BRUKER CORP 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations should be read in conjunction with our interim unaudited condensed consolidated financial statements and the notes to those statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q, and in conjunction with the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2020. Statements contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Quarterly Report on Form 10-Q, which express that we “believe,” “anticipate,” “plan,” “expect,” “seek,” “may,” “will,” “intend,” “estimate,” “should” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Any forward-looking statements contained herein are based on current expectations but are subject to a number of risks and uncertainties. Forward looking statements include, but are not limited to, statements regarding the impact of COVID-19 on our business, operations, and supply chain, including our implementation of certain cost cutting measures and their impact, expectations regarding the global economy, our intentions regarding our intellectual property, the impact of government contracts and government regulation, our working capital requirements and sufficiency of cash, our competition, the seasonality of our business, the sufficiency of our facilities, our employee relations, the impact of legal or intellectual property proceedings, the impact of changes to tax and accounting rules and changes in law, our anticipated tax rate, our expectations regarding cash dividends, share repurchases, interest expense, interest rate swap agreements, expenses and capital expenditures, the impact of foreign currency exchange rates and changes in commodity prices, the impact of our restructuring initiatives, our expectations regarding backlog and revenue and other risk factors discussed herein and from time to time in our other filings with the Securities and Exchange Commission, or SEC. These and other factors are identified and described in more detail in our filings with the SEC, including, without limitation, our annual report on Form 10-K for the year ended December 31, 2020 and subsequent filings. We expressly disclaim any intent or obligation to update these forward-looking statements other than as required by law. Non-GAAP Measures Although our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP), we believe describing revenue and expenses, excluding the effects of foreign currency, acquisitions and divestitures, as well as certain other charges, net, provides meaningful supplemental information regarding our performance. We rely internally on certain measures that are not calculated according to GAAP. These measures are organic revenue, free cash flow, non-GAAP gross profit margin and non-GAAP operating margin. Our management believes that these financial measures provide relevant and useful information that is widely used by equity analysts, investors and competitors in our industry, as well as by our management, in assessing both consolidated and business unit performance. We define the term organic revenue as GAAP revenue excluding the effect of foreign currency translation changes and the effect of acquisitions and divestitures. We define the term non-GAAP gross profit margin as GAAP gross profit margin with certain non-GAAP measures excluded and non-GAAP operating margin as GAAP operating margin with certain non-GAAP measures excluded. These non-GAAP measures exclude costs related to restructuring actions, acquisition and related integration expenses, amortization of acquired intangible assets, costs associated with our global information technology transition initiative, and other non-operational costs and we believe these are useful measures to evaluate our continuing business. We define free cash flow as net cash provided by operating activities less additions to property, plant, and equipment. We believe free cash flow is a useful measure to evaluate our business as it indicates the amount of cash generated after additions to property, plant, and equipment which is available for, among other things, investments in our business, acquisitions, share repurchases, dividends and repayment of debt. We regularly use these non-GAAP financial measures internally to understand, manage, and evaluate our business results and make operating decisions. We also measure our employees and compensate them, in part, based on such non-GAAP measures and use this information for our planning and forecasting activities. These measures may also be useful to investors in evaluating the underlying operating performance of our business. The presentation of these non-GAAP financial measures is not intended to be a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP and may be different from non-GAAP financial measures used by other companies, and therefore, may not be comparable among companies. OVERVIEW We are a developer, manufacturer and distributor of high-performance scientific instruments and analytical and diagnostic solutions that enable our customers to explore life and materials at microscopic, molecular and cellular levels. Our corporate headquarters are located in Billerica, Massachusetts. We maintain major technical and manufacturing centers in Europe, Asia and North America and we have sales offices located throughout the world. Bruker is organized into three reportable segments: the BSI Life Science segment (comprised of the Bruker BioSpin Group and the Bruker CALID Group), the BSI NANO segment and the Bruker Energy & Supercon Technologies (BEST) segment. 