Bruker Corp (BRKR) 2013 Q2 法說會逐字稿

Good afternoon everyone, and welcome to Bruker's second quarter 2013 earnings conference call. All participants will be in a listen-only mode.

(Operator Instructions)

At this time, I would like to turn the conference over to Mr. Joshua Young, VP of IR. Sir, please go ahead.

Thank you very much, Jamie. Good afternoon, I'd like to welcome everyone to Bruker's second quarter 2013 earnings conference call. My name is Joshua Young, and I'm Vice President of Investor Relations for Bruker. Joining me on today's call are Frank Laukien, our President and CEO, and Charlie Wagner, Bruker's Executive Vice President and Chief Financial Officer.

In addition to the earnings release we issued earlier today, we will also 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 would like to reference Bruker's Safe Harbor statement which I show on slide number 2.

During the course of this conference call we will make forward-looking statements regarding future events or the financial performance of the Company that involve 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 10K 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, July 31, 2013. Consistent with our prior practice, we do not intend to update our projections based on new information, future events, or other reasons prior to the release of the third quarter 2013 financial results.

We will begin with Frank providing a business summary of our Q2 2013 and year-to-date performance. Charlie will then cover our financials for the second-quarter in more detail. Now, I'd like to turn the call over to our CEO, Frank Laukien.

Thanks, Joshua. Good afternoon, everyone, and thank you for joining us on the call today. I am pleased to report that Bruker's business rebounded in Q2 2013 after a slow start to the year in Q1. We achieved good growth and year-over-year margin improvement in the second quarter and we addressed many of the operational issues that held back our performance in Q1.

While the second quarter 2013 numbers look improved on a standalone basis, it is important to look at our results on a year-to-date basis in order to average out some of the variability we saw in the first two quarters of this year. Despite some ups and downs, the good news is that after the first six months of 2013 we expect to deliver the full-year guidance that we shared with you on May 2, 2013.

Now, I'd like to continue our presentation on slide number 4. Bruker's revenue grew 8% year-over-year to $455 million in the second quarter of 2013. Adjusting for currency and the net impact of acquisitions and divestitures, our year-over-year organic growth rate was 9.5% in Q2 of 2013. This is a good growth in a relatively tough environment and represents a sharp recovery from the 1% year-over-year organic revenue decline we experienced in Q1 of 2013. During the second quarter of 2013, both the BioSpin and CALID groups posted materially higher revenues in Q2 than they did in Q1 and we addressed several of the operational issues that negatively affected our revenue performance in Q1. This enabled us to close the revenue gap we experienced after Q1 and get back on track for the year.

From a market perspective, I would characterize the current environment as mixed. Both the geographic and end-market trends we are seeing vary throughout the Bruker business portfolio. For example, while demand from academic customers was strong in some businesses it is weaker in others. Similarly, we see mixed signals from our European customer base. Industrial customers are the one market segment where the tone is more consistent but unfortunately that tone is negative. Across most Bruker businesses, industrial demand was weak in Q2 of 2013 and noticeably weaker sequentially compared to Q1 of 2013.

A positive development in the second quarter was that our operating spending was down as both R&D and SG&A spending declined compared to Q2 of the previous year. This decrease is driven by decisions to reduce spending in certain divisions, like CAM and BEST, but also as a result of lower discretionary spending in response to the uncertain demand outlook. The rebound in our revenue growth, combined with lower spending, led to a non-GAAP operating margin in the second quarter of 2013 of 11.7%, well above the 7.8% we posted in Q2 2012. Keep in mind, however, that our results in this second quarter 2013 reflected a positive impact from $5.7 million of Rosatom's license milestone revenue. As a result of these factors, our non-GAAP EPS of $0.18 in the second quarter of 2013 was up 50% compared to Q2 of last year. While we are pleased with our Q2 improvements, I would remind you that Q2 2012 was a weak quarter of profitability for Bruker so the year-over-year comparison is somewhat favorable.

Now, I'd like to spend a few minutes talking about our year-to-date half-year results which we show on slide 5. After factoring in the big swings between Q1 and Q2, our reported revenues have grown by approximately 3% year-over-year in the first half of 2013. This includes organic revenue growth of 4.3% which is slightly above our full-year 2013 guidance of 3%. By looking at the year-to-date numbers, you get a more balanced picture of performance at the midpoint of the year. From a profitability perspective, our non-GAAP first half 2013 operating margin was down 20 basis points compared to the first six months of last year. However, if you factor in the 100 basis point headwind we experienced from a weaker Japanese yen, we have generated underlying improvement in our operating profitability.

I now turn to slides 6 and 7 to make a few comments on the three BSI segment groups and our BEST segment. Here, I will focus my comments on the trends we saw in Q2 of 2013. Our Bruker CALID group posted solid overall growth in the second quarter and improved its operating performance compared to the first quarter. Leading this performance was our Optics division which posted robust double-digit revenue growth. Bruker Optics substantially improved its production and order execution in the second quarter and it has resulted in better revenue and margin performance. While it is a smaller division of the CALID group, our Bruker Detection division delivered a good quarter with attractive margins. As you may know, the quarterly results of the Bruker Detection division can be rather lumpy.

