Methanex Q4 2023 Earnings Call Transcript

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Provided by Quartr
February 13, 2024

There are 11 speakers on the call.

Operator

Good morning, everyone, and welcome to the Bruker Corporation 4th Quarter Also note, today's event is being recorded. At this time, I'd like to turn the floor over to Justin Ward, Senior Director of Investor Relations and Corporate Development. Please go ahead.

Speaker 1

Thank you and good morning. I would like to welcome everyone to Bruker Corporation's 4th Quarter 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 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 Presentation section of the Bruker 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.brucker.com. To 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 make forward looking statements regarding future events 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, 2023, and as updated by our other SEC filings, which are available on our website 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, February 13, 2024. We do not intend to update the forward looking statements based on new information, future events or for other reasons, except as may be required by law, to the release of our Q1 2024 financial results expected in early May 2024. You should not rely on these forward looking statements as necessarily Our views or outlook 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 Q4 and full year 2023 in more detail and share our newly established full year 2024 financial outlook. Now I'd like to turn the call over to Bruker's CEO, Frank Laukien.

Speaker 2

Thank you, Justin. Good morning, everyone, and thank you for joining us on today's Q4 2023 earnings call. Bruker finished 2023 with another quarter of excellent revenue growth, including 15.9% organic revenue growth year over year. For the full year 2023, we delivered industry leading 14.5 percent organic revenue growth, which shows remarkable resiliency and consistency under difficult market conditions. Moreover, 2023 was our 3rd consecutive year of double digit organic revenue growth, A testament to the strong execution of our Bruker colleagues across the globe and to our differentiated innovation strategy and culture of disciplined entrepreneurialism.

Speaker 2

Importantly, in fiscal 2023, we also delivered A solid 10.3% non GAAP EPS growth year over year, all while investing significantly in R and D, capacity and productivity and in selected strategic bolt on acquisitions. For those keeping track of our new Bruker cellular analysis business, which we refer to as BCA and formerly known as Phenomex. As forecasted in fiscal 2023, we had a 4th quarter bolus of $0.10 of non GAAP EPS dilution. Excluding VCA, our fiscal year 2023 pro form a non GAAP EPS grew 14.5%. In Q4 of 2023, we did major restructuring and cost cutting at BCA almost immediately after the acquisition closed on October 2, 2023.

Speaker 2

Accordingly, in fiscal year 2024, We expect the quarterly BCA non GAAP EPS dilution to be significantly reduced to just $0.02 to $0.03 per quarter With a significant further drop in dilution expected in fiscal year 2025 and BCA profitability anticipated in fiscal year 2020 6. As we look at the fiscal year 2024, we entered the year with solid bookings momentum, A strong backlog and a positive outlook for Bruker to emerge as a leader of the post genomic era and financially to again achieve above market organic revenue and non GAAP EPS growth. Accordingly, we are today announcing our fiscal year 'twenty four guidance for organic revenue growth of 5% to 7% and non GAAP EPS growth of 5% to 7%, both compared to fiscal year 2023. Turning now to Slide 4, in the Q4 of 2023 Bruker delivered excellent organic revenue growth of 15.9% and solid pro form a non GAAP EPS growth. Bruker's Q4 2023 reported revenues increased 20.6 percent year over year to 854,500,000, which included a currency tailwind of 2%.

Speaker 2

On an organic basis, revenues increased 15.9%, which included 15.5% organic growth in BSI, our Scientific Instruments segment and 20.3% in our BEST segment. Net of intercompany eliminations, while growth from acquisitions added 2.7%. This implies constant exchange rate or CER revenue growth of 18.6 percent year over year. Our 4th quarter 2023 non GAAP operating margin was 18.1%, which was down 2 90 bps primarily due to the dilutive Phenomex acquisition in Q4 2023 as well as headwinds from other M and A and currency. Altogether, this combined more than offset our organic operating margin expansion of +2.70 bps.

Speaker 2

Our strong organic operating margin expansion is evidence of the success of our Project Accelerate and operational excellence initiatives. In Q4 of 2023 Bruker reported GAAP diluted EPS $1.41 compared to $0.66 in Q4 of 2022. Our Q4 2023 included an acquisition gain of $0.99 from our Phenomex acquisition. On a non GAAP basis, Q4 'twenty three diluted EPS was $0.70 down 5.4% from $0.74 in the Q4 of 2022, primarily due to the Phenomex acquisition in Q4, 2023. Excluding the initial minus $0.10 BCA dilution in Q4 2023, Bruker delivered pro form a non GAAP EPS growth of +8.1 percent year over year in Q4 of 2023.

Speaker 2

Moving to our full year 2023 performance on Slide 5, you can see Bruker's strong performance and excellent execution in 2023 with industry leading organic revenue growth of 14.5%, Solid non GAAP EPS growth of +10.3 percent and excluding BCA even pro form a non GAAP EPS growth of +14.5%. More specifically for fiscal year 2023, Revenues increased by 17.1 percent to RMB2.96 billion. On an organic basis, Revenues grew 14.5% year over year, consisting of 14.5% organic growth in Scientific Instruments and 14.7 percent organic growth at best net of intercompany eliminations. Our 2023 non GAAP gross and operating margin and GAAP and non GAAP EPS performance are all summarized on Slide 5 and you can see solid non GAAP EPS growth of 10.3% despite a $0.10 headwind from BCA in the 4th quarter. I'll also note that note that our 2023 free cash flow increased by $98,000,000 year over year.

