Bruker Corporation (BRKR) Earnings Call Transcript & Summary

Welcome to the Wells Fargo Healthcare Conference. [Operator Instructions]. Also, please be advised that today's conference is being recorded. Thank you.

Great. Hello, everybody, and thank you for joining us for the fireside chat today with Bruker. Joining us from the company are Frank Laukien, CEO; and Miroslava Minkova from Investor Relations. I'm Dan Leonard, the life science tools, services and diagnostics analyst here at Wells Fargo. The format is largely fireside chat. If you have a question for management, please raise your hand in Zoom, or you can just shoot me an e-mail, and we'll try to address it. Before we hop into the Q&A, I believe, Frank, you want to make some opening comments to kick things off.

Yes. Thank you very much, Dan for having us at the Wells Fargo Virtual Healthcare Conference. Just thought I'll give a 2 or 3 minutes of introductory remarks. As you may have seen, we're very, very pleased to have added a new Independent Director, Bonnie Anderson, the Founder and CEO of Veracyte, a terrific person and lady. And we very much value her as an additional board member because of her extensive clinical workflow and diagnostics experience, also life science tools experience at Beckman Coulter previously. And then, of course, her impressive track record as an entrepreneurial CEO, who built up a transcriptomic and cancer risk stratification company, which is highly relevant, albeit in an adjacent field to some of the things we're going to expect to do with cancer proteomics and metabolomic biomarkers of therapy and things like that. So she's a fantastic addition. Pleased to announce because the customer had already tweeted it. So I guess it's out in the public that 1/3 of our 1.2 gigahertz systems has just come up to field pretty quickly at the Max Planck Institute in Göttingen, Germany. Now that won't be Q3 revenue in all likelihood because the further qualification takes a little bit longer, but it shows that we're nicely on a roll with our ultra-high field systems, timsTOF proteomics orders and revenue have been growing in the double digits in the first half of the year. So proteomics strategy, if anything, is accelerating, you may see us take additional steps in terms of targeted proteomics and targeted multi-omics and proteomic software in the remainder of this year. And then last maybe opening comment is that there's a very important publication, a combined NMR mass spec combination by our collaborators at the Australian National Phenome Center, Professor, Jeremy Nicholson and coworkers. They've really done some terrific work in looking at systematic risk stratification, potential prognosis and looking at long-haul COVID or long COVID patients who just can't seem to recover even after the viral infection is gone, presumably and the PCR is no longer positive. And then this emerging post COVID-19 syndrome where you need to do plasma longitudinal follow-up studies, essentially on all COVID survivors and if the governments are willing to fund that for their containing their healthcare costs and, of course, containing as much as possible be rather dire potential long-term effects of having had an infection, even those that only had minor symptoms or were in the younger, lower risk category. So there's a very important publication out there on that. Miroslava can forward that in the Journal of Proteome Research and they are combined NMR, MS tools are playing the crucial role. Maybe this is just some new tidbits before we go and get going with the M&A -- Q&A, not M&A, Q&A.

I appreciate you setting the table like that, Frank. So I guess, first off, the question I mean the obligatory tools question is to update on end markets, regions, et cetera. But with Bruker specifically, folks are wondering about the health of the academic market. Can you elaborate on the outlook for the worldwide academic market, specifically and the impact on Bruker?

Yes. And of course, it's first time in history that an academic market really has ever been hit and hit particularly hard. We've never seen that in 50 years. And it has been hit hard. It's certainly in Q2, and now there's a pretty rapid sequential recovery for sure in Q3 and by the end of Q3. By now, most academic labs are open in the new normal, working from home as much as possible, shifts with social distancing and personal protective equipment, all of that. By the way, that's very different from the undergraduates, whether or not they're on campus. And there's 2 parts to the academic enterprise, right? One is teaching. We're not very much involved in that. And one is research, which we're very heavily involved in. So we got hit hard when in Q2 when a lot of labs closed down, and we couldn't do deliveries or installations. And now that's sequentially improving very rapidly as we had predicted. And we think that by the end of the year, all academic research labs, including the important translational medical school research labs are going to be very close to capacity. Academic spending, a little bit constrained perhaps in the U.S. as some academic institutions have to do financial belt tightening. On the other hand, they all expect very good federal funding. So a bit of a mixed picture in the U.S., that's distinctly a U.S. phenomenon outside the United States. In Europe, in particular, academic spending, particularly for proteomics, particularly for spatial biology, but also for dynamic and structural biology by NMR is really quite good. And just to top it off, I think China had been a mixed picture. It had been reopening faster, but just because the front door wasn't open, didn't always mean they were fully in gear. So the recovery in China is a little bit slower in Q2 than we had expected. And there's some rich provinces and universities that are investing very heavily. There's great pharma investment in China, but some universities have temporarily cut their budgets back for the remainder of this year because of COVID. So a bit of a mixed picture. We really think that by 2021 for our academic spending, in particular, the key proteomics, metabolomics, spatialomics, special biology trends that we're supporting will be in by and large, in very good shape, although there could be country to country differences.

