Good morning everyone and welcome to Bruker Corporation's Q4 2019 Preliminary Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] At this time I would like to turn the conference call over to Ms. Miroslava Minkova, Director of Investor Relations and Corporate Development. Ma’am please go ahead..

Good morning. I would like to welcome everyone to this morning's conference call to discuss Bruker’s fourth-quarter and fiscal year 2019 preliminary operating results. My name is Miroslava Minkova, Director, 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. During today’s call, we will discuss preliminary Q4 and fiscal year revenue and operating income results.

We will not be able to address any tax rate, earnings per share, cash flow or balance sheet questions as such items have not yet been finalized.

As explained later on the call Bruker's complete financial results for the fourth quarter and fiscal year 2019 will be released at a future date following further progress on our fiscal year 2019 tax works and the internal investigation that we announced this morning.

Please also note all operating results discussed today are preliminary un-audited and subject to completion of standard year-end closing procedures and the issuance of the company's complete financial statements.

In addition to the preliminary 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'll be highlighting non-GAAP financial information.

Reconciliations of our non-GAAP to GAAP financial measures are included in our press 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'll make forward-looking statements regarding future events and preliminary and future financial and operational performance of the company that involve risks and uncertainties. The company's actual results may differ materially from such estimates described in such statements.

Factors that might cause such differences include but are not limited to those discussed in today's earnings release including the internal investigation and in our Form 10-K as well as in subsequent SEC filings which are available on our website and at the SCC's website.

Also note that the following information is related to current business conditions and to our outlook as of today February 18, 2020 and does not include a potential negative impact from the novel COVID-19 Corona virus outbreak on our full year 2020 results as such impact is not estimable at this time.

Due to ongoing interruptions with our ability to serve customers in China the impact on Bruker's Q1, 2020 China revenue is likely to be significant.

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 complete financial statement. Therefore you should not rely on these forward-looking statements as representing our views or outlook as of any date subsequent to today.

We intend to report complete fourth quarter and fiscal year 2019 income tax, earnings, cash flow and balance sheet items at a day to be determined. We'll begin today's call with Frank providing a business summary. Gerald will then cover the preliminary operating results for the fourth quarter and fiscal year 2019 in more detail.

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

Thank you Miroslava. Good morning everyone and thank you for joining us today on short notice. As you've seen in our disclosure this morning we have received an allegation concerning the year-end close primarily related to income tax matters including the effective income tax rate for 2019 and the related income tax balance sheet accounts.

The matter was referred to our audit committee which has initiated an internal investigation into this allegation with the assistance of independent experienced external advisors. This internal investigation is in its early stages and we cannot comment further on it at this time.

As a result the company is not in a position to report final financial results including tax rate, EPS, cash flow and balance sheet for the fourth quarter and fiscal year 2019 which will be reported at a later date. Back to our preliminary Q4 and fiscal year 2019 results now.

Operationally Bruker's fourth quarter of 2019 capped off a strong year in which we accelerated our organic revenue growth and again delivered further operating margin expansion. During 2019 Bruker's revenue exceeded the $2 billion mark for the first time and our non-GAAP operating margin reached 17.6%.

For fiscal year 2019 we delivered improved organic revenue growth of 5.7% constant currency revenue growth of 12% and non-GAAP operating income growth of 14.5%. We are pleased with our operating performance while we also invested significantly in key project accelerate initiatives as I will highlight later on the call.

During the fourth quarter of 2019 year-over-year our revenues grew 5.2% on an organic basis and 9.5% on a constant currency basis. Our non-GAAP operating income increased 7.9% year-over-year.

Over the course of 2019, we significantly advanced our key project accelerate initiatives including functional, structural biology by Gigahertz class NMR 4D proteomics on our timsTOF mass spectrometry platform and clinical microbiology on our MALDI Biotyper platform.

We are pleased to report that during the fourth quarter of 2019 we received customer acceptance on the first 1.1 gigahertz NMR system.

Turning to specifics now on the quarter on slide 4 in the fourth quarter of 2019 Bruker's revenue increased 8.4% year-over-year to $599.9 million on an organic basis revenue increased 5.2% year-over-year comprised of 5.8% organic growth at our scientific instrument segment and a -0.5% organic decline at our BEST segment net of intercompany eliminations.

During the fourth quarter acquisitions added 4.3% to our growth while foreign currency translation was a headwind of -1.1%. On a constant currency basis our Q4 revenue increased 9.5% year-over-year. Our Q4 ‘19 non-GAAP gross margin was 50.9% was down 10 bips year-over-year.

Similarly our Q4 ‘19 non-GAAP opera rating margin of 22.1% was also down 10 bips year-over-year due primarily to softness in our semiconductor metrology and certain industrial research businesses combined with project accelerate investments.

Our Q4, 19 preliminary GAAP operating income of $117.7 million increased 10.6% and non-GAAP operating income of $132.5 million increased approximately 8% year-over-year. Moving on to slide 5, we show Bruker's preliminary operating results for the full year 2019.

Our revenues increased $577 million to $2.70 billion and 9.3% increase compared to fiscal year 2018. Organic revenue growth in 2019 was 5.7% year-over-year comprised of 5.8% organic growth in the scientific instrument segment and 4.9% organic growth in our BEST segment net of intercompany eliminations.

Acquisitions added 6.3% to our topline in 2019 our foreign exchange was a minus 2.7% headwind year-over-year. On the constant currency basis we delivered year-over-year revenue growth of 12% in fiscal year 2019.

Fiscal year 2019 order bookings growth in our scientific instruments segment was in the mid-single digits albeit with a slower Q4 ‘19 performance which reflected softer semiconductor metrology and industrial markets demand.

End market conditions for Bruker's academic and government biopharma and microbiology markets were healthy or favorable in the fourth quarter as they had been throughout 2019.

Order bookings in our best segment were up strongly in the fourth quarter and in 2019 due to renewed multi-year long term superconductor supply agreements with three major magnetic resonance imaging or MRI companies in the second half of 2019.

