Miroslava Minkova - Bruker Corp. Frank H.

Laukien - Bruker Corp. [0057TV-E Anthony L.

Mattacchione] Anthony L. Mattacchione - Bruker Corp.

Brandon Couillard - Jefferies LLC Steve Barr Willoughby - Cleveland Research Co. LLC Jack Meehan - Barclays Capital, Inc.

Chris Lin - Cowen & Co. LLC Daniel Arias - Citigroup Global Markets, Inc.

Tycho W. Peterson - JPMorgan Securities LLC Charles Steinman - Goldman Sachs & Co.

LLC Puneet Souda - Leerink Partners LLC

Thank you, Jamie. Good afternoon.

I would like to welcome everyone to Bruker's third 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, during today's conference call, we will 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.

A reconciliation 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 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 in subsequent SEC filings. Also, note that the following information is related to current business conditions and to our outlook as of today, November 2, 2017.

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 year-end 2017 financial results in February of 2018. Therefore, you should not rely on these forward-looking statements as representing our views or outlook as of any other date subsequent to today.

We will begin today's call with Frank providing a business summary. Tony will then cover the financials for the third 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 had a solid third quarter 2017 with revenues increasing 10.6% year-over-year and 3.4% on an organic basis.

Our Scientific Instruments segment reported third quarter 2017 organic growth of 4.2% year-over-year. We also delivered year-over-year operating profit growth up 10% on a non-GAAP basis and up about 9% on a GAAP basis.

Year-over-year EPS comparisons of course were negatively affected by an unusually low tax rate in the prior year 2016 as was expected. Year-to-date for the first three quarters of 2017, Bruker's business is performing better than we had expected earlier in the year.

We have achieved better year-to-date organic revenue growth with contributions from end-market improvements and from our targeted growth areas. With these year-to-date results, we are raising our outlook for the full year 2017.

Looking more closely at our Q3 2017 results, we reported revenues of $436 million, an increase of 10.6% year over year. Acquisitions contributed 4.8% to revenue growth, while an FX tailwind or foreign exchange tailwind increased revenues by 2.4% year-over-year.

On an organic basis, our Q3 2017 revenue was up 3.4% year over year including approximately 4% organic growth in our Scientific Instruments or BSI segment as previously mentioned. This was partially offset by an organic revenue decline in our BEST segment this quarter.

Within our Scientific Instruments segment, growth was driven by our NANO and CALID groups which both has challenges in 2016 and which both also executed restructurings and factory consolidations last year. In Q3 of 2017, our Scientific Instruments segment represented about 90% of the company's revenue with BEST at about 10%, up from 7% to 8% in previous years.

As a reminder, our BEST segment has intrinsically lower gross margins than our Scientific Instruments segment. In Q3 of 2017, our non-GAAP gross margin declined 130 bps year-over-year due to a predicted gross margin headwind from acquisitions negative currency effects as well as product, geographic and business mix.

Our Q3 2017 non-GAAP operating margin was relatively stable down 10 basis points compared to a fairly strong Q3 of 2016. In Q3 of 2017, Bruker reported GAAP EPS of $0.23 compared to $0.29 in Q3 of 2016.

Our Q3 2017 non-GAAP EPS of $0.29 decreased $0.03 versus Q3 of 2016 primarily reflecting an unusually low non-GAAP effective tax rate of 6.3% in the third quarter of 2016 versus 22.6% in the third quarter of 2017. On slide 5, I show Bruker's year-to-date performance through the first nine-months of 2017.

Our year-to-date revenue is up $94 million or 8.3% year-over-year. Acquisitions contributed 5.3% to revenue growth while foreign exchange was a modest negative of minus 0.4% versus the first nine months of 2016.

On an organic basis, Bruker's year-to-date revenue was up 3.4% versus the first nine months of 2016. We are pleased with the improvement in our organic revenue growth rates year-to-date in 2017.

Looking at the components of our year-to-date organic revenue growth, the Scientific Instruments segment was up 2.5% year-to-date with all three BSI groups growing organically year-over-year in the first nine months of the year. Our BEST segment was up 11% on an organic basis versus the first nine months of 2016.

Importantly, we have seen mid-single-digit year-over-year order growth within our Scientific Instruments segment in the first nine months of 2017. Year-to-date non-GAAP gross margin declined 50 basis points versus the same prior year period as operational improvements were partially offset by the expected dilution from acquisitions and a slight negative impact from currency.

We are pleased that Bruker's year-to-date, non-GAAP operating margin is up 60 bps versus the same prior year period, and year-to-date non-GAAP operating profit is up 13% year-over-year. For the first nine months of 2017, Bruker reported GAAP EPS of $0.51 compared to $0.52 in the same prior year period, and our year-to-date 2017 non-GAAP EPS was $0.70 compared to $0.73 in the same period in 2016.

