Bruker Corp (BRKR) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Bruker Corporation quarterly earnings conference call hosted by Stacey Desrochers, Treasurer and Director of Investor Relations. My name is [Maynard] and I'm Event Coordinator today. During the presentation, your lines will remain on listen-only. (Operator Instructions). I would like to advise all parties that this conference is being recorded.

And now I would like to hand over to your host, Stacey Desrochers. Over to you, ma'am.

Thank you. Good morning, and welcome to Bruker Corporation's first-quarter 2011 financial results conference call. 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 & Supercon Technologies, Inc., or BEST, subsidiary.

Before I 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 margins, which are non-GAAP measures that exclude certain items. We exclude these items because they're 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 we measure and forecast the Company's performance, especially when comparing such results to previous periods or forecasts. A reconciliation of our GAAP to adjusted numbers can be found in our press release issued earlier today, and is located in the Investor Relations section of our Bruker.com website.

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 discuss the financial results of our Bruker Scientific Instruments, or BSI segment.

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

Thank you, Stacy, and good morning, everyone. We appreciate you joining us today.

Starting with the financial highlights of overall Bruker Corporation, which most of you may have read in our earnings press release earlier this morning, our new order bookings in the first quarter of 2011 were very strong, increasing more than 40% compared to bookings in the first quarter of 2010. While our acquisitions completed in 2010 contributed to this rapid increase in bookings, our organic bookings growth rate this first quarter of 2011 was greater than 20% year-over-year, a good start to the year, and clear evidence of the much-improved market and geographic diversification of Bruker in the year 2011.

Bruker revenue in the first quarter of 2011 was $357 million, a GAAP increase of 29% or a currency-adjusted increase of 26% when compared year-over-year to the first quarter of 2010. Our adjusted Bruker operating income in the first quarter of 2011 was $37.6 million compared to $29.5 million in the first quarter of 2010, an increase of 27%.

In the first quarter of 2011, our GAAP EPS was $0.07 per diluted share compared to our first quarter 2010 GAAP EPS of $0.10 per diluted share. Adjusted Bruker EPS in the first quarter of 2011 was $0.14 per diluted share compared to $0.11 per diluted share in the first quarter of 2010.

The unfortunate catastrophe in Japan in the first quarter caused us to shift some revenue into the second quarter, but thankfully, all of our people and facilities escaped unharmed and our teams in Japan were back to work fairly quickly, considering the circumstances. In addition to our well-developed customer base in Japan, we have a major demonstration facility for all of our divisions, and our Thermal Analysis Systems manufacturing product -- manufacturing line in Yokahama -- those were not damaged.

We also sourced parts from Japan, of course, but our vendors appear to be operating at levels, which should not disrupt our manufacturing plants. To show support for our customers and colleagues in Japan during these challenging times, in the first quarter, Bruker contributed $100,000 for earthquake and tsunami relief in Japan, in addition to approximately $50,000 contributed by our employees from all around the world.

Moving on, during the first four months of 2011, we have already launched 20 new innovative and high performance products, which address an expanding array of life science, pharma biotech, clinical research, food, petrochem, environmental, Homeland Security, materials and nanoscience, as well as academic research and educational markets -- quite a range. The new systems introduced are focused on bringing robust, easy to use, affordable, yet best-in-class solutions to routine analysis, as well as on opening new scientific horizons for our research customers.

In March 2011 at the Pittcom Conference held in Atlanta, we announced product innovations and showcased our expanded portfolio of analytical technologies from our recent acquisitions. The new systems deliver more sensitivity, productivity and specificity for confident analysis in industrial and applied markets, and significantly expand our portfolio for advanced molecular and materials research applications.

More recently, at the 52nd ENC Conference in April -- that's the big NMR Conference every year -- Bruker expanded the range of its Ascend NMR magnets of compact magnets to the complete range of 400 to 850 megahertz. Ascend magnets feature advanced superconductors and proprietary magnet technology, which together enable the design of smaller, lighter magnet coils, which result in significant reduction in physical size, weight, stray field drift, and cryogen consumptions, which translates into operating expense -- all significantly improved major progress in NMR magnets.

