Bruker Corporation — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; fourth-quarter figures are included in unaudited quarterly data. Amounts are in U.S. dollars.
Business context
Bruker designs and manufactures scientific instruments and analytical and diagnostic solutions. Its two reportable segments are Bruker Scientific Instruments (BSI), about 92% of FY 2015 revenue, and Bruker Energy & Supercon Technologies (BEST). BSI includes BioSpin, CALID and Nano businesses; BEST primarily supplies superconducting materials and devices.
Financial performance and liquidity
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $1,623.8 million | $1,808.9 million |
| Gross profit / margin | $708.6 million / 43.6% | $763.3 million / 42.2% |
| Operating income / margin | $145.7 million / 9.0% | $105.4 million / 5.8% |
| Net income attributable to Bruker | $101.6 million | $56.7 million |
| Diluted EPS | $0.60 | $0.33 |
| Cash from operations | $229.2 million | $114.3 million |
| Free cash flow | $195.0 million | Not stated here |
FY 2015 gross margin was 46.2% excluding specified restructuring and acquisition-related charges, versus 44.7% in 2014. Operating margin excluding the company’s identified restructuring and other specified charges was 13.3%, versus 10.2%. The filing attributes improvement to cost and operational initiatives, pricing, outsourcing, product mix and currency effects.
In Q4 2015, revenue was $478.2 million versus $508.0 million in Q4 2014; operating income was $70.7 million versus $44.5 million; net income attributable to Bruker was $61.4 million versus $26.1 million; diluted EPS was $0.36 versus $0.15. Gross margin was approximately 44.2% versus 42.5%, and operating margin approximately 14.8% versus 8.8%.
At year-end, cash and cash equivalents were $267.1 million, short-term investments $201.2 million, working capital $677.0 million, total debt $266.7 million and total assets $1,730.9 million. Cash plus short-term investments less debt was approximately $201.6 million. About $420.9 million of cash, cash equivalents and short-term investments was held outside the U.S. Debt fell from $355.0 million in 2014. The company reported $571.7 million of total revolving credit availability, including $474.0 million under its new $500 million facility.
Changes and drivers versus prior period
- Reported revenue declined 10.2%; foreign currency translation reduced revenue by approximately $184.4 million and divestitures by about $37.1 million, partly offset by the Jordan Valley acquisition. Excluding currency effects and acquisitions/divestitures, revenue increased 2.1%.
- BSI revenue fell 10.5% reported, while BEST revenue fell 12.6%; both declines included significant currency effects. Within BSI, CALID’s adjusted growth was strongest, BioSpin declined, and Nano recorded modest adjusted growth.
- The effective tax rate declined to 18.0% from 41.2%, principally reflecting a partial release of U.S. deferred-tax valuation allowances and jurisdictional earnings mix. This helped drive higher net income and EPS.
- Operating cash flow increased, supported by lower working capital, improved receivable collections and timing of customer deposits and payments. Management cautioned that this timing materially benefited 2015 free cash flow.
Outlook, risks and unusual items
- No consolidated 2016 revenue or EPS guidance is stated in the supplied filing text. Management expects approximately $50 million of 2016 capital expenditures, $13.5 million of interest expense, and $6–$8 million of expense for outsourcing and restructuring activities. BioSpin restructuring is expected to deliver about $10 million in annualized savings when completed by the end of Q1 2016; another $3–$5 million of related one-time costs was expected in 2016.
- Year-end system backlog was approximately $856 million, down from $877 million; about 82% of the 2015 year-end backlog was expected to be filled in 2016. Backlog is not necessarily a reliable long-term revenue indicator. Orders of $100.1 million for ultra-high-field magnets depend on achieving technical feasibility.
- Material risks include foreign exchange exposure (currency reduced 2015 revenue by 10.2%), dependence on government and research funding and customer capital spending, competition and rapid technology change, supplier concentration, outsourcing and restructuring execution, and availability/cost of superconducting raw materials and helium. A 10% depreciation in foreign functional currencies would reduce shareholders’ equity by an estimated $90 million, all else equal.
- FY 2015 included $29.3 million of restructuring costs, $4.6 million of asset impairment and a $10.2 million non-cash Swiss pension settlement charge. The Swiss pension plan changes contributed to a $93.1 million defined-benefit pension deficit at year-end.
- The SEC’s FCPA matter relating to past China operations was resolved in December 2014; the company paid $2.4 million and reported approximately $25.1 million of related legal and professional fees. The filing says investigative matters were completed. Management reported no pending legal matters believed reasonably likely to have a material impact.
- Management said existing cash and credit facilities should support operating and investing needs for at least 12 months. Debt covenants were met at year-end, with a leverage ratio of 1.0 and interest coverage ratio of 14.9. The company announced a quarterly dividend of $0.04 per share in February 2016, targeting $0.16 annually, subject to board discretion.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Most important facts for investors to verify
- How much of reported revenue decline was currency/divestiture-related, and whether underlying growth continues across BioSpin, CALID, Nano and BEST.
- Whether Q4 margin and earnings improvement is sustainable, separating operating progress from tax benefits and unusual charges.
- Whether 2015 free cash flow benefited from working-capital timing that may reverse, and whether backlog converts as planned.
- Progress and realized savings from BioSpin restructuring, facility consolidation and outsourcing, including execution of the high-field magnet orders.
- Cash availability in the U.S., potential tax costs of further repatriation, pension funding needs and compliance with debt covenants.