25 Table of Contents Revenue for the three months ended September 30, 2021 increased by $97.5 million, or 19.1%, to $608.9 million, compared to $511.4 million for the comparable period in 2020. Included in revenue was an increase of approximately $5.2 million from foreign currency translation and an increase of $1.3 million from acquisitions. Excluding the effects of foreign currency translation and our recent acquisitions, our organic revenue, a non-GAAP measure, increased $91.0 million. Revenue increases were driven by strong demand for our products and solutions, as well as a robust recovery compared to the same period in 2020. Revenue for the nine months ended September 30, 2021 increased by $374.4 million, or 27.5%, to $1,734.4 million, compared to $1,360.0 million for the comparable period in 2020. Included in revenue was an increase of approximately $60.7 million from foreign currency translation and an increase of $6.3 million from acquisitions. Excluding the effects of foreign currency translation and our recent acquisitions, our organic revenue, a non-GAAP measure, increased $307.4 million. Revenue increases were driven by strong demand for our products and solutions, as well as a robust recovery compared to the same period in 2020. Our gross profit margin increased to 50.7% during the three months ended September 30, 2021, as compared to 48.6% in the same period in 2020, the result of volume leverage. Our gross profit margin increased to 50.0% during the nine months ended September 30, 2021, as compared to 46.1% in the same period in 2020, the result of volume leverage and favorable mix. Our income tax provision in the three months ended September 30, 2021 and 2020 was $20.7 million and $20.0 million, respectively, representing effective tax rates of 19.0% and 26.6%, respectively. The decrease in our effective tax rate was primarily due to the jurisdictional profit mix, partially offset by the impact of favorable discrete items. Our income tax provision in the nine months ended September 30, 2021 and 2020 was $69.5 million and $30.0 million, respectively, representing effective tax rates of 25.4% and 25.0%, respectively. The increase in our effective tax rate was primarily due to the increase in profit before income tax and the jurisdictional profit mix, partially offset by the impact of discrete items in the period. Diluted earnings per share for the three months ended September 30, 2021 was $0.57, an increase of $0.22 compared to $0.35 per share in the same period in 2020. Diluted earnings per share for the nine months ended September 30, 2021 was $1.32, an increase of $0.75 compared to $0.57 per share in the same period in 2020. The increase in net income and earnings per diluted share in both the three months and nine months ended September 30, 2021 was primarily driven by higher revenue, favorable volume and operating leverage compared to the same period in 2020. The following table presents a reconciliation from net cash provided by operating activities, which is the most directly comparable GAAP operating financial measure, to free cash flow as used by management (in millions): Nine Months Ended September 30, 2021 2020 Net cash provided by operating activities $ 143.8 $ 129.2 Less: purchases of property, plant and equipment (63.6 ) (68.4 ) Free cash flow $ 80.2 $ 60.8 26 Table of Contents The following table presents reconciliations from gross profit and gross profit margin, which are the most directly comparable GAAP operating performance measures, to non-GAAP gross profit and non-GAAP gross profit margin as used by management (dollars in millions): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Gross profit $ 308.7 50.7 % $ 248.3 48.6 % $ 868.0 50.0 % $ 626.8 46.1 % Non-GAAP adjustments: Restructuring costs 0.2 — 0.3 — 1.6 0.1 % 1.3 0.1 % Acquisition-related costs 0.1 — 0.5 0.1 % 0.1 — 0.5 — Purchased intangible amortization 5.3 0.9 % 5.0 1.0 % 15.0 0.9 % 15.1 1.1 % Other costs 0.6 0.1 % (0.3 ) (0.1 %) 0.1 — (0.1 ) — Non-GAAP gross profit $ 314.9 51.7 % $ 253.8 49.6 % $ 884.8 51.0 % $ 643.6 47.3 % Our non-GAAP gross profit margin was 51.7% and 49.6% in the three months ended September 30, 2021 and 2020, respectively. Our non-GAAP gross profit margin was 51.0% and 47.3% in the nine months ended September 30, 2021 and 2020, respectively. The increases in our non-GAAP gross profit margins in both the three and nine months ended September 30, 2021 were driven by higher revenue and volume leverage, compared to 2020 which was negatively impacted by the COVID-19 pandemic. Contributions from higher margin products also favorably impacted our gross profit margin in the nine months ended September 30, 2021. The following table presents reconciliations from operating income and operating margin, which are the most directly comparable GAAP operating performance measures, to non-GAAP operating income and non-GAAP operating margin as used by management (dollars in millions): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Operating income $ 113.2 18.6 % $ 81.2 15.9 % $ 287.9 16.6 % $ 135.5 9.9 % Non-GAAP adjustments: Restructuring costs 1.1 0.2 % 1.9 0.4 % 5.2 0.3 % 5.7 0.4 % Acquisition-related costs 0.7 0.1 % 1.4 0.3 % 3.9 0.2 % (0.5 ) — Purchased intangible amortization 9.2 1.5 % 9.1 1.8 % 27.2 1.6 % 26.8 2.0 % Other costs 1.2 0.2 % 1.3 0.2 % 2.2 0.1 % 8.6 0.6 % Non-GAAP operating income $ 125.4 20.6 % $ 94.9 18.6 % $ 326.4 18.8 % $ 176.1 12.9 % Our non-GAAP operating margin was 20.6% and 18.6% in the three months ended September 30, 2021 and 2020, respectively. Our non-GAAP operating margin was 18.8% and 12.9% in the nine months ended September 30, 2021 and 2020, respectively. Our non-GAAP operating margin increased in 2021 due to higher revenue, volume and operating leverage in 2021, as compared to 2020. We can experience quarter-to-quarter fluctuations in our operating results as a result of various factors, some of which are outside our control, such as: • the impact of the COVID-19 global pandemic on our customers, supply chain or manufacturing capabilities; • the impact of certain weather-related disruptions, such as the recent