Bruker Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 6, 2024

There are 10 speakers on the call.

Operator

Good day, and welcome to the Bruker Corporation Second Quarter 20 24 Earnings Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr.

Operator

Joe Koska. Please go ahead, sir.

Speaker 1

Good morning. I would like to welcome everyone to Bruker Corporation's Q2 2024 Earnings Conference Call. My name is Joe Koska, Associate Director of Bruker Investor Relations. Joining me on today's call are Frank Laukien, our President and CEO and Gerald Hermann, our EVP 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 or may 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 our recent and pending acquisitions, geopolitical risks, market demand or supply chain. 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, as updated by our 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, August 6, 2024. 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 Q3 2024 financial results expected in early November 2024. Should not rely on these forward looking statements as necessarily representing 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 Q2 and first half twenty twenty four in more detail and share our updated full year 2024 financial outlook. Now I'd like to turn the call over to Bruker's CEO, Frank Laukkan.

Speaker 2

Thank you, Joe. Good morning, everyone, and thank you for joining us on today's Q2 2024 earnings call. Our teams have delivered excellent revenue growth in the second quarter and a solid first half of twenty twenty four despite soft market conditions. We continue to execute on our dual strategy of Project Accelerate 2.0 Portfolio Transformation and operational excellence, posting well above market organic revenue growth and even stronger constant exchange rate or CER revenue growth. We see mostly good demand for our differentiated Scientific Instruments and Life Science Solutions, but we acknowledge that biopharma demand has remained weak.

Speaker 2

And in China, customers appear to delay some purchase decisions into the second half of the year, while they apply for more funding from the announced stimulus package. We now expect mid single digit organic revenue growth in the Q3 of 2024, and we maintain our guidance of full year organic revenue growth in the range of 5% to 7%. Our well above organic growth is driven by Bruker's differentiated innovation engine as well as our multiyear transformation towards fundamentally favorable secular trends for our unique enabling tools for the post genomic era. We are also benefiting from strong orders in semiconductor metrology in support of high performance computing for the AI megatrend, with strength in orders in Pacific Rim Countries and North America. On May 17, we hosted an investor webinar in which we provided in-depth looks into the 3 well timed strategic acquisitions that we completed in the first half of twenty twenty four.

Speaker 2

These major acquisitions further accelerate our portfolio transformation and addressable market expansion into spatial biology, molecular diagnostics, as well as into laboratory automation and digitization. So far, Chemspeed is over performing our expectations and the performance of Elitek and NanoString is reassuringly very much in line with our initial expectations. Chemspeed is doing quite well as industry appears to favor CapEx investments in productivity via R and D or QC lab automation and digitization even at times when industry, including pharma, tries to reduce headcount and OpEx. Moreover, we're very pleased with our Elitek sample to answer molecular diagnostics business, where we have added excellent new leadership teams in Italy and the U. S.

Speaker 2

For our combined Bruker molecular diagnostics business that we are now integrating with our previous Molecular Diagnostics business in Germany to achieve additional synergies. Elitek growth in 2024 for the full year, including the periods when we didn't own it, appears to be on track from mid single digit to high single digit revenue growth. And we are delighted with ahead of plan placements of our InGenius and BGenius sample to answer molecular diagnostics platforms in the 1st 3 months May through July, which is ahead of our expectations and which bodes well for 2025, where these platforms should be at full assay consumables pull through. In general, molecular diagnostics is one of the market bright spots at the moment. So the timing of our Elitek acquisition seems to be very good.

Speaker 2

Most importantly, perhaps from an investor perspective, I would like to take a moment to provide additional updates on our NanoString business, which we acquired in early May. I am pleased to report that after exactly 3 months today of running the NanoString business, Bruker already has the improved visibility to fully incorporate NanoString into our formal guidance for fiscal year 2024 now rather than in 2025 as contemplated previously during our May 17 investor webinar. We continue to anticipate about $10,000,000 per month NanoString revenue run rate for fiscal year 2024 and we expect a solid rebound and significant step up in 2025. On margin improvements for NanoString, as you may recall, the previous NanoString public company had already taken very considerable cost actions in the Q4 of 2023 and then again in the Q1 of 2024. Moreover, Bruker did not acquire the public entity with its cost overhead, but we acquired the NanoString business in a lean asset deal.

Speaker 2

This will benefit us in the second half of twenty twenty four already. By the end of 2024 and into 2025, we expect to also see the benefits of multiple additional cost actions, such as facility consolidation, in sourcing of COSMIC production, very meaningful cloud software savings and many other growth and cost benefits of our operational excellence drive at NanoString. We expect the financial benefits in 2025 beyond. Finally, we have also taken significant cost actions across other areas of Bruker in order to offset in part some of the initial NanoString margin and EPS dilution. I was just in Seattle at NanoString recently and I'm very pleased to report that our Bruker Nano Group has already put in place an aligned, lean and highly motivated NanoString management team applying our Bruker management process to reaccelerate innovation and growth.

Speaker 2

At the same time, we are advancing operational excellence for cost of goods sold and OpEx reduction to drive NanoString margin improvements. Altogether, I'm really quite optimistic that the NanoString acquisition will turn out to be strategically and financially excellent and a high ROIC investment for Bruker. Getting into the financial weeds now and turning to Slide 4. In the Q2 of 2024, Bruker delivered a very good growth quarter as our innovative products remained resilient despite choppier conditions in certain markets. Bruker's 2nd quarter 2024 reported revenues increased 17.4% to $800,700,000 which included a currency headwind of 1.1%.

