Good afternoon, and welcome to the Bruker Third Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please also note this event is being recorded. I would now like to turn the conference over to Miroslava Minkova, Director of Investor Relations and Corporate Development. Please go ahead.

Good afternoon. I would like to welcome everyone to Bruker's third quarter 2018 earnings conference call. My name is Miroslava Minkova, and I'm the Director of Investor Relations and Corporate Development for Bruker. Joining me on today's call are Frank Laukien, our President and CEO; and Gerald Herman, our Chief Financial Officer. In addition to the earnings release we issued earlier today, during today's conference call, we'll be referencing a slide presentation. The PDF of this presentation can be downloaded by clicking on the earnings release hyperlink on Bruker's Investor Relations website. During today's call, we'll be highlighting non-GAAP financial information. Reconciliations of our non-GAAP to GAAP financial measures are included in our 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 and operational 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 in our Form 10-K, as well as in subsequent SEC filings, which are available on our website and on the SEC's website. Also, note that the following information is related to current business conditions and to our outlook as of today, November 1, 2018. 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 fourth quarter and full year 2018 financial results in February of 2019. Therefore, you should not rely on these forward-looking statements as representing our views or outlook as of any date subsequent to today. We'll begin today's call with Frank providing a business summary. Gerald will then cover the financials for the third quarter of 2018 in more detail. Now I'd 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. Bruker delivered a solid third quarter with revenue, margins, and EPS all exceeding our expectations. During the third quarter, our organic revenue growth accelerated to 7% with good organic growth in both our Bruker Scientific Instruments, or BSI, and our BEST segments. We also saw a notable 280 bps step-up in our non-GAAP operating margin versus the prior year as a result of operating leverage, favorable mix, and our ongoing operational improvements. Overall, our teams delivered well and were effective at derisking our commitments for the full year. During the third quarter, we made further good progress with our Project Accelerate high-growth, high-margin initiatives. We continued the rollout of our timsTOF Pro dual TIMS Mass Spectrometer with additional workflows for proteomics and lipidomics at the HUPO conference in early October. In August, we announced the planned acquisition of an 80% equity stake in Hain Diagnostics, which we have disclosed in mid-October. Bruker-Hain Diagnostics, as it is now called, will now add further depth, breadth, and new growth drivers to Bruker's microbiology and infectious disease diagnostics business, and I will provide more color on that later on the call. We have also seen improved revenue growth and margin performance in recent quarters in many of our established Bruker businesses driven by innovation, our operational excellence initiatives, and the healthy end markets for most of our businesses. Turning to specifics now on slide 4. In the third quarter of 2018, Bruker's revenue increased 7.1% year-over-year to $466.6 million. On an organic basis, revenue increased 7.0% year-over-year including 6.5% growth at our Scientific Instruments business and an 11% increase at BEST, net of intercompany eliminations. We experienced strong revenue performance in our Nano and CALID Groups, while BEST…

Thank you, Frank. I'm pleased to join you today and review Bruker's third quarter and year-to-date financial highlights starting on slide 12. As you saw on our press release, Bruker's reported revenue increased 7.1% to $466.6 million in the third quarter of 2018, which reflects organic growth of approximately 7%. We reported GAAP EPS of $0.28 per share, compared to $0.23 in the third quarter of 2017. On a non-GAAP basis, Q3 EPS increased strongly to $0.37 per share, a 28% year-over-year increase. Q3 2018 non-GAAP operating margin of 17.9% improved 280 basis points from the 15.1% reported in Q3 2017 and non-GAAP operating income grew approximately 27% year-over-year. Higher revenue, excellent operating leverage, favorable mix, and operational improvements drove a strong year-over-year margin increase. This performance notably exceeded our expectations as all business groups did an excellent job of derisking a back-end-loaded fourth quarter. We generated free cash flow of $16.1 million in Q3 2018, compared to $25.1 million in the third quarter of 2017. This represents the third consecutive quarter of solid cash flow generation this year. As of September 30, 2018, we maintained a net cash position despite year-to-date use of cash for dividends, acquisitions, and the repayment of borrowings under our revolver in the first quarter of 2018. We ended Q3 2018 with somewhat higher working capital balances, reflecting our revenue growth, shipping activity late in the quarter, and the integration of earlier acquisitions. Overall, our working capital to revenue ratio held steady year-over-year. Slide 13 shows the revenue bridge for Q3 2018. As noted earlier, organic revenue growth in the quarter was 7%. We had a positive contribution from acquisitions of 1.5%, which was offset by a foreign currency headwind of 1.4%. From an organic growth perspective, the 7% Q3 2018 organic revenue growth rate…

