Bruker Corporation (BRKR) Earnings Call Transcript & Summary

All right. We can look to get started. So thanks, everyone, for being here. I'm Patrick Donnelly, the tools and diagnostics analyst here at Citi. Happy to have Gerald Herman, CFO of Bruker with us for this session. Gerald, thanks for being here.

Maybe we can start, you guys reported the quarter pretty recently here, strong results, really nice guide for '23. Maybe just talk to the quarter quickly, kind of the moving pieces and then we can kind of get into orders in '23 and kind of move on from there.

Sure. Well, thanks for inviting us. Happy to be here. It's always a pleasure to be in New York. I guess I'd say relative to the fourth quarter, a pretty solid performance across almost all of our end markets. We put up quite strong order bookings performance, in particular, in our -- some of our typically strong areas, I'd say, micro-electronics and semi-metrology space was quite solid. Also, we saw a pretty good growth in a number of our other areas that are building some strength for us in the long term. So I think for the full year, we were quite pleased. I mean you know we have a little bit of up and down by quarter. But fundamentally, it looked very strong for us, I think, as we finish the year, both at the organic revenue growth line as well as through the margin performance, we put up 150 basis points of improvement in gross margin, and we put up almost 60 basis points of improvement in operating margin. Performance came in at 234 -- on the EPS, which beat consensus and certainly was strong kind of mid-teens growth from an EPS perspective on a year-over-year basis. So pretty pleased with how it all performed...

Yes. Yes, maybe on kind of that it used to be a lot more volatile in terms of the quarter-to-quarter, you guys did a nice job of smoothing results out. I mean was there anything from 4Q, you guys have put up a nice beat. Any orders revenue kind of push out into 1Q to kind of smooth that typical cadence? Maybe just talk a little bit about that.

Sure. One of the big challenges for '22 in the fourth quarter was really no exception to that was the supply chain constraints. We still have issues from a supply chain perspective. It did improve, I would say, in the fourth quarter, but certainly not to where we would like to see it. We're still building backlog as I think you likely know, we're at record backlog levels. which gives us a little better visibility into what we see for the '23 guide. But fundamentally, I think the quarter did pretty well. I think the year we tried to do as much steering as we can, but I think fundamentally, it was a good solid performance. We do see -- and we can talk more about that if you'd like, relative to the '23 period, probably some lumpiness, again, largely due to our supply chain constraints. This is a situation where we see improvement, but it's not over yet. And it looks like for us, we'll still see supply chain constraints through at least through this part of the second half of '23.

Yes. Yes, maybe kind of touch on the order piece you touched on there. I mean I know a lot of people put instrument companies in a bucket, right, you kind of all look the same. But you guys are pretty unique in the way that orders continue to grow. I think they even outpaced revenue in 4Q that backlog confused builds. Maybe talk about the order growth you've seen in 4Q and what makes you guys unique versus other instrument players who are seeing instruments decline year-over-year in terms of orders, you guys are a little bit different.

So first of all, I think we have a unique play in terms of our innovation. The way our instruments and our solutions are developed are really cutting-edge technology. And I think that's helping together with our Project Accelerate 2.0 strategic planning program, it's really helped to fuel demand for those products. And we see it at a very significant level in the order bookings performance. And it's been multi-quarter, actually multi-year bookings performance, and I think that speaks largely to the strategic -- a confirmation of the strategic plan as well as just our ability to execute. We have clearly built some backlog up actually more backlog than we would like to see at this stage we're at record backlog levels. And we'd like to bring that down a little bit. But at the moment, we're at a book-to-bill over 1, and we've been at those levels for quite some time. Fundamentally, we want to bring it down. It's going to be largely driven by how the supply chain works its way through over '23. We think it's going to be a multi-year exercise of bringing that backlog down over time. In terms of our competitive position relative to the marketplace, I mean, we -- you already know, we have 2 areas that we focus on, really specifically around proteomics and spatial biology. We think those are enormous opportunities for us from a growth perspective. But at the same time, we have very strong core growth activities going on. Our core -- this is academic government, industrial, a number of our other areas are performing extremely well. This, I think, has to do with the differentiated products. And to a certain extent, even in industrial markets that may be seeing some softening, we're performing better in those markets because we tend to be focused on more niche markets. I think today that we were even several years back.

