# BRUKER CORP (BRKR) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from BRUKER CORP's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1109354/000095017024023038/brkr-20231231.htm
Accession: 0000950170-24-023038
Filing date: 2024-02-29
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/BRKR/
All MD&A years: /company/BRKR/mda/
Previous year: /company/BRKR/mda/fy2022/ (FY 2022)
Next year: /company/BRKR/mda/fy2024/ (FY 2024)

ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and notes to those statements, appearing elsewhere in this report. This report contains forward-looking statements reflecting our current expectations that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. The cautionary statements made in this report should be read as applying to all related forward-looking statements wherever they appear in this report. Our actual results may differ materially from those indicated in the forward-looking statements due to a number of factors, including those discussed in Item 1A, Risk Factors and elsewhere in this report.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, describes the principal factors affecting the results of our operations, financial condition and changes in financial condition, as well as our critical accounting policies and estimates. Our MD&A is organized as follows:

•
Non-GAAP Measures. This section provides appropriate disclosures regarding forward looking statements and our use of Non-GAAP financial measures.

•
Overview. This section provides a brief discussion of our reportable segments’ results of operations, significant recent developments in our businesses, and challenges and risks that may impact our businesses in the future.

•
Results of Operations. This section provides our analysis of the significant line items on our consolidated statements of income and comprehensive income for the year ended December 31, 2023, compared to the year ended December 31, 2022.

•
Liquidity and Capital Resources. This section provides an analysis of our liquidity and cash flow and a discussion of our outstanding debt and commitments.

•
Critical Accounting Policies and Estimates. This section discusses the accounting estimates that are considered important to our financial condition and results of operations and require us to exercise subjective or complex judgments in their application. All of our significant accounting policies are summarized in Note 2 to our consolidated financial statements in Item 8 of this Annual Report on Form 10-K.

•
Recent Accounting Pronouncements. This section provides a summary of recent accounting pronouncements and discusses their potential impact on our consolidated financial statements.

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 initiatives, and other non-operational costs and we believe these are useful measures to evaluate our continuing business.

We define free cash flow as GAAP 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.

38

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 commercial offices located throughout the world. Bruker is organized into four reportable segments: the BSI BioSpin Segment, the BSI CALID Segment, the BSI Nano Segment and the Bruker Energy & Supercon Technologies (BEST) Segment.

Revenue for the year ended December 31, 2023, increased by $433.8 million, or 17.1%, to $2,964.5 million, compared to $2,530.7 million for the comparable period in 2022. Included in revenue was an increase of approximately $11.2 million from favorable foreign exchange rate movements, and an increase of $56.2 million from acquisitions. Excluding the effects of foreign exchange rate movements and our recent acquisitions, our organic revenue, a non-GAAP measure, increased $366.4 million, or 14.5%. Revenue increases were driven by strong demand for our differentiated high-value scientific instruments and life science solutions in addition to pricing benefits compared to the same period in 2022.

Our gross profit margin decreased to 51.0% for the year ended December 31, 2023, as compared to 51.6% in the same period in 2022, primarily as result of the unfavorable impact of foreign exchange rate movements offset by modest improvement from mix, pricing, and acquisitions compared to 2022.

The income tax provision for the years ended December 31, 2023, and December 31, 2022 was $117.7 million and $116.4 million, respectively, representing effective tax rates of 21.6% and 28.1%, respectively. The decrease in our effective tax rate for the year ended December 31, 2023, compared to 2022, was primarily due to the non-taxable nature of the gain on bargain purchase from the acquisition of PhenomeX.

Diluted earnings per share for the year ended December 31, 2023, was $2.90, an increase of $0.91, compared to $1.99 per share in the same period in 2022. The increase in diluted earnings per share was primarily driven by higher net income including the bargain purchase gain associated with the acquisition of PhenomeX, and reduced diluted outstanding shares resulting from our share repurchase activity during the year.

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):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022"],["Net cash provided by operating activities","","$","350.1","","","$","274.4"],["Less: purchases of property, plant and equipment","","","(106.9",")","","","(129.2",")"],["Free cash flow","","$","243.2","","","$","145.2"]]
[[/GREPCENT_TABLE]]

For the year ended December 31, 2023, our free cash flow was $98.0 million higher than the same period in 2022, primarily due to improved working capital performance and lower capital expenditures.

