Bruker Corporation (BRKR) Earnings Call Transcript & Summary

Thank you for being here on Day 3 of the TD Cowen Global Healthcare Conference. I'm Dan Brennan. I'm the tools and DX analyst. Really pleased to be joined with me on stage here. Frank Laukien, who is the CEO of Bruker. So Frank, welcome.

Thank you very much for having us. Thank you for your interest.

So maybe the fourth quarter results weren't that long ago. So maybe you can just kind of do a quick review of kind of how the year ended? And as you think about the priorities for 2025 and the organic guide of 3% to 4%, just kind of your thoughts on that?

Yes. So the fourth quarter was a bit better than what we had anticipated and a little bit better than consensus. We managed to almost get to 4% organic growth. I think it was 3.9%, which was quite good. We thought we'd be almost flat because the prior year had been at like 16% organic growth and had been very extraordinary. So good organic growth, sort of similar to the rest of the year. We had good bookings, which was also nice or improving bookings. So very, very close to a one, book-to-bill in our BSI business, which is the best within the trend of last year, the best bookings. There were some initial China stimulus bookings. I'm sure we'll talk about that, not a lot yet, but some. In the last 2 quarters of the last year, it added up to a little bit more than $15 million. That makes up -- this is not all baked into our guidance. And I'm sure we'll talk about that. So there's some positive drivers there as well. And the margin performance was better. It really shows that this Bruker management system working on the acquisitions and integrating them and making them -- taking them towards breakeven and profitability pretty quickly at a very fast pace. I think that showed that we're delivering on that commitment. We've also worked, of course, on the core. We're not only taking costs out of the new acquisitions and restructuring those, but have taken costs out in other areas in order to support, which kind of brings me to the guidance, right, and to the multiyear outlook, a guidance that this year is modest on growth, but not bad, right, 5% to 7% constant exchange rate growth, with 3% to 4% organic, is decent, but not a standout year, but we wanted to be conservative and really very much focused this year and in the next few years to coming back towards 20% and beyond 20% operating margin. For this year, for '25, we've guided to 140 bps of margin expansion. And by the way, that's subtle but it started at 15.4% for last year, not 15.0%, so it's good. So good, fast margin expansion, which is going to be what we will be solving for this year and the next few years and therefore, also good EPS growth. I think the reported EPS growth guidance is 11% to 13%. And yes, life is not fair. There's some currency headwind. Without that, it would be 14% to 16%, but it shows you that's a very much a commitment to profitability.

Terrific. So I'm sure you've gotten this question or you will get it today, but in terms of all the policy initiatives from the Trump administration creating a lot of questions for the Tools Group, your guide contemplates some uncertainty in academic and government market due to NIH. I know you publicly stated that you don't expect a large reduction in NIH related to the kind of what's been going on. So maybe just talk through a little bit about what your exposure is. I mean I think a lot of companies have an academic exposure. And then within that, they have an NIH exposure, so they're doing their own math. Just give us a sense of kind of that exposure and kind of what you've assumed?

