Q3 2020 Bruker Corp Earnings Call
Good day and welcome to the Bruker Corporation third quarter Twentytwenty earnings call, all participants will be in listen only mode.
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I would now like to turn the conference over to Miroslava Minkova director of Investor Relations and corporate development. Please go ahead.
Good afternoon.
Welcome everyone to brokers third quarter 2020 earnings conference call My name.
Miroslava Minkova director of Investor Relations and corporate development.
Joining me on today's call are Frank welcome, our President and CEO.
John Harmon, our Chief Financial Officer.
In addition to the earnings release, we issued earlier today during today's conference call will be referencing a slide presentation.
This presentation can be downloaded from the latest results section on brokers Investor Relations website.
During today's call, we'll be highlighting non-GAAP financial information.
Reconciliations of our non-GAAP to GAAP financial measures are included in our earnings release and are posted on our website at <unk> Dot com.
Before we begin I'd like to reference book are Safe Harbor statement, which I, which is shown on slide two.
During the course of this conference call will make forward looking statements regarding future events and the expected future financial and operational performance of the company that involve risks and uncertainties, including <unk> and.
And uncertainties related to the topic 19 on Diavik, but.
The company's actual results may differ materially from projections or scenario. After much described in such statements.
Factors that might cause such differences include but are not limited to those discussed in todays earnings release.
And in our form 10-K, and subsequent form 10-Q filings.
All of which are available on our website at <unk> on the Fccs website.
Also note that the following information is related to current business conditions and our outlook as of today November 2nd 2020.
Consistent with our prior practice, we do not intend to update our forward looking statements based on new information future events or other reasons prior to the release of our fourth quarter and full year of 2020 financial results expected in February 2021.
Therefore, you should not rely on these forward looking statements as representing our views or outlook as of any date subsequent to today.
Well begin todays call with Frank providing a business summary.
Daryl will then cover the financials for the third quarter 2020 in more detail.
Now I'd like to turn the call over to broker CEO Frank walking.
Thank you Miroslava good afternoon, everyone and thank you for joining us on today's call I Hope you and your families are well.
We continue to navigate a challenging environment among a global pandemic, while the majority of our academic and research customers worldwide have returned to business under a new normal some still operate at productivity levels that are below pre pandemic level.
In an effort to accommodate safety protocols.
Against this backdrop bruker delivered a good third quarter with sequential these strengths and financial performance compared to the first two quarters of 2020.
In Q3 2020.
All revenue is still declined slightly year over year, but our non-GAAP operating margins and non-GAAP EPS improved significantly compared to Q2 or Q1 of 2020 and approached prior year Q3 19 levels.
We are pleased with the way our teams have delivered under the circumstances.
During Q3, we couldn't <unk>, we continued to support initiatives to understand the Sars cop two virus and the COVID-19 disease. These.
These include.
Functional structural biology studies by high field that Omar.
So called long cobot patient studies by Nm are in mass spec vegetable Omega.
As well as viral protein and disease patient proteomics research by mass spectrometry.
And finally, we support the discovery and development diagnostics therapies and vaccines with our tools.
Moreover, our broker hind diagnostics business continues to serve the COVID-19, PCR testing market with nucleic acid extraction, and PCR test kits and equipment.
In Q3 up 2020 that grew further and be generated about 8.5 million up revenues from these PCR products, primarily in Europe to.
Together with partners. We also have been piloting COVID-19 rapid antigen tests at some of our own European sites and in customer labs with a goal to broaden our COVID-19 test portfolio further.
From an operational standpoint, our major factory sites in the U.S. Europe, and Malaysia are operating at their new normal. We are currently not facing any significant operational constraints. Although we are monitoring this resurgence of the virus in Europe and the U.S. carefully.
Turning to financial results, our third quarter 2020 revenues rebounded sequentially its academic customers returned.
Q3, 2020 revenues were still slightly below prior year levels down minus 1.9% year over year and down 4.6% organically.
Sequentially, we generated 20% more revenue in Q3 compared to Q2 of 2020.
We continue to carefully manage expenses and monitor our cost structure as a result, our Q3 2020 non-GAAP operating margin even improved year over year, while our diluted non-GAAP EPS approach Q3 19 level.
Year to date, and including the third quarter, our key proteomics diagnostics and Biopharma initiatives continued to grow nicely and we now anticipate that broker will return to healthy year over year revenue growth and margin expansion.
In 2021.
I now go to slide four where we show the financial highlights for the third quarter of 2020.
Q3, 2020 revenues declined by 1.9% year over year to 511.4 million.
Acquisitions added 0.3 per.
<unk> percent to revenue growth and foreign currency translation was favorable by plus 2.4% on an organic basis brokers Q3, 20 revenues declined 4.6% year over year, which was comprised of a 3%.
Organic decline in the Threed brokers scientific instrument groups.
And an approximate 20% organic decline at best net of intercompany eliminations with best negatively impacted by reduced demand for superconductors by MRI OEM companies.
Our Q3 20, non-GAAP gross margin decreased 90, bips year over year to 49.6, while our non-GAAP operating margin improved 30, bips year over year to 18.6%.
Lower volume at nano and best together with unfavorable foreign currency translation negatively impacted the gross margin performance year over year, while meaningful Opex savings resulted in an operating margin gain relative to Q3 of 2019.
In Q3, 20 broker reported GAAP diluted EPS of 35 cents per share compared to 39 cents in Q3 19 and on a non-GAAP basis Q3, 20, EPS was 42 cents compared to 43 cents in Q3 of 19.
On slide five we show brokers performance for the first nine months of 2020.
[music] revenues decreased by 113 million or minus 7.7% year over year to 1.36 billion.
On an organic basis revenues declined 8.3% year over year in the first nine months comprised comprised of a 7.9% organic decline and the scientific instruments groups, Andy 12.6% organic decline at best net of intercompany eliminations acquisitions added 0.5% to our topic.
<unk> and foreign exchange was insignificant up 8.1%.
Year to date 2020 order bookings for brokerage scientific instruments group declined low single digits organically order rates improved sequentially and had positive year over year growth in the third quarter as customers to return to labs and research activities continued to recover.
During Q3 of 2025.
<unk> bio pharma and diagnostic markets remain solid at <unk> and academic markets continued to recover well.