Thank you, Gerald. Just a clarification on the Nano year-to-date results, the slides were correct. It was a double-digit increase in constant currency and not a high single-digit increase. Sorry about that. With that, I'd like to open the call for Q&A questions. In the interest of accommodating more of our analysts, please limit your questions to one and a follow-up. Operator, please open the call for questions.

And our first question will come from Doug Schenkel with Cowen. Please go ahead. Chris Lin - Cowen & Co. LLC: Hi. This is Chris on for Doug today. Thanks for taking the question. Just one on full-year guidance. So based on your updated full year organic revenue guidance, it looks like the implied Q4 revenue growth is 1% to 2%. So that's the lowest rate in 2018. With that in mind, can you just share what are the key assumptions behind the Q4 revenue guidance and why are you expecting a material slowdown?

Well, first of all, we pay more attention to actual results than to predictions. Second of all, Q4 2017 was very strong, so it's a solid comparison. Q4s are always a little harder to predict because they are such big revenue quarters for us with some uncertainty on what systems will turn into revenue or may move into the next quarter. And it's our practice that we're providing you with a forecast that we believe is reasonable and achievable based on where we are today. So we're comfortable with the full-year guidance. Chris Lin - Cowen & Co. LLC: Okay. And maybe a similar question just on EPS guidance. You increased EPS guidance by $0.02 but you beat expectations by $0.07 in Q3. So maybe could you just help us understand why you didn't increase the EPS guidance a bit more?

I think almost the same answer, Chris, I don't mean to frustrate you, but we think we're on a good track. We feel comfortable with the mid-teens non-GAAP EPS growth that we have this year. If we can deliver a little bit more, great, but I think this seems like it's reasonable and achievable. Chris Lin - Cowen & Co. LLC: Okay. Thank you.

Your next question comes from Brandon Couillard with Jefferies. Please go ahead.

Thanks. Good afternoon. Frank, could you give us a sense of how that basket of the five strategic Project Accelerate areas grew in the third quarter relative to let's call it the rest of the legacy portfolio? It seems like there must have been some strength in the other parts of the business, and would be curious as to what service and aftermarket growth was in the third quarter as well.

Yes. There was strength in most parts of the portfolio, indeed not only in the Project Accelerate initiatives, but as you've observed also in other parts of the core business that continued to be very core for us have done well as well. We look at it sort of as a year-to-date. And year-to-date we can again confirm, as we have previously, that our Project Accelerate high-growth high-margin initiatives are already growing faster than the average for Bruker organic growth, and we can also confirm that they have meaningfully higher operating margins. And mind you, as you realize, Brandon, this is before we obviously hopefully can contribute on the Gigahertz side in a meaningful way with proteomics and phenomics next year. So good progress in microbiology in aftermarket. In semi, actually good progress also – very much good progress in applied and pharma part of the initiatives this year. And hopefully we can then also add proteomics, phenomics, and Gigahertz NMR, and a little more on the fluorescence microscopy neuroscience side next year. So, some growth drivers will begin to become more meaningful next year. But even this year already, Project Accelerate is growing faster and has higher margins than our average. Certainly on a year-to-date basis, we look at it on the year-to-date and full year basis, but I think it would also hold true for Q3.

Thanks. And then, Gerald, I realize it may be a little early, but just looking into 2019, would you expect to be within that 75 bps to 100 bps in terms of operating margin expansion target? You sort of spoke to some China tariff exposure, but could you boil that down in terms of dollars for us? And then in terms of the near-term cost outs, sort of size some of the buckets and areas of the business where you see opportunities to capture some efficiencies. Thank you.

