Good day and welcome to the Bruker’s Third Quarter 2019 Earnings Conference Call. I’d now like to turn the conference call over to Miroslava Minkova. Please go ahead, ma’am..

Good afternoon. I would like to welcome everyone to Bruker’s third quarter 2019 earnings conference call. My name is Miroslava Minkova, Director of Investor Relations and Corporate Development. Joining me on today’s call are Frank Laukien, our President and CEO; and Gerald Herman, our Chief Financial Officer.

In addition to the earnings release we issued earlier today, during today’s conference call, we’ll be referencing a slide presentation. The PDF of this presentation can be downloaded from the Quarterly Results section on Bruker’s Investor Relations website. During today’s call, we will be highlighting non-GAAP financial information.

Reconciliations of our non-GAAP to GAAP financial measures are included in our earnings release, which is posted on our website at ir.bruker.com. Before we begin, I would like to reference Bruker’s Safe Harbor statement shown on Slide 2.

During the course of this conference call, we will be making forward-looking statements regarding future events and the financial and operational performance of the company that involve risk 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 in subsequent filings, which are available on our website and on the SEC’s website.

Also note that the following information is related to current business conditions and to our outlook as of today, October 31, 2019.

Consistent with our prior practice, we do not intend to update our forward-looking statements based on new information, future events or other reasons prior to the release of our fourth quarter and full year 2019 financial results in February 2020.

Therefore, you should not rely on these forward-looking statements as representing our views or outlook as of any date subsequent to today. We will begin today’s call with Frank providing a business summary. Gerald will then cover the financials for the third quarter of 2019 in more detail.

Now, I’d like to turn the call over to Bruker’s CEO, Frank Laukien..

Thanks, Miroslava. Good afternoon everyone and thank you for joining us on today’s call. Bruker delivered a very good third quarter of 2019 with strong revenue and EPS increases. During the third quarter, our year-over-year organic revenue growth was 7.6% and constant currency revenue growth was 14% year-over-year.

On the bottom line, we reported non-GAAP EPS of $0.43, a 16% increase compared to the third quarter of 2018. We are very pleased with our strong performance against a challenging comparison in Q3 of 2018.

During this third quarter, we made further progress with our Project Accelerate high growth, high margin initiative, launching the important diaPASEF workflow for timsTOF Pro at the HUPO Meeting in September and reporting first 1.2 gigahertz protein NMR data up at the EUROISMAR Conference in August.

We shipped the first ever 1.1 gigahertz NMR to a customer and in Q3 of 2019 we recorded revenue on an additional 1.0 gigahertz NMR our second accepted gigahertz class NMR this year.

Within Project Accelerate, while we have faced a cyclical slow down in semiconductor metrology, overall, we are very encouraged with our progress this year, especially in proteomics, microbiology and gigahertz class NMR for structural biology.

Turning to specifics on Slide 4, in the third quarter of 2019, Bruker’s revenue increased 11.7% year-over-year to $521.1 million on an organic basis. Revenue increased 7.6% year-over-year, comprised of 8.6% organic growth at our Scientific Instruments segments and a minus 0.8% decline at our BEST segment, net of Intercompany Eliminations.

During the third quarter, acquisitions added 6.4% to revenue growth, while foreign currency translation was a headwind of minus 2.3%. On a constant currency basis, our revenue increased 14% year-over-year. Our third quarter 2019 non-GAAP gross margin increased 130 bps year-over-year.

Our Q3 2019 non-GAAP operating margin improved 40 bps year-over-year, driven primarily by favorable impact from foreign currency rates. In Q3 of 2019, Bruker reported GAAP diluted EPS of $0.39 per share compared to $0.28 per share in Q3 of 2018.

On a non-GAAP basis, third quarter of 2019 EPS was $0.43 and increased 16.2% compared to $0.37 in Q3 of 2018. As you may recall, we had anticipated that third quarter 2019 non-GAAP EPS would be relatively flat compared to a strong third quarter 2018, so we are pleased with these results.

On Slide 5, I show Bruker’s performance for the first nine months of 2019. Our year-to-date revenue is increased by $131 million to $1,472.7 million, a 9.7% increase compared to the first nine months of 2018.

Organic revenue growth in the first nine months of 2019 was 6% year-over-year comprised of 5.8% organic growth in the Scientific Instruments segments and 7% organic growth in our BEST segment, net of Intercompany Eliminations.

Acquisitions added 7% to our top line in the first nine months of 2019, while foreign exchange was the minus 3.3% headwind year-over-year. On a constant currency basis, we delivered year-over-year revenue growth of 13% in the first nine months of 2019.

End market conditions for Bruker’s academic and government, biopharma and microbiology markets remained favorable in the first nine months of the year while industrial and applied markets growth has slowed. Semiconductor metrology demand has remained quite weak.

For the first months of 2019, organic order bookings for our Scientific Instruments segment were up in the mid single digits, whereas our BEST segment orders were up strongly due to renewed long-term superconductor supply agreements that we will discuss later in the call.

Our non-GAAP gross margin in the first nine months of 2019 increased 150 basis points compared to the same period last year.

Non-GAAP operating margin expanded 120 points – basis points as we benefited from operational improvements, accretive acquisitions and an approximate 26 – I misspoke approximate 60 bps tailwind from changes in foreign currency rates.

On a GAAP basis, Bruker reported EPS of $0.82 in the first nine months of 2019, compared to $0.65 in the same period in 2018. Finally, our non-GAAP EPS in the first three quarters of 2019 was $1.04, an increase of 20.9% year-over-year.

Please turn to Slide 6 and 7 now, where I provide further highlights on the performance in the first nine months of 2019 of our three scientific instruments, groups and of our BEST segment all in constant currency and in comparison to the first nine months of 2018.

Year-to-date 2019 BioSpin Group revenue increased mid-single digits in constant currency to $422 million. This reflected growth in both, systems revenue and aftermarket, as well as the small contribution from our software acquisitions.

