Bruker Corporation (BRKR) Earnings Call Transcript & Summary

Thanks, guys, for being here. Excited to have Gerald Herman from Bruker with us. Just saying, he's been one of the busier guys in the space with the deals that you guys have been closing all the time. And again, maybe we can start there, Gerald.

Obviously, yesterday, have the official announcement on ELITech. Let me just talk about -- we heard some news on that in December, some yesterday. Maybe it was talk about the news flow on that specific deal, and then maybe we can dive into a little bit more color on the asset.

Sure. Sure. So very excited to have that particular acquisition moving in the right direction. You likely know, we had a -- put Option Agreement established, which we've communicated in December. And now we have an SPA executed here in January, February. We still have a few closing items to clear through from a regulatory approval perspective, and part of our items to resolve. But other than that, our expectation is that we'll close that transaction sometime in the second quarter. It's an exciting acquisition for us. It's a major step forward in our microbiology and infectious disease side. We're -- we think it's very strategic. It fits squarely into the Project Accelerate 2.0 area. It's going to give us some more significant scale in that space. So we're quite excited about it. It's also -- if you haven't already heard this, it's about EUR 150 million business on an annual basis. We expect to see high single-digit growth coming out of that asset. And fundamentally, expected to be generally accretive to our operating margins. So it's a good, solid business for us. I'm pretty excited about that, actually.

Yes. No, you've heard certainly it seems quite profitable. I know you guys haven't given full metrics, but I know some folks are kind of thinking it should be quite accretive to earnings next year, maybe as much as 5%, something like that. I don't know if you could put some numbers on.

What we're going to do actually is our expectation is as soon as we close the ELITech transaction formally and the regulatory approval process is behind us, that we will actually have a street communication and likely a call [ so that ] analysts and others can communicate with us, specifically about the transaction details. I think it's important that we're talking a little more generally about it now more specific if we complete that transaction. I would say also fielding a lot of questions from investors around the whole capital financing area for that particular transaction and some of you may see and we've completed a series of other finance-related transactions on the debt side and give us plenty of firepower to handle that transaction.

Yes. I mean the debt side seems somewhat attractive. I know you guys did some Euro, Swiss-denominated type debt at a pretty attractive rate. Maybe just talk a little bit about what that looks like.

Yes, I'm pretty proud of that. I mean, we upsized our revolver, our credit facility to $900 million. That gives us quite a bit of firepower that we didn't have even a few months back. When we added about $430 million in private placement notes, these are denominated in a currency that's very favorable from a coupon rate perspective. And generally, we spend a lot of time talking about this, but it's a 2.7% average coupon rate on that level of debt. So very excited about that. Interestingly for me, we have some of the same players on that private placement note arrangement that we had a decade ago, which tells me that we've got a good solid base with our debt holders program. And these are 10-, 12- and 15-year maturities. So it's -- it gives us a good strong bit of runway.

Yes. And I guess maybe on the deal, I mean, like you said, it seems we'll get full details, but it seems the margins are quite attractive. Fair to think about it as somewhat EPS accretive as we work on [indiscernible].

For sure. Yes, and I think the other point that we should stress is this is a highly aftermarket-based business and the consumables percentage on that, in particular businesses, greater than 70% or 80%. So it's also going to help us to -- that's been part of the conversation about our kind of recurring revenue base. And this is going to certainly help us in a major direction with respect to that topic. I can -- you know this, Patrick from our earlier conversations, .but we're quite excited about having instrument-based businesses, but as well top for us to stronger lean towards recurring-based revenues and this certain offer that.

Yes. And just on the balance sheet, I guess, once this closes, where are we on the leverage side? How comfortable are you guys with?

So right now, we're at the we're probably in the 2 EBITDA leverage ratio. It's about 2.0, 2.1. I think as we add some more of this debt financing, it's going to march its way up into the free category. I still don't think that's terrible, problematic for a company that sees [indiscernible]. And as I said, we have plenty of runway, I think, from a capital perspective.

Yes. And I guess just on the pace of deals, I certainly have some investors joke that you guys do a deal, weeks seemingly these days, but...

Well, not quite.

Where is the appetite now, obviously, this is a big one, for sure.