The following table presents a reconciliation 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):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022"],["Gross profit","","$","1,513.3","","","","51.0","%","","$","1,305.7","","","","51.6","%"],["Non-GAAP adjustments:"],["Restructuring costs","","","3.5","","","","0.1","%","","","0.9","","","","\u2014"],["Acquisition-related costs","","","2.5","","","","0.1","%","","","0.4","","","","\u2014"],["Purchased intangible amortization","","","24.3","","","","0.9","%","","","18.3","","","","0.8","%"],["Other costs","","","4.0","","","","0.1","%","","","4.8","","","","0.2","%"],["Non-GAAP gross profit","","$","1,547.6","","","","52.2","%","","$","1,330.1","","","","52.6","%"]]
[[/GREPCENT_TABLE]]

Our non-GAAP gross profit margin was 52.2% and 52.6% in the years ended December 31, 2023, and 2022, respectively remaining fairly consistent year over year.

39

The following table presents a reconciliation 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 (in millions):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022"],["Operating income","","$","436.9","","","","14.7","%","","$","432.7","","","","17.1","%"],["Non-GAAP adjustments:"],["Restructuring costs","","","22.3","","","","0.8","%","","","4.8","","","","0.2","%"],["Acquisition-related costs","","","19.3","","","","0.7","%","","","19.7","","","","0.8","%"],["Purchased intangible amortization","","","47.1","","","","1.6","%","","","37.1","","","","1.5","%"],["Other costs","","","20.7","","","","0.6","%","","","11.3","","","","0.4","%"],["Non-GAAP operating income","","$","546.3","","","","18.4","%","","$","505.6","","","","20.0","%"]]
[[/GREPCENT_TABLE]]

Our non-GAAP operating margin was 18.4% and 20.0% for the years ended December 31, 2023, and 2022, respectively. The decrease in our non-GAAP operating margins in 2023 was primarily due to acquisitions and the impact of foreign exchange rate movements.

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:

•
general economic conditions, including inflation, uncertainties caused by recent banking industry volatility, the threat of recession, financial liquidity, and currency volatility or devaluation, supply chain or manufacturing capabilities;

•
geopolitical tensions, including those on our customers, such as the conflict between Russia and Ukraine conflict, the conflict in Israel, Palestine and surrounding areas, the possible expansion of such conflicts and potential geopolitical consequences, the ongoing tensions between the United States and China, tariff and trade policy changes, and increasing potential of conflict involving countries in Asia that are critical to our supply chain operations;

•
potential energy shortages in Europe where we have significant operations and overall higher energy and transportation costs;

•
the impacts of climate change and certain weather-related disruptions;

•
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 worldwide shortage of semiconductor chips, components and raw materials, such as copper;

•
changes in raw material, component and logistics costs;

•
the time it takes for us to receive critical materials to manufacture our products;

•
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;

•
the time required to obtain governmental licenses;

•
our ability to identify suitable acquisition targets and successfully integrate and manage acquired business; and

•
costs related to acquisitions of technology or businesses.

Several of these factors have in the past affected and may continue to affect 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.

40

RESULTS OF OPERATIONS

A discussion regarding our results of operations for the fiscal year ended December 31, 2022 compared to 2021 can be found under Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 1, 2023, which is available on the SEC’s website at www.sec.gov and our Investor Relations website at https://.ir.bruker.com under the “Financial Info” section.

