Q1 2020 Earnings Call
All participants will be what's in only mode. So you need assistance like sale corporate specialist by pressing the starkey followed by zero.
After today's presentation, there will be an opportunity to ask questions.
He's also know today's event is being recorded.
This time I like to turn the conference call over <unk> director of Investor Relations in corporate development Man. Please go ahead.
But afternoon I would like to welcome everyone to brokers first quarter 2020 earnings conference call.
My name is <unk> director Investor Relations in corporate development.
Wanting me on today's call, our frankly, <unk>, our president to seal and del Carmen, Our Chief Financial Officer.
In addition to the our next release, we issued earlier today during today's conference call will be referencing a slide presentation.
The P.D.F. of this presentation can be downloaded from the latest without section on brokers Investor Relations website.
We're in today's call will be highlighting don't get for national information.
Reconciliation for <unk> for National measures Alright, what did you know earnings release and are posted on our website at I.R. dot broker dot com.
Before we begin I'd like to reference book are Safe Harbor statement, which we show fly too.
During the course of this conference call will be making forward looking statements regarding future events and the financial end up operational performance of the company that involve red and uncertainty.
Including <unk> related to copy the call with 19 fanatic.
The company's October without maybe for materially from projections or scenario estimate described in such statements.
Factors that might cost. That's the difference is include but are not limited to those discussing today, earning some relief and in our form 10, K., which are available on our website and on on the S.C.'s website.
Oh, so no. The the following you formation is related to corn business conditions and to our outlook as of today may 6th <unk> <unk>.
Consistent with our prior practice, we didn't knock in time to update our forward looking statements base, a new information future events or for other reasons prior to the release of our second quarter 2020 financial results expected in early August 20th White.
Therefore, you should not rely on these forward looking statements as representing our views or outlook as if any dates subsequent it today.
Well, we'll begin today's cope with Frank providing a business summary, and revealing how brokering corresponding to the challenge is presented by the car with 19 pandemic.
<unk> well then covered the for national for the first quarter of 2020 in more detail.
I'd like to turn the call over to <unk>.
Thank you Miroslava. Good afternoon every one and thank you for joining us on today's call.
I Hope you and your families are well.
These are extra ordinance for extra ordinary times, and it's such it's not business as usual.
We are presently focusing on four key priorities.
As you can see on our slide number three.
Maybe the first and foremost the health and safety of our employees.
Customers and partners.
Maintaining business continuity and service levels for customers.
Three executing prudent temporary cost reduction.
And for delivering enabling research and diagnostics products to help fight the Kobe 19 pandemic and to support other essential priorities of our society.
Let me share a few highlights on each of these areas first preserving the health and safety of our valued employees their families our customers and collaboration partners. While brokers businesses are essential we have proceeded to implement strict social distancing enhance cleaning protocols and other preventive measure.
Throughout our major facilities.
Well many of our office colleagues are working remotely we are placing enhanced focus on our service organization in factory employees for whom work from home is not feasible.
Me share with you. One example from our Brayman, Germany campus, where a pilot Kobe 19 at work testing program for our factory workforce has been implemented in April.
<unk>. We are currently offering a pilot project with weekly company paid voluntary cope with 19 P.C.R. tests to employees in our factory.
Where customer sites are accessible and open our field service organizations operate under strict social distancing protocols to ensure the safety of customer sites.
<unk> employees needs to be on the side, we are very grateful to all our employees for persevering and for everything they are doing.
Number two of our focus areas is maintaining business continuity and service level for our customers.
Ensuring our ability to supply or enabling technologies and solutions and maintain high service levels for our customers is another top priority for our team.
In late March and during parts of April several of our manufacturing sites underwent temporary controlled shutdowns or were operating I'd reduced capacity to.
Implement new safety protocols comply with local rules and manage cost and inventory levels.
These sites are now ramping backup power supply chain has generally held held up well and we do not anticipate being supply or capacity limited in the second half of 2020.
Provided that the current gradual reopening trends continue without some second Kobe 19 ways.
Third executing prudent meaningful temporary cost reduction.
Gerald will cover this point in more detail, but suffice it to say we proceeded with a previously planned restructuring in the broker nano group and we have taken meaningful temporary cost compensation.
Shorts time work measures in Europe and globally.
At the same time.
We are seeking to minimize the disruption for our employees and preserve our ability to ramp up again with our highly trained and loyal loyal workforce.
So while pursuing cost savings throughout the business, we aren't maintaining our important investment investment in key areas of project accelerates and in operational excellence.
Finally, and forth brokers, providing critical technologies and solutions to help com. That's the Kobe 19 crisis, most notably our microbiology and infectious disease diagnostics portfolio to which we have added a sars come to P.C.R. test and R.N.
M.R. and mass spec systems, which I used in critical disease therapeutic and vaccine research.
On fly for let me give you highlights on brokers, new Sars cough to test.
Corona Byron festive dolphins they call it.
<unk> Brooker Heinz automated sample prep tools and nucleic acids extraction kids are used in Europe, along where they recently introduced Corona virus P.C.R.S.A.
We are starting from a small basis of about 1 million and the first five weeks since launch, but we are now gradually ramping up and have plans capacity increases by June July.
On slide five I highlight I highlight the performance of brokers microbiology and infectious disease diagnostics portfolio.
Which continues to do very well as many of our product are needed to help.
Address health issues related to the pandemic.
As you May know them all the Biotyper is not used for viral detection itself, but it is very important during the Kobe 19 pandemic for instance for ruling out or for identifying bacteria bacterial respiratory or other non viral infections, which compliment.
Direct viral detection by other methods.
For example in Q1, we had an extra 25, multi biotyper orders from China, including orders from Chinese C.D.C. labs.
One of the interesting pictures on slide five actually shows one of our service engineers, the Chinese service engineer, who flew into Wojahn in the middle of February to install one of our <unk> in one of their new hospitals.
Where are incredibly grateful to something that borders on being heroic, but with the right attitude for our customers and their patients.
