Stacey Desrochers - Treasurer & Interim Director, IR Frank Laukien - Chairman, President & CEO Tony Mattacchione - CFO.

Tim Evans - Wells Fargo Securities Derik de Bruin - Bank of America Merrill Lynch Brandon Couillard - Jefferies Isaac Ro - Goldman Sachs Doug Schenkel - Cowen Tycho Peterson - JPMorgan Bryan Brokmeier - Cantor Fitzgerald Daniel Arias - Citigroup Sung Ji Nam - Avondale Partners Steve Willoughby - Cleveland Research Steve Beuchaw - Morgan Stanley Eric Criscuolo - Mizuho Securities.

Welcome to Bruker's Second Quarter 2016 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Stacey Desrochers, Treasurer and Interim Director of Investor Relations for Bruker. Please go ahead..

Good afternoon. I'd like to welcome everyone to Bruker's second quarter 2016 earnings conference call. I am Stacey Desrochers, Treasurer and Interim Director of Investor Relations for Bruker. Joining me on today's call are Frank Laukien, our President and CEO; Tony Mattacchione, Bruker's Senior 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-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 is shown on slide 2.

During the course of this conference call, we will be making forward-looking statements regarding 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 to our outlook as of today, August 2, 2016.

Consistent with 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 third quarter 2016 financial results in November. We will begin today's call with Frank providing a business summary.

Tony will then cover our financials for the second quarter of 2016 in more detail. Now I'd like to turn the call over to Bruker's CEO Frank Laukien..

Thank you, Stacy. Good afternoon, everyone and thank you for joining us on the call today. I will begin today's earnings presentation on slide 4.

While Bruker continues to execute on its operational improvement initiative, the demand recovery that we needed to see in the European academic market and in global industrial markets in order to meet our previous 3% full-year 2016 organic revenue growth guidance did not occur.

Moreover, we were disappointed by lower MALDI Biotyper sales in China and the U.S. in the first half of 2016. We're pleased with the revenue growth and strong performance of our Bruker BioSpin group, our optics business and the semiconductor metrology business which now includes the Jordan Valley business that we acquired in Q4 of last year.

Overall, we now expect full-year 2016 reported revenues to be approximately flat with 2015 and down minus 2% on an organic basis.

Accordingly, we're accelerating various operational initiatives and are taking selected right-sizing and additional cost actions to meet our 2016 operating margin expansion and EPS growth commitments and to position ourselves to continue our margin expansion in 2017 and beyond.

We will continue to focus investments in profitable growth in our four strategic areas of, one, life science molecular research; two, applied and pharma markets; three, nano-analysis, microscopy and material science; and four, clinical research, microbiology and diagnostics.

We're pleased that we're seeing the benefits of the operating leverage we gained over the last three years from our transformation initiative. We managed to expand our non-GAAP gross profit margin and our operating margin by more than 100 bips each in the first half of 2016, compared to 2015.

We also increased non-GAAP EPS by plus 28% in the first half of 2016, compared to the first half of 201, even with flat reported revenues.

Looking now at the second quarter, we reported revenues of $372 million in the second quarter of 2016, a reported decline of minus 6% and an organic decline of minus 9% year over year which was partially offset by plus 3% growth due to recent acquisitions.

The revenue decline in the second quarter was driven primarily by academic funding delays in Europe, weakening industrial markets worldwide and lower MALDI Biotyper sales in China and in the U.S.

Our new semiconductor metrology business had a very good quarter, in part due to the acquisition of Jordan Valley semiconductor in Q4 of 2015 and in part due to the accelerating adoption of x-ray metrology tools by major customers.

In Q2, our non-GAAP gross profit margin expanded 250 bips year over year to 47.6%, driven primarily by gross profit improvement in the BioSpin group and in our semi-conductor business, with gross profit weakness primarily in the Bruker AXS and Bruker Daltonics businesses.

Our Q2 2016 non-GAAP operating margin was 10.8%, flat with Q2 of 2015, despite the revenue decline due to the gross profit improvement and continued operating expense discipline. We reported non-GAAP EPS of $0.20 in Q2 of 2016 which represented year-over-year growth of 5%.

Lower share count contributed to this EPS increase, despite lower operating profit. On slide 5, I move on to our performance in the first half of 2016.

As you will see, our revenues were essentially flat with those in the first half of 2015, with an organic decline of minus 2.2%, compensated by plus 2.3% portfolio growth, due to our semiconductor business acquisition.

Further improvement and growth in operating margin of 100 each was due to good performance by the BioSpin group, our optics and semiconductor metrology businesses and a margin recovery in the Bruker nano-surfaces business, due to previous cost-reduction action.

The first half of 2016 operating margin expansion, along with a favorable tax rate and lower share count, contributed to a 28% increase in our non-GAAP EPS to $0.41, from $0.32 in the first six months of 2015.

Please turn to slides 6 and 7 now, where I will provide additional details about the year-over-year performance of our three groups and of our best segment for the first half of 2016. Let me begin with the BioSpin group which had a strong first half and delivered mid-single-digit revenue growth and continued margin improvement.

NMR continued to drive most of the improvement, due to higher volume and pricing, favorable product mix and the 2015 BioSpin restructuring and factory consolidation. In the first half of 2016, BioSpin also saw good demand for NMR applied market products.

