Bruker Corporation (BRKR) Q2 2013 Earnings Report, Transcript and Summary

Good afternoon, everyone, and welcome to Bruker's Second Quarter 2013 Earnings Conference Call. [Operator Instructions] Please also note today's event is being recorded. At this time, I would like turn the conference call over to Mr. Joshua Young, Vice President of Investor Relations. Sir, please go ahead.

Thank you, very much, Jamie. Good afternoon. I'd like to welcome everyone to Bruker's Second Quarter 2013 Earnings Conference Call. My name is Joshua Young, and I'm Vice President of Investor Relations for Bruker. Joining me on today's call are Frank Laukien, our President and CEO; and Charlie Wagner, Bruker's Executive Vice President and Chief Financial Officer. In addition to the earning's release we issued earlier today, we will also be referencing a slide presentation as part of today's conference call. The PDF of this presentation could be downloaded by clicking on Bruker's Investor Relations website or by accessing the file through our audio webcast player. During today's call, we will be highlighting non-GAAP financial information. A reconciliation of our GAAP to our non-GAAP financial statements is included in our earnings release and in our webcast presentation. Before we begin, I'd like to reference Bruker's Safe Harbor statement, which I show on Slide #2. During the course of this conference call, we will make forward-looking statements regarding future events or the financial performance of the company that involve risks and uncertainties. The company's actual results may differ materially from the projections described in such statements. Factors that might cause such differences include, but are not limited to, those discussed in today's earnings release and in our Form 10-K, as well as other subsequent SEC filings. Also note that the following information is related to current business conditions and our outlook as of today, July 31, 2013. Consistent with our prior practice, we do not intend to update our projections based on new information, future events or other reasons prior to the release of our third quarter 2013 financial results. We'll begin today's call with Frank providing a business summary of our Q2 2013 and year-to-date performance. Charlie will then cover our financials for the second quarter in more detail. Now, I would like to turn the call over to our CEO, Frank Laukien.

