Bruker Corp

NASDAQ:BRKR

Earnings Call Transcript 2022-Q1

[Operator]

Good morning, everyone, and welcome to the Bruker's First Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note that today's event is being recorded.

At this time, I'd like to turn the conference call over to Justin Ward, Senior Director of Investor Relations and Corporate Development. Sir, please go ahead.

[Justin Ward]

Thank you, and good morning. I would like to welcome everyone to Bruker Corporation's first quarter 2022 earnings conference call. My name is Justin Ward, and I am Bruker's, Senior Director of Investor Relations and Corporate Development. Joining me on today's call are Frank Laukien, our President and CEO, and Gerald Herman, our Executive Vice President and CFO.

In addition to the earnings release we issued earlier today, during today's conference call, we will be referencing a slide presentation that can be downloaded from the Events and Presentation section of Bruker's Investor Relations website. 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 make forward-looking statements regarding future events and financial and operational performance of the Company, that involve risks and uncertainties, including those related to geopolitical risks, the COVID-19 pandemic and supply chain, logistics, and inflation challenges. The Company's actual results may differ materially from such statements.

Factors that might cause such differences include, but are not limited to, those discussed in today's earnings release and in our Form 10-K for the period ending December 31, 2021, 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, May 4, 2022. 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 second quarter 2022 financial results expected in early August 2022. You 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. Gerald will then cover the financials for the first quarter in more detail and share our updated fiscal year 2022 financial outlook.

Now, I'd like to turn the call over to Bruker's CEO, Frank Laukien.

[Frank Laukien, Chairman, President and Chief Executive Officer]

Thanks, Justin. Good morning, everyone, and thank you for joining us on today's first quarter 2022 earnings call. If you go to Slide 4, you can see that Bruker's solid 10.5% organic revenue growth in the first quarter and even stronger organic bookings growth represent a good performance in light of challenges with a war in Ukraine and lockdowns in China. As a reminder, we do not have any manufacturing operations in China.

Excellent demand for our differentiated high-value scientific instruments and life science solutions resulted in continued strong momentum in organic bookings and revenue growth despite a supply chain and logistics drag. For the first quarter of 2022, our Bruker Scientific Instruments or BSI segment, bookings were up strongly with all four Bruker groups with double-digit percentage organic bookings growth and our BSI book-to-bill ratio greater than 1.1.

Bruker's Q1 2022 revenues increased 7.3% year-over-year to $595 million with a currency headwind of minus 4.2%. On an organic basis, revenues increased 10.5%, which included 9.5% organic growth in BSI and 21% at BEST net of intercompany eliminations, while growth from acquisitions added about 1%. This implies constant exchange rate growth of 11.5% year-over-year.

Our first quarter 2022 non-GAAP gross margin increased 140 bps year-over-year to 52.7%, while non-GAAP operating margin was 19.5%, an increase of 110 bps year-over-year. Gross margin expansion was partially offset by planned investments in commercial and R&D capabilities as well as by supply chain, logistics and inflation headwinds, which more than offsets currency tailwinds.

In the first quarter of 2022, Bruker reported GAAP diluted EPS of $0.41 compared to $0.37 reported in Q1 of 2021. On a non-GAAP basis, Q1 2022 diluted EPS was $0.49, an increase of 11.4% from $0.44 in the first quarter of 2021. Our trailing 12-month return on invested capital was 27.6%, which puts us among the leaders in our industry. We believe this is the result of our strong Bruker management process and our focus on disciplined entrepreneurialism and organic growth supplemented by selected bolt-on and technology acquisitions.

In summary, the first quarter of 2022 was a quarter with broad-based demand strength across virtually all Bruker businesses with double-digit organic bookings growth, as well as further investments in Project Accelerate 2.0, plus investments in our recent acquisitions in additional proteomics, biopharma and applied markets capabilities in the first quarter as well as in April.

Please turn to Slides 5 and 6 now where we highlight the first quarter 2022 performance of our three scientific instruments groups and of our BEST segment, all on a constant currency and year-over-year basis. In the first quarter of 2022, the BioSpin Group revenue was $158 million and grew in the low single-digit percentage. BioSpin faced a difficult comparison as they were two gigahertz-class NMRs in the first quarter of 2021 with none in the first quarter of 2022. We continue to expect four gigahertz-class NMRs in revenue in 2022 with a 1.2 gigahertz system just accepted in April. So this will be in Q2 revenue.

BioSpin saw robust growth in revenues in our preclinical imaging business and BioSpin achieved double-digit bookings growth. BioSpin innovations of note include our compact, single-story Ascend Evo 1.0 gigahertz magnet to give more structural biology and drug discovery labs access to gigahertz technology. And on the other end of the spectrum, if you like, we also launched an advanced new capabilities on our benchtop Fourier 80 FT-NMR system to enable broader applications, particularly in pharmaceutical and applied markets analysis.

Moving on to CALID. For the first quarter of 2022, the CALID Group revenue of $203 million increased in the low double-digit percentage with strong growth in microbiology and molecular spectroscopy. Our timsTOF platform continues its adoption in 4D proteomics, epiproteomics and multiomics. And in Q2, we announced key further capability enhancements for the timsTOF platform and had excellent year-over-year bookings growth.

