Bruker Corp

NASDAQ:BRKR

Earnings Call Analysis

Bruker's Q3 2024 Performance and Adjusted Guidance Insights

In Q3 2024, Bruker reported a 16.4% increase in revenue to $864 million, with 3.1% organic growth. Challenges remain, particularly in biopharma and China, prompting a revenue guidance adjustment to $3.34-$3.37 billion and 3-4% organic growth. Non-GAAP EPS fell to $0.60, down 18.9%, while operating margins decreased to 14.9%. Looking ahead, Bruker expects low single-digit organic growth for Q4 but aims for significant margin improvement and above-market growth in 2025 amid stimulus-driven demand recovery in China and ongoing strong performance in diagnostics and semiconductor tools.

Robust Growth Amidst Market Challenges

Bruker Corporation reported a solid revenue performance in the third quarter of 2024, showcasing a year-over-year increase of 16.4%, totaling approximately $864 million. The organic revenue growth was recorded at 3.1%, indicating a deceleration from the previous year's strong growth rate of 10.9%. This growth trajectory stems from several strategic acquisitions and strong performance in their BioSpin segment, which experienced low double-digit organic growth.

Mixed Signals from Key Markets

Despite the strong overall performance, the company is facing headwinds in specific markets. Notably, demand from the biopharma sector has not met expectations, and orders from China have shown a decline, cumulatively exceeding 20% year-over-year. This situation is exacerbated by rising costs and strategic reorientations within the biopharma industry that are creating uncertainty in spending patterns. The Americas saw low single-digit revenue growth, while the Asia Pacific region, excluding China, grew in double digits.

Revised Financial Guidance for 2024

In light of the current market conditions, Bruker adjusted its financial guidance for fiscal year 2024, projecting total revenue between $3.34 billion and $3.37 billion, representing a growth rate of approximately 12.5% to 13.5%. Organic growth projections have been lowered to a range of 3% to 4%. The company also anticipates that acquisitions will contribute approximately 9.5% to its revenue, down from previous expectations, reflecting a more cautious outlook.

Operating Margins and Earnings Per Share

The non-GAAP operating margin for Q3 2024 came in at 14.9%, which is down 510 basis points year-over-year due to the integration costs of acquisitions and significant R&D investments. Earnings per share (EPS) on a GAAP basis were reported at $0.27, significantly lower than the $0.60 reported in Q3 2023. Non-GAAP EPS was $0.60, which represented an 18.9% decline from the previous year, primarily attributed to margin dilution from acquisitions.

Strategic Focus on Future Growth Opportunities

Despite the current challenges, Bruker is optimistic about future growth opportunities driven by innovative product lines in single-cell biology and molecular diagnostics. The company anticipates that improvements in operational efficiencies and continued strategic investments will yield significant margin expansions in 2025 and beyond. They are particularly excited about their entry into the growing field of single-cell interaction cytometry, which they believe will provide a competitive edge.

Conclusion: A Transitional Year Ahead

Bruker appears to be in a transitional phase, navigating through temporary market challenges while laying the groundwork for future growth. The cautious outlook for 2024 is coupled with a strategic emphasis on innovation and integration of acquisitions, suggesting potential improvements in both revenue and margins as the year progresses. Investors should remain alert to how these dynamics evolve, particularly in the biopharma and Chinese markets, as these will significantly influence Bruker's performance in the near term.

Earnings Call Transcript 2024-Q3

[Operator]

Good day, and welcome to the Bruker Corporation Third Quarter 2024 Earnings Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Joe Kostka, Director of Investor Relations. Please go ahead.

[Joe Kostka, executive]

Good morning. I would like to welcome everyone to Bruker Corporation's Third Quarter 2024 Earnings Conference Call. My name is Joe Kostka, and I'm the Director of Bruker Investor Relations. Joining me on today's call are Frank Laukien, our President and CEO; and Gerald Herman, our EVP and CFO. In addition to the earnings release we issued earlier today, during today's conference call, we will be referencing a slide presentation that can be downloaded from the Events and Presentations section of Bruker's Investor Relations website.

During today's call, we will be highlighting non-GAAP financial information. Reconciliations of our non-GAAP to GAAP financial measures are included in our earnings release and are posted on our website at ir.bruker.com. Before we begin, I would like to reference Bruker's safe harbor statement, which is shown on Slide 2 of the presentation.

During this conference call, we will or may make forward-looking statements regarding future events and the financial and operational performance of the company that involve risks and uncertainties. Including those related to our recent acquisitions, geopolitical risks, market demand or supply chains. 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, 2023, and 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, November 5, 2024. We do not intend to update our forward-looking statements based on new information, future events or for other reasons, except as may be required by law, prior to the release of our fourth quarter 2024 financial results expected in early February 2025. 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 third quarter and the first 9 months of 2024 in more detail and share our updated fiscal year 2024 financial outlook.

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

[Frank Laukien, executive]

Thank you, Joe. Good morning, everyone, and thank you for joining us on today's third quarter 2024 earnings call. Bruker continues to grow rapidly, and we have once again posted double-digit year-over-year CER or constant exchange rate revenue and above-market organic revenue growth in Q3 and year-to-date. Our Q3 '24 CER revenue growth was 15.7% year-over-year, including several strategic acquisitions that have closed earlier in the year. Our Q3 '24 organic revenue growth of 3.1% and Bruker Scientific Instruments or BSI segment, organic revenue growth of 3.8% year-over-year were above market or at the high end of these life science tools market and come on top of our strong organic growth of 10.9% in the prior year Q3 '23 which obviously made for a tougher year-over-year comparison than what our peers typically faced in Q3.

This is a testament to our multiyear Project Accelerate transformation into a fast growth company with increased exposure to many of the most powerful secular trends in our industry. Equally importantly, our Bruker management process and operational excellence programs are now driving rapid performance improvements in our recent strategic acquisitions in single-cell biology, spatial biology, molecular diagnostics and lab automation and digitization. With that, we have already delivered sequential operating improvements in Q3 which was our first full quarter including all acquisitions, and we also expect further sequential margin improvements in Q4.

