Bruker Corporation (BRKR) Earnings Call Transcript & Summary

Good morning, everybody. I'm Tycho Peterson from the life science team. We're pleased to have the team from Bruker here this morning. Joining us, we have Frank Laukien; CFO, Gerald Herman; and President of Bruker's CALID Group, Juergen Srega.

Maybe, Frank, I'll kick it off. You're coming off ASMS, I'm sure it was another interesting conference. Can you talk a little bit about some of the innovation that you're most excited about, maybe 1 of the -- 1 or 2 of the products that you'd like to highlight?

Yes. So good morning, everyone. A pleasure to be here, Tycho. Great to be back at your conference.

Thank you.

So yes, we, Juergen and I -- Juergen runs the CALID Group that includes our mass spectrometry business and other businesses. We indeed just flew in from ASMS in Anaheim yesterday. And we had a series of major launches. We actually had 3 new mass spectrometry product, mass systems launches. We also had some very key new workflow and consumables launches that I'll talk about in a minute. I think it was pretty clear that Bruker, at this ASMS, was the most innovative company. We launched our new flagship, timsTOF Ultra 2, which is only after a year after we launched the timsTOF Ultra. It basically pushes deeper into the single-cell proteome and even now into subcellular proteomes, into areas where you could look at a nucleus and/or you could look at small bacterial or small immune cells and still see well over 1,000 proteins. It's just absolutely unheard of. It's another order of magnitude push. It, of course for other applications, gives you more completeness. You see many, many more peptides, which is really important compared to affinity methods. So a major innovation push. The other major innovation push other than timsTOF for more high-sensitivity, high-performance proteomics was really in the mass spectrometry imaging, which also goes into spatial biology and really into spatial multiomics, where we can now see proteins, peptides, endogenous peptides, but then very importantly, also lipids metabolites, glyco. So it's a different form of -- I guess, when Illumina talks about multiomics and anything up to transcriptomics when we talk about multiomics, it's everything that comes thereafter. And that's a very unique product, very well received.

And on timsTOF, you recently called out 1,000 shipments. I think you were 600 as of the first quarter, maybe over 800 as at JPMorgan. So the pace is doing quite well and potentially picking up here. Can you just talk a little bit about what's driving that acceleration? And how do you think about the potential market opportunity? And maybe also in the context of backlog, to what degree you're working down backlog, too?

I'll turn things over to Juergen, he runs that business.

Yes. Yes, the -- we have more than 1,000 instruments out now, so I can confirm that. And they are with customers, so they are not for internal use. And R&D and applications and all of these types, these are real customer systems serving customer needs. This number, 1,000, is correlated to what currently now, before we left for ASMS, was achieved. And yes, we are satisfied with the pickup and the sales rate we are seeing globally. And of course, we hope we can keep or accelerate these numbers with all of the innovation Frank just explained here.

Are you able to comment on backlog, what that looks like and to what degree you've been working that down?

We do have typically normal backlog. We don't have -- we have the normal rate of backlog. We have not an overbooking situation any more like 2 years ago when we were far behind in shipping, and when the instruments sold and we had supply chain challenges mainly back then. So we are, for timsTOF, on very normal rate. And a normal rate for us is typically a 3-month turnaround time for an instrument.

This is not to be confused with the Bruker overall backlog, which remains at about 7.5 months and remains quite elevated.

And that's true the CALID Group as well. So it's the timsTOF, we are very active and we have a good supply chain, a good production output and of course, the customers are waiting for shipment.

Tell him about your new factory and your new capacity.

Of course, yes, we recently, I don't know whether that made it over the ocean here. We, just a couple of weeks ago, opened a complete new factory in Bremen. Our main site for the mass spectrometry is in Bremen, north of Germany, and we just opened a couple of weeks ago. It's operational since the beginning of the year. Now it's in full. Ramp-up mode, and we opened it formally just a couple of weeks ago. Which gives us, of course, leaner processes, yes, environmental cleanness and things like that, but it adds capacity for our manufacturing. We doubled the capacity and the output of that factory versus our before situation.

So over several years, this will be a $1 billion factory in mass spectrometry.

Great. Let's talk about M&A. I gave you some softballs to start, let's get into the fun stuff. So you've been busy, Frank. I think you spent $1 billion in the past decade and $1.5 billion in 6 months. Maybe just talk a little bit about what -- maybe rationale, what drove the strategy to kind of consolidate relatively quickly? Was it just being opportunistic of dislocation in the market? Was this kind of a preplanned strategy to get more aggressive on M&A? Just maybe talk a little bit about what led to the wave, and then we'll talk about some of the deals.