Our Chemical and Applied Markets division delivered results that were still somewhat below our expectations for the second quarter but showed nice double-digit bookings growth. We have strength of the senior management team of our Bruker CAM division considerably and the new team is making changes we believe will help CAM to improve its revenues and reduce its losses further in the second half of the year.

Finally, our Life Science and Clinical division saw robust growth for the MALDI Biotyper product line upset by relatively weak revenue in its other product lines. That being said, we are excited about the new product launches that we unveiled at industry conferences such as Pittcon, ECCMID, and ASMS so far this year and our life science order rates and momentum in this division have improved in Q2.

I'd like to now turn to our Bruker BioSpin group. BioSpin generated good revenue growth in Q2 2013 on both a sequential and year-over-year basis. The group reported another quarter of strong bookings, particularly also from North American academic customers. We are also seeing bookings strength in the UK as well as in Japan where customers are investing supplementary budget funds in higher end NMR and MRI products which plays to Bruker BioSpin's strengths.

Our pre-clinical imaging division, which represents approximately 25% of the Bruker BioSpin group's revenues, continues to post strong growth and is benefiting from new products launched or acquired in 2012. We have a broad product offering in these pre-clinical imaging markets and customers have been pleased with the breadth of our capabilities. Despite the strong growth in BioSpin, we remain focused on improving the profitability and working capital statistics in this group. In the second half of 2013 the most important milestones for BioSpin will be the continued implementation of our previously announced outsourcing and other operational excellence activities.

On slide 7 you will see that our Bruker MAT group, or BMAT, experienced a weak second quarter as 2013 as we see weaker demand from industrial customers in Asia and Europe and no significant pickup yet from semiconductor or microelectronics customers. Each of the divisions within the BMAT group reported flat or declining revenues in Q2 of 2013.

On a positive note, the new Dimension FastScan AFM products that we launched last year are performing well particularly in the data storage and life science markets. These products provide customers with a faster time to results while providing greater flexibility around the sample size that they can scan with atomic force microscopy. While we don't expect the BMAT performance to weaken from what we saw in Q2, we are also not expecting a quick rebound in its performance during the second half of 2013. We believe that revenues and bookings will sequentially grow from Q2 but that revenues will decline for BMAT for the full year compared to 2012.

Now, I'd like to turn to our Bruker Energy and Supercon Technologies, or BEST, segment. The highlights for the second quarter 2013 for BEST was the $5.7 million licensed milestone revenue that we recognised in connection with the Rosatom contract, which we had announced last year. As a reminder, we previously had generated $16.4 million in licensed milestone revenue from this contract in the third quarter of 2012.

These licenses flow through to our operating income at nearly 100%. As a result, Rosatom added nearly 110 basis points to our non-GAAP operating margin in Q2 2013. While nearly all of the license revenues from the Rosatom contract have now been recognized, we expect further revenue in 2014 associated with a final contract milestone. If we adjust for the impact of the Rosatom license in Q2 2013, BEST's operating profitability would have still been up on a year-over-year basis due to lower operational -- OpEx or operational spending. This is a clear improvement from the breakeven or slight operating losses at which BEST had operated over the past several years.

With slide number 8, I want to summarize for you how important continued product and business innovation remains for our profitable growth strategy. Bruker already had strong product introductions in Q1 2013 at Pittcon, but Q2 was particularly significant this year for new product introductions which are likely to be important drivers of our growth and margin improvement in 2014.

While I will not speak to every point on this slide 8, I believe you will see overall that we continue to invest into the further differentiation of our fast-growing MALDI Biotyper platform, which in April 2013 had reached more than 800 paid installations worldwide. Particularly exciting, at this year's ECCMID conference in April were several work in progress presentations on using this MALDI Biotyper platform also for selected high-value antibiotic resistance testing assays which are presently still for research use only.

Our NMR business introduced a magnet innovation at ENC in April, offering optional magnets that obviate the need for liquid nitrogen or helium refills while still achieving good NMR performance. Moreover, our unique DNP-NMR product line, with significant academic placements, particularly in Europe in recent years, has now been expanded even further to an ultra-high field 527 gigahertz version which opens up exciting research fields in biosolids such as membrane proteins or protein aggregates implicated in neuro degenerative diseases, etcetera.

Finally, our Life Science and Clinical and CAM mass spectrometry divisions had a very strong showing at ASMS in June setting new standards for ultra high resolution QTOF performance, unprecedented bottom up protein ID capabilities, extreme resolution of greater than 10 million for complex mixer analysis, and adding very robust and sensitive quantitative healthy triple quad mass specs now also for large molecule quantitation.

Finally I'd like to conclude my comments on slide 9. Through the first six months of the year, Bruker has seen a combination of both positive and negative trends in our markets. As we look ahead, we expect that some of the strengths that we saw in our BioSpin and CALID groups will continue into Q3 and Q4. This strength will help to offset the present weakness in our BMAT group due to softness in global industrial markets. Our priorities will continue to be on delivering product and business innovations, on carefully managing expenses, driving organizational changes, and on continuously executing our operational excellence initiatives. If we deliver of these objectives I believe we will be well-positioned for profitable growth in 2014 and beyond.

Finally, although our stronger second-quarter helped to smooth out our trajectory for the full year, we continue to believe that 2013 will be back end loaded with most of our EPS and operating profitability expected in the fourth quarter. While we are pleased that our business rebounded in the second quarter, we are cognizant of the risks posed by the uncertain market environment and we recognize that significant work remains in the second half of the year to deliver on our guidance and operational objectives. With that, I would like to turn the call over to our CFO, Charlie Wagner.