In this fourth quarter, we expect low single-digit organic revenue growth in comparison to an exceptional quarter Q4 of '23 when Bruker grew revenues 15.9% organically year-over-year. So we are not benefiting from easy comps due to revenue declines in the second half of last year, but Bruker continues in sustained organic and fundamentally transformational growth. We again expect double-digit constant exchange rate revenue growth year-over-year in the fourth quarter of 2024. It is encouraging for us that despite delayed recoveries in biopharma and China, demand orders for our differentiated, both genomic, multiomics, clean tech semicon tools and infectious disease diagnostic solutions are gradually improving with upper mid-single-digit BSI organic bookings growth in Q3 year-over-year.

This has been the strongest organic order growth for BSI in over a year, and we anticipate that this trend will continue, supplemented by our first China stimulus orders in the fourth quarter of 2024. Please recall that for Bruker, there is typically a 2-quarter lag between orders and systems revenue to China stimulus order could begin to benefit our P&L in the second half of 2025. Stepping back, it also has become evident that [ NASS ] and recoveries in biopharma, emerging biotech CRO and China demand will not significantly benefit our fiscal year 2024 anymore. And accordingly, we are lowering our fiscal year 2024 guidance. Integrating and improving our recently acquired businesses is making good progress and will further accelerate Bruker's remarkable transformation. We are confident in our ability to drive above-market organic revenue growth with significant margin expansion in 2025 and beyond.

If you turn to Slide 4 now, Bruker's Q3 '24 reported revenues increased 16.4% year-over-year to $864.4 million, which included a currency tailwind of 0.7%. On an organic basis, revenues increased 3.1%, which included 3.8% organic growth in BSI and a 3.2% organic decline at BEST net of intercompany eliminations. Revenue growth from acquisitions added 12.5%, which implies constant exchange rate or CER growth of 15.7% year-over-year. Our Q3 '24 non-GAAP operating margin was 14.9%, up 110 bps sequentially, but a decrease of 510 bps year-over-year largely the result of our recent strategic acquisitions, which initially are margin and EPS dilutive, but have added close to about $500 million in revenues of scale to broker and even more importantly, have allowed us to enter or accelerate our presence in key growth markets for the next decade. In Q3 '24, Bruker reported GAAP diluted EPS of $0.27 compared to $0.60 reported in Q3 of '23. On a non-GAAP basis, Q3 '24 diluted EPS was $0.60, down 19% from $0.74 in Q3 of '23. Gerald will discuss the drivers for margins and EPS later in more detail.

Moving to Slide 9, you can see Bruker's performance for the first 9 months of 2024 with above [ LSC ] market organic revenue growth of 4%, while non-GAAP EPS was down 12.2% as expected due to our transformative acquisitions. As reported, our first 9 months of 2024 revenues increased by 13.1% to $2.39 billion with constant exchange rate, revenue growth of 13.2% year-to-date. First 9 months organic revenue growth consisted of 4.1% organic growth in scientific instruments and 3.7% organic growth at BEST, net of intercompany eliminations. We continue to work down our elevated backlog and await recoveries in the biopharma and China markets, which we expect to benefit us in the second half of 2025 and beyond. Our first 9 months 2024 non-GAAP gross margin and operating margin and GAAP and non-GAAP EPS performance are all summarized on Slide 5.

Please turn to Slide 6 and 7 now, where we highlight the year-to-date third quarter 2024 performance of our 3 scientific instruments group and of our BEST segment, all on a constant currency and year-over-year basis. Year-to-date, our Bruker BioSpin group revenue was $633 million and grew in the high teens percentage. They were 2 gigahertz class NMR systems in revenue in Q3 of '24, bringing us to 3 year-to-date. In the first 9 months of 2024, BioSpin saw growth across academic, government and industrial research markets outside of China as well as strong contributions from our new automation software and services business.

BioSpin has seen weaker bookings in China in biopharma year-to-date, but has growing expectations for China stimulus orders beginning in the fourth quarter of '24 and into '25. Year-to-date, our Bruker CALID group had revenue of $773 million and CER revenue increased in the low double digit percentage with growth in the optics, IR/NIR/Raman business, as well as strong growth in microbiology and infectious disease diagnostics driven by the MALDI Biotyper franchise as well as, of course, the recently acquired ELITech Molecular Diagnostics business. CALID growth was partially offset by slower performance in biopharma and in the applied markets.

Please turn to Slide 7 now. Year-to-date, Bruker Nano revenue was $780 million, and CER revenue grew in the mid-teens percentage with strong revenue growth in aca/gov, industrial research and semiconductor metrology bolstered by the AI megatrend. Our recently acquired Bruker's Cellular Analysis and NanoString businesses contributed inorganic growth. However, both of those businesses continue to be impacted by weakness in biopharma and life sciences instrumentation.

Finally, year-to-date 2024 BEST CER revenues grew in the low single digits net of intercompany eliminations driven by research instruments, ROI, growth in accelerator and fusion research technology as well as interaction from EUV technologies for OEM semiconductor lithography tools also in support of AI. This growth was partially offset by softness in China and weak superconductor demand of our clinical MRI medtech customers.

On Slide 8 and 9, I'll comment on a couple of businesses. We always like to give a couple of case studies or examples and often, we talk about industrial research and clean tech examples. On Slide 8, you see the rather broad set of tools and solutions that Bruker and its various businesses and technologies listed at the bottom offer really across the battery value chain. We're approaching this or have approached this very strategically and really, really look very broadly rather than insertions of just 1 or 2 technologies for 1 or 2 problems.

So clean tech, in general, this is just 1 example. There are others, but this is a particularly good example of our broad strategic approach for industrial research and applied in clean tech, which, as we've said before, really isn't very cyclical and really has been a very nice growth and steady growth element.