Year Ended December 31, 2023, Compared to the Year Ended December 31, 2022

Consolidated Results

The following table presents our results for the years ended December 31, 2023, and 2022 (dollars in millions):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022","","","Dollar Change","","","Percentage Change"],["Product revenue","","$","2,457.6","","","$","2,109.9","","","$","347.7","","","","16.5","%"],["Service revenue","","","493.8","","","","414.6","","","","79.2","","","","19.1","%"],["Other revenue","","","13.1","","","","6.2","","","","6.9","","","","111.3","%"],["Total revenue","","","2,964.5","","","","2,530.7","","","","433.8","","","","17.1","%"],["Cost of product revenue","","","1,165.2","","","","984.0","","","","181.2","","","","18.4","%"],["Cost of service revenue","","","285.9","","","","240.8","","","","45.1","","","","18.7","%"],["Cost of other revenue","","","0.1","","","","0.2","","","","(0.1",")","","","(50.0",")%"],["Total cost of revenue","","","1,451.2","","","","1,225.0","","","","226.2","","","","18.5","%"],["Gross profit","","","1,513.3","","","","1,305.7","","","","207.6","","","","15.9","%"],["Operating expenses:"],["Selling, general and administrative","","","729.4","","","","607.4","","","","122.0","","","","20.1","%"],["Research and development","","","294.8","","","","235.9","","","","58.9","","","","25.0","%"],["Other charges, net","","","52.2","","","","29.7","","","","22.5","","","","75.8","%"],["Total operating expenses","","","1,076.4","","","","873.0","","","","203.4","","","","23.3","%"],["Operating income","","","436.9","","","","432.7","","","","4.2","","","","1.0","%"],["Bargain purchase gain","","","144.1","","","","\u2014","","","","144.1"],["Interest and other income (expense), net","","","(36.8",")","","","(18.8",")","","","(18.0",")","","","95.7","%"],["Income before income taxes, equity in income of unconsolidated investees, net of tax, and noncontrolling interests in consolidated subsidiaries","","","544.2","","","","413.9","","","","130.3","","","","31.5","%"],["Income tax provision","","","117.7","","","","116.4","","","","1.3","","","","1.1","%"],["Equity in income of unconsolidated investees, net of tax","","","2.0","","","","1.0","","","","1.0","","","","100.0","%"],["Consolidated net income","","","428.5","","","","298.5","","","","130.0","","","","43.6","%"],["Net income attributable to noncontrolling interests in consolidated subsidiaries","","","1.3","","","","1.9","","","","(0.6",")","","","(31.6",")%"],["Net income attributable to Bruker Corporation","","$","427.2","","","$","296.6","","","$","130.6","","","","44.0","%"]]
[[/GREPCENT_TABLE]]

Revenue

The following table presents revenue, change in revenue, and revenue growth by reportable segment for the years ended December 31, 2023, and 2022 (dollars in millions):

[[GREPCENT_TABLE]]
[["","","2023","","","2022","","","Dollar Change","","","Percentage Change"],["BSI BioSpin","","$","798.5","","","$","696.7","","","$","101.8","","","","14.6","%"],["BSI CALID","","","960.4","","","","822.2","","","","138.2","","","","16.8","%"],["BSI Nano","","","941.9","","","","787.0","","","","154.9","","","","19.7","%"],["BEST","","","280.7","","","","237.1","","","","43.6","","","","18.4","%"],["Eliminations (a)","","","(17.0",")","","","(12.3",")","","","(4.7",")"],["","","$","2,964.5","","","$","2,530.7","","","$","433.8","","","","17.1","%"]]
[[/GREPCENT_TABLE]]

(a)
Represents product and service revenue between reportable segments.

41

Revenue increases were driven by strong demand for our differentiated instruments and solutions as well as pricing actions taken primarily to address inflation cost pressures. The BSI BioSpin Segment revenue increase was related primarily to the strong demand for our instruments across biopharma, academic government, industrial research and applied markets, our new integrated data solutions division and especially our Nuclear Magnetic Resonance (NMR) and related services. We had revenue from 4 gigahertz class NMR systems each in fiscal 2023 and fiscal 2022. The BSI CALID Segment revenue increase reflected strong demand for our differentiated instruments, primarily, in our life science mass spectrometry proteomics solutions, and our optics spectroscopy and microscopy instruments. Our growth in life science mass spectrometry was driven by the timsTOF platform and aftermarket business, as well as strong growth in applied mass spectrometry and our optics infrared, near infrared and Raman business. Microbiology and infectious disease revenue was up slightly as solid demand for MALDI Biotyper consumables was offset by a final drop of our modest COVID-19 molecular diagnostics revenue. The BSI NANO Segment revenue increase was driven by strong demand in its academic, government, industrial and semiconductor metrology markets. Revenue growth was primarily driven by our advanced X-ray solutions and nano surfaces, core tools and fluorescence microscopy. The BEST revenue increase was driven by strong superconductor demand from our magnetic resonance imaging original equipment manufacturer customers as well as by growth in big science, fusion research, and key new extreme ultraviolet EUV technologies for semiconductor lithography tools by large OEM customers, all in support of the strong artificial intelligence demand.

Geographically for the year ended December 31, 2023, our North America revenue grew 11.4% Asia Pacific increased by 22.9%, and European revenue increased by 16.9%, in each case, as compared to the same period in 2022.

Gross Profit

The increase in gross profit was a result of pricing and volume leverage, partially offset by net unfavorable impact of foreign exchange rate movements compared to 2022.