Yes. And to your point on the order growth, I mean, it's been -- got past multiple quarters now it's multiple years. You've seen this kind of double-digit consistent order growth. I mean, are you seeing any change in appetite from customers, the demand? It seems like it remained obviously to your point, the 1.1-plus book-to-bill in 4Q. I mean any changes in the demand or conversations? Or does it remain quite robust for...

It seems quite -- I mean, we have seen continuing strength even into the first quarter. You likely know there's good strength for sure in the proteomics space. We continue to have good solid revenue performance in the semi metrology and the microelectronics area on our side as a supplier of those products. We just have seen almost broad-based order growth across almost all the geographies as well, very good strength in the North American markets. Europe, which gets a lot of conversation about how challenging it is. We have not seen that. We saw very strong order bookings performance in the fourth quarter in Europe and continue to see that in the first quarter so far. And I would say even China, we could talk more about China, if you like. But the China experience, we saw mid-teens growth both in revenue and order bookings performance in '22 off some very challenging comps. So we're pretty bullish on China as well at this stage based on what we've seen from the order books.

Yes. And I mean it sounds like near term, it sounds like 1Q is tracking pretty well on the order side. I mean is that double-digit type growth in orders sustainable as well, at least in the near term?

Well, I guess, again, I think it depends largely on some of the macroeconomic conditions. We know that there are some supply chain constraints that are still holding people back in some respects. But I think we've seen really good order bookings performance across almost all the geographies. So at this stage, we we're pretty optimistic.

Okay. You mentioned China, it's always a big focus area for people. We had kind of COVID Lunar New Year, everyone's kind of wondering how do we come out of that. Maybe talk about -- you guys have put up pretty good performance there, obviously. So I guess what are you seeing there, again, with you guys typically when things reopen, you're able to place a bunch of instruments. But maybe just talk about the demand environment there and what you're seeing in terms of lab activity kind of beyond the kind of shutdown between COVID and Lunar New Year.

Yes. Yes. I'd say, I mean, we were -- we did have some challenges, particularly in the COVID lockdowns in China. As that got lifted, I think the overall performance of the Chinese business has performed extremely well. Order bookings, I think, has got a little bit of boost from the release of that COVID lockdown. But in addition, as probably most know, there's clearly some China stimulants in the mix -- and I think from my perspective, that seems very focused largely in some of the sweet spots that we operate in, both the microelectronics areas, the academic and government funding areas, and in particular, some of our more niche markets that we play in, in China. So we are expecting a good solid year in '23 relative to the Chinese market. It is always obvious, I guess, that the Chinese can dial up or dial down what they want to do. At this point, with the stimulus that we've seen put up in China, particularly in the academic government space, I think there's a really good tailwind there for companies like ours that are focused on specialty -- called specialty areas in China. And those of you that may not be familiar, we do not have R&D activities or production activities in China. This is largely just commercial activities, but very focused on research and discovery related equipment and also some industrial equipment that got very good take up.

Yes. Maybe we can pick up on that, the stimulus piece. Obviously, some pretty big numbers thrown around, particularly what's targeted for Life Sciences. It seems like you guys have already seen some activity. I guess, first, maybe what are you contemplating in terms of how you think about China growth this year is a stimulus part of that? And then secondarily, obviously, it feels like it should be a pretty durable growth. But maybe just talk about what you see.

Yes. I think what we're seeing so far is I think we perhaps even saw some benefit on the order booking side in China from some of the stimulus. But I think more of that's going to fall into '23. And it appears as if this order bookings momentum that's going on there is more durable, certainly into '23. The question is going to be how fast can we actually meet some of that demand. And that's going to be more supply chain driven again -- but yes, I mean, our teams are indicating to us that they expect to see good solid order bookings growth and some execution as we move through '23. And so I would think it's going to be a tailwind in '23 and '24 based on that. And there's a number of different parts to those programs in China, and I think we hit more particularly in some of the favorable interest loan structures for funding in research areas. And I think that that's historically been very durable for us even without the stimulus...

And to your point, not the biggest kind of production infrastructure over there. I know there's always this focus on in China for China. I mean, have you heard any pushback on that or anything like that?

