Bruker Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2024

There are 12 speakers on the call.

Operator

Good morning, and welcome to the Bruker Corporation First Quarter 20 24 Earnings Conference Call. All participants will be in a listen only mode. Please also note today's event is being recorded. I'd now 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, everybody. I would like to welcome everyone to Bruker Corporation's Q1 2024 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 Hermann, our Executive Vice President and CFO. In addition to the earnings release we issued earlier today, during today's conference call, we will be referencing a slide presentation that can be downloaded from the Events and Presentations section of Bruker's Investor Relations website.

Speaker 1

During today's call, we will be highlighting non GAAP financial information. Reconciliation of our non GAAP to GAAP financial measures are included in our earnings release and are posted on our website at ir.bruker.com. Before we begin, I would like to reference Bruker's Safe Harbor statement, which is shown on slide 2 of the presentation. During this conference call, we will be making forward looking statements regarding 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 and wars, as well as 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. As updated by other SEC filings, which are available on our website and on the SEC websites. Also, please note that the following information is based on current business conditions and to our outlook as of today, May 2, 2024. You should not rely on these forward looking statements as necessarily representing our views or outlooks as of any date after today. We will begin today's call with Frank providing an overview of our business progress.

Speaker 1

Gerald will then cover the financials for the Q1 of 2024 in more detail and share our updated 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 Q1 2024 earnings call. I am excited to announce that we have just closed our Elitek acquisition on April 30, ahead of schedule after we received all required regulatory clearances and also after the completion of the pre closing carve out of the Elitek Clinical Chemistry business that we did not wish to acquire. Accordingly, please note that in addition to our earnings release, we simultaneously have issued a second press release this morning, 7 am Eastern on the closing of our Elitek acquisition. We do encourage you to read both press releases for complementary information and perspectives.

Speaker 2

As a result, we are pleased to raise our constant exchange rate revenue growth guidance for fiscal year 2024 by 400 bps to 12% to 14% as explained in detail later during this call. Turning to our earnings release and slide 4, Bruker finished the quarter of 2024 with 1.6 percent organic and 5.5% constant exchange rate or CER revenue growth despite about $15,000,000 of revenue slippage into the 2nd quarter, primarily and primarily because of a rather tough comparison to a very strong Q1 of 2023, in which, if you recall, we posted 17.6 percent organic growth a year ago. So keep in mind that we had expected low single digit organic revenue growth anyway in Q1 because of some pull forward of about $15,000,000 similar pull forward of about $15,000,000 of revenues into the Q4 of 2023 when customer site readiness and shipments just worked very well. So underlying demand for Bruker's products and solutions has remained solid with Q1 'twenty four book to bill for our BSI segment just below 1.0. So in the Q2 of 2024, we expect a reacceleration of our organic revenue growth, and we also expect double digit constant exchange rate or CER revenue growth year over year.

Speaker 2

As expected in the Q1 of 2024, our margins compressed year over year, primarily because of the tough comparison to an unusually strong Q1 of 2023, but also as a result of transitory factors such as the expected initial margin dilution from our recent acquisitions as well as less favorable mix in this quarter. We expect significant sequential margin improvement in the remainder of the year. As we look to the remainder of 2024 with our solid backlog and pipeline, we expect to achieve above market organic revenue and organic non GAAP EPS growth. Accordingly, we are maintaining our fiscal year 'twenty four guidance for organic revenue growth of 5% to 7%. Since our prior guidance in mid February, we have closed the Chemspeed acquisition in the Q1 and now the Elitek acquisition on April 30.

Speaker 2

Both are now included in our updated guidance today. As a result, we are increasing our reported revenue guidance by $60,000,000 for reported revenue growth of 11% to 13% year over year, and we are increasing our non GAAP EPS guidance by 0 point 0 $8 to 8% to 10% non GAAP EPS growth year over year. Please note that our updated May 2 guidance today does not yet include the pending NanoString acquisition, which is expected to be EPS dilutive and which we hope to close in the Q2. For further information on the pending NanoString acquisition, I refer you to our press release issued on Monday, April 22. Continuing on Slide 4, Bruker's Q1 2024 reported revenues increased 5.3% year over year to $721,700,000 which included an M and A tailwind of 3.8%.

Speaker 2

On an organic basis, revenues increased 1.6%, which included flat organic revenues in our BSI segment and 18.9 percent organic growth at best, net of intercompany eliminations, while the FX headwind was minor at 0.1%. This all implies constant exchange rate or CER revenue growth of 5.5 percent year over year. Our Q1 2024 non GAAP operating margin was 14.0 percent, down 6 30 bps due to the factors that I described earlier. In the Q1 of 'twenty four, Bruker reported GAAP diluted EPS of $0.35 compared to $0.52 in the Q1 of 2023. On a non GAAP basis, Q1 'twenty four diluted EPS was $0.53 down from $0.64 in the Q1 of 'twenty three.

Speaker 2

Right. Please turn to Slide 56 now, where we highlight the Q1 'twenty four CER performance by our 3 Scientific Instruments groups and of our best segments all year over year. In the Q1 of 'twenty four, BioSpin Group revenue was $183,000,000 with low single digit percentage CER growth. BioSpin saw growth across biopharma, academic government and industrial research markets without any gigahertz class system in Q1 'twenty four revenue. By the way, in 2024, we expect revenue from 3 gigahertz class NMRs, including 1 in the second quarter.

