Bruker Corporation (BRKR) Earnings Call Transcript & Summary

Perfect. Good morning, everyone. This is Rachel Vatnsdal from the life science tools and diagnostics team at JPMorgan. Pleased to introduce Bruker. Frank Laukien is going to do the presentation. As we typically do for these, it will be 20, 25 minutes of a presentation followed by Q&A. If any of you in the room have questions, feel free to either submit them via the app on the Meta meeting's website or ping me directly. With that, Frank, why don't you take it away?

Good morning, and thank you, everybody, for being here. I want to acknowledge 2 of our directors, very pleased that you could make it. Thank you. Thank you, Rachel, for having us and giving us this excellent time slot, while we're all awake and psyched for this conference. I'd like to acknowledge 2 of my colleagues, our CFO, Gerald Herman; and Mark Munch, who runs our Bruker Nano group and there's a lot of the spatial biology field and single cell biology field, which is -- we'll be talking about that today. So my job this morning is to give you an update. I really want to talk about 3 things. I want to show you and demonstrate to you how over the years, with Project Accelerate and operational excellence, we have transformed. I'm happy to report very clearly with -- very clear evidence of 3 years of double-digit organic growth, and as you will see during the presentation, 4 quarters of double-digit organic growth, which is pretty good this -- well, in '23, at least that was last year. We have transformed Bruker into a fast growth company. I'll give you a few slides of updates on Q4. There is an 8-K that's going out at the moment. So you can look it up there. And then I will talk to you about the proposition -- more than a proposition at this point, about how this is evolving into Bruker being an emerging leader in the post-genomic era. I think that's not surprising to you because we've been doing proteomics and multiomics in spatial and single-cell biology. But I think this will show you how this is coming together. And I think it's a very important theme for us. So let me make sure I push the right buttons here. Here we go. Right. Our safe harbor statement, I'd like to draw your attention to that. You're familiar with it. And again, there's an 8-K this morning. So our dual strategy of Project Accelerate kicked off in 2017 and then turned into Project Accelerate 2.0 with broader themes and additional themes like spatial biology for the proteomics combined with operational excellence, which is an essential pillar of our strategy really does work. Our strategy is clicking. Project Accelerate, if you want to think about it financially, of course, is pulling up our growth, our margins, and our EPS while operational excellence and lean initiatives, productivity initiatives, in not only the traditional operational sense, but also in commercial excellence, in product R&D excellence is pushing up our market share, our EPS, keeps our core very, very healthy. We've seen some companies that let the core degrade over time because they got excited about some new, new things. We're not -- we're doing none of that. Our core is strong, gaining margins, had terrific growth as well. You may be familiar with this hexagon. These are 6 major initiatives. We'll be talking about some of them, of course. Spatial biology, single-cell biology, proteomics, multiomics are perhaps the most salient ones, but we're getting a lot of tailwind now also from artificial intelligence trends that are affecting our semiconductor tools business. I know this is a life science conference, but it is important, our technology is applicable elsewhere. We're also seeing some very good trends in what traditionally people like thought of more as the traditional, maybe more cyclical industrial markets. A lot of it is industrial research and a lot of it is green tech or clean tech research from batteries to offshore wind to future fusion energy. I'll be hinting at that a little bit, even if it's not part of the octagon. It's really a very healthy demand picture. So -- and we are striving, and we are making excellent progress as a leader in the post-genomic era. This is no longer the second or third inning of the genomic era. This is the second inning perhaps of the post-genomic era. And I'll explain a little bit what we mean by that. It's very exciting prospects for the next decade or 2. Right. The key strategic pillar of operational excellence, it's not as sexy as all the growth initiatives, but it does the job, and we actually have become really very, very good at this. We're doing it consistently. You've seen significant CapEx investments. A lot of them are for capacity for the next decade and more. And many of them, of course, also are for productivity. We have a very good Bruker management process that we've now honed over many years. It's not a branded management process. There are some others out there, but it really works. And it also stresses this entrepreneurial element. That's why we're so strong in generating organic growth and in -- and organic. Return on invested capital, I think we're very good at that, still in the 20s, and that's an excellent way of running a company. It's our playbook. It's