Bruker Corp (BRKR) 2013 Q1 法說會逐字稿

Good afternoon. My name is Roshanda and I will be your conference operator today. At this time, I would like to welcome everyone to the Bruker First Quarter 2013 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. (Operator Instructions). Thank you. I would now like to turn the call over to your host, Mr. Joshua Young. Sir, you may begin your conference.

Thank you, Roshanda. Good afternoon. I'd like to welcome everyone to Bruker's First Quarter 2013 earnings conference call. My name is Joshua Young and I am Vice President of Investor Relations for Bruker. Joining me on today's call from our location near our Detection division in Leipzig, Germany is Frank Laukien, our President and CEO. And here in our Billerica headquarters with me is Charlie Wagner, Bruker's Executive Vice President and Chief Financial Officer.

In addition to the earnings release we issued earlier today we will be referencing a slide presentation as part of today's conference call. The PDF of this presentation can be downloaded by clicking on Bruker's Investor Relations website or by accessing the file through our audio webcast player.

During today's call we will be highlighting non-GAAP financial information. A reconciliation of our GAAP to our non-GAAP financial statements is included in our earnings release and in our webcast presentation.

Before we begin, I'd like to reference Bruker's Safe Harbor Statement which I show on slide 2. During the course of this conference call we will be making forward-looking statements regarding future events with the financial performance of the Company that involves risks and uncertainties. The Company's actual results may differ materially from the projections described in such statements. Factors that might cause such differences include but are not limited to those discussed in today's earnings release and in our Form 10-K as well as other subsequent SEC filings.

Also note that the following information is related to current business conditions and our outlook as of today, May 2, 2013. Consistent with our prior practice we do not intend to up our projections based on new information, future events or other reasons prior to the release of our second quarter 2013 financial results.

We will begin today's call with Frank providing an operational summary of our Q1 performance. Charlie will then cover our financials for the first quarter before providing our revised guidance for 2013. Now I'd like to turn the call over to Frank Laukien.

Thanks Joshua. I hope you can hear me. Good afternoon and thank you for joining us on the call today. I will begin the presentation on slide 4.

The first quarter 2013 was a challenging quarter for Bruker, one in which we saw a combination or macro and company-specific factors negatively impact our financial performance. We conveyed on our last earnings call that we foresaw some softness in Q1 but we clearly did not anticipate the variety of issues that put pressure on our business in the first quarter. The incrementally negative macro or market developments included a significant weakening of the Japanese Yen and weakness in the semiconductor and data storage industries which is greater and longer than we expected. Bruker derived approximately 10% of its revenue from Japan in 2012 and, while we have some local distribution and service expenses, we do not have significant costs in Japan to offset the Yen's rapid depreciation. As a result, the Yen's rapid decline significantly lowered our operating profitability for the first quarter.

From a market perspective, we believe that the semiconductor and data storage industries are approaching a trough as part of their typical cyclical patterns. Our BMAT group which derives typically up to 20% of its revenues from these industries saw sluggish demand in the quarter and could not meet our bookings revenue or margin expectations as a result.

Separate from these macro factors we also faced some Bruker-specific operational issues that are temporary in nature. I will speak in more detail about these issues during my discussion of our three groups' performance in the quarter. The net result of these factors was that we reported revenues in the first quarter of 2013 of approximately $393 million, a 3% decline compared to Q1 2012.

The reported revenue decline in Q1 2013 includes a 1.1% decline in our organic revenues from Q1 2012. The lower revenue performance also resulted in significantly Q1 2013 profitability compared to Q1 2012. Our non-GAAP margin of 6% was down year-over-year with much of this decline related to lower gross margins in the quarter. One contributor to this performance was the negative currency impact on our Japanese revenues was only -- was that the negative currency impact on our Japanese revenues was only partially offset by our modest Yen-denominated sales, service and local materials procurement costs. As a result, the decline in the Yen disproportionately lowered our profitability in the first quarter.

While we are disappointed in this performance, our overall Q1 2013 bookings continued to grow year-over-year, our new products are gaining traction, and we also saw solid performance in several key markets. So despite the fact that we did not start the year as well as we would have liked, we believe that, except for currency changes, we can improve our performance over the remaining quarters of the year to make up for our slow start.

One of the key reasons we are confident in our second half recovery is the fact that our bookings grew in the mid-single digits year-over-year in the first quarter. We think we have an incredible plan to deliver our revised guidance and we feel that we can resolve our first quarter operational issues over the next few quarters. As we have indicated in the past, our business can be lumpy and our quarterly revenues can see fluctuations. In the previous two quarters in 2012 we exceeded revenue expectations but, in Q1 2013, the factors I just outlined all added up to a miss. Despite the weak start we believe that we can deliver on many objectives for the full year.