BioSpin’s year-to-date revenue results include revenue recognition for two 1.0 gigahertz NMR systems with a second system in the third quarter of 2019 in revenue. The dollar and margin contributions of this – third quarter system were modest however due to legacy pricing on an old order.

BioSpin preclinical imaging systems revenues were slightly higher compared to the same period in 2018. BioSpin’s aftermarket revenue grew at a good pace for the first nine months of the year and overall, we expect our BioSpin Group to grow revenue in the mid-single digits organically in fiscal year or full year 2019. Moving on to our CALID Group.

CALID Group had a very strong performance in the first nine months of 2019 with revenue up in the high-teens in constant currency to $447 million including our Bruker-Hain majority acquisition. CALID revenues in the first nine months of 2019 grew at a double-digit pace organically.

Within CALID, we continue to see strong performance in both our microbiology, MALDI Biotyper business as well in our life science mass spectrometry solutions business, which includes timsTOF based proteomics. Year-to-date revenue in our CALID molecular spectroscopy, FTIR/NIR business, which now also includes CBRNE detection remains about flat.

Please turn to Slide 7. Now, Bruker NANO revenues were up high-teens year-over-year in constant currency to $462 million in the first nine months of 2019. Growth compared to the prior year reflects primarily contributions of acquisitions including Anasys, JPK and Alicona and RAVE.

On an organic basis, NANO group year-to-date revenues were up low-single digits year-over-year. We have seen signs of weakening demand in some of NANO’s industrial and semiconductor metrology markets. In the first nine months of 2019, NANO’s advanced x-ray business grew with solid demand from academic customers.

Our NANO analysis tools business grew organically year-to-date while our NANO surface tools revenue increased year-to-date due to acquisitions. Year-to-date semiconductor metrology revenues were higher year-over-year due to the RAVE acquisition.

However, for the full year 2019, we expect our semicon metrology revenue to be down double digit organically year-over-year. As a reminder, our semi metrology business accounts for approximately 5% of Bruker’s revenue. Moving on to the BEST. BEST revenue in the first nine months of 2019, was up mid single digits year-over-year.

During the third quarter, BEST finalized updated renewals off long-term supply agreements with two major MRI companies, which led to a reported increase in BEST order than backlog of more than $400 million. Please note that these are orders that are expected to be delivered over a five-year or longer timeline. Moving to Slide 8.

At the August EUROISMAR conference in Berlin, we showed the first ever data generated on a 1.2 gigahertz NMR at our Swiss factory together with our collaborators, we have generated 1.2 gigahertz NMR research data on proteins associated with diseases such as Alzheimer’s, Parkinson’s, and cancer.

We expect that 1.2 gigahertz NMR will begin to contribute to our BioSpin revenue growth in 2020 and beyond. Turning to Slide 9. I highlight the progress with our operational excellence program. We have been working on a new Bruker NANO engineering final assembly and system test sensor in Penang, Malaysia, which is now operational.

This facility is expected to have lower costs, lower tax rates, and access to local and regional lower costs third party subassembly production. We now have several Bruker NANO products that are being final assembled and tested in Penang already and by 2022, we expect more than $50 million of revenue to be generated from Penang.

So, in summary, I’m pleased with our progress during the third quarter and the first nine months of 2019.

We believe that our innovative product cycles further progress with our Project Accelerate high-growth, high-margin initiatives and our sustained operational excellence focus position us to continue to perform well despite a weaker macroenvironment.

Let me now turn the call over to our CFO, Gerald Herman, who will review our Q3 and year-to-date 2019 financial performance in more detail.

Gerald?.

Thank you. Frank. I’m pleased to join you today and review Bruker’s third quarter 2019 financial highlights starting on Slide. 11 Bruker’s reported revenue increased 11.7% to $521.1 million in the third quarter of 2019, which reflects organic revenue growth of 7.6%. We reported GAAP EPS of $0.39 compared to $0.28 in the third quarter of 2018.

On a non-GAAP basis Q3 2019 EPS was $0.43, an increase of 16.2% from $0.37 in Q3 2018. our Q3 2019 non-GAAP operating profit increased 14.6%, compared to Q3 2018 while Q3 2019 non-GAAP operating margin was up 40 basis points with the change in margin, primarily driven by favorable foreign exchange translation.

These results when compared to a strong Q3 2018 were better than we expected in August when we shared our expectations for Q3 and we’re pleased with our Q3 operational performance as it helps to derisk our fourth quarter, which was – which is our largest quarter in revenue for the year.

Free cash flow in Q3 2019 was $36 million, compared to $16 million in the third quarter of 2018, reflecting higher year-over-year net income and the timing of shipments relative to prior year, partially offset by capital expenditures and other items.

As of September 30, 2019, we were in a net debt position of $216 million as we deployed cash over the past three quarters on acquisitions, capital expenditures, share repurchases and dividends.

We ended Q3 2019 with higher working capital balances reflecting our revenue growth, recent acquisitions inventory buildup and increased receivables due shipments later in the quarter. Slide 12 shows the revenue bridge for Q3 2019. as noted earlier, organic revenue growth in the quarter was 7.6% with 8.6% growth at BSI and 0.8% decline at BEST.

We had revenue growth from acquisitions of 6.4%, which was partially offset by a foreign currency headwind of 2.3%. From a BSI organic revenue growth perspective year-over-year, we saw low single-digit growth in Q3 2019 at BioSpin. This included revenue from another 1.0 gigahertz NMR system in third quarter.

However, this system carried relatively modest revenue and margins due to the legacy pricing as Frank mentioned earlier. Our CALID group posted low teens organic growth in the third quarter, driven by strong performance in life science and mass spectrometry solutions and in microbiology.

NANO group was up high single digits in the quarter on an organic basis. This included growth in all NANO’s divisions. However, given the weekend environment for industrial research and semiconductor metrology equipment, we do not anticipate this level of NANO group growth to continue into the fourth quarter of the year.