Microbiology revenue delivered strong growth driven by demand for MALDI Biotyper systems and consumables. This was coupled with a gradual recovery of our tuberculosis molecular diagnostics products platform. We are excited about the launch of our Mid-Plex PCR, LiquidArray next-generation syndromic panels at the ECCMID's 2022 Conference in April with more of these LiquidArray panels and assays to come.

Please turn to Slide 6 now. First quarter 2022 Bruker NANO revenue was $179 million and grew in the high teens percentage. NANO's academic, industrial and semiconductor metrology markets all remain strong. Revenue for our NANO advanced X-ray and NANO surfaces tools delivered strong growth in the quarter and NANO's microelectronics and semicon metrology tools performed very well with strong bookings and backlog.

Our life science fluorescence microscopy revenue was up sharply on product innovation and strong research demand. We note that our Canopy subsidiary launched the next-generation CellScape ChipCytometry instrument for high throughput in C2 Spatialbiology with subcellular resolution and outstanding quantitation with a 10 to the eight dynamic range, very unique.

Finally, first quarter BEST revenues grew in the high-20s percentage net of intercompany eliminations driven by share gains and strong superconductor demand by our MRI OEM customers. BEST demand appears very healthy, but we experienced supply chain challenges.

Moving to Slides 7 and 8. We continue to make good progress with our Project Accelerate 2.0 initiatives, which in 2021 represented 54% of total revenues. On Slide 7, we highlight our very recent introduction of the compact, single-story ultra-high field NMR magnet called the Ascend Evo 1.0 gigahertz. It's really quite a technological marvel that being able to put that into a single-story lab will provide many more structural biology and drug discovery researchers access to these enabling functional structural biology capabilities of gigahertz NMR. So this is no longer for national labs only, but really for PI and co-PI grants and as well as for biopharma customers. This is a result of the key hybrid technologies we've developed at 1.2 gigahertz for high-temperature superconductors operating in this case at 4.2 Kelvin, which is convenient and also reduces helium consumption by a factor of three. That's very, very significant and very timely. So very exciting new technology.

Moving on to Slide 8, where we talk about Project Accelerate 2.0, our NANO technology initiative, and here in particular semiconductor metrology and microelectronics. I am certainly not going to go through all the bullets on that slide. I just wanted to remind you this business, including display, package, data storage and semiconductor metrology was about 7% of our BSI segment revenues in 2021, and it was up again in – up in the high teens year-over-year in 2021 and up in the low-20s in year-over-year in Q1 of 2022. So strong growth business tends to have very good margins, and here are two examples. One is for next-generation chip manufacturing using X-ray diffraction tools that are quite unique, and on the right something more on 3D chips that require advanced packaging quality control, where we have very unique tools that you probably don't see from us every day, but that are absolutely crucial and enabling for a lot of these new packaging technologies that affect so much of our lives.

All right. Enough technology, after that outlook. In summary, Bruker continues to experience strong demand for our differentiated instruments and solutions across our portfolio. Our Project Accelerate 2.0 high-growth, high-margin initiatives performed well. And we reiterate our intention to ramp investments for accelerated growth, [except], for example, in proteomics, in spatial biology, in biopharma and applied as well as in NANO technology and semicon metrology really firing on many cylinders or all cylinders here.

I am pleased with how well our teams have executed in a challenging supply chain and logistics environment. We benefit from being able to manage a high backlog to navigate that environment very well. And as we move through fiscal year 2022, our high backlog gives us good visibility on growth.

So let me now turn the call over to our Chief Financial Officer, Gerald, who will review Bruker's Q1 financial performance and then raise fiscal year 2022 outlook in more detail. Gerald?

[Gerald Herman]

Thank you, Frank and thank you, everyone for joining us today. I'm pleased to provide more detail on Bruker's first quarter 2022 financial performance starting on Slide 10. In the first quarter of 2022, Bruker's reported revenue increased 7.3% to approximately $595 million which reflects an organic revenue increase of 10.5% year-over-year. We reported GAAP EPS of $0.41 per share compared to $0.37 in the first quarter of 2021. On a non-GAAP basis, Q1 2022 EPS was $0.49 per share, an increase of 11.4% from $0.44 in the first quarter of 2021. Our Q1 2022 non-GAAP operating income grew 13.3% and our non-GAAP operating margin increased to 110 basis points year-over-year to 19.5% for the reasons Frank has already reviewed.

We finished the first quarter with cash, cash equivalents and short-term investments of approximately $916 million. During the quarter, we used cash to ramp selected Project Accelerate 2.0 investments, fund capital expenditures, complete several bolt-on technology acquisitions in proteomics, repay $105 million tranche of our 2012 debt and fund share repurchases. You may recall that in May, 2021, our Board approved a two year share repurchase authorization up to $500 million through May, 2023. In the first quarter of 2022, we repurchased approximately 1.6 million shares for about $106 million. As a reminder, in fiscal year 2021, we repurchased 2.1 million shares for approximately $153 million.

We generated $77.8 million of operating cash flow in the first quarter of 2022, partially offset by CapEx investments resulting in $58.8 million to free cash flow in the first quarter of 2022. This represents a $14.5 million decline from the first quarter of 2021, mostly due to the timing of tax and repayments.

Turning to Slide 11, shows the revenue bridge for the first quarter 2022 as discussed earlier. Compared to the first quarter 2021, BioSpin’s first quarter 2022 organic revenue grew in the low single-digit percentage against a difficult comparison due to European gigahertz-class NMR mix headwinds. NANO organic revenue grew in the high teens percentage, resulting from the strength of NANO's academic, industrial research and semiconductor businesses. CALID organic revenue grew high single-digit percentage with strong performance coming from the MALDI Biotyper platform.