Speaker 2

Our trailing 12 months return on invested capital, a non GAAP Measure was 20.6%, a metric that highlights our differentiated Bruker Management process and focus on disciplined entrepreneurialist, Innovation and organic growth supplemented by selected strategic bolt on or early stage technology acquisitions. Please turn to Slide 67 where we highlight the fiscal year 2023 constant exchange rate or CER performance of our 3 instruments groups and of our best segment year over year. In 2023, BioSpin Group revenue was $799,000,000 and grew in the growing the teens percentages in constant exchange rate. Biospin saw growth across biopharma, academic government, industrial research and 5 markets as well as in our new integrated data solutions or IDS division. We had revenue from 4 gigahertz class NMR each in fiscal 2023 and fiscal 2022.

Speaker 2

And in the Q4 of 2023, We installed the first 1.2 gigahertz NMR in the United States at the Ohio State University and the 1.1 gigahertz NMR at the University of constant at Madison. For 2023, our CALID group had revenue of 960,000,000 and constant exchange rate growth in the high teens percentage with strong growth in life science mass spectrometry driven by the timsoft platform and aftermarket business as well as strong growth in applied mass spectrometry and our optics infrared, near infrared and Brahman business. Microbiology and infectious disease revenue was up slightly as solid demand for multi biotyper consumables was offset by a final drop of our modest COVID-nineteen molecular diagnostics revenue to near 0. Please turn to Slide 7 now. Fiscal year 'twenty three Bruker Nano revenue was $942,000,000 and in constant exchange rate nano grew in the high teens percentage with strong revenue growth across markets, including academic government, industrial and semiconductor metrology.

Speaker 2

The artificial intelligence megatrend is a strong tailwind for our semiconductor metrology and advanced packaging tools. Revenues for our advanced x-ray solutions and nano surfaces core tools also showed strong growth. Fluorescence microscopy revenue was up on solid growth in academic government research as well as contributions from our Q4 'twenty two acquisition of the Inscopix neuroscience research tools. Finally, 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 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 AI or artificial intelligence demand. Let me now move to Slide 8, which is a slide that's familiar to those of you who saw our presentation at the JPMorgan Healthcare Conference, Where we're outlining, what we mean by leadership, emerging leadership in the post genomic era, which of course includes many different fields of multiomics beyond genomics, but including genomics, as well as solutions for single cell, spatial, structural, quantitative and interaction biology.

Speaker 2

I will not dwell on this, but I invite you to read Quick summaries of 2 technology acquisitions that we closed in early February and which both fill gaps that we had in our portfolio and therefore strength in our portfolio. On the left, you will see that we acquired Nanophoton in Osaka, Japan, A company with about $5,000,000 in fiscal year 2023 revenue, they are a specialist in research Raman microscopy systems So far primarily are only offered in Japan and Korea, but we think these products will do very well outside of Japan and Korea as well since they're really performance leading with exceptional speed, sensitivity, spatial resolution and user friendly workflows in Raman research Raman microscopy. Applications are from it's going from inspecting semiconductors and nanomaterials, battery research as well as academic and industrial research. Differently here in the United States in Tucson, Arizona, we acquired Spectral Instruments Imaging LLC to fill To complement our preclinical product lines with preclinical obstacle imaging for bioluminescence and fluorescence in vivo imaging and optional x-ray imaging. This enhances our preclinical imaging or PCI solutions for in vivo disease research and should be welcomed by our customers.

Speaker 2

So let me wrap things up. In summary, Bruker delivered excellent organic revenue growth and solid EPS growth in 2023 even as we have accelerated our strategic investments In the project Accelerate 2.0 for transformation as well as in production capacity and productivity to meet our growing demand. Bruker's strong growth is a result of a fundamental commitment to innovating in high value solutions as well as of our ongoing portfolio transformation. Our technology and biological applications leadership in many areas combined with world class execution and an excellent Bruker management process position us well for continued outperformance as a leader in the emerging post genomic era. Now given our strong growth in 2023, our healthy fiscal year 2024 guidance as well as our recent selected strategic bolt on acquisitions, we are now optimistic that we can achieve our previously communicated fiscal year 2026 medium term outlook for revenue and non GAAP EPS already 1 year earlier in fiscal year 2025.

Speaker 2

With that, let me now turn the call over to our CFO, Gerald Herman, We will review Bruker's Q4 and full year 2023 financial performance in more detail and provide our fiscal year 2024 outlook and assumptions. Gerald?

Speaker 3

Thank you, Frank, and thank you, everyone, for joining us today. I'm pleased to provide some more detail on Bruker's Q4 and full year 2023 financial performance, Starting on Slide 11. In the Q4 of 2023, Bruker's reported revenue increased 20.6% to $854,500,000 which reflects an organic revenue increase of 15.9% year over year. In the Q4 of 2023, Bruker's reported GAAP diluted EPS of $1.41 compared to 0.66 dollars in the Q4 of 2022. The Q4 of 2023 GAAP EPS includes a $0.99 per share non taxable non cash gain from the acquisition of Phenomix, now called Bruker Cellular Analysis Division or BCA.

