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Edited Transcript of BRKR earnings conference call or presentation 11-Feb-19 9:30pm GMT

Q4 2018 Bruker Corp Earnings Call

BILLERICA Feb 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Bruker Corp earnings conference call or presentation Monday, February 11, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Frank H. Laukien

Bruker Corporation - Chairman, CEO & President

* Gerald N. Herman

Bruker Corporation - CFO, VP & Corporate Controller

* Miroslava Minkova

Bruker Corporation - Director of IR & Corporate Development

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Conference Call Participants

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* Brandon Couillard

Jefferies LLC, Research Division - Equity Analyst

* Daniel Anthony Arias

Citigroup Inc, Research Division - VP and Senior Analyst

* Daniel Gregory Brennan

UBS Investment Bank, Research Division - Senior Equity Research Analyst of Healthcare Life Sciences

* Daniel Louis Leonard

Deutsche Bank AG, Research Division - Research Analyst

* Doug Schenkel

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* Jack Meehan

Barclays Bank PLC, Research Division - VP & Senior Research Analyst

* Luke England Sergott

Evercore ISI Institutional Equities, Research Division - Associate

* Patrick B. Donnelly

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Puneet Souda

SVB Leerink LLC, Research Division - Director of Life Science Tools & Diagnostics & Research Analyst

* Sung Ji Nam

BTIG, LLC, Research Division - Director

* Tycho W. Peterson

JP Morgan Chase & Co, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Good day, everyone, and welcome to the Bruker Corporation Q4 2018 Earnings Conference Call. (Operator Instructions) And please note that today's event is being recorded.

And I would now like to turn the conference over to Miroslava Minkova, Director of Investor Relations and Corporate Development. Please go ahead.

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Miroslava Minkova, Bruker Corporation - Director of IR & Corporate Development [2]

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Good afternoon. I would like to welcome everyone to Bruker's Fourth Quarter and Fiscal Year 2018 Earnings Conference Call. My name is Miroslava Minkova, and I'm the Director of Investor Relations and Corporate Development for Bruker. 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 Latest 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 and are posted on our website at ir.bruker.com.

Before we begin, I would like to reference Bruker's safe harbor statement, which I show on Slide 2. During the course of today's conference call, we will make forward-looking statements regarding future events or the financial and operational performance of the company that involve risks and uncertainties. The company's actual results may differ materially from the projections described in such statements. Factors that might cause such differences include, but are not limited to, those described in today's earnings release and in our Form 10-K as well as in subsequent SEC 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, February 11, 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 first quarter 2019 financial results in May of 2019. 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 fourth quarter and fiscal year 2018 in more detail.

Now I would like to turn the call over to Bruker's CEO, Frank Laukien. Frank?

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [3]

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Thank you, Miroslava, and good afternoon, everyone. Thank you for joining us on today's call. Bruker delivered another good quarter with continued revenue growth and solid margin improvements. During the fourth quarter, our organic revenue growth was 3.4%. As expected, Q4 organic revenue growth in our Bruker Scientific Instruments or BSI segment was plus 2.1% year-over-year, and it was subdued following a strong Q3 2018 when our teams focused on derisking our full year 2018 results. Our Bruker Energy & Supercon Technologies or BEST segment's organic revenue growth net of intercompany eliminations had a nice uptick and came in at plus 17.6% year-over-year in the fourth quarter of 2018.

In Q4 of 2018, we again delivered solid growth and operating margin expansion. For the fiscal year 2018, Bruker's organic revenue growth was plus 4.3%, slightly above the high end of our recently raised full year 2018 revenue guidance range. As anticipated, BSI organic revenue growth accelerated to plus 4.7% year-over-year from plus 2.7% growth in fiscal year 2017.

We ended the year 2018 with solid non-GAAP operating margin expansion of plus 90 bps year-over-year and excellent non-GAAP EPS growth of plus 16% year-over-year. Overall, our teams executed very well, and we believe they have positioned Bruker for further improvements in organic revenue growth and margins in fiscal year or full year 2019.

During the fourth quarter, progress continued on our Project Accelerate high-growth, high-margin initiatives. We launched important next-generation fluorescence microscopy products for our neuroscience and cell biology initiatives. We also closed 3 strategically focused acquisitions or majority investments. This included the previously announced 80% majority investment -- in majority interest acquisition of Hain Diagnostics as well as the more recently announced Alicona Imaging acquisition and the majority interest investment in scientific software company, Mestrelab. These investments add further growth drivers to each of our 3 groups and are also expected to contribute to the improving operating margin profiles of the groups over time.

Turning to specifics on Slide 4. In the fourth quarter of 2018, Bruker's revenue increased 4.4% year-over-year to $553.6 million. On an organic basis, revenue increased 3.4% year-over-year, including 2.1% growth at our Scientific Instruments segment and a 17.6% increase at BEST, net of intercompany eliminations.

During the fourth quarter, our acquisitions added 3.2% to year-over-year revenue growth, while foreign currency translation was a drag or a headwind of minus 2.2%. Our Q4 '18 non-GAAP gross margin increased 90 bps year-over-year, while our non-GAAP operating margin improved 100 bps year-over-year, continuing the trends from earlier this year, with volume leverage and benefits from product mix.

In Q4 '18, Bruker reported GAAP diluted EPS of $0.50 per share compared to a net loss of minus $0.02 in Q4 of 2017. On a non-GAAP basis, Q4 '18 EPS of $0.54 increased 6% compared to $0.51 in Q4 of 2017. Gerald will provide further details later on the call.

Moving on to Slide 5. I show Bruker's performance for the full year of 2018. Our revenues increased 7.3% year-over-year to $1,896,000,000, and we ended 2018 with organic growth of 4.3%, including 4.7% organic revenue growth in the Scientific Instruments segment, a notable step-up from fiscal year 2017 as I had noted earlier. BEST delivered 0.9% organic growth in fiscal year '18, slightly better than what we had expected. Acquisitions added 1.6% to our top line, while foreign currency added 1.4%.

End-market conditions and order bookings for Bruker's academic, pharma, applied microbiology and industrial research markets remained favorable in the fourth quarter as they had been throughout 2018. During the fourth quarter and then the back half of the year, we continued to experience a weak capital spending environment in our semiconductor metrology business, which is about 5% of Bruker's overall revenue. Nonetheless, overall bookings for our Scientific Instruments portfolio remained quite healthy. We finished 2018 with mid- to high-single-digits organic order growth in our BSI segment, which also included solid bookings in the fourth quarter. Order growth in 2018 was driven most significantly by the CALID and NANO groups and by our North America and China businesses. We believe these order trends position us well for 2019.