The overall news is that the exposure is very low for us, right? But anyway, Gerald?

Well, I would just say, as you likely know, we're not going to offer too much guidance on 2019 so we can't be too responsive with respect to that particular part of your question. But what I would say is we still continue to see significant opportunities from an operational improvement perspective across all the lines of business. We have performed well for sure in the third quarter and we continue to expect to see that going forward. There are plenty of opportunities. Frank highlighted the production shift of some activities in Penang. We clearly have a number of other opportunities that are available to us, and we're going after all of them, I would say. So I think our overall margin performance is expected to be encouraging for the next few years, not specifically speaking to a particular year.

And maybe to confirm, though not specific for 2019, yes, our ongoing for the foreseeable future, we really believe we can deliver 75 bps to 100 bps of non-GAAP operating margin improvement per year without any clear end of any runway or anything that we don't see the end of the runway or anything like that. So that remains our long-term commitment on average. It can change from year to year a little bit. Obviously, this year 2018 we have a strong currency headwind. But even with that, we should be close to the low end of that range. And, of course, if you look at organic profit margin improvement excluding the headwind conveniently, then we're doing much better this year. And that's our long-term commitment, that hasn't changed. We're just not prepared today to give 2019 specifics.

Very good. Thank you.

And our next question comes from Jack Meehan with Barclays. Please go ahead.

Hey. Thank you. This is actually Mitch Petersen on for Jack this afternoon. I was hoping you could just expand on what you're hearing from customers in China and walk us through some of the puts and takes that are getting you the flat growth year-to-date in the region. And then just lastly, apologies if I missed this, but did you comment on what China growth was specifically in the third quarter? Thanks.

China, we've been slower in our revenue growth year-to-date in China because of some homemade issues that we fixed at the end of last year and early this year. However, just like in the second quarter and also in the third quarter, our new order bookings certainly for BSI in China, our BSI segment were, I mean, really excellent. So China seems to continue to do really well for us. And we would – based on our order pattern, we feel good about China.

Okay. And then it seems like cryo-EM has had some pretty nice growth as a technology recently. So I was just curious whether this dynamic was having either a direct impact or maybe an indirect funding impact on the NMR franchise. And as we think longer term on NMR, what do you think the right long-term growth rate is for that business? And when do you think that you can achieve that growth rate? Thanks.

Yes. So the cryo-EM becoming an additional third tool, major tool in structural biology, that trend has been going on for quite some time and so there is wallet share competition between that. And high-field NMR for structural biology, it does not affect the applied or pharma or small molecule bread and butter business of NMR. It doesn't affect EPR or preclinical imaging. But our high-field NMR business in recent years has been somewhat weak for two reasons. One of them is that a lot of funding goes into cryo-EM because that's the new tool that universities still wish to acquire. And second of all is our own technical milestones that we need to overcome to deliver 1.0 Gigahertz magnets and then even higher field magnets for which we have now well over $100 million (39:19) in backlog, so two things coming together though. To your second part of your question, we've seen very good growth for our NMR tools in pharma and in applied markets, in clinical phenomics, aftermarkets have been growing nicely. So we think the right long-term average rate is in the low- to mid-single digits as a long-term CAGR. And this year we are probably a little bit below that also because the 1 Gigahertz has moved into next year. But low- to mid-single digits, I think, is a sustainable long-term BioSpin growth rate given the various factors that are not at all – the majority of that business not at all affected by cryo-EM.

Great. Thank you.

And our next question comes from Patrick Donnelly with Goldman Sachs. Please go ahead. Patrick Donnelly - Goldman Sachs & Co. LLC: Hey, guys. This is Charlie on for Patrick. Just circling back on the guidance, Gerald, I know for margins for this year, really nice progress there. So just curious, I think as of the last call you're kind of thinking that 4Q would kind of be the biggest contributor of the margin expansion. It seems like you've kind of already run rate at that level for this year. So, curious if there were any puts and takes between 3Q and 4Q.