The unusually low 2016 tax rates also affected our GAAP and non-GAAP EPS comparisons for the first nine months of the year, as we had predicted all along and was – had expected that in our guidance earlier. So, let me now update you on end-market conditions.

We stated earlier in the first three quarters of the year, orders for our Scientific Instruments segment were up in the mid-single-digits year-over-year. These improvements in part are the result of better academic and government demand, most notably in Europe and more recently also in the U.S.

We have also seen much healthier demand trends in most of our industrial end markets compared to the last few years. Our Biopharma and Microbiology markets continue to do well.

Overall, we believe that better market trends together with the investments in our six strategic growth areas will positioned us to continue our organic revenue growth momentum in 2018. Please turn to slide 6 and 7 now where I provide a summary of the year-to-date performance of our three scientific instruments groups and of our BEST segment on a constant currency basis.

First, the Bruker BioSpin Group delivered low single-digit year-to-date revenue growth. BioSpin product mix favored more low-field NMR systems in 2017 with comparatively lower gross profits versus more high-field units in 2016, with higher margins.

From a revenue perspective, NMR revenue is up slightly year-to-date despite the 1gigahertz systems revenue in Q1 of 2016. As a reminder we do not expect any gigahertz systems revenue in 2017.

We remain encourage by the recovery in our pre-clinical imaging markets or PCI markets as PCI executed well in both Q2 and Q3 of 2017. Finally, BioSpin's aftermarket and service business continue to post strong revenue growth year-over-year.

The Bruker CALID Group reported mid-single digit revenue growth, which resulted in operating profit leverage. The 2016 Daltonics factory consolidation also contributed to higher margins.

Within the CALID Group, the Daltonics mass-spec revenue was up year-to-date, and Optics products had solid revenue growth year-to-date, with strong execution and improved applied and industrial markets demand. Our CALID detection revenue was down year-over-year, with a challenging comparison due to a large contract in the first quarter of 2016.

CALID also benefited from the InVivo consumables acquisition in January of 2017. Turning to slide 7 now.

Bruker NANO reported high-single-digit revenue growth, with good organic growth and contributions from our January 2017 Hysitron acquisition of nanoindenting products. Within the NANO Group, the AXS revenues were up year-to-date, following a challenging 2016.

AXS growth year-to-date was driven by higher industrial growth and the European market's recovery. Our Nano Surfaces business benefited from the Hysitron acquisition, which continues to perform well at Bruker.

Semiconductor metrology or semi revenues were up year-to-date, reflecting healthy underlying end market demand, as well as new semi technology buys. We also expect a strong finish to the year at semi in the fourth quarter of 2017.

Overall, we are encouraged by the improved industrial end market conditions and healthy semi market trends for the NANO Group. Finally, our BEST segment had year-to-date – its year-to-date revenue was substantially higher year-over-year, driven by our November 2016 Bruker OST, or then OST acquisition, and the strong organic growth at BEST in the second quarter of 2017.

Next, I will take a moment to highlight some important new products we launched or acquired over the course of the second quarter, or early in the third quarter. On slide 8, we highlight enabling new products for two of our high-growth, high-margin initiatives.

On the left-hand side of the page is our new timsTOF Pro Mass Spectrometer for proteomics research and on the right-hand side, new tests in consumables for our microbiology franchise. Starting on the left, at the recent Human Proteome Organization, or HUPO meeting, we introduced the proteomics version of our unique dual-TIMS-QTOF mass spectrometer with trapped ion mobility separation, or TIMS.

This system is designed for shotgun proteomics. Specifically, our timsTOF Pro is optimized for the PASEF method, which stands for parallel accumulation and serial fragmentation.

PASEF enables higher sensitivity and higher speed of protein analysis while also offering higher mass resolution at high speed using this new and very unique instrument. This is a crucial combination for proteomics, particularly as we move towards clinical research and the validation of biomarkers in large cohorts.

On the right hand side of the slide, in early October, we introduced our Fungiplex Candida real-time PCR test kit. The Fungiplex Candida assay allows the rapid detection of the most common pathogens associated with invasive candidiasis in two to three hours directly from patient blood, plasma, or serum samples without the need for any culture step.

Together with our previously introduced Fungiplex Aspergillus assay, Fungiplex Candida expands our rapid molecular assay portfolio in the area of invasive fungal disease, or IFD, with the potential to improve patient outcomes. The Fungiplex Candida and Fungiplex Aspergillus assays are CE marked for Europe.

In September, our microbiology business also acquired MERLIN, which was developed – which has developed a product portfolio for human and veterinary antibiotic resistance testing, as well as specialty antibiotics susceptibility testing, or AST. Over time, MERLIN's products can be complementary to our MALDI Biotyper platform which, as you know, does rapid broad-based microbial identification.

These new proteomics and microbiology products, our M&A investments and regulatory approvals, are key elements of our portfolio transformation strategy towards faster growing markets where we believe we can achieve higher margins. On slide 9, I show Bruker's key priorities for 2017, which remain unchanged.