For sure.

But are you going to continue to kind of gobble up some of these smaller assets? What's the right way to think about these?

I'm feeling a lot of questions on this, and we should probably clarify a few things. So first of all, these transactions that have really been culminating in the first quarter, that's not a sustainable pace. And actually the way it that's fallen in, most of these transactions have been completed mostly from the deal structure arrangements over the last few quarters. And in some cases, we've been dancing with some of these targets for over a year. So I think it's all coming into a quarter, but I don't want people to think that that's the pace that we're going to keep for any period of time because it's not sustainable. But I would say that what this does is sort of illustrate that the market conditions for us, well capitalized, good balance sheet, a healthy balance sheet. We're in a position where we can capitalize on opportunities that may be recycled back from a couple of years ago where we walked away because of multiple issues. Largely the multiples on some of those transactions a couple of years ago were just not attractive for us. I think just to remind folks that we -- our ROIC targets are over 20% or typically 20%. We're typically running above that in the '22, '24 range depending on the year. So we have a pretty high hurdle rate, we don't just bring transactions in because they look interest. They've got to hit financial hurdles. And we're continuing our ROIC target at greater than 20%. So I do think the current market conditions are quite favorable on us at the moment, and we clearly have some transactions that we're looking closely at. But you know this as well as others, you look at a lot, you don't always buy a lot. So I think our transaction activity is pretty intense right now. I think you'll see it with moderate going forward. But I'm pretty excited about what we actually see in the pipeline at this stage.

Yes. And maybe just the appetite in terms of even some of the smaller deals, you did a somewhat larger dilutive one last year as well. What's -- how do you think about the appetite to take on near-term dilution to drive some of those growth assets?

Yes, it's a good question. And I have to say we take it a lot. We're focused on strategic fit, to the extent that particularly I think you're referring to our Genomic acquisition at we now call the Bruker Cellular Analysis business. We've completed that in October '23. I mean just a tremendously interesting business. From a cellular analysis perspective, it gave us a foothold into a market that we didn't have as much scaling and at a very favorable cost going in. We really like those types of transactions to the extent that we can make them happen and it could give us footprint and scale and certainly good strong organic revenue growth expectations. But of course, I'm the CFO, my job is to make sure that we have a dilution, that we can afford to take on and that we clearly have accretive acquisitions that go into mix. The big one I've just been talking about is clearly going to be accretive at the operating margin line, EPS line. And the expectation would be that we're going to target more of those. But I know you know this, Patrick. We're really very much focused on longer-term strategic moves. And I think some of the actions that we've taken, we could talk a bit about I mean, even some of the smaller transactions that we have done recently are really interesting. They tend to be more technology tuck-ins.But Nanophoton, for example, gives us a better foothold where the major Japanese [ run a ] microscopy business. And we have Nion that is a $10 million business, which we think is going to strengthen our nano -- part of our nano portfolio. Chemspeed is a sizable business and it's a lab automation business, which has got good profitability, which will expand over time. These are -- they're just really good strategic acquisitions for Bruker at this time. So I'd say, to the extent that they're a little bit dilutive in our overall organic operating performance has been quite strong. We know this. We've put up a very strong organic operating margin expansion in the fourth quarter, about 130 basis points of improvement for the full year in '23. So we have a little bit of acquisition drag for a temporary period. I think it's perfectly fine. It's the way I start to think about that, especially those are major strategic opportunities for us. Yes. We think we are moving mix.

Sure. Yes, and with PhenomeX and then, I guess, some of the other smaller dilutive ones, I mean you guys seem like you're being pretty aggressive in terms of pulling some of the costs out, maintain the dilution in 4Q. Obviously, 1Q, the guidance has a good amount of that in there. And then it feels like it wears off relatively quickly. Maybe talk about just how the actions you guys are taking to kind of right those.