flooding in Germany and other parts of Europe; • the timing of governmental stimulus programs and academic research budgets; • the time it takes between the date customer orders and deposits are received, systems are shipped and accepted by our customers and full payment is received; • foreign currency exchange rates; • the time it takes for us to receive critical materials to manufacture our products; 27 Table of Contents • general economic conditions, including the impact of COVID-19 or other factors on the global economy; • the time it takes to satisfy local customs requirements and other export/import requirements; • the time it takes for customers to construct or prepare their facilities for our products; and • the time required to obtain governmental licenses. Several of these factors have in the past affected the amount and timing of revenue recognized on sales of our products and receipt of related payments and will likely continue to do so in the future. Accordingly, our operating results in any particular quarter may not necessarily be an indication of any future quarter’s operating performance. The COVID-19 pandemic continues to present a challenging operating environment. During the COVID-19 pandemic, we have been focused on and continue to focus on four key priorities: the health and safety of our employees, customers and partners; maintaining business continuity and service levels for our customers; executing prudent temporary cost reductions during periods of reduced demand in 2020; and delivering enabling research and diagnostic products to help fight the pandemic, and to support other essential priorities of our society. Health and safety of our valued employees, customers and partners We have implemented strict social distancing, enhanced cleaning protocols and other preventative measures, such as company-issued face coverings and mandatory mask protocols for unvaccinated employees, in our major facilities. While many of our office colleagues are working remotely, we are placing enhanced focus on our service organization and factory employees for whom work from home is not feasible. Where customer sites are accessible and open, our field service organizations operate under social distancing protocols with proper face coverings to ensure the safety of customer sites, when our employees need to be on site. Many of our facilities have begun to plan for employees who have been working remotely during the pandemic to gradually return to the office. Employee and visitor health and safety will remain our paramount concern. Maintaining business continuity and service levels to our customers Ensuring our ability to supply our enabling technologies and solutions and maintaining high service levels for our customers is another top priority for Bruker. In late March and during parts of April 2020, several of our manufacturing sites underwent temporary controlled shutdowns or were operating at reduced capacity to implement new safety protocols, comply with local rules, and manage cost and inventory levels. These sites thereafter ramped back up with expanding capacity and productivity levels. However, with any resurgence of the virus or the emergence of additional strains of the virus, particularly any new strains of the virus that are more resistant to existing vaccines, we may again need to consider temporary controlled shutdowns or reduced capacity measures. In addition, we are continuing capital investments in production facilities for efficiencies and expansion. We continue to manage supply chain risks, more recently associated with the economic recovery from the pandemic, like the worldwide shortage of semiconductor chips, components and raw materials, such as copper. Executing prudent temporary cost reductions During a period of reduced demand due to COVID-19 in 2020, we implemented temporary cost reduction measures in an effort to mitigate the negative impacts on our business of COVID-19 and the related slowdown in the global economy. These temporary measures included short-time work for many of our European operations, temporary tiered salary reductions for our board of directors, global leadership team and workforce, one-to two-week closures of select manufacturing locations, selective product manufacturing reductions, a hiring freeze, and curtailment of non-strategic discretionary spending. At the same time, we looked to minimize the disruption for our employees and preserve our ability to ramp up again with our highly trained and loyal work force. While pursuing cost savings throughout the business, we have maintained our important investments in key strategic initiatives. These cost reduction measures have since been relaxed, as our revenue has recovered. We could in fact experience increased compensation expenses associated with employee recruiting and employee retention to the extent employment opportunities continue multiplying post-pandemic, causing the search for and retention of talent to remain and become more competitive. Delivering enabling research and diagnostic products to help fight the pandemic and to support other essential priorities of our society Bruker is providing critical technologies and solutions to help combat the COVID-19 crisis, most notably our Microbiology and infectious disease diagnostics portfolio and our nuclear magnetic resonance and mass spectrometry systems which are used in critical disease, therapeutic and vaccine research. 