For instance, the NMR food screener and our NMR clinical metabolomics research systems, as well as for our new service and aftermarket offering called LabScape.

Our CALID group reported a revenue decline in the low single digits, primarily due to Daltonics, driven by delays in European academic funding, as well as lower MALDI biotyper sales in China and the U.S. We initiated various cost actions at Daltonics in the second half of 2016 and for 2017.

In the first half of 2016, Daltonics introduced some exciting new products which we expect to begin to move the needle next year, as these profitable growth drivers pick up momentum. Our optics business, part of the CALID group continued to grow and expand its margins further, solidifying its recovery from 2015.

Moving on to slide 7, the Nano group experienced weakening industrial demand and a delay in European academic funding in the first half of 2016. This resulted in a low-single-digit revenue decline for the Nano group in the first half of 2016.

Our AXS business was most affected, with lower revenue for the first half of 2016, also caused by European funding delays and weakening industrial demand. Right-sizing and other cost actions are under way at AXS.

Our Nano-surface business revenue declined, but with strong margin improvement in the first half of 2016, due to previous cost actions in this business. We were pleased with increasing demand for our unique fluorescence microscopy products for cell and neurobiology research.

Finally, our best segment revenues were down in the mid-single digits, with a decline in margins as a result of the phase-out of the Daisy and ETR multi-year projects and pricing pressure for superconducting wire.

At Best, our superconducting wire business saw good revenue growth, due to their product's high performance and quality which has led to healthy long term contracts and backlog. We made further technical and quality progress with Best's high-temperature superconductor or HTS technology and expect to commence commercial deliveries in Q4 of 2016.

Moving on to slide 8, during the second quarter we participated in several important customer and industry conferences, including Analytica, ASMS and the Metabolomic Society conference.

At Analytica, we introduced a number of new instruments for the applied pharmaceutical food and environmental market and for nano-analysis, microscopy and advanced materials research across the majority of our divisions.

I will focus on the Senterra II Raman microscope here which is designed to deliver excellent sensitivity compared with -- combined with high-spectral and imaging performance.

Due to its high degree of automation, compact size and efficient work flow, it is an ideal tool for solving real-world tasks in the quality control labs for forensics, pharma, materials and life sciences.

In the middle of the page, you will see that at ASMS we unveiled an entirely new mass spectrometry technology platform, deemed the most important mass-spec introduction at the ASMS conference.

It is the innovative timsTOF which combines very high IM mobility resolution using our proprietary trapped IM mobility spectrometry technology called TIMS, with our ultra-high performance electrospray QTOF mass specs, for the optimal separation and analysis of unresolved compounds.

We're very excited about this product and believe it will be a major growth driver for years to come. Additionally, at ASMS we launched the all-new Rapiflex MALDI-TOFTOF which is well-suited for detailed protein characterization in life science research and importantly, biopharmaceutical laboratories.

The Rapiflex MALDI-TOFTOF is an exciting new product, taking MALDI technology and also adapting it for mass-spec imaging, to be used by an entirely new group of pathology researchers.

Finally, we also used our revolutionary -- excuse me, we also based our revolutionary MALDI PharmaPulse label-free ultra-high throughput screening platform for direct discovery on the Rapiflex mass-spec system and expect good orders by pharma companies in the second half of 2016.

We're very excited about these new instruments and expect them to add to our profitable revenue growth in 2017. All right, moving on to slide nine, Bruker's key priorities for 2016 remain unchanged from last quarter, except that we're accelerating operational initiatives and taking various cost-reduction actions.

We're making good progress on each of the key priorities. During the first half of 2016, we expanded our non-GAAP gross and operating margins over 100 basis points each. In January, we moved to a single version of SAP and are working on automating and harmonizing our business processes.

As I described earlier, we introduced a number of products in our four strategic growth areas which are focused on customer needs. Additionally, we continue to investigate bolt-on acquisitions which fit our focused strategy, increase our portfolio, contribute to margin expansion and have a good return on invested capital.

A good example was the Bruker Nano acquisition of a mineral liberation analysis software business in Australia in the second quarter 2016, as we seek to also expand software, consumables and after-market business opportunities in all of our businesses.

To conclude overall, at the midway point in 2016, we're pleased that our transformation has enabled us to make progress on our margin and EPS goals, despite acknowledged demand challenges in 2016. We now expect our reported revenues for the full year 2016 to be approximately flat compared to 2017.

As a result, we're taking the actions to support our ongoing margin and EPS expansion priorities in 2016 and 2017 that I already mentioned.

While we're taking these cost actions, we will continue to invest in our promising strategic initiatives and new high-margin products which are expected to re-accelerate revenue growth and drive further growth and operating margin expansion in 2017 and beyond. Significant work remains ahead of us in order to achieve our full-year operating goals.

With those comments, I will leave it at that. Let me turn the call over to our CFO Tony Mattacchione..

Thank you, Frank and good afternoon. I will now provide some additional details on our financial performance for Q2 and the first half of 2016, starting on slide 11. Starting with overall financial performance for Q2, as you saw in the press release, we grew non-GAAP EPS 5% to $0.20. GAAP EPS was $0.09 which was down $0.04 from Q2 last year.