While industrial research and applied markets continued to show softer trends due to the pandemic driven economic slowdown.
On the brighter side B.S.I. semiconductor metrology markets remain in an upswing.
Year to date 2020, non-GAAP gross margin decreased 240, buoying, the bips compared to the same period in 2019, while non-GAAP operating margins declined 280 bips.
As Gerald will discuss both growth and operating margins improved significantly when we look at them sequentially from Q2 to Q3 2020 on a GAAP basis broker reported EPS of 57 cents in the first nine months of 2020 compared to 82 cents in the first nine months of 2019.
And year to date 2020, non-GAAP EPS was 77 cents compared to a dollar for in the same period in 2019.
Please turn to slide six and seven where we provide further highlights on the year to date 2020 performance of our three scientific instruments groups and of our best segment, all on a constant currency basis and in comparison to the same period in 2019.
Year to date.
Year to date 2020 bias been group revenue declined mid single digits to 398 million. The revenue decline at bio spin was due to COVID-19 related customer lock closures and installation delays primarily in the first half of 2020.
My husband's performance improved sequentially in revenues were up year over year in the low single digits in the third quarter as the academic market recovery continued and bio pharma remain robust.
During the third quarter Biospin receive customer acceptance for a second 1.2 gigahertz and Amar system, which was successfully installed at the T.H. in Surrey, Switzerland bio spend continues to ramp up its manufacturing and shipment activities for gigahertz systems.
During the first nine months of the year biased bins anymore in PC ice systems revenue declined year over year due to the delayed order and installation activity as expected bias bins aftermarket revenue increased slightly year over year and scientific software revenues were higher although I'll put low basis.
Turning to the college group a year to date 2020 revenues of 445 million were approximately flat compared to the same period in 2019 molecular spectroscopy revenues declined year over year as F.T.I., our near our markets were affected by the pandemic and economic slowdown.
However, this was more than offset by solid growth in college Daltonics microbiology in diagnostics and its life science mass spectrometry business.
Catalyst performance also strengthened sequentially with revenues growing mid single digits in the third quarter of 2020 year over year.
For the first nine months of 2020 pellets microbiology and Koby PCR testing consumables grew significantly year over year, our Tim's tough proteomics business had a solid uptake in revenue growth year to date, despite the challenging conditions for instruments and customer installation delays.
Finally revenue as far as T.I., our near IR and Robin molecular spectroscopy products declined year to date with weekend applied an academic demand. Please.
Please turn to slide seven now.
Broker nano revenues declined mid teens to 393 million in the first nine months of 2020, reflecting slower academic industrial and industrial research demand.
This is all true Fernando's X Ray nano surface nano analysis tools and the all declined in revenue year to date.
Year to date semiconductor metrology revenue for the nine agreed group grew year over year as semi markets remain in that rebound.
Finally year to date 2020, best revenue declined low teens net of intercompany eliminations on reduced superconductor demand by MRI companies.
Turning to slide eight now broker continues to make investments in innovation that we believe will position the company for long term profitable growth.
This September we acquired canopy bio sciences, a leader in high Plex biomarker imaging for immuno pheno typing using multiplexed fluorescence microscopy.
Canopies offering strengthens brokers position in space solo mix and targeted Multiomyx research.
It complements brokers fluorescence microscopy portfolio and also helps our broker nano group expand its life science footprint.
Canopies chip cytometry manual and automated platform and related consumables and services provide high resolution multiplexed imaging of peripheral blood mononuclear cells or pbmcs or up tissue.
Again with applications in immunology, immuno oncology cell therapy and targeted proteomics research.
Sales Kraftwerk chip cytometry platform, that's our trademark telegraphed work, which is part of canopy has advantages listed on this slide we are very pleased to have the canopy and sell a crossword team join broker. Please remember that for high resolution spatial biology. We also recently had a very important new product introduction.
As we launched our butala, Rob walked sole Super resolution Florence Fluorescents microscope for industry, leading single molecule localization and four sub cellular targeted multiomics imaging.
Turning to slide nine we continued to make excellent progress with Tim stop 40 proteomics.
At the recent human Proteome organization or Eupol World Congress brokers, Melvin Park, and Oliver rates or were awarded the you pose science and Technology Award for the commercialization of Tim's trapped ion mobility spectrometry and off the passive proteomics method, we also announced significant additional innovations that you post.
Including the Pacer Proteomic search engine you work in progress true single cell 40, proteomics workflow. This was the first the PRM passive method for targeted quantitative proteomics for translational applications and the caps passive work fro flow for cross linking in structure.
Joel for D proteomics.
We remain very excited about himself and our opportunities in 40 proteomics.
So in conclusion brokers performance strengthened sequentially in Q3, EPS academic markets and customer research activity continued to recover our core growth and margin initiatives are progressing well and we are excited about our opportunities in biopharma microbiology and viral diagnostics.
In proteomics targeted Multiomics ultra high field anymore software in aftermarket.
Bruker remains fundamentally healthy and we expect to return to solid year over year revenue growth and margin expansion in 2021.
And with that I'll turn the call over to our CFO, Charles Herman who will review our financial performance in more detail.
Thanks, Frank and welcome to everyone I'm pleased to join you today review brokers the third quarter 2020 financial highlights starting on slide 11 group.
Brokers reported revenue decreased 1.9% year over year to $511 million in the third quarter of 2020, which includes an organic revenue decline to 4.6%.
Display despite a slight revenue decline in a headwind of 60 basis points from foreign exchange, we delivered a roughly equivalent level of non-GAAP operating profit compared to Q3 2019.
And our non-GAAP operating margin recovered to 18.6%.
About 30 basis points above the Q3 2019 level.
We reported GAAP EPS of 35 cents per share compared to 39 cents in the third quarter of 2019.
On a non-GAAP basis, Q3, 2020, EPS was 42 cents per share compared to 43 cents in Q3 2019.
Overall, our Q3 revenue performance was favorable to the revenue decline scenarios, we outlined in our Q2 2020 earnings call well operating profit and earnings approached prior year levels as we again drove cost discipline and operating expense savings throughout the business.
We exited Q3 2020 with $617.1 million in cash cash equivalents and short term investments.