Our 2019 non-GAAP gross margin of 50% increased 100 basis points compared to 2018 our non-GAAP operating margin of 17.6% expanded 80 basis points as we benefited from operational improvements within our CALID Group accretive acquisitions and approximately 50 bibs tailwinds from changes in foreign currency rates partially offset by significant investments into our project accelerate initiatives.

On a GAAP basis fiscal year 2019 operating income of $300.9 million increased 14.7% while fiscal year 2019 non-GAAP operating income of $364 million grew 14.5% year-over-year.

Please turn to Slide 6 and 7 where I provide further highlights on the performance in 2019 of our three scientific instruments group and of best segment all in constant currency and in comparison to fiscal year 2018. Fiscal year 2019 BioSpin group revenue increased at a solid mid-single digit pace to $621 million.

This reflected growth in both systems revenue and aftermarket as well as a small contribution from our software acquisitions. BioSpin 2019 revenue results include revenue recognition for three Gigahertz class NMR systems including customer acceptance of our first 1.1 Gigahertz NMR system in the fourth quarter of 2019.

BioSpin also saw continued growth with our unique NMR food screener and applied magnetic resonance solutions. BioSpin preclinical imaging systems revenue were slightly higher compared to 2018 and BioSpin's after market revenue continue to grow in 2019 and we have now planted the seeds for our scientific software business.

Our CALID Group had various strong performance in 2019 with revenues up mid-teens and constant currency to $624 million including revenues from our Bruker-Hain majority acquisition. CALID 2019 revenues also increased at a double-digit pace on an organic basis.

Within CALID we continue to see strong performance in our life science mass spectrometry, solutions business driven by initial adoption of our timsTOF platform for proteomics metabolomics. CALID also had an excellent year in its MALDI Biotyper clinical microbiology business.

Our CALID consumable revenue stepped up significantly with the addition of the high-end business. As a subsequent event we are pleased to report that as of the end of January 2020 we have now acquired 100% ownership in Bruker-Hain diagnostics.

Looking forward to 2020 we expect another strong year in both life science mass spec with timsTOF Pro and microbiology diagnostics with a rollout of our latest multi Biotyper sirius platform and the potential U.S.

regular rotary approval of the Sepsityper kit for rapid sepsis identification from positive blood cultures which is currently pending FDA review. In fiscal year 2019 revenue in our CALID molecular spectroscopy FTIR/NIR business which now also includes our CBRNE detection business also grew over 2018. Turning to slide 7 now.

Fiscal year 2019 Bruker NANO revenues were up in the low teens year-over-year to $633 million, growth reflects primarily contributions from acquisitions including Anasys, JPK and Alicona and RAVE on an organic basis the NANO groups 2019 revenues were flat compared to 2018 including soft Q4 2019 results.

This is due to weaker demand in NANO’s industrial research markets in the second half of 2019 as well as a double-digit organic downturn in our semiconductor metrology business in fiscal year 2019.

In 2019 NANO advanced X-ray business grew with continued academic demand our NANO analysis tools business also grew strongly organically in 2019, well NANO surface tools revenue was higher due to acquisitions. Our fiscal year ‘19 semiconductor metrology revenues were higher year-over-year due to the RAVE acquisition.

On an organic basis semiconductor metrology experienced the steep double-digit revenue decline including a significant decline in the fourth quarter of 2019. In 2019 for Bruker overall about 5% to 6% of revenue came from semiconductor markets.

We expect our semiconductor metrology business to remain very weak in the first quarter of 2020 but we now expect a gradual recovery later in 2020. BEST revenue in 2019 was up in the mid-single digits compared to 2018 on strong superconductor demand from MRI companies.

During the second half of 2019 BEST entered into long-term superconductor supply agreement renewals that in total added over $700 million to BEST backlog. These agreements are for deliveries that are expected over five to seven-year timelines.

Moving to slide 8 in the fourth quarter of 2019 we achieved additional milestones with our gigahertz class NMR program for functional structural biology. We achieved acceptance of the world's first 1.1 gigahertz system at St. Jude's Children's Research Hospital in the U.S.

culminating a decade of R&D on a novel ultra-high field magnet technology that uses a combination of low temperature and high temperature superconductors. Similar hybrid LTS/HTS technology is also used in our 1.2 gigahertz NMR magnets for which we have considerable backlog.

During the fourth quarter we also received first orders for 1.2 gigahertz NRM systems from the U.S. and South Korea. We shipped the first 1.2 gigahertz NMR in Europe which has now arrived at the customer site with installation expected in the first half of 2020.

In 2020 we expect further growth in ultra high field NMR with expected installations and acceptance of three to four gigahertz class NMRs in Europe. Please note that our first 1.2 gigahertz system is expected to see only partial revenue recognition in 2020 for the NMR console and probes as the magnet is subject to a long term lease purchase contract.

Turning to Slide 9, I provide an update on our project accelerate roadmap. As a reminder project accelerate describes six key initiatives focused on reshaping our portfolio for sustainable faster growth and higher margins.

During 2019 project Accelerate revenues were in the mid 40s [percentage] of Bruker's overall revenue and in the aggregate grew organically well above Bruker's average organic growth rate.

We are particularly pleased with the progress made in the three areas highlighted earlier; function and dynamics, in functional structural biology by gigahertz class NMR, for timsTOF proteomics and metabolomic and our microbiology initiatives on our MALDI Biotyper platform.

Before I close I would like to remind everyone of our medium-term objectives for 2020 to 2022 Bruker continues to target above market revenue growth of 5% to 7% average annual operating margin expansion of 75 to 100 bits and double-digit non-GAAP EPS growth.

For 2020 our projected organic revenue growth is slightly below this range as we have assumed still sluggish demand in industrial and applied markets in the first half of the year.

We remain optimistic about our growth trajectory given our strong and unique new product cadence and attractive secular growth drivers especially in NMR, proteomics, phenomics biopharma, imaging and microscopy microbiology and consumable software and after market.

In summary, we are pleased with our operational progress during the fourth quarter in 2019. We believe that our innovative products for the progress with project Accelerate and our sustained operational excellence focus position us to continue to perform well.

Let me now turn the call over to our CFO Gerald Herman who will review our Q4 into fiscal year ‘19 operational performance in more detail.

Gerald?.

