Bruker Corporation (BRKR) Earnings Call Transcript & Summary

Good day, and welcome to the Bruker Corporation First Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would like to turn the conference over to Joe Kostka, Director of Investor Relations. Please go ahead.

Good morning. I would like to welcome everyone to Bruker Corporation's First Quarter 2025 Earnings Conference Call. My name is Joe Kostka, and I am the Director of Bruker Investor Relations. Joining me on today's call are Frank Laukien, our President and CEO; and Gerald Herman, our EVP and CFO. In addition to the earnings release we issued earlier today, during today's conference call, we will be referencing a slide presentation that can be downloaded from the Events & Presentations section of Bruker's Investor Relations website. During today's call, we will be highlighting non-GAAP financial information. Reconciliations of our non-GAAP to GAAP financial measures are included in our earnings release and are posted on our website at ir.bruker.com. Before we begin, I would like to reference Bruker's safe harbor statement, which is shown on Slide 2 of the presentation. During this conference call, we will make forward-looking statements regarding future events and the financial and operational performance of the company that involve risks and uncertainties, including those related to our recent acquisitions, geopolitical risks, tariffs, market demand or supply chains. The company's actual results may differ materially from such statements. Factors that might cause such differences include, but are not limited to, those discussed in today's earnings release and in our Form 10-K for the period ending December 31, 2024, as updated by our other SEC filings, which are available on our website and on the SEC's website. Also, please note that the following information is based on current business conditions and to our outlook as of today, May 7, 2025. We do not intend to update our forward-looking statements based on new information, future events or for other reasons, except as may be required by law, prior to the release of our second quarter 2025 financial results expected in early August 2025. You should not rely on these forward-looking statements as necessarily representing our views or outlook as of any date after today. We will begin today's call with Frank providing an overview of our business progress and of the expected impacts from U.S. policy changes and new tariffs. Gerald will then cover the financials for the first quarter of 2025 in more detail and share our updated full year 2025 financial outlook. Now I'd like to turn the call over to Bruker's CEO, Frank Laukien.

