Bruker Corp (BRKR) 2013 Q4 法說會逐字稿

Good afternoon, everyone, and welcome to the Bruker fourth-quarter and full-year earnings conference call. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please also note, today's event is being recorded.

And at this time, I would like to turn the conference call over to Mr. Joshua Young. Sir, you may begin.

Thank you very much, Jamie. Good afternoon. I would like to welcome everyone to Bruker's fourth-quarter and full-year 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 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 that we issued earlier today, we will be referencing a slide presentation during today's call. The PDF of today's presentation can be downloaded by clicking on Bruker's Investor Relations website or by accessing the file through the audio webcast player during the webcast.

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 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 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, February 18, 2014. 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 our first-quarter 2014 financial results.

We will begin today's call with Frank providing a business summary of our fourth-quarter and full-year 2013 performance. Charlie will then cover our financials for the fourth quarter in more detail and provide guidance for 2014.

Now I would like to turn the call over to our CEO, Frank Laukien.

Thank you, Joshua. Good afternoon and thank you for joining us on the call today.

I will begin the presentation on Slide 4. I am pleased to report that Bruker generated stronger year-over-year financial performance in the fourth quarter despite facing quite a challenging comparison with a good Q4 2012.

Anyway, in Q4 2013 we reported revenues of $552 million, which reflected year-over-year organic revenue growth of approximately 6% in the fourth quarter.

Our non-GAAP operating margin expanded by 60 basis points year over year to 14.7%, and we reported year-over-year non-GAAP earnings per share growth of 11% in the fourth quarter. Finally, we generated unusually strong cash flow of $122 million in the fourth quarter of 2013, which was driven in part by higher profitability and our efforts to improve our working capital.

The driver of our stronger performance in Q4 2013 was the performance of our BioSpin Group, which generated double-digit year-over-year revenue growth in the quarter. This unusually high revenue growth was driven by a surge in customer installations and acceptances in Q4 of 2013.

From a divisional perspective our BioSpin magnetic resonance division drove most of the growth, with European academic customers being the biggest contributor. Additionally, our BioSpin Preclinical Imaging division bounced back sequentially in Q4 from a weak Q3 2013 to post a strong fourth quarter.

Our CALID Group posted year-over-year mid-single-digit revenue growth in the fourth quarter, which was driven by our life science and diagnostics -- excuse me, life science and clinical division, or LSC. Finally, our BMAT Group experienced a midteen percentage year-over-year revenue decline in Q4, consistent with our previous expectations.

So, in summary, we had a stronger quarter of financial performance, and there are a number of positive developments that we can take away from Q4 of 2013. It is worth noting, however, that our strong Q4 continued the pattern of substantial quarter-to-quarter variability in our results. This is a reminder that when analyzing Bruker's business, we recommend not emphasizing positive or negative trends in any given quarter, but to focus on annual or last-12-month trends.

On Slide 5 I show our full-year 2013 financial performance. Bruker generated revenues of $1.84 billion for 2013, which represents organic revenue growth of 3.2% over 2012. This level of organic revenue growth is in line with the broader life science tools market and the original guidance that we provided about a year ago.

This revenue growth is actually quite reasonable, particularly in the life science and diagnostics side of the business, given that our BMAT Group faced weakness from industrial markets, and its revenues declined in the high single digits during 2013 compared to 2012.

Outside of the BMAT Group, the Bruker portfolio generated solid revenue growth for the full year 2013. This performance was led by BioSpin, with organic revenue growth in the high single digits for the full year 2013.

Our CALID Group grew in the mid-single digits, while our BEST segment generated organic revenue growth of 5%. Overall, our revenue growth was reasonable, given the industrial market weakness that our BMAT Group faced.

That being said, our full-year 2013 profitability fell short of our goals, as non-GAAP operating margins and EPS declined on a year-over-year basis. A significant portion of our profitability decline came from changes in foreign exchange rates, which reduced our non-GAAP operating margins by more than 100 basis points. We also faced the difficult comparison of the [growth] of some license revenue that was $16 million in 2012, but only $6 million in 2013.

Rosatom and the negative effects from foreign currency have combined to lower our non-GAAP EPS by approximately $0.15 in 2013 as compared to 2012. So while we clearly acknowledge that it is our job as a management team to try and mitigate these effects, Bruker's full-year profitability would at least have moved in the right direction in 2013 if it weren't for these two factors. Nevertheless, we believe that we have laid a foundation in 2013 for margin, EPS, and cash flow improvements going forward.

On a positive note, our 2013 operating expenses were down year over year despite the growth in revenues. We also made significant progress in transforming Bruker, which is not yet reflected in our 2013 financial results. We have made many changes that position the Company for improved profitability and cash flow in the future, and I will summarize these changes later in the call.

But first, I would like to drill down into more detail about what drove each of our groups' full-year 2013 financial performance. So please turn to Slides 6 and 7, where I will make a few comments on the three BSI segment groups and our BEST segments. I will focus my commentary on the full-year performance.

I will start with the Bruker BioSpin Group, which, excluding acquisitions, generated high single-digit organic revenue growth in 2013. One of the key drivers of this strong performance was that academic markets in Europe and Asia generated strong demand for our NMR product. Many academic customers were willing to invest in our higher-end solutions, which helped to drive good bookings performance for our ultra-high field NMR products. While we face some challenges related to the timing of installations during the year, BioSpin revenue growth helped to offset the weakness in our BMAT Group during 2013.

Our BioSpin Preclinical Imaging, or PCI, division also generated high single-digit growth for the full year, as the division bounced back from a tough Q3 2013 by completing several larger installations that slipped into the fourth quarter of 2013. Other important drivers of the PCI division's revenue growth for the year 2013 were: A, the growth contribution from the Bruker microCT business; and B, emerging revenues from our new molecular imaging business, which Bruker acquired in Q4 of 2012.