We are on track to deliver on our commitments for 2017. I'm pleased with our year-to-date acceleration and growth, and our improved outlook for the year.

And now, let me turn the call over to our CFO, Tony Mattacchione.

Thank you, Frank. I will now provide some additional details on our financial performance in Q3 2017 and year-to-date 2017.

Starting on slide 11. As you saw in our press release, Bruker's reported revenue increased 10.6% to $436 million in Q3, which included organic growth of 3.4%.

On a GAAP basis, our EPS was $0.23, a decline from $0.29 in Q3 of 2016. Our non-GAAP EPS also declined 9% to $0.29, from $0.32 in Q3 2016.

The year-over-year declines in our GAAP and our non-GAAP EPS were entirely due to challenging comparisons to last year's Q3 which included an unusually low tax rate as we have previously disclosed. On a non-GAAP basis, operating income was up 10% year-over-year, in line with our revenue increase.

Q3 free cash flow were $25 million, roughly comparable to our free cash flow generation last year. We ended the quarter with a net debt position of $51.3 million compared to a net cash position of $76.6 million at September 30, 2016.

The increase in net debt resulted from continued cash used to fund our stock buyback program, dividends, acquisitions and all those using in part the (18:08) credit facility borrowings. Our working capital to revenue ratio weakened 5% year-over-year to $0.40 (18:15) in the third quarter.

This was due primarily to acquisitions over the last 12 months and foreign currency translation. On slide 12, in addition to the organic growth of 3.4%, the portfolio contributed 4.8% primarily from our B-OST, Hysitron and InVivo acquisitions.

Foreign currency translation was a 2.4% tailwind. From an organic growth perspective, revenue gains were led by the NANO and CALID groups.

NANO group revenues rose low-double digits on an organic basis with a significant year-over-year increase in our semiconductor metrology business and growth in X-ray and nano-analysis products for material research and general industrial applications. CALID revenue increased mid single digits on an organic basis.

This was driven by growth in mass spec product sales to academic and clinical customers and Optics product sales to industrial and applied markets customers. BioSpin revenue was flat versus the prior year and year-to-date period, and year-to-date revenues were up low single digits.

A highlight within BioSpin continues to be strong contribution from aftermarket and service sales, which were up low double digits in both the quarter and the year-to-date periods. BEST revenue was down in the quarter on an organic basis but grew in total including the OST acquisition.

Year-to-date, organic revenue growth for BEST is about a little higher than 10%. From an end-market perspective, the positive momentum in our CALID and NANO groups continued particularly in academic and industrial markets respectively.

Semi end-markets are healthy and in an upswing as we continue to meet demand in memory markets and Semi technology buys for future manufacturing nodes. Academic markets in Europe continue to recovery and in the U.S.

have stabilized following uncertainty earlier in the year. We are seeing growth in biopharma markets particularly for NMR products and applied markets also remain healthy.

Geographically and on an organic basis, our European revenue increased mid-teens in Q3 year-over-year while it was up low single-digits on a year-to-date basis. We continued to see a solid recovery from our European academic and industrial customers with stabilizing European economies.

North America revenue was up low- to mid-single digits in Q3 year-over-year including good grow in our academic markets and was marginally higher on a year-to-date basis. Asia-Pacific revenues were down modestly in Q3 year-over-year, mostly within our BEST segment.

Our China revenue again increased in the double-digits in the quarter which was offset by a steep decline in Japan and soft performance in other Asia-Pacific regions. Going forward, we continue to anticipate moderation in our China growth rate after a very rapid pace of growth of the last few years.

Overall, we are pleased with another quarter of positive organic growth and the improvements in end-market demand we are seeing. Turning to slide 13.

Our Q3 2017 non-GAAP gross profit margin was 47.6%, a decline of 130 basis points year-over-year. Dilution from acquisitions primarily from the B-OST acquisition within our lower margin BEST business and foreign exchange translation were the primary drivers of the decline.

In addition and similar to Q2 2017, our BioSpin group continued to experience margin headwinds from year-over-year product and geographic mix factors. However, this was offset by volume and operational improvements at Daltonics and NANO and the application of a new accounting standard this year – new inventory accounting standard this year.

Q3 2017 selling, general and administrative expense of $102 million was up about 6% from Q3 2016 due to additional expenses from acquisitions and the negative impact of foreign currency translation rates. As we maintain our continuous process improvement focus, we have begun actions to improve the cost and service delivery within our G&A functions, including financial shared services and HR.

We will update you more on these new cost initiatives when we report our Q4 2017 results. Q3 2017 R&D expense was roughly $41 million which increased 8% year-over-year and that was also due to acquisitions and FX.