Thank you Frank. I'm pleased to joining you today and review Bruker's fourth quarter 2019 preliminary operating results. Bruker's reported revenues increased 8.4% to a record $599.9 in the fourth quarter of 2019 which reflects organic growth of 5.2%. On a GAAP basis our Q4 2019 operating income grew 10.6%.

Non-GAAP operating income increased 7.9% compared to Q4 2018 while Q4 2019 non-GAAP operating margin was down 10 basis points as headwinds on our NANO semi metrology and industrial research market offset improvements at CALID BioSpin and BEST. Slide 11 shows the revenue bridge for Q4 2019 for your reference. This is already been explained by Frank.

From BSI organic revenue growth perspective we saw low double-digit growth in Q4 2019 year-over-year at BioSpin which included acceptance of a 1.1 gigahertz NMR system.

Our CALID group posted mid-teens organic growth year-over-year in the fourth quarter with strong growth in all major CALID areas including life science mass spec solutions, microbiology and FTIR/NIR molecular spectroscopy tools. NANO group revenue was down high single digits in the fourth quarter year-over-year on an organic basis.

This included a steep year-over-year decline in our semiconductor metrology business and weaker results in some of our NANOs industrial research businesses. From a geographic perspective Q4 organic revenue was down low single digits in Europe.

Asia-Pacific organic revenue increased in the low-teens including very strong growth in China and weaker year-over-year results in Japan. North American revenue was up mid-single digits. The rest of the world other than Latin America had good results. Slide 12 shows our preliminary Q4 2019 non-GAAP operating results.

Q4 2019 non-GAAP growth profit margin of 50.9% decreased 10 basis points from 51% in Q4 2018 while our CALID and BioSpin groups made good year-over-year operational progress on gross margins this was offset by NANO semiconductor metrology and industrial research headwinds.

Q4, 2019 operating expenses increased over the prior year reflecting investments in the business and expenses related to recent acquisitions. Q4 2019 non-GAAP operating margin of 22.1% also decreased to 10 basis points from the 22.2% reported in Q4, 2018.

During the fourth quarter volume and operational improvements at CALID BipSpin and BEST were offset by weakness in NANO, semi and industrial research demand. The combination of softness in industrial markets and semi metrology significant demand and decline was a meaningful drag on our Q4 and our fiscal year 2019 non-GAAP operating margin.

We expect this to be a temporary effect and expect to continue our solid margin expansion in fiscal year 2020 as I'll discuss in a moment. Finally Q4 2019 non-GAAP operating income of $132.5 million increased 7.9% compared to Q4 2018 driven by our revenue growth and accretive acquisitions. Slide 13 shows the year-over-year revenue bridge for 2019.

Full-year revenue was up $177 million or 9.3% over 2018 reflecting 2019 organic growth of 5.7% contributions from our acquisitions of 6.3% and a foreign currency headwinds of 2.7%.

This includes 5.8% organic growth at our scientific instrument segment with double-digit increase at CALID mid-single digit growth at BioSpin and approximately flat NANO organic revenues. Our BEST segment grew 4.9% on an organic basis net of intercompany eliminations.

Geographically and on an organic basis in 2019 Bruker's European revenue was flat compared to 2018. North American revenue grew mid-single digits. Asia-Pacific revenue grew low-teens on an organic basis driven by strong double-digit growth in both China and Japan. The rest of the world other than Latin America also had strong growth.

On slide 14, our full year 2019 non-GAAP gross profit margin of 50.0% increased 100 basis points. Operational improvements at CALID, accretion from our acquisitions and favorable foreign currency translation drove the improvement relative to 2018.

Full year 2019 operating expenses increased slightly ahead of our revenue growth rate including expenses from acquisitions combined with selected investments.

All in our non-GAAP operating margin in 2019 was 7.6%, an 80 basis points improvement over 2018 benefiting from volume and operational improvements in CALID accretion from acquisitions as well as a foreign exchange tailwind of approximately 50 basis points.

Fiscal year 2019 non-GAAP operating income of $364 million grew 14.5% relative to 2018 reflecting our solid revenue growth, higher margins and accretive acquisitions. Before I turn to our preliminary outlook for a full year 2020 there are a few other topics I'd like to address.

From a balance sheet perspective we were in a net debt position of $128 million as of December 31, 2019 as we deployed cash over the year for acquisitions, share repurchases, capital expenditures and dividends.

We ended the year with $678.3 million in cash and cash equivalents following the completion of certain debt financing actions in mid December. These actions were designed to enhance our financial flexibility and fund corporate strategic objectives.

We locked in lower fixed rates on approximately 60% of our expanded borrowing capacity and expect this to be accretive to our non-GAAP EPS in 2020 and beyond. Weighted average diluted shares outstanding in the fourth quarter and in fiscal year 2019 stood at $155.4 million and $156.6 million respectively.

As of December 31, 2019 we still had $158 million remaining under our share buyback authorization which is in place through mid May 2021. Turning now to our preliminary outlook for 2020 on slide 16, we are targeting mid-single digit revenue growth and continued operating margin expansion.

Specifically we currently anticipate Bruker's 2020 revenue to increase approximately 4% to 5% on an organic basis. For 2020 we expect Bruker's non-GAAP operating margin to expand an additional 70 to 90 basis points from the 17.6% level achieved in 2019. In 2020 we expect to ship and turn into revenue three to four gigahertz class systems.

As Frank mentioned among these planned systems our first 1.2 gigahertz system will only generate revenue for the console and probes while magnetic revenue will be realized over a multi-year lease purchase arrangement. We expect our scientific instrument segment will again lead the organic revenue growth performance for the company.

Our foreign currency assumptions are listed on the slide. Importantly our preliminary 2020 output does not include a potential negative impact from the ongoing COVID-19 Corona virus outbreak on our full-year results which is difficult to estimate at this time.

The impact from the outbreak on Bruker's first quarter results in particular is likely to be significant. Over recent weeks our ability to sell, service and install equipment in China has been disrupted. We do not have any factories or significant outsourcing partners in China however.

While we do not provide quarterly guidance I remind investors that Bruker's first quarter is seasonally slower with most of our profitability and cash flow typically generated in the second half of the year.