Concerning our optical molecular imaging product line, by the way, in early February of 2014 we announced a litigation settlement agreement with PerkinElmer, and a public statement on this topic is available on our PCI division website.

I would like to now turn to our CALID Group, which generated mid single-digit year-over-year growth during 2013. The most consistent and strongest performer was our Optics division, which was benefiting from its 2012 new product launches, including the LUMOS and the TANGO products. The strength of these products, combined with Optics' improved commercial organization and improved execution, led to solid results in 2013.

The CALID Group life science and clinical division generated mid-single-digit growth for the full year 2013, with good growth from the MALDI Biotyper and FT-MS product lines.

One of the key highlights for LSC was gaining approval from the US FDA to sell the MALDI Biotyper in the United States in Q4 of 2013. We have begun selling this FDA-cleared product in the US in Q1 of 2014.

Our CAM division made modest progress during the full year and remained below our expectation, as many of the restructuring milestones were only reached in late Q4 of 2013, and we have not seen their full benefit yet. Given the ongoing losses in the CAM division, we have made the decision to narrow CAM's strategic focus on selected products, applications, and markets rather than competing broadly across all areas in the applied markets.

Also, in January of 2014 we appointed a new CAM division President; and in early February of 2014, we announced the merger of our commercial management organization for our CAM and LSC divisions in order to optimize our market coverage and also to improve our commercial efficiency and productivity.

On Slide 7 I show you our Bruker Materials Groups, or BMAT, performance for the full year. BMAT's revenues declined in the high single digits year-over-year during the full year 2013. BMAT experienced weakness throughout the year from essentially all industrial markets and from the microelectronics market, which includes the semiconductor, data storage, solar, and LED markets. As a result, BMAT's performance, particularly in Asia, was significantly weaker in 2013.

With the exception of our Bruker Nano Analytics division, all three other divisions in the BMAT Group experienced revenue declines during 2013. While the BMAT's divisions did see an uptick in new order bookings in the second half of 2013, both sequentially and year over year, we believe that it is still too early to say that we have turned the corner towards a solid rebound in our industrial markets.

On a positive note, our BNS division is seeing strong demand for its AFM, or atomic force microscopy, FastScan products, and for its new multiphoton and fast confocal Fluorescence Microscopy products. Additionally, the BNS division did a good job of cutting expenses during the downturn in 2013 to mitigate its decline in operating income.

Now I would like to turn to our Bruker Energy and Supercon Technologies, or BEST, division and segments. BEST did a good job of driving revenue growth and operating performance despite facing a significant headwind from the Rosatom license year-over-year comparison.

BEST grew its revenues 8% year over year in 2013. Excluding the Rosatom license in 2013, BEST generated a non-GAAP operating margin of approximately 4.9% in 2013, which is a clear step forward from its breakeven performance in 2012. We expect that some of the actions we took in 2013 will lower BEST's operating costs in 2014, which should in turn help BEST to continue its margin expansion as we move ahead.

Now I would like to turn to Slide 8. While Bruker's profit performance in 2013 was disappointing, I feel good about the milestones we achieved in year one of our multiyear effort to transform the Company. I would summarize our progress during 2013 in three main categories: leadership and organization; processes and systems; and restructuring and productivity.

From a leadership and organization perspective, we rounded out the new executive management team with three Group Presidents and a new CFO all joining in the last 20 months. We reorganized 10 separate BSI divisions into three groups. We also made substantial changes to our incentive systems, including a greater emphasis on improvements in gross margins, operating margins, and working capital. We also increased our equity incentive programs to enhance management alignment with shareholder value.

From a process and systems perspective, we transitioned to more of a global business model rather than running the business primarily through legal entities and countries. This change now provides our Group Presidents the decision rights over the business and creates greater accountability for resource allocation and operating results. We also have introduced various new management processes, and we continue to establish best-in-class PLC processes to guide our R&D investment decisions.

Finally, from a restructuring and productivity perspective, we launched Lean outsourcing and restructuring initiatives in nearly all of our businesses as part of efforts to lower our costs and to set the stage for margin expansion and further cash flow improvements. In addition to these programs we carefully managed our operating expenditures throughout the year 2013 and drove a decline in our OpEx spending, despite the underlying growth in our business.

The entire management team at Bruker is committed to ensuring that all of these changes result in higher profitability and cash flow in 2014, and I look forward to reporting on our progress during the course of this year.

So 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 Q4 and full-year 2013 performance before providing our financial outlook for the year 2014.

On Slide 10 I show a snapshot of our Q4 2013 non-GAAP results. Total revenues were $552.1 million, an increase of nearly 7% from the fourth quarter of 2012.

Year-over-year revenue growth combined with lower operating expenses drove positive operating leverage as both non-GAAP operating income and earnings per share grew approximately 11% over Q4 2012. One of the highlights of the quarter was our free cash flow, which totaled $122.4 million and nearly doubled from Q4 of last year. This reflects some of the improvements we are making in working capital management and our higher business volumes. Keep in mind that our free cash flow is often strongly seasonal, with most of our annual cash flow in Q4, and can also vary considerably from quarter to quarter.

Turning to Slide 11, I show the revenue bridge for the fourth quarter. Reported growth at 6.7% year over year in Q4 2013 included organic revenue growth of 6.2% and a relatively small positive effect from changes in foreign exchange rates, due to a strengthening euro versus the dollar during the quarter.

On slide 12 I show our Q4 2013 non-GAAP operating results in more detail. Our Q4 2013 non-GAAP gross margin of (technical difficulty) is a decrease of 260 basis points on a year-over-year basis. Approximately half of the decrease is related to changes in foreign exchange rates, with the remainder of the decline primarily related to mix and other drivers.

Part of the negative mix is due to the Q4 2013 revenue decline in the BMAT Group, which generates higher gross margin than other parts of the Group or portfolio. BMAT had record revenues in Q4 2012 and a midteen year-over-year revenue decline in Q4 2013, so this resulted in a negative shift in gross profit mix.

