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Executives

Stacey Desrochers - Director of Investor Relations

Analysts

Stephen Unger - Lazard Capital Markets

Bruker Corporation (BRKR) Lazard Capital Markets Healthcare Conference Call November 16, 2011 9:30 AM ET

Stephen Unger - Lazard Capital Markets

Hi, good morning. I think we need to get started with our presentation today in the life science tools track. This is Bruker Corporation. Bruker is a company that I have covered for quite some time. When it was Bruker Daltonics and there has been several combinations of Bruker related companies over the last few years, and the company now is a significant player in many, many, many markets. The presentation today is from Stacey Desrochers, who is the Treasurer and Director of Investor Relations, and should give a full presentation with may be perhaps a question -- or a time for a question or two at the end. And with that I am going to hand it over to Stacey.

Stacey Desrochers

Thank you, Steve. Good morning, everyone. I’d just like to show your attention to the safe harbor statement. As you know any statements contained in this presentation do not describe historical facts and may constitute forward-looking statements. And I would advise you to look at any of our filings with the Securities and Exchange Commission for additional information.

Bruker is a high-performance life-science materials and research tools company. We have premier brand with leading market share in key markets. We are a proven innovator with an extensive IP portfolio and we have a diversified customer base. This slide shows where we are globally. The green dots are our major manufacturing locations. Majority of which are in the United States and then in Europe. Within Europe, they are in Germany, Switzerland and France. The yellow dots are our service and sales offices that support our products. And our key customers which are in the academic QA, QC, forensics, food, feed, environmental, materials research customers.

Bruker Corporation is made up of two segments. Our scientific instruments segment or BSI segment, and our Bruker Energy and Supercon Technologies or BEST segment. Our BSI segment includes the Bruker BioSpin group, which is our NMR, MRI and EPR group. Bruker Daltonics is our Mass Spec group. This includes our traditional Mass Spec products along with the products we purchased last year from Agilent, which we now call our Cam group, and also our Bruker Detection group.

The Bruker MAT group, or materials. That has the historical Bruker AXS group within it along with the acquisition we did last year of the Veeco assets which are the ASM and SOM product lines. And then Bruker Optics is our FT-IR, Raman spectroscopy group. Bruker Energy and Supercon Technologies produces superconducting and devices.

In June of this year we talked about having a record backlog of over a $1 billion for the first time ever. Our estimated revenue for fiscal year 2011 will be $1.62 billion to $1.64 billion with BSI adjusted EPS of $0.87 to $0.90. We have some longer term or medium term goals, as we like to talk about our 2014 of a 10% growth rate for the out years. That would get us to over $2 billion in revenue by the end of 2014. We have adjusted operating target of greater than 18% by the end of 2014, which implies approximately 100 basis point improvement from 2012 through 2014.

This slide shows our revenue for 2010, broken down by product, customer and geography. Majority of our sales are from systems sales. So 79% of our revenue comes from systems sales 21% of it comes from service, consumables and service. Majority of our revenue comes from academic, medical school, 55% of it. 9% from government, 12% from pharma, and then 24% from industrial and applied. We would expect when we put this pie chart together, for 2011, that we would see an increase in our industrial and applied customer base as a result of the acquisitions that we did last year of the CAM assets along with the Veeco assets, because they had more industrial and applied customers.

When we look at our revenue split by geography, 43% of our revenues comes from Europe, 27% from Asia Pacific, 24% from the Americas and then 6% from EMEA. So far through the first nine months of 2011 we have had 8% growth which is FX and acquisition adjusted growth. We had EPS of $0.56 which is a 17% increase over the prior nine months of last year. Our adjusted gross margin has increased by 50 basis points to 49%, and our BEST group had revenue of $79.8 million which is a FX adjusted growth rate of 22%.

Just to refresh your memory around some of the major acquisitions that we did last year. We purchased three business lines from Agilent, which were acquired divestitures, when the purchased the Varian business. We purchased the ICP-MS business, Lab GC and the GC-QQQ-MS business. We had an adjusted purchase price of $32.5 million. These products really helped complete our mass spec portfolio offering.

During the first half of 2011, we spent time integrating those business into Bruker facilities, so we moved the Lab GC business from an existing Agilent facility in the Netherlands to our own facility in the Netherlands. We moved the GC-QQQ from a Varian facility in California into a new Bruker facility in California. And then also moved the ICP-MS from Australia into that same facility in California. We also at the same time consolidated one of our sales offices into a new facility. So we went from four offices to one with that.

