Good afternoon, and welcome to the Bruker Second Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. We do ask that you limit your questions to one and one follow-up. Please note that this event is being recorded. I would now like to turn the conference over to Miroslava Minkova, Head of Investor Relations. Please go ahead, ma'am.

Good afternoon. I would like to welcome everyone to Bruker's second quarter 2017 earnings conference call. My name is Miroslava Minkova, and I'm the Head of Investor Relations for Bruker. Joining me on today's call are Frank Laukien, our President and CEO; and Tony Mattacchione, Bruker's Senior Vice President and Chief Financial Officer. In addition to the earnings release we issued earlier today, we'll be referencing a slide presentation as part of today's conference call. The PDF of this presentation can be downloaded by clicking on the earnings release hyperlink on Bruker's Investor Relations website. During today's conference call, we'll 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 this conference call, we'll be making 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 these 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 conference call and in our Form 10-K, as well as other subsequent SEC filings. Also, note that the following information is related to the current business conditions and to our outlook as of today, August 3, 2017. 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 2017 financial results in early November 2017. We will begin today's call with Frank providing a business summary. Tony will then cover our financials for the second quarter of 2017 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 the call today. I will begin today's earnings presentation on slide 4. Bruker continued to perform well in the second quarter of 2017. During the second quarter, our revenues increased 11.6% year over year, which included organic growth of 7.6%, albeit in comparison to a relatively weak second quarter a year ago. We are pleased with our Q2 2017 year-over-year order growth, which now marks three consecutive quarters of positive bookings momentum in Europe, and we now also see clear signs of improvements in industrial markets. Our CALID Group returned to revenue growth with strong margin expansion. Finally, we saw clear operational benefits from our 2016 restructuring programs at both Daltonics and AXS, with both businesses posting good revenue growth at higher margins. In the second quarter of 2017, our gross margins decreased 100 bps year over year, our operating margin increased 170 bps year over year, and our non-GAAP EPS grew 15%. Looking more closely at the second quarter 2017 results, we reported revenues of $415 million, an increase of 11.6% year over year. Acquisitions contributed 5.8% to revenue growth, while foreign currency translation lowered revenue by minus 1.8%. On an organic basis, our second quarter 2017 revenue increased 7.6% year over year, reflecting mid-single digit organic growth in our Scientific Instruments segment or BSI, and very strong organic growth in our BEST segment. Within BSI, we saw continued good organic growth at BioSpin and a notable year-over-year organic revenue improvement in our CALID Group. Our BEST segment revenues grew 89% year over year, something that we are very pleased with. BEST had over 40% organic revenue growth, as well as significant inorganic growth from our OST acquisition last November. To give you perspective, in Q2…

Thank you, Frank. I will now provide some additional details on our financial performance in Q2 2017 in the first half of 2017, starting on slide 12. In Q2 2017, Bruker returned to organic revenue growth with solid year-over-year EPS growth and continued operating margin expansion. As Frank mentioned, we grew our reported revenues 11.6% to $415 million, and our non-GAAP EPS 15% to $0.23. With this performance, we are raising our non-GAAP EPS guidance for the full year by $0.03 per share. Free cash flow with the use of $27 million in Q2 2017, reflecting largely a shift in bonus payments from Q1 last year to Q2 this year. Net cash was $9.5 million at June 30, 2017, which was down versus last year and we used cash to fund our share buybacks – as we used cash to fund our share buybacks, dividends and acquisitions. Our working capital-to-revenue ratio deteriorated 8% year-over-year to $0.39 per dollar of revenue in the second quarter. This was due primarily to the inclusion of acquisitions and BEST inventory purchases. On slide 13, our revenue bridge for Q2 2017 shows a reported revenue increase of 11.6% versus last year, including a 7.6% organic revenue growth, 5.8% growth from acquisitions, and that was mostly from OST, Hysitron and InVivo, and a negative 1.8% from FX. From an organic growth perspective, revenue gains were led by the CALID Group and BEST, with the CALID revenues up in the mid-teens, including higher rapifleX revenue and a strong contribution from consumables and aftermarket service sales. Our BEST revenue increased 43% organically, which was attributable to higher MRI OEM customer demand, and our acquired B-OST revenue was also high in Q2 for this reason. Gross margins for these BEST businesses are inherently much lower than in our BSI…

Thank you, Tony. Denise, we're ready to open up the Q&A.

