Bruker Corporation (BRKR) Earnings Call Transcript & Summary

I'm Brandon Couillard, I cover Life Science Tools and Diagnostics sector. Very exited to have Bruker with us. It's the conference year, straight out of eventful ASMS and a lot of new introductions this week. And can you tell us a little bit more about story with an update, CEO, Frank Laukien.

Thank you. So I'd like to -- I'm Frank Laukien. Thank you very much, Brandon. I'd like to introduce my colleague, Justin, Justin Ward, who runs the Senior Director of Investor Relations and also Corporate Development, who joined us 4 months ago. If you would like to visit us in beautiful Billerica, Massachusetts or have more information, please contact him. Right. It is a pleasure. Yes. Thank you very much for always having the Jefferies Healthcare Conference in the week of ASMS, so then I have some new slides and some new updates and information. So let me jump right in. I'd like to draw your attention to our safe harbor statement, of course. And just a bit of a reminder, Q1 was very solid for us. We had continued strong revenue growth, just over 10% organic revenue growth. Perhaps a more significant highlight was that our 90% of our business, which is our Bruker Scientific Instruments segment or BSI, our bookings were higher than that. Our book-to-bill was greater than 1.1. So demand for our products and Life Science Solutions and Diagnostic Solutions continues to be really quite excellent. We also made good progress in Q1 on both gross margin and operating margin, both increasing year-over-year by more than 100 bps, and we had solid GAAP and non-GAAP EPS growth. And we're doing all of that, the somewhat less acquisitive formula of putting a lot into nearly 10% into R&D and into organic growth. And we do some bolt-on acquisitions, but we often do them at an earlier stage with quite a few of them this year in proteomics and areas that support us in sample preparation, in automation and software, in other areas, in biopharma and applied markets, I'll come back to some of them, of course, but it allows us to operate with a very good ROIC that tends to be well above 20%. We did then increase our organic revenue guidance for the year. We had previously guided towards 6% to 8% organic revenue growth, and we raised that to 7% to 9% organic revenue growth. The reported revenue growth guidance actually did not go up because we're going to face a little bit more of a currency headwind that we had anticipated at the beginning of the year. But ultimately, we tend to measure ourselves and you probably measure ourselves primarily by organic revenue growth, and that looks good. It is a choppy environment. Are we worried about China lockdowns? Yes, we are. It's the supply chain crisis going on. I think it's unabated. I think it's going to be choppy and a little bit like whack-a-mole for our supply chain people. But we have so much backlog. We have so many product lines that hopefully, for you, we look like that duck that is calmly going over the pond and under the water. We're kicking like crazy, but you don't have to worry about it. So we're very confident that we can beat this guidance for the year. Our margin expansion this year has a bit of a headwind. We have a headwind from inflation. We have a little bit of a tailwind from currencies. Net, it's a tail -- sorry, I misspoke. It's a headwind. We estimate it's about a 30 bps headwind to margin expansion with that all in and with very significant investments, we think we're going to invest. We're doubling down. I know right now, some companies are tightening their belts. We've always practiced disciplined entrepreneurialism and we continue our R&D and marketing and sales and business development investments, particularly in our Project Accelerate initiatives. So with that, we still expect to continue our margin expansion that you're used to, and this year, we're predicting 30 to 60 bps of margin expansion, which should get us close to 20% non-GAAP operating margin. The other assumptions are listed here, and I think I need to go through them. Let me see if I can advance that -- yes, here we go. This is more of a historic slide. And so therefore -- but it does -- I think it does give some credibility to what have you -- of course, you want to know what we're going to do this year and next year and the years to come, but we really have a very good record of accelerating our secular and our organic growth rates. Of course, it's been choppy with COVID coming down a little bit and then a reacceleration in '21. So it's not just a smooth line. But nevertheless, if you look at the 5-year numbers, for revenue growth, for margin expansion and for EPS growth, they're all very, very solid, and it's a sustainable story. It's an investment case. We're investing in our Project Accelerate. We're investing in our dual strategy that I'll explain in a moment while also letting things drop to the bottom line, increasing our margins and accelerating, hopefully, in a very sustainable way through COVID, through a boom last year, perhaps, I don't know whether there will be a slowdown next year, there probably will be. But I think from Bruker, you can -- and I think we're delivering very, very consistently. And we begin to have that famous flywheel that we just keep pushing every year and keep accelerating and hopefully take the company from good to great, at least we think we're on a good trajectory there. We're a little bit different than some other companies. We -- as I said, we operate with very high ROIC expectations, well above 20%. We tend to be more