From a geographic perspective, Q3 organic revenue was up high single digits in Europe. Asia-Pacific organic revenue increased mid-teens including strong growth in Japan and high single-digit growth in China. North America revenue declined slightly organically, which we attribute primarily to quarter-to-quarter fluctuations.

The Rest of the World other than Latin America had good results. Slide 13 shows our Q3 2019 non-GAAP results. Non-GAAP gross profit margin of 50.5% increased to 130 basis points from 49.2% in Q3 2018.

the increase was driven primarily by operational improvements and volume leverage in our CALID Group accretion rather from acquisitions and favorable changes in foreign currency rates. Q3 2019 operating expenses increased over the prior year reflecting investments in our business and expenses related to recent acquisitions.

Q3 2019 non-GAAP operating margins of 18.3% increased 40 basis points over the 17.9% reported in Q3 2018. the improvement in 2019 was driven by favorable foreign currency translation and our accretive acquisitions. For the third quarter of 2019, our non-GAAP effective tax rate was 25.4%, compared to 25.9% in Q3 2018.

this modest decline was driven principally by more favorable jurisdictional mix in Q3 2019. Weighted average diluted shares outstanding in the third quarter were 155.6 million, down 1.8 million shares from Q3 2018. during the third quarter, we repurchased an additional one million shares for a total of $42 million.

Year-to-date through September 30, shares repurchases of total 3.3 million shares at a total cost of $142 million. We currently have approximately $158 million remaining under our share buyback authorization, which is in place through mid-May 2021.

finally, Q3 2019 non-GAAP EPS of $0.43 increased 16.2% year-over-year, driven primarily by our revenue growth and higher margins. Slide 14 shows the year-over-year revenue bridge for the first nine months of 2019.

Year-to-date revenue is up $131 million or a 9.7% over 2018 reflecting year-to-date 2019 organic growth of 6%, contributions from our acquisitions of 7% and a foreign currency headwind of 3.3%. this reflects 5.8% organic growth at BSI with a double-digit increase at CALID, mid-single digit growth in BioSpin and low-single digit growth at NANO.

Our BEST segment grew 7% on an organic basis net of intercompany eliminations. Geographically and on an organic basis in the first nine months of 2019 Bruker’s European revenue was up modestly compared to the first nine months of 2018.

North American revenue grew mid-single digits, Asia Pacific revenue grew double-digits on an organic basis, driven by strong growth in Japan and in China. On Slide 15, our year-to-date 2019 non-GAAP gross profit margin of 49.7%, increased 150 basis points.

Operational improvements at CALID, accretion from acquisitions and favorable foreign currency translation drove the improvement relative to the first nine months of 2018. Year-to-date 2019 operating expenses increased roughly in line with our revenue growth rate, including expenses from acquisitions combined with selected investments.

All in, our non-GAAP operating margin in the first nine months of 2019 was 15.7%, 120 basis point improvement over the prior year period, benefiting from operational improvements in CALID, accretion from acquisitions, as well as the foreign exchange tailwind of approximately 60 basis points.

Our year-to-date 2019 non-GAAP effective tax rate of 24.5% was lower than the 25.6% tax rate in the same period of the last year, driven primarily by certain favorable discrete items and revenue mix.

Finally, non-GAAP EPS of $1.04 grew 20.9% relative to the first nine months of 2018, reflecting our solid revenue growth, higher margins, accretion from acquisitions and a slightly lower tax rate year-over-year. Turning to Slide 16. Free cash flow in the first nine months of 2019 was $32.4 million, compared to $78.5 million in the same period of 2018.

The weaker free cash generation in year-to-date 2019 was primarily driven by inventory build-up for product transitions into our Penang, Malaysia factory and for our gigahertz-class NMR production, increases in capital expenditures and the timing of shipments.

Our cash conversion cycle at the end of Q3 2019 of 227 days lengthened, compared to 219 days at the end of Q3 2018, due to an increase in DIO and DSO, partially offset by an increase in DPO. Turning now to guidance for the full year 2019 on Slide 18.

We’re updating the elements of our 2019 revenue growth outlook for higher contribution from acquisitions, offset by stronger foreign currency translation headwinds. Given our year-to-date performance, we are raising our expected non-GAAP EPS range for the full year.

For 2019 revenue, we continue to expect overall revenue growth between 8% and 8%, this continues to include organic revenue growth between 4.5% and 5.4%. Our acquisitions are now expected to contribute about 5.5% to reported revenue, about 0.5% better than when we last spoke to you in early August.

Foreign exchange translation is now projected to be a headwind of approximately 3%, 0.5% more unfavorable than in early August. This now equates to higher constant currency revenue growth between 10% to 11%, compared to our prior guidance for constant currency revenue growth between 9.5% and 10.5%.

We held our organic revenue range guidance a bit wider than usual at this point in the year to reflect our strong year-to-date performance and order backlog heading into the fourth quarter. But also the more uncertain macroeconomic environment we now face in some of our more macro sensitive businesses.

We continue to expect non-GAAP operating margin to improve between 90 basis points and 120 basis points from the 16.8% level achieved in 2018. This now includes an expected approximately 50 basis point tailwind from foreign currency translation.

We continue to expect a full year 2019 non-GAAP effective tax rate of above 25%, and we now expect fully diluted – lower fully diluted share count of approximately 157 million shares.

Given our year-to-date performance, we now expect full year of 2019 non-GAAP EPS in a range between $1.59 to $1.62, which would represent an increase of 13.5% to 15.5% year-over-year. This is an increase from our prior non-GAAP EPS guidance which was $1.57 and $1.61.

Other guidance assumptions along with updated foreign currency rates are listed on this slide. To wrap up, Bruker delivered strong financial performance in Q3 2019, with reported revenues up 11.7% and non-GAAP EPS growth of 16.2%.