Our fiscal year 2018 non-GAAP gross margin increased 70 basis points compared to 2017, while our non-GAAP operating margin rose 90 basis points despite a strong foreign currency headwind of minus 60 bps for the full year, which, by the way, we faced primarily in the first half of 2018. On a GAAP basis, Bruker reported EPS of $1.14 in 2018 compared to $0.49 in 2017. In 2018, our non-GAAP EPS of $1.40 increased 16% compared to $1.21 in 2017. Our non-GAAP EBITDA was $347 million in fiscal year '18 compared to $307 million in fiscal year '17, a 13% year-over-year increase. We also had strong cash generation during 2018, with free cash flow rising to $191 million, while return on invested capital, or ROIC, a key metric for Bruker, remained well north of 20%.

Please turn to Slides 6 and 7 now where I provide further highlights on the fiscal year '18 performance of our 3 Scientific Instruments groups and of our BEST segment, in all cases, on a constant currency basis and year-over-year. 2018 BioSpin Group revenue increased in the low single digits to $591 million. BioSpin had good growth in their biopharma, clinical and applied markets as well as in the aftermarket business, which more than offset more subdued results in the academic and government markets. We believe BioSpin is positioned for improved performance in 2019 given the progress it has made in pharma, applied and aftermarket growth areas and now also technically with our GigaHertz-class NMR pipeline.

In 2018, BioSpin's NMR systems revenue was up modestly compared to 2017, while our applied and clinical phenomics solutions continued to perform strongly. During 2018, BioSpin did not record any GigaHertz systems revenue. In 2019, we currently anticipate at least one 1.0 GigaHertz system to turn into revenue in the second quarter or later as we shipped 2 systems late in the fourth quarter of 2018, but they tend to have lengthy installations.

Within BioSpin, our preclinical imaging or PCI revenue was comparable to the prior year. After BioSpin aftermarket and service revenue for NMR and PCI increased in the high single digits.

Moving on to our CALID Group. They reported strong performance in 2018, with 2018 revenues up in the high single digits to $548 million. Within CALID, growth was driven by our mass spectrometry and FTIR and NIR molecular spectroscopy businesses as well as contributions from our Microbiology & Diagnostics business and acquisitions. Daltonics mass spec revenues increased significantly in 2018, with strong organic performance in both our Microbiology and Life Science Mass Spectrometry portfolios. Over the course of 2018, we clearly saw the benefits of our Life Science Mass Spectrometry portfolio transformation, with strong performance in our QTOF portfolio.

The early customer feedback on our timsTOF Pro system for proteomics has been encouraging, and we expect meaningful revenue contributions from timsTOF Pro in 2019. Our Microbiology & Diagnostics business had strong results in 2018, with both instruments and consumables and services up significantly. The Bruker-Hain acquisition, which closed -- or majority acquisition in -- which closed in mid-October, added to constant currency revenue growth as well. Exiting 2018, our Microbiology & Diagnostics franchise, one of our 5 product areas within Project Accelerate, exceeded the $150 million in revenue per year mark.

Our CALID FTIR/NIR, Raman Optics products had strong results in 2018 as well, driven by product innovation, consistent execution and healthy end markets. On the other hand, CALID's Detection revenue 2018 was sharply lower compared to 2017. As a result, we had to start a restructuring program of our Detection business to rightsize and consolidate it with CALID's Optics business. By mid-2019, we anticipate this should result in one CALID factory less in Germany and a staff reduction of about 45.

Looking out to 2019. Given our new product cadence and recent transformation, we're quite optimistic about the sustained growth trajectory of our CALID Group.

Moving on to Slide 7 now. Bruker NANO reported high-single-digit revenue growth, with revenues of $568 million in 2018. NANO's results in 2018 were driven by solid academic markets and strong industrial research demand for advanced x-ray and NANO materials analysis products. The NANO results also included contributions from 2 -- from acquisitions during 2018, primarily Anasys and JPK, completed in April and July 2018 respectively. In mid-December, NANO closed the Alicona Imaging acquisition, a provider of optical metrology products for lab and production applications, which will begin to contribute to the group's results in 2019.

Within NANO, AXS revenue was up strongly in 2018, fueled by strong demand for advanced x-ray products in both industrial, materials research and academic government markets. Our Nano Surfaces and Nano Analysis revenues were -- also increased in 2018, with good organic growth supplemented by the acquisitions mentioned earlier. NANO semiconductor metrology revenues declined relative to 2017 due to the slowdown in semiconductor capital equipment markets. Given our lineup of technology buys for 2019, which we believe are less susceptible to overall semi-capital spending trends, we are actually cautiously optimistic that Bruker's semi business can stabilize and improve in the second half of 2019.

In 2018, revenue from semiconductor metrology markets contributed about 5% of Bruker's overall revenue.

So last, but not least, BEST in 2018 was up modestly over 2017 as a pickup in superconductor demand in the back half of the year and the timing of some Big Science projects offset the declines we saw in the first half. As a reminder, our BEST superconductor and Big Science revenues can fluctuate from quarter to quarter. And in Q4 '18, BEST revenue was up sharply.

On Slide 8, I briefly review our Project Accelerate portfolio transformation initiatives. In 2018, the 6 initiatives within Project Accelerate in total grew at a low double-digit pace, now comprising low- to mid-40s percentage of Bruker's total annual revenue. The 5 product initiatives, excluding aftermarket, were in the high-20s percentage of Bruker's overall revenue. From a revenue growth standpoint, the highest contributors in 2018 were our Biopharma & Applied, Microbiology & Diagnostics and aftermarket initiatives, which all grew very nicely in 2018.

In 2018, we also made progress advancing our proteomics and phenomics initiative with the rollout of timsTOF Pro and the gradual uptake of NMR phenomics. We reached technical milestones for our GigaHertz and above-structural biology NMR pipeline, shipping 2 1-gigaHertz magnet slate in Q4 and building the world's first hybrid high-temperature superconducting 1.1-gigahertz NMR magnet, which is at our factory.

Our NANO Group launched important next-generation fluorescence microscopy products for our neuroscience and cell biology initiative, which I will discuss a little bit more in a moment.

Last, but not least, we added future growth drivers to our successful microbiologies franchise by acquiring a majority in Bruker-Hain Diagnostics, which is primarily an assay and consumables business.

So for 2019, we are optimistic that the revenue growth outlook for our accelerate portfolio will have additional growth drivers kicking in, specifically the timsTOF Pro in proteomics, GigaHertz-class NMR for structural biology and our next-generation fluorescence microscopy portfolio for neuroscience and cell biology.

Turning to neuroscience and cell biology on Slide 9 for a moment because we typically discuss that a little bit less with our investors. We show 3 rather important new products, which were all introduced in the fourth quarter of 2018 and which we expect to drive growth starting by middle of 2019. As a reminder, the neuroscience and cell biology microscopy initiative involves next-generation multiphoton super-resolution and light-sheet fluorescence microscopy systems that enable brain research and high-resolution live-cell imaging research.

Bruker recently introduced novel FMs, fluorescence microscopy products, that drive step-function performance improvements, including our next-generation 2-photon -- 2P+ multiphoton microscope as well as the first-ever tailorable lattice light-sheet microscope and a light-sheet clearing module for neuroscience research applications. We're quite excited about these launches and expect them to contribute to Project Accelerate by mid-2019.