Thanks, Joshua. Good afternoon, everyone, and thank you for joining us on the call today. I am pleased to report that Bruker's business rebounded in Q2 2013, after a slow start to the year in Q1. We achieved good growth and year-over-year margin improvement in the second quarter, and we addressed many of the operational issues that held back our performance in Q1. While the second quarter 2013 numbers look improved on a standalone basis, it is important to look at our results on a year-to-date basis in order to average out some of the variability we saw in the first 2 quarters of this year. Despite some ups and downs, the good news is that after the first 6 months of 2013, we expect to deliver the full year guidance that we shared with you on May 2, 2013. Now, I'd like to continue our presentation on Slide #4. Bruker's revenues grew 8% year-over-year to $455 million in the second quarter of 2013. Adjusting for currency and the net impact of acquisitions and divestments -- divestitures, our year-over-year organic growth rate was 9.5% in Q2 of 2013. This is good growth in a relatively tough environment and represents a sharp recovery from the 1% year-over-year organic revenue decline we experienced in Q1 of 2013. During the second quarter of 2013, both the BioSpin and CALID groups posted materially higher revenues in Q2 than they did in Q1, and we addressed several of the operational issues that negatively affected our revenue performance in Q1. This enabled us to close the revenue gap we experienced after Q1, and get back on track for the year. From a market perspective, I would characterize the current environment as mixed. Both the geographic and end market trends we are seeing vary throughout the Bruker business portfolio. For example, while demand from academic customers was strong in some businesses, it is weaker in others. Similarly, we see mixed signals from our European customer base. Industrial customers are the 1 market segment where the tone is more consistent, but unfortunately, that tone is negative. Across most Bruker businesses, industrial demand was weak in Q2 of 2013, and noticeably weaker sequentially compared to Q1 of 2013. A positive development in the second quarter was that our operating spending was down, as both R&D and SG&A spending declined compared to Q2 of the previous year. This decrease is driven by decisions to reduce spending in certain division like CAM and BEST, but also as a result of lower discretionary spending response to the uncertain demand outlook. The rebound in our revenue growth, combined with lower spending, led to a non-GAAP operating margin in the second quarter of 2013 of 11.7%, well above the 7.8% we posted in Q2 of 2012. Keep in mind, however, that our results in this second quarter 2013 reflected a positive impact from $5.7 million of Rosatom license milestone revenue. As a result of these factors, our non-GAAP EPS of $0.18 in the second quarter of 2013 was up 50% compared to Q2 of last year. While we are pleased with our Q2 improvements, I would remind you that Q2 2012 was a weak quarter of profitability for Bruker, so the year-over-year comparison is somewhat favorable. Now, I'd like to spend a few minutes talking about our year-to-date, half-year results, which we show on Slide 5. After factoring in the big swings between Q1 and Q2, our reported revenues have grown by approximately 3% year-over-year in the first half of 2013. This includes organic revenue growth of 4.3%, which is slightly above our full year 2013 guidance of 3%. By looking at the year-to-date numbers, you get a more balanced picture of our performance at the midpoint of the year. From a profitability perspective, our non-GAAP first half 2013 operating margin was down 20 basis points compared to the first 6 months of last year. However, if you factor in the 100 basis point headwind we experienced from a weaker Japanese yen, we have generated underlying improvements in our operating profitability. I now turn to Slide 6 and 7 to make a few comments on the 3 BSI segment groups and our BEST segment. Here, I will focus my comments on the trends we saw in Q2 of 2013. Our Bruker CALID group posted solid overall growth in the second quarter and improved its operating performance compared to the first quarter. Leading this performance was our Optics division, which posted robust double-digit revenue growth. Bruker Optics substantially improved its production and order execution in the second quarter, and this resulted in better revenue and margin performance. While it is a smaller division of the CALID group, our Bruker Detection division delivered a good quarter with attractive margins. As you may know, the quarterly results of the Bruker Detection division can be rather lumpy. Our Chemical and Applied Markets division delivered results that were still somewhat below our expectations for the second quarter, but showed nice double-digit bookings growth. We have strengthened the senior management team of our Bruker CAM division considerably, and the new team is making changes that we believe will help CAM to improve its revenues and reduce its losses further in the second half of the year. Finally, our life science and clinical division saw a robust growth for the MALDI Biotyper product line, offset by relatively weak revenue in its other product lines. That being said, we are excited about the new product launches that we unveiled at industry conferences such as Pittcon, ECCMID and ASMS, so far this year and our life science order rates and momentum in this division have improved in Q2. I'd like to now turn to our Bruker BioSpin Group. BioSpin generated good revenue growth in Q2 2013 on both a sequential and year-over-year basis. The group reported another quarter of strong bookings, particularly also from North American academic customers. We are all also seeing bookings strength in the U.K., as well as in Japan, where customers are investing supplementary budget funds in higher-end NMR and MRI products, which plays to Bruker BioSpin's strengths. Our preclinical imaging division, which represents approximately 25% of the Bruker BioSpin Group's revenues, continues to post strong growth and is benefiting from new products launched or acquired in 2012. We have a broad product offering in these preclinical imaging markets and customers have been pleased with the breadth of our capabilities. Despite the strong growth in BioSpin, we remain focused on improving the profitability and working capital statistics in this group. In the second half of 2013, the most important milestones for BioSpin will be the continued implementation of our previously announced outsourcing and other operational excellence activities. On Slide 7, you will see that our Bruker MAT group, or BMAT, experienced a weak second quarter of 2013 as we see weaker demand from industrial customers in Asia and Europe and no significant pickup yet from semiconductor or microelectronics customers. Each of the divisions within the BMAT group reported flat or declining revenues in Q2 of 2013. On a positive note, the new Dimension FastScan AFM product that we launched last year are performing well, particularly in the data storage and life science markets. These products provide customers with a faster time to result, while providing greater flexibility around the sample size that they can scan with Atomic Force Microscopy. While we don't expect the BMAT performance to weaken from what we saw in Q2, we are also not expecting a quick rebound in its performance during the second half of 2013. We believe that revenues and bookings will sequentially grow from Q2, but that revenues will decline for BMAT for the full year compared to 2012. Now I'd like to turn to our Bruker Energy & Supercon Technologies, or BEST segment. The highlights for the second quarter 2013 for BEST was the $5.7 million license milestone revenue that we recognized in connection with the Rosatom contract which we had announced last year. As a reminder, we previously had generated $16.4 million in license milestone revenue from this contract in the third quarter of 2012. These licenses flow-through to our operating income at nearly 100%. As a result, Rosatom added nearly 110 basis points to our non-GAAP operating margin in Q2 2013. While nearly all of the license revenues from the Rosatom contract have now been recognized, we expect further revenue in 2014 associated with a final contract milestone. If we adjust for the impact of the Rosatom license in Q2 2013, BEST operating profitability would've still been up on a year-over-year basis due to lower operation -- OpEx, or operational spending. This is a clear improvement from the breakeven or slight operating losses at which BEST had operated over the past several years. With Slide #8, I want to summarize for you how important continued product and business innovation remains for our profitable growth strategy. Bruker already had strong product introductions in Q1 2013 at Pittcon, but Q2 was particularly significant this year for new product introductions, which are likely to be important drivers of our growth and margin improvement in 2014. While I will not speak to every point on this Slide 8, I believe you will see, overall, that we continue to invest into the further differentiation of our fast-growing MALDI Biotyper platform, which in April 2013 had reached more than 800 paid installations worldwide. Particularly exciting at this year's ECCMID conference in April were several work-in-progress presentation on using this MADLI Biotyper platform also for selected high-value antibiotic resistance testing assays, which are presently still for research-use only. Our NMR business introduced a major magnet innovation at ENC in April, offering optional magnets that obviate the need for liquid nitrogen or helium refills, while still achieving good NMR performance. Moreover, our unique DNP-NMR product line with significant academic placements, particularly in Europe in recent years, has now been expanded even further to an ultra-high field 527 gigahertz version, which opens up exciting research fields in biosolids, such as membrane proteins or protein aggregates implicated in neurodegenerative diseases, et cetera. Finally, our life science and clinical and CAM mass spectrometry divisions had a very strong showing at ASMS in June, setting new standards for ultra-high resolution, QTOF performance, unprecedented bottom-up protein ID capabilities, extreme resolution of greater than 10 million for complex mixture analysis, and adding very robust and sensitive quantitative LC triple-quad mass specs, now also for large molecule quantitation. Finally, I'd like to conclude my comments on Slide 9. Through the first 6 months of the year, Bruker has seen a combination of both positive and negative trends in our markets. As we look ahead, we expect that some of the strength that we saw in our BioSpin and CALID groups will continue into Q3 and Q4. This strength will help to offset the present weakness in our BMAT group due to softness in global industrial markets. Our priorities will continue to be on delivering product and business innovations, on carefully managing expenses, on driving organizational changes and on continuously executing our operational excellence initiatives. If we deliver on these objectives, I believe we will be well-positioned for profitable growth in 2014 and beyond. Finally, although our strong second quarter helped to smooth out our trajectory for the full year, we continue to believe that 2013 will be back-end loaded, with most of our EPS and operating profitability expected in the fourth quarter. While we are pleased that our business rebounded in the second quarter, we are cognizant of the risks posed by the uncertain market environment and we recognize that significant work remains in the second half of the year to deliver on our guidance and operational objectives. With that, I'd like to turn the call over to our CFO, Charlie Wagner.