On the top line, our reported revenue was 6% lower year over year. Q2 reported revenue includes a 9% organic revenue decline, 3% growth from the Jordan Valley acquisition and no impact from foreign currency translation. Are non-GAAP operating margin of 10.8% was the same as 2015, despite the negative leverage we're dealing with on the lower volume.

The BioSpin group in our semiconductor metrology business, however, provided a strong tail wind to gross margins in the second quarter of 2016. Free cash flow was a $8.9 million in the second quarter of 2016 which was an $18 million improvement from the same quarter last year.

Net cash declined 40% year over year to $77.4 million at the end of the second quarter of 2016, as we continue to buy back our stock in accordance with our November 15 share buy-back authorization. We also declared and paid another dividend of $0.04 per share in the second quarter of 2016.

Now let me share more details on our second quarter 2016 performance. On slide 12, I show our year-over-year revenue bridge for the second quarter of 2016. Our revenue declined 6.1% in the quarter. The 3.1% portfolio improvement from the Jordan Valley acquisition was more than offset by the 9.2% organic revenue decline.

Changes in foreign currency translation had no impact during the quarter. As Frank mentioned, European academic funding delays in the weakening industrial markets were the primary drivers for the decline.

Geographically, during the second quarter Europe and Japan showed double-digit revenue declines, due to delays we're seeing in the academic funding environment and further industrial market weakness. North American revenue grew in the double digits, in part due to the strong semiconductor metrology we experienced in the quarter.

On slide 13, I show our second quarter 2016 profit and loss statement on a non-GAAP basis. Our Q2 2016 non-GAAP gross margin came in at 47.6% which was a 250-basis-point increase over last year. The Jordan Valley acquisition added 65 basis points to the increase and foreign currency again had no impact.

Adjusting for these effects, the increase was primarily the result of the NMR revenue growth, price increases, operational improvements and favorable product mix. These effects were offset by the lower Nano and CALID volume. Our Q2 2016 operating expenses increased about $1 million year over year.

Adjusted for Jordan Valley expenses of $3 million, Q2 2016 operating expenses were down $2 million year over year. In the second quarter of 2016 and as a result of our Jordan Valley acquisition exceeding expectations, we increased our earn-out accrual which resulted in a negative $0.05 effect on GAAP EPS.

The net result is our non-GAAP operating profit margin in Q2 2016 was flat at 10.8% compared to last year. Now looking at our results below the line, net interest expense of $2.9 million was essentially flat with 2015.

Translation of foreign-currency-denominated transactions added $3 million to other income compared to Q2 2015 and this was largely due to a reduction in our foreign currency exposure. Our Q2 2016 non-GAAP tax rate of 12% was 170 basis points higher than last year's Q2 tax rate.

Bruker's tax rate was unusually low for both Q2 periods because of the conclusion of various tax audits, the reversal of valuation allowances and the effects of tax bleeding.

Weighted average diluted shares in the quarter were 162 million, down 7 million, primarily as the result of the share repurchase buy-backs we completed since the beginning of the program in November 2015. Finally, non-GAAP EPS of $0.20 in Q2 of 2016 was an increase of $0.01 or 5%, from Q2 2015.

On slide 14, I show the year-over-year revenue bridge for the first half of 2016. Our revenue was essentially flat with last year. The 2.3% portfolio improvement from the Jordan Valley acquisition was offset by a 2.2% organic revenue decline. Changes in foreign currency also had no impact in the first half of the year on our revenues.

In the first half of 2016, our BioSpin group grew in the mid-single digits due to both the volume and pricing effects already discussed, as well as the Q1 acceptance of the 1 gigahertz NMR system we disclosed. Including Jordan Valley, B-Nano revenue declined in the low single digits, as did CALID's revenue.

Geographically during the 2016 first half, Europe and Japan showed double-digit revenue decline due to the same factors affecting the second quarter comparison. North American markets grew in double digits, with all Bruker's businesses growing, except for those affected by the weaker industrial markets.

Importantly, China showed approximately a 10% growth in the first half, with most of our businesses showing healthy revenue increases. On slide 15, I show our full first-half 2016 profit and loss statement on a non-GAAP basis.

Our first-half 2016 non-GAAP gross profit increased $6.8 million and the gross profit margin of 47.2% increased 110 basis points year over year. This was largely due to higher BioSpin volume, price, favorable product mix and operational improvements. These were somewhat offset by the lower CALID and B-Nano volume.

Our first-half 2016 operating expenses decreased approximately $2 million year over year. Adjusting for foreign currency translation as well as the Jordan Valley expenses of $5 million, first-half 2016 operating expenses were down organically $4 million year over year.

The decrease in operating expenses largely reflects lower R&D expenses and continued overall expense discipline. The net result is that our non-GAAP operating margin in the first half of 2016 improved by 120 basis points compared to last year.

Our first-half 2016 non-GAAP tax rate of 15% was 320 basis points lower than the tax rate in last year's first half. This had a positive $0.02 impact on our EPS in the first half of 2016 versus last year.

This was in part caused by the closing of certain tax audits, valuation allowance reversals and favorable changes in the expected mix of earnings among our tax jurisdictions. Finally, non-GAAP EPS of $0.41 represented an increase of $0.09 or 28%, from the last year first-half period.