On Slide 10, we just summarize for you and show how Bruker completed 8 strategically focused acquisitions in 2018, deploying over $190 million of capital. Our acquisitions are designed to support our high-growth areas under Project Accelerate, strengthen our core business and continue to improve our operating margin mix. In 2019, we expect these acquisitions in total will contribute approximately 4% to our top line growth and will be accretive to our non-GAAP EPS.

Turning to Slide 11. We show Bruker's key objectives for the next 5 years through 2023 with our dual strategy of transforming our portfolio via Project Accelerate and driving operational excellence in our core business. We expect to continue to gradually accelerate our organic revenue growth rate and drive sustainable multiyear margin expansion while maintaining our disciplined capital deployment and greater than 20% ROIC.

For 2019, we expect further gradual organic revenue growth acceleration to a range between 4% and 5% or 8% to 9% on a constant currency basis and continued non-GAAP operating margin expansion of 70 to 100 basis points year-over-year. We are very pleased in how our organization has delivered on our core objectives in 2018, and we look forward to updating you on continued progress in 2019.

On that note, let me now turn the call over to our CFO, Gerald Herman, who will review our Q4 and fiscal year '18 performance in more detail and provide further color on our outlook for fiscal year 2019. Gerald?

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Gerald N. Herman, Bruker Corporation - CFO, VP & Corporate Controller [4]

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Thank you, Frank. I'm pleased to join you today and review Bruker's fourth quarter and full year 2018 financial highlights, starting on Slide 13. As you saw in our press release, Bruker's reported revenue increased 4.4% to $553.6 million in the fourth quarter of 2018, which reflects organic growth of approximately 3.4%. We reported GAAP EPS of $0.50 per share compared to a GAAP EPS loss of $0.02 in the fourth quarter of 2017, which included onetime charges related to U.S. tax reform.

On a non-GAAP basis, Q4 2018 EPS was $0.54 per share, an increase of 6% from $0.51 in Q4 2017, including a negative effect from a higher year-over-year non-GAAP tax rate. Our Q4 2018 non-GAAP operating income increased 9%, while non-GAAP operating margin of 22.2% improved 100 basis points year-over-year. This improvement was principally driven by volume leverage and favorable mix, partially offset by some dilution from acquisitions.

We generated free cash flow of $112 million in Q4 2018 compared to $91.3 million in the fourth quarter of 2017, with higher net income improving cash flow generation. As of December 31, 2018, we were in a modest net debt position as we deployed cash over the course of the year for acquisitions, dividends and the repayment of borrowings under our revolver in the first quarter of 2018. We ended Q4 2018 with somewhat higher working capital balances, reflecting our revenue growth, the timing of inventory purchases and shipping activity and our recent acquisitions. Overall, our working capital to revenue ratio was unchanged versus the prior year.

Slide 14 shows the revenue bridge for Q4 2018. As noted earlier, organic revenue growth in the quarter was 3.4%. We had a positive revenue contribution from acquisitions of 3.2%, primarily from our Hain, JPK and Anasys acquisitions, which was partially offset by a foreign currency headwind of 2.2%. From an organic revenue growth perspective, our Q4 2018 growth rate of 3.4% reflects low single-digit organic revenue growth at each of our BSI groups and 17.6% organic revenue growth net of intercompany eliminations in the BEST segment.

After strong Q3 2018 revenue growth, the softer 2.1% BSI organic revenue growth rate in the fourth quarter was expected as our teams in Q3 had focused on derisking our full year 2018 results.

Slide 15 shows our Q4 2018 non-GAAP results. Our Q4 2018 non-GAAP gross profit margin of 51% increased approximately 90 basis points from 50.1% in Q4 2017, driven principally by volume leverage and favorable product mix within our CALID and BioSpin groups. Q4 2018 operating expenses grew in line with our revenue growth after including expenses related to 3 acquisitions, Hain, Alicona and Mestrelab in the quarter. This resulted in Q4 2018 operating margin improvement of 100 basis points versus Q4 2017 on volume pull-through and favorable mix.

Looking below the line. Q4 2018 net interest and other expense of about $6 million was consistent with Q4 2017. For the fourth quarter of 2018, our non-GAAP effective tax rate was 27% compared to 24.5% in Q4 2017. The higher tax rate in Q4 2018 was primarily attributable to certain unfavorable discrete tax items in the quarter. Weighted average diluted shares outstanding in the fourth quarter were 157.4 million, up 0.5 million shares from Q4 2017 and essentially flat year-over-year.

Finally, Q4 2018 non-GAAP EPS of $0.54 increased approximately 6% year-over-year, driven by higher revenue and margins, partially offset by a higher year-over-year effective tax rate.

Slide 16 shows the year-over-year revenue bridge for the full year 2018. Full year 2018 revenue increased 7.3%, reflecting organic growth of 4.3%, the contribution from acquisitions of 1.6% and a foreign currency tailwind of 1.4%. Organic revenue in 2018 reflected 4.7% growth at BSI, led by the NANO and CALID groups and a 0.9% organic revenue gain at BEST, net of intercompany eliminations.

Geographically, and on an organic basis in 2018, Bruker's European revenue was modestly above the prior year, with low single-digit growth in the BSI segment. North American organic revenue was up low double digits. Asia Pacific revenue was up mid-single digits. China revenue was overall flat for the year and up low single digits in the BSI segment. However, China BSI order growth remained robust, both in the fiscal year as well as in the fourth quarter of 2018.

On Slide 17, our full year 2018 non-GAAP gross profit margin of 49% increased 70 basis points compared to full year 2017. Higher volume, favorable mix and operational improvements contributed to the increase, which was partially offset by unfavorable effects from foreign currency translation. Operating expenses in 2018 increased approximately 7% year-over-year, driven by the impact of acquisitions, unfavorable foreign currency translation earlier in the year and select investments.

On a non-GAAP basis, in full year 2018, we delivered an operating margin of 16.8%, a 90 basis point improvement from 2017. Significant volume leverage and operational improvements more than offset a 60 basis point negative impact from foreign currency translation, which occurred primarily in the first half of 2018.

In 2018, our non-GAAP tax rate landed at 26.1%, about 110 basis points unfavorable to 2017, principally driven by the discrete items noted earlier. And finally, non-GAAP EPS of $1.40 in 2018 grew approximately 16% relative to 2017, reflecting strong revenue growth and margin expansion in the year.

Turning to Slide 18. We generated approximately $191 million in free cash flow in 2018 compared to $111 million in 2017, an increase of $80 million. This increase was primarily driven by higher 2018 net income and an increase in customer advances, partially offset by a year-over-year uptick in capital expenditures. Our cash conversion cycle at the end of Q4 2018 of 194 days was about 6 days longer than at the end of Q4 2017 due to an increase in DSO attributable to late quarter shipments and revenue growth as well as an unfavorable impact from acquisitions completed in the fourth quarter of 2018.

