Tycho Peterson - JPMorgan
We are going to go ahead and get started. I am Tycho Peterson from the Life Science Tools & Diagnostics team at JPMorgan. It’s my pleasure to introduce our next company this morning, Bruker Corporation. Hopefully you all saw their announcement this morning. Two quick things to remind you, one there is a breakout after in the Sussex room and second of all I have been asked to remind everybody to turn their cell phones off. So with that, let me turn it over to Stacey to tell you a little bit more about Bruker.
Thank you Tycho. I am Stacey Desrochers, Treasurer and Director of Investor Relations at Bruker Corporation. The following is our Safe Harbor statement. Any statements contained in this presentation that do not describe historical facts may constitute forward-looking statements. Any forward-looking statements contained herein are based on current expectations. I would advise you to look at our filings with the SEC for those risk factors.
Bruker expects to release its Q4 2011 and full-year 2011 financial results at the end of February 2012 and expects to provide 2012 financial goals at that time. Nothing contained in this presentation should be construed as Bruker’s finalized 2012 financial guidance or as Bruker’s specific fiscal year 2012 financial goals.
Bruker Corporation provides high-performance scientific instrument tools to diverse markets. We have premier brands with leading market shares in key markets. We are a proven innovator with extensive IP and product portfolio. We have an outstanding global distribution and service network and we are extremely focused on product innovations.
This slide shows our global network, the green circles are our production which as you can see are significantly in Europe, primarily in Germany, Switzerland and France and then in the United States. The yellow circles are sales and distribution offices throughout the world. As you can see we are all over the world and in all the markets in which we serve.
Some of the key markets which we serve are life science, clinical research, pharma or biotech, materials research, forensic, security, QA/QC. Some of things we have benefited from are some secular mega trends with post-genomics, biologics, membrane protein, microbiological MALDI IDs to name a few. The total addressable market for the life science analytical tools is approximately $47 billion. Our BSI segment serves approximately $8 billion of those addressable markets. To break that down a little bit more for you, our Bruker BioSpin Group serves approximately $1 billion of addressable markets with our NMR, EPR and pre-clinical MRI products.
Our Bruker Daltonics Group serves approximately $4 billion of those addressable markets with our life science mass spec, our chemical and applied mass spec products along with our GC and LC separation techniques and detection products. Our Bruker MAT or Materials Group addresses $2 billion of those markets with our X-ray Diffraction, fluorescence and metrology tools along with the Atomic Force Microscopy, spark-OES and Stylus and optical metrology products. Our Bruker Optics Group serves approximately $1 billion of those addressable markets with our FT-IR products, near infrared, Raman and detection products as well.
We spend a significant amount of our revenue on R&D, we traditionally spend 10% to 12% of our revenue on R&D and this has resulted in extremely good product innovations over the last few years. As you can see by the bottom chart, we have produced in excess of 90 new products over the last three years. This has driven our high organic growth within the past few years as well.
For the first three quarters of 2011 we had organic growth of 7%. Bruker Corporation also has a very solid balance sheet. Our intangible asset ratio, which is defined as goodwill and other intangibles as a percent of total assets is the best as compared to our competitors. Our tangible book value, which is calculated as shareholders equity minus goodwill and other intangibles is also a very good one compared to our competitors.
Some other metrics. So I would like to show you today our revenue as I talked about a little bit ago. It was driven significantly by our product innovations and as you can see, has continued to grow over the last few years and has resulted in good adjusted operating income and EPS growth.
Just as a reminder, this slide shows some of our Q3 year-to-date 2011 numbers. Bruker Corporation revenue was $1.177 billion or 32% increase, which was 24% FX adjusted increase. Our BSI Group continued to increased our gross margins to 49% for the first three quarters of 2011 as compared to 48.5% for the first three quarters of 2010.
And our BEST Group had revenue of $79.8 million as compared to $61.2 million or a 38% increase year-over-year. I would quickly like to talk about the preliminary and unaudited numbers we provided in an 8-K earlier this morning of our Q4 estimated revenue. We estimate that to be $465 million which will be 11% year-over-year increase which would get us to $1.64 billion for the full-year 2011. We are extremely pleased with this. This is the high end of the guidance we gave for the full year during our Q3 call.
Also I want to reiterate our medium-term financial goals for 2012 through 2014. We expect to have a currency adjusted revenue growth rate of greater than 10% for the years 2012 through 2014 to get to greater than $2 billion by the end of 2014.
Our BSI adjusted operating margin goal remains at greater than 18% by the end of 2014. We are now though excluding our CAM Group from that. We also expect average annual BSI-adjusted EPS to be 15% to 25% during that time period and our BSI return on invested capital to be greater than 25% by the end of 2014.
I would now like to turn the presentation over to Collin D'Silva, President of our Bruker Chemical & Applied Markets Division.