Selling, General and Administrative

Our selling, general and administrative expenses for the year ended December 31, 2023, increased to 24.6% of total revenue from 24.0% of total revenue for the comparable period in 2022. The year over year increase as a percentage of revenue was a result of inflation and increased planned spending in sales and marketing capabilities compared to 2022. Increased spending is related to additional headcount and personnel expenses as well as increased consulting and professional fees related to acquisitions, tax, audit and audit-related fees.

Research and Development

Our research and development expenses for the year ended December 31, 2023, increased to 9.9% of total revenue from 9.3% of total revenue for the comparable period in 2022. The slight increase as a percentage of revenue is a result of our increased investment in research and development capabilities, especially in our key Project Accelerate 2.0 initiatives. Investments are primarily related to additional headcount and personnel expenses as well as increased consulting and professional fees related to research and development activities.

Other Charges, Net

Other charges, net for the year ended December 31, 2023, consisted of $16.8 million of acquisition-related charges primarily completed in 2023, $18.8 million of restructuring costs related to closing facilities and implementing outsourcing and other restructuring initiatives mainly related to the PhenomeX acquisition as detailed in Note 21 Other Charges, net, $5.0 million of costs associated with our global IT transformation activities, $0.6 million related to professional fees and $5.7 million related to long-lived asset impairments. Acquisition-related charges relate primarily to the integration cost of newly acquired entities and the cost of post-combination employment services in the period acquired. The IT transformation initiative is a multi-year project aimed at updating and integrating our global enterprise resource planning and human resource information systems.

Other charges, net for the year ended December 31, 2022 consisted primarily of $19.3 million of acquisition-related charges related to transactions completed in 2021 and 2020, $3.9 million of restructuring costs related to closing facilities and implementing outsourcing and other restructuring initiatives, $3.0 million of costs associated with our global IT transformation activities, $2.4 million related to professional fees and $0.3 million related to long-lived asset impairments.

42

Operating Income

The following table presents operating income and operating margins on revenue by reportable segment for the years ended December 31, 2023 and 2022 (dollars in millions):

[[GREPCENT_TABLE]]
[["","","2023","","","2022"],["","","Operating Income (Loss)","","","Percentage of Segment Revenue","","","Operating Income (Loss)","","","Percentage of Segment Revenue"],["BSI BioSpin","","$","195.9","","","","24.5","%","","$","167.1","","","","24.0","%"],["BSI CALID","","$","209.3","","","","21.8","%","","","196.0","","","","23.8","%"],["BSI Nano","","$","109.1","","","","11.6","%","","","113.0","","","","14.4","%"],["BEST","","$","32.3","","","","11.5","%","","","31.3","","","","13.2","%"],["Corporate, eliminations and other (a)","","$","(109.7",")","","","","","","(74.7",")"],["Total operating income","","$","436.9","","","","14.7","%","","$","432.7","","","","17.1","%"]]
[[/GREPCENT_TABLE]]

(a)
Represents corporate costs and eliminations not allocated to the reportable segments.

The increase in operating income was due to higher gross profit resulting from, volume leverage, and price realization offset by planned sales and marketing investments, supply chain and logistics challenges, inflationary margin challenges in 2023, as compared to 2022, and investments in research and development capabilities.

Bargain purchase gain

In the fourth quarter of 2023, the Company recorded a gain of $144.1 million, or $0.99 per share, in connection with the PhenomeX acquisition, which closed on October 2, 2023. This bargain purchase gain reflects the excess of identifiable net assets acquired, including deferred tax assets related to acquired tax NOLs, over the purchase consideration paid.

Interest and Other Income (Expense), Net

The increase in interest and other income (expense), net in the year ended December 31, 2023, as compared to the same period in 2022 was primarily due to impairment charges recognized of $18.2 million on certain minority investments and higher foreign currency exchange losses of $13.3 million driven by weakening of the U.S. dollar against other currencies.

Income Tax Provision

The effective tax rates for years ended 2023 and 2022 were 21.6% and 28.1%, respectively. The decrease in our effective tax rate for the year ended December 31, 2023, compared to 2022, was primarily due to the non-taxable nature of the bargain purchase gain from the acquisition of PhenomeX.

Equity in Income of Unconsolidated Investees, net of tax

Equity in income of unconsolidated investees, net of tax represents the Company’s proportionate share of the earnings or losses as reported by equity-method investees.

Net Income Attributable to Noncontrolling Interests and Redeemable 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 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.

