Bruker Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 2, 2023

There are 13 speakers on the call.

Operator

Ladies and gentlemen, thank you for attending today's conference call. I would now like to turn the call over to Justin Ward, Head of Investor Relations. Please go ahead.

Speaker 1

Thank you and good morning. I would like to welcome everyone to Bruker Corporation's Q3 2023 earnings conference call. My name is Justin Ward and I am Bruker's Senior Director of Investor Relations and Corporate Development. Joining me on today's call are Frank Laukien, our President and CEO Mark Munsch, President of the Bruker Nano Group and Corporate Executive Vice President and Gerald Herman, our Executive Vice President and CFO. In addition to the earnings release we issued earlier today, during today's conference call, we will be referencing a Slide presentation that can be downloaded from the Events and Presentations section of Bruker's Investor Relations website.

Speaker 1

During today's call, we will be highlighting non GAAP financial information. Reconciliations of our non GAAP to GAAP financial measures are included in our earnings release and are posted on our website at ir.bruker.com. Before we begin, I would like to reference Bruker's Safe Harbor statement, which is shown on Slide 2 of the presentation. During this conference call, we will be making forward looking statements regarding and the financial and operational performance of the company that involve risks and uncertainties, including those related to geopolitical risks and wars as well as to Supply Chain, Logistics and Inflation. The company's actual results may differ materially from such statements.

Speaker 1

Factors that might cause such differences include, but are not limited to, those discussed in today's earnings release and in our Form 10 ks for the period ending December 31, 2022, as updated by other SEC filings, which are available on our website and on the SEC's website. Also, please note that the following information is based on current business conditions and to our outlook as of today, November 2, 2023. We do not intend to update our forward looking statements based on new information, future events or for other reasons, except as may be required by law, prior to the release of our Q4 2023 financial results expected in early February 2024. You should not rely on these forward looking statements as necessarily representing our views or outlooks as of any date after today. We will begin today's call with Frank providing an overview of our business progress.

Speaker 1

Gerald will then cover the financials for the Q3 in the 1st 9 months of 2023 in more detail and share our updated fiscal year 2023 financial outlook. Now I'd like to turn the call over to Bruker's CEO, Frank Laukien.

Speaker 2

Thank you, Justin, and good morning, everyone. Thank you for joining us on today's 3rd In the Q3, Bruker has continued to deliver excellent revenue growth with 3 consecutive quarters of double digit organic revenue growth year to date. For the Q4 of 2023, we anticipate high single digit organic revenue growth, which puts us on track for 3 years of double digit organic revenue growth in 2021 to 2023. In the 1st 9 months of 2023, we have demonstrated great resilience in difficult market conditions With what we believe is industry leading organic revenue growth of 13.9% and non GAAP with an EPS growth of 17.5 percent year to date. Given our strong year to date financial results, Solid backlog and positive outlook for the Q4.

Speaker 2

We are raising our organic revenue growth guidance for fiscal year 2023 again, this time by 150 bps at the midpoint. We are pleased to report solid financial results in the 3rd We attribute this resiliency to our innovation strategy, which yields products and solutions with unique capabilities, as well as to our differentiated portfolio, which is now resulting from our ongoing Project Accelerate 2.0 Transformation. These core elements of our strategy are to a significant extent shielding us from the present demand weakness, for example, in COVID testing, DROs, biopharma, bioprocessing, etcetera. We remain positive about demand for Bruker Scientific Instruments and Life Science Solutions, which gives us confidence in the 4th quarter and also for continued solid growth in 2024. In fiscal year 2023, we have Accelerated our investments in our transformative Project Accelerate 2.0 initiatives as well as in operational excellence and productivity.

Speaker 2

We're making further investments in recently acquired growth drivers in single cell biology and my colleague Mark will talk about that as well as in previously acquired proteomics consumables, proteomics drug discovery services, Neuroscience Research Tools, Applied Solutions and Scientific Software. Right. Let's get to it. Turning to Slide 4 now. In the Q3 of 2023, Bruker delivered another good quarter with excellent organic growth of 10.9% and non GAAP EPS growth of 12.1 percent year over year.

Speaker 2

Bruker's Q3 15.3% year over year to $742,800,000 which included an FX tailwind of 3.3%. On an organic basis, revenues increased 10.9%, which included 10.9% organic growth In our Bruker Scientific Instruments, BSI segment and 10.2% at best net of intercompany eliminations, while growth from acquisitions added 2.1%. This implies constant exchange rate growth of 13.0% year over year. Our Q3 'twenty three non GAAP operating margin was 20.0 percent, which is a good level for our Q3, albeit a decrease of 240 bps year over year compared to a very strong operating profit margin in the Q3 of 2022. In the Q3 of 'twenty three Bruker reported GAAP Diluted EPS of $0.60 compared to $0.59 in the Q3 of 2022.

Speaker 2

On a non GAAP basis, 3rd quarter 'twenty three diluted EPS was $0.74 up 12.1 percent from $0.66 in Q3 'twenty two. This had a $0.05 tax tailwind, pretty much Exactly offsetting a minus $0.05 currency headwind in the quarter. Gerald will discuss the drivers of margins and EPS later in more Moving to the 1st 9 months on Slide 5, you can see Bruker's strong performance and excellent execution in the 1st 9 months of 2023 with industry leading organic revenue growth of 13.9% and non GAAP EPS growth of 17.5%. More specifically, our 1st 9 months of 2023 revenues increased by 15.8% to $2,110,000,000 On an organic basis, 1st 9 months revenues grew 13.9% year over year, consisting of 14.0 organic revenue growth in Scientific Instruments and 12.8 percent organic growth at best net of intercompany eliminations. 1st 9 months 2023 order bookings for BSI grew in the upper mid single digits year over year organically, driven by Bruker BioSpin and CALID.

