Bruker Corp (BRKR) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Bruker Corporation quarterly earnings conference call. My name is Kathy, and I'll be your Operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. 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, ma'am.

Thank you.

Good morning and welcome to Bruker Corporation's fourth-quarter and full-year 2010 financial results conference call. I'm Stacey Desrochers, Bruker's Treasurer and Director of Investor Relations. With me on today's call are Frank Laukien, Bruker's President and Chief Executive Officer; Brian Monahan, Bruker's Chief Financial Officer; Bill Knight, Bruker's Chief Operating Officer; and Tom Rosen, Chief Financial Officer of our subsidiary Bruker Energy & Supercon Technologies, Inc., or BEST.

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.

In addition to the financial measures prepared in accordance with Generally Accepted Accounting Principles, or GAAP, we will discuss certain non-GAAP financial measures, including adjusted EPS, adjusted operating income, and adjusted operating margin, which are non-GAAP measures and exclude certain items. We exclude these items because they are outside of our normal operations, and/or, in certain cases, are difficult to forecast accurately for future periods. We believe that the use of non-GAAP measures helps investors 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.

Today, Frank will provide an overview of our results, some financial highlights, our financial goals for 2010, and our mid-term financial goals for 2014. Tom will describe the financial results for our BEST segment, and then Brian will discuss the financial results for our Bruker Scientific Instruments, or BSI segment, and some additional details on Bruker Corporation.

I'll 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 full year 2010, I would first like to welcome our new sell-side analyst, Dr. Peter Lawson from Mizuho. Welcome, Peter.

Now, for Bruker, 2010 was an outstanding year, and we celebrated our 50th Company anniversary. Bruker made substantial progress expanding both gross and operating margins. We grew our currency-adjusted revenue by 18%,and we made two strategically important acquisitions, which provide us access to new high-performance product lines in sizable adjacent markets.

Turning to the fourth quarter, our Bruker overall revenue was a record high of $416.1 million, a GAAP increase of 13%, or a currency-adjusted increase of 17%, compared to the fourth quarter of 2009. On the bottom line, Bruker's GAAP EPS in the fourth quarter of 2010 was $0.18 per diluted share, compared to GAAP EPS of $0.26 per diluted share in 2009. Adjusted Bruker EPS in the fourth quarter of 2010 was $0.27 per diluted share, compared to $0.24 per diluted share in the fourth quarter of 2009. For the full year 2010, Bruker's overall revenue was $1.305 billion, up 17% on a GAAP basis, or up 18% on a currency-adjusted basis from $1.115 billion in 2009. Bruker GAAP EPS for the full year 2009 was $0.58 per diluted share, compared to GAAP EPS of $0.49 per diluted share in 2009. Adjusted Bruker EPS for the full year 2010 was $0.72 per diluted share, compared to $0.47 per diluted share in 2009, or an increase of 53%.

Let me now provide some additional color on our full-year 2010 financial performance. For our Bruker Scientific Instrument segment, or BSI, currency adjusted revenues in 2010 increased by 16% over 2009, to $1.225 billion, with solid performances across the board from our four BSI operating groups, and well above our 2010 stated goal of currency-adjusted revenue growth greater than 5%. Adjusted operating margin for BSI increased by 190 basis points, or bps, to 14.8% in 2010, which was 65 basis points above our stated goal for 2010. Adjusted 2010 EPS for BSI was $0.76 per diluted share, an increase of 49% over 2009 adjusted BSI EPS of $0.51; again, exceeding our 2010 goal. Adjusted 2010 EBITDA for BSI was $232.6 million, an increase of 23%, compared to 2009. Adjusted 2010 BSI Return on Invested Capital, or RoIC, which we define in the press release, increased from 28.9% in 2009, to 32.6% in 2010. We deem this performance metric very important because RoIC, or Return on Invested Capital, is a measure of how much value is created by organic growth, margin expansion, and disciplined acquisitions.

For our Bruker Energy & Supercon Technology segment, or BEST, full-year 2010 currency-adjusted revenue grew 59%, also exceeding our 2010 goal of greater than 25% revenue growth for BEST. The 2010 BEST operating loss, GAAP operating loss, was $2.6 million, better than our 2010 goal of a $7 million to $8 million BEST operating loss. For the year 2010, BEST achieved a break-even EBITDA level.

On the acquisition front, we were unusually active in 2010, yet we remained very disciplined and kept our high RoIC goal in mind. Our integration efforts have been going well, generally in line with our expectations. For our Chemical and Applied Markets, or CAM division, these were the three former Varian businesses that we acquired in May 2010. We moved our Chem Laboratory GC business in the Netherlands into a modern, efficient Bruker factory in late December 2010 and shipped our first GC instruments from this new site in January 2011. Within weeks from now, we are planning to move our Chem GC mass spectrometry product line from the old Varian Walnut Creek, California site to an expanded Bruker factory in Fremont, California, joining other Bruker divisions in a major new West Coast R&D demonstration and training laboratory. Finally, later in the second quarter, we expect to move our ICP-MS production from Australia, also to our Fremont, California factory. With that move, we will have rationalized four sites into two major manufacturing R&D and demonstration sites.

Moving on to the other major acquisition. In the fourth quarter of 2010, we acquired the AFM and SOM instrument businesses from Veeco, and these two new businesses now form our new Bruker Nano Surfaces division. With expected 2011 revenue of greater than $130 million, and expected 2011 adjusted operating margin for that Bruker Nano Surfaces division of greater than 15%.

