Bruker Corporation — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015. Bruker designs and sells scientific instruments and related products and services. Its reporting segments are Bruker Scientific Instruments (BSI), about 93% of nine-month revenue, and Bruker Energy & Supercon Technologies (BEST).
Key financial results
| Metric | Q3 2015 | Q3 2014 | 9M 2015 | 9M 2014 |
|---|---|---|---|---|
| Revenue | $396.1M | $419.8M | $1,145.6M | $1,300.9M |
| Gross profit / margin | $167.5M / 42.3% | $167.3M / 39.9% | $497.1M / 43.4% | $547.5M / 42.1% |
| Operating income / margin | $28.2M / 7.1% | $4.9M / 1.2% | $75.0M / 6.5% | $60.9M / 4.7% |
| Net income attributable to Bruker | $11.8M | $5.5M | $40.2M | $30.6M |
| Diluted EPS | $0.07 | $0.03 | $0.24 | $0.18 |
- Cash flow: Nine-month operating cash flow was $79.6M, versus $45.0M a year earlier. Capital expenditures were $22.8M; company-defined free cash flow was $56.8M.
- Liquidity and debt: At September 30, cash and cash equivalents were $331.0M and short-term investments $201.3M, totaling $532.3M. Debt was $371.4M, including $129.5M on the revolving facility and $240.0M of senior notes. Cash and short-term investments exceeded reported debt by $160.9M.
- Balance sheet: Total assets were $1,842.9M and shareholders’ equity $768.0M. Current debt was $130.3M.
Changes versus prior comparable periods
- Reported revenue declined 5.6% in Q3 and 11.9% for nine months. Management attributed much of the decline to currency effects and divestitures: excluding currency and divestitures (and, for nine months, net of an acquisition), revenue increased 8.1% in Q3 and 1.9% for nine months.
- Management cited stronger Q3 activity in Magnetic Resonance, Daltonics, Detection and X-ray diffraction, offset by continued weakness in industrial markets, including semiconductor and data storage. Nine-month BSI and BEST revenue fell 11.6% and 21.5%, respectively, as reported.
- Gross margin and operating income improved despite lower reported revenue. Management attributed margin improvement to product mix, business volume and operational improvement actions; SG&A and R&D spending also fell.
- Nine-month net income rose to $40.2M from $30.6M, while interest and other expense increased to $14.3M from $3.1M, including larger foreign-exchange losses and no comparable product-line gain.
- Foreign currency translation reduced nine-month comprehensive income by $47.3M. Accumulated other comprehensive income moved from $28.2M at year-end 2014 to a loss of $7.7M at September 30, 2015.
Outlook, commentary and notable items
- Management expected existing cash and credit facilities to cover operating and investing needs for at least 12 months. It cautioned that quarterly results can fluctuate with government and academic budgets, customer facility readiness, and government licensing timelines.
- A BioSpin restructuring was expected to reduce group headcount by about 9%, with completion targeted by the end of Q1 2016. Total restructuring and other one-time charges were estimated at $16–$20M, with approximately $10M of annualized savings expected upon completion.
- The Swiss pension-plan outsourcing and amendments resulted in a $10.2M noncash settlement charge; management expected 2015 noncash pension expense to increase by approximately $16M.
- After quarter-end, Bruker repatriated $235.3M of foreign earnings and used $129.5M to repay the old revolving credit balance. The company said no incremental U.S. tax was expected on the repatriation, but would reassess U.S. deferred-tax valuation allowances.
- On October 27, 2015, Bruker replaced its prior facility with a $500M revolving credit agreement maturing in October 2020. On October 29, it acquired Jordan Valley Semiconductors, which management expected to contribute $25–$30M of 2016 revenue.
- Tax rates were 45.3% in Q3 and 29.3% for nine months, compared with 30.0% and 42.7% in 2014, respectively. Management cited changes in expected earnings by jurisdiction and, for the nine-month period, release of a valuation allowance on tax-loss carryforwards.
- Other notable charges included $10.2M pension settlement expense, $4.3M of long-lived asset impairments and $6.2M of IT transformation costs for the nine months. The company reported no material pending legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls as of quarter-end.
Important facts for investors to verify
- Whether underlying revenue growth persists after separating currency effects, divestitures and acquisitions, particularly given industrial-market weakness and the reported decline in system revenue.
- Progress, remaining costs and realized savings from the BioSpin restructuring, including the expected Q1 2016 completion and approximately $10M annualized savings.
- Post-quarter cash repatriation, repayment of the old revolver, and the terms, covenants and utilization of the new $500M credit facility.
- Jordan Valley Semiconductors’ integration and whether it delivers the stated $25–$30M expected 2016 revenue contribution.
- Foreign-exchange exposure, tax valuation allowances and uncertain tax positions; the filing reports $28.6M of unrecognized tax benefits at September 30, 2015.
- Cash conversion and working capital, including inventory levels and customer advances, as well as the effects of share repurchases totaling $24.9M in the first nine months.