Thanks, Joe. Good morning, everyone, and thank you for joining us on today's first quarter '25 earnings call. Bruker had a solid start to 2025 with double-digit reported and constant exchange rate or CER revenue growth. We also had 5.1% organic revenue growth in our Bruker Scientific Instruments segment and better operating margin performance than expected. In short, our teams executed very well under significant uncertainties in key markets. In the first quarter and in April, at the important AGBT, ENC, ESCMID and AACR conferences, like the alphabet soup, we launched a number of very innovative, performance-leading new products in spatial biology, cellular analysis, NMR, microbiology and molecular diagnostics while strengthening our high-value offerings in key areas of our strategic focus. I'll cover several of these important new products in a few moments. But the key message here is that in times of funding uncertainties and in particularly, it is particularly important to enable our customers with unique and highly relevant new research and clinical capabilities. We also expect these meaningful post-genomic innovations to drive continued higher revenue CAGR differentiation for Bruker beyond the present ACA/GOV headwinds in the U.S. and China. Let's begin on Slide 4 with the performance of the business in Q1 '25, then I'll walk you through the impact of recent U.S. policy changes and the new tariff regime, how we anticipate it will impact Bruker and how we intend to mitigate the resulting headwinds to our margins, slightly more than 1/2 in 2025 and then completely by 2026. On Q1 '25 performance, we delivered a stronger-than-expected first quarter. Bruker's Q1 '25 reported revenues increased 11% year-over-year to $801.4 million, above our preannounced range of $795 million to $800 million and significantly above prior expectations. Our constant exchange rate, CER, revenue growth was 12.5% year-over-year, including organic growth of 2.9%, with, as I said earlier, a reasonably strong 5.1% organic growth delivered by our BSI segment and a 9.6% contribution to revenue growth from acquisitions. If you recall, we did some of our larger acquisitions last year in the second quarter. Notably, performance in the biopharma end markets strengthened in the quarter and grew in the mid-single-digits percentage. Our first quarter '25 non-GAAP operating margin was 12.7%, which was down year-over-year due to the expected M&A dilution from the strategic acquisitions I just mentioned that we completed in Q2 '24. However, underneath, we again posted strong organic operating profit margin expansion of about 100 basis points year-over-year in the quarter. Our first quarter '25 diluted non-GAAP EPS was $0.47, down from $0.53 in Q1 '24 due to expected and more recent FX currency headwinds. Please turn to Slides 5 and 6, where we highlight the first quarter CER performance of our 3 Scientific Instruments groups and of our BEST segment year-over-year. In Q1, BioSpin revenue was $208 million with mid-teens percentage CER growth. BioSpin growth was driven by strong ACA/GOV revenue, including an ultra-high field NMR system in the U.K., by industrial research and food safety markets and a strengthening biopharma environment as well as strong contributions from preclinical imaging and lab automation, the new Chemspeed business. In Q1, our CALID Group had revenue of $280 million with mid-20s percentage CER growth. CALID growth was led, as you might expect, by microbiology and infection diagnostics, including the acquired ELITech Molecular Diagnostics business as well as double-digit-plus growth in Life Science Mass Spectrometry driven by strength in the timsTOF platform. CALID saw robust growth in Europe and the Americas and strength in clinical, industrial and biopharma applications while ACA/GOV performance was moderate. Turning to Slide 6. In Q1, Bruker Nano revenue was $257 million, with CER revenue growth up high single-digit percentage. Growth was supported by inorganic revenue growth from NanoString, which was not yet included in Q1 of '24, the year-over-year comparison. Strength in APAC ex-China, biopharma and ACA/GOV markets were partially offset by softness in Europe and China as well as in X-Ray and NanoAnalysis tools. Finally, first quarter BEST CER revenues declined in the high-teens percentage net of intercompany eliminations as our Research Instruments business saw a weaker performance in the quarter, they had a very strong prior year comparison and that also was combined with continued softness in the superconductor market for clinical MRI. Moving to Slide 7, we highlight the recent innovations underscoring Bruker's leading commitment to advancing spatial biology announced first at AGBT and then expanded further at AACR in Chicago in late April. There's a lot of information on Slide 7. Don't worry, I won't read it all, but it gives you a highlight -- it gives you an idea about the breadth and best-in-class performance of each platform, each significantly enhanced in terms of content or sensitivity or throughput and, of course, the completely unique PaintScape. Maybe one theme that comes here throughout is that spatial is going multiomics, both our GeoMx platform now allows High-Plex transcriptomics, of course, that's what we're known for, but also tissue proteomics. And that's also, by the way, true for our non-spatial nCounter system that you may recall from the NanoString days. CosMx with the Whole Transcriptome Panel now that is ready for orders where we can really look at 19,000 protein encoding genes at the transcriptome level is an unmatched research tool. And importantly, we've increased our detection efficiency by a factor of 2x, one of the areas that the customers were waiting for. Too much detail. Let me move on to Slide 8. 8 is an important acquisition, gets us into a different branch of diagnostics. This is not microbiology, infectious disease, and it very much fits with our triple quadrupole mass spec strategy, which, of course, is very differentiated with our particular claim to fame and focus to chromatography-free or chrom-free point-of-need mass spectrometry using triple quad targeted technology. This gives us the crucial assays and kits and consumables business. RECIPE is based in Munich, been in business for over 40 years. Revenues, a little greater than $15 million, very profitable. And for the European market, it gives us the therapeutic drug monitoring and other kits for IVD and other things that we don't need to go into detail. This combination, kits, assays, contents with a diagnostic focus for therapeutic drug monitoring and also, by the way, eventually, drugs of abuse because it cannot be so fast and inexpensive with the DART chrom-free approach, is actually strategically quite exciting to us. And we think these 2 instruments, plus assays and diagnostics coming together is a nice -- is an important additional growth trajectory for the company. But we know you want to hear about the macro and ACA/GOV, so let's go into it. Let me make sure I'm on the right slide. Yes, I will now review our assessment and anticipated impact from U.S. policy changes regarding federal funding for academic research and the current tariff regime on Bruker for the remainder of 2025. Moreover, I will provide an overview of our additional cost initiatives, new pricing actions and already ongoing and now accelerating supply network reengineering to partially mitigate at least 1/2 of the new headwinds in this year, fiscal '25 and then more fully in fiscal '26. So here we go. Our initial estimates are that U.S. policy changes to federal research funding, slower China stimulus funding release and some temporary revenue impact of new China tariffs on revenue will amount to an approximately $100 million gross headwind to our organic fiscal year '25 revenues before some mitigation. You cannot mitigate that much on the revenue side, but a little bit. Anyway, this $100 million fiscal year '25 revenue headwind is broken into 3 buckets. First, and that's a smaller and transient one, some fiscal year '25 China revenues that were to be shipped from the U.S. may be delayed -- are delayed by customers or may be partially canceled due to the current 125% Chinese import tariffs on U.S. goods. We're working with our customers to partially mitigate this impact with supply chain alternatives, tariff extensions or delivery delays, with the largest transient impact now expected in the second quarter of '25. Then second, the strongest -- by far, the strongest revenue headwind this year, not surprisingly, is related to U.S. ACA/GOV markets as a result of research funding policy changes. For Bruker, we now expect U.S. ACA/GOV revenue to be down 20% to 25% for this year. U.S. ACA/GOV in fiscal year '24 had grown to about 10% of overall Bruker revenues. And in the updated guidance, we assume that the current academic funding uncertainty continues, even though we acknowledge there's some potential upside in the second half of '25, if NIH and NSF and DOE R&D grants begin to flow again without further delays. Anyway, we have not baked those in. So hopefully, this is a floor. Finally, we do not think that the President's initial budget request for NIH and NSF will be passed by Congress as is without an improvement. We expect it to be down, but not as much as the opening bid. Third, a headwind related to anticipated China ACA/GOV revenue as funding of the stimulus programs in China has been slow to be released by the provinces. Many shovel-ready projects, a lot of them with our instrumentation, high-end ACA/GOV, but slow to release as they are probably watching tariff and trade wars. This may improve throughout '25, but at the moment, timing and amounts are uncertain. So there are a number of moving parts that could provide additional upside such as release of China stimulus funding, German and South Korean stimulus funding, European defense and security investments. We see some of that. And further semiconductor metrology strength due to the AI and machine learning trends, which are very profitable for us. So these factors could add upside, but we have not built them into our guide assumptions, hoping to provide a floor for '25 with upside, in any case, more likely to benefit fiscal '26. We also note that uncertainty around potential U.S. tariffs on pharma products could slow the encouraging recovery that we have seen in drug discovery and development markets in the last 2 quarters. And again, we have tried to take that into account in our guidance. So that was the revenue piece. Let's move to operating profit or margins. So with respect to '25 operating profit, the gross headwinds before our mitigation actions are pretty meaningful. So first of all, the roughly $100 million of reduced organic revenue previously noted is expected to lead to about a $50 million reduction in '25 operating profit. Moreover, Bruker imports about 75% of our U.S. product revenue. Obviously, not the services revenue, there's another piece to it. But of our product revenue, 75% is imported largely from the European Union in Switzerland, but also from Israel and Malaysia. The current U.S. import tariff rates of 10% from those countries would result in an additional headwind of at most -- of above $40 million to operating profit for the remainder of '25 again before our ongoing mitigation actions. That's the gross headwind. U.S. tariffs on imports from China for Bruker have a negligible effect on Bruker, excluding some secondary supply chain inflationary effects, but we basically don't import any products from China. So in total, we therefore estimate gross headwinds for our '25 operating profit primarily from U.S. ACA/GOV disruption and new tariffs to be about $90 million altogether before our mitigation actions. Now deploying our Bruker management process and strong leadership team that, as you've seen, has been really excellent, executing very well, not only this year but for many years, we have already taken and are taking numerous actions to offset more than 1/2 of these margin headwinds this year, with the remainder expected to be fully effective next year in '26. Our mitigation actions include new pricing actions, additional cost-cutting initiatives and supply network and manufacturing reengineering. We estimate these mitigation measures will offset slightly more than 1/2 of the operating profit headwind for '25. We then expect to fully offset these headwinds through price, cost and supply network and manufacturing reengineering by 2026. Fortunately, we're a very international company with a lot of flexibility, but it takes a little bit of time. Anyway, finally, factoring in U.S. ACA/GOV and tariff headwinds as well as the recent weakening of the U.S. dollar, a significant effect, as well as our mitigation actions and taking it all into our updated fiscal year '25 non-GAAP EPS projections, leads us to a new guidance range for EPS of $2.40 to $2.48. So in summary, Bruker delivered strong CER growth and organic operating margin expansion in the first quarter of '25. We're experiencing new headwinds as a result of ACA/GOV policy changes in tariffs. As always, we remain agile in responding to the evolving dynamics. Our management process is navigating us through these headwinds in '25 and setting us up for resuming margin expansion and strong EPS growth in '26 and beyond. So with that, let me turn the call over to Gerald, our CFO, who will review our financial performance in more detail and provide further color on our updated outlook of '25. Gerald, go ahead, please.