Yes, there is an opportunistic element. I mean, 2 years ago, everything -- some of the assets we're picking up far, far less cost $3 billion, and we couldn't imagine paying those. But we're value sensitive. But those are highly strategic assets. They -- our portfolio transformation with Project Accelerate 2.0, which has led us to 3 years of double-digit organic growth, and again, this year 5% to 7% is our guidance organic growth, which is way ahead market, has really transformed us into a fast growth company. But we did see, certainly in single-cell and spatial biology, where we had some business, but it was rather small and it would have taken us 7-plus years to really become one of the top contenders in that space. So when -- first PhenomeX in the single cell biology space became available, and then NanoString in an obviously very accelerated process coming through a Chapter 11 process became available, we really did pounce. These will be great ROIC investments. We got them at valuations that are -- I think are, quite honestly, I think they're brilliant. I know some people want to call them controversial. But if you really look at the chess board of the post-genomic era and what are some of the key pieces that you can pick up, us being able to pick up a very established company like NanoString in spatial transcriptomics, highly complementary to our much smaller spatial proteomics business, and saving ourselves a decade in doing that. Now -- we used to have spatial biology ambitions, now we are 1 of the 2 or 3 leaders. We, of course, internally built that proteomics, multiomics business. So it was a fantastic opportunity. Also, a lot of smaller acquisitions. The -- you don't write that, but some people have recalled that a spending spree. That's just intellectually lazy. These are really very, very good acquisitions that all smaller companies that we can scale up, that fit perfectly into our product line. And maybe you want to give even some of the smaller examples, because very scalable, very smart acquisitions.

Yes, even -- yes, I can back that up with some examples. If you take ASMS now, 3 of our major launches came out of investments of bolt-on acquisition, as we call it, Biognosys, PreOmics, helping us to build leading extraction or enrichment tools for our mass spec workflows. We launched from the [ TOF ec EI/CI ] integrated GC-TOF instruments, market leading from its performance here, just after 2 years of being in these acquisitions. We have made a kind of investments into Raman spectroscopy, areas where we have been slow. And of course, we have plans about are we building those positions organically or are we accelerating those positions inorganically through bolt-on acquisitions on the technology, and we are very selective. And we are able -- this strategy enabled for us, more or less, that we take out 2, 3, sometimes 5 years of R&D work before we have product in the market.

And if I may, maybe from a bigger perspective. Years ago, people were always worried, well, there's bigger companies, do you have enough scale? Well, if you see how much we've grown -- of course, we're not in the Thermo Danaher league, that's a Tier 1, right? But in the Tier 2, we've really grown and leapfrogged at least in size and scale. We now do have the scale and, in some cases, more scale than some of the traditional names that you're all familiar with, that are our peers. By this year, we'll reach about $3.4 billion in revenue. And over the next few years, according to our midterm forecast or outlook, we will add $900 million to that to about, at the midpoint, $4.3 billion in 2027. We now really do have the scale. We're shifting towards having more consumables and aftermarket. We're still an instruments innovator, so a lot of -- this just beautifully accelerates our fast organic growth and allows us to have the scale to then add acquisitions and put them into our existing commercial channels and so on in a cost-effective way, being able to, in many of these smaller $5 million, $10 million businesses, we can probably triple or quadruple in a few years, and bring their margins towards more -- towards the 20% plus range. So many good arguments.

And I think among the controversies, one is just your ability to integrate a number of deals at once. Talk a little bit about that process, how you go about it. You've obviously done more deals over the years, it's picked up, so you've got a better process. But just talk a little bit about how you approach integrating multiple deals at once.

Yes. Very good question. I also don't think this present pace would be a predictor of the pace that we're going to keep up. It's just been really an opportunity. Many of these discussions we've had with founders or owners for years, and it all kind of came together, quite honestly, in late '23 and a lot of the deals closed in '24. But those are longer term discussions and I don't think we'll continue at that pace, because we have so much opportunity to integrate, to your question. It is nicely distributed over various groups and divisions. So this isn't a headquarter-centric company, where Gerald and I now have to execute all of that. Jurgen's CALID Group, Mark Munch's Bruker NANO Group, Falko Busse's BioSpin Group or the ChemSped and some other acquisitions, this is actually nicely distributed. And by the fact that we have such strong, strong management teams, each of these group leaders is CEO quality, and so it's nicely distributed. And I mean the bigger challenges are PhenomeX and NanoString, those are fixer-uppers, right? ELITech, we just -- my god, it's a beautiful business and, quite honestly, we don't fix it. We provide some additional channels. We -- there's some there's some minor cost synergies, but this is a beautiful business that we're plugging in on the diagnostic side. But I think with PhenomeX, we moved very swiftly within -- sadly, because it was such a bloated P&L structure. Within 2 weeks of owning it, we let 55% of the people go. It was absolutely necessary. That's not something we cherish. We're not proud of that at all. NanoString had taken cost action in Q4 and Q1 before they went into Chapter 11. We're taking -- we're not taking on the public company infrastructure and management, Board, all of that. We just did an asset deal out of a Chapter 11 reorganization. So we're moving very swiftly and we have a lot of experience with M&A and integration. We have a complete process, handbook. So we're actually very good at this.