Thanks Stacey. Good morning. As many of you know that Bruker Chemical & Applied Markets Division was really born out of our acquisition of the assets from the Varian/Agilent deal. As part of that acquisition, we acquired primarily three product lines the GC, GC-MS and ICPMS product lines. The three primary applied market segments that we are focused are the food testing, energy and environmental testing markets globally. We serve those markets in various areas and various strengths but on a global scale. Our CAM core technology products that I said, that was required with lab GC products and GC analyzers. GC triple quad products and since then we have announced the introduction of the GC single quad product last year. Our SV-MS product line and also through the acquisition of Michrom Bioresources this past year, we introduced our Captive Spray ion sources.
In addition to our GC and LC consumables that we currently offer, in 2012 we will be introducing an enterprise software solution for our existing and new GC and GC-MS customers. In addition to that we intend to also announce shortly introduction of our nano-HPLC for LC-MS applications.
The chemical applied markets is really focused on offering differentiated products and services in specific markets as I have said. Our priorities after the acquisition in May 2010 was to basically reinvest in R&D and innovation of the legacy products.
So in 2011 in July we introduced a new generation of GC-MS products that replace the old Varian product line. We will be adding new product lines going forward and you will see further announcements of that in 2012.
In addition our focus was to really leverage the existing distribution infrastructure we acquired from Varian adding to that additional distribution resources in various regions that were underserved by the existing Varian distribution infrastructure.
We will be expanding distribution capabilities in emerging markets going forward this year and also improve again investing in our marketing, manufacturing and logistics a result of having to acquire and move three new factories in to two existing new factories of Bruker.
In addition we will be announcing more investment in proprietary consumables. On the GC triple quad mass spectrometer product line that we introduced this past year, it’s actually the faster growing product segment in GC-MS. Very significant market drivers in terms of globalization. The food supply, a lot of regulation driven market growth due to new guidelines across Europe, the Americas and also Asia Pacific. It’s also very much sensitivity driven market place and hence having the best sensitivity in instrumentation is extremely, extremely important. And Bruker’s SCION GC-MS product currently now offers that best in class sensitivity.
In terms of lab GC product lines, and GC analyzers, we truly have now the most comprehensive set of GC analyzers and GC product solutions available from any company.
We have dedicated analyzers for very specific applications across natural gas analysis, even biodiesel analyzers and new green house analyzers. So a very significant product offering on the entire scope of GC and GC analyzer solutions.
In addition to that, as I said earlier, we will be introducing our new enterprise software that provides client server capability to control multiple instruments across large customer installations.
In the GC-MS market, what we’re seeing are basically two areas of convergence, a convergence in terms of technology, across GC single quad and triple quads causing single quad users to move up to triple quads to get to higher sensitivity and there's selectivity and then on the lower end we are seeing the need for simple lab GC, GC-FID detector of customers wanting to move up to GC single quad mass spec applications and capability and hence get higher and better specificity.
So in the previous product line that we acquired from Varian that GC single quad in the middle was really a non-existent product line. So with the addition of that new GC single quad and really best-in-class capabilities we now are able to provide for that convergence across both the technology gap and the price gap.
What you see there on the left in 2010 were basically the three products we acquired from Varian. The standard Lab GC product, a standard lab GC-MS product line for triple quad capability and an ICP-MS product. Since then in 2011 just this past year we've now expanded that across the lab GC line, the GC-MS line, introduced the new ICP-MS product and also on the bottom row there you see our new captive iron spray and a series of HPLC columns and GC columns. So in just a short year and a half basically we've gone from three single products to a family of products across our market needs.
In terms of the medium-term financial goals our adjusted purchase price that we paid for the assets we acquired from Agilent for those Varian products was approximately $32.5 million. We will have cumulative operating losses associated with those products of roughly about $37.5 million. So we expect the total projected investment to break even for that acquisition, for those product lines to roughly amount to about $70 million.
In 2011 we expect CAM revenues to be approximately $80 million and that is approximately the level of those three product lines in terms of revenue generated from those products pre-acquisition.
Our CAM revenue target for 2016 is estimated to be greater than $250 million with the revenue compound growth rate of roughly about 25% per year.
In terms for our adjusted operating losses we see there, going to break even in 2013 and then from there growing our operating margin to roughly to 15% to 18% level in 2016.
With that I would like to now introduce Mark Munch. Dr. Munch is the President of our Bruker Nano Surfaces Division and Mark will talk a little bit about the BNS division and its growth prospects going forward.
Thank you Collin. Good morning, I am Mark Munch, happy to introduce you to the Bruker Nano Surfaces Division. So what we do, we help researchers and developers visualize and get quantitative information of a nano scale and atomic scale.