For 2013 we continue to expect that we will generate organic revenue growth of approximately 3% which is in line with our original organic growth guidance for the year.

Looking now at the operational and financial details, I would like to turn to slide number 5 and make a few comments on the three BFI segment groups and our BEST segment.

Our BMAT group had a difficult quarter primarily due to market dynamics. Excluding the impact of the 2012 divestiture of our Japanese thermal analysis business which was in the BMAT group, BMAT's Q1 revenues declined in the low single digits year-over-year. The BMAT group was facing a difficult Q1 year-over-year comparison and softening orders entering 2013. And we are experiencing longer than expected weakness in the semiconductor and data storage industries. These two elements are having a pronounced effect on our Bruker Nano Surfaces or BNS division and its automated Atomic Force Microscopy or AFM and SOM products for these markets. The weakness in semiconductors and data storage was particularly evident in Asia. This contributed to a year-over-year decline in revenues in the high single digits for our BNS division which was greater than we anticipated. We are seeing longer capital approval cycles from BNS customers so our near term outlook for BNS remains cautious.

Moving on, while the XRD and XRS business of our Bruker AXS division performed reasonably well. Overall the AXS division revenue declined slightly in Q1 2013. This was primarily due to weakness in the x-ray crystallography business as a result of cyclicality and reduced US academic funding.

The BMAT group revenues were also negatively affected by the divestiture of our Japanese thermal analysis business in 2012. That business generated unusually high revenues of approximately $6 million of revenue in the first quarter of 2012.

Finally, although a smaller part of our BMAT group, the bright spot in the quarter for BMAT was the Bruker Nano Analytics or BNA division which generated growth in the quarter and significantly improved its year-over-year profitability due to better pricing and product mix.

Turning now to the Bruker BioSpin group, this group generated high single digit year-over-year revenue growth in the quarter including the positive impact of the acquisition of Carestream's In-vivo product lines. Excluding the impact of acquisitions, Bruker BioSpin revenue still grew in the mid-single digits in Q1 2013 year-over-year but we also saw a number of customer installations slip out of Q1. One of the reasons for this slippage was that we had to rework several high field NMR magnets before we can complete final custom installations in Q2 or Q3 of this year.

Another factor that affected our Q1 2013 revenues for BioSpin was that some customer installations were pushed out due to the delayed availability of liquid helium for magnet installations. This is an issue that has affected us for the last few quarters and may continue to affect the timing of some NMR and MRI installations going forward from time to time.

Although not directly related to the current helium supply constraints, I'd like to highlight that very recently, just in April 2013, Bruker introduced a trendsetting new Ascend Aeon NMR Magnet line which replaces liquid nitrogen and liquid helium boiled off during normal operation by a proprietary new active magnet refrigeration technology that does not compromise the NMR data quality. While this new product introduction will not help us in our installations or delays, it is an example of how innovation can improve convenience and these (inaudible) of products for our customers in a significant way.

We were encouraged by continued strength of Bruker BioSpin's new order bookings in both Europe and the United States. The healthy NMR order bookings in North America were a bit of a positive surprise given the issues around sequestration. While BioSpin bookings will often take some time to impact revenue and margins, we are looking for ways to use the strong start in Bruker BioSpin bookings to contribute to our 2013 performance late in the year.

I would like now to turn to slide number 6 to discuss Bruker CALID which is home to the Daltonics, CAM, Optics and Detection divisions. The Bruker CALID group is undergoing a significant amount of management systems and business process changes. Some of these changes impacted our performance in Q1 as CALID reported a year-over-year decline in revenues. Our Bruker Daltonics, Life Science division and our Bruker Optics division both faced order execution challenges in the first quarter.

In our Broker Optics division we faced production constraints resulting from an unexpected product mix and we did not perform as many customer installations in China as we expected. Both factors contributed to lower than expected revenues in the first quarter. In contrast, Broker Optics was a source of revenue over-performance in Q4 of 2012.

These quarterly revenue fluctuations and recent order execution issues highlight the need for better business planning and alignment in optics and we have brought in new experience Bruker Optics divisional, operational finance leadership very recently to address the situation and believe that improvement can be made within the current year.

Moving on our Bruker Daltonics Life Science business also faced operational issues primarily resulting from the impact of new systems and business processes and organizational changes. This division moved a significant -- most of its manufacturing operations onto SAP in the middle of the first quarter. Furthermore Daltonics is experiencing a number of organizational changes, especially in Asia, that contributed to revenues slipping in the first quarter. We are working diligently to fix these problems and we should start to see improvement in the remaining quarters of 2013.

