Bruker Corporation' CEO Hosts Inaugural Analyst Meeting (Transcript)

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Bruker Corporation (NASDAQ:BRKR)

Inaugural Analyst Meeting Call

June 01, 2012 08:30 am ET


Frank Laukien - Chairman, President & CEO

Bill Knight - CFO

Collin D'Silva - CAM President

Mark Munch - President of Bruker Nano, Inc.

Tom Rosa - CFO, BEST

Werner Maas - President BioSpin


Derik DeBruin - Bank of America Merrill Lynch

Dan Arias - UBS Equities

Peter Lawson - Mizuho Securities USA

Bob Goldman - CL King & Associates

Dan Leonard - Leerink

Isaac Ro - Goldman Sachs

Good morning everyone. Welcome to Bruker Corporation’s first Analyst Day. If you could all turn off your phones and Blackberrys, I would appreciate it. Following is our Safe Harbor statement which you are all familiar with. But any statements contained in this presentation that do not describe historical facts may constitute forward-looking statement. These statements contain our current expectations and are subject to risks and uncertainties. Please refer to our filings with the SEC for further details on those risks.

Just going to quickly go over the schedule of events for today. Frank is going to do a company overview and then an update on the products we released at ASMS last week. Bill Knight, our CFO will do a financial review. Then Collin D’Silva President of our CAM division will talk about that business. Mark Munch the President of our Nano Surfaces Group will talk about his division. Then we will have a session for questions, so if you could wait till then to ask your questions we will have microphones coming around at that point in time and you can have questions for anybody on the panel.

Then we will have a short break and then Tom Rosa will talk about the BEST division and then Werner Maas will talk about the BioSpin division. And Frank will wrap up and we will have another open session for more questions. Now, I would like to turn it over to Frank Laukien, our President and CEO.

Frank Laukien

Thank you very much Stacy and good morning to all of you. Thank you very much. We are very pleased that many of you could join us for this inaugural analyst and investor day. Before I get started with my overview of the company which I am going to keep short today, because I think the really interesting part today is of course that it allows you an opportunity to drill a little deeper into some of the market opportunities, technologies, product lines and into some of our divisions. But by the way do not read anything into which divisions are present here today and which divisions therefore are not present here today that’s just inevitable. We didn’t want to make this a full day event. And I promise you will have all the divisions that are not presenting here today, we will have them next year or in two years or whenever we repeat this analyst day.

Certainly, we were focusing a little bit on the divisions that perhaps are newer to Bruker clearly from the two acquisitions in 2010, the CAM division and Mark's Bruker Nano Surfaces, BNS division are newer, BEST was very well characterized though at the S-1 level and the S-1 level has a lot of information but of course zero forward-looking information. So I think Tom will be able to give you a lot more insight into BEST strategy and then our plans going forward. And of course Bruker BioSpin been being our largest and oldest division that’s how we started 52 years ago has really a lot of interesting momentum, a lot of new products.

So those are the ones that we pick today, but it wasn’t cherry picking because those are the cherries that are not presented today. So, we are also little bit kept in mind we just were at ASMS at the press conference there, so we didn’t make this a Bruker Daltonic life science focus because quite a few of you were at ASMS or have read about what’s going at ASMS, who made a very well attended press conference there. Yesterday we had a big investor group visit us up in Boston. We spent the majority of that time talking about our very strategic MALDI Biotyper products, so we won't talk about it today. So please don’t read anything in to what we're discussing or not discussing. It's -- you see about half of the divisions presented here today and therefore half of them are not present and we will promise to present them to you next year in more detail.

Also just to get it out of the way, we do not update guidance today or give new guidance. We don’t do that generally during the year. We give our goals, our financial goals for the year and then we’re not in the habit of updating guidance quarterly and we don’t intend to do that. We have done it from time to time and we’ve noticed that street expectations and what we might be expecting for the rest of the year for a certain quarter or so.

If there was a huge discrepancy, we would reserve the right to do that, but generally we run with our goals for the year, with the first quarter, so far we are ahead of our goals for the year. We’re certainly on track and we’re ahead. But we're going to update guidance because that was one of the questions that I've read in a few of the pieces that came out prior to this analyst day. Will Bruker update guidance? So the answer is no.

So, with that let me take you through my piece of the agenda and that is to give you an overview. I know many of you are very familiar and I’ll just make some comments on the environments that we see, on the opportunities, on the growth drivers and of course on our strategic priorities and then I will speak a little bit about life science, mass spectrometry. Not all of you were at ASMS. So, I will give you an update on that before turning it over to my colleagues.

So I am not going to read every word on that slide. Those slides are available to you. And sometimes we just get the question, well how did this all start. Where did this all come from? Well it's a 52 year old company that got started in 1960 by an engineer by the name of Bruker and that's my father who was a professor of physics at the time with the technical university of Caldura and it has really grown primarily through organic growth and through product development and through entering new markets.

There have been over the years some pivotal acquisitions, often if you looked how we got into mass spectrometry with the 1980 it was actually in peril with a small internal development that's the predecessor of today's FTMS product line as well as an acquisition that we did in Bremen Germany of a small company that built mobile quadrupole mass spectrometers. That's still a part of our product line for Daltonics, but it is a relatively small one and everything else we then either developed internally or very often in collaborations with other universities, the time of flight product line was initially developed not from MALDI because MALDI hadn’t been invented yet, but was developed with a technical university in Munich.

You will hear later on about DNP-NMR. Werner will enlighten you in what that means and what it does more importantly we developed that in the last few years together with MIT and the list goes on and on. I just want to give you a flavor of, this was not a VC funded company. This was a privately held company, it is today of course a completely publicly-held company. There are no more privately held divisions, with the acquisition of the Bruker BioSpin largest and original division in the year 2008. It's now a very simple corporate structure, of course the path how we got here had its complications, but today. I think you see many of the elements of focus on organic growth, focus on your customers, focus on products, high demands for return on invested capital, EPS non-GAAP EPS accretion isn't everything, that's not sufficient.

I think you see those themes in wanting to create long-term value and with a goal of creating the leading player in our industry of life science tools and scientific instrumentation. This slide you maybe familiar with and that's the slide that doesn't and shouldn't be changing that sort of the big, the strategy points, the goals that we have, we are a premier brand for the high-performance scientific instrumentation.

We are really pretty good at that business model. We speak to it pretty closely. Yes, we have some scientific instruments that are now applied to clinical microbiology and to some new applications. Our best division certainly and deliberately is outside of the scientific instrument space and you will hear more about that. Our financial goals are we want to be a growth company. We want to be a fast growing company. We've always been good at that, that seems to be in our DNA and with the investment we have in R&D and more importantly the excellent output we get from our R&D, we can drive very good profitable growth along with margin expansion along with balance sheet and working capital improvement and always with a focus on ROIC.

We want to be above 20% ROIC and if we can drive it towards 25% and 30% even better. Very customer focused, very product focused, not so much focused on acquisitions, although we sometimes do smaller acquisitions which we then nurture maybe complete the product line, leverage our global distribution that has often been a very successful model for us. When I took the company public in 2000, one of the concerns that I couldn’t admit to was that we didn't have the full global distribution today, we very clearly came to toe to toe with any company. The companies that we are facing, the larger competitors, there are some companies that are larger, but there also tend to be sometimes are more conglomerates or becoming more like conglomerates.

So we are really competing typically with their scientific instruments businesses or divisions or segments or whatever they may call it which are of the same order of magnitude as we are. We are at about $1.6 billion to $1.7 billion. Some of them are maybe above $2 billion, but we are competing with equal-sized companies and we can go in terms of distribution, in terms of service, in terms of customers for it.

Today we are absolutely world class and can go toe to toe and in fact in many areas for instance recently with a lot of funding in Central and Eastern Europe and some other areas we found that even some larger companies sometimes we have better distribution than they do. So distribution for us is clearly no longer a limitation and continued steady improvement of our distribution and global capabilities has been an ongoing theme I think that will continue and it has been one of our strengths quite honestly.

What I think, I think many of you are familiar with our markets, so that at the bottom we have diversified markets and that's a strength. We don't just depend on pharma, we don't just depend on government spending or one of the other and having this geographical diversity and market diversity and product line diversity has made us very, very resilient and robust to even in the year 2009, which was a difficult year where the scientific instruments or analytical instruments, life science tool space whatever you want to call it, shrunk, probably on average by about 6%. We still grew about 2% in currency adjusted. I think one thing that I really wanted to stress today and in fact I will have my colleagues do it to a great extent is what’s in that busy yellow box.

Other than our product competitiveness and market share gains if perhaps the most important take home message for many of you is what’s in that box and what does it mean. Why is Bruker benefiting? Why is Bruker benefiting may be disproportionately from some of those science and technology trends or new requirements. I will refer to some of them, not on this slide. I will let you just read it here, but we will come back to those, Mark Munch will talk to you about 450 mm fabs or shrinking feature sizes.

I will talk to you about biologic drugs, Werner Mass will discuss preclinical imaging. I will talk to you a little bit more about next-generation proteomics and what that means that a lot of that is related to our life science mass spectrometry product lines. And of course you will hear more about the opportunities for superconducting materials and devices or Supercon-enabled devices. So these growth drivers within these very, very large budgets that are out there are far more important than whether Mediterranean Europe is weak or whether NIH budget is flat or goes down 3% or goes up 1.5%. Those along with the competitiveness of our product line, our ability to gain market share which is really excellent and it is happening pretty much across the product lines are the big drivers. I think that’s why you see exceptional growth from Bruker and I would say you should continue to expect exceptional profitable growth from Bruker.

The total (inaudible) actually at a recent meeting of the Analytical and Life Science Systems Association or LSSA was actually have involved since. I finally got a total global number of how big its global life science R&D in academia, university, pharma, biotech and elsewhere diagnostics company and globally this is all, this is the world. And it appears to be close to $250 billion. So the global R&D spending is very large. It’s growing faster in the emerging market, in the developing world; or the emerging markets are no longer emerging. They have emerged. They are very powerful, large markets. Its growing more slowly in the U.S. than in Europe but the CAGR is still around 3% to 4%.

If you look at life science tools, analytical instruments, actually I see very different numbers from analysts $575 billion. The sources that we’ve used for this total addressable market, addressable in principle we’re not in all of those markets. Those include markets like (inaudible) analysis or genomics markets that we’re not in. It is about $47 billion and our Served Addressable Market or SAM has really increased quite a bit in recent years because of new product initiatives but also because of some of the acquisitions that we’ve done, the acquisition of the former Veeco Metrology Division, Bruker Nano Surface is now and assets which we originally part of. Some of them from Varian Inc. but in the meantime have added quite a bit to that. So what's emerging in CAM as you will see from Collin goes away beyond to what Varian Inc. did originally when we acquired those product lines.

That has increased our addressable market, our Served Addressable Market and you will see we list some of the product lines. We've also listed some of the average growth rates in recent years. So there are some very fast growing areas and there are some other areas where I think with new product initiatives like for instance the ones that Werner Maas will explain for the Bruker BioSpin Group, we think we can reaccelerate the growth in those markets and grow the markets and grow with them.

This is a snap shot in 2011 of our end markets by geography, by customer type, by products type. Again may be those of you familiar with us if look that two or three years ago we were not as diversified geographically, we were not as diversified in balance in terms of customer type and that has been a rather deliberate effort in our product development, in our business development, in our some of our acquisitions to focus a lot on industrial and applied markets and have that elements grow in particular, of course we have invested quite a bit in the emerging markets and we continue to do so.

So those of course has not a surprise to you I am sure growing really faster than the corporate average to where we are today we have a fairly balanced and very healthy footprint both in terms of geography and in terms of customer type. I will come back to our product introductions, there are some other parameters that I will need to read of how many employees we have or in marketing and sales and R&D and in how many countries we have distribution direct or indirect and we are located with subsidiaries again I think that could be of interest to you for reading but I don’t need to go down every bullet here.

A recurring theme about Bruker is our focus on R&D organic growth, margin improvement, product innovations. I think not only do we invest a lot in that, I think we have probably the best innovation and product development engine of any of the larger companies in our industry. And as you've seen as a percentage of revenue our R&D spending has been declining, it hasn’t been declining in absolute terms but has been declining a little bit and I see that leveraging out further to around 10%, may be at some point it will be between 9% and 10%, but we want to quite deliberately leave it at that high level.

We do not want to primarily maximize cash generation at the expense of being able to invest in our businesses and products. That's someone else’s strategy, that's not for us. So I think even forward as we look at margin goals of 2014 operating margins, adjusted operating margin goal of 18%, it is with about 10% R&D spending and continued rapid investment in our product and competitiveness.

It is not trying to bring that down to more of an industry average which is about 6.5% and many of you are familiar with other companies spend less than that and then inevitably have to do more acquisitions and very often these acquisitions are expensive and have a very low return on invested capital.

We think this approach plus some smaller bolt on acquisition has really an excellent opportunity and a track record of good return on invested capital. So we've introduced a very large number of products in the last three years and this continues at an unabated pace so far this year with just recent product introductions on the Biotyper in early April at ECCMID in London and just a very recently mass spec introductions that I'll talk about a little bit at the ASMS Conference out in Vancouver.

