Bruker Corp (BRKR) 2015 Q4 法說會逐字稿

Good afternoon, and welcome to the Bruker fourth-quarter and full-year 2015 earnings conference call.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Joshua Young. Please go ahead.

Thank you very much, Amy. Good afternoon, I'd like to welcome everyone to Bruker's fourth-quarter and full-year 2015 earnings conference call.

My name is Joshua Young, I am the Vice President of Investor Relations and Corporate Development for Bruker. And joining me on today's call are Frank Laukien, our President and CEO; and Tony Mattacchione, Bruker's Senior Vice President and Interim Chief Financial Officer.

In addition to the earnings release we issued earlier today, we will be referencing a slide presentation as part of today's conference call. The PDF of this presentation can be downloaded by clicking on the Earnings Release hyperlink on Bruker's Investor Relations website.

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

Before we begin, I'd like to reference Bruker's Safe Harbor statement, which I show on slide number 2. During the course of this conference call, we will be making 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 on 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 10, 2016. 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 2016 financial results in May.

We will begin today's call with Frank providing a business summary. Tony will then cover our financials for the fourth quarter and full year 2015 in more detail. Now, I'd like to turn the call over to Bruker's 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 reported strong financial performance in the fourth quarter and significant improvements in our full-year 2015 results. The higher profitability and free cash flow generation are clear evidence that the hard work over the past three years to transform Bruker into a stronger and more profitable company is delivering results.

Our full-year 2015 results reflect increasing organic revenue growth, and we surpassed our guidance for operating margin expansion and EPS. I note that these performance improvements came while we were dealing with continued softness in some of our industrial markets and a strong currency headwind to non-GAAP EPS.

I will now begin my presentation on slide 4, where I will discuss our Q4 2015 results briefly before focusing on our full-year 2015 results, which are more indicative of the underlying trends in our business.

We reported revenues of $478 million in Q4 2015 with year-over-year organic revenue growth of plus 2.5%. This growth was driven primarily by our CALID Group and our BEST segment. Geographically, Europe and the Americas were the primary drivers of organic growth in the fourth quarter.

Our Q4 2015 non-GAAP operating margin increased by 500 basis points year over year versus Q4 2014. We reported non-GAAP EPS of $0.38 in Q4 2015, which represented year-over-year growth of plus 27% despite still facing a year-over-year currency headwind, but aided in part by a favorable tax rate in the fourth quarter of 2015. Finally, our free cash flow of $138 million was very healthy following a strong Q3 2015 and accentuated by strong customer collections.

On slide 5, I show Bruker's performance for the full year 2015. In 2015, we reported a revenue decline of minus 10%. This decline was primarily driven by currency effects and also by a minus 2% net decline from our portfolio as a result of our 2014 CAM divestitures, offset by a partial quarter from our recent Jordan Valley Semiconductor acquisition. We reported year-over-year organic revenue growth of plus 2% in 2015, which was better than our guidance for plus 1% organic revenue growth and represented a gradual acceleration of growth after an organic revenue decline in 2014.

Geographically, Europe had a strong year, delivering organic revenue growth in the high single digits for 2015. The Americas grew in the low single digits organically, while Asia-Pacific declined in the high single digits, primarily due to weakness in Japan and Southeast Asia.

Our non-GAAP operating margin for 2015 expanded by about 310 basis points to 13.3%, compared to 10.2% in 2014. This improvement was well above our guidance for plus 150 basis points or more operating margin expansion in 2015, due to our stronger profitability in the fourth quarter of 2015.

Our non-GAAP EPS for 2015 were $0.89, a 19% increase compared to 2014. In 2015, currency headwinds lowered EPS by minus $0.09, but this was somewhat offset by discreet tax benefits in 2015 that lowered our full-year non-GAAP tax rate.

Finally, our free cash flow hit a record level of $195 million in 2015, more than doubling year over year, primarily as a result of our strong performance in the second half of the year. Our 2015 free cash flow performance also benefited from higher customer advances and reductions in our working capital. While our focus on working capital reduction will continue to be a priority, we likely will not reach the same level of free cash flow in 2016.

The recovery of our NMR business in the second half of 2015, combined with strong operating leverage on a reduced cost base, helped us to deliver much better-than-expected operating profit, EPS and cash flow in 2015. I am also very pleased that our return on invested capital, or RoIC, in 2015 reached a level of greater than 20%.

In summary, we are very pleased that our results in 2015 were much improved compared to prior years, and we have clearly turned the corner with our transformation. We now expect to have several years of gradually increasing organic revenue growth and further margin expansion ahead of us.

Please turn to slide 6 and 7 now, where I will provide additional details about the year-over-year performance of our three groups and of our BEST segment for the full year 2015. Let me begin with our BIOSPIN Group, which reported revenues of $547 million in 2015, representing a minus 3% organic revenue decline. This decline was the result of weakness in our preclinical imaging division, combined with a slow start to the year for our magnetic resonance spectroscopy, or MRS division.

Our MRS division reported flat revenues for the full year, but generated good organic revenue growth in the second half of 2015. This second-half strength was offset by our preclinical imaging business, which posted declines in both revenues and new order bookings in 2015.

Our NMR business experienced a low-teens increase in new order bookings in 2015, representing a nice recovery after a significant bookings decline in NMR in 2014. The effects of volume growth and price increases both contributed to the growth in new order bookings.

In the fourth quarter of 2015, we already saw some positive effects of higher-price backlog flow through to our BIOSPIN Group margins. At this time, Bruker BIOSPIN has substantially completed the transfer of ultra-high-field NMR magnet manufacturing from our Rheinhafen plant in Germany, which is being closed, to our remaining two magnet factories in France and Switzerland.

Next, I will turn to our CALID Group, which reported total revenues of $493 million and 7% organic revenue growth in 2015, along with a major improvement in profitability, in part due to our 2014 CAM divestitures and restructuring. Our detection division had an exceptionally strong year 2015, with a number of large transactions, including the explosives trace detection installations at various European airports in 2015.

