Bruker Corporation — Q3 2013 Form 10-Q
Reporting period: Three and nine months ended September 30, 2013; comparisons are with the corresponding 2012 periods. Bruker designs and manufactures life-science and materials-research systems. Bruker Scientific Instruments (BSI) generated approximately 93% of revenue for the first nine months; Bruker Energy & Supercon Technologies (BEST) generated the remainder. Figures below are in millions of dollars except per-share amounts.
Financial performance and position
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $439.0 | $447.8 | $1,287.3 | $1,274.1 |
| Gross profit / margin | $193.2 / 44.0% | $210.1 / 46.9% | $569.3 / 44.2% | $587.7 / 46.1% |
| Operating income / margin | $31.5 / 7.2% | $60.3 / 13.5% | $87.2 / 6.8% | $116.8 / 9.2% |
| Net income attributable to Bruker | $16.6 | $39.7 | $44.9 | $64.7 |
| Diluted EPS | $0.10 | $0.24 | $0.27 | $0.39 |
| Operating cash flow | Not separately stated | Not separately stated | $13.6 | $42.2 |
- Q3 revenue declined 2.0%; excluding foreign exchange and acquisitions/divestitures, it declined 2.4%. Nine-month revenue grew 1.0% reported and 2.0% excluding those effects.
- Nine-month operating cash flow was $13.6, down from $42.2, as $112.3 of income adjusted for noncash items was largely offset by a $98.7 working-capital increase. Investing cash use was $51.6, including $40.5 of net capital expenditures and $11.6 for acquisitions.
- At September 30, cash and equivalents were $306.8, total debt was $355.7, and shareholders’ equity was $780.6. Total current assets were $1,372.9 and current liabilities $646.8. The company reported $180.0 of total availability under revolving loans, after borrowings and letters of credit.
- Debt included $240.0 of senior notes and $112.5 drawn on the amended credit facility. Bruker reported compliance with debt covenants; its leverage ratio was 1.3 and interest coverage ratio 12.6.
Changes versus prior periods
- Profitability weakened substantially: Q3 operating income fell 47.8% and net income attributable to Bruker fell 58.2%; nine-month operating income fell 25.3% and net income fell 30.6%.
- Gross margin fell in both periods. Management cited lower-margin revenue mix, including less high-margin BEST technology-license revenue, yen-related foreign-exchange effects, lower Bruker MAT volumes, and BioSpin pricing pressure.
- Q3 reported BEST revenue declined 23.3%, principally reflecting the absence of $16.4 of technology-license revenue recorded in Q3 2012. BSI revenue rose 0.4% reported; adjusted for foreign exchange and acquisitions/divestitures, it rose 0.3%.
- For the first nine months, BSI revenue increased 1.2% reported and 2.4% on the company’s adjusted basis. BEST reported revenue increased 2.4%, but was approximately flat excluding foreign exchange; lower license revenue was offset by sales of superconducting wire and devices.
- Other charges increased to $10.5 in Q3 and $21.1 for nine months, from $2.5 and $9.5, respectively. Nine-month restructuring charges were $13.6; FCPA-investigation professional fees were $5.3.
Outlook, commentary and risks
- Management expected continued soft demand in semiconductor and other industrial markets in Q4 2013.
- Bruker expected approximately $15–20 of additional restructuring charges during the remainder of 2013 and 2014, including $10–13 of severance and $5–7 of exit costs.
- Management said existing cash and credit facilities were expected to support operating and investing needs for at least the next 12 months. Most cash was held outside the United States; repatriation could result in additional U.S. income taxes, and the company intended to reinvest foreign earnings abroad.
- Key exposures include foreign-exchange movements, floating-rate debt, and copper and niobium input costs. Nine-month foreign-exchange transaction losses were $6.8. The company used foreign-currency contracts with $124.4 notional value and commodity contracts with $4.4 notional value.
- Government inquiries related to a China operations internal investigation into potential FCPA violations remained unresolved. The company said it could not estimate any potential loss; penalties or other sanctions could materially affect future results. Patent-related lawsuits also remained unresolved, with no loss estimates provided. A separate Hyphenated Systems matter was settled after quarter-end for an amount described as immaterial.
- The company reported no material changes to previously disclosed risk factors and stated that disclosure controls were effective at quarter-end.
Investor facts to verify
- Whether Q4 weakness in semiconductor and industrial markets, and the associated effect on BSI revenue and margins, matched management’s expectations.
- Actual restructuring charges and cash costs compared with the stated $15–20 expected additional charges.
- Working-capital trends and whether operating cash generation improves after the nine-month decline.
- Progress and potential financial consequences of the FCPA-related government inquiries and outstanding patent litigation.
- Gross-margin recovery, including the effects of currency movements, pricing, product mix, and BEST license revenue comparisons.
- Cash availability, foreign-cash repatriation exposure, and continued compliance with debt covenants.