Speaker 2

Also Our BSI book to bill ratio year to date remained above 1.0 and our backlog at the end of the 3rd quarter remains strong and Elevate it in fact. Our 1st 9 months 2023 non GAAP Gross and operating margin and GAAP and non GAAP EPS performance are all summarized on Slide 5 and you can see the strong non GAAP GAAP EPS growth of 17.5 percent despite a $0.14 headwind from currency. Our trailing 12 months return on invested capital, a non GAAP measure was 23.2%, a metric that highlights our differentiated broker management process and focus on disciplined entrepreneurialism and organic growth supplemented by selected attractive acquisitions. Please turn to Slide 67 where we highlight the Year to date Q3 'twenty three performance of our 3 Scientific Instruments groups and of our best segment, all on a constant currency and year over year basis. Year to date, the BioSpin Group revenue was $541,000,000 and grew in the high single digits percentage.

Speaker 2

This included revenue from just 1 gigahertz Class NMR so far this year, namely in Q3, 2023 and for comparison, we also had 1 in Q3 of 20 22. In the Q4 of 2023, we expect to book revenue on 1 or 2 gigahertz class NMRs by the way. In the 9 months in the 1st 9 months of 2023, Bruker saw growth across biopharma, Academic and Government Markets, Industrial Research and Applied Markets, as well as in the new Integrated Data Solutions Software division with its SciY Scientific and Lab Software Platform, something that's relatively new to Bruker. Right. 1st 9 months of 2023, our CALID Group had revenue of $703,000,000 and growth in the high teens percentage with strong growth in life science mass spectrometry driven by the timsTOK platform and aftermarket business as well as strong growth in our applied mass spec business and the In our optics business, we know 2 recent tender wins, Very nice.

Speaker 2

For eventually over 250 so called DETector explosive trace detectors for the Frankfurt and Zurich Airports, both of which were explained in recent press releases. At ASMS this year, we launched the timsTOF Ultra And at the YUPO Congress in Korea in September, we announced further advances in timsTOF methods, consumables and software For this next generation unbiased high fidelity 4 dimensional of 4 d proteomics and 4 d multiomics that's quite unique on the Typsoft platform and very advantageous. Microbiology and infectious disease revenue Was up slightly as solid demand for the multibiotic for consumables was offset by a final drop of our to moderate COVID-nineteen molecular diagnostics revenue to now near 0. Please turn to Slide 7 now. Year to date, Bruker Nano revenue was $673,000,000 and grew in the low 20s percentage with strong revenue Growth across end markets including AKAGOV Industrial Semiconductor Metrology.

Speaker 2

The global investments in AI, artificial intelligence Our strong tailwinds for our semiconductor and advanced packaging metrology tools. Revenues at Advanced X-ray and Nano Surface Tools all delivered strong revenue growth in the 1st 9 months. Life Science Fluorescence Microscopy was up on product innovation and now includes a strong contribution also from our Q4 2022 acquisition of the Inscopix Neuroscience Research Tools. Finally, year to date 2023 BEST revenues grew in the mid teens percentage, net of intercompany eliminations, driven by share gains and superconductor demand by our MRI OEM Customers as well as from revenue growth in advanced technologies for Big Science, Fusion Research and Key Extreme UV, EUV Semiconductor Technologies for semiconductor lithography tools by other large OEM customers, again often driven by strong growth in AI demand. Right, moving to Slides 89, I'll take a pause and we highlight The new Bruker Cellular Analysis business and I'm delighted to take hand this part over to Doctor.

Speaker 2

Mark Munsch, our Bruker Nano Group President, who drove the Phenomex acquisition, now renamed to Bruker Cellular Analysis, And Mark is now resetting the strategy and rightsizing the business. Over to you, Mark.

Speaker 3

Thank you, Frank. We're excited about our acquisition of Phenomax, this new business. As Frank mentioned, we now call Bruker's cellular analysis, Perfectly fits our Project Accelerate 2.0 initiative. Phenomax was a Q1 2023 merger of Berkeley Life and IsoPlexus, which brought together 2 unique and valuable platforms, the Beacon OptoFluidics platform and the IsoSpark platform. Together, these technologies address rapidly growing market segments in antibody discovery, Cell line development, cell therapy and gene therapy amongst others.

Speaker 3

This helps also our Project Cell A 2.0 initiative in This is also complementary to our Bruker cellular analysis in subcellulatinosis tools. For example, our Canopy Cellscape tool, which is an important tool for spatial biology as well as examining phenotypes and cell And so this brings a lot of opportunity for commercial synergies. Moving to Slide 9, just to give some financial details on the acquisition. Phenomex was acquired for 120 $2,000,000 which included a $14,000,000 bridge loan, therefore, the attractive valuation of roughly 2 times revenue. We closed this transaction on October 2, 2023 and immediately started our work on rightsizing the business in optimizing cost structures, which is mostly going to happen here in Q4 2023.

Speaker 3

Initial run rate is expected for the business of greater than $60,000,000 per year given the strong market tracking potential of the market segments that I spoke of and that we addressed with this. Many of these segments are somewhat new to Bruker and so we're excited about that. And as mentioned, we see cross selling opportunities with our existing spatial biology and cellular analysis tools. In terms of Bruker non GAAP EPS impact, we anticipate $0.12 dilutive to Q4 2023, A 1 quarter significant impact as we work through the rapid rightsizing and cost structure optimization and being slightly dilutive for 2024 and accretive by 2026. And we expect long term double digit ROIC.

Speaker 3

We encourage you to visit the links shown here to help get familiar with these businesses. We are very excited about the potential here in these very valuable technology platforms. Thank you, Frank. Back to you.