Speaker 2

On an organic basis, revenues increased 7.4%, which included 8.6% organic revenue growth in BSI and a minus 2.8% organic decline in our best segment net of intercompany eliminations. Revenue growth from acquisitions added 11.1%, which implies constant exchange rate or CER growth of 18.5% year over year in the 2nd quarter. Our Q2 2024 non GAAP margin was 13.8%, a decrease of minus 150 bps year over year, as significant organic operating margin expansion was more than offset by the expected initial headwinds from recent acquisitions as explained in our investor webinar in mid May. In the Q2 of 2024 Bruker reported GAAP diluted EPS of $0.05 per share compared to $0.39 reported in the Q2 of 2023. On a non GAAP basis, 2nd quarter 20 24 diluted EPS was $0.52 up 4% from $0.50 in the Q2 of 2023.

Speaker 2

Gerald will discuss the drivers for margins and EPS later in more detail. Moving to the first half twenty twenty four performance on Slide 5, you can see Bruker's solid performance and execution in the first half of twenty twenty four, with organic revenue growth of 4.5%, while non GAAP EPS was down minus 8.7% as expected due to our transformative acquisitions. More specifically, our first half twenty twenty four revenues increased by 11.4 percent to 1,520,000,000 dollars First half organic revenue growth consisted of 4.2% organic growth in Scientific Instruments and 7.3% organic growth at BEST net of intercompany eliminations. First half yet or the immediate benefits of a China stimulus package, which we now expect to benefit us in 2025 beyond. Our first half twenty twenty four non GAAP gross margins and operating margin and GAAP and non GAAP EPS performance are all summarized on Slide 5.

Speaker 2

Please turn to Slide 6 and 7 now where we highlight the first half twenty twenty four performance of our 3 Scientific Instruments groups and of our BEST segment, all on a constant currency and year over year basis. In the first half of twenty twenty four, BioSpin Group revenue was about $400,000,000 and grew in the high teens percentage. There was 1 gigahertz class NMR system in revenue in the Q2 of 'twenty four, and we do expect 2 more gigahertz class NMRs in revenue in the second half of twenty twenty four. In the first half of twenty twenty four, BioSpin saw growth across academic government and industrial research markets, as well as in its integrated data solutions division for biopharma process analytical technologies and our vendor agnostic Saewise scientific software platform. For the first half of twenty twenty four, CALID Group had revenue growth of $494,000,000 an increase in the high single digits percentage with growth in the optics, molecular spectroscopy and microscopy business as well as in microbiology and infectious disease, driven by the MaldibioCyber franchise and finally, as well by the addition of the newly acquired Elytec molecular diagnostics business that we closed at the end of April.

Speaker 2

In the Q2 at ASMS, we launched 2 exciting new mass spectrometers, and I'll come back on to that with a separate slide. Please turn to Slide 7 now. For the first half twenty twenty four Bruker Nano revenue was $493,000,000 and grew in the mid teens percentage with strong revenue growth in ECCA gov, academic government and industrial research markets. We also saw solid growth contributions from our recently acquired Bruker Cellular Analysis, the former Phenomex and the recently acquired NanoString business. Our advanced X-ray and Nano Analytics Tools businesses delivered strong revenue growth in the first half, while life science fluorescence microscopy revenues were down.

Speaker 2

Finally, first half twenty twenty four BEST revenues grew in the high single digits net of intercompany eliminations, driven by growth in big science and fusion research projects, as well as our RI, EUV Technologies for OEM Semiconductor Lithography Tools. This is different from metrology. These are semiconductor lithography tools also in support of AI. Right, moving to Slides 89 now. We highlight the transformative growth and portfolio repositioning

Speaker 3

that

Speaker 2

over a 4 year period are expected to lead to an impressive cumulative reported revenue growth of greater than 70% and greater than 14% CAGR from 2020 from fiscal year 2020 to the midpoint of our 2024 guidance. This is rather good compared to other mature companies in the life science tool space, which did not have significant revenue, COVID revenue overshoot and which typically grew in the mid-20s percentage. Our 70% cumulative reported revenue growth, which we call transformative over those 4 years, incidentally had about 58% organic cumulative organic revenue growth and the remainder was acquisitions. So we're rather pleased and I think it highlights how 4 years later Bruker is really a transformed fast growth company. If I may take your attention to Slide 9, it's a quick summary.

Speaker 2

I won't talk through all the bullets, but we had rather important launches on the consumable side, but also in the mass spectrometry instrument side at the recent ASMS with the flagship timstop ultra 2 launch that takes sensitivity to the next level for even better single cell proteomics and immunopeptidomics, and it opens a new window on sub cellular proteomics, very remarkable and highly very timely for biological research. Moreover, we launched a multi omic mass spec imaging bench top system, the Neoflex MALD TOF, which I think will be very, very well received. And it uniquely enables multi omic co localization on tissue of proteins, lipids, metabolites and glycosylation. It's really very, very popular and a very unique product. So in summary, Bruker continues to see well above market organic revenue growth and even more significant constant exchange rate revenue growth for our instruments and solutions across our portfolio.

