Q3 2019 Earnings Call
Good day and welcome to brokers third quarter 29, <unk> earnings Conference call.
Now let to turn the conference over to Miroslava Minkova. Please go ahead map.
Good afternoon.
Like to welcome everyone workers border <unk> earnings Conference call.
Name is near Squalamine, <unk> director of Investor Relations corporate development.
Joining me on todays call, our Frank Wellcare, our president and CEO and Delcarmen, our Chief Financial Officer.
In addition to the earnings release, we issued earlier today during today's conference call well be referencing slide presentation.
The BD Oh this presentation can be downloaded from the quarter release quarterly results section on brokers Investor Relations website.
During today's call will be highlighting non-GAAP financial information.
Reconciliations of our non-GAAP to GAAP financial measures are included in our earnings release, which is posted on our website at <unk> I, our dog brokered dot com.
During the course of this conference call well be making forward looking statements regarding future events.
And the financial and operational performance of the company that involve risks and uncertainties.
The Companys actual results may differ materially from the projection described in such statements.
Factors that might cause such differences include but are not limited to those discussed in todays earnings release, and you know what Form 10-K as well again subsequent filings.
Which are available on our website and on the east as he sees website.
Oh I don't know the following information I'm delighted to current business conditions and do our outlook as of today October 31st 20 Nike.
Consistent with our prior practice, we do not in time to update our forward looking statements based on new information future ribeye or other reasons prior to the release of our fourth quarter and for your 20 <unk> financial results in February 2020.
Therefore, you should not rely on these forward looking statements as representing our view or outlook as any day subsequent to today.
Well begin todays call with Frac, providing a business summary, Gerald will then cover the financials for the third quarter 2019 in more detail.
Now I'd like to turn the call over to brokers C O frac while can.
Thanks, Miroslava good afternoon, everyone and thank you for joining us on todays call.
Our year over year organic revenue growth was 7.6%.
Constant currency revenue growth was 14% year over year.
On the bottom line, we reported non-GAAP EPS of 43 cents, a 16% increase compared to the third quarter of 2018, we're very pleased with our strong performance against a challenging comparison in Q3 of 2018.
During this third quarter, we made further progress with our project accelerate high growth high margin initiatives.
Launching be important D. A passive workflow for Tim's top row at the Eupol meeting in September and reporting first 1.2 gigahertz protein Cinemark and Amar dates up at the Euro is Mark conference in August .
We shipped the first ever 1.1 gigahertz RMR to a customer and in Q3 have 2019, we recorded revenue on an additional 1.0 gigahertz and Amar our second except that gigahertz Clos and Amar this year.
We then project accelerate while we have faced a cyclical slow down in semiconductor metrology overall, we're very encouraged with our progress.
This year, especially in proteomics, microbiology, and gigahertz class RMR first structural biology.
Turning to specifics on slide four.
In the third quarter of 2019 brokerage revenue increased 11.7% year over year to 521.1 million.
On an organic basis revenue increased 7.6% year over year comprised of 8.6% organic growth at our scientific instruments segment, and a minus zero, 0.8% decline at our best segment net of intercompany element.
Nations.
During the third quarter acquisitions added 6.4% to revenue growth, while foreign currency translation was a headwind of minus 2.3% on a constant currency basis, our revenue increased 14% year over year.
Our third quarter 2019, non-GAAP gross margin increased 130 bips year over year.
Our Q3 19, non-GAAP operating margin improved 40 basis year over year, driven primarily by a favorable impact from foreign currency rates.
In Q3 of 2019 broker reported GAAP diluted EPS of 39 cents per share compared to 28 cents per share in Q3 of 2018.
On a non-GAAP basis.
Third quarter 2019, MPS was 43 cents.
And increased 16.2% compared to 37 cents in Q3 of 2018 as you may recall, we had anticipated that third COVID-19, non-GAAP EPS would be relatively flat compared to a strong third quarter 2018. So we are pleased with these results.
On slide five.
I show brokers performance for the first nine months of 2019.
Our year to date revenues increased 531 million to 1 billion 472.7 million, a 9.7% increase compared to the first nine months of 2018.
Organic revenue growth in the first nine months off 2019 was 6% year over year.
Comprised of 5.8% organic growth.
In the scientific gets scientific instruments segment, and 7% organic growth in our best segment net of intercompany eliminations acquisitions added 7% to our top line in the first nine month or 2019, while foreign exchange was a minus 3.3% headwind year over year.
On a constant currency basis, we delivered year over year revenue growth of 13% in the first nine months of 2019.
And market conditions for brokers ticket that make and government biopharma and microbiology markets remained favorable in the first nine months of the year, while industrial and applied markets growth has slowed.
Semiconductor metrology demand has remained quite weak.
For the first nine months of 2019 organic order bookings for our scientific instruments segment were up in the mid single digits, whereas our best segment orders were up strongly due to renewed long term superconductor supply agreements they'd be will discuss later in the call.
Our non-GAAP gross margin the hurt in the first nine months of 2019 increased 150 basis points compared to the same period last year non-GAAP operating margin expanded 120 points basis points as we benefited from operational improvements accretive acquisition.
And then approximate 26, X. I misspoke approximate 60, bips tailwind from changes in foreign currency rates.
On a GAAP basis broke report reported EPS of 82 cents in the first nine months of 2019 compared to 65 cents in the same period in 2018.
Finally, our non-GAAP EPS in the first three quarters of 2019 was one dollar and four cents, an increase of 20.9% year over year.
Please turn to slide six and seven now where I provide for the highlights on the performance in the first nine months of 2019 of our three scientific instruments groups and of our best segment all in constant currency and in comparison to the first nine months of 2018.
Your today its 2019 Biospin group revenue increased mid single digits in constant currency to 422 million.
This reflected growth in both systems revenue into aftermarket as well as these small contribution from our software acquisitions.
