Bruker Corporation — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2015. Bruker designs and sells scientific research and analysis instruments. Its BSI segment generated about 93% of first-half revenue; the other reporting segment is BEST.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $396.0 million | $457.4 million | $749.5 million | $881.1 million |
| Gross profit / margin | $169.4 million / 42.8% | $200.5 million / 43.8% | $329.6 million / 44.0% | $380.2 million / 43.2% |
| Operating income / margin | $31.6 million / 8.0% | $35.4 million / 7.7% | $46.8 million / 6.2% | $56.0 million / 6.4% |
| Net income attributable to Bruker | $21.9 million | $16.4 million | $28.4 million | $25.1 million |
| Diluted EPS | $0.13 | $0.10 | $0.17 | $0.15 |
- Q2 revenue fell 13.4%; management attributed the decline mainly to foreign exchange (about $52.6 million) and divestitures ($12.0 million). Excluding those effects, revenue increased 0.7%.
- First-half revenue fell 14.9%, including an estimated $99.4 million foreign-exchange impact and $22.9 million net impact from divestitures and an acquisition. Excluding those factors, revenue declined 1.0%.
- Q2 gross margin declined, principally due to product mix and the prior-year comparison with a high-margin 21 Tesla magnet sale. First-half reported gross margin improved; excluding specified acquisition-related and restructuring charges, it was 46.1%, versus 45.3%.
- Net income rose in both comparisons despite lower revenue. Management cited lower expenses and a substantially lower effective tax rate, partly offset by lower gross profit in Q2. The effective tax rate was 9.1% in Q2 and 19.1% for the first half, versus 49.2% and 45.1%, respectively, in 2014; the reduction primarily reflected release of a valuation allowance on tax-loss carryforwards.
Cash, liquidity and debt
- First-half operating cash flow was $25.5 million, down from $31.5 million. Working-capital investment of $45.2 million was a major offset, including inventory build for expected second-half shipments and tax payments; lower receivables partly offset these uses.
- Cash and cash equivalents were $320.8 million; short-term investments were $172.8 million, for combined cash and short-term investments of $493.6 million. About $462.4 million was held by foreign subsidiaries.
- Total debt was $364.6 million, versus $355.0 million at year-end 2014. Debt included $122.5 million drawn on a $250 million revolving facility and $240 million of senior notes. The revolver matures in May 2016; Bruker said it was discussing a long-term refinancing. The company reported compliance with debt covenants and leverage and interest-coverage ratios of 1.52 and 12.1, respectively.
- Net cash used in investing activities was $21.5 million; capital expenditures were approximately $13.4 million gross. Management expected about $40 million of capital expenditures for full-year 2015. Financing activities used $1.1 million, including $17.2 million of company share repurchases.
Changes, outlook and notable items
- Both BSI and BEST revenue declined year over year. BEST was particularly affected by currency and the completion of larger prior-year superconducting-wire projects. BSI’s first-half performance also reflected weaker magnetic-resonance orders and installation delays, while semiconductor, data-storage and industrial markets remained weak.
- Bruker began a BioSpin restructuring in 2015, including a planned workforce reduction of approximately 9% and closure and consolidation of one manufacturing facility. Total restructuring and other one-time charges were expected to be $15–$20 million through 2016; management forecast approximately $10 million in annualized savings after completion, expected by the end of Q1 2016.
- First-half other charges included a $10.2 million non-cash pension settlement charge after transferring part of the Swiss pension plan to an outside insurer, plus restructuring, IT transformation and asset impairment costs. The company also recorded $9.9 million of demonstration-inventory write-downs in the first half.
- Foreign-exchange movements reduced first-half revenue by about 11.3% and caused a $37.1 million currency-translation loss in other comprehensive income. Foreign-currency transaction losses were $3.3 million for the first half.
- Management said existing cash and credit facilities should support operating and investing needs for at least the next 12 months. It cautioned that quarterly results can fluctuate with research budgets, customer facility readiness and government licensing timing. No material changes to previously disclosed risk factors were reported; routine legal matters were not expected to have a material impact.
- The Board’s repurchase program is intended to offset stock-award dilution, initially targeting no more than 1% of shares outstanding annually. By June 30, the company had repurchased 850,000 shares under the program for $17.2 million. Separately, the filing reports that CEO Frank Laukien purchased 1 million shares from his brother in a private transaction; this was not a company repurchase.
Important facts for investors to verify
- Whether the May 2016 revolving-credit maturity is refinanced on acceptable terms and how the debt reclassification and repayment schedule develop.
- Whether BioSpin’s restructuring reaches its stated completion date, costs remain within the $15–$20 million estimate, and projected annualized savings materialize.
- How much revenue weakness persists after separating currency and portfolio changes from underlying demand, particularly in BioSpin, BEST and weak industrial end markets.
- The sustainability of the unusually low 2015 effective tax rate and the status of $30.3 million in unrecognized tax benefits.
- The geographic availability of cash: most cash and short-term investments were held outside the United States, and repatriation could create additional U.S. taxes.