Speaker 2

We have further accelerated our portfolio transformation and addressable market expansion into spatial biology, molecular diagnostics as well as lab automation with recent M and A. We are confident that applying our proven broker management process and culture of disciplined entrepreneurialism will lead to operational excellence, profitable growth and significant margin expansion in our recently acquired businesses over the next 3 years and beyond. With that, let me turn the call over to our CFO, Gerald Herman, who will review Bruker's Q2 and fiscal year 2024 outlook in more detail. Gerald?

Speaker 3

Thank you, Frank, and thank you everyone for joining us today. I'm pleased to provide more detail on Bruker's 2nd quarter and first half twenty twenty four financial performance starting on Slide 11. In the Q2 of 2024, Bruker's reported revenue increased 17.4% to approximately $801,000,000 which reflects an organic revenue increase of 7.4% and BSI organic growth of 8.6% all year over year. We reported GAAP EPS of about $0.05 per share compared to $0.39 in the Q2 of 2023. On a non GAAP basis, Q2 twenty twenty for EPS was $0.52 per share, an increase of 4% from the $0.50 we posted in the Q2 of 2023.

Speaker 3

Our Q2 twenty 24 non GAAP operating income increased 6.3% and non GAAP operating margin decreased 150 basis points year over year to 13.8% as higher gross margins and strong organic operating margin expansion was more than offset by operating margin headwinds from our recent acquisitions. We finished the 2nd quarter with cash, cash equivalents and short term investments of approximately $170,000,000 Our 2nd quarter treasury program was very active as we completed $1,300,000,000 in funding of the Elatek and NanoString acquisitions with about $900,000,000 of financing through fixed low interest rates Swiss franc debt and the balance through a $400,000,000 follow on equity offering. We also funded selected Project Accelerate 2.0 investments as well as capital expenditures in the quarter. We generated $900,000 of operating cash in the Q2 of 2024 compared to $13,000,000 in the Q2 of 2023. Capital expenditure investments were $26,000,000 resulting in free cash outflow of $25,100,000 in the Q2 of 2024 compared to $10,500,000 in the Q2 of 2023.

Speaker 3

In the Q2 of 2024, as a result of our volume of M and A in the quarter, we incurred and paid additional acquisition related expenses. Just as a reminder, Bruker's 2nd quarter seasonally tends to have the lowest cash flow of our 4 quarters. Slide 12 shows the revenue bridge for the Q2 of 20 24 as Frank has reviewed earlier. Compared to Q2 2023, BioSpin Q2 2024 organic revenue was up in the mid-twenty percent range, driven by strength in our preclinical imaging and our software businesses. Additionally, we had 1, 1.2 gigahertz system in the Q2 2024 revenue, while there were no gigahertz cloud systems recognized in revenue in the Q2 of 2023.

Speaker 3

Nano organic revenue was flat as strength in electron microscopy and advanced x-ray was largely offset by softness in fluorescent microscopy. CALID organic revenue grew mid single digits percentage with strong performance from the multi biotyper and molecular spectroscopy. We delivered solid growth in the Q2 of 2024 in BSI systems and aftermarket revenue with low double digit CER growth in systems and strong double digit growth in aftermarket. Geographically and on an organic basis in the Q2 of 2024, our Americas revenue grew in the low teens percentage. Asia Pacific revenue was essentially flat, while the European revenue had low double digits percentage growth all year over year.

Speaker 3

For our EMEA region, Q2 2024 revenue was up low single digits year over year. Slide 13 shows our Q2, 2024 P and L performance on a non GAAP basis. Non GAAP gross margin of 51.3% increased 40 basis points from 50.9% in the Q2 of 2023 due to favorable product mix and select pricing actions. For the Q2 of 2024, our non GAAP effective tax rate was up 320 basis points to 28.4%, impacted by jurisdictional mix and an unfavorable discrete item in the quarter. Weighted average diluted shares outstanding in the Q2 of 2024 were 148,000,000, an increase of about 300,000 shares from Q2 of 2023, modestly impacted by our follow on offering at the end of May.

Speaker 3

Finally, Q2, twenty twenty four non GAAP EPS of $0.52 was up 4% compared to the Q2 of 2023. Slide 14 shows the year over year revenue bridge for the first half of twenty twenty four. Revenue was up $155,200,000 or 11.4 percent, reflecting organic growth of 4.5%. Acquisitions added 7.4% to our top line, while foreign exchange was a 0.5% headwind. And Frank has already covered the drivers for the first half of twenty twenty four.

Speaker 3

Non GAAP P and L results for the first half of twenty twenty four are summarized on Slide 15, with the drivers largely similar to the Q2 of 2024 as explained on the slide. Turning to Slide 16, we had $24,700,000 of free cash outflow in the first half of twenty twenty four, down $76,700,000 compared to the first half of twenty twenty three, driven principally by acquisition expenses, lower profitability and the timing of advances, taxes and other items. Turning now to Slide 18, now that we have improved visibility to NanoString performance and outlook, we've now included NanoString in all closed acquisitions in our formal 2024 guidance. Our outlook for fiscal year 2024 now assumes increasing our revenue estimates to a range of $3,380,000,000 to $3,440,000,000 and maintaining organic revenue guidance of 5% to 7% for fiscal year 2024. We now expect the contribution from acquisitions to be approximately 10%, up from prior guidance of 7% and we continue to expect a foreign currency headwind of about 1%.