Bio spins year to date revenue results include revenue recognition for to 1.0 gigahertz on them our systems with the second system in the third quarter of 2019 in the.
The dollar and margin contributions of this.
Third quarter system were modest however, due to legacy pricing on an old order.
Biospin preclinical imaging systems revenues were slightly higher compared to the same period in 2018 bias bins aftermarket revenue grew at a good pace for the first nine months of the year and overall, we expect our bias been group to grow revenue in the mid single digits organically in fiscal <unk>.
Here are full year 2019.
Moving onto our colleagues group color group had a very strong performance in the first nine months of 2019 with revenue up in the high teens in constant currency to 447 million, including our broker high and majority acquisition.
Khallad revenues in the first nine month of 2019 grew at a double digit pace organically.
Within college, we continue to see strong performance in both our microbiology multi biotyper business as well in our life Science mass spectrometry solutions business, which includes Tim is tough based proteomics.
Year to date revenue in our college molecular spectroscopy F T I, our near IR business, which now also includes CBR any detection remained about flat.
Please turn to slide seven now broker nano revenues were up high teens year over year in constant currency to 462 million in the first nine months of 2019.
Both compared to the prior year reflects primarily contributions of acquisitions, including and this is Jay PK Ali Kona and rave.
On an organic basis nano group year to date revenues were up low single digits year over year.
We have seen signs of weakening demand in some of Nanoss industrial and semiconductor metrology markets.
In the first nine month of 2019, Nanoss Advanced X Ray business grew with solid demand from academic customers.
Our nano analysis tools business grew organically year to date, while our nano surface tools revenue increased year to date due to acquisitions.
Year to date semiconductor metrology revenues were higher year over year due to the Rafe acquisition.
However for the full year 2019, we expect our semicon metrology revenue to be down double digits organically year over year as a reminder, our semi metrology business accounts for approximately 5% of brokers revenue.
Moving onto best Best revenue in the first nine months of 2000 2019 was up mid single digits year over year during the third quarter best finalized updated renewals of long term supply agreements with two major MRI companies, which led to a reported an increase in best orders and backlog of more than.
400 million.
Please note that these are orders that right that that are expected to be delivered over a five year or longer timeline.
Moving to slide eight.
At the August Euro, It's Mark conference in Berlin, We showed the first ever data generated on the 1.2 gigahertz on Amar at our Swiss factory together with our collaborators. We have generated 1.2 gigahertz anymore research data on proteins associated with diseases, such as Alzheimer's Parkinson's and cancer, we expect.
1.2, gigahertz anymore will begin to contribute to our bias been revenue growth in 2020 and beyond.
Turning to slide nine a highlight I highlight progress with our operational excellence program. We have been working on a new broken I know engineering final Assembly and systems Test Center in Penang, Malaysia, which is now operational this facility is expected to have lower cost lower tax rates and access.
As to local and regional lower costs third party sub assembly production.
We now have several broker nano products that are being final assembled and tested in Penang already and by 2022, we expect more than 50 million of revenue to be generated from pack.
So in summary, I'm pleased with our progress during the third quarter and the first nine months of 2019, we believe that our innovative product cycles further progress with our project accelerate high growth high margin initiatives and our sustained operational excellence focus position us to continue to perform well despite.
Hey, weaker macro environment.
Let me now turn the call over to our CFO Gerald Harman, who will review, our Q3 and year today 2019 financial performance in more detail Gerald Thank you Frank.
I'm pleased to join you today can review brokers third quarter 2019 financial highlights starting on slide 11.
Brokers reported revenue increased 11.7% to 521.1 billion in the third quarter of 29 team, which reflects organic revenue growth of 7.6%.
We reported GAAP EPS of 39 cents compared to 28 cents in the third quarter 2018.
On a non-GAAP basis, Q3, 29, Tdps was 43 cents, an increase of 16.2% from 37 cents in Q3 2018.
Our Q3 2019, non-GAAP operating profit increased 14.6% compared to Q3 2018, well Q3 2019, non-GAAP operating margin was up 40 basis points with the change in margin, primarily driven by favorable foreign exchange translation.
These results when compared to a strong Q3 2018 were better than we expected in August when we shared our expectations for Q3, and we're pleased with our Q3 operational performance as it helps to de risk, our fourth quarter, which with which is our largest quarter in revenue for the year.
Free cash flow in Q3, 2019 was $36 million compared to 16 million in the third quarter 2018, reflecting higher year over year net income and the timing of shipments relative to prior year, partially offset by capital expenditures and other items.
As of September Thirtyth 2019, we were in a net debt position of $216 million as we deployed cash over the past three quarters on acquisitions capital expenditures share repurchases and dividends.
We ended Q3 2019 with higher working capital balances, reflecting our revenue growth recent acquisitions inventory buildup and increased receivables due to shipments later in the quarter.
Slide 12 shows the revenue bridge for Q3 2019.
As noted earlier organic revenue growth in the quarter was 7.6% with 8.6% growth at ESI and 0.8% decline at best.
We had revenue growth from acquisitions of 6.4%, which was partially offset by foreign currency headwind of 2.3%.
Yes, I organic revenue growth perspective year over year, we saw a low single digit growth in Q3 2019 bio spend this included revenue from another 1.0 gigahertz and Amar systems in third quarter. However, this system carried relatively modest revenue and margins due to legacy pricing.
As Frank mentioned earlier.
Our Kelly group posted low teens organic growth in the third quarter driven by strong performance in life Science mass spectrometry solutions and in micro biology.
Nano group revenue was up high single digits in the quarter on inorganic basis. This included growth in all Nanoss divisions.
However, given the weekend environment for industrial research and semiconductor metrology equipment, we do not anticipate this level of nano group growth to continue into the fourth quarter of the year.
From a geographic perspective Q3, two organic revenue was up high single digits in Europe Asia Pacific organic revenue increased mid teens, including strong growth in Japan and high single digit growth in China.