Finally, the Bruker CAM division, that's our modest expectation for the first quarter. We have made a number of improvements to the CAM management team and we are confident that we have better and better products and now, also, a very experienced senior management team to compete in the chemical and applied markets. Our outlook for CAM continues to depend on our ability to improve performance in the second half of the year and assumes that the CAM division delivers on its targets for new products and successfully executes its productivity initiatives on time.

Finally, turning to the BEST segment, this division generated year-over-year organic revenue growth of 3.4% in Q1 2013 and reported an operating margin of approximately 3%. We're making progress on our initiatives to improve profitability and BEST exited the money losing iSFCL business during the first quarter. BEST management is doing a good job with making the business profitable while still driving growth.

Now I would like to move to slide 7 for some closing remarks. While the first quarter was disappointing we believe that we will partially recover from this slow start and demonstrate improving growth and profitability for the remainder of the year. Our operational issues are mostly temporary in nature and we are confident in our ability to turn pending or delayed customer installations into revenue over the next three quarters. In addition, we are controlling our discretionary spending and we are working to improve the profitability of our plans and field organizations. However, we cannot entirely offset the impact from the strong currency headwinds on our EPS on 2013.

That said, we continue to make good progress on the operational initiatives we shared with you last quarter. In March 2013 we implemented and closed two of the operational improvement projects we had targeted for this year. In France the Bruker BioSpin group divested its small power electronics business to a strategic partner. This business generated approximately $5 million in revenues during 2012. In addition, in Switzerland, we outsourced our electronics production and testing to a contract manufacturing partner. As a result of these two programs, approximately 65 employees left the company in the first quarter to join our partners. While these programs provide little P&L benefit in 2013, we expect to see some cost savings in 2014. Additionally, we expect a meaningful inventory and working capital benefits later in the year.

With that, I'd now like to turn the call over to our CFO, Charlie Wagner.

Thanks Frank. I'll now provide some additional details on Q1 before providing our financial outlook for 2013. On slide 9 I show a snapshot of our Q1 2013 non-GAAP performance. Total revenues declined 3% from the first quarter of 2012 totaling $393.4 million. Excluding a 1.5% unfavorable impact from changes in foreign exchange rates and a 0.4% net negative impact from acquisitions and divestitures, year-over-year organic revenues declined by 1.1% from the first quarter of 2012.

Our non-GAAP operating income declined by 46% in the quarter resulting in a non-GAAP operating margin of 6% in the first quarter of 2013. Our non-GAAP EPS was $0.08 in Q1 2013 compared to $0.14 in the first quarter of 2012. Nearly half of this decline was related to the EPS impact of the weaker Japanese Yen in the quarter.

Turning to slide 10 I show the revenue bridge for the first quarter. There are two items I would like to point out on this slide. First changes in currency contributed significantly to the year-over-year revenue decline. Given that Japan represents nearly 10% of our annual revenues, the impact from the declining Yen is significant.

The second point is that the net effect from acquisitions and divestments was negative in Q1 2013. For Q1 the loss of revenue from the thermal analysis business we divested in Q3 of 2012 was greater than the revenue contribution from 2012 acquisitions in our pre-clinical imaging business. For the full year 2013 we expect a positive net contribution from acquisitions and divestments, primarily as a result of the acquisition of Carestream's In-vivo product lines which closed on October 1, 2012.

On slide 11 we show our Q1 2013 non-GAAP operating results in more detail. Our Q1 2013 non-GAAP gross margin of 45.6% decreased 260 basis points on a year-over-year basis. This decline was the result of lower revenue performance, the negative impact from changes in foreign exchange rates and a negative impact from product mix. Our SG&A and R&D spending were reasonably controlled but climbed as a percentage of revenue due to our Q1 2013 revenue shortfall. Our non-GAAP earnings per share in Q1 2013 were $0.08. We estimate that the net impact of the Yen currency change reduced our Q1 2013 EPS by $0.02 to $0.03. These results include a non-GAAP tax rate of 27% which is below our previous full-year 2013 guidance of 30% to 32%. This lower rate is due to a change in our geographic mix of profits in the quarter. We expect that this mix will also change our full-year tax rate for 2013 and I'll speak about that when I get to our guidance.

On slide 12 we show a reconciliation of our GAAP to our non-GAAP financial results. In Q1 2013 we excluded $11.4 million of costs from our non-GAAP results compared to $9.2 million in Q1 2012. The year-over-year difference is almost entirely related to costs from our ongoing productivity initiatives with costs that totaled $3.2 million in Q1 2013.

On slide 13 I show our Cash Flow Statement for Q1 2013. We used $18.2 million in cash from operations and generated negative free cash flow of almost $33 million in the quarter. Our Day Sales Outstanding were 55 days and our Days of Inventory Outstanding totaled 242 days at the end of Q1 2013.