Speaker 3

This leads to updated reported revenue growth in a range of 14% to 16%, up from our prior guidance of 11% to 13%. For operating margins in 2024, we continue to expect greater than 50 basis points of organic operating margin expansion, more than offset by greater than 300 basis points of headwind from our recent acquisitions and foreign exchange. On the bottom line, we're tightening our fiscal year 2024 non GAAP EPS guidance range to $2.59 to 2.64 Despite significant EPS dilution from the recent acquisitions, this guidance implies non GAAP EPS flat or up low single digit percentage from fiscal year 2023. Other guidance assumptions are listed on the slide. Our fiscal year 2024 ranges have been updated for foreign currency rates in 2024.

Speaker 3

Now some color on the Q3 of 2024 against a strong prior year comparable, we now anticipate mid single digit organic revenue growth in the Q3. We expect Q3 2024 non GAAP EPS to be down meaningfully year over year, but up sequentially over the Q2 of 2024 with a reacceleration of year over year EPS growth expected in the 4th quarter. Against the backdrop of mixed macroeconomic conditions and ongoing geo political risks, it's important for me to confirm that we are proactively managing costs across all of our businesses. And finally, thanks to the remarkable work of my colleagues, integration actions are progressing well in each of our recent acquisitions. I remain very confident in our ability to establish our Bruker management process, drive operational excellence to strengthen operating margin performance and drive rapid EPS growth over the next 3 years and beyond.

Speaker 3

To wrap up, Bruker delivered solid organic revenue growth and organic operating margin expansion in the Q2 of 2024. Our businesses continue to execute well under muted market conditions and we look forward to updating you again on our Q3 progress in November. And with that, I now turn the call over to the operator to begin the Q and A portion of the call. Just as a reminder, to allow everyone time for questions, we ask that you limit yourself to one question and one follow-up. Thank you for your support and interest in the Transform Bruker.

Speaker 3

Operator?

Operator

We will now begin the question and answer session. And the first question will come from Puneet Souda with Leerink Partners. Please go ahead.

Speaker 4

Hi, Frank, Gerald. Thanks for taking my question. So maybe just a financial one first and then a broader question. So, I appreciate the organic growth guide remained the same for the year, but op margin was slightly lower. And Gerald, I think you were expecting a lower op margin in Q3.

Speaker 4

Just maybe talk to us about what's your expectation there and what can drive that higher or lower? What's in your assumptions for MannerString and any weakness as you pointed out in the market just broadly speaking given sort of the hard landing concerns and what are things that could materialize in the market?

Speaker 2

Well, it's all in, right? There's many moving pieces. You've cited many of them, right? And so that's why that I mean, we don't do this by quarter, but for the full year, you'd see our 4 if you go to our Slide 18 with the assumptions that go into our revenue and non GAAP EPS guidance, that implies that it's around 16% for the year, up organically more than 50 bps. So we continue to make progress in our core business.

Speaker 2

That's good. And this year, as expected, with a headwind of about 300 bps from M and A, a little bit of FX, mostly M and A, all while maintaining our R and D OpEx at about 10% of revenue. So that's how it all comes together. NanoString, China, biopharma and all, right, including the very good thing. I mean, we do have continued adher gov demand growth, at least outside of China.

Speaker 2

That's up. We had good diagnostics growth, very solid business is a highlight right now, probably from a macro grows faster than the life science tools market right now. And yes, we did have very nice semiconductor metrology and a little bit of lithography growth in order. So that's the beauty of our portfolio, right? There are many things and this year it's more mixed.

Speaker 2

But still overall looking at that 5% to 7% organic revenue growth and of course 15% to 17% CER growth for the full year, that's how it all comes together, all the pieces.

Speaker 4

Okay. That's helpful, Frank. And that's a good segue into my broader question. I mean, if you can take a step back and help us understand where Bruker can continue to outperform the market both in the top line and in earnings once the acquisitions are baked in. I think there are some sort of near term questions, but once you emerge from that, I mean, I think you pointed out that on the Slide 8, some but just wanted to see if you could elaborate a bit more on the strength and the differentiation at Bruker.

Speaker 4

I mean, you're a heavy instrumentation heavy company, but you continue to deliver significantly outsized growth versus your peers and instrumentation is the concern in the market. So, just help us educate a bit on how you're positioned in the market and overall continued growth and how to think about that for Broker in context of the backlog as well? Thank you.

Speaker 2

Yes, right. Yes, of that 70% cumulative growth, well over 55% was organic. And indeed, while this year it's no longer double digit organic revenue growth at Bruker, it's still very good. And if the LS tools market this year organically is flat or perhaps down a couple of percent, Obviously, the differential is still much higher than the 200 to 300 bps differential that we have in our that we aim for on average or hopefully every year in terms of outgrowing the market. But that's because we fundamentally repositioned.