Beyond China, we've seen strong systems growth for them all day Biotyper in Europe, especially in the U.K., but throughout Europe, and our microbiology business multi biotyper platform systems consumable services have actually grown in the double digits in Q1 2020 year over year.
Mm.
<unk>, we show our teams tough pro being used in Kobe 19 Proteomics research.
Add Peking University in Beijing in China, Dr. Catherine <unk>, a rising star in proteomics in China has been using the new D. a passive methods.
On her Tim's tough pro systems to identify and quantified changes in proteins and protein pathways as a result of cold with 19 infection.
I will not reiterated but I'll point you to the very nice quotes Katherine gave us on flight six where she has highlighted the throughput and robustness for large scale large cohort studies, which is exactly what you need during Kobe 90 for Kobe 19 research we.
Thank her for working closely with us.
Moving onto slide seven shows broker partnering with the Australian National if he knows center.
I N.P.C. and other global economic sites, using both and our en masse back on frontline research efforts on <unk> 19 patient body fluids.
The Australian National feed 'em Center recently launched a major research project to better understand and predict variation in the severity of Kobe at 19.
It also plans to engage in clinical trials of antiviral agents and all the therapeutic or clinical protocols when available I invent available also a vaccine candidates.
The Australian National feed 'em center use this numerous broker and M.R. and mass back systems to conduct this important mentioned below makes research.
These are just some examples of <unk> engaging to help combat Kobe 19, again I invite you to bear hops take a closer look also at the close by Professor Jeremy Nicole Sunday Pro Vice Chancellor for Health Sciences at Murdoch University and the leader of the.
Australian National feed 'em centres. So our tools are research tools play a very important role there are many other examples where they play an important role in pharmaceutical by a farmer development far my development and structural biology on the Sars called virus itself, it's our an aging it's <unk>.
<unk> in drug screening against these targets et cetera.
So let me continue then with our business update and financial overview.
Let me turn to our first quarter performance starting on slide nine.
Committed challenging operating environment due to cope with 19 brokers Q1, 2020 revenues declined 8.1% to 424 million.
Are 2019 acquisitions added 0.9 per cent to our revenue growth while foreign currency translation was they had waned of 1.1% on an organic basis brokers revenues decline 7.9 per cent year over year.
The report is an organic grabbing you declines where'd you to cope with 19 related disruptions to our customers as well to certain of our operations as I mentioned earlier.
They included an approximately 30 per cent revenue drop in China.
As Kobe 19 spread across the globe towards the end of the quarter, we saw weaker results in our major European and North American geography outside China as well.
R. Q1, 2020, Nongaap gross margin decrease 220 bibs year over year, while our non operating margin non gap operating margin declined 590 bibs year over year, the dropping margins reflects primarily the revenue shortfall certain operational challenges.
And unfavorable mix that resulted from Kobe 19 disruptions.
In Q1 of 2020 broker reported gap diluted D.P.S. of seven cents per Oh, seven cents compared to 20 cents in the first quarter of 2019.
On a non got basis Q1, 2020, E.P.S., a 14 cents decreased 50 per cent.
Pair to 28 cents in Q1 2019.
Our Q1 2020 order bookings for brokers three scientific instrument groups were healthier than the revenue decline wouldn't suggest with orders roughly flat compared to the first quarter of 2019.
However, we anticipate that bookings could weaken in this second quarter of 2020.
<unk> 19 disruption spread globally.
While China appears to be improving gradually.
She's turned to slides 10 and 11 now.
Where I provide further highlights on the first quarter 2020 performance Allvar three scientific instruments groups and of our best segment, all on a constant currency and year over year basis.
First quarter of 2020, Biospin group revenue declined in the mid single digits to 120.9 million.
As searching deliveries and installations were delayed due to customer closures and cold with 19 disruptions.
<unk> first quarter results included a significant revenue drop it in China.
And our system rather than systems revenue declined year over year due to the mentioned delivery and installation delays.
Preclinical imaging revenue was actually higher year over year helped by that helped by the timing of deliveries early in the quarter and finally bio spins after market in software revenues were modestly above the prior prior year Q1 of 2019.
Our first quarter 2020, <unk> group revenues declined in the low single digits to 140.5 million. The decline at college was due to a revenue drop in molecular spectroscopy, which more than upset continued growth in microbiology and diagnostics.
And in life Science mass spectrometry.
<unk> microbiology and infectious disease products posted solid growth as I pointed out earlier.
And these products are needed to help address important health issues, including some associated with covert 19.
<unk> life Science math spectrometry business also performed well with continued good uptake of our team is tough proteomics solutions.
Revenues in R.F.T.I.R. near I.R., and Rahman molecular spectroscopy products declined in part due to cope with 19 related temporary disruptions at our Bruker optics factory in particular late in the first quarter of 2020.
Please turn to slide 11, now broker nano revenues declined in the mid teens to 120.1 million in the first quarter of 2020 on Kobe 19 related disruptions globally and weekend industrial market demands.
Nanos, X. Ray and not have surface tools revenue declined while our nano analysis tools held up well.
Nano semiconductor metrology revenue remained weak in the first quarter of 2020 as expected.
But also included Pushouts.
Deliveries to a major customer <unk> on China. However, however in general in semi receive signs of recovering demand in semiconductor metrology markets, which could partially help offset weekend industrial demand elsewhere.
Finally, best revenue in the first quarter of 2020 declined in the mid single digits at superconductor demand soften towards the end of the quarter. As a reminder, best revenue can fluctuate from quarter to quarter.
On slide 12, we are pleased to announce that the installation of the world's first 1.2 gigahertz and our system what sex successfully completed.
At the ceremony University of Florence, Italy in April 2020. So this was a second quarter item, but it it certainly worth mentioning today, yes, we have received customer acceptance on that system first customers system of this type accepted this new class of stable homogeneous magnets.
I was unable novel research in functional structural by structural biology of proteins and their functional complexes remarkably too pretty heroic broker engineers were able to execute this installation in Italy in February through April up to 2020, while complying with social distancing and lock down.