Late in 2010 and early in 2011, we made two additional smaller technology acquisitions that, however, add new capabilities and access to new Homeland Security and industrial markets. In December 2010, we acquired Sigma ElectroOptics GmbH in Hamburg, Germany. Sigma develops and produces remote gas sensing systems based on dispersive and free transfer form infrared spectroscopy, and is developing novel hyperspectral infrared imaging products. In early January 2011, our CBRNE Detection division acquired the radiation detection instruments business of PROTECT-US, Inc., previously located in Champagne, Illinois, thereby adding Homeland Security products for the detection of concealed radioactive materials, including the ability to identify isotopes, very importantly, and thereby expanding our addressable market in radiation detection considerably.

In the fourth quarter of 2010, we had record bookings and ended with record backlog. We feel strongly that the drivers are in place for our continued fast growth and margin expansion. Assuming current market and currency conditions, our full-year 2011 financial goals are currency-adjusted Bruker revenue growth of greater than 18% to reach Bruker revenue in the range of $1.55 billion to $1.57 billion; BSI segment-adjusted operating margin expansion by greater than 75 basis points; BSI adjusted EPS of approximately $0.90 to $0.93 per diluted share;and BSI $0.46 of working capital per revenue dollar in 2011, a further improvement compared to the $0.49 of working capital per revenue dollars in 2010; and finally, we want to maintain a BSI Return on Invested Capital of greater than 30% in 2011.

Looking at our medium-term goals, as we now anticipate that our BSI segment will exceed its 15% adjusted operating margin target already in 2011, one year earlier than originally planned, we are establishing the following new medium-term financial targets for the full year 2014. Currency-adjusted revenue CAGR of greater than 10% for a total Bruker target revenue of greater than $2 billion in 2014, and average annual BSI segment adjusted operating margin expansion of 75 to 100 bps, with a target BSI adjusted operating margin of greater than 18% in 2014.

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

Thanks, Frank.

2010 was a good year for BEST, with currency-adjusted revenue growth of 59%, and a lower than planned 2010 operating loss. On the product side, we made progress in 2010 on our inductive superconducting fault current limiters, superconducting crystal growth magnets, superconducting RF cavities, linear accelerators, beam lines, and our YBCO 2G HTS wire program. In December 2010, we announced a Cooperation Agreement with PVA TePla AG on the joint development of a more efficient monocrystalline process for photovoltaic applications, using our superconducting crystal growth magnet technology. Additionally, in the fourth quarter of 2010, we received a joint grant with Areva Schneider Alstom, from the German Federal Ministry of Economics and Technology, for a $10 million cost share program covering the development of a novel shielded inductive superconducting fault current limiter for the electrical grid of the city of Augsburg. In November 2010, we also announced a $7.4 million contract from Lund University's MAX-lab for the supply of 40 radio frequency structures and related cavities for their linear accelerator.

The following are some of the other significant contracts we were awarded during the year 2010. A $2.4 million contract from the Brazilian Synchrotron Light Laboratory for a state-of-the-art turnkey beam line; a $5.7 million contract from the South Korea-based Pohang Accelerator Laboratory for superconducting accelerator modules; a $7.7 million contract from DOE's Brookhaven National Laboratory for a linear accelerator; a contract for just under $10 million from CNRS in France for the supply of 320 high-power radio frequency couplers for the European XFEL project; a $33 million contract from DAISY in Germany for the supply of 300 superconducting radio frequency cavities for XFEL.

These orders contributed heavily to BEST's external multi-year backlog, which increased by 82% in the last 12 months, from $83.3 million as of December 31, 2009, to $152.2 million as of December 31, 2010. These external backlog figures exclude Bruker inter-company orders. Some of this backlog is expected to take several years to convert into revenue, specifically the [Eder] wire and XFEL cavity contracts have deliveries scheduled through 2013 and 2014, respectively. In 2011, we intend to continue to invest in BEST infrastructure and R&D in order to further develop our broad technology platform in superconducting materials and devices, and to address emerging markets in clean tech alternative energy and big science infrastructure, and help expand BEST's position as a leading provider of superconnectivity-enabled materials, devices and technologies.

On the financial side, revenues for the BEST segment during the fourth quarter of 2010 increased by 23% to $29.3 million, compared to $23.8 million in the fourth quarter of 2009, excluding the effects of foreign currency, fourth quarter revenue increased by 33% year-over-year. For the full year, BEST revenue increased by 51% to $90.5 million, from $59.8 million in 2009, or by 59% currency-adjusted. BEST operating profit in the fourth quarter of 2010 was $0.4 million, compared to an operating loss of $2 million in the fourth quarter of 2009. The BEST operating loss for the full year 2010 was $2.6 million, compared to an operating loss of $6.3 million for the full year 2009. It should be noted here that BEST has an S1 Registration Statement on file with the SEC and is, therefore, not in a position to provide forecasts or forward-looking projections for the year 2011 at this time.

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

Thanks, Tom.

As a quick recap, on the top line for Bruker Corporation during the fourth quarter of 2010, revenues increased by 13% to $416.1 million, compared to $366.4 million in the fourth quarter of 2009. For the full year, revenue increased by approximately 17% to just over $1.30 billion, from $1.11 billion in 2009. Excluding the effects of foreign currency translation, revenue increased by 17% in the fourth quarter of 2010, and by 18% for the full year. As Frank mentioned earlier, the top-line growth in 2010 was a result of solid performance across all of our operating divisions, and as we do annually, I'll provide some additional color on our 2010 revenues.

As a percentage of total BSI revenue in 2010, the contributions from each of the four operating groups within BSI was, 42% of revenue came from the Bruker BioSpin group; 24% from the Bruker MAC group, formerly known as Bruker AXS, which now includes the newly-acquired Bruker Nano Surfaces division; 22% of revenue came from the Bruker Daltonics group, which includes the chemical and applied markets, or CAM division; and lastly, 12% of revenues came from the Bruker Optics group.

