Bruker Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. The financial statements are unaudited. Bruker designs, manufactures and distributes scientific instruments and related products and services. Its reporting segments are Bruker Scientific Instruments (BSI; approximately 93% of revenue) and Bruker Energy & Supercon Technologies (BEST).
Financial performance
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $353.5 million | $423.7 million |
| Gross profit / margin | $160.2 million / 45.3% | $179.7 million / 42.4% |
| Operating income / margin | $15.2 million / 4.3% | $20.6 million / 4.9% |
| Net income attributable to Bruker | $6.5 million | $8.7 million |
| Diluted earnings per share | $0.04 | $0.05 |
| Cash provided by operating activities | $27.0 million | $18.5 million |
- Revenue fell 16.6%. Management attributed approximately $46.8 million of the decline to foreign exchange and $10.9 million to divestitures, net of an acquisition; excluding these effects, revenue declined 3.0%.
- BSI revenue decreased 16.9% to $327.5 million; BEST revenue decreased 21.0% to $27.5 million. BSI operating margin was 4.2%, unchanged year over year; BEST margin declined to 3.6% from 8.0%.
- Gross margin improved, which management attributed to product mix, higher-margin orders and operational initiatives. Excluding specified amortization, acquisition-related and restructuring charges, gross margin was 47.3%, versus 44.2%.
- Operating income and earnings per share declined despite lower SG&A and R&D expense; higher other charges and lower revenue weighed on results. Other charges were $13.2 million, including a $10.2 million non-cash Swiss pension settlement charge.
- Operating cash flow increased year over year. Capital expenditures were $5.7 million. Cash and cash equivalents were $334.5 million and short-term investments were $157.8 million at quarter-end.
Balance sheet and liquidity
- Total debt was $354.6 million, including $112.5 million drawn on the revolving credit facility and $240.0 million of senior notes. The revolver matures in May 2016.
- Available capacity under revolving credit and other line arrangements totaled $235.1 million. Bruker reported compliance with debt covenants; its leverage ratio was 1.4 and interest coverage ratio was 13.4.
- Cash, cash equivalents and short-term investments totaled $492.3 million, of which $448.5 million was held by foreign subsidiaries. The company intends to indefinitely reinvest unremitted foreign earnings; repatriation could result in additional U.S. income taxes.
- Management said existing cash and credit facilities were expected to support operating and investing needs for at least the next twelve months.
Changes, outlook and risks
- Management cited lower NMR sales, including reduced prior-year order levels and delays installing certain orders. Foreign exchange—principally the stronger U.S. dollar—reduced reported revenue by approximately 11%.
- Further restructuring was planned in 2015, including actions expected to reduce Bruker BioSpin headcount by approximately 9% when completed. Management also expected non-cash pension expense to increase by approximately $16 million in 2015, including the Q1 settlement charge.
- Results may fluctuate with large-system order timing, research budgets, customer facility readiness and government licensing. Other identified exposures include currency movements, interest rates, and copper and niobium-tin costs.
- Accumulated other comprehensive income moved from $28.2 million at year-end to a loss of $36.0 million, primarily reflecting a $72.9 million foreign-currency translation loss, partly offset by pension adjustments.
- Unrecognized tax benefits were approximately $30.7 million at March 31, 2015; significant tax jurisdictions had open tax years. The company reported no material change to previously disclosed risk factors, and described pending ordinary-course legal matters as not expected to have a material impact.
- Management reported effective disclosure controls as of March 31, 2015 and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether revenue trends improve after adjusting for foreign exchange and portfolio changes, especially in NMR and other BSI systems.
- Whether gross-margin gains persist and planned BioSpin restructuring delivers expected savings without disrupting operations.
- The full-year effect of the Swiss pension changes and other charges on reported earnings and cash requirements.
- Foreign-currency effects on revenue, translation adjustments and the substantial balance of cash held overseas.
- Debt covenant headroom, the May 2016 revolver maturity and liquidity needs if operating performance weakens.