Not all of our products today are new boxes or instruments anymore, some of our products on the MALDI Biotyper. There was a new application and method and after market kit for micro bacteria including tuberculosis that goes on to the existing MALDI Biotyper platform. Similarly, there was an important product announcement for the analysis of fungi or fungi as some people pronounce it. Very important in clinical and non-clinical microbiology, important new products, important new developments but not all products, new Bruker's products will be and new blocks with a picture, it may be a new merit, a new [essay] and of course we also still come out with new instruments and new instrument product lines and there is a lot of examples of that this year so far as well.

So these products are a very significant contributor to our organic growth. But now only to the growth, but also to the margin improvements and over time I think these products as they are more designed also for the ability for lower redesign because the headline that you may see is new capabilities, customer benefits that’s in our press releases underneath are lower costs, lower costs of goods sold, easier service ability.

The continued drive for gross margin improvement, we’ve had excellent over the last four, five years Bill and others have been driving that. We’ve had excellent steady gross margin improvement that will continue from the new products; sometimes you can increase your average selling prices. We always also endeavor to reduce our cost and therefore improve the gross margin in both ways.

We also think that our newer products will make it easier, there is design for outsourcing, and this will over time also have an impact on our balance sheet, on working capital ratios and our ability to generate additional cash flows not only from EBITDA and profitability but also from the balance sheet.

Some of our organic and currency adjustment growth rates in recent years. Bill will talk about our growth rate and growth target for 2012, but I think we can be very pleased with gaining even some growth in tough years, in years where the industry has been shrinking like in 2009 and then very rapid currency adjusted and pretty rapid organic growth in 2010 and 2011 and accordingly our CAGR or multi-year CAGR we're aiming for a 10% multi-year CAGR in currency adjusted terms even going to 2014. And we don’t intend to stop them either but that’s as far as we’ve given medium-term guidance.

So let me switch gears here for a moment before I turn things over to my colleague and talk a little bit about life science mass, spectrometry and some of the product line introductions and the implications and market trends from the ASMS. For those of you who are not familiar with that, that’s the American Society of Mass Spectrometry. It’s a very important international conference and it occurred very recently in Vancouver and we had a press conference there, fair number of products and we quite a few of you from the cell side and bio side where there and they’ve seen our new products.

So we introduced, where we became an [LC] company. Not that we are becoming a generalized [LC] company where we brought out the Bruker nano-Advance, Nano UHPLC specifically for proteomics and in proteomics that also means, all of it means for LC couple too, a high performance mass spectrometer or tandem mass spectrometer.

So we can now provide a single solution for, really for we think the leading performance in the proteomics industry and of course also for consistent quantitative results as people want to validate biomarkers, eventually want to maybe even introduce them into the clinic. You really need very reproducible systems. So we can now provide the complete solutions including the chromatography part.

We have some unique capabilities again without going in to all of them. What we’ve introduced last year which was maXis 4G very high performance ultra high resolution Qq-TOF and then the maXis impact, those are the growth drivers and margin drivers this year.

What we are introducing this year probably will be next year's growth drivers and margin drivers. So maXis's impact shown here has been very, very successful and in fact we think in Europe we're already becoming the number one Qq-TOF company in the second half of last year, and we hope to do that based on the unique capabilities and performance of the maXis product line also outside of Europe.

We introduced the new ultrafleXtreme MALDI-TOF/TOF at ASMS with a 2 kHz smartbeam laser that's a unique proprietary Bruker laser that really has a number of very important advantages from MALDI, we're not a general laser company but yes we do build the lasers that are optimized for MALDI.

There is a very important, MALDI is blooming and MALDI has very bright prospects for a number of reasons and market and science reasons and that I would like to explain for a moment. First of all, MSI as most people call it, some call it MALDI Imaging, Mass Spec Imaging is really taking off. It provides the type of special proteomic information that a pathologist is using and it is really the way to get biological and pathological insight and understanding and I think it's one of the key trends that will take proteomic to the next level.

So far we've always homogenized tissue then we've digested everything, I would say that just trying to take a thousand piece, a thousand piece puzzles and mix them all together and then look really clever reassembling them, that’s what we've been doing in proteomics. We should be keeping those puzzles together retain the full picture to use an analogy.

Mass Spec Imaging is really very, very important that is driving proteomics biomarker discovery. It's driving clinical research and has a very good shot of becoming also a clinical technology adopted in pathology, orthology over the years. But in the meantime, it will also be a big driver for biomarker discovery which is much better done when one does not homogenize everything.

If you look at next generation sequencing okay that's pretty simple, you have the sequence of the genome. Whether we learn much from it or not remains to be seen and we just make that faster and smaller. Here the science changes. It's not that all these boxes shrink by a factor of 10 every few years. That's not the story of proteomics. It's really the informational and functional content that we have.

So at the end of the day, proteins are not just a sequence or a snapshot of a sequence from which you would be or computers reconstruct the sequence. You are probably not going to get it quite right because there's enough biological variation that's just getting pieces of the puzzle. I won't tell you the complete story. In addition, the real story in biology and in medicine is that these proteins are dressed but not the term, protein scientists used, they call it post translational modifications or ragged ends or sequence modifications.

There's a lot of really important stuff going on in protein science which makes it far more variable and far more interesting but also far more complicated than genomics. And you don't just need to do the same thing faster and smaller, you need to provide a lot more of that information. The special distribution, how is the protein dressed, are there variations in the sequence and we have brooked really have the pretty unique tools within mass spectrometry to do that. MALDI is a big player in that, glycosylation, how the proteins are dressed in spatial proteomics or in mass spec imaging. And of course, that's also the technology, although with a smaller system than the one shown here that's used for the clinical microbiology paradigm change, driven by the MALDI Biotyper.

We also think that whenever new biomarkers are validated, protein biomarkers in this case, if you can do them on a MALDI platform in a few seconds by any lab technician, you are much better off than having an LC/MS/MS protocol, which is never going to be as robust and require a much more skilled personnel, and inherently have lower throughput and therefore higher costs.

So for mass spec imaging, MSI, we have now not only perfected and we're the clear leader worldwide in the mass spec imaging. The workflow on the right, if you like, where we take a slice, we add the matrix, and we see the lipids or protein or small molecule distributions, depending on exactly how we do it, that has been improving and the throughput on that has gone up, and we're clearly the market leader in that.

There's no question about that. We have now added the workflow of ImageID, i.e., can we not only see the contrast and the intensity in the image, but can we also for many of these important proteins or potential biomarkers get their identification from the sequence. So we've developed this fully integrated workflow with a branch on the left being the new addition that's really very, very compelling for biomarker identification and discovery, and of course also probably not so much for the clinical application.

But that's more for the fundamental biomarker discovery workflow, which when it's driven and guided by what pathologists care for, by the spatial distribution, is far more powerful than when you grind it all together. So ImageID, a unique workflow that we launched at this ASMS.

We have taken a big step forward with MALDI in being able with our new technology to create multiply-charged ions that has extended the mass range and resolution of MALDI. And if you can apply that and still get a measurement in five seconds because you don't have any chromatography, you have an even more powerful system.

And for a lot of the intact protein, mass weight determination, particularly in the pharma/biologics industry, this is really compelling. This is what they will need to do over and over again, not only in discovery and development but in QC, and of course for FDA submissions.

So our top-down proteomics, top-down capabilities are completely -- are largely unique and in the aggregate absolutely unique in the industry. We have the most powerful tools clearly for the trend in drug discovery, development, FDA submissions, all the way to QC for biologics, which as you know is one of the very large trends in the pharmaceutical industry.

Here it's done with MALDI. We do some of that also with our mass spec series. For many of the biologics development in QC labs -- discovery and development labs, plus those that would probably assemble the data for FDA submissions for biologics, the combination is really quite compelling.

You get rather complete reports. You do not just only statistically see fragments of the proteins, and then you predict or calculate the rest and hope that it's true, because it usually isn't. The world is more complicated. You have more diversity, heterogeneity. You've get complete reports, you do see how the protein is dressed, you do see the end, you see any sequence variations.

So far, the FDA and others haven't asked for that because it was impossible to measure. But not that it is possible to measure, you bet they will be asking for complete information rather than for bits and pieces, hoping that the rest is true. And for this, we have the unique tools.

How important it is how a protein is stretched. Let's perhaps illustrate it by this example. Obviously, what you will discover is a little bit deeper, that's the same person, of course, has the same DNA, has the same protein sequences and profile, but it depends all on how you're dressed, and this is to illustrate how important glycosylation is. Analytically incredibly difficult to measure, and unbelievably important to do because that's where the action is, that's what makes the difference in the end.

With our new GlycoQuest system now that we launched, we now have not only the ability to do what people have generally done, which is shown here at the bottom, chew up the proteins, do top-down with various software packages.

One of them is called Mascot, to identify the peptides and therefore the proteins, but with the same ease of use to the far more difficult and overall, perhaps more important, analytical task of identifying all the glycans, and then getting the glycopeptide and glycosylated protein structures, which are really relevant for biomarker discovery, research for biologics work and so on.

Very, very important trends. It's not as easy to follow as, okay, let's make everything smaller and faster and cheaper. It gets more complicated and it gets really to where proteomics can fulfill its promise, which it hasn't so far because so far we've really been just scratching the surface and doing relatively simple experiments. Now we can start to do things that are really meaningful.

So summary of ASMS, and I won't read all of that. But I think mass spec imaging with MALDI, the age of spatial proteomics is absolutely crucial for a lot of fields from biomarker discovery to real pathology insight. The integrated workflow for imaging of not only getting contrast and abundance and distribution, but also identification in the ImageID workflow is important.

I didn't even talk about it, but there's no work protocol. So we can look at the very large treasure trove of FFPE or formalin-fixed tissue, data banks that are out there for decades of cancer patients. There are samples that have been stored that way. They've changed the sample and so it's not easy to analyze them, but now we have ways of applying MALDI imaging to these very large sample databases. Top-down proteomics is really crucial.

It gives you a much more complete story for biologics. I think it will be absolutely essential. We have very unique capabilities there. And last but not least, we can now see how the protein is dressed, and that really affects its functional capabilities. So, not all new boxes at ASMS, but things that really matter on further improved instrumentation with workflows and capabilities that I think will really revolutionize proteomics.

So with that, I hope that gave you a flavor of what we're doing in mass spectrometry. And we'll now take it to our Chief Financial Officer, Bill Knight, to give you a financial overview.

Bill Knight

Thank you, Frank and good morning everyone. I'll start out with a quick review of 2010 and '11. I think you can see a very strong top-line growth and improved profitability, both in the corporation overall and our BSI segment, which is really our instrument segment, and the BEST group. And as Frank mentioned earlier, Tom Rosa will be able to talk quite a bit more about the BEST activities in a few minutes. This trend continues into the first quarter of 2012, a significant improvement in top-line, operating margins.

We really -- Frank talked about the new product development. Bruker has a very, very strong product development engine. This continues to drive not only our top-line growth but our profitability. And we certainly expect that these trends will continue in the future. Just a graphical presentation of where we've been. You can certainly see the improvements we've made since 2008, very strong growth, improved operating margins, certainly improved EPS.

And we certainly have expectations that our return on invested capital, which is a very important driver for the company, will improve and get 20% plus in years to come. We are currently making investments in our BEST group, in our CAM group, and we have very high expectations for their future growth and profitability, which will help our overall return on capital. For 2012, we are looking at a 7% to 10% growth on the top-line, primarily organic.

And we are looking at about $130 million to $160 million of operating cash flow, of which $80 million to $120 million would be free cash flow. BSI will have upwards of 18% adjusted growth in operating income, which is $230 million to $240 million, a significant amount of cash flow. 120 to 140 basis points improvement in adjusted operating margins. Again, this will come through improved gross profit margins, improved top-line growth. And we continue to leverage our operating expenses.

Bottom-line, 8% to 12% growth in EPS. Working capital is a very important metric for us. We are looking, and primarily for Bruker, its inventories, looking for ways to improve our inventory turns. We want to improve the cash flows and really redirect cash that's currently invested in inventories to further fund the growth of the company and put into primarily M&A activities or reduce debt. And we are looking for our return on invested capital to be in the 23% to 25% range.

With BEST group, we'll continue a strong top-line growth, organic, and looking for an adjusted EPS loss of around $0.04. For the year through 2014, we are looking for Bruker to be in excess of $2 billion in revenue and an 18% plus of BSI operating margin, excluding the CAM group. But that does now include the non-cash stock-based compensation expense. I'm not going to read all these bullet points.

But I think it gets down to -- we certainly -- looking at Bruker overall, we expect improved profitability in our BEST and CAM groups. We are making significant infrastructure investments in our SAP, which will help drive some of the operational improvement programs. Continued focus on working capital improvement to reinvest that cash in the growth areas of the business. We've increased our management infrastructure and production and logistics.

Much more of a focus than what Bruker has done in the past on offshoring, outsourcing. Much closer look at what we do internally is what's really core to Bruker, and what should we build internally versus what's more of a context, what can we offshore, what is not really as much value-added as it used to be produce internally. And I think this whole effort that's ongoing is what's really driving, not only the growth but the profitability in the business.

The top chart, you can see in 2008, we were at $0.60 of working capital to support $1 revenue. We are currently at $0.48. We expect by 2014 to be in the low to mid $0.30 range. Every penny that we can pull out of working capital is worth $16 million to $18 million in cash. So that is a significant driver, a significant generation of cash flow for the company. Historically, Bruker's receivables have probably been the best in the industry.