North America revenue declined slightly organically, which we attribute primarily to quarter to quarter fluctuations the rest of the world. Other in Latin America had good results.
Slide 13 shows our Q3 2019 non-GAAP results.
non-GAAP gross profit margin of 50.5% increased to 130 basis points from 49.2% in Q3 2018.
The increase was driven primarily by operational improvements and volume leverage in our Kelud group acquisition accretion rather from acquisitions and favorable changes in foreign currency rates.
Q3, 2019 operating expenses increased over the prior year, reflecting investments in our business and expenses related.
Two recent acquisitions.
Q3, 2019, non-GAAP operating margins.
18.3% increased 40 basis points over the 17.9% reported in Q3 2018.
The improvement in 2019 was driven by favorable foreign currency translation and are accretive acquisitions.
For the third quarter of 2019, our non-GAAP effective tax rate was 25.4% compared to 25.9% in Q3 2018.
This modest decline was driven principally by more favorable jurisdictional mix in Q3 2019.
Weighted average diluted shares outstanding in the third quarter were 155.6 million down 1.8 million shares from Q3 2018.
During the third quarter, we repurchased an additional 1 million shares for a total of $42 million.
Year to date through September Thirtyth shares repurchases totaled 3.3 million shares at a total cost of $142 million.
We currently have approximately $158 million remaining under our share buyback authorization, which is in place through mid May 2021.
Finally, Q3, 2019, non-GAAP EPS of 43 cents increased 16.2% year over year, driven primarily by our revenue growth and higher margins.
Slide 14 shows the year over year revenue bridge for the first nine months of 2019.
Year to date revenue is up $131 million or 9.7% over 2018, reflecting year to date 2019 organic growth of 6% contributions from our acquisitions of 7% and a foreign currency headwind of 3.3%.
This reflects 5.8% organic growth at the site.
With a double digit increase kellwood mid single digit growth and Biospin and low single digit growth at nano.
Our best segment grew 7% on inorganic basis net of intercompany eliminations.
Geographically and on an organic basis in the first nine months of 2019 brokers European revenue was up modestly compared to the first nine months of 2018.
North American revenue grew mid single digits.
Asia Pacific revenue grew double digits on inorganic basis, driven by strong growth in Japan and in China.
On slide 15, our year to date 2019, non-GAAP gross profit margin of 49.7% increased 150 basis points.
Operational improvement to Khalid accretion from acquisitions and favorable foreign currency translation drove the improvement relative to the first nine months of 2018.
Year to date 2019 operating expenses increased roughly in line with our revenue growth rate, including expenses from acquisitions combined with selected investments in the business.
All in our non-GAAP operating margin in the first nine months of 2019 was 15.7% 120 basis point improvement over the prior year period benefiting from operational improvements in Khalid accretion from acquisitions as well as a foreign exchange tailwind of approximately 60 basis points.
Our year to date 2019, non-GAAP effective tax rate of 24.5% was lower than the 25.6% tax rate in the same period at the last year, driven primarily by certain favorable discrete items and revenue mix.
Finally, non-GAAP EPS of one dollar for.
Grew 20.9% relative to the first nine months of 2018, reflecting our solid revenue growth higher margins accretion from acquisitions, and a slightly lower tax rate year over year.
Turning to slide 16.
Free cash flow in the first nine months of 29 team was $32.4 million compared to 78.5 million in the same period of 2018.
The weaker free cash generation in year to date 29 team was primarily driven by inventory buildup for product transitions into our Penang, Malaysia factory and for gigahertz class and Amar production increases in capital expenditures and the timing of shipments.
Our cash conversion cycle at the end of Q3 2019 of 227 days lengthened compared to 219 days at the end of Q3 2018 due to an increase in D. I O C and D Esso, partially offset by an increase in GPU.
Turning now to guidance for the full year 2019 on slide 18.
Updating the elements of our 2019 revenue growth outlook for a higher contribution from acquisitions offset by stronger foreign currency translation headwinds.
Given our year to date performance, we're raising our expected non-GAAP EPS range for the full year.
For 2019 revenue, we continue to expect overall revenue growth between seven and 8%.
This continues to include organic revenue growth between four and a half and 5.5%.
Our acquisitions are now expected to contribute about 5.5% to reported revenue about half a point better than when we last spoke to you in early August .
Foreign exchange translation is now projected to be a headwind of approximately 3% half a point more unfavorable than in early August .
This now equates to a higher constant currency revenue growth between 10% to 11% compared to our prior guidance for constant currency revenue growth between nine and half and tenant half percent.
We held our organic revenue range guidance did wider as unusual at this point in the year to reflect our strong year to date performance and order backlog heading into the fourth quarter, but also the more uncertain macroeconomic environment, we now face in some of our more macro sensitive business.
We continue to expect non-GAAP operating margin to improve between 90, and 120 basis points from the 16.8% level achieved in 2018.
This now includes an expected approximately 50 basis point tailwind from foreign currency translation.
We continue to expect to full year 2019, non-GAAP effective tax rate of about 25% than we now expect fully diluted.
Lower fully diluted share count of approximately 157 million shares.
Given our year to date performance, we now expect full year 2019, non-GAAP EPS in a range between a $1.59 and $1.62, which would represent an increase of 13.5% to 15.5% year over year.
This is an increase from our prior non-GAAP .
EPS guidance, which was 157 to 161.
Other guidance assumptions, along with updated foreign currency rates are listed on the slide.
To wrap up Bruker delivered strong financial performance in Q3, 2019 with reported revenues up 11.7% and non-GAAP EPS growth of 16.2%.
We've made good progress in the first nine months of 2019 and remain committed to our financial objectives for the full year.
We look forward to updating you again on our Q4 and full year 2019 conference call in early February and with that I'd like to turn the call over to Miroslava to start the Q in a session. Thank you very much.