Thanks, Frank. I'll now provide some additional details on Q2 and our 2013 year-to-date performance before providing our financial outlook for 2013. On Slide 11, I show a snapshot of our Q2 2013 non-GAAP performance. Total revenues grew 8% from the second quarter of 2002 -- 2012 excuse me, totaling $454.9 million. Our non-GAAP operating income grew 62% in the quarter, as non-GAAP operating margin expanded to 11.7% in the second quarter of 2013 compared to 7.8% in the second quarter of 2012. Our non-GAAP EPS was $0.18 in Q2 2013, representing a 50% growth from our EPS in the year ago quarter. Finally, we had negative free cash flow of $23 million compared to positive free cash flow of $18 million in Q2 2012. Turning to Slide 12, I show the revenue bridge for the second quarter. We generated organic revenue growth of 9.5% in the second quarter. Excluding the Rosatom license revenues, organic revenue growth would've been approximately 8.1% in Q2 2013. The negative impact from changes in foreign exchange rates was 0.8% in the quarter with the largest driver being the weaker Japanese yen. On Slide 13, we show our Q2 2013 non-GAAP operating results in more detail. Our Q2 2013 non-GAAP gross margin of 45.4% is a decrease of 90 basis points on a year-over-year basis. Approximately 60 basis points of this decline is related to the impact of the Japanese yen. Our SG&A and R&D spending were well-controlled in Q2 and declined substantially compared to Q2 of 2012. The lower spending is the result of decisions to reduce spending in certain divisions like CAM, BEST and even BioSpin. In addition, all BMAT businesses have begun to cut spending in response to the weaker demand outlook in that group. Also, keep in mind that operating expenses in Q2 2012 were particularly high, so the year-over-year comparison is relatively easier. They're not shown on the slide, non-GAAP interest and other expense was $9 million in the quarter. This amount is substantially higher than the $3 million recorded in Q2 2012, primarily as a result of higher foreign exchange losses in the current quarter. These losses primarily related to currencies such as the Australian dollar and the Brazilian real, which moved down significantly at the end of the quarter. Our non-GAAP earnings per share in Q2 2013 were $0.18, a 50% increase over EPS of $0.12 in Q2 2012. The Q2 2013 earnings reflect a non-GAAP tax rate of 31%, which is above our Q1 2013 tax rate due to a higher percentage of our pre-tax profits coming from higher tax rate jurisdictions. On Slide 14, we show a reconciliation of our GAAP to our non-GAAP financial results. In Q2 2013, we excluded $9.8 million of operating costs from our non-GAAP results, compared to $10.9 million in Q2 2012. We recorded $1.8 million of restructuring costs in Q2 2013, related to our previously announced outsourcing and facility streamlining programs. On Slide 15, I show our results for the first 6 months of 2013. Frank has already commented on our year-to-date revenue growth, so I won't add any further comments there on that. Our year-to-date gross margin of 45.5% is a decline of 170 basis points compared to the prior year. Approximately 70 basis points of this decline comes from the lower Japanese yen. Aside from the yen impact, gross margins have been hurt by gross margin declines in BMAT, due to lower revenue volumes and in BioSpin due to mix and pricing. Over the balance of the year, we'll remain focused on executing programs to improve our manufacturing and supply chain productivity. Our year-to-date operating spending is lower than the first 6 months of 2012, both on an absolute basis and as a percentage of revenue. SG&A is down 70 basis points as a percent of revenue, and R&D has fallen by 80 basis points as a percent of revenue. This reduction reflects stronger cost controls that we've implemented in the business over the past 12 months, as well as the decision to reduce, delay or eliminate spending on select projects. Our non-GAAP operating margin is down 20 basis points on a year-to-date basis. However, if we factor in a 100 basis point impact from the weaker yen, we've made underlying improvements in our operating profitability through the first 6 months of 2013. On Slide 16, I show our non-GAAP reconciliation for our results through the first 6 months of 2013. We recorded $5 million of restructuring costs, primarily related to outsourcing and facility programs in our BioSpin, CALID and BEST businesses. We expect to incur more significant restructuring costs in the second half of the year as we complete additional facility closures in our CAM and BEST divisions, and additional outsourcing programs in our BioSpin business. The other point I'd make on this page is that our year-to-date non-GAAP tax rate of 29.9% represents a decline of 340 basis points compared to the prior year, primarily due to a change in our geographic mix of profits. On Slide 17, I show our balance sheet as of June 30, 2012. Our cash balance is $251 million, or down about $60 million compared to year-end, but up about $10 million compared to June of 2012. Inventory declined slightly compared to year-end and our days of inventory outstanding totaled 228 days at the end of Q2 2003 -- 2013, an improvement compared to 244 days in Q2 of 2012. Accounts receivable were up in the second quarter and our days sales outstanding, or DSO, was 60 days in the quarter, compared to 52 days in Q2 2012. Overall, we still have significant room for improvement in working capital efficiency and this will remain a focus throughout the second half of the year. On Slide 18, I show our free cash flow in the second quarter of 2013. We recorded negative free cash flow of $23 million in Q2 2013, a roughly $42 million decline from the second quarter of 2012. Higher net income was offset by higher working capital, but the major driver of the year-over-year difference was that we received a large customer advance in Q2 of last year due to the signing of the Rosatom contract. We incurred $16.5 million in capital expenditures during the second quarter of 2013 and $31.1 million in the first 6 months of 2013. We expect capital spending in the second half of 2013 will be well below our spending through the first 6 months due to the completion of certain special projects. Now I'll turn to our financial guidance for 2013, which I show on Slide 20. We are maintaining the guidance that we shared with you last quarter, and we expect reported revenue growth to total 2% to 3% with organic revenue growth of approximately 3%. On the bottom line, we expect to generate non-GAAP earnings per share of $0.80 to $0.83 in 2013. This guidance assumes a non-GAAP tax rate of 27% to 30%. We continue to expect that we will incur $20 million to $25 million of restructuring charges with the majority of those charges occurring in the second half of the year. Our currency assumptions are relatively unchanged from last quarter. Our guidance assumes the U.S. dollar to yen rate of 0.99 and the U.S. dollar to euro rate of 1.3. This compares to our assumptions of a U.S. dollar yen rate of 0.98 and a U.S. dollar to euro rate of 1.3 last quarter. The quarterly variability and a challenging year-over-year comparability of our quarterly financial results is likely to continue to occur in the second half of 2013, much as it did in the first half. Remember that our Q3 2012 results included over $16 million of license milestone revenue and $15.7 million of associated profits from the Rosatom contract. Furthermore, the $5.7 million in Rosatom license milestone revenue that we just recognized in Q2 2013 was originally expected to occur in the third quarter of 2013. Accordingly, the comparison for Q3 2013 year-over-year is very difficult and you should expect that Q3 non-GAAP operating margins and EPS will decline year-over-year. As is often the case with Bruker, we expect our strongest revenues and profitability in the fourth quarter of this year. With that, I'll turn the call over to Joshua to begin the Q&A session.