Okay. So while academic right now is challenged. You talked about it being challenged more so than it's ever been. Is there any way at Bruker you can respond to that? Can you redeploy resources towards pharma? Do you have active plans to ameliorate the end market challenges in any way you can?

Well, academia is already coming back, so we can do installations, we can get into labs. It's all a little bit more work and a little bit more planning. And academic orders are certainly sequentially recovering. Of course, we'll have to wait for full Q3 and Q4 orders before we can comment in more detail. And then indeed, we are doing that. We are, of course, deploying resources exactly as you suggested there to pharma, biopharma orders in both mass spec and NMR for our pharma, biopharma orders have been quite good. Particularly there, particularly in the U.S. and particularly in China, those were the highlights there in the first half of the year. And our proteomics, timsTOF story is also becoming quite a pharma, biopharma story. So really the early adoption of these systems by pharma and biopharma companies, including even the timsTOF fleX, which is more the spatialomics system before you do proteomics being adapted early on by pharma and biopharma customers is quite encouraging. So yes, we have shifted resources there, and we are also shifting resources. Of course, we have a nucleic acid extraction and PCR business was only about $7 million in revenue in Q2, but that's ramping up further. It's nowhere close to the volumes that Thermo and QIAGEN or companies like that are doing, but it's a nice incremental growth driver, very nice margin driver, and it partially offset some of the other headwinds that we've had. And over time, I think it's actually, we're building it up in a way that's sustainable as we have a lot more of these systems out there. There are other assays. We're already in our second-generation PCR assay that has multiple clean targets. And some robustness by discriminating other harmless coronaviruses that have become endemic and cause the cold. And our third-generation is now going to go into clinical testing for Europe. That also includes Flu A, Flu B, RSV, right for this winter. We may enter the U.S. market with our PCR. So that's ramping up nicely. We're not going to be the biggest PCR play, but it's a nice incremental driver. In addition, in Europe, we have a pilot project on both antibody and antigen testing. We're more excited about the antigen testing. And we're looking to potentially launch an automated mid-plex mid-throughput reader and system potentially this winter, as I think that will be a nice complement to gold standard PCR testing. And then last but not least, I think, actually, this post-COVID syndrome or long-haul COVID, long COVID testing, which will be plasma testing, metabolic testing is something where NMR, mass spec, at least right now in terms of publications and peer review publications, has absolutely key protocols if governments are willing to invest in the future, selected governments into screening all of their survival populations, i.e., anybody with strong or mild symptoms that has had COVID already to look at whether they have systemic or organ-specific long-term health issues that need to be managed, that could become a larger opportunity, but it's a little bit early days. But it looks like distinctly NMR and mass spec as a combination would be the key there.

Okay. And another, I guess, near-term question here. Bookings in Q2 were down more than we thought they'd be. We'll see what Q3 holds. But given the long lead time you have at Bruker between book-to-bill, do you feel like you have a decent amount of visibility into 2021 trends? And if bookings were negative through 9 months, does that portend a negative 2021?

Well, our book-to-bill ratio in the first half of the year was greater than 1. And as -- if you recall, we built up a little bit of backlog. Some of that, of course, is related to our inability to -- some systems we just couldn't deliver. Well, that -- those customers told us don't deliver or don't install. We don't think we'll catch-up from that backlog in the remainder of this year. So I think some of -- we'll probably go into 2021 with pretty -- with reasonably healthy backlog, but of course, we have to monitor bookings. I'm more encouraged on bookings. I don't know what quantitatively it will mean. But the activity out there and the tone is encouraging. Of course, sequentially, everything feels better after Q2. But we shall see. So I think we're trying to setting ourselves up for a healthy 2021. Of course, without being able to give guidance for 2021, I think we might be able to pick up the pace nicely in '21. And then perhaps '20, '21, '22, '22, I could see us seeing -- have a very nice accelerating growth, not only growth, but also then accelerating growth. And of course, continued margin expansion, which is what we've been committed to for many years. And we'll remain committed. As others who are greatly benefiting from PCR eventually over the next 1 or 2 or 3 years, probably we'll see negative growth rates as that PCR testing will be coming down at some point, maybe not quickly. I think as we're building up so many multifaceted growth drivers in life science research, in infectious disease testing and viral testing, in post-COVID plasma testing, I think we might have a nice ability to show accelerating growth rates and continued margin expansion. So I'm very optimistic about our mid- to long-term strategy.