Something else on Slide 9. You may be familiar that with our Sierra SPR systems, we had been in the SPR business with a high performance, very sensitive instruments for some time but we launched earlier in this year, the so-called Triceratops, a very highest sensitivity, high throughput instruments that we think is market-leading in its performance. So this was developed over the last 2 or 3 years organically, and I think will give us a very strong play in the traditional SPR market for small molecule and large molecule screening.

New is the dynamicBIOSENSORS addition. That's an innovative company in Munich that joined us during the third quarter and that has provided SPR like, but somewhat different technology shown in the middle here. I won't go deeply into detail, but switchSENSE, in particular, is useful for the novel field of targeted protein degraders or molecular glues were, in fact, 3 molecules bind to each other, and it switches technology has a somewhat unique capability to looking at 3 molecule dynamics, which is actually quite important for latest trends in protein degraders and molecular glues.

And finally, and perhaps the most exciting part of the dynamicBIOSENSORS acquisition is that we really can open up the field of interaction cytometry, not interactions between molecules but molecules and cells, obviously tremendously important for fundamental research, disease research and for targeted and other cell therapeutics, gene and cell therapies. And this single -- doing this at the single cell level is pretty revolutionary and unique. So here is our heliXCyto opening up and pioneering the field of single-cell interaction cytometry, something you haven't heard before, but you'll be hearing it again.

Anyway, moving back to the rest of the earnings call. In summary, Bruker again posted double-digit CER revenue growth and above life science tools market BSI organic growth in Q3 and year-to-date. However, we are not immune to the delayed recoveries in biopharma and China demand during the first 9 months of 2024. Accordingly, as Gerald will explain in more detail, we are adjusting our guidance, and we now expect full year 2024 see our revenue growth of approximately 13% and organic revenue growth for the year of 3% to 4%. We continue to focus on driving improvements in our recently acquired businesses and our core and on providing innovative high-value solutions for the post-genomic era.

We expect that our strategic expansion into single cell spatial, molecular diagnostics and lab automation will further contribute to our growth, having profitable above-market growth and significant margin expansion in 2025 and in the years to come.

So with that, let me turn the call over to our CFO, Gerald who will review Bruker's financial performance and updated outlook in more detail. Gerald?

[Gerald Herman, executive]

Thank you, Frank, and thank you, everyone, for joining us today. I'm pleased to provide more detail on Bruker's third quarter and year-to-date 2024 financial performance. Starting with Slide 11. In the third quarter of '24, Bruker's reported revenue increased 16.4% to approximately $864 million, which reflects an organic revenue increase of 3.1% and BSI organic growth of 3.8% all year-over-year. This is compared to a very strong prior year comp. As a reminder, our organic growth in the third quarter of '23 was 10.9%. Q3 2024 non-GAAP operating margin decreased 510 basis points year-over-year to 14.9% as a result of expected dilution from our strategic acquisitions and significant R&D investments in our post genomic tools and solutions.

We reported GAAP EPS of $0.27 per share compared to $0.60 in the third quarter of 2023. On a non-GAAP basis, Q3 2024 EPS was $0.60 per share, a decrease of 18.9% from the $0.74 we posted in the third quarter of 2023. We generated $38.4 million of operating cash flow in the third quarter of 2024 compared to $44.1 million in the third quarter of '23. Capital expenditure investments were $32.6 million, resulting in free cash flow of $5.8 million in the third quarter of '24, down about $11 million year-over-year on lower GAAP net income and significant M&A-related expenses, partially offset by improvements in working capital.

Slide 12 shows the revenue bridge for the third quarter of 2024, as Frank has reviewed earlier. Compared to the third quarter of '23, Bruker BioSpin's third quarter '24 organic revenue was up in the low double-digit percentage range, driven by strength in our Magnetic Resonance and Services businesses. In the third quarter of 2024, we recognized 2 gigahertz class NMR systems in revenue compared to 1 gigahertz class system in the third quarter of '23.

Bruker Nano organic revenue was up mid-single digits percentage with strength in our semiconductor and advanced X-ray businesses, partially offset by softness in fluorescence microscopy. [ Talent ] organic revenue declined low single digits percentage as strong performance from the MALDI Biotyper and applied mass spectrometry businesses was more than offset by softness in biopharma. We delivered solid growth in the third quarter of 2024 in BSI Systems and aftermarket revenue with mid-single digit constant exchange rate growth in systems and strong double-digit CER growth in aftermarket.

Geographically and on an organic basis in the third quarter of 2024, our Americas revenue grew in the low single digits percentage. Asia Pacific revenue, excluding China, was up double-digit percentage with China declining low double digits and European revenue declining low single-digit percentage all year-over-year. For our EMEA region, Q3 2024 revenue was up mid-teens percentage year-over-year.

Slide 13 shows our Q3 2024 P&L performance on a non-GAAP basis. Non-GAAP gross margin of 51.2% decreased 150 basis points from 52.7% in the third quarter of '23 due to unfavorable product mix and expect a temporary dilution from our recent strategic acquisitions. For the third quarter of 2024, our non-GAAP effective tax rate was up 100 basis points due to jurisdictional mix and an unfavorable discrete item in the third quarter of '24. Weighted average diluted shares outstanding in the third quarter of 2024 were 152 million, an increase of approximately 4.7 million shares from the third quarter '23 as a result of our follow-on equity offering completed at the end of May. Finally, third quarter 2024 non-GAAP EPS of $0.60 and was down 18.9% compared to the third quarter of 2023, primarily due to the expected temporary dilution from our strategic acquisitions.

Slide 14 shows the year-over-year revenue bridge for the first 9 months of 2024. Reported revenue was up 13.1%, reflecting organic growth of 4.0%. Acquisitions contributed 9.2% to our top line, while foreign exchange was a slight 0.1% headwind. Frank already covered the drivers for the first 9 months of 2024. Non-GAAP P&L results for the first 9 months of 2024 are summarized on Slide 15 with the drivers largely similar to the third quarter of '24 and as explained on the slide.

Turning to Slide 16. In the first 9 months of 2024, we generated $61.3 million of operating cash flow, down $83.3 million compared to the first 9 months of 2023, driven principally by acquisition and restructuring expenses, lower profitability and the timing of advances taxes and other items. We expect to see improved cash flow in the fourth quarter, the largest and most profitable quarter of the year.

