Frank Laukien - President & Chief Executive Officer Charlie Wagner - Executive Vice President & Chief Financial Officer Joshua Young - Vice President of Investor Relations.

Brandon Couillard - Jefferies Christine Arnold - Cowen and Company Jon Groberg - Macquarie Tycho Peterson - J.P.

Morgan Isaac Ro - Goldman Sachs Derek DeBruin - Bank of America Merrill Lynch Steve Willoughby - Cleveland Research Ross Muken - ISI Group Tim Evans - Wells Fargo Securities Amanda Murphy - William Blair Peter Lawson - Mizuho Securities Bryan Brokmeier - Maxim Group.

Good afternoon everyone and welcome to the Bruker's, first quarter 2014 earnings conference call. All participants will be in a listen-only mode. (Operator Instructions). Please note, today's event is being recorded. At this time I’d like to turn the conference call over to Joshua Young. Sir, you may begin..

Thank you very much Jamie. Good afternoon. I'd like to welcome everyone to Bruker's first quarter 2014 earnings conference call. My name is Joshua Young, and I’m Vice President of Investor Relations for Bruker.

Joining me on today's call are Frank Laukien, our President and CEO; and Charlie Wagner, Bruker's Executive Vice President and Chief Financial Officer. In addition to the earnings release we issued earlier today, we will also be referencing a slide presentation as part of today's conference call.

The PDF of this presentation can be downloaded by clicking on the earnings release hyperlink on Bruker's Investor Relations website. During today's call, we will be highlighting non-GAAP financial information. A reconciliation of our GAAP to our non-GAAP financial statements is included in our earnings release and in our webcast presentation.

Before we begin, I'd like to reference Bruker's Safe Harbor statement, which I show on slide two. During the course of this conference call we will be making forward-looking statements regarding the future events or the financial performance of the company that involve risks and uncertainties.

The company's actual results may differ materially from the projections described in such statements. Factors that might cause such differences include, but are not limited to those discussed in today's earnings release and in our Form 10-K, as well as other subsequent SEC filings.

Also note that the following information is related to current business conditions and our outlook as of today, May 7, 2014. Consistent with our prior practice, we do not intend to update our projections based on new information, future events or other reasons prior to the release of our second quarter 2014 financial results.

We will begin today's call with Frank providing a business summary of our first quarter performance. Charlie will then cover our financials for the first quarter in more detail. Now, I'd like to turn the call over to Bruker's CEO, Frank Laukien..

Thanks Joshua. Good afternoon and thank you for joining us on the call today. I will begin my presentation on slide four. Q1 was a reasonable start to the year for Bruker as we generated 7% organic revenue growth, drove 160 basis points of non-GAAP operating margin expansion and reported year-over-year improvement in our free cash flow.

That being said, please remember that Bruker had a relatively weak first quarter in 2013. We reported $424 million in revenue during the first quarter 2014 and 8% reported increase from the previous year. From a market perspective, we saw healthy demand from customers in the research, applied and clinical markets during the first quarter.

Our Q1, 2014 revenues from industrial customers grew from a lower base, after declining significantly in 2013. While there is no strong industrial recovery, it is a positive sign that revenue from other industrial customers resumed modest growth in Q1, 2014.

Our microelectronics revenue, which includes semiconductor, data storage, displays and solar declined in revenue in Q1, 2014 year-over-year, but we did see a gradual puck-up in orders. Geographically Europe generated steady revenue and bookings growth in the first quarter.

While we saw a good revenue performance from Japan in Q1, new orders in Japan were weak in Q1, 2014. We saw improving order trends in North American, but weakness in Latin America during Q1, 2014. Revenues in North American declined in Q1, which is a reflection of the weaker environment we saw in bookings in North American during 2013.

From a group perspective, CALID posted low double-digit revenue growth in Q1, 2014 after a relatively weak Q1, 2013. Our BioSpin and BMAT Group both generated mid-single revenue growth in the quarter year-over-year. Finally, we reported $0.11 in non-GAAP EPS in the first quarter of 2014, an increase of 38% from Q1, 2013.

In summary, we are pleased with our start to the year, the current demand environment is slightly better than what we experienced in Q1, 2013 and we believe we are on track to deliver our full year 2014 guidance.

Now, please turn to slide five and six, where I will provide some additional details about the performance of our three BSI segment groups and our BEST segments. I will start with the Bruker BioSpin Group. BioSpin delivered another good quarter, posting good revenue growth in Asia and continued steady performance in Europe.

This is our second consecutive quarter of solid revenue growth from BioSpin. Some of this growth has come from a concerted effort on our part to work down, except this backlog. During Q1, 2014, both our BioSpin magnetic resonance spectroscopy division and our pre-clinical imaging division performed well.

Now turning to our CALID Group, whose revenue growth in the first quarter was generated by the Optics and Life Science and Clinical mass spectrometry division, as both had an easier year-over-year comparison. Optics has strong performance in North American and is benefiting from recent product launches such as TANGO and LUMOS.

Our Life Science and Clinical or LSC Division saw robust demand in Europe and continued momentum in their clinical microbiology business with our MALDI Biotyper platform. Our high performance Q-TOF mass spec performed well and academic and government demand was healthy in Europe and North American.

Our LSC team did an effective job of integrating CAM, Commercial Management Organization during the first quarter of 2014. With this integration, LSC and CAM now share one commercial operations management team. Our CAM division posted a weak Q1, 2014.