Yes, that's the elephant in the room, right? Our CFO, Gerald, was answering that in New York last week over and over again. So let me just preface this, and I'll say it, I'll go through some sensitivity, so you get some numbers and I'll point out what I think is most probable and our guidance and some downside scenarios, which are not our guidance, but since that we are answering that question all the time, we might as well, right? So yes, we've built in -- we said, hey, this NIH uncertainty and it's a little bit broader. I mean it's not just narrowly NIH. It also affects much of U.S. academia. We'll have -- we'll probably take a couple of quarters, it could take longer, but we think it may take a couple of quarters to sort itself out. And therefore, we're modeling some sort of a reduction in that. We have modeled a number that seems reasonable by minus 8%. And that ended up with numbers that we can cushion in our guidance, yes. So maybe some of the buffers that I built into my guidance as we always do. It is now less likely that we'll have beat and raise -- at least raises, so -- but I think that's all stuff we can buffer. That is our guidance. That remains our guidance that we think is the most likely scenario and that can absorb because of strong other drivers in biopharma, in semi, in diagnostics with Chinese stimulus, maybe now some German stimulus, some Korean stimulus. Let's see how quickly that moves through. We think we have enough drivers from the 92% of our business that is not U.S. academia that we can make up for that more probable scenario. Why is minus 8% the right number or minus 10%? I don't know that it is the right number. But if I look at all of Bruker in the COVID year 2020, how much were we affected, and that was above that number as well. So no, we didn't go down 20%. So -- but now since you want to ask it and since I get asked all the time, what if it went down 15% or 20% or 25%? Again, I'll preface that, that's not our guidance. And also because I have so much backlog, I think it wouldn't all hit us this year anyway even if it takes longer to sort out. But you can do the math. Let's just do the simple math. 25% down all of U.S. academia. In that unlikely scenario, but not implausible scenario, a bit extreme, that would be 2%. So that would imply that instead of 5% to 7% constant exchange rate growth, the implication of that would be 3% to 5% constant exchange rate growth. So still growth, still margin expansion, still EPS growth, but a reduced scenario. Whether we or others would have to look at a reduced scenario like this by midyear or after the third quarter, I cannot exclude that because nobody can. Again, I don't think that's the most likely scenario. But since people also want us to model a bit more extreme, but still within the plausibility range, there you have it.

And in terms of what you're hearing -- we were just sound at AGBT, you were there as well. What we're hearing is kind of mixed feedback, if you will, on this indirect factor. Some labs were fine and indirect doesn't really impact us. Others are saying, universities saying to halt spending, slow spending. Others are saying indirect actually pays for certain things. It might pay for labor, so we may have to reach end of our pocket. Like what's in a down 8 or extreme down 25 -- President Trump may suggest an NIH budget like he did in the first term, down 15 and Congress has typically said, "No, we're going to fund it flat or up a little or down a little." Is it more the indirect that would be the swing factor? And if it is, I don't know, what are your salespeople hearing from their customers about how that might impact some spending?

No, I cannot imagine anybody saying indirect doesn't matter. It matters for everyone. It doesn't just pay for G&A overhead, right? This is not just a bunch of -- universities have all bulked up in their bureaucracies and they could all use a lean program and they can all use some of the restructuring. That's good, but that will take a while. But it pays for a computation center, for an animal facility, for a proteomic center, and a bunch of other things that you need. In some grants, you can build that into the grant, in some grant it is indirect research facilities cost is an essential part of what U.S. academia needs. So the 15% won't work. I also think we're not going to go back politically to that, hey, just show us your calculation, and we'll pay you 60% or 70% overhead. I think those times are also over. So no point in betting, but I've heard a university president bet or jokingly say, no, I think this will come into 40%, maybe maximum, and others have said, maybe they'll end up at 30%. That's kind of in the middle somewhere. And that sometimes maybe that's where the new political consensus will fall. The new deal with the Trump administration and it will be the new NIH Director, Jay Bhattacharya and RFK Jr. None of those have said they want to spend less on research. They said, hey, I want to focus on chronic diseases. That's legitimate, right? That actually feeds into our post-genomic human phenome biology. That might even accelerate some of those trends that could be in the second derivative, pretty beneficial for Bruker. So it will take some time to figure this out. Nobody knows how long it will take. I think it will take -- it is not a matter of weeks. I think it will take a couple of quarters. It could take longer. But I'm assuming it will take a couple of quarters once the new head of FDA, new Head of NIH are in, that they will then be empowered. I don't know that for Trump personally, that's even in the Trump 1.0, and I know 2.0 is different, but 1.0, there were things that he took very much personally as his agenda and other things where he always said, let's have less NIH spending, but then aging senators and congresswomen and congressmen all of a sudden, we're worried about Alzheimer's and cancer. And we know someone who is right, then they always increased it any way. I don't think the U.S. will give out its leadership role in academic or in nonacademic life science and biopharma research. I think that's not going to happen. But how long will the turbulence take until this gets into some new paradigm, none of us know exactly. I think it could be in a few quarters.