First quarter 2022 BSI systems revenue increased in the high single-digit range organically, while our BSI aftermarket revenue grew in the low teens organically compared to the first quarter 2021. Geographically and on an organic basis, in the first quarter 2022, our North American revenue grew in the low 30% range. Asia Pacific grew in the high single-digit percentage, while European revenue declined in the low-single digits percentage growth all year-over-year. Our rest of the world first quarter 2022 revenue was significantly higher in the low 40% range.

Slide 12 shows our first quarter 2022 P&L performance on a non-GAAP basis. Non-GAAP gross margin of 52.7% increased 140 basis points from 51.3% in the first quarter 2021, principally benefiting from operating leverage from higher volume revenue mix as our Project Accelerate initiatives performed well, partially offset by supply chain and logistics challenges.

First quarter 2022 non-GAAP operating margin of 19.5% was 110 basis points higher than the 18.4% in the first quarter 2021 driven by growth margin expansion, partially offset by increased sales and marketing investments as a percentage of revenue to support the growth of our higher margin products. BioSpin’s operating margin expansion in the first quarter 2022 had a year-over-year headwind from two European gigahertz-class systems in the first quarter 2021 revenue, which was offset by a gain on the sale of BioSpin property.

Given the headwind from lockdowns in China, we expect that our second quarter 2022 operating expense ramp for Bruker will moderately outpace our revenue ramp and result in operating margins declining slightly sequentially from the first quarter 2022 before expanding sequentially in the second half of fiscal year 2022 versus the first half. And with that, we expect the second quarter 2022 non-GAAP EPS to be similar to Q2 2021s non-GAAP EPS.

For the first quarter of 2022, our non-GAAP effective tax rate was 32.7% compared to 31.1% in the first quarter of 2021, primarily due to certain unfavorable discrete tax items. Weighted average diluted shares outstanding in the first quarter of 2022 were $151.4 million, a reduction of approximately 1.8 million shares or 1.2% from the first 2021 resulting from share repurchases over the past 12 months.

Finally, first quarter 2022 non-GAAP EPS of $0.49 was up 11.4% compared to the first quarter of 2021. Our cash conversion cycle at the end of the first quarter 2022 was 253 days, an increase of a 11 days compared to the first quarter 2021 resulting primarily from late quarter shipments and receivables timing.

Turning now to Slide 15. Given the broad-based strength in revenue and bookings growth in the first quarter of 2022 and our record backlog, we are increasing our guidance for organic revenue growth for the year. Our updated outlook for fiscal year 2022 includes organic revenue growth of 7% to 9% year-over-year, an increase of 1% from our prior guidance. We estimate a foreign currency headwind of about 3.5% stronger than our 2% prior foreign exchange headwind guidance.

We expect acquisitions to contribute about 1.5% to growth up from the prior guidance of 1%. This is expected to lead to reported revenue growth in a range of 5% to 7% consistent with our prior guidance. The supply chain, logistics and inflation environments remain volatile and challenging. And we are maintaining our guidance of 30 basis points to 60 basis points of operating margin expansion in 2022 from the 19.4% level we delivered in 2021.

On the bottom line, we reiterate our non-GAAP EPS estimated range of $2.29 to $2.33 for fiscal year 2022, which would represent non-GAAP EPS growth of 9% to 11% compared to 2021. We now project a non-GAAP tax rate of approximately 29.5% for fiscal year 2022. Other guidance assumptions are listed on the slide. Our fiscal year 2022 ranges have been updated for the foreign currency rates as of March 31, 2022.

For the second quarter of 2022, our outlook is for organic revenue growth in the mid-to-high single digits year-over-year subject, of course, to further COVID-related lockdowns in China or other geopolitical risks, which could negatively impact that growth.

So to wrap-up, Bruker delivered strong bookings, backlog and solid organic revenue growth in the first quarter, as the teams delivered remarkable performance in a very challenging environment. Demand momentum is broad-based across many of our businesses giving us confidence in our ability to deliver another solid financial performance in 2022.

And with that, I'd like to turn the call over to Justin to start the Q&A session. Thank you very much.

[Justin Ward]

Thank you, Gerald. I'd now like to turn the call over to the operator to begin the Q&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 are ready for the Q&A portion.

[Operator]

[Operator Instructions] Our first question comes from Puneet Souda from SVB Securities. Please go ahead with your question.

[Puneet Souda, SVB Leerink LLC]

Yes. Hi, Frank. Thanks for taking the questions. And first of all, congrats on a strong quarter here. First one is really on pricing. I mean, how much contribution are you seeing from pricing in the quarter on instruments and what's baked into the expectations for in the guide for the full-year?

[Gerald Herman]

Well, I'll take that, if you don't mind, Puneet. It's Gerald. Just fundamentally, one of the challenges we have of course from a price realization perspective is that we have quite a bit of backlog and we're exercising through that backlog. So I do think what we see is not so much price realization in the first quarter, although we are expecting to see more in the latter half of the year. As you likely know this cycle times as we exercise through backlog into actual product revenue takes us usually a quarter or two more significantly in NMR side of our business. So I'd say we're not seeing too much price realization in the first quarter, pretty modest. But I would expect to see more as we move through the rest of the year.