In January 2014 we expanded our review of CAMs market focus and cost structure to identify the best way to drive the core CAM business towards profitability. We expect to share details of this CAM revenue with you on our Q2 earnings call this summer.

Our Detection Division had an unexpected dip in revenue in Q1, 2014 due to the timing of German export licenses, which were delayed for almost all countries due to the crises in the Ukraine. On slide six; our Bruker Materials Group or BMAT revenues grew in the mid-single digits in Q1, 2014.

The research and academic markets, which are BMATs largest customer segment, remains healthy and generated good performance and I already commented on microelectronics and other industrial demand earlier. BMAT’s three largest divisions all generated growth in Q1, 2014.

We were pleased with the performance of our new fluorescence microscopy business, which we acquired in September of 2013. This business put up strong performance in Q1 and is off to a great start in the Bruker portfolio, leveraging their new product and our larger commercial channel.

The market for multiphoton and fast confocal fluorescence microscopy products are healthy in cell biology and neuroscience research worldwide. We saw the benefits of the restructuring actions that BMAT took in the second half of 2013 as the BMAT group operating expenses declined significantly in the first quarter of 2014.

This helps BMAT to deliver increased operating profitability compared to Q1 2013. Finally, our Bruker Energy and Supercon Technologies or BEST segment continued to do a good job of balancing growth and improvement and profitability, although it have some unusual revenue timing benefit in Q1, 2014.

BEST reported revenue growth of 12% and a non-GAAP operating margin of 8% in the first quarter of 2014 and it more than doubled its operating income from a year ago. Most of this improvements have come from better control of operating expenses, which have declined as a result of actions we took in 2013.

BEST also had a good quarter of bookings growth as it secured some large contracts for its superconducting wire business from major MRI vendors. Now I’d like to make a few closing remarks before turning the call over to Charlie.

While Q1 was a reasonable start to the year for Bruker, we recognized that we still have a lot of work ahead of us to deliver our operational objectives for the full year 2013. Similar to 2013, we may see quarterly variability in our business.

In particular, we will face a more challenging comparison in Q2 due to our relatively strong second quarter of 2013 and we expect that revenues will likely be flat in Q2 on a year-over-year basis.

That being said, our lower operating expenses and growth in the first quarter should put us in a position to deliver on our full year 2014 guidance, which remains unchanged. I look forward to reporting on our progress and now I’d like to turn the call over to our CFO, Charlie Wagner..

Thanks Frank. I’ll now provide some additional details on our Q1, 2014 financial performance. On slide eight, I show a snapshot of our Q1, 2014 non-GAAP results. Total revenues were $424 million, an increase of nearly 8% from the first quarter of 2013.

Higher revenues combined with lower operating expenses drove operating leverage in the P&L as non-GAAP operating margins expanded by 160 basis points and non-GAAP EPS grew approximately 38% over Q1, 2013. We also generated free cash flow and increased our net cash position during the first quarter of 2014.

Turning to slide nine, I show the revenue bridge for the first quarter of 2014. Reported revenue growth of 7.7% included organic revenue growth of 6.6% and a 1.1% net positive effect from acquisitions and divestures. The acquisition impact reflects the BMAT acquisition of Prairie Technologies, a provider of fluorescence microscopy products.

Changes in foreign exchange rates had a negligible effect on revenue during the quarter as a stronger euro offset a weaker yen compared to the prior year. On slide 10 I show our Q1, 2014 non-GAAP operating results in more detail. Our Q1 2014 non-GAAP gross margin of 44.2% is a decrease of 140 basis points on a year-over-year basis.

Nearly all of the decrease is due to changes in foreign exchange rates and primarily the result of the weaker yen. We also saw some pressure on our gross margin this quarter due to weak CAM performance and lower pricing for some of our BMAT products in industrial markets.

Our Q1, 2014 operating expenses were slightly lower on a year-over-year basis, as modestly higher SG&A was offset by lower R&D spending. Overall, operating expenses as a percent of revenue declined by 300 basis points in Q1, 2014 compared to Q1, 2013.

Our non-GAAP EPS of $0.11 was $0.03 higher than Q1, 2013 and reflected a tax rate of approximately 26% in Q1, 2014, which is below our expectation for a full year 2014 tax rate of 29% to 30% and the difference is primarily due to the timing of the tax items and mix of jurisdictional profits.

On slide 11 I show a reconciliation of our GAAP to our non-GAAP financial results for the first quarter. In Q1, 2014 we excluded $11.5 million of operating costs from our non-GAAP results and that number is flat compared to Q1, 2013.

We incurred $2.4 million of restructuring changes in the first quarter of 2014 and still expect our restructuring changes to increase during the course of the year and total $15 million to $20 million for the full year.

We’ve expanded the outsourcing and restructuring activities that started in 2013 as we strive for continuous improvement in our margins. In 2014 we’ve already completed the divesture of the CALID groups Leipzig, Germany machine shop in Q1, 2014 and we are in the process of consolidating other Life Sciences Division manufacturing within Germany.

In BioSpin, we’ve expanded our outsourcing of non-core manufacturing, including incremental programs to outsource electronics components in France and Germany. In addition, opportunities for further right sizing of costs are being assessed in a number of divisions, including CAM.

For programs announced or to be announced in 2014, most of the run rate benefit will being in 2015. On slide 12 I show a balance sheet as of March 31, 2014. Our balance sheet continued to strengthen during the quarter. Inventory increased from December 31, 2013 but was flat with Q1, 2013, including the unfavorable effect of the stronger euro.