Speaker 2

We also closed the Chemspeed Lab Automation acquisition, and we will be talking about that further in the future when we update you on our medium term targets. Moving on to CALID. In Q1 2024, our CALID Group had revenue of $228,000,000 and its CER declined in the low single digit percentage, primarily due to the timing of shipments slipping from Q1 into Q2 as well as to tough comps in the prior year Q1. On Slide 6, Q1 'twenty four Bruker Nano revenue was 240,000,000 dollars and Nano achieved CER revenue growth in the mid teens percentage with strong revenue growth in academic government, ECCA gov, industrial and semiconductor metrology. The artificial intelligence or AI megatrend continues to be a tailwind for our semiconductor metrology and advanced packaging tools business.

Speaker 2

Finally, Q1 'twenty four best CER revenues grew in the high teens percentage, net of intercompany eliminations, driven by solid superconductor demand as well as by growth in big science and fusion research projects and our emerging key extreme UV or EUV technologies for semiconductor lithography tools by a very large OEM customers, also in support of strong AI demand. Let me take a quick excursion from financials to a couple of further product introductions on Slide 7 and 8. At U. S. UFO in the Q1, we continued with 4 d proteomics tools and workflows and software.

Speaker 2

And in this year, we highlight both immunocassidomes, which are very important in immuno oncology and separately glycoproteomics, of course, all of the 4 d versions that we do on our timstop platform. And without going into a lot of details here, both of them are excellent examples of things that are not translated in the DNA. They are not in our genes, at least not in any way that we know. So they're excellent examples of additional post genomic information that is absolutely needed to understand biology and disease biology. And we are a leader on that same timsTOF platform in 40 proteomics and its applications.

Speaker 2

The two examples that are both quite important in immunopeptidomics and 4 d glycoproteomics. The other examples are from product introductions that we had at our recent most important NMR conference of the year, the ENC, which was actually in April in California. And we introduced both new enabling scientific capabilities for new scientific capabilities in structural biology, particularly of membrane proteins, of aggregates, of many membrane proteins are important targets or signaling proteins. And there by the way, they're also not something that alpha fold or cryo EM or crystallography handle very well. They're one of the very important areas where NMR plays a crucial role.

Speaker 2

And again, without scientific details, having ultra fast spinning probes give us much higher resolution for things that could never be seen before by scientists. And a separate introduction of a technology for DNP, which stands for dynamic nuclear polarization can increase sensitivity for some of these methods, in fact, by factors of the order of 100. So it's really game changing and enabling. On the other hand, we also want to make broaden the adoption of NMR and make it much more accessible. A really wonderful new magnet introduction is this ASCEND EVO 600 NMR magnet with a 1 year helium hold time.

Speaker 2

This is more than double from before. So it's quite a technological marvel. And again, I think it will be warmly welcomed by all existing NMR labs, but also the new labs in biopharma research, in clinical metabolism, clinical research, where previously they hadn't handled NMR, but we'd like to use it, makes it much more accessible and available for broader markets. And last but not least for biotech and biopharma, process analytical integration or path integration, the 4 year 80, which is our non cryogenic bench top fcNMR, if you recall, has now been more broadly available for this biopharma QC world. All very, very good developments on which we want to update you from time to time.

Speaker 2

Now in summary, and as I wrap up my remarks, Bruker delivered solid constant exchange rate growth, albeit with weaker margins and EPS in the Q1 of 2024. We accept some margin and EPS dilution from our acquisitions in 2024 because we have been able to acquire several strategically very important businesses at reasonable valuations. We expect that our Bruker management process applied to these acquired businesses will significantly improve their financial performance over time and drive their long term profitable growth. We anticipate also that these strategic acquisitions will enable strong returns on invested capital or ROICs in the future, something that is important to Bruker's business culture of disciplined entrepreneurialism and also for long term shareholder value creation. So with those comments, let me turn the call over to our Chief Financial Officer, Gerald Herman, who will review Bruker's Q1 financial performance in more detail and provide our updated fiscal year 2024 guidance and assumptions.

Speaker 3

Gerald? Thank you, Frank, and thank you everyone for joining us today. I'm pleased to provide some more detail on Bruker's Q1 2024 financial performance starting on Slide 10, which shows the revenue bridge for the Q1 of 2024. Revenue was up $36,000,000 or 5.3 percent reflecting organic growth of 1.6%. Acquisitions added 3.8% to our top line, while foreign exchange was a 0.1% headwind, resulting in constant exchange rate revenue growth of 5.5% year over year.

Speaker 3

Frank has already covered the drivers of revenue growth for the quarter. Geographically and on an organic basis in the Q1 of 2024, our Americas revenue grew in the mid single digit percentage. European revenue grew in the high single digit percentage, Asia Pacific revenue declined in the single digit percentage range, primarily due to softness in Japan all year over year. For our EMEA region, Q1 2020 4 revenue was up mid teens percentage year over year. Slide 11 shows our Q1, twenty twenty four P and L performance on a non GAAP basis.