Thank you, Frank, and thank you, everyone, for joining us today. Pleased to provide more detail on Bruker's first quarter 2025 financial performance. Starting on Slide 10. In the first quarter of 2025, we had another quarter of excellent execution, delivering a strong first quarter above our earlier expectations and the color provided to the investor community. In the first quarter of 2025, Bruker's reported revenue increased 11% to $801 million, which reflects an organic revenue increase of 2.9% year-over-year. Acquisitions added 9.6% to our top line, while foreign exchange was a 1.5% headwind, resulting in constant exchange rate revenue growth of 12.5% year-over-year. Geographically and on a year-over-year organic basis, in the first quarter of 2025, our Americas revenue declined in the low single-digits percentage, European revenue grew in the mid-single-digits percentage, while Asia Pacific revenue grew in the low single-digits percentage despite a 10% decline in China. For our EMEA region, revenue was up mid-teens percentage. We delivered strong BSI organic revenue growth in the first quarter of '25 at 5.1%, driven by strength in our BBIO and CALID groups. BSI systems grew in the mid-single-digit range and BSI aftermarket revenue grew in the high single-digit range organically year-over-year. Our order book performance in our BSI segment was down slightly compared to the prior year first quarter with softer academic government orders in the U.S. and in China. Non-GAAP gross margin increased 10 basis points to 51.3% and Q1 2025 non-GAAP operating margin was 12.7%, which included 100 basis points of organic operating margin expansion on better mix and cost control, more than offset by planned M&A dilution as Q1 2024 did not include 2 of our largest strategic acquisitions that closed in the second quarter of '24. On a non-GAAP basis, Q1 of '25 diluted EPS was $0.47, down 11.3% from the $0.53 we posted in the first quarter of '24, which did not yet include our key acquisitions last year. Our non-GAAP effective tax rate was 27.7% compared to 26.7% in the first quarter of '24, with the increase driven mostly by an unfavorable discrete item. On a GAAP basis, we reported diluted EPS of $0.11 compared to $0.35 in the first quarter of '24. Weighted average diluted shares outstanding in the first quarter of 2025 were 151.9 million, an increase of 6 million shares or 4.1% from the first quarter of 2024, resulting from our follow-on equity offering in May of 2024. Turning now to Slide 11. We generated $65 million of operating cash flow in the first quarter of 2025. Our capital expenditure investments were $26 million, resulting in free cash flow of $39 million in the first quarter of 2025. This reflects an improvement in free cash flow of about $39 million over the first quarter of '24, driven by better working capital performance in the quarter. We finished the first quarter with cash, cash equivalents and short-term investments of approximately $184 million. During the first quarter, we used cash to fund capital expenditures, select Project Accelerate 2.0 initiatives and debt repayments. Turning now to Slide 13. As Frank noted earlier, we're updating our fiscal year 2025 outlook to reflect a strong first quarter and the impact of recent policy changes and tariffs. We now expect reported revenues of $3.48 billion to $3.55 billion, representing reported growth of 3.5% to 5.5%. This guidance assumes organic revenue growth of 0% to 2% and estimated tailwind from foreign exchange of about 1% and acquisitions to contribute approximately 2.5% to revenue growth. This implies constant exchange rates, CER, revenue growth of 2.5% to 4.5%, all year-over-year. The revenue guidance includes an organic revenue growth headwind of approximately $100 million from recent policy changes and tariffs, partially offset by pricing and other mitigation actions of about $20 million for a net headwind of about $80 million. We now expect our fiscal year 2025 operating margin to be roughly flat year-over-year, with organic improvement of greater than 70 basis points, including mitigation actions, to be roughly offset by headwinds from M&A and foreign exchange. Recent policy changes, academic government market weakness in the U.S. and China, together with the current level of U.S. and China import tariffs are assumed to be a $90 million gross headwind to operating profit in fiscal year '25. We anticipate over 1/2 of this impact to be offset through our mitigation actions, including: pricing, about $10 million; cost management, about $30 million; and supply chain reengineering, about $10 million already in fiscal year '25. On the bottom line, we're now guiding to non-GAAP EPS for 2025 in a range of $2.40 to $2.48. This translates to roughly non-GAAP EPS growth of 0% to 3% compared to 2024. Given the recent weakening of the U.S. dollar against major currencies, foreign exchange is now a 5% headwind to our non-GAAP EPS, implying constant exchange rate non-GAAP EPS growth of 5% to 8% for fiscal year '25. Other guidance assumptions are listed on the slide. Please note, our fiscal year 2025 ranges have been updated for foreign currency rates and tariff rates as of April 30, 2025. While there are other policy and macroeconomic risks that could further impact our fiscal year '25 financial performance, with this updated guidance, we hope to have established a floor based on current headwinds and our robust mitigation actions. Given the lower base years of '24 and '25, it's now become clear that our previously communicated medium-term outlook targets are not likely to be realized under our originally planned cadence. We intend to provide updated medium-term outlook targets when we have a clear line of sight on U.S. federal research policy and funding and stabilized tariffs. Fundamentally, we remain optimistic that we've transformed Bruker's portfolio for above-market revenue growth, rapid margin expansion towards the mid 20% operating margins and mid-high teens EPS growth once new headwinds abate. Finally, to add color on the second quarter of 2025, given softer U.S. and China academic government market conditions and some U.S. produced China revenue likely delayed from the second quarter, we expect our second quarter 2025 organic revenue to decline in the low single digits, while constant exchange rate revenue is expected to increase in the low single-digits percentage, both year-over-year. In the second quarter of 2025, we also expect to see a transient year-over-year decrease in non-GAAP operating margin and non-GAAP EPS performance, with significant improvements in both metrics expected in the second half of this year. To wrap up, Bruker delivered a solid BSI organic revenue growth and organic operating margin expansion in the first quarter of 2025 under uncertain conditions. Moving forward, we remain confident in our ability to continue to execute well under a challenging environment. And with that, I'd like to turn the call over to Joe. Thank you very much.