Thank you.

As we try to accommodate more of our analysts, please limit your questions to one and a follow-up.

Ladies and gentlemen, we will now begin the question-and-answer session. And your first question will be from Brandon Couillard of Jefferies. Please go ahead.

Thanks. Good afternoon. Frank, at our conference, you framed the subset of the portfolio across five different areas that account for about a quarter of the business. Could you give us a sense of what that basket of these higher growth businesses grew organically in the second quarter?

Hi, Brandon. We actually don't track that on a quarterly basis. We will update that on an annual basis. So, overall, it seems satisfactory, but we don't have exact data on that on a quarterly basis.

Okay. I'll try to stick to my two. I guess one for Tony. Could you break out the impact of FX for the year on the gross margin, operating margin and EPS lines at the updated rates?

Yeah. I can come back to you with the exact numbers. But there's a very insignificant effect to date on the FX line. And for the full year, the rates that we put out in the updated guidance, FX has a modest negative impact to our operating margins and a modest negative impact to EPS.

The next question will be from Doug Schenkel of Cowen & Company. Please go ahead. Chris Lin - Cowen & Co. LLC: Hi. Good afternoon. This is Chris Lin, on for Doug today. Thanks for taking the question. I just want to go back to the commentary for the expectation for flat organic revenue growth in Q4. You had some pretty positive commentary on North America activity, Europe orders, industrial, CALID and Nano. So, I guess, why wouldn't the business outside of the detection and the gigahertz order, why wouldn't that business grow?

Yeah. This is Frank. So, Chris, yeah, it would grow. But if you take about that 300 bps or $15 million headwind into account, that cannot fully overcome that. So, this year, and it's as much a result of 2016, we have a considerable variation in the year-over-year comparison, and Q4 will be a tough year-over-year comparison, Q2 was a little bit easier, and so on. But for the year, obviously, we're inching up our organic – we've tightened our organic growth guidance for the year. And we're gaining more confidence that we can continue to grow faster than that in 2018. So, a lot of the bookings, another part of the question, the answer is really that some of the bookings that we're getting now are going to benefit us in 2018. So, that's a good setup. And so, there's a quarter-to-quarter growth rate fluctuations that you'll see this year mostly because of comparison. Chris Lin - Cowen & Co. LLC: Okay. I just want to ask one more question on margin. It looks like basically what's implied in operating margin guidance is pretty limited operating margin expansion in second half. I just want to be clear. Is this largely because of M&A?

Limited operating margin expansion?

In the second half. Chris Lin - Cowen & Co. LLC: In the second half.

No, M&A's got a not a significant effect on our operating margins.

The M&A impact remains at 40 basis points for the full year. You have the year-to-date operating margin expansion. We're not going to give you precise guidance for the second half, but you could see what's implied. Chris Lin - Cowen & Co. LLC: Okay. Thank you.

And also, the second half, there starts to be a – there's a little bit of a headwind from currency on operating margins but, yeah, we've built that all into the updated guidance.

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

Hey. Thanks. First one, maybe for Tony, on free cash flow. I know you broke out kind of the various headwinds in the slides in terms of working capital needs, customer advances, and incentive comp. Could you maybe just help us think about the relative contributes of those and how we should be thinking about free cash flow in the back half of the year?

Yeah. I'm not coming off of the full year expectation of free cash flow and converting – we've gotten that income converting roughly one times into free cash flow. We see this – I mean, you can see year-over-year, cash was negative last year and it is again this year. And a lot of our business occurs, as you know, in the fourth quarter and so does a lot of the cash. So, a lot of what you saw in Q2 was timing with bonus payments. It's just an anomaly in terms of when we pay the bonuses, so no real insight there. So, we're not – nothing special in the cash flow and we're estimating in the $120-ish million to $150-ish million full year free cash flow generation.