Our Q4 2013 SG&A and R&D spending both declined year over year on an absolute basis; and overall, operating expenses as a percent of revenue declined by over 300 basis points in Q4 2013 compared to Q4 2012. Finally, our non-GAAP EPS came in ahead of expectations at $0.31, an increase of $0.03 or 11% compared to Q4 2012.

On Slide 13 I show a reconciliation of our GAAP to our non-GAAP financial results in the fourth quarter. In Q4 2013 we excluded $20.3 million of operating costs from our non-GAAP results compared to $33.8 million in Q4 2012.

The biggest driver of the year-over-year decrease relates to the $23 million of goodwill, intangible, and fixed-asset impairments recorded for our CAM division in Q4 2012. Conversely, restructuring costs of $11.7 million were considerably higher in Q4 2013 compared to Q4 2012. As many of our 2013 restructuring initiatives and milestones were completed at the end of the year, we incurred nearly half of our full-year 2013 restructuring costs in Q4 2013.

On Slide 14 I show our results for the full year 2013. Frank has already commented on our full-year revenue growth, so I won't reiterate the details. But I would like to provide some additional color by geography. Including the impact of currency, Bruker's revenues in Europe increased in the double digits for the full year 2013, with academic customers be the biggest driver of growth. The Americas generated low single-digit growth; and in Asia, reasonable growth in China was more than offset by currency-led declines in Japan. We also saw declines in Southeast Asia, and particularly in Taiwan and South Korea, due to weak demand from microelectronics customers.

Our full-year 2013 gross margin of 45.3% is a decline of 220 basis points combined to the prior year. Approximately 150 basis points of the year-over-year decline are explained by the negative effects of foreign exchange rates and year-over-year difference in high-margin Rosatom license revenues. The remainder of the decline is related to product mix and costs, as well as lower pricing, particularly for products in the industrial markets and in Japan.

Our full-year 2013 operating spending declined by approximately 1% compared to the full year 2012. We have done an effective job of controlling these expenses, and this has helped offset some of the operating challenges we experienced during the year.

Our non-GAAP operating margin was down 100 basis points compared to the full year 2012, but well 150 basis points of decline can be explained by changes in foreign exchange rates and year-over-year differences in Rosatom profits. So while the net result is disappointing given our focus on profitability improvement, we would have felt much better about our operating profitability had we not been faced with operating margin headwinds that I described.

On Slide 15 I show our non-GAAP reconciliation for our results for the full year 2013. We spent approximately $25 million on restructuring costs for the full year 2013, which was consistent with our revised guidance of $20 million to $25 million.

As we reported at the JPMorgan conference in January, we successfully completed all of the rightsizing, restructuring, and outsourcing milestones that we announced in 2013. And as a result of these programs, we reduced headcount by over 300 employees, and we are expecting savings of $15 million to $20 million in 2014.

We are planning additional outsourcing and restructuring programs for 2014. And, in fact, we have already completed the divestiture of our machine shop in Leipzig, Germany, in January of 2014.

Our full-year 2013 non-GAAP tax rate of 27% represents a decline of over 300 basis points compared to the prior year, primarily due to certain discrete items and a change in our geographic mix of profits. This tax rate is at the higher end of our previous guidance of 25% to 27%.

On Slide 16 I show our balance sheet as of December 31, 2013. Our strong fourth-quarter cash flow performance has led to a 41% increase in our cash and cash equivalents and moved us from a net debt to a net cash position at year end. Inventory declined by over 4% compared to the previous year, and our days inventory outstanding improved by 13 days, totaling 218 days at the end of Q4 2013.

Accounts receivable totaled $308 million at the end of Q4, and our days sales outstanding or DSO was 59 days compared to 58 days in Q4 2012.

While we began to see working capital become a source of cash at the end of 2013, we still have considerable opportunities to improve our working capital efficiency. And we expect further improvement to occur in 2014 as we continue and further expand our outsourcing initiatives.

On Slide 17 I show our full-year 2013 free cash flow performance. We recorded free cash flow of nearly $95 million for the full year in 2013, an increase of roughly $34 million from the full year of 2012. The primary drivers of this increase came from improved working capital management and lower capital spending. We expect to keep our CapEx spending at or below $50 million during 2014.

Now I will turn to our financial guidance for 2014, which I show on Slide 19. We expect full-year 2014 reported revenues to grow 3% to 4% when compared to 2013. We expect approximately similar levels of revenue growth from all three BSI groups and from BEST. Our guidance assumes a yen to US dollar rate of 104 and a US dollar to euro rate of 1.36.

On the bottom line, we expect to generate 10% to 14% growth in non-GAAP earnings per share compared to 2013. This guidance assumes a 2014 non-GAAP tax rate of 29% to 30%. With additional planned outsourcing and restructuring programs in 2014, we expect that we will incur restructuring charges of $15 million to $20 million in 2014.

Benefits from these new programs are expected to impact 2015 financial results and beyond. Capital spending, as I mentioned, is expected to be below $50 million in 2014.

While we do not provide specific quarterly guidance, we do expect that our strong Q4 2013 will somewhat affect our performance in the first quarter of 2014. As a result we anticipate that our financial performance in Q1 2014 will be similar to our financial results of Q1 2013.

Overall, I feel good about the changes that we are making at Bruker, and I expect that our financial performance in 2014 will show clear evidence of the progress we are making in transforming the Company. With that, I would like to turn the call over to Joshua to start the Q&A session.

Thank you. Jamie, please assemble the Q&A roster.

(Operator Instructions). Tycho Peterson, JPMorgan.

First, on cash flow, obviously a nice step up there. I understand there are some seasonal elements there, but can you maybe, Charlie, just talk a little bit about where you ended the quarter in terms of backlog conversion times, and your latest thoughts on cash flow expectations for this year?