We have customers that certainly are willing to pay, want to pay, or are very capable of paying. The focus for us is inventory and improving our inventory turns, improving our product designs, our manufacturing and logistic processes where we can really increase those turns substantially. Very strong financial ratios, total debt to EBITDA at 1.2, capitalization is about 33%, total debt to overall capitalization, and interest coverage is a very high multiple.

Bruker historically has been somewhat of an unlevered company. I don't expect that you will ever see Bruker carry a high debt load, but a very manageable debt load. We fully recognize debt as the lower cost of capital, but we are also somewhat of a conservative company in that area as well. Significant cash balance currently $233 million at the end of the first quarter versus that of $319 million. Our cash is primarily in Europe, Switzerland and Germany and we do keep it there and it is not as easy to move around because of some tax reasons. We are very cognizant of the fact that moving cash does trigger some unusual tax implication sometimes, but we also are able to use this money for M&A activities.

As far as this year and outlined years, the debt repayments, the large payment we have due in 2012 is related to some initial funding that we took for BioSpin acquisition, this will be easily handled by our current cash balances and our expected cash flows for the year. Earlier this year we did a permanent debt financing which is reflected in the outlined years as far repayments. I think for cash use, our real priority is growing the company, improving profitability and that cash flow, we do generate, we would put back into the business, therein internal product development programs. We do look at some M&A activities and when we don’t find M&A activities on our debt repayment. And at this point I will turn the presentation to over to Collin D'Silva who is our President of the new Bruker CAM division which is the group that we bought from Varian. Collin?

Collin D'Silva

Thanks Bill. Good morning everyone. Just a quick overview and snapshot of CAM to date, a little bit of the markets and technology, some of our products and some of our financial goals and objectives going forward. So with the Chemical and Applied Markets division Bruker entered into three major markets where we had limited offerings prior to the acquisition.

We are now primarily focused into the food, energy and environmental testing area, primarily with some core products in the gas chromatography area, the GC mass spectrometry area and nationally ICP-MS. In 2012 thus far we've now introduced a version of our CompassCDS or enterprise software and also our Nano UHPLC that Frank talked about from ASMS.

A little bit of history to take us back to the acquisition of the three key assets we acquired in May of 2010, little more than two years ago. We start with these three main product lines, GC-MS, ICP-MS and Lab GC. And if you all remember those three product lines were manufactured in three different Varian factories on three continents, in Australia, in Europe and in the US. We acquired that time also roughly about 270 personnel in primarily 20 countries where we integrated direct sales and service activities.

In addition we added many new distributors in over 30 countries. So with that acquisition of those three product lines naturally our focus was to integrate those product lines and those factories, develop new factories and exit the old Varian/Agilent factories. Just a brief snapshot in terms of the financials, as you all know our purchase price was quite attractive in acquiring those key assets. With the projection of accumulated operating losses, we expect that will have a total investment to breakeven of roughly little more than $70 million.

Going forward after our revenues of roughly about $80 million last year which essentially matched and is on par to exceed the revenues for those three product lines the pre-acquisition at Varian are roughly expected to grow to greater than $250 million by 2016 and then going forward as you see at the breakeven year 2013 and then going forward operating margin increases as you see there.

So what are our priorities, what are our priorities. As I said the three products that we acquired were quite aged. Varian’s competitiveness at that time and position was quite low. So our first real priority was to reinvest in R&D and really bring the level of Bruker innovation to those three product lines. We continue to do that, add to the product lines that we acquired, leverage the existing infrastructure for distribution and manufacturing and continue to invest in expanding our product lines, both on the system side and consumables. One of our key core competency areas is in the GC Triple Quadrupole Mass Spectrometry area.

The whole quadrupole mass spectrometry area really was a key reason for the acquisition of these assets. And now with the level of innovation that we bring to it have really brought out in this past year the SCION GC single-quad and triple-quad products which are now really industry-leading products compared to where we were with the acquisition of the original product line.

Going forward also hardware is not the total solution, software many times is what really enables the customer take advantage of the capabilities of the hardware. With our GC analyzers and enterprise software, now we really have a very, very complete line probably the most complete line in the industry to analyze gas separations, both with dedicated GC analyzers all the way from dedicated biodiesel analyzers, to refinery gas analyzers and now where we have many customers that have may be 20 to 40 to 400 GCs in a single lab, we can address those customers with our enterprise software solution, a very, very key factor for us in terms of growing this business going forward.

A little bit about product trends. I talked about our continued investment in R&D. Well as you see on the left there, the three key products we really acquired from Varian/Agilent in 2010, the original GC product line, the original GC-MS product line, the ICP-MS product line. In 2011 what you see there is a product portfolio as we had last year. Significant improvement in products, in both capability and the portfolio size.

In 2012, thus far, really the first half of the year, now we’ve introduced our own Bruker LC product which really formed out of the genesis of the acquisition of Bruker Michrom resources in April of last year and then also as we have just introduced our new GC product line and more to come naturally, the second half of this year and going in to 2013.

Just a little bit about the two new GC product platforms we introduced the 436 and 456 are in terms of their capabilities now really match the industry leaders and really is poised to take over leadership as a go forward. Some of the key features for example now, with this GC product line, we support local user interfaces at the systems level for up to 13 languages that can be changed at the user level instantaneously basically.

In terms of the CompassCDS, again as I mentioned, our true client server capability also supports compliance before 21 CFR Part 11 for regulatory markets and then also a real focus in terms of the user interface. So for example, we have a user interface on the product line right now that’s being used at certain customer sides where basically a truck driver can come up to load a truckful of specialty gas and based on the customer for that specialty gas, let's say it's carbon dioxide going into a particular beverage, that truck driver can instantaneously ask for that truckload to be basically certified to that particular user's level.

So truly bringing gas chromatography down to the barest simplest level of user interface, very, very exciting and large, large customers moving over to this environment. In addition to having the best products and industry leading capabilities in our product line, we have also focused on some new unique marketing initiatives, rather than traditional product push type marketing initiatives, we are really focusing on pulling our customers in to look at capabilities of our products. So really market pull customer pull oriented initiatives with our first initiative last year that we launched at the Florida Pesticide Residue Workshop and most recently with our site we've launched at ArabLab this year.

So I'd welcome you to go take a look at those sites and really see how customers are helped driving our product needs and our product demand. With that I would just like to close and a give you a quick 2012 update. Over 50% of our projected revenue for our systems this year will be from new products, new products that was developed and launched since the acquisition in May 19 2010.

With that going forward into 2013, with significant growth we expect that over 90% of our product revenue next year, our systems product revenue will be from new product launches since the acquisition in May of 2010. As was said already we continue with significant investment that's required to drive those new product launches and significant going forward

And in order to really take advantage of that significant opportunity for new product development in sales of new products we are really adding a lot in terms of investment into order-fulfillment capacity all the way from order entry to order delivery and then last but not least, the investment of global distribution and logistics is the key component of that order fulfillment capability. With that I would like to turn it over to Dr. Mark Munch who will talk a little bit about the Bruker Nano Systems division.

Mark Munch

Thank you, Collin. Happy to be here to discuss our directions in Bruker Nano Service division. This is the acquisition of Veeco metrology and instrumentation that came after the CAM acquisition. So what we do, I thought we would first describe to you the focus of the business. So we examine surfaces with the nano scale and provide nano scale information, topography, mechanical properties, electrical properties, all the nanometer and angstrom levels. So that's the level of molecules and atoms.

The business that we have underneath BNS, Bruker Nano Surfaces division are atomic force microscopes, these are probe-based instruments that image atoms and image molecules, we have automated AFMs. Those two businesses are operated out of Santa Barbara, California. We have also non-contact techniques, 3D optical microscopes, but been optical still maybe able to image down at the angstrom level. We have stylus profilers which is really the oldest technology of our group which is a macro stylus to profile surface for surface roughness, we can change the roughness. The three [optimized microscopes] and Stylus profilers are operating out of Tucson, Arizona. And then the newest addition to us occurred in last October which is a business in Campbell in California and then [CETR] in Silicon Valley which is a business focuses on nanoindenting and microindenting and Tribology measurement. Tribology is a study of friction. So customers who care about how two sources might interact and rub together, care a lot about what those sources look like. So, there is great channel synergy between our pre-existing businesses in examining sources of the nano scale and then studying how they actually where as they rub against each other.

The strategy for BNS has been one of really (inaudible) and easy to use. Anybody who has spent time on our Atomic Force Microscope knows that you almost have, historically have to have a PhD in the instrument itself. And that then has kept the market quite tight into industry. So we have been focusing on making them much easier to use. And I'll talk about how we have been going on that strategic pathway quite nicely and broadening our market.

We also of course in this industry we want to push performance where the edge of nano technology in terms of imaging where you can see at the (inaudible) level and the more you can do to create better images and across broader range of materials the more your market expands.

Anybody also spend a time on these techniques knows the very high end techniques but they are not as quick as you taking a snap shot of surface. They historically have been very slow techniques, you actually might and if you want to take an atomic scale resolution image you might be [seeing] measurement for five hours, eight hours. We have now increased that to 20 to 100 hours, and so now it might be 20 to 30 minutes. So I will take about that.

And then, we’re trying to provide more information than just images. We take beautiful pictures of DNA molecules, of cancer cells, of polymers crystallizing but beyond that we also tell customers more about what does it look like? But what is it chemically, what is it mechanically or electrically has been a key focus and we’re making very good progress along those lines.

And then one of the things that we’ve taken advantage of coming in to Bruker from Veeco is strengthening our channels.

We were present in every region of the world of major countries but we admittedly were weak in some emerging regions like Russia, China, India and Brazil and so our strategy has been to build out those channels and we're making good progress along those lines.

So, along the lines of our strategic pathways, making things easier to use, we introduced ScanAsyst. ScanAsyst is taking an AFM down to somebody who has to be quite knowledgeable and setting 80 parameters, 90, 100 parameters and taking them down to five. So even someone like myself who hasn’t been in front of instruments for quite a long time, I can actually go up and take an atomic scale resolution image of a surface in minimal set of time and very little instrument knowledge and this expands our market, that’s what key about this.

Now standard scientific researchers, not specialist in AFM can actually use our tools to enable their studies, both in academia and in industry and we’re really leading in this field.

Other major innovations happened as of late is fast scanning. It's actually about time to resolve instead of eight hours to take an image is now 20 minute.

So it's made it much easier to use for our customer base but beyond its use we can catch dynamic events. So we can see a molecule transport across the cell membrane or you can see a cell dies as you introduce a peptide or drug targeted at killing a certain cell or you can see polymers crystallize and studying industrial processes like extrusion.

So we are enabling new science to occur by banality to image it very quickly. Besides just a part as I mentioned, our customers want to know, that is very interesting picture you have given me but what is it? What is it mechanically, electrically and chemically? So we introduced Peak Force to QNM, this is a new mode and that comes up in a new mode called Peak Force Tapping. The last major mode Atomic Force Microscopy was actually introduced in 1994 and new modes don’t come along every day.

So this is a major innovation in Peak Force Tapping, it allows us to take information across very broad ranges of material properties, very soft materials like biological cell, the biological tissues up to things very hard like ceramics and metals and in those we can actually pull out mechanical properties like a modulus or hardness of a material, the stiffness and adhesion properties to introduction Peak Force Tuner. We can now image a much finer scale resolution electrical properties.

You can measure pathological past tense or electrical resistance of a surface and that helps our customers understand much more now about not just a topography but what's happening electrically at the surface. And then now we are really putting a lot investment into an area called Tip-Enhanced Raman Spectroscopy or TERS for short. For your introduction of our TERS Iris products, what it is doing is using AFM Probe Technology and using it to excite electromagnetic field near surface and through that expectation of the field we can actually now pull out with much higher significant noise Raman Spectra which is a molecular footprint spectra of a surface and so that allows now researchers not only to get to (inaudible) but look at a nanometer scale in X and Y dimension and pull out what is it chemically.

You can imagine how important, how the value of that is to our customer base. We can now see logical, mechanical and now chemical properties at a surface. It's not all just about ASMS. We recently were rewarded the R&D 100 Award for key innovation that happened out of our Tucson Group. So in Tucson we are focused on optical technology where we image it (inaudible) level in Z direction but in X or Y direction you are limited to the optical diffraction limit which is about 0.4 microns.

So we have pushed now our past optical diffraction went down to 0.1 microns. So we are breaking some larger [fusion] physics using some very sophisticated algorithm techniques that relate to super-resolution technology and now we have much enhanced X-Y resolution and so our customers for example, in data storage and semiconductor industry are very excited about this because it can take them down to see things that they couldn’t see before.

As far as key market trends for us, certainly Life Science is a key area for us. So as we made our instruments easier to use through innovations like ScanAsyst or scanning faster, it's like Dimension FastScan. We can image new events and we are broadening the user base to people who aren't specialized in AFM but they are specialized in their research field and definitely is our high growth rates for our business in life science. Another key trend is certainly in microelectronics.

So semiconductor is more as like still progressing, getting down to 18 nanometer nodes and on the 15 nanometer nodes and also into data storage where we are moving towards even finer head designs for right heads and in media features are now getting down to about 20 nanometers as well.

Some of the only tools you can get at with those are within AFM. You can't get them optically. You can get with electron microscopy but it's in a vacuum chamber. With our technology it's ambient and you can image now very quickly where the defects of the service, where the feature size and so we are seeing great strength for us in microelectronics and semiconductor and data storage and also in LED.