Turning now to Slide 18. As previously noted by Frank, we no longer expect to see recoveries in biopharma and China markets to benefit our fiscal year 2024. And accordingly, we're moving down our 2024 fiscal year guidance. Our outlook for fiscal year 2024 now assumes revenues in the range of $3.34 billion to $3.37 billion and organic revenue growth of 3% to 4% for fiscal year 2024. We now expect the contribution from acquisitions to be approximately 9.5% year-over-year and for foreign exchange to be neutral to revenue. This leads to updated fiscal year 2024 reported revenue growth guidance in the range of 12.5% to 13.5%.

For operating margins in 2024, we now expect the fiscal year 2024 operating margin of approximately 15%, with a greater than 300 basis points headwind from our strategic acquisitions. On the bottom line, we're now guiding to a fiscal year 2024 non-GAAP EPS range of $2.36 to $2.41, down from our prior range of $2.59 to $2.64, a result of lower top line expectation and transition headwind from our strategic acquisitions. Other guidance assumptions are listed on the slide. Our fiscal year 2024 ranges have been updated for foreign currency rates as of September 30, 2024.

To add color to the fourth quarter 2024 expectations, against the backdrop of delayed improvements in biopharma and China and with organic growth of approximately 16% in the fourth quarter of 2023, which included 3 gigahertz class NMR as a comp, we now anticipate organic revenue growth in the fourth quarter of 2024 to be in the low single digits. As Frank mentioned earlier, we also again expect double-digit constant exchange rate revenue growth year-over-year in the fourth quarter of '24 and further post-acquisition sequential operating margin improvement.

To wrap up, Bruker delivered above-market organic revenue growth in the third quarter of 2024. We also saw signs that demand for our innovative solutions is gradually improving. We look forward to providing an update to you on our fourth quarter and full year results next February.

And with that, I'd like to turn the call now over to the operator to begin the Q&A portion of the call. Thank you very much.

[Operator]

[Operator Instructions] And our first question comes from Puneet Souda from Leerink Partners.

[Puneet Souda, analyst]

So first one, you pointed out that biopharma and China won't help you in 2024. But how much of that the guide cut is due to the pushout of orders into maybe the first quarter of '25 versus orders that simply won't materialize? And you talked about high end of the mid-single-digit bookings in BSI, but wondering if you saw any cancellations there in the backlog?

[Frank Laukien, executive]

Okay, Puneet. No, we have had no -- we never have -- seem to have any material cancellations. I'm not aware of any material cancellations. So that's not an issue for us. Yes, biopharma after and biotech after being seemingly maybe improving somewhat in the ability for biotech to raise funding. I think that has slowed down a little bit, biopharma. We see a lot of cost-cutting, site restructuring program consolidation. So they still seem to be preoccupied by that, and we really thought that we would get some lift from biopharma with a bit of a recovery in the second half of this year. There are some green shoots, but I wouldn't call it a trend yet.

China is pretty significant, if you really think year-to-date. The cumulative effect of China orders being weaker is in the double digits. It's actually above 20% decline year-over-year. So that's not far from $100 million in total over several quarters and the cumulative effect of China orders, even in Q2 and in Q3, we saw that again seemingly getting pushed back as people are waiting for stimulus funding. By now, it has accumulated to where this isn't going to help us this year anymore. Not going to help our P&L anymore as we thought it might in the second half of this year.

On the encouraging side, there really is a lot of activity. We are beginning to see stimulus orders. Cannot quantify them yet, but it's probably going to be particularly beneficial for our BioSpin business, but we're also seeing it for other big-ticket items, mass spectrometers, microscopes, et cetera. So that -- and I would add, we -- the life science -- I've seen this from other companies, the weakness in life science instrumentation. Generally related to biopharma, but also U.S. academic spending isn't super strong right now, perhaps there's a little bit of residency prior to the election. So these effects do add up to where we indeed wanted to lower our -- and 1 is needed to lower our guidance for the fourth quarter and for the rest of the year.

[Puneet Souda, analyst]

Got it. And then I have to ask a bit about 2025, I mean, you gave $3.10 EPS expectations before on the acquisitions update call. Just wondering any change to that or any additional thoughts on '25 just given the weakness that you're seeing from biopharma China and some academic too.

[Frank Laukien, executive]

Yes. We're starting from a lower base. That's an anticipated. That's a given also since a lot of the stimulus orders from China probably will be mostly for big tier items. Those in here and they tend to have 2, 3 quarters delivery time. So as I said in the call, we benefit from China stimulus may arrive in our P&L, so to speak, in the second half of the year. So we're not giving guidance for 2025 because Q4 will be so important, but it is definitely -- it makes complete sense to lower estimates for 2025 let me say that pretty clearly. And we'll obviously, based on Q4, then give our new '25 guidance.

[Operator]

The next question comes from Michael Ryskin from Bank of America.

[Michael Ryskin, analyst]

Sorry, Frank, I want to follow up on that last point. I mean you made a strong point in the prepared remarks of you're confident in above-market growth and significant margin expansion in '25. So just sort of what's driving that confidence this early given there's still this visibility? And what do you see as the biggest swing factors? You talked about China spendings a lot, but like you said, there's a 6-month delay between orders and revenues. So that's only contributing for the second half of next year, right? So what else do you see as tailwinds that give you confidence in above-market growth next year?

[Frank Laukien, executive]

Very good question, Michael. So we still have pretty significant around excess backlog, if you like. We're still about 7 months of backlog, which are normalized should be about 5 months. But beyond that, I mean, we've really had very -- we're very satisfied with the way the diagnostics business is going from MALDI Biotyper to the newly acquired ELITech Diagnostics seems to be generally as others have reported as well, stronger at the moment than life science tools, very good demand throughout the year and particularly in Q3 for semiconductor metrology that's really going to be a strong driver. And so we're pleased with that.