Obviously, with the revenue outperformance in Q4, we had some success in converting backlog. Obviously, what we are working on in all of our businesses is better processes, from order all the way to cash. I wouldn't say that we are necessarily firing on all cylinders, but we are making progress.

You know, Frank commented on the strong year that Optics had. Part of that was them getting better at managing their revenue cycle. Obviously, BioSpin in the fourth quarter really did a very good job of getting installations and acceptances done, and that accounted for a big part of our revenue overperformance there.

So I would say that in every business, we are working on that. And in Q4 2013 there was some standout performances in terms of reducing backlog there.

So from a cash flow standpoint we still have a long way to go. I am pleased with where we ended up in Q4, given the starting point, but we believe that we have the opportunity to take inventory down meaningfully. We will be focused on receivables in 2014, and in general, expect to be able to generate even healthier cash flow in 2014.

And then for Frank, you called out a recovery in some businesses -- Preclinical Imaging, in particular. I think you've seen some competitive exits in that market. Can you maybe talk to how much of it is just sustainable underlying improvements in the market versus some share shift?

And then for NMR, a similar question -- you introduced a line of helium-free magnets last year. Was there kind of an upsell to the installed base? Or how do we think about the sustainability of some of those trends?

Good questions, Tycho. This is Frank. So in the preclinical imaging space -- your first part of your question -- we obviously entered fairly recently in 2013 and late 2012 the microCT business. As I said in my prepared remarks, that microCT business, the former SkyScan business, particularly in the life sciences did well in 2013.

And I think that trend looks sustainable. I think we have strong products there and good demand for these capabilities.

It's still early days for us in molecular imaging, which, as you know, we acquired from Carestream in Q4 of 2012. Moving that operation, and consolidating that into our Massachusetts operations here in Billerica, and reworking that business unit took quite a bit of effort in 2013 and some expense.

We now see emerging growth in our bookings there, but it is still early days. Clearly, in optical molecular imaging we are not the market leader. There is another clear market leader who is very strong in that space, and it's generally competitive. But I think we can reach a reasonable position there and have these complementary optical molecular imaging systems that complement what we are doing in MRI and with magnetic particle imaging, microCT.

As you know, in Preclinical MRI there has been a competitive shift, which one of our competitors announced in the fourth quarter of 2013. So that may begin to -- you know, that hasn't really affected 2013 all that much, but there is clearly a bit of a market share shift there to be expected, given that that competitor will no longer compete in this Preclinical MRI niche, if you will.

Overall growth in the Preclinical Imaging market probably are not entirely clear. They were weaker in the beginning of last year, and probably more recently it has been the competitive trends that have masked, if you like -- and maybe in a positive way -- what the underlying secular market growth rate is. So perhaps we can give you a clearer view on that later in 2014.

In NMR, finally -- sorry to make my answers so long, but you also asked about NMR. Cryo consumption-free magnets -- they still have pyrogens; they don't consume any -- that uptake is rather gradual and tends to be more of a factor, at this point, at least, in countries that are emerging economies and in countries and locations where perhaps new research sites are being created, and where the usual logistics and infrastructure to support a major research university or medical school previously hadn't been available.

So it is a gradual uptake of that new technology. We still think it is where the future is, but that may very well be a 10-year adoption, not a 1- or 2-year adoption.

Doug Schenkel, Cowen And Company.

My first question is really on operating margins. I think your guidance implies -- and I apologize if you called this out while I was doing the math, but I think your guidance implies that you expect operating margins to improve 50, 60 basis points year over year in 2014.

I guess if you keep in mind headwinds from last year -- foreign exchange, utilization, and mix -- I think one could argue that those should at least partially reverse this year, and accordingly, maybe the margin improvement would be a little bit better. I think another way of framing this is I think you are essentially guiding margins to a level that is about in line with what you did in 2012 on a revenue base that was quite a bit lower.

So I was just wondering if you could spend a little bit of time talking about what's driving margins to these levels? Why couldn't it be a lot better? And, really, what level of investment in change is being baked in that may be keeping margins a little bit lower than one might have expected?

Doug, I don't know exactly what is in your model. Obviously with the 10% to 14% earnings growth that we guided to, depending on what your assumptions are, I would say that that is more of a 75 to 125 basis point increase. So it depends on what you have assumed for other expenses, and tax rate, and shares, and the like.

So that for us -- if you say 100 basis point improvement year over year on 3% to 4% revenue growth, we think is a good start. We made a lot of changes in 2013, committed to having those benefits show through in the operating margin in 2014. And I think that will clearly be the case, and that's clearly what is implied in our guidance here.

In terms of the headwinds -- we called them out, the 2013 headwinds. They don't reverse in 2014. They just don't occur to the same extent.

The one I will call out for you is currency. We commented on the significant impact that currency had in 2013. If you just take a snapshot of today's rates, it's a headwind again in 2014. The euro has continued to strengthen versus the dollar, which gives us a little bit of a benefit on the top line, but it really does hurt us on the bottom line. So we have already kind of lost ground, if you will, on currency 2014.

Now, that is reflected in our guidance; but, again, you have got to take that into account, as well. We are pleased with what's implied in the guidance. It shows the benefits of the programs that we completed in 2013.

That's helpful. I will go back and check my math, because that sounds a lot better than what I was backing into. Thanks for that. That's helpful.

I guess the second question -- clearly, a really good close to the year from a revenue standpoint. It does sound like, in various parts of your prepared remarks, that you were noting that there were maybe some revenue that was pushed from Q3 to Q4 and some revenue that was maybe pushed forward. I know it's hard to do this with a lot of precision, but is it possible to at least make an attempt at how much revenue came into the quarter that was really driven by timing, and the impact of Q1, accordingly?

This is Frank. I think it's hard to quantitate that, but yes, things did align at the end of Q4. And we got the acceptances. Usually we build in a little bit of a cushion there, because some just won't come through and slip into the next quarter. Not much of that occurred at the end of Q4, so our Q4 revenue indeed was a little bit higher than our own expectations.