Turning now to guidance for the full year 2019 on Slide 20. We expect Bruker's revenue in 2019 to increase approximately 6% to 7%. This includes organic revenue growth in a range between 4% and 5%, a contribution from acquisitions of approximately 4% and therefore, constant currency revenue growth of 8% to 9%. Finally, we expect a foreign currency translation revenue headwind of approximately 2% in full year 2019. Revenue from acquisitions includes our recent Q4 transactions with Hain, Alicona and Mestrelab as well as partial years of Anasys and JPK in organic revenue, both of which closed earlier in 2018. Our 2019 revenue outlook also assumes that at least one GigaHertz-class system turns into revenue in the second quarter or later in 2019. We expect our BSI segment will again lead the organic revenue growth, with approximately flat organic revenue in the BEST segment.

For 2019, we currently expect Bruker's non-GAAP operating margin to expand an additional 70 to 100 basis points from the 16.8% level achieved in 2018 to a full year 2019 range of 17.5% to 17.8%. We project our full year 2019 non-GAAP effective tax rate at about 25%. For fully diluted share count, we assume 157 million shares, similar to 2018. We also project capital expenditures of approximately $80 million. While this level of CapEx is above our usual run rate, we are funding several important initiatives that support further growth and productivity gains but do temporarily increase capital spending in 2019. These include investments in the Project 2020 BioSpin site consolidation in Germany and our new Penang, Malaysia final assembly and systems testing facility for the NANO Group as well as several other growth and productivity investments. We expect our capital expenditures to revert to a more typical run rate of approximately 3% of revenue in subsequent years.

Our updated foreign currency assumptions are listed on the slide. Adding it all up, we expect our 2019 non-GAAP EPS to be in a range between $1.54 to $1.58, representing growth of between 10% to 13% compared to 2018. As Frank mentioned earlier, this includes modest accretion from our recently completed acquisitions.

While we do not provide quarterly guidance, I would like to touch on quarterly phasing for the year. We anticipate a strong foreign exchange revenue headwind in Q1 2019 of approximately 5% compared to the full year foreign exchange revenue headwind assumption of 2% as well as initial dilution related to further integration of recent acquisitions. Implicit in our full year 2019 guidance is the expectation that our Q1 2019 non-GAAP operating margin and EPS will be comparable to Q1 2018, with non-GAAP operating margin expansion and EPS growth expected in Q2 2019 and thereafter. Also, as in other years, most of our profitability and cash flow is expected in the second half of the year.

To wrap up, Bruker delivered another strong financial performance in 2018, posting organic revenue growth of 4.3% and EPS growth of 16% over 2017 despite foreign exchange and tax headwinds. We're entering 2019 with good momentum in many of our businesses and expected to deliver another year of gradually accelerating organic revenue growth, solid operating margin gains and EPS growth in 2019. We look forward to updating you again on our Q1 2019 conference call in May.

And with that, I'd like to turn the call over to Miroslava to start the Q&A session. Thank you very much.

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Miroslava Minkova, Bruker Corporation - Director of IR & Corporate Development [5]

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Thank you, Gerald. Operator, we are ready to open the call to questions. (Operator Instructions)

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first questioner today will be Tycho Peterson with JPMorgan.

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Tycho W. Peterson, JP Morgan Chase & Co, Research Division - Senior Analyst [2]

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Frank, maybe I'll just start out with some of the new products, since new product contributions are kind of the key part of the story here. Can you just talk about what's embedded in guidance for '19 from some of these launches, timsTOF, the 1-gigaHertz NMR and the fluorescence microscopy?

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [3]

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Yes. We don't break out the details except, obviously, the GigaHertz, we identified that we expect at least one of these systems in 2019, revenue in Q2 or later. And what we basically tried to indicate with our road map is that we think that these products, for the first time, will have meaningful growth contributions in 2019. Of course, we had some revenue from them already in 2018, but I wouldn't call it needle-moving, and it's obviously just becoming a little bit more significant in 2019. But we don't give detailed unit numbers or dollar figures on these product groups. They will, in the aggregate, certainly be an additional growth driver that kicks in, in 2019, in addition to those that had already been driving our growth momentum in 2018.

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Tycho W. Peterson, JP Morgan Chase & Co, Research Division - Senior Analyst [4]

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All right. And then a follow-up on China. You had orders up 20% last year, but revenues were flat. Can you talk a little bit more about the demand environment and what you're expecting? And I think there was a comment also made about customers derisking, and I'm not sure if that was specific to China or if there was some bulk order. Anything you can call out there.

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [5]

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Yes. So no, China has -- as you know, for some historical and homemade reasons, we had slower or modest revenue growth only in 2018 in China. But our orders had really been quite strong and that's really -- that trend continued into the fourth quarter of 2018. So implicit in our guidance is that China will be a bigger growth driver for us in 2019 than it has been in 2018. And I think the derisking comment was that we, obviously, earlier in 2018, had been concerned about having such a back-end-loaded Q4. And so we were reasonably successful in derisking that a little bit with a stronger Q3. So that's more of a retroactive comment, if that's what you were referring to.

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Operator [6]

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And our next questioner today will be Doug Schenkel with Cowen.

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Doug Schenkel, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [7]

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Frank, organic revenue growth for full year '18 was ultimately 130 basis points better than your original guidance. Can you bridge the key drivers to this outperformance, specifically I'm thinking about things like how much of this was better-than-expected market conditions versus strong execution versus other factors? And then, I guess, building off of that, as we look ahead, you're expecting a slight improvement in core revenue growth, at least at the midpoint of 2019 organic revenue guidance. How much of this is a continuation of what you saw in '18 versus some other drivers?

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [8]

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Yes, Doug. So yes, we were pleased to grow a little faster than we had originally guided and then a little bit higher and faster than we had -- than our updated revenue growth guidance in '18. Certainly, the mass spec portfolio, Microbiology, Bruker AXS and selected other businesses were very, very nice drivers there. Their new product cadence, their product portfolio transformation, the new consumables coming out for Microbiology as well as decent market conditions altogether played a role in -- and maybe I would add that, actually, BEST, which we knew would be down or we expected to be down more steeply in 2018, ended up being much closer to flat. So actually, they did a little bit better compared to expectations, and I think those are sort of the highlights for 2018. Now to the second part of your question, for 2019, I think the growth drivers that we had last year are likely to continue. So very good biopharma -- we expect biopharma growth for NMR and mass spec. We applied -- expect continued applied market growth, NMR, our Optics products, Microbiology, and our broader microbiology and infectious disease diagnostics business is expected to be a good growth driver, although some of that is not organic yet, and our aftermarket business. So those trends, the good growth trends, we expect to continue. We expect, in addition, that to get some organic tailwinds from proteomics and the timsTOF Pro becoming needle-moving, whereas last year, it was rather de minimis. GigaHertz, we had none last year. We're obviously hopeful that we'll have at least one this year in the middle of the year or so. And also, our fluorescence microscopy portfolio for neuroscience and cell biology, a little bit less visible to The Street, had some very important product introductions. And so hopefully, by the middle of '19, they will also begin to move this up and be another growth driver for our -- for the company overall and within the Project Accelerate initiatives. So those are the things that I would highlight.