Thanks, Gerald. I'd now like to turn the call over to the operator to begin the Q&A portion of the call. [Operator Instructions]

[Operator Instructions] Our first question comes from Puneet Souda of Leerink Partners.

Frank, thanks for the questions here, and thanks for all the details on the tariffs, for quantifying that. Could you elaborate if there was any pull forward in the quarter because of the tariffs worries or any other worries in the market that the customers might have had? And are you making any impact from that as a result of that pull forward? And then in China, I appreciate you mentioned cancellations, but are you seeing any cancellations in the U.S. or European markets, specifically maybe around the UHF gigahertz magnet? I didn't hear guidance on that for the year.

Okay. Puneet, thank you. So there really wasn't any pull forward that's being talked about due to tariffs or ACA/GOV. We didn't see that. However, we acknowledge that the U.K. 1.2 gigahertz system that we had expected for Q2, it just -- technically, it just went in easily, and so it got in, in Q1. That wasn't a pull forward. That was just a really smooth installation. So that helped Q1 a little bit. And of course -- so I wouldn't call it a pull forward. It was not a market-driven pull forward. To cancellations, we don't really see any China cancellations yet. Customers who don't have the budget to pay the extra 125% for which they, according to the terms, would be -- mostly we think would be on them, but they just don't -- they presently right now are a little bit in this holding pattern, hey, don't ship yet, we can't accept it because we can't pay the import duties. It's not a big effect. But of course, in Q2, it's going to be noticeable, as Gerald explained. We do not see any cancellations. We see lots of uncertainties and delays in the U.S. and ACA/GOV. We haven't seen any cancellations because of that. So no cancellations yet in China, but delays and, in some cases, we are also simply rerouting and maybe building some of these systems in Europe or Malaysia. So hopefully, we can mitigate, but sort of typically with a quarter's delay. Hopefully, that answers your questions, yes?