Geographically, by location of the end customer, BSI's breakdown of revenues for the year 2010 was as follows. 43% from Europe; 27% from Asia Pacific and Australia New Zealand; 24% from the Americas; and 6% from India, the Middle East, and Africa. The region with the highest growth rate in 2010 was Asia Pacific, which increased from 25% of revenues in 2009 to 27% in 2010, primarily due to continued strong growth in China, as well as Japanese stimulus revenues in the first half of 2010. Between our organic growth and our acquisitions, we have further diversified Bruker geographically during 2010.

Moving to customer end markets, BSI's break down of revenues for 2010 was 55% from academia, medical schools, and other nonprofits; 24% from industrial and applied markets; 12% from biopharma, diagnostics, or med tech companies; and 9% from governments. Although we benefited from global stimulus programs in 2010, and expect to continue to see stimulus benefits in 2011 and early 2012, as a percentage of revenue, the contributions from academic, medical schools, government, and other nonprofits decreased from 67% in 2009 to 64% in 2010. This is in line with our strategy of increasing revenue contributions from our industrial, applied, biopharma, IVD and related markets. Lastly, for BSI, for the full year 2010, revenue breakdown by type was 79% from system sales, and 21% from service upgrades, consumables, and software, which we refer to as aftermarket revenue.

Now, moving further down the income statement, for BSI, adjusted gross profit margin in the fourth quarter of 2010 was 50.6%, compared to 50.9% in the fourth quarter of 2009. For the full year, adjusted gross profit margin was 48.9%, compared to 47.3% in 2009. Adjusted operating income for BSI in the fourth quarter of 2010 was $65.5 million, or 16.8% of revenue, compared to $72.2 million or 20.9% of revenue in the fourth quarter of 2009. For the full year, adjusted BSI operating income was $181.8 million, or 14.8% of revenue, compared with $136.6 million, or 12.9% of revenue in 2009. As Frank discussed earlier, we expect adjusted BSI operating margin to improve by more than 75 basis points during 2011.

This increase is expected even though we anticipate our Chemical and Applied Markets division to have an adjusted operating loss of $3 million to $5 million in 2011, on expected 2011 revenues of greater than $80 million. As you may recall, the adjusted purchase price for the CAM assets was $32.5 million, and turning these assets into a successful division requires infrastructure, R&D, and sales and marketing investments, as well as simply some time. Despite planned additional significant investments in 2011, for the CAM division, we expect steady improvements in margins throughout the year, and adjusted operating margin break-even by the fourth quarter of 2011. In 2012, we expect our CAM division to exceed $100 million in revenue, which would be higher than historical Varian revenue levels. We are optimistic that over several years the CAM division can reach 15% and greater adjusted operating margins, despite significantly higher R&D investments than in the past.

Continuing down the income statement, in the fourth quarter of 2010 our GAAP effective tax rate was 42%, and for the full year 2010 it was 36%. Our GAAP tax rate was negatively influenced by the one-time change in the revenue recognition policy for Bruker Nano Surfaces, which resulted in BNS operating losses in the fourth quarter, as well as other acquisition-related charges, and a charge associated with an ongoing tax audit. Excluding these charges, our tax rate would have been 31% in the fourth quarter of 2010 and 32% for the full year, which was an improvement over our adjusted tax rate of 34% in 2009.

Moving to the bottom line, adjusted net income for the BSI segment in the fourth quarter of 2010 was $47.7 million, or $0.28 per diluted share, compared to net income of $41.3 million or $0.24 per diluted share in the fourth quarter of 2009. For the full year 2010, adjusted BSI net income was $126.4 million, or $0.76 per diluted share, compared to net income of $83.9 million or $0.51 per diluted share for the full year 2009. Cash flow from operations in 2010 was $156.1 million, compared to $149.8 million in 2009. Free cash flow, defined as cash flow from operations less capital expenditures, was $124.2 million in 2010, compared to $133.5 million in 2009. We ended 2010 with cash, cash equivalents, and restricted cash of $233.3 million, and net debt of $67.7 million. Adjusting for the acquisitions in 2010, we made modest improvements to our working capital to support $1.00 of revenue, decreasing from $0.50 in 2009, down to $0.49 in 2010. We continue to see working capital and, in particular, inventory turns, as an area of opportunity and expect to accelerate improvements here during 2011, which would positively benefit our operating and free cash flows.

Before we open the call up for questions, I wanted to comment further on our financial goals for 2011. I won't repeat all of our goals since Frank outlined them earlier, and they are also included in our press release this morning, but I did want to provide some additional information in certain areas to help with financial modeling. We expect approximately 45% of our annual revenue to be generated in the first half of 2011, and the remaining 55% in the second half of the year. Consistent with historical trends, we expect the least amount of revenue in the first quarter of 2011; we expect Q4 to be the highest revenue quarter of the year, and Q2 and Q3 being in the middle and roughly comparable with each other. We expect our weighted average shares outstanding in 2011 to remain comparable with our fourth quarter weighted average shares outstanding, which was $166.1 million. We expect interest expense to increase in 2011 over 2010 by approximately $2 million, as we are exploring replacing debt outstanding under our revolver with longer-term debt. Lastly, we expect our tax rate to improve further and be 1% to 2% lower than our adjusted rate in 2010 which, again, was 32%.

(Operator Instructions)

Our first question comes from the line of Ross Muken of Deutsche Bank.

Good morning, gentlemen, and congrats on a strong quarter. If we think about the progression of the business, now with the acquired entities rolled in, and you look at your sales effectiveness in each of the various or then market buckets, whether it's academic or industrial or applied, et cetera, if we fast forward the business, obviously you have some pretty lofty top-line goals. What do you think the ideal mix is or where do you think the mix is in terms of the business if we were to fast forward two or three years into the middle of your medium term goals?

In terms of revenue mix, Ross?

Yes, in terms end market mix. Obviously you've been moving away from the academic market as a percentage of total, although growing there. What do you think the pro forma mix looks like in a few years? What's your ideal targets?