Yes. We just hosted a panel this morning, too, with -- on China, with the Vice chair, the National Security Commission on Emerging Biotech, they're going to have a report on April 7th, and I think they're really going to try to promote R&D. So it will be interesting to see what they have out...

In China?

In the U.S.

In the U.S., okay. I didn't know...

Yes. Sorry about that. So let's talk about growth initiatives. One of the growth initiatives that you've had is expand your business with pharma. Could you just discuss kind of where we are on that path? You have formal macro pressure, but it sounds like that's getting better. How successful have you been? What's the opportunity to look ahead?

Yes. I mean, first of all, organically, it turns out that our timsTOF product lines for proteomics, multiomics, soon also more for isoforms is very applicable to the biopharma industry and rather than -- so they tend to be, maybe not relatively early adopters, our timsTOF business and so on, and some of our high-end NMR business tends to be about 30% pharma, which for some other academic research tools, some of them tend to be 90% academia. Now this very early big push into -- from chemical proteomics to that you need for drug discovery for this -- for certain -- for these targeted protein degraders and protein glues and so on, plays in a role. The same will be true for some of our acquisitions. The Beacon platform or the old Berkeley Lights PhenomeX that we acquired, heavily dependent on pharma. Therefore, last year wasn't so fantastic for them, right? Demand wasn't there for those bigger platforms. We think that's now -- I don't think that biopharma will snap back this year, but I think this year will be a growth year to where maybe you'll be at longer-term growth rates back in 2026. And longer-term growth rates in biopharma won't be the boom years immediately post-COVID. I think those were also unique. But if -- I think biopharma for us -- last but not least, sorry, NanoString also has a significant biopharma business in good years. Last year, for us or 10x or maybe Akoya or others also wasn't so hot because biopharma spending was relatively weak last year. That's gradually coming back, but again, more with being at normalized, whatever they will be growth rates probably by '26, but some growth this year. So that already looks healthier. All in, Dan, our biopharma exposure or that being a long term, one of the most valuable industries and most important industries for us is keeps going up from the low to the mid to the higher teens. And that trend just continues. In some years, it's good not to be 40% or 60% or 80% biopharma because then it does become an exposure. And one of the beautiful things about Bruker is that we are so broad and so resilient. And yes, now we benefit from European defense spending and airport security and in between semiconductor metrology for a big new TMSC plant that does not only logic chips, but that will also look at advanced packaging. One of the things you probably mercifully have no idea we're doing, but we're actually the leading company in advanced packaging metrology tools. I cherry picked a few things from recent headlines that actually are all positive for us, but that gets round out right now with, hey, you're all freaking out about NIH.

Right. That's fair. Maybe kind of staying on some of the high-level introductory questions here. So you talked about China a little bit here and then on the prep call, I think you said, 20 million orders to date maybe of China stimulus. Agilent just announced pretty decent-sized stimulus wins in their first quarter in food. Can you zoom out and give us a sense of -- we try to do work on China stimulus. So I'm just trying to understand what the program that you're addressing, what you've seen early on and kind of how you're thinking about the opportunity for Bruker?