Looking below the line, net interest and other expense was $3.4 million or $500,000 more than in Q3 2016 and this was on higher debt balances. For the third quarter of 2017, our non-GAAP effective tax rate was 22.6%, compared to 6.3% in the third quarter of 2016.

Last year's low effective tax rate was the results of valuation allowance releases, and that was predominantly in the U.S. and tax reserve reversals required in 2016 as we previously disclosed.

Weighted average diluted shares outstanding in the third quarter were 158.7 million, down approximately 2.8 million shares or about 2% year-over-year and this reflected our 2016 and 2017 share buybacks, which were somewhat offset by the stock option exercise dilution we experienced in the quarter. In May 2017, Bruker's board of directors authorized a new two-year share repurchase program of up to $225 million.

During Q3 2017, we repurchased an additional 3.1 million shares for a total of $87.9 million. Year-to-date, we have repurchased 4.7 million shares for a total of $131.8 million.

Finally, non-GAAP EPS of $0.29 in Q3 2017 declined 9% from $0.32 in Q3 2016 due to the absence of last year's favorable tax items, as I described. On slide 14, I show the year-over-year revenue bridge for the first nine months of the year.

Revenue was up $94 million or 8.3%, reflecting year-to-date 2017 organic growth of 3.4%, M&A contributions of 5.3% and a modest negative headwind from FX foreign currency translation of 0.4%. The year-to-date organic growth improvement reflects increases in all three Scientific Instrument groups and the BEST segment as Frank earlier discussed.

Frank also covered the drivers of our year-to-date revenue performance earlier. On slide 15, our year-to-date 2017 non-GAAP gross profit margin was down 50 basis points.

Dilution from the OST acquisition was the primary driver of this decline. In addition, in adjusting for acquisitions, volume, operational improvements at Daltonics and NANO, and the inventory accounting changes were offset by dilution from the higher BEST organic revenue and the BioSpin mix effects.

Our year-to-date 2017 operating expenses increased approximately $20 million or about 5% year-over-year due to the inclusion of acquisitions in selected investments in the first half of 2017. All-in, our non-GAAP operating profit margin year-to-date in 2017 improved 60 basis points to 13.4% compared to 12.8% the same year-to-date period in 2016.

Our year-to-date 2017 non-GAAP tax rate of 25.3% was substantially higher than the 11.4% tax rate in last year's first three quarters, and again, this was due to the previously disclosed tax valuation allowance and reserve reversals. Finally, non-GAAP EPS of $0.70 declined by $0.03 or 4% due to the absence of last year's tax items just mentioned, which more than offset growth in revenue and operating income as we had expected.

We are pleased that compared to our original expectations for non-GAAP EPS in 2017, we are ahead after the first three quarters this year. Turning to slide 16, we generated $19.4 million in free cash flow in the first nine months of the year which was slightly higher than in the same period of 2016.

This reflected higher operating cash flow partially offset by an uptick in capital expenditures. Our cash conversion cycle for the third quarter of 2017 showed a decrease of nine days compared to Q3 2016 driven by a reduction in days inventory outstanding.

This was associated with lower inventory requirements following last year's facility relocations and ongoing operational improvements. The roughly 12 days reduction in days inventory outstanding was partially offset by about three days higher DSO and about three days lower days payable outstanding.

Now, turning to guidance on slide 18, we are raising our full-year 2017 revenue growth, operating margin expansion and EPS outlook to reflect the better year-to-date performance in updated foreign currency translation rates. For 2017, we now project organic revenue growth of between 2.5% and 3%, an increase from our prior guidance of 1.5% to 2%.

We now expect our acquisitions to contribute approximately 4.5% to reported sales. Currency is projected to be a positive tailwind of about 1%.

Adding it all up, for the full-year of 2017 we expect our reported revenue growth to be in the range of 8% to 8.5%. We are also raising our projections for non-GAAP operating profit margin expansion and EPS.

The higher volume we now expect in the second half of the year is expected to result an additional flow through to our operating margin. For the full-year 2017, we now expect our non-GAAP operating margin to expand between 70 basis points and 100 basis points from a base of 14.8% in 2016 compared to our previous guidance of 40 basis points to 70 basis points expansion.

This continues to include approximately 40 basis points of dilution from our recent acquisitions. Our fiscal year 2017 non-GAAP tax rate projection is unchanged at 25%.

For the fully diluted share count, we now project 159 million shares. In total, we expect our 2017 non-GAAP EPS to be in a range between $1.17 and $1.20.

This is compared to our previous EPS guidance of $1.08 to $1.12. That's it for our full-year guidance and quarterly color.

In summary, during the third quarter of 2017, Bruker continued to make good progress, with another quarter of positive organic revenue growth and solid operating income growth year-over-year. We are pleased to see the continued improvement in our end markets, and are optimistic that investments in our high growth initiatives can result in further growth momentum.

With continued cost discipline focus, we expect to deliver meaningful operating leverage and margin expansion over time. We also look forward to updating you again on our Q4 2017 conference call in February 2018.