Thanks, Frank. I will now provide some additional details on Q2 and our 2013 year-to-date performance before providing our financial outlook for 2013. On slide 11, I show a snapshot of our Q2 2013 non-GAAP performance. Total revenues grew 8% from the second quarter of 2002 -- 2012, excuse me, totaling $454.9 million. Our, non-GAAP operating income grew 62% in the quarter as non-GAAP operating margin expanded to 11.7% in the second quarter of 2013 compared to 7.8% in the second quarter of 2012. Our non-GAAP EPS was $0.18 in Q2 2013 representing a 50% growth from our EPS in the year ago quarter. Finally, we had negative free cash flow of $23 million compared to positive free cash flow of $18 million in Q2 2012.

Turning to slide 12, I show the revenue bridge for the second quarter. We generated organic revenue growth of 9.5% in the second quarter. Excluding the Rosatom license revenues, organic revenue growth would have been approximately 8.1% in Q2 2013. The negative impact from changes in foreign exchange rates was 0.8% in the quarter with the largest driver being the weaker Japanese yen.

On slide 13 we show our Q2 2013 non-GAAP operating results in more detail. Our Q2 2013 non-GAAP gross margin of 45.4% is a decrease of 90 basis points on a year-over-year basis. Approximately 60 basis points of this decline is related to the impact of the Japanese yen. Our SG&A and R&D spending were well controlled in Q2 and declined substantially compared to Q2 of 2012. The lower spending is a result of decisions to reduce spending in certain divisions like CAM, BEST, and even BioSpin. In addition, all BMAT businesses have begun to cut spending in response to the weaker demand outlook in that group. Also, keep in mind that operating expenses in Q2 2012 were particularly high so the year-over-year comparison is relatively easier.

They're not shown on the slide, but non-GAAP interest and other expense was $9 million in the quarter. This amount is substantially higher than the $3 million recorded in Q2 2012 primarily as a result of higher foreign exchange losses in the current quarter. These losses primarily related to currency such as the Australian dollar and the Brazilian real which moved down significantly at the end of the quarter. Our non-GAAP earnings-per-share in Q2 2013 were $0.18, a 50% increase over EPS of $0.12 in Q2 2012. The Q2 2013 earnings reflect a non-GAAP tax rate of 31% which is above our Q1 2013 tax rate due to a higher percentage of our pretax profits coming from higher tax rate jurisdictions.

On slide 14, we show a reconciliation of our GAAP to our non-GAAP financial results. In Q2 2013 we excluded $9.8 million of operating costs from our non-GAAP results compared to $10.9 million in Q2 2012. We recorded $1.8 million of restructuring costs in Q2 2013 related to our previously announced outsourcing and facility streamlining programs.

On slide 15, I show our results for the first six months of 2013. Frank has already commented on our year-to-date revenue growth so I won't add any further comments on that. Our year-to-date gross margin of 45.5% is a decline of 170 basis points compared to the prior year. Approximately 70 basis points of this decline comes from the lower Japanese yen. Aside from the yen impact, gross margins have been hurt by gross margin declines in BMAT due to lower revenue volumes and in BioSpin, due to mix in pricing. Over the balance of the year we will remain focused on executing programs to improve our manufacturing and supply-chain productivity.

Our year-to-date operating spending is lower than the first six months of 2012, both on an absolute basis and a percentage of revenue. SG&A is down 70 basis points as a percent of revenue and R&D has fallen 80% basis points as a percent of revenues. This reduction reflects stronger cost controls that we've implemented in the business over the past 12 months as well as the decision to reduce, delay, or eliminate spending on select projects. Our non-GAAP operating margin is down 20 basis points on a year-to-date basis. However, if we factor in 100 basis point impact from the weaker yen we've made underlying improvements in our operating profitability through the first six months of 2013.

On slide 16, I show our non-GAAP reconciliation for our results through the first six months of 2013. We've recorded $5 million of restructuring costs primarily related to outsourcing and facility programs in our BioSpin, CALID, and BEST businesses. We expect to incur more significant restructuring costs in the second half of the year as we complete additional facility closures in our CAM and BEST divisions and additional outsourcing programs in our BioSpin business. The other point I would make on this page is that our year-to-date non-GAAP tax rate of 29.9% represents a decline of 340 basis points compared to the prior year primarily due to a change in our geographic mix of profits.

On slide 17, I show our balance sheet as of June 30, 2012. Our cash balances of $251 million are down about $60 million compared to year-end but up about $10 million compared to June of 2012. Inventory declined slightly compared to year-end and our days of inventory outstanding totaled 228 days at the end of Q2 2003 -- 2013, an improvement compared to 244 days in Q2 2012. Accounts receivable were up in the second quarter and our days sales outstanding, or DSO, were 60 days in the quarter compared to 52 days in Q2 2012. Overall, we still have significant room for improvement in working capital efficiency and this will remain a focus throughout the second half of the year.