[Puneet Souda, SVB Leerink LLC]

Okay. Got it. And then on the strong book-to-bill that you're seeing here, maybe could you just elaborate how much of that is NMR? How much of the new backlog that's building is more of NMR, timsTOF and other key instruments? Just trying to understand the mix there. And for the Fourier UHF gigahertz magnet, I think you mentioned one coming next quarter, but just wanted to make sure we have the cadence for the full-year?

[Frank Laukien, Chairman, President and Chief Executive Officer]

Puneet, I'll take that one. It's Frank. Thank you. So the strength in orders is very broad-based. It is particularly strong in timsTOF. It has been quite strong in BioSpin and NMR. It has been quite strong in NANO technology. But it's almost not fair to single something out because it's really fairly broad-based. Sure some are growing even faster, but it's really been strong book-to-bill of 1.1 in the BSI segment and so faster organic bookings growth than even organic revenue growth throughout Q1 continuing our momentum.

On the gigahertz question, yes, there was none in Q1 2022. We expect there to be one, the one we just accepted in New Munich in April, already for the – as revenue in the second quarter. And therefore the balance is three more in the second half of the year, and there'll probably be spread over more than one quarter, but we don't know the exact cadence of that yet.

[Puneet Souda, SVB Leerink LLC]

Okay. Got it.

[Frank Laukien, Chairman, President and Chief Executive Officer]

[Indiscernible] most of your question.

[Puneet Souda, SVB Leerink LLC]

Yes. I really appreciate it. And just a quick one, if I could ask on, really great to see the record revenues in semiconductor metrology. Frank, how much of this is coming from sort of new factories being built out and how should we expect that this to sort of trend through the years as these new fabs are coming on Board across the world? Thank you.

[Frank Laukien, Chairman, President and Chief Executive Officer]

Yes. That's a good question. We get asked that frequently [indiscernible] glad you asked it, actually probably just close to none of that is for new fabs that expand the geopolitical footprint away from Taiwan and most of APAC to much more semiconductor capability that Europe wants to have in Europe and the U.S. wants to have in the U.S., right? And by the way, also Japan wants to have in Japan. That's an additional driver. Those are all more long-term trends. This could be more, I don't know, 2024, 2025, 2026 business.

So that's a very good thing because we think for 2022, 2023, just on the sheer demand from us, all being on zooms and artificial intelligence, and I don't know, maybe Bitcoins, a little less fashionable, but all the many other trends right now are still driving very strong demand. In fact, the industry is behind demand for 2022 and we probably think throughout 2023. And as we see it, it may actually line up very nicely with maybe the geopolitical investments in North America, Japan and Europe playing a bigger role maybe in revenue in 2024, 2025, 2026. So it's actually very strong long-term picture in NANO technology as far as we can tell.

[Puneet Souda, SVB Leerink LLC]

Great. Thanks, and congrats again.

[Frank Laukien, Chairman, President and Chief Executive Officer]

Thank you.

[Operator]

Our next question comes from Derik DeBruin from Bank of America. Please go ahead with your question.

[Unidentified Analyst]

Hi. Thank you. Good morning. This is Peter on for Derik. Could you quantify any impact you saw in China across the first quarter and any headwinds in the second quarter? And I guess, could you discuss the extent to which you expect to recover that demand across the balance of the year?

[Gerald Herman]

Yes. I'll take that, if you don't mind. Peter, it's Gerald. So generally speaking, we've seen quite remarkable demand in China across both the bookings performance as well as in the revenue line. And this has continued for quite some time, frankly, mostly not absolutely, but mostly consistently quarter-by-quarter. And I would say the first quarter is really no exception I think here in 2022. We are clearly seeing some dampening relative to the lockdowns that are going on currently. I would say this is now speaking with respect to the second quarter as opposed to the first. And I think the concern, of course, is that if this broadens, that puts further risk into the overall execution of our revenue. But I think the way we view it is in a very strong performance from a bookings perspective in China across almost all the individual in markets. And that's very encouraging for us because now it's really about execution and our ability to do that.

[Frank Laukien, Chairman, President and Chief Executive Officer]

And with that we think we'll have mid single to – mid to high single-digit organic revenue growth year-over-year in Q2. Now, if there is a massive acceleration and tightening of lockdowns that would present additional risk, but we obviously assumed what sort of the levels that we're seeing today, and have been a little bit more cautious on Q2 accordingly in our color on Q2. We do think that we can catch up for the remainder of the year. We don't see anything that at the moment that would push that into next year. So I think it's a quarterly cadence question and we're – yes, we're a bit more conservative on Q2 accordingly.

[Unidentified Analyst]

Appreciate that. And then I guess could you give us maybe a little bit more color on the dynamics flowing through the rest of P&L, I mean, given the strength you're seeing in the topline and the decision to maintain margin EPS guidance? If you could maybe quantify or parse out supply chain form change impact and so on to the op margin, if you could?

[Gerald Herman]

Yes. It's Gerald, again. I'll take that. So just generally on the guidance, I mean, we have a number of moving factors, of course, and we're trying to move up, consider the up and downs that go along with that. But I won't go through all the detail, but we do have that information available. And I think you can go through that in more detail with Justin, if you'd like. I mean, I guess just generally what I would say is we are pretty comfortable with the guidance that we've laid out. We've baked in a number of pluses and minuses, including some of the supply chain risks that you've just heard about. And we've also considered some of the strength that we see in our bookings performance into the overall picture, including the operating margin line. So I think that's – it's pretty clear to us at this stage that our guidance reflects what we understand right now.