Speaker 2

We're not your traditional life science tools or analytical instruments company anymore. Our positioning for the post genomic era with spatial biology, with single cell, with proteomics, with multiomics, with protein protein interactions, binding structure, that's where the funding gets allocated. So even in a weaker environment, we're still doing quite well. We're also really in terms of cleantech and industrial research, it's really not bad for us. Diagnostics is very defensible, our clinical microbiology, our new or much increased molecular diagnostics business with Elitek being the larger piece and we had a bit within Bruker already that gets now integrated.

Speaker 2

Those are all good demand drivers that support our organic growth guidance this year and our medium term, well, not just aspiration, but really plan to outgrow the market continue to outgrow the market over the next few years. We expect that on average we'll outgrow that 200 to 300 bps. We have this more and more meaningful semiconductor metrology, a little bit of lithography. I mean, it was 8% of revenue, but it's going to clearly approach 10% and maybe it will go to 15% in the next few years. And I mean AI is real.

Speaker 2

There might be some stock market overshoot, but who cares, right? The AI and high performance demand for the unique semiconductor metrology tools in our nano group is there. And so that's an extra bonus that not a lot of I think there's one other company, pretty large company that also has some benefit from that. But we're unique in that. So our portfolio is really not comparable to anybody else anymore.

Speaker 2

There isn't a close peer. There are peers for parts of what we're doing. And then we've really just become a really differentiated company. And I think the proof is in the pudding, but I don't mean to belabor it. I think it's evident.

Speaker 2

We hope that the clarity or the greater clarity that we now have around NanoString as well as Elitek and KemSpeed and so on takes that slight confusion. We weren't confused, but we did cause some confusion admittedly with these multiple acquisitions. I think people hopefully cannot see through that and look at the performance again this year, core and with acquisitions, however you want to look at it. So anyway, don't mean to. That's it there's nothing new here that transformation started with Project Accelerate in 2017, accelerated with 2.0 in 2000.

Speaker 2

And now of course, after 3 years of double digit organic revenue growth recently. Now this year, we're adding a lot of well timed strategic acquisitions that really transformed the company very intentionally.

Speaker 4

That's great. Super helpful. Thanks for the perspective, Frank.

Speaker 2

Thank you, Puneet. All right.

Operator

The next question will come from Patrick Donnelly with Citi. Please go ahead.

Speaker 5

Hey, guys. Thank you for taking the questions. Frank, maybe on the BSI side, I think you said the first half book to bill was somewhere above 9, a little bit below 1. Can I ping you down a little bit on the 2Q trends on the order front? Book to bill will be great.

Speaker 5

And then certainly, if orders if you could give any sort of growth range for the 2Q orders, that would be helpful. Just trying to feel out the backdrop here and the implications for backlog as we move forward. So again, if you could frame up the 2Q order dynamic, that would be helpful.

Speaker 2

All right. Tighten it up a little bit, Patrick. Fair enough. Yes. It's in the mid 0.9 range.

Speaker 2

So, sort of pretty much halfway between 1.9. So mid 0.9 book to bill for BSI, up organically, which was because we still had good China orders last year in the second quarter. So BSI organic order growth was still up mid single digits. So nothing to write home about, but really not so bad. And that along with our backlog, which is now at about 7 times, 0.7 months sorry, 7 months down from 7.5%.

Speaker 2

So it's coming down a little bit. It will probably also end up now that we have Elitek is 80% consumables, spatial biology single cell is as these instruments get out there is more than 50% consumables and aftermarket. So in the future, we probably still have 2 years of roughly of backlog normalization buffering these choppier general markets. And then just fundamentally, our orders are decent given and we have enough of our portfolio with a post genomic era with some of these cleantech and semiconductor metrology. Still have strength in the portfolio.

Speaker 2

And fundamentally, if you take out China, AkkaGov is up for us as well. Obviously an important driver for us and there's some weakness in U. S. Funding here and there, but overall it's up. Europe, for instance, did really quite well in the Q2 with a weak comp last year, but many, many moving pieces, but overall very, very resilient.

Speaker 5

Yes. No, that's not possible from our side. Yes, no, that was a problem, Frank. And then, General, maybe one for you. We get a lot of questions just about the $25,000,000 setup.

Speaker 5

I know you guys kind of implied the $3.10 earnings number for next year at the Analyst Day. Can you just talk about, I guess, the moving pieces, the confidence level there? I think a lot of focus on the NanoString dilution, the margins, which again Praveen touched on there. And then just if you could remind us the yen impact, that's been a question we've been getting obviously this week with some of the moves there. I know you guys in the guidance, I think, uses a little bit of a stale number certainly given how quickly that's moving.

Speaker 5

So just refresh us on that would be helpful. Thank you, guys.

Speaker 3

Yes. Patrick, nice to hear from you. On the 25, sorry, we can't offer too much. We'll talk more about that in February. We haven't moved off of our medium term outlook numbers that we presented about 2 months ago.

Speaker 3

So I think generally speaking, we will talk more about that. On the yen, as I think most people know, the yen has strengthened relative to the U. S. Dollar recently actually even just this week. So our unfortunately our Japanese business is not the same size that it was many years back.

Speaker 3

So fundamentally it's not going to have much impact on Bruker. There was a time several years back where it was critically important for us. It's still an important market, but unfortunately the overall volume activity for Japan has declined. So I would say, hope to see a bounce back in the Japanese business over time.