Speaker 3

Non GAAP gross margin of 51.2 percent decreased 220 basis points from 53.4% in the Q1 of 2023, impacted primarily by mix, acquisition and FX headwinds and a challenging prior year comp. Q1 2024 non GAAP operating margin of 14.0 percent was 630 basis points lower than the 20.3% margin we posted in the Q1 of 2023. This decline is attributable to most of the same factors impacting gross margin, product mix, acquisition and foreign exchange headwinds and a challenging prior year comp. We expect Bruker's non GAAP operating margins to improve sequentially in the second quarter and significantly in the second half of twenty twenty four. For the Q1 of 2024, our non GAAP effective tax rate was 26.7%, a modest improvement from the 27.8% in the Q1 of 2023 resulting from favorable jurisdictional mix.

Speaker 3

Weighted average diluted shares outstanding in the Q1 of 2024 were 145,900,000, a reduction of 1,700,000 shares or 1.2% from the Q1 of 2023 resulting from our share repurchases. Finally, Q1, twenty twenty four non GAAP EPS of $0.53 was down 17.2% compared to the Q1 of 2023, primarily due to the margin compression factors previously detailed. We experienced about $0.05 of non GAAP EPS dilution from the Bruker Cellular Analysis, formerly Finamex acquisition in the Q1 of 2024. With the rightsizing actions we've already taken, we expect our BCA business to reach breakeven by 2026. We generated $21,800,000 of operating cash flow in the first quarter of 2024.

Speaker 3

Our capital expenditure investments were $21,400,000 resulting in free cash flow of of approximately $60,100,000 over Q1 of 2023, driven by lower net income and higher working capital levels, mostly impacted by our recent acquisitions. We finished the Q1 with cash, cash equivalents and short term investments of approximately $340,000,000 During the Q1, we used cash to fund acquisitions, capital expenditures and select Project Accelerate 2.0 initiatives. In the Q1 of 2024, we completed a series of debt financing actions to fund our recent acquisitions, including the larger Elatech transaction. We upsized our revolving credit facility to CHF900,000,000 issued CHF431 1,000,000 private placement senior notes with 10, 12 15 year maturities at average interest rates of about 2.6 percent and closed on a CHF450 1,000,000 term loan structure with 5, 7 10 year maturities carrying interest rates of about 3%. These financings provide us with flexibility to support strategic acquisitions like Elatek and our pending NanoString acquisition and delever over time.

Speaker 3

Turning now to Slide 14, we are maintaining our organic revenue growth guidance and organic non GAAP EPS prior guidance from February 13, 2024. We're updating our 2024 outlook to include the recently closed acquisitions of Elatek and Chemspeed as well as changes in foreign currency. It does not include the pending NanoString acquisition, which was covered in our April 22 press release. Our updated guidance for reported revenue is $3,290,000,000 to $3,350,000,000 up $60,000,000 from prior guidance, representing growth of 11% to 13% compared to 2023. As noted earlier by Frank, this guidance maintains our full year 2024 organic revenue growth of 5% to 7% year over year.

Speaker 3

It also reflects an estimated foreign currency headwind of about 1% and acquisitions contributing now about 7% to revenue growth year over year. This guidance now implies constant exchange rate CER revenue growth of 12% to 14% in full year 2024 year over year. For non GAAP 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 a 60 basis point decline from the prior year due to a combined acquisition and foreign exchange headwind of about 110 basis points. As we explained in the simultaneous Eltek closing press release this morning, we expect Eltek to be immediately accretive to Bruker margins.

Speaker 3

On the bottom line, we're now guiding to non GAAP EPS for 2024 in a range of $2.79 to 2.84 dollars up $0.08 from the accretive Elatek acquisition. This translates to non GAAP EPS growth guidance of 8% to 10% compared to 2023. Other guidance assumptions are listed on the slide. Our fiscal year 2024 ranges have been updated for foreign currency rates as of March 31, 2024. One additional note on the quarterly phasing for the year.

Speaker 3

We expect 2nd quarter organic revenue to be up mid single digits organically year over year. We also expect to see sequential improvement in non GAAP operating margin performance in the Q2 of 2024 and significant improvement in the second half of 2024. We expect to host a follow-up call with investors and sell side analysts within a few weeks after the closing of our NanoString acquisition. During this call, we plan to provide additional information on our recent significant acquisitions, including Chemspy, Elatek and NanoString and update our medium term outlook for fiscal year 2026 financial targets. Finally, I echo Frank's earlier comments on the importance of these recent acquisitions.

Speaker 3

While we expect some margin dilution initially from certain acquisitions, these are excellent additions to complement the portfolio transformation underway at Bruker and expected to contribute solid profitable growth and strong ROIC performance to our shareholders over the next few years. To wrap up, Bruker delivered solid constant exchange rate revenue growth in the Q1 of 20 24 2024 and we're well positioned to deliver above market revenue growth and organic non GAAP EPS growth in 2024. With that, I'd like to turn the call over to Justin to start the Q and A section. Thank you very much.

Speaker 1

Thank you, Gerald. I'd now like to turn the call over to the operator to begin the Q and A portion of the call. As a reminder, to allow everyone time for questions, we ask that you limit yourself to one question and one follow-up. Operator, we're ready for the Q and A portion.