Well, there's going to be that. There's no question about that. And we do have some products that face that sort of in China competition. But -- the great thing I think about our portfolio more broadly is that it's driven largely by innovation. So if you're looking to do cutting-edge research and that's where a lot of the academic government research activities going on in China, you need the big tools. And those tools are coming from a handful of players, and we happen to be one of them. The Chinese research tools are not developed tools in China are not at the level of some of the other Western-based to manufacturers, including us.

Yes. That's fair. And then just maybe refresh people just in terms of China exposure, what it is for the company and then also anything different in terms of the corporate portfolio versus what -- where the exposures are in China in terms of what you're selling there?

Yes. I'd say just generally, China is a major market for us. It's about a 17% picture for Bruker, so not inconsequential and growing at these double-digit rates, as you've seen. And I think we play very strongly in some of the core markets. I guess I would say everything from life science mass spec to specialty equipment, including in the industrial space, we have tools that are in the NMR space, particularly that are very unique. So I'd say, generally speaking, our BioSpin CALID and even our Nanogroup, see particular strength in China and expect to see it going forward. That's how it feels at least at this stage. It's early in the year, but it's encouraging for us I think.

Yes. Got you. Okay. And then maybe just kind of shifting over. You mentioned Europe, obviously, a big focus -- maybe a quick last one on China, actually. -- the semi piece -- that's the one everything is great in China, but maybe that one...And I think you guys almost derisked the backlog. At the same time, orders are able to grow double, but you pulled out almost some of the China seeing stuff...

We did. Yes. So because of some of the export restrictions, some of our instruments, even though they're not targeted, particularly to defense or that area specifically, we do have, in some cases, dual use equipment or equipment that's perceived as that from the Chinese authorities and from the U.S. government. So we did pull out. It's a very relatively small number in our backlog. It's about less than 1%. But we moved that out of the backlog just sort of as an abundance of caution, -- and we're working through an application process with the U.S. and European governments to qualify our instruments to go back in on the basis that they're discovery related that they're not defense related. And so I think that's a process. We'll see how that all goes. But we removed that from the backlog. We've also removed any orders that we thought would be insensitive in that space out of our guide. So whatever we have in the guide that we put out for '23 has already baked that in. So I think we're pretty comfortable with where that is. There actually maybe some upside if things work out.

So it was almost kind of derisking the backlog, still went up in 4Q, and then there's potential for it to possibly come back. What was the timing also.

Well, I think the -- it's really government driven. I'm sorry to say it's not Bruker driven. So it's going to be about what -- how fast we can move through some of the government agencies. But we're determined. We've got a good strong team focused on it. And of course, that's going to be upside. -- from the guide. So[indiscernible]

So maybe then over to Europe, always a focus for you guys. Just given the exposure, you always have a pretty good feel for the trends there. I think there was some caution kind of pre 4Q and the general feel is the milder winter has kind of helped everybody, but maybe talk through what you're seeing.

Sure. So maybe just to clarify, historically, legacy-wise, Bruker's had very large profile in Europe. That's really moved pretty dramatically to be a more balanced profile. So it's basically 1/3, 1/3, 1/3 for each of the major geographies, including Europe now. So it's not quite the exposure that we had many years back, but still, we are a strong player. We have research facilities, production facilities and so on in Europe. So it's an important market for us. What I would say is that, fortunately, I think the winter in Europe was relatively mild. It's fun to see on video conferences or when we travel people in the middle of January in short sleeves. So it's turned out to be a relatively mild winter. So I think the energy-related concerns that we had probably back in the third quarter of '22 have seemed to have really dissipated. There's large gas supply availability in places like Germany and others in Europe at this stage. So we don't appear to have any expectations now for production disruptions or anything else that was giving us a little concern initially. So I think overall, Europe has tended to be a strong market for us. We see -- we had really good order bookings performance in the fourth quarter coming out of Europe. We still continue to see that as it's moved forward into the first quarter. It's a big important market for us, and we're optimistic or more positive about the outlook there than New York, I'd say, even a few months back.

Yes. And just the general funding environment there, it seems stable again. I know there worries with the whole geopolitical tensions that there would be some shifting of the budget that you've seen...