Okay. And then for the follow-up for Frank, I want to go back to the guidance dynamics because I've had a few questions just about the setup for the back half of the year given the deceleration you're modelling in. I understand the NMR dynamics and the comp issues, academic's getting better, Semi's getting better, industrial's getting better. Are you factoring any headwinds in the back half of the year or is that related to end markets? And then on the NMR dynamics, there's pushout here. Was this driven by customers or was this on your end? (36:27).

Yeah, Tycho. So, no, we're not really seeing – what we're seeing right now is improving end markets. I think you've kind of went through the list and Europe, of course, is most significant from us. So, that all bodes well, particularly for 2018. Though the gigahertz shift into revenue shift into 2018, both has technical, factory, and customer site reasons. So, with that, it made more sense to move that to the middle of 2018.

Okay. Thank you.

The next question will be from Steve Willoughby of Cleveland Research. Please go ahead.

Good afternoon. Thanks for taking my question. Frank, just a question on your BioSpin business. I was wondering if you could talk a little bit more about what you're seeing there. You commented that it was up in the low-single digits, but you said you saw steady NMR and improving Preclinical Imaging. And then just along with that, the comment about some mix shift towards lower field NMR. Just wondering if there's any more color there. And then I have one quick follow-up.

Yeah. Steve, in the first half, we had – first half of last year, we had 1 gigahertz in Q1 of 2016, and we had a lot of high field systems in the second quarter of 2016 where we had a lot of low field, 400, 500 megahertz systems and more PCI revenue in the second quarter of 2017, which tend to have lower gross margins. So, that's the mix shift if I compared Q2 2016 to Q2 of 2017. That's obviously – I don't think that's a permanent issue, that's really something that can fluctuate from quarter-to-quarter. Did you have a follow-up?

Frank – yes, sorry about that. The follow-up is on the BEST segment. If you could just provide a little bit more color on – kind of explain what happened this quarter with the significant organic growth. And then, just so we're clear, are you expecting a similar level of organic growth in the BEST segment in the third quarter as well?

We think the BEST segment will stay strong, and I think that Q2 was somewhat – was unusually good for BEST. Some of our – some of BEST's MRI OEM customers called off more wire in the last couple of weeks even off of the quarter. That was good. And our Research Instruments subsidiary, that's probably not on your radar screen, also got acceptances and revenue recognition in the second quarter, some of which we thought might come in in Q3, but they got everything completed, so that was good. But generally – very generally – BEST in the past had been about 7% to 8% of our revenue, and in the future, for the full year, it might be around 11% of our revenue. So, that's great. That's a well performing business. Its operating margins from a low basis are improving. We think we can improve them a whole lot more over the next few years. But BEST is now – the BEST segment fundamentally will now be more closer to an 11% part of our revenue rather than 7% or 8% as it had been in the past. It's strategic to our business, it's accretive, and it has improving operating margins, so we're very pleased with their performance.

Thanks very much.

The next question...

You're welcome.

I'm sorry. The next question will be from Amanda Murphy of William Blair. Please go ahead. Aurko Joshi - William Blair & Co. LLC: Hi, all. It's Aurko, in for Amanda. Just one question on the Europe side. I was wondering if you could...

You're hard to hear. Aurko Joshi - William Blair & Co. LLC: I was wondering, breakout on the Europe side. Which countries are kind of driving the strong bookings growth?

It varies a little bit every quarter. In Q2, Germany was not as strong, but France, Italy, Spain and the UK were strong. In Q1, it was more Germany-driven. So I think that's just quarterly noise. But generally, Europe now for three quarters in a row clearly had better bookings and sort of – not saying Europe is booming, but Europe is sort of has that unusual drop of orders that we had in the first nine months of last year. I think Europe is simply normalizing. Aurko Joshi - William Blair & Co. LLC: Got it. And then also from a geographical perspective, if you were to exclude China, how much were other areas in APAC growing?