Guidelines.
As a reminder, we anticipate only partial rubbing your recognition on the on a mark on swollen probe of the system in Q. too while revenue for the more expensive part of the system. The 1.2 gig of Arts magnet is subject to a multi year lease contract.
I again would invite you to look take a look at the customer quotes not only are they generally doing functional structural biology, but they're also doing work on the Kobe 19, a virus and it's proteins and protein interactions.
[noise] turning to slide 13, despite the challenging environment Bruker continues to invest in operational excellence like our multi year project 2020.
As a reminder project 2020 at broker Biospin will consolidate two major historically grown biospin sites in Germany into a single modern lean and customer oriented sites.
Site.
The goals are higher productivity and capacity for growth. In addition to an improve customer interface. The project is expected to be completed in 2021, and it's part of our elevated planned capital spending budget in 2020.
Mm.
So let me conclude by Iterating reiterating that brokerage they fundamentally healthy essential company with a strong balance sheet and a very solid liquidity position.
Our life science tools and diagnostic markets are quite resilient.
Our first quarter 2020 results reflect the initial impact of covert 19.
And the second quarter of 2020 is likely to be more challenging given customer and this man demand disruptions around the world.
However, we believe that long term funding trends in life science, bio pharma and basic medical research as well as an infectious disease diagnostics are going to be strong as a result of the Kobe 19 pandemic.
We believe broker as well positioned for a gradually improving business environment in the second half of 2020.
Hopefully a recovery in 2021.
So with that let me turn the call over to our CFO Gerald Harmon, who will review our first quarter 2020 financial performance in detail Gerald.
Thanks, very much Frank pleased to join you today and review brokers first quarter 2020 financial highlights starting on slide 15.
Reporting revenue decreased 8.1% to $424 million in the first quarter of 2020, which reflects an organic revenue decline of 7.9%.
We reported gap P.B.S. seven cents per share compared to 20 cents in the first quarter between 19.
On an ongoing basis Q1, 2020, P.S. was 14 cents per share decrease of 50% from 28 cents.
The 120 19.
Or q. on 2029 gap operating income decrease to 48%.
Non gap operating margin of 7.6% declined 590 basis points year over year.
This reflects primarily lower revenues.
Unfavorable mix and related operating inefficiencies due to covert 19 disruptions to brokers customers and some of our own operations initially in China and in North America and Europe later in the corridor.
We also experienced weakening industrial markets during the quarter.
At the end of two 120 20 or balance sheet in a rural liquidity position remains strong.
We ended the quarter with $851.7 million in cash cash equivalents and short term investments after substantially strengthening our cash position following our December 2019 dead financing.
Net debt was slightly hiring Q1 2020 than a year ago after our debt refinancing and the drawdown of an additional $200 million on over our revolver.
We are well within our debt covenant requirements with plenty of borrowing capacity headroom.
During the quarter, we used to cash to fund strategic capital investments and or dividend.
At the end of Q1, 2020 or working capital to revenue ratio was essentially unchanged from a year ago.
Slide 16 shows the revenue bridge for Q1 2020.
Noted earlier organic revenue in the quarter declined 7.9%.
We had a positive revenue contribution from acquisitions of 0.9%, which is partially offset by foreign currency headwind at 1.1%.
From an organic B.S.I. revenue prospective buyers been revenues declined mid single digits.
Revenues declines low single digits and nano revenues were down in the mid teens.
Frank mentioned life science mass spectrometry in microbiology and diagnosed diagnostics revenues grew in the first quarter, but most of our other businesses declined do the challenging coby 19 operating conditions.
Revenues also declined mid single digits native intercompany eliminations.
For three B.S.I. groups systems revenue declined in the low teams well after market revenue grew low single digits.
Geographically and on and organic basis into 120, 20, Europe and North America revenues declined mid single digits year over year.
Asia Pacific organic revenue declined in the low double digits with approximately a 30% drop in China do too is locked down for much of the quarter.
Rest of the World revenues outside Latin America, we're up modestly compared to the prior year Q1.
Slide 17 shows that are Q1, 2029 got gross profit margin between 46.7% decrease to 220 basis points from 48.9% and Q1 2019, driven principally by lower revenues factory inefficiencies an unfavorable mic.
From coated 19 disruptions as well as do do we <unk> industrial markets.
Q1, 2020, Nongaap operating expenses increased 1.7% compared to Q1 2019, including expenses from our recent acquisitions.
It's cost savings kicked in near the end of the quarter.
All discuss shortly into two we took further cost reduction actions across the globe.
And Q1, 2020 or non gap operating margin declined 590 basis points compared to Q1, 2019, driven primarily by our revenue decline and unfavorable mix.
For the first quarter of 2028 or nine gap effective tax rate was 23.9% compared to 24.5% and Q1 2019.
Weighted average diluted shares outstanding in the first quarter of 2020 were 155.4 million a reduction of approximately 2.5 million shares from Q1 29 tune following or 2019 share repurchases.
Finally, Q1, 2029, gab P.P.S. and 14 cents decreased 50% year over year, driven by lower revenue and margins.
Next I'd like to comment briefly on cost reduction actions, we've taken to support the profitability cash flow the company.
During Q1, we implemented certain previously planned restructuring actions, primarily within the B.S.I. nano segment.
End initiated additional temporary cost measures related to cope with 19.
Temporary measures, which will mostly be affected in Q2 included.
Short time work for many of our European operations temporary teared salary reductions for our global leadership team and workforce.
One to two week closures of select manufacturing locations.
A hiring freeze and curtailment nonstrategic discretionary spending.
Do the timing of the B.S.I. nano restructuring actions and these additional temporary measures we did not see a major impact <unk>, but we expect to see cost reductions in the red in the range of $10 million to $15 million in the second quarter of 2020.
Turning to slide 18, or free cash flow in Q1, 2020 was essentially flat compared to Q1 2019.
Q on 2020 free cash flow does however include an increase of approximately $20 million in capital expenditures related to production facilities for productivity gains and expansion as described earlier.