Jamie, please assemble the Q&A roster.

[Operator Instructions] Our first question comes from Jon Groberg from Macquarie.

I get the caution going forward. Just 2 questions for me. One, Frank, for you. It sounds like, if I've heard you correctly, in the CALID division, that the MALDI typer -- the MALDI Biotyper is going well, but that some of the other areas like mass spec maybe weren't as strong. And it sounds like from those who've reported mass spec, for most, it has continued to be a pretty strong segment so far. So maybe just kind of discuss what's going on there for you, if you could. And then the second question is for Charlie. You elaborated a little bit on free cash flow, but maybe what you expect for the year and what some of the initiatives you have in place are, in order to improve the free cash flow generation of the company?

Okay, Jon, this is Frank. Indeed, the MALDI Biotyper continues to do well. Did well in Q1, continue to do well in Q2. That's all correct. In our other mass spectrometry products, we had weaker bookings amongst other places, particularly in Europe in Q1 and we caught up substantially, did quite well in Q2. Some of that is literally, I think, just fluctuations without any real rhyme or reason. But I do think there is an additional, at least, trends that we're seeing emerging ever since we -- we've had very strong product introductions this year in the life science mass spec business, excluding the MALDI Biotyper for the moment. And so, I think, in addition to the quarterly fluctuations that we do acknowledge, I think, we're really building momentum and our competitive position after ASM is, I think, is stronger than -- quite a bit stronger than at the beginning of the year in life science mass spectrometry. And I'll pass the free cash flow question over to Charlie.

Yes, Jon. The, obviously, the free cash flow performance in the quarter is pretty disappointing. There are a few discrete things I would point to. We made some exceptionally large tax payments in the quarter, and things like that. So there's a couple of items that are explainable. But the, I would say, the receivables performance in the quarter was a bit disappointing. It's not a receivables quality issue. I'd say we took the eye off the ball a little bit there. It's not something that's relatively easy to recover on. A lot of the supply chain and operational improvement initiatives we have going on that we think that we are confident will yield an inventory benefit, don't really yield that benefit in a meaningful way until the latter part of the year. So as I look at free cash flow generation in the second half, we're not guiding to that specifically. But obviously, the majority of our profits occur in the second half. I believe we can get DSO back in line to a level that we're comfortable with, and I expect to see our operational initiatives starting to have more of an impact on inventory, so all that would point to a much better second half around free cash flow.

Okay. So just to clarify, Frank, on the mass spec. So you would say that orders, although the revenues were a little weak in some of those other life science mass spec categories, your orders were pretty good and you'd expect that to be a positive contributor to revenues in the second half?

Yes, that is correct. Our Q2 orders were good, Q1 was a little weaker. And I neglected to mention that our CAM orders for the first half of the year were really -- had good growth year-over-year. So I think that CAM will also see some revenue growth based on that order momentum that we see in this year-to-date.

Our next question comes from Brandon Couillard from Jefferies.

Frank, could you elaborate on what you're seeing in the BioSpin unit from a demand perspective? And perhaps, give us an update on the pricing dynamics that you're experiencing in that market?