With that, I'd like to turn the call back to Miroslava to start the Q&A session.

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

In an effort to accommodate more of our analysts, please keep your questions to one and a follow-up.

Thanks. Good afternoon.

Frank or Tony, curious if you could give us a sense of how that portfolio, that basket of five or six different strategic growth areas, performed in the third quarter?

Yeah, Brandon. It's Frank.

I'll take that one. I think obviously, the different growth initiatives are in very different stages.

As you know, semi and microbiology were – is already pretty sizeable and others, like our big proteomics launch, literally has just occurred. So, in the aggregate, and we'll give you more color on that sort of by the end of the year and as we give 2018 guidance, obviously, in early February.

Overall, it's going reasonably well, and they are growing ahead of the growth rates that we're seeing in the rest of the business, as we had anticipated. But we'll get more quantitative on that in early 2018, when we give you next year's guidance.

Thanks. And then a two-part question for Tony.

Any chance you could share with us the BSI order growth in the third quarter specifically? And secondly, if you could help us bridge the delta in operating margins on a year-over-year basis between M&A and currency, and what might have been the core portfolio performance, that would be helpful.

Yeah. From a bookings perspective, and adjusting for acquisitions and currency, we're up mid-single digits in the quarter.

From – bridging the gross margin, it's helpful to – the operating margin – it's helpful to take a long term – to understand our long-term perspective here, where we're really focused on expanding operating profit margin 70 basis points to 100 basis points annually. And, with the improved market conditions, with new products, with our strategic growth areas, my focus is really on making sure that comes with appropriate operating leverage.

Our transformation delivered a lot of expansion already. And that's in place and sustainable, and we believe that that leverage will contribute to expansion going forward.

Below operating profit, we – just to continue down the P&L, tax policy and our planning should help, as well as our share repurchase. So, we're confident that the thesis on the operating profit margin expansion, with the process I just described, will generate sustainable expansion over time.

And Brandon, just to fill, to finish it up on your question, if I understood it correctly. The year-to-date 60 bps operating profit margin expansion also again included about 40 bps, or a little bit more, of M&A dilution.

So, yes, without the acquisitions, which we of course did for a reason, our operating margin expansion would've been even greater. But it's exactly as we had guided, about 40 bps of headwind.

And that's also what we're still guiding to for the full year, from those acquisitions.

Very good. Thank you.

Hi, this is Matt Malcolm (35:28) speaking on behalf of Amanda Murphy today. Thank you for taking our call.

Just, wanted to ask about – so we continue to see some recovery in the academic market in Europe, and I was hoping to get your perspective as to how you see the sustainability of that growth from a funding perspective over the long term?

Yeah. Again, this is Frank, Matt (35:50).

So I think the European recovery, it's actually not a big surprise. Last year's wipeout, if you like, was the big surprise.

I think we're back to sort of normal European patterns of low to mid-single-digit growth in the market in general. And I think academic and government research funding has simply, maybe not in every country, but in Europe in the aggregate, has simply normalized to where it has been really relatively stable, moderate growth for many, many years, with the notable exception of 2016.

Got it. Yeah.

That's helpful. Thank you.

And then, following up with a bit of an unrelated question. So you talked about strong aftermarket revenue growth from your LabScape within the BioSpin group.

Could you talk about exactly what that is adding in terms of revenue growth, and how you see the mix of business evolving over time?

So within the BioSpin group, that had been – that has seen year-to-date a good growth rate, somewhere in the high-single digits or close to 10%. We think that has some runway, it was a little bit of an under – a little bit low-hanging fruit, but now we're really very systematically going after that.

And also expanding the options from service to services to upgrades to software. So I think this will be one of the faster-growing pieces of our portfolio and particularly at BioSpin, where that opportunity years ago was a little bit underpenetrated.

I don't know whether that answered your question entirely but...

No, that was helpful. We were just hoping to get a little better sense of what you're looking for there.

But definitely answered it. So, thank you for taking our questions.

I think at least high-single-digit continued growth in that area maybe kind of – not grow that necessarily at 10% forever but – but we'll give you more guidance when we talk about 2018. So, that continues to be part of our faster growing areas and it delivers very good operating margins.

Although, as our after market grows, in some cases, it is actually reducing gross margins a little bit but has very good operating margins and ultimately, those are more important to us.

Perfect. Thank you.

Hi. Good evening.

Couple of questions for you, Frank and Tony. First, could you describe a bit more on what happened in BEST this quarter, as I remember your commentary a quarter ago suggested that it was still going to likely grow in the 15%, 20% plus range?

Yeah. So, I think there's some timing issues.

We have some big science projects at BEST. And of course, we have the conductor demand primarily from the MRI OEM customers and some of our own conductor demand.

And so the big science project, they can really – it's just from quarter to quarter fluctuations. So, some of that had probably been a little bit of pulling into Q2.