Bruker's lower average share count which declined 4% year over year due to our share buy-back program, contributed $0.02 to the increase. Turning to slide 16, we used $13 million in cash in the first half of the year this year. This compares with free cash flow generation of $12 million in the first-half period last year.

The year-over-year comparison is affected by an increase in working capital. This is primarily driven by higher inventory levels needed for second-half shipments, as well as higher bonus payments for 2015 and higher tax payments associated with our 2015 cash repatriation. Our Q2 2016 cash conversion cycle increased by 10 days compared to last year.

This comprised the following. Our DIO increased 17 days to 218 days and our days sales outstanding were flat. This decline was partially offset by the increase in our days payable outstanding which totaled 41 days, compared to 34 days in Q2 2015. During the second quarter of 2016, we re-purchased 1.2 million shares, spending $34.5 million.

Since the inception of the program until the end of the second quarter, we re-purchased 7.4 million shares at an aggregate cost of $182.6 million. As of the end of Q2 2016, we had approximately $42.4 million of the remaining authorization to buy back shares, as part of the initial $225 million share back program.

We also paid another quarterly dividend of $0.04 a share in the second quarter of 2016. Now turning to guidance, we're updating Bruker's guidance for the full year of 2016, as Frank had mentioned. We now expect approximately flat reported revenue which includes a 2% organic revenue reduction and acquisition growth of 2%.

Given the negative leverage associated with the lower revenue projections, we're now guiding to an operating margin expansion range of 75 basis points to 100 basis points.

Our non-GAAP EPS remains -- our non-GAAP EPS guidance, excuse me -- remains unchanged, in the range of $0.97 to $1.02, because we now expect to release more tax valuation allowances as our expectation for improvement in U.S. profitability will continue.

Accordingly, we're lowering our non-GAAP tax rate guidance to a new range of 20% to 23% for the full-year 2016. We continue to assume a fully diluted share count of approximately 163 million shares.

With regard to foreign exchange rates, we do not expect it to change significantly or impact our full-year 2016 reported revenues, with only a nominal positive effect on our non-GAAP EPS in the full year for 2016.

Our currency assumptions have changed modestly, as the Japanese yen strengthened versus the dollar, while the euro and Swiss franc weakened versus the dollar in the second quarter of 2016. Our currency assumptions include a yen-to-U.S.-dollar rate of 1.03, a U.S. dollar-to-euro rate of 1.11 and a Swiss-franc-to-U.S.-dollar rate of 0.98.

We now expect CapEx to be in a range between $35 million and $40 million for the full-year of 2016 which is lower than our previous estimate. I would remind investors once again that much like 2015, we expect the majority of our profitability and cash flow to be generated in the second half of the year and particularly in Q4.

We also expect Q3 revenue and EPS to be essentially at the Q3 2015 level. I will close by stating that with our revised revenue outlook for the second half, we're taking the necessary actions to compensate for the negative leverage that we would otherwise experience.

The savings associated with these actions will be used both to increase our profitability, as well as to fund our strategic growth initiatives. With that, I would like to turn the call back over to Stacey to start the Q&A session..

Operator, could you please open the call for questions?.

[Operator Instructions]. The next question comes from Tim Evans of Wells Fargo Securities. Please go ahead..

Frank, could you give us a little more color on the European situation, how broad are the funding delays the you're seeing? What is causing it maybe a little bit more specifics on the countries or initiatives there that might be relevant? Thanks..

Sure Tim, as best as we can I don't think we have complete clarity on it either, so there's some structural delays in Central and Eastern Europe were Russia remains weak of course and Eastern European union countries tend to have a bit of a funding gap this year.

Between the framework programs seven and framework program eight that is a contributor but not the largest contributor. There clearly seems to been both academic and really also quite honestly industrial reluctance to commit funding perhaps with the Brexit uncertainty and the initial surprise after the vote.

That was on the continent as much is in the UK itself actually and last but not least it was somewhat unexplained, we really do see what looks like a delay in funding particularly in Germany but perhaps also in France where we don't really see any budgets changing.

So therefore we think that more tenders and more funding likely will be released in the second half of the initial trends the we detected in the first quarter continued and we had several data points within the company were several of our divisions saw the same pattern although not all of them.

So that’s the best color I can give you from what we do know. In part it's probably lower funding this year and in part it is a shift the second half of the year..

Okay.

And quick one for Tony, Ton, what is your outlook for cash flow in the back half of the year? Do you feel that you can get the working capital issue back under control?.

Yes I would first say that I don’t think working capital is out of control. We have initiatives focused on improving working capital and those are on track. The increase in inventory is really to fund shipments in BioSpin and semi-metrology in the second half.

So we understand what is driving the increase -- the DSO is in good shape and we're making good progress on collecting receivables. With regard to the cash flow I still continue to expect the free cash flow for the year to approximate the GAAP net income which will obviously be lower volume but that relationship still holds..

The next question comes from Derik de Bruin of Bank of America Merrill Lynch. Please go ahead..

So you had really good gross margin expansion during the quarter, certainly well ahead of what we thought that we were going to do.

Is that sort of 200 basis points improvement year-on-year something that we can sort of look forward to for the quarter's going forward?.

I think it will be going lower, look at the first half of the year where it was obviously down in Q1 and up in Q2 and average out some quarters. For the full year we've given obviously the range of guidance on the operating margin 75 to 100 basis points and the majority though not all of that is expected to come from gross profit..