To the extent that we experience a negative impact on our revenues from the COVID-19 outbreak in China and beyond we currently expect that to be also heavily weighted towards the first quarter of the year.

So to wrap up Bruker delivered solid revenue growth in Q4 2019 with reported revenues up 8.4% while the semi downturn and softer NANO industrial markets weighed on our margins.

We made excellent operational progress in 2019 including from a product development and market uptake perspective as well as in terms of organic and constant currency revenue growth and operating income growth year-over-year.

Well, we're not pleased with the delay in our complete financial reporting we remained focused on achieving our short and medium-term growth and operating margin expansion objectives. 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 the Q&A session. In order to allow for broad analyst participation please limit your questions to one and a follow-up..

Ladies and gentlemen we will now begin the question and answer session. [Operator Instructions] Our first question today comes from Puneet Souda from SVB Leerink. Please go ahead with your question..

Hi Frank. Thanks for the question. So I wanted to understand a little bit on the guidance.

I understand a number of things in semi and NANO are not expected to perform as you had going into 2020 but I just wanted to get a better picture of if you're going to see any impact from that going into? What gives you the confidence into the second half of the year and then on China if you could elaborate if this is just purely Q1 or that disruption continues into Q2 and what gives you the confidence of that improving in the second quarter?.

Thank you Puneet. So yes we feel that our revenue growth guidance for 2020 is reasonable and prudent at this stage. It does reflect that we expect weaker industrial research market trends in as we've seen them in the second half of ‘19 that will likely continue through the year. So we're not calling any change in that.

In semi which has been very weak in Q4 of ‘19 and will be very weak in Q1 of ‘20 we expect and we have some visibility and then also industry visibility in general in that likely to be at its low point probably in Q4 and Q1 of 2020 and to begin to recover gradually later in the year.

So we expect later in the year at least the absence of a headwind which has been as this headwind even on margins in 2019 later in the year. As to China I think we are not making a call right now of whether or not this will persist into Q2 or not because I think it's impossible to do. The situation is fluid.

We all know that China hasn't returned to work on February 10 nor fully on February 17 and how long the disruption continues and how gradual the recovery will be I think is not something we can predict and probably not anybody else for that matter. We expect it to have a significant impact on our Q1 revenue in China.

We don't have any factories there but our commercial operations from marketing, to selling, to delivering, to installing, to servicing is disrupted to a significant extent as it is I think for just about everyone in China and even major cities like Shanghai and Beijing where we have our commercial operations are not back to a normal life and normal working conditions.

We do not make a call on that. It is not estimable for us. While there may be some catch up we hope there's some catch up later in the year after presumably a very weak start in China to the year. It is difficult to make further estimates and certainly they're not quantitative. So I think that reflects our present thinking..

Okay and Europe if you could elaborate on what’s your expectation for through the year given the fourth quarter results and what are you seeing in terms of the academic and government customers and the funding status and you pointed out three to four NMRs in Europe.

So any sense of would those have any challenges in terms of delivering the final payment if European funding environment stays where it is right now?.

Yes. I mean those are fixed orders. These are fixed in backlog so there's no question about on those in any financially. Yes, we do expect three to four NMRs to be delivered in gigahertz class NMRs to be delivered and accepted in the year 2020. Those all three to four, however, many turns out to be are for European customers indeed.

So I don't see any financial or economic or macro risk to that at all. There's always some technical risk during installations that's why we're saying three to four. We hope to ship at least four but sometimes things installations can take longer.

I think to your earlier questions European funding academic and research funding for life science research and for microbiology continues to be quite healthy and the industrial markets had been a little bit more cautious and there was the BREXIT specter which is now evaporated for some reason.

I mean the BREXIT has occurred at least politically and it's no big deal as sort of as I predicted but so that's not really disrupting anything and I think nobody's concerned about that anymore because it's moving very slowly. The practical aspects are moving very slowly and nothing are going to be disruptive at all.

So academic funding generally for our earliest life science research tools where we are less dependent on macro and has been quite healthy including in China. We've had excellent orders late in the year for a lot of high-end NMR and mass spec tools. That's the perspective Puneet..

Okay. Great. And if I could squeeze one last one on the U.S. order it was that an NSF order that you had expected prior and what's your expectation for further orders for ultra high-frequency magnets in U.S. over the next year or two? Thank you..

Yes, we hope that that's an icebreaker that was indeed the NSF-funded order from State University as you're aware of and there is other fundraising activities and grant application activities and the need for the functional complement for structural biology for structures generated by cryo-EM or crystallography simply is there everywhere and so we think now that this technology has been demonstrated and good papers have come out with that and good data is being generated, we expect that they will be ongoing urgency in the U.S.

and elsewhere to raise funding for investments in this technology..

Okay. Thank you..

Our next question comes from Vijay Kumar from Evercore ISI. Please go ahead with your question..

Hey guys.

Thanks for taking my question and Frank maybe starting with on the accounting side here, I appreciate you're limited and not what you can't see on the investigation at this point but do we have any clarity on whether this touches -- free cash flows or any operational items being hit here or this is all below the line items?.

This is Gerald. I will just comment. We can't say much about the investigation specifically as it's in its early stages and is ongoing. What we can say is that we've not disclosed balance sheet related items and cash flow related items. That's more from an abundance of caution perspective. So that's all I can add to that..

Understood and then, Frank one on the guidance front here.

If China commentary but what kind of impact have you seen here in January and February and I think on the gigahertz you mentioned the first system was in a partial revenues is lease method of you know recognizing revenues is that going to be more for phenomena for the Gigahertz just given the higher ASP or is it just the one off? Thank you..

So there was something about China that maybe I answered earlier but maybe you'll come back to that on the 1.2 Gigahertz the first 1.2 Gigahertz that we've delivered and hope to install in the first half that is unique and that it has a sort of a partial purchase for part of the revenue that we hopefully can recognize this year on console and probes for the system and then a longer-term arrangement where revenue recognition will occur over multiple years on the magnet.

That's unique. .

That helpful Frank.

Sorry in China any impact so far in January/February any qualitative comments and what we've seen so far?.