not primarily acquisitive. We make some acquisitions. I'll tell you about a couple we just closed last week. They're more buying little plants to grow them into midsized or larger trees over time, again, with a focus on innovation, organic growth, and also operational excellence. Right. We are not cutting OpEx. We're not cutting headcount. We are investing in R&D pretty heavily, even north of 10% this year in '24. And we're going to stick to that 10% really probably throughout our medium-term horizon, which is to about '26. We've given medium-term outlook at our Investor Day last June. We are very much on track for the 200 to 300 bps above market, life science tools market organic growth and for the 10% to 13% or double digit on average EPS growth, we expect that, as you will see a little bit later, also above market EPS growth in 2024. Despite the acquisition that you know is about that we did, it's a little bit dilutive of the PhenomeX, which we're very pleased to add some of their technologies to our post-genomic toolkit. And we'll be talking more about that, and Mark can answer questions later throughout the day. So yes, we are making a strong investment, but we have a lot to show for it. We're getting extra organic growth. We're getting EPS growth that I think is very good at this point in time and also going forward. So the formula and the strategy are working, and the opportunities are tremendous. Right. Here are some examples of that. I will not go into -- these slides, of course, will be posted. We have this unique magnetic resonance business, right? Other public companies don't seem to -- don't have that, right? So NMR is an excellent field. We found many new growth drivers. There's the related field of EPR. There is the related field of MRI, preclinical imaging. And of course, indirectly, we are our best segment. We're also supporting the clinical MRI vendors with superconducting materials. Those, of course, are the GE Health and Siemens Healthineers and Philips of the world. So anyway, NMR is a great market. For instance, in Q4, our Q4 order bookings were really quite solid in the BSI segment. And in Q4, NMR had some ultra-high field systems that got accepted. I'll tell you about those in another slide or 2, and they also had very good bookings growth. So NMR is a great field. It plays a major role in looking at structural biology at deliberately -- at unstructured biology, which is really very, very important. And here in this example, in new clean tech research in the battery value chain that we're developing, where our other technologies are playing a role as well, but NMR, which perhaps might be surprising is playing a significant role. Many, many good smaller growth drivers adding up as well. Our MALDI Biotyper product line that's been growing wonderfully over 20 years. Roughly, we now have over 6,000 MALDI Biotypes. These are all paid systems, customer systems, over 100 million IDs. So it's really become the gold standard for nearly universal identification of bacteria and candida, fungi, et cetera, from cultures. And this is just continuing to grow. It's a beautiful business that -- here, the instrument business is now no longer growing in the double digits. It's growing in the high single digits, which is fine, but the consumables business, which is more than 50% of the -- including aftermarket and software and databases and consumables continues to grow in the double digits. So it's a beautiful business. We combine that with molecular diagnostics, our specialty, somewhat niche role in molecular diagnostics, but with some very unique technologies in our LiquidArray qPCR assays and other things that are in the pipeline, very important to our Project Accelerate initiatives. Core innovation, let me talk about products that you -- not for very long, but did you know -- normally hear about X-ray fluorescence, X-ray detection, nanoindenting, industrial research tools. You don't need -- you're welcome to read the details, but the core message, the message is we're investing in our core. We're bringing out innovation in core products that you may not have heard about, and we are gaining market share and having new capabilities, plus more and more -- not unlike some other companies among our peers, we're finding applications that are sort of novel and have very good secular trends, particularly again in this green tech, clean tech space. But also, often related to nano materials and semiconductor metrology ultimately. Right. So speaking of artificial intelligence and semiconductor metrology, a field that's really become -- because we have such specialized roles that support on the logic side for CPU or GPU chips, GPU very important for NVIDIA and its supply chain and others that are supporting the artificial intelligence revolution in going to not small. I used to talk about 7 and 5 nanometers. Now it's 5, 3 and 2 in the research phase, plus all the related high-bandwidth memories, the systems on a chip, even FPGAs that are related in this advanced packaging that's also absolute. You don't just need better chips, you need highly integrated advanced packaging and our tools, both atomic force -- automated -- atomic force microscopy as well as our unique X-ray tools