We've made good progress in the first nine months of 2019 and remained committed to our financial objectives for the full year. We look forward to updating you again on our Q4 and full year 2019 conference call in early February. And with that, I'd like to turn the call over to Miroslava to start the Q&A session. Thank you very much..

Thank you, Gerald. Operator, we would like to begin Q&A session. In order to allow to join analyst participation, please limit your questions to one and a follow-up..

Thank you. [Operator Instructions] And our first question will come from Brandon Couillard of Jefferies. Please go ahead..

Thanks. Good afternoon. Frank, could you help to – if you could just clarify sort of your current view of the industrial backdrop.

Is it deteriorated relative to where you sat in the second quarter? As you look out the next year, does that need to get better for you to hit kind of your new 5% to 7% organic growth target, as you laid out at the Analyst Day? Thanks..

No, I’m not necessarily saying that, Brandon, but we're also not giving 2020 guidance today. We'll do that obviously in February, once we have another fourth quarter under our belt and observe what everybody else is doing.

So I don't – other than SEMI not recovering and in fact getting a little bit weaker organically for us, maybe get started before the sun comes up here in SEMI. But it's a small part of our business and the rest of industrial isn't bad, but it's also not booming. So I think it's about as expected..

Then just a follow-up on the BEST contract, is all of that 400 million incremental and should we assume that has captured ratably kind of over the five year period you alluded to?.

No, it's not incremental because we had contracts with these companies, major MRI companies before, some of them have become larger in annual volume a little bit, but basically this provides four multi-year stability and planning and capacity planning, so it's not really incremental.

On the other hand, it sets a very healthy baseline for our best business. So, I think this is a very good development really for the entire industry for BEST, as well as their OEM, MRI customers, but it's not incremental.

And to the latter part of your question, Brandon, yes, that’s not exactly ratably because the customers control that a little bit as well. But very roughly, a first good assumption is that it is readably over five or more years..

Super, thank you..

And we also do some other business with them, but this is a long-term baseline business that they have locked in and we have therefore locked in as well that we can supply this to them. Very positive development, but not incremental..

And our next question will come from Puneet Souda of SVB Leerink. Please go ahead..

Thanks for the question and congrats on the quarter. So first one is a bit about the long-term sort of the guide here. I just want to get a sense of, I mean next quarter – for the full year you're guiding about 5% organic, at the midpoint, you have Project Accelerate, timsTOF, microbiology, CALID, a number of growth drivers are here.

And I appreciate your comments on weak macro and industrial backdrop. But, if we just look at the quarter-over-quarter, year-over-year comparables, I mean, those are much easier, this is a stronger quarter for you. So maybe just help us understand why it's still sort of a 5% organic sort of at the midpoint.

Just help us educate on that, and I have a few follow-ups..

Yes, I mean, we're very pleased to be among the companies that are on a lowering guidance in this tougher macro. So we're – we feel comfortable with that, they are – there is more macro uncertainty for sure, some of the more macro sensitive markets have become weaker this year.

And I don't disagree that in the strengths of the other areas that you have cited, proteomics, microbiology, gigahertz NMR and a few others, but those are some of our highlights. So we think, we really are on track and have probably, meaningfully de-risked, whether we can hit our guidance this year.

And in fact, we are increasing incrementally non-GAAP EPS guidance for the year. So that seems prudent at this time..

Okay, thanks. And then on Europe, if I could touch, could you give us a sense of your view as you talked to the customers, both in academic and government customers and sort of going into 2020 here, and I know, I'm not specifically asking around guidance.

But just sort of what's your expectation here in Europe, as we go into the next couple of quarters here? And how does that reflect in terms of the 1.1 and 1.2 gigahertz NMRs? And if you could update us on the 1.2 gigahertz within the factory, how many of those are and sort of what's the status and if they're up to the field? So a few questions there.

Thank you..

Okay. Europe, as we had said last quarter, we'll say now we probably feel a little bit better about Europe than maybe some others. And Europe in – if you take it over a quarter-to-quarter, there is some fluctuations, I think if you look at Europe over the first nine months in revenue, Gerald maybe you can help me there with or Miroslava.

What's the revenue trend for Europe in the first nine months?.

It's up, obviously, on an organic basis. The third quarter was up high-single digits..

Yes, high-single digits and orders in Europe are up as well. I mean and the timsTOF is doing really well and then Europe, microbiology is doing well in Europe.

Some of the German and UK and industrial investment has slowed down a little bit, there is this Brexit uncertainty going on and of course, European vehicle or car industry to which we're not heavily exposed is maybe a little slower. But overall, I feel pretty good about Europe.

I feel, I know we have so-called exposure over there, but I also think we're really quite strong and academic funding in Europe is not only are the funding trends good, but the fraction of academic funding that we can capture with our life science tools are really quite good. And as I said earlier, microbiology is good in Europe.

So we feel pretty good about Europe. And as we said, pretty much all year round, we're a little – I won’t say bullish, but we're more positive in Europe than some others. 1.2 gigahertz, as you recall, we have nine on order and one 1.1 gigahertz, 1.1 gigahertz has shipped and as you may have heard from Twitter, it has come to field.

So that may or may not get accepted in Q4, it doesn't really affect our guidance because either way, if we have that in revenue then maybe something else goes into the first quarter or so. But anyway, 1.1 gigahertz has been shipped and that's the first hybrid system that has come to field at a customer's site.

That's great news, another little milestone. And we have or have had 1.2 – two of these 1.2 gigahertz system at field and the factory generating NMR data. And we have more in the production pipeline.

So we hope we're not giving 2020 guidance, but I very much hope that 1.2 gigahertz for the first time will show up in revenue next year, to what extent we can discuss in early February. And maybe one more piece was nice news is that the U.S.

national science foundation has funded a large project for the first 1.2 gigahertz system in the United States at the Ohio State University. And, we don't have an order for that, but it is great that a U.S.

institution has received major funding – federal funding in the U.S., that we hope this will be a bit of an ice breaker and of course potentially a very nice order..