At the same EMC, we also introduced and announced a new, what we think, game-changing CryoProbe Prodigy product that delivers a tremendous boost for mid-field NMR at 400 and 500 megahertz at a very affordable price. This broadband CryoProbe Prodigy delivers a sensitivity enhancement of a factor of 2 to 3. In addition, very popular with our customers, we expanded our TopSpin NMR software to Apple Macintosh users to broaden its appeal in chemical and biological education and research.

We continued to look for smallish, attractive acquisitions, and into January 2011, we announced the acquisition of PROTECT-US, Inc., which designs advanced technologies to detect and, importantly, identify radiological hazards, potential radiation weapons and devices. The high-performance radiation detection products are able to differentiate, in most cases, naturally-occurring radioactive materials and radioactive medical treatments from possible terrorist threats.

The global market for nuclear radiation detection and monitoring instruments is estimated at about $2 billion per year. The PROTECT-US radiation systems, an integrated communication solutions, will considerably expand the Bruker detection product offerings for the detection of concealed nuclear weapons and for isotope identification.

On April 1, just a day after the end of the quarter, the first quarter, we closed the acquisition of Michrom Bioresources in California, a liquid chromatography and ion source technology company. Michrom's portfolio of novel technologies is very complementary to our mass spectrometry products.

In January 2010, we completed the move of our Chemical and Applied Markets Division's Laboratory GC business to a new Bruker factory in the Netherlands. In early April 2011, our GC mass spectrometry operations, previously at the Varian Walnut Creek, California facility, moved into our major new Bruker Fremont, California facility. So two of the factory moves are done. By the end of the second quarter, we expect that production of our ICP-MS systems will have moved from Australia to our Fremont, California facility. With this move, we expect to have rationalized four sites into two manufacturing R&D and demonstration sites.

So overall, a good start to the year with a large number of new product introductions, exceptional booking trends year-over-year, and solid increases in revenue and adjusted earnings in the first quarter.

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

Thanks, Frank. During the first quarter of 2011, revenue for the BEST segment increased by 16% to $24 million compared to $20.7 million in the first quarter of 2010. Excluding the effects of foreign currency translation, first-quarter 2011 revenue increased organically by 17% year-over-year.

Mostly due to significantly higher R&D investments, the BEST adjusted operating loss in the first quarter of 2011 was $0.5 million compared to a BEST adjusted operating loss of $0.3 million in the first quarter of 2010. Adjusted EPS for the first quarter of 2011 for the BEST segment was a net loss of $0.01 a share compared to $0 in the first quarter of 2010.

During the quarter, we continued to make progress on the commercialization efforts associated with our new product initiatives. BEST announced a new order for three super-conducting crystal growth magnets from a European customer. BEST also announced that it passed factory acceptance tests, and shipped its superconducting crystal growth magnet system, which was ordered in 2010 by the Korean electronics materials company, LG [Sophan]. Superconducting crystal growth magnet systems are used in the semiconductor industry, especially for larger diameter ingots, in order to improve the quality of model crystalline silicon.

BEST is also working on demonstrating the positive effect of superconducting crystal growth magnets on photovoltaic conversion efficiency in manufacturing yield of single crystal silicon, thus potentially increasing the overall cost-effectiveness of solar power.

Backlog in the first quarter of 2011 increased by approximately $20 million, or by 13%, due to increased demand for our low temperature superconductors, including a new longer-term supply order from a major provider of clinical MRI systems. Backlog for BEST has almost doubled over the last 12 months to $172.1 million as of March, 2011 compared to $87.8 million of external backlog at the end of the first quarter of 2010, an increase driven not only by low-temperature superconductor orders, but also by major orders for RF cavities, couplers, and other superconducting devices from customers across the globe.

So overall, BEST has been making good progress executing on our business plan in the first quarter of 2011.

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

Thanks, Tom. As a quick recap, revenue for Bruker in the first quarter of 2011 increased by 29% year-over-year to $357 million, or an increase of 26% on a currency-adjusted basis. Organic revenue growth for Bruker in the first quarter of 2011 was 5%, which was lower than our full-year goal of high single digit organic growth.