China commercial operations are disrupted. There's no, our people are not all in the office we cannot visit customers. Our customers are not at work luckily we don't have any factories or major suppliers over there. There's no conferences. There's no customer meetings. We cannot do normal service and install.

China is disrupted and if that's news then we're also, I mean it's just that, that's what I'm sure what well I can only speak for Bruker but as far as I can tell Beijing and Shanghai are mostly not back to normal and those are economic powerhouses..

That's helpful Frank..

Our next question comes from Jack Meehan from Barclays. Please go ahead with your question..

Hey thanks for the question. This is Nisarg on for Jack.

So on the margin line why was there not more flow through from the top line beat on operating income in the fourth quarter?.

It's Gerald here. So one of the major factors here we referenced already in our prepared remarks which is really the issues that we had relative to the semi metrology markets and demand there as well as our performance in industrial markets, particularly in the NANO group.

So as you probably know we got some revenue from a year-over-year perspective reflected but a lot of the margin performance that was expected really did not occur from our semi and industrial research side. This would be the primary area that we’ve got..

Got it.

And then within guidance what are you assuming in terms of organic growth by businesses within BSI?.

I think, this is Frank. Directionally we again expect a CALID group to lead the organic growth in 2020 followed by the BioSpin group that may be at or above corporate average of our guidance and with relatively flat assumptions organically for the NANO group and low single-digit growth organic growth for the BEST group..

Got it. Thank you..

Our next question comes from Derik DeBruin from Bank of America. Please go ahead with your question..

Hey thank you. So two questions.

The first one quick I just, on the accounting issues just to clarify there's no concerns about or revenues are not impacted in any way just want to clarify that?.

That's correct. We are reflecting these results, these preliminary operating results as preliminary because our auditors have not finalized their final closing procedures and we still obviously have this investigation to complete but we don't expect that the revenue numbers of them amounts that we've discussed here today would be impacted..

Great. Just want to clarify that and Frank, Gerald can you just walk me through, I mean I appreciate that China is obviously shut down.

So in looking at that 4% to 5% I mean I just want to clarify if that's what you would have guided to regardless of the ongoing situation in China or I mean are you building some conservatism into that number already i.e.

would have looked more like 5% to 6% without China, I'm just sort of guess, I just sort of wanted sort of walk through in terms of how you are thinking about sort of the rebound and going like that, I'm just that's basically that's where the bulk of our again coming questions are coming from investors..

Yes, I know so that's a really good question and with the COVID-19 crisis in China pending that you tend to be more conservative but let me also clarify that we're not building in the effect that might have because it's not estimable.

It may color our sentiment a little bit because obviously this will lead to a weak start in China in Q1 and we don't know for how long that will continue.

Hopefully primarily or just Q1 but we don't know and I think there's the other factors that we've also cited that semi will still be very weak in Q1 and then begin to get healthier later in the year and that the industrial markets are assumed to be similar to the second half of the year which wasn't that strong that also led to the fact that we're guiding a little bit below, at least at the beginning of this year a little bit below our long medium-term goals but we've also confirmed our medium-term goals today which obviously is an average growth rate.

So that's those are the puts and takes if you like..

Great. Thank you very much..

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

Hey this is Chris on for Dough. Thanks for taking my questions. Could you talk about the transient government-funded tenders for high-end instruments in China? Just seems like there has been continued delays and funding release even excluding the Corona virus situation.

Have you seen that and do you expect that to impact revenue for 2020?.

We have not seen that Chris. So we in fact we had very good bookings for high-end NMR and mass specs in the fourth quarter before there was any talk about the Corona virus pandemic or whatever it's called now. So high end systems orders for us in Q4 in China were very good..

Okay. And then in terms of, it appears that if we exclude that three ultra high field systems in 2019, the rest of the NMR business where the instrument business was flat to down last year.

Is that right? And if so can you just provide a bit more detail in to manage trends for NMR systems below one gigahertz? What's impacting growth in that market?.

We don't think about our business like that. Our business -- our BioSpin business does include ultra-high field system. It all which has so we think of that it's fully part of an organic growth and so I just don't decline to speculate picking things as our core organic business out of BioSpin. .

Okay and maybe for my last question could you give us an update on North America demand? I think 2019 was a solid year of growth and NIH funding for 2020 continues to be really strong.

So what are you assuming for North America growth?.

Yes. I don't think we spent a specific assumption for North America growth but I think I agree with all the statements that you've made and so for life science research we think the U.S. is basically moderately healthy or healthy. And we expect good academic funding on nonprofit funding in the U.S. to continue as it has in the last couple of years.

I'm going a little slow here because I only have a specific North America guidance as far as I know. We don't give geographic guidance right. I think we give some outlook by group but not by geography..

But I would say we did perform well through mid single digits in North America historically through 2019 and we assume that the markets will remain relatively healthy in North America..

Awesome. Thank you..

Our next question from Dan Leonard from Wells Fargo Securities. Please go with your question..

Thank you.

So first off on BSI bookings in the fourth quarter could you offer specific color on bookings trends in that period? Were they flat? Were they down a little bit year-on-year?.

I think they were, Miroslava jump in please..

Low single digits in the fourth quarter for BSI..

It is impossible to quantify the magnitude of change you saw on bookings for the semiconductor and industrial markets?.

Well, they were softer for the industrial research markets for sure. I don't think that we would venture to quantify for any single quarter because as you know for Bruker single quarter rarely makes a trend but once we have more data then we might be more inclined to give you such numbers..

And then maybe last one. I know you said semi was down double digits in 2019.

Is it possible to be more specific and offer a range there and maybe comment on what's implied in the 2020 guide for the semiconductor customer base?.

The semi was actually up last year but due to acquisitions and organically it was down in the double digits sort of in the 20% range for the year and more steeply in Q4..

In the thought around 2020 expectations? I mean I got questions from people who are trying to isolate some of the --.

Exactly. Well we're doing the same thing. So we expect semi to be very weak in Q1 of 2020 and we expect a gradual recovery of our semi business later in the year..

Okay. I can work with that. Thank you..

Our next question comes from Sung Ji Nam from BTIG. Please go ahead with your question..