There's obviously a lot of talk about kind of the dilution around NanoString in particular. The Street, I think, has 3 15 in earnings next year. Can you talk a little bit about this dilution? Taking account the NanoString offset, does it factor in the legal fees? Are you able to kind of quantify what you think legal might be there? And then, obviously, the accretion from the other side of the deals, like ELITech.

Right. It's -- so it's a lot of moving pieces, I'll grant you that, right? But if you -- that's why we did the May 17 investor webinar or like a mini Investor Day, it's kind of off-cycle. Normally, we do it every other year, but this year there were so many moving pieces that we wanted to update the Street on what -- how it all comes together. And yes, I mean, very much bottom line at the -- even with that additional dilution, which we took on to acquire those assets and the beautiful EPS growth from our core business, which after all is 90%, which gives us leeway. If the core business wasn't growing at double digits and well above market again this year and had such good organic further margin improvement and nice EPS growth, we couldn't do that. This allowed us to do that this year. And after all the dust has settled, we'll still show EPS growth this year. Other companies are showing that as well, but on no growth or on perhaps even declining revenues. We are -- we took the liberty this year of showing very EPS growth, but we're still showing EPS growth even this year. And then if you take the forward rates to the $1.50 that we expect to add in EPS over the 3-year forecast or medium-term outlook period to about at the midpoint $4.15 in 2027, that's $1.50 compared to where we're likely to land this year or where we've guided to land this year. That's greater than 15% growth. So that's adding a fast EPS growth story to the fast revenue growth story. That's how it's, at the end of the day, coming together financially.

Are you able to -- back to the legal question kind of quantify what you think you're going to spend on that? And what are the odds of the settlement? You had kind of the win in Germany. U.S. case, obviously, is next year. But what do you think about potentially settling ahead of that?

Yes, we really don't know nor could we comment. The legal fees, I mean, those are -- they're built in. And these are $10 million to $20 million a year, NanoString is a very significant legal fees. Does it make sense to continue with that for a long -- I don't know. I cannot speculate on a settlement. And we're basically setting up and have planned that this will be a multiyear fight. And yes. the last 2 rounds we won. Before that, NanoString unfortunately lost 3 rounds in a row. We feel good about CosMx, the key CosMx -- the key patents by the other party attacking CosMx, having been invalidated on May 7 in Germany and having been recommended to the European Unified Patent Court that it is almost clearly invalid, although that ruling may then be later on this year. So we feel that doesn't predict or determine the U.S. decision, but we feel positive about that. And yes, there's many -- I think the Street had built in a valuation for NanoString, that's the worst case of every outcome. So from irrational exuberance to extreme depression, and I think the more likely sets of outcomes with litigation outcomes, our settlements are far more positive. So I think it's -- but it's very difficult to predict litigation. But we're in it. We're planning for it. We like our chances.

The guide on NanoString, $80 million this year, I mean, you're kind of applying $100 million run rate. They did $165 million last year. So maybe just talk a little bit about is that conservatism? There's some academic budget pressures everybody has called out. Talk a little bit about how sensitive that business might be to some of the near-term pressures, too, in the academic markets.

Yes, Tycho, that is hopefully conservatism because we're -- so it's $80 million in 8 months, so that implies about simplistically $10 million per month. That seems about right for starters at least. It was at a higher level. But then remember, they went through Chapter 11. They got -- they exit -- they had to -- there was an injunction in the German market, then on the European market, all temporary. These have all been lifted. We are selling CosMx in Germany, in Europe, very much so. The management team, the public company structure is gone. We had to take over and catch all of that. And we've done that as well. The new management team in Seattle and elsewhere is up and running and is aligned, and we've kept many of the key CSO, the key operational, the key commercial managers. So we're in good -- we're catching it. This is burning -- well, it is -- it needs to recover. What we do not know is whether it takes 2 or 4 quarters for them to recover and then go back into double-digit growth mode. That's why we modeled for modeling suggestions as we have some number to plug in this year at about $10 million a month, which is $80 million. That is at [ $220 million ] a year, so implication is less than the nearly $170 million at last year, but I think that's a reasonable assumption for this year because it will take a few quarters to recover. By 2025, hopefully, it will be much closer to full recovery and then we'll also intend to build it into our regular guidance.

Got it. There's a lot of debate about kind of the size and growth of the spatial market, but the benefit of being able to bundle, right? I mean can you talk a little bit about how easy is it to integrate with Canopy and some of the other kind of assets you have?