So first of all, I'll repeat. Very good strategic fit for Bruker takes us into cellular analysis and gene therapy, in a way we didn't have it in the portfolio previously. Great fit. We've done quite a bit of rightsizing. Most of the cost structure, rightsizing was done in the fourth quarter. Our position is that we've got most of that out of the way. And so we had a $0.10 dilution on to EPS line in the fourth quarter. We expect it to be $0.10 dilutive in that range in the full year of '23. So really taking a lot of costs out. This is facility consolidation, head count, reexamining some of the R&D activity. There's a lot of, I would say, really strategic steps. This lives in our nano business, which some of you know is run by Mark Munch, a terrific leader, great -- a lot of experience in the whole acquisition integration world, especially in deep restructuring. So we're very confident with respect to how that's going to play out. And we do continue to believe that that's a business that's as we said publicly, somewhere in the $60 million range on an annual basis. I'm pretty comfortable with that range of revenue. And more importantly, the growth that we see going forward for that business is really, really very positive. I mentioned to a couple of investors, a couple of days ago, that there's also been quite a bit of activity from the FDA approval side for gene therapy-related investments. And I would say some of our neighbors in the Boston area have good success in first time FDA approval of gene therapy. So we think this is a really attractive market going forward, and we're very pleased to have that in the portfolio just now.

Yes. Maybe we can shift to the core business. I've covered Bruker a long time. I don't know if we've ever talked deals that much. So it's a little bit of a different set up these days.

It's all good.

Yes. So on the core business, you guys, obviously, to your point, you put together a really strong healthy '24 outlook. Maybe starting just kind of where we ended, 4Q, the book-to-bill was above one on the BSI side. Maybe just talk about what you're seeing on the order front there. And again, obviously, really healthy pipeline here in terms of the outlook. But yes, maybe just talk about the order front and the expectations there.

Sure. Well, the core business doesn't get as much attention as some of the flashy, sexy stuff in the portfolio. But it's worth noting that I think generally speaking, the core business has been really solid and very healthy in '23. I want to back up a little bit because I need to remind investors and potential investors that Bruker has now had 3 years of consecutive years of double-digit organic revenue growth. The third year being '23 and we put up 14.5% organic revenue growth under very turbulent markets. More broadly, we think this is an important key point for people to understand. Why is that? A lot of that has to do with the core business. Fundamentally, the economics have been very solid, particularly in the academic and government research part of our portfolio. It's important to stress that the Bruker businesses has 40-plus percent of its portfolio in the government research side, which at the moment, and is growing beyond mid-single digits into that high single digits range. So this area is very stable, solid growth performer for us and has been now for multiple years. There's always a lot of conversation about NIH funding. What is it going to be? There's always this shock when there's some conversation or chatter on the street about what [indiscernible] going to be. Fundamentally, three things. One is, from an NIH perspective, if you go on to their website, you can continuously see over decades that the NIH funding levels are literally up into the right. It doesn't really matter what administration is in the White House. It doesn't matter who's controlling Congress. Ultimately, the U.S. funding environment has been very healthy in this space. And even though NIH funding for Bruker is in that 5% to 8% of our total base, it's still believed to be very healthy. The second point is, it's not just NIH, but it's fun. I mean we have a lot of funding and we saw some of that even in our ultra-high-field business coming out of the DNSF and the DOE. So U.S. government funding has been quite healthy, I think, historically, and I wouldn't expect that to change. And then if you look forward even to other geographies like China or even Europe, on the academic and government side, that's been very healthy as well. We've seen very strong order bookings performance in China. I know you know this, but a huge bolus of orders in the first quarter of 2023 and will spill over into the second. We had a bit of a -- gap in the third quarter, but we saw a sequential recovery even in China in the academic research side in the fourth quarter. I think just generally, what we understand in China is that, that academic market is pivoting a little bit away from just direct investment in the biotech and more directly into academic and government research funding and doing their own research work, specifically in China through their own academic facilities. So we are very well positioned in that space. That's kind of our bread and butter given this [indiscernible] in the valet portfolio. And I should mention, I talked about this quite a bit with investors that in the portfolio in China, that's a 50% portfolio that's academic government research. Very small biopharma exposure in that 10% to 12% range historically for Bruker were underrepresented in biopharma. And that's no bioprocessing activity anywhere in the world and certainly not in China. So our exposure in the academic and government research has really added a whole different dimension of resiliency, I think, for the overall performance. If I can just go to a couple of other markets. I mean on biopharma, as we all know generally, we saw some softness for sure in China. But generally speaking, our biopharma performance for '23 was also quite sold not only from a revenue perspective, but also from a bookings perspective. And so many of you know, we target -- we have high-end instrumentation and a lot of our instruments are targeted towards high-end research experience. And in those areas, it's really. You just don't see the kind of wild volatility that you sometimes see in bioproduction, which you can turn on and off. Here, this is a much more stable environment on the bio side for us, and we are underrepresented. So having a little more strength there, I think, than others. And then just finally on industrial and semi. On the semi side, our experience, both from a bookings perspective and [ on revenue ] has been very solid in 2023. We actually expected to see a trough in '23, given the softness that we keep hearing and reading about, but we did not really see that. In fact, our fourth quarter bookings performance in the semi and microelectronics areas are very strong. So it's got a lot of really strong tailwinds, right? You've got secular trends in AI, we've got the chips and signs elements across different continents. So the semi and micro -- I'm sorry, microelectronics area has just been very strong for us. And then finally, just on the -- what we described as kind of industrial which is really more material science or even green tech-related activity. We focus mostly on niche markets in that space, mostly in research on material science technologies. For Wall Street general-type industrial companies, they're not turning down that material science research. We see this across the geographies, very strong performance there in the industrial markets in these particular geographies, including here in the U.S. So overall, the portfolio, I'll stop talking now. Overall, the portfolio has been really resilient across these end markets. And we've got largely explains the bulk of our outperformance relative to peers. We're in niche markets, differentiated technologies and more heavily weighted towards academic government research and less biopharma exposure. So that's kind of the big picture.