We haven't set a specific target. Obviously, we like the academic and medical school and government revenues and we do very well there, although we expect faster growth elsewhere. So very roughly, although I wouldn't call that a target, I could see that in three years or so perhaps we'd be at 50/50. So 50% academic and other non government and non profits, and 50% various industrial, IVD, biopharma, applied markets.

We also expect that as a percentage of revenue after market will increase further. Right now it's at about, for the BSI segment, at about 21%. That's likely to exceed 25% eventually. I don't think it'll -- 25%, eventually crops toward 30%, but that will take some time. And geographically, we obviously expect Asia to continue to have the fastest growth. So, therefore, at some point it will be less than 40% Europe. We expect both the Americas and Asia Pacific to grow as a percentage of our revenue. It's not going to be one third, one third, one third. I think Europe probably will continue to stay stronger for us, relatively speaking. I think that Europe and Asia Pacific at some point will be comparable, perhaps both in the mid-30s.

That's helpful. And, Brian, did you call out the Varian and Veeco contributions in the quarter? If not, can we get those numbers on a revenue basis?

We did not call those out during the quarter, but on our Q3 earnings call we projected about $12 million to $15 million of revenue to come from our Chemical and Applied Markets group and about $20 million to come from the new acquisition. Again, not a run rate, because of the revenue recognition policy change, but those are the two numbers we guided to and they came in, inline with expectations.

Okay. And given the change in revenue recognition, are we likely to see a bit of those revenues coming in the first quarter then?

Now they will be at a regular run rate. It's not going to be that there will be a catch-up in the first--.

Okay.

It's just that they will be at a regular run rate. And things that previously would have been accepted for them in December, now coming in January, but at the same time, stuff they normally -- when they shift things in late March, they won't get acceptance until April, May. So, it will come in the second quarter. So the first quarter should give us a good run rate for BNS for the former Veeco businesses.

Great, thank you, Frank.

Your next question comes from the line of Dan Leonard of Leerink Swann. Please proceed.

Hi, thank you. Question on your 2014 objectives. How much of your 10% revenue CAGR from 2012 to 2014 would you say is organic versus acquisitions?

Yes, we tend to aim for high single digits organic. We're not modeling in any major acquisitions, but that smaller acquisitions, like the PROTECT-US or Sigma, those type of smaller bolt-on acquisitions we tend to do occasionally. So, I would say high single digits organic and probably a small very low single digit M&A component.

Okay. And how much of your margin improvement expectation over that time period is volume dependent as opposed to actions you could take irrespective of sales volume?

It's always true that when you have good growth, you tend to have an easier time expanding your margins, but this is not all volume driven. I don't know that I have a percentage breakup to give you a quantitative answer. With fast growth we can expand at the high end or faster than the margins CAGR that we've given. If there was a market slowdown in end markets in one of those years, we might have a -- we're still committed to margin expansion, although it could be slower in that particular year, which is also why for that 2012 to 2014 period we've elected to give average numbers. I don't know that we'll grow by 100 BPs every year. That would be ideal, but maybe in one year we'll grow 50 BPs, and in another year we'll grow 150 BPs. It's just that by experience it's not always such an even flow of expansion.

Sure. And then my final question, could you quantify how much you benefited from stimulus programs in 2010?

We cannot give accounting quality numbers anymore, because so many of these things are now flowing together. And it's really difficult for a lot of deals to say okay, there was some stimulus money, but then they went to the dean and got some other money from a foundation, and there wasn't stimulus money and so on. So, Brian, I think we had expected, was it of the order of $50 million to $60 million of stimulus benefit in 2010, and we expect something similar but a little bit lower in 2011? Maybe of the order of $45 million or so. These are not accounting quality numbers. I would put pretty big error bars, plus/minus $10 million on these numbers.

Okay, thank you.

Your next question comes from the line of Isaac Ro of Goldman Sachs.

Good morning, guys. Thanks for taking the question. On the business, as we look at the next couple of years and visibility around it, I'm wondering if you could maybe quantify your level of backlog visibility now maybe versus a year ago? And specifically as you look at the components there, I understand you can't get an exact eye on the piece that relates to stimulus, but give a sense as to what you think stimulus dollars are factoring into your backlog visibility now, that would be very helpful.

Okay, I'll try that. We ended the year with record bookings in the fourth quarter and record backlog. Our backlog right now is at the high end of the visibility that we tend to have. We usually have four months plus visibility in backlog. Right now, the total backlog that we have is well north of six months. Having said that, some of that backlog is multi-year back log; for instance at the BEST segment, but it still is very, very solid backlog.

In terms of the second part of your question, Isaac, our best estimate is that in 2011; we might derive $45 million, plus/minus, of revenue from stimulus. That tends to be in backlog or things that we are quite certain we will get in terms of orders. And our best estimate for 2012, but it will be focused on the first half of 2012, might be of the order of $15 million plus/minus $5 million. Not very precise number, but it certainly gives you the order of magnitude, and you can calculate the differences and so on.

That's very helpful, thanks. Then just the second question would be specifically on the NMR business. It seems to me you guys have been very successful there over the last couple of years. As you look at how that market is going to evolve, I think some of your competitors have talked about technologies they're trying to bring to market. Where do you see the biggest opportunities in terms of advancements in technology where your customers are asking for help, where you guys can be in a position to be a leader going forward?

As you'll appreciate, I can't really disclose our technology road map, but I think there is certainly room for further growing that market overall. Somewhat in analogy to what happened in mass spectrometry more than a decade ago by making these systems easier to use, more accessible. And those are trends that probably we and others are pursuing similarly.

Okay. So without putting words in your mouth explicitly, is it fair to say it's more about enabling a larger market opportunity rather than necessarily pressing the barriers at the high end of performance?

I think that's probably, over the longer term, the bigger opportunity for additional growth. We always try to keep our high performance high-end instruments at the best performance we can think of. But, yes, I would basically agree with your statement, Isaac.