On slide 18, I show our free cash flow in the second quarter of 2013. We recorded negative free cash flow of $23 million in Q2 2013, a roughly $42 million decline from the second quarter of 2012. Higher net income was offset by higher working capital, but the major driver of the year-over-year difference was that we received a large customer advance in Q2 last year due to the signing of the Rosatom contract. We incurred $16.5 million in capital expenditures during the second quarter of 2013 and $31.1 million in the first six months of 2013. We expect capital spending in the second half of 2013 will be well below our spending through the first six months due to the completion of certain special projects.

Now, I will turn to our financial guidance for 2013 which I show on slide 20. We are maintaining the guidance that we shared with you last quarter. And, we expect reported revenue growth to total 2% to 3% with organic revenue growth of approximately 3%. On the bottom line, we 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%. We continue to expect that we will incur $20 million to $25 million of restructuring charges, with the majority of those charges occurring in the second half of the year.

Our currency assumptions are relatively unchanged from last quarter. Our guidance assumes the US dollar to yen rate of $0.99 in the US dollar to euro rate of $1.30. This compares to our assumptions of a US dollar to yen rate of $0.98 and a US dollar to euro rate of $1.30 last quarter.

The quarterly variability and a challenging year-over-year comparability of our quarterly financial results is likely to continue to occur in the second half of 2013 much as it did in the first half. Remember that our Q3 2012 results included over $16 million of license milestone revenue and $15.7 million of associated profits from the Rosatom contract. Furthermore, the $5.7 million in Rosatom license milestone revenue that we just recognized in Q2 2013 was originally expected to occur in the third quarter of 2013. Accordingly, the comparison for Q3 2013 year-over-year is very difficult. And, you should expect the Q3 non-GAAP operating margins and EPS will decline year-over-year. As is often the case with Bruker, we expect our strongest revenues and profitability in the fourth quarter of this year.

With that, I would turn the call over to Joshua to begin the Q&A session.

Jamie, please assemble the Q&A roster.

We will now begin the question-and-answer session.

(Operator Instructions)

Jon Groberg, Macquarie.

Great, thanks, and congratulations on a slightly better quarter. I get the caution going forward. Just two questions for me, one, Frank, for you. It sounds like, if I read you correctly, in the CALID division that the MALDI typer -- the MALDI Biotyper are going well but that some other areas, like mass spec were not as strong. It sounds like, from those who have reported mass spec, for most has continued to be a strong segment so far. So, maybe, just discuss what is going on there for you if you could?

And then, the second question is for Charlie. You elaborated a little bit on free cash flow, but maybe what you expect for the year and what some of the initiatives you have in place are in order to improve the free cash flow generation of the company. Thanks.

Okay, Jon, this is Frank. Indeed, the MALDI Biotyper continues to do well, did well in Q1, continued to do well in Q2. That is all correct. In our other mass spectrometry products, we had weaker bookings amongst other places, particularly in Europe in Q1, and we caught up substantially and did quite well in Q2. Some of that is literally, I think, just fluctuations without any real rhyme or reason. But, I do think there is additional trends that we are seeing emerging. Ever since, we've -- we've had very strong product introductions this year in the life science mass spec business, excluding the MALDI Biotyper for the moment.

I think, in addition to the quarterly fluctuations that we do acknowledge, I think we are really building momentum. And, our competitive position after ASMS, I think, is stronger than -- quite a bit stronger than at the beginning of the year in Life Science Mass Spectrometry. And then, I will pass the free cash flow question over to Charlie.

Yes, Jon, the -- obviously, the free cash flow performance in the quarter is pretty disappointing. There are a few discrete things I would point to. We made some exceptionally large tax payments in the quarter and things like that. So, there are a couple of items that are explainable. But, the -- I would say that the receivables performance in the quarter was a bit disappointing. It is not a receivables quality issue. I would say we took the eye off the ball a little bit there. And so, that is something relatively easy to recover on.

A lot of the supply chain and operational improvement initiatives we have going on that we think -- that we are confident will yield an inventory benefit don't really yield that benefit in a meaningful way until the latter part of the year. As I look at free cash flow generation in the second half, we are not guiding to that specifically, but obviously the majority of our profits occur in the second half. I believe we can get DSO back in line to a level that we are comfortable with. And, I expect to see our operational initiatives starting to have more of an impact on inventory. So, all of that would point to a much better second half around free cash flow.

Okay, thanks. Just to clarify, Frank, on the mass spec, you would say that orders, although the revenues were a little weak in some of those other Life Science Mass Spec categories, your orders were pretty good and you would expect that to be a positive contributor to revenues in the second half?

Yes, that is correct. Our Q2 orders were good and Q1 was a little weaker. I neglected to mention that our CAM orders for the first half of the year were really -- had good growth year-over-year. So, I think that CAM will also see some revenue growth based on that order momentum that we've seen this year-to-date.

Okay, thanks a lot.

Brandon [Collier], Jefferies.

Good afternoon. Frank, could you elaborate on what you're seeing in the BioSpin unit from a demand perspective? And, perhaps give us an update on the pricing dynamics that you are experiencing in that market?

Certainly, Brandon. The demand in the BioSpin unit, in really in both the first two quarters of the year, has been stronger than what we had expected. That is the case for both our NMR business as well as our pre-clinical MRI business. We are quite -- we are pleased with that. In particular, I think some of these supplementary budget, or whatever, in Japan or the UK, reinvestment in much of their academic infrastructure -- research infrastructure, tends to benefit high-end instrumentation, in particular, as we have seen years ago with the US stimulus and so on. These types of funds -- large funds tend to be preferentially spent, according to our observation, on high-performance instrumentation that a university or department may not otherwise not be able to afford.