Plenty to work through there. Maybe on one of the last points there was the semi side. Can you just talk about what the exposure looks like there? Again, you mentioned the CHIPS and Science Act. We're starting to see some dollars maybe flow there. What is the right way to think about the potential benefit that you guys could have there?

Yes, it's very significant, I have to say. And I said publicly, there was a time when I wasn't as interested in that business, but now I'm very interested in that business. The growth prospects for that area are really pretty remarkable, to say, are exceptional. So let me back up. So first of all, on the semi and microelectronics area. I mean, our target customer base is really not in the -- this could fall on the table. That's not our target. Our target is really high-end research, node-related research in the semi space and in QA/QC in the fab production. And so there are some very significant tailwinds moment in that space. And it's not only AI, although that's clearly driving a very insignificant secular tailwind. I mean it's just the core elements of fab production. Here in the United States, we're talking about new fab facilities and some of the names you already know, in Ohio in the Arizona. In Europe, we're talking about significant production in a variety of places, including Germany. And then we've heard more recently that there may be also some additional activity being considered in Japan. And obviously, this is being driven by the geopolitical risks associated with Taiwan and China, these [indiscernible] not going to do. And fundamentally, these semi companies themselves know very well that they need to diversify their geographical footprint and with or without CHIPS Act funding, which is quite significant and now it's starting to be finally allocated by the U.S. government. I mean I think the tailwinds on this particular end market are very significant. We don't -- we're not seeing a lot of headwinds, say right now, at all, in new elements. And it's across the geographies. This is actually quite an important point. It's not just a U.S. phenomenon. We see it in both in Europe, and we're starting to see it in other places as well.

And what's the right way to think about you guys revenue exposure to...

I'm sorry, I didn't answer that part of your question. I mean it ranges anywhere between 8% and 10% of the total revenue base for Bruker. And as I've been describing, and that base has been growing at a very fast rate. And one final comment for those that are familiar with the space, it's a very sticky customer base. Once you get in, for example, if you're in a QA/QC framework in the existing fab, and you copy and paste that fab into the United States or Europe, they're going to still play with the same players. There are instruments that are kind of critical to the quality control. And so it's important, and it's highly unprofitable for us from an operating margin perspective. So this is a very healthy element contributing ultimately to our overall operating margin performance, not only in prior years. But as we move forward, and we expect it's going to be having some outsized importance to us going forward.

Yes. Okay. It sounds like it will be bigger than 8% to 10%.

Yes, I would expect it to. Although as you all know, we have some pretty good tailwinds coming from some other end markets as well.