We haven't seen much. And I have to say, if you add up the geographies with ships and Science act in the U.S., the Chinese stimulus plus what we continue to see in terms of strength in the academic funding in Europe, it's -- these are all pretty solid tailwinds, I think, to the overall instrument portfolio. And then, of course, we have other elements that we're pushing hard on, particularly in the higher opportunities around proteomics and spatial. And those are hot areas and for sure, the Europeans are not going to be behind on funding opportunities from a research perspective in those categories.

Yes. Okay. So maybe we can move to kind of the '23 guide. One question I got certainly after the quarter, I think you guys at JPM gave the mid- to high single. And then a few weeks later, we're up to 8% to 10% for the year a good change, which is always as well.  But I guess what gave you the confidence over that a few week period to kind of shift things up? You mentioned obviously 1Q seems like it's coming in well in orders. Is that kind of the big catalyst?

Well, part of it is some improvement in the supply chain element. I mean, clearly, for Bruker to put up 8% to 10% organic revenue on a guide is significant, I think, for us. We tend to be quite conservative about our approach going forward. And I think the 3 factors, some improvement in the supply chain. I think the second important factor is the backlog level gave us pretty good visibility into what we see going forward. I think, as I said before, it's a record backlog and we now know the composition of that more visibly. So it gave us more confidence there. And then I think it is a fact that the -- when we studied more closely the fourth quarter performance on an order bookings perspective. And then as we moved into the first quarter, seeing strength going on there as well helped us to be more confident going forward with the 8% to 10% on the organic revenue base.

And would you still frame it, I know we were chatting a little bit before about you and Frank's philosophy, it's always pretty conservative. So again, I think when people saw 8 %to 10% wow, obviously feeling pretty good. I mean, do you still feel like that 8% to 10% has the typical broker conservatism in there?

Well, I'd say the business is quite comfortable with putting those numbers out or we wouldn't be putting them out. I think we said this to you, and I've said it to others, I think the company has pivoted to a different place. I mean 3 or 4 years ago, the order bookings demand was not where -- what we see today. We've got tailwinds in some other areas. We've talked about some of those already. And we've got funding environments that seem very favorable. So there's a bunch of factors, I think, at this stage that give us more confidence to be more optimistic about that.

Sure. Yes. And another one we get, not only for you guys, but for the rest of the group is kind of this cadence for the year, right? Most tools companies are seeing a softer 1Q. -- you guys seem to be bucking the trend there a little bit as well. So maybe talk about -- it sounds like 1Q could be around that full year. I mean how should we think about that?

So we have a slightly different dynamic perhaps than some others. First of all, I've just mentioned, we are -- we seem to be encouraged by some of the order bookings that we've seen both in the fourth quarter and so forth. -- first. And fundamentally, I think that the environment is a little bit different for us. So first of all, if you look at the first half of 2023, we had a relatively weak second quarter of '22. So that was driven largely by supply chain constraints, and that squeezed our performance in the second quarter down. And I think that means that if we deliver well in the second quarter of '23, we'll have an easier comp. Moreover, because of supply chain issues, we did see some spillover of transaction activity into the first quarter. So I do think we're going to be at the high range of that 8% to 10% in the first quarter, and we'll have easier comps in that second quarter. So I think that sets up a different dynamic for the first half. Likely, the second half will be somewhat, I would say, lower comparisons, maybe at the lower end of our 8% to 10% range of growth, still very solid, good growth in that second half, but I think the expectation is that it will be kind of reversed what you might otherwise see.

So in terms of cadence, 1Q, maybe at the top end of the full year, 2Q, the high mark for the year and then the second half kind of cross that bridge when we get there.

Yes. I mean we'll see what it all brings. But if we have good execution, I still think we'll be able to deliver that maybe the low end of that 8% to 10% on our guide.

Front half guide is always... Always prefer...

It's good for us because we get to essentially put that -- those quarters in the bank that allows us to have more flexibility for the second half.

Yes. And maybe again on the backlog as you work your way through the year, I think you guys are around 9 months right now -- is there a view in terms of how you're going to work that down again? A good problem to have is that orders continue to come in really strong and backlog cold is pretty steady here. But what's your perspective on -- I know Frank has talked about, it's going to take years to work...