Our daltonics division had a good year of revenue growth in 2015 for nearly all product lines. Our MALDI Biotyper continues to be one of our fastest growing product lines, reaching close to $100 million in revenue in 2015, with approximately 10% year-over-year currency-adjusted revenue growth.

After a strong year in 2014, our optics division faced weakness in some of its markets, which pressured its top line in 2015. That said, the optics division controlled expenses and sustained its above-corporate-average level of profitability.

Please turn to slide 7 now. The Nano Group reported revenues of $460 million, which represented organic revenue growth of approximately 1%. Nano had a mixed year of top-line performance as strength in its academic customer segment was offset by continued weakness from industrial and semiconductor and data storage customers.

Our AXS division had a solid year, delivering high single-digit organic revenue growth in 2015, with particular strength in our X-ray diffraction products. We reported a decline in both revenue and profitability for our Nano surfaces division in 2015.

The division has seen weaker demand from its industrial customers, particularly in regions of Asia outside of China and Japan, and despite the weak market, the division is doing a good job of managing costs and expenses. Finally, within our Nano Group, our smaller Nano analytics division posted low-teens organic revenue growth in 2015, driven primarily by the micro X-ray fluorescence business.

Our BEST segment reported revenues of $134 million and plus 4% organic revenue growth year over year in 2015. BEST also increased its non-GAAP operating margin by 360 basis points to 9%. In Q4 of 2015, BEST substantially completed two multi-year programs, ROSATOM and DESY. BEST also achieved strong bookings and backlog increases in 2015, with large long-term superconducting wire orders.

I'd like to wrap up my presentation on slide 8, where I show Bruker's key priorities for 2016. The year 2016 will mark Bruker's transition from a three-year period of transformation, including divestitures and restructuring, to our next more evolutionary phase of operational excellence and lean initiatives.

Over the past three years, Bruker has spent more than $90 million on restructuring charges, as we changed our portfolio, lowered our fixed costs, and began to streamline our supply chain. We are certainly not done with driving higher levels of operating profitability and cash flow, but future improvements will come from business -- will come more from business and product innovation, being close to our customers, as well as our lean enterprise initiative, outsourcing, implementing better business systems and driving better commercial practices.

Our second priority will be to continue to strengthen our systems and management insights by harmonizing business prophesies and ERP platforms. In 2015, we went live with a new financial consolidation system, and in early January of 2016, we successfully merged our various instances of SAP, an important step as we consolidate our ERP onto one global platform. Throughout 2016 and 2017, an important goal will be to harmonize our business prophesies, embed them in our ERP, and begin to roll them out in our country sales offices and production sites.

Third, it is important that we continue to invest for future profitable growth. In order to sustain attractive operating leverage, we expect to gradually accelerate our organic growth. We are continuing to make investments in our four strategic growth markets, and we continue to invest a high percentage of our revenues into R&D.

My fourth priority is to reemphasize the focus on customers and the importance of driving product and business innovation. This is the life blood of our business, and staying close to our customers and ensuring that we are not inwardly focused is a key priority.

I will conclude my comments by stating that I am very pleased with our financial performance improvements in Q4 and for the full year 2015. With that, let me turn the call over to Tony Mattacchione.

Thank you, Frank. I will now provide some additional details on our financial performance in Q4 2015 and in the full year 2015, starting on slide 10.

Bruker had an excellent fourth quarter financially, which built on the positive momentum from Q3 2015. To reiterate Frank's comments, in Q4 2015, we expanded operating margins by 500 basis points on organic revenue growth of 2.5%. We delivered an EPS increase of $0.08 year over year, and we generated $138 million of free cash flow.

On a full-year 2015 basis, revenue grew 2% organically year over year, and we delivered 310 basis points of operating margin expansion, $0.14 of non-GAAP EPS growth, and $195 million of free cash flow generation. We are very pleased with our financial success in both the fourth quarter and in 2015.

Now let me drill into more detail on our Q4 performance. Our non-GAAP operating income grew 31% to $83.7 million, and we reported a non-GAAP operating margin of 17.5%. This operating income growth, along with a favorable tax rate, drove a 27% non-GAAP EPS increase year over year in the fourth quarter.

Free cash flow generation of $138.2 million in Q4 reflected a $76 million year-over-year improvement, primarily driven by our higher profitability but also from working capital improvements. We typically generate most of our free cash flow in the fourth quarter, and that trend also continued this year in 2015.

Our balance sheet continues to be healthy, as our net cash position increased by 41% to $201.6 million, even as we initiated two share buyback programs in 2015. Our working capital reductions in the quarter resulted in an improved working capital to revenue ratio, which was lowered to $0.36 per revenue dollar in Q4 2015, compared with $0.38 in Q4 2014.

Turning to slide 11, I show you the year-over-year revenue bridge for Q4 2015. Despite a 60 basis point net negative portfolio effect, and a 7.8% negative effect from changes in foreign currency translation, organic revenue grew 2.5% in the fourth quarter of 2015. The strengthening of the US dollar resulted in a $39 million currency headwind, while negative portfolio -- while the negative portfolio effect was the result of our CAM divestitures in 2014, and a partial quarter of revenue from our Jordan Valley acquisition in the middle of Q4 2015.

On slide 12, I show our Q4 2015 profit and loss statement. Our Q4 2015 non-GAAP gross margin of 46.6% increased 270 basis points year over year. The benefits of our CAM restructuring added 50 basis points to our gross margin in Q4 this year. Roughly 180 basis points of the gross margin improvement was primarily the result of the higher business volume, improved order execution, pricing, and operational improvements related to our transformation initiatives.