Yes. Maybe we can touch on some of those. I mean, maybe we'll start with just China. Obviously, gets a lot of a lot of headlines, a lot of concerns. To your point, you guys had a great first half. I remember sitting here a year ago, and China stimulus was happening, and you guys clearly felt really good about it at that point. 3Q was lower then 4Q, it seemed like it got a little bit better. So what are you seeing there? And what are the expectations? Is it going to be this huge air pocket without stimulus? It doesn't sound like it but what do you think?

I think, again, we may be slightly differently positioned than a number of other companies in this particular geography. So first of all, just to lever set it. No production facilities in China, no R&D activities going on in China. You really are a true commercial player in the channels market, a very important market for us. It is in that 16% to 18% of our total revenue base just as it is with other peer companies in our space. But fundamentally, it's an important market for us, and we have really, I would say, overperformed, not only peers, but historically, A lot of that, again, has to do with our strength in the academic and research side. It appears as if the Chinese government is pivoting funding more directly to their own facilities, wherever those might be. There's also been a more recent shift to instead of pushing funding directly into Tier 1 cities to look at Tier 2 and 3 cities and I think with our channel distribution there, both on the ground and distributors, we feel very -- like we're really well positioned to pick up those -- any funding activity that goes into those cities. And that's a more kind of a dominant theme, I think, that the Chinese government is beginning to talk more broadly about. So we like the market opportunities there. Our bookings performance as you correctly point out, recovered sequentially from the third quarter. I think it has a really good market opportunity for us. And I would say even in the industrial market areas outside of academic and government research, the commercial funding in what I described is loosely more material science. This is polymers, concretes, chemicals, the more industrial complex-type elements where we serve their research elements, including research that's going on in China subsequently have been quite healthy. And our core businesses in China are x-ray technology businesses, are on molecular spectroscopy businesses, those that you know what I would describe as core have been really quite solid as well. So very -- we're pretty positive about the overall China market. We're not living in a bubble. I mean we recognize that China economic activity begins to drop off. There'll be some impact. But we think we're really well positioned in that particular market.

Yes, and then maybe the academic NIH piece you touched on. We get a lot of questions there as well in near term. Obviously, there's continued resolution. There's a lot of worry that budgets are just not moving right now. I guess what are you guys seeing on the academic front? Maybe we'll start in the U.S. and just kind of the general backdrop here.

So as I said earlier, I mean, our view on academic and government research is a little more global. First of all, we are operating our business globally. So if we do have a downturn, and I'm not suggesting we are. But if we do in a particular geography, we shift our attention and our targets towards another geography, and we've been quite successful in doing that. But with respect to -- let's start with the U.S. As I said earlier, I mean, I think we take the NIH funding as it comes. And fundamentally, we're pretty comfortable with what that is. I tried to stress with investors that it's not just NIH funding. There's a lot of the actual science foundation funding that has been directed particularly to some of our NMR franchise and specifically around ultra-high field systems. But there's a lot of funding in the academic and government research side. And I try to stress at another conference last -- earlier this week that there's also -- I don't think people fully understand that the network, the collaborative network of academic and government research has really evolved over the last 3 to 4 years. It's not just a U.S. government funding. It's you have collaborations with, for example, Harvard Medical School collaborates with a biotech company or with a large pharma company and theirs funding with those -- each of those environments coming from other sources other than just the traditional government research side. So I think it's a very healthy space right now, including in the U.S. and not overly concerned at this stage about what turbulence goes on in the U.S. political landscape. I think it all shakes out eventually over time to be more stable growth end market for us. And then if you turn to Europe, I mean most people don't understand, but Germany, for example, financed significant research brands into the proteomics era right during the peak of the pandemic. You might wonder why is that, but fundamentally, that's government stimulus funding at a time when economic conditions tend to turn down. There's more funding required in those environments. And so I think we've seen a very stable -- this is the typical story for Europe, very stable academic government research funding in that space. We just talked a little bit about China. It's been a little choppy up and down. But because we're focused on high-end research instruments, typically, the storyline has been pretty solid, solid it up and to the right. Fundamentally, where you can't get our instruments, especially in China. If you're going to do for example, deep research in proteomics and the Chinese are very much on the leading edge of proteomics research across the globe. I would put China right up there in terms of their proteomics research in their results. It's really quite remarkable. They're going to continue to fund high-end research instruments that they need for those because they can't get them at the local level, and they need it for -- you need it for high-end research.