We have done well with that we're -- we've also done surprisingly well in North America and, yes, in the US despite sequestration. Beat our own expectations. It turns out there is just other endowment and private funding and other funding sources that US universities have been able to tap into to make high-priority research infrastructure investments and we have benefited from that.

In terms of pricing, in the BioSpin segments, I think we had commented previously, including the Q1 call, I think, in general, I think it has become a little bit more rational. But, I also don't see any -- I don't see any enormous departures. But, I think it has become more rational in the industry.

Thank you. Just a follow-up, Frank or Charlie, any chance you could give us the overall order growth experience in the quarter? And, perhaps a comment around the backlog position whether it is up sequentially or year-over-year? And, just to clarify, the Japanese stimulus orders, that was more of an order phenomenon and not so much revenue in the second quarter, is that correct?

That is absolutely correct. Most of these -- most of that will turn into revenue in Q1 and Q2 2014 maybe a little coming into Q4 of this year. As you have guessed correctly.

Order -- again, we don't disclose specifically orders, but generally speaking, orders were -- order growth was roughly in line with revenue growth with similar drivers strength in the same place as weakness in the same place as -- so, backlog continues to be pretty healthy.

Last year we had this one large BEST order on the Rosatom deal which came in Q2. If you take that out of the equation then, certainly, for the major BSI segment very much order and revenue transfer aligned.

Great, thank you.

Tim Evans, Wells Fargo Securities.

Hi, thanks. Could you give us an update on your conversations with the FDA on the Biotyper?

Yes, we have had good constructive back-and-forth, we are not done. We have submitted our request for a first claim and we have additional follow-on questions that seem to be constructive. It is very difficult in a process like this to make any predictions on timing. We are somewhat hopeful that we may be able to get FDA clearance before the end of the year or early 2014. But, it is very difficult to predict.

Okay, and maybe a quick update on the operational -- the longer-term operational items that you are implementing, specifically the ones geared towards helping you get more visibility into the business? Is there any progress you would call out here in the second quarter?

Yes, we are making continuous improvement, is the way I have described it. We have made some changes to the way we manage the Company in the last year. Obviously, the group structure and the leadership of the groups we feel is helping quite a bit. On the finance side we have upgraded the talent in the finance organization and put new business review and forecasting processes in place. Again, we still continue to experience quite a bit of quarterly variability in our results. But, I would say that the -- that we are getting better, gradually, at managing the business and getting some forward visibility. I don't think it is a situation where you can expect a step change improvement from us overnight. But, each quarter I would say we are making progress on the various initiative to help us control and improve the business consistently over time.

Maybe it is not in your question, but a quick update, we -- earlier in the year, we commented on some of the restructuring and outsourcing activities we were doing. We completed a couple in the first quarter, we've got a few more we expect to complete later in the year. They are basically on track, we didn't report any this quarter. But, you would expect in Q3 and Q4 we should be able to talk about other programs we have completed.

Great, thank you, very much.

Isaac Ro, Goldman Sachs.

Hi, thanks, guys. Just a follow up question on Biotyper. Is it fair to say, given the uncertainly on FDA, that there's nothing necessarily baked into your guidance for the back half of the year in terms of an acceleration in that business? And then, anything else you could offer with regards to how you look at the ex-US opportunity and how that is doing?

No, we did not bake anything explicitly. But, assuming some FDA approval in an earlier time period, so out -- the answer is no, there is nothing baked into our forecast that assumes somehow an FDA approval at a certain time period. Can you repeat the second part of your question, Isaac?

Oh, I'm sorry. Yes, just curious if you can you put a little more color around how the international part of that business is doing? Where you see the most traction, where you see the most opportunities to simply deploy some resources and accelerate growth for Biotyper? Thanks.

Yes, it is doing quite well in Europe even though there we had started and obviously have a much larger installed base. But, as we develop new capabilities from automation to accessories to additional libraries to new research use only capabilities right now, I think it's only getting more interesting. And so, demand has held up well in Europe as well, including growth. We are also seeing growth emerging in Asia Pacific where we don't have that much of an installed base yet. And, clearly the largest opportunities are in the Americas and Asia-Pacific because there we started much later than in Europe. So, there we expect the largest growth from a smaller base in the next two to three years. But, we also see continued growth in Europe.

Got it. If I could just ask one last one on BioSpin, can you comment on the market share dynamics there? Obviously, your main competitor at the high-end is stepping away. So, are you seeing good opportunities to pick up share quickly and maybe grow faster than the market? Thank you.

We think so. It is only the ultra-high field niche market, if you like and some selected specialty MRI cases, perhaps. The main field -- the mainstream remains quite competitive. But, in certain niche areas I think we have done well in securing orders. And, I think that that has also helped us in the first half of the year.

The first half good bookings in B Bio I don't think are primarily due to competitive trends. They may have played a minor role as well. But, I think it is just reasonably good funding for academic spending, in particular in Europe, in most of Europe, and in Asia Pacific, particularly Japan and the UK as I highlighted earlier. And, really, better strength in high academic spending in the Americas than we had anticipated.

Got it. Thank you, very much.