Now I'll turn to our revised financial guidance for 2013 on slide 14. At the time we developed our financial guidance for 2013 the Yen was already climbing above JPY90 to the dollar but the Euro had strengthened and was near EUR1.35. In our outlook, some of the negative -- in our original outlook, some of the negative impact of the Yen devaluation was offset by the favorability in the Euro at that time. Since that time the Euro has fallen back to around EUR1.3 and the Yen has continued its decline to nearly JPY100 to the dollar.

As a result of these currency changes, our outlook for 2013 revenue is reduced by approximately $30 million to $35 million. Because we have few Yen-denominated costs, the revenue impact had a disproportionate impact on our bottom line. And since we expect rates for the remainder of the year to remain in the range of where they are today, we expect our full-year 2013 adjusted EPS to be reduced by $0.10 due to foreign exchange changes. We expect that we see an impact of between $0.02 and $0.03 for each of the remaining three quarters.

We anticipate that we will be able to offset a small amount of the negative currency effect to a lower tax rate and by cutting some discretionary spending. While we expect improved sequential performance in Q2 2013, we continue to anticipate that Bruker will have a back-end loaded year with much of our growth and profitability coming in the third and fourth quarters of 2013.

For the full-year 2013 we expect to generate reported revenue growth of approximately 2% to 3% with foreign exchange rates reducing our prior topline outlook by approximately 2 percentage points. This performance reflects an expectation for organic revenue growth of approximately 3% which is in line with our original guidance. While we'll a net positive impact from acquisitions, the impact will not be that significant to our results in 2013. On the bottom line we now expect to generate non-GAAP earnings per share of $0.80 to $0.83 in 2013. This guidance assumes a non-GAAP tax rate of 27% to 30%. The lower tax rate as a result of the change in our anticipated mix of geographic profits compared to what we believed at the beginning of the year.

We continue to expect that we will incur $20 million to $25 million of restructuring charges in 2013 related to facility exits and CAM invest and the ramp-up of our outsourcing initiatives in other divisions. In Q1 2013 we incurred $3.2 million of these charges.

With that, let me turn the call over to Joshua to begin the Q&A session.

Roshanda, please assemble the Q&A roster.

(Operator Instructions). And sir, you do have a question from the line of Ross Muken.

Good afternoon guys.

Hey Ross.

Hey. So as we think about the sort of progression to 2Q and what you've sort of seen in April so far and try to triangulate with some of the bookings commentary Frank had, where within the business do you feel like you've got the sort of most consistent pressure that you'll see for the next quarter, at least the next several versus where do you have the highest degree of confidence? Maybe we can see a bit of an inflection point and maybe some of the demand issues were a bit more temporary and/or now you sort of understand this Yen dynamic. Maybe that changes sort of how you compete in parts of that market.

Yes Ross, this is Frank. Hope you can hear me. We don't have meaningful April data yet so I can't really reference April data or April trends at this point. Nevertheless I think in Q1 we did see prolonged semiconductor order weakness and data storage and then also LEDs. They are indications from other companies that they may be pulling out of the trough but we haven't quite seen that in our data yet but we're somewhat hopeful that things will improve. But too early to declare that that's the case.

We had a few countries like, as I said, the US in a number of areas where -- actually North America I should say, including Canada -- with more positive than we had expected in NMR. Also not bad in mass spec. European industrial demand a little weaker than what we may have anticipated even beside semiconductor and data storage. European non-Mediterranean academic spending decent as it has been and, as we expected, pretty good bookings in the Q1 in the UK and actually in Japan. We expect continued pretty strong bookings this year in Japan because of some of their extra supplementary budgets. So a very mixed picture.

Pre-clinical imaging where we've expanded quite a bit was on the weaker side so really it's a somewhat confounding picture, clearly, other than currency incrementally more negative than we saw a couple of months ago. Not deteriorating rapidly but certainly, incrementally, more negative with a very mixed picture that's confounding to us at times. And there's some positive surprises but there's also some things that take a little longer or weaker than we had expected.

And maybe as you think about some of the operational efficiency programs and other kind of cost measures, you're thinking about on kind of a longer (inaudible) basis. How does it sort of, with an environment like this where it's obviously quite volatile and tough to predict and you also had some operational challenges in the quarter and you had, sort of, this currency noise, how does it make you feel about sort of accelerating or slowing down any of the programs you kind of had in place or what your, sort of, initial goals were for the year in terms of what you wanted to accomplish restructuring-wise?