The LED trend is still quite strong in our business. We've grown a lot through high brightness LED. This is primarily in Taiwan and China. And there's been renewed funding, actually this year and so we are still seeing strong poll for our tools looking at the epitaxial layers, looking at defects in epitaxy and looking at features of substrates in which we grow the epitaxial layers. And then there's ever a push in nanotechnology for new nano materials that are lighter but with still the same strength properties and so nano composites, nano phase materials are still materials that need investigation and those are still pushing these for our tools.

Those are really kind of key growth opportunities. The markets that are quite solid for us are in polymer science, material science areas. This has been a classic area for us. Those areas are growing in a kind of single digit rate for us, but double digit growth for us is certainly in life science and BNS, precision machining and then our microelectronics markets and semiconductor LED, solar and data storage we are doing quite well.

Just to conclude with some financial performance. So 2011 for us was a great year as this was following, coming into Bruker in October of 2010. We closed October 7, 2010, condition for us $23 million and we have done quite well under the Bruker environment.

Our revenue in 2011 was greater than $160 million and our operating margin was well above 20%. So quite healthy growth, we had over 40% year-on-year growth in 2010 and is all very profitable growth for us. That trend will continue in 2012. We will also still be above 20% operating margin and comfortably about 20% operating margin.

And where that’s coming from and that’s why I chose to talk to you mainly about our product storage is really product innovation that the curve on the right is a measurement that we do in the business which is how much of our revenues are coming from new products. And so you can see the progress we’ve made over the years.

We’re now and we’re trying to keep it in there above 60% of our revenues and the product bookings are coming from new products and that is an exciting market it's brought our customers back [including] with their dollars towards AFN towards optical interferometric microscopes and Stylus profiler and that’s keeping our customers with it and its adding new customers so that growth for us will be still double digit greater than 15% compounding the growth for the next few years and at high operating margin. So thanks for your time. And I now hand it over to Tom. We have a Q&A now.

Question-and-Answer Session

Unidentified Company Representative

Good morning. I would now like to now open it up for question if you could wait for someone to get to you.

Unidentified Analyst

Good morning everybody, I am [Nicholas] from Goldman Sachs. The first question for Bill on the financials. Obviously, lots going on in the working capital front. Wonder if you can touch on gross margins and some of the efforts you have in terms of cleaning up the supply chain from all the assets you guys have acquired, maybe, some low cost sourcing opportunities you are working on?

Bill Knight

I think the last four, five years you've significant improvements clearly. Part of that margin improvements comes from the revenue growth and continuing to leverage our fixed costs in our factories with significant portion of that does come from the improved product designs, much lower costs, lower part counts which does help our logistics flow but all these products have improved capabilities, expanded capabilities as well which helps with pricing, which helps with gross profit margins. We are looking at and we’ve already started looking at what we do internally, what is an important to us today as it might have been five, 10, 15 years ago.

We’re reducing our machining efforts and therefore our machining costs internally and looking more at it as an outsourcing effort. There are some things where we used to do with some of our own cabling, some of our own circuit board internally that we’re sourcing outside the company. This not only helps our costing in some cases very much improved quality. We’re going to vendors that do this everyday, all day. We also are getting improved and we will get improved inventory management, inventory control on some of these items. And we’re also taking a much tougher look at the quality of the products that come through where we want much quicker installation, improved quality cost through the warranty period and through the life of the instrument for the user. So, many -- I don't think there's any, again, one single event that we're doing to improve these margins but there's many, many activities that are ongoing.

Unidentified Analyst

And if I could just ask one follow-up on that. Certainly, the story from the first quarter was that better margins, key operating margins. You guys have given some long-term guidance. Maybe, the gross margin line, can you talk about a trajectory that you think is reasonable, just given all the working -- the moving items you mentioned there? Over the next 2014 timeframe, next couple years, where do you think gross margins can go?

Unidentified Company Representative

Maybe in a very general way. As we are looking at on average over the year, it's about 100 bps operating margin improvement. We estimate that 50% to 60% of that will come from the gross margin side and the other one from expense leverage.

Derik DeBruin - Bank of America Merrill Lynch

Hi, Derik DeBruin from Bank of America Merrill Lynch. Just topical question, the company has had gotten caught in the past by when FX had swung pretty rapidly. I'm just wondering, could you talk about, obviously the euro is moving right now pretty fast. And can you talk about how FX flows through your business and top-line, bottom-line impacts?

Unidentified Company Representative

I think you've seen that in some reporting periods, whether it's quarterly or yearly, we've had significant headwinds, tailwinds on the top-line. But with our factory structure, cost structure, how we source, I think by the time the FX impacts gets to the bottom-line, it is fairly negligible. So we haven't had, in my eight years at Bruker, any significant FX profit impacts but certainly top-line, it can create some change in trends.

Derik DeBruin – Bank of America Merrill Lynch

So when you look at the different divisions, I guess you target for a better margin (inaudible). I guess which one of the divisions offers the biggest opportunity within it? And I guess this is like, there is a greater -- there's a greater opportunity in BioSpin and there's a greater opportunity in Daltonics or kind of improving margins. And I guess what -- are there different challenges in different divisions for how you get through in terms of product redesign and --?

Unidentified Company Representative

Clearly, there are differences. CAM, we're building a division from product lines that came from Varian and things that we acquired elsewhere, are putting together now for the first time like LC/MS products that will be launched later this year. So that's creating a division and doing it with pretty ambitious plans. BioSpin, you cited that example Derik, I think in terms of BioSpin, that's good margins.

I'm sure there's room for further margin improvement but probably not that dramatic, more steady as you go. But it has a lot of opportunity for working capital improvements. Clearly, the biggest, the greatest target for working capital improvement at Bruker is BioSpin. Margin improvement, a lot of the so-called former teenagers at Daltonics Life Science or the [ACCESS] business, they're now all in the teens but still in the low-teens.

There is improvement for both working capital and margin improvement. Bruker Optics and Bruker Nano Surfaces are some of our highest margins, so we want them to improve further. Don't be afraid of being above 25% margins in some of those areas. It also pulls up the overall average.

And of course, in all of them, we also wish to drive top-line growth and look at accelerating top-line growth or continuing very fast top-line growth because it's obviously the product of top-line growth and percentage margin that drives EPS growth. And at the end of the day, more than a percentage margin is the overall EPS growth. I think that's the most important thing.

Dan Arias - UBS Equities

Hi, Dan Arias from UBS. Just a question on the CAM business. I was wondering if you could talk about your approach to direct versus indirect selling there, and then perhaps how far long you are in setting up the distribution network in some of the emerging markets.

Collin D'Silva

Sure. We have direct sales and services in over 20 countries. We have distributors in over 30 countries. We continue to focus on where there are large opportunities with naturally a direct channel. But also in certain emerging markets, we're also using a mixed channel where we'll have a direct management and specialist effort using market-specific distributors.

So for example, in India, we have launched that mixed channel approach, which is very successful. So we'll continue to look at the opportunities in each market region, and then either use a direct channel, a mixed channel, or primarily a distributor channel.

Frank Laukien

If I may add to that, this hybrid approach has really been quite successful for a number of our divisions. For instance in Latin America, we have a very strong technical center and applications center in Atibaia, near São Paulo. Yet, we also use distributors even in Brazil and of course in many of the other countries.

But when you have an in-region, very high level of applications and technical and service expertise, and of course, also sales and distributor management in the region rather than flying in from North America or from Europe or so. We've done similar things in the Middle East. We are doing similar things in India. There'll be things we'll be doing in East and West Africa. With that same hybrid approach, we're opening a technical center in Vietnam.

Again, we're not going to do direct distribution. But we very often like this hybrid approach rather than the pure distributors, because distributors that are well-controlled but also well-guided, motivated and get great technical support, I think that combination is really compelling that the customers think has a lot of credibility, where they, especially in really, truly emerging countries, are very often -- they're concerned with performance but they're really concerned with support.

And not just the guys who can fix the board, but the higher level support; can you make me productive, can you make me successful rather than can you fix my instrument. That's almost a given.

Dan Arias – UBS Equities

Thanks for that. And I guess, Frank or Bill, one of the hallmarks of your top-line (inaudible) how do you look about potentially smoothing that out on a quarter-to-quarter basis?

Frank Laukien

We have a little bit of seasonality. We generally have a little bit more seasonality than we perhaps absolutely need. So, one of our goals is to reduce the seasonality. We'll always have the fourth quarter the strongest and the first quarter the weakest, and the second and third quarter about the same. We'd like to go -- that's not going to go away completely but we think we can reduce that seasonality to some extent.

Bill Knight

I would say to one of the initiatives that we have and where we have a BSI operating team now, that is focused on. It's a total process from receipt of customer order to customer sign-off. And part of the design process and production process with our instruments now is ease of installation.

So there is much more of a focus on scheduling customer sites, ensuring that their proper utilities and square footage, whatever, is ready to grow when that product shows up. We're really looking to collapse that time from receipt appeal, production, getting the parts, test and final installation. That not only helps our customers, helps margins, but it helps inventory turns as well. So that is a big focus.

Peter Lawson - Mizuho Securities USA

Peter Lawson, Mizuho Securities. Frank, could we get an update on the end markets? You seemed incrementally more positive at the end of Q1. Has there been any change there?

Frank Laukien

First of all, I really have good data on a quarterly basis. So I'm the -- at this point, I have not seen any further changes that I could really comment since the end of Q1. And the anecdotal or piecemeal information that I have is all about the same market tone that we had, so which was obviously quite a bit more positive than when we saw perhaps at the beginning of Q4.

And I think there's some further encouragement on the semiconductor and data storage side of things. And maybe Mark, you could comment on that. You've had some very nice anecdotes and big orders and so on in areas where you had expected it to be perhaps rather flat this year.

Mark Munch

The overall semiconductor market, if you look at the broad set, we expected some flatness. But there are some very nice pockets of growth. And those growth drivers have to do with the movement to 450-millimeter wafers. And there are some leaders in the movement of 450-millimeter wafers that is Intel is driving that, and then TFMC. And so, there's a fair amount of investment sped that's actually happening in 2012 there, and some very large orders have come into our business.

The other movement is Intel decides 450 is moving, also pushing the nodes down. And so, in the industry then where you have technology expansion, that's -- there's two types of spend. There's capacity and there's technology. So we're experiencing now a very nice technology expansion growth mode by some of the leaders in semi.

Frank Laukien

And Peter, maybe some other observations that may help you, in Europe, there are at least three additional programs that we're aware of. One of them has to do with mass spec imaging, MALDI imaging. There is -- in one major country in Europe, there is a big funding focus on that as an important new technology with great applications.

Another European country has a big focus on preclinical imaging, which it tends to be primarily small mammals, mice, rats, but sometimes also zebra, fish in translational research, if you like, from bench to bed side. So preclinical imaging is getting a big funding focus in another major European country.

And there are some new funding trends actually in one of the Mediterranean countries, where they're getting European infrastructure money. So there's all sorts of new additional funding pockets that often have a specific focus popping up. I think, again, that doesn't add up to the statistics. I can't give you any numbers. But those are sort of some incremental news that we've seen recently.

Unidentified Analyst

Just a follow-up, what's Bruker's trick in finding those small pockets of growth?

Frank Laukien

I'm sorry, say that again.

Unidentified Analyst

Just what's Bruker's trick in finding those small pockets of growth?

Frank Laukien

I think we're very good at that. I think we're -- I know it's borrowing a line from some bank, if you know how global you are. You prove that by how local, how good you are locally. We're very good at attracting these funding trends down locally. And sometimes -- we're not usually the only ones who find them. So it's always somewhat competitive. But it's not always the case as you're competing with everyone for all of these many small micro trends. I think we're quite good with that.

Bob Goldman - CL King & Associates

Hi, it's Bob Goldman with CL King. Question on the free cash flow. Based on guidance, the free cash flow per share will be well under the earnings per share, despite CapEx being down and what looks to be good trends on working capital, as well as an emphasis on days receivable and inventory turns. I was hoping you could help me better understand why the free cash flow is less than net income, and when do you see again free cash flow being at or above net income.

Bill Knight

Well, again, we continue to make investments in a couple of divisions, BEST and CAM. We are having -- we do invest in capital equipment. We are finishing a couple of factory build-outs and renovations in 2012 as well. So there are a few areas where Bruker continues to invest its cash. Certainly by 2014, when we anticipate our operating margins to be at this 18% plus, excluding the CAM group, I would think that our cash flow per share would turn to more normal trends.

Bob Goldman - CL King & Associates

And if I can, as a quick follow-up, those investments, will they appear in CapEx or in inventory?

Bill Knight

The investments that we're doing on brick and mortar factory refurbishments are capital equipment. The investments that we typically make in our divisions will run through operating income.

Unidentified Analyst

(inaudible) JPMorgan. What’s your outlook on margins in emerging markets as you are growing that business in particular what is that relative to the corporate average today and what do you say going forward?

Unidentified Company Representative

Good question. We don’t specifically categorize that, so we don’t have an emerging market average margin that we compare to a margin elsewhere. Some emerging markets have higher and some emerging markets have lower margins and average selling prices. It's I think probably about a [wash] but I don’t have exact data on that question.

Unidentified Analyst

And if I could just one follow up for Mark. How do you look at your end market exposure today versus when in 2010 or late 2010 and what do you look at your end market exposure and opportunity five years from now within the BNS division?