Derik de Bruin, Bank of America.

Hi, good afternoon. Could you talk a little bit more about the BMAT and the industrial outlook? Could you just talk around -- also, you're expecting it to be down year-over-year, I guess could you talk about what the margin impact is from the business being down?

As we have less orders and also less revenue in the divisions -- the four divisions that make up the BMAT group, we do obviously lose. There is some pricing pressure out there, not as strong as what we've seen in 2009, but with a declining industrial demand, there's also a little bit more pricing pressure, which we have to acknowledge. In addition, we just lose some of the volume benefits by not having growth but rather a modest decline in revenue in the BMAT division and we anticipate that for the full year.

Yes, the industrial part has -- the industrial demand outside of semiconductor and data storage, which we had commented on previously, in our opinion, and from our observations, from you name it, automobile to metals and mining to cement to minerals and mining to metals processing, all seems to be relatively sluggish right now.

I guess the reason why I'm asking is if you back out the Rosatom order out of the gross margin, the gross margin was sub 45% from that impact. I'm just trying to see if it was just more mix in the gross margin? I know you had some currency headwinds. I'm just trying to get a little bit more color on what are the factors on the gross margin decline?

The BMAT reduced demand and weaker markets are a headwind for our gross profit margin, as Charlie explained earlier with reasonable expense discipline and potential additional expense reductions steps ahead of us. We have held the line, and in Q2, of course, done reasonably well year-over-year on operating profits. But, the BMAT and industrial weakness, it's headwinds to our gross profit margin. And, it's, of course, holding back to some extent, operating margin improvement that we might have otherwise had. But again, it's also balanced by the relatively stronger performance of the B Bio and CALID groups.

There have been quarters and years when all three groups and then it was the divisions were performing similarly. Right now we really have significant differences depending on end markets. And, it's not so much geography but it's more industrial versus academic nonprofit, life science.

Great. Just one quick question, Charlie and Frank, I guess, when -- I guess you are about a year -- you're coming up on your year anniversary here pretty soon, Charlie, are you going to be able to give better visibility in terms of longer term guidance at what point next year? Is this something you're going to be able to do in January on the Q4 call? I'm just looking at when do you think you will have a better handle on the longer-term outlook?

Sure, yes, in fact I just passed my year anniversary. So, thank you for recognizing that. We -- obviously, again, we have a lot going on right now internally with our strategic planning efforts and those things carry through the fall and budget season, late fall. I think we've commented that we intend to try to get some more mid- term visibility next year. I'm not going to get more specific than that at this point. We understand completely that people would like more visibility and we would love to give that. And, we will certainly do it when we feel a little bit more confident that we can give something we can stand behind.

Great, thanks.

(Operator Instructions)

Ross Muken, ISI Group.

Yes, maybe can you just talk a bit about how the organizations are responding to the challenging Q1? And, the fact that you are trying to undertake some structural changes in the business and the way operations and other big picture complex things are run in the face of that and how they were able to overcome them in this Q? I realize some of it is end markets. And then, the organization also still has to execute how you were able to manage all those moving parts in what's been a pretty volatile environment, to still focus on this longer-term restructuring plan.

Yes, Ross, this is Frank. We are very much focused on that. I think the organization is actually responding really well. Clearly, we wanted to make this a decent quarter given that our Q1 was weaker. But, that didn't distract from the management teams and the people that are really dedicated, as dedicated resources, to a lot of these -- to driving a lot of these operational excellence initiatives from making good progress in implementing and planning and analyzing. Yes, they have to do that too in addition to make the quarter and the year.

But, I think everybody is fully aligned on the new management processes, the goals, and the new incentivization has largely been implemented. I'm actually quite pleased on how the teams in the divisions and the groups are driving this. I think that bodes well for making steady progress.

Great, thanks, guys.

Tycho Peterson, JPMorgan.

I just want to follow-up with Charlie on the free cash flow topic from earlier. Can you just maybe help us tease out how much of this was the tax payment issue versus a receivable issue? And, maybe just talk about what is going on with payment terms, whether those are continuing to be expended?

Yes, I would say tax payments in the quarter were $10 million or $15 million, that neighborhood. Again, year-over-year, we have absence of the Rosatom deposit which was probably $25 million last year in the comparable quarter. So, you have a couple of big swingers right there.

On receivables, I'm not aware of any meaningful change in payment terms. And, there is no meaningful deterioration in our [aids] receivables or reserves or anything like that. It is really more blocking and tackling around collections than anything else. So, it gives me confidence that is something that is manageable.

Yes, I don't think there is any story here. It really is -- one thing that we have acknowledged is that a lot of our revenue in Q2 came relatively late in the quarter and was very third month weighted. Accordingly, your DOS's look a little different than if you had a steady revenue flow throughout the three months of the quarter. But, I think this is just temporary rather than some trend or something that it doesn't mean anything about the underlying markets or economy. I think these are just short-term fluctuations.

In terms of the issues that cropped up in the first quarter, it sounds like you've resolved the production constraints in Optics. The magnet installations and some of the other issues, have those been resolved now? Or are there lingering issues from the first quarter that still need to be addressed?