Thanks very much.

Your next question comes from the line of Tycho Peterson of JPMorgan.

Good morning, thank you for taking the questions. Starting off, as we think about some of the infrastructure investments you guys will potentially need to make this year, can you just talk to geographically what you think you need in Asia? And then also, I think Brian talked about some of the infrastructure investments for CAM. If you could just walk through some of the key points there, that would be helpful.

All right. I think, since we're not building facilities that are owned facilities for CAM, we have-- I don't have the exact numbers, but a couple of million or so of lease improvements and things like that. And, of course, putting things into moves. So, those are not gigantic figures for CAM, and a lot of that has already been invested. Some of it has been capitalized as lease improvements. But those are not enormous figures.

We are, as implied in your question, we're also generally, independent of CAM or anything, expanding some of our Asian facilities. We're increasing our Beijing facility this year by more than 50%. We are finishing soon a very major Shanghai facility. That was actually partially driven by CAM because they were primarily located in Shanghai. Also our new BNS Nano Surfaces / ex-Veeco business has a strong presence in east China and Shanghai. We're building and finishing in the first half a significantly expanded Singapore facility. And we continue to also expand -- we're expanding to a lesser extent in Korea. And we're adding to our Japanese facilities. As you might expect, we're growing pretty rapidly in Asia Pacific, and we're putting some infrastructure.

Again, those are not very very large numbers. Those tend to be lease, leasehold improvements. They're written off over multiple years. I don't have a figure, but overall that might be another $2 million or $3 million or something like. Nothing that really sticks out. The larger investments have been generally in CapEx and so on, in BEST. Without getting into BEST forward-looking statements, independent of whether there will be an IPO or not, we expect to continue to have considerable capital equipment expenditures in BEST. That's more on the order of $15 million or something like that. And--

Then can you comment on the extent that you're seeing revenue synergies for the chemical analysis building with some of the mass spec and some of the other legacy businesses?

Brian, did you want to have a follow-up?

Yes, I was going to make one comment on your prior question, Tycho, just to elaborate. Frank had walked through a number of items we're looking at in 2011. We also will be renovating our Santa Barbara facility from the Veeco, the Bruker Nano Surfaces division. In addition, our Bruker MAT group based in Karlsruhe, Germany has grown rapidly, as well. So, we're expanding the facility there in 2011. Each of those items individually not significant, but it does add up that our CapEx in 2011 will be higher than historical-- the last few year's run rate.

Okay, and then on the revenue synergies, Frank, can you just comment to the extent that you're seeing pull-through for some of the legacy Bruker businesses?

Yes, that's beginning. So far, the CAM, or for a little while, we called it CAD, by the way. Sorry to have switched acronyms on you there, or abbreviations. So the CAM, Chemical and Applied Markets, which is the division name that we finally settled on, because it more accurately reflects what this channel is doing for us, has focused on the original Varian product, if you like, but is now also beginning and has been trained on a number of products. Both x-ray and mass spectrometry products. Now, Q-TOF can be used for pesticide analysis and LC ion trap can be used for various types of analyses. And there's some other x-ray products that we have that also go into trace elemental detection and so on, and goes hand-in-hand with IC-PMS.

So, we're definitely beginning to see that. We hope to see a lot of that in 2011. It's really just begun in the fourth quarter of 2010, but very much so in the future. CAM will really be not that comparable any more to what we acquired previously and what they did under Varian. But it will be a mix of the previous Varian product lines and obviously updates on those, plus it really being a channel into the applied markets-- environmental, food, food safety, and so on, petrochem, as well-- for other Bruker products from a number of the other divisions. So, it will be much less of a silo, but much more of a mix. And a very important new distribution channel for us.

I think you had talked about over $80 million in revenues before, for 2012. Now you're talking about $100 million. Just any color on the delta there?

Yes, the business is doing, revenue-wise, doing better than what we had expected. I think in terms of investments, it needs more investments than maybe what we had expected in May. So, there will be continued hiring and expansion of that group. That's why we are growing the traditional product lines faster and there's some pull-through of other product lines that come from elsewhere within Bruker. We're also investing a little bit more in the infrastructure and expenses than what we had anticipated in May, which is why we're forecasting this business to reach break-even operating margin, break-even really in the fourth quarter of 2011.

Okay. Then, one last one on M&A. As we think about your philosophy going forward with PROTECT-US, you've got a little bit of an expansion in homeland security. Can you just talk about how you're prioritizing life sciences versus maybe other investments outside the core research market in terms of M&A?

I think we don't really have a priority of life science versus non-life science, material science. Clearly we have been interested in opportunities that go into any type of adjacent market that could be an adjacent technology or application in the life science or in diagnostics. These examples that you just cited, they expanded our homeland security profile, or product range, which we needed because there has been a slowdown. As we had previously mentioned, in European funding for the chemical warfare agent and toxic industrial chemicals. So the strong chemical detection component of our CBRNE detection business, there we saw funding slowing down. That's why we've expanded internally organically into explosives detection-- you'll see the rollout of that this year and next.-- and VI and acquisition into looking for isotope identification and detecting dirty bombs and things like that.

So, having said that, the short answer would have been we don't really prioritize one over the other, but we just try to do what makes sense. We try to stay pretty disciplined and do things that are really in adjacent market applications, or that are complementary technology, and not go too far afield from things that we think we're reasonably good at.

Okay. Thank you very much.

Our next question comes from the line of Derik De Bruin of UBS.

This is actually Dan in for Derik. Thank you for taking the questions. On the Veeco business, just based on the way the business is trending and the operational changes being made, or are headed. Do you still think that a $0.06 to $0.08 accretion number for next year is ballpark correct, or might we see it a little bit higher?