play a major role in that. And we have, overall, our semiconductor metrology revenue is higher than the number here at the bottom, but we figure roughly, we ballpark that about $75 million and very rapidly growing part is already in support of artificial intelligence, which is obviously a revolution that has a long way to go, and we're one of the beneficiaries, one of the major beneficiaries of that within the life science tools space. Right. Something a little bit new that's emerging, but really has been adding up a little step by step by step is our new scientific software initiative within the BioSpin Group. It has come together inorganically from a number of acquisitions that we are integrating under our -- as both modular solutions, all with open interfaces. I think it's very important. That's what customers want. They don't want you to have proprietary solutions. Maybe you could squeeze out some extra margin. But I think you'll grow much further and have a chance to become sometimes even an industry standard by playing it open by being open to others and integrating solutions. Very much focused on productivity in the laboratory, digitalization, digital transformation in the laboratory, a huge topic for specialty chemicals for biotech, for biopharma. We're very much involved in that. So you'll be hearing more of that. We have significant growth plans. This will have excellent margins, and it's really coming together very nicely in our integrated data solutions IDS division that will be new to you. That's a big driver of our growth and of course, for further margin expansion. Right. New opportunities in clean tech, you don't hear about our best segment, about 10% of our revenue, making superconducting materials for high energy physics, fusion, et cetera, for the MRI industry, for our OEM customers. But there really are some cool opportunities, one that has really been around for a while now and is accelerating, which is fusion energy research, a clean, essentially inexhaustible, completely safe source of energy if we can develop -- if the world can develop it into a baseload, reliable baseload technology that could replace both coal and other carbon emission technologies as well as the traditional fission nuclear energy that some countries invest in and others have concerns about. Anyway, fusion will be an important part of the mix, and we're a very important part of key technologies and conductors for it. Another opportunity driven by GE Vernova quite honestly, and the U.S. DOE is potential replacement of the rare earth metal wind turbines. We're completely dependent on China with that because that's where all the rare earth metals come from. Moreover, if you go to 20-megawatt and larger, you eventually need to go to another technologies. These turbines and towers get too tall and too heavy, you can't put them up there anymore, and superconducting technologies may well play a role at least. There's a prototype project and we're funding some of the conductors but also some of the engineering for that. Another exciting long-term opportunity, but we don't mind taking the long-term view and being designed in. Right. So this is all adding up to -- we are -- we have transformed into a fast growth company. There is no question about that anymore. Our management process, which is excellent in this element and focus on this disciplined entrepreneurialism, it's not just another little trademark. It is something we live and do every day, is driving our profitable growth. And it's been a successful transformation. We're on track for 3 consecutive years and 4 quarters of greater than 10% organic revenue growth. Our goal continues to be to grow our revenues organically 200 to 300 bps above market, also in '24 to '26. That's a reconfirmation of what we said in June. And yes, indeed, our goal of greater than 10% non-GAAP EPS in the next 3 years, including this one with continued high return on invested capital. We're very much focusing on proteomics, multiomics, and spatial single-cell biology. You'll hear that in our transformation or our emerging leadership in the post-genomic era. And so this part is really working, and we're on -- I couldn't be more pleased with the progress that we have been making, and I think that we will continue to make. Let me give you a quick update. A couple of -- we've struggled, not in a terrible way, but we've had some delays throughout the year. Very pleased to announce that we did have the first 1.2 gigahertz instrument installed in the United States at the Ohio State University. It was NSF funded. We thank NSF for their vision and leadership in making this happen. From clean tech to structural biology to intrinsically disorder proteins that are very important in disease and that only in a market really study all the way to mechanism of disease from cancer, Alzheimer's, and so on. NMR is a very important part of the scientific infrastructure that you need in the post-genomic era. And here, OSU with a national facility funded by the NSF has taken the lead. We also, in the same quarter, had a similar 1.1 gigahertz solid-state NMR system getting accepted at University of Wisconsin, Madison. We're equally pleased with that. And it does add up over the years. We