Our Q4 2015 operating expenses were down approximately $20 million year over year. In Q4 2015, lower R&D and SG&A spending resulted in a 230 basis point year-over-year contribution to our operating profit margin. The net result is that our non-GAAP operating margin improved 500 basis points compared to a relatively weak Q4 2014 quarter.

Our Q4 2015 non-GAAP tax rate of 19.1% was 90 basis points lower than in Q4 of 2014. This was primarily the result of reversing certain US valuation allowances. This is primarily also attributable to the higher profits earned in the US, which were caused by the divestiture of our unprofitable CAM businesses and other tax-planning effects this year. Finally, non-GAAP EPS of $0.38 represented an $0.08 or 27% increase from Q4 2014.

On slide 13, you will see the revenue bridge for the full year of 2015. We reported an organic year-over-year revenue increase of 2.1% in 2015. Changes in foreign currency translation lowered our revenues by 10.2%, or $184 million, in 2015.

On slide 14, I show our non-GAAP P&L for the full year of 2015. Our non-GAAP gross margins improved by 150 basis points compared to last year. Approximately half of the gross margin improvement was related to the higher business volume, improvements in commercial practices, and the operational initiatives associated with our transformation. The savings from our CAM restructuring contributed 60 basis points to the gross margin improvement in 2015.

Our FY15 operating expenses declined by $88 million compared to last year. Approximately $[62] million of the decrease -- excuse me -- was related to FX, while the CAM restructuring represented $22 million of the year-over-year decrease in the FY15 operating expenses.

Our non-GAAP operating margin increased by about 310 basis points year over year in 2015, with CAM representing a little over 100 basis points of that increase, and roughly 200 basis points coming from FX and operating leverage we've incorporated into our business model. Our non-GAAP tax rate of 22% was 310 basis points lower than last year, and below the 24% to 25% we had assumed in our guidance. The primary driver of this lower rate was the reversal of the US valuation allowances I referred to previously.

On the bottom line, in 2015, we reported $0.89 of earnings per share -- non-GAAP earnings per share, which were $0.14 or 19% higher than 2014, and well above our most recent guidance of $0.75 to $0.80. Changes in foreign currency translation rates reduced our EPS by $0.09, whereas the absence of the divested CAM businesses increased EPS also by $0.09.

On slide 15, I show our 2015 full-year cash flow statement. We generated very strong free cash flow of $195 million in 2015, compared with $80.5 million last year. That was $114.5 million improvement year over year.

That increase was the result of the higher earnings and lower working capital cost, predominantly by cash collection timing for large NMR installations and significantly higher customer advances we experienced in 2015. Customer advances, which represent customer down payments, can be large and can fluctuate significantly depending on the timing of order receipt and the customer's acceptance of our systems.

Our Q4 2015 cash conversion cycle shortened by 10 days compared to Q4 2014. This was comprised of the following. Our days of inventory decreased by -- sorry, by 7 days to 188 days. Our days sales outstanding decreased by 2 days to 59 days. And our days payable outstanding increased 2 days to 33 days, all compared to Q4 2014.

During the fourth quarter of 2015, we repurchased 2.8 million shares in accordance with our share buyback program. In 2015 all together, we repurchased approximately 4 million of our shares. Most repurchases occurred in November and December last year, so the effect on our 2015 weighted average share count is not yet very significant. As of the end of 2015, we had $167 million of remaining authorization to buy back shares as part of the $225 million share buyback program we announced last November.

Now turning to slide 17, I show Bruker's guidance for the full year of 2016. We expect to generate organic revenue growth of approximately 3%. And we expect to increase our non-GAAP operating profit margin by approximately 100 basis points. We expect that our non-GAAP EPS will be in a range of $0.97 to $1.02.

We also expect that changes in foreign currency exchange rates will lower our reported revenues by 1.6%, which will only have a nominal effect on our non-GAAP EPS in FY16. The revenue headwind from FX will be approximately offset by the benefits of our recent Jordan Valley Semiconductor acquisition. This means that organic and reported revenue growth will be around 3% also in FY16.

Our currency assumptions included a yen to US dollar rate of JPY120, a US dollar to euro rate of $1.09, and a Swiss franc to US dollar of CHF0.999, which were the spot rates at December 31, 2015. We assume a non-GAAP tax rate range of 25% to 28% for the full year of 2016, and we are assuming a fully diluted share count of approximately 163 million to 165 million shares.

We expect CapEx to total approximately $50 million for the full year of 2016. I would remind investors that much like 2015, we expect the majority of our profitability in cash flow to be generated in the second half of 2016. We also expect to have a seasonally weak first quarter and do not anticipate much year-over-year growth in operating profitability or EPS in Q1 2016.

I will close by stating that we are very proud to report strong improvements in Q4 and for the full year of 2015. We are doing a more effective job of delivering on our commitments to shareholders, and we expect 2016 to be another good year for operating margin expansion and free cash flow generation. With that, I would like to turn the call back over to Joshua to start the Q&A session.

Amy, if you could please assemble the Q&A roster.

(Operator Instructions)

Brandon Couillard, Jefferies.

Frank and Tony, could you give a sense of what you've embedded in terms of the organic growth guidance for the year by division? Any color you can give us between BIOSPIN and the other units?

We don't usually give that granularity. We obviously at the end of the year is to help everybody with their models, we gave the full-year revenue for each of the three groups. But I don't think we're going into the granularity of providing growth rates for each of the groups or divisions.

As we mentioned in our prepared comments, we do have -- we will see strength in our NMR products. The second half of the year was strong from a revenue and an order perspective. But that will be offset, of course, by continued prolonged weakness in our industrial markets in some of the semi and data storage businesses, as well. So that color gives some thoughts on the revenue guidance.

Super. And then one more, Tony, in terms of the 100 basis points of operating margin improvement in 2016, could you help us bridge that between OpEx and gross margin in terms of contributors? And to make sure I understand your comments correctly, did you indicate that free cash flow would actually be down year over year versus 2015?