Thank you Carol operator, we would like to begin Lenny fashion.
Yes.
John countless participation. Please limit your questions Q1, and a follow up.
Thank you to actually question you May Press Star then one on your touched so so if you are using your speakerphone. Please pick up your headset before pressing the keys to withdraw your question. Please press Star then to at this time, we'll pause momentarily to assemble our roster.
Okay.
And our first question will come from Brandon colored of Jefferies. Please go ahead.
Thanks, Good afternoon.
Frank could you help you just clarify sort of your current view of the industrial backdrop as it deteriorated relative to where you sat in the second quarter. As you look out to next year does that need to get better for you to hit kind of your new 5% to 7% organic growth target that you laid out the analyst day. Thanks.
So I'm not necessarily saying that.
Brian , but we're also not giving 2000 2020 guidance today.
We'll do that obviously in February once be Analysed have another fourth quarter under our belt and observe what everybody else is doing.
So.
I will now other than semi not recovering and in fact getting a little bit weaker organically for us. So maybe get started before for the Sun comes up here in semi but it's a small part of our business and the rest of industrial isn't bad, but it's also not booming. So I think it's about as expected.
Thanks, and just a follow up on the best contract.
It's all of that 400 million incremental and should we assume that is captured ratably kind of over the five year period, you alluded to.
No it's not incremental because we had contracts with these companies major MRI companies before.
Some of them have become.
Larger in annual volume a little bit.
But basically just provides for multi year stability and planning and capacity planning. So it's not really incremental on the other handed sets a very healthy baseline for for our best business. So I.
I think I think is is a very good development really for the entire industry for best as well as their OEM MRI customers, but it's not incremental.
And to fill up to the latter part of your question Brandon, Yes, that's not exactly ratably, because the customers control that a little bit as well, but very roughly you go first good assumption is that it is ratably over five or more years.
Super Thank you.
And we also do some other business with them, but this is a long term baseline business that they have flock, then and we have.
Therefore locked in as well that we can supply this to them.
Very positive development, but not incremental.
And our next question will come from few need soda of SVB Lynn.
Please go ahead.
[laughter].
Thanks for the question and congrats on the quarter so.
Just one of the about.
The long term sort of the guide here I just wanted to get a sense of next quarter.
For the full year, you're guiding about 5%.
Again, the midpoint you have project accelerate Tim stuff microbiology, Khallad, a number of growth drivers there here and I appreciate your comments on.
Macro an industrial backdrop, but.
If we just look at the.
Quarter over quarter.
Wearables.
Yes, I mean those are much easier. This is a stronger quarter for you. So maybe just help us understand why is still sort of a 5% organic.
Midpoint just.
Good on that.
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Yes, I mean were in our very pleased to be among the companies that are on lowering guidance and this and this tougher macro so where we're.
We feel comfortable with that they are there is more macro uncertainty for shore. Some of the more macro sensitive markets have become weaker this year and I don't disagree that in the strength of the other areas that you have side that you know.
Proteomics microbiology.
Gigahertz RMR and you know a few a few others, but those are some of the highlights. So we think we're I think we're really are on track and have.
Probably meaningfully de risked whether we can hit our guidance this year and in fact, we are increasing incrementally our non-GAAP EPS guidance for the year.
So that seems that seems prudent that this model at this time.
Okay. Thanks, and then on Europe , if I could touch.
Could you give us a sense of yours view as you talk to the customers, both an academic and government customers and sort of going into 2020 here and I know it.
Not specifically asking around guidance, but just sort of what's your expectation here in Europe .
As we go into the next couple of quarters here and how does that.
Reflect in terms of.
1.1, and 1.2 gigahertz.
And then Mars and if you could update us on the.
And 1.2 gigahertz within the factory.
Those are in sort of what's the what's the status and if they're up to the field.
Two questions there. Thank you.
Okay.
Europe as we had said last quarter, we'll say now we probably feel a little bit better about Europe . Then then maybe some some others.
And.
Europe and you if you take it over a weekend quarter to quarter, there's some fluctuations.
I think if you look at Europe over the first.
Nine nine months in revenue.
Sure Hope maybe you can help me there, what's the what or.
Miroslava, what's what's the revenue trend for Europe in the first nine months.
Honestly on inorganic third quarter was up high single digit, yes, yes high single digits and orders in Europe , as well I mean and that the Tim solve is doing really well in Europe microbiology is doing well in Europe .
The.
There is some some of the some of the you know a German then and UK in industrial investment has slowed down a little bit there is this.
Next it's not uncertainty going on in and of course up you know European.
Vehicle or car car industry to which were not heavily exposed as maybe a little slower, but overall I feel pretty good about Europe I feel I know we have.
So called exposure over there, but I also think we're really quite strong and an academic funding in Europe is not on the other funding trends good but the the fraction of of academic funding that we can capture with our life science tools are really quite good and as I said earlier microbiology is good in Europe . So we feel pretty good about Europe .
And.
As we've said pretty much all year round were a little more not I'm not going say bullish but were more positive on Europe than some others 1.2 gigahertz as you'll recall, we have nine on order and one 1.1 gigahertz 1.1 gigahertz has shipped then as you may have heard from Twitter. It has come to field so that.
That may or may not get except that in Q4 doesn't really affect our guidance because either way enough. If we have that in revenue then maybe something else goes into the first quarter or so but anyway 1.1 gigahertz has been shipped and that's the first hybrid system that has come to feel that a customer side. That's great news is another little milestone.
And we have have or have had 1.22 of these ones one two gigahertz systems.
At field than the factory generating and Amar data and we have more in the production pipeline. So we hope we're not giving 2020 guidance, but I very much hope that what you know.
1.2 gigahertz for the first time will show up in revenue next year to what extent, we can discuss in early February .
And maybe one more piece of nice news is that the U.S. National Science Foundation.