Hi thanks for taking the questions. Just a couple of clarification questions. Frank, I think you mentioned that there was some impact on margins from incremental investments in project Accelerate.

Would you be able to break out what that impact may have been for the quarter well for the year?.

Sung Ji, good question, no we're not in a position to break that out but from organically and from some of the acquisitions that contribute to project Accelerate we kind of solve for the operating margin improvement every year and as we had some and so that allowed us in 2019 to accelerate expense investment in R&D but also in certain marketing and sales functions with a focus on project Accelerate initiatives.

In fact all the most project accelerate initiatives not only the ones that performed well. Overall, in the aggregate all project Accelerate initiatives in the aggregate again performed very well last year.

And I think we're on a good track there even though of course it was uneven with semi down and proteomics and NMR up in microbiology but yes and we continue -- we also even with our 70% to 90% operating margin expansion guidance for 2020 which doesn't have any big help baked in from currency in 2020 we again hope to deliver on our targets but that also includes quite a bit of and continued strong investments in our project Accelerate initiatives but no we do not wish to break those out specifically.

Hope for your understanding there..

Sure. Thanks for that and then just quickly on for Gerald, in terms of the audit committee investigation the first, the tax rates for the first three quarters of the year as well as EPS numbers should not be effective.

Is that correct?.

Well, at this point it's again I'll just repeat we're in the early stages unless I can't comment specifically on those particular. I can tell you that we as you can see we've excluded from our presentation today that the tax rate, EPS, cash flow and balance sheet items..

Okay. Thank you. .

You are welcome..

Our next question comes from Patrick Donnelly from Citi. Please go ahead with your question. .

Great. Thanks. Frank maybe just one more on the China side. I'm just trying to feel out obviously you guys kind of talk about some sales loss in 1Q.

Can you just help us think about the equipment verse kind of consumables the service split over there? Is it similar to the corporate breakdown overall and given that you guys tend to be a little more instrument heavy – I think you have a higher likelihood of kind of recapturing some of the sales throughout the year but maybe just help us think about process there as well..

Yes. Another really good question compared to Bruker's average there is a little bit less aftermarket business in China than let's say in the Americas or in Europe. So the percentage is a little lower in China compared to Bruker's averages which you're familiar with.

I don't know how the Corona virus crisis plays itself out for consumables companies or primarily consumables and aftermarket companies. It probably has a different dynamics. Yes, we do believe that we may be able to catch up with orders that we have. I mean we have some orders for semiconductor that we were supposed to deliver to Wuhan in Q1.

We have assumed that's not going to happen. They will ready to ship and hopefully go into these facilities in Q2 but so it's a little bit fluid. It's harder to see. We have a chance to catch up.

We may see some incremental orders from our multi Biotyper which does not -- cannot be used for Corona virus or flu identification but of course with the healthcare crisis you have to rule out other for instance bacterial infections. So there's some interest and potential funding for that in China.

So it's a very fluid situation and indeed, yes we for once being an instrument companies is perhaps where you want to be to have a chance to catch up and a better chance to catch up and second of all not having factories in China or major outsourcing partners at least it may this look like not much of an event or no discernible event so far in our supply chain and ability to deliver and run our factories and final test sites around the world.

So it's really a commercial disruption in China us being unable to market, sell, install, deliver, install service..

That's really helpful and then just staying on the aftermarket side in a longer term at the analyst today you talked about high single digit growth there.

Is that the right way to think about it for 2020 and then one of the key initiatives there, I mean you guys continuing to close the gap with peers how should we think about 2020 on that front?.

2019 was a little slower and aftermarket and as now also software gets added to that that has so far not had up that's still in the seed phase but it's beginning to get some traction. I think we'll get some growth from that as well in 2020. So a little bit more software sales.

We now have rolled out a lot of the initiatives to really very actively drive after market revenue to every single one of our divisions. We had some like BioSpin that spearheaded that early on.

So with a very focused effort to drive this everywhere including new types of services and programs we are optimistic that after market in 2020 and also into the next few years will continue to be an important and above corporate average growth and margin driver for Bruker..

Thanks. .

Our next question comes from Dan Brennan from UBS. Please go ahead with your question. .

This is John Sourbeer on for Dan.

Just in particular can you walk through what timsTOF did in 2019 in terms of placements and revenues and could you remind us the size of this opportunity? And how has the launch gone versus expectations?.

Yes. John we have disclosed that since launch we have now placed or sold more than 100 systems we've placed a few more that are being evaluated or that hopefully turning into purchase order soon. So we've sold more than 100 since its launch which was in late ‘17.

this is the majority of those were sold in ‘19 with ‘18 being the beginning of the ramp up and so the ramp up is looking, it's looking very solid. there's a lot of interest in this new and differentiated technology. The $500 million LC mass spec based proteomics market that's a narrow definition.

There's some broader definitions out there that include other tools and technologies approach in analysis, we think has many, many growth drivers over the next decade.

So we actually think the proteomics field will do really-really well and probably it's not the time to go through all the growth drivers, although we've discussed them at other times in more detail. We think that market could double over the next several years which would be good for all participants.

So as we ramp up probably continue to gain some of them market share there from a small initial small position and in as we play in some very healthy market here we're quite optimistic that timsTOF also continue and 40 proteomics and metabolomics will continue to perform well in 2020 and beyond..

Thanks for the color and just digging into get semi metrology, kind of walking into the key market factors that are pressuring this business and what is visibility do you have for these markets turning and given the reposition of your portfolio towards a more secular growth area is there a way to the deemphasize the semi business so that the cyclical influence in your business is reduced?.

Well, so yes I know as I said we expect the still a weak Q1 20 like Q4, 19 which was also weak. We have some visibility into the middle of the year to which looks healthier and then generally the industry trends that we're seeing also from other larger companies that are focused on that industry have been generally healthier.

So we are, we believe later in the year 2020 semi will stop being a headwind and perhaps gradually begin some recovery and obviously we're feeling the pain of semi metrology for instance in Q4 but we're also looking forward to getting some of the benefits of being in this more cyclical business. Overall, it contributing 5% to 6% of our revenue.

We're comfortable with that and it's a very high incremental margin business when it does well and goes into a rapid growth phase. So that's our perspective on that..