Or cash conversion cycle at the end of Q1 2020 was 276 days, representing an increase of 41 day's compared to Q1 2019.
To step up was primarily driven by an increase in D.O. of approximately 40 days as we carried higher inventory balances due to revenue declines and to prevent supply chain disruption.
Mmm.
Turning to slide 20.
May recall that on March 27th we suspended our guidance for 2020 due to the uncertain business conditions created by covert 19.
Since then business disruptions related to the pandemic have used in some parts of the world, but remains significant others and visit and visibility, particularly as it relates to our customers operations in certain market remains low.
Therefore are 2020 guidance remains suspended.
Is our intention to resume annual financial guidance ones visibility improves.
Although we're not providing guidance I would like to give you some directional color on how we see business unfolding in q. too and over the course of the year.
As Frank stated, we expect you to to be more challenging Q1 due to continued closures among many of our academic customers in the western Europe and uncertainty is related to our industrial customers.
We therefore believe it's better to think about a range of possible scenarios for the second quarter of 2020.
The potential for 15% to 25% year over year revenue declines.
Revenue declines of this magnitude combined with our cost reduction actions are expected to keep bruker break even or possibly profitable in the second quarter of 2020.
Please note that actual results could be outside of these scenario ranges, but this gives you a good faith estimates that this time based on the information currently available to us.
We currently anticipate business conditions to improve in the second half of 2020, although recovery is not anticipated until 2021.
In conclusion, we're continuing to navigate a challenging environment with unprecedented uncertainties created by covert 19.
But with our strong liquidity position and agility and responding to changing market conditions were confident that bruker will emerge from this pandemic stronger unhealthy your company with an attractive product portfolio and a promising long term outlook.
We look forward to updating you again on our quarterly progress with our Q2 2020 conference call anticipated in early August.
And without I'd like to turn the call over to Miroslava start to Q. and a session. Thank you very much. Thank your job and now like to turn to call all her to the operator to begin to Q. and a portion.
Just a reminder.
To allow every time for questions.
That you limit yourself to one question and the follow on thank you.
Oh, yeah, ladies and gentlemen with that.
What's that will begin today's question and answer session.
Ask a question you May press Star and then one.
If you are using a speaker phone when you asking you. Please pick up your handset before pressing the keys to ensure the best sound quality.
So which are your questions you may prestart too.
And that is star and then one task of question.
Our first question today comes from.
Tyco Patterson from J.P. Morgan. Please go ahead with your question.
Thanks, Frank I'll start with the totally parents, you highlighted and that's what slide there I'm just curious thought process, it's competitive market. We see your competitors scaring <unk> week, if not more you know why why do you think this is the right moved k. two pushing here, you know, which already crowded market <unk> Kobe.
<unk>.
Well, we are in P.C.R. based testing anyway, with our high and broker high an acquisition of which we took up the full hundred per cent a few months ago. We initially at all and 80%. So we have pretty good customer access maybe not to the you know very large labs that tend to take large use large automated system systems, but as you know the.
The diagnostics markets have many many different customer types and we don't have global strength, there, but we have strengthened certain European countries and some other geography. So we have good market access we have complimentary technologies.
We you know we in I mean, we acquired that business that was about a 40 million dollar business that desma like a little diagnostics and this is a good opportunity from a small a base then a roach or an avid for sure for us to expand in that space. Then so far that's going very well and there's plenty of demand in our our tests.
Are finding good attraction now like many others, we are in the process ramping up our capacity there.
You're going to follow up on China can you comment on the order go can expectations are kind of for the remainder the here and are you seeing a reprioritization of our government.
Well I'm not sure I cannot answer all of those questions, but the anecdotally the.
<unk> patterns in probably starting props and.
Perhaps enlargement late March but certainly in April for instance, Biospin and nano both have reported that orders in China order patterns are recovering so the gradual ramp up in China.
Not only something we read about in the newspapers, but we're seeing it initially at in in terms of order a patterns also in China at least anecdotally, obviously, that's not a full quarter yet.
I I, we we're not going to comment on Q3 year, two four or longer term patterns. This year, because we have suspended our guidance. There's so much uncertainty so I would be speculating, but China seems to be coming back. According to some at least anecdotal broker data in the last.
Six weeks or so.
Okay.
Mmm.
[noise]. Our next question comes from dogs Shankle from Talon. Please go ahead with your question.
Hey, This is Chris software does say thanks for taking my questions can you for how comparing contrasting differences between China and asked China's businesses that result in the outlet for 15% to 25% declining cute cute versus the 30% I experienced in China Q1, I guess is a x. China.
That more terrible event, perhaps a little bit less semi and industrial exposure or is there anything else you with point choose such as the one point too hard system.
Yeah, the 1.2 gigahertz system, because we'll only have partial rubbing your recognition.
Is you know, it's nice, but it's not gonna.
Be that needle moving and Q. too.
It's accomplishment milestone nonetheless.
We.
<unk>.
Q too without going into any details but of course, we do not expect that to be as China dominated as the decline in Q1 was we saw a decline in Europe and in in the Americas in Q1, as well, but it was into a single.
So are made single digits.
With the big even slightly more than 30 per cent revenue decline in China. So that was very Q1 specific we expect that to be more even in the second quarter without necessarily being able to gave you right now relative proportions, but it's got to be much more.
Evened out yes, overall, we do not expect a greater than 30 per cent revenue decline at least that's not one of the scenarios that we think as any significant or meaningful probability so in in in that sense.
You know there's some other parts of the business that are China's picking up a little bit again as I said are far my business I at least on the order side is seeing good growth, our our life Science life science mass spectrometry, and particularly our microbiology and diagnostics business are reasonably healthy so is bad.
<unk>.
So we you know we're expecting a meaningful decline in the second quarter, but you know not read now as far as we can tell from from what we know today not reaching these you know 30 35, 40% levels that some people may have feared so you know, we we think globally with a much more.