This reflects solid cash generation in the third quarter and year to date 2020, as well as our strengthened cash position following or December 2019 debt financing.
During the third quarter, we paid down $208.5 million of borrowings on our revolving credit facility.
Our net debt position at the end of Q3 2020 was comparable to the end of Q3 2019.
During the third quarter, we used cash to fund, our strategic capital investments acquisitions dividends and buybacks as well as the revolver debt repayment mentioned earlier into.
In Q3, 2020, we repurchased 127000 shares approved stock for a total of $5 million, bringing our total buybacks year to date to 1.34 million shares for $55 million.
As of September Thirtyth, we had $102.7 million remaining on our share repurchase authorization, which is valid until mid may 2021.
At the end of Q3 2020, our working capital to revenue ratio was elevated relative to the prior year as we carried higher inventory levels to address supply chain risks related to the COVID-19 pandemic.
Slide 12 shows the revenue bridge for Q3 2020 as noted earlier organic revenue in the quarter declined 4.6%. We had a positive revenue contribution from foreign currency translation of 2.4% and a modest positive contribution from acquisitions of 0.3%.
From an organic Dxi revenue perspective, Q3, 2020, Biospin revenues increased low single digits year over year as bio spins academic markets continue to recover and Biopharma activity remained strong.
Kelud revenues increased mid single digits with double digit growth in cowards, microbiology and mass spectrometry businesses.
National revenues declined mid teens due to continued softness in nanos academic industrial and industrial research markets.
Brokers bio pharma revenues multi biotyper consumables bruker high molecular diagnostic consumables and tims tone proteomics revenues all had robust year over year growth once again in the third quarter, well broader academic and industrial research revenues continued to be impacted by this.
Slowdown third.
Third quarter semiconductor metrology revenues grew year over year.
For our three BS I groups third quarter systems revenue declined in the low double digits, well aftermarket revenue grew high teens year over year.
Our book to Bill ratio in Q3, 2020 was 1.1 week.
We exited the third quarter with higher dxi backlog year over year.
Best revenues declined 20.3% year over year net of intercompany eliminations due to reduced superconductor demand.
Geographically and on an organic basis from Q3 2020, our European revenues grew low single digits year over year, North America revenue declined low teens Asia Pacific revenue declined low single digits. This included a steep decline in Japan, but growth in China and.
The rest of Asia Pacific the.
The rest of the world saw a revenue decline year over year.
Slide 13 reflects our PML results for the third quarter of 2020.
On a non-GAAP basis, Q3, 2020, non-GAAP gross profit margin, 49.6% decreased 90 basis points from 50.5% in Q3 2019.
The year over year reduction in gross margin was principally driven by lower volume and reduced productivity of nano and best.
And negative foreign exchange translation effects, which outweighed improvements in our Biospin kelud groups.
Although below the prior year level, our gross margin recovered sequentially from a low level experienced in Q2 2020.
Q3, 2020, non-GAAP operating expenses were 5.2% below Q3 2019 levels. This was due to continued cost control and certain cost reduction measures implemented earlier this year, including a restructuring in the be assigned nano segment.
As a result, our Q3 2020, non-GAAP operating margin increased 30 basis points compared to Q3, 2019% to 18.6%.
And our non-GAAP operating profit was approximately flat year over year as lower operating expenses offset the Q3 2020 revenue decline.
In Q3 2020, we also absorbed an approximate 60 basis point negative foreign exchange translation impact year over year on our non-GAAP operating margin.
Q3, 2020, non-GAAP interest and other expense of $5.9 million was slightly unfavorable compared to Q3 2019.
During the third quarter and year to date and net loss on foreign exchange transactions associated with unfavorable currency movement has more than offset lower net interest expense on our borrowings following our December 2019 debt financing.
For the third quarter of 2020, our non-GAAP effective tax rate was 26.5% 110 basis points above the prior year quarter, which had included a significant favorable discrete tax item.
Weighted average diluted shares outstanding in the third quarter of 2020 were $154.3 million a reduction of approximately 1.3 million shares from Q3 2019, following our share repurchase activity.
Finally, Q3, 2020, non-GAAP EPS of 42 cents decreased 2% year over year as operating expense savings, partially offset the revenue decline.
Slide 14 shows the year over year revenue bridge for the first nine months of 2020.
Revenue declined $213 million or 7.7%, including a year to date 2020 organic decline of 8.3%.
This includes a 7.9% or organic decline at the Threepl side groups collectively and a 12.6% organic decline at best net of intercompany eliminations.
Geographically and on an organic basis in the first nine months of 2020 brokers European revenue was down low single digits year over year, North American revenue declined low teens Asia.
Asia Pacific revenues declined high single digits with double digit drops in China, and Japan, our revenues in the rest of the world were also lower year over year.
On slide 15, our year to date 2020, non-GAAP gross profit margin to 47.3% decreased 240 basis points year over year lower.
Lower volume and reduced productivity from COVID-19 disruptions earlier in the year and the ongoing economic slowdown drove the decline relative to the first nine months of 2019.
Year to date 2020, operating expenses declined 6.5% year over year on cost control and cost reduction measures.
All in our non-GAAP operating margin in the first nine months of 2020 of 12.9% was 280 basis points below the prior year period.
Finally, non-GAAP EPS of 77 cents was down 26% relative to the first nine months of 2019.
Turning now to slide 16 free cash flow in the first nine months of 2020 was approximately $61 million, an increase of about $28 million compared to the first nine months of 2019.
During the first nine months of 2020, an increase in customer advances and favorable other items more than offset reduced cash generation from lower net income working capital efficiencies and our continued capital expenditure investments in higher capacity and productivity.
Our cash conversion cycle at the end of Q3 2020 of 263 days worsened from 227 days a year ago with a step up driven primarily by an increase in D.O. as we carried higher inventory balances due to supplier and customer lab destruct disruptions from the pandemic.
Turning now to slide 18 in March we suspended our guidance for 2020 due to the uncertain business conditions created by COVID-19.
Business uncertainties related to the pandemic remain in many parts of the world and our visibility as it relates to customer operations and spending patterns in certain markets is still reduced our.
2020 guidance, therefore remains suspended.
Although we're not providing guidance as we've done in the past few quarters I'd like to offer some directional color on the fourth quarter.