Mark Munch

In terms of our split if you will between academic and the industrial it’s about the same overall. We are seeing much higher life science content to our business and so we think that’s a healthy end market trend. We also think that we have very healthy trends in the LED space. The semiconductor space overall is goes up and down in our business, it is cyclical. We had a fair amount of high semiconductor business from 2011, it will be the overall less in here in 2012. But it's still overall semiconductor fairly small portion of our overall business. We are predominantly, over half of our business goes to the universities and academic researchers, that's a very solid base and then growth in life science and growth in LED.

Dan Leonard - Leerink

Dan Leonard from Leerink. Collin, I was hoping you can give us some color on what enables you to go from a $6 million operating loss in Q1 in CAM to only $4 million of loss over the next three quarters?

Collin D'Silva

Sure. A big part of that is the continued growth of the new products that we launched last year, which are higher margin products. For example, the new GC-MS systems are higher margins. So as that product changes over now in the balance of three quarters this year, that’s a key margin improvement factor. And also just growth in that side of the business, GC-MS which is the higher margin product line, compared to for example our ICP-MS or GC product line and then overall increased revenue this year over last year basically.

Frank Laukien

If I may add to that, in Q1 our Fremont factory was all there but it wasn’t fully working and really [unfill] sometime in to the first quarter. So it is now versus there and it is now absolutely humming and actually a fun place to visit and so you will see considerably more factory output in revenue in Q2 compared to Q1 for instance.

Dan Leonard - Leerink

Thank you. And then my follow up, what's your ability to leverage some synergy between what you’re doing in CAM and what the balance in Bruker’s mass spec [effort is doing?

Collin D'Silva

Sure. So for example, the LC product line that we just launched is primarily going to be used with the life sciences mass spec product line. So and as we move forward, other quadrapole base mass spec products that we will develop in CAM will also have market opportunities through the life sciences sales channel.

Frank Laukien

And vice versa, some of the [Q-top] systems that are made by the life science factory, if you like will also be sold into food applications and into certain forensics applications that will be primarily driven by CAM. So the factory sell to each other and they also have a separate sales channel. So there's a lot of synergies going both ways really.

We will take our first break. Delightfully we are 15 minutes ahead of the schedule, so if we could resume here for the next or final two presentations in 15 minutes.


Tom Rosa

Hello everybody and welcome back from break. I was hoping to be last in the line up here so I could say we were saving the best for last but I am afraid I am going to have to pass that claim on to Werner. But I wanted to briefly introduce myself since most of you I haven't met before. I see some familiar faces but the majority have not met. So by way of introduction I am the CFO and Senior VP of BEST which stands for Bruker Energy and Supercon Technologies. That's the great acronym. I can't claim it myself but I thought it was a terrific term to use.

I joined Bruker in March of 2008 and so I have been here just over four years now. It's been a great ride so far. Prior to joining Bruker I was the CFO at American Superconductor where I got my first exposure to superconductors in general and also where I spent a total of 14 years. So I am quite familiar with the industry and now I would like to familiarize you folks with what BEST is all about for those of you that don't know the story.

Just as a quick background again for those of you who aren't as familiar with our division or segment of Bruker as the rest of the company. We filed for an S-1 back in September of 2010 but just recently in March of this year decided to withdraw the S-1 for a variety of reasons which I will get into in a few minutes. So what that’s done is it has freed us up to talk more openly, give out financial guidance for the first time which we just did on May 1st and also talk about our future plans and objectives of both the products and financials going forward.

So without further ado, this is a company snapshot of what BEST is all about. We are still the smallest division of Bruker, but certainly not the quietest and we are growing over the last three years at least faster than any other division within Bruker. You can see in the left hand side that we are a commercial leader, one of the two or three commercial leaders in superconducting wires, particularly in LTS, one of the big three in that area. We are also a commercial leader in devices such as accelerators, rf cavities, rf couplers et cetera that are based primarily on superconducting materials.

In addition the last bullet under the commercial leader section we are working on a number of next generation superconductor enabled products that for now are not benefiting our top line. We are investing quite heavily in the R&D in those areas, but we expect those to be the ticket to turn us from a $100 million plus company to potentially $500 million to a $1 billion by the end of the decade.

So we have a lot of excitement associated with Crystal Growth Magnets, iSFCL which I will explain in a little more detail in a few minutes and with HTS wire for wind turbines and other applications. Brief financial highlights over the last two years from 2009 to 2011 we basically doubled our revenue, we went from 60 million to approximately 130 million. That growth has been driven primarily by LTS wire sales, but in addition we have very high hopes for our device business which has been relatively, has grown only modestly the last two or three years staying in the low $30 million range, but we expect next year 2013, the device business to really take off and right now our mix of business is not that easy to read, there is about 70% materials and 30% devices. We expect devices to start generating significant growth in 2013.

Even more impressive than our sales growth which has been 37% on a CAGR basis over the last three years, has been our backlog growth. We've basically expanded backlog by more than a factor of 12 over the last three years from 19 million as of the end of December of 2008 to now over 230 million. So we’ve had a series of very big wins in terms of contracts awards which we will touch on later in the presentation.

So Q1 financial performance, just a brief update on that. We did 30 million, I consider that impressive because just three or four years ago, we were averaging about 40 million per year in revenues. We did 30 million of revenue. Also, we had an adjusted operating income of $0.3 million. For those of you that are familiar with other superconductor based companies, it’s a very different financial profile than what you see with many of the other companies, where actually last year in 2011, we basically had an adjusted breakeven performance on an operating margin basis and we expect something very similar this year as we complete some moves into larger facilities.

From a financial standpoint, our financial goal standpoint, we gave out our guidance on the earnings call on May 1 for the first time, prior to that because we were in registration with the SEC. We weren’t allowed to do that. We expect our revenue growth this year to take us to about 130 million. That’s an increase of 15%, but on an FX adjusted basis, we expect our growth rate this year to be close to 20% which is very similar to what we grew at in 2011 compared to 2010.

So this guidance by the way excludes something I will talk about in a few minutes, the Rosatom contracts that’s a real agency in Russia, it is bit of a difficult one to explain. My name is Tom Rosa, the name of the state corporation in Russia that we just signed a major contract with, we announced nine days ago is called Rosatom, we are not related. But nonetheless a very impressive contract which we are still working with our auditors to determine what the impact on the financials will be this year.

This guidance again of a $130 million an approximately breakeven performance on an adjusted basis is exclusive of that contract so what are we about investment highlights, we are a vertically integrated materials and device platform company, we make super conducting wire, both LTS which is low temperature superconductors, also HTS which we are working to develop our capacity in.

We think the fact we are working on a series of new product initiatives that are enabled by LTS wire and by HTS wire makes for not only high growth opportunities going forward and we already had a number of high growth performances in the last three years but we also think it mitigates technical and market risk because we have a number of different products that we are developing simultaneously and we will show that in our product roadmap in a few minutes.

A last and this is probably the most important one here I just referenced it. We filed for IPO to partially spinoff from Bruker back in September of 2010. We made the decision in March of 2012, we withdrew the S-1. It basically came down to market conditions in our industry have really been very poor over the last 12 to 18 months far worse than the overall stock market.

We also did it in part to save on the legal accounting and other costs associated with keeping our S-1 filing current but just to give a little more background superconductor companies, battery companies, solar wind, all the companies that we had in our comparable company index have really dramatically underperformed the stock market.

I think a few of the analysts I have met in the past certainly are well aware of that, and as a result that sort of casts a shadow over our ability to get what we think would be a fair value for the company and the public markets especially given our very strong performance for the last two years and a very strong prospects going forward.

So we made the decision in March to pull the offering that opens us up that allows me to tell you a little bit more about the company and what we are doing within Bruker. So, applications. This is a, we call this the iBall chart but what it really is attempting to show is that superconductivity has actually a much, much greater opportunity than $25 billion if people can capitalize on the applications that are enabled by HTS and LTS.

Right now I'll just give you a little perspective on what this chart is showing, the Bruker or BEST actually is already very involved in providing LTS wire in the bottom right quadrant to MRI manufacturers such as GE, Phillips, Siemens and others. And we are also very involved in providing LTS wire to Bruker and Agilent for NMR products. In addition, the fusion market you see in the bottom left, we signed a $36 million contract a couple of years ago with an organization named as ITER, which stands for International Thermonuclear Experimental Reactor, it’s a fusion project that's going up in France.

We don't know just like Frank said earlier, we don't know exactly whether that will work or not but we are very happy to participate in the development of the project as it goes forward. So we are actually, our LTS business is already supplying to the bottom markets that you see there. In addition, our device business is providing products for the Particle Therapy market, for high energy physics which involves many accelerators and other things and also for the synchrotron market, we make beam lines and other products that benefit synchrotron radiation facilities.

So we are well covered on the bottom two sections. The key message here though is that we are focusing on really the top three pictures you see here in trying to develop products, one of which is really on a cost commercialization right now to capitalize on what are individually more than a $1 billion market opportunities in each of those categories.

I will touch on each of these a little bit later but just to give you a quick background Fault Current Limiters are estimated to be a $1 billion to $5 billion market for what amounts to a high technology search protectors for the grid. If there's a fault current that comes through these fault current limiters suppresses it and basically saves downstream electrical equipment from being damaged by a fault.

We just announced in April a very successful test of our subscale model of this fault current limiter and progress is going quite well on that particular development. The high purity industrial processing picture that you see there with the Bruker label on it that refers to crystal growth magnets. We are using those both for semiconductor applications and for solar applications. In particular, the solar application we think has a huge upside but the fact is that the solar market has taken a bit of a hit this past 12 months has probably delayed some investment in that.

Nonetheless we booked I think six or seven orders for CGM systems (inaudible) the very end of 2010. We just found out this week that we have two more orders that were just signed this week. So that market is starting to crystallize and it’s really an emerging technology that we are ready to capitalize on this year and going forward as well.

And finally generators what you see there is just a picture of a wind generator. We believe HTS technology which we are working on will eventually enable a much bigger greater than 5 megawatt wind turbines. So all of these are areas in which there is a great deal of customer interest, it’s a question of how quickly we can bring those technologies to market and whether we can be sort of a leader in each of those areas.

So I have alluded to this already this is our product roadmap as I discussed here earlier. We are already very heavily into LTS materials and superconductor devices. We are one of the market leaders, one of the commercial leaders in both those technologies in both those market areas today.

Our next product is crystal growth magnets which we've sold I think we have shipped three of our six units to semiconductor providers and also shipped one unit to the PV market. We have just announced we may not announce but we just got two additional orders today that is a market that’s taking off.

We will explain that in a little more detail in a minute but the bottom line is that makes for pure ingots you can grow crystals for both the solar and the semiconductor market that have fewer defects that do better when they are first exposed to light in the case of the solar market etcetera. And we actually think there is a massive market especially on the PV side once that industry comes back together.

So you see we have a roadmap of products that are coming in addition to the products that we’re already offering and I guess the key here is that I wanted to emphasize is that we’re not a one-trick pony here. We have a number of products under development that anyone of which if it succeeds the way we envision, it could take us up to a whole different level in terms of revenues and profitability.

So moving forward, LTS is one of our real big ticket items today. You will see in the middle top section, the market today for clinical analytical instrumentation is estimated to be in excess of $170 million.

Our primary customers as I mentioned before are Siemens, GE, Philips, Bruker, Agilent on the NMR side but in addition to that, if you look at the bullet on the lower right, ITER is a major customer of ours. We booked $36 million contract at the end of 2009, relating to providing LTS wire, low temperature superconducting wire for that project. We have only shipped $6 million or $7 million on that contract to-date. So the bulk of the shipments will occur in the second half of 2012 and in 2013.

Also I wanted to point to the backlog perspective. The backlog across the board for BEST has grown at an outstanding rate. It’s really up almost 20 [extra] from where we were exactly three years ago today. But LTS, what happened in 2011 that was unique and a first time for our division is the big three, we’re not supposed to name them. We’re not supposed to name them individually, but everyone I think knows who the big three MRI providers are GE, Philips, Siemens. They each individually committed to multi-year contracts to BEST for the first time in our history and we’re very, very pleased to add it over a $110 million of backlog to our profile this past year and we are just starting to ship on those multi-year contracts as we speak.

So the other side of the business or the other driver of our expected future growth is our BEST device business. This actually started out as what was known as ACCEL Instruments in Germany it was formed back in 1993. It was acquired by Varian Medical in the beginning of 2007 and then we bought a piece of research instruments piece of ACCEL from Varian for a very, very reasonable price back in April of 2009.

Since then this business has taken off tremendously. We are making again linear accelerators based on superconducting materials, cavities, couplers, modules all kinds of devices that go into linear accelerators and other high energy physics type projects that are right now blooming.

Our backlog in this area when we acquired the business in April of 2009 was about $25 million; it's now above $90 million. So we booked a couple of huge contracts in 2010 relating to this type of instruments. We are making very good profits in this area just as we are in the LTS arena, but the acquisition of this group and this technology also enabled us to start focusing on things like CGM, Crystal Growth Magnets and Fault Current Limiters.

So we acquired some technical expertise in addition to getting business at a very good price that's producing over $30 million in revenue now and we are expecting that to be much, much higher than that starting 2013, especially as we start shipping superconducting RF cavities and couplers to what is called the European ACCEL program in Hamburg, that’s a $43 million contract we booked in 2010 we are just starting to ship on that at the end of this year and we will be shipping in volume by next year so its another key part of our backlog that's going to fuel our growth going forward.