This is Brian, Dan. I think it's tracking according to our original plan. The business has performed well since we completed the acquisition on October 7. Book trends are good. Backlog's certainly increased year-over-year. A large part of that due to the revenue recognition change, but I think the original guidance we came out with, we're sticking with it, but we have more confidence even today that will be achievable. So, things are trending in the right direction, certainly, with that business.

Okay. And on the CNBRE business, any thoughts on buying patterns or forecasted demand trends for biosafety and biothreat products, just given what is shaping up to be a particularly volatile federal budgeting process in the US?

Under the very big battles that we read about in the headlines, we certainly see a longer term trend. Explosives detection remains a priority globally, even more so outside of the United States, so getting into explosives detection. This is not only TSA for airports. We're obviously focusing on that market, not only in the US, but the rest of the world generally looks to the TSA in determining airport security. But clearly there is a huge number of checkpoints and hotel entrances and what-not, especially outside of the United States where people need to check for that. So, that has been and probably will continue to be a funding priority for the US and overseas.

We have picked up on the trends that radioisotope detection and looking for nuclear materials is a very high priority and there's a lot of funding going into that for reasons that we assume-- the government knows why they're doing that. There seem to be very significant programs for that and we wouldn't have had time to develop that internally. That's why we chose to go with an acquisition, to be a contender there almost right away.

And, I'm sorry, your question really was towards biosafety. We have just brought out a toxin detector for homeland security for the CBRNE detection in collaboration with [Ana Lucigana] actually. It's a very unique fieldable product. It's not a universal biodetector, but it addresses one weakness of the PCR-based technologies that, of course, can't look at protein toxins. And this is a very easy-to-use fieldable instrument, or bench top portable instrument, if you like. So, I would say we're selectively active in certain market niches of biodetection. But the bigger thrust right now is in explosives detection and in isotope detection.

Okay. Great. Just one last question. When you look at the spending environment for academic and government labs outside the US, where are you finding that big science projects that BEST is involved in stacks up in terms of funding priorities given that some of these are international collaborations?

We're not allowed to talk about our expectations for the future, but we've been seeing very good success with the big European efforts in big science infrastructure. The two that stand out most are the ITER nuclear fusion project on which we received a $36 million contract in December of '09. And then the XFEL project on which we received a couple orders worth, about $43 million, in September. So, if the question is how are we doing relative to competitors, we've enjoyed a great deal of success over the past 12 months, and we'll see how that continues.

But just historically, other than BEST, we want to stick to historical, we've also done very well in Asia, in Brazil, and, of course, in a number of the US national laboratories, many of them DOE funded. And looking at the long-term -- well, I'll stay away from forward-looking statements for BEST.

Okay, appreciate it. Thank you.

Your next question comes from the line of Steve Unger of Lazard Capital Markets.

I appreciate the breakdown of the revenues by division for 2010. I was wondering if you could provide what your expectations are for those percentages for 2011.

Consistent, we don't have percentages for 2011, but the trends will continue faster growth in Asia Pacific, faster growth in the Americas, as a percentage of revenue. Faster growth in the applied markets and in in-vitro diagnostics and industrial market and faster growth in after market. So those percentages in each of those -- I jumped around quit a bit here, but in those three categories geographically by customer type and by revenue type after market. Those are the ones that are likely to continue to trend up, not only in '11 but in '12, '13, as well.

Thanks, but I was looking for by division. In terms of the growth that you're expecting by division, is there certain divisions that are growing -- you're expecting to grow faster in 2011?

Steve this is Brian. We talked about, in this year all the divisions performed very well, so really double-digit growth across the board there. As far as looking forward, we haven't provided details on each division what their growth rates will be. But certainly I would highlight that the now-named Bruker MAT group, not only organically-- this was the division that through the recession was hit harder than our other divisions, having more applied industrial customers. They have rebounded well. Couple that with the acquisition of BNS, this should be a very high-growth division in 2011.

I would also call out the Bruker Daltonics group which, again, we've talked about our traditional mass spec business, double-digit revenue growth the last few years. So a good momentum there. Again, couple on the CAM division and the synergies that Frank talked about earlier, this should be another division that should grow quite nicely in 2011, as well. So I'd highlight those two as the fastest growing.

Right. And then did I hear you correctly in that you were expecting $130 million from the Veeco acquisition in 2011 and $100 million from the CAM division? Is that correct?

Veeco, the BNS, what we now call Bruker Nano Surfaces; $130 million is correct. CAM, we're expecting greater than $80 million in 2011 and greater than $100 million in 2012.

Now I've got it. Okay, great. And then as far as the goal of improving working capital, I was wondering if you could comment on how you expect to improve your inventory turns? And then as far as your operating cash flow goal for 2011, what would that be if you achieved this target?

We'll let Bill Knight jump in with part one, and then maybe Brian takes part two of that question. Bill, are you on the line?

I sure am. Hi, Steve. Working capital improvements, we will get some help from DSOs, but it is as you stated, primarily an inventory challenge. What we spent a lot of time on in 2010 was developing some improved logistics groups, staff. We've initiated a fairly significant offshoring outsourcing capability, and part of that drive has come from an excellent group that we acquired from the Varian assets. That not only will help improve the cost structure of existing products, but should help our sourcing logistics as far as inventory management, et cetera.

Then the product designs, the new product designs that are coming through, I think we've done a better job designing for manufacturability which helps us with our sourcing, with the CAM van, or just-in-time delivery with our vendors. There's much greater emphasis working with our vendors on forecasts, when we need components, when we need parts. Much better vendor qualification, much better component qualification. So, we're just getting smarter on what inventories we need and when we need it. It's no one- or two-quarter miracle; it's hard work day in, day out. We certainly have seen improvements in a couple of our divisions where production turns have improved significantly over the last 18 months. And we expect over the next 12 to 24 months to really start to approach industry standard turns.