Speaker 2

Thank you very much, Mark. Yes, these links are actually there's a really cool website. I would highly recommend that If you have a few minutes, I think it's very informative. So thank you, Mark. We're excited about this attractive acquisition of the leading single cell biology business with key technologies for all the reasons that Mark explained.

Speaker 2

Well done. So in summary, Bruker is on track for its 3rd year in a row of double digit organic revenue growth and solid EPS growth, Even as we have accelerated our investments in the Project Accelerate 2.0 transformation as well as in Operational excellence in capacity and productivity. Our dual strategy is working exceedingly well right now. So Bruker's strong growth is the result of a fundamental commitment to innovating in high value solutions for customers as well as the result of our ongoing portfolio Our technology and biological applications leadership in many areas Combined with world class execution via our Bruker management process position us well for continued outperformance. As in other years, we expect to give fiscal year 2024 guidance when we report Q4, 2023 financial results, This will be in early February.

Speaker 2

However, please note that we expect to deliver solid organic growth also in 2024 And we remain on track for our medium term 2026 targets, which we issued at our June 23 Investor Day. So with that, let me turn the call over to our Chief Financial Officer, Gerald Herman, who will review our financial performance and our updated fiscal 'twenty three outlook in much more detail. Gerald?

Speaker 4

Thank you, Frank, and thank you everyone for joining us today. I'm pleased to provide some more detail on Bruker's Q3 in the 1st 9 months of 2023's financial performance, starting on Slide 11. In the Q3 of 2023, Bruker's reported revenue increased to discuss the full year 2019 earnings release of $742,000,000 which reflects an organic revenue increase of 10.9% year over year. We reported GAAP EPS of $0.60 per share compared to $0.59 in the Q3 of 2022. On a non GAAP basis, Q3 2023 EPS was $0.74 per share, an increase of 12.1 percent from the $0.66 we posted in the Q3 of 2022.

Speaker 4

Gross margin performance was down fifty basis points year over year in the Q3 of 'twenty three, negatively impacted by 100 basis points foreign exchange headwind, partially offset by organic and acquisition gross margin improvement by 50 basis points. Our 3rd Quarter 2023 non GAAP operating income increased 3.6%, while our non GAAP operating margin decreased 240 basis points year over year to 20.0 percent, impacted by foreign exchange and acquisition headwinds as well as a challenging comparison from a strong Q3 of 2022. We finished the Q3 with cash, cash equivalents and short term investments of approximately $364,000,000 During the Q3, we used cash to fund selected Project Accelerate 2.0 Investments, acquisitions of approximately $120,000,000 and share repurchases of about $80,000,000 in the Q3. On October 2, we closed the acquisition of Phenomix, which I'll discuss later. We generated $44,100,000 of operating cash flow in the Q3 of 2023.

Speaker 4

Our capital expenditure investments were $26,900,000 resulting in free cash flow of $17,200,000 in the Q3 of 'twenty 3. This compares with operating cash flow of $69,500,000 and free cash flow of $11,800,000 in the Q3 of 'twenty 2. Slide 12 shows the revenue bridge for the Q3 of 'twenty three as Frank has reviewed earlier. Compared to the Q3 of 'twenty two, BioSpin's 3rd quarter 'twenty three organic revenue was up high single digits. Both Q3 20222023 had 1 gigahertz class NMR in revenue.

Speaker 4

We expect revenue from 1 or 2 gigahertz Class NMRs in the Q4, 2023, similar to the Q4 of 2022. Nano organic revenue grew in the mid teens percentage Talend organic revenue grew high single digit percentage with strong performance by our microbiology business. We delivered solid growth in the Q3 of 'twenty 3 in BSI Systems and Aftermarket revenue, with low teens percentage organic growth in systems and high single digit organic growth in aftermarket. Geographically and on an organic basis in the Q3 of 2023, Our Americas revenue grew in the low single digit percentage. Asia Pacific revenue grew in the teens percentage range, While European revenue had low teens percentage growth all year over year, for our EMEA region, Q3 2023 revenue was up mid-twenty percent year over year.

Speaker 4

Slide 13 shows our Q3 2023 P and L performance on a non GAAP basis. Non GAAP gross margin of 52.7 percent decreased 50 basis points from the 53.2% in the Q3 of 2022, impacted by 100 basis points of foreign exchange headwinds, partially offset by organic and acquisition related gross margin improvements of 50 basis points. The Q3 of 2023 non GAAP operating margin of 20.0 percent Was 240 basis points lower than the 22.4% margin we posted in the Q3 of 2022 as we were impacted by foreign exchange and acquisition headwinds to margins and faced a difficult comparison from our strong Q3 2022 operating margin. For the Q3 of 2023, our non GAAP effective tax rate was 23.8% compared to 30.4% in the Q3 of 2022, driven mostly by favorable jurisdictional mix. Weighted average diluted shares outstanding in the Q3 of 2023 were 147,300,000, a reduction of 1,300,000 shares or 0.9% from the Q3 of 2022 resulting from our share repurchases over the trailing 12 months.

Speaker 4

Finally, Q3 2023 non GAAP EPS of $0.74 was up 12.1% compared to the Q3 of 2022 with a $0.05 tailwind from a favorable tax rate offsetting a $0.05 foreign exchange headwind. Slide 14 shows the year over year revenue bridge for the 1st 9 months of 2023. Revenue was up $288,000,000 or 15.8 percent, reflecting organic revenue growth of 13.9%. Acquisitions added 2% to our top line, while foreign exchange was a 0.1% headwind, resulting in constant currency revenue growth of 15.9% year over year. Frank already covered the drivers for the 1st 9 months.