now have over 20 gigahertz class NMRs installed worldwide. We did 2 acquisitions, 2 small acquisitions. As I said, we buy seeds or small plants and then begin to grow them. One of them addressed a gap that we had, quite honestly, in our Biopharma PAT, process analytical technologies. And we acquired a small Canadian company outside of Toronto called Tornado Spectral Systems. They've been at this for a very long time. They have about $5 million in revenue. We think we can scale that. We can integrate that with our other Biopharma PAT tools that we have already, but we didn't have these Raman process tools and probes and biopharma. I know biopharma processing is not the word to use right now because it's a little weak, but we all know it's coming back. And fundamentally, it's a very big market, and this strengthens our software and measurement tools and automation capabilities for that biotech and pharma process analytical technology area. So that's not on the research, that's on the QC side. Switching gears and going to an extremely high-end research application. We've entered the field of electron microscopy with the acquisition of Nion. They're outside of Seattle and here on this coast, and they have sort of the ultimate high performance. Everything is a first in the world, very -- smallish business. We expect them to be just above $10 million in revenue in 2024. It will be profitable and really never been scaled. And I think even this high-end material science research markets, there's a lot more we can do with this technology over the years. And it's just a fundamentally important base technology that we were lacking at Bruker, and at least in a very niche way, we're now entering that market. And here's the slide many of you have been waiting for and that will be mentioned in our -- that is being mentioned in our 8-K this morning. I'll skip the left side because you can look up how we've done year-to-date. We've done really very well. And then as of the update as of this morning is that our Q4 '23 revenue, which are preliminary estimates and not yet audited, all of that good stuff is going to be in excess of $830 million which even for the fourth quarter implies more than 12% organic revenue growth. That is, as we see it right now, more than $35 million above the consensus that's out there. Our Bruker Scientific Instruments, the 90% BSI segment, the bookings there were solid. And by the way, we're solid also in China. In China, we had a bit of an air pocket in Q3 after a super strong Q1. So for the year, we'll have double-digit organic revenue and bookings growth in China. And we also had solid bookings and -- organic bookings growth in our BSI segment in China, also in Q4. So we're very pleased that, that was a good quarter. Again, I know there were some concerns after our Q3 on that, which were overblown. But anyway, Q4 was good in China. By the way, also speaking of NMR, NMR worldwide in bookings in Q4, just were a bit of a standout. So they were -- they contributed to the solid bookings. For the full year '23, that means greater than $2.94 billion in revenue -- in reported revenue with greater than 13% organic growth, again, as preliminary estimates. And I did mention China already. For fiscal year '24 preliminary outlook, we will give guidance as we typically do in our -- in early February when we report our Q4 -- when we have our Q4 earnings call, and we're going to keep it qualitative for fiscal year. We expect solid above market, above LST market, obviously, life science tools market, organic revenue growth and non-GAAP EPS growth, and that's all in. That includes the PhenomeX acquisition that we have acknowledged will be about $0.10 dilutive this year. Very happy to have it. It's a terrific business, create new tools for the post-genomic era. And even with that, I think we'll have above-market non-GAAP EPS growth. So we could afford to make that investment, and we're glad we made that visionary investment. It wasn't always welcome or well received, but I think that was shortsighted. This is a terrific deal. Right. Let me finish up in the last few minutes with giving you an outline of why we are dedicated amongst other opportunities, well balanced to this to being this and becoming and being already an emerging leader in this post-genomic era, which I think will be the big drivers in tools, but also in diagnostics, in drug target discovery. It's already happening, but I think that's the bigger play in the next 10 to 20 years. The last 20 years were dominated by genomics because the technology was there, and that's a good thing in genomics, of course, is very important in an overall multiomics and systems biology approach but proteomics and related fields, glycobiology, glycomics, lipidomics, metabolomics, epi proteomics, looking at all the post-translational trend, it's not just [ nerdy ] by talk. It's really what drives biology and disease. And without that, you don't fully understand cell biology and disease biology importantly. And so this is going to be at least as important -- at least equally important to the genomic medicine. And in many areas can go far beyond what genomic medicine was able to deliver, which was a lot, but also in some areas, disappointing. It's