Bruker Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Financial statements are unaudited; amounts are in U.S. dollars and millions except per-share data.
Business context
Bruker develops and sells scientific instruments and analytical and diagnostic solutions. Its reportable segments are BSI Life Science, BSI NANO and BEST. Results reflect a broad recovery in customer demand compared with the COVID-affected 2020 period.
Key financial results
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | $608.9 | $511.4 | $1,734.4 | $1,360.0 |
| Gross profit margin | 50.7% | 48.6% | 50.0% | 46.1% |
| Operating income | $113.2 | $81.2 | $287.9 | $135.5 |
| Operating margin | 18.6% | 15.9% | 16.6% | 9.9% |
| Net income attributable to Bruker | $87.1 | $54.3 | $201.4 | $88.9 |
| Diluted EPS | $0.57 | $0.35 | $1.32 | $0.57 |
| Effective tax rate | 19.0% | 26.6% | 25.4% | 25.0% |
Q3 revenue rose 19.1% year over year; management attributed $5.2 million to foreign exchange and $1.3 million to acquisitions, with organic revenue increasing $91.0 million. Nine-month revenue increased 27.5%; foreign exchange contributed $60.7 million and acquisitions $6.3 million, while organic revenue increased $307.4 million. Management cited demand recovery, volume leverage and, for the nine-month margin improvement, favorable product mix.
Q3 segment revenue was $380.7 million for BSI Life Science, $174.9 million for BSI NANO and $57.0 million for BEST, up 17.7%, 18.9% and 30.1%, respectively. Nine-month revenue grew 27.5% in BSI Life Science, 28.5% in BSI NANO and 23.1% in BEST.
Cash flow, balance sheet and capital allocation
- Cash flow: Nine-month operating cash flow was $143.8 million versus $129.2 million. Capital expenditures were $63.6 million, producing reported free cash flow of $80.2 million versus $60.8 million. Working-capital movements included an $81.3 million cash use from inventory and a $47.7 million cash use from receivables.
- Liquidity: At September 30, cash and cash equivalents were $573.0 million and short-term investments were $96.8 million, totaling $669.8 million, compared with $731.8 million at year-end 2020. The company had $599.9 million available under its $600 million revolving credit agreement; no borrowings were outstanding under it.
- Debt: Total debt was $827.0 million, down from $844.5 million at December 31, 2020; $109.5 million was classified as current versus $2.2 million at year-end. The filing identifies $105 million of notes due in January 2022. Bruker reported compliance with its debt covenants.
- Capital returns: Nine-month cash payments included $71.1 million for share repurchases and $18.2 million for dividends. The new $500 million, two-year repurchase authorization had $463.4 million remaining at September 30; no shares were repurchased in Q3.
Changes, outlook and risks
- Growth and margin expansion were substantial against the prior-year period, which management said was negatively affected by the pandemic and economic slowdown. SG&A and R&D increased in dollars, while both declined as a share of nine-month revenue.
- Bruker said existing cash and credit facilities should support operating and investing needs for at least the next 12 months. The filing provides no specific revenue or earnings guidance.
- Remaining performance obligations were approximately $2,035.9 million; about 68.4% was expected to be recognized as revenue over the next 12 months. Customer facility closures and reduced operations contributed to delays in installations.
- Management highlighted continuing COVID-related disruption, supply shortages and longer lead times for semiconductors, components and raw materials, potential cost and production impacts, and possible employee recruitment and retention pressures. Foreign-exchange movements and commodity prices, including copper and niobium-tin, are additional risks. The company reported no material inflation impact in the periods presented.
- Acquisitions included SCI Instruments for $28.0 million, with up to $4.0 million of additional contingent consideration, as well as Creative Instruments and SVXR. The company stated that the acquisitions’ aggregate impact on revenue, net income and assets was not material.
- Other charges included restructuring, acquisition-related and IT transformation costs. Nine-month 2020 charges also included $4.8 million of investigation-related professional fees; the comparable 2021 amount was $0.1 million.
- Bruker is defending a German patent-infringement claim brought against subsidiary Luxendo. No material accrual was recorded, and management said pending proceedings were not expected to have a material financial-statement impact. The filing also describes general regulatory and legal risks.
Investor verification priorities
- Check whether component shortages, installation delays and customer operating restrictions affect delivery timing, backlog conversion or margins.
- Review cash conversion and inventory levels, given the nine-month inventory-related cash use and increased balance-sheet inventory.
- Verify refinancing or repayment plans for the $105 million of notes due in January 2022 and monitor the increase in current debt classification.
- Track whether revenue growth and margin gains persist after the comparison with pandemic-affected 2020 results, including performance by segment.
- Monitor execution and integration of acquisitions, contingent consideration, share repurchases and the stated liquidity outlook.