Certainly, Brandon. The demand in the BioSpin unit, and really, in both the first 2 quarters of the year, has been stronger than what we had expected. And that is the case for both our NMR business, as well as our preclinical MRI business. So we're quite -- we're pleased with that. In particular, I think some of these supplementary budget or whatever, in Japan, or the U.K. reinvestment in much of their academic infrastructure -- research infrastructure tends to benefit high-end instrumentation in particular. As we have seen years ago with U.S. stimulus and so on, these type of funds -- large funds tend to be preferentially spent, according to our observations, on high-performance instrumentation that a university or department may not otherwise be able to afford. So we've done well with that. We've also done surprisingly well in North America. And yes, in the U.S., despite sequestration, beat our own expectations. So it turns out there's just others, and endowment and private funding and other funding sources that U.S. universities have been able to tap into to make high-priority research infrastructure investments, and we have benefited from that. In terms of pricing in the BioSpin segment, I think we had commented previously, including the Q1 call. I think in general, I think it's become a little bit more rational, but don't see any -- I don't see any enormous departures. But I think it's become more rational in the industry.

And just a follow-up, Frank or Charlie. I mean, any chance you could give us the overall order growth experience in the quarter? And perhaps a comment around the backlog position, whether it's up either sequentially or year-over-year? And just to clarify, the Japanese stimulus orders, that was more of an order phenomenon, not so much revenue in the second quarter, is that correct?

That's absolutely correct. Most of these -- most of that will turn into revenue in Q1 and Q2 2014, maybe a little bit coming into Q4 of this year, as you have guessed correctly.

Yes, again, we don't disclose specifically orders, but generally speaking, orders were -- order growth is roughly in line with revenue growth, with similar drivers, strength in the same places, weakness in the same places, and so backlog continues to be pretty healthy. Last year, we had this 1 large BEST order on the Rosatom deal, which came in, in Q2. If you take that out of the equation, then certainly for the major BSI segment, very much order and revenue trends were aligned.

Our next question comes from Tim Evans from Wells Fargo Securities.

Could you give us an update on your conversations with the FDA on the Biotyper?

Yes. We have good constructive back and forth. I mean, we're not done. We have submitted for BEST through our first claim, and we have additional follow-on questions that seem to be constructive. And it's very difficult in a process like this to make any predictions on timing. We are somewhat hopeful that we may be able to get a FDA clearance before the end of the year or in early 2014, but it is very difficult to predict.

Okay. And maybe, a quick update on the operational -- the longer-term operational items that you're implementing, specifically the ones geared toward helping you get more visibility into the business. Is there any progress you would call out here in the second quarter?

Yes. I mean, listen, we're making continuous improvement, is the way I've described it. We've made some changes to the way we manage the company in the last year. Obviously, the group structure and the leadership of the groups, we feel, is helping quite a bit. On the finance side, we've upgraded a talent in the finance organization and put new business review and forecasting processes in place. And again, we still continue to experience quite a bit of quarterly variability in our results. But I would say that the -- that we are getting better gradually at managing the business in getting some forward visibility. So I don't this is a situation where you can expect kind of a step change improvement from us overnight. But each quarter, I'd say we're making progress on the various initiatives to help us control and improve the business consistently over time. So maybe it's not in your question, but a quick update. Earlier in the year, we comped in on some of the restructuring and outsourcing activities we were doing. We completed a couple in the first quarter. We've got a few more that we expect to complete later in the year. They are basically on track. We didn't report any this quarter, but you expect that in Q3 and Q4, we should be able to talk about other programs we've completed.

Our next question comes from Isaac Ro from Goldman Sachs.

Just a follow-up question on Biotyper. Is it fair to say, given the uncertainty on FDA, that there's nothing necessarily baked into your guidance for the back half of the year in terms of an acceleration in that business? And then, anything else you could offer with regards to how you look at the x-U.S. opportunity and how that's doing?

No. We did not bake anything explicitly, assuming some FDA approval and in an earlier time period. So our -- the answer is no. There's nothing baked into our forecast that assumes somehow an FDA approval at a certain time period. Can you repeat the second part of your question, Isaac?

I'm sorry, yes. Just curious if you could put a little more color around how the international part of that business is doing? Where you see the most traction? Where you see the most opportunity to deploy some resources and accelerate growth for Biotyper?

Yes, it's doing quite well in Europe, even though there, we had started and obviously have a much larger installed base. But as we develop new capabilities from automation to accessories, to additional libraries, to new research-use only capabilities, right now, I think it's only getting more interesting. And so demand has held up well in Europe as well, including growth. And we're also seeing growth emerging in Asia Pacific, where we don't have that much of an installed base yet. And clearly, the largest opportunities are in the Americas and Asia Pacific because there, we started much later than in Europe. So there, we expect the largest growth from a smaller base in the next 2 to 3 years, but we also see continued growth in Europe.

Got it. If I could just ask one last one on BioSpin. Could you comment on the sort of the market share dynamic there? Obviously, your main competitor at the high-end is stepping away, so are you seeing good opportunities to pick up share quickly and maybe, grow faster than the market?

We think so. It's only the ultra-high field niche market, if you like, and some selected specialty MRIs cases perhaps, so the main field -- the mainstream remains quite competitive. But in certain niche areas, I think we've done well in securing orders. And I think that has also helped us in the first half of the year. But at the first half, good bookings in B Bio. I don't think I would primarily -- due to competitive trends, they may play a -- may have played a minor role as well. But I think it's just reasonably good funding for academic spending, in particular, in Europe -- in most of Europe, and in Asia Pacific, particularly Japan, and the U.K. as I highlighted earlier, and really, better strength in high end academic spending in the Americas than what we -- than we had anticipated.

Our next question comes from Derik De Bruin from Bank of America.