Just as a follow-up is there any idea you can give us of how much NMR is specifically contributing to that in terms of with pricing and operational improvement in the gross margin?.

We won't give specifics on that I can give you some color on the margins in general, NMR pricing had a meaningful role in Q2 it did in Q1 and we expect it to for the remainder of the year in fact into 2017. In fact that impact will likely affect most of the year.

With respect to your question, mix had a big impact in the quarter and last quarter we had an easy comp if you will if you remember there some legacy NMR business in last quarter in Q2 '15 so quite frankly we're not counting on that mix to continue we're not counting on currency to really have a big impact on the second half.

We're pleased with the price and the cost reduction and the effective M&A on our margin some of that will carry forward but with the uncertainty in the difficult business environment we think that the margins will come out at our guidance..

The next question comes from Brandon Couillard of Jefferies. Please go ahead..

Follow-up to Frank, as far as the three main issues decided the reset to the outlook I mean just to be clear, to what extent have you baked in [Technical Difficulty] around those areas for continuation -- kind of what you’re seeing in first half and to the extent that the academic markets funding issues -- to what extent were those orders standing orders, have they been canceled? Is there any color around the status from the orders that just didn’t materialize?.

Sure, we think funding we had no order cancellations, Certainly nothing significant, we rarely if ever do, the academic funding delays were pronounced in the European Union. We hope that will improve in the second half and there is some indications in our pipeline, so it's not purely hope but I wouldn't want to predict that yet.

We don't necessarily see a strengthening of the industrial market except the semiconductor market which isn't particularly strong but for us we’re getting a lot of technology buys.

So the semiconductor has been a good success for us in the first half of the year and we expect it to be strong in the second half of the year as well actually even stronger, it did have a slow start in Q1. And the [indiscernible] weakness in China and in the U.S, I'm not sure about China yet not enough visibility but in the U.S.

we expect that to pick up quite a bit in the second half of the year in orders and these systems don't have very long delivery times, orders pickup you can usually deliver them within two or three months.

So in the industrial market just about everything is down, perhaps with the exception of polymer and petroleum companies they are benefiting from a lower oil-price that metals minerals mining automotive industry, we pick up another little mini trend in Germany as people know about these omissions scandals.

It seems that a number of large German manufacturers may have cut back their CapEx to maybe preserve cash, again not heavily publicized but we see some of that. We have no opinion on whether that’s a corporate strategy and whether that’s going to continue but that’s certainly something our salespeople have picked up on.

So a little more color not necessarily a whole lot more clarity. I guess the really short answer is European academic funding we expect to improve in the second half, multi-biotech funding at least in the U.S. we expect to be strong. We’re not sure about China.

China is strong otherwise by the way of Biotyper with weaker and industrial -- general industrial other than semiconductor we expect to remain weak for the foreseeable future..

One more for Tony, could you elaborate on the accelerated cost action in the [indiscernible] business perhaps sized at for us in terms of dollars, should we expect any savings impact in the second half versus really the '17?.

I can give you some color. We’re not going to size it at this point but clearly with our model that is predicated on leveraging our cost structure with our revenue growth, actions are needed.

So we’re taking the right actions in that regard, they include there is both cost actions and acceleration of strategic initiatives we have already planned so include similar types of things that we have done before in the area of factory consolidation, more outsourcing, product line streamlining and generally expense avoidance.

So I would say we're taking the right actions to achieve our profitability given the volume is down with our model is based on volume leverage..

If the cost actions this time will not be in our 2014 with the [indiscernible] divestitures and restructuring, 2015 it was very identifiable major restructuring and one factory closing with BioSpin.

These cost actions are very broad and really affect all divisions and all businesses even those that are doing well the solidarity to achieve the overall Bruker goals, they are also being very cautious with expenses for instance.

Of course there will be a slightly larger impact on the two divisions that particularly are having a tougher time this year which is Bruker Daltonics Bruker AXS ironically two of the highest performers last year..

The next question comes from Isaac Ro of Goldman Sachs. Please go ahead..

I just wanted to try and get a little more color on the revenue mix and I was hoping you could quantify the extent to which the miss came from and you also mentioned in China versus the issues in Europe.

I mean was that -- was the China issue sort of a minor thing or was it significant enough because $40 million as a total on the notional basis is a pretty big number, I'm just trying score [ph] how significant the China issue versus Europe? Thank you..

China overall was strong, it was really just the China MALDI Biotyper business for which there were fewer budget at least in the first half of the year than we had anticipated given we were doing our business planning.

Clearly the majority of this in terms of importance and in terms of ranking them in terms of importance it was European academic funding delays, the most important industrial markets weakening not only remaining week and the China MALDI Biotyper which was a standout because everything else grew in China, the order of 10% or so 10% or 11%? And the Biotyper was just one part of the business that we had budgeted and planned for growth in China and hadn't occurred because there wasn't enough budget in the beginning of the year and probably that will remain somewhat unclear until perhaps next year.

In the U.S. as I said the trends that the multi- Biotyper business we expect it to be quite a bit stronger than second half but we had a weak start in the first half of the year..

And just a follow-up on the first item that you mentioned the European academic, I think there was a question asked earlier, I just want to clarify that your updated guidance does not assume an improvement in those markets in the back half of the year?.

