Bruker Corporation — FY2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing also provides unaudited fourth-quarter results; it is an annual report, not a standalone quarterly filing.
Business context and financial results
Bruker develops and sells scientific instruments, analytical and diagnostic solutions, and superconducting materials and devices. Its Bruker Scientific Instruments (BSI) segment generated about 90% of revenue; Bruker Energy & Supercon Technologies (BEST) generated the remainder. Results are reported in U.S. dollars.
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $1,895.6 million | $1,765.9 million |
| Organic revenue growth (non-GAAP) | 4.3% | 3.6% |
| Gross profit / margin | $900.0 million / 47.5% | $816.0 million / 46.2% |
| Operating income / margin | $262.4 million / 13.8% | $219.5 million / 12.4% |
| Net income attributable to Bruker | $179.7 million | $78.6 million |
| Diluted EPS | $1.14 | $0.49 |
| Operating cash flow | $239.7 million | $154.4 million |
| Free cash flow (non-GAAP) | $190.5 million | $110.7 million |
Annual revenue rose 7.3%, including approximately $28.2 million from acquisitions and $25.5 million from favorable currency translation. Management attributed margin expansion mainly to operating leverage, product mix, and operational improvements; currency effects were a partial offset. The lower 2018 effective tax rate—26.0%, versus 59.4% in 2017—also benefited earnings, as 2017 included U.S. tax reform-related charges.
Fourth-quarter results
| Metric | Q4 2018 | Q4 2017 |
|---|---|---|
| Revenue | $553.6 million | $530.5 million |
| Gross profit | $272.8 million | $256.2 million |
| Operating income | $106.4 million | $95.3 million |
| Net income attributable to Bruker | $78.1 million | $(3.4) million |
| Diluted EPS | $0.50 | $(0.02) |
The company describes fourth-quarter revenue as historically stronger than other quarters, partly reflecting customer budgeting cycles.
Segments, liquidity, and debt
- BSI: Revenue increased 7.8% to $1,707.0 million; operating income was $247.9 million and operating margin was 14.5%, up from 13.5%. Growth was broad across BioSpin, CALID, and Nano; CALID CBRNE and Nano semiconductor metrology were areas of weakness.
- BEST: Revenue increased 1.9% to $194.8 million; operating income rose to $14.5 million from $7.4 million, and operating margin improved to 7.4% from 3.9%, principally on product mix and operational improvements.
- Year-end cash and cash equivalents were $322.4 million, with no short-term investments, versus combined cash and short-term investments of $439.2 million in 2017. Working capital was $705.0 million, down from $834.3 million.
- Total debt was $341.1 million, down from $415.6 million. The company had $387.1 million available under its $500 million revolving credit agreement. It reported compliance with debt covenants; leverage and interest-coverage ratios were 0.93 and 22.5, respectively.
- About $280.9 million, or 87.1%, of cash, cash equivalents, and short-term investments was held by foreign subsidiaries. Management said existing cash and credit facilities should support operating and investing needs for at least 12 months.
- Operating cash flow increased to $239.7 million; free cash flow increased to $190.5 million. Investing activities used $123.4 million, including $191.6 million net cash paid for acquisitions, partly offset by investment maturities. Capital expenditures were $49.2 million.
Outlook, notable items, and risks
- Management expected a 2019 effective tax rate of approximately 25% and capital expenditures of approximately $80 million. It expected $5–$10 million of 2019 expense from outsourcing and restructuring initiatives. The filing does not provide clear 2019 revenue or EPS guidance.
- Year-end system backlog was approximately $1.05 billion, up from $1.01 billion; the company expected to fill about 84% during 2019. Backlog is not necessarily a reliable indicator of long-term revenue.
- 2018 included $9.4 million of restructuring costs, $19.5 million of other charges, and $0.6 million of impairment charges. The 2017 net income comparison was materially affected by $68.9 million of incremental tax provision related to U.S. tax reform.
- Acquisitions included interests in Hain Lifescience, Mestrelab, Anasys, JPK, and Alicona. Net cash paid for acquisitions was $191.6 million; acquisition impacts on revenue and net income were described as not material. Goodwill and intangible assets increased substantially, partly reflecting acquisitions.
- Significant risks include foreign-exchange exposure, dependence on research and government funding and capital spending, competition and rapid technological change, acquisition integration, key suppliers and components, raw-material costs, and debt and cash-location constraints.
- Regulatory and compliance matters remain important: Bruker disclosed an SEC investigation and an internal investigation concerning China-related business practices, as well as a Korean Fair Trade Commission investigation into tender bidding. The company said it was cooperating and could not predict the outcomes; it had recorded no material accruals for these matters at year-end.
- The company reported effective internal control over financial reporting as of year-end, and the auditor issued unqualified opinions on the financial statements and internal controls. Acquired businesses representing 2.7% of assets and 1.2% of revenue were excluded from the 2018 control assessment and audit.
Important facts for investors to verify
- Whether organic growth and margin gains persist after separating acquisition and foreign-exchange effects.
- Whether the 2019 backlog converts to revenue on schedule and whether customer acceptance or installation delays affect recognition.
- Cash availability in the United States, foreign-currency movements, and debt covenant headroom as acquisition spending and capital expenditures continue.
- The final financial, compliance, and potential cost implications of the SEC, China-related, and Korean investigations.
- Integration progress and purchase-accounting outcomes for 2018 acquisitions, including contingent consideration and redeemable minority-interest arrangements.
- The balance-sheet effect of adopting the new lease accounting standard in 2019 and delivery feasibility for $141.4 million of ultra-high-field magnet orders.