All right. Thank you so much, that's great to hear. Thank you..

Thank you, Puneet..

And our next question comes from Derik DeBruin of Bank of America Merrill Lynch. Please go ahead..

Hi, good afternoon..

Hi, Derik..

Hey, first question is, you commented on strong growth in life science mass spectrometry. Can you talk a little bit about that market, what's going on? Also, historically, Bruker has been a lot stronger in Europe and the rest of the world and in North America in that respect.

Can you talk about sort of how your market is in geographic share change or is it still very x U.S.? Thanks. And I have a follow-up..

Yes. So Derik, I mean, we’ve had a significant refresh in the last three, four years of our life science mass spectrometry or mass portfolio for sure. And that's really, given us momentum in many fields from applied to pharma, biopharma, very much so in proteomics, increasingly also in metabolomic phenomics.

And I mean I think right now, we’re – from what I can tell, it looks like we're gaining some share there in mass spectrometry. And I think that is really true throughout most geographies, we're actually also growing nicely in Europe, whereas you've pointed out, we're pretty – we’re stronger already, but we’re also – have seen nice growth in the U.S.

or in Japan and the rest of the world and China. And so it’s – that looks healthy all around and I think are the opportunities for which we have positioned ourselves from single cell biology to proteomics, metabolomics and, of course, the biologic biopharma trends and others, but those are some of the major ones. These are not that macro dependent.

So that’s good. There is excellent academic and non-profit funding for them, as well as pharma funding, including non-profit also in this case including Med School research.

So good growth drivers, not that macro dependent, pretty – not somewhat dependent on the geography, I mean, any country that wants to do significant life science research or drug discovery, it will be interested in these tools and we’re doing quite well, where we’re catching up perhaps a little bit in the Americas and in Asia..

Great.

Speaking of Asia, can we talk about the Chinese market and what you’re seeing there, obviously, the indicators there have been folding back? Have you seen any pull back in Chinese R&D spending?.

Derik, it’s Gerald. I would say, generally, China has been a mixed story for us. We had pretty solid revenue from China in both Q3 and through that first nine months of the year.

Bookings are a little bit softer than we would like, but I think that’s somewhat expected, partly we see a few delays in terms of orders, part of it’s just there’s some paperwork delays. There’s – there just some softer order patterns generally.

I think you already know, we have a pretty solid business in China, it represents about 15% of the overall business. And we don’t see any significant issue there so far. I can talk about the tariffs, if you’d like, but I think it’s overall..

Especially the high-end research funding, I was just in China September and I feel that there is a continued strong push on top notch life science research funding and research in China. I don’t see that part letting up at all. Again, we’re not that exposed to generics.

We’re doing fine in microbiology, as well as we’ve had nice growth in Asia, including China. We’re not that exposed there to small molecule pharma or CROs.

So the areas where we academic research components and biopharma research and microbiology, looks pretty good, maybe, NMR bookings a little weaker after they were growing at a wonderful pace last year. Overall, China in good revenue growth, a little bit slower order growth this year than last year.

Many signals that you get overall, the specific questions of high-end research funding we think continues very much. I think that remains a top priority for China. It’s my impression..

Thank you..

You’re welcome..

And our next question will come from Doug Schenkel with Cowen. Please go ahead..

Hey, this is Chris on for Doug. Thanks for taking my question. I just want to start with CALID. So CALID growth has accelerated meaningfully this year to double digits. I think you talked about in mass spec portfolio refresh and diagnostics driving improvement in growth. I’m curious if there were any other dynamics.

And not looking for 2020 guidance, but how sustainable do you think this growth is? And if we were to use a baseball analogy, what inning do you think you are in, in terms of the new instrument placement cycle?.

So mass spectrometry and MALDI Biotyper do very well. MALDI Biotyper is in the baseball game for sure. That’s clinical diagnostics, it’s just always a need in a relatively steady market. And we have really great solutions there and they have more and more capabilities.

We’re perhaps even winning market share there and the Hain acquisition by in large is going well. There are more things in the pipeline for U.S. FDA clearance of certain additional capabilities.

So that’s a very steady business and we’re delighted that even the instruments part of that business is sort of back to the low teens and the consumables business there continues to grow well north of 20%. So very solid to no end in sight, no final inning coming up there.

Proteomics, I don’t know, I think we’re roughly where genomics with 10, 12 years ago. I’m not saying that proteomics will necessarily be as big as proteogenomics in total, but again, no baseball analogy there at all. I think these markets are healthy and our technology is becoming more and more appreciated there.

So no runway, no baseball games, these metaphors really don’t apply to these markets..

Okay. And then Gerald, could you just help us bridge the EPS guidance for the year. I think you beat Q3 by $0.06 and then you increased the full year EPS guidance by $0.02. The implied Q4 EPS growth rate is I think only about 4%, which is a meaningful slowdown relative to the 20.9% rate you posted on year-to-date basis.

So clearly, there has been some nice momentum this year. Just really want to make sure we’re not missing anything here and updated EPS guidance is, I guess, an effort to derisk guidance for the full year..

Well, I guess what I’d say is that, we posted very solid performance on EPS perspective over the first nine months. And we feel like we should clearly provide some of it into our updated guidance for the full year at this stage. Clearly, we’re generating good profitability from the numbers we’ve posted thus far.

So I think we’re just moving it in a reasonable range at the moment. I don’t think there’s anything special that I would really want to highlight other than we continued to drive operating margin performance. The mix being driven by our product is helping for sure. And more to come is the expectation..

Okay, sorry. And just last – quickly last question. I think you know that you had strong growth in Japan. Some of your peers talked about potentially benefiting from a pull forward of orders, due to the increase in Japan value added tax. Does that the dynamic impact you at all? If not, how sustainable is that Japan growth here. Thanks..