Crystal growth magnets a little more detail on this. This enabled, there are two primary applications, you see on the right as I mentioned photovoltaic or the solar market and semiconductors. The semiconductor market has existed for multiple years; the primary competitor there was Sumitomo.

We got into the game to be a second supplier in that area and again the main focus of providing a crystal growth magnet it fits over a puller, a crystal puller as you are growing a single crystal ingot and if you apply a magnet on top of that, you can generate we believe we would be able to generate efficiencies 5% higher than what exists today and then in particular in the solar market right now premium products that perform better than the sort of the standard run of the mill stuff are selling, are moving the stuff that's in the lower end of the bin, the standard product is not and our system at least in the solar area is not a capacity player.

We are not trying to make more solar ingots out there. We are trying to make the solar ingots better. We are trying to improve the efficiency of the cells and we think this is again a potentially big, big market. We entered a corporation agreement with a company in Germany called PVA TePla a year and a half ago I believe, and they are the ones that are developing with our magnet a process recipe that's designed to increase the cell efficiency of solar crystals to a level that would make them I think we think more attractive to the end markets. So you need to plug in here.

So this is the second of our three main product initiatives. And then well that’s first of our three at the most nearest term.

Unidentified Company Representative

Continue to grow out to figure out.

Unidentified Company Representative

So the second crystal growth magnets are our nearest term opportunity that technology is emerging as a commercial product today. The second one I alluded to earlier is Inductive Superconducting Fault Current Limiter, it’s a smart grid product; it has based on our competitors estimates a $1 billion to $5 billion per year market potential. We just announced in April a successful test on our design which is a huge step. We are expecting to complete our first full scale, a full size model of this FCL by the end of the year and start field test operation in [Boxberg] Germany where this is being installed in 2013.

So what this is all about again it’s a surge protective for the grid, utilities. I remember two years ago I was at a conference in [Washington] utility said they would by these off the shelf if the product was available today. Problem is that no one’s really developed a better mouse trap yet in this area.

And we believe our inductive design which is enabled by high temperature superconductors and specifically the 40 mm wide 2G HTS wire that we make will enable our product to have operational cost and scale of advantages compared to the resistive designs that other superconductor providers are targeting right now.

This is a huge market companies like ABB, [Nexon] and others are working on this type of products because it is a product that’s enabled by HTS that everybody already recognizes has massive market potential. Our partner here Schneider Electric and that’s a major at a time we booked a contract in November 2010 to partner with a company called AREVA to make this fault current limiter, this prototype fault current limiter for the Augsburg market, the Augsburg utility.

AREVA has since been acquired by Schneider Electric, which is a $20 billion company. And our relationship with them is quite strong and we view that as a very valuable part of our go-forward strategy to bring this type of product to market. Still in its -- still has a year or two away from being fully commercial but we'll take orders for them today if we can get them.

HTS, everyone, I'm very familiar with the HTS market, given my prior history as CFO of American Superconductor. It's a market that has enormous promise but has been a bit overhyped in the past, and a lot of HTS companies have not done well and have lost lots and lots of money. We are investing, I think, at a more prudent pace.

Instead of scaling up capacity in anticipation of demand that may or may not come, we have focused our scale of operation or scale of activities basically on our FCL program because HTS is a key enabling technology for the FCL product. I think that's it. But I'll continue talking. But our FCL program is -- our HTS program is focused right now on having enough capacity to provide our FCL program with the wires that it needs.

But on the other hand, we're not -- we haven't -- we don't have a massive 400,000 square foot facility to make this stuff and we're not planning on scaling it up until the demand is truly there. What that does, it reduces our cost structure, reduces our overhead structure and enables us to basically be break-even, whereas a lot of other superconducting companies are losing quite a bit of money every quarter.

So it's a strategic thing for us. Our wire is excellent. It's been validated by certain customers as having excellent electrical and mechanical properties. But the bottom line is we have not made significant investment -- we are starting to make significant investments in capacity, and just enough to handle the FCL product, for which it's acquired, and for -- and also, this HTS wire is a key enabling technology to enable Bruker to make ultra-high field NMR.

And we're also focusing our efforts on developing the wire for special type of high-yield HTS wire that performs quite well (inaudible) and it should enable ultra-high field NMR to succeed. So those are two primary focus areas. But having said, a lot of people recognize that HTS is a technology with tremendous upside potential, tremendous market potential. But having said that, a lot of people -- some promises have been made in the past and some people have missed marks, and that has I think done a disservice to that industry.

As I said, we will invest as the market materializes, as market demand materializes. The biggest single area that we see growing in the second half of the decade is wind turbines. We think HTS-enabled wind turbines will potentially demand hundreds of thousands of meters of HTS product. We don't have the capacity to do that today. We don't think we need the capacity to do that today. So we're scaling up at a more cautious pace. The exciting news in the HTS area, we announced just nine days ago that we signed a very large license and know-how technology transfer deal with Rosatom.

As I mentioned earlier, Rosatom is the state atomic energy corporation in Russia. We can't reveal or disclose the exact amount of the contract but it's in excess of $25 million. We already received a substantial initial payment on that. What we're doing now is we're working with the auditors, our accountants to determine what kind of impact that will have, if any, on our 2012 financials. But it's a very lucrative contract. Gross margins are in excess of 80%. The license is essentially a 100% profit component of the deal.

And in addition, we're providing training to the Russians to allow them to make and sell wire within the Russian Federation. And we're also assisting them on developing a pilot line for HTS on their own. They are limited to the Russian Federation market but we will be working together potentially on additional applications of HTS going forward. So I've alluded to a few of these but I just wanted to quickly highlight some of the major milestones and accomplishments for BEST over the last two and a half years.

You see in the very top, we've booked a $36 million order for ITER back in the end of 2009. Again, we've still got $27 million or $28 million of shipments to go on that. That will resume shipping in the second half of this year and continue into 2013. The fourth line, the $43 million contract we received actually from two groups in Germany -- one was in Germany, one was in France -- are both in support of the European XFEL project which stands for X-ray Free Electron Laser.

And that's a massive contract on which we're delivering very long cavities, which are essentially components used in linear accelerators. This is not a small business but -- and we've been able to capitalize on the opportunities that have been presented to us in terms of winning business. In addition, as I mentioned earlier, we -- down next to the bottom line, we announced three new contracts for LTS wire with the big three MRI providers in the second half of last year, and just in May announced the HTS license with Rosatom.

Again, we've got a lot of work cut out for us over the next two years. We have to get the Russians up to speed. We're happy to do that and we believe it will be a very lucrative contract to us. So, all those new contracts that you saw there and additionally a whole host of smaller ones -- you've seen this already -- have resulted in a 37% annualized CAGR over the last three years. In addition, our backlog has surged from under $20 million to over $230 million over the last three years.

Again, backlog growth, that does not include the Rosatom deal but we'll be adding that in the second quarter. And finally, again I briefly referenced this earlier. We're not this typical superconductor based company. We make money -- we try to make money on what we're doing and especially in the devices, in the LTS product areas. We make good margins. You see here, back in 2008 when we were primarily a material-driven company, shipping LTS and also making HTS or developing it, we had a gross profit of under $4 million.

Over the last three years, we've increased that to about $22 million and gotten our gross margin percentage up to 20% for the first time. We're still -- greater than 70% of our business is LTS wire materials. And as long as the material stays a significant component of our business, we don't expect the gross margins to ever come anywhere near to what Bruker averages. But on the other hand, we've made a series of relatively good changes over the last three years and we've improved on a relative basis and contributed to Bruker's bottom line in that sense.

If you see over on the right-hand side, our operating loss back in '08 was about $8 million. We cut that by 40% in '09. Cut that again in half in 2010. And last year, were it not for the write-off of about $3.3 million of S1 costs when we made the decision or were starting to get close to making the decision to withdraw the S1, if it were not for that cost write-off that we took, we would have been basically very close to break-even. And we expect that to go forward -- we expect that kind of performance going forward.

So that's it. I wanted to give you a quick overview of what BEST is about. We're re very excited -- Bruker continues to be very supportive of us and our growth. We are requiring, as Bill mentioned, both CapEx, a significant amount of CapEx as we go forward because we're expanding not only our facilities but we're bringing in a great deal of capital equipment to enable us to basically be able to produce on the orders we've already booked. You've seen our backlog grow from under $20 million to over $200 million.

So, Bruker remains a very supportive parent. We think it's a very exciting business and look forward to your continued support through BRKR. Thank you.

Frank Laukien

Werner Maas.

Werner Maas

Good morning. Thank you all for being here and allowing me to speak about the Bruker BioSpin division. I would never say this by myself, but since Tom introduced it, I can say we saved the best for last, right.

Bruker BioSpin is the oldest division and we are the market leader, the undisputed market leader in magnetic resonance technologies. We cover the spectrum of nuclear magnetic resonance with everything from the low-end routine systems at 300 megahertz, all the way up to our crown jewel at the moment, a 1 gigahertz instrument. And in this field where we have a really broad product line, covering many different markets, we have not only the coverage but we also have a number of very unique products.

And just to name a few, on the high-end, we have the highest fields available, wide-bore -- wide-bore meaning for applications in solid-state NMR and in micro imaging -- the highest field 900 megahertz wide-bore system installed at the customer base since a few years. We have a system which is quite unique in the sense that we are offering the highest available ultra-high field, entry-level ultra-high field, 850 megahertz, which is such a special system, not because it has the highest amount of megahertz, but especially because it's a system that can be placed in a room like this in a single-storey lab.

So you skip the whole infrastructure requirement for a customer. So it becomes a really cost-effective solution, and that translates in many sales and a great response from the market. And then as I mentioned, we have our crown jewel running since two years at a customer up in France, which is the highest commercially available, persistent NMR-grade magnet, which is our 1 gigahertz system, which is as we speak producing really wonderful results.

Another unique thing for us is that we were early believers in many noble technologies. And from that, we have a successful product introduction since a few years, which is Dynamic Nuclear Polarization NMR. A mouthful but a technique that -- what I wanted you to take home of that is that on specific samples, especially on some material science and some biological samples, this technology gives us a factor of 30 to 150 increase in signal to noise.

So it enables the study of materials with magnetic resonance that previously simply were not able to do that. So that is our DNP-NMR. As Frank mentioned, this was co-developed with MIT, where I think our biggest achievement was that be brought this to the masses, that we were able to package this in such a way that the technology developed at MIT, for which frankly you needed a small army of PhD's to get it to run, we can now more or less do in a push button operation after we install it at a customer site.

A growing and important area for us is where we're presented in preclinical imaging. So we do preclinical magnetic resonance imaging, preclinical MRI. So, we are not present in the clinical space but we do it as own rat and mice for pharmaceutical research, for medical research. And our biggest achievement here -- and I'll come back to some developments later. Our biggest achievement here is the system you see here on the right, which is the NeuroSpin 17 Tesla 25 centimeter bore.

So in terms of an MRI magnet -- again, a unique offering from us. In terms of an MRI magnet, this is equivalent technology achievement as our 1 gigahertz magnet. And then lastly, we are present in electron paramagnetic resonance. That is the sister technique to NMR, or EPR as we call it. And this is an entirely unique product line. Other than some competitors that operate on the low-end, we are the only ones that offer a full research-grade high-end product line for researchers in EPR.

What is our philosophy? We ascribe to the Bruker philosophy of 'Innovation with Integrity'. And I like to add my personal flavor to that, which I call relentless innovation. It is a strategy that I think has proven to work since the 52-year history of Bruker where we think that by continuously innovating and continuously offering the market the latest and greatest in terms of product that that will lead to the success and that has proven to lead to success that we have today.

Innovation is in many areas. There is the traditional product line extension and I will show you some of our new introductions that we've had this year, but it also expands to for instance an enhanced user experiments, whether that is an easier to use magnetic resonance machine or for methods to allow the users to become more efficient such as analysis software, CMC-assist, dynamic software, our dynamic center, or simple ease of use characteristics such as a nitrogen liquefier which I will introduce later on.

Similarly in order to just address our existing market but to expand our market we are also looking at complimentary capabilities. And just to give you a couple of examples of where we are working on in the preclinical imaging arena, we have a PET-MRI insert, a combined positron emission tomography, a technology used in clinical science, in preclinical science combined with MRI detection for the anatomical anchoring of the PET data.

It’s a project that we did together with Siemens. We have now an offering, a complimentary offering of microCT technologies which because of the detection technologies complimentary to our MRI technologies and that we acquired through our acquisition of SkyScan earlier this year. I will get back to that and then we are introducing a new technology called MPI, Magnetic Particle Imaging, an entirely novel clinical diagnostic technology for preclinical imaging that we developed together with Philips Medical Systems.

From another corner of expanding our markets and that has to do with the fact that the NMR market, the NMR technology has matured to such an extent that known experts can use it and that we can address solutions, answer questions rather than focusing on the technology itself. We are doing a lot of applications development and products that have come out of that are for instance our WineScreener, our JuiceScreener and products that have to do with raw material screenings, so incoming products into a pharmaceutical stream can be screened for quality control using NMR.

NMR is becoming to maturity there I would say not just because of its technology advantage, but also of the fact that we can do multiple test at the same time, so the cost per test is really competitive compared to other methods.