And has funded a large project for the first 1.2 gigahertz system in the United States that the Ohio State.
University, and we don't have an order for that.
But it it's great that a us institution has received major funding.
Federal funding in the U.S., we hope this will be a bit of an ice breaker at of course potentially a very nice order.
Alright. Thank thank you so much that's great. Thank you.
Thank you finance.
And our next question comes from Derik de Bruin of Bank of America Merrill Lynch. Please go ahead.
Hi, good afternoon.
Hi.
Load Eric.
Hey, first question is.
You commented on strong growth in lifeline mass spectrometry can you talk a little bit about that market. What's going on also historic we recruit and a lot stronger in Europe and the rest of World American snack can you talk about.
How are your your marketing geographic shares change or so very actually.
Background.
Yes, so derica or I mean, we've had a significant free fresh in the last three four years of our.
Life Science mass spectrometry, our mass spec portfolio for short and and that's really you know given us.
Momentum in many fields from apply to pharma bio pharma very much Sun proteomics increasingly also in metabolomics female mix.
And you know I mean, I think right now we're.
We're.
From what I can tell it looks like we're gaining some share there and in mass spectrometry and I think that is really true throughout most geographies. We're actually also growing nicely in Europe , where as you pointed out we're pretty far stronger already but we're also in I'll have seen nice.
Growth in the U.S. or in Japan, and rest of the world and China and up so.
So that's that looks healthy all around and and I think our the opportunities for which we have positioned ourselves from single cell biology to proteomics to Mehta below mix and of course, biologics biopharma trends and others, but those are some of the major ones. These are not that macro dependent so that's good.
There is excellent academic and nonprofit funding for them as well as pharma funding.
Including nonprofit also in this case, including medical research.
So good growth drivers not that macro dependent up pretty steady pretty and not somewhat dependent on the geography. I mean, you know any any country that wants to do significant life science research or drug discovery.
It will be interested in these tools and we're doing quite well were or we're catching up perhaps a little bit and then in the Americas and Asia.
Great.
Asia can we talk about the Chinese market and what you're seeing there obviously.
Indicators there.
The next.
Yes.
Maybe any pullback in Chinese R&D spending.
Derek is Gerald.
I would say generally John has been a mixed story for US we had pretty solid revenue from China in both Q3 and through the first nine months of the year.
Bookings are a little bit softer than we would like but I think thats.
Somewhat expected, partly we see a few delays in terms of orders as part of it's just there's some paperwork delays theirs.
No just some softer order patterns generally.
I think you already know we have a pretty solid business in China represents about 15% of the overall business and I mean, we don't see any significant issue. There. So far I can talk about the tariffs if you'd like but I think it's.
It's overall, especially the high end research funding I was just then.
China in September .
And I feel that there is a continued strong push on on top notch.
You know life Science research funding in research and in China, I don't see that part letting up at all.
Again, we're not that exposed to were not exposed to generics. We are we're doing fine and microbiology as well as we've had nice growth in Asia, including China.
We're not that exposed there too small molecule pharma or see arrows. So the areas, where we academic research components and biopharm, our research and microbiology.
Looks pretty good maybe maybe enom, our bookings a little weaker after they were growing at a torit.
Wonderful pace last year overall, China in good good revenue growth a little bit slower order growth this year than last year.
Mouth, many signals that you get over overall the specific question. The high end research funding. We think continues very much I think that remains a top priority for China as my impression.
Thank you.
Okay.
And our next question will come from Doug Schenkel, What's Cohen. Please go ahead.
Hey, this is Chris on for Doug Thanks for taking my question.
Which I just want to start recalibrate. So Kelly growth has accelerated meaningfully this year to double digits. Thank you talked about the mastec portfolio refresh and diagnostics driving improvement and growth, but curious if there were any other dynamics.
And not looking for 2020 guidance, how sustainable do you think this growth is and if we want to use it baseball analogy what inning do you think youre in terms of the new instrument placement cycle.
So a mass spectrometry and multi biotyper do very well, what multi biotyper isn't the baseball game for sure.
That's.
No.
Nickel diagnostics, it's just all as a a need in a relatively steady market and we have really great solutions, there and they have more and more capabilities were perhaps even winning market share there and the high end acquisition by and large is going well.
There are more things in the pipeline you know for USSTC clearance of certain additional capabilities. So thats, a very steady business and we're delighted that even the instruments part of that business is sort of back to the you know low teens and the consumables business there continues to grow.
Well north of 20%.
So various very solid no end in sight no.
No final incoming up there.
Proteomics I.
I don't know I think were roughly where genomics was 10 12 years ago.
I'm, not saying that proteomics will necessarily be as big as approach genomics in total, but again no baseball analogy there at all I think these markets are healthy and our technology is becoming more and more appreciated there. So.
No runway no baseball games those those these metaphors really don't apply to these markets.
Okay, and then Jarrow can you just help us bridged the EPS guidance for the year.
Thank you beat Q3 by six cents and then you accretion increase the full year EPS guidance by two cents.
The implied Q4 EPS growth rate is I think only about 4%, which is a meaningful slow down relative to the 20.9%.
You posted on year to date basis. So clearly there has been some nice momentum. This year, just really wants to make sure. We're not missing anything here and updated EPS guidance is I guess.
From an effort to de risk guidance for the full year.
Well I guess, what I'd say is that we've we posted very solid performance running PS perspective over the first nine months and.
We feel like we should clearly.
Provide some of it into our updated guidance for the for the full year at this stage.
Clearly, we're generating good profitability from from the numbers, we posted thus far so I think we're just moving it.
Reasonable range at the moment I don't think there's anything special that to really want to highlight other than we continue to drive operating margin performance.
The mix.
Being driven by our product is helping.
For sure and.
More to come because the.
Just the expectation.