Yes, we don’t have any data that would allow us to estimate whether this was a partial effect or material at all. Keep in mind that for us between orders and revenue tends to be about a couple of quarters on average. We’re aware of the VAT change in Japan.

Japan this year in general, but really year-to-date, not just in the third quarter has really performed very, very well with excellent growth. The growth has been so good for us, that is probably not sustainable. But it also comes on top of some pent up demand and really very weak trends in Japan for many years in a row for us, for Bruker, at least.

So it’s a little bit of catch up. That’s the color on Japan. Japan is delightful for us this year and has been all year and we’re not – we’re aware of the VAT change, but we doubt that it’s very material, but we also don’t have any data that allows us to estimate that in any way..

All right. Thanks for taking my questions..

Sure..

And the next question will come from Dan Brennan of UBS. Please go ahead..

Great, thank you. Thanks for taking the questions. Frank, I just wanted to understand a little bit more just about the fourth quarter guide, obviously, you’re kind of digging in some cushion for uncertain macro, I guess. But when you take your guide, it looks like it’s about 0% to 4% in the fourth quarter.

So I’m just wondering, could you maybe give a little more color, like to get to the low end or even within the range. Is it the semi business, which you talked about 5%, but now you’re pointing to a very weak kind of year-to-date number or excuse me full year number.

So is that the crux of kind of what we would get you kind of down to the bottom of that range? Because it just seems hard to kind of get certainly to the bottom half of the range, kind of 0% to 2%. Thanks. I’m going to have a follow-up as well..

I mean, we’ll be a bit of a stickler here in my case, but then we’re not giving fourth quarter guidance. We’re updating our full year guidance. We’re delighted that we’re very much on track to deliver our full year guidance. We have as always a very – fourth quarter of last year was very strong.

We would need to – we will need to deliver a strong fourth quarter, strongest quarter of the year as in every year. And I wouldn’t read too much into it. We’re very pleased to be on track and for delivering the full year guidance in a weakening environment. So I think we’re doing our job this year and that’s all I’m going to say about that..

Okay. And then maybe just on the timsTOF, obviously, you had a – looks like you had a strong quarter. Can you just update us and kind of where you are penetrating the market? I know not only did you see a real nice opportunity to kind of place boxes, but also you felt to really grow the market given the advances that that box delivered.

So can you just give us any color update in terms of the sizing of your kind of base of business today and kind of how we think about that going forward?.

Yes, Dan, we continue to feel good about the proteomics market overall, which as you know, will not only benefit us, but others in proteomics. And the proteomics, the major inch of the International HUPO meeting there in Australia was very good.

It showed how that, that field really maybe at an inflection point with so many growth driver from single cell biology, clinical to pharma use to many other applications. I won’t bore you with all of them, but there’s a lot of in a confluence of positive events. So, I’m very bullish on proteomics.

In general and yet, we’re doing well with the timsTOF Pro; it’s clearly an additional capability. It has certain attributes that make it unique and it is a very high performing, very robust an area, where you can compare it. So, it’s a very welcome addition and it starts to be now two years after the launch, really quite established.

We’re not having to explain brand-new technology, but everybody’s heard about it maybe now someone who has one. And so that launch we’re paying a lot of attention to early costumers and key opinion leaders and all of that is really going very well. And we’re still in the – we’re still in the early part of the S-curve.

And so now use another metaphor, but I think it’s a pretty long S-curve for proteomics, I’m not so worried. We’re still in the early part, but it’s beginning to accelerate a little bit and then that’s right rewarding.

I think the reception, the qualitative reception of this technology and having an additional technology that’s really viable and very, very capable in the field has been, I mean almost enthusiastic you received..

Great. Okay. Thanks very much and congrats..

Thank you..

Our next question will come from Steve Willoughby of Cleveland Research. Please go ahead..

Good evening, and thanks for taking my questions. Most of them have been asked, but Frank, I just want to follow back up on the BioSpin business. So, if you could talk about a little bit about the BioSpin business in what you’re seeing, I guess in the quarter and also going forward, I guess two questions.

First, you grew low-single digits here in the quarter and that was obviously aided by the one gigahertz system that you sold.

So, just maybe, talk about if you could a little bit about what’s going on the underlying kind of BioSpin NMR market? And then also, could you provide us a reminder refresher on what the pipeline for gigahertz systems look like potentially for next year?.

Steve, sure. So, the BioSpin’s performance in Q3 was a little underwhelming. We made it up elsewhere, but it was not a strong performance. And we think that BioSpin – that’s why during my prepared remarks, I said that’s for the full year; we’re still expecting mid-single digit organic growth for BioSpin.

Something we’ve said all year and, but however Q3 was a little – was less than that. So, we think BioSpin will have a decent Q4 and will be all right for the year. But Q3 as you’ve pointed out and I think you’ve pointed with your question, was not the strongest for BioSpin.

I mean backlog we have for multiple years for ultra-high fields and there’s now in the U.S. and elsewhere, there are some – appears to be some funding and there is some funding under negotiation for additional systems.

So, I’m not convinced that we will necessarily deplete our pipeline once we start delivering, but we may be able to roughly replenish it. I mean, it should come down a little bit, because right now, our delivery times that we’re quoting are very long, three to four years or more.

But so the pipeline looks encouraging in terms of people looking for new funding, and the pipeline of what we have or what the backlog that we have already we expect to deliver over multiple years.

The timing of that is still a little bit uncertain, but we hope that when we give guidance in February 2020 for next year, that there likely will be a 1.2 gigahertz component to that, but I’m not going to – let us get some of our experience with the technology and then of course, that will be the right time to get to give you a feel for what we’re expecting for 2020.

But for the first time ever, we hope to have 1.2 gigahertz contribute to revenue next year and then hopefully, ramp over multiple years as we deliver the backlogs that we have and hopefully, add from it as well with a reasonable pipeline..