Yes. We just -- again, one of our most senior group Presidents for the -- who runs -- also runs the mass spec business and some other things was just in China and had a lot of customer meetings. So I have a little bit more incremental color and insights. So -- and by the way, this part that Agilent reported on the environmental side and PFAS and so on, we don't see that, that much. That's kind of an Agilent and others idiosyncratic approach. We see stuff in proteomics and glycoproteomics and spatial biology that they may not see. So confirming from our perspective, although challenged a little bit by what Agilent is doing because they're in a different part of the market, is academic high-end, latest and greatest? Preferably not, quite released yet. That's what they want to have because they're not going to get these big money for these big ticket items. They may not get that for another 5 years again. So this is when they want to buy the latest and greatest and preferably something you're launching at ASMS and just talking about for now, which is fine. So that also -- that has implications in terms of timing. This won't be a tight bolus over 1 or 2 quarters or 3 quarters of orders. It seems to be some very sizable projects that we've come across. The -- and these then tend to be $10 million to $100 million type projects, not all coming to us, but we have a big chunk of it often and some other vendors and then there's just some stuff that -- it's not some just lab infrastructure and salaries. But very often they go to the latest and greatest in, yes, I will say, the post-genomic era and this next chapter of looking at proteomics, multiomics interactions, spatial biology, very much on to the next chapter of life science, genomic science, the last 25 years, we're sort of at the end of the beginning. It wasn't the answer to biology. It's not the blueprint of life. It was ended up. Most people say today, we understand maybe 10% to 25% of human of biology because we have the genomics. Some people say it's much less than that. It just means there is other chapters to be written that we're writing, that we're in a leadership position and have fundamentally transformed ourselves to being a leader or perhaps the leader in this next chapter of studying things completely gets validated in how China is investing. So they are on to the next, next thing, not only the last thing and getting more of that or we're getting more capacity or getting another sequencing center going. This is incredibly favorable. And I think as the U.S. environment will become highly selective because you'll -- you won't -- you can delay some purchases where you just wanted more capacity or replace something from 7 years ago and there is better, but we can delay that for a year and 2 and you will in U.S. academia, if you have to make really tough choices right now. But if something is the first tool where you can do the PaintScape product that we just launched at AGBT, a completely new lamp post in science. You can look at the 3 dimensional spatial genomics. So not within the cell, but within the nucleus and within the chromosomal structures, where they're located, how they interact, how they translocate very, very important information, not only for cancer research, basic cancer biology, but how viruses affect our cells or infectious disease. This is something -- this will be a nature and cell paper printing machine. Nobody has anything like that. People will invest, they will prioritize that or what we're going to launch at ASMS, which will be the [tims omni] that is very much looking at protein isoforms and doing -- looking at complete intact proteins and getting nearly complete sequence coverage that will also create a new category. And interestingly, people are very, very keen on that in stimulus. And I think that's also what I predict what U.S. science, when they have reduced funding, U.S. academic science will invest in because that they must have for new scientific enabling capabilities. So we're well placed there, which doesn't mean we won't be affected by this turmoil. We will be, but I don't think as much as others perhaps.

So basically, just summing it up then, there's some really chunky large orders that are brewing there on some really advanced proteomic technologies, looking to tap into some of the newer things and it's not going to hit in like immediately, but you're talking about $20 million, $30 million, $100 million projects of which you feel...

Of which we'll get a fraction, but we might have -- we might get $5 million out of a big project or $10 million. And sometimes we just get a couple of million. But it does add up, right? So there's healthy funding that we haven't all built into our guidance for '25 because I think, with a word of caution, I think it's also coming a little bit more slowly. I thought, well, it'll probably come through in Q1 and Q2. No, these order maybe coming through all of this year and maybe some into next year, which from a managing a business actually isn't all bad. The boluses are nice while you have them, but then it makes for a tough comp. So it's probably more steady, but there's some very sizable projects. And they all got all the stems from the Dean and from the Vice President of Research and now they just need the money released and that probably -- that may be over many quarters rather than over 1 or 2 quarters. So probably more slowly, but I think overall, a bigger opportunity and very much focused on leading-edge products that give you, that enable new science or new cancer research. So there, we're absolutely in the sweet spot.

So maybe just coming back down to the guide for 2025, like we have BioSpin up 3%, CALID up 5%, Nano up 3%. So kind of all around that 3% to 4%, but CALID the fastest grow the other 2%. Is that kind of the right way to think about it? Maybe can you give us some building blocks to how you guys thought about that organic outlook for '25?

