Bruker Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Bruker develops and sells scientific instruments and analytical and diagnostic solutions. Its reportable segments are BSI Life Science, BSI Nano, and BEST. Figures are in U.S. dollars; amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $638.9 (+4.9%) | $608.9 | $1,822.3 (+5.1%) | $1,734.4 |
| Gross profit / margin | $335.3 / 52.5% | $308.7 / 50.7% | $939.8 / 51.6% | $868.0 / 50.0% |
| Operating income / margin | $131.3 / 20.6% | $113.2 / 18.6% | $301.7 / 16.6% | $287.9 / 16.6% |
| Net income attributable to Bruker | $88.1 | $87.1 | $199.2 | $201.4 |
| Diluted EPS | $0.59 | $0.57 | $1.33 | $1.32 |
| Operating cash flow | Not separately stated | Not separately stated | $102.9 | $143.8 |
| Free cash flow (non-GAAP) | Not separately stated | Not separately stated | $8.3 | $80.2 |
- Revenue drivers: Q3 organic revenue increased $77.4, after an approximately $55.0 adverse foreign-exchange effect and $7.6 from acquisitions. For the nine-month period, organic revenue increased $185.7, with approximately $120.5 of adverse FX and $22.7 from acquisitions.
- Margins and earnings: Management attributed gross-margin expansion to mix, pricing, volume leverage, and FX, partly offset by supply-chain, logistics, and inflationary pressures. Nine-month attributable net income declined 1.1% despite revenue and operating-income growth, as the effective tax rate rose to 31.8% from 25.4%.
- Cash generation: Nine-month operating cash flow fell to $102.9 from $143.8. Capital spending rose to $94.6 from $63.6, bringing reported free cash flow to $8.3 versus $80.2. Management cited inventory investment to manage supply constraints and timing of tax payments as factors affecting cash flow.
- Liquidity and debt: Cash and cash equivalents were $626.2 at September 30, 2022, versus $1,068.2 at year-end 2021; short-term investments were zero versus $100.0. Total debt was $1,153.8, down from $1,334.2, including repayment of $105.0 under the 2012 Note Purchase Agreement. The $600.0 revolving facility was undrawn; Bruker reported compliance with debt covenants. Current assets were $2,036.6 and current liabilities $864.6.
Changes versus the prior comparable periods
- Q3 revenue growth was led by BSI Nano, up 13.8%; BSI Life Science increased 0.7% and BEST 4.0%. For the nine months, BSI Nano rose 10.9%, BEST 7.3%, and BSI Life Science 1.9%.
- Q3 operating income increased 16.0%, while attributable net income rose 1.1%; the higher tax provision largely offset operating improvement. Nine-month operating income rose 4.8%, but attributable net income declined 1.1%.
- For the nine-month period, reported revenue increased despite significant currency headwinds. FX reduced reported revenue by 6.9%; North American revenue grew 19.0%, Asia Pacific 6.9%, while European revenue declined 6.7%.
- Nine-month other charges, net increased to $23.0 from $9.5, primarily reflecting $15.1 of acquisition-related charges. Selling, general and administrative expenses rose 8.5%; R&D expenses rose 6.0%.
Outlook, commentary, risks and unusual items
- Management said existing cash and credit facilities were expected to support operating and investing needs for at least the next 12 months. The filing provides no specific revenue or earnings guidance.
- Key risks include component and raw-material shortages, longer lead times, higher freight, energy and labor costs, inflation and possible recession, customer spending delays, COVID-19 disruptions, and geopolitical tensions. Bruker cited Russia’s war in Ukraine, sanctions, and supply-chain exposure involving China and Taiwan; it had ceased Russian operations.
- Acquisitions during 2022 included PreOmics and Optimal, among others. The PreOmics transaction includes contingent purchase/sale rights for remaining minority interests; related hybrid-instrument liabilities and remeasurement charges affected expenses and EPS.
- The nine-month effective tax rate increased, which the company attributed mainly to U.S. tax-law changes limiting R&D expense deductibility and the prior-year benefit from stock-compensation deductions. A German tax matter for 2009–2012 reached final resolution under the U.S.-Germany treaty in Q1 2022; assessments were paid in Q2, while interest and penalties remained outstanding.
- Foreign-currency translation reduced nine-month comprehensive income: translation losses were $195.7, contributing to accumulated other comprehensive loss of $92.1 at quarter-end. The company also repurchased $238.3 of shares under its program during the nine months and paid $22.4 of dividends.
- Bruker is defending a German patent-infringement lawsuit brought by Carl Zeiss against subsidiary Luxendo. The company said pending proceedings were not expected to have a material impact, but outcomes cannot be assured. No material contingency accruals were recorded.
Important facts for investors to verify
- Whether supply constraints, inflation, and adverse currency movements continue to affect revenue timing, costs, and margins.
- Whether operating cash flow and free cash flow recover as inventory investment and capital spending evolve.
- How the higher effective tax rate and acquisition-related expenses affect full-year earnings and EPS.
- Progress integrating 2022 acquisitions and the valuation or eventual settlement of PreOmics minority-interest rights.
- Developments in the Luxendo-Zeiss litigation, geopolitical and energy risks, and the impact of continued share repurchases on liquidity.