Academic and government spending in other parts of the world, in the rest of APAC outside of China has been actually reasonably strong in same in Europe. So there are enough strong drivers that are -- they are strong drivers. There are things that are solid, and there are things that still we are waiting for the recovery. We're actually quite optimistic about China seeing a significant step-up in orders in Q4 and in the first half of next year because of that stimulus funding, but it's still difficult to quantify because we don't know what the -- we can look at the opportunity funnel and we can apply our average percentage win rate that we normally have because it's just not known how many of these projects will all be funded.

But some orders are coming in. We did receive stimulus orders in -- already in October, as expected, how much that will add up to, we don't know yet. So I think we're in good shape, certainly also for the first half of the year to outgrow the market. And by the second half of the next year 2025, we do believe and anticipate that there will be some biopharma recovery and also that indeed, China orders will pick up after the pretty pronounced weakness in the first 9 months of this year. So that for both parts of the year, I think we're in good shape for next year to outgrow the market.

What market growth will be, of course, we don't know yet and the loss will for other companies that will then kind of set the market level probably with their guidance and our guidance, which we hope to give in early February, that will set the tone for 2025. But I think the fundamental trends that we have with the multi-omics, proteomics, these are all very good markets, spatial biology. We think there will be a lot of demand for that. And guess lab automation is actually a little bit countercyclical, lab automation and digitization. Companies that are cutting costs and cutting sites are making investments there. So I think our Chemspeed acquisition is very nicely placed. The biggest driver, the strongest single driver, I would say, semi.

[Michael Ryskin, analyst]

Okay. That's all really helpful color, Frank. I just want to reconcile 1 other point, though. You did touch on the backlog is really strong. 7 months, you've talked about that a number of times. You talked about bookings growth. So -- and on the other hand, you do have the revenue guide cut. And I understand that China has been weak. I understand that biopharma recovery has materialized. That's a fair point, so that's not new, and that's not debated. But if the backlogs are strong, why aren't you able to backfill some of those orders? Is that a timing perspective where it's not so easy to move things around. I guess what I'm saying is just without 7 months of backlog thought that there'd be no more support for revenues?

[Frank Laukien, executive]

Yes. Well, if you look at it sequentially, and we, of course, did, then the step-up sequentially from this year, Q3 to Q4 is still very substantial, right? We're not quite reaching $1 billion fourth quarter. It looks more like $965 million, $970 million or so. It's the implication. That's pretty close to $1 billion. That's by far the largest fourth quarter that we've had and the step-up from Q3 to Q4 is very significant. That's about $100 million actually. So it's not that we lack ambition here. I think it's just as you look at how these -- as you look how these things line up, I think that's the prudent guidance but for the fourth quarter.

[Operator]

The next question comes from Patrick Donnelly from Citi.

[Patrick Donnelly, analyst]

Gerald, maybe 1 on just kind of the dilution from the acquisitions, the margin impacts. Can you just talk about where we are on some of that? I know NanoString, obviously the biggest one. I think the guide is for $0.15 to $0.20 this year. I know you had in the past said that could be half of that next year. Curious if that's still the right way to think about it? And just what's going on with those deals. It felt like you guys had our arms around it, but maybe that we should slipped a little bit. I just want to talk through that.

[Gerald Herman, executive]

Patrick, I would say generally, the acquisition integration activities are on track, that we are progressing nicely. We've talked about historically, the Bruker management process and how that's applied now into all of these newer acquisitions, including 1 you just mentioned. The overall dilution picture for us for '24 and what we see thus far for '25 is pretty solid. And we aren't really modifying our dilution expectations with respect to 2024 or 2025 right now. We went through those, Patrick, I think, fundamentally at this.

[Frank Laukien, executive]

So the type of -- maybe to add, Patrick, the NanoString and Cellular Analysis businesses, we're still aiming to bring those to breakeven in 2026 and I think we're on track for that with really good management and really good enthusiasm by the acquired businesses, very aligned management teams there. So yes, we expect pretty significant margin improvement in each of the next 3 years. That's really on track. It would help, of course, to have a little bit more strength in life science tools and biopharma. That wind under our wing is not fully materializing yet. And so what others have seen in spatial biology and in life science tools, we convert that the demand there is on the weak side right now still.

[Patrick Donnelly, analyst]

Yes. Understood. And then, Frank, maybe just on the academic government market into next year, obviously, a pretty impactful day here in the U.S. How are you thinking about just that outlook? What are you hearing from customers? What could change today? And just kind of that expectation going into '25 would be helpful.

[Frank Laukien, executive]

Yes. That's a good one, right? So once we know the outcome of this election, which maybe tonight, maybe in 3, 4 weeks, those in the biopharma industry are more concerned about 1 outcome. Those in aca/gov concerned about the other outcome. And I think right now, the uncertainty doesn't help quite honestly, because people don't know where it's going. And my non-- my interpretation is that if there was 1 way or the other, split government that perhaps would avoid extreme moves on taxation and price control and NIH funding, maybe that would be the best outcome for the businesses in our sector, including ourselves.

But until we know that, maybe we'll know that in it's not only about the presidency. I know that's an exciting race there, but also about how House and Senate lineup. And with split government, I think maybe some optimism and predictability of are there going to be tariffs, are there taxes? Are there more price controls may come back. Right now, there's a lot of uncertainty and hesitancies on what I would say.

[Patrick Donnelly, analyst]

Appreciate it, Frank. Hopefully, it's not 3 or 4 weeks, but we'll see.

[Frank Laukien, executive]

Yes. Maybe the House and Senate, we can figure out faster, right?

[Operator]

Next question comes from Rachel Vatnsdal from JPMorgan.

[Rachel Vatnsdal Olson, analyst]

So I wanted to follow up on 1 of the earlier questions here just on top line. So you reduced the top line organic growth guidance for the year by 250 basis points. Can you just break down that 250 basis point cut between some of the moving pieces that you called out across biopharma in China and if there's any other areas contributing to that. And then also, you mentioned that you're no longer assuming recoveries within biopharma in China. But can you just clarify for us? Did either of those markets actually get worse sequentially or were you just previously a little bit more zealous on what that recovery would look like into the back half and taking that other model at this point?