And some -- I can't quantify for you, but some several million we would have otherwise expected to slip into Q1, and we are pleased to have them in Q4, of course, but that is even with infinity good systems. That just depends a little bit on the timing of our customers putting signatures and accepting systems. Signatures on paper. So that's never, ever going to be completely predictable.

Jon Groberg, Macquarie.

Thanks and congratulations on a great end of the year. So if you -- on your Slide 8, Frank, if you were to -- I think you mentioned another $15 million, $20 million or so in activities that you are targeting in 2014. You mentioned one that happened in January, which was divesting the machine shop.

But if you were to think about these buckets in 2014, and that $15 million $20 million in spend, can you give us a flavor of what you are doing in 2014 for 2015, and what kind of costs you expect to save as you move into 2015 from these actions?

We can't give you the -- we are still working through that, and a piece is becoming clearer, but the aggregate amount we may have a better feel for by midyear 2014. As you can see, with restructuring estimates of $15 million to $20 million in 2014, that is still substantial, which is good. That is what we are doing in the Company.

It's a little lower than 2013, when we reached nearly $25 million of restructuring. Some of it, if you like, is preprogrammed. Some of the outsourcing actions that we signed up to and signed with contract manufacturing partners already in 2013 will lead to predictable restructuring charges, some of which will come through in 2014.

Some of them are new items, like the divestiture of the Bruker Daltonics, if you like, machine shop that Charlie mentioned in his prepared remarks. And other Lean, outsourcing, restructuring projects are being analyzed. And a couple of them I have mentioned already at CAM, where we have taken some additional steps in the commercial organization.

But I am really not going to be able to answer your real question, which is what will be the run rate benefit of these 2014 actions. Very generally, we would think that maybe proportionally -- not in absolute amounts -- but proportionally they may be similar to what we achieved out of our 2013 restructuring, but I think that's -- we are going to give you much better clarity on how that will help us in 2015 by -- probably by midyear.

Maybe another way to express Frank's comment there about proportionality is most of these programs tend to have a one- to two-year payback on them, so that the one-time costs are paid back in one to two years in terms of savings. So that is the point about proportionality -- so not the same absolute number as the 2013 programs, but proportionally.

Okay. That's helpful. Then, Charlie, on your comment -- I was going to actually ask about this, because I think Frank also mentioned more stock, aligning employees more with shareholders. You mentioned share count. Do you have a view as to what the share count is going to be in 2014, what we should expect?

You know what -- I don't have that at my fingertips, Jon. We did expand the equity program this year to align a larger part of the population with shareholder value, but it's not such a large expansion that it drives some sort of differentiated movement in the share count. So wherever it has been trending in the last couple of years is roughly what you can model for 2014.

Okay. So outside of share count, then you are probably just talking about the tax rate going up to 29% to 30%, in terms of some of the other expenses. I'm just trying to think if there's anything else in the math in terms of the guidance from 2013 to 2014.

Nothing extraordinary.

Okay, thanks.

Isaac Ro, Goldman Sachs.

Charlie and Frank, I wanted to ask sort of a general question on R&D spending. If we look at the history of the Company, you have had a hallmark of being pretty innovative and driving organic growth ahead of the peer group, thanks to all the R&D spending.

I was hoping you could maybe comment on the health of the innovation at the Company, given all the changes organizationally at the Company. How do you feel about the pipeline of new products this year? Do you think that will be a meaningful contributor? I am just trying to figure out how much new product will drive your organic growth outlook this year.

This is Frank. Hi, Isaac. Generally, obviously, as our R&D spending is still at the high end of the industry, which is where we want to be; I think that's -- you know, we are focusing more on our organic growth, ROIC, metrics like those. Innovation, in addition to the transformation that we talk about a lot, remains a key driver of our business success, and it's very inherent in our culture.

R&D spending over the years, gradually leveraging up towards and maybe at some point slightly below 10%, but still very significant. With the new PLC processes, where we phase, and gauge, and manage our investments, perhaps a little bit more explicitly and clearly, we actually think we will get as much of commercial innovation and bang for the buck out of it -- or maybe a little better, more bang for the buck, by targeting them for the higher-margin and growth opportunities.

So you have seen in 2013 a very mixed picture. And some years previous to that and prior to that, we had similar growth rates among the groups. And obviously in 2013 we had some very stark contrast, with the more industrial focused BMAT Group having a strong weakness in market, despite their very impressive new products, which they continued to bring out, also, in 2013; and, of course, quite good or reasonable growth in the B-Bio and CALID, life science oriented, and more research oriented, academically oriented two groups.

In terms of new product flow and innovation, we expect 2014 to be, again, a very strong year. Of course, we don't discuss what we intend to do during the year. We don't show our cards, so to speak, by showing the product roadmap. For competitive reasons we will bring out new products throughout the year. It's not all focused on PITTCON, or analytica, or ASMS.

Of course, those are important, but there is a lot of other conferences. So you will see that pretty evenly spread throughout the year for Fluorescence Microscopy or Preclinical Imaging. The conferences -- in fact, many of them are later in the year, but we expect in summary a very strong new product flow also in 2014.

That's helpful. And maybe just one for Charlie on the numbers. I think in the beginning there was a question on -- the free cash flow performance is up, I think, over $50 million this quarter, year on year. And a reasonable chunk of that was from inventory.

So I was just wondering if, Charlie, you could give us some color as to how we should think about continued inventory improvement this year -- I mean, to the cadence of that quarter to quarter, to the extent you have visibility on the inventory trend.

Yes. So inventory -- just generally speaking, 2014 inventory, again, should be a source of cash. We expect inventory to go down on an absolute basis and down on a DIO basis. Beyond that, I'm not going to guide more specifically on that.

Quarter to quarter -- just given the seasonality in the business, we tend to build inventory earlier in the year and blow it out later in the year. So it's not a smooth, linear process, but you can look at the seasonality year over year.