Well, I guess what we clearly did I think is an excellent job of derisking the fourth quarter. One of the things that – I mean, fourth quarter is still going to remain a very large quarter for us, but fundamentally we were able to pull some in. And I think that was helpful both from a revenue perspective but also from a margin perspective. So, favorable product mix helped us, I think, in the third quarter, and I think that's like a good fact for us. As far as the overall guidance goes, we are performing essentially according to our full-year guidance plan. Some of this may have shifted into the third quarter, but essentially we're pretty much on track. We seem to have performed extremely well in the third quarter relative to our plan. So I would say just generally we're pretty positive about fourth quarter. It's going to be a strong quarter for us as well but we think we've presented an achievable and reasonable forecast, and that's what's the baked into the EPS guidance numbers that we're having now. Patrick Donnelly - Goldman Sachs & Co. LLC: Okay. Great. Thanks. And then, Frank, I know on the last call, I think you were kind of talking about some more optimism on the U.S. academic front but maybe that hadn't quite flowed through yet. So maybe could you give us an update on that market and kind of what your conversations have been like? Thanks.

Yeah. No I think maybe not just academic market but generally the North American market has accelerated year-to-date. I would now call that a trend. North America, which we were a little puzzled by, is strengthening. Growth rates are going up. It seems perhaps sustainably as a trend in most parts of Bruker. Just as Europe is slowing down a little bit because, of course, high single-digit growth rates in Europe were long-term sustainable, nicely at this point we would call North America as picking up at least from our perspective. And interestingly, and we hadn't seen that. We hadn't necessarily expected that is year-to-date. There's clearly also a pretty healthy trend in Japan. And so your overall market is healthy, Europe a little bit slower as expected, and the U.S. finally, and North America, U.S. in particular finally picking up in academic as well as in other businesses and Japan being stronger than we had expected. With China, as I said, for Bruker reasons only, a bit weaken or flattish in revenue this year, but very good in order bookings recently from a Bruker perspective.

Operator, next question, please.

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

Hi. This is Juan (43:45) on behalf of Derik. Apologize if you did this in the prepared remarks, but could you please break out the M&A contribution and FX rate to revenue in the third quarter?

We're going to do that in a moment here.

Q3?

It's on one of our slides, right?

Yes. Q3 revenue contribution from M&A was 1.5% and the headwind from currency was a negative 1.4%.

That is on slide 13 of the PDF, by the way, if you'd like to see those figures, yeah.

Got it. Appreciate that. And then my follow-up is you've done a good amount of M&A deals recently. Can you provide some qualitative comments as to how these deals altogether impact the organic revenue growth and margin profile for Bruker in 2019?

Well, this year we've spent so far about $120 million, I think, as we've invested so far in our acquisitions or majority stakes, for instance, in the Hain Group. So it's a higher level than in most years for us. Many of them, of course, will not, by definition, not yet contribute to our organic revenue growth in 2019, like the biggest one by Hain we've just closed in October, middle of October, so not till Q4 of next year that that will contribute to organic growth. And the two midsized, from our perspective, deals that we've done in the middle of the year, roughly JPK and Anasys, we expect them to be helpful with our organic growth rate by middle of next year when they are becoming part of our organic growth calculation. Ultimately, Hain, long term we expect to be helpful to our organic growth rate. Hain is very much part of the crucial – one of our crucial key pillar of our Project Accelerate initiative, which is, of course, microbiology and infectious disease diagnostic.

Okay. That helps. And what about margin?

It helps more in 2020 because the timing of the closing, but I think they'll all be helping our organic growth rate. We think we'll also be very positive in terms of their margin contribution.

Thank you.

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

Hi. This is Eleni (46:30) on for Tycho. Thanks for taking the question. I was hoping you guys could dig in a little bit more on the drivers of organic growth. I know you guys mentioned progress on several fronts in the prepared remarks, but just wondering what you specifically attribute the organic growth to. And then in terms of sustainability, how you're seeing it going forward.