This is Frank again and Charlie, I don't have eye contact right now, sorry we both jumped in. I think we're holding the course, quite honestly. We're certainly going to look for some additional expense reductions and things like that although expenses of late have been good and our expenses have been lower than our own expectations, which is good. But we have a very full plate this year of actions in terms of outsourcing and restructuring so there's ongoing work and combining all the CAM factories in Fremont or outsourcing some of that, again, something we had previously announced but will continue over the year. We're closing another BEST manufacturing that just wasn't going to be profitable. But that's also going to take most of the year.

And there's a number of additional outsourcing steps, some systems implementations, management process implementations. So at this point we're reacting but not overreacting to the first quarter because we think a lot of the Bruker issues were mostly temporary and we can fix them. Not all in one quarter but in the remaining quarters, and I think we're doing a lot of good things this year. We're certainly not abandoning them. We're certainly not cutting them back but they also do take some time. This isn't trivial stuff that you all accelerate by a quarter or two. We have to do this very well and very consciously. So I think we're looking for some incremental savings for sure, looking to catch up, primarily. I mean, our backlog is still very healthy. Bookings weren't bad, actually, so we're kind of holding the course. We're thinking this is the right thing to do for the Company considering all the things we had on our plate already but, of course, we also have been all along, we continue to look for additional productivity opportunities going into 2014 and even beyond.

Great. And maybe just one quick follow-up just to nitpick. So are you guys -- I know you said you were going to change the reporting structure -- are you guys no longer providing any segment data or should we look for any segment data in the Q?

Yes Ross, you can look for that in the Q.

Okay, so you will still give BSI and BEST or it will be split up differently?

No, it will be BSI and BEST. Correct.

Thank you, Charlie.

And sir, you do have a question from the line of Isaac Ro.

Charlie, just wondering if you could comment on margins. How should we think about the cadence of all margins, sequentially, or maybe year-over-year for the balance of 2013 and then, qualitatively, when do you think you'll be able to give us some more -- when do you think you'll be able to quantify your long-term margin goals?

Sure, yes. So margins, obviously, were very disappointing in the quarter starting with gross margins at 45.6%. That's lower than any quarter we saw in 2012 or 2011. So clearly it's kind of off our recent trajectory. The Yen is a big part of that if you think about the way in which the Yen devaluation falls through the P&L from revenue on down. It's over 100 basis point hit to gross margin and operating margin in the quarter. So all else equal, if you put that back, but obviously we can't.

And then on top of that we just -- when you have that much revenue fallout of the quarter, it has an impact on the way costs are absorbed and just the shape of the P&L. Obviously we're shooting for something much higher in the quarter but the combination of the Yen, the revenue mix and a bunch of other things that are relatively smaller had an impact there.

Moving on down, OpEx, as Frank pointed out was fairly well controlled growing only 2% to3% year-over-year but, as a percentage of revenue in the quarter, it looks quite high obviously because we don't have the ability to push those costs out of the quarter when the revenues go out of the quarter. So the overall result is pretty disappointing.

When you think about Q2 obviously, we're looking for sequential and year-over-year improvement in operating margins for sure. But as it is, what we've communicated in the past, the strongest up-margins for the Company will be in the second half of the year.

Okay, that's helpful. And then just, Frank, maybe on use of cash. It didn't sound like you guys were obviously assuming very much for acquisitions the balance of the year but is it possible that we might see some tuck-in activity or is there just too much going on operationally to consider an acquisition? And conversely, I mean, you could argue that the company's a little bit under-levered in the current rates environment. Would you consider a buy-back just given that you obviously have a lot of long-term opportunities to grow the business? Thanks.

Yes Isaac, so this is Frank. I mean, last year we did a couple of tuck-ins but they both happened to be in the pre-clinical imaging space quite deliberately and, you know, that's really something we always keep our eyes open for. I cannot speculate on where and what timing but that's always something we're looking at I would think in every year and certainly we're potentially interested in that this year although I wouldn't call it one of our significant goals to do an acquisition. But it is possible. It's also possible that we won't do an acquisition. But we do these tuck-ins from time to time when there's the opportunity that fits one of our groups.

And we have not done share buy-backs in the past and I don't expect a share buy-back commencing necessarily this year but I also would not categorically rule them out for the future.

Okay, if I could maybe press you a little bit, what are some of the conditions under which you might consider a deal in this environment? Is it a hurdle related to you (inaudible) for capital or is there specific strategic assets that you might be interested in if they became available? I'm just trying to figure out, given the (inaudible) you mentioned, what it would take for an M&A or repurchase to sort of come into the fold? Thanks.