Yes, so the -- most of the operating profit expansion will come from gross profit margin. We -- with a 3% around market revenue growth rate, we believe that leveraging our production costs and benefiting from the initiatives that we put in place in the last few years, as well as some pricing effects, will generate most of the operating profit margin expansion in gross profit margin.

With regard to the free cash flow, the implication was, yes, that we don't expect the 2016 to be the same in terms of free cash flow generation level. And that's really because we had a very large amount of customer deposits this year that are very typical with the nature of our long lead time products, particularly in NMR, and we can't count on that repeating year over year. So, yes, that would be the way to look at the cash flow.

Steve Willoughby, Cleveland Research.

Hi, good evening, a two-part question for you. I guess first, and I apologize if you did say it, but in 2015, what was the impact from FX on your gross and operating margins? And then I have a follow-up.

So we had -- so EPS, the impact was about $0.09 for the full year, year over year.

On FX, I think we stated it is minus 8% from FX and minus 2% from portfolio, if I recall.

Okay. I was just trying to see of the 310 basis points you expanded operating margins, if FX -- what the impact from FX was within that number. I'm just trying to figure out here, when I move into 2016, I see the positive momentum in your NMR business, you're just now starting to benefit from the BIOSPIN restructurings.

I presume that FX is less of a headwind in 20 -- like you said, less of a headwind in 2016 than 2015. I'm trying to see why operating margins expansion won't be more than the 100 basis points you're guiding to.

It is off a much higher level obviously, Steve. We came in at 300 bps improvement, or 306 bps improvement in 2015, so we benefited from some of the BIOSPIN restructuring already in Q4, and also some of the pricing actually did expect to -- did start to flow through in Q4 of 2015.

So I think if you look at it over two years, I think it makes a lot of sense probably, but we really were able to accelerate some of these things already into 2015 and Q4 2015. I think that's -- I think if you take a two-year view, I think it actually will probably match your model pretty closely.

Okay. Thanks very much.

Dane Leone, BTIG.

Thanks for taking the questions and congratulations on a very strong finish in 2015.

Thank you.

No, it was great. You gave a little bit of color on how we should think about the pacing of the year as it relates to the first quarter. Generally speaking, it is always helpful especially given the large order and nature of your business.

Should we be thinking about that mid-teens, if we think about the EPS pacing as a percentage of the total year for 2016, that mid-teens for the first quarter and then 20%, 20%, and roughly 40% for the fourth quarter again? Or is it -- are we thinking a little bit weaker on the first quarter versus the pacing of 2015?

Dane, the trends will be very similar to what we saw in 2015, meaning that if you look at the operating income generated in the back half of the year, it will be almost identical, at least that is what our plan is, for what we saw this year in 2015.

Okay. All right. So it was pretty much the same pacing as what we've seen.

Yes.

Is there anything we should call out? There was a question on the segments, but is there anything that you see in the pipe right now that you call out as a big order you expect in any specific quarter next year that we should contemplate in our modeling?

No, there really isn't anything. This is Frank, there really isn't anything major. And none of the 1.2 gigahertz systems will go into 2016, that may be late 2017 or 2018. There is no ROSATOM pilot line and things you kept track of in the past, that is done.

Some of the big contracts at BEST are done. So really nothing discrete that will likely really stick out. And I would add a little bit to the previous comments that our Q4 2015, good results. People really were working very, very hard to make that happen.

And so, they probably pulled in a little bit from Q1 2016, so Q1 2016 probably will be a relatively weak start to the year and not much of an improvement. But we're very comfortable the full-year guidance, which of course implies then an acceleration in Q2 and the second half of the year. I think that is maybe a useful perspective.

And I would just add quickly that in the second half some of the growth comes -- a lot of the growth comes from new products, so that's a big part of the growth story in the second half of the year.

Derik de Bruin, Bank of America Merrill Lynch.

Derik, are you on the line?

Yes, can you hear me? Okay. Great. Thank you. So a couple of questions.

So on the NMR business, nice pickup in orders there. Can you give us some sense on just the mix of those orders, whether these are like Bruker replacements or people upgrading system, people that are new to NMR and ones you think are Agilent upgrades? I'm just curious on the mix.

Derik, this is Frank. Yes, all of these things do play a role. I don't have any quantitative insight for you. But of course, we picked up some business from Agilent, some of it may have gone to our competitor.

We had the price increases that we needed to deliver adequate margins in this business that we implemented a year ago that we thought would come out in 2016, 2017. About two-thirds of our backlog in NMR probably will be delivered in 2016 and another third goes all the way into 2017. Turns out we picked up a little bit of that pricing benefit already in Q4 of 2015.

Of course there are some new customers, people that go into clinical metabolomics research, eventually into laboratory developed tests, and by IVD by NMR, and people who use the food screeners, honey screeners, wine screeners, those are entirely new customers. Quite honestly, it is nice they can use an NMR even though they're not NMR experts, so some of these new applied market areas are also contributing to the growth of NMR. The answer is all of the above that you mentioned have contributed in to the order growth in 2015.

Great. That's helpful. The MALDI Biotyper had nice 10% growth in 2016. How should we think about that in 2017? I believe you have some new modules coming on line, and should we think about that as still maintaining a double-digit growth rate for next year, or for this year?

To comment on 2015 briefly, Derik, the 10% was including consumables and service, so the systems business is therefore is not growing at 10% quite anymore. As you might expect, now that it's a much larger basis, its growth rate for systems business is now in the high single digits, but the business overall including service and consumables and database upgrades grew at about 10%. Roughly the same for bookings and revenue actually.

Until the high-value resistance assays and maybe even susceptibility assays of the more distant future, until they play a significant role in maybe a second S-curve in growth, that will be 2017, 2018. I think in 2016, we will be growing, continuing to grow the MALDI Biotyper for identification in clinical applications.