Operator

We will now begin that question and answer session. Our first question today comes from Puneet Souda from Leerink Partners. Please go ahead with your question.

Speaker 4

Yes. Hi, Frank, Gerald. Thanks for taking the questions. My first one is on the revenue slippage you talked about. Is that just a pull forward into the 4Q 2023 and thus not expected going forward?

Speaker 4

And just overall with the mid single digit expectations for the for the Q2, can you just elaborate what you're seeing in terms of the overall demand, your ability to deliver from the backlog and any bookings growth that you can talk about? And then I have a follow-up.

Speaker 2

Yes. Thank you, Puneet. It's Frank. So, yes, as you recall, our Q4 of last year was strong, even stronger than we had expected. Usually, some things slip into Q1 and all the site readiness and export permits, I mean, it was near nearly everything went flawlessly.

Speaker 2

And so yes, we had with that we had already expected a low single digit organic revenue growth for Q1 and we had signaled that previously. And then it was a little lower than we would have liked with about $15,000,000 that's slipping into Q2, which is what we acknowledged here. There's essentially no risk of any of that getting canceled that will come in Q2. Those were the usual export permits, site readiness or With that, we With that, we ended up at the 1.6% organic growth, which is a bit weaker than we would have liked. But as always, it's best to look at Bruker as an average over several quarters.

Speaker 2

And I think we'll have a decent mid single digit or perhaps better Q2 organic revenue growth and expect double digit CR growth in the second quarter. So that's the cadence.

Speaker 4

Got it. Super helpful. And then Frank, I mean, I can't recall a time and Bruker had these many number of acquisitions in such a short period of time. So look, first of all, it's great to see you picking up a number of these excellent technologies for the post genomics era that you've talked about. But two questions that investors are struggling with is when we look at what do these acquisitions mean for potential dilution?

Speaker 4

And I know you're going to talk about that on the follow-up call, but any sort of directional read that you can provide us on into how to think about these in 2025? And then more importantly, I mean, if you could elaborate a bit on how your plans are looking in terms of integration priorities And because it does seem like there's significant undertaking versus what Brooker might have done in past and that is likely to have some impact on the inorganic growth and EPS in the term and medium term as well. So maybe just talk to us about the integration and how you're thinking about that?

Speaker 2

Yes. So I'll sort of do it in reverse order, Puneet. We're actually very confident on the integration and that we have the bandwidth to do this. It turns out because we are we have 3 very strong groups of Plus Best. We really have the management capacity and the integration capacity as if we were almost 3 companies.

Speaker 2

I mean, obviously, we're 1 company, but it turns out the Elitek business and a number of these smaller acquisitions that were done by our Prograoptics division previously, that's all within CALID and they're handling that really except for financing and some high level corporate matters really very, very focused and I'm convinced they're going to handle that very well and they're handling very well the smaller ones that they've done already. Chemspeed and some of these software acquisitions that you've seen recently are very much part of the BioSpin group. So we have a really a separate group. It's kind of a modular setup where they're pursuing that and really are doing a great job with that. So again, it doesn't it's not that these things are all piling up on us except at the highest level where we provide strategic direction and the support and the financing, of course.

Speaker 2

And ultimately and that's where there's more work to be done. I mean, we did not expect either that we would be able to acquire the former PhenoMx, now BrukerCellular Analysis. And then that NanoString would already in Q2 run into their Chapter 11 reorganization. And so this wasn't going to wait till Q4 or till we get around till next year. This was an opportunity, a strategic opportunity that's incredible.

Speaker 2

In a complicated situation, we'll admit that. But on the other hand, what an opportunity to build to buy not only a gene expression business, their gene expression business with nCounter is quite nice, but really hopefully close soon. I mean, this hasn't closed yet, but to acquire hopefully soon and it's under agreement in an asset deal, the spatial biology business, which is one of the leading spatial transcriptomics businesses as you know. So those were incredible strategic opportunities and again at valuations that are absolutely compelling and will lead to great ROICs. So that is very unusual for Bruker to have that many acquisitions.

Speaker 2

On the other hand, the opportunities that we had and the flexibility and the organizational bandwidth that we have allow us to do that. On 2025 and 26, if I may defer you to this little mini Investor Day that we hope to do within as a virtual call only within weeks NanoString. Hopefully, we get to close NanoString in the Q2. And then hopefully within weeks, Justin will be setting up a 2 hour call where we present and have the division leaders of those new businesses present Kempspeed, present Elitek and hopefully present NanoString. And then of course, Gerald and I will wrap it all up and tell you how that affects and accelerates our medium term outlook for 2026.

Speaker 2

That's our present plan. Other than that, we prefer not to comment on NanoString today, because it's still pending. And as you know, we tend to be very disciplined. Now we talk about Elitek now that it's closed, and we'll talk about NanoString more when that closes hopefully in the Q2.

Operator

Got it. That's fair. Thanks Frank.

Speaker 2

All right. Thank you, Puneet.

Operator

Our next question comes from Patrick Donnelly from Citi. Please go ahead with your question.

Speaker 5

Hey, guys. Thanks for taking the questions. Frank, maybe just one on kind of the order backdrop a little more real time. It sounds like the book to bill is a little bit below 1 in BSI. Can you just talk about what you're seeing on the order front, maybe on the academic side in particular, what the conversations there with customers are and just expectations as we go forward here?