[Frank Laukien, executive]

Right. So got it, Rachel, I think. So top line, the effect of China is even stronger than biopharma. So China may be 2/3 biopharma 1/3 roughly and in terms of things that have -- that are slowing us down a little bit there. And as we talk about recovery, we're actually optimistic on bookings. We're more optimistic on bookings but believe that generally, those -- now it's November that really won't help us in the P&L in revenue anymore, at least not in a meaningful -- in a significant way. Some orders will help us in the first half and the others in the second half of last year. So we do believe in China recovery being very likely with a stimulus program. We cannot quite quantify it yet, but we're very optimistic about that.

And well, biopharma at some point will be done with their cost cutting, right? And they're pretty aggressive about it everywhere. So I think at some point, they'll find a new level to where they're reinvesting. I can't call the timing on that one. So China, I'm pretty optimistic that we have so much activity and orders beginning to come in. I'd be very surprised if we didn't have reasonably good China orders in Q4 after a relatively weak orders all year long. And yes, Q3 to your last part of your question, Q3 China orders were lower than what we had expected. And some of those, we would have still been able to deliver in this year. But now with Q4, then even then turning up mostly into Q4 orders, perhaps also into Q1 and Q2, it's just not going to happen this year anymore.

[Rachel Vatnsdal Olson, analyst]

Got it. Okay. And then for my follow-up, I actually did want to dig into that order dynamic. So you talked about how orders grew in the upper mid-single digits this quarter. Can you kind of break that down for us? You mentioned China was a little bit weaker, but any other trends on that order book? And then just around book-to-bill, can you give us book-to-bill in the quarter? And you separately talked about how book-to-bill may not be the best stat to look at Bruker on a go-forward basis. So should we still expect to get book-to-bill on a quarterly basis going forward? Will this shift to an annual stat at some point? And if so, when should we expect that shift?

[Frank Laukien, executive]

Yes, all good questions, right? So book-to-bill in the third quarter and year-to-date has been below 1 and above 0.9 that we don't -- we do expect that to give that update annually. I think it's a more useful figure annually. But since you asked, that -- so that's where it was. So the book-to-bill in line with what it had been in the first half of the year. No greater weakness or something like that. In fact, as you -- the other measure is that these in terms of organic BSI bookings growth, this has been the best BSI organic bookings growth in 4, actually 5 quarters. So -- but it's nothing to write home about yet, but it is encouraging. It's going in the right direction.

Despite the China weakness in biopharma weakness which tells you that everything else is growing in the high single digits. These -- the 2 bad guys, biopharma and China clearly are a drag and China is down year-over-year. So the other parts of the business have pretty good growth momentum. Now we could -- certainly for the first half of the year of next year, I think we're in pretty good shape. For the second half of next year, we could use some anticipated assist from China, stimulus funding and from biopharma turning the corner.

[Operator]

The next question comes from Tycho Peterson from Jefferies.

[Tycho Peterson, analyst]

I know you guys don't want to really talk about '25, but you did talk about significant margin expansion. I'm wondering if you could maybe just give us a high-level framework there. And then I just want to gut check. Are you assuming a normal market next year, which you previously talked about a 4% to 5% growth?

[Frank Laukien, executive]

In reverse order, we would assume a more muted recovery maybe with a normal market by '26 or maybe in the second half of next year. We're not sure. but we don't expect to snap back in our estimates for next year. We expect an improvement over '24 for the full year for the market and not a normalized market yet. If that were to surprise us and it goes back to normalized growth rates of 4% to 5%, that would be great. But right now, we're modeling, we're expecting that for '26. And I'm sorry, the first part of your question was?

[Tycho Peterson, analyst]

You talked about significant -- you characterized it as significant margin expansion at '25. The Street's at 110 basis points. I'm just curious if you can give us maybe what significant means in your view?

[Frank Laukien, executive]

Yes, north of that. So higher than 110 basis points or higher than that. Yes, it's too early because it will depend on Q4 orders, and that's not only the biggest close to $1 billion in revenue, but it's also a very big quarter for orders. So we'll need those to give more meaningful numbers. But we're working very hard, not in cost avoidance, cost reduction, some headcount reductions throughout the business. And of course, particularly working on the newly acquired businesses that are generally all dilutive to margins as we anticipated, but our great strategic expansions. So with that, we would expect north of the number that you've mentioned in margin improvement will be driving very hard for that. But I cannot give you greater bracketing or something like that. Clearly, it's going to be more aggressive than 100 bps.

[Tycho Peterson, analyst]

Okay. And then a follow-up just on semi. I'm just curious if you can flesh out your comments there more. I know demand trends have been strong, but obviously, some of the recent data points haven't been great. So what are you seeing? And what are you thinking about next year on the semi front?

[Frank Laukien, executive]

Well, year-to-date and in Q3, our semi orders have seen very nice growth, double digits, sometimes in certain segments, even greater than 20% to a certain instrument segment, sorry, not -- to clarify. So we think we should have -- semi would be at the high end of the Bruker growth rate next year, whatever that number will be, the organic growth rate semi will probably be leading the charge. But I didn't give you numbers, I realize it, but I can't really -- I also do not just have the numbers. It's not just that I want to go into that type of granularity but that specific number, I don't have at my fingertips either.

And wouldn't really until we give -- it's a solely a fair question, Tycho, obviously. But I think if you ask that 1 again, when you give guidance for 2025 in early February, then we'll be able to give you some color on here's our average guidance and this will be weaker and will be strong in semi will be up there among the strongest.

[Tycho Peterson, analyst]

But no crack based on what we saw from ASML and some of the other kind of end market data points. Is that fair?