We expect that the bookings will be better and the budget but we think that will mostly go into 2017 revenue for us. So we're not banking on that and we're not building that necessarily, we're not building that in believing that if it comes through it will help us in 2017 more than in 2016..

The next question comes from Ross Muken of Evercore ISI. Please go ahead..

This is Vijay [ph] in for Ross.

Frank, maybe just one on high level guidance for the back half, if you look at what's happened in one half, Q1 was up mid-single's down high single's in Q2 and the guidance is now minus 200 bps for the year which implies back half of the declining, is that sort of are we looking at from a quarterly perspective you know continuing trend [indiscernible] things start improving in 4Q is that the sort of how the back half cadence looks like?.

Followed every detail but very roughly we're flat on reported revenue in the first half and we expect to be roughly flat for the full-year on reported revenue.

So that gives you in a way to triangulate things and within the second half we had pointed out that Q3 might be somewhat similar -- somewhat stronger sequentially at least on the revenue but somewhat similar to Q3 of last year which again makes for us looking at a very strong Q4 which is what we had last year and the year before that is very typical for us..

Sure and just maybe a high level when I look at the magnitude of what happened in the Q, I really have to go back to Q2 of '09, right that was a different scenario I'm trying to this into context because it feels like -- and I understand CapEx nature of the business you have volatility but I guess the magnitude is what maybe caught us a little bit off-guard can you just maybe help us understand why we should be seeing that level of magnitude maybe when some of your other life science peers aren't seeing the same? Thank you..

We're obviously more susceptible to people site operations for instance in NMR it doesn’t account for all of it but we clearly had some sites delayed when you sell benchtop systems or consumables you tend to not deal with those issues at least not to the same extent.

And some very large deals -- hedges that look -- won't be ready until Q3 and you cannot deliver and install.

So there was some of that for sure, we obviously were pleased with our margin improvements and that we've met EPS after all but we will have fluctuations like this we also have fluctuations on the positive side, they of course this quarter more things added up to the negative side..

I will just quickly that we have the most exposure to academic funding in the group, so it's most pronounced for us..

The next question comes from Doug Schenkel of Cowen. Please go ahead..

Maybe building of the last one, recognizing there are differences in your business versus others -- it doesn't appear really any of the peer group that has reported thus far has indicated that they are been impacted as much by European academic funding challenges, you mentioned Brexit when all others said that they were not seeing anything yet but it was way too early to attribute any weakness to Brexit especially when growth was pretty robust in Europe for most others.

Can you help us understand the disconnect here and maybe taking a different angle on this how comfortable are you that this is not also a function of changes in competitive dynamics?.

We're pretty comfortable with that because we've seen it in really quite a few internal data points, we've seen very different product lines and in different divisions and even in different groups being very similar dynamics that’s -- this is what we're seeing, I know that not everybody has reported that or has focused on better news elsewhere, but we did see that and not only in at least four or five of our divisions where it has been very clear that European academic budgets were really down and that’s the best we could tell except for Eastern Europe we believe but we cannot be sure either we believe those are mostly funding delays.

And for us that also means revenue delays probably more of a revenue pickup again in the first half of 2017 as orders that we get in unless we get them in the next month or two are likely to be turned into revenue in early 2017.

We also among the industrial -- we have analyzed this quite a bit obviously among the industrial customers we saw the biggest decline in Europe and sort of listening to the feet on the street or to our colleagues who are out there, what do you hear what do you see they felt that customers in Europe including in Germany and elsewhere on the continent as they say really were more uncertain and maybe more slow in having their CapEx approved that even elsewhere so even within the industrial arena we detected a little bit more of a weakening in Europe and we do attribute some of that to uncertainty.

I don't know what others are seen but that’s what we are seeing and those are the data points that we can contribute..

I guess I am struggling to decide whether or not your guidance for the second half looks conservative or not all that conservative. The updated revenue guidance implies the second half organic revenue declines of I think around 2%.

And while this is a lot lower than what the street was previously looking for in the second half, it still would represent an improvement relative to certainly what we saw in the second quarter. I think this is particularly notable given the year-over-year comparison actually is tougher in the second half than the first half.

So with all that in mind what are some of the factors they give you confidence in the second half outlook even though it has been reset how do you get comfortable that you reset it low enough? Can you share any order or booked to bill data or is there something that you’ve seen in terms of better growth or order momentum thus far in Q3 that would make a deal like this that essentially cut numbers enough? Thank you..

We did see our orders were better in Q2 that in Q1, our revenue was the other way around obviously at least the revenue trend.

But for ignoring that which sort of all long term contracts but if I look at the other 92% of our business the scientific instruments or life science tools business we did see order growth year-over-year in the second half, but having said that one quarter for us is never is necessarily a trend indicator but nevertheless it was slightly encouraging we will need to monitor whether that continues.

And then we also just look at our many of our groups have now switched to an ability to not only measure orders but also leads qualified leads and most importantly what we call opportunities and those also have strengthened the number of our divisions that we’re struggling in the first half like the preclinical imaging division has remained weak just as it had week last year but it has a much stronger opportunity pipeline for the second half.

So, there are some data points, for that and of course there is also some uncertainty. So we think we feel that we're neither giving particularly conservative or particularly aggressive guidance but hopefully middle-of-the-road type of guidance for the second half of the year and therefore for the full year..