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Doug Schenkel, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [9]

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Okay. That's really helpful, Frank. And maybe, I guess, building off of the last comment of moving down the P&L. As you know, you're targeting 70 to 100 basis points in operating margin expansion in 2019. How much of that is gross margin versus other drivers? And relatedly, what are you embedding in there in terms of the impact of M&A and foreign exchange on margins?

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [10]

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I'll turn that to Gerald.

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Gerald N. Herman, Bruker Corporation - CFO, VP & Corporate Controller [11]

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Yes, so with respect to continuing margin expansion -- operating margin expansion, most of that's being driven by the gross margin line. And there I would just say that you've seen a pretty good volume pull-through from our overall results, both in Q3 and we see it -- or saw it again in the fourth quarter. We have pretty good mix going on across all the groups now, I think, from a product perspective, and that's also helping our overall operating margin performance. As Frank's already mentioned, the Project Accelerate initiatives, those also carry higher, more favorable operating margin profiles. But fundamentally, it's a mix story, I guess I would say, as well as volume leverage that's improving on an overall basis. As far as foreign exchange and acquisitions, I mean, I think our -- we've guided relative to the foreign exchange rate as being a bit of a headwind, above 2% on revenue and pretty much a modest impact on EPS relative to that end. And as it relates to -- not a lot really to say on the acquisition side other than we do have some accretion, as we noted earlier, on that.

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [12]

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Yes, I think maybe a very high-level comment, if I may follow up, is that most of the margin improvement in 2019 and probably in the foreseeable future, most of that will come from gross margin improvements. Under Project Accelerate, we're investing in some of our R&D and marketing and sales initiatives. We're also making some additional investments in some of the entities that we have acquired. So I think most of the margin improvement in '19 is pretty clearly coming -- going to come or we expect it to come from gross margin improvements.

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Operator [13]

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And the next questioner today will be Brandon Couillard with Jefferies.

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Brandon Couillard, Jefferies LLC, Research Division - Equity Analyst [14]

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Frank, at a high level, would love to get your views on sort of the European market. It's been a bit of a mixed bag in terms of the macro picture there. Just curious what you're seeing with the overall outlook, especially in the more industrial markets outside of sort of the semi areas, which you've already spoken to.

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [15]

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Yes, Brandon. So Europe, as we actually had expected, is settling into more of a low single-digit growth pattern. And yes, we're actually not overly concerned about Brexit, but of course, there could be short term, a month or 2, some disruptions there. But we don't think -- we've not really modeled anything into our full year guidance in Europe from that as a significant negative impact. So Europe is one of our slower-growing regions in 2019 as well. We expect most of the -- more of the growth to come from the Americas, North America, U.S. specifically, and China with continued decent growth from Japan. So Europe, more back in its traditional long-term growth pattern of low single digits. And the outside of semi, to become a little bit more specific, there isn't much semi business in Europe to begin with, so most of it is industrial, industrial research. It's in that low single-digit growth. So where we are growing, we're really growing from the strong secular trends from our Project Accelerate initiatives and from our product cadence. I think that allows us to grow somewhat faster than the European market perhaps, but it's still Europe is growing more slowly for us in our expectations in '19 than the Americas or China.

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Brandon Couillard, Jefferies LLC, Research Division - Equity Analyst [16]

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And then as a follow-up, given where the balance sheet is here right now, it's about a net cash-neutral position, you didn't buy back any stock in '18. Bruker's the only stock in tools that hasn't seen any multiple expansion the past 4, 5 years, and the stock is flat relative to where it was 12 months ago. There seems to be just some disconnect with the market and what your internal outlook is, which sounds much more upbeat. Just curious why the buyback doesn't seem to be a higher priority right now.

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [17]

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Yes, I mean, it is -- in our capital deployment, we first invest in the business. And then if there are any good acquisition opportunities, we go for those. We fund our dividend. And then we do like buybacks, and we have a continued authorization. But it was just a very significant M&A spending in the aggregate in 2018 including, in particular, in Q4, so with over $190 million deployed in M&A. But I don't disagree that we have some capacity and certainly some motivation and desire to use that, and so it is a good point. And last year we just primarily invested in -- we paid back some debt. That was also something Gerald had mentioned. We funded our dividend, of course. And then for us at least, more unusually high investments in M&A.

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Operator [18]

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And our next questioner today will be Dan Leonard with Deutsche Bank.

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Daniel Louis Leonard, Deutsche Bank AG, Research Division - Research Analyst [19]

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My first question, was hoping you could be a little bit more specific about your expectations for growth in China in 2019. You've been talking about strong bookings all year. Does that translate into double-digit growth in China in 2019 or something more modest than that?

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Gerald N. Herman, Bruker Corporation - CFO, VP & Corporate Controller [20]

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I'll take that one, Frank. Yes, it does translate into double-digit growth in China in 2019.

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Daniel Louis Leonard, Deutsche Bank AG, Research Division - Research Analyst [21]

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Okay. And then my follow-up, hoping, Frank, if you can characterize or frame a bit more for me the timsTOF Pro ramp. I'm actually surprised that you said that contribution in 2018 was de minimis because I thought you'd launched the product a couple years ago. We picked up some intel on it that there's adoption. So help me better understand how you expect it to ramp and what is the meaningful contribution look like?

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [22]

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Maybe de minimis was a little too strong. I mean, we had a few million of revenue, of course, mostly in the second half. So we launched it, if you recall, in September of '17. And then until -- it always takes half a year before it really starts to roll. So yes, we had a few million of revenue. I don't mean to minimize that completely, but I wouldn't call it needle-moving at all. And plus, of course, we have continued significant investments in software and applications development and in strengthening the field support teams. So the interest is really good, and we wanted to do it right rather than to do it fast. So I think all the early-access customer and key opinion leaders that have been working with the system really, by and large, or really across-the-board, I could almost say, are very pleased with it. So we expect this to become more somewhat meaningful to our revenues for the first time really in 2019. That's what was implied. It's the ramp's actually going -- the ramp and the adoption is going well. It is a well-accepted system, and it has just developed more and more capabilities as we launched and bring out more and more workflows and more and more software. It has a -- it's a long, long S-curve, and we're at the -- still at the very beginning of that, I would say.

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Operator [23]

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And our next questioner today will be Dan Arias of Citigroup.

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Daniel Anthony Arias, Citigroup Inc, Research Division - VP and Senior Analyst [24]

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Frank, maybe just following up on some of the points that you touched on. Can you just spend a second on what you're seeing in terms of spending or attitudes on spending if you just compare industrial to industrial research? It sounds like maybe you're starting to see a little bit more of a difference there if I understood your semiconductor comments right. So just curious if that's correct.