Speaker 3

This gain for GAAP reporting represents a bargain purchase gain and reflects the excess of identifiable net assets acquired over the purchase consideration paid. Included in the acquired assets are deferred tax assets related to acquired net operating losses or NOLs. While the present value of these NOLs is very significant for GAAP accounting, the tax benefits of these NOLs going forward are expected to be much more modest annually. On a non GAAP basis, Q4 2023 diluted EPS was $0.70 down 5.4% from $0.74 in the Q4 of 2022, primarily due to the $0.10 dilutive effect of our Phenomix acquisition in the 4th quarter as well as a challenging tax rate comparison year over year. Excluding BCA, Bruker delivered pro form a non GAAP EPS growth of 8.1% year over year in the Q4 of 2023.

Speaker 3

Non GAAP gross margin performance was down 80 basis points year over year in the Q4 of 2023, negatively impacted by foreign exchange and M and A headwinds, partially offset by organic gross margin expansion of about 40 basis points year over year. Our Q4 2023 non GAAP Operating income increased 3.8%, while non GAAP operating margin decreased 2 90 basis points year over year to 18.1%. As foreign exchange and acquisition headwinds primarily from BCA more than offset very strong organic operating margin expansion of 270 basis points year over year in the Q4 of 2023. Our Q4 2023 pro form a non GAAP operating margin, excluding the Phenomix acquisition, was 20.6%. We finished the Q4 with cash, cash equivalents and short term investments of approximately $488,000,000 During the Q4, we used cash to fund selected Project Accelerated 2.0 investments, capital expenditures and share repurchases of approximately $15,000,000 We generated $205,500,000 of operating cash flow in the Q4 of 2023.

Speaker 3

Our capital expenditure investments were $31,500,000 resulting in free cash flow of $174,000,000 in the Q4 of 2023. This reflects an improvement in cash flow of about $37,000,000 over the Q4 2022, driven by better working capital performance in the quarter. Slide 12 shows the revenue bridge for the Q4 of 2023. We delivered solid revenue growth in the Q4 of 2023 in BSI with 18.5 percent organic revenue growth In systems, an 8.2% organic growth in aftermarket revenue all year over year. Geographically and on an organic basis, in the Q4 of 2023, our Americas revenue grew in the teens percentage.

Speaker 3

Asia Pacific revenue grew in the 20% range, while European revenue grew in the mid teens percentage all year over year. For our EYMEA region, Q4 2023 revenue was up high single digit percentage year over year. Slide 13 shows our Q4 2023 P and L performance on a non GAAP basis. Non GAAP gross margin of 51.8 percent decreased 80 basis points from 52.6 percent in the Q4 2022 impacted by foreign exchange and acquisition headwinds, partially offset by organic gross margin improvements of about 40 basis points year over year. 4th quarter 2023 non GAAP Operating margin of 18.1% was 2 90 basis points lower than the 21% margin Performance we posted in the Q4 of 2022 as foreign exchange and acquisition headwinds primarily from BCA more than offset strong organic operating margin expansion of 2 70 basis points.

Speaker 3

For the Q4 of 2023, our non GAAP effective tax rate was 31.3% compared to an unusually low 20.6% in the Q4 of 2022, driven mostly by a one time discrete favorable item in the prior year period. Weighted average diluted shares Danny in the Q4 of 2023 were $146,000,000 a reduction of 1,900,000 shares or 1.3% from the Q4 of 2022 resulting from our share repurchases over the trailing 12 months. Finally, Q4 2023 non GAAP EPS of $0.70 was down 5.4% compared to the Q4 of 2022 with a $0.10 headwind from BCA. Excluding BCA, our non GAAP EPS was up 8.1% year over year. In fiscal year 2024, we expect BCA to be much less dilutive after our major cost actions in the Q4 of 2023 And our full year 2024 non GAAP EPS guidance incorporates a $0.10 non GAAP EPS headwind from BCA.

Speaker 3

Slide 14 shows the year over year revenue bridge for the full year of 2023. Revenue was up $434,000,000 or 17.1%, reflecting organic growth of 14.5%. Acquisitions added 2.2% to our top line, while foreign exchange was a 0.4% tailwind, resulting in constant exchange rate revenue growth of 16 0.7% year over year. Non GAAP P and L results for the full year of 2023 are summarized on Slide 15, with the drivers similar to the Q4 of 2023 as explained on the slide. Turning to Slide 16.

Speaker 3

In the full year of 2023, we generated $350,100,000 of operating cash flow, up about $76,000,000 from 20.22 on improved working capital performance. We generated $243,000,000 free cash flow in 2023, up about $98,000,000 from 2022 on higher operating cash flow and lower capital expenditures. Turning now to Slide 18, we entered the year with solid backlog and an even stronger portfolio to again achieve above market growth. Our outlook for fiscal year 2024 includes: We are initiating a guidance range of reported revenue of $3,230,000,000 to $3,290,000,000 representing growth of 9% to 11% compared to 2023. This guidance assumes organic revenue growth of 5% 7% year over year, an estimated foreign exchange tailwind of 1% with acquisitions contributing 3% to revenue growth.