Okay, sorry, and just quickly last question I think you know that you have strong growth in Japan. Some of your peers talked about potentially benefiting from a pull forward of orders due to the increase in Japan value added tax.
The dynamic impact you at all.
Yes, if not how sustainable is it Japan growth here. Thanks.
Yeah. We're we don't have any data that would allow us to estimate whether this was a partial effect or material at all keep in mind that for us between orders and.
And revenue tends to be about a couple of quarters on average.
We are aware of the VA the VAT change in Japan.
Japan this year in general, but you really year to date and not just in the third quarter has really performed very very well with excellent growth. The growth has been so good for us that is probably not sustainable.
But it also comes on top of some pent up demand and really very weak trends in Japan for many years in a row for us for broker at least so it's a little bit of catch up.
And now that the color on Japan, Japan is delightful for us this year and has been all year and we're we're not we're aware of the VAT change, but we we doubt that it's very material, but we also don't have any data that allows us to estimate that in anyway.
Alright, thanks for taking my questions sure.
And the next question will come from Dan Brendan.
Yes. Please go ahead.
Great. Thank you thanks for taking the questions.
Frank just wanted to understand a little bit more just about the fourth quarter guide, obviously, you're kind of baking in some some cushion for.
Uncertain macro I guess, but when you take your guide it looks like about zero to 4% in the fourth quarter. So I'm just wondering could maybe give a little more color like to get to the low end or even within the range is it the semi business, which you talked about 5%, but no you're pointing to a very we kind of year to date number or excuse me for your numbers. So is that the crux.
So kind of what would get you kind of down to the bottom in that range because it just seems hard to kind of get certainly to the bottom half of the range kind of zero to two thanks, and then I have a follow up as well.
Now I mean, the ability to stickler here in my case, but then we're not giving fourth quarter guidance. We're updating our full year guidance. We're delighted that were very much on track to deliver our full year guidance.
We have as always have a very fourth quarter of last year was very strong we would need to we will need to deliver a strong fourth quarter strongest quarter of the year us as in every year and I wouldn't read too much into it we're very pleased to two two and.
Now to be on track.
And.
For for delivering the full year guidance at a weakening environment. So I think we're doing our job this year and.
And I'm you know, that's all I'm gonna say about that.
Okay, and then and then maybe just on the Tim's top obviously you had a looks get a strong quarter can can you just update us on kind of where you are penetrating the market I know not only did you see a real nice opportunity to kind of place boxes, but also you felt to really grow the market given the advances that that box delivery. So can you just given us any color update in terms of the sizing of your.
Kind of base of business today, and kind of how we think about that going forward.
Then we continue to feel good about the proteomics market overall, which which as you know will not only benefit us but other.
I'll listen proteomics and the proteomics the major into the international Upul meeting there in Australia was was very was good.
It shows how that field really maybe at an inflection point with so many growth drivers from single cell biology identical to pharma use to to many other applications I won't bore you with all of them, but there's a lot of drivers in the confluence of positive events. So I'm very bullish on proteomics in general and yet we are.
Doing well with the Tim soft pro and now it's clearly an additional capability. It has it has certain attributes that that make it the unique and it is very high performing very robust an area, where you can compare it. So it's a very welcome addition, and very and then starts to beat out two years after the launch really quite establish.
We're not having to explain brand new technology, but everybody is worried about it.
Maybe no someone who has won and so so that launch you know with paying a lot of attention to early customers in key opinion leaders and all of that is really going very well and then we're you know we're still in the Delaware.
We're still in the early part of the S curve.
And so now used another metaphor, but I think it's a pretty long S curve for proteomics I'm not so worried if we're still in the early part, but you know, it's beginning to accelerate a little bit and then that's right.
Rewarding it's I think the reception the the qualitative reception of this technology and having an additional technology, that's really viable and very very capable in the field has been I mean, no almost enthusiastically received.
Great. Okay, thanks, very much and not congrats.
Thank you.
Our next question will come from Steve Willoughby of Cleveland Research. Please go ahead.
Good evening and thanks for taking my questions.
Most of them have been asked but frankly I just wanted to follow back up on.
The Biospin business.
Yes, if you just talk about a little bit about bio stood business.
And what Youre seeing I guess in the quarter and also going forward I guess two questions. First you grew low single digits here in the quarter and that was obviously aided by the one gigahertz system that you sold so just maybe talk up if you could a little bit about what's going on the underlying.
Kind of bio spend anymore market and then also could you provide.
A reminder, refresher on what the pipeline for gigahertz systems look like.
Centrally for next year.
Steve sure.
So the bias spends performance in Q3 was a little underwhelming.
It we made it up elsewhere, but it was not a strong performance.
And we think that biased that's why during my prepared remarks, I said that for the full year, we're still expecting.
Mid single digit organic growth for Biospin, something we've said all year and but however, Q3 was a little was less than that so we think biased and we'll have a decent Q4 and will be all right for the year, but Q3 as you've pointed out and I think you've pointed with your question was not the strongest for bio spin.
I mean backlog, we have for multiple years for ultra high field and you know Thats now.
In the U.S. and elsewhere there is some.
Appears to be some funding and there's some funding under negotiation for additional systems. So I'm not convinced that we will necessarily deplete our pipeline once we start delivering but we may be able to roughly.
Replenish it I mean, it should come down a little bit because right now our delivery times that requesting a very long three to four years or more.
But so the pipeline looks encouraging I in terms of people looking for new funding.
And the pipeline of what we have or what the backlog that we have already we expect to deliver over multiple years. The timing of that is still a little bit uncertain, but we hope that when we give guidance in February 2020.
For that for next year that you know there likely will be 1.2 gigahertz component to that but but I'm not going to him.
Let us let us get some our experience with the technology and then of course that will be the right time to get to give you a feel for what we're expecting for 2020, but for the first time ever we hope to have 1.2 gigahertz contributed to revenue next year, and then hopefully ramp over multiple years as we deliver the.