Additionally, one of the big acquisitions that we did last year was the acquisition of the Veeco business or the AFM, which is atomic force microscopy and SOM, stylus and optical metrology business. This has been a extremely good business for us. This year we were $230 million for it. It had adjusted operating margins greater than 15% and will significantly exceed our original estimates or having revenue this year of $130 million.

One of the more recent acquisitions we did, actually in October, was the acquisition of CETR or the Center for Tribology, which is a leading micro and nano-indenting instrument provider. This fits nicely with, in our existing Bruker Nano group. We paid about $13 million for it and it has revenue, for this year going to be greater than $10 million. So this is a nice bolt-on acquisition that has great technology that we can really add value to from the beginning.

One of the other acquisitions we did earlier this year was of Michrom, which is a nano-UHPLC provider. They have a CaptiveSpray product which interfaces LC with mass spectrometers. So really a good acquisition for us that adds to our mass spec portfolio as well.

One of the new press releases that we put out earlier this month talks about our Bruker Optics group. They announced a big deal with the South African sugar industry, where we developed an application to help them analyze the sugar that they have. So this is a good example of us of developing application based solutions to help customers and our foray into more food and seed areas.

Additionally, one of the new products that the Bruker Optics group put out earlier this year was the TANGO. This is also a NIR system that provides very cost efficient analysis and is a very small system. And bench space is very key for this types for customers in the food, feed and chemical arenas. Our CAM business introduced a new product earlier this year, the SCION, which is a new gas chromatography mass spec system. So this is very significant system that is more robust than existing systems out there and significantly smaller. Again, bench space when you get into applied applications is at a premium. So the smaller you can make your systems, the more successful they will be, as long as you are not sacrificing the sensitivity of your instruments, which we are not.

Within our Bruker Materials group, they introduced two new x-ray crystallography systems earlier this year. They provide enhanced detector systems, enhanced sensitivity and speed. And this is another area into the applied markets that will help that area grow. The Bruker Nano group introduced a new product, the world’s fastest high resolution AFM. It’s called as Dimension FastScan. It’s really a breakthrough in technology because you can now get your results in minutes or second versus hours and days without sacrificing the resolution which is key.

Some of the things we did earlier this year to expand our presence, was to expand our existing office in Singapore and make a new center of excellence for our customers in the new demo facility. We also expanded our Shanghai facility. So we combined some of the smaller facilities we had into a bigger application area.

One of the other products that we are very excited about is our MALDI Biotyper. This is a new way of identifying bacteria and fungi and yeast, as compared to current systems. We currently have IVD-CE Mark for this to sell it in Europe and are in the process of getting FDA approval for this product. One of the other announcements we made earlier this year is around co-marketing agreements that we have in place with Siemens and BD Diagnostics and other major medical companies in order to facilitate the sales of these instruments.

Bruker detection group, the CBRNE, so the chemical, biological, radiological, nuclear and explosives group, announced in August a new order from the U.S. Navy to install 40 systems on 40 new navy ships. This is a big order for us and we expect that this will be a regular trend over the next few years as we continue to outfit the U.S. Navy with these systems.

Our BEST group focuses on emerging renewable energy, big science and supercon devices. It currently has an S-1 registration on file with the SEC, because our plan is to -- at some point in the new future -- take a portion of this business pubic. Earlier this month we announced that we signed two major suppliers - we announced to supply to major customers with approximately $71 million of superconducting wire for MRI systems out through 2014.

The BEST group currently plays in the bottom half of this pie-chart or the circle. So we currently produce wire for MRIs, NMRs and particle therapy. We also currently produce synchrotrons and devices for fusion and high energy physics projects, so we play in the current $5 billion market space. We are currently developing products to be able to compete in the $20 billion market space, so we are currently working on fault current limiters and crystal growth magnets for this group.

Bruker Corporation as I said is a premier high performance life science tools and analytical instruments company. We have superior innovation and a track record of high organic growth which is based on product innovations through R&D and disciplined acquisition. So now I guess, we can have some questions.

Question-and-Answer Session

Stephen Unger - Lazard Capital Markets

Yeah, we got time for questions. We got about, actually about ten minutes for questions. So if there is any question from the floor just raise your hand.

Unidentified Participant

(Question Inaudible)

Stacey Desrochers

So the question is, what do we expect for the academic government segment’s growth in 2012. That is a wild card. We are still waiting for some of the European governments to finalize their budgets. But we have seen that the European Union budget and the German budget proposals are significant increases over prior years in the double digit range. So if those go through we expect that that will be areas of good growth for us. Our academic and government customer base is our historical customers, so we are very comfortable that we have the right inroads to continue to growth that space. But your guess is as good as mine on government budgets and austerity measures and the 2012 economy. So we are cautious about what might happen with that but we also believe -- as I said we have the right contacts within those agencies and academic institutions in order to continue to have good sales growth. And we saw that in 2009. Many of our customers did not fare as well as we did. We actually had a 2% growth for the entire corporation in the time frame when most companies had declines. So we have had a proven track record of doing well in down markets.