Speaker 3

That excludes any announced potential acquisitions that have not yet closed. This guidance implies constant exchange rate revenue growth of 8% to 10% in full year of 2024. For operating margins in 2024, following strong organic operating improvement of about 130 basis points in 2023, We expect 2024 organic operating margin improvement of about 50 basis points. For non GAAP operating margins all in, We expect about an 80 basis point decline from the prior year due to a combined 130 basis point headwind from foreign exchange and acquisitions. On the bottom line, we're guiding to non GAAP EPS for 2024 in a range of $2.71 to $2.76 or non GAAP EPS growth of 5% to 7% compared to 2023.

Speaker 3

Other guidance assumptions are listed on the slide. Our full year 2024 ranges have been updated for foreign currency rates as of January 31, 2024. One additional note on quarterly phasing for the year. We expect 1st quarter organic revenue to be sequentially below the Q4 of 2023 and only modestly above the Q1 of 20 23, which was an exceptionally strong Q1. We also expect softer operating margin performance in the Q1 of 2024, driven by BCA dilution and other acquisition and foreign exchange headwinds.

Speaker 3

Our organic revenue and operating margin performance is expected to strengthen in the remainder of 2024. Finally, at our Investor Day in June 2023, I shared financial targets for the medium term fiscal year 2026 outlook for Bruker. Our strong 2023 financial performance, healthy 2024 guidance and our portfolio strength gives me confidence that we will likely reach our full year 2026 medium term targets for revenue and non GAAP EPS a year earlier in 2025. To wrap up, Bruker delivered differentiated organic growth and financial results in 2023, and we're well positioned to deliver above market revenue and non GAAP EPS growth again in 2024. With that, I'd like to turn the call over to Justin to start the Q and A session.

Speaker 3

Thank you very much.

Speaker 1

Thanks, Gerald. I'd now like to turn the call over to the operator to begin the Q and A portion of the call. And one follow-up. Operator, we're ready for Q and A.

Operator

Ladies and gentlemen, we'll now begin that question and answer session. Our first question today comes from Patrick Donnelly from Citi. Please go ahead with your question.

Speaker 4

Hey, guys. Good morning. Thanks for taking the question. Frank and maybe Gerald as well, just on that LRP pull forward comment, obviously, very nice to see. Can you just talk about that the earnings side particularly?

Speaker 4

I think it implies almost 30% growth in 2025 on the earnings side. Is that some of these deals flipping accretive? Obviously, the headwinds on the margins last year or this year from the deals has been notable. Can you just talk about some of the moving pieces there, confidence level to pull that forward against particularly on the earnings side? It's really nice to see.

Speaker 4

So just wanted to get some more color on again, approaching that $350,000,000 $355,000,000 number a year early?

Speaker 2

Yes. Thank you, Patrick. Indeed, we're optimistic that we can pull that forward by a year on the revenue and on the non GAAP EPS side, which is wonderful. It's really a combined result of stronger of strong 2023 results and execution. And again, we are pleased to give pretty solid and healthy 2024 guidance.

Speaker 2

Then indeed as some of these headwinds either go away or abate. And as we look at the As you've seen, we've delivered under the hood, so to speak, pretty healthy organic or moderate organic gross margin improvement and good over 100 bps operating margin organic operating margin improvement and these are all the trends that are continuing while some of the temporary currency And accepted strategic M and A headwinds go away. So indeed, we expect without commenting on numbers, But we're expecting a very significant EPS step up in 2025 and also in 2026.

Speaker 4

Okay. That's helpful and again encouraging to see that. And Frank, maybe just on the overall backdrop, we've gotten a lot of questions On just the academic market, the health of it between continuing resolution in the U. S. And China, noise.

Speaker 4

Can you just maybe talk about what you're seeing out there, expectations? Obviously, you have the order book that should help in the near term. But even on the order trends, how you're thinking about the near term and how you're thinking about that academic market given at least what appears to be some high level pressures out there? You so much.

Speaker 2

Yes, gladly. So academic government revenue growth was Great. And bookings growth was also pretty good. I mean, in Q4, we had a bit of an air pocket in bookings, Nothing dramatic in Q3 after very strong Q1 and Q2 bookings in China in particular. In Q4, it wasn't super strong, but it was solid.

Speaker 2

And

Speaker 3

from what

Speaker 2

I can see better than what others peers larger peers may have reported in Q4. So our Q4 book to bill for BSI was not Far from 1.0, so pretty solid and even China was okay. So academic government, not only backlog, but bookings all the way to revenue growth over the various geographies looks solid. It's one of the very defensible areas at a time when For others at least biopharma went down, COVID of course went down. So it's been one of the strong areas along with diagnostics and many other areas, actually just about all of our businesses are doing really quite well in most of our markets.

Speaker 4

Okay, great. Thanks, Ryan.

Speaker 2

You're welcome, Patrick.

Operator

Our next question comes from Josh Waldman from Cleveland Research. Please go ahead with your question.

Speaker 5

Hey, good morning guys.

Speaker 6

Thanks for taking my question.

Speaker 7

Hi, Jeff.

