Bruker Corporation (BRKR) Earnings Call Transcript & Summary

All right. Good morning. We're going to get started. Thanks, everyone, for joining us for Day 2 of the Jefferies 2020 Virtual London Healthcare Conference. I'm Brandon Couillard. I cover the Tools and Diagnostics sector here. It is my pleasure to have Bruker with us back at the conference again this year. Joining us for a fireside conversation this morning, CFO, Mr. Gerald Herman. And we also have Miroslava Minkova from the IR side with us as well. For those of you tuning in, please do feel free to e-mail me any questions that you might have, and I'll do my best to work them into the conversation. So with that, Gerald, great to see you. Thanks for being here.

Yes, thanks very much for having us. We're delighted to be here. Wish we were in London, but nonetheless, next year, hopefully.

Here's the hope for better days in '21. Maybe just to kick off, Gerald, coming out of the third quarter, you did see an improvement in the BSI order book, which I'd like to get to in a minute. But as far as kind of how you're thinking about the fourth quarter shaping up. I think your guidance implied organic rev down about 4% to 8% against somewhat of an easier comp. Just curious, if you could just sort of describe and articulate, if there's been any update as far as sort of where you sit today, now that we're about halfway through the quarter? And to help us kind of understand some of the puts and takes that we should consider? On the plus side, you've got some COVID testing dynamics that are a small beginning to contribute. You've got an ultra-high field placement expected in the fourth quarter, just how are you thinking about the factors that went into refining your view on 4Q?

Sure. So as you said, we -- it was pretty solid third quarter and slightly down on a year-over-year basis, but sequential improvement, which was really encouraging for us, I think. Relative to the fourth quarter, as you likely know, we don't provide intra-quarter updates. We can give you a little bit of qualitative commentary around the fourth quarter just generally. Look, there's still quite a bit of uncertainty out there in the marketplace, particularly as we've seen surges in COVID-19 experience in both Europe and the U.S. specifically. And that created a little bit more uncertainty in the fourth quarter for 2020, and certainly it was there in 2019. The other thing you may or may not know is that we're -- the comp that we have for Q4 of '19, we put up almost $600 million of revenue in the fourth quarter of '19, which is a record-breaking quarter for us. So I think from a comp perspective, it is still going to be challenging for us to get to those numbers, especially under the current conditions. I would tell you, we've got a number of positives. As you've already pointed out, we've started to see some strength in the biopharma space. We've got some really interesting products on the horizon as well as moving their way through the systems in the fourth quarter. Our experience thus far with the academic markets and the research markets more generally is still pretty positive. We've not seen evidence of significant sort of lockdowns. Although it's still early in the fourth quarter relative to that, some governments have been a little bit more restrictive as that goes. And that's created a little more concern, I would guess, I would say, relative to the ability to travel, especially in Europe between countries. So there's still quite a bit of uncertainty there. So our view generally is that, that's all baked into our 2% to 6% decline on a year-over-year basis in our scenarios that we've laid out. We're still pretty comfortable with where that sits right now.

As we begin to sort of think about '21, clearly, still a lot of unknowns about next year, but you will have pretty easy comps. You talked -- do you think that revenues next year can begin to almost approach 2019 levels, perhaps? And maybe talk about some of the key drivers that you're excited about in the business? You sort of spoke to some of the new products in the pipeline. What are kind of the key levers to recovery that we should think about next year?

Sure. So as you likely guess, we're not providing guidance or too much detail in 2021, we're hoping to move through the fourth quarter. That's our priority at the moment. But look, I think we've said on the earnings call a couple of weeks ago that we still believe that there's -- 2021, we can have healthy growth from a revenue perspective and continuing operating margin expansion. We believe that's on a comparison against 2020. You're right. The 2020 numbers are likely going to be softer for sure than we saw in periods like '19. But having said that, we still have quite a few signals that are positive for us. I mean we have -- we're carrying some pretty solid backlog into 2021. We've got a good order bookings performance coming out of the third quarter. All of that will be the case for the fourth quarter as well. We've got some really exciting products that are getting good traction. Like we know a little bit about the timsTOF platform and that's one of them. We also have some ultra-high field backlog that we're executing on in the MR space. Our microbiology and diagnostics business is performing well. I guess, I would say, particular diagnostics business. Biopharma is picking up, it seems, especially under the current condition. So we're pretty positive that things are turning in the right direction for us relative to 2021. And we'll give you more detail, of course, on that as we get into the February time frame once we've looked at full year for Q4.

I'm not asking you to give guidance, but I know it seems like ancient history, but if you think back to Bruker's Analyst Day, June of '19, you laid out a target of kind of the business being able to deliver kind of 5% to 7% organic revenue growth. Is that a -- is that still a relevant sort of benchmark to think about the business maybe over the next 3 years from here? And has COVID negatively impacted any component of that growth plan in your view?