Even picture, perhaps there'll be some exceptions, probably Japan, and probably India will be super will be very very weak and q. too, but but the major geography should be more evenly performing more evenly then the extremely and even performance into one when China dominated at all and that's probably as much as a color as.
As we have and as we can give you right now.
Okay, and maybe for quite follow up.
If you break even more profitable as a low end up their revenue declined range.
We we do and that's our expectation.
I would I would just say that generally speaking relative to the range that I provided 15% to 25%.
It does assume that you know China will gradually reopened and that's our expectation, but certainly the signals. We're <unk>, we're seeing on on the ground at the moment and also it it at the low end it implies that willing to decline. It implies that then you western Europe.
But also see some stabilization in some reopening activity and that seems to be.
Playing itself out at least in the United States at the moment in everything we hear a would also be true in Europe.
Do we think those that scenario range is a pretty reasonable series of assumptions at this stage.
Okay. Thanks for taking my question, However, I'm doing well yeah. Thank you you as well.
Oh nice question 'cause sharp neat stood up from S. Phoebe Leerink. Please go with your question.
Yeah, Frank Thanks. So the first question is on funding expectation and there's some funding expectation in in U.S., and and 2021, obviously magnitude as a sort of unclear at the moment, but based on the compositions that they had good with Europe and customers as a result.
This epidemic, what's your expectation in Europe in academic funding overall carbon funding given yours stronger position, there and being closer to the customers there.
<unk>, Yeah, <unk> in <unk> I mean in much of the World I think.
Academic funding is a question of timing in in Europe, and many other parts of the world and in part in the U.S. academic spending is driven by governments, there certainly not pulling back and if anything there is a lot of noise a lot of chatter about increasing budgets for life Science research.
<unk> of course anything that's my Rolla, G.N. covert 19 related, but but really I think I lifetimes funding, including in academia as well as in pharmaceutical research I think it's going to be quite strong.
And.
You know in Europe, as well as in the U.S., it's not that universe with a few exceptions in in a few southern European countries and maybe in India universities might really be just about closed but elsewhere. The students aren't there and the laps, maybe they're not in the laps, but the professors are riding grant proposals and.
And writing papers and whatever else. They doing so there is quite a bit of activity. It's not that the academic sector is closed about a lot of it is working from home and of course, it's working you know the lab work is a unless you're direct the doing Kobe research is slow down we expect that to reap to reopen so so actually.
Life Science academic in government funding for.
When this.
Chatter and noise turns into specific grant approvals and fundings, we're our customers and we are actually pretty optimistic.
Mmm without being able to predict the precise timing that there is going to be perhaps not only are returned to previous funding levels, but maybe even a multi or bowlus of increased life science research and and and find a medical Reese fundamental research funding, which would benefit us beyond.
Diagnostics also in our animals and mass spec business and then our my cross could be business in particular.
That that that's very helpful and on the end of March side to I. Appreciate the the lower gigahertz at a more demand might be a it's going to be impacted here in the near term, but when you look at the 1.2 orders in the earlier 1.1 or the other orders that you expect to ship out so on those can you give.
Visit status of where you stand at what what's in the you know what's the expectation here with the the you know sort of the push out that you are seeing here in in the in the second quarter.
When do you expect to deliver the rest of them and then is there any are there any questions on those contracts that have already been signed or where customers have committed to a magnet.
What's your sense of the those commitments and funding now.
So starting in reverse order or there's no question about the contractual commitment. These contracts are solid there the funding as their those cost that's completely solid as far as I can see.
Maybe jumping to the beginning the introduction to your question.
Funding for an M.R. and for and are lower and demand for that at lower than the gigahertz class.
It's not necessarily going to be.
Down or down all that much.
It's not you know it's a it's a little too early to tell about it it looks like R. and Amar funding.
Is is is.
Could be in <unk> could be you know maybe declining in the mid single digits, maybe even be flat or so I, especially with China picking up again with pharma, an M.R. demand doing really really well quite now in terms of bookings there for the applied in clinical systems for which we do screening.
That's important in this crisis that we gave you showed you that make up alone makes research at the Australian National feed 'em Center, but these type of research projects are of interest in many places I think bio spend will.
We'll be doing okay actually in general now to Europe to the central part of your question gigahertz and gigahertz plus at some point, we thought maybe would be delivering three or four of these systems. This year.
We're not going to be factory limits. It in that sense. We're pleased that we actually got the installation faster than we had except that it in particularly difficult circumstances in in in Italy, Although Florence wasn't the hot spot in Italy, but still all of Italy was locked down and we're able to get that installation done.
I think it'd be gated so nothing will be cancelled as far as I can see could there be delays with deliveries to the other European 1.2, or or U.K., one point O. gigahertz cases, and could that you know since we usually need six months for installation and acceptance.
I still hope that we can you know this year have two or three delivered.
Including the system for Italy will they all get accepted this year, maybe acceptances and one of these systems.
<unk> slide into next year, because we cannot deliver for a few months that's possible.
I would dampened the expectations, a little bit, but the demand in the backlog will be there. The factory is there to deliver them and you know it'll.
It'll depend on when we can deliver and begin installations and that is presently not not we don't have complete visibility on that although obviously those customers have been waiting so they're eager if they're administrations, we'll let them do that to accept delivery and allow us to start the installations.
So.
That's okay. That's very helpful and things and then last one if I could squeeze in on on Tim's top this or that you saw a good up taking the quarter of what's your expectation here you know as we sort of go into that sort of the second half and you know into 2021, the competitive positioning of this instrument maybe you could provide us.
That's you have a sense on the order book that you have for that instrument and what could we expect here and despite the impact and second quarter. Thank you.
Well the competitive positioning hasn't changed it is a very attractive you know seconds technology on the proteomics market. If you will.
And you know and many customers will want to have that tim's tough passive technology in their proteomics lab as well, even though the almost undoubtedly will have a number of systems from another or other proteomics vendors. So the <unk> the competitors positioning is good and the country.
And you'd.