Speaker 2

Yes. We didn't use up much backlog in the Q1 because of some revenue slippage. So our backlog coverage is still about 7.5 months. So that's remained strong. And academic government in the U.

Speaker 2

S. And in Europe has been decent. We've had also reasonable except for China, reasonable bookings in biopharma. Diagnostics, MALDI Biotyper It's doing well certainly on the consumable side. So it's not a fantastic macro environment out there, right.

Speaker 2

But it's decent and it's sort of the bookings and in all the various markets, geography or by market, by end market are about as expected, which is slower growth, but still organic growth for us. And yes, so the macro environment isn't exciting, but it is also not deteriorating. And it is about as we expected given our tool set and portfolio transformation, which as you've seen does allow us with above market 5% to 7% organic revenue growth this year. We're really quite confident with that.

Speaker 5

Okay. That's helpful. And then maybe you touched on China briefly in the answer there. Can you just talk about the trends over there? I mean, there's been some debate about stimulus loan program, whatever you want to call it.

Speaker 5

What you're seeing there? What the conversations look like in China and expectations for the year would be helpful? Thank you.

Speaker 3

Patrick, it's Gerald. I'll take this one. So from a perspective of China, I mean, our we're it's still early days, I guess, I'd say with respect to this loan stimulus program that's being considered. We've heard some conversation on the street about how that's going to play out. We don't expect to see that transfer itself into real orders probably until certainly the second half.

Speaker 3

Our understanding is that it's a relatively broad stimulus program targeting equipment upgrade And certainly in the technology area over multiple years, our expectation is that will ultimately result in a tailwind for Bruker. But we don't really have any further details on exactly the timing or exactly which products would be impacted. That's what I guess I could say about that. We still continue to feel pretty strong about the overall performance in China over time. But obviously, there's been some challenges there from a macro perspective.

Speaker 2

Very fundamentally, China has again, we made and clarified their very strong and exceptionally strong commitment to science and technology. And that's a very high priority for them and for their investments as a country, which bodes well for the entire industry. It also does bode quite well for us with more of an academic government exposure or I mean more participation in China, whereas we got a little lucky that we're not so exposed to their biopharma or CRO markets, which obviously have been and probably continue to struggle to some extent also because of geopolitical risks that anyway, so that's bypassing us mostly.

Speaker 5

Thank you, guys.

Operator

Our next question comes from Rachel Battsenstahl from JPMorgan. Please go ahead with your question.

Speaker 6

Perfect. Hi, good morning, you guys. Thanks so much for taking the question. So first, I wanted to push a little bit on this 2Q guide. You mentioned that you're expecting mid single digit organic growth next quarter.

Speaker 6

So that came in a little bit lighter than expectations. You also mentioned that $15,000,000 slipping from 1Q to 2Q. So can you help us understand the puts and takes there? What are the underlying assumptions embedded in 2Q? Is there any level of conservatism?

Speaker 6

Or is this more of a realistic guide based on what you're seeing in the market right now?

Speaker 2

Yes. No, I mean, hopefully, it's in the head off. It's mid single sorry, mid single digit is somewhat conservative guy because we just missed a little bit in Q1, right? So we'd like to not have that repeat, but so there's some upside to that. But on the other hand, it's also realistic it's a realistic color for the Q2 with potential for an upside, but we'd like to be in an area where there's no downside to that in Q2.

Speaker 6

Okay, great. That's helpful. And then just on 2025, you pulled forward some of the 2025 or the 2026 estimates to 2025 last quarter. I appreciate you're going to host this Mini Analyst Day in the coming months here. But I guess just to clarify, are you assuming that any of the underlying assumptions within that 2025 framework that you touched on last quarter have changed?

Speaker 6

Or are you really just pointing towards an update given some of the recent M and A and deals closing between Eli Tech and NanoString on the horizon?

Speaker 2

That's all about M and A Rachel. So temp speed this year adds about $10,000,000 per quarter in revenue and is neither EPS dilutive nor accretive. We think by next year, they'll be somewhat EPS accretive and get back into growth mode. They had all that they had a lot of changes going from switching to U. S.

Speaker 2

GAAP and product accounting rather than percentage of revenue. Too much detail and we'll give you more at our mini Investor Day there or mini investor call. So there'll be mild decreases. Elitek will be it looks like it continues to be a very nice high single digit, sometimes low double digit organic revenue growth business. And clearly somewhat margin accretive, clearly EPS accretive.

Speaker 2

So that all comes in. And then as we close when we close NanoString, as we have spelled out without a lot of detail, but just as a heads up in our April 22 announcement of the asset purchase agreement for NanoString, we won't give 24 guidance on NanoString for reasons explained in that press release. Obviously, it had considerable disruption from Chapter 11 and other litigation related materials. We won't get into that today. So we'll see how that business settles.

Speaker 2

We just want to give the Street a heads up that there is a meaningful dilution from that in 2024. We estimated $0.15 to $0.20 Happy to take that next year. We expect that to be lower next year, but we're not going to be able to go into that today, right, because it hasn't closed. So it's all fundamentally all the incremental changes are all about these acquisitions. And how that and I guess the supporting financing that we've done at that Gerald has done at incredibly attractive rates with our banking partners, very, very pleased with how our capital structure is supporting all of that in a very attractive way.