Thanks for taking my questions..

Our next question comes from Steve Unger from Needham & Company. Please go ahead with your question..

Hi thanks, good morning.

Is it possible to get a mix of the revenue from China in the first quarter of ‘19?.

Steve China in 2019 was about 16% of revenues. We can't give you by quarter but typically it runs around that rate..

And we don't and typically provide color around the individual mix within a geography including China..

Understood, but that's helpful and then as far as the outlook, could you provide an outlook for BEST for 2020?.

Yes. BEST with very nice backlog and sort of its long-term future really nicely secured and good ability to plan for the medium and longer-term. We are expecting to see a low single-digit growth, organic growth at BEST and we're looking for BEST to provide very meaningful margin improvement in 2020 as well as in the next couple of years beyond 2020.

So that's the outlook for BEST..

Got it and then I just have one more as far as it looks like you're planning to launch the XCD product and I am just wondering that's my impression that's a larger purchase price and what are the, is it a longer installation period similar to like the gigahertz systems?.

Somewhat it's a little different but there's some similarities and then it's also a little different in the semi industry the very concentrated, very well-known, very large customers for this type of metrology equipment they very often tend to evaluate a new technology in-house for a period of time with literally a zero dollar loan purchase order and if you then perform well this can turn them into revenue.

We hope to make further progress. We have some of these systems out there in customer sites for evaluation. We have not built in a steep adoption of XCD for this year. Let's see how these evaluations go and let's see how the recovery works out but XCD could become an important growth driver in 2021 and beyond growth and margin driver..

Great. Thank you..

Our next question comes from Steve Beuchaw with Wolfe Research. Please go ahead with your question..

Hi, thanks. One longer-term question for Frank and then one shorter term question for Gerald.

Frank now that you have some real-world experience putting ultra high field systems north of 1.0 gigahertz systems in the field you have a little bit of customer evaluation validation rather that you can think about how are you thinking about ultra high field and the cadence of what it can mean at the revenue line over time? Certainly really encouraging the three to four in the outlook for 2020 including the 1.2.

If I think about my notes from years ago it was given how significant and operational lift is to install one of these systems, it was not sure that we can ever ship five, six, seven, in any given year as you've seen the operations evolved is there a case or that three to four to go higher over time? It would be interesting what you think about that now that you have more validation and then I have one for Gerald.

.

Yes, Steve, indeed. We hope to be ramping that up to higher unit numbers in 2021 and beyond and we were making some further final test site investments for that part of our CapEx in Switzerland in this particular case and we hope to have higher unit numbers in 2021 already..

Okay, I really appreciate the certainty there..

And over time we expect, over time, not in 2021 yet but over time this may very well become a $75 million to $100 million unique market segment for Bruker. It is just very important for disease research and for fundamental cell biology research.

So we're optimistic that that the science and the need for these tools while they're unique and they're expensive is really very very compelling..

All right. And then, so I would certainly agree Gerald that estimating at this point the impact of the corona virus impact on the China businesses this year or even for the quarter is certainly very difficult because we just don't know how things are going to evolve.

But I wonder if as you take a look back at what you thus far through the course of the last several weeks in China, if you could give us any sense on let's say per week of disruption basis and where is the China business relative to plan? Is it 5% below plan on Ex-corona virus basis? Is it 30%? how big on a per week basis has that impact been on the China business to the top line.

Thanks a lot..

So I guess I can't be quite that specific but I would say is what we've already commented on which is just that we have seen significant disruption in our ability to function normally in China. I can't tell you whether that's higher or lower than where our plan was but fundamentally it's a challenge at the moment for some of our operations in China..

Yes, I mean initially there was sort of the view that may be beyond the Chinese New Year's break people would maybe spend another ten to two weeks mostly away from work and I think for most of our customers and most of our teams this has now been extended to three to four weeks and it's also just not clear yet how quickly or how gradually China will then eventually in outside of the Wuhan Bay Province return to normal..

Okay..

We are literally looking at this week by week but it is compared to what we saw perhaps three weeks ago the recovery is maybe not totally unexpectedly but it is more much slower than had been predicted by the media two or three weeks ago which perhaps have been more optimistic that yes after two weeks everybody's back at work on Monday February 10th and that's not the case..

Okay. We'll keep our fingers crossed. Thanks so much..

Yes..

Our next question comes from Dan Arias from Stifel, please go ahead with your question..

Yes. Hi, guys. Thank for getting me in here. Frank can you just spend the next few minute talking about the project Accelerate items that you expect to be 2020 ramp products. If I look at your slide it sounds like SpatialOMx applications and some Sepsityper assays and then some software items are the ones that have the 2020 step up year.

You mentioned Sepsityper budget help you get add some color there and if maybe you'd be willing to talk about those in contribute?.

Well, and keep in mind that things that started in 2019 they're continuing to ramp up as well and then there's some examples of that 4D proteomics, fluorescence microscopy but yes 1.2 gigahertz is hopefully we'll see one of one or two 1.2 gigahertz systems in revenue this year. So that's new.

SpatialOMx primarily focused on the timsTOF fleX which also does tissue imaging primarily of metabolites or lipids to give additional contrast and information to pathology or tissue researchers who then may wish to extract from the heterogeneous tissue for instance in cancer research selected areas or cell for focused OMx experiments on these subpopulations something that has begun a little bit in ‘19 with a launch and there's clearly a lot of interest in SpatialOMx.

Indeed the substitute for fast ID from positive blood cultures we believe we are finished. We have finished our U.S. clinical trials for that and we have submitted this to the U.S.

FDA and we're hopeful that in the first half of this of 2020 we may get clearance for that in which case we think there is a lot of demand and also decent reimbursement for that.

Fast identification from positive blood cultures within literally an hour or two the experiment takes much longer, much sorry I misspoke much shorter, is incredibly valuable for infectious disease physicians who can assess whether the broad broadband antibiotics that they generally prescribe for everyone with a suspicion of sepsis are given their particular hospital setting might be most appropriate or perhaps likely inappropriate.

So based on that people will -- infectious disease doctors may change the therapy approaches which could shorten ICU times and may likely provide improvements in outcomes.