intrapreneurial, but it's a disciplined intra or entrepreneurialism. And I think that doing that organic growth from R&D investments in technology and consumables and innovation and new business models is a little bit different than sort of what sometimes gets called, the core compounders. They have an interesting and different business model that is wonderful. We're just a little bit different in style and prefer this approach to growing stakeholder and shareholder value. Here is our dual strategy. That's not a new slide. You've seen that before. They really both are, of course, on the left, the Project Accelerate, now Project Accelerate 2.0 with its 6 initiatives. There is a slide further back if you really want to dig more into the details about what's in each one of these 6 high-growth, high-margin initiatives, including the 2 breakout opportunities that we've never had in 60 years of corporate history, namely Proteomics. I'm firmly convinced that the next 1.5 decades or 1.5 decades of proteomic and at the same time also of spatial and single-cell biology, and in fact, both of these partly overlapping, but partly separate, are major, major breakout opportunities for us that we have not had historically. And we're driving those in a very enlightened fashion, not only a provider of NMRs or mass spec really is providing scientific life science tools and eventually also diagnostic solutions. On the right, that's the -- the more -- the less exciting stuff that's very, very important to us. Sorry, I didn't that sentence a very good one. But focusing on operational excellence and commercial excellence on product, R&D and launch excellence is such an integral part and so much of what we and our management, our teams are doing. You hear a lot less about that. But that's, in my mind, what's pushing up our gains in market share and our gains in gross and operating margins. While the Project Accelerate 2.0, the 6 high-growth, high-margin initiatives are pulling us up, push, pull, if you like, towards higher margins, and of course, accelerating secular growth rates. So the 2 parts of our strategy are very fundamental. We're not going from 1 to the other. We're pursuing them both in parallel. And it's very nicely delivered in the last 5 to 7 years as you've seen earlier. So let's talk about something that you might be a little less familiar with. It's not launched this week, although we did show it at AGBT and had a lot of good customer interest. And in fact, I think it's continuing today. This is a new spatial biology system called the CellScape platform. And you may have heard of mass cytometry. We're not doing that. Some other companies are doing that. This is using chip cytometry to look at very large field of view, looking at the spatial heterogeneity in fresh frozen or an FFPE tissue. And to do that with not only single cell, but also subcellular resolution or the resolution to look at small immune cells, for instance. So this is better than 1 micron. In fact, it is about 0.2 micron resolution, something other companies are promising. We have that. We can do that with a very large field view. So we cannot only do that over a tiny area for research papers, but this is really very suitable for translational research in tissue diagnostics, in tissue microenvironment, if you're in cancer research and pathology research, if you like. We also, very importantly, and I think, there, we have a huge advantage over some instruments and solutions that have been out there longer already. We're only coming to market now, but I think we can technologically leapfrog in having this very high 8 orders of magnitude dynamic range. You have large cells, you have small cells, maybe you have extracellular vesicles that you want to study. In addition, you have proteins. This is for targeted spatial proteomics, that proteins that you have in high copy number that are fairly abundant and some of that have been very low copy number, but they may be biologically very interested in normal cell biology or disease biology. And we combine that with probes and panels that are prequalified that we develop, for instance, for immuno-oncology or for COVID research or neurological research in human or mouse models. Some of them have been released, some of them are being tested in our CRO business and are going to be released commercially at a later time. But there's sort of an ongoing preconfigured content panels coming out. So more and more razor blades from a financial point of view for that razor, which is our CellScape instrument for spatial biology, spatial proteomics. In addition, we have some advantages, a lot of researchers say I want exactly those 23 antibodies that you have there, but there's 2 or 3 in my research that I want to use or maybe it's proprietary because it's a pharmaceutical company. They don't even want to tell us. And we can do that. We're not -- you can tailor and adapt them and that for many customers is very advantageous for their research or for their proprietary drug target development or drug target discovery and development. So this has gotten -- was introduced really in March already at the originally planned AGBT date. We then also showed it at the AACR Annual Meeting in New Orleans in April and now the real AGBT that's just taking place this week. And it's getting very good traction. We think it's well ahead of announcements that have been made of things that are supposedly coming later this year or next year by some companies in spatial biology and some that are out there already. I think we can actually provide higher performance, higher dynamic