Got you. What would the operating cash flow goal be for 2011?

Hello Steve this is Brian, I will pick up there. We didn't come out with a specific goal for operating or free cash flows for 2011, but what we have come out with is talked about, is 18% top line growth, significant margin expansion, 75 basis points at BSI. And as Bill talked about, some of the opportunities we see in working capital improvements. So, we start with this year $156 million of operating cash flows. If we're successful in those three areas I just mentioned, we expect significantly improved operating cash flows in 2011, but we haven't quantified that.

One thing I do want to call out, as well, we talked about it a little earlier, is our free cash flows was $124 million in 2010. So as much as we expect improved operating cash flows in 2011, we do expect probably about $45 million to $50 million of total CapEx this year, which is probably-- the annual run rate has been in the $25 million to $30 million range. So, we expect increases there. So does that answer your question, Steve?

Yes, it does. And then if I could throw in one more, the MALDI Biotyper; could you comment on the success that you're seeing in Europe with that? And what are the milestones for the Biotyper for the US, and is there a new instrument planned?

Yes, this is Frank, Steve. So the MALDI Biotyper has continued its very rapid growth, primarily in Europe, but also beginning outside of Europe in 2010 and we expect that to continue in 2011. The MALDI protein fingerprinting, I really think is a paradigm change, and it's almost inevitable. The time to resolve that you can get, particularly from culture, but even from blood cultures in suspected sepsis cases, it has just apparently a very major medical benefit. In addition, the consumables cost are low. In many cases, not always, but in many cases, the results, the differentiation, especially in some tricky areas of microbiology, are just more differentiated. So there is really a technology that's better, faster, cheaper, and really it's just a major trend in microbiology, one of the most significant trends. And I think it's not just a one- or two-year fad. So, we think that will continue very rapidly.

Milestones are obviously faster adoption outside of Europe, although with continued growth within Europe, as well. We are in communication with the FDA and plan further meetings there. So, sometime next year we hope to have FDA clearance to market that product generally in the United States. We're also making progress in a number of other countries from Australia to Canada, to Russia and so on, to have the regulatory clearance. And that's very well advanced or, in some cases, in place already.

Got you. Thanks and is there a--.

One other important milestone is really -- it's a consumables kit. It's called the MALDI SepsiTyper Kit, but it really makes the MALDI Biotyper instrument very much applicable to work directly with blood culture samples, particularly those of our marketing partner, BD.

Got you. Is there a placement number that you could give us?

I think in total the number is now -- but this is over the last three or four years since this product came out-- the total placement is now north of 250 units worldwide. That's an approximate number, and I don't have an exact number for 2010 right now.

That's great, thank you, perfect.

Our next question comes from the line of Jon Wood of Jefferies.

Good morning. Brian, can you help us a little bit on the M&A revenue contribution in '11? I know you've given the $80 million on CAD and you've given the $130 million, but those anniversary at different points. So if we just look, can you give us a very wide range in terms of what the actual acquisition revenue is expected to be, not in the base, in other words, for 2011?

Yes. I'll try to answer your question. One thing, we won't try to be cute here, but we can't give as much color around revenues, breakdowns in 2011 as we would like, because we're not allowed to provide forward looking comments on BEST. So, as far as the contributions we talked about in each of the quarterly calls in 2010, we talked about the revenue contributions from CAM. Those in total were about $50 million in 2010. We talked earlier in this call about, from BNS having about $20 million of revenues in 2011, from that group. Earlier in the call today we talked about greater than $80 million of revenues from CAM in 2011, and $130 million from BNS. So I think that's really about -- hopefully that does satisfy your question, but that's about as much as we can give at this point.

Okay. So, you said chemical analysis of $50 million. That would have meant a big fourth quarter, no? I mean over $15 million.

It was slightly over $15 million, correct.

Okay. All right, great. And then CapEx, you just gave the $45 million to $50 million, Brian. Is that a new run rate, or is that an elevated level? I know you're making investments in chemical, but just talk about a run rate for the business in the out years.

It will be higher this year than our more normalized run rate going forward. As I said, we've got one-time items such as the CAM, the fitting out the space for the groups there, the renovation of our Santa Barbara facility. We've got some CapEx for BEST this year. So, I think historically we've been in the approximately $25 million. I think going forward as we continue to build out and grow the Company, maybe it will be a little higher than that, but I would say this year the $45 million to $50 million is probably $15 million to $20 million higher than what our future annualized run rate is expected to be.

I agree. $30 million to $35 million is probably a good longer term figure.

Okay, great. And then last one for Frank. So Frank, you've he been very active, as you mentioned, on the M&A front in 2010. Are you resource constrained for 2011, in your view, or is it really about availability and price more than your internal-- your resource set in 2011 that continue to do these kind of tuck-in deals?

The small tuck-in deals we continue to protect or look at smaller tuck-in deals. The larger acquisitions, from our point of view, like the CAM or the BNS, it's really more of what do we -- we're not resource constrained, no. We remain disciplined on price and valuation, and we really just elect to focus on now trying to do a good job with our traditional core businesses, and our growth opportunities like CAM or BEST. And, of course, the new BNS system that is already a pretty good division. I think they will do great. So, we really want to focus on that for awhile. We actually don't want to get into the mode where, we are expected to do significant or medium-sized acquisitions every year. That's not our MO, if you like. So we'd like to go back a little bit from the year 2010 and focus on growing our business organically with very likely some smaller tuck-in acquisitions. But smaller for us might be less than $20 million or $30 million or so.

Okay. Very good. Thanks.

It's more of a corporate philosophy rather than a resource constraint.

Our next question comes from the line of [Eric Kriskwolo] of Mizuho Securities USA.

Good morning. Thank you for taking my question. Just stepping is in for Peter here. Can you comment on any changes in trends that you've seen from your academic and pharmaceutical customers, specifically in Europe?