Look, I mean, we -- things have changed a lot from 2019, mostly from the framework of our overall performance, clearly 2020 is not what we had hoped for, for sure, relative to our peers, of course. But when we look at our overall position in terms of our product portfolio, some of the acquisitions we've brought on in 2020 combined with the performance that we will talk more about as we get to the end of the year here around Project Accelerate and some of those pillars of growth around revenue and operating margin expansion. And we're still pretty confident that we're going to be able to move in that same direction. We'll revisit that as we get into the February timeframe and see where we've ended for the full year 2020. But I do feel pretty confident that we're -- we've got all the right elements, particularly as it relates to the proteomics market. When you look at our ultra-high field initiatives rates that we are starting to execute on. If you look at the proteomics marketplace and how we've presented a number of products that tackle that market. Our Biopharma market segment is improving. Mean we do see some bright side signs on -- even on the industrial side, at least with respect to microelectronics and the semiconductor space. So we have headwinds at the moment in the industrial, industrial research and material science areas. But I'm not sure that those are going to be headwinds as we move March forward into 2021 and beyond. So to get a little bit of tailwind from some of these other areas, I think we can reach to the levels we had talked about before. But again, we'll reset that all as we get into the 2021 period and see where we are headed for the full year 2020.

Coming back to the third quarter order book for BSI, I think up about mid-single digits year-over-year in the third quarter. Was that better than you had expected? And is there any particular end market color that you might be able to share that may have driven that improvement? And I -- I'm curious to what leading indicators or if you've seen a bottom in orders for some of these more industrial research-oriented customers?

Good question. So relative to the order performance for the BSI groups, it was solid. I mean, we're very pleased we had a softer second quarter order performance. And I think fundamentally, we were very pleased to see the performance on the third quarter. You know, there was a modest amount of catch-up in a couple of areas. But I think, generally speaking, we feel like that's a real order performance. And that bodes well, I think, for 2021 and beyond. As you likely know, our order bookings performance plays out into forward quarters, and when we say a couple or 2 or 3 quarters out. So we're pretty positive about that. I wouldn't say it surprised me necessarily, but I have to say, I was quite pleased with the performance. And we saw that largely across most of our groups with the exception, I think, of Nano and BEST. Nano, as you likely know, is more heavily focused on industrial research and industrial and academic markets, focused on that. And our BEST segment suffers a little bit from some softness in the MRI demand from our customers at the moment. So looking out into the future, I think that the expectation is that we are hopeful that we can continue to build on that order performance. It's pretty solid, I guess, with respect to some improvement in the academic market side. We saw improvements in the biopharma side. Certainly, our proteomics market improved and continue to show strength there. Our consumables, our Diagnostics business continued to show some more strong order performance. So overall, pretty pleased with the -- with how it all played out for the third quarter and hopefully in the fourth quarter.

Let me stick with sort of the proteomics topic, been an exciting element kind of of the newer product pipeline for Bruker for some time. How is uptake of timsTOF been relative to your expectations so far? What inning are we in for that story? And kind of what's the upside potential here from this category next several years? And it might be helpful to also maybe understand where exactly Bruker plays in proteomics relative to some of the other mass spec vendors?

Sure. So we are pretty excited about what we have built thus far. I'd say it's still early meetings in terms of the overall story for the timsTOF platform. We have introduced a number of other products related to and adjacent to the timsTOF platform as well. We feel quite confident that we're starting to see uptick in a number of areas, not only in the academic research side, but also in the biopharma side, which generally has been a little unusual from a product launch perspective. We typically see more uptick in the academic research side and then ultimately, more engagement with the biopharma side much, much further out. So we're encouraged by what we've seen so far. I would say we'll do a little more calibration following a large quarter, which is the fourth quarter here on how we've landed for the full year 2020. We know that we've seen significant strength in the timsTOF platform in sales from a revenue perspective as well as from an order bookings perspective. You likely know, we're moving forward to increase our capacity as well. So we're not constrained there for future growth. I would say just generally, we're pretty positive about what we're seeing. I think it's early innings yet. We're not at an inflection point from what I can see, but we are starting to see some good growth across many market segments there. And this isn't just specific to a particular geography either. It seems to be pretty spread across most of the geographies. So we'll talk a little more on in the February time frame, once we've seen where we land. We typically do sort of a more annual calibration on a number of our systems. We can talk a little bit more about it, I would say, when we get into the February time frame. But we're quite positive about how it's moving so far.

Maybe shifting gears a little bit over to China. I think that, that region saw a return to positive growth in the third quarter after a pretty soft first half. Are you able to maybe put some numbers around how much of that improvement was catch up demand from orders that may have been delayed in the first half? And if you could just give us just kind of a quick state of the union as you see it there and your confidence level that, that market may be back on a positive trajectory?

So you likely know, Brandon, we had coming out of prior years, very, very strong growth in China. It's been a growth driver for the entire industry, but -- including for Bruker. So coming off some pretty strong comps, the early part of 2020 was pretty soft. And they were in a deep lockdown, I think, in the early. And certainly, the first quarter came out of it in the second quarter. So we saw a little bit of catch-up in the third quarter, I think, for China. Our overall results are still a little bit mixed. There's still a little bit of uncertainty around funding activities in China. That's not quite as clear as we would like to see it. What I can say is our intelligence, at least qualitatively, it is that the recovery seems to be underway. The economic conditions are improving. Travel has lifted -- travel restrictions have been lifted largely in most of China. And so our overall business is rebounding, I would say, and we saw some of that in the third quarter. I think the other point to be made here is that, and from what we understand around the future, to talk about the Chinese government and their 5-year plan, it does appear as if technology and certainly, medical research is going to continue to be a high priority for the Chinese looking forward. So our products are pretty well positioned, I think, in that marketplace. We have good channel structures already in place there. So we're pretty optimistic for the long term for China. Will there be interruptions? Will there be some disruptions that perhaps even related to COVID-19? As we look forward, possibly. But the Chinese seem to have weathered the storm a little bit effectively at the moment under the current conditions. So we're overly pretty positive about what we see there at the moment.