Speaker 6

Yes, 2 for you. Maybe Gerald, Starting on the margin side, wondering if you could unpack the margin guide a bit more. Curious the puts and takes On the organic margin up 50 bps, is that about what you would normally expect on 5% to 7% organic growth? Just wondering how mix, price, maybe other moving pieces within the cost structure are impacting that number?

Speaker 3

Yes. I'd say generally, Josh, it's the impact of the Phenomix acquisition specifically. We, of course, continue to take pricing actions and we have a number of other initiatives underway that play into that. Puts and takes are not that significant, but that's probably the most material item.

Speaker 2

About the organic expansion of 50 bps.

Speaker 1

Yes. So just to clarify, there's a lot of distortion On the margin related to the timing of Phenomix, so recall that we acquired it basically the beginning of Q4 of 2023 And there was quite a drag on margins. That will become a margin or an organic op margin tailwind next year because you're anniversarying that acquisition beginning in Q4. So in the early part of the year Where most of the phenomics op loss will still be taking place, that will be characterized as an acquisition margin drag. So it really just has to do with the categorization of Phenomix and the timing of that acquisition, Josh.

Speaker 1

Does that make sense?

Speaker 5

Yes. I think that makes sense.

Speaker 6

And I guess one more Gerald on the margin. I mean it Sounds like you're pulling forward the revenue and EPS, 26 target by a year. Is the margin target kind of off

Speaker 8

the table at this point?

Speaker 2

No, it's not off the table. I'll take that, Josh. It's just that we don't think we can pull forward. That looks more likely to be a 26% non GAAP operating margin target, But it's not at all off the table. We think we can reach that in 2026 without pull forward with plenty of room to advance the operating profit margin then further into the mid-20s and subsequent years.

Speaker 6

Got it. Okay. And then my follow-up, Frank, was on BioSpin. Wondering how many 1 gig systems are included in the guide for 2024. And then curious, any thoughts or context you can provide on how the non 1 gig class or the sub-one gig class is performing?

Speaker 2

Yes. I think in for 'twenty 4, we're again looking at 3 to 4 gigahertz class systems. And so again, 3% to 4% for say basically same as in 2023 and in 20 22. And I'm sorry, what was the second part of your question?

Speaker 6

Yes. I was just wondering how the non 1 gig class, so kind of maybe like 300 up to maybe 7. Yes.

Speaker 2

No, that's doing great. I mean most of the growth In Q4, the ultra high field was very strong because if you recall in 2023, a number of them got delayed or had needed some rework. So the 4 systems in 2023, 3 of them came in, in the last quarter and We expect to spread that more evenly in 2024. And so the bookings and revenue growth in BioSpin has really been excellent. And most of that was driven not by the ultra high field, but by the health of applied markets, clinical research, Applications in biopharma as well as the core academic structural biology functional structural biology and other applications and preclinical imaging.

Speaker 2

So BioSpin is doing great. It's not just an ultra high field story. The ultra high field story is sort of like the Formula 1 and it's One can enumerate the system. So it's very interesting, but most of the businesses, it's not the ultra high field business.

Speaker 9

Got it. Okay. Great to hear.

Speaker 2

Thank you, Josh.

Operator

Our next question comes from Puneet Sudha from Leerink Partners. Please go ahead with your question.

Speaker 5

Yes. Hi, Frank. Thanks for taking the questions. So Just wanted to clarify on the pull forward of the fiscal 'twenty six targets. How much of that is Sort of just the acquisitions that have been sort of announced so far, they should become organic in FY 'twenty five.

Speaker 5

But And I wanted to ask about the Elitek acquisition as well. Is that included in those assumptions? It's not materialized yet and pending regulatory approval. So could you update us on that? That's a sizable acquisition for you.

Speaker 2

Yes. So very clearly, Elitek or KemSpeed to announce potential acquisitions that have not closed are neither included in our 2024 guidance nor in our 2025 pull forward of our revenue and our medium term revenue and non GAAP EPS targets that we previously had established for 26. Elisag and Chem Speed are not in those numbers. And the pull forward Therefore, it's primarily driven by very good organic growth and margin developments and expected very good EPS growth Also in 2020 or then in 2025, 2020 6, which is primarily an organic development On the revenue side, of course, aided somewhat by the BCA or Phenomex acquisition, I believe our goal for that is about $60,000,000 in revenue for 2024. So that helps, but it's not the driver.

Speaker 2

The other acquisitions, while there have been a number of selected acquisitions that simply were feasible with Companies where we've often been in touch with them for many years, and now this was the right time to find valuations that seemed fair for both sides. Those as you know were To some extent, they have some market tractions, but they were relatively moderate in size. And in some ways, you could regard them as technology acquisition to complement our portfolio.

Speaker 5

Got it. Super helpful. Then on timsTOF, if I may ask, What is the expectation for growth this year? Maybe Frank, could you maybe highlight at a high level just given There is a higher resolution, high end competitor launch that was announced last year and sort of the question is how that competes with Timstoff and what's your growth expectation for Timstoff overall portfolio this year? Thank you.

Speaker 2

Yes. Since the Astra launch by a competitor, that's a competitive product. We've continued to grow our timsTOF business, but there is a competitive product on the market. And our product, our new Ultra and of course, the various other price and performance and capabilities points of the Simsoft platform, including the flex version with MALDI Imaging and Glycomics and other imaging applications. And they really are all performing well, but we acknowledge there's new competition And that's getting some traction as well.