Yes. So just putting that all together, I remember, again, sitting here last year, we talked a lot about the book-to-bill and the order trends. I think there was a worry a year ago that your book-to-bill was going to go way below one and all of a sudden, that, obviously, didn't happen. But I guess, sitting here today, how do you feel about the order trends? You clearly have a good backlog. But on the order side, should we expect book-to-bill to dip below 1 for a prolonged period of time? What's the way to think about it.

Yes. So first of all, our bookings performance has been really exceptional. I think generally speaking, this is going on now for 3 years. I mean at some point, that's not completely sustainable especially with record revenue performance as we've been delivering it. At some point, you have to expect the bookings performance is going to be under that revenue performance. And actually from a business perspective, we want -- because while we do have, we've been publicly communicating a 7.5-plus month backlog for us. In some pockets of our business, it's higher than that. And so fundamentally, we really want need to get that down to what we characterize as a more normalized level, which is similar in 5 to 6 months in backlog bubble. So point number one, we need that backlog to come down at some point, and we wanted, particularly for service delivery to our customers in the right end markets. Secondly, I mean, I do think our bookings performance has been really quite exceptional over time. And our expectation ultimately is that we're going to bring that backlog down. Book-to-bill ratios would have come down below 1. Interestingly, in the fourth quarter, we still carried an over 1 book-to-bill. So I think what that tells you is that we were still building backlog actually through the entire year of '23. So we do have some pockets that are starting to get into their backlog, but still fundamentally good story. But more fundamentally, what I've been stressing with other investors at this stage is if you look at the core business, so we do have some older performers. For sure, we talked about semi, we haven't really talked about [indiscernible]. We haven't really come to that question. But in the proteomics space and some of our other multi-biotyper for example, in the microbiology area, really done well from an overperformance perspective. But I keep coming back to, it's the core business, to a large extent, that's driving that good solid bookings performance. So as long as that can continue, I mean, I think you might -- some are communicating, you might start to see an uptick again now in basic economic performance in maybe it's the second half of '24, the first part of '25. The backlog that we have, plus our overall broad performance capabilities within the core business feels pretty good. And then generally speaking, that's our view. But I would say publicly, we do really want to see that backlog come down to a more normalized level. But so far, we've struggled to, if that happens [indiscernible].

Yes, good problem to have. Yes. I guess maybe when you think about the '24 guidance you guys gave a few weeks ago, the 1Q start is a little slower as is everyone else in tools and they kind of ramp. Maybe just talk about the cadence of the year, why maybe a little bit lower I guess, both on the growth and margin side.

Yes. Yes. Thank you. I'd say -- so first of all, we guided 5% to 7% organic revenue growth for those [indiscernible] falling. We expect reported revenue or even constant exchange rate revenue to be well above that. We have almost a 3% tailwind on acquisitions. So these numbers get closer to that 8% to 10% on constant exchange rate basis for our expected revenue growth for '24. So I do -- I still think that it's clearly going to be likely outperforming a number of our peers on that basis. But just to come back to the cadence. So we are expecting to see a slower softer first quarter for several reasons. One is we had a giant first quarter from a comp perspective in 2022, coming off of a huge bolus of orders and certainly good revenue execution in Q1 of '22 -- I'm sorry, of '23. So our expectation here is that we would see some sequential organic growth in the first quarter, but not at the level that we certainly saw in Q1 of '23. And on the margin side, again, really hard to kind of beat the comps that we had in Q1 of '23. And I'm expecting to see that improve as we move through the year. As I think I said in my scripted remarks, with the earnings call in February, my expectation is it's going to be much more solid for us on the operating margin side, but then we expect to see in H1. And we've talked a little bit about some of the headwinds already. I mean we expect to see some more -- some dilution coming in H1 still from our BCA acquisition. We have some acquisition drag as we pick up some of these other pieces. So I think fundamentally, it's going to be a better performance in the second half '24.