[Unidentified Analyst]

Very good. Thank you.

[Gerald Herman]

You're welcome.

[Operator]

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

[Brandon Couillard, Jefferies & Co.]

Hey. Thanks. Good morning. Frank, let's get your view on kind of your assessment kind of the global helium supply situation right now, and whether you think that's impacting NMR installation timing, or perhaps orders or even kind of your own internal supply in terms of your costs?

[Frank Laukien, Chairman, President and Chief Executive Officer]

Yes. So good question, Brandon. So cost has gone up and there are some cases where customers at universities are under allocation. They tend to turn off the kind of voluntary or delay the voluntary, large helium [indiscernible] experiments in physics first and delay those by a quarter or two. That's the anecdotally what we heard at ENC, the regularly scheduled NMRs or MRIs in hospitals seem to be not generally affected, could always be an exception. We're making a lot – our internal investments in CapEx in the last two years now seem very well timed for our factories in Switzerland, in France and our superconducting factory outside of Frankfurt and Hanau as well.

We've made considerable additional CapEx investments in helium re-liquefaction investments. So our factories are in really, really good shape. And we just anticipated well. You see some new developments like that single-story gigahertz magnet that we just did a technology introduction, that takes 3x less liquid helium. So those are – we also – I didn't highlighted on the call, we also just introduced at the end of April a Heliosmart Recovery solution. So customers, if they choose to do that and more of them do it can capture all of the liquid helium that boils all, as we say in the industry from their superconducting magnets and compress and pressurize it, and then send it out somewhere for re-liquefaction either at their own university or at a regional site or just one of their suppliers.

So I think it's difficult, it's manageable and it's more expensive. So there'll be more of that [circular] helium economy that we're strongly supporting with our developments and that fortunately we have invested in internally, so that our factory and final test situation is in very good shape. So I think that's the answer. Yes, it's manageable so far, but we're obviously very proactive with it for both investments as well as in terms of new capabilities for our customers’ new services.

[Brandon Couillard, Jefferies & Co.]

Okay. Great. Now I think you said Europe overall is down low-single digits, is that all due to the NMR installation comp from last year and impact that [indiscernible] underlying date?

[Frank Laukien, Chairman, President and Chief Executive Officer]

Good catch. I mean, Europe, there is a bit – I'd say Europe is a little bit weaker among the three major geographies. That's a little bit slower right now than the others. But in addition in Q1, we simply had two gigahertz-class systems. So north of $20 million of European revenue that we had in Q1 of 2021 that we don't have in Q1 of 2022, so don't pay too much attention to that piece. But Europe right now a year ago, it was about the strongest, and I'd say right now it's among the major geographies. Slightly it's weaker than North America or most of APAC, obviously APAC there's country to country differences.

[Brandon Couillard, Jefferies & Co.]

Great. Thanks.

[Operator]

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

[Joshua Waldman, Cleveland Research]

Good morning. Thanks for taking my questions. One for Gerald and then one for Frank. Gerald, can you spend a bit more time kind of talking through the cost price dynamic you're seeing, I mean, it seems like margins were stronger than maybe you anticipated here in the quarter. It doesn't sound like it was price. I guess, was it more a reflection of Bruker controlling supply chain costs? And then, yes, I forget if you mentioned, but are you still expecting kind of a 500 basis points to 600 basis points step up in the second half versus the first with respect to op margins?

[Gerald Herman]

Yes. So just maybe I'll start with your last part of your question first. So just to clarify, we initially laid out around 400 basis points change between first half and second half. The expectation is that we'll significantly outperform from an operating margin perspective in the second half. So just to put that back to those numbers. But just relatively speaking, I mean, we did not see much price realization in the first quarter. As I mentioned earlier, a lot of this has to do with our, I think, outstanding work that was done by our procurement and supply chain teams to manage through very challenging conditions. This is true for both materials costs as well as logistics, air freight costs. There's a significant number of headwinds related to the supply chain side. And I think our teams just did an outstanding job of navigating through that. And in addition, we did see some other elements in the mix, partly due to our Project Accelerate 2.0 initiatives, which I think is helping to pull that gross margin expansion to another level.

[Frank Laukien, Chairman, President and Chief Executive Officer]

Yes. I think that's really the key point. That's the fundamental trend at Bruker that you've been seeing. We will continue to see that. We just have more and more higher gross margin systems and solutions and services that have been ramping our gross margin and that trend continues despite some inflation headwinds right now. But that's the fundamental driver and that at least in Q1 was stronger than even the noise from inflation and logistic spikes that we do see and try to manage around.

[Gerald Herman]

Yes. Exactly. So I think that's kind of the storyline, we expect to see some further cost issues in the second quarter and ramp some of our Project Accelerate activities occurring in the second quarter as well. So that's why we're a little more cautious, I'd say in the second quarter operating margin, but expect to reaccelerate in the second half of the year.

[Joshua Waldman, Cleveland Research]

Got it. Okay. And then Frank, can you give an update on what you're seeing from university and government accounts specifically in the U.S. and Europe? Yes, I think you've previously mentioned kind of strong orders from these accounts over the last couple of quarters. I guess, how did academic and government contribute to the double-digit bookings growth here in the quarter? And when would you start to see kind of revenue flow through?