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [25]

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Well, we've always taken out the semicon piece. That's pretty identifiable. About 5% of our revenue goes into that. We knew that wouldn't be strong in '18, and that's how it played itself out. It may not deteriorate further for us, but it might be flat and maybe even with a little bit of recovery in the second half of '19 because we have some very new technologies that are really desirable by both in foundry and memory. So we expect that not to weaken further but possibly to recover in 2019. The rest of industrial and applied, I think the market conditions in 2018 have been really excellent and maybe outstanding. So baked into our guidance is that, that will likely slow down a little bit and get to a longer-term rate that's probably more sustainable than the very high rates in 2018. That's our general market anticipation. We actually haven't seen that yet in our data yet. Our Q4 bookings were really solid also in those areas. But just as I predicted in '17 that Europe wouldn't continue to grow at high single-digit rates and eventually it settled down, I would also expect that some of the overall market growth rates in 2018 will begin to cool off a little bit. I don't see any steep decline. I don't see any disruption. But I think like many other companies, we expect 2019 market growth, including applied and some industrial, nonsemicon markets, to be still positive but not as strong as in 2018 when it grew at rates that probably are not sustainable over multiple years.

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Daniel Anthony Arias, Citigroup Inc, Research Division - VP and Senior Analyst [26]

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Yes, that makes sense. Okay. And then maybe on the BioSpin business, can you just talk of the dynamics at the high end of the market there for NMR. It sounds like [beginning] in '19, you should be able to have a better year. I'm just curious if you think of a bolus of purchasing on the cryo-EM side is starting to be passed. And then maybe with respect to the GigaHertz system that was ordered in 4Q but isn't expected to be installed, is there a chance that, that gets placed in 2019 and you just want to be cautious? Or is the date of acceptance for the lab a 2020 date and so it's therefore not something that you have any other picture at all?

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [27]

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Okay. To both points then, so I think cryo-EM continues to do well. I would assume that its growth rates are -- have perhaps also perhaps peaked. But then again, that's not my business. We do see not only our ability to deliver some GigaHertz-class systems now, and I'll come back to that in a moment because you asked, but we also see more interest again in obtaining funding and in funding applications for ultrahigh field NMR that has to do a little bit because a lot of these institutions now have cryo-EM capabilities. So check, they've made that acquisition, although this is not saturated yet by any means. But in addition, we now have overcome these technical hurdles and milestones to a great extent to where it makes sense for also U.S. customers and also Asian customers to go and apply for ultrahigh field funding. So over the next few years, over multiple years, I expect there to be more interest in funding in applications and in funding ultrahigh field NMR. That won't lead to '19 revenue. That will be '20 and later. But I think generally, ultrahigh field NMR, which has suffered from the cryo-EM wallet share competition in the last few years, I think, is going to be -- see healthier funding trends in the years to come. And already I see indications of that in '19. Sorry to -- that's a long-winded answer to your specific question. Yes, we -- so for the 1 gigahertz, we're very hopeful and expect to have one of them in revenue. It won't be in Q1. It could be Q2 or Q3 more likely, but both are possible. And the 1.1 gigahertz, we don't know yet when we will ship that. There is nothing necessarily in the customer contract that we couldn't deliver that or anything like that. So we may deliver it in the second half of this year, but even in that case, there's a higher probability that would go into revenue, i.e., get accepted in 2020. So that's the nitty-gritty of that.

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Operator [28]

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And our next questioner today will be Puneet Souda with SVB Leerink.

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Puneet Souda, SVB Leerink LLC, Research Division - Director of Life Science Tools & Diagnostics & Research Analyst [29]

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Frank, just wanted to clarify these systems that were shipped. These were 2 1 gigahertz or 1 gigahertz and 1.1? And my second question was around just what gives you confidence in 1.1 and 1.2 now having brought these 2 systems at -- to field at the factory level and then having shipped them out to the customers and hopefully getting them to the field level at their labs?

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [30]

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Yes. So Puneet, yes, we shipped 2 times 1.0 gigahertz, and hopefully we'll get 1 accepted in Q2 or later. We have, at the factory, brought a 1.1 gigahertz to field. That's a technically important milestone because that, for the first time, is one of these hybrid systems that uses HTS or high-temperature superconductor inserts to get to those high fields. We have a customer for that, so perhaps we can get revenue for that in early 2020. The system looks good. It's stable. It has great protein NMR data. So it's really a very important technical milestone. I think there'll be a lot of publications and -- coming out and data being shown this year at ENC, for instance, or later and publications from many customers that now run first samples on that really novel capability in NMR albeit right now in our factory and therefore not revenue-effective yet. That's a significant milestone towards 1.2 gigahertz, but the proof is in the pudding, of course. So we still need to achieve, hopefully later this year, a technical milestone on 1.2 gigahertz where, as you know, we have more backlog, particularly in Europe. And if we achieve those milestones, then maybe 1.2 gigahertz could also begin to contribute then to our Project Accelerate growth story in 2020 and '21 and so on. So that's kind of how this all lines up.

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Puneet Souda, SVB Leerink LLC, Research Division - Director of Life Science Tools & Diagnostics & Research Analyst [31]

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Got it. Okay. And then was just hoping if you -- if your view has changed in terms of the DEA and the forensics market. We saw a competitor had a larger contract there. So just wanted to understand, from an NMR perspective, is that something meaningful and going forward into 2019 and 2020 on the smaller magnets?

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [32]

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I think there was a very specific customer case in the United States, DEA, as you mentioned. We're aware of that. They purchased NMRs from a competitor or have a multiyear plan to replace their older Varians. I think there were some other customer-specific. We certainly had a solution for them as well. But I think there are some -- even some scientists that formerly were with Varian that then made some scripting and tailored some things the way that one particular customer really liked it. So good for our competitor. It's -- I don't think there's any market trend, and we continue to be interested in forensics and applications like this in NMR elsewhere. But every once in a while, we obviously lose a case, and this was one example here.

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Puneet Souda, SVB Leerink LLC, Research Division - Director of Life Science Tools & Diagnostics & Research Analyst [33]

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And just quickly last one, if you could update us on scimaX, if there was any -- that was also launched with timsTOF. Any progress there on that product?

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [34]

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scimaX is doing well. It was actually launched later. It was launched in the summer of 2018, so about 9 months after timsTOF. And it's really well received including by pharma customers, including by conservative Japanese pharma customers. So we have -- we got a number of orders. We're satisfied with that. It didn't move the needle at all in 2018. So it'll begin -- it's obviously more of a niche market that will begin to make some -- give us some revenue and margins in 2019. And delightfully, it's going into quite a few labs that previously just wouldn't have touched magnetic resonance, mass spectrometry because of the need for a magnet and the previous need for cryogen refills. But this system, yes, it has a magnet, but you almost don't notice it and you never need to fill in cryogens, is really getting very good customer reception. So early orders look good. I think that could begin its gradual ramp-up in 2019. And very nice that -- normally, these systems just go to academic government accounts, and here maybe half of them or so, I don't have the exact numbers right now, into U.S., European and Japanese pharma accounts in terms of orders that will turn revenue into -- it will turn into revenue in 2019. It's also being adopted now into phenomics into a first -- into the Jeremy Nicholson lab in Perth, Western Australia, which will be a major new phenomics center where they're interested in using it for flow injection analysis, very high throughput phenomics where you use no chromatography at all but do very fast -- a few minutes cycle times and go through very large number of body fluid samples in that case. So there's an additional growth driver. I think that needs a lot of validation and software development in '19. But again, that could be a nice additional growth driver in phenomics for that scimaX system by 2020. And I probably spent too much time on that particular question, but it gives you the road map for scimaX.

