of their businesses that are almost 100% exposed to the industrial metals economy or cement is really getting quite a bit healthier. So, there is good momentum -- I'm still not calling it rapid growth, but there is clear continued momentum in industrial markets, as far as we can tell.

Okay, great. Thanks a lot.

Ross Muken, Deutsche Bank.

It's actually Mike Cherny in for Ross today. Congrats on another great quarter. So, Frank, just quickly, obviously you had some positive commentary noted, both on the call and in the press release, in talking about the outlook. Obviously the backlog is growing very strongly. Should we take your lack of commentary directly on kind of formal guidance in the outlook to assume that you guys are reiterating guidance?

No, we don't. As you may know, we give our annual goals and we do not update or give quarterly guidance.

So, our -- it is our habit that we do not give or update quarterly guidance and therefore I would not interpret that we stick to our annual goals, but I think we are slightly more optimistic than what we gave originally. But we do not quantitatively update that every quarter.

Fair enough. Then, just quickly, from a geographic perspective, can you guys give us a little sense of pockets of air? You talked about the end markets, but just more geographically, where you saw strength versus what areas may have been still potentially weaker? And kind of going forward, if you have similar thoughts on those geographies?

A few highlights, perhaps. I think the bookings and orders in the U.S. were really pretty decent at the first quarter. And some of that is related to stimulus, stimulus spending in the U.S. not coming through rapidly, but coming through as at least a steady trickle now.

That did start last year, but it started much later than everybody had anticipated, including ourselves. But it's continuing. So the U.S. overall was good.

And Japan, even though there is less stimulus orders, which mostly come through universities, those mostly came in last year, and in the first quarter we saw that the industrial customers in Japan are clearly picking up. China has been strong all along. India is coming back nicely already in the fourth quarter and now also in the first quarter. And maybe those are some of the geographical remarks where something has really noticeably changed or at least incrementally changed.

That's helpful. Thanks, and congratulations again.

Tycho Peterson, JPMorgan.

This is actually Abigail Darby sitting in for Tycho today. Frank, could you dig a little bit more into the kind of trends in the relative divisions? I know you said that they all grew in the double digits. But is it possible you to kind of help us maybe rank the divisions in terms of the stronger growers versus the maybe laggards? You know, particularly interested in trying to get a sense of growth between the AXS and optics versus Daltonics.

I think this was done in part already in our earlier statements, so as I said, all four Scientific Instruments divisions grew in the double digits -- in GAAP, and they actually all had pretty healthy growth.

There was slightly faster growth in those that had more stimulus exposure, and those were specifically the Daltonics life science mass spectrometry business and the Bruker BioSpin magnetic resonance business.

So -- but all of them had really very healthy growth. It's very sustained and across the Company, with Daltonics and BioSpin growing a little bit faster than AXS and optics. But even those divisions had double-digit growth, so we're really very satisfied with them, and I think that gives you a little bit of color.

Okay, and then trying to dig a little bit more into the BEST division. You announced a number of smaller, I guess, contracts in the last couple of weeks. When can we expect those contracts to be recognized in terms of revenue? Could we expect to see them in two-half 2010 or are they more 2011 events?

It's a combination of both. We expect revenue primarily from those contracts in 2011, but probably important to note that one of those contracts -- I just want to point this out on the Brookhaven order for about $7.7 million, that actually was received in April. So it's -- you didn't ask about backlog specifically, but that's not in our backlog numbers. So inclusive of that, we're actually coming into Q2 with approximately $100 million-plus of backlog.

Okay, and then on profitability in BEST. You were pretty much breakeven for the quarter. Is this -- as you know, is the revenue in the run rate in that division now, if that continues, should we expect you to maintain profitability or was there something unusual about 1Q that helped you break even at that level?

Just to clarify, we had about a $500,000 loss in Q1 2010, which was dramatically down from a year ago, but the -- there were some very helpful factors in Q1 that may not repeat in future quarters.

And particularly, we mentioned R&D spending was a little bit lighter than we expected because of we really were focusing on some commercial orders in Q1 with our R&D personnel. We also had better topline -- or top gross -- topline gross margins in our commercial businesses than we expected or that we had a year ago, so that is sustainable.

And then, third, there were some depreciation expense delays because some of the equipment that we're commissioning this year probably won't start -- won't be fully online until the second half of the year, so we expect depreciation expense to increase going forward. So the second part of the year will be -- we should see higher losses than the first half.

This is Frank and I'd like to follow up on that, just to make sure that the big picture is still -- it's still what we said when we gave our goals for 2010.

We intend to invest aggressively in this BEST segment and, therefore, we are not -- even though we are getting in the first quarter where the loss is relatively low and we're delighted, but it is not our goal to drive this to breakeven this year or next year. We continue to invest aggressively and we -- within our business plans, we had looked at a $6 million to $8 million net loss for that division for the full year, and so there is no significant change here.

As we -- the priority there is to grow very rapidly, to gain market share, to develop the technologies and marketing development as we had stated before, even though we are delighted that the loss in the first quarter was quite a bit lower than what we even had anticipated.

Great, thanks very much.

Derik De Bruin.

This is actually Dan for Derik. Thanks for taking the questions. I'm just wondering if you guys could make a couple of comments on what you're seeing in pharma and biotech. Specifically, whether there's a significant difference between the two, and then also maybe a difference between larger and smaller customers.