Of course, also in some pharma and food and non-clinical applications. So given that it is a larger business, you might expect a growth rate that gradually slows down and may -- probably ends up being in the high single digits for 2016, and any reacceleration of that probably is more of a 2017, 2018 story.

Tim Evans, Wells Fargo Securities.

Within your 3% revenue growth guidance for 2016, can you talk about what you're embedding in there for price?

We're not disclosing that, Tim. If you look at prices primarily around NMR, we said it was one of several drivers for Q4. And no question it is an important driver for us as we get into 2016.

And I'd also point out that some of the pricing increases we've taken already in the backlog will hit not just this year, but also 2017. So really spread between this quarter and into probably the first half of 2017, as well.

Okay. Let me just try a follow on to that then. Across your portfolio, not just BIOSPIN, but your entire business, what percentage of your portfolio do you feel like you have room to push a little bit on price?

Well, I think we're trying to be pretty price disciplined everywhere, and so I -- in NMR, there was a one-time discrete step. There are other areas where we have incremental price increases annually simply as a matter of commercial habit now.

And of course, I think the biggest driver on the pricing side tends to be when you bring on entirely new systems or major new capabilities. And for instance, we had some very significant new capabilities in some of the products that were introduced last year by our Bruker daltonics division, relatively late in the year, which is why it didn't help with bookings or revenue anymore. We introduced some pretty exciting products for our preclinical imaging division at the WMIC conference in September of last year.

So as you provide entirely new capabilities like PET/MR, or very, very fast MALDI imaging systems, that is when you obviously can do some value pricing, rather than increasing prices significantly at least on existing products. But on existing products and services, we tend to have annual at least inflation adjustments. I think maybe that gives you the various levers that we have.

Thank you.

(Operator Instructions)

Ross Muken, Evercore ISI.

Hey, guys, it's Luke in for Ross. Just to start off, can you give a little more color on the APAC region what you're seeing there among your various customer classes? And call out any particular areas of strength or weakness, and if you're starting to go see a turn around in those weak areas.

APAC is really many different stories. Japan relatively weak last year. In terms of revenue, it was quite weak; in terms of bookings, it was a little better. Don't really see any particular pickup in Japan this year. Currency isn't doing us any favors.

China, on the other hand, has been relatively healthy, with academic and research markets being healthier than industrial markets in China, as you would probably expect. And some of the rest of APAC, Korea, Southeast Asia, Taiwan, those have been clearly pockets of weakness. And I guess some of these countries depend on exports to China and perhaps are becoming a little more cautious. So anything you would like to add, Joshua?

No, I think the key message is that in China for bookings for 2015, we saw bookings expand in the mid to high single-digits. As we think about China for 2016, if that bookings trend continues, we're incrementally more positive versus what we saw in 2015 for revenue.

That's great. I guess to follow up with that, you guys talked about your four strategic areas of growth you're investing in. I guess if you can give us a little more top-level thinking why you think now is the best time to invest for this growth. And what additional investments should we be looking at for in 2016?

We have been investing in this growth all along. Our transformation was never just a cost-cutting exercise, but of course cutting out costs and getting to a reduced footprint and changing the portfolio and all of that did take place. But there was also already significant reinvestment in some of these new products and market opportunities, and that will simply continue.

There is no discontinuous additional investment in 2016. The reinvestment trends of the last three years are simply continuing, and everything that you've heard is in the guidance and in our budget and business plan. So there is nothing brand new there in terms of investments, but it has been a reinvestment story all along, and that continues.

Steve Beuchaw, Morgan Stanley.

Good afternoon. Simple question on NMR, after a year of very strong order trends, some price, some volume, there are a number of drivers behind it, right? Academic is a little bit better, Europe is a little bit better, and you have opportunity to gain share.

How did you see, over the course of the year, the funnel evolving, though? As you come out of the year and come into 2016, how do you think 2016 sets up in terms of the potential to maintain a double-digit order growth pace?

Oh, I don't think the long-term growth rate in NMR is not double-digits, so it will flow down for sure on the bookings side because the 2015 strong bookings, of course, had to do something with Agilent leaving the business and with us raising the prices. But it also came right after a pretty significant double-digit drop in 2014, or call it a correction, or whatever it was, in 2014. So to some of that we made up for that at least in part.

So longer-term growth rates for NMR, as I've said at some conferences, maybe a couple of years ago, or three years ago, I might have still expected them to be in the low single digits. Giving some of the new applied markets, some of the new ultra-high-field trends into intrinsically disordered proteins and so on, I'm actually now more optimistic that long-term growth rates for the NMR market are in the mid-single digits. But, no, double-digit growth rates in orders are not sustainable.

And then just thinking about the backlog progression. Is it safe to say a pretty significant chunk of what you had in terms of the NMR background build in 2015 will drive 2017 revenues?

We convert about 60% or two thirds of our backlog in any given year, so about a third of the backlog of revenue or -- of revenue in 2017 and two-thirds in 2016.

That is clearly an NMR comment. I think that is also what your question drove at. It is obviously different for other product lines.

Got it. Thanks so much.

Okay.

Doug Schenkel, Cowen and Company.

Hi, this is Chris Lin on for Doug today. Thanks for taking my question. I think in the past the sustainability of margin expansion has been an issue, but it does look like recent results and guidance demonstrate solid sustainability going forward. Could you just talk about some of the things that give you confidence in the sustainability of margin expansion over the next several years?

And, Frank, I believe you recently talked about a longer-term margin expansion target. Could you help us think about how dependent that target is on revenue growth versus realizing the benefits from all of the restructuring initiatives you put in place over the past several years?

Yes, I will take the first part of that question. So we're very confident with the initiatives, the restructuring initiatives and the transformational initiatives we put in place over the last few years. The focus on price, and in incremental volume at market growth rates that we can effectively, with good operating leverage, grow our gross profit margins and our operating profit margins, by leveraging our production costs and distribution costs and not letting SG&A grow faster than the growth rate on the revenue line.