not only the multiomics view, it's also the many different types of -- aspects of biology that we can elucidate. So from spatial biology, which we're pursuing to single cell biology, which what this acquisition was about, also focusing on tissue, cell disease biology, quantitative biology from pretty pictures to really measuring quantitative expression levels to interaction biology, protein-protein interaction, chemical biology approaches, chemical proteomics for drug discovery, many, many, many areas that are coming together, and we are a player or are becoming a player essentially in all of them. We have key technologies that drive that. We look at very large TAMs. We think the time lines for the secular -- high secular growth is -- I think it's the next 2 decades. So as far as any of us can see and particular standout in those areas will be proteomics, multiomics and spatial/single-cell biology. And I don't need to go into the biology slides. I think many of you are very familiar why that is going to be important. Our timsTOF platform is a key platform in many of these 4D proteomics and 4D multiomics approaches, including new areas like 4D epi proteomics post-translational, 4D glyco proteomics. You'll see a lot of additional subfields emerging that each one of them are actually very important and very good growth drivers. So beyond proteomics as you peel the onion, there's more and more underneath. Our timsTOF platform is doing very well. And at the end of fiscal year 2023, it's now over 800 units installed. So we've added another 100 in the last 6 months, roughly. So this is a key platform, but it's not the only one. We're doing things with NMR, gigahertz NMR in particular, for this unstructured biology that have evolved for a purpose for key functions, transcription factors, et cetera, fast signaling and cell biology. Unfortunately, they also play a major role in cancer and cardiovascular disease in the beginning, the onset of aggregation in prion or neurodegenerative diseases. So structuring, looking at unstructured intrinsically disordered. It's a mouthful, but it is actually important in biology, and we have the tools to do that. Right. The Canopy CellScape system, spatial biology is a standout in spatial targeted proteomics that is truly quantitative with this 8-log dynamic range that just goes beyond but other offerings that are out there. We think it is the next-generation spatial proteomic system, and it's really being very well received by customers, and there are some wonderful applications and publications that are coming out on this. This is part of the Canopy acquisition we did in 2019 or 2020, and then we're turning it into something very important for the company. Right. Finally, I'll end up on a couple of Bruker's cellular analysis or formerly PhenomeX or maybe known as still as Berkeley Lights and IsoPlexis. This is really a wonderful technology, set of technologies that have come together, particularly that very unique Beacon platform from the old Berkeley Lights that is used for much faster and more difficult target monoclonal antibody development as well as for cell-based cancer therapies. Here is an example from the university -- from Dr. Zamora at Medical College of Wisconsin, where he's using this technology. He's a long-term Beacon user to expedite translation of cell-based therapies, in this case, particularly in CAR T cell workflows in oncology. And here is an example very quickly from MIT. Someone who just bought it from us. He bought it in December. We had closed that acquisition in October, and that's being used to -- hopefully, for potential breakthroughs in vaccine development. Can you believe we still don't have a vaccine against HIV 35 years into it? And of course, there is really a very good vaccine against malaria and other major killers, I mean the numbers of -- how many people die from all of this and how many people get it each year are still astounding. It needs new technologies. It needs new biology, and Dr. Batista, in this case at MIT is pursuing that with that Beacon Optofluidic system, of which we have more and more panels, more and more applications, more and more versions. We'll be investing heavily in that, it's a completely unique technology. That for antibodies, stable cell line development, and in this case, vaccine development plays a major role. So I'm a little bit over. Yes, post-genomic era, this is not just a dream in our eyes or some sort of pure ambition. Overall, that's about ¼ of our revenue. This is still 2022 revenue numbers because we now have '23 finalized. And there's many tools from timsTOF to apply proteomics in clinical to NMR to structural biology to spatial biology, Acuity soon launching later in '24 for spatial biology. We didn't talk about that and, of course, the new Beacon single cell platform. And with that, I'll wrap it up and leave it on this slide for the Q&A. I think we have a lot to look forward to, and our strategy is working. We're a fast growth company with good EPS growth going forward and also for 2024, and we are thriving for this and doing something about this emerging leadership in the biggest growth area of all, which is the tools for the post-genomic era. Thank you very much.