On the M&A side, purely if it was a good fit. I don't think we're going to go way out of our comfort zone or our space. But there's always the opportunity very often. The timing has to be to do more with, I don't like the term, but the target and are they interested? Is this the right timing for them? And of course, valuation and is it accretive or is it at least not diluted if it's very strategic or a nice piece of technology? So nothing that you wouldn't -- but, I mean, that's certainly something that we'd be looking at and we're not too busy or so bogged down that we couldn't do a couple of (inaudible) if (inaudible) made sense. Let me put it this way, we are not looking for acquisitions because it's a slower growth environment. If there are sensible acquisitions for all these parameters that I've indicated, we would go for them this year or in other years.

Fair enough. Thank you.

Your next question comes from the line of Tim Evans.

Hi. Thanks. Charlie, in the past you've been a little reluctant to talk about your long term margin goals. Where do you stand on that now and, if you're not ready to give those at this point, when do you think we might be ready to talk about that?

Sure yes. I mean, I think I have commented that we were not likely to comment on mid-term margin goals until next year. And I think you can see that we are making a lot of changes in the business right now but, obviously, having a little bit of a difficulty with predictability and controlling the results in a given quarter, anyway. So we've got a lot of new management that have come on in the last six months. We're all starting to work together to put together long-term plans for each of the pieces of the Company and the Company overall. So my expectation is that we get through this year, get through a planning cycle for the next three years and then, next year, we should have something to say about kind of a mid-term outlook.

Okay great. And maybe just a little bit more color about CAM. It sounds like some of those products are getting some momentum. Is that still up for kind of strategic review or do you feel like you're pretty committed to that business at this point?

Yes, I mean, we've never said -- yes, Frank, I'll kick it off and turn it over to you. Tim, we've never said it's up for strategic review. It's a business we just acquired less than three years ago, one that clearly has turned out to be more challenging to manage than we thought but we're committed to this space. We've put significant investment in revamping the product line and we feel like we have good traction there. Where we've struggled is on the operational side and we made a significant commitment in the last number of months augmenting the senior management team there and bringing in experienced folks who we think can help us achieve our improvement plans. So I don't think we've ever said it's up for strategic review. It's certainly up for performance improvement. And Frank, I don't know if you want to add to that.

No, I think that was an excellent answer.

Okay thanks.

Your next question comes from the line of Derik De Bruin.

Good afternoon. This is actually David in for Derik. I was wondering if you could talk a little bit more about just the order patterns that you saw throughout the quarter in terms of the areas where you were weak and did that -- was that kind of a later quarter instance or did you start seeing that towards the middle? And regarding some of the NMR installations that were pushed out, could you talk about how exactly is that going to flow through and impact Q2, Q3 and if you're seeing any cancellations in that area?

This is Frank. I'll take that. So order patterns were -- because we're not a consumables business that can look up its orders every other day or so or every day. As in most quarters and the same was true in Q1, you get more than half of your orders in the third quarter for instruments. You get a lot of that in the last two weeks and so, because we don't get daily order updates, we just don't have the systems to do that. It also wouldn't be that informative for us. Basically, we saw that we get those results in early April and it's the last month of the quarter. That on the revenue side and on the order side, makes a quarter or not in this case. So no unusual order patterns in terms of timing of orders or anything like that.

To your second part, David, the NMR installations, yes, we think those will be mostly those delayed installations we think will mostly occur in Q2 and Q3. It is possible that some of that moves into Q4 but I think things that we were about to install or under installation and that didn't meet the acceptance criteria and therefore didn't turn into revenue, or where we did have some re-work, that may take a couple of quarters but it will be probably about evenly spread over Q2 and Q3 and some things will move into Q4 but we're pretty confident that all of these delayed installations will come in as revenue this year.

Great. That's very helpful. And just given the move in the Yen, I was wondering if you guys are seeing any additional pricing pressure from some of your Japanese competitors.

A little too early to tell. I don't -- I have not heard that so far but I think, right now, there are fairly sizeable budgets available in Japan to, of course, our Japanese competitors as well as to us to the order situation this year, first, second and third quarter is likely to be pretty healthy. And so maybe that means that nobody is with their back against the wall in terms of orders and maybe this is not the climate where people ignite a price war. If you recall, many of our Japanese competitors had been very low in their margins, perhaps because of the high Yen and now I'm speculating but the short answer is I have not seen any price way erupt based on that but maybe it's too early to tell.

Okay. Thanks a lot.

(Operator Instructions). And you have a question from the line of Mike Peterson.

I think that's me. It's Tycho here. So a question on cash flow. Can you talk a little bit about if terms are being extended and why working capital is such a drag here?