Yeah. Japan was relatively weak. I don't have the exact numbers, but Japan revenue was up, and orders were flat or down. And the rest of APAC, I don't have those numbers at my fingertips, but that was less remarkable. So China, strong; Japan, weak; and the rest of APAC fluctuates from quarter to quarter.

Yeah. Frank said it right. I mean, the increase in APAC is really driven by China. Japan, some quarters it's up, some quarters – it usually hasn't been, but it happens to be this quarter, we had a large industrial acceptance. But most of the increases is China. Aurko Joshi - William Blair & Co. LLC: Great. Thanks.

The next question will come from Jack Meehan of Barclays. Please go ahead.

Hi. Thanks. Good afternoon. I wondered if you could maybe talk a little bit about CALID. It looked like it bounced back in the quarter, a little bit of an easier comp I think as well. Can you walk through the drivers of the performance there, and whether you think any of the new products are starting to contribute?

Yeah. Yeah, I think they do. This is Frank. So the Biotyper had some hiccups in the first half of last year, those have normalized. I mean, it's not a double-digit growth product anymore, but our microbiology business of the Biotyper is back in growth mode. The consumables and aftermarket business for the microbiology is growing very nicely. Now, some of that was acquired with our InVivo acquisition and our skilled software (42:51) and so on, but we're very pleased with that. The rapifleX, which is used for pharmaceutical application with the MALDI PharmaPulse for imaging, that's doing really quite nicely. Aftermarket is growing nicely. And a really big part of – was, of course, the factory consolidation and restructuring in the Daltonics Group that – for the Daltonics Group which had its margins under pressure last year made some nice progress in the first half of this year and in Q2. rapifleX and MALDI was way up for the CALID Group. Bruker Optics performed – almost always (43:34) performs nicely, so it's kind of the steady performer, steady growth, steady margin expansion. Very, very pleased with that business. It's one of our best-performing businesses. And detection can be lumpy from quarter-to-quarter, but I think the more remarkable thing on detection is really only the top comparison in Q4 that's coming up, which I had mentioned earlier. So CALID, I think most importantly the mass spec business and the optics business are doing – optics is doing very well, continuous improvements. CALID is substantially better than last year when it had some weakness.

Great. Thanks for all the feedback there. Just one follow-up on the guide. So there is 3.5% to 4% acquired growth embedded for the full year. You took 5.5% in the first half. Was there anything timing related? I know the deals have been phasing in, you've certainly been very active. Just for what's embedded in the second half, could you help us there?

Yeah. Couple of things. Yeah. There was a little bit of timing I think, both the InVivo consumables business as well as OST. The way we're looking at them this year with their orders are probably a little front-loaded in the first half, not completely, but a little bit more, whereas normally we have a more back-loaded business. And then, keep in mind that OST is no longer organic growth in the middle of the fourth quarter. So basically, it's a big part of our organic growth, but that kind of drops out for the last, essentially, month and a half or the last half of the fourth quarter, that's why the inorganic growth rates are higher in the first half than they are projected to be in the second half.

Perfect. Thanks.

You're welcome.

The next question will be from Dan Arias of Citigroup. Please go ahead.

Hi. This is actually Bryan Kipp on behalf of Dan. A question for you on the Semi business. I'm just surprised by the top-line softness in 2Q given the prior order quarter commentary. There's been a lot of trends you guys have alluded to in the past. The one thing that seems to come in focus recently is a lot of factory investments. Is part of the delay just factories that are scaling up and you're just waiting to place the instruments? Kind of what's going on there?

No, Semi is really just timing. Semi was pretty good in Q1. We had fantastic Semi revenue in Q4 of last year, and then the order book was depleted a little bit getting into this year. So, it just turned out there wasn't much to deliver in Q2. Orders were strong in the first half, and the Semi will have a good second half of the year, and overall Semi will grow this year is our expectation. So, we concur Semi markets for memory, for foundry are all pretty healthy. We have unique tools. It's going to be a good year for Semi, but for timing reasons, Q2 wasn't – it was purely timing.