In the first quarter of 2011, we had a tough year-over-year comparison as our revenue growth rate in the first quarter of 2010 was 20%, partly due to high revenues associated with the special supplementary budget in Japan in the first quarter of 2010. In addition, as Frank mentioned earlier, in the first quarter of 2011, we experienced delayed acceptances and revenue recognition for systems in Japan and China. We believe this is a timing issue between quarters, and with our strong bookings performance in the first quarter and record backlog, we remain committed to delivering high single digit organic growth for the full year 2011, and currency-adjusted revenue growth of greater than 18%.

For our Bruker Scientific Instruments, or BSI segment, bookings in the first quarter of 2011 were very strong, increasing by more than 40% year-over-year. Excluding the impact of acquisitions, BSI new order bookings increased by more than 20% year-over-year, which resulted in record backlog as we entered the second quarter. On the top line, during the first quarter of 2011, BSI revenue increased by 29% to $335.8 million compared to $260.3 million in the first quarter of 2010. Excluding the effects of foreign currency translation, BSI revenues increased by 27% year-over-year.

Now moving further down the income statement, adjusted BSI gross profit margin expanded by 230 basis points in the first quarter of 2011 to 49.4% compared to 47.1% in the first quarter of 2010. BSI adjusted operating income was $39.4 million, or 11.7% of revenue in the first quarter of 2011, compared to adjusted operating income of $30.1 million, or 11.6% of revenue in the first quarter of 2010, representing adjusted operating income growth of 31% year-over-year.

So we were able to expand BSI operating margins in the first quarter of 2011, even as we continued to make significant strategic investments in our new Chemical and Applied Markets, or CAM division. CAM serves very large markets, and we believe the R&D and sales and marketing investments we are making today can provide us with additional organic growth and margin drivers going forward.

Below the operating income line, adjusted first-quarter 2011 net income for the BSI segment was $25.4 million, or $0.16 per diluted share, compared to adjusted net income of $19.2 million, or $0.11 per diluted share in the first quarter of 2010. Excluding stock-based compensation, acquisition, amortization, and other acquisition-related charges incurred in the first quarter of 2011, which are included in the reconciling tables in our press release issued earlier this morning, our adjusted tax rate in the first quarter of 2011 was 29%.

Additional pressure was put on our GAAP tax rate in the first quarter with the investments in CAM, as they were predominately in countries where we were not able to tax benefit these losses. We also incurred net foreign exchange losses in the first quarter, and these FX losses, combined with the high GAAP tax rate, impacted both our GAAP and our adjusted EPS negatively by approximately $0.03 in the first quarter of 2011.

Before we open the call up for questions, I wanted to comment on some balance sheet and cash flow metrics. Cash flow from operations in the first quarter of 2011 was a use of cash of $29 million compared to a source of cash of $5.5 million in the first quarter of 2010. Free cash flow, defined as cash flow from operations less capital expenditures, was a use of cash of $38.9 million in the first quarter of 2011, compared to a source of cash of $0.1 million in the first quarter of 2010.

Inventory levels increases resulted in the use of cash of $44.2 million in the first quarter of 2011. This inventory buildup is directly linked to our strong bookings performance during the first quarter of 2011. We ended the first quarter of 2011 with cash, cash equivalents, and restricted cash of $196.3 million and net debt of $99.1 million.

So, overall, a good and very encouraging start to the year. Given our strong revenue, bookings, and adjusted operating income momentum, as well as our record backlog, we confirm our financial goals for the full year 2011, which we made public when we reported our fiscal year 2010 financials earlier this year.

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

(Operator Instructions). Ross Muken, Deutsche Bank.

This is Vijay in for Ross. Thanks for taking the question. I think the first question was, could you give some color on what was the driver of strength in BSI? The segment was up strong. Was it NMR? Was it mass spec? And maybe could you give some commentary on the geographic breakdown of performance?

Glad to do that. Starting with the second part of your question, I think demand and bookings appear to be strong and really solid in all geographical segments; really nothing to highlight there. Even in Japan, we received orders that were quite satisfactory.