Stephen Unger - Lazard Capital Markets

And other questions from the floor? Yes.

Unidentified Participant

(Question Inaudible)

Stacey Desrochers

So the question is, are we planning for European downturns and are we reducing headcounts and things of that nature. So we are being cautious. Earlier this year we put in a proactive hiring freeze and that’s across the globe. So we are doing selective hiring but not full-on hiring. So we are cautious about what 2012 bring throughout the world, not just in Europe. We are continuing to produce as we have, so as we have customer orders we produce. As I said we have a backlog of over $1 billion. So that gives us some visibility throughout pieces of 2012. That gives us some comfort. That being said, we have good lead and things of that nature, so we are -- as I said earlier, cautious about what's going on and have made some changes but it’s more internal looking at our business not necessarily externally looking at what's going on out there. Because we have -- we just put out the press release earlier this month around some big wins in Turkey and other European governments. So you have to know the right places to look and because Bruker has a big presence in Europe, we still feel like we have the ability to win deals that are out there. So we are probably not as pessimistic as other folks around what Europe is going to look like.

Unidentified Participant

(Question Inaudible)

Stacey Desrochers

So the question is around the backlog, is it historically high and then when will it turn into revenue. So it is all time high. It has been -- it has grown over the past three years, kind of incrementally over the period of time. But we are at a record currently. We expect that revenue within the backlog -- the backlog will turn into revenue over the next 18 months. But as I talked to our earlier, some of that backlog would be long-term BEST orders that are in there. So some of those go out to 2014. But then there is systems that are shipped within the first three to six months. And then we have some NMR and high end MRI systems that can be a year to 18 months worth of backlog in there. So majority of it, you would say, would probably ship in the first six to nine months.

Unidentified Participant

(Question Inaudible)

Stacey Desrochers

I don’t have that data. The question was around breaking it out between BSI and BEST.

Stephen Unger - Lazard Capital Markets

Stacey, I have a question just on the MALDI biotyper, as far as -- there’s two kind of interest around the biotyper in diagnostics area and you have had quite good success in Europe with the product. I am just curious, you said that you are in the process of getting FDA approval, and I was wondering if there is timeframe where you guys are confident that you would have the MALDI biotyper on the market in the U.S. or at least have something in with the FDA for approval?

Stacey Desrochers

I wish we had a better timeline around that for folks. The unfortunate or fortunate part about this is that this is a completely new area for the FDA on how to potentially approve a product like the MALDI biotyper. So it’s been a process so far to get them comfortable with it and to figure out the best way for everybody to make sure that it fits the FDA’s needs and we can get it approved. So it’s a process that we are working on with them. So I don’t have a timeline as to when we will have FDA approval. But the other folks who are also working on potential products like this will run into these same sort of issues as we go forward.

Stephen Unger - Lazard Capital Markets

So at least you are in active discussion with the FDA?

Stacey Desrochers

Yes, we are.

Stephen Unger - Lazard Capital Markets

The proper filing approach.

Stacey Desrochers

Correct.

Stephen Unger - Lazard Capital Markets

Any other questions from the floor. Yes?

Unidentified Participant

(Question Inaudible)

Stacey Desrochers

So the question is around (share shift), and then -- I am sorry, what was the first part?

Unidentified Participant

(Question Inaudible)

Stacey Desrochers

The product lifecycle. So our products typically will be out there for five to seven years and then we would look to refresh some of them and then some of them would fall off and we would have new products that will replace those. Over the past three years across all of our divisions we have put out over 20 new products each year for the past three years. So we are prolific in coming up with new products across all of our divisions. So market share is tied obviously to new products. So as we develop new products and new applications for products that helps grow market share. I would say that across all of our businesses market shares do not move quickly. There is gradual move and for us in our mass spec business we have been growing our market share. So taking market share from others over the past two years, but that’s been a gradual process and again that’s come with new product developments. NMR is probably the slowest mover of that market share. We have majority market share in that market with over 60% market share. Agilent is second to that. And that moves slow as well, again, around technology.

Stephen Unger - Lazard Capital Markets

Great. I think that’s all the time we have. Thank you, Stacey.

Stacey Desrochers

Thank you very much.

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