So we feel even at the market growth rate that we were seeing that we can continue -- deliver strong operating profit margin expansion given the way we've landed on our operating model going forward. And we feel like there is few years of runway in that regard, as well.

I agree. So for 2016, a lot of what will drive 2016 operating margin expansion were the actions we took in 2015. So even -- and I think that simply summarizes what all the different points that Tony has made.

Of course, to drive that into 2017, 2018 and beyond, we have to do more things in 2016. And some of these -- but I think between all the actions we have been taking and continue to take, I really don't see any reason why we wouldn't have really quite a few years of continued margin expansion ahead of us.

Tycho Peterson, JPMorgan.

Okay. Thanks, maybe, Frank, on that last point, you've obviously done a lot of the restructuring at this point. Can you maybe talk as to how much of a focus and how much benefit you think you can get this year from supply chain, maybe leaner manufacturing, things that are beyond the initial heavy lifting on the restructuring you've done?

Tycho, we think, obviously from the restructuring at BIOSPIN, which is really just finished by the end of 2015, that we will have a big effect on 2016. And of course, the ongoing, there are some minor restructurings that are going on.

Now, really as an ongoing process and management process, we're probably not going to outline those or talk about these at the headline-use level very much any more because they're not quite at the magnitude of a CAM restructuring or the sizable [debio] restructuring last year. But there is ongoing footprint consolidation and also lean initiatives and more outsourcing going on as part of our operational excellence phase. So we haven't really quantified that externally of how much we're going to drive that.

And quite honestly what we're driving in 2016 really will have more of an effect on 2017. And I think it will be less -- fewer discrete items to track separately, and it will just flow into this obviously ongoing goal of having 50 to 100 bps operating margin expansion hopefully just about each year. And this year, we're signed -- this year, 2016, we're signing up for the 100 bps from everything we've implemented already and intend to do.

Sorry, Tycho, just a short addition. With the heavy lifting behind us, we're really focused on the continuous process improvement and leaning out the production in the supply chain.

That clearly is a focus, but what we will also focus on is marrying that up with smart tax planning as well. So as we advance on continuous process improvement in our supply chain and production processes, which is a lot of opportunity, we will do -- we will add to that smart tax planning, which will give further benefits going out in terms of EPS expansion.

And then if we look at some of the businesses where you've had headwinds, preclinical imaging, obviously, continues to be a bit of a drag. You talked about some of the new products that were introduced last fall. Maybe can you just talk about how you think about potential recovery in that business? And then, similarly in Nano services where things have been tough, do you see any hope?

Yes, we see hope. So good questions. Preclinical imaging in the BIOSPIN Group with the products. First of all, it had -- 2014, it had record bookings and revenue, so it is a little bit even in the preclinical MRI just its own little mini cycle. So we expect a recovery there, a modest recovery there.

And then the new product cycle with PET/MR and a new cryo-free 3 Tesla, a new optical molecular imaging system and a very exciting new PET system, those are all going to -- none of those contributed to 2015 anymore, but we all expect good contributions from that new product cycle in PCI in 2016. Actually in 2016, beyond the MRI cyclical recovery, we're expecting quite a bit of drive from the new product cycle.

At BNS, it is a little -- the academic setting actually, they do a lot of research systems. They sell a lot of systems also into areas that are well funded by NIH, such as cell biology and neuroscience, so those are all good growth drivers.

We're actually somewhat hopeful that this year, finally, that this is the year where semiconductor tools may become healthier and healthier as the year progresses. We see that a little bit internally, but then by simply looking at the larger pure plays in that space, we're encouraged, whereas the maybe 15% of Bruker that are really in traditional non-semiconductor industrial markets and that are somewhat concentrated in the Nano Group, but of course they also exist elsewhere, for those we expect relatively weak markets this year.

So it is -- BNS is not only industrial. It is also semiconductor, which we think will pick up, and life sciences, which we think will pick up, including benefiting from a tailwind from NIH funding and similar funding elsewhere in the world.

It is a much more positive mix picture than perhaps sometimes people assume when they think that BNS is all industrial. It luckily is not. We have changed that portfolio quite deliberately over time.

Bryan Brokmeier, Cantor Fitzgerald.

Hi, thanks for taking the questions. Frank, you just mentioned a little bit about new products and you talked earlier about it. Could you quantify the impacts in 2016 you're expecting from new products and how that compares to 2015?

We don't quantify that for competitive reasons, and it's too much granularity there. But we expect healthy benefits from the introductions of 2015.

And of course, while we don't discuss what they are, we expect some exciting product introductions again in 2016, which then, however, typically end up being 2017 drivers. So I think the rate of meaningful innovation and products and in getting with new products or new applications into adjacent markets, such as explosives trace detection and other examples, I think continues to be very, very healthy.

And you used $65 million to buy back shares during the quarter, and you also acquired Jordan Valley. How should we think about your cash use in 2016, and what level of -- what cash balance level are you comfortable maintaining?

Yes, we -- in terms of capital allocation, from a CapEx perspective, there is no major needs right now. We have guidance of about $50 million, and that allows for some maintenance spending, ERP and CRM, additional footprint consolidation if necessary. So no major CapEx there.

M&A, we have a great technology portfolio, so we don't need significant M&A for that reason. We're very pleased with the collection of businesses we have, and we've done some portfolio trimming with CAM, so we like the three basic businesses we have.

So we -- the M&A would be focused more around bolt-on to bolster those great technology positions we have, but nothing transformational would use capital. And, of course, the share buyback program, we have quite a bit left on the share buyback, and given where the stock is trading at now, we will like buying it back at the lower levels that it's at if more uncertainly causes it to be lower, that is where we will deploy capital.

Miroslava Minkova, Stifel.

Hi, good afternoon, guys. Congratulations on the quarter.