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Operator [35]

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And our next questioner today will be Jack Meehan with Barclays.

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Jack Meehan, Barclays Bank PLC, Research Division - VP & Senior Research Analyst [36]

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I wanted to focus on CALID. First, I had a few questions on detection. Could you remind me what portion of CALID is related to detection? How did that perform in the fourth quarter? And then with the restructuring, is there any headwind embedded in the 2019 outlook?

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [37]

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Okay. So detection in 2018 was only around $30 million or so in revenue. We had, at some point, had bigger plans for it. But when they didn't materialize, we decided to restructure that consolidated factory by mid-2019 with another Bruker Optics factory in Germany actually. And no, we -- while it was a significant growth and margin drain in 2018, we expect 2019 not to be a story or much -- or a meaningful headwind in 2019 because of the decisive restructuring and cost actions that we are taking. So it hopefully will not create any negative headlines for us in '19. That's our present expectations, whereas in '18, it was a drag on the CALID Group.

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Jack Meehan, Barclays Bank PLC, Research Division - VP & Senior Research Analyst [38]

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Great. Then as a follow-up, could you give as an update on the commercialization plans now with Hain? And within the -- could you give us a breakdown of the 4% M&A contribution, how much you expect to come from that?

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [39]

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So I'll take the first part of that question then turn this over to -- the second part to Gerald. Hain, we're beginning to use their excellent European and also African channels for some of our consumables and assays in microbiology. And in addition, we're exploring into what countries we want to introduce them where they previously had not been active, such as Japan and China and also the United States. We will not approach this broadly, but where we think very selectively we have the best opportunities. Moreover, they have a nice new product cadence, which they will roll out in their existing, primarily, European and African markets in 2019 and beyond. And then maybe the second part of the question on the accretion from Hain, we could -- I could give that to Gerald.

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Gerald N. Herman, Bruker Corporation - CFO, VP & Corporate Controller [40]

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Yes, with respect to Hain, we previously indicated that our revenue accretion would be about $40 million on a year-over-year basis for that particular acquisition. And then in terms of accretion, I mean, we're not being specific for every acquisition relative to that. But generally, I would say we expect modest accretion from Hain as well as our other acquisitions.

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Miroslava Minkova, Bruker Corporation - Director of IR & Corporate Development [41]

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And the $40 million number is the full year number. It's a little bit less than that in the acquisition part of it because we had Hain in the fourth quarter already.

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Jack Meehan, Barclays Bank PLC, Research Division - VP & Senior Research Analyst [42]

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Got it. So I think M&A was about $80 million overall in the 2019 outlook. Could you just -- what the remainder beyond Hain, where we should be allocating that?

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Gerald N. Herman, Bruker Corporation - CFO, VP & Corporate Controller [43]

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We should go through that offline, I think. That's...

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Miroslava Minkova, Bruker Corporation - Director of IR & Corporate Development [44]

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Yes, there's a list of acquisitions, Jack. I'm happy to walk you through it. It's Alicona. It's JPK, Anasys, (inaudible), Mestrelab. So there's -- it's a list of acquisitions in there.

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [45]

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The second largest is Alicona because that was closed very late in 2018. So its full revenue will come in, in 2019, but we're happy to walk you through it offline perhaps. But the $80 million or about 2% of our revenue growth for 2019 is about -- that's correct. That's according to our guidance.

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Operator [46]

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And our next questioner today will be Sung Ji Nam with BTIG.

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Sung Ji Nam, BTIG, LLC, Research Division - Director [47]

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I just have one multipart question on the rapid Sepsityper. If I recall this correctly, I believe you launched this in Europe a little less than a year ago. Was wondering, Frank, if you might be able to comment how that's performing, if you're taking share potentially from the molecular ID competitors there. And then also, could you -- would you be able to comment on the timing for the U.S. regulatory clearance?

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [48]

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Right. That's correct. The rapid Sepsityper, which is an assay for fast identification using the MALDI Biotyper system from positive blood cultures, was introduced in April 2018 at the ECCMID microbiology conference in Europe. And we are slowly ramping that up in Europe. Changing the workflow in a hospital is a long sales cycle, and it takes relatively lengthy hospital-by-hospital evaluation of the value of changing their methods. So I would say it's not contributing significantly yet to our revenue. But as this is a consumable story and if you can convert their workflow, our long-term expectations for that are positive, but it's a slow ramp, just to set the expectation. We actually think that in terms of revenue potential, the U.S. will be higher because of the reimbursement situation being more favorable in the United States. And as you have indicated in your question, Sung Ji, we are pursuing FDA clinical trials at this point for the rapid Sepsityper, and we -- it would be a reasonable scenario if we could submit and maybe get FDA clearance before the end of this year. Of course, you can never predict how a regulator will act, but that's our hope that this will also begin to contribute in 2020. And we also continue to see a gradual pickup in Europe, but it is really not just a catalog sale. It's a hospital-by-hospital validation. If they then build it into their workflow because it is really beneficial, it is affordable, it has a great cost-benefit ratio, then over time, you can build a nice growing business, but it is not a fast ramp. It does -- not to -- to end a little bit more positively, it does help us sell MALDI Biotyper. So our MALDI Biotyper clinical market share is probably as strong as it's ever been. People want that capability, and they want to go with the right instrument platform to make sure that they're not locked out from that in the future.

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Operator [49]

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And our next questioner today will be Ross Muken with Evercore.

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Luke England Sergott, Evercore ISI Institutional Equities, Research Division - Associate [50]

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It's Luke on for Ross today. So I just kind of want to figure out the dynamics of the 2 1-gigahertz NMR placements. So if you guys shipped the 2, why wouldn't you expect to have those 2 instruments at your -- be embedded in your 2019 guidance?

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [51]

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Yes, we shipped them both in late Q4. They are leading-edge technology systems. They are systems that installations and acceptances at the customer site could -- still have carry risks. And so we did not want to rely and we cannot rely on both of those going into 2019 revenue. So we've put in at least one. It is possible that we could get 2 of these systems, the 2 that we shipped, into revenue in Q2, Q3 or later in the year even. But that really doesn't change our organic growth guidance of 4% to 5%. I mean, they are big-ticket items, but they're not so big. And if one of them drops in or drops out, we'll compensate for that with other systems revenue. So as excited as we are this is beginning to contribute, it's not going to make or break our guidance or -- it's all embedded into our organic growth guidance of 4% to 5% for the year.

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Luke England Sergott, Evercore ISI Institutional Equities, Research Division - Associate [52]

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That's really helpful. And then I guess just a quick cleanup on just given all the macro noise and Europe slowing down, China kind of more muted, obviously the U.S. government shutdown, did you guys see any pull-forwards given the different dynamics in those markets?