Fair enough.

(Operator Instructions) Derik De Bruin, Bank of America Merrill Lynch.

A couple of quickies. On the BEST guidance or the BEST outlook for 2014, can you remind us what the Rosatom number will be in 2014, and what it was in 2013? Just trying to get a sense on the year-over-year comps.

2013 it was about $6 million of revenue at very high margin. 2014, it's more like $8 million to $10 million, but at a very low margin as we work to complete the contract.

Okay. Does that, then -- if you back that out, does that mean -- outside of the licensing, is that organic revenue in the BEST business declining over year, then?

For what period, Derik?

Year-over-year -- I am just trying to get a sense on the organic, X the Rosa tom contribution, what the core of the BEST business is doing.

For 2013, though, Derik?

2014. The guidance for BEST in 2014.

I don't think we have the numbers exactly those slides the way you're asking, but we are looking at BEST growth in the mid-single digits in 2014. And I think even if we took out Rosatom in 2013 and 2014, if that is what you're asking?

Yes.

It would still be growing, but I can't cite you a growth rate right now.

Okay. Perfect. And then just one quickie on this one: you said your NMR bookings were up. I'm just curious -- are these higher margins? Are you getting better pricing on your new bookings as opposed to the older bookings? Are you getting more pricing discipline out of your sales force?

We would like to think that that is the case, and that certainly we are managing towards that end, yes.

Thank you. I will get back in queue.

Ross Muken, ISI Group.

This is Vijay in for Ross. Just one question on CAM. Given some of the changes at CAM, what is the impact on longer-term revenue and margin profile for that business?

Vijay, this is Frank. I think we are focusing at CAM on margin improvement. We are not necessarily focusing on growth or gaining market share at this point in time.

Without going into a lot of numbers here, but our long-term goals from, perhaps, two or three years ago -- to turn that into a $250 million revenue division are very, very long-term at this point. It's obviously closer to a $100 million division, and the focus is not going to be primarily on growth, but really on the quality of the revenue and on the margins. And that is how we are looking at it, as we have focused more on areas where we have market applications or products, where we have unique capabilities and higher value propositions -- and, accordingly, better margin opportunity.

Thanks for those comments, Frank. And just maybe one quick follow up on -- what was the gross margin for the BEST and BSI segments in the quarter?

We will have to give you that off-line.

Okay. All right. Thanks, guys.

Dan Leonard, Leerink.

Thank you. Just to clarify: in your 2014 guidance, are you forecasting a high single-digit revenue decline in BMAT in 2014?

No. We are looking at somewhat similar growth rates for those three major groups, which would all be positive in 2014.

Oh, oh. Got it. I thought you meant similar to your 2013 result, which would be -- that was a --.

That is a good clarification, then. Thank you. No, we meant similar to each other, and grouped more closely together, and all being positive. So we apologize if we didn't make that sufficiently clear. That's a good question.

No worries. Got it. Then my follow-up question: if you are thinking about improving operating margins by roughly 100 bps in 2014, how should we think of the mix of that improvement between gross margin and OpEx? Thank you.

Dan, obviously we made more -- we have made quite a bit of progress in 2013 managing OpEx. And as you, I'm sure, have observed, a lot of our restructuring and outsourcing programs are aimed at our manufacturing and supply chain footprint. So the expectation for 2014 is that more of the improvement would come at the gross margin line than below that.

Got it. Thank you.

Brandon Couillard, Jefferies.

Charlie, could you give us a sense of what organic orders were in the fourth quarter? And if you could give us a view just around the book-to-bill, specifically within BSI, that would be helpful.

I will just give you some qualitative comments; we don't disclose those numbers specifically. I think Frank commented that order growth in the year was healthy. It was kind of in the neighborhood of revenue growth.

Again, it doesn't make a lot of sense to drill too deeply into order growth in a quarter, just because there's such significant year-over-year variability. But nonetheless, as Frank pointed out, we exited the year with strong orders in BioSpin. As Frank pointed out, that BMAT order growth grew year over year in the second half and also sequentially in the second half. And then order growth in CALID was reasonable all year long. So there is nothing remarkable about fourth-quarter orders, per se, that is very different than what we saw over the course of the year.

Thanks. Could you speak to any effect that the Japanese stimulus may have had in the fourth quarter? Did that actually translate into revenue? And should be think about that being a tailwind to the top line into, let's say, the first half of the year?

Brandon, this is Frank. Again, undoubtedly there was some Japanese special supplementary budget revenue in Q4, but I can't quantitate it for you right now in exactly that way. And we expect that there would be some also in calendar Q1 and calendar Q2 of 2014.

As you know, the Japanese fiscal year requires that we deliver these instruments before the end of March; some we already delivered in Q4. Many more of them in Q1, but some of them, then, don't get accepted and turn into revenue until, typically, Q2. So it is really spread out over a number of quarters. It doesn't come in all in one quarter.

That's helpful. Last quick one for Charlie -- what are we expecting or what should we be expecting for net interest expense as well as a minority interest line next year?

Yes, we'll have to -- we'll just take that one off-line, okay?

Super. Thanks.

Steve Willoughby, Cleveland Research.

Just wondering if you could provide a little bit more color as to what you are doing in the CAM business in terms of narrowing its focus and narrowing its products. Just wondering what things you are going to be deemphasizing versus things you are going to be emphasizing.

Steve, this is Frank. I understand the question very well, and we prefer not to comment at this point in time, as we are still analyzing some of that. Some of this has occurred, obviously.

I keep it somewhat generic -- there are a number of areas where we have product with good gross margins, and there are markets where we are pretty plugged in, and that we think we understand the customer requirements quite well. We think we have a differentiated value proposition. Again, for competitive reasons I would like to not get more granular than this, with apologies. Hopefully -- also asking for your understanding.

No -- yes, definitely understandable. Then just two other quick ones. Was just wondering, in your 2014 guidance, how much of a headwind you are thinking about in terms of the impact from currency, right now?