[Frank Laukien, executive]

So our RI business that is in the ASML supply chain with their not metrology, but lithography technologies that not complete systems, but systems that they eventually are in the size supply chain that is in the ASML supply chain, they have all accounted for them slowing down a little bit some of their initial expansion for EUV and the next generation of EUV tools. So that's all baked in. It's still nice growth for us. It's a nice growth because we're getting into a new market and we're all of a sudden part of an important -- a small but important part of that supply chain. So for us, this is almost all upside.

[Operator]

Next question comes from Josh Waldman from Cleveland Research.

[Joshua Waldman, analyst]

A couple for you. First, Gerald, I wondered if you could provide more color on what the business grew in the quarter, excluding the two 1 gig placements, and I guess how that compared versus your expectation? I mean it seems like BSI may have declined in the quarter. Is that right? Just curious where you're most surprised or where you've seen the most pullback and how that informs your assumption for sequential progression into Q4?

[Frank Laukien, executive]

I think we had 1 last year.

[Gerald Herman, executive]

We had 1 in the prior year quarter and we had 2 in the third quarter. What I would say generally here, Josh, is that I think the trends we discussed earlier around biopharma in China were probably the areas that I would say we're most disappointing if we can put it that way relative to our expectations. We did have as Frank has already discussed, we did have solid growth from a revenue perspective in the semi part of the business. Industrial clean tech was quite solid. So we had very significant encouraging bright spots. I would say the 2 that we've called out and this is particularly relevant for BSI would be that biopharma and in China, I would say.

[Frank Laukien, executive]

On the gigahertz class since you're asking. 2 of them in Q3 of this year. One of them was really intended originally for the first quarter of this year. The University of Georgia was 1 of the systems that was supposed to, but that ended up needing rework. So it moved from Q1 to Q3 and the Korea system had always been planned for Q3, and that's comparable to a Q3 system last year when we grew 11% organically and also had 1 gigahertz system. So if you want to adjust for 2 versus 1 gigahertz system, take $10 million or so to model that. And for Q4 last year, we had 3 gigahertz class systems and 15.9% organic growth. This year, Q4, we're planning for 0 or 1.

[Joshua Waldman, analyst]

Okay. And then Frank, a follow-up on your previous comments. As you think about recent order trends, you contemplate what you think you can drive from the backlog. Do you think the low single-digit growth implied here in H2 is the right way to think about the medium term, just given the typical 2-quarter lag in rev rec and your comments on recovery into second half of '25?

[Frank Laukien, executive]

No, no, no. That would -- actually not at all. No, that's not the right way to think about this. Think about -- you've got to look at '23, 11% organic growth in Q3 and 16% organic growth in Q4. You've got to look at our comps. So as I said earlier, I don't mean to be defensive here, but we're not just recovering from last year's drop, we're putting that onto our growth numbers on top of growth of very, very good growth numbers organically 11% and 16%, respectively, in the third and fourth quarter of last year. Now mercifully, our Q1 comparison will get a lot easier, right? And Q4 -- Q2 comparisons will also not be comparisons to prior year quarters with double-digit organic growth rates as what we're facing right now.

So the answer is clearly, no, don't take our second half '24 growth rates extrapolate from that, they're only growth rates because of pretty amazing growth numbers in the second half -- organic growth numbers in the second half of '23 that nobody else was even close to. Thanks for asking the question actually. Is that -- I think that's an important 1 for everyone.

[Operator]

The next question comes from Dan Brennan from TD Cowen.

[Daniel Brennan, analyst]

Maybe just on kind of China stimulus, Frank, since you've called it out, a series of times. I was just hoping I can ask a few questions here, just to get some color. So maybe the first 1 is like what should we be looking at as kind of a stimulus program kind of we've tracked like a $500 billion on monetary stimulus? Is that the right one? Or are there others? And then b, like do you expect as the China government is expected to announce a new large fiscal -- excuse me, stimulus measures, do you expect more money to come in to instruments from that? And then I know you said during your prior Q&A that you really can't size it yet in terms of the impact for Bruker. But any way to think about potential implications for Bruker?

[Frank Laukien, executive]

So I'm not aware of -- you're a good question. So the further Chinese fiscal stimulus is not baked into this in any way. The previously announced stimulus that is making it to the provinces and then each province moves at their own pace. And with somewhat of their own priorities, although with a general framework of investing in scientific and medical innovation, that's the 1 we're talking about, right? How quickly it arrived, whether it arrives in -- with orders in Q4. Some of that will arrive in Q4. We think it's not going to be a single quarter bolus this time, but maybe the orders come in -- beginning in Q4 and for all of next year.

We kind of think it will be predominantly in Q4 and H1 of next year. So that's the 1 we're talking about and sizing that. I mean, I would say it would be 100 bps of growth would be at the low end of that However, it's not all -- it depends when that all comes in. It could help us next -- mostly next year, and some of that could also go into '26 and yes, it might be more than that, but it's just very difficult because we cannot use our normal percentage. And normally, I've got a pretty good feeling I have 10 opportunities, I'm probably going to get 6 or 7, whatever the numbers are. And this time, the yield is just not knowable yet, but so many people applied for these programs, a lot of our customers. We think we continue to think it will benefit academic research and big ticket items in particular, which positions us very well within our business. I expect BioSpin to benefit the most.

[Daniel Brennan, analyst]

Great. And then maybe just as a follow-up, just on biopharma since that's been a weak spot here. I mean, would you care to give us a sense of what that business is growing for you? I don't think you've done that in the past, but other tools peers will give us a biopharma number. So just wondering in Q3 and how that compared to the first half? And then related to that, like what should we be looking at, do you think as like a proxy for when this improves? I mean, the headlines don't look great, but we just did an analysis on biopharma spending, and it actually looked okay from an R&D basis. So is R&D not the right metric to look at? Or just what should we be monitoring to see kind of when this can turn?

[Frank Laukien, executive]

Right. So biopharma -- yes, just trying to look at revenue versus bookings numbers and Q-to-Q. Year-to-date, it is down, although not nearly down. So if biopharma as a catch-off including biotech and CRO is down for us this year, not as much as China. So it generally, had been around 15% of our revenue, but that's going up. We want to grow also inorganically in biopharma. So our cellular analysis business, our spatial analysis business, demonstrating our Chemspeed business. They all benefit to a much more significant extend from biopharma than Bruker has traditionally. So very roughly, if Bruker traditionally had 15% of its revenue from biopharma that's trending towards 20%.