Yes. And then when we think about the offsets, obviously, a lot of challenges in the market today. But when we think about the offsets, the AI chips, onshoring of that, the funding initiatives in Germany, maybe lower interest rates, can you walk us through how are you thinking about some of those offsets potentially sort of mitigating the impact maybe into the second half?

Yes. In terms of orders, they may. I mean, AI remains very strong in our tools. I mean, of course, there's more important partners. But without us, the AI revolution also wouldn't work, right? TMSC absolutely needs our tools. I think they're our single largest customer in the world at this point. Of course, they're doing a lot of work both in Japan and in the U.S. They're also upgrading and investing in Taiwan. So that remains strong and has remained strong. In fact, for AI-driven bookings in Q1 were quite strong. So that's strong. And a lot of the delivery times for these things are longer, when their fab is ready, middle of next year. You can't really ship it earlier. German and Korean and similar stimulus funding or European defense fund spending, the time lines -- these are all good trends. Some of them are beginning to turn into orders. Some of them just are very encouraging in Germany, I would say. That's nearly 10% of our revenue in typical years. But I don't think they'll make much of a difference anymore in revenue and in our P&L this year. They are, however, welcome tailwinds for '26 and even into '27, '28. So AI will help us also this year. Although if I take an order today, it's probably for next year, but I have orders that I can ship this year and that continues to be strong demand. And yes, the onshoring in Japan, in the U.S., also in Europe, plays a role, but also very significant continued investments by the technologically leading companies in Taiwan and in Korea. So that's actually quite good.

The next question comes from Michael Ryskin of BOA.

Frank, I want to talk about a comment you made towards the end of the prepared remarks in terms of the medium-term guide being a little bit unrealistic in the current environment. So if we just focus on the U.S. policy changes, you mentioned Trump's initial proposal is 40% cut. You don't think that will happen because Congress will offset. But let's say, it's 20%, 25% cut to next year's budget, just to pick a number similar to what your assumption is for this year. How does Bruker offset that next year? Could you talk about how you would respond, what different levers you are, how we should think about possible ways to get around that, whether it's pharma, biotech, whether it's -- Puneet just asked on AI and some of that, some of the more industrial tech parts of the business? Just sort of what steps would you take to offset that U.S. A&G cut maybe a little bit more medium term?

Yes. No, you listed most of them. So I'll -- as you see in our '24 -- mid-'24 medium term outlook, '24, '25, the 2 base years, that's obviously changed, that's what we're talking about. So therefore, look, we are very committed to resuming very significant margin expansion this year, all that we have -- we have a lot more than the 140 bps lined up, and we're hoping to do too much better than that. It turns out this year, we're kind of moving sideways because we're using all of these improvements plus new cost and pricing and supply chain actions to just deal with the headwinds this year. So -- but assuming no new headwinds by '26 and beyond, I think that this operating model, operational excellence, integration, that all still works, but it kind of takes with a 1-year shift because this year, we're playing defense, quite honestly. Right. I think all these trends that you did mention, biopharma has been picking up nicely. Our tools for biopharma, including those from spatial biology and Beacon, Cellular Analysis, you've seen we've not just done cost cuts, we've done incredible, fantastic fast product development to resume growth in these businesses when the headwinds abate, right? We're doing very well with AI and then we just discussed that with Puneet, and you asked about it, that's doing well. European security and defense spending, European investment, quite honestly, infusion research, other clean energy projects are all helping us. So there's a lot of good growth drivers that a little bit are overshadowed this year, but that I think will play a bigger role next year. There's also some transient effects that we've explained a little bit, that just go away. Your estimate that I don't know where NIH and NSF funding comes out once it gets through Congress. I'm pretty sure it's not the opening date, would it be -- but I think it will be down. I agree with you, it will be down, maybe just not as steeply as proposed by the White House initially. But there are many other. I mean, Germany is not only looking at defense. They're really looking at significant R&D and innovation infrastructure and tools investments. And other -- the weakness of the America academic system, there will be other countries that try to advance and honestly exploit that a little bit and say, oh, great, we can get some researchers, let's give them a start-up budget. So you see some of that dynamics. There's a lot of growth drivers that just most -- we're not baking them in this year, even if they help us a little bit in the second half. Mostly, I think it will be on orders. And we're just trying to set ourselves up for giving a baseline for '25, moving sideways a little bit with some organic growth and a little bit of EPS growth. Actually, EPS growth, excluding currency is reasonable for us this year and what we're projecting, and then really fully resuming fast margin expansion, EPS growth, et cetera, next year.

Okay. That's all really helpful. And then, Gerald, if I could squeeze in a follow-up for you. You mentioned comments in your prepared remarks about order book in BSI down year-over-year on A&G in U.S. and China, obviously, makes sense given what's going on there. Any way you could quantify that either via book-to-bill or just an order growth number? And then could you touch on your backlog, your existing backlog ability to offset maybe a lower order book in 1Q, 2Q this year, sort of what that buffer gives you?