In terms of revenue, as Brian indicated earlier, we did recognize less revenue than we had planned in China and in Japan -- China for timing reasons; Japan, obviously, for obvious reasons. Those two factors together on the revenue recognition or aside, had reduced our organic growth rate below what we had expected.

And I'm sorry, would you repeat the first part of your question?

Sure. I guess, from a product perspective, what were the key drivers of strength? Was it NMR, mass spec or any particular customer segment that you could point out to?

Really on the demand side, I would highlight as particularly strong the Bruker Materials Divisions, which is the Bruker AXS division, the new Bruker nanosurfaces, which we acquired from Veeco; [Group Lamental]; Bruker nanoanalytics -- that group of [escrow-booked] divisions that we call the Materials Research, although they have a life science component, had typically strong growth but NMR bookings growth was strong. CAM bookings growth was very satisfactory as well but, of course, we're relatively new to those markets.

It was quite broad-based across our product lines. It was also, I know that question will come up, academic spending and research spending, and demand were very strong and very solid, with highlights that the Materials Research business was particularly strong, and demand increases beyond what we had expected, even in the first quarter.

That was very helpful, Frank. And maybe a quick follow-up on the 20% organic growth in bookings. Could you help us put it in context? I mean, what was the bookings over the last few Q's? I know that they were strong, but could you provide additional color?

Well, maybe I'll do it from a backlog point of view, and we don't give specific backlog of book to bill ratios. But typically, our systems backlog traditionally has been four, five months or something of revenue. And right now, our systems backlog and our overall backlog is well over two quarters, so well over six months.

Thanks. I'll hop back in the queue.

Tycho Peterson, JPMorgan.

Nice quarter. Just wanted to follow-up on the orders and bookings. Can you talk to the extent that you're starting to really capture revenue synergies from the acquisitions? Obviously, 20% organic was great, but you had 20%, it looks like, from acquisitions as well. So just talk to the extent that you're really starting to capture revenue synergies from the deal.

Good morning, Tycho. Yes, so in terms of revenue, the two new divisions, that it's two major new divisions, which is the CAM division and Bruker Nano Surfaces, the former Veeco businesses, they contributed about $60 million in revenue in the first quarter together.

Both had very good growth rates in bookings, particularly the Bruker Nano Surfaces outperformed our expectations in revenue, margins, and bookings in the first quarter. And so I think that integration, as we had expected, is going very smoothly. There really isn't that much to integrate. It basically hit the ground running.

Obviously, CAM is much more work; we knew that. We acquired it at a relatively low cost and had to move three factories. We now, thank goodness, have moved two out of the three and, hopefully, by the end of the second quarter, we'll have moved all three. So that is more work, but I think we're getting from second gear into third gear, and hopefully, to fourth gear by the end of year with the Chemical Analysis and Applied Markets division.

Both had good revenue -- and sorry -- sort of good bookings uptake; very satisfied with that. So the revenues are there. On the B&S side, the margins are there as well. On the CAM side, the margins will really only begin to normalize in the second half of the year, once we operate in our factories and under our own SAP system, rather than under the transition services agreements, under which we have operated CAM so far.

And it sounds like at your comment a minute ago on the academic markets, you didn't see any slowdown here in the quarter, right? I mean, we've heard from some other companies, given just kind of the budget negotiations, there was a little bit of a temporary slowdown. But is it fair to say you didn't see that?

We actually saw -- in the US, we saw quite strong bookings from academic customers. Some of that actually still stimulus money, our money that hadn't been spent or -- and so our bookings had been quite good. We did see a slowdown -- there were some orders that we expected for our defense business in the United States. And without a budget, they were just delayed month after month after month.

We think they really are delayed rather than canceled; we didn't detect any cancellations of anything we expected but some of those orders. So that's a relatively small amount. That's less than $10 million that may have gotten delayed month by month because there was no budget.

Okay. And then just last one on Michrom. I know you had the product on display at Pittcom. And now that you've close the deal, just talk to how quickly you can integrate the technology and maybe how you look at the market opportunity there.

Right. This is not a broad-based liquid chromatography company, so we're not about to become a big LC player. But the focus there is, first of all, they have some very robust nano spray ion sources that are particularly useful for proteomic. So we think that we will be able at ASMS already to show those new sources in our demo labs and its new product introductions. That's going to happen rather quickly we think.