Therefore, Q3 a little bit slower on the organic side. Overall growth was still very good, of course, primarily because of the big B-OST acquisition that still is inorganic growth this quarter.

In Q4 it'll annualize and become partially organic growth. But I think it's primarily timing of big science projects, they can really fluctuate quite a bit from quarter to quarter.

So, with BEST growth rates its really much better to look at them on a 12-month – on a four-quarter basis or last 12 months.

Okay. That's helpful.

Thank you. Then for Tony.

I was just wondering if could provide us the amount that – your EPS guidance is going up. How much of that is attributable from more positive or more favorable FX?

FX is actually lower for us. So, none of the increase in EPS is attributable to FX.

Okay.

We have...

And then last one. Oh, go ahead.

We have – Steve, we have a situation where when the dollar weakens, it translates into higher revenues but because of our European and Swiss cost base, it also translates into higher costs. And...

Sure.

...depending on where the revenues come from, that actually in some cases generates negative – not a lot, but a negative result on the bottom, on EPS and that's the way to think about it.

They're small effects in summary

Okay. Thanks.

Is there any updated...

Was there more, Steve?

Yeah, I do Frank. Is there any updated timing as it relates to potential shipments of gigahertz systems?

I know there are some shipment shifting last quarter. I just didn't know if there were any other changes in what your outlook is for those types of NMR machines?

Yeah, we would presently. I mean we'll give you more guidance when we give guidance for 2018.

But the – maybe not the shipment but the revenue recognition, this will continue to be a system that will be revenue recognition upon acceptance. So, that is moving into at least into the second year of 2018.

Second half.

I'm sorry. What did I say?

Second year.

Oh my God. I'm sorry.

Yes, Steve. The second half of 2018, I apologize.

Got it. Thank you.

Hi. Thanks.

Good afternoon.

Hello.

Hey, Jack.

I wanted to get your thoughts on CALID. So it looked like it picked up mid-single digit now year-to-date I would guess the quarterly trend a little better.

Just what are you seeing in Daltonics on the clinical side. And then, any traction coming out of the ASMS with biopharma?

Now, this is Frank. So, microbiology which is the clinical side has really normalized, it's no longer the double-digit growth area that it was years ago.

Now, overall it's growing above our average. It's growing in the mid- to high-single digits with Systems now growing more slowly and Aftermarket and Consumables revenue still growing very fast, although from a lower basis.

So I think it has just normalized, this is actually how we hoped to see it growing. Whereas, if you recall last year or in the first half of last year 2016 we had some China channel issues and so on, so we had a hiccup there last year.

So, microbiology clinical dong well. ASMS and sort of last year's launches particularly on the pharma side of the MALDI PharmaPulse and MALDI imaging systems, mass spec imaging systems that are used in drug development, that's going really quite well.

So, we're pleased with the growth in those applications this year for both research and pharma. And of course, this year's product launches at HUPO and ASMS, they will mostly contributed to next year's growth rate we expect and help.

Great. That's helpful.

And then, I just listened to the commentary during the call about the improving order outlook, and your views in Europe on academic and coming here to the U.S. And then maybe my math is wrong but looking at the fourth quarter guidance I think it implies about a 1% organic growth rate.

Can you just help us with some of the puts and takes and how we should think about leaping off into 2018? Thanks.

This is Tony. I'll start it off and Frank might follow-up with some comments.

We had talked about even last quarter that the 1-gigahert magnet was a significant expectation earlier in the year for Q4 and that has moved and we have a difficult comp with a very high Q4 and in that is some large detection shipments that won't repeat. So, that is quite sizeable.

That represents about 250 to 300 basis points. So, your math is right.

And with that adjustment, it's more like what you saw us deliver year-to-date. So, those two effects really do impact the growth rate but we have a range there and there's also a range of outcomes that could occur.

And as you know with our business, things could accept on schedule or later so that's always a factor to keep in mind. So, if more business comes, that will obviously help the growth rate in Q4.

Thanks, Tony.

Hi. Good afternoon.

This is actually Chris Lin on for Doug today. Thanks for taking my question.

So, can you provide a bit more detail on your mid single-digit growth rate by segment? It seems like orders growth was higher in Bruker NANO?

Is this right? And what was CALID and BioSpin orders growth?

And then for my follow-up question. I'm not asking for 2018 guidance.

But based on what you're seeing for new orders new products and market trends, could you just talk about your confidence level in achieving higher organic revenue growth in 2018? Thank you.

All right. Chris, this is Frank.

So, the Scientific Instruments or BSI year-to-date mid-single-digit order growth rate, I think it is fair to say that the biggest acceleration comes from NANO, which also perhaps was most subdued for really quite a number of years because of the weak industrial. And the two more life science-oriented groups tend to be a little bit more similar for, at least, for the full year.