Thanks.

Let me start maybe with the CALID Group. It had very strong growth over the course of 2016. I think it might have strengthened in the back half of the year.

And there were some strong orders in detection there. I was wondering if you could give us a sense for what are you expecting for CALID heading into 2016, and what would be the drivers for this year?

Yes, so clearly detection was a bit exceptional in 2015, so we expect lower volume in detection in 2016. Bruker Optics we think will be somewhat steady, and I think the daltonics business, we're expecting healthy bookings increases this year, probably nothing extraordinary, but we expect that business, in terms of bookings, will grow roughly with the market.

And I think the mass spec markets are generally healthy markets. I mixed probably revenue and bookings a little bit here, I apologize, but did that address your question?

Yes, I was trying to get a sense for -- it's continued to go grow at relatively -- it has been above corporate average pace for the past several quarters, or so.

Yes, we're planning market-based growth.

Okay.

And that's clearly what we see for 2016. We are coming off of some softness out of Q4, and orders are a little soft in Q1. So that is part of the reason for the Q1.

To be clear, Miroslava, it grew 500 basis points above the corporate average in 2015. We won't be able to sustain that, obviously, as we get into next year, but it's possible that daltonics could do slightly better than the 3% we have for the corporate average for the guidance for 2016.

On the intrinsically disordered proteins the new NMR tools, when might we see some of the demand for the ultra-high-field begin to materialize, and what would it take? Is it just all about raising funding or is there something that needs to come together in the marketplace for that?

It is clearly about raising funding, and a lot of institutions or consortia are trying to raise funding. I'm sure they will be busy with that in 2016, 2017.

It is not going to contribute to revenue growth this year particularly strongly, but I think people are really very motivated to get funding, whether it is upgrading existing systems, or getting new ultra-high-field systems in the gigahertz class to be able to address these very important fundamental biology and disease biology opportunities that have opened up with the recognition of how important these IDPs are. But it is mostly going to be a 2017-2018 story, in terms of revenue and margins.

Isaac Ro, Goldman Sachs.

Good afternoon, guys, thank you. Question on pricing, I know you guys talked about or didn't want to talk too much about 2016. I was curious if you could recap for us, just to give us a little bit of a baseline, what pricing contribution was in 2015 and specifically in 4Q, given your earlier comments.

Yes, as we mentioned earlier, we are not going to break that out separately. I think if you look at our portfolio, clearly I would say parts of our portfolio were able to take price.

But in other parts, particularly those in the industrial or semiconductor markets, price is a lot more competitive right now due to the falling volumes. As you think how that flows through to the corporate P&L, most of what will flow through will be those NMR pricing increases in 2016 and in 2017.

Thanks and just a follow-up. I think we've all been encouraged by the execution as the course of 2015 played out and looking to get a little more comfort that will continue this year. I was hoping you could give us a little bit of an update on specifically the CFO search status there, when we might get some clarity.

And secondly, internally, some of the operational programs you have in place that you need to focus on to hit some of your guidance, whether that is IT, or back-office systems. Anything that is really outstanding, I would be interested to know what some of your operational milestones are. Thank you.

The CFO search, obviously we have an effective current finance team and interim CFO, and we haven't missed a beat. And the process of the CFO search is going well. We hope to complete this and hopefully make an announcement before the end of the first quarter.

In terms of -- I mentioned earlier an important additional milestone, namely the merge of the various SAP instances that we had within the Company in the first week or first business week of January. The lights weren't flickering and we're still in business, and that seemed to have gone reasonably well.

And it provides a basis for now further process harmonization and business process harmonization across all of Bruker, of course embedded in the ERP systems and then rolled out to the country offices and factories over the next two years. Although this won't be finished in the next two years, it is an even longer process.

From an investor or financial perspective, it is not going to matter that much. It's not that there's a big bolus of investment coming through. We're pretty much nicely spreading that out over the years, so there isn't one of these cliff events or major boluses.

We made a lot of progress in systems, and we still have a lot of work ahead of us to really get this full field factory visible and to get harmonized business processes. It will keep us very busy, but it is an ongoing process that to some extent you don't need to worry about that much. We've got it mapped out for the next couple of years, and it's really a three-, four-year process. And of course, it never fully stops, but we're making good process of that.

You will see an accelerating lean initiative. We focus more on outsourcing and restructuring. We will continue to do quite a bit on outsourcing in several divisions. We have one or two more years of quite a bit of outsourcing ahead of us.

Others are nearly finished with outsourcing. And those that are nearly finished with outsourcing, like for instance the Bruker BIOSPIN Group, will be much more focused on lean layouts of their remaining operations, primarily in manufacturing, but really all the way to G&A and R&D and really with a broader lean enterprise perspective, not only lean manufacturing. Hopefully that addressed most of what you were interested in.

Dan Arias, Citigroup.

Frank, to your last comments, roughly speaking, what percentage of the business is now fully under the umbrella of your ERP system, and maybe how should we think specifically about ERP costs this year relative to 2015?

Yes, I will answer that, Dan, it is Tony. About 60% of our business is on the two major platforms that we have on SAP, and we just completed the merge of those two platforms. So that's the basis for our ERP template going forward.

So we're really working on -- now that we have a common platform, we're really working on harmonizing the underlying business processes and embedding those in a template that, that platform will carry. And we will role that out into our commercial businesses and production entities over the next few years.

Okay. That's helpful. And just on BIOSPIN, I'm curious whether you think the pricing increases and the restructuring you've done in NMR are enough to bring the BIOSPIN gross margins in line or close to in line with your other businesses? Or is there still enough of a gap there to have there be a bit of a dilutive impact from that to be part of the mix?

We're obviously as we -- the BIOSPIN margins, gross margins are moving in the right direction for sure. Operating margins are above the corporate average anyway. But I think we can do more on gross margin in the BIOSPIN Group over multiple years.