Okay. Frank, if you don’t mind, if I could have one quick follow-up. In your prepared remarks, you made a comment about the NANO business, which grew high-single digits and you specifically commented that you don’t expect that growth to continue in the fourth quarter.

You just made a comment there that you expected BioSpin to kind of get better in the fourth quarter in terms of growth and then CALID, which grew low-teens, I believe organically in the quarter.

Can CALID keep growing at that kind of double-digit rate? I’m just kind of going back to; I believe it was Dan’s question regarding the fourth quarter implying guidance..

Yes. That’s all correct actually as the way you said it or asked it, Steve, remember some time ago, we had all groups growing at about at similar rates. We’ll have much more of it is the diversity of growth rates. So, fully organic growth rates, NANO is likely to be in the low-single digits.

BioSpin mid-single digits and CALID in high-single digits, maybe, even very low-teens or so. And for this year that all that seems to weigh the place that’s likely is how it’s going to play itself out. And with best really having picked up nicely this year and better than we had expected.

So, CALID a bit stronger than expected, BEST a bit stronger, and NANO a bit weaker than expected at the beginning of the year and BioSpin about like as we had expected. So that’s the new picture as we go into 2020, but let’s see how we call what we predict them for the year 2020 in February..

Okay. Thanks so much, Frank. I appreciate it..

Sure..

And our next question will come from Steve Unger of Needham & Company. Please go ahead..

Thanks. Happy Halloween, guys..

Thank you..

Thank you..

All right.

As far as – just my first question, could you dive a little bit further into the microbiology performance and maybe, touch on placements versus consumable growth and how should we think about the new Biotyper sirius as far as, is that an upgrade into the base or a complimentary system sale into the base?.

Right. Microbiology solid growth here today. Placements are really for us, it’s units sold or leased. We don’t really place any for free in our business model. So, the MALDI Biotyper units have been back to I think are globally to do double-digit growth for a couple of years. It was more like high-single digit.

So that’s really a delight strength, particularly, in Europe and in Asia. A little bit weaker in the U.S., but that may have to do with.

We’re waiting for our steps to type FDA claim with the clinical trials and we’re in contact with the FDA and maybe sometime this winter, whatever that means, we might get an additional clearance – in FDA clearance here in the U.S. So that’s the consumables growing faster than 20%.

That’s really fantastic and continues to be, we now – already, as you may recall, as higher, we saw more aftermarket service consumable software than we sell systems in the microbiology business that trend will only continue and at some point, we’ll probably be 60%, 70% after market. The sirius nice new system, yes.

We introduced at the American Society of Microbiology. We since then also got CEIVD capabilities. So, we can now ship that into, not in all countries, in some countries, it still has to go through regulatory and can only go into unregulated markets. So there’s some – the usual things when you deal with a regulated system that is the most powerful.

It’s not complimentary. It’s really the next generation high-end, high-performance MALDI Biotyper. And also increased robustness and more laser shots, lifetime laser for most customers and so on. So, it’s a very compelling offer. It should help us competitively.

It allows some of these newer methods that are research-use only or in some cases, are already approved in usually in Europe first, U.S. later. And so it’s sort of – it’s going to be the high-end MALDI Biotyper and we’ll have the MBT, it’s smart and classic as the more affordable solutions.

So, we have a bit of a range in that product line rather than a single product. And not everybody will need this sirius, but if people can afford to sirius, I want to forward proof what they’ve heard – future proof, excuse me, that’s the word, then the sirius is probably a very, very good value proposition for them..

Great. That’s very good color. And then I noticed that you’ve reversed restructuring charge in the quarter and I was just curious as to what that involved.

And could you maybe comment about the impact of when the Malaysia transition will be fully complete and we can start to see an impact on working capital?.

Okay. So, we’re scratching our heads a little bit. I think there was a gain on one facility in life sick, so good catch. Wow. Yes indeed, there was a gain on a facility that was part of the restructuring of our Bruker detection business.

So, we have taken some other restructuring charges earlier and then at the end of that, as we sold and leased back only a part of that facility. We had a gain. So that that’s that item. Penang, the ramp up will actually, as more products go to Penang, the ramp up isn’t – will not be done by the end of the year.

So, some product for some products there’ll be the – any normal will be that they come from Penang, but then some additional products move to that facility. So that maybe, let me get you a better answer in February. I don’t have a – I don’t have a clear answer for you right now.

But other than to say that it’s much just the one year we moved a bunch of products, but it’s a multiyear ramp-up of, it takes additional products sort of every year and moved into that facility..

Got it. Great. Thanks..

Yes. You’re welcome, Steve..

our next question will come from Sung Ji Nam of BTIG. Please go ahead..

Hi. Thanks for taking the questions. just a couple of quick ones, Frank, could you maybe, talk about – you talked about the legacy pricing affecting your one gigahertz system placement this quarter.

Just was wondering, if that’s like a one-off situation or like not quite sure what that is and could we anticipate that or some of the other systems in the pipeline?.

No. We really think that’s a one-off situation that is – that was funded originally as a 900 or 950 megahertz system, got almost a decade ago or maybe eight years ago or nine years ago. It was then later on renegotiated to be a one gigahertz system that was a key development site in NMR for varian, later Agilent.

So, it was very, very competitive and it is – but not boring you with all the details. It’s a wonderful customer. And it is a one-off. It is really a very, very old case. It’s an old order as my many years old and the negotiations for that order has almost gone on for – got, the better part of this decade. So, it’s one-off..

Okay.

And then just quickly, on microbiology, obviously, seeing a lot of good growth there and the data to the market growth, are you taking share as well across different geographies?.

Probably, probably, we’ll have – we have customers, we don’t have data or statistics on that, but we, from the color, from the business, we really get some customers, who maybe, a decade ago or seven, eight years ago, purchased the MALDI ID system from other – from another company and some of them are clearly preferring the MALDI Biotyper platform today and including some of the newer products that we have launched, they are the smart now the sirius.