[Frank Laukien, Chairman, President and Chief Executive Officer]

Well, I mean, we're beginning to see that, right. We're beginning to see that it's obviously not a short wave, it's just a long long-term trend and we're seeing that. We saw that in Europe. We now see that in the U.S., see that in China, and some other geographies. We're also delightfully just our Biopharma business, both NMR and mass spec is becoming stronger and stronger. We've added an important additional capability inorganically with our Optimal acquisition in the UK on April 1, that'll add further to how we integrate ours and other vendors tools for Biopharma and Biopharma process analytical technologies path, but also in upfront on the drug discovery.

I mean, we sell an awful lot of timsTOF into CROs. Both Metabolomics and Proteomics, we sell a lot of timsTOF into, and even timsTOF single cell proteomics research systems into drug discovery, into very large pharma companies and newer biotech companies and NMRs doing quite well both of them, particularly in the U.S., but also in Europe and also in China. So it's not only the academic business. The biopharma is becoming stronger and stronger for us. And then also including some other product lines and like molecular spectroscopy for small molecule path. So it's a good – it's a solid picture.

[Joshua Waldman, Cleveland Research]

Got it. Thanks for all the color.

[Frank Laukien, Chairman, President and Chief Executive Officer]

Thank you, Josh.

[Operator]

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

[Patrick Donnelly, Citigroup Inc.]

Maybe one more on the supply chain. Obviously, Gerald, you've talked a lot about the cost side of that. I'm just curious, what you're seeing on that front? It seems like its a little more disruptive last quarter. Is it something that's plateaued, it's not getting better, not getting worse and you guys are just kind of managing through it at this point, escalating, we'd love to see a perspective on what you're seeing on the supply chain side and that risk going forward in terms of what you're seeing?

[Gerald Herman]

Well, I wish I could tell you that it's getting better, unfortunately I cannot. It's been extremely challenging and I do need to say this, there has been a lot of disruption in the business, and that's also true in the first quarter relative to this issue. I think what we're starting to see is, just as we had disruptions in the pandemic era, we're still working our way through those in the supply chain world. And I think the teams, as I said earlier, done just an outstanding job. There's still obviously cost pressure in the system. And we're working our way through that, expect to have – hopefully more to say in the latter half of the year, but it's challenging.

[Frank Laukien, Chairman, President and Chief Executive Officer]

I mean, don't imagine anything disastrous. It's not that we're you know, that something stops our NMR or mass spec business for a quarter. But we completely acknowledge that there is product lines, where for a couple of weeks, we can't do very much, but we have 50 other product lines where we can't continue. And so the benefit of being broad-based company with many good products, excellent demand, very strong backlog are just that we can really manage through this. But we're like the duck on the water. We're kicking very hard under the surface. But it's manageable. It's not getting better this year. And the lockdowns in China aren't helping and all of that, it's not getting better this year. It’s going to be like this all year and maybe well into next year.

[Patrick Donnelly, Citigroup Inc.]

That’s helpful, Frank. Appreciate that. And maybe just a quick one on the orders, I know you talked about the book-to-bill 1.1, it seemed like double-digit growth on orders across the segments. What was the order growth in the quarter? It’s 10%, 20%, obviously double-digits, a little bit vague? So I'm just trying to pin that down a little bit, if you could. Thanks.

[Frank Laukien, Chairman, President and Chief Executive Officer]

Yes. It varies obviously from product line to product line and group to group. That's why we didn't – the 1.1 – greater than 1.1 in orders for the BSI segment is correct. And they were all double-digit. I know double-digit is a broad range of principle, but some in the teen, some in the 20s, right. But there's obviously a mix there and in every single one of them, it was double digits, yes, very strong.

[Patrick Donnelly, Citigroup Inc.]

Thanks, Frank.

[Frank Laukien, Chairman, President and Chief Executive Officer]

You're welcome, Patrick.

[Operator]

And our next question comes from Jack Meehan from Nephron. Please go ahead with your question.

[Jack Meehan, Nephron Research LLC]

Thanks. Good morning. Frank, I was curious with the new compact 1.0 gigahertz system. What do you think this does for the addressable opportunity for gigahertz-class NMR, just demand in the market? And can you talk about for a manufacturing perspective, are there any efficiencies here that could enable you to expand the number of instruments you're able to deliver in a given year?

[Frank Laukien, Chairman, President and Chief Executive Officer]

I love your question because it's a good one, yes. So it's not all additive to the demand, but the 1.1, 1.2 gigahertz demand often for national centers and things like that, right, like the two NAND systems that had been funded by NSF, where we got orders previously, we had announced those. I don't think it has any impact on that. Nobody is considering when they have those big labs and the ability to – and they all have helium re-liquefaction capabilities by now anyway, so it's really not affecting that.

There are some – there is a distinct pocket of demand. That's small so far at 1.0 gigahertz because so far these were also these big two story systems. Now those that are in the pipeline will think, we'll continue to order. And they're simply delighted when we told them they're getting a smaller magnet with less footprint and less consumption. But I think importantly to your question finally, I think it really broadens the demand there. There's a lot of single PI or more typically, maybe a few co-PIs at a medical school or at a major university or [indiscernible] institute or something like that who wouldn't get one of these national centers, but, oh, wow, for three or four PIs, plus a bunch of their cancer research colleagues, et cetera, they can justify.