Could you talk a bit more about the BMAT and the industrial outlook? I guess, could you just talk around also you're expecting it to be down year-over-year. I guess, could you talk about what's sort of like the margin impact is from it being -- the business being down?

Well, as we have less orders, and also less revenue in the divisions of -- in the 4 divisions that make up the BMAT group, we do obviously lose -- there are some pricing pressure out there, not as strong as what we've seen in 2009, but with the declining industrial demand, there's also a little bit more pricing pressure, which we have to acknowledge. And in addition, we just lose some of the volume benefits by not having growth, but rather a modest decline in revenue in the BMAT division, and we anticipate that for the full year. So yes, the industrial part has -- the industrial demand outside of semiconductor and data storage, which we had commented on previously, in our opinion and from our observations, from, you name it, automobile to metals and minings, to cement, to minerals and mining to metals processing, all seems to be relatively sluggish right now.

I guess the reason why I'm asking is if you back out the Rosatom order out of the gross margin. I mean, the gross margin was sub-45% from that impact, and I'm just trying to see if it was just -- was it more mixed in the gross margin? I know you had some currency headwinds. I'm just trying to get a little bit more color on what sort of is -- what are sort of the factors on gross margin decline?

The BMATs reduced the demand and weaker markets are a headwind for our gross profit margins, as Charlie explained earlier, with reasonable expense discipline and potential additional expense reduction steps ahead of us. We've held the line in Q2 of course, than reasonably well year-over-year on operating profit, but the BMAT and industrial weakness is a headwind to our gross profit margins. And is, of course, holding back to some extent operating margin improvements that we might have otherwise had. But again, it's also balanced by the relatively stronger performance of the B Bio and CALID groups. There have been quarters and years when all 3 groups, than it was the divisions, were performing similarly. Right now, we really have significant differences depending on end markets that -- and it's not so much geography, but it's more industrial versus academic, nonprofit, life science.

Great. Just 1 quick question. Charlie and Frank, I guess, when -- I guess, your -- about a year -- you're coming up on your year anniversary here pretty soon, Charlie. And I guess, are you going to be able to give better visibility in terms of longer-term guidance? At what point next year? Is this something you're going to be able to do in January on the Q4 call? I'm just looking at like when do you think you're going to have a better handle on the longer-term outlook?

Sure, yes. In fact, yes, I just passed my year anniversary, so thank you for recognizing that. We -- obviously, again, we've got a lot going on right now internally with our strategic planning efforts and those things carry through the fall and budget season, late fall. I think we've commented that we intend to try to give similar midterm visibility next year. I'm not going to get more specific than that at this point. I mean, we're -- we understand completely that people would like more visibility and we would love to give that, and we'll certainly do it when we feel a little bit more confident that we can give something that we can stand behind.

[Operator Instructions] Our next question comes from Ross Muken from ISI Group.

Maybe can you just talk a bit about how the organization sort of responded to kind of the challenging Q1? And the fact that you're trying to undertake some structural changes in the business, and the way operations and other kind of big picture kind of complex things are run, in the phase of that, and how they were able to kind of overcome it in this Q? I realize some of this end market demand, but the organization also still has to execute. How you kind of were able to manage all those moving parts in what's been a pretty volatile environment, to still focus on this kind of longer-term restructuring plan.

Yes, Ross, this is Frank. We're very much focused on that and I think the organization is actually responding really well. Clearly, we wanted to make this a decent quarter, given that our Q1 was weaker. And -- but you know, that didn't distract from the management teams and the people that are really dedicated, has dedicated resources to a lot of these -- to driving a lot of these operational excellence initiatives from making good progress and implementing, and planning and analyzing. So, yes, they have to do that too, in addition to make the quarter and the year. But I think everybody is fully aligned on the new management processes, the goals. The new incentivization has largely been implemented. So I think I'm actually quite pleased on how all the teams and the divisions and the groups are driving this. I think that bodes well for making steady progress.

Our next question comes from Tycho Peterson from JPMorgan. Tycho W. Peterson - JP Morgan Chase & Co, Research Division: I just want to follow-up with Charlie on the free cash flow topic from earlier. Can you just maybe help us tease out how much of this was the tax payment issue? And versus kind of a receivable issue? And maybe just talk about what's going on with payment terms, whether those are kind of continuing to be extended?

Yes. I mean, tax -- I'd say tax payments in the quarters were $10 million or $15 million, that neighborhood. Again, year-over-year, we have the absence of the Rosatom deposit, which was probably, $20 million, $25 million last year, in the comparable quarter. So you got a couple of big swingers right there. In receivables, I'm not aware of any meaningful change in payment terms. And there's no meaningful deterioration in our age receivables or reserves, or anything like that. So it's really more blocking and tackling around collections than anything else. So it gives me confidence that, that's something that's manageable.

Yes. I don't think there's any story here. It really is a -- one thing that we have acknowledged is that a lot of our revenue in Q2 came relatively late in the quarter and was very third month-weighted. Accordingly, your DSOs look a little different than if you had a steady revenue of flow throughout the 3 months of the quarter. That has -- but I think this is just temporary involving some trends or something that -- it doesn't mean anything about the underlying markets or economy. I think this is just short term fluctuations. Tycho W. Peterson - JP Morgan Chase & Co, Research Division: And then, in terms of kind of some of the issues that cropped up in the first quarter, it sounds like you've resolved the production constraints in Optics. The magnet installations and some of the other issues, have those kind of been resolved now? Or are there kind of lingering issues from the first quarter that still need to be addressed?