Markets and key trends, we have many opportunities in our existing markets as well as in new markets, more or less existing I would say to high-field instrumentation is an ongoing drive in the NMR field where people want to get more sensitivity and more resolutions, our opportunities there continue. CryoProbes is something that we started the development many years ago and we are frankly light years ahead of any competitor there and it’s still a big driver of our business because of the capabilities that are offered with the inherent detection sensitivity of the CryoProbes and I will show you one example later on as well.

I mentioned dynamic nuclear polarization, DNP NMR as a key driver, a key opportunity for new business. Pre-clinical research is an expanding field and I will come back to that. Structural biology, NMR has always been the strongest structural biology looking at protein structures, these days we are adding capabilities in protein dynamics and protein functions, so mechanistic research of proteins which is becoming a major field for us. And then finally, we have opportunities also on let's call it the lower end, in robust compact magnetic resonance system. And one example there is of we are offering a low-cost, very efficiently priced system which is geared towards routine applications, but definitely also geared towards educational market, so we see an uptick there.

The limit to the markets, metabolomics and food analysis are still growing markets. I’ll show you couple of examples there with the WineScreener later on. Drug discovery will continue to be an important market for NMR, but also natural products and a lot of the drug discovery is still shifting into natural products, so NMR will benefit from that. That’s one of our growth areas. I mentioned protein structure and dynamics. I already mentioned pre-clinical imaging where we will see more efforts from us. And then, again, a bit of a developing key markets will also be our efforts in education.

So to make my claims of innovation come true, I would like to take you to a couple of introductions that we did at this spring at some major shows in our fields. So the first one was at the ENC 2012, the experimental NMR conference, which is our annual largest show. We introduced the AVANCE HD, high definition or high dynamic version of our very successful of AVANCE product line. We believe this is the ultimate platform for both life science and materials research.

It is an evolution of our existing system, but rather than waiting many years to introduce an entire new concept, we try to provide our customers continuously with the latest and greatest in technology that is available. What the AVANCE III HD adds to existing capabilities is an extended dynamic range, signals and noise improvements of up to 25% on highly concentrated samples and across the board increase in applications in solid state NMR and just to show you why some of these things are important, the increased dynamic range, the high dynamic results not only in a 35% increase in signature noise on special samples.

For instance samples that are measured in proteinated buffers which is important in biological NMR and in metabolomics, but what you see on the left here for instance is that whereas the standard technology was actually quite good that it is a characteristical phase modes and once you start looking at breakdown products and really low concentration products where NMR clearly starts fighting where the NMR signal start fighting the noise generated by the system, that improvement in dynamic range results now in effect that very small signals which are important again as impurities or break down product is very small signals can now be picked out with the latest addition of our AVANCE NMR system.

Another completely novel development is what we call the NMR Thermometer. Traditionally in NMR we measure the temperature of our samples indirectly with the thermal coupled somewhere near our sample in the detector and that is an excellent mechanism to stabilize the temperature which is very important for temperature-sensitive measurements, but you don’t actually measure the real, the true temperature of your sample, the true temperature of your sample can change depending on the experiment that you are doing can change depending on the RF loads of your experiment. And by measuring the sample now directly to your spins with our NMR thermometer we are now able to measure the true sample temperature and changes in the true sample temperature and the reason that this is important is for instance in one of our key areas and that's the protein research.

In protein research you see an example on the right here, we typically have a suite of experiments that we do in order to get to the function or the structure of the protein and these experiments, the data has to be correlated and depending on the experiment that you do and you see the red and the blue dots there, there maybe a slight change in temperature, that maybe small as a 10th of a degree which causes a shift in the resonances and therefore especially in the crowded spectrum, the assignment of this spectra correctly or the automatic assignment as we would like to do by software becomes exceedingly difficult, so errors are being made, we have uncertainties there and a lot of manual intervention is needed.

By using the NMR for the moment or to measure the internal sample temperature and to regulate the internal sample temperature we can acquire a spectrum on the left where the peaks exactly line up because we now know the exact sample temperatures, so that is the unique introduction that we have this year with our NMR Thermometer.

Another introduction that we started two years ago was our CryoProbe Prodigy. The CryoProbe Prodigy is a cost-effective CryoProbe. CryoProbes being one of the key points of Bruker’s NMR product line and we introduce a less, a more cost efficient way of doing that by having a probe available which is cooled by liquid nitrogen rather than by helium. So that results in a lower purchase price and a lower maintenance cost albeit at the cost of some sensitivity. So now three products in that line, we have our regular room temperature probes, then we have the CryoProbe Prodigy which gives you a Factor 2 or 3 over an existing probe and then we have our Factor 4 to 5 by a full-blown helium [cooled] CryoProbes.

This year we are introducing a biological version of that called the TCI. So now people that are doing biological samples and small molecules at higher fields in this case as 600 are also able to benefit from this signal and again absolutely a unique selling point for us, a unique product for us that has not found any competition as of yet.

I mentioned before that part of our innovation is towards making NMR more user friendly and I will give you a very quick example here. When you deal with NMR you have to deal with superconducting magnets that means every week or every two weeks you have to fill it with liquid nitrogen. There's nothing wrong about that. It's just how a need of dealing with a superconducting magnet. We are now introducing our Bruker nitrogen liquefier, so this device that you see there mounted on a magnet will now reliquefy the nitrogen, so for next year or two years other than some maintenance effort. You no longer have to fill your magnet.

Again just a user friendly or a user convenience which I hope will be, which is well received by our customers but which I hope will also make NMR more accessible to non-traditional users. Again a completely unique product from Bruker. And then lastly on the NMR side, we introduced the NMR WineScreener and a couple of years ago we used the NMR JuiceScreener. So what is it about? When you are dealing with juices, when you are dealing with wines, we have encountered some food scandals, we have encountered adulteration and there is an increasing need for labeling.

This is really concentrate or not, is this really Florida orange juice or not. That is now expanded to wines where we can do targeted and a non-targeted analysis. The targeted analysis simply means give me a list of components that is available in the wine and we can measure that and people then can measure it with their organizations or against their own standards and then say yeah this wine, it has the problem of components so with or there is materials in there that I absolutely don’t want to see and cannot bring out in the markets.

Then there is the non-targeted analysis and that’s where you take a spectrum of fingerprints of a wine or previously in the JuiceScreener of the juice and you compare that to a database and from that database of references that you have measured you can then say a lot about the origin of the wine, the types of grapes that have been used and that it is increasingly become important because of labeling requirements as you can imagine. Again, a unique product from Bruker geared not at the traditional market but really to expand the market and the applications for magnetic resonance.

In March of this year Bruker acquired SkyScan, a Belgium company specializing in microCT, microCT meaning three dimensional x-ray imaging of small products applied to material science which is marketed through our x-ray division and applied to pre-clinical imaging to life science applications. So with these machines and the machine that you show here we can do a three dimensional x-ray image of for instance mice which is information that is complementary to what we are doing with our MRI.

So we are using our applications development and our distribution channels of our MRI division to work together with the group the SkyScan group in Belgium to distribute and sell as well as co-develop some of the applications for the microCT business. Added to that and also as an illustration of our increased attention to preclinical imaging we also added an Icon MRI device which is a lower entry MRI based on permanent magnet, no (inaudible) required, no infrastructure required. You just put it down, it’s almost bench slope like system, there is a couple of electronics cabinet and you can do MRI at one Tesla. This brings MRI to every use. There is no need to be an expert anymore. There is no need to have a big in-house infrastructure anymore to house a superconducting magnet.

This system is slightly different market than our high-end research system. Our high-end research customers are very interested in this simply because of capacity issues. So now they can do pre-screening for instance, with the icon MRI but it’s also is geared towards the more biological market, markets that deal in research in oncology, cardiology inflammatory diseases etcetera. Again a unique product for Bruker fits nicely together with our offerings in micro CT as well as our high-end MRI markets.

And then lastly, on the high end MRI, I want to show you a very exciting breakthrough. I've mentioned CryoProbes before and I mentioned high field magnets before. Here we see images from the 15 Tesla imaging magnets. So a high end, therefore a possibility of high sensitivity and high resolution magnet combined with technology was initially developed for NMR, namely CryoProbe. So, here you have the dedicated CryoProbe operating at 15 Tesla and with that we’re able in (inaudible) so in the living mouse, to image a brain with 19.5 micrometer isotropic resolution.

You can have different images that you see on [K&B] there which generate different type of contrast and therefore different information content but rather than going into the content, what I do want you to look at visually is that with MRI in a living mouse with high resolution, we can now equal in my opinion generate more information than you can get from state glass lights of the mouse brain after sacrificing the mouse. So this is really a unique break through in imaging which I think will be very well received in the market and will lead to further applications of MRI and again MRI CryoProbes, a unique product from Bruker not available from anybody else and with that I will end and thank you for your attention and give it back to Frank.

Frank Laukien

So I know we have sometimes even our technical details here but I think you also got the overall message that our technology leadership is really rather comprehensive in this field and we are also very much focusing not only on competitive factors but very much also in growing the market for magnetic resonance tools for both imaging and for spectroscopy that's a very new, very exciting area as well I think that is feasible to accelerate the overall growth rate of this excellent business.

So it will be my pleasure to really just have one final slide, a little bit of perspective my first investor meetings probably were in 2000 when I took Bruker Daltonics public we were at breakeven or around breakeven and a little under a $100 million.

So we are now on our way to becoming a $2 billion, 18% operating margin company hopefully in the next two years. I think you see some of the themes that probably haven’t changed the products have changed but some of the themes that haven’t changed, very much focused on high performance instrumentation that's not necessarily high end like a GHz but it can be little handheld device some of them are shown on the posters in the back and that may do our analysis for the handheld device that cost $20,000 to $30,000 but a lot of intelligent technology and ease of use features and usability and intelligent databases and content built in, so driving product innovation, driving market share growth or profitable growth with margin improvement and always with a very keen focus on return on invested capital.

Those are things that have characterized and they will continue to characterize us. So I think you've gotten the flavor of many of the other topics from financial to product to new market opportunities and so I won't go through all these bullets but simply open it up for our second Q&A session.

Question-and-Answer Session

Unidentified Company Representative

So we are waiting for microphones. Well there is a second microphone coming then we can multitask. Over to gentleman. Peter, do you want to go?

Peter Lawson - Mizuho Securities

Yeah, Peter Lawson from Mizuho Securities. Just a question I guess to Tom around the BEST business. I didn't understand you, what was driving the device growth. What key products was driving that and then secondly, what really drives real profitability in that business, is it these kind of multi country big science projects?

Tom Rosa

Yeah. To answer your second question first, certainly in the device business it is based on this kind of major projects Peter that comes through. So the positive news is we are one of two providers of these kinds of products in the world. We really are, well there's only one other competitor that's at our level in certain areas and we've had a very, very strong cap rate and that's why our backlog in that device area has gone from $130 million to over $90 million in the last two years and so clearly that does, the funding available on these major projects like ITER, like [Sun] which is a (inaudible) in Switzerland prior to ITER and like ACCEL in Hamburg are key drivers of that business.

By having said that there is also we have been booking orders from really around the world from Korea, from Stanford, from Jefferson Labs, from Brookhaven National Laboratory etcetera. And there is a lot of smaller scale many are accelerated type projects that are also feeling that growth.

So and then against to your first question on what’s driving a device growth? The last from 2010 to 2012 that business has been, we don’t segment it per say within the best segment but it’s been and as I mentioned on my remarks been around a low $30 million business.

Some of the products we are making are making excellent return. The growth is really expected to come next year in 2013 when we start shipping the cavities and couplers on the European ACCEL project that was the $43 million order I mentioned that we booked in late 2010, that we have been really building up our infrastructure internally to be able to fulfill that order on. And the bulk of the shipments will start in Q4 this year but the bulk of the volume shipments will start in 2013. That will drive that $30 million business to a significantly higher level as far as we go.

Unidentified Company Representative

And Peter at the overtime we will see emerging industrial products that are superconductivity enabled for instance the crystal growth magnet or the inductive superconducting fault current limiters which will be volume product. For these product lines I think you will see a P&L appearance that will be much more similar to scientific tools or scientific instrument. Whereas for the materials business, the conductors and the specialty business obviously the P&L looks very, very different from what we are doing at Bruker. Lower gross margins but of course all the much lower SG&A

Peter Lawson - Mizuho Securities

Just maybe a higher level of question on your diagnostic strategy overall. I mean you talked about the MALDI-TOF/TOF down sequencing here and it is MS you didn’t talk about typer today but in general can you talk about your channel there and the infrastructure investments that you maybe you need to make on a go forward basis as you build out the diagnostic in this a little bit more?

Frank Laukien

We have really succeeded with the MALDI Biotyper not only has that become a game changing product in microbiology but in the process, we really build the infrastructure from the regulatory group to having [ISO 13485] to having for the European markets to having an FDA manufacturing environment in Massachusetts or that can withstand an FDA inspection with a FDA QMS, Quality Management Systems.

So we build up a lot of the infrastructure as well as the regulatory quality systems but also the dedicated sales groups that go in to these diagnostics market. We think that regulatory quality and distribution infrastructure will serve us very well as we launched additional clinical mass spectrometry product whether those are from mass spec imaging or for small molecule, toxicology, vitamin D and other testing or for protein biomarkers.

So there is very perceptive question, there is an infrastructure build up that has occurred as part of that ramp up for the MALDI Biotyper over the last five years that will be an excellent vehicle for us to utilize the future clinical mass speculate or other clinical NMR or other product and that they go into clinical regulated environment. Very important to not only look at the product but also the infrastructure behind it because that’s reusable for other products.

