Bruker Corporation

Good afternoon and welcome to the Brewker's second quarter 2020 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Miroslava Minkova, Director of Investor Relations and Corporate Development. Ma'am, please go ahead.

Good afternoon. I would like to welcome everyone to Burkhard's second quarter 2020 earnings conference call. My name is Miroslava Minkova, Director of Investor Relations and Corporate Development. Joining me on today's call are Frank Laukien, our President and CEO, and Gerald Herman, our Chief Financial Officer. In addition to the earnings release we issued earlier today, during today's conference call, we'll be referencing a slide presentation. The PDF of this presentation can be downloaded from the latest results section on Brooker'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 available in our earnings release and are posted on our website at ir.brooker.com. Before we begin, I would like to reference Brooker's safe harbor statement, which is shown on slide 2. during the course of this conference call will make forward-looking statements regarding future events and the financial and operational performance of the company that involve risks and uncertainties, including new risks and uncertainties related to COVID-19 and the COVID-19 pandemic. The company's actual results may differ materially from projections or scenario estimates described in past statements. Factors that might cause such differences include, but are not limited to, those discussed in today's earnings release and in our Form 10-K and subsequent Form 10-Q filings, all of 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, August 3rd, 2020. 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 third quarter 2020 financial results expected in early November 2020. Therefore, you should not rely on these forward-looking statements as representing our views or outlook as of any date subsequent to today. We'll begin today's call with Frank providing a business summary. Gerald will then cover the financials for the second quarter 2020 in more detail. Now, I would like to turn the call over to Bruker's CEO, Frank Laukien.

Thank you, Miroslava. Good afternoon, everyone, and thank you for joining us on today's call. I hope you and your families are well. These are challenging times as we all manage through a global pandemic that has upended economies and daily lives. At Bruker, as you can see on our slide three, we remain focused on our key priorities, Number one, the health and safety of our employees, customers, and partners. Number two, maintaining service levels for our customers. Number three, carefully managing our cost structure while continuing to invest in important long-term project accelerate and operational excellence initiatives. And number four, delivering enabling research and diagnostic products that support essential priorities of our society and help fight the pandemic. I am very proud of how our leadership team and our 7,000 employees worldwide have delivered. Our organization has continued to support our customers globally with exemplary dedication while adhering to appropriate health and safety protocols. Over the last few months, we have supported various initiatives aiming to understand The characteristics of the SARS-CoV-2 virus and of the COVID-19 disease. For example, we are supporting the COVID-19 NMR Initiative, which is a consortium of 140 scientists in 30 research groups across 15 countries who are working to determine the DNA and protein structures of the SARS-CoV-2 virus in order to investigate the drug ability of such structures with pharmaceutical inhibitors. Between late March and the end of June, we continuously rent our Bruker Hein deliveries of nucleic acid extraction kits and of COVID-19 PCR test kits to customers in Europe and Africa. In Q2 2020, we reached 7 million in COVID-19 related testing revenues. These revenues came from the sale of liquid handling robots from about half a million nucleic acid extraction kits and about a quarter million COVID-19 PCR assays in the second quarter of 2020. We intend to ramp this further in the second half of 2020 and into 2021, and we are presently evaluating additional COVID-19 related tests for our assay portfolio. Just last week, we announced our second-generation CE-IVD-marked fluorotype SARS-CoV-2 plus PCR test for the detection of COVID-19. The new test targets two independent genes on the SARS-CoV-2 genome, while at the same time differentiating the SARS-CoV-2 virus from four common human coronaviruses. The test is available on our novel Bruker Heim Glurocycler XT real-time PCR system as well as on other commonly available thermocyclers. From an operational standpoint by now all of our major manufacturing sites have returned to the new normal operations with expanding capacity and productivity levels and we are currently not facing any Bruker factory disruptions anymore as we did in April and into May at certain sites affected by full or partial site closures. Several of our European factories continue to use the short-time work approach to reduce their capacities and cost structures during reduced demand. Generally, our teams have done an excellent job in managing our costs and objects in the second quarter, which is why our second quarter non-GAAP operating margin has improved sequentially by 390 bids compared to the first quarter of 2020 despite similar revenues. Financially, our second quarter 2020 revenues declined less than the minus 15 to minus 25% year-over-year revenue decline scenarios that we outlined during our last earnings call. We also mitigated The negative impacts of the pandemic on our profitability and cash flow through successful cost control and cost reduction measures while continuing to invest in our key dual strategic priorities of project accelerate and operational excellence. Exiting the second quarter 2020, Brooker maintains a healthy balance sheet and we believe Brooker is well positioned for sequentially improving business conditions in the second half I now go to slide 