So I think, we got some very – people very interested in asking for budgets that previously hadn't considered in. And that was just all anecdotal at that conference, at NMR Conference in Orlando, where we introduced that we will also see some high end biopharma and pharma demand that previously wouldn't have considered one of these two story systems. So I think it's – at least more than half of that 1.0 gigahertz demand, I think it's additive, but it's not all additive.

And on the other part, it's really a separate production and final test line. So it just completely is additive to our capacity. This comes out of our normal Swiss magnet production line, everything under three tons. I don't want to owe you with that. But those – that's a normal production process, not so different from let's say 800 megahertz systems. And so even if we got a bunch of orders for this new magnet, it would not take away from our capacity for the two-story, 1.1, 1.2 gigahertz at all, or vice-versa. So we essentially more than doubled our production capabilities in that sense by taking this new magnet, if and when we get orders straight out of a very different, a much more compact and easier production line.

[Jack Meehan, Nephron Research LLC]

Great. And then two follow-ups on CALID. First, could you just tell us what the COVID sales were in the quarter? And then second, recently had a press release talking about new LiquidArray multiplex PCR assays, just give us some color on the positioning here versus other multiplex players and just what you're expecting in terms of a growth ramp from some of these investments?

[Frank Laukien, Chairman, President and Chief Executive Officer]

So yes, thank you. So in COVID testing, which as you know, we only do in Europe and Africa and it's all PCR, not the more popular antigen testing that's declining and year-over-year was declining. Considerably, it then ended up, not declining quite as much as we had anticipated. So it was a little stronger, I think, a million stronger in Q1 that what we had anticipated, it is at this point relatively de minimis. I think it maybe something like 45 million per quarter or something like that. So it's not a big number and it has been declined.

We expected to actually hang in there at that level, maybe come down a little bit further, but it's almost the non-issue for us. From that same R&D side and factory in the molecular diagnostics business, that's our tuberculosis business and other business, and that's where these new LiquidArray panels are coming from that indeed going to that multiplex syndromic panel market. These are not point of care. These are for the central lab or for the lab at the hospital or the local. It's lab, but it is much more affordable. In that sense, we think it's really second generation. These don't cost a 100 or 150 dollars or euro, but sort of in that $30 or euro range.

So much more affordable, nice automation, the initial ones are for the very broad range of tuberculosis resistance capabilities. We have combined a very nice panel of seven different sexually transmitted diseases that we can all do in one test. Very often patients are tested for one or two and because there is no capabilities, the other ones don't get tested for, but they're also out there and they very often get overlooked.

And we have in the works something on gastrointestinal that may launch. When I say launch, by the way, these are always European launches initially. So you have a series of further syndromic panels that we'll be launching this year and next, and we're building that up and we're democratizing that such as China, such a term that's overused, but let me use it anyway. And it just makes it much more affordable and also gets into some new areas that previously hadn't been addressed by other people's syndromic panels. But I think it's just going to be – make it much more affordable especially in the lower reimbursement European markets, but then later on eventually also in the U.S.

[Jack Meehan, Nephron Research LLC]

Awesome. Thank you, Frank.

[Frank Laukien, Chairman, President and Chief Executive Officer]

You're welcome, Jack. Good questions.

[Operator]

And our next question comes from Rachel Vatnsdal from JPMorgan. Please go ahead with your question.

[Rachel Vatnsdal, JPMorgan Chase & Co.]

Hey. Thanks for taking the questions you guys. The first question is on spatial. Canopy launched that next-gen chip during the quarter. So can you talk about any early feedback that you've received? Really how that launch is progressing so far? And then can you also give us an update on your R&D progress for acuity?

[Frank Laukien, Chairman, President and Chief Executive Officer]

More good questions, spatial. Right. So in spatial at the AACR, we launched the Canopy CellScape system. I think it was very well received sort of with the amazement because it is so much more compact and smaller than some other early systems that were shown there early on. So very, very good microfluidics, very good optical design, retaining is very good, quantitative capabilities that I think are really, really important. It doesn't get stressed enough. Initially, people just look at the pictures and yes, we have single cell and subcellular resolution, but beyond pretty pictures, it has to be quantitative single cell and spatial biology. We can do that with high throughput. We can look at 10,000 or 100,000 of cells simultaneously. So it's a terrific system. I think it'll be very, very competitive.

I think it's more of a second half story where it begins to ramp and go into early exercise and so on with a full commercial ran probably next year, but it's a terrific product and technology position. And importantly, Rachel, we also now have more and more panels that are preconfigured. Yes, you have the flexibility to use your own antibodies or to add your own antibodies with a bit of apps work, but it really, these preconfigured panels for mouse and man on immuno-oncology and neurodegenerative research, some of them are out, some of them are in beta testing, so it's going to be a – it's a very important part of our strategy.

To acuity, we do not expect any product launches until this year, but we're making excellent progress there also in systems and panel and software and other designs. I think this really high resolution and even super-resolution spatial genomics, where you really can explore the three dimensional position and structures within the cellular nucleus of the chromosomes, interactions on a chromosome between chromosomes, topographically associated domains and all of these things, all these things that so far have been mostly overlooked in genomics because they couldn't be measured. And we have this simplification that there's a bunch of chromosomes, which are 1D arrays of genes and regulatory elements. And it's far more complex. It's really a three-dimensional world in that nucleus and to understand fundamental cell biology, but particularly cancer biology, it seems like this is awfully important. So we're…

Sorry, it seems we were disconnected on the web, but we still seem to be on – hear verbally. So yes, acuity is a 2023 and beyond story canopy will ramp in the second half and I think be the – it's going to be – I think it's the best system that's out there.