Our days of inventory outstanding improved by 30 days totaling 233 at the end of Q1, 2014 compared to 263 days in Q1, 2013. Accounts receivable totaled $295 million at the end of Q1 and our days sales outstanding was 65 days unchanged from Q1, 2013.

Our accounts payable increased by about $40 million and days payable outstanding increased by three days compared to Q1, 2013 as the cash flow benefited from the timing of payments. On slide 13 I show our Q1, 2014 free cash flow performance.

We recorded free cash flow of $9 million in the first quarter of 2014, an increase of roughly $42 million from Q1 2013. Higher net income, improved working capital and lower CapEx spending combined to drive the improvement.

On a trailing 12-month basis our CapEx spending has roughly matched our level of depreciation and we expect this trend to continue in the near future. Now I’ll turn to our financial guidance for 2014, which I show on, slide 15. We are not making any changes to our full year 2014 guidance.

We expect that revenue growth from all three BSI groups and from BEST will be roughly the same as the company’s overall revenue growth rate. We are making a small update to our currency assumptions as the U.S.

dollar to euro rate currently stands at 1.38, 1.39 and the yen to dollar rate that’s at 102, 103, which are slightly changed from the last time we gave guidance in February. On the bottom line we expect to generate 10% to 14% year-over-year growth in non-GAAP earnings per share during 2014.

This guidance continues to assume a full year 2014 non-GAAP tax rate of 29% to 30%. While we do not provide specific quarterly guidance, we do expect to see quarterly variability in the year-over-year comparability of our operating results over the next few quarters.

Specifically, we expect our reported revenue growth in Q2, 2014 will be roughly flat to the prior year due to the strong comparable quarter that we had in Q2, 2013. Keep in mind that Bruker reported 8% year-over-year revenue growth in Q2, 2013 after a relatively weak start to the year in Q1, 2013.

So I’ll close by saying that Bruker is off to a good start for the year. Revenue growth is in line with our expectations and we’re managing our investments and expenses to insure they remain on track to achieve our guidance for the full year. With that, I’d like to turn the call over to Joshua to start the Q&A session. .

Thank you. Jamie, please assemble the Q&A roster. .

(Operator Instructions) And our first question comes from Brandon Couillard from Jefferies. Please go ahead with your question. .

Thanks, good afternoon.

Frank, with respect to the CAM division, can you quantify the revenue size of this business now and the magnitude of the operating profit drag and under what circumstances would you consider, I suppose exiting the business entirely?.

Hi Brandon, I think that, I don’t see a set of circumstances where we would exit the business, but I see circumstances where we are in the presence, we’re in the process as you know and we are in the middle of that process of analyzing what will be, what make segments and what product lines are most core to us and where we can perhaps sharpen our focus.

So we do expect to give an update on CAM when we report our Q2 earnings in roughly three months from now and we have already taken further actions in Q1, combining the commercial management instruction for the customer facing function; sales, field application service and so on and that’s still ongoing a little bit, because we started in the middle of Q1 budget; its making good progress.

And other than that we had a loss in CAM last year. We’re anticipating a lower loss this year, but still a significant loss, which is why we’re looking at these things. I’d rather not get into CAM quarter-by-quarter, because we don’t usually break that out. But we have an issue there and we are addressing it very seriously. .

Thanks, that’s helpful.

And then one for Charlie, could you quantify the impact of currency on the EPS lines in the first quarter and how should we think about that dynamic, still expect it to probably be a headwind in 2Q before normalizing in the second half, is that fair?.

Yes, in the first quarter currency would have been about $0.02 to $0.03 and that is the biggest quarterly impact, primarily because of the yen. First of all, Q1 is a big revenue quarter for Japan and the year-over-year delta in the yen is the greatest in Q1, assuming today’s rates remains where they are.

The yen started to move in March/April of last year and so the comps on the yen get easier in Q2, Q3, Q4. The euro delta is significant though year-over-year and that comp doesn’t get easier until Q4. So anyways, for quarter its about $0.02 to $0.03, that rate stay where they are, that impact should lessen in Q2 and Q3 and should be a lot less in Q4. .

Super. Thank you. .

Our next question comes from Doug Schenkel from Cowen and Company. Please go ahead with your question. .

Hi, this is actually Chris on for Doug today. Thanks for talking my question. So I wanted to ask about gross margin. One metric, which looked like it could have been better and missed of an otherwise solid quarter was gross margin. You attributed the year-over-year weakness partially to FX, specially the yen.

Is FX masking gross margin improvement and is it possible to quantity how much of the headwind some of the programs you are taking on to improve manufacturing and the price chain represents. .

Yes, that’s a good question, Charlie. So we would say that currency had about 140, 150 basis point impact on gross margin in the quarter. So its true that absent that it would be a better part of the story. That said we are disappointed, we are looking for year-over-year improvement in gross margins on absolute basis this year.

We clearly took a lot of actions last year to begin to address that.

The restructuring actions last year, were they impacted operating spending that’s flowing through – we get the full benefit of that pretty much right away, where the restructuring actions effect cost of goods, some of that flows through, it ramps over the course of the year and particularly when you look at things like procurement savings, they ramp over the course of the year as well.

So, there are a lot of factors that effect gross margin and I would say we are a little bit disappointed with where it came out in the quarter, but one quarter doesn’t make the year and we’re counting on an absolute improvement during the year and counting on seeing the benefit from the actions that we too last year and ultimately in the future, additional actions that we’ll take.

