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Bruker Reorganizes, Sees Short-Term Revenue and Targets Per-Share Losses

Three days after citing “bottom-line set-backs and expense creep” for a 5 percent reduction in Bruker BioSciences’ workforce, CEO Frank Laukien said on Monday that the company is filling a backlog of orders that missed “getting out the door”— turning into revenues — in the second quarter.

“And that bodes well for the future,” Laukien told analysts and investors at the Bear Stearns Healthcare Conference in New York.

With its latest moves, the company tightened its financial purse strings and to a lesser extent, R&D. However, in the context of a systems view of molecular biology, the issue remains this: Selling into this new market, while admittedly very early stage, will take an initial bite out of SG&A expenses, as this kind of sale is essentially a repositioning and packaging of current product lines. Future platforms will also require additional investments in R&D. In both cases, Bruker has little room for expansion, unless top lines increase.

The company expects to see a $6 million benefit to its bottom line from the reorganization — starting perhaps as early as the fourth quarter — in an effort to end a three-year string of per-share losses of $0.22 in 2003, $0.09 in 2002, and $0.05 in 2001, after slight gains in 2000 and 1999.

“We are committed to our basic plan of driving our profitability, and when we get off course, we are making the steps to not only get back on plan, but hopefully, with this plan, even get there a little faster than what we had previously planned,” said Laukien, the head of the parent company of Bruker AXS and Bruker Daltonics. The two companies merged in July 2003.

In addition to Friday’s layoffs of some 60 people, leaving a global workforce of 1,200, Bruker, a provider of mass spectrometry and X-ray crystallography platforms, reorganized its production, R&D, and sales and administrative functions.

“We are optimistic that with a streamlined organization, we will be able to do more with less, and intend to continue to drive 13- to 15-percent top-line growth in the future,” Laukien said in a statement. That future is a long-term total revenue goal of three to five years, a Bruker spokesman told BioCommerce Week.

The layoffs affected Bruker AXS’s US and European sales force, and Bruker Daltonics’ US production and R&D operations, the spokesman said. The reorganization also aligns the company’s R&D efforts to report to Michael Schubert, who was appointed Bruker Daltonics’ vice president of R&D in March.

Projecting Revenues

Bruker is trying to boost its income to consistent double figures, and squeeze out costs by reducing its workforce and installing an enterprise management software package.

Meantime, the company is competing in a mass spec marketplace it says is growing at 10- to 12-percent a year.

If it can reproduce the financial performance of the first two quarters, Bruker BioSciences is in position for $264 million in total revenues this year.

Analysts, however, are expecting better, projecting consensus revenues of $284 million for the year.

Last year, Bruker saw 18 percent year-over-year growth, based on 2003’s $260.6 million in receipts over 2002’s $220.6 million. (The 13-month-old company’s financial statements have been restated to consolidate prior reports for its subsidiaries.) If that pace continues, the company could ring up as much as $306 million in 2004 sales, and thereby excite investors looking for the promised land of sustained double-digit, year-over-year growth.

“Net revenues have grown moderately but a lot of new products are going to ship in Q3 and Q4,” Laukien said. “We missed our top line at Q2, and subsequently, the bottom line. A lot will self-correct in the second half of the year because we have demand, we have the orders, and a lot of that is all shipping.”

The company expects the layoffs and reorganization to produce positive EPS of as much as $.02 a share, reflected in the results for the quarter beginning in September, said Michael Willett, Bruker’s director of investor relations.

Projecting first-half spending out to the whole year, Bruker is in line to record total costs of $272 million for the year, leaving an $8 million gap, based on BCW’s total revenue projection of $264 million. Historically, Bruker BioSciences’ total costs shadowed revenues in 1999, 2000, 2001, and 2002 (see chart).

The company’s costs have, to some extent, reflected unfavorable currency effects pegged to the strength of the euro. A 22-percent increase in sales and marketing costs for Bruker Daltonics in 2003 was boosted by a 12.4 percent increase in costs due to exchange rates — as well as increases in commissions from higher sales, an increase in headcount, and an increase in amortization expenses for demo inventory, according to the company’s 2003 annual report.

The Daltonics unit spent an additional $1.1 million, or 15.9 percent, on general and administrative expenses in 2003 compared to 2002.

Currency effects resulted in 10.2 percent of the increase, the company said in the annual report.

The remainder came from additional overhead costs for two facilities in the US and Germany completed in 2002.

Bruker Daltonics’ R&D spending increased by $5.5 million, or 26.7 percent, in 2003 compared to 2002.

This increase was primarily to prepare for new product introductions in 2004 and 2005, the company said.

“We have to make strong investments to produce instruments that are cutting edge,” Willett said.

— Mo Krochmal ([email protected])

Bruker’s costs against total revenues for 2004: If it performs in the second half of 2004 as it did in the first half, Bruker BioScience is on track to level its cost structure under a conservative projection of total revenues for the year.
* Projected


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