Okay. Helpful. And then can you kind of strip out some of the growth dynamics going on in China? I know the Biotyper had some hiccups last year, so that could be partly contributory into the first half momentum. But is there anything else structurally going on? Individual markets proving that you haven't had it previously?

Well, I think, generally, I would say that the wonderful, torrid, double digit growth in China, we don't expect that to continue forever. But as Europe picks up a little bit or picks up quite a bit, industrial markets pick up, as the U.S. remarkably in the second half including academic markets in the U.S. has picked up, I would think that China will not continue at a double digit growth rate. So, I think it's – I don't know whether that's the dynamics of their five-year plans or how that works exactly, but I think any time you have something growing at double digits, it's likely to cool off a little bit. So, Japan just remains weak, and we had a bit of a boost in revenue in Japan, but it's weaker on orders. But more importantly, more than offsetting all of that is stronger U.S. and stronger Europe by geography.

Next question, please?

The next question will be from Puneet Souda of Leerink Partners. Please go ahead.

Hi. Thanks. So, Frank, if I could just briefly ask on the biopharma segment? Earlier in the year, you had highlighted – I know you don't have a ton of exposure there, but earlier you had highlighted that's an area of focus and at the ENC as well. So, I'm just trying to understand how you feel about that and the rest half of the year, and just trying to understand if you can build more biopharma targeted assets before the biomolecules growth picks up.

Yeah. I mean, our pharma – correct, our biopharma product offerings, there is more and more solutions that we're bringing to market, not only with NMR and mass spec, although those are the bigger drivers, but also all the way to Preclinical Imaging. I mean, some very good Preclinical Imaging orders from pharma that came in. The rapifleX, the MALDI PharmaPulse is doing quite well with orders and revenue. MALDI imaging for drug development using the FTMS mass spec technology is doing well, some reaction monitoring by NMR. I mean, we don't serve it as broadly as some other companies in this space, but the little islands that we've picked or the specific application islands that we've picked and that are strengthening and multiplying in pharma will give as a good year in pharma. But I think even independent of the exact pharma or biopharma growth rate, we will, just over time, have a lot more exposure to pharma as it's very strategic for us, and our investments in new pharma applications is an ongoing multi-year effort. This year will be good for pharma, but I think it's part of a long-term trend, and quite honestly, not really dependent on pharma growth rates because it's – we're not serving those markets broadly, but are with specific applications that are doing well.

Okay. Got it. And just quickly on that point again, I just wanted to understand how would you characterize the growth in the LCMS segment for you? I mean, just asking this because two of the larger competitors have posted somewhat divergent results and just trying to understand the market shift doesn't happen there overnight. So, just hoping to get a view from you on the LCMS segment. And thanks for taking my questions.

Yeah. Puneet, LCMS for us is smaller than MALDI Biotyper and other MALDI applications, some of which I've mentioned. So, we're probably not a good proxy for market trends in LCMS. I think LCMS was unremarkable and unsatisfactory, but I don't have a broken out number for that. Not growing quite as strongly as MALDI because the bigger part of the growth, certainly in the first half of the year for us, was MALDI, both MALDI Biotyper, i.e., microbiology, and MALDI Imaging and MALDI PharmaPulse. Those were the faster growing parts of the CALID mass spec business – or Daltonics mass spec business. So, I didn't really give you a quantitative answer. I don't have it at my fingertips, but it was steady or growing slightly, whereas MALDI was growing faster.

All right. Thanks

The next question will be from Derik de Bruin of Bank of America Merrill Lynch. Please go ahead.

Hi. Thanks. This is Mike Ryskin, on for Derik. I have a couple questions for you. A lot's already been asked, but previously you had talked about in 2018 what the combination from all the deals you've done of returning, sort of, to that reported revenue growth more in line with the tool segment of, say, 4% to 5%. It seems like you're going to get there this year, given the updated guide. As some of these deals go organic, and especially talking about stronger end markets, stronger Europe, stronger academic, industrial, the order trends, the benefit of the 1 gigahertz NMR now being in 2018, are you seeing any changes in sort of the long-term momentum? And where you see the organic growth profile returning to over time?