So I agree its kind of the one point we wanted to, we should come in a little bit better. But it’s still early. .

Okay and just one. Some of your peers have talked about delays in capital budget releases, specifically in China related to governmental sales.

Was it an impact on our business at all?.

This is Frank. I think China, was reasonable. China is not fantastically strong for us right now, but its reasonable, it’s growing and so we are not aware of that specific effect in China. We had reasonable growth in China, but not spectacular. .

And our next question is from John Groberg from Macquarie. Please go ahead with your question. .

Thanks. So Frank, just following up on some of the end markets commentary there. You mentioned that, I think some of the microelectronics, and industrial early on in your comments, that you started to see some improvement in orders.

Can you maybe just expand on that a little bit more? Its has been a mixed bag, particularly around areas like semiconductors still with some folks seeing some strength in maybe earlier stage R&D, node-related investments where some of the CapEx stuff is still weak.

So can you maybe just kind of give us a sense of what you’re seeing there? I know your comps are somewhat easier as well..

Yes. Well, the revenue comp was still strong in Q1 of last year, but the bookings last year in that area, microelectronics semiconductor started to be weak. Now the bookings are ticking up a little bit and we got some orders.

Often these are now for larger systems and if they make it into 2014 it would be late in the year, they could also go sometimes for customer reasons into 2015.

But we did see an up-tick in orders and still year-over-year we saw microelectronics being down in revenue, because of the delay of roughly six months that we typically have in this company between orders and revenue.

So, I mean solar remains down, LED remains down, but semiconductor is recovering a little bit and data storage is hard to read quite honestly, but we have got some encouraging orders and these are still more technology adoption orders, these are not volume wise. So that gives you a bit of some color to my earlier comment. .

Okay, and then if I can just follow up again a little bit more just on the margins. I guess kind of two parts to the question.

One, on the gross margin again Charlie, if you exclude FX and if you think about your view for the year of getting some expansions, in the quarter I guess where are we in terms of mix in the business and how that impacted it? Where are you in terms of some of the order pricing? Is that starting to roll off yet and you should start to see an improvement and pricing that was delivered.

And I guess just generally speaking, how much more control do you feel on a quarterly basis you have of some of the discretionary costs. It looks like while gross margin maybe still a little weak with FX, your R&D, it seems like you are able to maybe manage that a little bit.

So I’m curious, one, I guess the impact of mix and then two, as you see the variability there, how comfortable are you feeling with it in terms of your ability to flex cost intra quarter if that’s changed at all in the last 18 months. Thanks. .

Sure. Yes, there is nothing remarkable about mix I would say, nothing material. There are always a lot of little factors that effect gross margin, whether its adjustments to inventory or other accounting adjustments and we had some of that flow through in the quarter.

I purposely don’t call that out, because it happens from time-to-time and from quarter-to-quarter. What I can say is that the programs that were put in place last year are going reasonably well and we do, we got a lot going on the procurement and supply chain side and so its sort of fair to say that some of these programs do slip a little bit.

They run a little bit later than we would like, but I don’t think that’s worth calling out that much either. So we’re trying to build on last year’s programs with new programs this year, to the extent that some of these programs are aimed at reducing our material cost and purchasing and the like.

There was a delayed effect, a delayed benefit there because your procurement reductions first effect inventory and then ultimately flow through your cost of goods sold.

So your point around control over OpEx is accurate and I think we’ve now shown for at least four or maybe five quarters in row that we have a better handle on our FX that folks are managing to their budgets more carefully and on the margin, making adjustments to spending when they need to offset issues in other parts of the business.

That’s not a winning long-term strategy. Of course we want to have control OpEx, but we are well aware of the fact that we’re going to drive profitability and improvement through a combination of control on spending and improvement in gross margin, so as I said earlier, its one quarter.

This company is hard to judge in 90-day increments and there’s nothing about Q1 that has us changing our guidance for the year..

And this is Frank continuing.

Before I discuss the pricing part, I mean the restructurings of last year, the OpEx effect where we have not just for short-term management of results, but really more fundamentally reset the OpEx structures of some of our divisions, I think we’re really seeing that now pretty nicely in Q1 and that’s not just going to be a Q1 effect I believe.

Whereas it is to where Charlie just pointed out, that some of the gross margin effect for procurement and outsourcing, they tend to come in with a little bit more of a delay, because when you first outsource you don’t immediately have a cost savings that takes us a little bit of settle into the new supply chain and contract manufacturing structure.

On pricing, I think in some of the areas where we continue to foster price discipline, I think we’re beginning to see some of the effect from that, for instance in our pre-clinical imaging division, but you do also see some price pressures and some of that is still in our backlog.

Maybe it will ease a little bit now, in which we, particularly when the industrial or other industrial demand fell pretty steeply in the double digits last year, that some of that is still in our backlog and again, its too early to say whether that will ease a little bit.

It typically does ease a little bit when there is a recovery and we’re seeing a modest recovery in other industrial and apparently now in microelectronics, parts of the microelectronic markets as well.

Hope that addressed your question?.

Yes, perfectly. Thanks a million..

Our next question comes from Tycho Peterson from J.P. Morgan. Please go ahead with your question..

Hey, thanks. So just looking at the quarter here, I mean the original target for flat year-over-year by north of $30 million your guiding $12 million growth.

You said this is for the second quarter and I know you don’t give quarterly guidance, but can you just talk to whether there is an element to either pull forward or spill over from the fourth quarter that impacted this quarter in terms of larger orders..