That's our expectation on the order growth. So, yeah, NANO growth in terms of revenue and orders this year is a little bit faster than for the other groups within the BSI division.

And for 2018, again, we're not giving guidance, of course. I think the Scientific Instruments business, which is about 89%, 90% of our business, we have pretty good visibility.

And year-to-date, orders are up in the mid-single-digits, which is encouraging. We don't see a reason why there would be a trend change in Q4.

So, that gives us confidence that our Scientific Instruments business hopefully will continue to have nice growth next year. And at BEST, a lot of the order growth for the year will depend on Q4, because there's some long-term contracts.

So there we don't have full visibility yet. But overall, from what we can see today, we are encouraged that we have momentum.

Remember in 2016, our organic revenue growth – well decline was really, it was a negative. In Q1 it was still negative.

The three following quarters, not each one exactly the same, but encouraging step-up in organic revenue growth and we hope that this will continue with more momentum into 2018. And the evidence that we have so far all points in that direction so I think it's a reasonable expectation.

Given what we know today, we will know more in early February when we give guidance.

Okay. Great.

Thank you. Actually, I have one quick question for Tony.

Could you provide free cash flow guidance?

We don't really provide guidance on free cash flow. But the color I would give is this year is like most years.

And in fact, our free cash flow generation year-to-date is almost within a couple of million than it was last year. And the other consistent thing is most of the cash flow comes in Q4 which is the case this year as well.

So what we usually target is conversion at GAAP net income. It's likely going to be somewhat south of that.

But again, a lot of the free cash flow generation will come in Q4 similar to prior years.

Operator, next question please.

Hey good afternoon. Thank you.

Just maybe one quick one for me. Frank, on NMR what are you seeing in terms of the percentage of high field orders that are for NEO versus the other large systems there.

NEO has been shipping for a while typically for high performance systems for NMR customers tend to order NEO sometimes for the more routine chemistry systems or so it may make less of a difference to them. And the NEO of course is slightly higher priced.

So I would think that the high field systems or high performance research systems mostly or almost all are NEO Systems now as we get new orders.

Okay. That's helpful.

Thank you very much.

Hey, thanks. Japan, can you maybe just – it sounds like that got worse sequentially.

Frank, can you just talk about what's going on there? And when do you think things will bottom out?

Good question. I don't have an answer.

It's been weak for us really throughout the year. I don't know that there are any trends that are meaningful.

But Japan has been quite weak for us. And I don't really have any great insights about trends there.

Okay. And then on NANO, I guess, if you could just help us disaggregate how much of the strength here is Semi cycle picking up overall versus Hysitron, Jordan Valley, some of the recent additions contributing to the growth?

Yeah, it was quite a healthy basket. I mean the Hysitron acquisition worked out really quite well.

Semi is – it may not even be that cyclical anymore, but it's certainly, it continues to be in an upswing. Some of that we're selling into memory, we're selling into some capacity buys, or most of what we're doing is still new technology buys for future technology deployment towards more manufacturing.

So, it's not only a good end market upswing that we're participating in, but we have really more of a fundamental setup for a bigger growth and good margin opportunity in Semi. And – but very importantly also, there's a lot – the NANO group sells a lot into academic research.

And that has gotten a lot healthier, particularly also for that group in Europe in particular. And they sell a lot into industrial – so European industrial and China industrial demand recovery, all really contributed to that group.

So, we have a number of good growth drivers.

Okay. And then I guess, one last one along those lines.

You mentioned you expect China to moderate. Is that just purely a function of tougher comps, or is there something else going on there we should be thinking about?

No. I think that's a function of comps.

It's been – it had been growing for us in NMR and other fields for quite – for really quite rapidly, even when we weren't growing that fast in the previous year. And so, I mean at that growth rate, it's just going to settle into still attractive, but slightly lower, growth rates than the ones we had seen, we believe.

Okay. Thank you.

It's Charlie Steinman on for Patrick. Thanks for taking the questions.

In the past, we've talked about a wallet share dynamic in the lab, where maybe the incremental dollar would be going to a technology like cryo-EM as opposed to NMR. I was hoping to get an update on what you're seeing on that front.

And how you're thinking about that heading into 2018 and beyond?

Yeah. It's a pretty minor effect.

I mean, almost all of NMR is completely unaffected. I mean, none of the chemistry system, none of the small molecule systems, none of the pharma systems, none of the aftermarket, none of the imaging are affected.

It may – it has been, for a couple of years, affecting some high-field NMR funding, that's been well-known. And there, cryo-EM clearly took some wallet share, and that hasn't changed this year.

So, we have generally a little bit more, less ultra-high-field funding, but obviously so many other good growth drivers and margin drivers that NMR is still very healthy, despite the fact that cryo-EM is doing well at this point in time. But most of NMR is completely unaffected by this.

Got it. Thanks.

And then, just on the margin cadence. I was hoping you would give us a sense of where you thought we were, like what inning we're in on the margin front.