No, actually not quite. That's understandable way of modeling it. It turns out that BioSpin had very fast growth last year and will be flattish or low single digits this year, '25, and the same for BEST because of some of the trends in the MRI market that are driven by GE, Siemens, Philips Healthcare, but -- so this year, they will have a discrepancy with Nano and CALID growing the fastest, pretty good growth rates and B Bio and BEST just growing a little bit more slowly this year. That's how it comes together. In some years, everybody grows almost in sync. This year, there will be a little bit more of a difference.

So academic, we've covered in a lot of detail, so that's a headwind for you. But in terms of getting from that 3% to 5% back to 6% to 8%...

But not in other countries, right? I mean of course, we're focused on the U.S., how can we not be. And here the investors are. But again, the -- in terms of all academic and government spending, for us, 77% is outside of the United States. Europe is much more steady, low single-digit increases. But because we're in the right spot of that, for us, it can mean high single-digit or double-digit growth rates. Similar in Taiwan, Korea is planning some big projects probably won't benefit us till '26. Whatever this German infrastructure and defense packages that they're just hashing out right now. Apparently, I was told by an investor this morning from Europe that, hey, how did you see that also has some science funding in it. I didn't even know yet. So I hope it's true. So -- but anyway, to your next...

Right outside of U.S. academic weakness, when you think about your 3% to 5% bridging the 6% to 8%, what has to happen to get back towards that 6% to 8%?

Well, 2 months ago, I would have said, well, we're in a partial recovery of markets. From last year, the market was what, down 0% to minus 2%, and we grew 4% organically. This year, I -- as part of the guidance, we thought that maybe the markets would be growing in the low single digits, but not mid-single digits yet. So a long-term recovery to the mid-single-digit growth rates this market. These markets generally have seen the life science tools market, which we would expect for '26, so maybe the second half of '25, but not for all of '25 yet. So on top of that, you need the U.S. academia and NIH turbulence to settle into perhaps, some new paradigm, where you can calculate your overhead and charge that, but there will be maximum. And then if you want to have a separate computational facility or a new animal or proteomics facility, well, apply for a grant. I mean people who have been at NIH, at Senate hearings speak and applying for NIH shops have said, no, no, we want to spend more on R&D. We want the universities to take out a few billion in overheads and bureaucracy, which is entirely feasible. I mean there are many layers of bureaucracy that aren't benefiting research, except this will all take some time. That doesn't happen within -- until the U.S. academia restructures will be a 2- to 3-year process. But during that time, even quickly, they can take out tens of millions which then will soften some of the reduced funding they get so that there will be lesser impact on R&D. That's why I'm not looking at -- well, I'm happy to answer the questions about worst-case scenarios, but I think what we've built in of an 8% to 10% decline is much more realistic and probable.

So maybe just looking at CALID and Nano then. So CALID, obviously, you've talked about timsTOF about 4x so far on this call. Just to grow 5% or 5%-plus, just maybe where are we in the evolution of timsTOF and kind of how does that number compare to where you think that growth rate could be as things normalize?

Yes, that was growing more slowly in recent years because the Astral was the new kid on the block. It's a very good new system that came out a couple of years ago that could speed things up, do things in plasma and so on that were beyond what we could do 2 years ago. And a lot of these things, we've kind of caught up. In other areas, we retain areas where we have advantages. And now we're bringing out some things we talked about here at US HUPO, some things at [tims omni] that we talked about. At ASMS, we'll have some very significant new additional releases to our -- not only have we come back to maybe an even market position in the last 2 years. We kind of clawed our way back into that with enough innovation and some new capabilities, but there's a big push for some major innovation that's coming out from Bruker this year.

So that will then -- will that get reflected, do you think, in your '25 guide? Because that could...

Mostly '26. It will maybe a little bit in Q4. We haven't built much of that into the '25 guide. So when you announce these new things, that's why we're talking to some of them earlier. So something -- we'll have budgets ready when these launches, others will begin to look at budgets. When they say, wow, this is something nobody can do. We need to be able to do that. Most of that will help us in '26 and beyond. So, yes. But these things have time constraints where it really helps your P&L sort of within -- after a couple of quarters.