28 Table of Contents The COVID-19 global pandemic has driven volatility and uncertainty in global markets and has in the past affected our operations significantly. We continue to work to manage the impact of COVID-19 on our operations; however, the full extent to which any resurgence of the virus, the emergence of any new strains of the virus, or the availability and effectiveness of COVID-19 vaccines will impact our business, directly or indirectly, cannot accurately be predicted at this time. We continue to monitor the impact of COVID-19 on our business and our supply chain and respond accordingly. For additional information on the various risks posed by the COVID-19 pandemic, refer to Item 1A. Risk Factors included in this report. CRITICAL ACCOUNTING POLICIES AND ESTIMATES This discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to: revenue recognition; stock-based compensation expense; restructuring and other related charges; income taxes, including the recoverability of deferred tax assets; allowances for doubtful accounts; inventory reductions for excess and obsolete inventories; estimated fair values of long-lived assets used to measure the recoverability of long-lived assets; intangible assets and goodwill; expected future cash flows used to measure the recoverability of intangible assets and long-lived assets; warranty costs; derivative financial instruments; and contingent liabilities. We base our estimates and judgments on our historical experience, current market and economic conditions, industry trends, and other assumptions that we believe are reasonable and form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. We believe the following critical accounting policies and estimates to be both those most important to the portrayal of our financial position and results of operations and those that require the most estimation and subjective judgment: • Revenue recognition; • Income taxes; • Inventories; • Goodwill, other intangible assets and other long-lived assets; and • Business combinations. For a further discussion of our critical accounting policies, please refer to our Annual Report on Form 10-K for the year ended December 31, 2020. 29 Table of Contents RESULTS OF OPERATIONS Three Months Ended September 30, 2021 compared to the Three Months Ended September 30, 2020 Consolidated Results The following table presents our results (dollars in millions, except per share data): Three Months Ended September 30, 2021 2020 Dollar Change Percentage Change Product revenue $ 508.3 $ 419.6 $ 88.7 21.1 % Service revenue 99.0 90.0 9.0 10.0 % Other revenue 1.6 1.8 (0.2 ) (11.1 )% Total revenue 608.9 511.4 97.5 19.1 % Cost of product revenue 243.5 210.3 33.2 15.8 % Cost of service revenue 56.5 52.6 3.9 7.4 % Cost of other revenue 0.2 0.2 — — Total cost of revenue 300.2 263.1 37.1 14.1 % Gross profit 308.7 248.3 60.4 24.3 % Operating expenses: Selling, general and administrative 141.3 114.6 26.7 23.3 % Research and development 52.1 48.3 3.8 7.9 % Other charges, net 2.1 4.2 (2.1 ) (50.0 )% Total operating expenses 195.5 167.1 28.4 17.0 % Operating income 113.2 81.2 32.0 39.4 % Interest and other income (expense), net (4.4 ) (5.9 ) 1.5 (25.4 )% Income before income taxes and noncontrolling interest in consolidated subsidiaries 108.8 75.3 33.5 44.5 % Income tax provision 20.7 20.0 0.7 3.5 % Consolidated net income 88.1 55.3 32.8 59.3 % Net income (loss) attributable to noncontrolling interests in consolidated subsidiaries 1.0 1.0 — — Net income attributable to Bruker Corporation $ 87.1 $ 54.3 $ 32.8 60.4 % Revenue Revenue increases were driven by strong demand for our products and solutions, as well as a robust recovery as compared to the same period in 2020. Gross Profit The increase in gross profit in the three months ended September 30, 2021, as compared to the same period in 2020, was a result of higher revenue and volume leverage. 30 Table of Contents Selling, General and Administrative Our selling, general and administrative expenses for the three months ended September 30, 2021 increased to 23.2% of total revenue, from 22.4% of total revenue for the comparable period in 2020. The increase as a percentage of revenue was a result of the temporary cost reduction measures implemented in the prior period in an effort to mitigate the negative impacts on our business of COVID-19 and the related slowdown in the global economy. Research and Development Our research and development expenses for the three months ended September 30, 2021 decreased to 8.6% of total revenue from 9.4% of total revenue for the comparable period in 2020. The decrease as a percentage of revenue was a result of the increase in revenue period over period. Other Charges, Net Other charges, net recorded for the three months ended September 30, 2021 consisted of $1.1 million of costs associated with our global information technology (IT) transformation activities, $0.9 million of restructuring costs and $0.6 million of acquisition-related charges related to acquisitions completed in 2021 and 2020. Other charges, net for the three months ended September 30, 2020 consisted primarily of $1.7 million of restructuring costs related to closing of facilities and implementing outsourcing and other restructuring initiatives, $0.9 million of acquisition-related charges, $0.7 million related to long-lived asset impairments, $0.5 million of costs associated with our global IT transformation activities and $0.3 million of professional fees incurred in connection with investigation matters. Operating Income The increase in operating income was due to higher revenue, gross profit and favorable operating leverage in the three months ended September 30, 2021 as our business and end markets rebounded, as compared to the same period in 2020 which was negatively impacted by the COVID-19 pandemic and related economic slowdown. Interest and Other Income (Expense), Net The decline in net interest and other expense in the three months ended September 30, 2021, as compared to the same period in 2020 was mainly due to the impact of foreign currency exchange rates. Income Tax Provision The 2021 and 2020 effective tax rates were estimated using projected annual pre-tax income on a jurisdictional