Well the recover while the recovery from COVID-19 in our global academic markets is expected to continue we still see challenges with customers operating at reduced capacities and still negatively impacted by the pandemic.
Similar to Q3 2020, we believe it's better to think about a range of scenarios for the fourth quarter with the potential for a revenue decline of between two and 6% year over year compared to a strong Q4 2019.
These scenarios assume favorable foreign currency translation of approximately 2.5% based on foreign currency rates as of September Thirtyth 2020.
Baked into our revenue expectations for the fourth quarter or also challenging prior year comparisons in our Biospin kelud groups.
Please note that actual results may be outside of the scenario ranges, but this gives you are good faith estimates at this time based on information currently available to us.
While we continue to carefully monitor the resurgence of COVID-19 in Europe and here in North America. Our current assumption is that this will not lead to renewed broad based lockdowns for our customers in academia and industry or significant deterioration in operating conditions.
To conclude we continue to manage through a challenging environment created by the pandemic reply.
We are pleased with our sequentially strengthened financial performance in Q3, 2020 and remain confident that broker will emerge from the pandemic a stronger company with an exciting product portfolio and the promising long term outlook.
We look forward to updating you again on our quarterly progress during our Q4 2020 conference call anticipated in early February 2021.
And with that I'd like to turn the call over to Miroslava to start the Q and a session. Thank you very much.
Thank you Jeremy I'd now like to turn the call I would like to the operators in the Q and a portion in order to allow everyone time for questions. We ask that you limit yourself to one question and one follow up. Thank you operator, we are ready to begin the Q and a.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then too.
Again, please limit yourself to one question and one follow up at this time, we will pause momentarily to assemble our roster.
First question comes from Dan Leonard of Wells Fargo. Please go ahead.
Hi, Thank you just a question on the bookings.
Creating a low single digit bookings growth in the quarter can you confirm that was the case and then secondly can you offer up some some color on on bookings by both academic customer segment as well as the European region as you seem to be the customer group and region that our investors are most concerned about.
Thank you.
So Dan this is Frank high so that is correct for be ESI, we had.
Low to mid single digit be ESI order growth year over year in Q3.
And.
Best was different because best we had some very very large multiyear orders last year, but for be ESI that trend was correct.
And then generally customers in Europe, and academic customers in Europe, we're doing really quite well maybe in most major countries in the us the academic market is still somewhat constrained.
Although we do know some universities and are struggling with lower state budgets.
And perhaps also or straight state funding constraints, perhaps lack of reduced tuition or housing.
Maybe less hospital income those are the headwinds that we're all aware off.
Federal funding I think theres generally optimism in the us.
And of course, the endowments are up so that's that's actually a positive and that in some larger universities has less lets too a little bit of less belt tightening keep.
Keep in mind that for US 75% of our academic markets are outside of the U.S. and.
And so it's a mixed picture, but it's clearly improving sequentially.
Thank you.
The next question comes from Jack Meehan of net funds research. Please go ahead.
Mr. Ma'am your line is open.
Is it perhaps muted on your side. Please go ahead.
Sorry about that I was muted still learning with remote clearly.
Frank I was hoping to dig a little bit and take a little more into the progress with the Tim's tough pro.
Is there any color you can provide with US now on the size the installed base and how you know just given the backdrop with everything going on with Covidien. How you expect the shape of new new placements to trend over the next couple of years.
Yeah sort of you know we tend to give annual updates rather than mid year updates on on the installed base and all but Tim stuff pro adoption. Despite the academic challenges academic funding and accessibility challenges has been really quite positive with.
Both orders and bookings year to date growing in the double digits.
So thats proteomics is a very good market and the Tim's tough pro does really well within that market with its many innovations and new capabilities I would maybe highlight that it's not only going into government and Med school and academic research labs.
But also quite a bit of adoption and bio and pharma and Biopharma blob. So we're satisfied with that and tend to give an update on on installed base model hopefully at the end of the year.
Great and one clarification and then the scenario that you laid out for the fourth quarter I believe you previously talked about.
Third 1.2 gigahertz system in Germany.
Is that included in terms of revenue recognition within that scenario, where including one ultra high field gigahertz class system.
It may not be a specific one in a specific country because we have multiple systems that are in various degrees in the installation process, but one gigahertz class system is included although.
Although we we could be the system that you have mentioned it also could be another one so one is included yes.
Thanks Frank.
The next question comes from Brandon Couillard of Jefferies. Please go ahead.
Hi, good afternoon.
Frank just sticking with us in March.
Segment for a moment to what extent if at all have you begun to see some of those ultra high filled orders come from U.S. customers and as you look out. The 21, you still think three of those units a year is kind of the top ceiling of the capacity at which you're able to ship or you think you could maybe do a little bit more next year.
So the good question Brandon in the U.S., we we had delivered a 1.1 gigahertz some time ago, two things Uits and we have an order and backlog for Ohio state, but basically the U.S. funding hasn't come through yet is the answer at least not in a significant way that would match the now more than 10 orders in.
Europe.
We think that's only a question of time, but in the last six months that just wasn't the top of the priority for our NIH and anti and places like that but for for obvious reasons everybody's fighting the pandemic, but it is pretty high any other priority the top of the priority list. We understand so we're optimistic that in the next.
No one to two years, there will be hopefully much more significant use funding for additional orders, which would then be 2022 23 revenue to your other questions. We still have quite a bit of backlog. We have a lot of backlog for the next two years and we expect to be at higher than three systems per year, we don't want to give 20.
21 guidance, but indeed as were looking at three systems. This year 2020, we expect that to be higher next year.
That's great and then Joe as we look out the fourth quarter you do lap.
Profitability comp, you're considering FX and perhaps some some opex spend is coming back in the model do you still think you can deliver year over year operating margin expansion in the fourth quarter, just help us understand kind of some of the puts and takes to think about in the piano. Thanks.
Thanks, Yes so.
So I'm not sure that we're going to deliver operating margin expansion year over year in the fourth quarter. Overall, we are our expectation is we can talk about this in a little more detail. When you look at our operating expense performance in the third quarter. We benefited from a number of factors one of course was cost country.
Role and cost reduction measures some of which will be relaxed or have already been relaxed in the fourth quarter.
Secondly, we had we have some.