Speaker 2

Yes, maybe a little bit of anecdotal color. I mean, a lot of our growth including semiconductor metrology, fantastic bookings growth in the second quarter, also in the first half year over year comes from other Pacific Rim. I mean, notably, South Korea and Taiwan are just amazing. And then of course, the U. S.

Speaker 2

Finally is investing in semiconductor metrology. So that's all strong. Japan is indeed less important for us right now. It's also not very strong in terms of growth and orders. So plus it has some currency issues.

Speaker 2

Yes, that's a headwind, but we have enough other tailwinds to put it all together. I think the chem I'm actually I think all three acquisitions that I mentioned, chemspeed, they have probably enough backlog even for 2025, a lot of backlog, a lot of execution. So that business and investing in automation and lab automation with CapEx, industry seems to be willing to do that. If they think they can do with less OpEx, less headcount, well placed. This molecular diagnostics business, I was delighted.

Speaker 2

We were at our placement rate for the 1st 3 months. I know it's only 3 months that we've owned them. This is now including July, which I know technically is in Q3, but the placements for these Ingenious, BeeGenious for those 3 months that we've owned it, we're something like 20% ahead of what we hope to do. That's not a lot of revenue this year, but that's pull through of consumables revenue next year. So that's on top of a solid molecular diagnostics business to begin with.

Speaker 2

And I'm actually quite optimistic about NanoString having a nice snapback or whatever, not macro driven, but driven by obviously it's taken the damper this year after the Chapter 11 and the various by now all removed injunctions and so on and rebuilding that team. That team is coming together quickly and really even after 3 months, we have our arms around that. We are running with very good management processes and a very fired up leadership team with a lot of not just aspiration and rah, rah, rah, but a lot of concrete pipeline and opportunity building and things in the pipeline that they're doing and rebuilding the team. NanoString will be a good grower next year, I'm convinced.

Speaker 6

Very helpful. Thank you, guys.

Operator

The next question will come from Rachel Van Sindel with JPMorgan. Please go ahead.

Speaker 7

Perfect. Good morning, you guys. Thanks so much for taking the question. First, I just wanted to push on the 3Q guide. You mentioned that you expect 3Q to grow mid single digit organic, which is a little below consensus.

Speaker 7

But you also mentioned that you've started to see an air pocket related to China stimulus where customers are starting to kind of hold back on orders as they just wait for funding. So could you unpack that mid single digit 3Q guide for us a bit? How much of it was really due to this China dynamic? Can you break out for us what you expect to grow organically in China and excluding China in 3Q as well?

Speaker 2

Yes, fair question, Rachel. So yes, you saw that our Q1 was below average growth, Q2 was above this year's average growth, Q3 will be more in line, right, with roughly the organic growth that we're expecting. Mid single digits indeed. Yes, little muted China orders in Q2 for sure. I wouldn't call it an air pocket that's too strong, but muted.

Speaker 2

And of course, absence of a clear evidence of any biopharma recovery, seeing a little bit of a step up in the U. S, but that might just be fluctuations. So yes, so that seems prudent then for Q3 to think that it's mid single digits, somewhat not far from the full year trend, whereas Q2 was better than the full year trend and Q1 was weaker than the full year trend in terms of organic growth, right? That's what I'm referring to.

Speaker 7

Helpful. And then maybe just closing that out on the 4Q implied. Could you walk us through what you're assuming from a budget flush dynamic into 4Q? It looks like guidance really implies like a high single digit organic growth number in 4Q off of a 16% comp from last year. So how are those conversations around year end budget flushing and what's been trending with customers and what are you assuming in that?

Speaker 2

Yes, another fair question. We're not a budget flush type of company. We don't get it. We don't use that. It doesn't really do that much because of our backlogs.

Speaker 2

I think budget flush maybe more if you have more turns, when you have a lot of consumables business. Nonetheless, fundamentally, you're right. We're looking for a strong Q4. Q4. So yes, Q4 is going to be as far as we can tell, a very going to be a very strong quarter for us.

Speaker 2

And it's just not necessarily the budget flush dynamics. It's simply the buildup of orders and backlog and new orders this year. And we expect continued good orders in Q4 as well. So Q4, it looks to be strong and Q3 not bad. But I think with a mid single digit growth in Q3, we're comfortable with that.

Speaker 2

And of course, because of the acquisitions, as Gerald explained already, Q3 EPS will be down year over year, but up sequentially from Q2 this year. That's kind of normally we don't talk about sequential much, but now that we have all these acquisitions, actually keeping track of Q3 sequential improvements and then Q4 sequential improvements will be somewhat of a good dynamic to watch this year.

Operator

Your next question will come from Pietro Peterson with Jefferies. Please go ahead.

Speaker 8

Hey, thanks. Frank, can you help us bridge the gap on the M and A step up here, the incremental $90,000,000 I think you said NanoString previously $80,000,000 chemspeed about $10,000,000 a quarter and Elitek over $150,000,000 for the year. So is that incremental step up all NanoString or maybe just give us a little bit more color?

Speaker 2

Good question, Tycho. It's a lot of small pieces, quite honestly. There isn't a $10,000,000 chunk out there that it's a lot of small pieces. There isn't a single answer. It's yes, that's the answer.

Speaker 2

The answer is it's nothing remarkable. It just comes together this way.