basis. Expected tax benefits, including tax credits and incentives, the impact of changes to valuation allowances and the effect of jurisdictional differences in statutory tax rates were also considered in the calculation. The effective tax rates for the three months ended September 30, 2021 and 2020 were 19.0% and 26.6%, respectively. The decrease in our effective tax rate was primarily due to the jurisdictional profit mix and the impact of favorable discrete items. Net Income (Loss) Attributable to Noncontrolling Interests The net income attributable to noncontrolling interests represented the minority shareholders’ proportionate share of the net income recorded by our majority-owned subsidiaries. Net Income Attributable to Bruker Corporation The increase in net income and earnings per diluted share in the three months ended September 30, 2021, as compared to the same period in 2020, was primarily driven by higher revenue, gross profit and operating profit as a result of the strengthened demand and recovery in our business and end markets. 31 Table of Contents Reportable Segment Revenue The following table presents revenue, change in revenue and revenue growth by reportable segment (dollars in millions): Three Months Ended September 30, Percentage 2021 2020 Dollar Change Change BSI Life Science $ 380.7 $ 323.4 $ 57.3 17.7 % BSI NANO 174.9 147.1 27.8 18.9 % BEST 57.0 43.8 13.2 30.1 % Eliminations (a) (3.7 ) (2.9 ) (0.8 ) $ 608.9 $ 511.4 $ 97.5 19.1 % (a) Represents product and service revenue between reportable segments. For financial reporting purposes, we aggregate the Bruker BioSpin Group and Bruker CALID Group as the BSI Life Science segment. This aggregation reflects the similar economic characteristics, production processes, customer services provided, types and classes of customers, methods of distribution and regulatory environments. The increase in revenue for the BSI Life Science segment in the three months ended September 30, 2021 was due to strong demand, business and end market recovery, and was led by growth in infrared and Raman, Nuclear Magnetic Resonance (NMR), and Preclinical Imaging (PCI) solutions. The increase in revenue for the BSI NANO segment was driven by a rebound in industrial research and academic market demand and continued strong demand from semiconductor and microelectronics customers. The increase in revenue for the BEST segment resulted from higher “big science” project revenue and a recovery in superconductors for healthcare MRI in the three months ended September 30, 2021. Operating Income The following table presents operating income and operating margins on revenue by reportable segment (dollars in millions): Three Months Ended September 30, 2021 2020 Operating Income (Loss) Percentage of Segment Revenue Operating Income (Loss) Percentage of Segment Revenue BSI Life Science $ 100.9 26.5 % $ 80.6 24.9 % BSI NANO 21.8 12.5 % 12.2 8.3 % BEST 7.4 13.0 % 1.2 2.7 % Corporate, eliminations and other (a) (16.9 ) (12.8 ) Total operating income $ 113.2 18.6 % $ 81.2 15.9 % (a) Represents corporate costs and eliminations not allocated to the reportable segments. The operating margin increases in the BSI Life Science and BSI NANO segments resulted from higher revenue, volume and operating leverage. The operating margin increase in the BEST segment resulted from higher revenue and favorable mix. 32 Table of Contents Consolidated Results Nine Months Ended September 30, 2021 compared to the Nine Months Ended September 30, 2020 The following table presents our results (dollars in millions, except per share data): Nine Months Ended September 30, 2021 2020 Dollar Change Percentage Change Product revenue $ 1,441.2 $ 1,111.6 $ 329.6 29.7 % Service revenue 287.8 244.3 43.5 17.8 % Other revenue 5.4 4.1 1.3 31.7 % Total revenue 1,734.4 1,360.0 374.4 27.5 % Cost of product revenue 700.4 584.1 116.3 19.9 % Cost of service revenue 165.3 148.4 16.9 11.4 % Cost of other revenue 0.7 0.7 — — Total cost of revenue 866.4 733.2 133.2 18.2 % Gross profit 868.0 626.8 241.2 38.5 % Operating expenses: Selling, general and administrative 407.9 338.2 69.7 20.6 % Research and development 162.7 140.9 21.8 15.5 % Other charges, net 9.5 12.2 (2.7 ) (22.1 )% Total operating expenses 580.1 491.3 88.8 18.1 % Operating income 287.9 135.5 152.4 112.5 % Interest and other income (expense), net (13.8 ) (15.4 ) 1.6 (10.4 )% Income before income taxes and noncontrolling interest in consolidated subsidiaries 274.1 120.1 154.0 128.2 % Income tax provision 69.5 30.0 39.5 131.7 % Consolidated net income 204.6 90.1 114.5 127.1 % Net income (loss) attributable to noncontrolling interests in consolidated subsidiaries 3.2 1.2 2.0 166.7 % Net income attributable to Bruker Corporation $ 201.4 $ 88.9 $ 112.5 126.5 % Revenue Revenue increases were driven by strong broad demand for our products and solutions, and the business and end market recovery as compared to the same period in 2020. Gross Profit The increase in gross profit in the nine months ended September 30, 2021, as compared to the same period in 2020, was a result of higher revenue, volume leverage and favorable mix. 33 Table of Contents Selling, General and Administrative Our selling, general and administrative expenses for the nine months ended September 30, 2021 decreased to 23.5% of total revenue, from 24.9% of total revenue for the comparable period in 2020. The decrease as a percentage of revenue was a result of the increase in revenue period over period. Research and Development Our research and development expenses for the nine months ended September 30, 2021 decreased to 9.4% of total revenue from 10.4% of total revenue for the comparable period in 2020. The decrease as a percentage of revenue was a result of the increase in revenue period over period. Other Charges, Net Other charges, net recorded for