Speaker 4

Non GAAP P and L results for the 1st 9 months of 2023 are summarized on Slide 15, with the drivers largely similar to the Q3 of 'twenty three and as explained on the slide. Turning now to Slide 16. In the 1st 9 months of 2023, we generated $144,600,000 of operating cash flow, up about 42,000,000 over the 1st 9 months of 'twenty 2 on higher profitability and favorable other items. We generated $69,000,000 of free cash Slow over the 1st 9 months of 'twenty 3, up about $61,000,000 over the 1st 9 months of 'twenty 2 on higher operating cash flow and lower capital expenditures. Turning now to slide 18.

Speaker 4

Given our strong year to date results, solid backlog and positive outlook for the Q4, we're again increasing our revenue guidance for the year. Our updated outlook for fiscal year 2023 includes raising our revenue guidance to a range of $2,880,000,000 to $2,910,000,000 This implies organic revenue growth of 11.5% to 12.5% year over year, an increase of 150 basis points from the midpoint of our prior guidance and by now up 300 basis points from the initial fiscal year 2020 guidance we gave in early February. We now expect foreign currency to be about neutral to revenue for the year and acquisitions contributions of about 2.5% to our revenue growth. This leads to reported and constant currency revenue growth guidance in a range of 14% to 15%. For operating margins in 2023, we now to expect organic operating margin improvement of about 100 basis points, which is up from our prior expectation of 50 basis points.

Speaker 4

For non GAAP operating margins all in, we now expect 150 basis point decline from the prior year due to a 250 basis points combined headwind from foreign exchange and acquisitions now also including the cellular analysis business we acquired as of October 2, 2023. As previously discussed, we're rapidly rightsizing the cellular analysis business with most cost actions expected in the Q4 of 2023, such that the Cellular Analysis business is expected to be only slightly dilutive during 2024 and accretive to non GAAP EPS by 2026. As you just heard from Mark, We believe that over time, cellular analysis could be another high ROIC business for Bruker. Cellular analysis accelerates our entry into important biologics and cell and gene therapy tool markets, leveraging its differentiated research solutions with high revenue growth and margin potential. On the bottom line, excluding the new cellular analysis business, We're actually increasing our estimated non GAAP EPS guidance to a range of 2.60% to 2.65 which implies 11% to 13% year over year growth or up $0.05 from our prior guidance range of $2.55 to $2.60 for fiscal year 2023.

Speaker 4

In the Q4 of 2023, we expect cellular analysis to be about $0.12 dilutive to non GAAP EPS as we work through rightsizing the business. Accordingly, We overall expect non GAAP EPS to be in a range of $2.48 to $2.53 down $0.07 compared to our prior guidance, including that Our guidance assumptions other guidance assumptions are listed on the slide. Our full year 2023 ranges have been updated for foreign currency for the Q1 of 2019. Finally, at our Investor Day in June of 2023, I shared financial targets for the medium term fiscal year 2026 outlook for Bruker. Our year to date 2023 financial performance and positive outlook for Q4 gives me confidence to reconfirm today our commitment to those targets, including solid growth for 2024.

Speaker 4

So to wrap up, Bruker delivered excellent organic revenue growth and strong EPS growth in the quarter and for the 1st 9 months of 2023, and we remain confident in our fiscal year 'twenty three outlook and beyond. With that, I'd like to turn the call over to Justin to start the Q and A session. Thank you very much.

Speaker 1

Thank you, Gerald. I'd now like to turn the call over to the operator to begin the Q and A portion of the call. Operator, we're ready for the Q

Speaker 3

and A. Thank you.

Operator

Absolutely. We will now begin the question and answer The first question comes from the line of Puneet Souda with Leerink Partners. Your line is now open.

Speaker 2

We cannot hear anything at the moment.

Speaker 1

Sorry, can you start over? We couldn't hear the beginning. I cannot hear you.

Speaker 5

Sure. Yes. So I was just saying congrats on a very strong quarter here versus the backdrop of industry and peers. So that's really great to see. Just wanted to clarify a question that we're getting here on the BSI book to bill year to date that you provided.

Speaker 5

But based on the mid single digit growth in bookings versus the sort of double digit, high single digit growth you had in the prior Two quarters for bookings. Just wanted to check, if the book to bill was lower in 1st I mean, in the 3rd quarter here. And just given, Frank, what you're seeing in the end markets and in China, obviously, nervousness out there in the market. Could you maybe just help us frame, is it still fair to think about 6% to 8% growth, the longer term growth algorithm for 2024 as well.

Speaker 2

Yes. Happy to do so Puneet. We're not giving 2024 guidance. We've signaled solid organic revenue growth for next year. We'll give guidance When we always give guidance.

Speaker 2

Anyway, so it is correct. In Q3, there was some weakness in bookings in China and in Japan. The rest of the world, which of course included Americas and Europe and so on, was fairly strong. And so our book to bill in Q3 was below 1 as we expected. Year to date, it is about 1.

Speaker 2

Remember in China, we have this unusual effect more than perhaps other peers that we had very strong Q1 bookings. We believe some of that was truly incremental as some big ticket items got funded that normally might struggle to get funding, But some of it was also pull forward. And so we have a bit of an uneven order pattern in China, but there is also weakness in China right now. And in Q3, we saw that in China and Japan. So book to bill year to date is about 1.

Speaker 2

And we also have a very good forecast And backlog always comes down a little bit in Q3 before our typically strong Q4. You've heard the outlook of high Single digit organic revenue growth and good bookings for Q4. So, we will Still be at a very significantly elevated backlog. Keep in mind, I know you like the term backlog conversion, but those are customer orders. That's real demand.

Speaker 2

So anyway, we'll still have a very healthy and extended backlog that will take us in fact a few years to work down going into 2024. I hope that addressed most of your or all of your questions.