Speaker 2

So we'll pull all of these things together because they are too many moving pieces for you all quite honestly to be able to try to figure it all out. So we'll hope to really assist you with that and give you the ability to then model 26% and 25% in between, although we're not going to give 25% guidance. But I think you'll be in a much better position to understand how all these pieces come together.

Speaker 6

Great. Thank you for all the color.

Operator

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

Speaker 7

Hi. Thanks for the question. This is Colleen on for Doug. I just want to know how you're framing book to bill normalizing for the bolus in China stimulus bookings in Q1 of last year and the timing of delay of bookings in Q1?

Speaker 1

So the book to bill is for the first the book to bill that Frank quoted up roughly 1 is for the Q1 of this year, right? So that bodes well now. Last year in China, we had a bolus of orders in the Q1. But then we had basically an air pocket of orders in the Q3 of last year from China. So there was a lot of distortion in bookings in China last year.

Speaker 1

For the full year in last year in China, we had bookings up nicely in the double digits along with revenues. So as you look at 2024, there's quite a bit of distortion on the year over year comp in China for bookings. And for that reason, we really think it makes sense to look at kind of full year picture from bookings. Hopefully, that's helpful.

Speaker 7

Thank you. And just one follow-up on leverage. So with the NanoString deal, we estimate your debt to EBITDA will approximate about 3.5x. Is that right? And if so, is it fair to assume this is the limit of what you'd be willing to take the balance sheet?

Speaker 3

We'll talk more about that actually the main Investor Day. But what I'd say is, first of all, we need to make sure we're talking about gross versus net on the calculation. And we'll talk again, I think I'd just defer that to our call coming up. I mean overall, of course, we're pleased with the financing actions we've already taken and we'll talk more about options as we march into the forward investor and sell side analyst discussion.

Speaker 2

But approximately with your question, you're approximately right. Your leverage gross leverage of about 3.5 percent, net leverage will be lower. And generally, that's not where we normally operate. We prefer to operate more in the 2% to 2.5% range. And obviously, there'll be time, there'll be opportunities to delever.

Speaker 2

Very clearly, our goal will be to delever from that level again.

Speaker 7

Thank you.

Speaker 3

You're welcome.

Operator

Our next question comes from Jeff Meehan from Nephron Research.

Speaker 3

I had a couple of

Speaker 8

financial questions for you guys. On the income statement, could you just explain, I guess, like below the line other income? I was modeling like $7,000,000 of other expense, but it was kind of the opposite. How were there any factors that drove that in the quarter?

Speaker 3

One of the other significant items coming out of the quarter is, of course, as you likely know, we moved a series of took a series of actions on the foreign exchange side to be able to secure the €870,000,000 Alatek transaction. So that's part of what you see there. There's a substantial foreign exchange gain that came between the euro and the Swiss francs. So that's what you see. We also had, as I think I mentioned in my prepared remarks, a more favorable tax rate than we had in the prior year.

Speaker 3

Fundamentally, I'm pleased with that from a jurisdictional mix perspective. So those are the 2 pieces.

Speaker 8

Great. Okay. That makes sense. And then, the second question was just on the Phenomex solution. Could you talk about just how the integration is going, number 1?

Speaker 8

Number 2, I think I heard $0.05 of dilution. I think previously you were talking about $0.02 to $0.03 a quarter. Just what was the delta there?

Speaker 2

Yes. Phenomix, or now as we call it Bruker Cellular Analysis, we are estimating $0.10 to $0.12 dilution for the year, dollars 0.24 If you recall, we had $0.14 of dilution in Q4 before we could we triggered the Warren Act. So we took us while we made the decisions right away, it took us some time to reduce headcount and cost. And you still some of that also still outside of the United States, some of that cost reduction takes a little longer to have an effect. So yes, dollars 0.05 was the number, correct, for PhenoMex.

Speaker 2

And the average this year maybe $0.02 to $0.03 or maybe $0.03 on average, but it will be more front loaded. So good catch again, Jack. It was higher than the average in Q1.

Speaker 1

Yes. Jack, as you'd imagine, the dilution is going to gradually taper from phenomics over time. What we've said is we expect it to be basically breakeven by 2026, but a lot of that dilution will really taper off in the first half of this year. So that's how we're thinking about the term. Yes.

Operator

Sounds good. Thank you, guys.

Speaker 3

You're welcome.

Operator

Our next question comes from Dan Brennan from TD Cowen. Please go ahead with your question.

Speaker 9

Great. Thank you. Thanks for taking the question. Frank, Daryl, I know we're going to get more color on NanoString once it closes, but is it possible to speak at all to the work that you've done on the patent situation just because I think that likely caught many people by surprise, the fact that they've got these cases ongoing and they lost the GeoMx case earlier this year, which obviously they're appealing and they have the Cosmix case. I'm just wondering any color you can provide on the work you did, the comfort you got and or any remedies you might have in place if these cases go against NanoString?