range, the full field of view and all of that. We think this will be an excellent instrument and perhaps the performance. And over time, perhaps even a market leader. But obviously, we're at the early stages of the commercial rollout. We're very, very excited about that. And it's not even a mass spectrometer in NMR. So this is Bruker's chip cytometry that uses the microscopy platform. Here are some gorgeous images. In this case of human breast carcinoma with different types of cells, immune cells and cancer cells and extracellular matrix and other things that are being labeled here. This is very, very informative and very useful. And again, pretty pictures are one thing beyond that I'm the big believer and so our most researchers that you have to be quantitative and highly quantitative and we can do that with high -- very high resolution and high field of view. I think we're covering all the bases, so to speak. A slightly different, partly overlapping, but mostly complementary approach is something that we did in a minority investment and strategic collaboration with a company out of Massachusetts called AmberGen, and they're providing for our MALDI imaging mass spectrometers, primarily the timsTOF flex, that's the one that also has a MALDI source. It combines a capability to do a targeted protein imaging. This is tissue imaging down to 5-micron resolution. This is for tissue and pathology research. And they provide ability to have a photocleavable peptide mass tech with synthetic peptide libraries, where you can easily imagine they already have 50 or so plexing, but that you can take to much higher plexing than some of the other approaches that have been used, for instance, by other companies in mass cytometry. Here, you could easily imagine going to 100 plex and 150 plex. And I've spoken to some European TME, tissue microenvironment oncology researchers lately. They really want to see the cancer cells, the extracellular vesicle, the stroma, the extracellular matrix, infiltrating immune cells and so on and look at different proteins. So they actually wanted to go to 100 plexing and 150 plexing. That's not available today, just to be clear, but I think this has the road map to go the high-level plexing that can do it. In addition, and this is really the game changer in a way. You can superimpose that with the biology you get from metabolomics from small molecule unbiased imaging, we can do MALDI instruments. Looking at metabolites, looking at small pharma drugs, looking at lipidomics and at glycomics, all very, very important field. So it's a new way of doing multiomics, really starting with the proteins, all the way to lipidomics, glycomics and metabolomics. Sometimes when they go to cancer conferences, they think multiomics ends with transcriptomics and it's all done on NGS. This is the other side of multiomics that, of course, is highly complementary with genomic and epigenetic and transcriptomic, multiomics. Very exciting capability, tremendous feedback from customers. These are million dollar research systems, but I think a lot of people will allocate budgets or apply for budgets, and also in pharma and biopharma applications, not only in academic medical centers or NIH funded or similarly funded markets. Very powerful new capability. You can even do multimodal imaging. You can add a fluorescent tag. Now you can have optical contrast and fluorescence imaging and combine that with molecular mass spec, targeted proteomics, metabolomics, lipidomics, glycomics. I know it's a lot, but the researchers are really very interested because they don't always have to touch 1 part of the elephant and speculate what the rest looks like, they begin to be able to see the whole functional biology. And here is a researcher who we've worked with for quite some time at the Medical University of South Carolina, Dr. Peggi Angel, a fantastic scientists and collaborators, also to work at books. This went a little further. Can I go back here? Hopefully, there she is. And indeed, she stresses how this is game-changing for her biological and pathobiology research. I won't read the full -- this is now moving forward on its own. Well -- all right. So let's see how that's going to work out. Anyway, so the assay was ASMS this week. So let me wrap things up in the next few minutes with some of the launches that we had there. We further expanded our timsTOF platform with the timsTOF HT which now has a fourth generation extended dynamic range. Tim's cartridge, and it also has a new digitizers, so you can look at even more compound amounts, whether you have those in tissue or biopsy proteomics or in liquid biopsy research and plasma proteomics, both are important markets for that. And it can do that with even more coverage. We can, in many cases, in tissue proteomics with the right cells and cell cultures and or tissue samples, we can now detect over 100,000 peptides. I stress the peptides, I sometimes get the numbers of how many proteins are injected in targeted method with antibodies, but they don't detect the whole protein, they detect an epitope, which is a part of a peptide and those may be a few thousand, but we're looking at 100,000. And by the way, very importantly, for Discovery, we're doing that with 1% of FDRs, false discovery rates, on peptides and proteins. I think that's game changing. I think this unbiased approach is the way to do discovery proteomics, but there's other methods out there and time will tell which ones will be prevailing and be scientifically sound. We think we're on the right path here. We have also expanded our single-cell