43

LIQUIDITY AND CAPITAL RESOURCES

We anticipate that our existing cash and credit facilities as of December 31, 2023, together with proceeds from notes offerings to be completed pursuant to note purchase agreements entered into in February 2024 and increased borrowing capacity under the amended and restated credit agreement entered into in January 2024, 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 from operations and debt financing. 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 December 31, 2023, and 2022 totaled $488.3 million and $645.5 million, respectively, of which $398.4 million and $593.8 million, respectively, related to cash, cash equivalents and short-term investments is held outside of the United States in our foreign subsidiaries, most significantly in the Netherlands, Switzerland, China and Hong Kong.

The following table presents our cash flows from operating activities, investing activities and financing activities for the periods presented (in millions):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022"],["Net cash provided by operating activities","","$","350.1","","","$","274.4"],["Net cash used in investing activities","","","(326.0",")","","","(251.6",")"],["Net cash provided by financing activities","","","(193.4",")","","","(415.3",")"],["Effect of exchange rate changes on cash, cash equivalents and restricted cash","","","12.2","","","","(30.5",")"],["Net change in cash, cash equivalents and restricted cash","","$","(157.1",")","","$","(423.0",")"]]
[[/GREPCENT_TABLE]]

Cash provided by operating activities during the year ended December 31, 2023, resulted from consolidated net income adjusted for non-cash items of $437.9 million, including the non-cash bargain purchase gain from the acquisition of PhenomeX, partially offset by a change in operating assets and liabilities, net of acquisitions and divestitures of $87.8 million. During the year ended December 31, 2022, net cash provided by operating activities resulted from consolidated net income adjusted for non-cash items of $418.5 million, partially offset by a change in operating assets and liabilities, net of acquisitions and divestitures of $144.1 million. The increase in net income adjusted for non-cash items was mainly due to higher revenue, gross profit, and operating income. The increase in operating cash flows was due to changes in operating assets and liabilities, and was impacted by improvements in receivable collections, timing of tax payments and accounts payable offset by an increase in inventory purchases and prepayments to meet increased order demand.

Cash used in investing activities during the year ended December 31, 2023, resulted primarily from the acquisitions and advances of $226.6 million, purchases of property, plant and equipment of $106.9 million, and minority investments of $24.8 million, partially offset by net proceeds from sales of property, plant and equipment of $11.1 million. Cash used in investing activities during the year ended December 31, 2022, was primarily from the acquisitions of $182.3 million, purchases of property, plant and equipment of $129.2 million, and minority investments of $60.2 million, partially offset by maturity of short-term investments of $100.0 million and $13.9 million of net proceeds from sales of property, plant and equipment.

We currently expect capital expenditures in 2024 to be approximately $125.0 million.

Net cash used in financing activities during the year ended December 31, 2023, was primarily attributable to cash payments made for shares of common stock under our repurchase program of $152.3 million, and $29.4 million for the payment of dividends. Net cash used in financing activities during the year ended December 31, 2022, was primarily attributable to cash payments made for shares of common stock under our repurchase program of $263.1 million, repayment of our 2012 Note Purchase Agreement of $105.0 million and $29.8 million for the payment of dividends.

Share Repurchase Program

In May 2021, the Company’s Board of Directors approved a share repurchase program (the “2021 Repurchase Program”) authorizing the purchase of up to $500.0 million of the Company’s common stock over a two-year period, in amounts, at prices, and at such times as management deems appropriate, subject to market conditions, legal requirements and other considerations. During the year ended December 31, 2023, the Company purchased a total of 315,318 shares at an aggregate cost of $22.2 million under the 2021 Repurchase Program. During the year ended December 31, 2022, the Company purchased a total of 4,215,094 shares at an aggregate cost of $264.7 million under the 2021 Repurchase Program. Authorization for the remaining $94.4 million on the 2021 Repurchase Program expired in May 2023.

44

In May 2023, the Company’s Board of Directors approved a share repurchase program (the “2023 Repurchase Program”) authorizing the purchase of up to $500.0 million of the Company’s common stock over a two-year period, in amounts, at prices, and at such times as management deems appropriate, subject to market conditions, legal requirements and other considerations. During the year ended December 31, 2023, the Company purchased a total of 2,097,119 shares at an aggregate cost of $130.1 million under the 2023 Repurchase Program. At December 31, 2023, $369.9 million remains available for future purchase under the 2023 Repurchase Program. We intend to fund any additional purchases from cash on hand, future cash flows from operations and available borrowings under the revolving credit facility.