Well, I mean, some of the strongest growth – most markets are healthy. Most markets are healthy. Our detection business is a little weaker this year although that's not really a particular market. That's just the business. And semi is a little weaker. But everything else really is quite healthy. The macro overall looks good. The geographies mostly look good. Industrial and applied markets, pharma markets look very good. Academic spending shows very nice growth this year. So really can't complain too much. Overall it's broad-based and the order patterns have been healthy in the mid- to high single-digits organically for our BSI business. So really quite encouraged that there can be some quarterly fluctuations. But we think that – we feel good about our organic growth guidance for the year, which, of course, has come up a bit from – again in a bit since we gave guidance earlier for the year. And we actually think we're well-positioned for 2019. So, whatever we have achieved so far is sort of steady momentum building, and that's the mode that we're in. We're optimistic that we'll be able to continue that on organic growth and margin expansion.

Great. And in terms of the timeline of operational efficiency, I was wondering if you could sort of run us through what you're expecting going forward?

Well, there is no timeline. We just do that. It was just part of what we've been doing ever since our transformation. There are no big restructuring issues anymore or single press releases or actions that you can – for which you have clear visibility, but it's really part of our management process, of our strategic process of how we execute, of the lean initiatives and operational excellence. We just continuously work on innovation, on pricing power, not by modest price increases but mostly by bringing out new products that are exciting and have sustainable advantages and good growth potential with better margins. So this is very, very broad-based. This is pervasive. This is not one or two actions. I mean, there are a couple of actions. We explained one with Penang. That's going to kick in over the next three years. We moved a lot of our G&A to Central Europe from more expensive Germany, so that's going to have an impact second half of this year already. That's something that Gerald was driving. And you may be familiar with our BioSpin factory consolidation in Project 2021, where some incremental further annual improvements and productivity and therefore in margins are expected over the next three or four years until that's fully available to us by 2021 actually. But these are just examples. It really happens absolutely everywhere even in the many other examples that I could cite to you but then it would be an awfully long call. This is just part of our management process at this point. Other people call it their business system. This is part of the Bruker business system, although we don't brand it like that.

Great. Thank you. And I guess one last one. In light of these dynamics, I was just wondering what you're thinking about capital deployment and your M&A strategy next quarter or even next year?

Very consistent actually. I mean, first and foremost, priority is to invest in our business. So when we do a new factory in Penang or when we develop new products or develop new organic – sorry, excuse me, consumables business for microbiology or meaningful multiyear CapEx into Project 2020 at Bruker BioSpin, so those are the internal investments for R&D and other things. They're fully funded. So beyond that, we look at strategic and financially responsible acquisitions. We've had a number of opportunities this year. We'll probably continue to invest in that. There always seems to be something in the pipeline. It's not predictable, and, of course, we don't discuss these things ahead of time. But we're looking at both, things that strengthen Project Accelerate, but we're also looking at acquisitions that strengthen our core and improve our margins, those are also of interest to us. And so, of course, we have a dividend that's probably remains untouched. And then when we – and then depending on how much we spend on that, primarily in M&A, that kind of determines how much we then perhaps use for buybacks for which we have a continuing authorization and long-term interest in continuing that steadily. But it depends a little bit quarter to quarter on how much we spend on acquisitions.

Great. Thank you.

Your next question comes from Daniel Brennan with UBS. Please go ahead.

Hey. Thank you for the questions. Congrats on the quarter. So I guess the first question was I just want to just to clarify. So, Gerald, I know you talked about third quarter was better, maybe some things got pulled forward to de-risk the fourth quarter. So was there any pull forward that contributed to the strength this quarter such that I know there were a couple of questions on the fourth quarter guidance, but I just wanted to clarify whether or not some things moved earlier than you thought.

Yes. I'd say there were some pull-forwards and we were encouraging those. I mean, as I said earlier, we think our teams did an excellent job of derisking what was a very back-end-loaded fourth quarter by shifting some in. So I think that was helpful. We also, as I said earlier, benefited from some favorable mix. I think that's helped us in terms of our overall operating margin performance as well. So in terms of the pull forward, it was probably in the $10 million range. It's not very significant in the overall scheme of things, but I think it helped us for sure relative to the fourth quarter.