The next question comes from Tycho Peterson of JPMorgan. Please go ahead..

Sorry to stick with the same theme here, but Frank can you comment on linearity in the quarter, did things drop off towards the end of the quarter and the next question earlier anything that you talked about the you see in July that might be worth highlighting?.

Well we never have linearity in the quarter we always have about half of our revenue in the third month of the quarter, so it followed the usual typical pattern and there was some talk of orders coming in while they were slightly improved but coming in late in the quarter but I wouldn't -- this is the derivative of the derivative so I wouldn't put too much weight on that.

I'm sorry Tycho what was the second part of your question?.

Well just whether things improved in July or do they continue to deteriorate?.

I mean July is a summer indication month, but no we have no further -- I think July we don’t have enough data to answer that question one way or the other but there were no additional alarming signs in July..

Can you quantify the delayed European tenders?.

It was the biggest effect on the revenue mix and on the orders mix among all of the factors they came together. We're not breaking it out specifically with the dollar number, but it was the largest I think.

Although it was comparable and not very different from the weakening industrial market which as I said is a global phenomenon that also actually more pronounced in Europe..

And then just one last one on multi- Biotyper, I understand the China dynamic I don't understand why it was done in the U.S.

Can you maybe just clarify why that was the case?.

We're not sure either quite honestly, we don't see an external reason that may have had to do more with our reorganization, we built considerably stronger believe it or not commercial team for clinical and nonclinical applications of the multi- Biotyper with additional staffing and additional training and it is possible that maybe we lost focus just a little bit at the beginning of the year with bringing so many people on board and setting up the new organization.

We're not aware of an external reason for that..

The next question comes from Bryan Brokmeier of Cantor Fitzgerald. Please go ahead..

Frank, you report to be seeing some order growth, can you discuss what you are seen with NMR orders and also given the slowdown in some parts of your business, do you’ve any ability to move resources around in order to accelerate the deliveries and installations of NMRs that may not be scheduled for completion until 2017?.

So NMRs have been healthy including the aftermarket business and the applied markets business within the BioSpin group which is having good trends this year anyway by the half-year point and probably for the full-year growing in the mid-single digits.

If there is as many weakness in BioSpin group in first half of the year and it was built preclinical imaging business which has been weak in 2015 and in the first half of 2016.

To your point, we're actually not production limited in NMR deliveries, so it is primarily where customer facility customer delivery, customer readiness limited but, if it was just for production we could accelerate more parts of our backlog but we're typically limited by when customers can take them believe it or not.

So it's not the answer to your question it doesn't I couldn't send MS engineers to help with NMR I could do that but we actually don't need to do that so instead we’re obviously working shorter hours and having higher increases and people take all their vacations and the usual discretionary spending's and headcount reductions in the divisions that have less business..

And would you comment on the strengths you’re seeing in academic market outside of Europe during the quarter? Are you starting to see the academic market particularly in the U.S.

and China?.

Two different stories, China has been good all around, China has been stronger on the academic side, a little weaker -- not as strong in the industrial side, but nevertheless China has been good for us right? Yes. And in the U.S. we have seen -- U.S. had good revenue growth and that was in part because of the semi-conductor big systems went to U.S.

destinations for major customers. But it has been good business in the U.S.

in terms of bookings, it's been good revenue in the U.S., in terms of bookings we have not seen yet the additional orders the we're hoping from the increase in the NIH budget and for us as the instruments manufacturer that makes complete sense until they get allocated to programs and then go through the brand application and review cycle, until customers who get approval of their grant applications have money in hand to go shopping it's going to be in the second half of the year quite possibly in Q4.

So with those typical delays not unusual delays until we see additional orders and even additional revenue from the increase in NIH spending which we're optimistic will help because ratio in more quotation, and helping more people with grant applications but it's probably also going to be more of a 2017 growth driver in revenue..

The next question comes from Daniel Arias of Citigroup. Please go ahead..

Frank, can you just comment on the competitive dynamic for the multi- Biotyper? It doesn't sound like you think that was part of the problem this quarter but it seems like decent time to just ask about how you're feeling about menu and database capabilities relative to biotech?.

I don't think we've detected any competitive aspect to all of this. In fact with the new product offerings that [indiscernible] we feel our competitive position in MALDI identification and of course as you know we’re taking that MALDI Biotyper beyond identification to additional applications, not all of which are FDA cleared in the U.S.

but they're getting more and more approvals in Europe. So competitive dynamics is good and probably even strengthening within that field. So it was not a competitive issue..

Okay.

And then what are the outlook for the best business for the year? Is there anything related to the European funding situation for big signs that makes you think the demand might be a risk in the back half?.

Their outlook is always for long term that they march to a different beat.

So their demand for low temperature superconductors from major healthcare companies MRI vendors has been quite good, but we do acknowledge there has been some pricing pressure in that market segments that also have been publicized elsewhere and we’re not completely new to that but our order books there are very, very healthy because I think we're emerging as the most productive and the most automated and highest quality supplier.

They are over multiple years they can be somewhat lumpy because they have for instance these future and [indiscernible] projects that ran for two or three and then sometimes before they have a larger follow-on or a number of smaller follow-on projects there is sometimes a bit of a gap, so [indiscernible] weaker year this year, even though the LCS business is growing but the wire business is growing but the project and the research instrument subsidiary business is weaker this year and that is likely going to continue into the second half of the year..