Tycho, I think the way that I would characterize it is that there are always issues. And, we have them in a normal range at this point. Obviously, we have a large complex business so there is always some things going right, some things going wrong. We're also driving a lot of change. So, there is always the potential for things to go wrong. I think as we pointed out in Q1, it was pretty exceptional. And, it was rare to have that many things go against us in one quarter with no offsets.

As you pointed out, we did get Optics back on a much better footing and we have corrected some other things. We have new issues, but in total, things are where they should be at a manageable level, unlike where in Q1 everything was against us. I think at this point, we feel like we are largely caught up. And, we are going to continue to manage issues as they pop up throughout the year.

Also, one on the supply chain, as you guys are looking to outsource more components of that, can you maybe just talk about how you maintain the quality aspect? We've had a few people mention, just given your reputation in the industry as a high quality vendor, how you are managing the outsourcing side and maintaining quality in that process?

Not to be facetious, but we are managing it very carefully for that reason. And so, that is why sometimes we take our time, we do careful testing before we go all in. We're doing this in a very responsible manner to make sure that we do not have revenue delivery or revenue acceptance or customer quality issues. So, it is very, very important for us. And, I think we're picking -- sometimes we are not necessarily picking the lowest offer on a contract manufacturer, but we want competitive offers and better procurement. And, we're getting that but we are also going with pretty high-quality contract manufacturers.

Okay, thank you.

Dan Arias, UBS.

Yes, hi, thanks guys. Maybe on BioSpin, Frank, how much of the install work that didn't make it into Q1 were you able to capture in the quarter?

I'm not sure I would have all that information by system by system and we -- Charlie's kicking me under the table, we also don't want to disclose that in that level of detail. Some of it we made up, some of it is still coming in Q3 and Q4, I think, as we had predicted. But, I can't really quantify it for you.

But, some of that will still come out in the back half of the year?

I believe so, yes, I believe so. And, finally we did catch up on with some magnet exchanges. Cryogenics is still a challenge. We had some of that in Q1, we still had some of that in Q2. But, I think that is simply going to be where that requires much more effort and tighter management. But, it is manageable and it occurs every quarter. So, it's maybe not such a standout item.

Okay, and then maybe following up, or clarifying, on BMAT, I think last time around you said that we felt we were approaching a trough on semi and data storage. I guess, just given 2Q dynamics, are you still thinking that maybe we are in a quarter or two of that or has the outlook there gotten a little cloudier?

No the outlook there -- the orders haven't dropped yet in Q2 in that sense, at least not in a significant way. But, we are still guardedly optimistic that that will pick up in the second half. Also, from our own data and pipeline, we are optimistic -- well, guardedly optimistic in that there will be a pickup in semiconductor in Q3 and Q4 in orders. Some of that will not benefit us until 2014 in terms of revenue.

Thank you.

We've had some important acceptances of key systems with very key suppliers where they have tested next-generation nodes or 450-millimeter products that we had delivered for the first time. We had some very, very satisfactory acceptances of these. So, I think we are performing well technically. That, along with a pick up, I think, makes us really somewhat upbeat here that things will improve in that semiconductor and microelectronics area in terms of orders first and then revenue to follow.

Thanks, Frank.

Amanda Murphy, William Blair.

Hi, I had another question on the Q1 dynamics that I don't think we talked about, which is you had made some changes in the sales force in China. So, I'm curious, I know it's maybe a bit early, but can you talk to that region specifically, just given the changes need last quarter?

Amanda, this is Frank. It is still work in progress. In some areas, I think Bruker Optics, Bruker AXS, Bruker BioSpin I would say it has stabilized. In some other areas we are still working on the organization, improving it further. Also, very much on the order execution. I think, it's not only about getting the orders but executing the orders where improvement is needed. We had somewhat highlighted it as a -- it has not been too bad and it could have been -- it could have more of an impact. And, sometimes these things are delayed. But, I'm sequentially more optimistic that we will do okay in China this year.

Got it. And then, just one other question, I'm not sure if you are able to quantify the license milestone payment that will come in next year?

Yes, just to clarify, Amanda, it is not -- it's an important distinction, it's not a license payment next year. The last remaining major milestone is essentially a production line that we are working on. It is in the neighborhood of $6 million to $8 million but it doesn't carry nearly the same margins as the license revenue that's been coming through the P&L.

Yes, sorry about that. Do you have any idea in terms of timing, first half or second half?

Probably first half but not a 100% sure of that.

Since it will be a smaller amount and not have any unusual margin implications, it may not be much of a story next year even though we don't know exactly in which quarter it will come in. It will probably be a non-event, whenever it comes -- in terms of materiality.

Got it. Okay, thanks.

Doug Schenkel, Cowen and Company.

Good afternoon, guys, and thanks for taking the questions. The first question, I guess, is really a guidance question. Revenue for the quarter came in a lot stronger than most of us street expected, even excluding Rosatom. Recognizing that you don't set those expectations. Can you comment on how this quarter came together relative to your internal expectations? It seemed like a really solid revenue quarter, especially given that you didn't point to a reversal of Q1 headwinds as a key driver to Q2 upside. So, assuming the quarter actually was better than what you expected internally, why did you not bump up guidance accordingly? Do you think you actually pulled forward some revenue beyond Rosatom in Q2? Or should we view your guidance reiteration as simply a function of really just low visibility at this point in the environment?