Any color around what opportunities you think you have to drive that margin expansion going forward?

We're not in any inning here. We're in the long-term margin expansion.

We're...

It's a cricket game.

Oh God.

I mean really, our point hasn't changed on this. I mean, we believe there's significant expansion opportunity.

We believe there's plenty of runway. As long as we can get market-based or better growth on the top line, we think that we can expand margins annually, 70 to 100 basis points a year, and we've got the cost structure and the discipline in place to do that.

So, it's really a consistent message, I would say.

Thanks.

Hi. This is Juan (54:20) for Derik de Bruin.

Thank you. My first question is regarding your M&A pipeline.

How healthy it is, and if you expect to be as active in M&A as you've been recently in the near – in the future?

Well we're not a very acquisitive company. I would normally say, although, in order to contribute to our portfolio, we did make some M&A investments in the last 18 months or so.

Mostly to invest capital where we wanted to save time, where we wanted to add software or consumables or other capabilities that otherwise might have taken five, seven years or so to build up. So, I would expect our M&A activity to generally come down, because I think most of the opportunities that we have for growth and margin expansion are really more on the organic growth and other business development.

If there are selected smaller add-on technologies or capabilities, we will always take a look at that, but we don't really have an M&A pipeline, because we're not a very acquisitive company.

Got it. Thank you.

And as a follow-up. I know that it may be a little bit too early to talk about 2018, but would you still expect to see about 100 basis points of operating margin expansion next year?

I think that tends to be our 75 bps on average over many years is sort of our long-term expectation. I'll just leave it at that.

Obviously, that's never exactly linear, but we're feeling better about this year and have raised our guidance, and we'll just have to revisit that when we give 2018 guidance. So, my response is more of a long-term goal rather than 2018-specific.

Okay. Thank you.

Thanks. You're welcome.

Hi, Frank. Thanks for taking the question.

Maybe if you can help us understand how you're viewing the whole proteomics space overall? Just trying to understand.

On one hand, you have timsTOF that's going into peptide mapping, which is more of a competitive market. But on the other hand, it can serve large molecules as well.

And on the other hand, you have the intrinsically disordered proteins through high-field NMR. So, help us just to understand how you look at that as part of the portfolio optimization over the next year or two.

Good question, Puneet, and I think those are all important to us. I mean proteomics is important to us and the traditional bottom up shotgun proteomics for which we've just launched what we think will be a very exciting product especially as we get towards higher volume and more clinical research and validation is important to us.

There, we had been less of a participant in recent years, so I think that it's also is one of the largest if not the largest market. But of course with mass spectrometry looking at intact proteins and looking at top-down and middle-down approaches which also have an increasing role in proteomics research simply because they are now feasible.

They've always been scientifically interesting but previously they weren't doable. Now, they are doable and very often with our unique tools is of interest to us.

And of course, structural biology which we pursue with NMR and X-ray and including the unstructured proteins, intrinsically disordered proteins, we think once the cryo-EM funding wave and once most people have access to one, not everybody will have one. But people will have access to one at regional facilities or national labs.

I think for scientific and fundamental biology but also for disease research reasons, I think the investment in intrinsically disordered proteins which are so important in many devastating diseases will become more important. So my long term prediction and don't take that as guidance is that after the cryo-EM wave, you will see a high field, ultra high field NMR funding wave primarily focused on intrinsically disordered proteins.

So a lot of important growth drivers. They're actually all important to us and proteomics is one of our key focus areas.

Okay. Got it.

That's helpful. And then just a follow up, What's your sense of portfolio, where it stands in the biopharma labs?

I think that's a small segment of your overall revenue. But help us understand, I mean what can grow meaningfully there and obviously with the core academic in European markets having stabilized already.

What's your sense of expectations in biopharma?

Yeah I mean those are attractive, very big markets, they're still growing a good rates and we are, we're not enough of a participant in those markets. Which is why in the last couple of years we've put a lot of primarily internal product and solutions development focus on pharma, and biopharma applications.

Some are off to the races and beginning to make a difference and generate revenue both in NMR from reaction monitoring to mass-spec high throughput screening, label free high throughput screening or MALDI mass-spec imaging in drug development. Others are in development or in validation.

But it's one of our other strategic growth areas. And here primarily, organically we're developing more unique NMR and mass-spectrometry solutions for pharma and biopharma applications.

So, over time over a multi-year horizon, we expect our still rather modest exposure to these attractive markets to grow from unique products that we think we can offer. This will be one of our growth areas that we will drive very strategically.

Thanks, Frank.

It is still somewhat early days.

Okay. Very helpful.

Thank you.

Thank you for joining us this evening. During the fourth quarter, Bruker will participate in the Jefferies Healthcare Conference in London in mid-November.

We invite you to meet us at the conference or visit us at our headquarters in Billerica, Massachusetts. Thank you and have a good evening.