Peter Lawson - Mizuho Securities

And then just an another one for follow up, as we think about capital deployment, can you talk about where you see the opportunities from an M&A perspective within the overall business and can you share any of the criteria that you know you are going to look out when evaluating deals in terms of returns?

Unidentified Company Representative

We tend to be a primarily interested in smaller or mid size acquisitions. We don’t usually buy anything that's just a technology that hasn’t been proven in the market even if it is a smaller company, we want them to be able to sell in the market may be they can sell globally at only in certain areas for certain applications, may be that product line isn't complete yet and we help them complete it and give them the global footprints for distribution and service and of course we want to make sure that they have products that have potentially high gross profit margins.

If they have high gross profit margins developing and completing the product line and doing the global scale up for a distribution and service that will financially make a lot of sense. And yes, so we often look for both on acquisitions that add new product line for technologies but would fit into one of our core divisions for their distribution system and channel access.

And we would like to when we do these systems we don’t have strict guidelines but we would like to have something that can be have an RoIC may be not right away, may be it will take two or three or four years of investments eventually of greater than 20% to 25% of hopefully approaching 30%. Derek?

Derik DeBruin - Bank of America Merrill Lynch

Derik DeBruin from Bank of America Merrill Lynch. The NMR markets about a $1billion I guess, when you look at the potential for expanding the market as things get easier to use and new technology and merits like what are your kind of expectations for growth in the market and how big that market can go?

Unidentified Company Representative

I think when you talk about the overall magnetic resonance markets we are looking at currently seven to eight.

Derik DeBruin - Bank of America Merrill Lynch

Okay I apologize

Unidentified Company Representative

We are looking at 7% to 8% growth as we can do. Part of that is from the existing markets because there is still growth in the let's call it a traditional NMR and MRI customers. But then we start with growing a little bit because of new technologies that we bring out like the EPR and NMR goes into the existing laps but people buy this additional instruments and then when we start venturing into two areas namely the applied methods, it starts slow but there's definitely significant growth in that. Some of these techniques will prove out to be successful market, some of them will not and then especially in the preclinical MRI or preclinical markets that's where we see a lot of strong growth at the moment.

Derik DeBruin - Bank of America Merrill Lynch

So a lot of the new additions or certainly new consoles and upgrades that rather than kind of replacing the magnet and everything like that, I guess what is, you know what's kind of built in for a replacement [line] on this I mean, the new technology that everything’s come out, is very as you look at like liquid nitrogen liquefier and or going on we are continuing, is there an opportunity to drive a much bigger replacement cycle from people buying new magnets, upgrading systems, I am just curious in terms of how that, what's kind of built in your forecast for that?

Unidentified Company Representative

This is a little bit hard to say I think. I mean there is a regular replacement market, eight to 10 years on NMR instrument at least on the electronics part is normal. With new technologies like in the advanced HD you may accelerate that a little bit but not necessarily significantly because there are certain funding agencies that have certain rules about how long the system should remain before they allow replacement for instance. So I don't think we can accelerate that. In terms of certain accessories skills such as bolt-on products like this P&L and like some other automation features that we can offer, I think that's where you definitely accelerate in the market. But more importantly, they provide large sets of unique selling points that allow us to win new cases.

Unidentified Analyst


Unidentified Company Representative

So first of all, the synergies, they are clear and compelling synergies and that some of the most advanced magnets for NMR and for some other fields that Werner had shown you earlier would not be feasible without having some of the most advanced low temperature or metallic superconducting wire technology from BEST. So there is certainly some very direct technology leadership in NMR and preclinical MRI implications of BEST.

But other than that, there really -- BEST really has different financial appearance, different markets, different opportunities, and 90 perhaps of the future 95 of BEST's opportunities will be outside of scientific instruments, which is why we had considered also making it a separate public company. We didn't find that attractive and since we had done so much of the investment, we feel certainly also positive about having our BRKR shareholders benefit from the value creation that I think will be very, very strong from BEST.

So to some extent, if you like, BEST has 5% or maybe 10% synergies, and the other 90% I think is simply an opportunity in a very intriguing field where we are clearly at the leading edge and defining many of these markets and product opportunities. It is an investment, but we've made the investment to a great extent. There will be continuous investments. But I think the value creation for the BRKR Bruker shareholders in participating in the upside in that BEST makes a lot of financial sense to me.

Dan Arias - UBS

Yeah, hi, Dan Arias from UBS. I'm just curious how common the use of MR/MS tools is today? And I guess if there's may be an opportunity down the road just given your position in both of those markets?

Unidentified Company Representative

Absolutely. The combination of NMR and mass spec for many small molecule problems is really, for instance, in metabolomics or other examples in the pharmaceutical industry for small molecule applications primarily is the most compelling, complete molecular characterization set of technologies. And we have integrated mass chromatography plus mass spec and NMR, including software.

It doesn't become one system. It is sold two boxes; an NMR with a magnet and whatever mass spec may be used, high-end math system, for example, to get accurate math. But combining the data, the sample preparation, and then the data mining and combined data is the most powerful combined way for small molecule complete molecular characterization.

So it's not that all of a sudden every mass spec will have an NMR attached or vice versa, but there's clearly a very substantial area of synergies that are really driven by chemists and natural products or pharmaceutical researchers realizing if they want to have the most comprehensive characterization of their problems, those two technologies together really are the most important technologies out there. Dan?

Dan Leonard - Leerink Swann

Dan from Leerink, two questions on BEST. Number one, are your investment plans in BEST impacted at all by the withdrawal of the S1? And then number two, at what revenue level does BEST become something similar to the Bruker corporate average on the operating margin side?

Unidentified Company Representative

Start with the second question first again -- the second question first, we breakeven today. As far as getting to the Bruker operating income, we're probably looking at being a $500 million company before something like that would happen. We're trying to transition the business on being predominantly materials to more of a 50/50 split between devices and materials.

And at that level, as Frank mentioned before, we still don't expect gross margins to be anywhere near the Bruker average, high 40%. We think we can get to the low-30s. But given that our SG&A rate is much, much lower than the rest of Bruker because we're selling to, in most cases, a few large companies, I think we can achieve in excess of 10% operating margins at that level, and potentially earlier. We're certainly driving in that direction. So I'm sorry, can you repeat your first question?

Dan Leonard - Leerink Swann


Unidentified Company Representative

Well, I think that's more of a BRKR --

Unidentified Company Representative

Well, it's a joint question. I think the financial philosophy, the last three or four years, your marching orders and then that of your colleagues at BEST was basically land grab at minimal losses, to sum it up, i.e., grow as fast as possible. You've seen the growth, 40% CAGR.

Going forward, we still want this business to grow very rapidly. But if they grow at 15% to 20% CAGR and have an emerging profitability, and add 200 or 300 bps per year on the operating margin side, it will be a while before they get to an 18% operating margin side.

But that's okay, because we also want them to continue to grow very rapidly, maybe again, 15%, 20% CAGR and adding 300 bps to the operating margin line would be a somewhat modified financial strategy compared to the previous, look, don't worry about profitability yet, don't lose a lot of money, and grow as fast as possible, and pursue all opportunities simultaneously.

Isaac Ro - Goldman Sachs

Isaac Ro from Goldman. Just a question on service, you guys spend a lot of time today talking about technology. That's certainly something the company is known for having lots of new technology. I'm wondering if you look down the longer term, and the inventory is evolving with some of the competitors you have, really emphasizing services a way to diversify the business, maybe make the revenue more and more predictable.

And on the customers, those revenues tend to be pretty decent margin as well. So I think today's services were about 12% or 13% total sales. Is there a long-term goal you guys are managing for, and how do you use services as a way to bring yourselves and the customers in a secure way down the road?

Unidentified Company Representative

Clearly, aftermarket and service and other aftermarket revenue opportunities can grow faster and can have higher operating margins. But maybe rather than meeting the question, maybe Mark may have bounced it one-off to you. I know you speak for a certain division, but I think it's very -- it probably characterizes what just about every division does.

Unidentified Company Representative

So yeah, the service part of our business is very important. For many of us, we lead in our markets and our product categories. And so, that means we have large installed base. And so, being leaders (inaudible) is definitely a good opportunity for us. It's a good opportunity that we, not going forward, that we take advantage of today. So we're definitely increasing our investment in the service area.

Just recently in [DNF], in strategic part of world we've now created localized customer care centers, where for us even serious troubleshooting, we are now actually doing locally. Before the only thing that was out in the field was installation, install equipment. But if you -- and basic service questions were answered by the team.

But now we go in-depth by putting instruments in the field, in regions, for example Beijing, where somebody can actually troubleshoot ion local language. So we take that very seriously. Now that's a customer satisfaction move. But with that then comes enhancement of service revenue, because now there's more local engagement. So for us, a serious part of our business is we what track. We track service P&L and [DNF], and it's a definitely profitable part of our business.

Unidentified Company Representative

So if I may add to that a little bit more broadly, the push for aftermarket revenue, which is service, training, databases, software upgrades and so on. We think that particularly in some of the areas where, for instance, as we go into clinic on a diagnostics basis, everybody has a service contract. As we do more chromatography GC and now LC business, there's a consumable business that goes with that.

As Mark's division or others get more into semiconductor data storage, again, there the uptime requirements are very, very high. So the customers are very demanding, but they're also very much more willing to pay for service contracts and sometimes even dedicated service engineers.

So overall, today and one of the pie charts I didn't talk much about that, about but someone else asked me about this in the break. Today about 20% of our revenue is aftermarket. We think we can grow that to 25% to 30% over the next several years. It's still going to take more than three years. I but that's of the drivers of our margin improvement longer-term as well.

Unidentified Analyst

Just a follow-up around proteomics, which you've mentioned at the beginning, what's your exposure there? Do you think across the entire business and why do you think it's kind of now as opposed to five years ago, it's had several hiccups in that marketplace?

Unidentified Company Representative

You may have to repeat the second part of the question for me. Overall, proteomics by mass spectrometry is roughly $100 million business. It's actually a little bit larger than that. Of course, there are other areas where we do structural biology and proteins with NMR or protein crystals with crystallography.

I haven't added all of that up. So that's usually -- it is protein science but it's usually not under proteomics. So probably twice that amount overall for protein analysis. And I'm sorry, what was the second part of your question?

Unidentified Analyst

The second part was around the growth of the proteomics market. So it's been got plagued by complexities and why do you think now is the right time to increase investment in that marketplace?

Unidentified Company Representative

I believe them we've made progress with the complexities, we can answer far more complex but incidentally more relevant questions today. We are sort of doing model systems before and it's nice to have been able to identify so many proteins from some sort of yeast or some of the warmer something like that. Now we can answer really relevant questions that are in biology and in the exploration of disease is tend to be more complex rather than just a protein sequence of fragments of a protein sequence.

And I think we are really at that inflection point or threshold where we can do incredibly useful things with proteomics that are not only important to proteomics researches due to proteomics conferences, but I think we now have built the technology where we can answer the questions that really matter in therapeutics and diagnostics. Now, a question or two when before we wrap it up? Another question or two before we wrap it up. One more please.

Unidentified Analyst

A quick question on the NMR business and just can you talk about what factors, maybe technology, maybe scale, what created that business value to maintain the position you have, as you look out 5 to 10 years. What traits will allow you to keep someone let's say argument from taking a share in their business.

Unidentified Company Representative

It's very broad day. It's not just an RF counsel or a probe or a magnet technology or an application. It's all of that. it's the overall systems integration and it's the applications, and it's of course continuing to run at faster, faster than anyone else and we intend to do that. One last question. And we'll be around obviously to have questions for the management team. We're not leaving. So we have gap to answer individual questions.

Unidentified Analyst

Hi, (inaudible) Cantor Fitzgerald. You talked about roughly 10% of your revenues are going towards R&D. What kind of synergies do you have across the different divisions? Obviously, you are very well diversified. So just curious and you touched on I think mass spec or something there in terms of R&D, but was wondering kind of if you could talk about.

Unidentified Company Representative

Yeah, there is numerous examples of that. We need the best, most advanced metallic, high-end wires for our high-field magnets. We need CAM chromatography products for the life science, mass spectrometry. Mass spectrometry and NMR together are the most comprehensive tool for small molecule characterization.

There are numerous example for some of the divisions that aren't presently here, where X-ray tools and other tools together really make synergistic packages or even integrated in some cases. In the same product in the semiconductor space, on only other automated ASMs that March is referred to but also some of the X-ray tools for X Ray FAB lines are allowing to go to the next generation smaller feature sizes where UV optical means, which perhaps in the mainstay technology are simply no longer applicable to physics.

It doesn't work. I probably could rattle off a few more examples. So it's not that there are synergies everywhere, everyone. So while you develop a interferometer and that is that platform of magnet, that is from an iron source, but there also are numerous examples of synergies. Of course, very often the synergies are in the marketing and market, and pulling information together, rather than in the individual piece of instrumentation.

All right, then we thank you very, very much for joining us here today. We hope you found this deep dive useful and hopefully gave you a lot more information and interesting usable information. And we'd like to thank you if you're leaving and we'd like to invite you for our luncheon, which we will start earlier so people don't have to wait around. We'll start the luncheon basically immediately and with other break, and it will in the room across the corridor.

So hope you can join us. We'd be happy to answer more questions. If not, thanks again for being here today.

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