In August 2022, the Inflation Reduction Act (“IRA”) was signed into law in the United States. The IRA introduced new tax provisions, including a 1.0% excise tax on stock repurchases. The Company expects additional guidance and regulations to be issued in future periods and will continue to assess its potential impact on its business as further information becomes available. The estimated excise tax on our stock repurchases was not material and was recorded in other current liabilities and additional paid in capital for the year ended December 31, 2023.

Shelf Registration

On June 2, 2023, the Company filed a registration statement on Form S-3ASR with the SEC (“2023 Shelf Registration”) for the issuance of common stock, preferred stock, debt securities, warrants, units, subscription rights and purchase contracts, which became effective immediately upon filing. At the time any of the securities covered by the 2023 Shelf Registration Statement are offered for sale, a prospectus supplement will be prepared and filed with the SEC containing specific information about the terms of any such offering.

Income Taxes

At December 31, 2023 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 $1.4 billion 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, 2023. The amount of unrecognized deferred withholding taxes on the undistributed E&P was $95.6 million at December 31, 2023.

As of December 31, 2023, the Company has approximately $588.9 million of U.S. federal net operating loss carryforwards, of which $36.4 million begin to expire at various dates beginning in 2031 and the remainder $552.5 million will be carried forward indefinitely. The Tax Cuts and Jobs Act (TCJA) enacted on December 22, 2017, limits a taxpayer’s ability to utilize NOL deduction in a year to 80% taxable income for federal NOL arising in tax years beginning after 2017. The Company has approximately $676.6 million of state net operating loss carryforwards available to reduce state taxable income that are expected to expire at various times beginning in 2024. The Company also has approximately $97.9 million of German Trade Tax and Corporate Income Tax net operating losses that are carried forward indefinitely. Additionally, the Company has $28.7 million of other foreign net operating losses that are expected to expire at various times in the future. The Company has U.S. federal foreign tax credit carried forwards in the amount of $3.3 million. The Company also has U.S. federal and state research and development tax credit of $1.2 million and $10.3 million respectively. Utilization of these credits and net operating losses may be subject to annual limitations due to the ownership percentage change limitations provided by the Code Section 382 and similar state provisions. In the event of a deemed change in control under 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. The Company is in the process of finalizing the impact of Section 382 related to the PhenomeX acquisition but believes the provisions will limit the availability of losses to offset future income. Additionally, the Company has $91.4 million of gross interest expense carryforward as provided by Code Section 163(j) that can be carried forward indefinitely.

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.

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Credit Facilities and Note Purchase Agreements

On February 8, 2024, the Company entered into a note purchase agreement pursuant to which the Company will issue and sell (i) CHF 50 million aggregate principal amount of 2.60% Series A Senior Notes due April 15, 2036 and (ii) CHF 50 million aggregate principal amount of its 2.62% Series B Senior Notes due April 15, 2039 in an offering exempt from the registration requirements of the Securities Act of 1933, as amended. The issuance and sale of the notes is subject to satisfaction of a variety of customary closing conditions and is expected to occur on or about April 15, 2024.

On February 1, 2024, the Company entered into a note purchase agreement, pursuant to which the Company will issue and sell (i) CHF 50 million aggregate principal amount of 2.56% Series A Senior Notes due April 15, 2034, (ii) CHF 146 million aggregate principal amount of its 2.62% Series B Senior Notes due April 15, 2036 and (iii) CHF 135 million aggregate principal amount of its 2.71% Series C Senior Notes due April 15, 2039 in an offering exempt from the registration requirements of the Securities Act of 1933, as amended. The issuance and sale of the notes is subject to satisfaction of a variety of customary closing conditions and is expected to occur on or about April 15, 2024.

On January 18, 2024, the Company, together with certain of its subsidiaries, as borrowers and guarantors, entered into an amended and restated credit agreement with Deutsche Bank Securities Inc., JPMorgan Chase Bank, N.A., TD Bank, N.A., and Wells Fargo Bank, National Association, as Co-Syndication Agents, BofA Securities, Inc., Deutsche Bank Securities Inc., JPMorgan Chase Bank, N.A., TD Bank, N.A. and Wells Fargo Securities, LLC, as Joint Bookrunners and Joint Lead Arrangers, Citizens Bank, N.A., Credit Suisse (Switzerland) Ltd., and U.S. Bank, N.A., as Co-Documentation Agents, ING Bank B.V. and PNC Bank, N.A., as Managing Agents, Bank of America, N.A., as Administrative Agent, Swing Line Lender and Issuing Bank, and the several banks or other financial institutions or entities from time to time party thereto as lenders. The amended and restated credit agreement amends and restates the credit agreement entered into by the Company and certain of its subsidiaries on December 11, 2019 with the other parties thereto.