Tycho, the way I'd characterize it is that there are always issues and we have them in kind of a normal range at this point. Obviously, we have a large complex business, so there's always some things going right, some things going wrong. We're also driving a lot of change, so there's always the potential for things to go wrong. I think as we pointed out in Q1, it was pretty exceptional. And it was rare to have that many things go against us in 1 quarter with no offsets. As you point out, we did get optics back on a much better footing, and we've corrected some other things. We have no issues. But in total, things are kind of where they should be at a manageable level, unlike where in Q1, everything was against us. So I think at this point, we feel like we're largely caught up and we're going to continue to manage issues as they pop up throughout the year. Tycho W. Peterson - JP Morgan Chase & Co, Research Division: Last one on the supply chain, as you guys are looking to kind of outsource more components to that, can you maybe just talk about how you maintain the quality aspect? I mean, we've had a few people mention, just given your reputation in the industry as a high-quality vendor, how you're kind of managing the outsourcing side and maintaining quality within that process?

Not to be facetious, but we're managing it very carefully for that reason, and so that's why sometimes, we take our time, we do careful testing before we go all in. But -- so we're doing this in a very responsible manner to make sure that we do not have revenue delivery or revenue acceptance, or customer quality issues. So it's very, very important for us. And we're -- I think, we're picking -- sometimes we're not necessarily picking the lowest offer on a contract manufacturer, but we want competitive offers and better procurement and we're getting that, but we also go in with pretty high-quality contract manufacturers.

Our next question comes from Dan Arias from UBS.

Maybe on BioSpin. Frank, how much of the installed work that didn't make into 1Q were you able to capture in the quarter?

I'm not sure I have all that information by system by system, and Charlie is kicking me under the table. We also don't want to disclose that in that level of detail. But some of it we made up, some of it still coming in Q3, Q4. I think as we had predicted. But I can't really quantify it for you.

But some of that will still come back in the back half of the year?

I believe so, yes. I believe so. And some of it, we did catch up on with some magnet exchanges and things like that. Cryogenics is still a challenge. We had some of that in Q1, we still had some of that in Q2, but I think that's simply going to be with us and that requires much more effort and tighter management than -- but it is manageable and it is -- it occurs every quarter, so it's maybe not such a standout item.

Okay. And then maybe following up or clarifying on BMAT. I think last time around, you said that you thought were approaching a trough on semi in data storage. So I guess, just given Q2 dynamics, are you still thinking that maybe within a quarter or 2 of that, or has the outlook there gotten a little cloudier?

No. The outlook -- the orders haven't dropped yet in Q2 in that sense. At least not in a significant way. But we're still guardedly optimistic that, that will pick up in the second half, from not -- also from our own data and pipeline. We're optimistic -- well, guardedly optimistic in that there will be a pick up in semiconductor in Q3 and Q4, in orders. Some of that will not benefit us until 2014 in terms of revenue.

Got it. Okay.

We've had some very important acceptances of key systems with very key suppliers where they have tested next-generation nodes or 450-millimeter fab products that we had delivered for the first time. And we had some very, very satisfactory acceptances of these. So I think we're performing well technically, that, along with the pickup, I think it makes us, really, somewhat upbeat here that things will improve in that semiconductor and microelectronics area, in terms of orders first, and then revenue to follow.

Our next question comes from Amanda Murphy from William Blair. Amanda Murphy - William Blair & Company L.L.C., Research Division: So I had another question on the Q1 dynamics that I don't think we talked about, which is, you had made some changes in the sales force in China. So I'm curious, I know it's a bit early, but can you talk to that region specifically, just given the changes made last quarter?

Amanda, this is Frank. It's still a work-in-progress. In some areas, I think Bruker Optics, Bruker AXS, Bruker BioSpin, I would say it has stabilized. In some other areas, we're still working on the organization, improving it further, also very much on the order execution. I think it's not only about getting the orders, but executing the orders where improvement is still needed. So it's -- I mean, if we had somewhat highlighted it as a -- it's not been too bad and it could have been -- it could have had more of an impact than sometimes these things are delayed. But I'm sequentially more optimistic that we'll do okay in China this year. Amanda Murphy - William Blair & Company L.L.C., Research Division: Got it. And then, just one other question, I'm not sure if you're able to quantify the license milestone payment that will come in next year.

Yes. Just to clarify, Amanda. It's not -- and it's an important distinction, it's not a license payment next year. The remaining -- the last remaining major milestone is essentially a production line that we are working on. And so it's in the neighborhood of $6 million to $8 million, but it doesn't carry nearly the same margins as license revenue that's been coming through the P&L. Amanda Murphy - William Blair & Company L.L.C., Research Division: Yes. Sorry about that. And is it -- do you have any idea in terms of timing? First half, second half?

Probably first half, but not 100% sure on that.

Since it will be a smaller amount and not have any unusual margin implications, it may not be much of a story next year. Even though, we don't know exactly in which quarter it will come in. It probably will be a nonevent whenever it comes, in terms of materiality.

Our next question comes from Doug Schenkel from Cowen and Company.

First question, I guess, is really a guidance question. Revenue for the quarter came in a lot stronger than most of us expected, even excluding Rosatom. Recognizing that you don't set those expectations, could you comment on how this quarter came together relative to your internal expectation? It seemed like a really solid revenue quarter, especially given that you didn't point to a reversal of Q1 headwinds as a key driver to Q2 upside. So assuming the quarter actually was better than what you expected internally, why did you not bump up guidance accordingly? Do you think you actually pulled forward some revenue beyond Rosatom in Q2? Or should we view your guidance reiteration as simply a function of really slow visibility at this point in the environment?