We're doing that at the worst time as biopharma is weak, but who cares, it will come back. And by that time, we will be very pleased that our exposure right now or opportunity in biopharma will have gone up further towards that 20% and beyond 20%, which we strategically wanted to have. If you recall, a long time ago, it was very close to 10%. So we were clearly underrepresented there. So down year-to-date, but not as much as China. And eventually, I think it will be at 20% in plus of our overall revenue. Maybe that helps you to triangulate. Do you have a couple of more questions? All right. Let's take 2 more questions.

[Operator]

Next question comes from Brandon Couillard from Wells Fargo.

[S. Brandon Couillard, analyst]

So it looks like the M&A contribution for the year is coming down, at least at the margin, talk about 9.5% contribution versus the prior 10%. Is that rounding? And if -- any color just on ELITech and [indiscernible] performed?

[Frank Laukien, executive]

ELITech, Chemspeed, great. Bruker Cellular Analysis and NanoString a bit weaker than expected and primarily the biopharma piece, which is very -- you figured it out immediately, Brandon, exactly. We took that from 10% to 9.5% because the biopharma demand for cellular analysis and spatial biology has been weaker than we had expected that's part of -- that's related among our M&A, that's related to the biopharma piece. Chemspeed actually remarkably strong. It also serves other industries. But I said it's a little countercyclical in that even big pharma will consider very big CapEx investments and software investments even if they're cutting programs, sites and people and ELITech is chugging along spread.

[S. Brandon Couillard, analyst]

The guidance rates came down $55 million in terms of revenue. EPS ratings $0.23. That would imply 100 -- close to 100% decremental margin. Can you just help me reconcile that math and why that makes sense?

[Gerald Herman, executive]

So it's a little complicated, but let me start. On the guidance, we're actually dropping about $60 million from our previous guidance level. That translates actually into about $100 million of CER revenue. That's mostly driven by biopharma in China, as we've talked about earlier here. And we do get a slight benefit from the foreign exchange elements of that. You may recall that when the U.S. dollar weakens, we have a strengthening revenue, we get a tailwind. So you take that $100 million of CER offsetted by a benefit related to foreign exchange. You get to $60 million that I was referring to earlier.

[Frank Laukien, executive]

And on the operating margin, it's the other way round. The FX changes that have been with the dollar weakening perhaps because of the election or something like that, we got an additional 30 bps of a margin headwind. So that side comes.

[Gerald Herman, executive]

It's how it comes together.

[Frank Laukien, executive]

Last question, and then I think we'll need to let you all go into the rest of your day here. Time for 1 more question.

[Gerald Herman, executive]

Yes, we can do 1 more.

[Operator]

The next question comes from Luke Sergott from Barclays.

[Unknown Analyst]

I just wanted to kind of follow up on the China stimulus and how the -- you talked about early demand and the funnel kind of building there. But given we don't really know how the stimulus is going to shake out through the next year, however that comes through. But is there a chance that the actual funds flowing through are not going to be enough there to satisfy that demand and that could ultimately lead to the elevated backlog of 7 months instead of going to 5 months, just kind of as you think about how that kind of paces through?

[Frank Laukien, executive]

Right. Luke, good questions. So some of that China stimulus will come through. We're seeing some of it come through now. Some of it is going into tenders. We think those tenders are favorable for us, and we think they're specifically funded so it's not that we worry about is it coming at all. It's just -- we'll will it, at some point, add 100 bps to growth, yes. But could that be the second half of next year and the first half of '26. That kind of would be a delayed help from the stimulus. It also could be a bigger effect. Certainly, the activity is much, much larger.

And I don't want to raise expectations, but it could be significantly more -- so the funnel looks really good for big ticket items, in particular, and not only NMR, but also on the mass spec and big microscope side and some other devices, preclinical imaging, EPR, you name it. So we're pretty optimistic that it will -- well, we're very optimistic that it will help us. I've given sort of hopefully the lower end of how much help we might get from it. Hopefully, there will be more, but it's too early to tell.

[Unknown Analyst]

Yes. Got it. It's all timing thing. All right. And then here from a pharma perspective, I know that you guys don't -- you talked about 15%, 20% of those revs and that's going higher of your total revs. So can you just kind of walk us through what you're seeing on -- you typically play more upstream on the drug discovery side. So can you talk about where particular things got a lot weaker for you for what you were originally expecting and the kind of the funnel or early demand outset for that as you exit the year?

[Frank Laukien, executive]

Well, it will not surprise you to hear that CRO has got hit the hardest, right? And not only China CROs. But no, no, but also, of course, there are some geopolitical gain for Indian or American or European CROs, but CRO demand, that's -- when big pharma cuts, they first cut what they give to the CROs and then they cut internally. Well, we're seeing some pretty big pharma just doing a lot of cost cutting kind of whether they need it or not, this is a good time for them to kind of streamline their programs, reduce programs, consolidate sites, reduce head count.

I am delighted to say that our proteomics and post genomic era customers are not taking the brunt of that. So again, with the post-genomic markets and proteomics, multi-omics were in a sweet spot because our customers are in a sweet spot. But even if they don't lose headcount or lab space, they're not getting a CapEx budget to spend right now in Q3 or Q4, while some other group is being eliminated or reduced or something like that. So -- and biotech emerging biotech funding has been tough and even sort of early seed and [ series A ] is now pretty difficult, and [ BNC ] is -- has remained difficult. So I don't think there is a step up. They're selected biotechs that do it because they have a very compelling late-stage program. But in general, I'd say the capital markets funding is still very, very difficult from what we're observing. And that also delays leases or purchases of new instruments.

Okay. Thank you very much. Sorry, we ran a little over today. I hope it will be an eventful day for America, thank you very much for joining us today nonetheless, and thank you for your interest.

[Operator]

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.