With respect to the order performance in the first quarter, it was actually just slightly under the first quarter of 2024. The general composition is that -- was while we did see a slightly weaker performance in academic and government research sectors in both China and the U.S., we saw strength actually in biopharma and in some of the industrial markets including semi, of course. So I think, generally speaking, right now, we are reasonably well positioned on the order book in order for us to continue to -- these orders, of course, benefit as you march into the second half of 2025 and further into 2026. So I think, generally speaking, our general position is we're feeling pretty good about that. I would say on the backlog, we are still at 7 months on a backlog level. So we do have some remaining backlog to be able to pull on in some of these quarters. We didn't see much decrease in the backlog drawdown level in the first quarter. So we'll see how this all plays out over the next couple of quarters. But fundamentally, we still have quite a bit of backlog to be able to pull on. So I think that's the high-level view.

And BSI book-to-bill just below 0.95, not great, a little weaker in March, as you would have expected, which fits the overall pictures as expected, not great, not bad.

The next question comes from Patrick Donnelly of Citi.

Maybe one more on the tariff side. Encouraging to hear you guys offsetting that for '26. Can you just talk through -- it sounds like pricing, cost initiatives moving to manufacturing around supply chain management. Can you just talk through, I guess, the new pricing assumptions, what you're doing on the manufacturing side? Just want to talk through that confidence level of offsetting it into '26 and preserving that number and again, kind of moving into '26 with a clean slate on the tariff offset. So if you could just talk through pricing, manufacturing, cost initiatives that you're using to offset it?

Yes, Patrick, thank you. Good questions. So pricing, yes, we're taking some U.S. but also some worldwide additional pricing action. I think for competitive reasons, we'd like to not go into that. It's not across the board, right? You kind of do it in a way that's smart and like all other companies. In terms of supply chain, yes, the usual things that you do as an international company, I mean, there are some products that you can do the final assembly and systems test, we can do it in the U.S., or we can do it in Europe, or we can do it in our Penang, Malaysia major manufacturing centers, and we're exploring all of that and looking at all of that. Vice versa, we used to do x-ray and mass spec and NMR final assembly and systems tests in the U.S. We're talking to third-party trusted contract manufacturers that are international that we're already using either in Malaysia or in Europe, quite honestly, and they have -- one of them has a facility here in New Hampshire and others have other U.S. facilities, about onshoring parts of our production even. And for that, of course, we also need a little bit more visibility about where transatlantic tariffs are with respect to Israel and Malaysia and up. Right now, we assume existing tariff rates, which may not be a bad assumption for where things end up. But then again, nobody is entirely sure. And yes, cost actions, I think, Gerald mentioned those. The additional cost actions, we expect this year to amount to about $30 million, so pretty aggressive. And by the way, we didn't wait for that. That had started -- actually, that started -- some of it had started right at the beginning of the year because we wanted to overperform our initial guidance. And then more of that has been significantly accelerated as more clouds moved in. And so yes, and so here with us, that's -- the cost actions are significant. The supply chain, you don't see such a big number, $10 million this year, but that has a little bit more of a delayed effect. That will be a much bigger effect next year.

Okay. That's helpful. And then maybe a bit of a follow-up on Mike's question there. When you think about the academic market, Frank, I know you're talking about academic, government, I think, down 20%, 25% this year. I guess when you look forward, Gerald mentioned that mid- to high-teens earnings once these headwinds are absorbed. Are you thinking that the academic market -- one of the big questions we get is this structural for the next few years, right, where this declines every year for the next few years? Or is it you rebase this year and then have opportunity for that piece to grow? How do you think about the academic, government exposure here? And is this, again -- with the new administration in office, is this structural until things change on that front over the next few years?

Yes. We still assume that U.S. ACA/GOV will be weak, on the weaker side next year. Of course, we don't have straight visibility about some of the budget negotiations. I know they'll be negotiated, but I don't think that Congress will then say, hey, never mind Mr. President, we're going to have an NIH budget increase. But probably -- hopefully, have a lesser decrease. Other things, of course, I mean, ACA/GOV, 75% of the ACA/GOV market for us worldwide is outside the U.S. That's doing well. There's even some stimulus funding. There is some work that's actually one of the better pieces of our demand. In the U.S., we also expect it to be weak but probably growing compared to this year's more disrupted ACA/GOV market, where there's also been the delays and the arguments over what's allowable overhead indirect costs and then certain universities being in political fights with -- and some of them are big, right? Some of them that's not insignificant. So I think some of that, we believe, will be somewhat temporary, although temporary, not 1 or 2 quarters, but for this year, and we still expect some weakness next year, although probably growth year-over-year compared to this year in the U.S. ACA/GOV.

The next question comes from Tycho Peterson of Jefferies.

Frank, I want to dig into your pharma comments. You mentioned strengthening biopharma a few times. So did it get better as the quarter progressed? Anything you can say in April? Is that mostly timsTOF? And then in your guidance, you alluded to maybe baking in some pharma slowdown. So maybe just talk about the gives and takes.