And on the nano LC, they have a product that we've shown, although that still needs some more work. So until that is fully, fully released and fully shipping in volume, that will be some time. So some of what we acquired there was very advanced technology and advanced prototypes, but not necessarily a finalized product yet.

Okay. Thanks. And (multiple speakers) --

So the focus there will be -- the longer-term strategic focus will be on LCMS rather than on be broadly trying to enter the LC market.

Okay. Thank you.

Isaac Ro, Goldman Sachs.

Thanks so much for taking the question. So just on the quarter here, you saw, I think, a little over $60 million in acquisitions. And in the past, you said, I think, $130 million or more from Veeco and $80 million or more from CAM for the year. So is there any reason to think why the first quarter trend line will not be indicative of what you guys can recognize from acquisitions this year?

Probably the BNS or ex-Veeco was a little bit stronger with some catch-up that they switched to our revenue recognition model, which had some unusual effects for them in Q4. But it looks pretty strong and maybe not quite at that same level. I would think that CAM, we'll be at that $80 million that you've mentioned is still a good number for the full year; for BNS it may be -- it probably would be higher than the $130 million that we had estimated for the full year.

Okay. And then maybe secondly, just on the nature of the new orders and the backlog that you guys generated in BSI this quarter, I think it might be a little helpful if investors had a sense of the duration of stimulus orders that you still have to work with. And then maybe what your visibility looks like for non-stimulus orders as that rolls off.

Yes, I mean, most of the growth now is not stimulus orders; although interestingly, there are still some stimulus orders that have come through in Q1. And, in fact, some will still come through in Q2 here in the US. Elsewhere in the world, the stimulus orders have -- well, they got placed a long time ago.

So we will still see some revenues -- sort of our previous estimates apply, Isaac. I think we had estimated that this year, 2011, in terms of revenue derived from somewhere from global stimulus, not just the US, might be around $45 million. And next year, perhaps about $20 million, plus/minus $10 million in each year, probably. So it's becoming a lesser component of our revenue. And most of the strength of new order bookings was actually from industrial and applied, and non-stimulus related academic and research spending in the first quarter.

Great. And then maybe just one more on the operating leverage side of the business. Thinking about one of the things I think investors are focused on is how that leverage progresses over the year. And you guys are, I think, making investments in CAM that you mentioned. Could you maybe give us a little more color on how that progresses for the balance of 2011?

Yes, for the full year, we expect to get the type of operating and adjusted operating margin leverage that we had predicted as full-year goals. In the first quarter we didn't get as much leverage as we had expected, because some of the investments in R&D and marketing and sales in CAM are a bit frontloaded in the year. And also we had expected actually even more revenue, and had some revenue recognition delays in Japan and China, that would have changed the picture a little bit as well. So the margin leverage in Q1 was modest; for the full year, we expect to meet or exceed our full-year margin growth goals, or margin leverage goals.

Great. Thank you much.

Derik De Bruin, UBS.

Your had a little bit of a headwind from FX and tax rates in Q1. Are some of those type of headwinds still going to kind of drag over into Q2? Particularly, I'm curious on the whole FX situation.

Yes, I mean, I think the FX will go away. Part of the FX losses that we generated were due to our CAM division. As they are coming online with our SAP system and the investments we're talking about, that we're making it mostly US-based, it caused some delays in repaying some of the factories in Germany because of those cash flow investments. And so we're working on that.

As Frank just alluded to in the last comment, those investments will decrease or the profitability will improve during the year. So I think that fact alone will give us some relief on the FX side of things.

And really, the same comment on the tax rate. If you take -- if you back out the acquisition-related and amortization charges we incurred in the first quarter, one item is we had $4.1 million of inventory step-up charges. Those are gone. Those will not recur. Those are finished.

Having excluded those, our adjusted tax rate was 29%. So actually a pretty good rate compared to what we've had in prior years. So I believe our rate was 40% in the first quarter of last year. And each quarter it got better. And the full-year adjusted rate was about 33%. So I think both of those -- call them isolated, not completely isolated to Q1, but we expect improvements in both of those the remainder of 2011.

