Bruker Corporation — Q1 2013 Form 10-Q Summary
Reporting period: Three months ended March 31, 2013; compared with the three months ended March 31, 2012, unless otherwise noted. Financial statements are unaudited. Bruker designs and manufactures scientific instruments and superconducting materials and devices.
Financial performance
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue | $393.4 million | $405.6 million |
| Gross profit / margin | $174.5 million / 44.4% | $190.4 million / 46.9% |
| Operating income / margin | $12.2 million / 3.1% | $34.4 million / 8.5% |
| Net income attributable to Bruker | $5.4 million | $15.1 million |
| Diluted EPS | $0.03 | $0.09 |
| Operating cash flow | $(18.2) million | $4.8 million |
| Capital expenditures, net | Approximately $14.0 million | $10.8 million |
Revenue declined 3.0% year over year. Management attributed approximately $6.0 million of the decline to foreign exchange and $1.7 million to acquisitions and divestitures; excluding those effects, revenue fell $4.5 million, or 1.1%. GAAP gross margin declined 2.5 percentage points; excluding specified acquisition-related and restructuring costs, it fell to 45.6% from 48.2%. Management cited product mix, temporary magnet rework costs in BioSpin, and yen-related currency effects. SG&A and R&D together rose to $156.2 million from $152.6 million, reflecting increased headcount and investment.
Segments and material changes
- Scientific Instruments: Revenue was $366.3 million, down 3.1%; excluding foreign exchange and acquisition/divestiture effects, it declined 1.0%. Lower mass spectrometry and atomic force microscopy sales were partly offset by higher NMR sales. Segment operating income fell to $10.6 million from $35.1 million; reported margin was 2.9% versus 9.3%.
- Energy & Supercon Technologies: Revenue rose 4.0% to $31.2 million, with higher beamline and cavity device sales. Operating income was $0.9 million versus a $0.3 million loss.
- System revenue increased as a share of Scientific Instruments revenue to 85.1% from 79.6%; aftermarket revenue fell to $54.5 million from $77.0 million.
- Other charges were $6.1 million, including $3.2 million of restructuring costs, $2.2 million of professional fees for the FCPA investigation, $0.4 million of acquisition-related costs, and $0.3 million of factory relocation costs.
Cash, debt, and liquidity
Cash and cash equivalents were $269.4 million at March 31, 2013, down from $310.6 million at year-end. Operating cash use of $18.2 million primarily reflected a $44.9 million working-capital increase, including inventory growth. Investing cash use was $14.3 million; financing provided $0.3 million. Foreign subsidiaries held $256.8 million of cash. Bruker said it intends to indefinitely reinvest foreign earnings and does not anticipate needing repatriation for U.S. operations.
Total debt was $336.6 million, compared with $337.2 million at December 31, 2012: $240.0 million of senior notes, $93.0 million drawn on the principal revolving facility, and $3.6 million of leases and other loans. Revolving credit availability was $195.7 million, subject to facility terms. Bruker reported compliance with debt covenants; its leverage ratio was 1.3 and interest coverage ratio 11.9. Management expected existing cash and credit facilities to support operating and investing needs for at least the next 12 months.
Outlook, risks, and contingencies
The filing provides no specific earnings or revenue guidance. Management’s stated strategy is to pursue organic and acquisition-led growth, improve gross margins, and increase operating leverage. It cautioned that interim results are not necessarily indicative of full-year results.
- FCPA matters: An internal investigation found evidence of improper payments benefiting employees or agents of government-owned enterprises in China and Hong Kong, and policy violations. Government inquiries by the SEC, DOJ, and Hong Kong authorities were ongoing; Bruker could not estimate potential losses or outcomes. No provision was recorded, and adverse outcomes could materially affect future results.
- Other litigation: Patent litigation involving Bruker AXS and a separate contract, fraud, and unfair-competition lawsuit involving Bruker Nano remained unresolved. The company said it could not estimate potential losses; no provisions were recorded.
- Tax: Unrecognized tax benefits were approximately $35.8 million at quarter-end. The IRS audit of tax year 2010 was expected to conclude in Q1 2014. Repatriating foreign earnings could result in additional U.S. tax.
- Market and operating risks: Foreign exchange, interest rates, and commodity prices may affect results. A stronger U.S. dollar versus the yen weighed on revenue and margins; management also cited customer demand weakness in semiconductor and data storage markets. Copper and niobium price increases could pressure superconducting-product profitability.
- Comprehensive loss attributable to Bruker was $23.2 million, mainly reflecting $29.6 million of foreign-currency translation losses. Management reported effective disclosure controls as of March 31, 2013 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Scientific Instruments demand, gross margins, and magnet-rework costs improve in subsequent quarters.
- Whether working capital—particularly inventory—converts to operating cash flow and whether cash continues to decline.
- Progress and potential financial or business consequences of the FCPA inquiries and the two unresolved lawsuits.
- Debt covenant headroom, availability and terms of revolving facilities, and any borrowing needs.
- Foreign-exchange exposure, especially yen revenue relative to yen costs, and potential tax consequences of any foreign-cash repatriation.