Great. And that actually leads to my next question, which I guess this was all the wind up for, which is middle of last year, you offered this view of a 5% to 7% long-term growth CAGR. Do you feel like that's still intact? And why or why not?

So excellent question, it's the key question, of course. I expect to really commit one way or the other or with more visibility. When we give guidance for next year, which will be in early February, I know it's a little bit away. Directionally, I'm encouraged that, that will be the case. I don't know what the '21 growth rate will be. I know we'll be growing in '21 compared to 2020, that's almost -- that's very, very likely, right? Now will there be still part of the hangover from COVID in '21? Or will the growth drivers win? And to what extent that remains, it's a quantitative question. If I look at more of a 3- to 4-year picture, I'm very optimistic. And in fact, because there are additional growth drivers that we didn't have when we had our Analyst Day in June of last year in New York, about viral detection, viral detection by PCR and antigen testing by looking at something like post-COVID syndrome testing by NMR and mass spec, by things that are not COVID related. You'll see us pushing into proteomic software. You'll see us pushing into targeted proteomics for immune or immuno-oncology profiling, into targeted multiomics. You'll see us pushing into more into spatial biology using our fluorescence microscope, a portfolio for spatial genomics. The genome isn't just the linear array of genes, that gene-centric view is finding its limitations. You need to look at that 3-dimensionally. Our super resolution microscopes can play a key role here. So you'll see additional things that are really supporting life science research, often more towards cancer and immunology research, and not only infectious disease research that could, along with the things that we've been doing and maintaining and continue to invest make for very healthy medium to long-term growth profiles, and hopefully accelerating growth. And I'm realizing, I'm saying this qualitatively and not with the numbers. I'm not ready to confirm numbers today. I'll need to look at that and see how the year ends and whether we really have the healthy order rates and the backlog that I think we might have to then give 2021 guidance.

Appreciate that. And Frank, I know you're very close to the academic KOL community who tries to influence the funding agencies. So can you elaborate -- you mentioned the COVID syndrome testing. You mentioned that on your earnings call. I think that is a new concept for people. Like what sort of size of efforts are we talking about? Are we talking about something on the scale that we've seen from other big research projects like the Human Cell Atlas or various things you see on the genome front? Or like what is your -- like what are your conversations leading you to believe like the magnitude of this effort could be to try to better understand what happens if you've recovered from COVID and how that might benefit your company?

Well, I'll do it anecdotally, but one can extrapolate from that, for instance, we just happen to look at some -- an early pioneer in that maybe Australia and Western Australia. These things, I think, will be political budgets rather than 1 hospital at a time, trying to find the funding or the reimbursement. Initially, it's not there. But I think those will be largely political, Ministry of Health type decisions. Yes, we're going to offer free post-COVID follow-up longitudinal testing to everybody who's had it in a certain country. Some countries will do it and we'll be early pioneers, I predict. Others may say what's that or we follow later. But there -- the countries that might do it if, for instance, if the U.K. did it, that would be about 0.5 million COVID survivors eventually. Right now, it's a little lower, but of course, the numbers keep adding, and you probably need 3 or 4 longitudinal tests. So you might need 2 million tests per year if you really wanted to test everybody longitudinally for a year. And there, we can predict that could add tens of millions of revenue, potentially, in the best case, if countries like this really invested. And any of these countries mentioned are about 1% of world GDP. So if this took a hold in more than 1 country and then maybe half the -- half the advanced world decided wow beyond the infectious disease and the spread, which we're all very concerned about, we really have to minimize, well, improve the health of our COVID survivors and also improve our financial health. If we start managing emerging diabetes, cardiovascular disease risk, vascular disease, neurological problems, and potential liver risks too late, it gets that much more expensive plus the outcomes and the quality of life for these survivors is worse. So I think it's a major, major issue that countries will need to grapple with, because the data is there, some early data and some publication that Miroslava can provide by Jeremy Nicholson and all. I think it's going to be a pretty big deal, but I'm really, again, giving you qualitatively, this could be very sizable. It's not going to be as big as PCR testing worldwide, but it could be very sizable. It could far exceed what we're doing in PCR testing today.

Okay. No, I appreciate those anecdotes. So moving along to your NMR business, specifically for ultra-high field. Appreciate that color. The tweets is news to me, so I got to be more active on Twitter apparently, but...