Yes, biopharma, as you know, we're partly in the late regulated, but mostly in the drug discovery and development. Yes, biopharma has been increasing from a weak base last year or before that even. Biopharma has been -- had trended very nicely for us in Q4 already and in Q1, I don't really -- for us, because we're not primarily consumables April, I can't comment. Taking that in and knowing that there is a threat of biopharma tariffs, we have put in a moderated recovery, a dampened recovery in biopharma but not it's falling back into a hole as it was maybe a year ago or so. timsTOF, NMR [ are on ], but also a little bit of spatial. Of course, our Cellular Analysis, Beacon tools, now that we have the new benchtop Discovery system. There is -- we're having more and more -- we're not a one-trick pony or a two-trick pony in biopharma anymore. So there's a lot of tools, including some process analytical tools and things like that, Process Raman and some of the automation things from our Chemspeed acquisition, some of the software that all supports efficiency and productivity and investments in pharma towards the digital lab and maybe eventually the lifestyle lab and things like that. So we have a bunch of things that are driving that. It's not only a one- or two-product story anymore. And that's all been reasonably healthy. It's just been quite healthy in the last 2 quarters.

Okay. That's helpful. And then to follow up on M&A. You're adding the RECIPE deal, just over $15 million or so in revenues, but you're not really changing your contributions here. It was 2 to 3 before, now it's 2.5. So maybe just talk a little bit about what the offsets are on M&A? And are you kind of more optimistic on revenue synergies from some of the deals? Maybe just a scorecard now that we're kind of a year or so into these deals.

Yes, Chemspeed is doing great, better than expected with its automation demand in pharma and elsewhere, so very happy with that. ELITech, my God, the most predictable business ever, and they're doing well. And in fact, they did well again in Q1. So that's a good space, and they're doing a little better than our acquisition model. They also did better last year in getting more platforms out but then over the first year after deployment, that's when the consumables pull-through grows as they add more assays. Spatial biology and cellular analysis, they both suffered from weak pharma this year, and they're both suffering a little bit from weak academic this year. And of course, it gets harder to export things to China when there's a 125% increase. So there, we're making great progress on taking cost out, on efficiency, on putting in the new management process. Amazing progress in new competitive products from cellular analysis and spatial biology, but they're both somewhat weaker than what we had expected because, of course, the U.S. ACA/GOV this year, they both noticed that even as biopharma, which was weaker last year, is recovering. So that's sort of muted. But I think we're still on track there for looking at a 26% breakeven for these 2 businesses. That was a quick rundown, Tycho. Yes?

The next question comes from Rachel Vatnsdal of JPMorgan.

So I wanted to follow up on Mike's earlier question around order book trends. Appreciate all the color you gave us on orders in the quarter and book-to-bill as well. But can you talk to us about your expectations for bookings going forward? Do you think we've kind of hit the bottom on orders? Are you expecting it to get worse as we get into the second and third quarter, given some of the headlines on NIH budget proposals? And then, where are you expecting to exit this year on backlog, given you said you still have the 7 months of backlog that you're working with?

I think the academic order weakness, I think, it's just beginning. Q1 or maybe March, we saw just a little bit of that. But -- so U.S. academic orders and a lot of that headwind this year, I think you'll see that in weak U.S. academic, government orders in the U.S. in Q2, probably in Q3, and yes, we'll see whether there is some budget flush and grants moving through finally with much delay. So I think the brunt of that is now coming in Q2 and Q3. Hence, the revenue headwind that we've taken into account in this new guidance and that we've explained. We have enough other strength in our forecast that we still think we'll come out of the end of the year with a 6.5 to 7 months backlog. So I know we're all focused on U.S. ACA/GOV and every day, there's a usually not very nice headline. But there is other stuff that we do. And we are so diversified and so international that we actually still -- we think our long-term normalized backlog should be around 5x now that we have much more consumables and aftermarket, that's a little lower than historically when we would have said 5.5x. And I think at this end of this year, we'll almost certainly be at 6.5%, possibly still a 7%. So that's stubbornly high, which is a good thing, of course. And you see, I mean, we've outperformed in Q4, we've outperformed in Q1. Q2 will be tougher because of some of the transient effects. But I hope that helps your modeling and gives you some additional insights on the timing.

Yes. No, that was great color, Frank. And then just my follow-up, I wanted to dig into some of the China stimulus comments. You called it out being a little bit slower in light of the tariff situation and provinces just being slower to release those funds. So can you unpack that for us a little bit more? How much stimulus revenues did you guys recognize in China in the first quarter? And then are you assuming any China stimulus revenues for the rest of the year?

I know it more about orders, it was low. It was very little, less than $10 million certainly in Q1, as I would think most of the provinces are hanging on to the money if they have it. So it's been deferred while China is trying to figure out what's going on with tariffs and trade war, I assume. So yes, it's been delayed essentially. And as I said earlier, we have not baked in -- by now, now it's May, we have not -- until that gets -- even if it got released and then turned into orders, well, most of these orders they might come in, in Q3. And by that time, because that's a lot of high big tickets, cutting edge and leading-edge performance, things that they order on these stimulus packages, most of that would go into '26 for our revenue. So we don't expect China stimulus to be significant in our P&L in '25.