The next question comes from Sung Ji Nam of Avondale. Please go ahead..

Frank, could you maybe talk about what are the potential catalyst to drive biotyper growth in the second half, is it easier comps per se or is the recent announcement of the CDC collaboration expanded [indiscernible] could that be a catalyst as well? Just trying to get a sense of what gives you confidence that biotyper business will turn around?.

I don't have complete confidence because I don't have visibility to China for instance but we expect just from our own pipeline, we expect the Americas to be a lot stronger than the first half of the year.

In terms of product drivers things like the CDC collaboration that you cited that we announced at ASM as well as the new product and consumables products, the libraries, the new applications for resistance testing that's research use only now right now.

I think there's more and more capabilities on that same platform that A, enhance our competitive position and B, grow the aftermarket in consumables and software business part of the biotyper platform we're seeing acceleration in that and that’s been a longer term secular trends that’s last quarter or two, so there are many healthy growth drivers.

China lack of visibility, U.S. or America generally acceleration in the second half expected and in that business which actually does not depend much on academic funding Europe had been all right in the first half of the year..

And then could you remind us what percent of the business is coming from higher biopharma and applied market and what's the growth rate there was and then also what is the potential in the medium term for that business too as a percentage of your sales? Thanks..

Pharma and biotyper are still below 10% for us, it is something that we're putting a lot of strategic focus on in new product.

So for instance the MALDI pharma for the ultra-throughput screening system, a lot of systems that do protein characterization for Biosimilars, new biopharma applications, several new pharma and biopharma applications on the NMR business are really making a very concerted product and marketing effort for the industry but for us it is smaller than for many of our peers and we don't have a breakout of the group trends in that particular segment..

The next question comes from Steve Willoughby of Cleveland Research. Please go ahead..

I’ve a couple of housekeeping questions for Tony first, Tony are you expecting any change in your interest expense for the year? And then secondly on the share count of $163 million does that assume that you continuing buying back stock at the back half or did share repurchases the accretive to that guidance?.

The last one's first, the share repurchase is already embedded in our guidance. So we would be buyers opportunistically at good prices but that’s embedded in our guidance.

Steve can you repeat the first part?.

Just what you’re expecting on interest expense?.

It's same as the first half..

Okay.

And then Frank, we have seen and you’ve commented about the semiconductor business, maybe starting to approve here, you know historically is this a business that when it does start to improve and you see semiconductor CapEx come in better, is this a 1 or 2 quarter type of phenomena? Or is this typically run more one or two years?.

So a couple of caveats on that Steve, first of all we doubled our more than doubled our semi business with the acquisition of Jordan Valley Semiconductors but we don’t have years of conductors experience with that.

We think what we're seeing is not related to the semicycle or to the market which from what everything else that [indiscernible] is still roughly flat and you see some predictions that it will grow in others it will not grow.

So I think it's very much technology buys, rather than capacity buys as they call them very much has to be with the adoption of the increasing adoption of X-Ray metrology tools. So I think it's so far it's really -- there is no historical precedent because we acquired almost all of these X-rays metrology tools and it's a new technology trend.

So looking back through the back window for experience in this particular circumstance we will not be helping us predict we predict that for the remainder of the year because we have an order book together this business we will continue to do very well..

The next question will come from Eric Criscuolo of Mizuho. Please go ahead..

Frank or Tony, were there any significant revenues either delayed or pulled into the quarter versus your expectation?.

We pulled a little bit into Q1 which was missing in Q2 we had some delays of sites not ready and going into Q3, so yes to some extent this was expected and of course at the end of the quarter there's always some things the dropout and they don't dropout for us we don't lose it but it goes into the next quarter and there clearly has been some of that in Q2..

It seems like there was nothing significant versus what you typically see in the business is the correct?.

Yes. That’s reasonable. There was some MRS shipments than we expected in Q2 that will ship in Q3 but to Frank's point they will ship and accept [ph] and the polling in Q1 just to be clear on that was the one gigahertz magnet..

And just with the volatility in your top line manifesting again this quarter, does this accelerate or change in any way your thoughts on increasing the percentage of recurring revenues that you have in your business over the longer term?.

It just confirms that’s what we're doing and for instance all the aftermarket businesses including service I think they all tended to have pretty good trends, and including for instance also the BioSpin business and clearly as we look to -- it confirms our strategy and if anything we accelerates our strategy in that sense that more recurring business whether it's software consumables or aftermarket service or services, value-added services are clearly an area where we’re still are in the early innings and we're putting a lot of effort and also getting people on board that help build these types of businesses and they are onboard and they're getting good traction and I think have a long runway to do a lot better there.

That’s clearly an area where we continue to improve and this quarter reminded us that that’s a good thing to do..

This conclude our question-and-answer session. I'd like to turn the conference back over to Stacey Desrochers for any closing remarks..

Thank you for joining us this evening. We will be presenting at several healthcare conferences during the third quarter and we invite you to schedule a meeting with the management team if you are attending any of them. We invite you to meet us at these conferences or visit us at our headquarters here in Billerica, Massachusetts.

Thank you and have a good evening..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..