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [53]

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Not that we're aware of. The U.S. government closure and the one that we had already, I don't know whether there's another one coming, it adds up to us believing that we will have a bit of a subdued Q1, as Gerald pointed out earlier. But that's, again, in our full year guidance, so we just expect a somewhat slow start in Q1, and that's one of the many little factors that we cannot really readily quantitate in why we believe that Q1 will be maybe comparable to last year in EPS and margin and with relatively slow growth and that we really take off faster in Q2 and beyond of this year. We have not built into our guidance any massive macro disruption. We just don't see any sign of that so far at all in our Q4 data. And so we -- it gives everybody a little bit of pause and caution, but no, we have not modeled any major macro disruption as we don't have any real indications in our data.

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Operator [54]

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And our next questioner today will be Patrick Donnelly with Goldman Sachs.

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Patrick B. Donnelly, Goldman Sachs Group Inc., Research Division - Equity Analyst [55]

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Frank, maybe one for you. I know historically you've talked about 2018 and 2019 as a period where you're going to get to market growth, maybe even get above it at some point. Can you just help us frame what you guys think market growth is currently given peers have also accelerated, and then where you guys are in terms of achieving that goal, kind of getting there or maybe even above market growth?

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [56]

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Yes, I think in 2018 with 4.7% growth for our BSI segment and only 4.3% overall for Bruker but 4.7% BSI growth, I think we're in the range of where market growth is as market growth may have been in the 4% to 6% range is maybe our estimate for '18, maybe a little bit on the higher side of that in '18 because it was a good year. So there are some competitors that are growing faster, but I think we're getting there. And I think we will continue to gradually accelerate our organic revenue growth as is implied in our '19 guidance and in our optimism also for the years beyond that. While I would think that overall, the market growth will become just a little bit slower than the 2018 market growth rates that I don't think are sustainable over multiple years. So I think we're getting there.

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Patrick B. Donnelly, Goldman Sachs Group Inc., Research Division - Equity Analyst [57]

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That's helpful. And then maybe just one on the aftermarket revs, I know that's been a big focus for you guys internally. Nice to see that growth. Can you just help us think where we are in that process? I know the attach rate was a lot lower than what you guys wanted a few years ago and again, a big internal focus. So can you just talk through the initiatives there and where we stand?

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [58]

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Yes, in NMR, we're perhaps somewhere in the middle innings of moving up there. We started earlier in many of the other businesses. Mass spec or the optics business were actually -- these initiatives have started somewhat later. And then of course, without any innings because it's -- I think the consumables growth that we have in microbiology and now also primarily consumables Hain's business that, of course, we expect to continue rather steep ramp-ups for many years to come and with no end in sight because that's -- there's no -- it's not an attached rate per se. So that's -- I can't see into the future indefinitely, but I think for the next 3 to 5 years, we continue to believe that the aftermarket growth initiative for Bruker in the aggregate will continue to be one of these initiatives that grows organically faster than the corporate average. So probably in the high single digits for the next 3 to 5 years. And then in some areas, we may be in the later innings. But others that don't really have any innings, like microbiology and diagnostics, I hope that consumable growth as well as software growth, you'll see more and more of a scientific software strategy at Bruker, still very early days, that, that will continue to drive that general aftermarket consumables and software initiative. So that gives you a little bit of color.

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Operator [59]

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And our last questioner today will be Daniel Brennan with UBS.

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Daniel Gregory Brennan, UBS Investment Bank, Research Division - Senior Equity Research Analyst of Healthcare Life Sciences [60]

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Frank, I was hoping -- I know Gerald went over it early in the prepared remarks, but could you just break down again like how much Accelerate contributed in 2018 to total growth versus non-Accelerate? And when we think about '19, just kind of how does that break down [all of '19]?

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [61]

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I don't think we gave any very specific rates, but you may have heard and -- that our 5 product initiatives in 2018 are now in the high 20s of our revenue. That's obviously a nice pickup from even a year ago. And in the aggregate, all 6 growth initiatives, including the large aftermarket initiatives, are now in the low to mid-40s percent of our revenue. Moreover, we can say that in 2018, the organic revenue growth rates of all of the Project Accelerate initiatives has been higher -- meaningfully higher than our overall growth rate. And that's even though some of those, as you can see from that road map slide, are really only beginning to kick in, in 2019 and others really won't kick in until 2020. So the ones that are firing the cylinders, that are firing are firing strongly and I think, so to speak, more cylinders are coming online in '19 and even more in '20 and beyond. So I think -- and the margin profile is right as well. They do have higher margins, non-GAAP operating margins on average, and that's already the case even though we still have heavy investments in some of them. So I think we're -- I'm extremely pleased with our strategy. I think we're spot on. It is not the only part of the strategy. The operational excellence and continuous improvements and margin improvement and growth acceleration in our core businesses is also very important. These aren't legacy businesses. As exciting as Project Accelerate is, we're driving this in a very broad-based fashion to continue to make this a sustainable -- deliver sustainable, profitable growth acceleration with margin expansion. That was a long answer, I apologize.

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Daniel Gregory Brennan, UBS Investment Bank, Research Division - Senior Equity Research Analyst of Healthcare Life Sciences [62]

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No, no, no. That's fine. And then maybe just related to that, on the non-Accelerate side, are there opportunities for restructuring on that side? Obviously, you're focused on like stabilizing that business while growing the Accelerate areas. But how do we think about all the different businesses in kind of the non-Accelerate side and kind of what the opportunities are there?

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Frank H. Laukien, Bruker Corporation - Chairman, CEO & President [63]

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No, I think they're not -- no, I think many of them are doing better and better and are nicely picking up a little bit on their growth profiles or are having nice margin expansion. So I'm really very pleased with the one business that we weren't -- there's 2 businesses that we weren't pleased with in 2018. One was detection, and that was clearly a restructuring case. We're downgrading them from a division to a business area of another division. We're eliminating a factory and some headcount here. So that wasn't a huge division, but it's one where we took action and that should be fully evident by middle of '19. And then simply because BEST can fluctuate from year to year. It's had a terrific growth year on 2017. We thought we would shrink organically in the low single digits. It actually ended up being just about flat. So they did better than expected. So that's not a restructuring case. That's just simply -- that has different secular trends and different market trends. So after a very fast growth in '17, that had a -- ended up being about flat in 2018.

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Operator [64]

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And this will conclude our question-and-answer session. I would now like to turn the conference back over to Miroslava Minkova for any closing remarks.

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Miroslava Minkova, Bruker Corporation - Director of IR & Corporate Development [65]

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Thank you for joining us this evening. During the first quarter, Bruker will participate in the Leerink Healthcare Conference in New York City and the Cowen Health Care Conference in Boston. We invite you to meet us at these conferences or visit us at our headquarters in Billerica, Massachusetts. Thank you, and have a good evening.

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Operator [66]

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The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.