Just as a clarification, this year, for the full year, our guidance for organic growth is 1.5% to 2%. That's because it just changes quite a bit from quarter-to-quarter, but for the full year I think that's sensible guidance. We do believe that a lot of things are setting up. You've listed them nicely for us to see faster organic growth for the full year next year. Obviously, I decline to right now give any ranges or any numbers. It's too early for us in the year to do that, but the implication is we're improving our organic growth rate. We were shrinking for a number of years. We're back to organic growth this year, 1.5% to 2%. We think we can do better than that next year. And only later in the year or really by February of next year, we will give organic growth guidance. But fundamentally, really, we're very comfortable that we're on track to get back to more organic growth rates. And we think, with our portfolio transformation and other factors, we may well be also in a position to perhaps outgrow the market organically in perhaps a few years. But that's more probably a 2019 story. But next year, our goal is to be somewhere in that range of organic growth that others in the industry or that you would call the industry average whatever that will be next year.

Okay. That's really helpful. And then just a quick follow-up on the margins. You've called out for a few quarters now the 40 bps of margin headwind from M&A. Obviously, given the younger nature of some of these companies, the Hysitrons, the OSTs, et cetera, can you talk about the margin progression in those acquisitions specifically, and how long until you see that headwind dissipating?

We have modeled it as an item this year. I mean, of course, the BEST business, including OST, will not have the margins, certainly not the gross margins, but also not quite the operating margins of the rest of the business. But nevertheless, even though it's part of our portfolio for good strategic reasons, it will support our further overall margin expansion. And yeah, as I think about a few of the other businesses, some of the smaller ones we haven't discussed or Hysitron or InVivo and even OST, probably a three-year timeframe is reasonable for us to move up their margins from when we acquired them. It usually – when you put in productivity enhancement and other good business practices, it tends to take about three years for those to take hold and become fully beneficial. So, that's a good timeframe to think about, on average. And that's applicable for those acquisitions.

And what I would add is the integration programs for each of them are on track and we're delivering well on those, and we're meeting our financial plans on the acquisitions as well, so things are progressing nicely.

They've actually performed quite nicely as we've seen from the significant inorganic growth in the first half. They performed quite nicely in the first half of the year, and so we're pleased with them.

Thanks. I really appreciate all the color. If I could throw in one last quick one. As you said, you've been very busy with the acquisitions in later 2016 and first half 2017. Can you talk about the order pipeline, what you're seeing for the rest of the year? And also the cash on hand as you mentioned was – your net cash position is lower. Is that going to affect your ability to do deals? Thanks.

No. I mean, so our order growth has been good. We just got our order growth for the year inorganically in the mid-single digits, which again bodes well for organic revenue growth next year. That's total industry average. And no, we're carefully managing our share buybacks and dividends and cash available, so we are very – we think that it's – that the normal pace of acquisitions that we tend to do when we find good bolt-ons, I don't think we are in any – I don't see any problem with continuing that where it makes sense. We did have a bit of a bolus of acquisitions closing there late in 2016 and early 2017. I wouldn't expect us to continue at that pace that was somewhat of a timing coincidence.

Great. Thanks a lot, and congrats.

The next question will come from Isaac Ro of Goldman Sachs. Please, go ahead. Isaac Ro of Goldman Sachs, your line is open. It may be muted on your side. Hearing no response, we will conclude the question-and-answer session. I would like to turn the conference back over to Miroslava Minkova for any closing remarks.

Thank you for joining us this evening. During the third quarter, Bruker will participate in the Morgan Stanley Healthcare Conference in New York City. We invite you to meet us at the conference or visit us at our headquarters in Billerica, Massachusetts. Thank you, and have a nice evening.

Thank you. Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. At this time, you may disconnect your lines.