Okay. And then, Frank, I know there was a question earlier on Project Accelerate versus the base, and you can (53:19) so both are contributing, and Accelerate could help more as you move forward. But I think last quarter maybe the base ex-Accelerate barely grew. So would you be comfortable giving us a sense of what the non-Accelerate businesses grew versus the Accelerate businesses this quarter?

Again, we look at it year-to-date and then for the full year. And for that, Project Accelerate, despite a number of these things only beginning to contribute meaningfully next year, already grew meaningfully faster than the corporate average.

Okay. Great. And then in terms of...

So I think in the third quarter, I don't think there's a big discrepancy. When I say – I should clarify a little bit, Daniel – when I say core, that's not everything else. With core, of course, a lot of Project Accelerate is core to us well. So perhaps that's how I may have confused you inadvertently. So their core business in Project Accelerate and in the tradition of the things that we don't consider qualitatively much higher growth opportunities or higher margin opportunities which we've bundled in Project Accelerate. So I think almost all of our businesses did quite well. Some of them we count as Project Accelerate and those did well except the ones that haven't started yet and other core businesses also did quite well. For instance, Bruker AXS or Bruker Optics, molecular spectroscopy, they're not considered – most of their products are not considered under Project Accelerate, they're clearly very core, and they've delivered beautiful results this quarter.

Okay. And then maybe between like CALID and Nano, both of which had really strong quarters, was there anything surprised you frankly this quarter? I know it seems like there's a myriad of products in end markets that you're serving there and they all look they did pretty well. But I'm just wondering, was there any one thing or two things that kind of actually, versus your internal expectations, actually exceeded it?

Yeah, I mean, we – not really surprising, but in CALID, the detection business is weak this year. In the Nano business, semiconductor markets, metrology markets are a little weaker this year and we're not completely unaffected although we're not so cyclical in that. And then if I highlight one, perhaps Bruker AXS being ADVANCE X-ray solutions business did even better than what we expected, although a number of other businesses including Life Science mass spec did even better than we expected. So maybe I'd highlight those two, mass spec and X-ray.

And then in terms of 1.0 Gigahertz, in terms of 1.2 Gigahertz, you made a comment on the backlog there, if you could just give us an update on expectations on timing on 1.0 Gigahertz and kind of where we are with 1.2 Gigahertz development?

Yeah. Good questions. Again more, I mean, when we give 2019 guidance, but I would say hopefully conservatively that we hope that at least one of the 1.0 Gigahertz systems will make it into 2019 revenue, and we're obviously working on making good technical progress with that. And we're also making good technical progress with 1.1 Gigahertz and 1.2 Gigahertz although that's not a sprint. That's more of a marathon. So I would say the key technical milestones on those still have to be achieved, but we're actually making good progress towards that. We're not quite there yet. So, pretty optimistic on 1.0 Gigahertz where we have some backlog for 2019 and 2020 and good progress, although not the crucial milestones yet perhaps for 1.1 Gigahertz and 1.2 Gigahertz. So I'll put it into two slightly different buckets.

And then maybe a final question, just I know I forget if this was in the slide, but just on Europe in particular, it sounds like you had strength in Japan, U.S. and North America improving and Europe slowing kind of as expected you said. But given that you have overreliance or overexposure in Europe, can you give us little color on kind of what the trends look like in Europe this quarter, I'm looking out?

Well, in Europe, I think our year-to-date growth rate tends to be more in the mid-single digits, and it was higher before. And in the U.S, North America is picking up. So, yeah, I think those are the – Europe gradually slowing down a little bit from the very high rates that were unsustainable and the U.S. finally picking up and Japan picking up, which we haven't seen coming but it's a nice bonus.

Great. Okay. Thank you.

You're welcome.

This concludes our 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 fourth quarter, Bruker will participate in the Jefferies London Health Care Conference in the United Kingdom. We invite you to meet us in the conference or visit us at our headquarters in Billerica, Massachusetts. Thank you, and have a good evening.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.