Bruker Corporation — Q1 2011 Form 10-Q
Reporting period: Three months ended March 31, 2011. Unaudited condensed consolidated financial statements; comparisons are with Q1 2010 unless otherwise noted. Bruker designs, manufactures, and services scientific instruments and superconducting products.
Financial results and liquidity
| Metric | Q1 2011 | Q1 2010 / prior date |
|---|---|---|
| Revenue | $357.0 million | $277.7 million |
| Gross profit / margin | $165.1 million / 46.2% | $126.3 million / 45.5% |
| Operating income / margin | $25.7 million / 7.2% | $26.9 million / 9.7% |
| Net income attributable to Bruker | $11.3 million; $0.07 per diluted share | $16.1 million; $0.10 per diluted share |
| Operating cash flow | $(29.4) million | $5.5 million |
| Cash and cash equivalents | $193.3 million | $230.4 million at Dec. 31, 2010 |
| Total debt | $295.4 million | $301.0 million at Dec. 31, 2010 |
Gross margin was 47.4% excluding $4.1 million of acquired-inventory fair-value charges. Management also reported operating margin of 10.0% for both periods after excluding acquisition-related charges and other specified costs. These are management-adjusted measures, not GAAP results.
Cash used in operations reflected a $57.8 million working-capital outflow, principally increased inventory to support anticipated growth. Inventory rose to $571.6 million from $511.0 million at year-end. Investing cash use was $10.1 million, including $9.9 million of capital expenditures; financing cash use was $4.1 million. Revolving credit availability was $72.8 million, including $44.4 million under the main Credit Agreement. The company reported compliance with its debt covenants.
Material changes and segment performance
- Revenue increased 28.6%; approximately $60.6 million came from recent acquisitions and $6.2 million from foreign exchange. Excluding acquisitions and currency effects, revenue grew 4.5%.
- Scientific Instruments revenue was $335.8 million, up 29.0% reported and 3.3% excluding acquisitions and foreign exchange. Organic growth in X-ray and mass spectrometry was partly offset by lower nuclear magnetic resonance sales. Segment operating income was $27.7 million, unchanged, and reported margin fell to 8.2% from 10.6%.
- Energy & Supercon Technologies revenue was $24.0 million, up 15.9% reported and 16.9% excluding foreign exchange, led by low-temperature superconducting wire demand. Segment operating loss was $0.7 million versus $0.5 million.
- Reported operating income declined despite higher revenue as operating expenses rose, acquisition-related costs increased, and foreign-exchange transaction losses contributed to interest and other expense of $5.0 million, versus $0.3 million expense in Q1 2010.
Outlook, risks, and unusual items
- Management said existing cash and credit facilities should support operating and investing needs for at least 12 months, subject to profitability and working-capital management. It was considering long-term financing alternatives to replace the $185.5 million revolving borrowing and expected an agreement during Q2 2011; if unavailable or unfavorable, it expected to use cash and future cash flow.
- Planned 2011 capital spending was $45–$50 million. No specific revenue or earnings forecast was provided in the filing.
- Bruker cited continuing improvement in industrial markets and expected research funding to remain stable or grow in many key European markets, while noting reduced government-stimulus-related sales, particularly in Japan. Management’s statements are forward-looking and subject to risks.
- Key exposures include foreign-exchange movements, floating-rate debt, copper and niobium input costs, customer acceptance timing for systems, inventory obsolescence, and working-capital needs. The company used currency and commodity contracts and an interest-rate swap to manage certain exposures.
- Unrecognized tax benefits were approximately $27.7 million; tax audits were ongoing in Switzerland and Germany. Management said ordinary-course legal proceedings were not expected to have a material effect and recorded no related accrual.
- In April 2011, Bruker completed its acquisition of Michrom Bioresources; purchase-price allocation was still being determined. The company had also announced plans for an IPO of a minority interest in its BEST subsidiary. Adoption of new revenue-recognition standards had no material reported effect.
Important facts for investors to verify
- Progress and terms of the planned refinancing of the $185.5 million revolver, including available borrowing capacity and covenant compliance.
- Whether inventory growth converts into shipments, customer acceptance, revenue, and operating cash flow.
- Underlying organic growth and margins after separating acquisition, foreign-exchange, and purchase-accounting effects.
- Resolution and potential cash impact of the $27.7 million of uncertain tax positions and the disclosed tax audits.
- Status and terms of the proposed BEST minority IPO and the integration and final purchase accounting for Michrom.