Speaker 5

Yes, yes, absolutely Frank. Appreciate it. And if I could follow-up, I mean, congrats on the phenomics and the cell analysis business. It's definitely attractive longer term. But could you just talk a little bit about how you see that High end capital equipment positioned within Bruker, you have significant experience with Selling high end equipment to both research and now with the Cellimals as you'll be positioning well into pharma.

Speaker 5

Maybe could you talk a little bit on a high level about that? And if I may just sneak in one on timsTOF, Any changes in customer order behaviors or dynamics given the demos of a Potential competitive high res instrument ongoing in the market right now. Thank you.

Speaker 2

Yes. So we love selling instruments. We have very innovative instruments. We keep them refreshed also in our We have very innovative instruments. We keep them refreshed also in our core, which our core is really doing well as well.

Speaker 2

Not only the Project Accelerate initiatives, The beacon is another high end instrument, the one that we just acquired with Cellu analysis, but it really depends if you're addressing key markets in better, faster and Antibody development, so maybe antibody development that without a tool like this, you just can't develop very well by the traditional ways Of doing it. And of course for important markets, I know there's a bit of a weakness right now in biologics and cell and gene therapy, but we're very happy to accelerate Our push into those markets. So we this is what we're really, really good at And it's of course right now these sometimes maligned academic government markets. If you're in the right If you're in the post genomic trends, which is proteomics, post translational modifications, spatial biology, Antibody cell line stable cell line development, it's great. And I think we've positioned ourselves in the right areas.

Speaker 2

I should also add and I know you That tends to be one of your questions, that the high end semiconductor and advanced packaging metrology tools in the Nano Group Are also doing remarkably well. There is a bit of a cyclical downturn in semi, but with our technology buys and the Strong push for really high performance newer packaging and chip technologies from artificial intelligence And the geopolitical trends of the U. S. Rebuilding and Europe rebuilding their semiconductor industries, it's really We're not fully shielded from the economic trends that others are seeing or the macro trends, but we're just more diversified and we have positioned ourselves For spatial biology, proteomics, AI and a few others to some trends that are continue to be very strong. All right.

Speaker 2

We should probably let some others get in with questions as well, but that's sort of a Good innovation, good portfolio, exciting new products.

Speaker 5

Appreciate it, Frank.

Speaker 2

Yes. Thank you.

Operator

The next question comes from the line of Derik De Bruin with Bank of America. Your line is now open.

Speaker 6

Hi, good morning. Thanks for taking my question. Hey, Frank, we're trying to Understand some of the dynamics going on in the market, particularly in the biopharma space. I know you have a you don't have as much Exposure to some of your peers right now and but there has been some consultation in terms of instrument volumes like that. Could you just provide some incremental color on What you're seeing in biopharma?

Speaker 6

And I have a follow-up after that.

Speaker 7

Yes.

Speaker 2

We see some of that as well. Biopharma investments are slowing down, budgets are not getting spend as aggressively, especially among Emerging Biopharma that will keep an eye on their cash runway and so on. Also, we did see China CRO business for NMR, for instance, being pretty weak. So We're not immune to some of the trends you see elsewhere. We don't really do Bio production very much or anything like that.

Speaker 2

We have very little COVID testing business. So but we see we can confirm some of those weaknesses. There just a year ago or 2 years ago, my God, if you weren't in biopharma, you were nothing, right? We're strong in biopharma. We've been growing very nicely, but we have so many other drivers as well.

Speaker 2

So we confirm the trends. We just have many other growth we're not firing on all cylinders, but we're firing on some a lot of cylinders and we have some very unique portfolio Positioning and really some very innovative high performance product lines that compete extremely well.

Speaker 6

Great. And I'm going to stay on the market commentary. I mean, you alluded to some metrology and semis, but what about some of the more industrial focused customers? We know chemical spending seems to be chemicals and some of those other markets that are out there. Can you sort of talk about broader macro industrial spend and CapEx spend in

Speaker 2

Yes. So metrology memory and there is some downturn there and we're seeing that in some metrology orders. But again, some very high end orders also For advanced packaging and things that you need for very high performance computing and etcetera for our AI. General industrial, we don't really spend we see some weakness there, but we also see we're really a lot in industrial research and There's some really non cyclical fast growing areas in Greentech in battery research and In other hydrogen economy, there's enough green tech Economy that is a very strong growth drivers and other industrial research, industrial materials have been good for us. And then I really think we have Share gains that may be base hits, but they add up to we've refreshed and we're not neglecting our core and just You know, looking the cow, we're investing there.

Speaker 2

This is part of our management process. And So yes, it's been actually something a company or a division like Bruker AXS, right. This really has done quite well. Yes. Q3 China orders are bit weaker.

Speaker 2

So we but again, with a much healthier setup within industrial Towards Industrial Research and Greentech Research. Right?

Speaker 6

Thanks, Frank. Yes, it's been impressive what you've done with the portfolio over the last 20 years that I've been covering the stock. So congrats.

Speaker 2

We go back

Speaker 3

sometime there.

Operator

The next question comes from the line of Josh The next question comes from the line of Josh Walden with Cleveland Research. Your line is now open.

Speaker 8

Good morning, guys. Thanks for taking my questions. Just 2 for you. First, Frank or Gerald, can you provide an update on the backlog opportunity? I think you said backlog Is it still at about 2 months worth of kind of higher than normal backlog?

Speaker 8

And then how much Do you think the backlog work down can impact annual organic growth as we roll into 2024 and kind of over the medium term?

Speaker 2

Yes. Hi, Josh. We're talking about you. We thought you had our CFO's Because your predictions were pretty accurate for the quarter. Congratulations.