The amended and restated credit agreement increases the aggregate principal amount from $600 million to $900 million and extends the maturity date to January 18, 2029, as may be further extended by the Company for the periods and on the terms set forth in the amended and restated credit agreement. In addition, the amended and restated credit agreement increases the uncommitted incremental facility whereby, under certain circumstances, the Company may, at its option, increase the amount of the revolving facility or incur term loans in an aggregate amount not to exceed $400 million.

In addition, we paid the remaining $100 million of our 4.46% Series 2012A Tranche D, private placement notes on January 18, 2024.

On January 12, 2024, the Company borrowed CHF 230 million under the Company's 2019, Revolving Credit Agreement.

As of December 31, 2023, we have several cross-currency and interest rate swap agreements with a notional value of $139.1 million of U.S. Dollar to Swiss Franc and a notional value of $239.1 million of U.S. Dollar to Euro to hedge the variability in the movement of foreign currency exchange rates on portions of our Euro and Swiss Franc denominated net asset investments. As a result of these agreements, we lowered our net interest expense by $18.3 million and $8.6 million during the year ended December 31, 2023, and 2022, respectively. We anticipate these swap agreements will lower net interest expense by approximately $12.7 million in 2024 and $8.8 million in 2025.

For a summary of the fair and carrying values of our outstanding debt as of December 31, 2023, and December 31, 2022, please read Note 12, Debt, to our consolidated financial statements included in our 2023 Form 10-K.

As of December 31, 2023, we had no off-balance sheet arrangements.

As of December 31, 2023, we were compliant with the financial covenants of these debt agreements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, or U.S. GAAP, which requires us to 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.

We consider our accounting estimates to be critical to the consolidated financial statements if (i) the estimate requires significant judgment or is complex in nature and (ii) if different estimates and assumptions were used, the results could have a material impact on our consolidated financial statements. We evaluate our estimates and the application of our policies on an ongoing basis.

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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. Actual results could differ from these estimates. Changes in estimates are recorded in the period in which they become known.

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

We recognize revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (ASC 606). The key elements of ASC 606 are: 1) identifying a contract with the customer; 2) identifying the performance obligations in the contract; 3) determining the transaction price; 4) allocating the transaction price to the performance obligations in the contract; and 5) recognizing revenue when (or as) each performance obligation is satisfied.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Some of our contracts have multiple performance obligations, most commonly due to providing additional goods or services along with a system, such as installation, accessories, parts and services. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service being provided to the customer. Our best evidence of standalone selling price is our normal selling pricing and discounting practices for the specific product or service when sold on a standalone basis. Alternatively, when not sold separately, we may determine standalone selling price using an expected cost plus a margin approach.

Our performance obligations are typically satisfied at a point in time, most commonly either on shipment, or customer acceptance. Certain performance obligations, such as maintenance contracts and extended warranty, are recognized over time based on the contractual obligation period. In addition, certain arrangements to provide more customized deliverables may be satisfied over time based on the extent of progress towards completion. For performance obligations recognized over time, revenue is measured by progress toward completion of the performance obligation that reflects the transfer of control. Typically, progress is measured using a cost-to-cost method based on cost incurred to date relative to total estimated costs upon completion as this best depicts the transfer of control to the customer. Application of the cost-to-cost method requires us to make reasonable estimates of the extent of progress toward completion and the total costs we expect to incur. Losses are recorded immediately when we estimate that contracts will ultimately result in a loss. Changes in the estimates could affect the timing of revenue recognition.

We include costs incurred in connection with shipping and handling of products within selling, general and administrative costs. Amounts billed to customers in connection with these costs are included in total revenues. When control of the goods transfers prior to the completion of our obligation to ship the products to our customers, we have elected the practical expedient to account for the shipping services as a fulfillment cost. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period is one year or less or the amount is immaterial. We exclude from the transaction price all taxes assessed by a governmental authority on revenue-producing transactions that are collected by us from a customer.

We recognize revenue from systems sales upon transfer of control in an amount that reflects the consideration we expect to receive. Transfer of control generally occurs upon shipment, or for certain systems, based upon customer acceptance for a system once installed at a customer facility. For systems that include customer-specific acceptance criteria, we are required to assess when we can demonstrate the acceptance criteria has been met, which generally is upon successful factory acceptance testing or customer acceptance and evidence of installation. For systems that require installation and where system revenue is recognized upon shipment, the standalone selling price of installation is deferred until customer acceptance. Revenue from accessories and parts is generally recognized based on shipment. Service revenue is recognized as the services are performed or ratably over the contractual obligation and includes maintenance contracts, extended warranties, training, application support and on-demand services.