Backlog that we have and hopefully add from it add to it as well with a with a reasonable pipeline.
Okay, frankly, if you don't mind, if I could have one quick follow up.
In your prepared remarks, you made a comment about the nano business, which grew high single digits and you specifically commented that you don't expect that growth to continue in the fourth quarter. You just made a comment there that you expect bio spend to kind of get better in the fourth quarter in terms of growth.
And then so talented which grew low teens I believe organically in the quarter, Jim Kelly keep growing at that kind of double digit rate I'm, just kind of going back to I believe was Dan's question regarding the fourth quarter implied guidance, yes, that's all it corrects actually add the way you said it or asked it Steve remember sometime ago, we had all groups.
Growing at about the same at similar rates.
We'll have much more with this.
Diversity of growth rates, so full year organic growth rates nano is likely to be in the low single digits biospin mid single digits, and and Khaled and high single digits, CNL, maybe even very low teens or so and for the for the for this year that all that seems to weigh the play that.
That's that's likely to how it's going to play itself out and with with best really having picked up nicely this year and better than we had expected. So so call it a bit stronger than expected best a bit stronger nano bids weaker than expected at the beginning of the year and bio spent about like as we had expected. So that's that's the new picture as we.
Go into 2020, but.
Let's see how we called what we predict then for the year 2020 in February .
Okay. Thanks, so much Frank I appreciate it.
And our next question will come from Steve Hunger of Needham and company. Please go ahead.
Thanks, a happy Halloween guys. Thank you do you all right.
As far as just my first question could you dive a little bit further into the microbiology performance and maybe touch on placements versus consumable growth and how should we think about the new biotyper serious.
As far as does that is that an upgrade that into the base or a complementary system sale into the base.
Right microbiology solid growth year to date.
Placements are really for us its units sold or leaf, we don't really place any for for free and our business model.
So the multi biotyper units have been back to I think globally to to double digit growth for a couple of years. There was more like high single digit. So that's really delight strength, particularly in Europe and Asia.
A little bit weaker in the U.S., but that may have to do with outwear waiting for sepsis type or.
Ft, a claim weve done with the clinical trials enrolling in contact with the FDA and maybe some time.
This winter whatever that means we might get a additional clearance and FDA clearance here in the U.S. So that's the.
Consumables growing faster than 20%, that's really fantastic and continues to be we now have we now are already as you may recall at higher we sell more aftermarket service consumable software then we sell systems in the microbiology business that trend will only continue and at some point will probably be 60, 70% aftermarket.
The serious nice new system, Yeah, we introduced at the American Society of Microbiology. We since then also got CE Ivy D capabilities. So we can now ship that into.
Not in all countries in some countries. It still has to go through regulatory and can only go into unregulated markets. So there's some you know that the usual things when you deal with a regulated system that is the that is the most powerful it's not complimentary it's really the next generation high end high performance multi bio fiber.
And also you know increased robustness and more laser shots lifetime laser for most customers and so on so it's a very compelling offer it should help us competitively. It allows some of these newer methods that are research use only or in some cases are already approved in usually in Europe first U.S. later.
And so its its its.
Sort of it's going to be the high end multi biotyper will have.
But they MBT, a smart and classic as the more affordable solution. So we have a bit of a range in that product line, rather than a single product and not everybody will need this serious but.
If people kind of forward the serious or one a forward proof what they put in a future proof excuse me. That's the word then the series is probably a very very good value proposition for them.
Great that's very very good color and then.
I noticed that you reversed.
Structuring charge in the quarter and I was just curious as to what that involved.
And could you maybe comment about the impact of when I'm, Malaysia transition.
We will be fully complete and we can start to see.
And impact on on working capital.
So we're scratching our heads a little bit I think there was a gain on one facility is in Leipzig.
Yes, so good catch while yes, indeed, there was a gain on the facility that was part of the restructuring of our broker detection business. So we had taken some other restructuring charges earlier and then at the end of that as we sold and lease back on their part of that facility. We had a gain so that's that that's the this.
That's that's that item.
Penang.
Other ramp up will actually.
You know as more products go to Penang the ramp up isn't will not be done by the end of the year. So some products for some product building the golden new normal will be that they come from Penang, but then some additional products move to that facility.
So Matt maybe let me get you a better answer in February .
I don't have a.
I don't have a clear answer for you right now, but other than to say that it's not just the one year, we moved a bunch of product, but it's a multiyear ramp up of you know you take additional product sort of every year and move into that facility.
Got it great.
Thanks.
You're welcome Steve.
Our next question will come from sung Ji.
Oh.
Gee. Please go ahead.
Hi, Thanks for taking my questions. Just a couple of quick ones. Frank could you maybe talk about you talked about the legacy pricing a affecting your one gigahertz system placements. This quarter just was wondering.
If that's like a one off situation or.
Not quite sure what that is and could we anticipate that first somebody.
No, we really think Thats a one off situation that is that was that was funded originally as a 900 or 950 megahertz system.
Got almost a decade ago or maybe eight years ago or nine years ago. It was then later on renegotiated.
To be one gigahertz system that was a key developments site and Amar for Varian later agile and.
It was very very competitive and it is it's but without bringing with all the details. It's a wonderful customer and it is a one off it is it is really a very very old Kate it's an old order as many years old and the negotiations for that order have almost gone on for GAAP the better pay.
Later this decade.
But the one off.
Okay, and then just quickly on microbiology, obviously seeing a lot of good growth there.
The market are you taking share as well Uh huh.
Thank you.
Probably probably we really have.
We have customers, we don't have data or statistics on that but we.
From what from the color from the business, we really get some customers, who you know maybe a decade ago or seven eight years ago purchased the among all the I'd system from other cut from another company and and some of them.
Our clearly preferring them all the biotyper platform today, and including some of the newer products that we have launched there. The smart now this areas. So we probably we don't have data to prove it but our sense is that for gaining.