So, we probably – we don’t have data to prove it, but our sense is that we’re gaining a little bit in market share as well..

Great. Thank you..

Our next question will come from Vijay Kumar of Evercore ISI. Please go ahead..

Hey, guys. congrats on the nice sprint here. Frank, maybe, a question on this Q4 guidance. Clearly, Q3 came in well above – you look at the comps Q4, it gets a little easier. Given your comments that industrials aren’t worsening, it’s playing according to expectations. It’s not coming back, but it’s according to expectations.

Why wouldn’t the easier comps in Q4 help you guys?.

Well, as we had hinted before, we focus on the full-year guidance. We focus on – we’ve had a good Q3. Q3 is probably a little bit above average this year, right? I mean, we’re not saying that Q3 sets the new standards and expectations, but it was another good quarter and a good quarter to derisk Q4 and to derisk our guidance for the year.

We’re raising it a little bit. We’re just being a little bit cautious, it is, you get a lot of data points. Maybe, last year, you had a pretty tight spread between, but the industry; you could pretty clearly say what the industry growth was.

I think that’s if you look at life science tools or mass spectrometry, that’s actually pretty hard to say right now, which data points you take this quite a spread of data points that we’ve seen reported in the last 10 days or whatever it is.

So, this is – you read the Wall Street Journal, you look at Europe and you’re a little bit cautious, right? But it’s pretty simple. And I think we’re – I think we’re very increasingly more confident that we can deliver our guidance for the year and we’ve raised this slightly and we feel comfortable with that..

That’s fair enough. And just one quick one on margins. It looks like FX contribution is coming in slightly better than expected, which implies, given that you didn't change the margin guidance of the core, came down a little bit, which means, investing in the business. I’m curious where that investment is going? Thank you..

Very good catchy, that’s exactly right. We’re pleased to get a little bit more FX headwind than we’re solving for reported margin improvement each year. That’s our job. And we’re on track there. So indeed, we could and did invest a little bit more. And that’s, of course, goes into our Project Accelerate initiatives by and large.

And there, I wouldn’t single out one or the other that really goes into many of them. So that’s a very astute observation and that’s exactly what we’re doing. So, we’re not letting that all go to the bottom line. We’re actually pleased to be able to invest and not make sure that we don’t underinvest in some of the opportunities that we have..

Thanks, Frank..

Our next question will come from Tycho Peterson of JPMorgan. Please go ahead..

Thanks for fitting me in. I guess on margin, just following up on that, as we think about the Malaysia facility, can you just talk a little bit, Gerald, about how we should think about the operating margin expansion potential for that facility coming online and then separately, Gerald, for you as well.

Can you just talk on a free cash flow when you think here that could start to turn?.

Sure. Well, let me talk about Malaysia, meaning just generally, Malaysia is part of a broader operational excellence program that we put in place. And I would say that that’s baked into our guidance for the full year. I’m not going to comment on how it all looks as we look forward into 2020, but I will tell you that that’s part of the program.

There’s a number of other production – CapEx production activities that are intended to drive further growth in the business and Penang is one of them.

with respective free cash flow, maybe, let me just talk about that briefly, if I think you probably know, we do have a little bit of lumpiness that fluctuates from time to time on our free cash flow, we did see, slightly softer free cash flow generation in the first nine months.

That’s largely driven by some of the inventory buildup in the transition of products and activities into – in the Penang, Malaysia. In addition, we have some buildup of inventory relative to the gigahertz systems for NMR. and in addition, you probably know as well, we have a little bit of increase in our capEx for 2019.

finally, just some shipment timing, I would say also is impacted that. So, I don’t – I mean as you probably know, we have a very large Q4 planned, it generally generates a lot of revenue, operating margin, and cash flow. So, we’re still quite optimistic about how we will land for the full year on free cash flow..

And beyond Malaysia – Tycho, beyond Malaysia being important for our ongoing medium term, further operating margin expansion. it is also one of the elements of our plans to gradually improve our effective tax rate..

And then Frank on – the question before on timsTOF Pro, can you just comment on spatial timsTOF fleX MALDI, it was once at ASMS and part of the strategy to expand the tim.

is that starting to contribute here in the back half of the year?.

Yes, a little, it’s – I mean that’s much more of a – that’s a much smaller market than proteomics overall. but it’s beginning to contribute. but it is – it’s a smaller part of the overall timsTOF platform market..

All right. And then just one last one then, well, go ahead..

So, yes, we did receive orders since ASMS and it’s well received, it’s – so that’s going as expected, these things take a while before people have – it’s a more expensive system. So, you would need a bigger budget. This is not something, where people simply show up, hey, I have a budget, I’m going to spend it on you instead.

So, given that, we just launched it at ASMS, it’s going well, but even long-term, this will not be all of a sudden the half or a third of the timsTOF proteomics market. It’ll be a smaller niche..

And then you’ve had a lot of questions on NMR. I appreciate you flag the NSF initiative at Ohio state. How much of the funnel, I think, do you think starts to kind of incubate outside of Europe? Do you see the funding in the U.S.

and Asia starting to pick up next year or is it longer to have?.

Yes. We hope that we have some indications, but we also have some indications that Europe is still active, but more of the funnel is expected to be in – yes, it’s expected to be in the U.S. and in Asia. So that’s a correct observation, but Europe’s not done yet either, it’s the only point I wanted to make.

So, we’re expecting a potential additional funding in Europe as well..

Okay. Thank you..

This concludes our question-and-answer session. I would like to turn the conference back over to Miroslava Minkova for any closing remarks. please go ahead..

Thank you for joining us today. We look forward to updating you again, on our Q4 fiscal year 2019 conference call in early February 2020.

In the meantime, we invite you to meet us during various investor events over the course of the quarter, including the Stifel Healthcare Conference in New York, the Jefferies London Healthcare Conference in London and the JPMorgan healthcare conference in San Francisco. You’re also welcome to visit our headquarters 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..