Yes, I mean there was clearly a little bit of pull forward into Q4, which so Q4 had some pull forward and perhaps also more modestly a little bit of pull forward into Q1, so which is our comments about Q2 where we’ll have a much stronger comparison year-over-year. I would encourage everybody to look at the first half year.

The first half-year I think will be as best as we can tell, pretty much on track with what we have predicted for the full year..

Yes Tyco, we were obviously a little bit cautious in the color we gave around our Q1 expectations.

We know the company has a little bit of a history of following a strong quarter with a slow start to the next quarter and we wanted to guard against that and so the Q1 color might have been a little bit cautious, but the organization responded and got off to a healthy start. As Frank pointed out earlier, it was an easy comp.

So I guess the key point is there is nothing about the Q1 out performance that has changed our view on the full year outlook..

And on the outlook, what are you baking in for an academic recovery in the back half of the year. We certainly have heard from some of your peers that expectations are picking up for the second half of your recovery..

Well academic, really we haven’t really looked or anticipating any big differences between back half and a front half.

Academic has been reasonably healthy with some geographic differences, admittedly Europe getting stronger, North America getting stronger, Japan getting weaker, simply because they have the special supplementary budget last year, which for instance still led some pretty good Japan revenue for us in Q1, 2014 which was the end of their previous fiscal year.

So there’s some gives and takes in geography, but overall academic research spending has been – well its not growing wildly, but its healthy and we do well in those markets. It’s a little bit the trends first half versus second half.

Maybe a little bit more again on the industrial and microelectronic side and some of that recovery in orders, so we’ll also already go into 2015 for some of the larger projects at least.

Does that address your question or should I elaborate further?.

Yes, and then just one clarification on CAM. You talked before about narrowing your focus in end products. You actually started to do that.

I know your going to give an update in the second quarter, but I was just wondering if there’s an impact this quarter from maybe some operational initiatives at CAM?.

That has been somewhat selective in some geographies and some geographies where we didn’t feel, and its very selected I mean. Some selected geographies where we didn’t feel that we could get profitable growth. We scaled back a little bit and we’re busy this quarter.

Still a little bit busy with fully getting the production going in the new outsourced/fremont concentrated factory setting, while we have exited the Dutch factory at the end of last year. Not the first quarter here in the new set of circumstances.

Here not everything is running smoothly yet, but it’s improving pretty rapidly and we’re also focused on the big opportunities on the commercial side and hence the commercial management consolidation that we started in early February and that’s still ongoing a little bit, but we’re getting there.

So a number of things are moving there and other than that we’re really analyzing and trying to be very thoughtful.

There’s obviously quite a few market segments and some technologies and products that absolutely will be called to Bruker and we’re trying to make sure that we’re doing a good job in nurturing those and investing in them, while overall addressing our cost structure there..

(Operator Instructions) And our next question comes from Isaac Ro from Goldman Sachs. Please go ahead with your question..

Good afternoon guys, thanks. Charlie, a question for you on the ERP system. I know that’s been one of the major initiatives under the hood that’s maybe a little less visible for us in terms of how that’s going. So maybe if you could offer an update as to progress and key goals over the next six months or so will be helpful..

Sure thing Isaac, yes, and I’d like to draw a distinction between our financial system and ERP.

The big project we have ongoing right now is a financial system, financial consolidation and reporting system that will help bring together our disparate landscape of financial systems and move us to a more enterprise level system that’s going to allow us to report more efficiently and more quickly and there’s great business value in that.

It doesn’t get at the complexity and diversity of the underlying ERP landscape of the company. That’s one where we do have a project ongoing right now to assess what our options are there and to most likely layout what’s likely to be a multiyear plan to incrementally improve our ERP landscape over time.

So with the financial consolidation system, we’re going to expect to go live at the end of Q3. We’re going to be running. We’re doing some parallel tests of the new system in the next two months and would expect to be fully live on the new system at the end of Q3..

Thanks for that color and then just a follow-up on the NMR business. You obviously have, I would call a more favorable competitive landscape to work with now and so maybe if you can talk a little bit about quota activity and backlog specifically in the core of that marketplace as you enter the middle part of the year that would also be interesting.

Thank you..

Yes, this is Frank. Isaac, its obviously a quarter. It’s difficult to read much into it. We had good bookings in the Bruker Biospin Group.

We had very strong booking in the beginning of the first quarter of last year, so we’re actually down in bookings a little bit, but that’s really just fluctuation and that’s even sequential fluctuation for which there is no rhyme or reason. That’s just fluctuations when you have those big ticket items.

So I think it remains quite competitive, sort of especially in the 400, 600, 800 megahertz range and we also have an additional – we have that backlog of a more niche ultra high field systems which we’re delivering and of course there’s some new interest coming up from time to time, but that’s not really any remarkable trends there I would say.

Beyond NMR and related to that, actually the MRI demand has been – pre-clinical MRI of course has been quite healthy for us and even overall demand for other modalities in our pre-clinic, other than MRI in our pre-clinical imaging business demands and orders and bookings have been quite strong in Q1.

So we’re pleased with that and that bodes well for our pre-clinical imaging business. That had some strength last year, but it was a little bit erratic and there were some pockets of weakness in certain product lines in 2013. I think we’re making very good progress there..

Got it, thanks very much..

Our next question comes from Derek DeBruin from Bank of America Merrill Lynch. Please go ahead with your question..

Hi, good afternoon..

Hi Derek..