Sure Tycho. This is Charlie. I don't know if I would characterize it as a drag. We obviously have a long way to go in terms of improving our working capital productivity. There was nothing special about the quarter. DSO was about 55 days last year, 55 days this year, and no deterioration in the aging whatsoever. So no issue with uncollectables and no issue with terms being extended. But obviously no progress either and that's something that we're working on.

On the inventory side same thing. Inventory obviously is definitely impacted by the sharp sales miss in the quarter. Lots of things in transit or otherwise in finished goods that we thought would have been in revenue by the end of the quarter. So we did complete two either divestiture or outsourcing projects in BioSpin in the quarter. Because of the way those transactions were structured, the inventory doesn't come off the balance sheet right away but it will turn off the balance sheet in the next few quarters. So there is, from those programs that we have ongoing this year, there is a pretty meaningful inventory impact. But several of those were -- or at least the two we announced in the quarter were completed only at the very end of the quarter. So the benefit actually, unfortunately, doesn't come through right away.

Okay. And then can you maybe just help us quantify the operational issues? I mean, you called out the installation issues in NMR. You called out some production constraints in Optics and in Daltonics you had the organizational issues. I mean, can you help us maybe just think about the magnitude of those? And then also, as a follow up, why not just lower organic just to be a little bit more conservative given that you don't know how quickly those will come back?

So sure, I'll -- just very, very high level. Of the revenue of the miss in the quarter I would say a third is the Yen, basically. And then installation delays, semiconductor softness and then kind of internal operational issues, each account for a third of the remaining two-thirds. Do you follow that?

In terms of organic growth, I mean, we obviously -- we came off double-digit organic growth last year, guided to a much lower number this year. I think got a number of questions about were we being too conservative? I feel like we were appropriately conservative and, honestly, with one quarter in the books, we're not ready to give up on our plans. The currency, there's not too much we can do about that but, in terms of things that are more within our control, 90 days into the year, we're not ready to give up on that.

Okay, but you're confident that the Daltonics business is back from an organizational perspective where it needs to be and that the production constraints in Optics will work their way through in fairly short order? Is that fair?

Yes, we're counting on, I think as we commented, we're counting on those things being worked through over the balance of the year so it's not like it's going to snap back in Q2 but we think we can recover over the course of the three quarters.

Okay. Thank you very much.

Your next question comes from the line of Peter Lawson.

Just again about the organic growth. I mean, how should we think about that going into 2Q? And I guess, another way of looking at it, of those issues this quarter which get corrected first?

Peter, this is Frank. So as we said, we think we've put it all together. We're aiming for about 3% organic growth this year for the full year. Obviously with a slow start and expecting to catch up for some of that -- catch up over the remaining three quarters. By the way, aiming at approximately 3% organic growth and that would translate to reported growth of about 2% to 3%.

And do you feel like that's mostly back-end like 4Q-weighted?

I think it will be back half-weighted. Back half-weighted. A lot of Q4 is going to be important for sure but I think it's going to be somewhat distributed over the three quarters.

And then, Frank, just around the sequester, it sounded like it affected what, x-ray? I think that was the only thing I heard around sequester.

Yes, x-ray, crystallography, clearly was missing US funding and US orders to a large extent. It also, because it had a very strong year a year ago, was weaker in orders and revenue for globally but I think the US barely did notice sequestration. And we expected to see it more broadly but we didn't see it everywhere. And maybe we didn't see it yet or it's difficult to say but, the matter of fact is, we didn't see it in all of our businesses.

And with any of these slips, do you think there was any chance of market share loss?

No. Nothing at all. Also earlier, I think I skipped someone's question on did we have any cancellations. We didn't and I think our market share is -- I don't see any, because of these slips or delays, we're not so delayed that customers look at their contracts. I think we're going to be fine. I don't anticipate any market share loss or cancellations because of some slippage but it did affect the quarter.

Great. Thank you so much.

Your next question comes from the line of Jane Aries.

Anybody from UBS on the line?

Yes, I didn't realize it was Dan Arias. Hey Charlie, on the outsourcing initiatives, are you still in the process of figuring out what it is you want to outsource and what you don't or generally, at this point, have you identified those areas and now it's just going to take some time to implement that?

Yes, the way to think about it is, I guess, is in waves. We have, obviously, we have a general sense of areas or categories that we think are appropriate for outsourcing. We have four things identified for this year. Two are done, two need to be completed over the balance of the year so those are -- we know exactly which pieces of which operations we're looking to outsource. Like I said, we've completed two. The other two we're in discussions with partners to try to get the final terms and conditions locked away. So certainly, for the balance of the year, we know exactly what we want to do and, as we go through this year's planning cycle, we'll be looking at what do we think about for the next one or two waves that come after that?

Got it. Okay. And then maybe just back to CAM, Frank, you mentioned that you have a degree of confidence in hitting the targets there. Can you maybe just give us a sense of what your sales growth expectations are for the year for that business at this point?