Some headwinds as Youve already pointed out relative to the.
To the foreign exchange side third we do continue to invest.
In our.
Strategic.
Predict accelerate investments and that's not changing actually in the fourth quarter. So fundamentally we do expect is going to be more pressure on the fourth quarter realm.
Relative to the fourth quarter of.
In 2019.
Great. Thanks.
[music].
The next question comes from Tycho Peterson of JP Morgan. Please go ahead.
Hi, guys. This is Casey I'll answer Tyco.
When speaking on cash flow the slide say that the lower net income increases in Capex and working capital were more than offset by increases in customer advances and favorable other items can you just talk a little bit about what those favorable other items, where and I am assuming customer advances means that you're getting more upfront payments can you just talk a little bit about what.
You are seeing it in this regard.
Yes, sure. So first of all we're quite pleased at the cash flow performance and generation for the third quarter and actually on an overall basis.
Our cash position for the company generally through the Pandemics been very positive that's been encouraging for us because of course at the very beginning we all like many other companies had concerns from a liquidity perspective, and thats not played out so.
So what I would say is what the cash advances or customer advances. We see are generally reflection of of stronger order performance in the third quarter as well as what we've seen in prior quarters customers typically need to provide no significant customer advances to us on four instruments.
And then relative to there's a number of puts and takes that fit into the sort of favorable other items I don't think it's necessarily go through them into much more detail, but but just generally we were quite pleased with the overall cash flow generation as it's played out through the third quarter, you likely know that the fourth quarter.
We also typically generate more profitability and.
And cash flow.
Compared to other quarters in the year. So our expectation is that will be.
Moving from there as well.
Got you and then just on academic on the Twoq Twoq call you quantified that that was down high teens, what was that in Threeq you and what are you sort of embedding the academic market in that for Q scenario that you laid out thanks.
So go ahead.
Okay. So so.
Academic market segment performance for the third quarter is down.
I would say its high teens are sort of high single digits rather.
Low double digits, maybe it's the best.
And Thats.
That's not surprising, particularly given what you've seen specifically for the us markets I guess.
Better than it was in the second quarter sequentially better.
Over Q2 2020 for sure yes.
The next question comes from Dan Brennan.
Sure.
Great. Thanks, I was hoping maybe just a follow up on that academic question. Frank I know you gave some color during the prepared remarks on the instrument could you just tease out what you're seeing from academic labs versus.
Instruments versus consumables and then what I know you don't have a date.
Doable service orientation, but nonetheless, and then secondarily in terms of the funding outlook. I know you were somewhat hopeful that we could see some more stimulus towards academic budget. What are you seeing today and what are the prospects for a more significant rebound as we get into 21.
Good question, Dan So I.
Actually our our consumables and aftermarket business.
Was up pretty nicely in Q3, maybe with a little bit of service catch up from Q1 and Q2 as lab.
Lab improvement.
Lab access improved do you know.
Compared to Q2 for sure.
And of course, our multi biotype per business has a very good consumables growth in our Covitz testing and PCR testing is almost all consumables plus we have some growing Sis software. So while were not primarily a razorblade company, our our aftermarket business grow.
And.
In terms of many aspects our aftermarket in consumables and even software businesses are growing nicely.
As to stimulus that's not clear yet we do generally expect and our customers are pretty optimistic about life Science research funding in the hopefully multiyear aftermath of this pandemic because we've obviously been caught flat footed.
So it would seem that for most countries they are.
Life Science research investment and pharmaceutical Biopharma research remain high priorities as of course, a lot of equity funding going into that.
Having said that there are some near term constrains, we touched on us academic markets. Some Chinese universities had temporary budget cuts, but now we hear that the next five year plan again that there is you know its four four very significant investment in life Sciences, and and and health care technology as well as other.
The technologies in general in China. So.
Near term, maybe still a little bit mixed in China, and the us pretty strong in Europe, and I would say medium to longer term, while it may not be specific economic stimulus. So much as it was maybe in 2009 2010, I'm actually and our customers are quite optimistic about.
At least federal or similar country spending on life Science research and academic Medical School research and translational research in general So mix near term still but I think pretty healthy trends are likely in the major geographies in the mid to longer term I wouldn't call.
This is Steve we look so much but more strategic prioritization rather that stimulus.
Funding.
Got it and then any one unrelated follow up just on the high profit biomarker emerging market can you just give us some color. There I know this is the market. Even you are beginning to roll up into products and they have the acquisition just give us a little flavor for what youre.
How do you think about the addressable market there for you and.
What what's the competitive profile of your offerings. There. Thanks, Yeah, I mean, the the the.
Markets are obviously very very large for that and targeted multiomyx multi targeted proteomics. So far we've been only and we continue to be pretty.
Pretty strong are getting stronger and stronger in so called iden biased on targeted mass spec based bottom up proteomics, if you like and many different flavors of that.
So we were quite keen on also get into targeted.
Oh makes and targeted proteomics in particular, and very often you need that to combine that with with spatial spatial biology and spatial imaging.
Yes, so doing that high plex imaging with that chip cytometry platform was a very very important technology acquisition. The business does have revenue. It's not enormous revenue. We think it has a very competitive technology base and product line and we'll hope to tell you more about that into next year as we.
Begin to integrate and accelerate that business.
Great. Thanks.
The next question comes from Dan Arias of Stifel. Please go ahead.
Afternoon, guys. Thanks, Frank are you able to give a snapshot on where we are right now with respect to the percentage of you asked in Europe labs that are open to system installation by engineer. It sounds like the order book is hanging and I'm just trying to understand.
Sort of the state of affairs on access and just revenue recognition for some of the bigger pieces of equipment in the portfolio.
Oh, I'd say in the U.S. and in Europe at least until recently all apps were open.
But you know it's just this is much more work in terms of planning getting access getting the health forms and planning the access.
They are not running necessarily at full capacity, but I'm not aware of any.
You bet.
Lap closures I mean could there be one or the other maybe but that would have to be a local outbreak in a local quarantine situation generally labs that are open and the same is true in Europe, although in Europe now the travel between countries and even within countries is becoming a little bit more challenging now of course, we have important reasons to visit to go. So this is not.