I was disappointed to look on my screen a little while ago and see that the euro is at 1.38 today. But we are probably talking at least $0.05, relative to 2013 rates.

Okay. Then just the final thing is -- I was wondering if there was any update into the potential timing of you guys beginning to provide some segment data within the BSI segment?

We will evaluate that over the course of this year. The group structure and reporting around the group structure isn't quite a year old at this point, or it's just a year old. I think we would like to take a little bit more time with that to make sure that internally our management reporting is where we want it to be. So perhaps later in the year we will talk about that.

Okay. Thanks very much.

Amanda Murphy, William Blair.

I just had a follow-up question to Tycho's question earlier on BioSpin demand. I think earlier in the year, you had spoken to the US being strong, and then it seems like now Europe has taken over. Is that just a comp issue? Or is there something underlying that demand shift?

It's actually even more complicated, Amanda. Again, this is Frank. A lot of the revenue that we generated in Europe in the second half of 2013 -- those were orders that may have come already from 2012.

And the strength in bookings in the United States in NMR that surprised us as well in 2013, a fair amount of that will then turn into 2014 revenue. This isn't even any of that -- of the, hey, NIH budgets are now improving; therefore is demand perhaps improving? None of that has gone into 2013, yet, obviously. So we are looking forward to that perhaps providing an additional gentle tailwind to bookings, at least, in 2014. But that remains to be seen.

It remains to be seen how quickly that we'll be affected. It's more of the timing, I think.

Got it. And then just another one on gross margin. So I think you mentioned mix having an effect in the quarter. I am assuming that has something to do with BEST, but I guess I am curious more about 2014. And to the extent that we are thinking about margins through the year, is there something we should think about around product mix and maybe shipment timing in terms of how that might affect gross margin through 2014?

Amanda, this is Charlie. The 2013 Q4 comment around mix was more aimed at BMAT. BMAT had record revenues in Q4 2012 and record gross margins associated with those record revenues, and then had a significant revenue decline year over year in the fourth quarter of 2013, with a corresponding hit to their gross margin.

And BMAT on average has gross margins that are higher than the Company average. So that was the negative mix comment there.

As for 2014, with revenue growth rates -- year-over-year revenue growth rates similar in the three major BSI groups, there is nothing specific about mix that I would call out, nor is there anything necessarily about quarters that I would call out. Perhaps the only kind of tough comp, if you will, will be the timing of the Rosatom revenue from 2013, which was -- at least that impact was smaller in 2013 than it was in 2012. That was a $6 million high-margin revenue in 2013. But no, beyond that, I wouldn't call out anything specific about the quarters.

Good, got it. Thanks very much.

Luke Sergott, Wells Fargo Securities.

Hi, this is Tim Evans. Given your comment about the margin, Charlie, can you give us a little bit more clarity on the other income line?

I would think that most of what's in that line is your interest expense and then the exchange gains and losses on the foreign exchange. Do you normally keep the foreign exchange gains and losses at zero when you look at it going forward? Or are you actually forecasting something in that line?

Listen, we will take that off-line, but you are right. The characterization is correct. It's mostly interest expense and foreign exchange gains and losses, and a handful of other things. Obviously, with rates continuing to move as they are, there is -- we do have some assumption about foreign exchange gains and losses for 2014.

Okay. And just one for Frank -- the demand from European academic customers: does that feel sustainable to you? Is that kind of a long-term trend, or at least a trend that we should expect for the full year?

Probably. I think European academic spending, maybe excluding some Mediterranean countries that had, obviously, financial troubles, and still do to some extent, has been really much more consistent and maybe even -- elections come and go, but that is sort of a long-term investment that the European Union and many European governments are pretty committed to.

There has been more of a trend change in the UK, where their academic spending had been rather anemic for several years, and that was partially reversed in 2013. That positive trend seems to continue to go on in 2014.

Perhaps also one trend that was sort of transitory was former part -- Central/Eastern Europe getting European funding to build their academic infrastructures. That was more of a 2011/2012 bookings theme, and some of that came through in 2013. But again, that might get into too much granularity. I think the simpler answer is with the UK providing some additional tailwinds, that seems to be sustainable, at least through 2014. And a lot of the rest of Europe has pretty long-term 5- and 10-year plans that seem to be not really politically in play every year, but seem to be sustainable in our opinion.

Bryan Brokmeier, Maxim Group.

Given the organizational changes, you weren't overly active on the M&A front in 2013. Now with more cash in the bank and strong cash flow generation expected in 2014, and a lot of the major leadership changes behind you, how should we think about your use of cash in 2014? And specifically, how are you thinking about M&A in 2014 versus 2013?

Still somewhat muted demand for M&A. I mean, we are always keeping our eyes open. There are, of course, some long-term discussions that we have had with often smaller companies that we think have good product lines, and good management, and so one. And you can never predict the timing of whether if ever they become actionable.

But not very active in the M&A market. Not a high priority. We think we have -- continue to have so much opportunity internally through product innovation and organic growth, and through what we now refer to as the transformation.

Last year we did one smallish acquisition. The year before that we did two. Difficult to predict how this year will go, but probably comparable to those years rather than anticipating or looking for larger or mid-sized acquisitions.

If your top-line growth exceeds your expectations, would you invest more of that money back into your business to accelerate some of the organizational transformations that you have planned for the next few years? Or should we expect to see that margin hit the bottom line?

I think we are doing the right amount of investments. Those are in our business plans, and therefore, also, ultimately in our guidance. So I don't see a -- I think the answer is mostly if there was -- the markets were better, and if demand, and bookings, and whatever we can turn, of course, still into revenue in 2014 -- if there was any uptick in that, it would primarily -- we would like to see bottom-line improvement from that.

Okay. And just the last question: Charlie earlier stated that most of the cost savings programs tend to have one- to two-year paybacks. Were you just talking about 2014 programs? Or does that also apply to what is behind you from 2013?