So Charlie, if I’m correct, if my memory serves me correct, you had a $5.7 million licensing payment from the Rosatom in Q2 last year?.

That’s right..

Okay, I just want to make sure that we’re apples-to-apples everything with the numbers when we do the math. And so the free cash flow has improved nicely.

I guess have you given like the free cash flow target for the full year?.

No, we’ve not Derek..

But do you expect to be free cash flow positive each quarter?.

I haven’t given that guidance and I don’t have anything else to offer on that today..

Okay, great. Actually my other question was already asked. So I’ll get back in queue, thanks..

Okay, thanks Derek..

Our next question comes from Steve Willoughby from Cleveland Research. Please go ahead with our question..

Hey guys, thanks for taking my call. Following up on one of Tyco’s questions, three months ago when we were talking about the first quarter you were thinking the revenue growth might be around flattish. I was thinking even much better than expected.

So I was wondering if you can maybe talk about what parts of the business or what geographies of the business came in better than what you were thinking maybe three months ago..

All right Steve, so certainly Bruker BioSpin did well and brought in a little bit more revenue than we had expected. BEST, it grew a little faster than what we had expected even at the end of February. As I said, Bruker Detection was a notable dropout, because in May they couldn’t ship many of their products.

We’re going to need export licenses and even export licenses for South Korea, which is not close to Ukraine, but we just couldn’t get export licenses, so we couldn’t do anything. So there’s holdback revenue and other than that I think Bruker Optics said it did better than expected.

Not dramatically, but better than expected and that’s a good margin business for us.

So other than that we were sort of pleased that in some ways the growth rate of the businesses, which as you know with a more life science oriented CALID and BioSpin pretty good last year and BMAT being negative, high single digits for the full year if I recall, we’re getting more in line with each other.

In a given quarter they are never exactly the same, but it points to what we had been assuming, i.e., modest low to mid single digit growth, maybe not in all divisions, but at least in all the groups, so that’s sort of the take home message from Q1 if that gives you a little bit more color..

It does, thank you. And then just as a follow up, if you can maybe provide a little bit of color on how the Biotyper launch is going so far in the United States..

Well, the Biotyper, the FDA cleared Biotyper launch, its shipping and demand is healthy. We of course have sold quite a few more of the Biotypers into research use only or into state laboratories or CDC or others that did not need FDA clearance. So the MALDI Biotyper business overall and this is not just a U.S. comment, its even a European comment.

Maybe that surprised us a little bit out, but we have ambitious goals for it, but it exceeded those ambitious goals and growth in Asia is picking up as well. So it’s been a good first quarter for revenue and bookings for the MALDI Biotyper business again, one of our faster growing product line.

There will be some more product news, because we’re heading into the two most important conference of the year, which will be the ECCMID, the European conference which starts this weekend in Barcelona and then a week later in Boston, we have the American Society of Microbiology meeting in Boston back-to-back, so there’ll be more product technical and product up for further significant improvement from all the bio type of platform.

Initially when they come out, its sort of the research-use-only the improvement and then over time of course we try to also make those improvements available under IVD CE and we’re also in clinical trials for further U.S. FDA claim extensions.

So I hope that gives you enough information presently and then look at some product press releases on Monday morning coming out of Barcelona for the ECCMID with some cool additional stuff and further workflow improvement. The MALDI Biotyper platform is doing great for us..

Our next question comes from Ross Muken from ISI Group. Please go ahead with your question..

Good afternoon guys. So Frank, I know you called out the TANGO in the presentation. I know it’s a new product that seemingly is doing quite well.

How do you feel like in general the R&D organization is kind of reacting to some of the structural changes going on and some of the disciplines putting in from a cost efficiency operation standpoint, that maybe before were not as big a focus.

You feel like the new product momentum still is remarkably strong, despite the changes in these things? It actually might help you kind of get some incremental momentum on projects where the ROIC is obviously quite attractive and you had a high success rate historically..

Yes, you took a lot of my answer, but that’s good. I really think we did investment. We got out a couple of R&D projects that were too speculative and long term.

We did that last year, so that’s kind of old news, but everywhere else we’re really focusing and then just using the PLC process and by focusing on higher ROIC and larger market opportunities to focus and to be more efficient and our team is more important.

They are not saying, hey, here is this great opportunity or that adjacent market that we should get into. We’re doing these things. We’re doing what we want to do and our new product flow in the first quarter with Pittcon and then Analytica. I guess technically that was the first week of April.

It has been quite strong and for the next couple of weeks you’ll see stuff happening in microbiology, of course other mass spec conferences are coming up. We’ll have very strong product, new product flow. We’ve had it already in the first four months and there’s more to come.

But I feel really good about our improving R&D efficiency without really any appreciable reduction and perhaps lets say I don’t see any reduction in our ability to innovate and if anything, its going to be a little bit more ROIC and larger market opportunity focus.

But I feel actually really good about what we’re doing in R&D and we’re being more efficient in terms of OpEx..

You can obviously see it in the organization Frank and just one last thing, just touching upon some of the restructuring and other items you highlighted earlier in the call.

Do you feel like now that your starting to narrow the focus and your likely sliming down CAM further and really kind of now breaking this into several key units that will be the value drivers of Burke. Do you feel like from an organizational perspective its helping kind of the execution on some of the key projects you want to get out.

I mean one of the challenges at Bruker was always you had soo many great products, soo many great units, but it was a little bit dispersed.

Do you feel like in shrinking the focus a bit that’s helped kind of accomplish things maybe on a medium term basis?.