Leisure travel so we expect to continue to have access, but things are coming up a little bit in Europe. We hope it doesn't affect our December but December is more than half of our about half of our revenue. So we're keeping an eye on that presently we assume that that will not have a material effect on our Q4.
Okay, just to make sure I got that right you're seeing on the US side I mean, it sounds like the labs are open themselves, so you're saying you're not seeing any issues with access to installations on.
In U.S., although that exactly you said directly other than it's a slower process and requires much more planning and back and forth you can just show up.
Okay, and then just as a follow up on Nm or is there a difference if we look at the growth rates between.
Applied market usage versus large magnet research I'm, just curious whether or when we think about the food applications that you guys, you're pushing into is sort of a different to be had there and maybe we can think about portions of the market being a little bit resilient.
Given everything going on the academic side.
Yes, I don't know that I don't know that there is any new trend worth mentioning I mean generally some of these applied and clinical research market, saying that Amar Frost our important growth drivers. In addition to aftermarket and in addition to gigahertz.
Hi field.
Systems on which we simply also backlog, but certainly in Q2 some of the order activity. There did did see delays and some of the orders did delay into Q3. Some may go into Q4, and as you know and if and then the more we get an order we don't delivered right away. It can be typically forward too.
Four to six to 12 months for the for large systems and and timing difference between orders and.
And.
And then revenue Q3, and Amar and Biospin order activity was really quite good.
So we did not just live up our backlog or something like that and you.
After after a dip and clearly to delays in Q1 in China in Q2 worldwide.
So.
I hope that answered your question so.
I think theres multiple growth drivers to the Enom are and then Biospin business and they all took a dip.
And but they're big they're clearly in recovery mode, and and we think we'll see growth next year good growth.
Thanks, Greg.
Good growth in revenue this year, we're seeing some growth in orders.
Leasing in Q3.
The next question comes from Doug Schenkel of Cowen. Please go ahead.
Hi, This is Chris on for Doug today, Thanks for taking my questions Frank.
Frank I believe you mentioned drew Carey should return to healthy revenue growth in 2021, I. Appreciate you don't want to be too granular, but at a high level well there the key assumptions behind his forecasts as it based on what you are seeing the order book in backlog and would it be reasonable for us to assume that broker could return to at least a 2019 revenue level.
In 2021.
Yes, we're not prepared to do a try a 2019 comparison, although it's a fair question.
So of course, you're right some of the healthy growth in 2021 or year over year growth of course.
Part of that will have to do with weaker comparisons, especially in the first half of 2020, we are aware of that.
We've also had improving or the trends in our backlog has been improved.
Improving and getting healthy.
Healthy.
And the outlook that we have is you know that our project accelerate strategic initiatives by and large are doing well and some of them in proteomics and diagnostics are doing particularly well some of them are literally being added this year, obviously, we're not a huge koby testing company, but we have koby testing.
Something of which we had.
That type of testing, we had zero at the beginning of the year. So we're developing that into maybe a $10 million per quarter run rate business.
Hi, there, yet but getting there.
Plus we are getting into that high spatial biology and the.
Multiomyx targeted proteomics world. So we are adding to our initiatives.
Even during the pandemic. So there is enough up in our Biopharma business. As you would expect is doing well so from a smaller basis, but its growing really very nicely, both and amar and mass spec and some other tools.
There are some headwinds out there we've discussed them you know in dust Indus industry Industrial research, we don't expect that to recover quickly and there will be still be some noisy recovery in the academic markets with some countries, having temporary constraint, but I think thats going to sort itself out mostly by certainly by the middle of next year, so not given.
Lots of qualitative arguments in those numbers.
But we do we do expect really healthy growth next year, and and resuming our margin expansion so more on that with hopefully with guidance.
Bye bye.
By early February when we report on Q4, and the full year and then hopefully.
Barring a very severe second wave that is economically disruptive, which we presently may disrupt our social lives, but hopefully not the economy or the our customers hopefully we'll be in a position to give guidance and right now we expect healthy growth healthy year over year growth and margin expansion next year for all these three.
Okay.
Okay.
Just for my follow up question, maybe going back to slide nine can you talk about what technical hurdles you need to resolve to achieve single cell proteomics. Historically I think mass spec based single cell analysis has been limited by sample prep, including seamless isolation and also data interpretation software. So can you just maybe talk about.
Thats what efforts are being made on those fronts and when should we expect Q geologic commercialize seamless on mass spec work flow. Thank you.
Hum very perceptive question, yes, indeed, the true single cell work there had been true single cell results out there before but.
Pretty good and reproducible truth single cells.
Work has been demonstrated by our up by the lap of Multistem on accrual. Our collaborators who is also cited on this and this was I'd say a bit of a breakthrough resolve that was shown at the Eupol meeting.
And now that is a somewhat of an experimental set up still so were working closely that's not a product yet so correct on all of that it's work in progress, but we hope to make further commercial progress with.
Some some of the.
It has to be in that sample prep, which is not necessarily what brokered us plus the analysis on the instrument those have to come together for once the software is actually there.
Made software improvements, it's not the software limitation, but something still have to come together and then become you know sort of specialty research products for single cell proteomics for drew single cell proteomics, and and we hope that can occur you know in the next year or two.
Okay, great. Thanks for taking my question.
The next question comes from Patrick Donnelly of Citigroup. Please go ahead.
Thanks, Frank maybe one for you just in terms of the academic side I guess, what are the gating factors and getting back to growth because it sounds like the order book is trending well is it just a matter of lab productivity getting back towards pre pandemic levels. I mean is it just the delays around the actual installations, you talked about a bit earlier that just causing.
Sales to lag longer firm order timing to revenue conversion just trying to get a better handle on what we should think about that kind of yes again. Good question. Some of it is just timing you know on better orders in the second half of this year tend to help revenue next year, mostly I mean, there are some things that we deliver in the same quarter a quarter later, but off.
And it's two quarters and.
Improving backlog has has is helping with that.
And then it's still funding issues I mean, there's still some funding noise. Some Chinese universities in some us universities and some state universities are those have the financial drag of having a big hospital that probably has not been making money in the last six months.
So there's some things in there some selected academic funding issues that need to sort themselves out.
We.
In the U.S. and in China in Europe, not so much and in many other parts of the kind of the world not so much.