Take the enthusiasm about it throughput about its robustness. In addition to other attributes is perhaps particularly important especially when people do.
Pro Joe makes or approach protein network research, where they need to run a lot of samples.
Or perhaps even doing covert 19 screening or or doing trying to figure out proteins and protein networks.
So it's a it's a good system to half for disease research at this time and I'm glad we are at this stage, where the ramp up is you know is in good shape and the initial customers are pretty happy with their system. So I you know I don't have visibility for that into the second half of the year. So I don't want to set out goals because it's.
Hard to figure out how quick the recovery will be in the second half.
But.
In our experience so far in the first quarter was that both our revenue and our orders for Tim is tough pro continued to grow year over year.
Okay, great. Thank you.
[noise]. Our next question comes from there to burn from Bank of America. Please go with your question.
[noise] Hey, guys. This isn't microscan on for for Dark I want to follow up on an earlier point that that came up a couple of times in your your comments and the prepared remarks regarding.
Order pacing and some of the comments you made about you know a number of deliveries were delayed on the customer disruptions, but you didn't necessarily call out cancellations or anything like that I only get a better sense of you know once these near term quarantines lift and these conditions start to improve both coming months people start coming back to work how quick.
Do you think you could clear some of this backlog and I guess I'm asking is is there.
Is there any constraints was in the bottleneck in terms of how quickly you can live with Blue was you know as simple as some of these things are waiting on the loading dock and.
A week or two after people coming back for the labs, you should be able to recognize a lot of this revenue sort of what do you expect is pacing in which some of these some of these delivers could come through once we get through the near <unk> will be back logged in some installations and then also in you know in in some deliveries they were some customer sites or some countries where they.
That look you can't deliver at all like the last couple of weeks of March I recall, we had the number of deliveries we want it to make to India, we couldn't even deliver and therefore no revenue we could be certainly wouldn't start installations, but it couldn't even deliver so there's some backlog on deliveries, although there I think a little bit more of a back.
Log will be on field service and installations again, we're not paralyzed we are doing field service and installations in many customer locations in some countries. It's just all takes a lot more checking and planning and calling at a time and of course the usual social.
Distancing and cleaning and rules and others.
They are some countries, where it's nearly impossible and where we will be backlog. So it could be that we have a backlog for the room you know even if there is a gradual reopening enduring cue to where we have a backlog throughout the year you know, we'll be catching up but will also of course.
Have new installations, and new service cases to take care of.
So our field service force.
And you know training and other things that go with that although I don't think capacity limited will <unk> limits will be.
Significant there I think we'll be somewhat backlogs and catching up.
For the reduce site accessibility in early two two and inlaid Q1 for the remainder of the year.
Okay.
Helpful and then I'll get out the follow up on the docking another margins into cue from the lower volumes I mean, I think you mentioned quite positive commentary on aiming to stay profit both want a quarter can you walk us through some of the document those both on the gross margin line and some of the steps are taken last year in a sort of how quickly it is to reverse.
Some of that you have to all you Mrs return later in there.
Yeah, It's Gerald so we we introduced.
Some restructuring actions mentioned this on my prepared remarks, which which are already under way. So we'll see some benefit for sure there in the second quarter. We also introduced some temporary cost measures and.
Laundry list them, but most of those are intended to to go through Q. too.
A little bit into Q3, so our expectation is that we'll see benefit and I think I curved so $10 million to $15 million related to cost savings in the second quarter associated with those temporary measures.
And thereafter, I mean in general around our cost structure. We you know, we're pretty comfortable with with where we are we're continuing to make.
Permanent investments in capital expenditures you saw we we we've increased or <unk> spending in the first quarter here about $20 million, we've got to major production facility improvements that we're making for both productivity gains and for expansion.
We're not we're not sidetracking those those are still a part of the program and of course I need to point out relative to our our backs. We are continuing to invest in the project accelerate initiatives, including from our new perspective, So I think our our overall cost structure, we're able to flex in a way and we've.
We've done that now hopefully when a temporary basis of things begin to reopen up in the second quarter, We'll we'll move back to a more called traditional cause structure is remove ourselves into third quarter.
And I I guess, the only other comment I would make here is that.
You know just generally I think our experience in mix.
In the first quarter I need to point out that there you know if you. If we are talking about a scenario in the second quarter of 15% to 25% range of revenue declined I mean, there's clearly going to be some impact to there on a margin and we saw that in the first quarter in our expectation is that we would.
Something similar in the second quarter.
Oh, sorry, second quarter with with with with an improved decremental margin awkward because because the revenue dropping Q1 came so quickly and the cost cuts could not quite as quickly the incremented decremental margining Q1 was high.
And we think that will be lower and therefore, bettering q. too right.
Got some thanks, so much goes thank you okay.
Overall, we're trying very hard to keep a or not to to not have lay offs and not to have furloughs, but to keep our workforce and in fact because of our big European footprint that general European short time work measures, where government support temporary reduced work or even down to zero are very very favorable forgetting.
Quake start afterwards that happen to us in 2009, maybe very quickly were able to his to ramp up again and go all the way into overtime a few quarters later, because we never for load and let go of our workforce and that's very much. The intention. This time to be able to you know start to when we when when the demand is there and be ready for that recall.
<unk>.
Our next question comes from Dan Arias from Stiefel. Please go ahead with your question.
[noise] hi, Thank you for the questions Theses Catalina Island has been done. So it's hard time. Thank you mentioned continued investments into you accelerate but also some shut down some <unk>. Some obscure sites can yes, geek to project accelerate loan to some <unk> separate activities.
That that is still on track profession, so that may be a slow talk too late by coffee.
Yeah, our our good good question our project accelerate initiatives are.
You know, they're all on track and if anything the one of them that had not been on track last year and not in the first quarter, yet either what semiconductor metrology.
But because the world right now working remotely has able ratios appetite for for memory and for logic and and for I.T. infrastructure.
That on top of additional recovery trends in semiconductor makes us a bit more optimistic that semiconductor metrology demand and we're seeing it.