It does appear even with the supply chain easing or some improvement in that. Our expectation is that it's going to take a multiyear effort to bring that down, especially given the scale of our order bookings performance thus far and sort of historically. So Yes, I think it's a longer term or maybe a medium-term challenge for us to get that book-to-bill down below 1. And we absolutely want to do that, honestly, because our backlog period is a little longer than we would like it to be at the moment, especially in some sectors where we have very strong demand, [indiscernible] biopharma or in some of our life science instruments, for example, we clearly want to be moving through that backlog faster than we are. Okay.

And then maybe just kind of moving on to the margins for the year, another area of kind of upside from what people were expecting. So how do you think about the margin piece? Maybe talk through kind of the guidance, the levers you have this year, talk a little bit about how that works...

Yes. So we -- in the guide, we pointed out for '23 that we expect to see organic growth in both the gross margin and the operating margin levels. The gross margin is being driven largely by our ability to continue to push for higher price realization and not only active pricing action, but also the differentiation in their products allow us to price accordingly. And we are pushing very hard on the second pillar of our strategy, which is around our process excellence activities. And operational excellence is important for us. We're putting -- we probably have seen significant capital into CapEx. And our capital expenditures, which are really designed to help bring our overall production costs down over time as we lift volume. So -- so gross margin performance, we expect to continue to improve in '23 and hopefully beyond, with some of the investments we're making. And actually, I clarified this with a couple of investors a few weeks back that we are expecting actually organic operating margin improvement, it's really between -- we have some headwinds. We have some foreign exchange headwinds combined with some acquisition drag at the moment, and we can talk about that if you'd like. Combined with some inflation headwinds, we still have got some net inflation headwinds in '23. All that's putting pressure downward on the operating margin. And so we guided to a decrease in operating margin, but still strength across operating profit performance and EBIT growth based on the volume activities, but -- the other important piece to point out in the margin story is that we are bumping up our R&D funding. We're moving from about 9.3% in '22 to 10% in '23. And that's going to be focused largely on these high-impact areas, and we can talk more about that if you like, but this is going to be driven around enormous opportunities we see in some of the strategic acquisitions we did and where we're going to fund R&D activities in our commercial space there and also our proteomics and spatial biology investments.  So when you wrap all that together, it still looks like a pretty good story, especially down at the EPS line. We are still predicting this 8% to 10% growth in EPS on a 23% even with a slight deceleration, I guess, I'd say, at operating margin...

Yes, a lot to go through there, which will jump into. But maybe a quick one, just in terms of if there were to be upside on the revenue, how do you think about letting that flow through to the bottom line versus, I know, Frank, always on the investment piece you mentioned particularly in R&D. So what's the philosophy there?

Well, generally speaking, we are very focused on operating profits. And I'd say the company, this is not a story of just organic revenue growth. It's really a combined story of strong organic revenue growth combined with profitability. So we are very committed to that. I think we've proven that. I think quarter after quarter or at least year after year, some bumpiness along the quarters. But certainly, on an annual basis, we've been delivering essentially mid-teens growth on an EPS line. So we're very committed to it. I don't see '23 as an exception to that. And we'll talk more. I would invite many of you to our Investor Day at in mid-June in the Boston area, hopefully, you'll all be able to join. We'll talk a little bit more about medium-term outlook there, but I mean, we're quite committed to the overall story of profitability, combined with organic revenue growth.

Yes. And to your point, I mean, you remove FX and some of the M&A piece, that organic margin is still going up 50 bps or so. I mean, is the right way to think about, particularly now that you're a bit higher growth than you have been historically? What does that algorithm look like in terms of the margin?

It's... Well, we -- historically, we've been tracking this 75 to 100 basis points of operating margin expansion. And clearly, as you continue to fund further in these acquisition opportunities as well as in these sort of breakout opportunities on proteomics in spatial biology, we want to be able to contribute. And when we talk to our investor base, they want us to continue to contribute further on that innovation cycle. So -- that's the goal. And as long as we tend to -- and I think you know this, Patrick, is we -- when we see very significant volume, we get good volume leverage into the profitability line. And it allows us to have some flexibility on where we want to put that, whether it's commercial infrastructure in some of the more burgeoning markets that we see, particularly in spatial or whether it's expanding market share in a way that we hadn't initially planned. So we're much more agile, I guess, I'd say about that, especially if we get the organic volume at the revenue line, we have more flexibility to play with it.