And Japan academic funding had been weak a Japan funding had generally been weak so far this year, so I would add that to the mix.
I think you'll get back to good general academic growth rates.
In most of the World next year I'm optimistic, but it's not always based on hard data, yet and certainly the the optimism of the customers and the really good life science focus sign and that funding is in Europe and elsewhere is encouraging so some of it is a little bit conjecture.
Lecture and not all of it is based on funding it but I think these things will sort themselves out plus I.
I mean, proteomics is hot and academia and so thats, a good driver or special biology, and spatial targeted all makes our very hot areas within the rising or flat or not quite.
Recovered tied yet we are in just in very very good funding area.
Okay, Yeah. It sounds like some of its based on kind of sentiment I mean have you seen a change in tone conversations with customers in terms of orphan willingness to spend dollars and get back towards.
Actually using the funds on handler.
The S. I mean, none of our customers are holding back funds on hand, they it's in their interest to obviously placed that are the encumber those at least with the orders as soon as they can and yes, I do I have seen a state.
A slight change in incremental.
Change in tone and that had to do with some very famous universities. In this country's that you know initially were really bad belt tightening quite a bit and throughout their expense structures and they had then noticed that in addition to everything else their endowments are doing really well.
The really quite well and so they had relax some of the belt tightening a little bit and theyve been memos that some very famous universities to the faculty that had indicated that in recent weeks plots of course now officially all apps being open, albeit with all the social distancing and fit in and working from home as much as.
Possible at all all the new normal as we all say, but all labs are open at the major research universities Nobody's close down anymore.
That's helpful. Thanks.
HM.
Next question comes from Steve Willoughby.
Cleveland Research. Please go ahead.
Hi, good evening, thanks for taking my questions.
Frank I have a couple for you if you don't mind I guess first.
Maybe I'll just ask them all up front if that works.
Your comments about the gigahertz system in the fourth quarter is there a possibility we can possibly get two or three potentially installed in the fourth quarter or would those other ones that are sort of in process more likely fall and into next year and then secondly.
I know your exposure to the pharma end market is has been growing I'm wondering if you had any thoughts at this point as we sit here in early November as it relates to what their end of your spending might look like and then finally, just if you can provide any more color on what you're seeing from a geographic basis, because you had.
Whiter pretty wide variation in results from a geographic perspective, so just wondering a little bit more color there on the strength in Europe, and China returning to growth. Thank you.
Right.
Steve Okay gigahertz in Q4, we expect one I mean there is.
There is a also a risk that we might have none in which case, we think we can make that up otherwise, but you know we're aiming for one and it's very unlikely that we would have two or three.
Biopharma has been good for us in terms of orders for most for throughout the year, particularly in the U.S. and then also in China, but.
But Europe not bad either so for us the year end spend our year end budget flush isn't something that we talk about much at brokerage because it doesn't have much of an effect maybe more of a consumable Teva budget left over maybe I'll stop my refrigerators for them for a while we don't we don't see that as an important trend, but biopharma funding has been.
Good we expected to continue to be good.
Given the strong equity market and other funding trends in valuations in that space, where it's pretty broad based we were right or we were surprised year all year long that it's not just kobe drugs or vaccines is pretty broad based strength and that seems to continue I don't expect to see.
Special year end effect.
And as to geography is I mean.
Right. So the China recovery seems to be healthy and there is a lot less restrictions in China than in the U.S sorry in Europe right now.
So thats, China seems to be strengthening although as Weve said, some universities that had temporary budget cuts.
It it sometimes also seems to be at the headline level and then they have funding anyway in order. So so our China and Amar orders had been quite good despite some of the noise or weak or type blue belt tightening so its little bit of noise. That's not all was so clear to us Japan.
Japan, we as.
That's nothing but but potential for improvement it's been so weak throughout the.
The year end almost every aspect and countries that were locked down like India and so on are even Australia are.
Eventually coming out of the lockout lockdown.
Yes.
I mean, there there is a bit of a concern about Europe right Europe had been doing quite well, but Europe is now being hit pretty severely and so far all the schools are in closing and the companies are in closing and essential travel, which will serve as engineer installing 'em aspect is essential travel are all good and the factories aren't affected we have very very good.
Procedure and safety procedures at our factories in this new normal so we.
We've been we've had essentially no cases, none of them that.
Were transmitted to the factory and so we don't expect any factory disclosures, but I also a month ago wouldn't have expected cases to goes out to two to increase as quick as rapidly as they are up increasing right now and in Europe. So it's hard to predict how that will be another month or two months from now from what we see right now we think.
Yes that that gives you. The overview. We also think the U.S. will sort itself out more but you know who.
Who knows who knows how long we will have uncertainty after the election it could be for quite some time.
I don't know whether that has an effect on us spending but.
I, probably very helpful printing anything other than things that you know already.
Thank you very much Frank I appreciate it yep.
The next question comes from Derik de Bruin of Bank of America. Please.
Hi, good afternoon.
Just to hey, two questions. So just to clarify you said down negative two to negative six for total sales plus 2.5% FX tail.
Tailwind what did you say for the M&A impact.
For the full year.
Fourth quarter sales now material, it's negligible less than half a percent for sure.
Got it so Ken if you didn't add anything no well it added a modest amount, but not material at this stage.
Great, Okay, and when I talk about half a percent is a good way of bracketing it.
Got you less than half a percent fine. So we talked a lot about academic and government, but obviously nano spin down pretty significantly semiconductor can we talk a little bit about the dynamics in nano and I.
I know, there's a chunk of that that's academic but there is also a big chunk of that that's industrial researching can we talk about what are your sort you're seeing trends in the industrial research markets and how should we expect that to trend or what are the signs. There. Thanks, yes. There we don't have the visibility yet that we would like to ask the industrial industrial researches down some of it is down pretty sick.
Efficiently.
We're separating out as Youve pointed out the semi part which is about 6% of our revenue in most years, that's doing really quite well.
And we expect the slowest recovery in that industrial industrial research.
We think thats going to recover more slowly than.
Academic, which we are.
Which we think will recover fully by middle of next year, and we cannot predict Edwin industrial industrial research. It will come out of its deepest hole for sure, but how far that will recover or what the growth rates or for that will be next year because of the weak comparison, we're still likely to see that up next year.