A little bit end market share as alone.
Great. Thank you.
Our next question will come from.
Kumar of Evercore ISI. Please go ahead.
Hey, guys. Congrats on nice friends here frankly, maybe up a question on this Q4 guidance.
You know clearly cutesy came in well about you look at the comps Q4, it gets a little easier.
You know given your comments sick industrials Arden worsening its job it's playing.
According to expectations, it's not coming back, but its according to expectations why wouldn't the easier comps in Q4 help you guys.
Well you know actually as we had hinted before we focus on you know the full year guidance. We focus on we've had a good Q3 Q3's, probably little bit above average this year right. I mean, we're not saying that Q3 sets the new standard and expectations, but it was.
Another good quarter and the good quarter to de risked Q4, and and to de risk our guidance for the year, we're raising it a little bit we're just being a little bit cautious. It is you get a lot of data points, maybe last year, you had a pretty tight spread between but the industry could pretty clearly say what the industry growth was I think thats.
If you look at life science tool or mass spectrometry, that's actually pretty hard to say right now, which data point do you take there's quite a spread of data points that we've seen reported in the last.
10 days or whatever it is so.
Hi. This is a you read the Wall Street Journal you, you're you look at Europe , and you're a little bit cautiousness, Brett is pretty pretty simple and I think we're you know I think we were very increasingly more confident that we can deliver our guidance for the year and we've raised this slightly and we feel comfortable with that.
Fair enough finished at one quick one on margins it looks like FX contribution is coming in slightly better than expected which implies.
Given that you didn't change the margin guidance at the core.
You know came down a little bit which feature.
Investing in the business I'm curious where that Don investment is going thank you.
Very good cashew that's exactly right, we're pleased to get a little bit more FX headwind and we're solving for reported margin improvement each year, that's our job and we're on track there so into indeed, we could and ended and invest a little bit more and that's of course goes into our project accelerate initiative.
This by and large.
And now that there I wouldnt single AUD, one or the other that really goes into into many of them.
So that's a that's a very.
Astute observation and that's exactly what we're doing so we're we're not letting that all go to the bottom line, we're actually pleased to be able to invest and not make sure that we don't lender invest in some of the the opportunities that we have.
Thanks Frank.
Huh.
Our next question will come from Tycho Peterson of JP Morgan. Please go ahead.
Thanks for fitting me in I guess on margins just following up on that as we think about the Malaysia facility can you just talked a little bit jailed about how we should think about the operating margin expansion potential for that facility coming online and then separately gel that for you as well can you just talking now free cash flow. When you think that could start to turn.
Sure, Let me talk about Malaysia, meaning just generally Malaysia is part of a broader no operational excellence program that we put in place and I would say that that's baked into our guidance for the full year I'm not going to comment on how it all looks as we as we look forward into 2020.
But I would tell you that thats part of a program there's a number of other production.
Capex production activities that are intended to drive further growth in the business and Penang is one of them.
With respect to free cash flow, maybe let me just talking about that briefly I think you probably know we do have a little bit of lumpiness that fluctuates from time to time, our free cash flow we did see.
Slightly softer free cash flow generation in the first nine months, that's largely driven by some of the inventory buildup.
Transition products and activities into.
Depending Malaysia. In addition, we have some buildup of inventory relative to the gigahertz systems for anymore.
And in addition, you probably know as well we have a little bit of increase in our Capex for 2019.
Finally, just.
The shipment timing I would say also is impacted that so I don't I mean as you probably know we have a very large.
Q4 planned it's generally generates a lot of revenue.
Operating margin and cash flow. So we're we're still quite optimistic about how are we will land for the for the full year on free cash flow and beyond Malaysia, Tyco beyond Malaysia being important far ongoing medium term you know further operating margin expansion.
It is also one of the elements of our plans to gradually improve our effective tax rate.
And then Frank on.
The question before on terms comp pro can you just comment on spatial Kim's helpless multi I know that wants you to SMS and part of a strategy to expand the Tam is that starting to contribute here in the back half.
Yes.
I mean, that's that's much more of a that's that's a much smaller market than proteomics overall, but it's beginning to contribute but it but it is.
It is this.
It's a small it's a smaller part of the overall himself platform market.
All right and then one last one Oh go ahead.
Yeah, we did receive orders since since they SMS and it's well received its you know at some so that's going as expected. These things take awhile before people have you know, it's a more expensive system. A you know so you'd need to bigger budget. This is not something where people simply show up hey, I have a budget I'm going to spend it on you and.
Stead, so given that we just launched at the they SMS, it's going it's going well, but even long term. This will not be all of a sudden half for a third of the Tim stop proteomics market it will be.
A smaller niche.
And then that you've had a lot of questions on anymore. I appreciate you flagged.
Initiative at Ohio State how much of the funnel I think you think starts to kind of incubate outside of Europe .
Do you see the funding in U.S. and Asia is starting to pick up next year or one yeah. We hope we hope that yes, we hope that yes, we have some indications, but we also some indications that Europe still active but more of the funnel is expected to be.
In.
You.
It is yeah is expected to be in to you in the U.S. and and Asia.
So thats correct observation, but but europe's not done yet either it's the only point I wanted to make.
So we're expecting potential additional funding in Europe as well.
Okay. Thank you.
Huh.
This concludes our question answer session I would like to turn the conference back over to Miroslava Minkova for any closing remarks. Please go ahead.
Thank you for joining us today, we look forward to making you again on our Q4.
Sure Why 19 conference call in early February 20 point.
In the meantime, we decided to me that's doing various investor events over the course of the quarter, including Stifel Healthcare Conference in New York, The Jaffray's, London Healthcare conference in London, and the JP Morgan Healthcare conference in San Francisco.
Also welcome to visit our had players and they'll wrestling matches.
Thank you and how does that evening.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.