I don't have that number in front of me at this moment. I'm also not sure we're prepared to give that type of granularity on each division. We're expecting growth this year and, from the bookings in the first quarter of this year, I think directionally, we are on the right track to grow orders and presumably revenue in the CAM business this year.

That's one of a number of issues that we need to address so there's also cost reductions which we've taken from. We're taking some more. We have done a -- I'm very pleased with the additional senior managers that have joined us in Q1 at the very beginning of Q2. We now have a very seasoned management team including a very senior Director of Operations who has already done some incremental outsourcing and he's helping us with transferring that one factory from the Netherlands to Fremont, California, but also doing more outsourcing or some assembly. That's not something where you'll see a headline. It's not even a closing. It's more steady as you go. And also some considerable additional or good cost-cutting programs. They're not additional on this (inaudible). They're really the type of cost cutting programs that we need to improve or to reduce our losses in CAM.

So it's still a little bit early in CAM because the first quarter we knew that that much would change. That was our own expectations. But qualitatively, I think we've put a lot of good drivers in place including new product introduction on the ICP-MS and the LC-MS side and some very capable experienced managers who've joined us to complement that team. But it's still a little bit too early to tell from one quarter. But directionally, the orders are growing.

Okay. Thanks, Frank.

Your next question comes from the line of Amanda Murphy.

I had a question on some of the restructuring efforts you're making so, recognizing that it's a process, I'm just curious, is there anything that we should be aware of just over the next few quarters here that you're starting similar to the Life Sciences division that might cause just some ripples in demand or execution?

Amanda, I want to clarify the thing we referenced in Life Science, that was -- Bruker's been moving a lot of its manufacturing entities to SAP over the last few years. We've done several of those conversions and in fact, at the moment, don't have any more planned. The Life Science business was the last one. And you know, it's just not unusual to have a little bit of productivity hit when you go live on a new system that we came of [InFloor] onto SAP and that's a big improvement even if there's a little bit of a learning curve initially.

The outsourcing programs at this point have been pretty well managed and controlled and we haven't seen any issues there. But we are, as we've commented, we're looking at a lot of places for operational improvements and operational changes and we are putting a degree of strain on the organization to keep the business running while we make a lot of these changes. So I can't guarantee there won't be any disruption but I wouldn't say that there's any program I'm staring at now that I think is high risk. As you know, we've got a project ongoing to implement a new financial system. That's not likely to go live until January so shouldn't have an impact on the current year. We will do some ERP feasibility work this year but that's more studying and developing our plan and not actually going live on new systems. So I wouldn't point to any one program that I think has significant risk but we are doing a lot that takes up a lot of bandwidth in the organization.

In terms of some of the management-type changes that you've been making, how far along are you in that process?

We're far along with that. In the CAM division, I think we have a rather complete management team there now. I'm really very pleased with that. And some of our new group managers will obviously also look to strengthen their management team so we've added -- I should leave this one to Charlie but we've added two very capable divisional VPs of operational finance in Optics and the CAM division also in the last three months. So I think those people will not only be good at providing us more timely data into the division managers but they will be also part of the operational improvement.

Got it. And then just the last one. You guys have talked to efforts to improve the conversion cycle, if you will. Is it just too early to see benefits from that? And when do you think you might see that translate into actual revenue?

Amanda, you're talking about conversion of backlog into revenue?

Exactly.

Okay. We've got a variety of things going on there and it's everything from tightening up the way our service organization plans and schedules installations to the way that our, the kind of, the front end of the business, the field, communicates with the back end of the business supply chain in manufacturing. And again, as you know, since Bruker's organized in a number of smaller businesses, it's not like there's one place to go to do that. So we're doing that in several places.

I would say, Frank commented, some of the changes, some of the changes we've made in my team, I would say upgrading the talent levels in operating finance is a key step in that direction. A number of our general managers are focused on supply chain improvement programs. So it's a gradual process. I don't think you're going to see, like, a hunk of backlog fall out and convert into revenue all of a sudden but we do think that we can shorten, in some of businesses anyways, particularly in Life Science and AXS and few other places, we can shorten the time to revenue.

Got it. Okay. Thanks very much.

That is all the time allotted for today's conference call. I would like to turn the call back over to Joshua Young for closing remarks.

I would like to thank everybody for joining us this afternoon. We hope to see many of you at the five investor conferences we'll be attending in Q2. We'll also be hosting a scientific and trade press conference that investors are also invited to at the ASMS Conference in Minneapolis during June. As always, we invite you to visit our offices in Billerica, Massachusetts. Thank you for your attention and have a good day.