Great. As a percentage of sales, and certainly also on an absolutely basis, both the SG&A and the R&D numbers were -- you're quite a bit above what I thought. Can you give us a little bit of direction on -- are those types of percentages similar to what we're going to see for the full year?

No, I think the SG&A when you're comparing year-over-year, it's a tough comparison. There's a couple of things in there. One is that the new businesses, particularly the BNS business -- Frank already talked about the performance has been very good -- their business model is a little -- their financial statements look a little different than our legacy BSI business, where they do carry higher gross margins. Their operating margins are also -- or adjusted operating margins are also above the BSI average. But with lower average selling price systems, they can carry a higher sales and marketing component. So when you're looking just at 2010 when we didn't have that business in 2011, that's one of the items causing a difference there.

Another one is the investments in CAM that we're making. We expect to leverage those, and have more revenues and profitability in the remainder of 2011. So that's another factor that's putting pressure on the Q1 margins.

And then, lastly, we talked about very strong new order bookings, both overall and organic in the first quarter. Some of our higher average selling price instruments -- NMR's, high-end mass spectrometers -- the commissions on those are 50% on order and 50% upon acceptance. So we have commissions flowing through in Q1 where the revenues will come in later in the year. So those are a couple of the items that -- long response, but basically we expect margins to improve throughout the year.

And Derik, to follow-up and in summary, we expect these expenses as a percentage of our revenue to be lower in the future -- in the next few quarters of the second, the remaining three quarters of 2011. They were higher in Q1 than for the full year. We don't expect that same percentage of revenue.

Thanks, Frank. Thanks for the clarity on that. So I guess on the materials science side of the business and just -- oh, actually, I'm sorry, let me switch that. Are you having -- what's your demand, I think, from some of the chemical industries, some of the mining industries, something like that? Are those companies spending a lot more on -- for materials characterization type of products? Are you seeing -- is that -- last-cycle something that's seeing an increase? I mean, are you seeing a much greater demand from there?

Yes, we are. It is not only those two examples that you cited. Again, it's pretty broad-based. Obviously, even the Bruker AXS business has more than -- or has about half of their customers are academic or governmental research or similar customers. And their demand has really seen a very strong uptick.

I mean, a year ago, we were in full recovery but we're actually a little bit surprised, positively surprised, how strong their order growth has been in Q1 that hasn't translated into revenue growth yet. It has, unfortunately, led to some inventory growth in Q1, but some of those divisions that we expected to maybe grow at 10% in orders are growing at 30% in orders. So -- and not just one particular product or product line, but essentially most of those product lines under that Bruker Nano -- sorry, under the Bruker Materials set of divisions. So a pretty broad demand uptick and stronger than we had forecasted even two months ago.

Great. Thanks, Frank.

Jon Wood, Jefferies.

So Frank, do you -- given the production schedules you've looked at for the second quarter, will you begin burning backlog in the second quarter, according to your plan?

We will be burning inventory (laughter) to reduce our inventory. And I guess that depends on how strong the orders are -- whether we reduce backlog depends on our Q2 order size. I can predict that yet. It would be okay to bring our backlog down a little bit, but we thought we'd actually bring it down in Q1, but for our Q1, the orders have just been really very strong across the board.

So I'm not sure whether our backlog will come down. It depends on the orders in Q2. We expect our inventory to come down as we adjust to this new higher demand level.

Okay. But you would say that you can manage, within a quarter or so, the surge in bookings -- I know the NMR business, obviously, is longer cycle, but I mean, do you feel like you're capacity constrained at this point from a manufacturing standpoint?

No, we're not capacity constrained. We're fine. We can handle it.

Okay. Great. Can you tease out a little bit Veeco versus CAM in terms of the revenue contribution in the first quarter? You said $60 million total, but can you (multiple speakers) --?

$60 million total and there I would probably prefer not to help our competitors too much and leave it at this aggregate number, Jon. As I said (multiple speakers) --

How about this one (multiple speakers) --?

As expected and Veeco, ex-Veeco or BNS, so stronger than expected.