Speaker 2

Anyway, so backlog remains I mean Q3 backlogs, obviously, a little lower than Q4. So as we look at year end backlogs, We're 2.5 months, maybe 3 months or so Higher backlogs than we traditionally had before all the rollercoaster began in 2019 and all of that. So that will be a multiyear story, right? We're not trying to and we can't from a capacity point of view pump that all out in 1 year. So It will add to our organic growth, but it will be a multiyear story.

Speaker 2

And right, so I think that was your question, right? I would assume that backlog can be normalized maybe something like

Speaker 8

The follow-up is, wondered if you could provide more context on the weaker trends in China. I mean, did China decline in the quarter? And I guess any context on what you're seeing by end market there? And how much your outlook And China has changed. I mean, were you assuming a slowing or is the slowing here in recent months a surprise?

Speaker 2

Yes. No, we were assuming a slowing because of our little micro trend, right, that we had these very strong orders in Q1. So China was relatively weak in orders in Q3 As was Japan, rest of the world did quite well. But if I look year to date, that's why over interpreting a quarter is always tricky. Year to date, we have very strong order growth in China, I mean, significantly into the double digits.

Speaker 2

And our forecast for Q4, we will see, but it's For us, I think there was a little bit of a Bruker special, namely this Q1 partial pull forward, which This has led to slower that along with China macro weakness has made Q3 bookings in China weaker for us, As we acknowledged,

Speaker 1

I might add that revenue trend is quite different Given the lead times and backlog, so revenues are still growing nicely there. The order bolus in the early part of the year really just added on to the backlog. So it's still going to take a while for us to convert that backlog in China to revenues. So the weakness Frank is referring to is more so the Q3 orders. Yes.

Speaker 1

But again, that's because of the pull forward earlier in the year, orders are up year to

Speaker 2

date well in the double digits there. So

Speaker 8

Got it. Thanks guys.

Speaker 2

Thank you. Thank you, Josh.

Operator

The next question comes from the line of John Salisbury with UBS. Your line is now open.

Speaker 9

Good morning and congrats on the quarter. I appreciate the color on pharma demand, but maybe if you could provide just a little bit more color just on the overall funding environment for High end instrumentation is maybe specific with academic and government customers.

Speaker 2

Okay. John, thank you. It's been good, right? I mean academic government never Grows as fast at boom times, but it also is pretty resilient at in it just grows steadily generally by Low single digits, sometimes high mid single digits. As I always say, it really depends where you are.

Speaker 2

I mean, academic government, Including academic medical centers, we are very much more exposed to academic medical centers, cancer research, proteomicsresearch@medicalschoolsetcetera than we were years ago. And that's a really good thing because between Philanthropy and NIH funding and just procedures growth and all of these things and focus on cancer Our neuroscience research, the scientific areas in the post genomic trends I think are much Stronger than the genomic trends these days and I think they will remain that way and we're very well positioned there metabolomics, lipidomics, proteomics, PTMs, glycomix, I just don't want to turn this into a techno session here. But for post genomic trends, we're beautifully positioned. Our greater exposure into spatial and cell biology are good drivers. So where we are within this Modestly growing academic government funding is much more important.

Speaker 2

And so we're really we're in the really I think for the next Decade or hopefully more, we're really I think are at the sweet spot of the demand curve and funding therefore as well. So the allocation of funding and prioritization with our products is great.

Speaker 9

Got it. I guess I was trying to get at more. I mean do you anticipate any change in I know you're not guiding for next year, but when you look out over the next 12 months, do you see any changes when you look out there on trends?

Speaker 2

I think the secular trends are decadal or maybe A couple of decades, still early days in those in that, but I think it really has changed dramatically now Towards the post genomic age, which is exactly where you could call us the post genomic company, except we also do semiconductor and Food Analysis. But right, so I mean there might be some noise, maybe slower NIH budgets, but we're not exposed directly to NIH All that much, but then you have the CHIPS Act, you have the Science Act, you have the European CHIPS Act. China has been investing very heavily. A lot of our orders are in China this Here also earlier for high end life science and our microscopy, timsTOF mass spectrometry tools. So there is a big proteomics project in China that sometimes The headline use if they execute that all of that as often is the case will dwarf anything in the West so to speak.

Speaker 2

Then It just means there'll be very significant investment and focus on this post genomic investment, which is exactly where we have positioned ourselves.

Speaker 9

Appreciate that. If I could sneak in just one more on Phenomax or the Brugger cellular business, would you be willing to provide what you Could be the long term growth rate for this business or any way to quantify any of the synergies or cross selling opportunities there? Any additional color you could provide on that?

Speaker 2

We're right now focusing on getting the cost structure right. So we're as you've seen also our run rate of $60,000,000 or greater is initially focusing on making it just a little bit dilutive. And In the long term, I'd rather do that maybe when we give color and guidance next year. We think it can Swing back to being a very, very good growth business and one that eventually in terms of growth rates and CAGR given these attractive markets will be Over the long run, higher than what you see than even our Bruker average. In 2024 that may not be the case because of some biopharma weakness, right?

Speaker 2

But long term, we think it's accretive to our organic growth rate.

Speaker 9

Appreciate it. Thanks for taking the questions.

Speaker 2

Thank you, John.

Operator

Thank you. The next question comes from the line of Patrick Donnelly with Citi. Your line is now open.

Speaker 10

Hey guys, thanks for taking the questions. Gerald, maybe one for you to start, Understand you're not giving 2024 guidance, but just on the margins, as you think about high level, the moving pieces as we work our way into next Obviously, this year you've had the FX headwind, the M and A headwind, the core organic op margin expansion, I think you guys flagged as 100 bps. So as you look into next year, what should we be thinking about as those moving pieces? Obviously, the dilution from the deal you flagged, you guys are stripping out costs pretty aggressively, which is good But maybe just talk high level, how you think about that margin algorithm next year?