Speaker 2

Yes. That's really something we're at first of all talking we're not going to talk even after the closing about litigation out potential litigation outcomes or litigation strategies. Today, we certainly cannot talk about it because it hasn't even closed. It's obviously a key issue for the NanoString company, right? I mean that to a significant extent drove them into Chapter 11 reorganization.

Speaker 2

Then once they were in the Chapter 11 reorganization, I'm not telling you anything you don't know, There was a favorable interim ruling at the European Patent Court that lifted the COSMIC's preliminary injunction at least outside of Germany, if I have all my facts right. So there's been some positive news. But that's all intermediate subject to appeal, subject to final ruling. So there is a lot of moving pieces and a lot of separate litigations and challenges and dirty hands and antitrust counterclaims and all of that. And how that plays itself out, we can discuss a little bit more and hopefully we don't spend our entire mini we will not, I promise you spend our mini Investor Day on IP items, but we can give you a little bit more color to the extent we can comment on ongoing litigations, which is very limited as you might guess.

Speaker 2

Okay. Thank you. Yes. Yes, we're very aware. We're very aware.

Operator

Okay. And maybe just one on

Speaker 9

the semi business, you called out the AI related positioning. Just wondering if you can help us kind of size that, like how did semis do in the quarter? Any specific color on how much that AI is driving your semi and packaging business and kind of what do you kind of assume implicit in the guide for the year? Thanks.

Speaker 2

Now we tend to do that more on an annual basis because of course quarterly fluctuations, but I think our semiconductor metrology business as a total percentage of revenue is now in the high single digits and probably marching towards eventually towards 10% and higher. And maybe the and so that's did well in terms of revenues in Q1. The additional piece and that's still modest and below 1% of our revenues that we now be our best and their research instruments subsidiary participate in the semiconductor late the Extreme UV or UV technologies are now going into lithography, which is of course is semiconductor manufacturing for smaller and smaller feature sizes, which are needed particularly for AI, but also perhaps for other high performance computing applications. And there is some unique technologies where we're simply in the supply chain. We don't deliver complete systems of the largest lithography UV lithography supply chain that is out there.

Speaker 2

Anybody can guess who that might be. And we're very pleased. We're providing some unique technologies from our research instruments business. And I'm sure you've never heard of, but it's not insignificant anymore. Maybe it's $20,000,000 or something like that in the supply chain.

Speaker 2

These aren't systems. But it's a very, very key and very unique technology position that just adds a little bit of cherry on top of our semiconductor and advanced packaging metrology business that you're more familiar with. Yes, this is just that's a very good trend and it's unusual for a life science or post genomic company. But indeed we have it in our nano tools to some extent are very applicable and very unique there. It's wonderful.

Operator

Great. Thank you.

Speaker 3

You're welcome. You're welcome, Dan.

Operator

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

Speaker 10

Good morning, guys. Thank you. Frank, I really do apologize for asking this because you said you'll be addressing NanoString later. And so this may be an unfair question. But if I That's

Speaker 5

not belief.

Speaker 2

Yes, go ahead, Ed. Sorry.

Speaker 10

It's less about the details in the financials and more just about the rationale. Can you speak to whether this is a deal where you just felt like the price is right to your point earlier or one where the diligence led you to a point where you felt like you were comfortable either with the legal side of the equation or the technical side of the equation, a workaround for some of the problems that

Speaker 4

are actually leading to the legal side.

Speaker 10

Can you just talk a little bit about how comfortable you got with the deal because obviously it is a controversial one? Thanks a bunch.

Speaker 2

Yes. So probably the answer is no, because I don't want to talk about any of the litigation and all of these other things. But strategically having a much bigger play in spatial biology with being able to acquire at a very reasonable valuation, 1 of the 2 leaders in spatial transcriptomics is an unbelievable strategic opportunity. That's completely what drives this deal. We're very pleased with their gene expression and counter profiling business.

Speaker 2

We think that has some growth opportunities. It has good margins, wonderful. But the driver was spatial transcriptomics. So the GeoMx and COSMx and related product software and other product lines. And that is a really big deal if you want to be a leader in spatial biology.

Speaker 2

We have a complementary, but much, much smaller spatial proteomics business with Canopy. They really are in adjacent markets. They don't really overlap. They're also what NanoString is doing is 100 times larger. So this really puts us on the map in spatial transcript film mix.

Speaker 2

We like their plexing capability, a lot of research customers that's really what they want. They're far ahead and I think they're pretty fundamentally ahead in spatial transcriptomics. So they're one of the pioneers and we want to continue to support their customers and doing their fundamental and then very much also the translational clinical research where these spatial single cell transcriptomics are tools are so needed for biomedical research. And that's in addition to proteomics and structural biology, glycoproteomics, spatial biology and there the bigger field is spatial transcriptomics and we had no presence in that. So for us, this is a huge opportunity and we seized it.

Speaker 10

Okay. Appreciate you indulging me on that. And then I guess just the natural next question or one of them anyways is, are you still on the hunt for deals? Is this are they likely to do additional M and A from here? Thank you much.

Speaker 2

I think we're going to be in a deal diet for a little while. I mean, there's always small deals that come through. Sometimes, as you know, a lot of the smaller deals, sometimes some of them had $5,000,000 or $10,000,000 in revenue. And some of them were literally addressing gaps that we had in our product line in preclinical imaging or in Raman process analytical technology or high end Raman microscopy. Those are things that we've been eyeing for many years and sometimes more than a decade.