So Doug, it's a little bit of all of the above. Clearly, some of the miss in Q1 was made up in Q2, so you had some spillover there. As you point out, Rosatom occurred earlier than expected. There were probably 1 or 2 other meaningful pieces of revenue that came in a little bit earlier than expected as well, and pulled from Q3. I'm not going to quantify that because as you've seen, we have revenue slip out and revenue pull in all the time. But nonetheless, the Q2 performance, they're probably exceeded even our expectations a little bit, but it's why we're encouraging folks to look at the 6-month results and certainly, it's where we're focused right now. Than if you look into the second half, we're -- obviously, we're feeling uncertain about the BMAT business. We are counting on a strong start for BioSpin to pick up some slack there and CALID trending positively as well. So for a variety of reasons, I think Q2 alone is an indicative of the trend line. And therefore, I think, we feel good with the second half. I guess the only other point, too, is that we've got tough comps. Certain -- Q3 is a tough comp, again, as I pointed out in the guidance because of the timing of last year's Rosatom revenue. Q4 is always a big quarter, and we need it to be a big quarter this year as well.

Okay, that's helpful. And I guess, a slightly more detailed question or I guess, a bit more specific question. Invivo, I believe is one of the areas you highlighted as a growth driver within BioSpin. Do you think you're growing with the market? Or at this point, is it fair to say that your growth is likely driven by a combination of both market growth, as well as share gains?

What product line are you referring to with Invivo? All Preclinical Imaging or any particular subset product line or?

I guess I was thinking about Preclinical. But anything you're willing to comment on there would be helpful.

Okay. Preclinical MRI orders have been reasonable, a little bit better than what we have expected in the first half of the year, although I wouldn't call it a booming market. And -- but that had been also -- there had been some special programs. In France, for instance, last year, some of those orders were a spillover from special programs last year on the SLI program, France light imaging, which generated a fair number of MRI orders for us, including some that came into this year. And the Invivo optical molecular imaging, which we entered when we acquired the Carestream In-Vivo business, and that's what you may be referring to, which we now call the Bruker Molecular Imaging business that's here in New England. That continues to see pretty tough market conditions. So we -- that was not an area of strength in Q2 yet.

Okay. When you talk about strength, it's really on the MRI side? Relatively speaking?

Yes. Our Micro-CT business that we acquired last year did reasonably well also. And then I think, that has to do with their product line up and new products that they brought out and that are very competitive and well-regarded. I don't know that, that's -- it's too small of a business perhaps to really reflect on market dynamics.

Our next question comes from Ken Hirshberg [ph] from Hirshberg Capital [ph].

Could you roughly characterize what is involved and the scale of the clinical trial you must do for the MALDI Biotyper? And do add-on features such as the Mycobacteria -- how do new features such as the Mycobacteria Library fit into the approval process?

Yes. I mean, there are many features that we're now adding, that are still research-use only. And -- that are not included, therefore in the regulatory approvals that we seek, including from the FDA. So you have sort of a constant stream or you have a stream of -- and in the future, quite likely, a very constant process of features and capabilities where we have gone, and will continue to go, to the FDA in the future for clearance. And new things that we first introduced outside of United States and initially for research-use only, and then begin to get regulatory clearance, often overseas, first, and then over time, also from the FDA as we begin to offer this in the United States. So don't think of it as MALDI Biotyper and all of its libraries and all of its accessories as a one-time. It's really a product -- a broad product line by now, with early exciting results that are clearly still in the publication and validation stage and things that are really very well characterized and validated where we're getting -- where we're seeking FDA clearance.

And our next question comes from Eric Criscoulo from Mizuho.

So just what kind of impact are you expecting, if any, from the next round of sequestration in the U.S.?

I don't know that I can answer about the next round. So far, sequestration, it seems to be not as bad as we had feared. It appears to maybe have more of an effect on routine lower average selling price instruments where some of our businesses have said "look sequestration plays role in weaker demand in the U.S." Whereas some of our higher-end systems have not -- and in particular, NMR and MRI -- or NMR, I should say, have not really seen that. So it's not a crisp, clear picture for us, but overall, in our overall planning, we continue to be relatively cautious about U.S. academic demand, even though it was better-than-expected in some businesses in the first half of the year.

Okay, that's helpful. And just on the industrial segment, overall. What's the -- what businesses or business types, customer accounts are having the most drag in that business? I guess, I'm talking outside of the semiconductor area.

Well, I think the metals industry and minerals and minings, cement, all the industries that are supported by that, from automobile to aerospace. I don't -- what I'm not including in industrial is pharma and biotech, because that's an industry clearly, but it is so different from the other industries. So the aforementioned industries, we all seem to be going slow on CapEx spending on investments, so we see demand weakness in essentially, across the board in those industries.

Ladies and gentlemen, that is all the time that we have allotted for today's conference call. I would now like to turn the conference call over to Mr. Young for any closing remarks.

Thank you, Jamie. I'd like to thank everybody for joining us this afternoon. And we invite you to visit us at our offices in Billerica, Massachusetts. I'd also like to point out that about 2 weeks from now, we'll be hosting a bus tour with Juergen Srega, the head of our CALID Group. For those investors who haven't had the chance to meet Juergen, that's a unique opportunity to do so. Thank you for your attention, and have a good afternoon.

The conference call has now concluded. We do thank you for attending today's presentation. You may now disconnect your telephone lines.