Well, I would answer it this way Ross. I think the group structure with the three group Presidents, I’m really pleased with that.

I am still and Charlie where applicable, we’re still involved and we’re still helping them guide that and in some areas they are involved perhaps, but I think the group President and their management teams in the division are doing really a good job in focusing and I think that was a really good move for Bruker.

I think that’s healthy in terms of how I can manage the company, but also in how they then manage the divisions and the project. So I think that’s really – we’re seeing the benefit and we’ll continue to see the benefit of that larger structural move if you like..

That was exactly what I was asking Frank, thanks very much..

Thank you Ross..

Our next question comes from Tim Evans from Wells Fargo Securities. Please go ahead with your question..

Hi Charlie, I was wanting to ask you a question on the outsourcing initiatives. Is there anyway you can help us understand how substantial the opportunity there is.

Maybe what percentage of your COGS do you feel like could be outsourced over time, and the bigger picture here is what are the initiatives that you really want us to focus on as far as moving the needle the most..

Yes listen, that’s a reasonable question. The reality is we’ve been working hard on outsourcing programs over the last year and even there were some programs that were ongoing before that, but we are still in the relative early stages I would say of our outsourcing efforts and we’re doing what you’d expect we’d do.

We’re starting with things that are the most obvious to us as being non-core and working those things off and then over time you work towards things that are more core. We’re obviously hanging onto those things that are ultimately very core.

So I will tell you though, given the diversity of the company and just given the state of our information systems, I don’t have a roadmap exactly to tell you how much of our COGs or how much of our production value ultimately makes sense to outsource, probably because we don’t have all the information.

Probably because that’s a judgment call around what’s strategic and what’s not and I don’t think we have enough accumulated history or experience yet at this point to make a call on that, but what I will say is we’re in a relatively early innings and as we build upon each of these programs, we’re looking to do more and more going forward.

So I think there is additional opportunity there and that we’ll look to capture over the next several years..

This is Frank, just maybe adding a little bit. Keep in mind there are some outsourcing projects, where we for instance January 1 we divested a machine shop of the CALID group in Leipzig, Germany, so that’s outsourced a minute later or the next day.

There’s other outsourcing programs like in the Bruker BioSpin Group, a lot of the cabling and electronics where you make the fundamental decision, but then until you outsource the majority of these, its literally a 15 to 18 month program. You take that many units and sub units and outsource them.

So that has target that is on track, but it’ll be ongoing all of this year and even into next year. Then you have the next wave on top of that.

Again, I’ll stay qualitative here, where we’re now taking selected medium to larger volume or medium volume as you know, maybe the ones that aren’t the most configurable, but have more standard configurations and where we look at dozens or hundred plus systems a year and we’re doing systems outsourcing, while retaining some of the key IP components and the final test and software of course that we only insert at the very end stage.

But on the other hand, we now have a – we may now go in mass spectrometry and some other areas in various pilot projects. We now have certain products going from managing, procuring, managing, putting into inventory, paying for hundreds and hundreds of parts to maybe going into a handful or into a dozen or two dozen of parts for certain systems.

So those projects that many of them have been kicked off. Some of the divisions are doing pilot projects this year, you’ll see steady progress. I know your always asking what really moves the needle. Well, that whole process, multi year process does move the needle, but there isn’t the one action that will be total dramatic. .

Okay that’s very helpful and I just wanted to get a quick update on when you think you might be ready to talk to the street quantitatively about long-term expectations. .

We haven’t set a date for that yet. .

Okay, thanks. .

Our next question comes from Amanda Murphy from William Blair. Please go ahead with your question..

Hey, thanks. Just a question on some of the commentary you made around pricing in BMAT. Just curious if you could provide some more detail there. And then also, I know that is something that you’ve been looking at sort of more strategically across the organization.

So curious if you can provide an update just on your thoughts around pricing, more from a corporate perspective?.

Amanda, this is Frank, I’ll take that one. BMAT pricing, there’s two elements to it. Obviously as other industrial and especially in the other industrial markets and this maybe natural product, this maybe metals, this maybe recycling, of course that’s all in the metals industry, this maybe minerals and mining or cement.

Those have some cyclicality and when the cycle is down as it was last year, there is more price pressure from our competitors. We don’t need to match that, but we can’t ignore it altogether. So it exerts some pricing pressure on us. That tends to ease as the gradual recovery. The other component can be FX in some businesses, including some of the BMAT.

We have stronger competitors in Japan. They obviously within a full 15 months period have an unprecedented changing FX relative to the dollar. Maybe 30% relative to the Euro or Swiss franc; in some cases its 35% to 40% shift.

You can with redesign to costs with our procurement initiatives, you can react to that, but you can’t react to that in 15 months. So we do see some pricing. We do see pricing disciplines and improve things.

Work on pricing also in the corporation, but we also, some of these cannot react as quickly as some of the currency changes that we have experienced in the last 15 months. But it a high priority and we are driving it. I think all the divisions are driving it within what’s competitively possible. .

And I know you had some pricing dynamics in NMR you know a few quarters ago.

Is that essentially out of the gross margin now?.

I think, no, not entirely. Some of these ultra-high-field orders, they take sometimes much more than a year to be delivered.

And I would point that the 400 to 800 megahertz main stream NMR remains pretty you know, its not super price sensitive, but it remains quite comparative, and there’s also one Japanese supplier in the mix here, not only the other U.S. company.