So UK Biobank...

But, anyways, there's enough other healthy stuff built in, right? Yes. Yes.

So UK Biobank announced, I think, 600,000 samples with like Olink and Thermo on affinity. [Base tools] we hosted a company yesterday, and I'd like to get your perspective too because you compete here with Seer, with Proteograph at the front end, I know you have a competitive product they're talking about. There could be some really big mass spec, like just protein type, not population sequencing. But I guess the question is, as you see these affinity-based population studies, what's going on in kind of mass spec related studies given how much faster the timsTOF is or Astral, are you seeing a demand for that? Is that part of the excitement here? Would that be upside?

Yes, with Seer, on the one hand and the ENRICHplus and P2 technologies, for example, enrichment or depletion, that has enabled mass spectrometry, team red or team blue or blue, to play a much bigger role in plasma proteomics. Proteomics biomass spectrometry had been terrific in cell lines and even single cell and immunopeptidomics. But in plasma, initially the way to scale was with Olink or SomaLogic, right? That's why they did the initial studies, Olink of the 50,000 samples of the U.K. Biobank. So that has changed now in the last few years with the other company that you mentioned. And some of the things that we've launched over the last year with our partner companies, PreOmics and Biognosys with CRO. And now we can do very, very good and very deep, including tissue leakage cancer biomarkers in plasma. Plus we can do the isoforms, plus we have multiple peptide coverage, and a much, much higher 99% specificity, nothing -- nobody at OMALOGIC, SomaLogic or Olink is ever talking about specificity, but it is dramatically less than that as far as we can tell. The benign interpretation is it's complementary because people that have studied this and have really compared the various technologies, find that they overlap less than 50% and then each have a whole bunch of 25% that you only see with Olink or only see with mass spectrometry. So at a minimum, you'd think you'd want to combine that. We have a program where U.K. start-up company is looking at the physiological Plasma Proteome and 50,000 samples of the UK Biobank. They haven't made big announcements, but they're off and running. They're doing this already, while others are making those announcements. So -- and then there's -- UK Biobank gets a lot of attention, but it's one data point per patient, eventually will all be patients. Hopefully, we're healthy individuals when that sample is given. They are much better longitudinal biobanks where people are studied for years, once a year. And then if at some point, they're within 1 or 2 years of getting colorectal or ovarian cancer or maybe the emergence of neurodegeneration before it's caught as mild cognitive impairment. So these longitudinal databases that are a little bit smaller are much more valuable for biomarker and pharmaceutical development in the UK Biobank that is well known, but it has its limitations. So there's other programs that are more important. Mass spec plays a big role in many of those.

So we're almost out of time. Maybe I'll just wrap up by asking your opinion. I know you own over 25% of the company, you bought back stock in December, you bought back stock recently. So maybe just give a perspective on how you view -- is that buyback? Obviously, you're a largest owner of the company, so you believe strongly in the value here. But in terms of tactically doing it now, is that more a reflection of like 2025, wow, we have so much wind at our back and numbers and there's cushion here? Or is it more just you're looking at the long-term value of Bruker and you're saying the same is true it's undervalued here?

Well, both, I mean the valuation multiples right now are -- that are out there, and in my opinion, are totally -- are not -- are irrational, right? And so it's an opportunity for me personally. It also -- we have -- the company has buyback authorizations that we haven't used much last year because we did a lot of acquisitions. Right now, as you know, we're in a big deal diet for a while as we, a, deleveraging, but we're not only deleveraging, we can also use some of that for share buybacks. So yes, I mean, yes, for '25, but also very much the long-term value. And in my opinion, so far exceeds where we're presently at or that's an easy one.

Terrific. Well, with that, we're out of time. Frank, thank you so much for being here.

Thank you very much for having us.