So that's an important one and indeed we have now seeded our scientific software expansion and that we think that's beginning to make a growth and margin contributions perhaps starting in 2020.

So these are not hard cutoff on our roadmap they give you a bit of a qualitative feel for what additional drivers begin to kick in but remember the things that kicked in ‘19 and ‘18 they're probably ramping up into the overall growth. They may make a bigger difference than the new things that begin to make a difference in any given year.

That's how this roadmap was constructed to give you to maybe assist everyone in understanding the timing, the drivers and the timing of our project Accelerate initiatives..

Yes. Now I understand you there. Thanks.

Okay and then if I could just ask the second one are you able to share bookings growth numbers for overall 2019 versus 2018 if you just look at the two segments of the business just trying to put the guide in the context of what you're expecting when you look at new orders entering the new year for BSI and BEST separately?.

So we gave you the bookings number for BSI which was mid-single digits for the full year 2019, low single-digit in the fourth quarter. Bookings for BEST were up strongly for the year.

BEST added about $700 million or north of that to bookings into their backlog and that is a function of new long-term agreements that were signed with primarily three major MRI customers.

So that's the bookings number you will see the backlog number that you will see in the 10-K disclosure when that comes out will reflect a big increase in the BEST bookings number that happened in 2019..

Okay. Thanks Mira..

And qualitatively and that's not going to be a surprise is that the general the industry markets applied in industrial in particular are weaker in 2019 than in 2018 whereas most of our projects accelerate initiatives are seeing above corporate average growth..

Operator our next question please..

Our next question comes from Tycho Peterson from JPMorgan. Please go ahead with your question..

Hey thanks. Frank I want to follow up on that last question much of the narrative around the company has been about accelerating growth. Now you're kind of guiding 4% to 5% and not including Corona.

Coming off a quarter where you had low single-digit growth and BSI bookings as you just talked about how do we get comfortable that bookings are going to pick up over the course of the year to get you to that midpoint of guidance?.

We are thinking that our bookings trends and backlog provide a reasonable basis and as well as our pipeline provide a reasonable basis for the guidance that we have given. The organic growth guidance happens to be exactly the same organic growth guidance with which we started the year 2019. We did well in 2019.

Yes, we see some additional headwinds and we cannot estimate the Corona virus impact and whether that especially on the full year and whether we as an instruments company can substantially catch up from undoubtedly a weak start in China in Q1. So I hope that addressed most of the elements of your question..

And then a follow up on margins, I guess the comfort level in the 70-90 basis points a margin expansion coming off a quarter where you didn't have margin expansion on an 8.4% top line how much of the recovery and margins in your view is that recovery and industrial and semi in the back half of the year versus are there operational steps you can highlight that you're taking to maybe drive some of the margin expansion?.

Yes, it's very broad-based. It doesn't include really any accretion or assumed accretion from at least nothing meaningful from acquisitions or from currency.

So it's really focused on a broad-based operational improvements from volume, from cost containment, from cost actions all the levers that we tend to pull in making sure we once again deliver hopefully within our guidance of 79 to 100 bits of margin improvement that's what we tend to solve for Tyco as we've said many times we deliver, we hope to deliver and plan on delivering that type of margin expansion and if and when we can then we also continue to invest in our priorities which are often of course project accelerated related.

We are pretty confident that the slight weakness in margins in Q4 is not a new trend or something like that and of course overall our gross margin and operating margin improvement last year was solid, although a little bit better on the gross margin on the operating margin side because both with the new acquisitions and project accelerated initiatives have had mate of deliberate choices to invest forward for profitable growth in those areas..

Now I would just add that there's clearly some benefit on the mix side relative to our operating margin expansion as we continue to deliver well as you already heard relative to project Accelerate initiatives that pulls that overall margin performance up.

The fourth quarter as we've mentioned a number of times already was really a drag down from our NANO, semi and industrial research market performance. So I think that's not as Frank said a trend and our expectation is that we'll move back to our continued operating margin expansion at this 70 to 90 basis points level..

And just one last one Gerald are you able to do the buy back if you're assessing a whistleblower complaint or is that should we assume that's on hold for the time being?.

We will certainly continue to be in a blackout period until we report final results..

Next question please..

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

Hi guys. It's Josh on for Steve. Appreciate you squeezing me in.

Just a couple quick ones for you, one I wonder did outlook in semi softened versus what you were previously assuming and then two, just wonder if you could provide kind of how you're thinking about the contribution from the timsTOF system going into 2020 for example you've said a hundred systems installed like today I wonder do you think the kind of an annual run rate in 2020 could be 100 systems plus?.

So semi we had predicted that Q4 would be weak and it had a little bit more of a margin impact that we had anticipated. We're predicting that semi will be very weak in Q1 of 2020.

Some of that indeed does already have to do with a shift, some deliveries to Wuhan that we had planned for Q1 in our assuming will not happen in Q1 but we're planning them for Q2 with some visibility for midyear recovery and then hopefully longer-term recovery as that whole sector seems to be recovering.

Josh to your second question timsTOF Pro so the greater than 100 units was over a essentially over two year period right and with a majority of them being delivered and sold in ‘19 however and we have we expect, I'll just say we expect continued double-digit growth in our proteomics business in 2020 and beyond..

Great. I appreciate it..

And our next question is a follow-up from Derik DeBruin from Bank of America. Please go ahead with your follow-up..

Hey sorry Gerald just a couple of quick housekeeping questions. FX impact for the top-line in 2020 and residual acquisitions in 2020..

Marginal impact actually baked into 2020. We don't expect to see any significant change there..

Both very small..

Yes..

Both of those -- small..

Yes..

Okay. Thank you..

You are welcome..

Ladies and gentlemen at this time I am showing no additional questions. I'd like to turn the conference call back over to management for any closing remarks..

Thank you for joining us on the short notice today to discuss Bruker's preliminary fourth-quarter and fiscal year 2019 operating results. We look forward to updating you on our complete financial results for the fourth quarter and fiscal year. Thank you and have a nice day..

Ladies and gentlemen that does conclude today's conference call. We thank you for joining today's presentation. You may now disconnect your lines..