This is Frank. Really, nothing new that we hadn't discussed already two or three or four months ago. So, continued encouraging picture in Germany for sure, also in France. Some of the other -- Scandinavia looks better, Switzerland, Austria, Benelux, Denmark, all of that looks pretty good. Eastern Europe continues to look very good. UK not so great, but hasn't been for awhile in terms of science spending, and there we were more relief that at least it would stay flat rather than be cut. Spain, remarkably good for us in 2010 in terms of new order bookings, record year. Not what we would have expected, but we have so many strengths in so many different markets so it's been really doing well. And Russia coming back quite nicely in 2010, whereas they were absent from the market after previous boom times, obviously, but they were absent most largely in 2009. And Russia is not booming, but it's come back.

New countries like -- I mean, old countries, but new in the market -- Turkey is booming. There's pockets of strength. The growth in Turkey far exceeds what we might have lost in Portugal and Greece. So overall, we're pretty optimistic about Europe, despite the headlines that tend to affect smaller countries from which we didn't have much revenue to begin with And the one that we have some revenue from, Spain has been doing well and some others that maybe aren't on everybody's radar screen, have come back, and some of them are really doing quite well.

And the same goes for the pharmaceutical customers in those areas?

Pharma -- our data probably isn't that generally meaningful. We're doing really well in biopharma and biosimilars because that's where our tools are very applicable and very unique. We're not really in the pharma admin, triple quad, market, whether they need more, or have some replace, or who they replace it by. Other companies are involved in those markets, as you well know. So, the part of pharma that we see has been quite healthy, but I think that's much more the long term trend rather than has there been another pharma merger, has Pfizer decided to cut back on this or that site. So, for us pharma trends have been healthy. I think we have a somewhat unusual view that's probably not statistically relevant for the industry at all, but for us pharma is good. Pharma, large biotech, I should say.

Thank you, that's very helpful. And as far as margin improvements, specifically in the CAM business, what are the main drivers for that going forward?

Getting into our own factories and getting out from the previous Varian, now Agilent factories, where we still operate under various transition services agreements. So we're not even in our steady state yet and won't really be until later in the year 2011. We've moved all of our demo labs, although some of them in Singapore and Shanghai we still want to move into our new facilities, or expanded facilities. Then, moving the remaining two factories, which is one is imminent in California, and the other one, the final one in the second quarter from Australia to California and switching to our own IT systems. So, nothing about the CAM business so far is steady state yet. It will probably be really steady state in 2012, but right now it's still a lot of transition.

Okay. And lastly, the SG&A was a little higher than we had expected. Was there any buildup in the sales force, or anything like that, that led to an increase in the spend there?

Yes, it's really two things. One is that the acquisitions that joined us in the fourth quarter and even this year, their sales and marketing as a percentage of revenue tends to be higher than some of our traditional businesses. So that's a little bit of the driver as a percentage of revenue. Then I would also say, and we've talked about it in the past, that as much as we're delivering good margin expansion, we are and continue to make investments in sales and distribution. We feel those are the right investments to really drive that top-line growth that we've talked about over the next three, four years. So, it's a combination of those two items that caused it to be a little bit higher than maybe you expected.

Great, thank you very much.

Our last question comes from the line of Jose Haresco of JMP Securities.

A couple questions. You've had a lot of acquisitions over the last, call it 12 to 24 months now. How has that changed or how is that changing the way you guys are allocating your R&D projects? And then what are the big new product launches this year coming out of the pipeline? And qualitatively, are there any big long-term initiatives within R&D that we should think about over the next 12 to 24 months?

Jose, I don't mean to be flippant here but, of course, our new product announcements, as you know, we don't tend to pre announce. So, yes, we will have new products that we will talk about at Pittcon and at ASMS, and we hope to see many of you there. We are adding more R&D to the CAM division, in particular. That's probably been under-invested in a little bit in the past. And so generally you will probably continue to see a trend for products that go into the particular trend that go into the applied markets, from forensics to food safety to clinical to environmental, of course. We've pointed to some trends in homeland security. We're really expanding from the chemical detection much more into explosives and radiological nuclear detection, and to a lesser extent also bio detection. Focused on the biologics side of pharma.

Those are some of the trends that we've discussed and can discuss at this point. Others we'll discuss when we announce the products, but I think you see the larger trends, without going into individual products or product plans.

Okay. As we think about the US markets specifically, and outside of academic research customers, could you help us understand where perhaps you are seeing the most buying interest and the larger budgets? Are we seeing that more on the industrial side and within industrial? Are we seeing it -- which verticals are we seeing it in as we think about the customer base outside the academics in the US?

Okay. As Brian said earlier, certainly our MAT division -- materials, science, and analysis division, has seen a faster pickup around the world, and also in the US. People are building foundries and steel mills to cement plants to semiconductor facilities, to a lot of different type of industrial research where people are now reinvesting. Whereas, during the severe recession, they were holding back on spending. We see, as I've mentioned, a big push on the biologics side, not only from biotech companies but from the big pharma companies putting more emphasis on biologics and biosimilars. A big push in also from commercial diagnostics laboratories. Last but not least, but again, I've mentioned that already, significant funding in the US in particular, not only for explosives detection but also for radio isotopes detection for homeland security.

Okay, thank you.

That may not have been a complete list, but those are the first. We're really quite diversified in terms of types of customers so this may not have been a complete list.

Thank you very much.

There are no questions in the queue at this time.

Alright, then, ladies and gentlemen, thank you all very much for joining us today. I would like to invite you to our investor booth tour and press conferences at Pittcon in Atlanta, both on Tuesday, March 15. The investor booth tour is at 10 AM at the Bruker booth, starts at 10 AM sharp and our press conference starts at 12 noon. So this concludes our earnings call, and we all look forward to updating you on our future calls. Thank you and good-bye.

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