Yes. Okay. And then on the backlog, you mentioned, I think, 7.5-plus months. Do you want to get it down? I know we've talked a lot about it, but it's not a quick process in terms of getting it down. So I guess, how do you think about the backlog? I don't know, work down and the confidence level, I guess, as you get later into this year, that you still have this really healthy backlog. I think there's some fear, they have to burn that down really quickly. Others in the space that aren't necessarily the perfect comps haven't seen that dynamic. So why don't you talk a little bit?

So first of all, it's been multi-years of backlog at these levels. So I don't think we're -- because our bookings performance has been very solid. But as I said earlier, I think the way I'm thinking about it is this. And so there's some value, of course, from a customer and end market perspective to getting that backlog down. But that's going to still be a multiyear period. We've been working on this now for a couple of years. And given the bookings performance we've delivered over the last couple of years, we're just not having much success to bring it down. But I think our production facilities are ramping up for the growth levels that we have at this stage and I'm hopeful that we'll be able to improve our overall satisfaction earlier. I know you know this, but we have still quite a bit of backlog even in the ultra-high field. It'd be very nice for us to be able to deliver on those -- the platform sooner. Expanding facilities and getting that going, especially in MIR business would be great, but that's also true for our [ spec ] business as well. So I think it's a multiyear period. I don't think it's going to happen in all in 2024. I think it's been largely on the core business performs and if we have outsized performance in some of our overachiever products going forward.

Yes. And I want to spend some time, obviously, the LRP pull forward was quite notable on the last quarter. Really sharp earnings growth of 25%, 30% next year. Can you just talk about the moving pieces? I think a lot of people, myself included, were kind of waiting, when are they going to release the margin upside? And clearly, it's showing up next year. What are the, I guess, levers to get to that number? Is it gross margin? Is it OpEx? Maybe just talk about it.

I'd like to talk about that because I think -- so generally speaking, when you do the math, and I'm saying this with all sincerity. When you do the math, it's pretty difficult to see how you don't hit the revenue and EPS charges. Fundamentally, with the growth rate with the actual performance we've already delivered, it's pretty hard not to hit those a year earlier on the revenue and the non-GAAP EPS numbers. I think the challenges for us are more in the operating margin side, and that's largely driven by the -- mostly driven foreign exchange and our acquisition drive. That's -- we talked a little bit about that historically in the PhenomeX acquisition that clearly interrupted our operating margin progression to the level that we thought we were going to early here. But a lot of that gets washed away in '24. So suddenly in '25, you have much stronger operating margin performance coming out of -- on what I hope to be significant growth in the BCA story. The other piece is a lot of the acquisitions for which we've been funding better operating margin performance will also mostly clear through. And as I've already mentioned, we think we've got good solid accretion in the ELITech area, which is a substantial acquisition for us, generating quite a bit of EBITDA. As we bring that on, I think will also contribute significantly. And even companies on the acquisition front, that comes the [indiscernible] we're bringing on, we expect to see improved operating margin performance. And so far, our OpEx performance, a very good OpEx discipline. Historically. We've proven we can flex when we need to flex and I'm pretty sure we'll be able to do that. So very positive about our outlook on the profitability side, '25 and into '26. And obviously, as we get to another -- if we do more of these types of acquisitions, we'll have to reset that kind of medium term outlook performance.

So is the ELITech, that is not in the...

That's not in...

Okay. Understood. And maybe last one. I know we're up on time. I guess when you think about the guidance we talked about 1Q may be a little lower. Is there -- did you guys layer in any additional conservatism near term in 1Q given the extra visibility versus the year? How do you think about this?

Well, look, I mean, I and my colleagues at Bruker have a history of trying to under promise and over deliver. We think when we have puts and takes put in that we're putting up a reasonable basis, current market conditions with investments in the mix. So I think our current '24 guidance is rebalanced. But as I think you know, Patrick, to the extent that we see good strong performance in the first and second quarters, we are shy to move our guidance back up, and we clearly overachieved in '23 and in '22, hopeful we have moved that way.

There was a lot of ground. Thanks, Gerald. Appreciate it.

Great. Great to see you. Thank you. Thank you all.