Bruker Corporation — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019; comparative figures are for the same 2018 periods. Bruker develops and sells scientific instruments and analytical and diagnostic solutions. Its reportable segments are Bruker Scientific Instruments (BSI) and Bruker Energy & Supercon Technologies (BEST). Figures below are in U.S. dollars; financial statement amounts are in millions except per-share data.
Financial performance
| Metric | Q2 2019 | Q2 2018 | First half 2019 | First half 2018 |
|---|---|---|---|---|
| Revenue | $490.2 | $443.7 | $951.6 | $875.4 |
| Gross profit / margin | $230.4 / 47.0% | $205.2 / 46.2% | $445.1 / 46.8% | $404.6 / 46.2% |
| Operating income / margin | $53.5 / 10.9% | $48.8 / 11.0% | $95.4 / 10.0% | $86.9 / 9.9% |
| Net income attributable to Bruker | $36.5 | $31.2 | $67.3 | $58.2 |
| Diluted EPS | $0.23 | $0.20 | $0.43 | $0.37 |
- Q2 revenue rose 10.5% reported; management reported 4.8% organic growth, excluding acquisitions and foreign exchange. Acquisitions contributed $38.6 million to the increase, while currency translation reduced revenue by $13.3 million.
- First-half revenue rose 8.7% reported and 5.1% organically. Acquisitions contributed $64.5 million; unfavorable currency translation reduced revenue by $33.0 million.
- Q2 BSI revenue increased 9.9% to $442.4 million; BEST increased 21.5% to $51.9 million. First-half BSI rose 8.8% to $859.2 million and BEST rose 12.9% to $99.7 million. Management cited demand in BioSpin, CALID and BEST, along with acquisition contributions.
- Gross margin expanded in both periods, attributed to product mix, operational improvements, acquisitions and currency. GAAP operating margin was nearly flat: down 0.1 percentage point in Q2 and up 0.1 point for the first half. Management’s non-GAAP operating margin, excluding specified items, increased to 15.0% from 13.3% in Q2 and 14.3% from 12.8% for the first half.
- Effective tax rates declined to 22.3% from 27.3% for Q2 and to 21.3% from 25.5% for the first half. The filing attributes the reductions to favorable discrete tax items and, for the half-year comparison, updates related to the Tax Act repatriation toll charge.
Cash flow, balance sheet and liquidity
- First-half operating cash flow was $24.8 million versus $79.9 million in 2018. Capital expenditures were $28.6 million versus $17.5 million, producing reported free cash flow of negative $3.8 million versus positive $62.4 million. Management attributed the cash-flow decline primarily to working-capital movements, including inventory built for 2019 orders.
- Cash and cash equivalents were $282.5 million at June 30, 2019, down from $322.4 million at year-end; short-term investments were $6.3 million. Cash, cash equivalents and restricted cash at period-end were $286.5 million.
- Total debt was $494.2 million, up from $341.1 million at December 31, 2018; long-term debt less current portion was $493.9 million. Revolver borrowings were $285.9 million. Of the $500 million main revolver commitment, $213.0 million was available after borrowings and letters of credit; total availability across listed revolving facilities was $346.1 million.
- Management stated existing cash and credit facilities should support operating and investing needs for at least the next 12 months. The company was in compliance with credit-agreement covenants at June 30, 2019.
- Inventories increased to $594.6 million from $509.6 million at year-end. Accounts receivable was $348.0 million; current liabilities were $641.0 million.
Material developments, outlook and risks
- Bruker repurchased 2.30 million shares for $100 million under a new $300 million authorization; $200 million remained authorized as of August 2, 2019. The quarterly dividend was $0.04 per share.
- Acquisitions included Rave LLC, acquired in April for consideration allocated at $56.6 million, and other smaller acquisitions. Management said the acquisitions’ combined impact on revenue, net income and total assets was not material. Acquisition and integration costs and acquired-intangible amortization increased year over year.
- Adoption of the new lease standard in January added $75.5 million of right-of-use assets and $77.9 million of lease liabilities; management reported no significant effect on operating results.
- The filing gives no quantified full-year revenue or earnings guidance. Management cautioned that quarterly results can fluctuate with government and academic budgets, order-to-acceptance timing, import/export requirements, customer facility readiness and licensing. It also cited currency, acquisition integration, product development and acceptance, competition, suppliers, government funding and regulation among risks.
- The SEC staff concluded its investigation and notified Bruker it did not intend to recommend enforcement action. The Korea Fair Trade Commission imposed a fine of approximately $20,000, with no criminal liability. Bruker said its internal investigation of certain China business-partner and former-employee conduct had concluded. No material contingency accruals were recorded; management did not expect pending ordinary-course proceedings to have a material impact.
- The company disclosed foreign-exchange, interest-rate and raw-material price exposure, including copper and niobium tin costs. It uses derivative contracts selectively. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether organic growth and margin improvement persist after separating acquisition contributions and currency effects.
- Whether inventory growth converts into revenue and cash, given the sharp year-over-year decline in operating cash flow and negative first-half free cash flow.
- Debt and liquidity trends, including revolver utilization, covenant headroom and the October 2020 maturity of the main credit facility.
- The integration, earnout obligations and performance of recent acquisitions, and the effect of related amortization and expenses on reported margins.
- Future use of the remaining $200 million repurchase authorization and its funding alongside acquisitions, dividends and debt needs.
- Any material developments in legal, regulatory or compliance matters, and exposure to foreign exchange and commodity-price movements.