This is Frank Laukien. Pharma has been quite good for us. I mean, there is no new trend in Q1 here, but generally in the last few quarters, pharma, including Big Pharma, is quite selective in what they're buying, but if they have -- if there new tools out there that give them better or more reliable or more specific information, they do purchase them.

And we've also observed that when Big Pharmas merge, they're not going to these complete capital expenditure freezes anymore that maybe they did a few years ago, so.

Biotech has generally -- other than very big biotech, which is almost like a Big Pharma, biotech -- we have not really seen yet a significant increase in capital expenditures. I know the fundraising climate for those guys has improved a little bit. But that has not, at least not noticeably, resulted it in any increasing spending. So, biotech, smaller biotech in particular that depends to some extent on the capital markets, are still fairly cautious, as they have been.

Okay, great. And then, on academic and government markets, I know that NAH stimulus is helping tremendously, but outside of that, are customers talking about having more flexibility in placing orders now that endowments seem to have stabilized a bit?

That is a good question. I would like to think that yet, but I don't really have any specific evidence or nice anecdotal stories on that from recent. I think that's a reasonable assumption, but I'm not sure that I have the data to confirm that. But I think that's likely to get a little bit more relaxed.

Keep in mind that university budgets are not -- they are all designed to respond slowly to changes. So in a big drop in endowments, they do not immediately stop all capital spending. It's more spread out over five years, and as the endowments recover, essentially all private university budgets are engineered so they respect -- they respond to that a little bit more slowly as well. But the trends clearly are good or improving.

I see, thank you. And then, just lastly, you guys have successfully introduced several new products over the last year. So when you look at the Varian portfolio, and I realize that you haven't officially taken control there, but I'm wondering if you can offer some broad thoughts on perhaps updating some of the products there or maybe introducing some new lines based on those existing technologies?

Of the three product lines that we are to acquire? Is that what you're referring to, Dan?

Yes.

Okay. When the deal closes, we expect that within a few business days after the closing that we will have a follow-on press release and give some color on those product lines and our expectations going forward. But since they are not ours yet, they are Varian Inc. product lines at this point, we just don't think it would be appropriate for us to comment on them yet. So, bear with us. Hopefully it's a matter of not being very many weeks now.

Okay, thank you very much.

Errol Rudman.

Could you update us on BEST?

Could you repeat the question?

Could you be more specific, Errol?

In terms of how you have progressed in your plans to distribute stock and the timing and the method of distribution.

We are exploring different financing options, as we've discussed before. We are not prepared to get into specifics on how that might occur in the future.

Okay, could you give us a broad outline? I don't mean to pin you down, but can you give us a general outline? Is it more likely to occur in the third or the fourth quarter of this year?

We haven't given specific guidance, Errol, on that. We are focused on trying to operate the business and grow it as fast as possible, and we'll see what that results in as time progresses.

We're quite pleased with the quarter. We've already talked about the numbers. The growth has been excellent, topline in and backlog, and we're trying to continue to drive market development and operational improvements just like the rest of Bruker.

Our general goal would be to have a strategic financing for BEST and it will not be in the first half of this year. Our goal would be to do that in the second half of the year.

I completely agree. The results are terrific, and we thank you as shareholders for these results, and the suggestion wasn't that you get distracted, but rather that you keep up the good work and that we could see in more detail and get ready for the distribution when and if it occurs. Thank you very much.

Thank you for your support, sir.

(Operator Instructions). Jose Haresco, Brean Murray, Carret & Co.

Can we focus on the European front? We've heard a lot of CapEx -- companies talk this quarter about Europe being a little bit slower and China being a little bit slower. Obviously there's a lot of news in Europe going on right now.

Frank, what is your outlook on Europe? Has it changed? How should we think about the business overall and is what we are seeing in Europe more of a -- having more of a neutral effect on you guys since you aren't really tied to -- since you're really tied more to government research spending. And related to that, Brian, how should we think about the foreign exchange these days?

Thanks, Jose. I think clearly the countries that are in the headlines, Greece and maybe Portugal, have not been significant customers -- buyers for us at all. So, that effect is absolutely de minimis or almost nil, quite honestly.

The major European economies are recovering, and that's noticeable. So demand in the major European economies is increasing. Spain was a little bit weak last year, and so that we don't really have good visibility on that, although some good orders have come in recently there, particular also for our MALDI BioTyper, which comes from a totally different pot of money, if you like. So I think Europe is actually quite healthy for us with good gradual recovery, and this financial crisis that affects a few countries from which we normally wouldn't get any orders anyway really doesn't have any effect on our business.

It does have an effect on exchange rates, of course, and quite honestly the effect on exchange rates with dampening the Euro a little bit is quite welcome from our point of view.

This is a question for Tom. Tom, any progress on the fault current limiters or the crystal growth projects that are worth talking about in the quarter?

Yes, we are continuing to make progress, Jose. Those, as you know, are two of our primary R&D initiatives. The crystal growth magnet is targeted for first prototype at the end of this year, 2010. The fault current limiter is targeted for initial deployment in the grid in the early 2012 timeframe, so neither will have a material impact on 2010 topline, but we are investing in both areas quite heavily right now, and are satisfied with the progress we're making.

Robert Carlson.

I apologize. It appears he has put you on mute at this time. And there are no questions in queue.

Are there no further questions?

No, sir, not at this time.

Then thank you all for joining us today. We appreciate your interest, and this concludes our earnings call, and thank you and goodbye.

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