It applies to both years.

Okay. Great. Thanks a lot.

Sung Ji Nam, Cantor.

I have a very quick question -- maybe a follow-up to Doug's earlier question on operating margins. Could we anticipate more steady improvement going forward, in your view? Or do you think there will continue to be large variability from year to year? I am just trying to get a better sense of what kind of visibility you guys have at this point in terms of your longer-term goals and the potential that you have.

Could you just clarify the question? You talked about spending improvement, and I'm not sure I understand exactly what you were driving at.

You talked about 75 to 125 basis point improvement this year. I was just kind of wondering -- going forward beyond that, was wondering if we could anticipate kind of a steady improvement in operating margin? Or do you think there will be a lot of variability from year to year? And I am assuming kind of currency-neutral environment, and not too much variability in terms of the market environment.

Sure. No, listen; I appreciate the question. We are not at a point yet where we are giving any sort of guidance beyond 2014. We are committed to a consistent multiyear improvement in our operating margins. We are not ready yet to characterize how that plays out year over year over year.

Eric Criscuolo, Mizuho.

Just filling in for Peter tonight. On the SG&A, it was lower than we expected in the quarter. Was there anything that was especially helping lower that SG&A spend?

I think if you just look at the -- again, I don't know what you had in your model for Q4, but if you look at the full year I think we did a nice job with OpEx. Both SG&A and R&D were down on an absolute basis year over year. Down slightly, but obviously that implies a great deal of control and some decision-making on our part, which I think is an improvement and helped to mitigate some of the revenue miss and the gross margin differences.

Some of that Q4 would have been -- I mean, there was a little bit of a benefit in Q4 from some of the 2013 restructuring actions, particularly in BMAT. A lot of the BMAT actions happened -- kind of the rightsizing happened at the end of Q3, into the beginning of Q4; so that would have had a little bit of a benefit there. But beyond that, nothing exceptional I would point to in Q4.

Okay. And then in the Bruker MAT business: is there any hint that those industrial markets -- the semis, the data storage, etc. -- is there any hint or any upcoming trends that show that that business will start to improve going forward?

Eric, this is Frank. We see some gradual sequential and year-over-year improvements, low to mid-single digits. I wouldn't call that -- you know, in industrial markets, I don't see the double-digit growth that we may have seen coming out of a deeper recession, obviously, in 2009 -- late 2009, 2010.

So it's a gradual recovery. And it is a mild recovery; it's getting better. We are expecting growth from lower comps, however, in BMAT in 2014. But it is not a strong -- we don't see the evidence of a strong recovery yet. We see bits and pieces, but then we also see things that point the other way.

On average, on balance it seems like a rather gradual recovery. It could accelerate, but we just haven't seen the evidence yet of that in Q3 or Q4 of last year.

Dan Arias, UBS.

Thanks. I jumped on a bit late here, so apologies if this has been commented on. But maybe just a quick two-parter on BioSpin.

Frank, how have ASPs for shipped NMR systems been trending? Has there been any change in lead times at all via mix that might make revenue recognition timing, something worth noting or thinking about as we think about the pacing in 2014? Thanks.

Dan, good questions. This is Frank. We were still working, obviously, in 2013 and to some extent in 2014 through older backlog. I don't think there has been any remarkable shift in bookings that would make the quarterly timing of revenue recognition more or less predictable in 2014.

Some quarters you have helium shortages and you would get slowed down a little bit; other quarters, like in Q4, that doesn't -- all of a sudden it's not a problem. But those are really tactical things you experience almost country by country in the last couple of weeks of the quarter. I don't mean to get into too much detail, but there is just an inherent degree of revenue recognition fluctuation from quarter to quarter that will never, even with perfect systems, be entirely predictable -- especially in BioSpin, where we have so many [0.5 million, and 1 million, 2 million] and some even larger systems.

Paul Knight, Janney Capital Markets.

This is actually Bryan Kipp on behalf of Paul. I just wanted to touch a little bit deeper into your first-quarter guidance. I know you guys guided to a similar dynamic as you saw in the first quarter last year. Just thinking from a macro level in your orders commentary, last year we were at a continuing resolution during the first half of last year. European markets hadn't quite stabilized; we have seen some improvements there, especially in the academic side, as you guys have alluded to.

Pharma will always be a little bit weaker; it depends on who you talk to. And I think the US, coming off of the NIH down 9% last year to some modest increase this year -- just trying to get an understanding of why you think 1Q is going to be as light as you saw it last year in regards to that macro environment.

You are right. It is really just quarterly fluctuations. A little bit of overperformance in Q4.

As I said, any quarter just doesn't make a trend. And I think what really are working very hard to deliver is the 3% to 4% growth for the full year 2014 and the 10% to 14% EPS growth on a growth basis of that type.

That is our guidance, but we did want to alert people to the fact that because Q4 was a bit stronger than what we had expected -- the revenue acceptance stars aligned at the end of Q4, which was good, but it does take away a little bit from Q1.

Okay. And just a quick follow-up on your PCI business. In 3Q you cited some push-outs that I think you have commented on today, saying that you saw some revenue recognition there. But prior, you had said that some of these things might get pushed out to 2014. Is that still the case? Or do you think most of those prior push-outs were recognized in 4Q?

No. Some were recognized in Q4 of 2013, and others are still in the pipeline for revenue recognition in 2014. Not all of it was in Q4 of 2013. Good catch.

Ladies and gentlemen, at this time we have reached the end of today's time allotted for the Q&A session. I would like to turn the conference call back over to Mr. Young for closing remarks.

Thank you. I would like to thank everybody for joining us this evening. We invite you to meet with Bruker at the upcoming Citi, Cowen, and Barclays healthcare conferences during the first quarter.

We also encourage you to come to our headquarters in Billerica, Massachusetts. Thank you for your attention and have a nice day.

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your telephone lines.