We're not giving multi-year guidance, but as Tony said earlier, of our 100 bps operating profit margin improvement that we're signing up for in 2016, the majority of that has to come from gross margins. It will be more gross margin improvement than OpEx leverage. And of course, BIOSPIN is a significant part of that.

BIOSPIN has -- it has margins, gross margins, that are maybe a little bit lower than the average, but on the other hand, its SG&A costs tend to be a little bit lower as well. And of course, for the smaller systems in BIOSPIN, they're more comparable to the smaller systems of Bruker optics or mass spectrometry.

But I don't see BIOSPIN as a drag. I see BIOSPIN this year and last year very much as one of our drivers and actually expect that to continue for several more years. I'm not worried about as BIOSPIN as a drag. I was a little bit worried in 2014 when the orders came down that it was a drag, but it has recovered very nicely, and I think it's going to be one of the healthy drivers in 2016 and beyond.

That is great. Thank you.

Shawn Bevec, Deutsche Bank.

Thanks, guys. I know it is still quite early in the year, but have you guys seen any recent macroeconomic concerns weigh on orders so far this year?

It is too early, so I'm not aware of it, but of course everybody is watching what is going on around us and what you read in the papers with some concern. And I think we're going to maintain cost discipline, and I think we're trying to get leverage on reasonable growth. We're not betting everything on growth -- only growth. It will give us operating margin leverage.

So I don't have any internal data that gives me concern, but as I look at the macro picture all around us, like everyone else, I'm wondering. But as we update, as we report Q1, then in early May, we will perhaps have a somewhat better read on that. At this point, I don't really have anything that is going to be meaningful.

Shawn, just to put a little bit more color on that. If you look at the pharma, biopharma and academic and government markets, that is probably about 65% plus of our business. So the most exposed piece would be the industrial part of the business, which is somewhere between 15% to 20%, and that's one of the areas we're watching closely.

And within that, the biggest piece within industrial is semiconductor. And I think semiconductor and tools were actually more optimistic than you heard us in a while based on what we see in that space, and Intel and others committing to more CapEx this year. And of course us having a bigger footprint and a very relevant footprint with the Jordan Valley Semiconductor acquisition that gave us some of the key X-ray metrology tools for going to smaller nodes and 3D structures.

Quickly on the operating margin, just going back to that real quick, what do you think the operating margins for Bruker can look like much longer term? Do you believe a 20% plus operating margin more in line with your tools peers is achievable?

We're not going to comment on that. We haven't given the long-term guidance. At this point, we again have just given one-year guidance. We have obviously said at various conferences, and I'll say it again, we think we have a lot of runway ahead of us.

We have not tried to -- we have not given a target of where this will end up. And we may do so later this year if we were to hold an Analyst Day. But for right now, we're comfortable, and obviously we're very glad we made a big step forward. We skipped the year last year by doing two years of progress in one year and operating profit margin if you like.

And I think we're going to -- from everything we've put in place already, and of course we're not done managing the business, I think we will have a decent year of operating margin improvement. But we have not picked the target number, and I won't do so right now. But for now, we will still simply go with the annual guidance, and hopefully we can deliver that again, as we did last year.

Eric Criscuolo, Mizuho.

Thanks, good afternoon. Tony, what was the outstanding share count at the end of 4Q?

It was around 163 million before the dilutive effect of stock option exercises.

Thanks. And then just getting back to the macroeconomic question, what kind of impact, if any, are you guys seeing from the oil markets, and has that changed in any way since the divestitures?

Yes, thank goodness. I mean, we didn't see that coming, but in fact, a lot of the divestitures in ICP-MS and GC and GC single happened to have energy markets, all markets, as a particularly important market. And coincidentally -- I wish I could take credit, but coincidentally we divested of these for other reasons. And then it turned out the markets for those things are really hurting right now.

We have some relatively minor involvement in energy markets, of course some of our instruments are sold into energy markets. Some big oil companies and national oil companies or research institutes, sometimes buy a $2 million FT-ICR MS or FTMS system for petroleomics research, and that is not so much affected anyway by the otherwise somewhat abysmal economic situation in the energy markets.

So that has -- in short, that has very little effect on us. Of course, some secondary effects perhaps, but overall it has very little effect on us.

Sung Ji Nam, Avondale.

Thanks for taking the questions. I have two quick ones. First of all, Tony, I understand why the tax rate was lower in 2015 versus 2014, but for 2016 guidance, why is it higher? What is driving that?

Second question is, is preclinical imaging still roughly 20% of BIOSPIN revenue? Thank you.

The higher tax rate is simply because we are now a taxpayer in the US. The reason why the rate is lower is because we reversed some valuation allowances against future tax benefits because we had tax losses in the US.

We now are taxpayers, so more of our -- the mix of our jurisdictional pre-tax income will be in the US, and that carries a higher tax rate. And if you don't -- could you repeat the second part of your question?

Just the second part, preclinical imaging is just a little bit under 20% of overall BIOSPIN revenues for FY15.

Okay.

[Art Codoshi], William Blair.

Hi, good afternoon, can you hear me?

Yes, we can.

Yes, we can.

I have a quick question regarding some of the lesser discussed upside drivers on leverage and organic revenue growth. I know you went group by group, but where do you see an end market which you think may surprise investors in general has been lesser discussed?

If you're getting at the biggest source of upside, as we think about 2016, obviously whenever we have large NMR deals that close, that is one source of potential upside. And then the new products, as well, is also going to be a potential source. So some of the ultra-high-field, when you get above 1 gigahertz is 2017, but some transactions could still be in the multi-million dollars for 2016, as well.

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

Thank you very much, everybody, for joining us this evening. Bruker will be presenting at the BTIG, Cowen and Barclays healthcare conferences in the first quarter. We invite you to meet us at these conferences or visit us at our headquarters in Billerica, Massachusetts. Thank you, and good night.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.