So I think it’s moving in the right direction for us, but its not that we have pricing power there in the NMR markets. .

Our next question comes from Peter Lawson from Mizuho Securities. Please go ahead with your question..

Frank, as you look out across the year, what worries you the most? Where could the business flow, just thinking about where you posted some kind of growth this quarter and where you are guiding?.

What worries me the most?.

Yes. .

Okay. Well I’m a little less worried than a year ago, because it’s not a great demand environment, but it’s an improving environment. The big worries of last year were these big currency shifts. I think those will be – I predict that could be wrong, but those will be much smaller than what they presently are.

Everybody is concerned a little bit about Asia and China. Not only China itself, but the rest of Asia. Its not only Japan, but even most of Korea and Taiwan and Southeast Asia are selling a lot of China. So when China catches the cold, they catch more than a cold sometimes. I’d say that’s an area of concern. An area of lesser concern is Europe.

I mean not that the Mediterranean countries have a lot of money, but the rest of Europe has stabilized nicely and Europe’s commitment to R&D funding is really quite long term and strong and not so politically vulnerable. You know demand in Russia will be weaker.

First quarter has been fine, but it’s almost inevitable that there will be less spending, plus they are reorganizing their Academy of Science. So even without the political crises there would have been some slowdown.

There’s some currency worries in Latin American and in India, but we have really good strong products and that’s why are demand picture has been reasonable. We are doing well overall in the research markets. As we are getting stronger in the applied markets and stronger in the clinical markets, those tend to be pretty healthy markets for us.

So I do sleep at nights and plenty to worry about, of course always a competitive effect. Quite honestly those can always be the biggest effect, but we are also doing well competitively, so nothing singular that fixes out that that I could point to. I’ve given you a little bit of the landscape. .

No, that's great.

And I guess on the opposite side, what gets you up in the morning and where do you see the upside in the business?.

Well, we have an innovation a transformation of projects. That’s a multi-year product and that’s gets me up in the morning and of course you know serving our customers and staying very close to them and not only because we want to, we like what they are doing.

We genuinely are proud of that and so are all of my colleagues, but also because I think being close to your customers helps you anticipate demand and develop great products for them.

And I’m optimistic that our long-term story or medium term story that we can make gradual progress, particularly focus on margin and product line with reasonable growth is working. But every quarter is a bit of a – its up hill, but I think we have a good team.

I think we have the organization or more and more we have a better system, so I think we’re on track. .

And our next question comes from Bryan Brokmeier from Maxim Group. Please go ahead with your question..

Hi, thanks for taking the question. Your R&D expense is declining quite a bit, quite a few quarters recently.

Could you provide us some details on what efficiency improvements you’ve made? Are there outsourcing of certain R&D efforts or relocation of projects to lower cost areas, maybe improved collaboration across groups that have allowed you to realize the same benefits, the same R&D efforts that you’ve had historically?.

Well, I think it’s really mostly the benefit of the management process and the product lifecycle processes that we’ve adopted and are adopting more and more stringently that helps us. Being a little bit more selective, doing something not all in parallel, but in sequence.

Maybe pruning some projects if they don’t have a good ROIC or if they address really only tiny markets. With the safe gate approach sometimes we do something for a couple of phases, but we may not go all the way and productize it. In the pharma industry you call this letting something fail earlier, which saves you money.

So I think the management process is really a better process. I had cited a couple of expanse in BEST where we very deliberately stopped some long term, perhaps interesting upside, but too speculative a project that we stopped in 2013.

And you know our key priorities and the ones with the high ROIC and the sizable addressable markets we’re perusing and we’re perusing perhaps with a little bit more focus even. But this is still an industry that doesn’t not only have really big filed size, but also lot of smaller more fragmented markets and our R&D structures remain adjusted to that.

So there are some products that may address smaller parts of our market where we are doing just really well competitively and bringing out nice new products and I think our track record is just in the first four months of this year, but also for many years before that I think is really quite good and I don’t see that changing. .

All right thanks. .

Thank you Bryan. .

Thanks Frank. And Charlie, you discussed the negative impacts on gross margins from currency.

Do you see any positive or negative impact from unexpected performances of your business groups and how might we expect that business mix to impact your margins over the course of the year?.

I’m not sure I understood the question, sorry. .

You talked previously about some of the business units. I think Frank talked about some of the business units that performed better than expected, such as the Optics group did a little better.

Did those out performances have any impact on the gross margin in the quarter and how might that sort of change as we move through the year?.

I see, I see. As I said earlier, mix wasn’t a bit part of the gross margin story for the quarter and there is nothing about the Q1 mix that changes our outlook for the year.

So I think the gross margin improvement is going to come from the programs that we’ve announced and seeing some of those benefits from outsourcing and procurement activities come through. And as Frank pointed out, being selectively disciplined about pricing where it’s competitively viable to do that.

So again, there is one thing or one business that I would point to as a margin driver. I think it’s about consistently improving our performance across all of our businesses..

And at this time we’ve reached the end of today’s Q&A session. I’d like to turn the conference call back over to Mr. Young for any closing remarks. .

Thank you Jamie. I’d like to thank everybody for joining us this evening. We’d like to invite you to meet with Bruker at one the five upcoming healthcare and growth conferences we’ll be attending in the second quarter. We also encourage you to visit us at our headquarters in Billerica, Massachusetts. Thank you for your attention and have a nice day..

Ladies and gentlemen, we do thank you for attending today’s conference call. It has now concluded. You may now disconnect your telephone lines..