5, where we show the financial highlights for the second quarter of 2020. Brokers Q2 2020 revenues declined 13.4% year-over-year to $425 million. Acquisitions added 0.4% to revenue growth, while foreign currency translation was a headwind of 1.1%. On an organic basis, Brooker's second quarter 2020 revenues declined 12.7% year over year, and the reported and organic revenue declines primarily reflect COVID-19 related disruptions to our customers and certain of our operations, along with software instrument demand by academic, industrial, and applied customers due to the pandemic. Our second quarter 2020 non-GAAP gross margin decreased 440 bps year-over-year to 45.1%, while our non-GAAP operating margin declined 350 bps year-over-year to 11.5%. The margin decline reflects primarily lower revenues and reduced productivity due to disruption from the pandemic, partially offset by cost control and reduction measurements, as Gerald will discuss. Two of 2020, Bruker reported GAAP diluted EPS of 16 cents per share compared to 23 cents in the second quarter of 2019. On a non-GAAP basis, second quarter 2020 EPS of 21 cents compared to 33 cents in the second quarter of 2019. On slide six, we show Bruker's performance for the first half of 2020. Our revenues decreased by $103 million year-over-year or by 10.8% to $849 million. On an organic basis, revenues declined 10.3% year-over-year in the first half, comprised of a 10.5% organic decline in the scientific instruments business and an 8.5% organic decline at best net of interest company eliminations. Acquisitions added 0.6% to our top line while foreign exchange was a 1.1% Edwin. First half 2020 order bookings for Brooker's three scientific instrument groups declined in the mid to high single digits organically. In our Q1 2020 earnings call, we shared our expectation that order bookings would soften during the second quarter due to customer closures and disruptions from the pandemic, and this was indeed the case. However, our BSI book-to-bill ratio of approximately 1.1 for the first half of 2020 implies the order rate held better than the first half 2020 revenue declines would suggest. Towards the end of the second quarter, academic laboratories began gradually, began to reopen gradually, and this continues, and a process that continues albeit with reduced capacities compared to pre-pandemic levels. The operations of our industrial and applied customers also continue to normalize, although with a more uncertain spending outlook. Biopharma markets and order rates remained robust while the semiconductor metrology markets have continued to rebound. Our life science mass spectrometry and infectious disease diagnostics businesses are growing. Although the environment remains challenging, we continue to anticipate gradual sequential improvements in business conditions as we move into the back half of the year compared to the first half of 2020. Our first half 2020 non-GAAP gross margin decreased 330 basis points compared to the first half of 2019, while non-GAAP operating margins declined 470 basis points year-over-year. We were able to partially offset the impact of the lower revenue and reduce productivity on our operating margin by controlling and reducing expenses. On a GAAP basis, broker EPS of 22 cents in the first half of 2020 compared to 43 cents in the first half of 2019. Our first half 2020 non-GAAP EPS of 35 cents compared to 61 cents in the first half of 2019. All right, please turn to slide seven and eight now, where I provide further highlights on the first half 2020 performance of our three scientific instruments group and of our BEX segment, all on a constant currency basis and in comparison to the first half of 2019. First half 2020 BioSpin group revenue declined low double digits to 246 million. The revenue decline at BioSpin was due to COVID-related customer lab closures and installation delays, as well as the temporary closure of one of BioSpin's manufacturing sites. We have since reopened that site, while BioSpin's academic customers have been gradually returning to their labs, and international tenders in applied and clinical markets are resuming. of 2020, BioSpin received customer acceptance for the world's first 1.2 gigahertz NMR system, which was successfully installed at the CIRM of the University of Florence in Italy. This was a remarkable achievement, capping a decade of R&D into groundbreaking 1.2 gigahertz materials and magnet technology. As we indicated on our Q1 conference call, during Q2 of 2020, We recognize revenue on just the NMR console and probes for this particular Italian 1.2 GHz system, while the Florence Magnet is subject to a multi-year lease contract. During the first half of the year 2020, BioSpin's NMR and PCI systems revenue declined significantly year over year due to delivery and installation delays caused primarily by customer disruptions. BioSpin's aftermarket revenue held steady year-over-year, with software revenues higher, although off a low base. Moving on to the CALID group, the first half of 2020 CALID group revenues declined low single digits to $273 million. The modest decline at CALID reflects a significant revenue decline in molecular spectroscopy compared to the first half of 2019, which was partially offset by continued growth in our Daltonics Life Science Mass Spectrometry, Microbiology, and Infectious Disease Diagnostics business. Kallitz Microbiology and Infectious Disease Consumables, which include our multi-biotyper consumables and Bruker Hein nucleic acid extraction and COVID-19 PCR assays, grew significantly year over year. In Life Science Mass Spectrometry, our Tims Toft Proteomics business saw continued growth despite the challenging business conditions for instruments and customer site installation delays. Revenues for our FTIR, Nirai, Raman molecular spectroscopy products declined substantially year over year due to COVID-19 related disruptions to customer operations, lower demand, and a temporary factory slowdown. Please turn to slide eight now. Brooker Nano revenues were down