Speaker 2

Of course, the traditional Orbitrap franchise is probably seeing most of that internal competition, but that's not our issue. So we expect continued steady growth in a growing proteomics market. Unfortunately, this is not a zero sum game, but a growing market as far as we can tell with very healthy fundamental dynamics and we expect to continue to do well in that in 2024.

Speaker 5

Okay, fair. Thanks.

Operator

Our next question comes from Dan Arias from Stifel. Please go ahead with your question.

Speaker 8

Good morning, guys. Thanks for the questions. Gerald or Frank, on the deals that you've done here, it looks like you're guiding to a 3 point contribution from M and A, how conservative or non conservative would you say that is? I mean, you've got a half a dozen or so assets. So when you kind of look at the growth expectations that you have for them, I'm just curious what you've modeled relative to 2023?

Speaker 8

Did you pump the brakes because of the macro? Have you assumed some acceleration because now you're able to support them? Just trying to put some context to the growth expectation there.

Speaker 2

No, we're at middle of the fairway, neither Neither super conservative nor bullish. That's just a mathematical number of what comes out of these acquisitions. Again, Other than the Phenomax acquisitions, now BCA, the other acquisitions that have closed Mostly don't have very significant revenue. In the aggregate, it adds up a little bit, which is why we get to the 3%. But That's a figure that that's a middle of the fairway figuring out.

Speaker 2

So nothing overly conservative nor bullish on that one.

Speaker 1

Again, keep in mind most of these transactions, so Phenomix closed in Q4 of last year. Most of the other ones closed sort of very end of year, very beginning of this year. So it's a comp situation. The underlying revenue growth of those acquired businesses, As Frank said, we don't have aggressive assumptions within that.

Speaker 3

And most of these are Healthy businesses, of course, the one that we're working through, of course, is the phenomics issue.

Speaker 2

All right.

Speaker 8

Okay, helpful. And then Frank, maybe just sort of in the spirit of Patrick's question on academic, can you do a similar thing on Europe just in the way that you're Thinking about things and what's under the outlook, I mean, tough macro conditions, academic funding maybe down a bit to your prior point. But You guys are doing well there. I think on a reported basis, you're up 20% in 4Q. So what should we expect if we compare 2024 and Europe 2023?

Speaker 2

Yes, I mean, it's not that we have Internet visibility into that, right. But I mean, academic government funding is always relatively stable and in Europe particularly so you might have more ups and downs in Japan and in China, in the U. S. Depending on political situation or gridlock or continuing resolutions, in Europe, usually this is not a political item, Both at the country level, the major economies and smaller healthy countries in Europe, they don't constantly debate about their Mental or epidemic R and D budgets, those are just steadily increasing and the same is true at the European level. There's some and overall European budgets much, much more importantly is what does it get allocated to.

Speaker 2

And the drivers are Clearly favoring the post genomic era and I think they will be for the next decade or 2. And there we are just very well We're increasingly very well positioned and really strongly positioned in proteomics, lipidomics, metabolomics, glycomics, you name it. I want to too much jargon, but the post genomic era at a high level is very much the fundamental secular trend that supports our growth In academic government funded budgets that is much higher than the overall growth that you may read at a national level. It's the reallocation of the post genomic era that I think is the that and artificial intelligence are probably the 2 Very big mega transfer broker for the next decade.

Speaker 8

Okay. Okay. So Frank, just to close the loop on the thought, Germany macro conditions, recessionary conversation, not something that you see as

Speaker 4

a red flag right now?

Speaker 2

No, but a yellow flag. I mean, Germany is Fumbling along and strong growth has not been all that strong. And yes, it's not one of the growth engines of Europe in 2024 probably either pretty clear.

Speaker 9

Okay, super. Thank you.

Speaker 2

Yes.

Operator

Our next question comes from John Sauerbeer from UBS. Please go ahead with your question.

Speaker 9

Thanks. Good morning and congrats on the quarter. I just want to follow-up on the BSI book to bill. I know you don't break it out by region, but was China the real Region there that drove that below 1 on the book to bill. And I guess if you were to ex out China, was book to bill greater than 1?

Speaker 9

Any additional color just around expectations for earnings?

Speaker 1

Yes. Maybe to clarify there. So overall BSI book to bill was actually above 1%. That includes China. Now China obviously is below 1 because of the bolus in orders we got from the stimulus.

Speaker 1

And again, that bolus was really focused in Q1, but we did have some in Q4 of last year as well. But overall BSI book to bill was above 1, including China.

Speaker 3

And I would say China had, I would say, a bit of a recovery in the Q4 where we saw some challenges in the Q3 relative to that particular market. So from a bookings perspective, there was some improvement there.

Speaker 9

And I guess as a follow-up just on China there. Any expectations on the outlook for that market for the year? What sentiment are you hearing from customers there and just visibility into the backlog here starting the year?

Speaker 2

Good backlog visibility and I mean China is perhaps the market for the entire industry where we have The least visibility for 2024 and I would say we're not that different than that. We do note that our Their academic government and investment tends to be strong and I think there's a commitment that continues for that. So we think we're well positioned. But while Q4 was a bit of a recovery in China BSI orders compared to Q3 After the very strong first half, we don't have other we don't have more visibility into China than others other peers.