Speaker 8

I guess as your view

Speaker 2

on It's only $10,000,000 higher for the year, right? And there isn't a single driver is what I'm saying. I don't mean to be evasive here. There just isn't any no there there, so to speak. There isn't the one thing that made up that $10,000,000 Many small pieces just trending a little better.

Speaker 8

And then I guess, as your view on the kind of IP situation evolve post the injunction in Germany and how are you thinking about kind of next steps in the U. S?

Speaker 2

Yes. No, there's nothing new there that you don't know. So nothing new, no new developments. Yes, you saw the last press release a few weeks ago that we had now put out some bond. Even though we had invalidated that patent in Germany, we still needed to put up a bond in order to lift the injunction.

Speaker 2

We've done that. And of course, the injunction had been lifted in the rest of Europe some time ago. So presently, there is no injunction anywhere. And I think it's going to be September or later in the year that there might be additional rulings in Europe or in the U. S.

Speaker 2

And then any of the bigger lit trials and things like that, if we get that far would be in 2025 possibly into 26. So it's been quiet on that front.

Speaker 3

That may be good.

Speaker 2

Yes. So no news.

Speaker 3

And then

Speaker 2

for the sorry.

Speaker 8

Just one last one for the back half of the year, just any more kind of color by sub segment, if we think about kind of BSI, Nano Bio Spin and Collage for the back half of the year guidance?

Speaker 2

It's I feel bad, Tycho, and I don't have any crisp answers for you today. But it's not one standout group or product line or so. I mean semiconductor metrology was really quite surprised us in the first half with the strength of orders that was stronger than what we had predicted. And yes, on the other end, biopharma, we would have liked to see more of a recovery, but maybe that's more of a 25 thing now, also looking at what other companies are reporting. So it's just yes, it's some of the acquisitions.

Speaker 2

Of course, they're only about 10%. It's strength in MALDI Biotizer Diagnostics, it's strength in Industrial Research, proteomics, NMR, all solid execution of strength of the portfolio is really the message here rather than one particular product line. With yes, I mean, we expect China to be down in revenue for the full year. We expect biopharma to be weak or down. So those are the bad guys for this year.

Speaker 2

And the rest is all pretty good. And semiconductor perhaps very good with a very nice order recovery. Although there the lead times are so long that a lot of the strong semiconductor recovery may not then turn into revenue till 2025. But that's good too. People want us to deliver growth in 2025.

Speaker 8

Understood. Thanks.

Speaker 2

And we do too, of course. Yes. So I gave you 3 non answers, Tycho. I apologize. It's really the message is strength and resilience of the portfolio more than one group or one product line or one market.

Speaker 8

Thanks, Frank. I appreciate it. Thanks,

Speaker 3

Jacob.

Operator

The next question will come from Doug Schenkel with Wolfe Research. Please go ahead.

Speaker 9

Hey, good morning guys and thank you for taking the questions. Just a couple of cleanup questions. I want to confirm as we sit here today that, 1, you aren't accelerating anything relative to your original plans in terms of working through backlog to get the guidance for the year based on how orders are tracking. It sounds like things are just kind of on track with some different puts and takes, but I just want to make sure that's the case. And then secondly, I want to make sure you remain comfortable with EPS targets for 25 to 27, the ones that you outlined on May 17.

Speaker 9

Gerald, I think you said, obviously, you're not going to update guidance or set guidance for next year as we sit here at the beginning of August. But I just want to make sure there's no change in thinking at this point.

Speaker 3

Yes, Doug, thanks for the questions. It's Gerald. So on the cleanup question around the overall performance, I don't see any significant change. Our existing backlog, as Frank has mentioned, came down to about 7 months versus 7.5 months. That's not really affecting dramatically.

Speaker 3

We have good strong organic revenue growth in the business already. We're pulling I would actually be happy to see some backlog come down. As some of you know, I'm really interested in moving that down to a more normalized level. So we're not expecting to see anything different from a guidance perspective for 2024 around the backlog. It's coming down as well as we would have hoped.

Speaker 3

And then on the other point related to medium term outlook, as I said earlier, we won't comment specifically in guidance for 2025, but we don't see any obstacles or roadblocks in the way with respect to our medium term outlook that we laid out on May 17 in the investor webinar.

Speaker 2

Yes, medium term outlook remains as described No changes there implied here at all. And yes, maybe at the maybe within 2 years from now or thereabouts will be more at a 5 months of backlog in a more normalized level within the BSI segment. So that's also as expected. So yes, we're on track in a choppier year, but with a strong portfolio and of course, very nice. I mean the pull through, the reallocations under the hood from more traditional instruments and towards to that post genomic era and that where we've positioned ourselves is just really, really working with a little bit on that semiconductor cherry on top.

Speaker 9

Okay. And one quick follow-up. You acknowledged some stalling of the market in China due to stimulus. I happened to catch up with you guys. You're good enough to sit down with me for a little bit at the beginning of June.

Speaker 9

You weren't it didn't seem like you were seeing this at that point. So my guess is and I just want to confirm this that that dynamic picked up towards the end of the quarter and maybe carried into Q3. Is that right? And if so, it seems like you've probably just widened the error bars in China to account for some risk that that lingers into the back half of the year. Is that the right way to think about things?

Speaker 9

Thank you.