the nine months ended September 30, 2021 consisted of $3.8 million of acquisition-related charges related to acquisitions completed in 2021 and 2020, $3.6 million of restructuring costs and $2.6 million of costs associated with our global IT transformation activities. Other charges (gain), net recorded for the nine months ended September 30, 2020 consisted primarily of $4.8 million of professional fees incurred in connection with investigation matters, $4.4 million of restructuring costs related to closing of facilities and implementing outsourcing and other restructuring initiatives, $1.9 million related to long-lived asset impairments and $1.8 million of costs associated with our global IT transformation activities offset by $(1.0) million of acquisition-related charges related to previous acquisitions. Operating Income The increase in operating income was due to higher revenue, gross profit and favorable operating leverage in the nine months ended September 30, 2021 as our business and end markets rebounded, as compared to the same period in 2020 which was negatively impacted by the COVID-19 pandemic and related economic slowdown. Interest and Other Income (Expense), Net The decline in net interest and other expense in the nine months ended September 30, 2021, as compared to the same period in 2020 was mainly due to the impact of foreign currency exchange rates. Income Tax Provision The 2021 and 2020 effective tax rates were estimated using projected annual pre-tax income on a jurisdictional basis. Expected tax benefits, including tax credits and incentives, the impact of changes to valuation allowances and the effect of jurisdictional differences in statutory tax rates were also considered in the calculation. The effective tax rates for the nine months ended September 30, 2021 and 2020 were 25.4% and 25.0%, respectively. The increase in our effective tax rate was primarily due to the increase in profit before income tax and the jurisdictional profit mix, partially offset by the impact of discrete items in the period. Net Income (Loss) Attributable to Noncontrolling Interests The net income attributable to noncontrolling interests represented the minority shareholders’ proportionate share of the net income recorded by our majority-owned subsidiaries. Net Income Attributable to Bruker Corporation The increase in net income and earnings per diluted share in the nine months ended September 30, 2021, as compared to the same period in 2020, was primarily driven by the increase in revenue, gross profit and operating profit as a result of strengthened demand and recovery in our business and end markets. 34 Table of Contents Reportable Segment Revenue The following table presents revenue, change in revenue and revenue growth by reportable segment (dollars in millions): Nine Months Ended September 30, Percentage Change 2021 2020 Dollar Change BSI Life Science $ 1,074.3 $ 842.6 $ 231.7 27.5 % BSI NANO 504.6 392.7 111.9 28.5 % BEST 166.0 134.8 31.2 23.1 % Eliminations (a) (10.5 ) (10.1 ) (0.4 ) $ 1,734.4 $ 1,360.0 $ 374.4 27.5 % (a) Represents product and service revenue between reportable segments. The increase in revenue for the BSI Life Science segment in the nine months ended September 30, 2021 was due to strong demand and business and end market recovery across the segment’s major product lines, including mass spectrometry, infrared, Raman, microbiology, Nuclear Magnetic Resonance (NMR) and Preclinical Imaging (PCI) solutions. In addition, system installation activities recovered compared to the same period in 2020. The increase in revenue for the BSI NANO segment was driven by a rebound in industrial research and academic market demand and continued strong demand from semiconductor and microelectronics customers. The increase in revenue for the BEST segment resulted from higher “big science” project revenue and a recovery in superconductors for healthcare MRI in the three months ended September 30, 2021. Operating Income The following table presents operating income and operating margins on revenue by reportable segment (dollars in millions): Nine Months Ended September 30, 2021 2020 Operating Income (Loss) Percentage of Segment Revenue Operating Income (Loss) Percentage of Segment Revenue BSI Life Science $ 263.4 24.5 % $ 158.7 18.8 % BSI NANO 55.1 10.9 % 9.3 2.4 % BEST 18.3 11.0 % 5.1 3.8 % Corporate, eliminations and other (a) (48.9 ) (37.6 ) Total operating income $ 287.9 16.6 % $ 135.5 10.0 % (a) Represents corporate costs and eliminations not allocated to the reportable segments. The operating margin increases in the BSI Life Science and BSI NANO segments resulted from higher revenue, volume and operating leverage. The operating margin increase in the BEST segment resulted from higher revenue and favorable mix. LIQUIDITY AND CAPITAL RESOURCES We anticipate that our existing cash and credit facilities will be sufficient to support our operating and investing needs for at least the next twelve months. Our future cash requirements could be affected by acquisitions that we may complete, purchases of our common stock or the payment of dividends in the future. Historically, we have financed our growth and liquidity needs through cash flow generation and a combination of debt financings and issuances of common stock. In the future, there are no assurances that we will continue to generate cash flow from operations or that additional financing alternatives will be available to us, if required, or if available, will be obtained on terms favorable to us. Cash, cash equivalents and short-term investments at September 30, 2021 and December 31, 2020 totaled $669.8 million and $731.8 million, respectively, of which $560.1 million and $514.9 million, respectively, related to cash, cash equivalents and short-term investments held outside of the U.S. in our foreign