Speaker 4

Hi, Patrick. I guess I'd say perhaps just stay tuned. We're going to go through that in more detail in February. Obviously, you've seen some of the moving parts. We've got a lot of pieces here, but we're pretty optimistic in the long term.

Speaker 4

So, I think I'll leave it at that for just today. We want you to come back for the February 24 call for sure, Patrick.

Speaker 10

I'll be there. I appreciate it. And then Frank, maybe just on China, Obviously, a few questions there. But when you think about the backlog, is that backlog above kind of the call it 9 months Are we at a year backlog in China? And if it is, given that visibility, how sticky is that order backlog?

Speaker 10

How often do you see cancellations? I think there's just a With what's happening over there that maybe the backlog isn't quite as firm as other areas. I'd be curious as you look historically What you've seen there and again if you can frame up the backlog for us in China specifically it would be helpful.

Speaker 2

Yes. No, I mean, except for we very rarely, if ever, see any order cancellations and it is Extremely rare and then of course we usually have a down payment or something like that that we retain. When there were regulatory changes in semiconductor and what the U. S. Would allow to be Delivered to China, I think we had to have we had corrected for all of that a year ago or thereabouts.

Speaker 2

So that's all Long in our system. Other than that, yes, the China backlog is good call, good question. The China order backlog is a little bit higher than our average backlog. I don't want to quantify Specifically, we don't go into that granularity, but it is above our corporate average. And that has to do also with the fact that there's some That China bought a lot of big ticket systems throughout also in Q2, a lot in Q1.

Speaker 2

Some of that has Some of that will even go into next year. So yes, the China backlog is a little bit stronger and other than a geopolitical We think there's risk for the entire industry, right, geopolitically, what will happen over the next 10 years. But in terms of broker risk and broker order cancellations, we just don't see that. We have valuable instruments. We make our try to really Do great things for our customers and so we are a reliable company.

Speaker 3

Yes. Appreciate it. Thank you.

Operator

Thank you. The next question comes from the line of Rachel Finstell with JPMorgan. Your line is now open.

Speaker 11

Great. Thanks for taking the questions and congrats on the strong quarter you guys. I wanted to follow-up on some of these China comments here around the weaker orders. Can you give us what the book to bill was in China this quarter? And then just given some of your The flag that that market has also really continued to weaken throughout 3Q and into October.

Speaker 11

Can you give us any more color on when you started to see the weakness in orders? And then specifically, were there any types of end markets, customer types or even product types where you're seeing that more pronounced weakness?

Speaker 2

So we don't get book to bill by country or by region. We acknowledge that in Q3 bookings We're down year over year in China and in Japan and up elsewhere, so in the major geographies. Right. We don't look at daily or weekly order patterns like maybe a more of a consumables business model, right. We always in all geographies get more than half of our orders in the 3rd months of each quarter.

Speaker 2

So the type of Trends within the quarter that some people have described and that you probably are asking about, we just don't You can see that in our data. So, right, I did we did notice that CRO business and for biopharma CRO business in China throughout the year already had been weak and I'm sure Q3 was not an exception. That's about it. That's not going to answer all of your questions about, but you get a lot of color from other vendors Let's see more of this monthly pattern or even weekly patterns, which we don't. Okay.

Speaker 2

Yes,

Speaker 11

fair enough. Thanks. And then I just wanted to ask around budget flush dynamics. Within that high single digit organic growth that you guys are assuming for 4Q, What's your assumption on budget flush? Have you started to see any of those orders or customer conversations around that December dynamic?

Speaker 11

Yes, really any color there. Thank you.

Speaker 2

Been in this industry for a long time and budget flush is still one of these enigmatic terms to us. It doesn't and again, it is one of the things that I think applies much more to consumables And companies and for us, we're never really looking for that. And so we're just not a good data point to give you color on that. So we have just like in other years, we have no expectations for any budget flush It just doesn't work that way at Bruker. That's a Bruker specific answer, I realize.

Speaker 2

So Don't mean to frustrate you Rachel, but budget flush for us isn't one of these isn't one of the things that we look for and will there be one this year or not. Can't comment really.

Operator

Sounds good. That's it for me.

Speaker 2

We don't have any insights into that, I should say.

Speaker 4

Yes.

Speaker 3

Yes.

Operator

Thank you. The next question comes from the line of Jack Meehan with Nephron Research. Your line is now open.

Speaker 7

Thank you. Good morning. I wanted to to ask a

Speaker 10

question on

Speaker 7

PhenoMax. First, could you talk about just what you're doing in terms of the integration through year end where that maybe just a little bit more detail on what you're focused on. And then I wanted to clarify on the dilution commentary. So you said it was slightly dilutive in 2024. I just wanted to clarify, is that incremental to the $0.12 in 4Q?

Speaker 7

Or is that relative to the trend line from prior to the deal getting announced. Thanks.

Speaker 2

I'll turn things over to Mark in a moment, But the slightly dilutive, I'm not sure I fully understood the question, but obviously that implies being much less dilutive Per quarter than the $0.12 one time bolus that we have as a headwind in Q4 2023. Again, when we give guidance in early February for next year, we'll but much less Per quarter than the $0.12 is what we mean by slightly dilutive. Now for your modeling sorry, Mark, then I'll turn things over to you. For your modeling, assume that it's a little bit more dilutive in the first half and a little less dilutive in the second half. But on average, it's going to be much less dilutive.

Speaker 2

Guys, we just don't want to give guidance today for 2024. We're not going to do it. So that's why we stick to adjectives. I know you would like numbers. Mark, without numbers, may I turn things over to you and you can at least qualitatively describe some of the Strategy resetting and rightsizing with Mark, why don't you get that over?