Speaker 2

And when some of the companies then became available that fit perfectly into our for optics or into our BioSpin preclinical imaging, We said, wow, this is great. And yes, it all comes at the same time, whereas 2 years ago, it was very difficult with valuations then to agree on anything. And so we are value conscious. We are ROIC conscious. And so yes, this is but in terms of larger deals, we obviously need to we do wish to then delever for a while and that's I think that's the answer on larger deals.

Speaker 2

I would not expect any additional larger deals until we delever some.

Speaker 10

Thank you, Frank.

Speaker 2

You're welcome, Dan.

Operator

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

Speaker 11

Hey, good morning guys. Thanks for taking my questions. I'll ask 2 and then hop off. First, Frank, can you comment on year over year orders in DSI in 1Q and whether the guide assumes any sequential improvement in order rates from here? I guess just more context on how you're thinking about the order cadence to support the full year organic guide would be helpful.

Speaker 11

And then for my follow-up, Frank again, wondered if you could comment or provide more context on the moving pieces within CALID business? I mean maybe more color on the revenue slippage. You mentioned tougher comps. I can't help but notice you didn't highlight timsTOF this round. I guess just any more context you're being on the order front, how you're thinking about TIM stock growth and any other kind of one off or one time pressures the segment may have seen this quarter?

Speaker 2

Yes. So trying to take as many of the questions. So bookings, I think we expect the normal seasonality that we have with bookings always weakest in Q1, strongest in Q4 and in between in Q2, Q3, they tend to be more comparable in terms of bookings. So that's what we expect this year as well. So normal booking seasonality to where to your first question, I think would imply then a sequential step up not only in revenues and margins, which we've mentioned, but also in bookings throughout the remainder of the year.

Speaker 2

Seems to have I did mention, of course, the 4 d proteomics and immuno peptidomics and glycoproteomics, that's all. There was a picture of a timsTOF Ultra that's all in the timsTOF platform, very significant workflow and software and capabilities increases that we showed at the US UFO meeting in March. We have an ASMS around the corner, right, that's coming up in the 2nd week of June in Anaheim. So that's obviously a biggie in the mass spec world. And yes, Timstuf is doing well.

Speaker 2

And the many platforms and the many new capabilities, it's just such a beautiful platform. As you peel the onions, there's not only proteomics and then maybe plasma proteomics or single cell proteomics and now there's middle down, top down, there is intact, there are these immuno peptidomics and unique PTMs and glycoproteomics, there's protein protein interactions. It's such a rich field that one really now has to look at like a dozen subfields that all constitute proteomics and related fields and the instrument is very, very suitable for that. And along with new wetware consumables with new software, with new workflows. So plenty going on there.

Speaker 11

Frank, I guess just on the revenue slippage, was that timsop or is it something else within CALID?

Speaker 2

No, it was also not only CALID and also with semiconductor metrology tool. Sometimes when one of these facilities by one of our large semiconductor metrology tools gets slipped by a quarter or 2. And those very large customers that you all know by name tell, they'll ship that in March, ship that in whatever in Q2 and supply. So some of that was that, some of that was NMR and preclinical imaging MRI related. So this wasn't just this was not just on CALID, but CALID had a very strong comp year over year, I think one of the strongest

Speaker 1

In Q4, there was quite a bit pulled forward into Q4, including within, for example, the optics business, which is within CALID. Right. So those caused quite a distortion and is the primary driver of the lower organic growth in the

Speaker 5

Q1. Correct.

Speaker 11

Got it. Okay. Appreciate it,

Speaker 1

guys. All right. Operator, I think we're all set with questions. So we want to thank everyone for joining us today on the call. Bruker's leadership team looks forward to meeting with you at an event or speaking with you directly during the Q2.

Speaker 1

Please feel free to reach out to me to arrange any follow ups. Have a great day.

Operator

Ladies and gentlemen, with that, we'll conclude today's conference

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Key Takeaways

  • Following the closing of the Elitek acquisition on April 30 and the earlier Chemspeed deal, Bruker raised its 2024 constant exchange rate (CER) revenue growth guidance by 400 bps to 12 – 14%.
  • Q1 2024 revenue reached $721.7 million, up 5.3% year-over-year (organic +1.6%, M&A +3.8%, FX –0.1%) for a 5.5% CER gain, while non-GAAP EPS declined to $0.53 from $0.64 a year ago.
  • Non-GAAP operating margin compressed by 630 bps in Q1 due to tough comps, initial acquisition dilution and mix headwinds, but sequential margin improvement is expected in Q2 with significant recovery in H2 2024.
  • Full-year 2024 outlook maintains 5 – 7% organic revenue growth, now targets 11 – 13% reported revenue growth and 8 – 10% non-GAAP EPS growth, excluding the yet-to-close, expected-dilutive NanoString acquisition.
  • By segment, Nano grew mid-teens CER and BSI high-teens, while CALID saw low-single-digit CER declines due to timing and comps; book-to-bill ~1.0 and a ~7.5-month backlog underpin mid-single-digit organic growth guidance for Q2.
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Earnings Conference Call
Bruker Q1 2024
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