Okay. I got it. How about -- would you comment if the chemical business -- was the revenue level up sequentially?

No, Jon. The revenues were pretty much flat sequentially, which is not a bad performance considering that we moved two factories during that period of time. So I think we're pretty satisfied. We're generally in line with our business plan for the first quarter, so it's flat sequentially, but that's what we expected because of the moves that have been taking place.

Okay, great. And then -- so basically on the CAM division, you're still on track for a second half profit ramp. Would it be accurate to say that that CAM business was actually a drag to profit in the first quarter?

Absolutely. We expect to reduce losses throughout 2011, targeting maybe breakeven in Q4. And really the investments are what we're making -- because it won't be too long from now we'll be asked to come out with 2012 specific goals. And so we're really making those investments now for that business to really -- to click in to its operating model and perform well in 2012. So we expect to reduce losses throughout 2011, targeting around breakeven end of the year, but moving into profitability next year.

Okay. Great, thanks. And then last one on the tax rate, any changes to your expectation for the full-year tax rate?

No. We had targeted a 1% to 2% reduction in our adjusted tax rate over last year and we're still holding to that. The actions we've taken -- the adjusted rate was 29% this quarter, and so we're sticking with the goals for the year -- no reason to change those.

Okay, great. Thanks a lot, guys.

Stephen Unger, Lazard Capital Markets.

Frank, just in your opening comments regarding the order growth, did that include the BEST division?

Yes, Steve, my comments were for Bruker overall, so that included the BEST division. That is correct.

Could you maybe just talk about the order growth organically for the BSI division in the quarter?

The order growth in the first quarter, Steve, was -- for just BSI, was above -- the organic growth was above 20%.

About 20% also. Okay.

Yes, it was, yes.

And then you had some Japanese stimulus revenues, right, in the first quarter of 2010. I was wondering if you could quantify that for us? And then also the magnitude of the revenue push out in Japan.

We haven't disclosed what the exact revenues were in the first quarter of 2010. We did say with the end of their fiscal year that they had requirements for systems to be in-country and accepted last year. So it was certainly a positive influence but we didn't quantify it.

As far as the -- I think the second part of the question was kind of the shift out of revenues to Q2 in 2011. Overall, our team has really performed amazingly, considering the circumstances. So we didn't miss a tremendous amount, but we did miss some -- particularly some high-end mass specs and high-end NMR systems.

So, Japan -- there was some shift out of revenues that we had planned to get into Q1, but it didn't, as you can see, it didn't disrupt the quarter overall. And then in China, we talked about that. That's always a challenging environment with labs being ready. We've managed that as best we can and managed it within our internal business plans pretty well over the years. I think this quarter it lost (technical difficulty) -- only shipping out of the quarter end of this quarter.

Okay. And then so Japan and China, were they down year-over-year revenue-wise?

(technical difficulty) Operator, by the way, we have a very strong echo. I don't know if there is anything you can do about that.

If the revenue push was greater than $10 million in Q1 --.

And then just on the CAM management -- or manufacturing transition, will that have -- or has that had an impact on the gross margin? And what do you expect to be the benefit to the gross margin in the back half of the year?

Yes, Steve, this is Brian. It did -- it had a modest impact on the gross margin. Really all that was kind of planned, so I think generally, things are happening as we expected them to. As that business is -- it's going to grow more rapidly during the year. It had a slight negative impact and it will have a slight -- more positive impact as the year goes along. But it's not going to be a huge driver of our gross margins.

The real drivers behind our gross margins are a lot of the operational excellence initiatives we've talked about and really executed on the last several years. So we -- slight drag, but we still expanded gross margins by 230 basis points this quarter. So it obviously didn't have a significant effect on us.

Great. Okay. And then, finally, is there -- I was wondering if you could just give us an update as to the status of the BEST registration?

We're not at -- this is Tom -- we're not at liberty to discuss anything about the registration. We are in registration with the SEC and that remains the case today.

Okay. Great. Thanks.

Peter Lawson, Mizuho Security.

Frank, is there any way we can get some kind of breakout or color by the old divisional mix -- [by us BN] AXS, [Deltonics] upticks just to get color on the quarter?