Yes. And you've touched on the R&D piece, Frank talked a little bit about that on the call just moving that number up. Again, I think given the ROI on some of the earlier investments and what they're doing to growth you guys have some room to do that. Where do you think about the priorities there? We thought Project Accelerate spatial proteomic in some of those areas. But maybe just talk through kind of what that pipeline looks like and where the focus is?

Yes. The primary focus are in what we describe as the breakout opportunities, which are in proteomics and spatial. And I think these are hot areas, particularly in the proteomics space, the goal there is not just to increase our overall organic revenue growth, although clearly that's a target. It's also to increase market share. And maybe more importantly, with some of the instruments we're putting out there in the marketplace, it's to expand the market. And so our objective is to really be a substantial proteomics player going forward in all elements of it. And it's a growing field. It's still fairly emerging even though we -- we've talked -- some people have talked about this for decades. We're starting to see insights in a way with some of our instruments around sensitivity, throughput, the capabilities of those instruments, they're launching a whole different set of discovery opportunities, and we want to be a part of that. So clearly, the -- that's one area of major focus for us. And I think the other is around spatial biology. We made some very interesting investments, I would say, including the Inscopix investment, which we did at the end of '22, which is around brain circuitry and neuroscience and the concept of being able to look at spatial biology in neuroscience in a way that hasn't been done before. So we are moving our way more directly into those markets, we launched in '22, the Selscape system from our Canopy acquisition. It's just a cutting-edge tool that allows for capabilities and looking at dynamic range within the cell structures at a level that just hasn't been there in the marketplace before. Now we're a little bit late to that party initially, but we're catching up fast in terms of our technology. And we think we're -- we've got to build some more commercial capabilities there, and we are absolutely doing that with some of these investments. And more to come. I think you may know, Patrick, we still have some launches going on in the Canopy space, our fluorescence microscopy instruments are being developed further. We have Acuity genomics, which is another element or dimension that we have yet to launch. So there's a bunch of elements in the pipeline that we are funding. And I didn't mention the diagnosis acquisition, which we completed in early January, but that's yet another dimension around the proteomics space that gives us complete access to specialty CRO capabilities in the proteomics space that we never had before. So I think those are the investments. And fundamentally, we're pretty comfortable with making those investments now with the goal of driving greater organic revenue growth over time.?

Yes. When you think of some of those high-growth verticals in spatial proteomic these areas, seems like early innings, a lot of opportunity. I guess, how do you think about when you look out a little bit midterm, longer term in terms of portfolio, where do you think that exposure could go for you guys in terms of some of those items.

Well, I think it's pretty significant. I mean I haven't talked about some of the other areas in Project Accelerate 2.0 and our initiatives. But we have Frank mentioned, clean tech or Greentech, -- we're starting to make some interesting investments in that space. We clearly have some really exciting nanotechnology tools, including in our microelectronics space, which has driven really significant growth for us over the last couple of years. So there are other opportunities outside of the proteomics and the spatial areas. But I would tell you that the big breakout opportunities are those 2 areas. We are better positioned in those areas today than we were even a year ago. And I do think you'll see more opportunities from not only tuck-in acquisitions that give us some other dimensions that we need in the portfolio, but also maybe even more substantial acquisitions that fit into that mix. It's a different -- I mentioned this to Patrick earlier, but it said slightly -- it's a different environment today for Bruker with the order bookings performance with our profitability levels with the backlog levels that we have with the breakout opportunities we have, we've really pivoted, I think, over the last couple of years to a different to place.

Yes. No, absolutely. And maybe just on kind of the core instrument portfolio, you have kind of MALDI biotype you have timsTOF. Maybe just kind of an update on what you're seeing there Clearly, the demand is healthy backdrop is kind of coming your way. So maybe just kind of talk through those quickly...