mid-teens year-over-year to $246 million in the first half of 2020. The decline in Nano revenues was due to worldwide academic customer closures due to the pandemic, weaker industrial markets demand, and temporary factory closures at some of Nano's businesses, which also were reopened by the end of May. Nanos X-ray, nanosurface, and nanoanalysis tools all declined compared to the first 2019 due to academic customer closures and significantly slower industrial research demand. Semiconductor metrology revenue for the nano group held steady year over year, with order rates improving as semi-metrology equipment markets appear to be in a rebound. Finally, best revenue in the first half of 2020 declined high single digits, net of intercompany eliminations due to weakening superconductor demand by MRI companies and government research lab disruptions from COVID-19. So, despite the challenges created by COVID-19, Bruker continues its track record of meaningful innovation, which we believe will position the company well for recovery as global market conditions improve. Turning to slide nine, during the recent ASMS Reboot virtual conference in early June, I believe we were the clear innovation leader as we introduced instrument and workflow innovations for our flagship TIMSTOFT mass spectrometry platform for high throughput, high sensitivity spatialomics, discovery proteomics, and targeted proteomics. Our TIMSTOFT platform actually maintained a healthy double digit year-over-year order growth rate even during the difficult first half of 2020. If you take a quick look at slide number nine, you will see at ASMS we had a very major innovation with a MALDI-2 source that is really taking, is a next generation MALDI source that provides one to two orders of magnitude increase in sensitivity for many small molecules and lipids. And it greatly increases the applications range of MALDI mass spectrometry and MALDI mass spectrometry imaging. Both of them very important to our business. In parallel, in 4D proteomics and also 4D metabolomics, for that matter, on our GIMSTOP platform, we introduced targeted so-called PRM passive methods, high throughput, short gradient, diapassive methods. We did a lot of work on fly constellation analysis, which is very important for viral antigens. whether you're developing SARS-CoV-2 vaccines or serology assays, you need antigens with a proper glycosylation patterns. And that's another area where the TeamSTOCK platform excels. Moreover, taking this really this fourth dimension that we keep mentioning in 4D proteomics, we've shown and some of our collaborators have shown the use of very large-scale accurate collision cross-sections using the iMobility spectrometry capabilities of our TIM system that are completely unique and that moreover in addition to measuring tens and hundreds of thousands of collision cross-sections routinely and at scale also allow excellent machine learning and prediction. So it's really changing the way proteomics is done Fundamentally, it's allowing about an order of magnitude more information content and peak capacity, which is tremendously important for the future of high-throughput and in-depth proteomics. We also introduced together with a partner company the run-and-done IP2 GPU 40 proteomics analysis software, something that has previously not been done and, again, addresses the bottleneck in high-throughput proteomics. If you go to slide 10, as we've said already earlier, we are pleased to announce the customer acceptance of a second 1.2 GHz NMR system at the Eichgenössische Technische Hochschule, or ETH, in Zurich, Switzerland, which was in July, and that revenue, therefore, is anticipated for Q3. It was not in Q2. We continue to ramp our GHz class production and testing capacity at our Swiss Biospin We've already shipped an additional system to the Max Planck Institute in Germany. And so our Gigahertz and Gigahertz Plus business is really running very nicely, and we're very, very pleased with how this has gone so far this year. Moreover, as I mentioned earlier, and you'll be seeing more news of that in future weeks, NMR is really quite important in COVID-19 research. I had mentioned earlier the International COVID-19 NMR Consortium with the website being given here on slide 10, which is very important for functional structural biology and for studying how pharmaceutical inhibitor binding can bind to the SARS-CoV-2 RNA or proteins. Moreover, we're making very good progress in our collaboration with Murdoch University and the Australian National Phenome Center in Perth, Western Australia, in studying what will soon be called, in my opinion, the post-COVID-19 syndrome that comes after the active infection, whether it's asymptomatic or with severe symptoms. And we are using some very unique NMR and mass spec combined plasma Metabolomics Methods to study the long-term effects, which are really quite considerable, even for patients who barely had any symptoms or had very mild symptoms. So, if you like, that will be, in some ways, the third wave of post-COVID-19 syndrome effects that we're only beginning to see now. This is the other sixth, seventh of the iceberg that has not emerged yet, and I believe NMR and MassVac with metabolomics will play a very important role as a screening tool for this next focus of our COVID pandemic health concerns. Anyway, let me conclude by reiterating that Bruker remains fundamentally healthy and we continue to invest in our key project, Accelerate, and operational priorities that we believe will position the company well for the future. While we anticipate that the pandemic will continue to negatively impact Our third quarter financial results year over year. We expect sequential improvements in our financial performance from the second quarter to the third quarter of 2020, provided, of course, that the present second wave increase in infections can be contained. With that, let me now turn the call over to our CFO, Gerald Herman, who will review our Q2 and first half 2020 financial performance in more detail. Gerald.