[Rachel Vatnsdal, JPMorgan Chase & Co.]

Great. That's helpful. And then last one for me just on M&A. So you guys have done a number of more tuck-in deals PreOmics, Prolab and PepSep. So can you just talk about how those deals have been performing relative to your expectations? And then how are you thinking about capacity to do deals in back half of this year as well? Thank you.

[Frank Laukien, Chairman, President and Chief Executive Officer]

Well, good question. So yes, we did the Optimal acquisition on April 1. That's very much for process analytical technology and lab integration and manufacturing and testing integration for biopharma, big way for us to connect our different systems and also have a bigger footprint in biopharma. We did the IonSense acquisition, which gets into sort of more point of need analytics from forensics to food testing. So that opens up a new world, but a lot of these don't lead to immediate new products. So we have to work through some of these things now for a while to then come out with new solutions and you'll see more solutions this year and next that are based on these acquisitions. Some of the things on PreOmics and so on and PepSep that you mentioned from Q1 in Proteomics that are available immediately, but then again, more integrated solutions will take some time, but those are – we are very, very pleased with these acquisitions and yes, we are judicious in how we invest. So that's why we have capacity to consider additional technology or bolt-on acquisitions, where they are a good fit for the later in the year, for next year, we are certainly active in looking at what could further enhance our Project Accelerate initiatives.

[Rachel Vatnsdal, JPMorgan Chase & Co.]

Great. Thank you

[Gerald Herman]

Operator, maybe we have time for one more question.

[Operator]

And our final question today will come from Daniel Arias from Stifel. Please go ahead with your question.

[Daniel Macek, Stifel, Nicolaus & Company, Inc.]

Hey. Thanks again. And this is Daniel Macek on for Dan Arias. So maybe to start with a broader question, just drilling into Project Accelerate 2.0 initiatives. Guidance went up – went on betas, I was wondering what the main drivers of our performance specifically within Project 2.0 that were maybe coming in ahead of the outlook right out at your Investor Day. Maybe it's all the above, but just wanted to get some thoughts specifically across – some thoughts specifically across those growth drivers compared to their outlooks. Thanks.

[Gerald Herman]

Yes. Thank you, Daniel. It's really pretty much across, I mean, proteomic and lipidomics, metabolomics are doing very well. Structural biology, obviously because of the timing of gigahertz systems and so on was weak in Q1, but overall it's doing really very well. We're doing very well in NANO technology, semiconductor metrology, microelectronics, packaging and so on. We're doing very well in microbiology, clinical microbiology that's been growing beautifully in the U.S., but also again in Europe. A little bit less PCR COVID testing, but it's never been such a big part of what we're doing. And this has been more the transition year for our molecular diagnostics as we launch some of these LiquidArray panels. Some have been launched for Europe. Some will come out later this year. It's going to be – the bigger commercial impact will be next year and beyond, and then eventually once we launched those in the U.S.

Aftermarket is doing well. Biopharma is doing incredibly well, including biopharma proteomics with timsTOF but also with NMR. And yes, we're doing well in the applied markets with some food testing to forensics to – yes, we don't do much environmental testing, but that's just – so it's really very broad and also, just industrial and academic strength is good, really good.

[Daniel Macek, Stifel, Nicolaus & Company, Inc.]

Okay. That's helpful. And then kind of related to that, maybe more of a chance to brag. But last quarter, you mentioned, supply chain, logistics, inflation. These things could be limiting the growth potential. I mean, growth is obviously really strong in the quarter. So just wondering if you think that's still the case and if that's expected to continue throughout the full-year, maybe the 2023, like you mentioned, and just to clarify too, when you're saying limiting the growth potential, it's not saying the outlook that you laid out at the Investor Day, is all at risk? It's more so that there's just some more obvious room for upside where some of these headwinds are potentially limiting that?

[Frank Laukien, Chairman, President and Chief Executive Officer]

That's very perceptive. I fully agree. Yes. It sounds like a broken record all year. Supply chain, logistics, inflation, those are at risks, and we're in a good position to manage through them, but we have to manage it very hard and there could always be a quarter of stumble. That's one of our risk factors. In Q2, we are a little bit more conservative because of the China lockdowns, right. We hope we've captured that in our color for Q2, but for the year we feel good. We have so many different drivers and capabilities that when we stumble in a couple of places and get slowed down, we just accelerate elsewhere. So hopefully you won't see it as an investor. And so far it didn't trip us up last year in the second half and it certainly didn't trip us up in Q1. Thank you.

[Daniel Macek, Stifel, Nicolaus & Company, Inc.]

Thanks guys.

[Justin Ward]

All right. Well that brings to end the Q&A portion of the call. So I want to thank everyone for joining us today. Bruker's leadership team looks forward to meeting with you at an event or speaking with you directly during the second quarter. Please feel free to reach out to me to arrange any follow-ups. Have a great morning. Thank you.

[Operator]

Ladies and gentlemen, with that, we will conclude today's conference call. We thank you for joining today's presentation. You may now disconnect your lines.