Yes. Well, certainly, on the MALDI Biotyper, we've seen -- we saw significant growth historically. I think our view at the moment is we had a couple of headwinds. One of them was clearly when we stepped out of our Russian operation where we did have -- clearly have some hospital clinical activities there that dampened it. We see on the MALDI Biotyper, we have over 5,000 instruments out there very healthy. It's kind of the gold standard on microbial identification. Very strong consumables growth continues. Their good replacement instrument opportunities. And then in the life science space, particularly in the timsTOF portfolio, I -- most of you already know that -- this is one of the hot products out there. We've expanded the portfolio. So it's not one product, it's multiple products. We're looking at single cell capabilities. We're looking at high throughput. We've got flex instruments now that combine mass spec with other elements of our portfolio. So it's really a very broad-based portfolio now. And I think the point that I really haven't stressed at least here today, but talk about it a lot with other investors is our focus on biopharma. We had historically been relatively underrepresented in biopharma as a company. And now the stretch into proteomics, especially with the timsTOF portfolio, which we would normally have expected that to be more of a research instrument but has now really moved almost mainstream into biopharma, especially with the discovery of protein, elements and the dynamics associated with them. So biopharma is we've seen significant growth in '22, and we're expecting continued significant growth in '23 in that space, largely driven by the proteomics area as well now in the spatial areas the dynamics of spatial biology and being able to see the real life, what's going on in terms of cell activity at the cellular level, it's remarkable what we're going to see, I think, going forward. And that is truly in very early innings relative to the S curve, I think, from a spatial perspective.

Yes. And you mentioned the consumable pull-through aftermarket revenue has never been the biggest for you guys, but it's a big focus, right? -- if you talk about where you are in that evolution, what the strategy is, maybe some attach rates if you have things like metrics you look at...

What I can tell you is that we did highlight it a little bit on the earnings call. First of all, the Project Accelerate 2.0 mix in the overall revenue has moved from in the 40s -- a couple of years back to in the 56% of our overall mix. The expectation is that aftermarket, which is what we described as service, software, consumables, assays, other elements have started really to make a difference there. I mean, we had some instruments that have higher consumable product elements that are associated with it, but we've moved into a whole different markets, for example, our preomixs sample prep kits assays that come out of some of our other acquisitions, the consumables associated with multi-biotyper our focus on service, our movement. You may have seen we did an acquisition called Optimal a U.K.-based software company. We're driving more towards those aftermarket elements. And I think that's a really strong strategy for a company. So it's not so much anymore about the instruments, although it's clearly -- we're being disruptive with some of our instruments in the marketplace as a result of that innovative technology. But now it's more about the solution set that we can offer, the front end and the back end, whether it's sample prep or kits or whether it's software and technology on the back end of instruments as we start to move through those. So I think that's the strategy, and I think you'll see more of that in some of our medium-term discussions as we get into June.

Just a couple of minutes left, so maybe 2 more. Maybe on the capital allocation side, you mentioned a few times some of the smaller deals you've done -- maybe just talk about the preference internally buybacks deals, what the appetite is in terms of -- you guys have typically been bolt-ons, but go ahead.

Yes. Well, so first of all, our capital deployment strategy pretty -- has been pretty established over time, and I've executed to it for quite some time here now and sitting in the CFO seat. It's primarily -- it's funding the business and the growth of the business. It's about R&D activities. It's about putting commercial operations in place, especially for new markets. It's clearly about capital expenditures to support our production and capacity expansion and productivity improvements. Very clearly, we do also make some investments relative to strategic investments if they support the business. We've done some tuck-ins that are, in some cases, more technology focused, where we have a gap. We fill it in. But we have more recently done -- these have been more smaller deals. But actually, over the last 6 months, we've done some fairly substantial acquisitions. The Inscopix deal and over 100 million, the diagnosis deal over $80 million. So these are substantial deals that we think are very strategic to the overall picture. So I think we'll continue to do that buybacksort of in dividends or dividends occur every quarter, but buybacks occur whenever we have left over capital, and that's essentially the framework we use.

Yes. Maybe last quick one just in terms of -- if you think about upside levers this year, it sounds like, obviously, the year started pretty well. What do you kind of look at in terms of some upside could come from 1 or 2 things?

Well, I think certainly, China is a possible that with respect to some stimulus funding there. Also, just more uptake on some of our more dramatic opportunities both in the proteomics and the spatial side, I think there's some -- still some opportunity there.

Okay. I'll stop there, Gerald. Thanks so much.

Yes, pleasure. Thanks very much.