We do that by producing very high end and the leaders in innovation of atomic force microscopes and automated atomic force microscopes. We produce those in Santa Barbara, California. We also produce 3D non-contact, very special microscope called interferometric microscope and Stylus profilers in Tucson, Arizona. And then just very recently here in just this October 2011, we have made an acquisition of nano indenting macro indenting and Tribology business in the Bay area here in Campbell, California.
Our strategy in these businesses in terms of providing information at a nano-scale, is the second industry standard for ease of use. These now technology tools traditionally historically are known to be difficult to use and having to set a lot of parameters. We are definitely leading industry in getting the use much easier and simplified for our researchers.
Also pushing to higher resolution, better images even at the time of scale and broader applications and then very important, very recent delivery for us is one of making the measurements real-time and imaging in real-time. These type of measurements have been traditionally very slow or pushing the speed and allowing real-time dynamic events.
And then beyond just imaging, providing nano-scale quantitative information goal beyond the pictures if you will go to topography itself. And then we are brought into the Bruker fold, one of the benefits is we’ve been able to strengthen our channels actually within our BNS division. That’s helped us tremendously.
So as evidenced that we are executing strategy, we’ve had a number of pretty innovative product releases and innovations into the market. The first is drastically improving ease of use. By going from an AFM traditionally we take 80 parameters to set and then take an image, usually 80 parameters minimum to now down to five or less, in some cases just down to one parameter push button operation in taking just as good an image if not better and this is through our product called ScanAsyst which is based on a whole new mode for atomic force microscopy.
Also pushing ease of use as well as pushing into new performance is our Dimension FastScan. This is a new product that was just released this summer and it’s really a breakthrough in scanning speed. For those who know atomic force microscopy would know that you traditionally have to wait maybe eight hours or 10 hours to take a really good image of a molecule or atomic layer. You now can do that in 20 minutes. And besides that making much more productive for researchers, you know we now can catch dynamic events that can no longer be caught before.
And so visualizing these fast events such as protein crystallization or watching cell dynamics, you can watch cell mitosis or death of cells through peptide interactions, or even into non-life science markets such as semiconductor defector view is really open, it has opened a big number of applications for us and so this is really a breakthrough and will drive our business forward.
In addition to just imaging as I mentioned, our researcher, the customer base is after more than just images. They are after, what is the question or what is it mechanically I am looking at was it electrically, was it chemically. So we've also been innovating along those lines. We've introduced nano-mechanical property investigations through our PeakForce QNM product; it’s a very recent introduction. Now let's go through PeakForce TUNA and now we are even accomplishing nano-chemical ID.
Often somebody looks at a service, they see interesting atomic scale features, but they want to know exactly chemically what is it and so through our TERS IRIS introduction, we are now allowing researchers to exactly identify all that say, a mean group or that’s a peptide group and really pin down what was it they are actually looking out.
And offering, you can see at the top graph, there are whole suite of imaging. We can give a chemical map. We can give a nano-mechanical map. We can give nano-electrical map and we can give certainly a topography image of a surface. And this is going certainly well beyond our AFM business and goes into our optical business. We’re recently recipients of a research R&D award, R&D 100 Award for our [QDSR] where we are pushing pass the optical to fraction limit can 3X passed and providing much more high res in images than our conventional scale.
Some of the key markets for us are polymer science, material science, life science and medical, semiconductor and microelectronics. And some of the key opportunities for us are certainly in life science and in well tied nano-technology markets. Nano-technology is recent limits and nano-technology is really coming back. So we have a quite a lot of good opportunity in front of us in life science, nano-microelectronics and entrance from nano-technology markets.
We were acquired by Bruker in October 2010 and I am proud to say we performed very well within our first year within Bruker. Our revenues were above $160 million, that’s over 40% year-on-year growth through 2010 and adjusted operating margin well above 20%. So we had a very good, very strong 2011 and that will continue.
And it continues through our product innovation, new product bookings that is revenue and bookings that come from new products is about 60% for us. And that’s climbed quite a bit already over the years and that’s just because of the great number of products that we introduced to the market.
So going forward, 2012 to 2015 compound annual growth rates we predict will above 20% per division and each year maintaining our adjusted operating margin above 20%. So really it’s been a good experience for us in Bruker and we’re performing very well.
I think we move on to just the Q&A period or do you want to do the last slides maybe highlights.
I'll just summarize some of what we've already talked about. Bruker Corporation is a premier brand of high performance life science analytical tools provider. We have a strong growth of innovation and track record of producing new products for new markets. We have some ongoing operational excellence initiatives that will help our margin goals that we have talked about before, our adjusted operating margin to get to greater than 18% by the end of 2014 excluding CAM and our new markets in which we are pushing some of these products into. So as Mark said, we will take questions in the Sussex Room down hall. Thanks.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: firstname.lastname@example.org. Thank you!