Speaker 1

But we do have quite a different mix in China as a reminder. So our end market mix in China is about 50% academic and government, which as Frank just mentioned It's one of the bright spots. Our biopharma revenue mix in China is only about 10%. That's really where the weakness is concentrated.

Speaker 2

And we did not exceed that weak biopharma go away in China in Q4.

Speaker 3

That's right.

Speaker 9

Thanks for taking the question.

Speaker 3

Yes, Warren.

Operator

Our next question comes from Doug Schenkel from Wolfe Research. Please go ahead with your question.

Speaker 7

Good morning and thank you for taking my questions. The first topic I wanted to touch on is backlog. I believe at some point over the course of Q4, you talked about having 8 to 9 months of backlog. I think the norm is closer to 6. So I'm just curious if you'd be willing to comment on Where that is now and is there an assumption embedded into guidance that this comes down a bit?

Speaker 2

Yes, for your Wolfbite, which we enjoy reading, it has come down a little bit To close to the 7.5 months now and that's still elevated. So we expect that that will come down over the next 2 to 3 years. So some of that is built into our guidance for fiscal year 2024. Mostly it's driven by reasonable and above here it seems order momentum given the various secular trends that we have mentioned in particular, but we also expect that without quantifying it, Doug, we also expect that our backlog will come down a bit further. But as I said, it was 7.5 months at the end of 2023.

Speaker 2

So it's come down a little bit.

Speaker 7

Okay. No, that's helpful. Just to make sure that's not a it helps, but it's not a major driver to growth in So that's helpful.

Speaker 2

Can I just touch on M and

Speaker 7

A real quick? Lots of questions there, lots Focus on all the activity there. I would love to just take a step back and think about this bigger picture. How are you going about identifying these opportunities? Why so many so quickly?

Speaker 7

And as we kind of think about these, are they filling gaps The portfolio or are they kind of moving you into new markets? So there's a lot there, but I would love to just hear the philosophy and just kind of the logic behind getting so active so quickly? Thank you.

Speaker 2

Very good questions and the answer is a little of both. First of all, it is just the end of 2023 when most of these deals were negotiated, right? Some of them that closed in January or February, but we've been obviously working on them in the second half of twenty twenty three and on some of them, we've literally been in the second or third round. Some of these Companies we've just known without any process for literally for years. And this is finally The stars aligned in an unusual way, right?

Speaker 2

We're not on a buying spree. It's just in an unusual way. We were finally be able to In various areas, pull together the right valuations and deals with sellers and buyers both thinking it was fair and it was fine. So it's very unusual. I don't expect that pace to continue.

Speaker 2

This is not a different type of Bruker. We do selected strategic acquisitions. Some of them clearly filled gaps or holes in our Swiss cheese, gaps in our portfolio like Tornado or SII or even Nanophoton. Now I don't mean to degrade those companies in any ways. They have beautiful product lines.

Speaker 2

They have technology. They have Market traction demonstrated and margin traction demonstrated in some markets, but usually they're not acting globally Or at least not fully globally, we can help them with that and they fill real gaps in our product lines. Like the pending acquisitions of Chemspeed will take us Further into new areas of biopharma and chemicals and even cosmetics and consumer products, R and D and QC Automation, so those are new areas, but adjacent. Dano in a way, we've been in infectious disease biology, but primarily with a MALDI Biotizer with a very small Ohold in molecular diagnostics, ELITEX is a much bigger sample to answer molecular diagnostics play. It will not make us a Tier 1 competitor, right?

Speaker 2

Those are Roche's and Abbott and Hologic's and others, but it would get the solid Tier 2 competitors, so it expands our infectious disease franchise, again, not new to us, but very nicely complementary to the Baldi Biotizer that's of course focused on bacteria and not on virus, viral detection Whereas molecular diagnostics is a lot of infectious disease, viral detection. So adjacencies or gaps in our product line Don't expect this pace and frequency of deals to continue. That's really very, very unusual. But it has to do, of course, with markets in late 2023 market valuations in late 2023 permitting to come to compromises on valuation That seems reasonable and that support again long term high ROIC while providing fair valuations for these companies that are where the founders or others might be exiting.

Speaker 7

That's great. Thank you very much.

Speaker 2

You're welcome, Doug.

Operator

Next question comes from Derik De Bruin from Bank of America. Please go ahead with your question.

Speaker 10

Hi, good morning. Thanks for taking my question. Hey, Gerald, just to clarify, I got a couple of questions from clients. You said the book to bill in Q4 was not far from 1 and then your comment about being greater than 1 was for year?

Speaker 3

Actually both. The 4th quarter was above had a book to bill of above 1%

Speaker 10

and barely.

Speaker 3

Yes, and the full year as well above 1%.

Speaker 10

Got it. Thank you. Just wanted to clarify that. Going back to the chem speed and the LA Tech deals, I mean, we have a general idea on the revenues because you disclosed those. Are those how profitable are those businesses?

Speaker 10

Basically when those come in, we're not going to see like another step down in the margin, right? I mean your guide right now is basically assuming that those right. Can you just talk a little bit about profitability of those businesses?