Yes. I know there were some estimates out there of $12 billion and all, and now people have wondered why we're not there yet. We may reach that market TAM eventually. But initially, even at, whatever number you want to pick, $2 billion or $3 billion TAM, it's very attractive for us, right, with -- you know who the other players are, but we're going to be 1 of the top 2 or 3 players in the spatial biology market. We also have spatial biology assets with our mass spectrometry imaging part, which is more on the discovery side, NanoString. And then Canopy, within microscopy microfluidic systems, are more on the translational and clinical research side. And also, to some extent, transcriptomics discovery, that's what NanoString is particularly good at and better at than anybody else. So integrating those in the -- we will have a lot of foregone cost increases that we had planned. If we had to build up, over the next 5 to 7 years, a large commercial engine for spatial biology to be competitive with Tenex or with NanoString, we would have had a lot of planned OpEx increases for our Canopy business. Now we can just plug this into this very large NanoString channel with over 3,000 customers and a worldwide sales force. So the cost -- while it's not immediate synergies of cost we take out at the Bruker side, but we save ourselves a lot of additional investment in OpEx over the next few years by -- on May 6, basically -- well, after a few weeks -- a few months of integrating and having that channel. So that's a huge acceleration for us, yes. And the integration, yes, these 2 businesses are becoming the Bruker spatial biology business under Mark Munch, yes.

Maybe shifting over to ELITech and molecular and kind of sample to answer here. Talk a little bit about the strategy in that market. You've got obviously a number of players at the high-throughput end. And you've got the MALDI Biotyper for microbiology, are there kind of synergies and opportunities to bundle there?

Absolutely, yes.

Yes. I can take that question. Yes, we are very proud. Having been able to close a deal with ELITech. We think this is an excellent asset. It has -- it is mainly a consumables and aftermarket business, almost 90% of the revenue is consumable and aftermarket. It's not instrument heavy at all. We had about 40 million molecular diagnostics before in our P&L in our business from an acquisition we did a couple of years ago. And of course, these 2 businesses will be merged. So there will be some cost synergies we are taking there. ELITech itself is a smaller and organically built company, and has not all the infrastructure you need to run a global business. So we have footprint in countries where they have no footprint yet. So there will be sales synergies across Europe. Our main focus will remain Europe and South America, where we have strong Biotyper footprint. We have a large regulatory footprint, which is typically very expensive these days, in particular in Europe. Europe moving to new regulations, where we can help and have a lot of synergies. We have synergies to offer for ELITech from a supply chain and the logistics, the distribution of consumables and all of that. So that's quite a good play of synergies in combining this business. Nevertheless, the main reason for us, it's a very nicely growing business. So we have quite high single-digit, low double-digit growth expectation from our molecular diagnostics business going forward.

And it's margin accretive. So their operating margins are somewhat higher in the low 20s. So it pulls us up. It's EPS accretive. And fundamentally, MALDI Biotyper is a beautiful business. We built it over 15 years with a ramp over the last 10 years to nearly $300 million. Continues to grow. Have beautiful margins. But in infectious disease biology, it's great to also have that. It can't do viruses and molecular diagnostics. We didn't have the sample-to-answer platform that ELITech brings, so this is a beautiful combination. And it doesn't threaten Roche or Abbott or Siemens Healthineers, or anything like that, or Hologic, it's actually very complementary. And often, they put that as the long-tail esoteric panels that sometimes we get specified when they compete -- when they -- when 2 or 3 of them compete for the big business in large hospitals. So it's just a beautiful business. It's just a nice business. It's not post-genomic era. But diagnostics has been quite healthy. The post-COVID diagnostics has been quite healthy, and they really built a nice position, very defensible, right to exist and with nice margins, nice growth rates.

Good. Maybe just the last minute here, a budget question. Well, two. One, obviously, some pressure here in the U.S. with NIH, NSF. Talk a little bit about your comfort in the budget environment here in the U.S. And then as we think about China stimulus, I think there's a narrative that maybe you're underindexed this round relative to kind of some of your peers and some of these new markets. Maybe debunk that, that math for us.

Okay.

In 30 seconds.

In 32 seconds, right. So I mean there's a lot of -- federal U.S. budgets are not seeing fast growth, but the CHIPS and Science Act finally kicking in. So we're optimistic about U.S. demand as well. There's so much other philanthropic and other funding. As it gets allocated from genomics to the post-genomic era, we just see this very fundamentally high demand for proteomics, which was evident at ASMS. 3 seconds. China, I think the stimulus program will be a multiyear program rather than a 1-quarter bolus. I think it will very much favor academic and academic medical center innovation and research, that's us. And I think it will favor very much big ticket items, and we see opportunities for the first maybe gigahertz type terms in China. So while it will take a while to really build up, this may, for us, be a '25, '26 revenue story, we don't mind that. '24 looks really good for us already. And I think it will favor us.

Great. Good to see you. Thanks.

Thank you.

Thank you very much.