proteomic solutions offering. This we launched like last year. This is also a million dollar system. It's completely game-changing and that you can finally do unbiased single cell proteomics and combine that with a highly complementary single-cell RNA seq, the 2 of them are only partially correlated, sometimes uncorrelated. So if you only look at one versus the other, you really are doing biology. You have blind quite honestly, you need both. I think is the answer to do quantitative single-cell expression biology. And many nonproteomics, non-mass spec labs are excited about that they come from the RNA sequel then why do single cell genomics and transcriptomics, they say, wow, we need to have that capability, especially since the single cell proteom is still quantitative i.e., the copy numbers are such that you can do meaningful, but quantitative biology. We have teamed with a company called Cellenion. They're part of the VICO group out of Sweden. On their single cell in 1 robotic system, so we can now have an integrated solution for single cell work. That was one of the important announcements this week. And let me speed up a little bit and change gears for a little bit, actually. We've also -- put aside proteomics, metabolomics, single cell spatial biology. We're actually very interested in a novel approach that you'll hear more from Bruker about point of need mass-spectrometry without chromatography. For that, we've done an acquisition, and we've done a strategic 40% investment in 2 different companies. We acquired the company that does the dark source and that's more of the 1,000 of these systems out there, all for various vendors, single or triple quads or [Indiscernible] sometimes to do rapid field analysis, very easy to use, very robust, very high throughput without chromatography, not all problems can get rid of chromatography, of course, not. But there are many new problems that you can solve in the applied markets, even in some diagnostic research, in semiconductor, purity monitoring situations and other areas where a very rapid result in seconds without chromatography at the point of need for easy non-mass spec trained operators is important. And we were pleased to launch a first product already at ASMS, which is our triple quad called EVOQ with a DART source for point of need, highly selective and sensitive mass spectrometry. We also, in the future, want to that with ultrasensitive and very high-speed time-of-flight detectors. Very small, small footprint, fast detectors, different than our big timsTOF, and for that made a very significant strategic minority, 40% investment in Switzerland. So you'll hear more combined products. And as I open for Bruker, not only doing proteomics and MALDI Biotyper, et cetera, but point of need mass spectrometry almost as a new category for the applied markets. And our MALDI Biotyper, which I mentioned a couple of times, is doing really well. In fact, it has reaccelerated from high single-digit growth to more like double-digit growth. We have now more than 5,000 of these instruments. And we're launching some really new cool capability. The Sepsityper has been European and then FDA cleared about more than a year ago. This is for rapid identification, nearly universal identification from positive blood culture and suspected sepsis cases. And on our research use road map, we can now add lipidomics in addition to the traditional applied proteomic fingerprinting that the MALDI Biotyper brings, which for certain strain identification or resistance patterns is yet an additional exciting capability. We also hope that later this year, we'll be beginning clinical trials in Europe for selected antibiotic susceptibility testing at very high speed with fast time to result of the orders of 6 to 7 hours after an initial positive blood culture. So more exciting things. This is another one of those flywheels. This is a $250 million business, approaching 60% aftermarket, margins well above our corporate average. This is one of these examples of things that pull up our margins and are very good for our growth rate. And I think on my -- the other thing in the last 30 seconds that I'll talk about is our LiquidArray technology. This is in molecular diagnostics. This uses a proprietary Mid-Plex or High-Plex PCR technology that will provide the next generation of syndromic panels that will be much more suitable for the European reimbursement environment and probably being about a factor of 3 to 4 lowering cost and requiring lower reimbursement, while still providing excellent margins for us. We've launched the first few syndromic panels using this LiquidArray technology, and we'll be launching more this year and next. So this is a very important new platform for us, LiquidArray technology in molecular multiplexed applications. And I will -- I will end here, even though I have 2 more slides after that, but I won't quite get through them. We've launched this very exciting compact 1 gigahertz NMR structural biology that is a single-story instruments, takes only about 30% of the liquid helium. We got a first order from Japan since we last introduced this only about 6 weeks ago, although, of course, we've been working on this order for a while. We're delighted with that. We think this is a system that's not only good for national labs, but also for single PIs or co-PIs or a single university to get into the gigahertz level and also for selected pharmaceutical companies. And I have exciting -- 2 more slides that I won't talk about today, but you've heard most of that before anyway. Thank you very much for your attention.