Speaker 2

They're not in our guide, more in the 20 6% to 25% pull forward, as I said earlier, Derry. We have not we have just said that they're both profitable. Okay. And when we close them, then we'll give more details with a more detailed press release on each of those. We just don't want to jump the gun.

Speaker 10

Got it. I just wanted to clarify the profitably comment. And then just one final You've called out geopolitical risks a couple of times. I'm starting to get some questions from investors about obviously what's going on with China And your sales into the semiconductor market and people sort of starting to worry about competition and Just pushbacks. I guess, how do you sort of like think about the geopolitical risk in China right now and And just what's going on there, just your sort of your broad thoughts?

Speaker 2

Well, geopolitical risks for us is code for Ukrainian Russian war and Israel Hamas war and The potential of some war like action around Taiwan happening at some point or these wars spreading. So it's not it's sort of related to wars and conflicts as opposed to How fast is China growing or not? So there they are with 2 wars pending and they increased Risk of a conflict over Taiwan that's possible at some point in the next decade. That's why we're highlighting that it's an unprecedented level of geopolitical risk that everybody is facing that the industry is facing, but we mean that narrowly by conflicts rather than an economy growing or slowing, maybe that helps.

Speaker 10

Yes. Well, I was thinking more about trade just in terms of restricting R and D, retracing analytical instrumentation sales. So I'm getting some questions from investors on your metrology tools into China and things like that. Just the sense that there might be some trade pushback. That's why I was going.

Speaker 2

Yes. Remember, you may remember that About 2 years ago, there were some additional restrictions on selling certain semiconductor, most advanced semiconductor metrology tools China. And so of course that was implemented a couple of years ago, if I recall. And that's long baked into our model. But of course, if there was a conflict around Taiwan, if there were new restrictions, Those are some of the geopolitical risks that the industry is facing.

Speaker 2

And so that's what we mean by that risk.

Speaker 10

Got it. Thank you for clarifying.

Speaker 1

Operator, I think we'll take one final question, operator.

Operator

Our final question comes from Brandon Couillard from Jefferies. Please go ahead with your question.

Speaker 4

Thanks. Good morning. Frank, you mentioned the IDS business within BioSpin. Just curious what else you think you need to, Like I guess accelerate the vision you have around software, how do you differentiate in lab software in what seems like a pretty crowded space?

Speaker 2

Yes, it's crowded, but some of these assets previously acquired haven't done all that well or some of them have older concepts. So we think we can bring some fresh breath of air into some of that scientific and lab software. And the assets that we have acquired and now to some extent are integrating, right, we provide some nice portfolio, Vendor agnostic, scientific and lab, digitization software solutions that we think has good growth potential with excellent margin potential. Some of the automation acquisitions like the one we did already optimal in the UK about a year ago, year and a half ago and the pending potential Chemspeed acquisitions also have software components and we'll benefit from some of the software assets that we have already in this IDS. So, don't know that we need a lot of other things.

Speaker 2

I think we're getting together or we did get managed to quietly build and pull together the assets that we needed for a Sirius lab and QC software business. So we're pleased with that. Still early days, but a nice aftermarket growth, if you like, first of all, something we're always trying to strengthen then of with good, very good gross margin and operating margin potential and just good revenue growth potential.

Speaker 4

And then one more for Gerald. For the year, what are you embedding for interest expense in the guide? I know you've done a couple of debt rounds in the last few weeks? And how you think about free cash flow converting for the year? Thank you.

Speaker 3

From a just let me answer your last question first. Our cash flow position actually for 2023 improved sharply from 2022. You saw we had almost 100,000,000 to that number. So I'm pretty encouraged about where we are. Some of that is coming from working capital management improvement.

Speaker 3

We've had a number of initiatives there. We're pleased with how that's performing. So our expectation is also that we're and continue to improve that, especially during the 2024 period. I guess I'd also say, In terms of our overall interest, the cost from an interest perspective for 2024, we're guiding somewhere in that $17,000,000 to a little bit above that $17,000,000 for the full year.

Speaker 1

So interest expense will come up a little bit obviously, right? So last year was closer to 10%. It'll come up a little bit into that.

Speaker 3

Yes. Just for those that haven't seen it, we have announced some additional financing activities, particularly with some institutional investors. And The overall rate interest rates coupon rate picture there is quite favorable. So while these are bigger numbers, The overall impact is not as giant as some might think it is.

Speaker 2

And maybe a final comment, Brandon. Some of these things only get funded When we or we only need to pull from them for funding if and when we close, for instance, the Alitek acquisition, which is a larger one. So we can time that to some extent that the interest expense only additional interest expense kicks in If and when we get the additional profitability from these businesses?

Speaker 3

Exactly. We draw them as required.

Speaker 2

Yes. Some of them we draw as required and some of them have delayed drawdown dates anyway.

Speaker 4

Okay. Thanks for that clarification. It's helpful. Thank you.

Speaker 2

Good question though. Thank you.

Speaker 1

All right. With that, we want to thank everyone for joining us today. Bruker's leadership team looks forward to meeting with you at an event or speaking with you directly during the Q1.

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Earnings Conference Call
Methanex Q4 2023
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