subsidiaries, most significantly in the Netherlands, Switzerland and Hong Kong. 35 Table of Contents The following table presents our cash flows from operating activities, investing activities and financing activities for the periods presented (in millions): Nine Months Ended September 30, 2021 2020 Net cash provided by operating activities $ 143.8 $ 129.2 Net cash used in investing activities (143.8 ) (163.9 ) Net cash used in financing activities (85.6 ) (87.3 ) Effect of exchange rates on cash and cash equivalents (23.4 ) 10.7 Total decrease in cash and cash equivalents $ (109.0 ) $ (111.3 ) Cash provided by operating activities during the nine months ended September 30, 2021 resulted from consolidated net income adjusted for non-cash items of $300.9 million, partially offset by a change in operating assets and liabilities, net of acquisitions and divestitures of $157.1 million. The primary increase is a result of increased net income driven by the increase in revenue, gross profit and operating profit as a result of the rebounding in our business and end markets. The decrease in operating assets and liabilities, net of acquisitions and divestitures for the nine months ended September 30, 2021 was primarily due to strategic inventory management to handle supply chain challenges, timing of tax payment payables and increased revenues at the end of the period. These decreases were partially offset by a decrease in timing of payments as compared to the same period in the prior year. During the nine months ended September 30, 2020, net cash provided by operating activities was $129.2 million, resulting from consolidated net income adjusted for non-cash items of $185.7 million, offset by a change in operating assets and liabilities, net of acquisitions and divestitures of $56.5 million. The increase in operating assets and liabilities, net of acquisitions and divestitures for the nine months ended September 30, 2020 was primarily caused by an increase in cash received from customers offset by purchases of inventory for orders in 2020. Cash used in investing activities during the nine months ended September 30, 2021 resulted primarily from purchases of property, plant and equipment of $63.6 million, purchases of short-term investments of $48.0 million and acquisitions of $45.0 million offset by $8.6 million of net proceeds from our cross-currency swap agreements. Cash used in investing activities during the nine months ended September 30, 2020 was primarily attributed to cash paid for purchases of property, plant and equipment of $68.4 million, cash paid for acquisitions of $58.8 million and purchases of short-term investments of $100.0 million offset by $7.1 million of net proceeds from our cross-currency swap agreements and $56.1 million of maturities in short-term investments. Net cash used in financing activities during the nine months ended September 30, 2021 was primarily from cash paid for purchases of common stock under our repurchase program of $71.1 million and $18.2 million for the payment of dividends. Net cash used in financing activities during the nine months ended September 30, 2020 was primarily attributable to $54.4 million of repurchases of common stock under our repurchase program, $18.5 million for the payment of dividends, $7.6 million in net payments of borrowings under the 2019 Revolving Credit Agreement and $6.2 million payment of contingent consideration. Share Repurchase Program In May 2019, our Board of Directors approved our share repurchase program (the “2019 Repurchase Program”) under which repurchases of common stock in the amount of up to $300.0 million were authorized to occur from time to time, in amounts, at prices, and at such times as we deem appropriate, subject to market conditions, legal requirements and other considerations. During the nine months ended September 30, 2021, we repurchased a total of 555,602 shares at an aggregate cost of $34.5 million under the 2019 Repurchase Program. We completed the 2019 Repurchase Program in April 2021, after reaching the maximum cumulative spend. In May 2021, our Board of Directors approved a share repurchase program (the “2021 Repurchase Program”) authorizing the purchase of up to $500.0 million of our common stock over a two-year period from time to time, in amounts, at prices, and at such times as we deem appropriate, subject to market conditions, legal requirements and other considerations. During the nine months ended September 30, 2021, we purchased 530,703 shares of common stock with an aggregate cost of approximately $36.6 million under the 2021 Repurchase Program. No shares were purchased during the three months ended September 30, 2021. At September 30, 2021, $463.4 million remained for future purchase under the 2021 Repurchase Program. We intend to fund any additional repurchases from cash on hand, future cash flows from operations and available borrowings under our revolving credit facility. The purchased shares are reflected within Treasury stock in the accompanying unaudited condensed consolidated balance sheets. 