Speaker 2

Completely, yes. I mean, sales cycle lengthening in China, especially in Akagav, is something that became apparent orders that we may expect or opportunities that look good, but they just moved to later in the year. People are now looking for bigger budgets and then making a bigger splash rather than spending their original budget right away. It makes sense. And I think you're thinking about it exactly the right way.

Speaker 2

We still think that the stimulus, particularly perhaps for BioSpin with NMR and high end systems, but other high end systems are perhaps as well could be really quite good. But it takes it's just not moving fast like it was in Q1 of 2023. This is going through the provinces and many more decision layers, perhaps more scrutiny as well. It's taking longer or actually, I mean, this is not a big surprise to us. We already a few weeks months ago said this will probably be a 25 beneficial effect and tailwind.

Speaker 2

And yes, that has confirmed that has been confirmed now. So yes, there was muted demand and muted orders in China in Q2. And a lot of that seems to suggest, especially in academia, that these orders may come or perhaps larger orders may come in the second half or some also in 2025. So that's correct. I think you're thinking about it exactly the right way to Doug from what I heard.

Speaker 3

Doug, what I've heard also is there is activity, but there are no orders. So I think this is important to clarify that it's very clear that there's a lot of movement, but no orders have been placed related to that at this stage.

Speaker 2

Great. Thank you again.

Speaker 5

You're welcome.

Speaker 2

Time for one more question.

Operator

And our last question for today will come from Josh Waldman with Cleveland Research. Please go ahead.

Speaker 6

Hey, good morning guys. Thanks for taking my questions. A couple for you. First, a follow-up on Tycho's question, I believe. Any changes to growth assumptions by segment for the year versus the prior guide framework?

Speaker 6

And then within the reiterated 5% to 7% organic outlook for total company, it seems like there's a wider than normal range for the second half. I guess is that wider range a reflection of market uncertainties in pharma in China? And I guess like any context you can provide on what gets you to the low end, what gets you to the high end? Like do you need to see improvement from those end markets to get to the high end?

Speaker 2

Yes. So on segments, as we said, biopharma, obviously, less expectations than we may have had at the beginning of the year. Semiconductor, it goes up, although it's all about turns into revenue, takes a little bit longer. China sort of as expected, but we didn't know exactly in Q1, 2023, wow, we were surprised how quickly those stimulus orders came through. We were, wow, we almost didn't see that coming.

Speaker 2

So that just doesn't repeat itself. It seems to be a longer, bigger wave, not this 1 quarter bolus. So China and biopharma, not a surprise, I guess, from what we're hearing from others, we would lower our expectations for this year and we're opting them in just about everything else and or at least keeping them the same, upping them in semiconductor metrology for sure, upping them in automation, lab automation, although that's still a relatively new business and it's not organic yet, upping them in scientific software, smaller drivers and yes, and really quite pleased with what more likely infectious disease diagnostics is doing for us acquired and the existing multibio type of franchise. So some incremental changes, nothing dramatic, I would say, but biopharma China, the culprits and other good guys. To the second half of twenty twenty four, I mean, I would say, given the uncertainty and that we all read the Wall Street Journal and yesterday wasn't a good day, who knows what happens today.

Speaker 2

I think it's fair to think about maybe the within our guidance of 5% to 7% organic that maybe this is not prudent to maybe model it that we would be in the lower half of that guidance, but we're still in that guidance range. And we are pretty optimistic also about our bookings in Q3 and Q4 in addition to our revenue forecast. So yes, this is the environment, the macro environment and our concern about the correction or recession perhaps are not helping and China being delayed and biopharma recovery being delayed are not helping. But yes, I mean, we're damn resilient and I think we're still pretty exceptional in terms of our growth for the year. So that's incrementally the macro environment has probably gotten a little weaker than when we spoke 3 months ago, right, if I see what's going on around us.

Speaker 2

But we're not just a macro company as you've seen by now many times. Does that help at all?

Speaker 6

I guess, Frank yes, that helps, Frank. I appreciate that. And then I guess for my follow-up, thought I'd ask one on timsTOF. I was curious if you could comment on how the Ultra 2 rollout is going. And then more broadly for the timsTOF franchise, wondered if there's any change in kind of near or medium term outlook.

Speaker 6

I mean, I don't think you called it out as the driver in CALID. I wonder if how you're thinking about growth in that franchise kind of versus the broader?

Speaker 2

Yes. Its growth was slow its growth in orders was slowed a little bit when the asphalt showed up being very competitive a year ago. We've since improved our competitive position significantly then with our launch of the timsTOF Ultra II and some other important workflows, for instance, for plasma proteomics. It's not an instrument, but very amazing plasma proteomics performance with our timsTOF, other models of our timsTOF platform. So in terms of revenue, it's not a big growth driver in year over year.

Speaker 2

But in terms of bookings and competitive position, I think the trend is now it's still competitive. But I think we're in a much better competitive position quite honestly again. And so that's Timstopp order and customers and opportunities are all really doing quite well again.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Mr. Joe Casca for any closing remarks. Please go ahead.

Speaker 1

Thank you for joining us today. Bruker's leadership team looks forward to meeting with you at an event or speaking with you directly during the Q3. Feel free to reach out to me to arrange any follow-up and have a good day.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
Bruker Q2 2024
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