When products are sold through an independent distributor or a strategic distribution partner, we recognize the system sale upon transfer of control which is typically on shipment. When we are responsible for installation, the standalone selling price of installation is deferred until customer acceptance. Our distributors do not have price protection rights or rights of return; however, our products are typically warranted to be free from defect for a period of one year.

We require an advance deposit based on the terms and conditions of contracts with customers for many of our contracts. Typically, revenue is recognized within one year of receiving an advance deposit. We do not have any material payment terms that extend beyond one year. There is minimal variable consideration included in the transaction price of our contracts.

Other revenues are primarily comprised of development arrangements recognized on a cost-plus-fixed-fee basis and licensing arrangements recognized either when the licenses are provided or ratably over the contract term depending on the nature of the arrangement.

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Income taxes

The provision for income taxes includes federal, state, local and foreign taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences between the financial statement carrying amounts and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered or settled. We evaluate the realizability of our deferred tax assets and establish a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based upon the level of historical taxable income and income tax liability and projections for future taxable income over the periods in which the deferred tax assets are utilizable, we believe it is more likely than not that we will realize the net benefits of the deferred tax assets of our wholly owned subsidiaries, net of the recorded valuation allowance. In the event that actual results differ from our estimates, or we adjust our estimates in future periods, we may need to adjust or establish a valuation allowance, which could materially impact our consolidated financial position and results of operations.

We record liabilities related to uncertain tax positions in accordance with the guidance that clarifies the accounting for uncertainty in income taxes recognized in our financial statements. This guidance prescribes a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We include accrued interest and penalties related to unrecognized tax benefits and income tax liabilities, when applicable, in income tax expense.

Goodwill, other intangible assets and other long-lived assets

Goodwill and indefinite-lived intangible assets are not amortized, but are evaluated for impairment on an annual basis, or on an interim basis when events or changes in circumstances indicate that the carrying value may not be recoverable. In assessing the recoverability of goodwill and indefinite-lived intangible assets, we must make assumptions regarding the estimated future cash flows, including forecasted revenue growth and the discount rate to determine the fair value of these assets. If these estimates or their related assumptions change in the future, we may be required to record impairment charges against these assets in the reporting period in which the impairment is determined.

We test goodwill for impairment at the reporting unit level, which is the operating segment or one level below an operating segment. We have the option of performing a qualitative assessment to determine whether further impairment testing is necessary before performing the quantitative assessment. If as a result of the qualitative assessment, it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, a quantitative impairment test will be required. Otherwise, no further testing will be required. If a quantitative impairment test is performed, we compare the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. We determine the fair value of reporting units using a weighting of both the market and the income methodologies. Estimating the fair value of the reporting units requires significant judgment by management. If the carrying amount of a reporting unit exceeds the fair value of the reporting unit, an impairment charge is recognized for the amount by which the carrying value amount exceeds the reporting unit’s fair value up to the total amount of goodwill allocated to the reporting unit.

In process research and development, or IPR&D, acquired as part of business combinations under the acquisition method represents ongoing development work associated with enhancements to existing products, as well as the development of next generation products. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment on an annual basis, or when indicators of impairment are identified. When the IPR&D project is complete, it is reclassified as a finite-lived intangible asset and is amortized over its estimated useful life. If an IPR&D project is abandoned before completion or is otherwise determined to be impaired, the value of the asset or the amount of the impairment is charged to the consolidated statements of income and comprehensive income in the period the project is abandoned or impaired.

Business Combinations

We account for business combinations under the acquisition method of accounting. Accordingly, at the date of each acquisition, we measure the fair value of all identifiable assets acquired (including intangible assets), liabilities assumed and any remaining noncontrolling interests and allocate the amounts paid to all items measured. The fair value of identifiable intangible assets acquired is based on valuations that use information and assumptions determined by management and which consider management’s best estimates of inputs and assumptions that a market participant would use. Any excess of fair value of acquired net assets, including identifiable intangible assets over the acquisition consideration, results in a bargain purchase gain.

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RECENT ACCOUNTING PRONOUNCEMENTS

Information regarding recently issued accounting pronouncements may be found in Note 3 to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.