Speaker 3

Sure. Sure. Yes. The types of things we're doing, I'll characterize that. I mean, first of all, we're kind of accelerating.

Speaker 3

They were already doing some integration, but we're really accelerating On a faster pace, because in terms of our M and A expertise, we're pretty good at that.

Speaker 4

And so

Speaker 3

and then one of the things we're doing is getting them over to management process to kind of crystallize and sharpen the strategy

Speaker 1

that they have and that's kind of helpful

Speaker 3

in terms of highlighting then Where to focus, where not to focus is. So then in terms of cost, certainly headcount personnel costs, also overhead, We streamlined a lot of overhead structure. There's some consolidation also going on in terms of sites as well as They're carrying a fair amount of depreciation expense kind of unnecessarily in the business preserving. So there's just a number of items Across many fronts where we're kind of operationally optimizing and cost optimizing the business and doing it pretty rapidly.

Speaker 2

Yes. Mark is fantastic at that and of course also drove the acquisition. So very strategic, but also very good at integration. Of course, the number of jobs affected will be, I mean, well over 100 unfortunately. And we're taking tens of 1,000,000 of costs On an annualized basis during that integration process, stay tuned for more A bit more detail on that when we give guidance in early February.

Speaker 2

Jack, did that hit the point? So was there something else we

Speaker 1

And maybe one more follow-up here for the Q and A, Jack. Thanks.

Speaker 8

Okay. Yes.

Speaker 1

I just wanted to follow-up.

Speaker 7

How the rollout of Jim's Toff Ultra might have impacted life science mass spec sales in the quarter. You didn't call it out within CALID. Just was wondering if the initial rollout Could have actually had a short term dampening effect as customers kind of reevaluated what they're buying.

Speaker 2

Yes, that's So the Astrall is more competitive than the previous Orbitrap. So a lot of people are taking a look and that previously would have just ordered. They're now taking a while. There's an Ultra from Bruker and there's an Astral and they both came out at the same time. So people are taking a look.

Speaker 2

We're doing more Detailed demos as people really try to drill down into that. Still have a lot of Pipeline is in orders that are coming through, but people are taking a closer look and the high end proteomics mass spec market with the Astral introduction and the Ultra introduction has become more competitive.

Speaker 7

Thank you.

Speaker 1

So I think operator actually maybe we'll take questions I think from one more caller.

Operator

Absolutely. The final question comes from the line of Dan Arias with Stifel. Your line is now open.

Speaker 12

Hey, good morning guys. Thanks for squeezing me in here. Frank, maybe just a follow-up on the instrument portfolio. You guys have a fairly wide range of price points there. I'm curious whether as you watch demand evolve, you've noticed Any breakpoints or thresholds within certain customer groups or end markets just when it comes to being above or below a certain level Seeming to draw less friction or more friction on orders, does a trend emerge there at all?

Speaker 2

Can you give me an example, Dan? I want to make sure I understand the question.

Speaker 12

Well, I'm just thinking about the different product lines that you have and the price points that are attached to them and whether or not You're seeing some, whether price sensitivity as the order book has evolved has gotten lower or whether you're seeing certain customers just Draw out their timelines depending on where the ASP happened to fall. Basically price sensitivity in the instrument market for you guys.

Speaker 2

Yes. Sometimes we see we have the effect of currencies, people in some of the currencies that have been weakening Like the yen or China a little bit, right? And Israel most recently They have budgeted for our instruments and then just before they're about to buy their currency drops Some percent, but that's not a brand new trend. So we always wrestle with that and we try to figure it out with But it's not really a recent trend. It's just one of the things we deal with from time to time.

Speaker 2

I haven't I haven't seen any portfolio inflection points or so. I have not seen any I mean our We actually had pretty good price realization. We didn't talk about that much. So price realization was behind inflation previously. We're now sort of where Price realization at least keeps up with inflation and maybe even turn slightly positive.

Speaker 2

So our pricing power has remained very solid and our competitiveness has remained solid. So So again, don't mean to abate the question anyway, but the answer short answer would be no. We haven't really seen any portfolio inflection points or something Or excessive price or significant price sensitivity. I mean price is always important, but ultimately What's the best performance or what gives you the research or the results that you need? There's some industry semiconductor, they'll buy the best that works for It's $1,000,000,000 fast, it depends on it and that's what they get.

Speaker 2

The high end of proteomics is the fun things going, people want the best as opposed to a lower, Not a lot of lower end Protail mix sales right now, for example.

Speaker 12

Okay. That's helpful. Just figured that out. If I could Frank, if I could just sneak can I just sneak one more in on Berkeley Lights, if I may? Those guys had some plans for some additions in Portfolio just in terms of lower cost instruments and some application specific stuff.

Speaker 12

Does your plan call for carrying forward that roadmap of theirs?

Speaker 2

It may be early to say, but Mark, would you like to comment or defer to next year?

Speaker 3

No, we can comment on it. So that's correct. From, for example, the Beacon platform, they had launched some lower priced Position products in terms of the BEACON QUEST and BEACON Select in 2023 and those will continue onward. And then And what that's about by the way is helping expand to new segments, new markets. So all that, those kind of product road map trends will continue.

Speaker 12

Okay. Thank you, guys.

Operator

Thank you. I would now like to pass the conference back over to the management team.

Speaker 1

Thank you everyone for joining us today. I do want to note Bruker's CFO, Gerald Herman will be presenting at the Jefferies Conference in London on November 14. And Bruker's leadership team looks forward to meeting with you at an event or speaking with you directly during the Q4. Please feel free to reach out to me to arrange any follow ups and have a great day.

Operator

That concludes today's conference call. Thank you for your participation. You may now disconnect your line.

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Bruker Q3 2023
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