Hi, Peter. Yes, the Bruker AXS which we then renamed with Bruker Materials, which Bruker now has the additional Bruker Nano Surfaces, was particularly strong. All other three were really strong in terms of demand in the order bookings. And BEST we breakout anyway. So it was pretty broad-based strength and particularly strong in what used to be called Bruker AXS, and which Bruker AXS is now a part of the Bruker Materials.

Okay. But it was -- the standout was Materials; the rest were kind of -- had that kind of strong rate but not as strong as AXS?

That's right, yes. The others were sort of as we predicted for the year, or more or less than AXS Materials was stronger than what we had predicted, even two months ago, in terms of bookings.

And then just by end markets, big pharma, what was the spend like? I know it's the smaller part of your business, but what was the tone coming out of that?

The tone coming out of that was really quite good. I mean, you know there -- I don't know that that's indicative or statistically meaningful, because for us, they -- but for selected high value tools, that gives them good information. We continue to get good orders out of big pharma and big biotech.

Perfect, thank you. Frank, thanks -- oh, sorry, Brian, really, I guess this is for. Thank you for the comments around SG&A. R&D, how should we think about that for the full year?

Yes. R&D, we plan to leverage further on that during the course of the year. A couple of reasons -- one, is some of those investments again we're making, particularly in CAM, we'll be able to benefit from. And then just the pacing of our quarterly revenues. If you look at the last several years, Q1 is usually the lowest revenue quarter; Q4 for being the highest revenue quarter; and Q2 and Q3 somewhere in the middle.

So our R&D expenses aren't exactly linear, but we tend to get leverage throughout the year. So we expect to -- our goal for BSI is to bring that down closer to 10%. Not saying we'll get there this year, but we will leverage -- we expect to leverage R&D really each quarter this year. And to reduce for the full year overall, R&D will be a lower percentage of revenue than it was last year.

That dollar value in Q1, we can see that in Q2 to Q4 kind of thing?

Yes -- it's not exactly linear through the year. There can be times (multiple speakers) --

(multiple speakers) We have more product introductions typically in the first half of the year. And there are some R&D expenses that are non-linear. Those are things other than salaries, materials and so on, that tend to peak around the time of product introductions. And product introductions tend to be more of a -- probably 80% or -- more of our product introductions generally occur in the first half of the year with Pittcom, ENC, ASMS coming up and so on.

Perfect, thank you. Oh, just finally, you mentioned this impact from China or Japan. What was that on the revenue? Can you break that out, tease that out in any way?

Greater than $10 million got deferred compared to what we would have liked to recognize in those two countries.

Perfect. Thanks so much.

Ross Muken, Deutsche Bank.

Brian, just a quick clarification. Was the 5% organic -- that was company-wide or just for the BSI division?

Company-wide.

Company-wide.

: So maybe a quick follow-up. Do we know the breakout BSI systems versus aftermarket? The total revenues, organic, I guess?

Typically, our aftermarket revenues are about 20% of our total revenues. So about 80% is systems. That's historically full-year data. There can be slight variances quarter-to-quarter, but there was nothing unusual about this quarter that would cause that to be different.

Got it. Thank you.

Thank you for your question, Ross. We have no further questions. (Operator Instructions). We have another question from Peter Lawson from Mizuho Security. Please go ahead.

Brian, I may have missed this, but the interest income, what was the (technical difficulty) -- $5 million?

You're breaking up a little bit, Peter. I think you were asking about the $5 million of interest and other income on the P&L?

Yes, exactly.

Yes. A little over $3 million of that was the FX losses that we had talked about in our prepared remarks and then in one of the questions. And then the interest expense on our debt was about $1.5 million -- $1.6 million in the first quarter. So the two of those gets you to your $5 million.

Thank you so much.

Thank you, Peter. We have no further questions.

If there are no further questions, then thank you very much to all of you again for joining us today. This concludes our earnings call, and we look forward to speaking to you at the next earnings call or at financial conferences in between. Thank you very much and good bye.

Thanks to the presenters. Ladies and gentlemen, that concludes your conference call for the day. You may now disconnect. Thank you very much for joining.