Also in our bookings is becoming healthier so one of the week Ariads last year and still quite weak in Q1, as we had predicted that was independent of covert.
It's probably a beyond life Sciences diagnostics is probably also coming back at least to the indications are looking much more positive in that area. So yes, we're continuing to invest in our project accelerate initiatives and they remain directionally on track.
No disruptions there.
Okay. Thank you <unk> what tech your expectations for him I came to mind going forward, given where hospital is standing pay your ideas seem to be at the moment.
For what type of hospital demands.
So he might get into mind imaging imaging.
Like magnetic resonance imaging or something along those lines.
Yep.
Yeah, well, we don't we're not a med Tech company.
So we don't really we we we have research microscopy systems, we don't have pathology imaging or radiology imaging systems, we in directly support.
Hospital radiology magnetic resonance imaging M.R.I.
The the major.
Med Tech radiology companies.
Who purchase our superconducting materials and that demand by and large has been dampened a little bit but it only in the low single digits, so that looks pretty solid but we're not.
We're not the primary we're we're not we're not an imaging provider for for routine radiology applications are pathology applications.
Okay. Thank you.
Our next question comes from Steve Willoughby from Cleveland Research.
What's your question.
[noise] hi, good evening and thanks for taking my questions Hope everyone is doing well two questions 41 for Frank and one for Gerald.
Sprint first you know if you could just provide us I guess a reminder, that also some color as it relates to the funding and revenue academic customers you know how much of that you're you're revenues academic customers Yep would you say comes from federal agencies versus you know.
Maybe universities themselves.
Then you know what are you guys hearing it as it relates to you know expectations from these customers in the back half of the year and possibly even a 2020 given that there is some increase uncertainty as it relates to you know what.
A university and look like wouldn't come in the fall semester follow up for Gerald.
Yeah, I mean, I'm I I'd say outside of the United States per definition it tends to be the federal government's other governments that fund universities.
There isn't a lot of in dome and or philanthropy funding for universities outside of the United States. There's a few exceptions.
So I think whatever <unk> academic trends you might see in the United States do not extrapolate in general to the rest of the world. So 80% of our academic customers are not in the U.S. roughly and they tend to be government funded their funding is very solid.
The U.S. I think also you know it maybe that's.
You know you some universities may struggle in funding there administrations, but they can take their NIH grant and spend it on their administration. They have to use it for the purpose for which a professor or B. I got the grant and if that happens to be a mass back around our they'll they'll have to use it for that so I'm actually you know I acknowledge that.
Endowments will be down and and maybe that's very indirectly may affect philanthropic spending or so but that's very you know that sort of a second derivative and we'll need to see whether that even plays itself out that way our major U.S. life Science research customers, who tend to get federal grants, if they got to grant they'll spend it.
On what the Grand was four and not on other University budget holes, so I'm pretty optimistic that a life science academic and government spending for research with whatever time delays. It will have there will be timing delays, but I think fundamentally it remains healthy.
Or as I said earlier I think it might even become better in the next five or 10 years, because this pandemic in terms of health care spending an infectious disease fundamental r. and d. spending has been a bit of a wake up call and we'll probably be prioritized for the next decade.
So I'm sure I would all that bullish but I think that's my assessment.
Yeah. Thank you Frank I totally agree with you you know Gerald as.
The the commentary provided as it relates to remedy expectations and some of the cost cuts you're making you know just how should we think about cash flow I guess, you know over the remainder of the year given what you're seeing today, maybe I'd presume you probably have a better idea as well it's a two kubitz any thoughts of you have like cash flow.
For the pool your overall maybe.
Yeah, we're really not providing.
Well first of all we don't have very good visibility into the latter half of the years. So we're not really providing much.
Guidance or information related to.
Profitability and in cash flow connected to it.
I guess I would say just generally from what we saw.
In the first quarter, nor cash flow positions been pretty solid we're not really concerned about that at all at this stage and even.
Following into a a further revenue decline in the second quarter, we're we're pretty confident that from the profitability perspective, there as well. So I think our general view is we've got a strong liquidity position.
Cash flow.
Has been moving through the systems the way, we would expect to it to see it. So I think overall, it's probably the only color I can offer.
Okay.
Thank you.
You're welcome.
Mmm.
Our next question it comes from the J. Kumar from Evercore I.S.I. Please go with your question.
Oh, Hey, guys. Thanks for taking my question, Frank maybe a one on I guess the comments around the recovery being 2021, I guess, you know <unk>, the sort of looking back half and perhaps full cue.
As being more normalize so I'm just curious why you know you guys see anything different or is this just conservatism when when you think about the recovery being a 2021 anyway.
I think it may we may actually see the same way. The question is whether you talk sequential or or year over year do we expect a sequential recovery. After you know significant holding cue to this year, that's what I would expect I I believe Q3 sequentially will get better. Thank you for.
We'll that necessarily imply year over year.
What what will be the year over year trends Q3, 19 to Q3.
20, and Q. for 19 to queue for 90 that I wouldn't want that I don't have enough. We don't have enough his ability to provide guidance for instance, or to comment on that so whether.
So sequential recovery, yes year over year recovery too early to tell.
Under certain not one not last one if I mean in a post cold or as more research money is being thrown into you know understanding some of these organisms pandemics. If you well I feel left structural you know mix or I guess proteomics will.
Become more important how is that <unk> does that sort of fuck change the demand curve for <unk>, you know the kind of solution set up <unk>.
You know I I would think so but that's not market demand at a or market data that can point to that's more my I know the analysis and that if my cold. It colleagues. So it's structural biology on our in aid genes and on proteins and protein networks on glycosylation.
And on top of some of these spike proteins is that important.
Drug screening against it for those and are in mass spec happened to be terrific tools, they're not the only ones. Other things are important as well, but one would argue that some of our tools may in particular be in demand.
Of course, there'll be some sequencing and some you know metagenomics that when we didn't can do on patients, but perhaps you know the the sequence of the and of of the of the Sars coffin two virus is pretty well known and there's some minor mutations and of course, one will want to look at other.
