Bruker Corporation — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Bruker develops and sells scientific instruments and analytical and diagnostic solutions through its BSI Life Science, BSI NANO, and BEST segments. Amounts below are in U.S. dollars; financial statement amounts are in millions except per-share data.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $424.6 | $490.2 | $848.6 | $951.6 |
| Gross profit / margin | $186.2 / 43.9% | $230.4 / 47.0% | $378.5 / 44.6% | $445.1 / 46.8% |
| Operating income / margin | $37.9 / 8.9% | $53.5 / 10.9% | $54.3 / 6.4% | $95.4 / 10.0% |
| Net income attributable to Bruker | $24.1 | $36.5 | $34.6 | $67.3 |
| Diluted EPS | $0.16 | $0.23 | $0.22 | $0.43 |
Q2 revenue fell 13.4% year over year; management reported a 12.7% decline in organic revenue, excluding currency and acquisitions. First-half revenue fell 10.8%, or 10.3% organically. Product revenue drove most of the decline. Q2 service revenue was $76.1 million versus $78.5 million; first-half service revenue was $154.3 million versus $155.9 million.
Q2 revenue declines by reportable segment were 11.5% for BSI Life Science, 16.9% for BSI NANO, and 13.7% for BEST. For the first half, declines were 8.5%, 15.8%, and 8.7%, respectively. The company attributed weaker sales to pandemic-related customer and facility closures, lower academic and industrial demand, and delays to deliveries and installations.
Operating expenses declined, including Q2 SG&A of $102.4 million versus $124.5 million, but lower sales and gross margins outweighed those savings. Management cited lower volume, unfavorable mix, and factory and operating inefficiencies. Non-GAAP operating margin, excluding specified acquisition, restructuring, amortization, IT-transformation, and other costs, was 11.5% in Q2 versus 15.0%, and 9.6% for the first half versus 14.3%.
Cash flow, debt, and liquidity
- First-half operating cash flow was $46.8 million, versus $24.8 million a year earlier. Capital spending was $50.8 million, producing negative free cash flow of $4.0 million, compared with negative $3.8 million in 2019. Capital expenditures included approximately $22 million for facility productivity and expansion.
- At June 30, cash and cash equivalents were $746.8 million and short-term investments were $50.0 million, totaling $796.8 million, compared with $684.9 million at year-end 2019. Approximately $394.1 million was held outside the U.S.
- Total debt was $1,024.9 million, versus $813.3 million at year-end; $100.7 million was classified as current. The increase included $203.5 million drawn under the revolving credit agreement. The company reported $710.7 million available across revolving facilities and other lines, after borrowings and letters of credit, and compliance with debt covenants.
- Management said available cash and credit facilities should support operating and investing needs for at least 12 months, while noting that pandemic-related market volatility could affect access to capital and liquidity.
Outlook, risks, and notable items
- COVID-19 was the principal driver of the period’s weaker results. Bruker said the pandemic’s duration, potential second wave, customer demand, travel restrictions, and operating restrictions made its full-year impact impossible to predict accurately. It expected the pandemic to continue to significantly negatively affect 2020 results.
- Management reported that manufacturing sites had ramped up after temporary closures or reduced capacity. It did not anticipate supply or capacity constraints in the second half, conditional on continued gradual reopening without further disruption or a second wave.
- Temporary cost measures included reduced work schedules in some European operations, a hiring freeze, curtailed discretionary spending, and temporary facility and production measures. The company planned to continue some measures in Q3, with savings expected to be lower than in Q2. No full-year revenue or earnings guidance is provided in the filing text.
- Remaining performance obligations were approximately $1.886 billion; Bruker expected to recognize about 57.4% over the next 12 months. Contract liabilities rose to $352.1 million from $312.5 million, primarily because COVID-related site closures and reduced operations delayed installations.
- Other charges included $4.5 million of first-half professional fees related to investigation matters, $2.7 million of restructuring charges, and $1.2 million of long-lived asset impairments. No material accruals were recorded for contingencies. Bruker disclosed German patent litigation involving Luxendo and its timsTOF product line, and two Korean tender investigations that resulted in small fines; the prior three-month restriction on Korean government sales ended in March 2020.
- Disclosure controls were not effective at June 30 because of previously identified material weaknesses involving the control environment, income-tax accounting, and revenue accounting at a U.S. subsidiary. Bruker described remediation steps but said the weaknesses would not be considered remediated until controls had operated long enough to be tested.
- The company repurchased $50.0 million of shares and paid $12.3 million in dividends during the first half. Remaining repurchase authorization was $107.7 million as of August 3, 2020.
Investor facts to verify
- Whether customer demand and instrument installations recover, and how much of the reported performance obligations converts to revenue on schedule.
- Whether reopening assumptions hold and how further COVID-19 disruption affects revenue, manufacturing efficiency, and cost savings.
- Progress and testing of remediation for the material weaknesses in internal controls.
- Debt, revolver usage, capital spending, and cash available after repurchases, dividends, and any acquisitions.
- Developments in the disclosed patent claims and other governmental or regulatory matters.