Doug, it is a little bit of all of the above. Clearly, some of the miss in Q1 was made up in Q2, so you had some spillover there. As you point out, Rosatom occurred earlier than expected. There were probably one or two other meaningful pieces of revenue that came in a little bit earlier than expected as well and pull from Q3. I'm not going to quantify that, because as you've seen we have revenue slip out and revenue pull in all the time. Nonetheless, the Q2 performance there probably exceeded even our expectations a little bit. But, it is why we are encouraging folks to look at the six month results and certainly it's where we are focused right now. Then, if you look into the second half, obviously we are feeling uncertain about the BMAT business and we're counting on a strong start from BioSpin to pick up some slack there and CALID trending positively as well.

For a variety of reasons, I think Q2 alone isn't indicative of the trend line. And therefore, I think we feel good with the second half. The only other point too is that we have got tough comps, certainly Q3 is a tough comp, again as I pointed out in the guidance, because of the timing of last year's Rosatom revenue. Q4 is always a big quarter and we need it to be a big quarter this year as well.

Okay, that is helpful. I guess a slightly more detailed question, or I guess a bit more specific question, In-vivo, I believe, was one of the areas you highlighted as a growth driver within BioSpin. Do you think you're growing with the market? Or, at this point, is it fair to say you're growth is likely driven by a combination of both market growth as well as share gains?

What product lines are you referring to with In-vivo? All pre-clinical imaging or any particular subset product line?

I guess I was thinking about pre-clinical, but anything you're willing to comment on there would be helpful.

Okay, pre-clinical MRI orders had been reasonable, a little bit better than what we had expected in the first half of the year. Although, I wouldn't call it a booming market. That had been -- also, there'd been some special programs in France, for instance, last year, some of those orders were a spillover from special programs last year in the FLI program, France Life Imaging, which generated a fair number of MRI orders for us including some that came into this year.

The In-vivo Optical Molecular Imaging, which we entered when we acquired the Carestream In-vivo business, and that's what you maybe are referring to, which we now call the Bruker Molecular Imaging business, that's here in New England, that continues to see pretty tough market conditions. That was not an area of strength in Q2 yet.

So, when you talk about strength, it is really on the MRI side relatively speaking?

Yes, our micro-CT business that we acquired last year did reasonably well also. And, I think that has to do with their product line, often, and new products that they brought out and are very competitive and well-regarded. It is too small of the business, perhaps, to really reflect on market dynamics.

Okay, that's really helpful. Thank you, guys.

Peter Lawson, Mizuho.

Jamie, you can go to the next question in the queue.

Ken Hirschberg, Hirschberg Capital.

Good afternoon, and congratulations on the progress you have made in improving your profit margins. Could you roughly characterize what is involved, and the scale, of the clinical trial you must do for the MALDI Biotyper? And, do add on features, such as the micro bacterial [art], how do new features, such as the micro bacterial library, fit into the approval process? Thank you.

Yes, there are many features that we are now adding that are still research use only. And, that are not included, therefore, in the regulatory approvals that we seeking, including from the FDA. You have a constant stream -- you have a stream of, and in the future quite likely a very constant process of features and capabilities where we have gone and will continue to go to the FDA in the future for clearance.

New things that we first introduced outside the United States and initially for research use only and then begin to get regulatory clearance. Often, overseas first, and then over time also from the FDA as we begin to offer this in the United States. Don't think of it as MALDI Biotyper and all of its library and all of its accessories as a one time, it's really a product -- a broad product line by now with early exciting results that are clearly still in the publication and validation stage. And, things that are really very well characterized and validated where we are seeking FDA clearance.

Eric [Chriscolo], Mizuho.

Thank you, for taking the question. What kind of impact are you expecting, if any, from the next round of sequestration in the US?

I don't know that I can answer about the next round. So far, sequestration, it seems to be not as bad as we had feared. It appears to maybe have more of an affect on routine lower average selling price instruments where some of our businesses have said let's see if sequestration plays a roll in weaker demand in the US, whereas some of our higher end systems, in particularly NMR and MRI, or NMR I should say, have not really seen that. It is not a crisp, clear picture for us. But, overall, in our overall planning we continue to be relatively cautious about US academic demand even though it was better than expected in some businesses in the first half of the year.

Okay, thank you, that's helpful. On the industrial segment, overall, what is the -- what businesses, or business types, customer accounts are having the most drag on that business? I guess I'm talking outside the semiconductor area.

I think the metals industry and minerals and mining, cement, all the industries that are supported by that from automobile to aerospace. What I am not including in industrial is Pharma and Biotech. Because that is an industry, clearly, that is so different from the other industries. The of fore-mentioned industries, we all seem to be going slow on CapEx spending on investments. So, we see demand weakness essentially across-the-board in those industries.

Thank you.

Ladies and gentleman, that is all the time that we have allotted for today's conference call. I would now like turn the conference over to Mr. Young for any closing remarks.

Thank you, Jamie. I would like to thank everybody for joining us this afternoon. We invite you to visit us at our offices in Billerica, Massachusetts. I'd also like to point out that about two weeks from now we will be hosting a bus tour with Juergen Srega, the head of our CALID group, for those investors who haven't had a chance to meet Juergen, that's a unique opportunity to do so. Thank you for your attention and have a good afternoon.

The conference call is now concluded. We do thank you for you attending today's presentation, you may disconnect your telephone lines.