Perfect. Thank you, Frank. So first up, I just want to ask on that 4Q pre-announcement. Bruker has had some really impressive growth throughout the year. 4Q was no different. So can you walk through that quarter in a little bit more detail? You mentioned China performed better than expected after that dip in 3Q. So any details there? Also, how many ultra-high-field NMRs were placed in the quarter there? And then any other notables to really call out?

Yes. We will be discussing all of that in early February. Obviously, today is not the day to go into a lot of detail on that. It's very preliminary, right? Yes, we had these 2 systems that were placed -- that were accepted, the 1.2 and the 1.1 gigahertz NMRs, both in the U.S. in the fourth quarter.

Perfect. Maybe just digging in a little bit on your comments around bookings in the quarter. How should we think about that for 4Q, both in total and in China? I think you said double-digit growth in orders. Was that for 4Q specifically?

That was for the full year in China. Yes, double-digit organic revenue and organic bookings growth for the full year in China in our BSI segment, right, in this looking at orders, they get these 5-year deals. So we always do that for the BSI segment. And then order growth year-over-year in Q4, BSI bookings also in China. So I would call we had a spectacular bookings in Q1 in China in '23. We had pretty good Q2. We had a weaker Q3, I'm sure you recall, and Q4 was good. Not spectacular, but good.

Maybe just as a follow-up, can you give us book-to-bill commentary on 4Q, both for China and then rest of world, just given how topical it is.

For BSI, it's very close to 1.

Okay. helpful. Then on 2024, you noted that you're expecting above-market growth this year. How should we think about that underlying market growth assumption? We've had some peers in the life science tools space give varying views. Understand you're giving us a full guide for...

Well, that's a disadvantage of going first on a Monday morning. I don't know what all my peers are going to say, right? It looks like the sentiment that -- of companies that have talked about this earlier in '23 already was flat to low single-digit growth, organic growth. And with that, as the market assumption will -- I don't want to give a numerical range right now. We'll do that in early February, but I think we should be able to outgrow that by 200 to 300 bps or more, inorganic revenue growth. We also expect solid organic bookings growth in BSI. This isn't just a backlog story. Backlog helps. We've got great visibility. It's still very strong. It just comes together nicely as a mix, continued health and strong backlog. What's wrong with that.

Helpful, definitely. Maybe just digging into China a little bit more. So can you talk about some of the dynamics there? 3Q China was a big concern. You guys were a little bit more soft spoken on China in that 3Q earnings call. So what's happened in the last 3 months since your last earnings in China? And are there any pockets of strength or pockets of weakness that you want to call out?

All very good questions. And I cannot say that we have this incredible insights or visibility into China that others have. China is -- China today provides all of us, including Bruker with less visibility and clarity than in recent years. We're no different from that. We did have good -- we had moderate organic bookings growth year-over-year in China in Q4 and Q4 of '22 wasn't some outlier or a weak quarter. So that's good. But beyond -- well, maybe the one thing I would add or a couple of nuances, I would agree that CRO and biopharma in China still seems quite weak. Maybe a little bit of a recovery in Q4, but I don't know whether that counts as a statistic. And then we have a lot of investment in this post-genomic tools where China and the rest of the world are disproportionately allocating R&D funds in academic and academic medical centers. That's nearly 50% of our China bookings and revenue. So maybe that's in -- and then we have the right tools that they want to invest in now, right? They have lots of sequencers, yes, but now they're investing in proteomics. China has an enormous ambitions in proteomics that would rival those of the rest of the world if their headline press releases were to be taken literally. So, yes. I think it does help us that we're involved in the post-genomic era and in proteomics and so on. So these are good drivers for us. And yes, indeed, biopharma still seems weak even maybe a little bit of recovery in Q4 in China. These are all China comments.