36 Table of Contents Income Taxes At December 31, 2020 and in accordance with the tax reform legislation signed by the president of the United States on December 22, 2017, or the 2017 Tax Act, we recorded state and foreign withholding taxes, as well as subsequent foreign currency translations on these withholding taxes as they are an obligation of the parent company, on the cash and liquid assets portion of the unremitted earnings and profits (E&P) of foreign subsidiaries expected to be repatriated from our foreign subsidiaries to the United States. We continue to be indefinitely reinvested in the amount of $436 million of non-cash E&P that is subject to the 2017 Tax Act deemed repatriation. If this E&P is ultimately distributed to the United States in the form of dividends or otherwise we would likely be subject to additional withholding tax. We will continue to evaluate our assertions on the cumulative historical outside basis differences in our foreign subsidiaries as of December 31, 2020. The amount of unrecognized deferred withholding taxes on the undistributed E&P was $63 million at December 31, 2020. As of September 30, 2021, we had approximately $66.0 million of net operating loss carryforwards available to reduce state taxable income that are expected to expire at various times beginning in 2021; approximately $95.1 million of net operating losses available to reduce German federal income and trade taxes that are carried forward indefinitely and $12.5 million of other foreign net operating losses that are expected to expire at various times beginning in 2021. We also had U.S. state research and development tax credits of $7.1 million. Utilization of these credits and state net operating losses may be subject to annual limitations due to the ownership percentage change limitations provided by the Internal Revenue Code Section 382 and similar state provisions. In the event of a deemed change in control under Internal Revenue Code Section 382, an annual limitation on the utilization of net operating losses and credits may result in the expiration of all or a portion of the net operating loss and credit carryforwards. Uncertain tax contingencies are positions taken or expected to be taken on an income tax return that may result in additional payments to tax authorities. If a tax authority agrees with the tax position taken or expected to be taken or the applicable statute of limitations expires, then additional payments will not be necessary. Credit Facilities On December 11, 2019, we entered into (1) a new revolving credit agreement to establish a new revolving credit facility in the aggregate principal amount of $600 million; (2) a term loan agreement to establish a new term loan facility in the aggregate principal amount of $300 million; and (3) a note purchase agreement to issue and sell CHF 297 million aggregate principal amount of 1.01% senior notes due December 11, 2029. Floating interest rates under the term loan were simultaneously fixed through cross-currency and interest rate swap agreements into Euro ($150 million) and Swiss Franc ($150 million) rates carrying average effective interest rates of 0.94% and hedge our net investment in our Euro and Swiss Franc denominated net assets. The new revolving credit agreement replaced our $500 million five-year revolving credit agreement established on October 27, 2015, that was terminated on December 11, 2019. In addition, we designated our CHF 297 million senior notes as a hedge in our net investment in our Swiss Franc denominated net assets. Proceeds from this financing were used to repay the outstanding borrowings under our prior 2015 revolving credit facility and we intend to use the remaining proceeds for general corporate purposes and to support corporate strategic objectives. During December 2019, we entered into U.S. Dollar to Euro cross-currency swaps on our existing 2012 private placement notes of $105 million of 4.31% Series 2012A Senior Notes, Tranche C, due January 18, 2022, and the existing $100 million of 4.46% Series 2012A Senior Notes, Tranche D, due January 18, 2024, resulting in an average effective interest rate of 2.25% on these instruments. The cross-currency swaps hedge our net investment in our Euro denominated net assets. As a result of entering into these interest rate and cross currency swap agreements, we reduced our interest expense by $1.4 million for each of the three months ended September 30, 2021 and 2020, and by $4.1 million and $5.8 million for the nine months ended September 30, 2021 and 2020, respectively. We anticipate these swap agreements will lower net interest expense in future years. 37 Table of Contents We had the following debt outstanding (dollars in millions): September 30, 2021 December 31, 2020 US Dollar notes under the 2012 Note Purchase Agreement $ 205.0 $ 205.0 CHF notes (in dollars) under the 2019 Note Purchase Agreement 318.1 335.5 US Dollar notes under the 2019 Term Loan 300.0 300.0 Unamortized debt issuance costs (2.1 ) (2.4 ) Finance lease obligations and other loans 6.0 6.4 Total debt 827.0 844.5 Current portion of long-term debt (109.5 ) (2.2 ) Total long-term debt, less current portion $ 717.5 $ 842.3 As of September 30, 2021, there are no material changes to our contractual obligations from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. As of September 30, 2021, we had no off-balance sheet arrangements. The following is a summary of the maximum commitments and the net amounts available to us under the 2019 Credit Agreement and other lines of credit with various financial institutions located primarily in Germany and Switzerland that are unsecured and typically due upon demand with interest payable monthly, at September 30, 2021 (dollars in millions): Weighted Average Interest Rate Total Amount Committed by Lenders Outstanding Borrowings Outstanding Letters of Credit Total Committed Amounts Available 2019 Credit Agreement 1.3 % $ 600.0 $ — $ 0.1 $ 599.9 Bank guarantees and working capital line varies 115.2 — 115.2 — Total revolving lines of credit $ 715.2 $ — $ 115.3 $ 599.9 As of September 30, 2021, we were in compliance with the financial covenants of these debt agreements. RECENT ACCOUNTING PRONOUNCEMENTS Information regarding recent accounting standard changes and developments is incorporated by reference from Part I, Item 1, Unaudited Condensed Consolidated Financial Statements, of this document and should be considered an integral part of this Item 2. See Note 2 in the Notes to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for recently adopted and issued accounting standards.