Year over year, but that's the that's the weakest part.
And the one with the least visibility.
And that's being driven by what I mean, obviously I mean could be industrial research has been mixed depending on what you know what company Erad I mean, some chemicals are doing fine some or not it's like what's what sort of is the biggest impact at the end customer to there, they're just not selling product or we're just being conservative what's the biggest.
No I mean, I think that that's where the CFO is of course, you know stopped.
I'll make sure they preserve conserve cash and slowed down or stopped capex the fastest in pharma Biopharma thats not the case of course, they invested more.
And now they are observed and it's so industry by industry I mean.
Obviously aerospace isn't not in good shape and.
But automotive is recovering in many areas because people are not flying so there may want the new car actually Bob selling cars is not such a bad business. Some of them are hurting financially because they all need to become self driving electric vehicles and they may or may not have that yet so should we assume some of that other mode.
More up other dynamics going on that has that has that helped industrial research we have.
I kind of expect that to recover certainly compared to 2020 as well, but I don't have the visibility yet to give you a good answer I don't know I wouldn't know what.
Other than Directionally. It has to recover from from this year next year by how quickly and how much and by with what timing on that I do not have visibility yet. However, I mean, if you want to if I wanted to be a bit more positive or constructive.
Clearly compared to the deep hole. It can it can only go up but I could not tell you by how much but having that steep steep headwinds that we've been experiencing from industrial removed next year would do a lot for our growth rate and we think it will.
Great. Thanks, Frank Yes.
The next question comes from South of SVB Leerink partners. Please go ahead.
Yes, hi, Frank Thanks for the.
The question. So first one on project accelerate and thanks for the updates on on that front.
But wondering what it means you know as you have seen the crisis.
To go through the year and and evolve.
What's your expectation here in terms of where bruker wants to push harder in terms of new product launches worse is less in other product lines. Main question is I mean since that is within your control I'm just trying to understand what should we expect.
Brokered to innovate along the same lines. So maybe an extensions of successful platforms, such as 10 soften and other products.
Because obviously that's within your control despite the academic so just wanted to get a sense of that and any other priorities here on accelerate into 2021.
It's funny, we haven't slowed down in investment investing in innovation and in R&D at all.
Throughout the pandemic.
And in fact, we have added.
I guess you could say within project accelerated Weve look we've added viral diagnostics covitz diagnostics, but also you know the winter Plex flew through a booby RSV that type of stuff is goes into our PCR diagnostics. So viral diagnostics was added to our previous infectious disease focus which.
With more micro bacteria bacterial microbes bacteria oriented and of course in proteomics Weve added the targeted proteomics with Egypt cytometry technology acquisition and targeted Multiomics. So broadly you could say that was within this takes project accelerate areas.
Although it has flashed out some of them much more than what we had in our technology and product portfolio, even at the beginning of the year. So we've we're doubling down weve, even accelerated with some inorganic bolt ons our capabilities in particular in this case and infectious disease diagnostic and in.
Proteomics Multiomics by also added adding that targeted capabilities now these.
Proteomics multiomics capabilities that we will continue to innovate there very rapidly that that's one of the.
Probably fastest growing area that is at an inflection point and that we think will do.
Really really well and probably grow much faster than even what I had predicted in New York in June last year at our analyst day.
That's emerging that's probably pretty clear to you puneet and many other observers and that we're investing at that in a broader sense also in the ecosystem that is very strategic for us as well as the accelerating investments in in diagnostics.
Which is of course, but.
Material diagnostics, but also viral diagnostics and also with more and more of a focus on supporting providing tools for cancer diagnostics.
Okay. That's that's very helpful.
And if I could ask on on and Amar and you Hope you have had a number of installs here for a large systems you had shifted gigahertz.
Now with that experience.
What's the level of confidence in terms of predictability of bringing that those magnets up to field and thus, giving you more predictability of revenue recognition of timely revenue recognition. There I'm just wanted to get a sense from you now that you have had a couple of these installs. Thanks, yes, I mean over the year our comp.
Cedents has increased very significantly and it is true that not every installation works on first try and we've had some examples where a magnet to had to be reworked just as we had predicted.
But overall, we have enough irons in the fire that maybe you don't need to worry about that we worry about that because we have enough irons in the fire to hopefully get one and into Q4 revenue that was a question that was asked earlier and also to have enough confidence to say with pretty high confidence that beyond the three systems that Brent dissipating for this.
Here next year, we're expecting more than three systems in the gigahertz class in revenue and how many will go into that when we give guidance for 2021, but.
More than three so we have pretty high confidence in that now, but we always need to do a little bit more juggling behind the scenes, because it's still leading edge technology and.
But I think overall I think we got to have a good grip on it now.
Great. Thank you.
And we have a follow up from Dan Brennan.
Equal.
Hey, Thanks, Thanks for taking the question Frank maybe just Werent shorter term question. So I know the comp in Q4 actually get easier by a couple of points two points I am just wondering at the midpoint.
Not baking in any real change for Q3. So is that really just conservatism given maybe the cobi cases or did you see any pacing change as you exited the quarter start when you start Q4, and then just back to academics.
Talking about revenue or margins can you just yet.
Yes.
Yes, the organic down two to six is kind of stable with Q3, but the comp does get easier to organic growth comp does get easier in Q4.
Versus last year right by about two points because I think you grew over 70 occurring inside the yen last last Q4 was very strong last Q4 was very strong.
So it's not only the percentages we also look at the absolute numbers.
And.
Q3 last year Wasnt bad, but Q4 was really quite strong so.
I don't know, it's not only conservativism. It's also the prior year comp in Q4 will be difficult I mean.
Well, there will be a bit tougher.
And then and then if your mind, sorry, one more on academics.
Academic come in kind of where you thought this quarter. When you when you are setting guidance or to kind of how did that trend throughout the quarter was it in line better or worse I don't want to parse.
Fine points and I'm, just wondering since you have a pretty much as we expected I mean, the continuing recovery in reopening and that by the end of Q3 customers are generally back in the lab and and doing their work with very few exceptions throughout the world and essentially all European end use customers are back in their labs with a new normal that's up pretty much as.
Worked out as we expected more or less.
Great. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Miroslava Minkova for any closing remarks.
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On January 2021.
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