Viruses, but I think this may actually.
Support the need for functional structural biology for proteome makes for glycol makes which is a really important and really really difficult and those are some of the areas where our technologies shine.
Right. Thanks, guys.
Our next question comes from Dan Brennan from U.V.S.. Please go with your question.
Takes us a chance our beer on for Dan.
Maybe digging into more your industrial sickness is there any more color that you provide on what happened then once you and Choo Choo outlook and then is there any time frame or predicate, though you could point is to that to be a comparison to what you're saying you know.
[noise] well you know, it's very very qualitative so within industrial we said that semi may actually recover sooner on being a different timeline, we had already had indications of that even before the Ovid pandemic started and so what we've seen in the last four months the the the semi <unk>.
<unk> <unk> metrology part may or looks like it will recover even as other industrial demand is tends to be weakening we do not have a lot of exposure to energy to a automotive and two aerospace industries, which is a good thing right now because those.
Industries are obviously.
Hurting we have some <unk>. Some you know some materials research some of our tools go into this space and we have other industrial markets, but.
Those are hard to read I would think that those presently our heads and tend to invest in will observe a demand so or other industrial markets.
Are weakening we'll see.
Probably prolonged weaker demand and when they come back you know now the best thing is that we could could could guesstimate from 2000 day 2009.
And if that is any indication they were probably week for two or three quarters not all that long and then in fact because of a lot of stimulus funding. They came back rather quickly and actually it was boom times pretty quickly within you know a few quarters, but that does not necessarily predict the future also you know this pandemic affect certain industries like.
Aerospace maybe more structurally then just temporarily although as I said, we have very little exposure to the aerospace industry or to the energy industries, which are perhaps structurally hit pretty hard.
God, Thanks for that and it any time frame that you think you could compare those two predicate <unk>.
Well I mean.
It's far from a perfect comparison by 2000 day 2009 are of course.
From an economic impact aid with less then but I mean, that's the best comparisons that'd be might have.
And you know, we we we cut our costs temporarily we use the short time work rules that was very very helpful. At the time, we to bother costing temporary costs steps and we were very good then in retaining most of our investments in the workforce. So we were among the those that after that time period.
I don't recall, the exact timing, but at least within a year, maybe a little bit longer we where we had some of the best growth years coming out of that by 2010 11 12.
And nothing's exactly comparable but we had some of the best organic growth years that we've ever had in the last you know two decades.
Well this repeat itself like that there might be some analogies it's.
Useful thinking about that but I'm far from predicting that will follow exactly that.
That timing and play book.
Thank you know if I could as a a follow up in areas in the U.S. in the U. that are beginning to open up our you've seen anything better or any changes and how it's affecting your business.
Well, it's not so much because they're opening up you know some schools or.
L. salons or whatever they might be opening up in certain countries and in northern or central Europe, Southern Europe in France tends to be more locked down right.
In the U.S., it's too early to tell this mostly talk about opening up and and and you know that the geographic patterns don't really.
You know affect us here in the United States, So, it's probably not meaningful for us yet.
So maybe the only comment there is that in in in Europe at least other than southern Europe and album and France.
Business has been including academic business has been limping, along you know and we've been able to make deliveries we'd been able to make installation is not everywhere, sometimes with delays sometimes were asked to hold back but it's not that this is complete that big sector is completely close to us.
<unk> occurring purchasing departments are working from home people are doing grant applications. So it's it's it's you know it's slow going but it's going.
Well thanks to take my question.
Sure.
Internet question comes from Steve Hunger from need please God, what's your question.
Great to it takes for 50 men.
<unk>.
I was curious if you can comment on them all the bio Tigers performance in the cold good 19 environment.
As far as consumable see utilization, perhaps in the month to people.
Mm.
Yeah, Steve Good question I don't have it for the month of April I know that it was very good good double digit growth in the first quarter year over year.
So instruments were growing but consumable to our growing at a pretty high pace I think north of 20 per cent growth even into one.
And we have that on white, sorry, <unk> slide five it's even it was probably was the <unk> 30 per cent growth in consumable.
And so that looked healthy.
Voice.
Yeah go ahead huh.
So clearly isn't that beneficiaries.
This environment.
Yes, the the <unk>, we were couldn't you know some at tech devices all of a sudden aren't used much anymore. Because it is ruling out other in bacterial or fungal infections or or you want to rule out or at least discover end time any co infections anybody who may have a vague a ventilator s.
Assisted a field.
V.A.P. ventilator assistance.
<unk>, which is bacterial if you have that in addition to covitz well, but the the doctors will want to know so there is actually end this wasn't entirely clear to us three months ago. There is actually.
Sort of into Halo of viral testing there is quite a bit of microbiology bacterial and fungal testing and so this has been even stronger than we had it would have anticipated three or four months ago.
Critical total and then.
He's Tobin 19 impacts your your new product introduction plans for this year.
Not really only in the sense is that you know some conferences have been cancelled and some conferences are going virtual.
So for instance, a big micro Biology conference the <unk>, which would have been in the middle of April in Paris did not take place and was cancelled altogether. So.
But our product launches.
They are just going to happen independent off conferences or maybe be virtual launches that virtual conferences. The the short answer would be no not really it doesn't really affect that we're going to drive forward as as we had planned.
With some incremental work on obviously covitz testing that wasn't in the plans previously and you'll see more on that as the or progressive.
Understood. Thanks, I appreciate okay.
Hmm.
Mm.
And ladies and gentlemen at this point showing no additional questions I like to turn the conference call back over to management for any closing remarks.
Thank you for joining us today.
Second quarter.
Participate in the back from America, you'll be S. and Jeffrey spectral have kept contrasts as.
<unk>, we help you stay healthy and while and we invited to reach out to as far as virtual meeting during the quarter.
Thank you and have a good evening.
[noise], ladies and gentlemen, with that will conclude today's presentation. When you take you for joining you may now disconnect your line.