The next question comes from Luke Sergott of Barclays.

I just wanted to kind of dig in a little bit on the 2Q to get some cleanup modeling. Can you just help us with the guide assumptions by the segment for BSI and BEST, what's embedded there for that low single-digit constant currency growth, kind of FX, MA? And then on the operating profit, I understand that the cost outs, excuse me, for that $90 million -- or the mitigation efforts for that $90 million turned into $45 million. Like how much of that $45 million net are you guys looking to hit in that 2Q?

In Q2. Gerald, that's...

Sort of like long term...

That would be the other question. Yes, yes. I appreciate it. Probably more of that in Q3 and Q4, right? Yes.

So some of the mitigation actions that we've already put in place, particularly around pricing and supply chain items, are not going to fall into the second quarter, for sure. It's really more about our cost management elements that we're pushing hard on, for sure, and think will have some modest impact in the second quarter, which is why I think we've triggered a more significant reset on the second quarter expectations. But once those elements kick in, specifically around the third and the fourth quarter, I think there's an expectation that our financial performance at the EPS line will improve sharply in the second -- I mean, sorry, in the third and the fourth quarter, in the second half of the year. It's sort of the big picture.

So as we've been already slowing hiring and using retirement and attrition and so on, we've been doing that for -- but some things we can actually implement relatively flexibly. I'll give you an example. In Switzerland and, if needed, also in Germany, in certain businesses, we can pretty quickly turn down our production capacity by almost about 20% with this short-term work mechanisms where basically people end up working 20% less and they're still paid like 95%, 98% because the government kicks in for up to 2 years. That's a great way of keeping your highly trained workforce and then ramping them back up 6 months or 12 months later or whatever it will be. We're already doing that and we've announced that in Switzerland, for instance. So it's a very smooth and fast mechanism and it doesn't require -- it doesn't cost you as much on the GAAP side in terms of restructuring and cash, and you can also implement it very quickly. But very quickly means still, it's mostly going to have a Q3 and Q4 effect, and maybe just a tiny bit of an effect. It will be effective as of Q2, but it won't move the needle financially, I think, Q2.

Okay. And then I...

Of course, things -- I'm sorry, there are things like discretionary spending and hiring, and we're doing all of these things. Also things that you do on pricing until you put them in the price list and get a new order, until you get that, that then works out and pricing also has always a time delay. That's why these things do have an effect more into the second half and then much more significant annualized effect next year.

Yes. Okay. Understood. And then I guess when you talk about the other regions that are doing stimulus, like South Korea and Germany and Japan, like I understand that this is more of an out-year dynamic and potential tailwind, but we have little context for what those countries have done in the past from a stimulus perspective. Have you done any work or have any insight there of what this could look like? Would this look like something like China's stimulus in the past where you just get a huge bolus? Or is this more infrastructure and more secular?

Yes. And I think in Korea, a number is known. And there was also -- I forget, it's over 3 years or something like that, and it was -- Joe, do you have the number?

23.

23, what? What currency? U.S. dollars?

Yes.

Okay. So over 3 years or so, still meaningful. Germany is huge, but it will pay for a lot of other stuff. It's kind of $50 billion per year over the next 10 years. Some of that goes into defense, right? We do have some detection equipment that on the margin goes there. So that's a good trend for us in one of our little niches. A lot of it is supposed to go into innovation and technology regaining or expanding where they have a technology leadership. So there's some -- we're pretty optimistic that a fair -- but I can't quantify it because it's also -- as you know, the new government was elected yesterday finally. And so they have some really big numbers. Some of that will build bridges, some of that will build tanks, that won't really help us, although it may be good for the economy in general. But a lot of that probably will also go into innovation, including into life science tools. And so can't quantify it yet and it will almost certainly be '26 and beyond. But could be not just a bolus but a little bit of a longer-term trend. So we'll probably keep going for another 5 minutes or so, going over a little bit. For those who want to stay, we'll try to get to a few more -- a couple more people want questions. All right? If we move on, to the extent they're still on.

The next question comes from Subbu Nambi of Guggenheim.

Agree, BEST is only 10% of the revenue. But do you expect the clinical MRI, Supercon to eventually improve for Bruker given that it's taking some time for AI trends to impact your revenue? One of the things with Bruker's strength is the diversified product portfolio, and therefore, not seeing strength in one of these segments when ACA/GOV movement is down, always remains a question. Like your -- the diversified portfolio is supposed to offset all these weaknesses. That's why I'm asking about it.

So you're talking about the BEST portfolio? Did I understand that correctly? Subbu?

That's right.

Yes?

Yes.

I think that's going to be a slower recovery in the MRI market. Obviously, these are other big health care companies that you're all familiar with. And the trends there don't fluctuate all that much. So we expect that to be a weak year for BEST and a reasonably better year for the nearly $100 million RI, Research Instruments component. They just had a tough comparison in Q1 year-over-year. They had an incredible Q1 of last year. So the RI business, I think, will be not growing fast, but be steady. And the superconducting materials business this year will be weaker probably for the full year, but not as pronounced in the percentage, as you would -- year-over-year as you've seen in Q1. It will be much more -- it will stick out less. All right. We have one more question for us. Thank you. Thank you, Subbu. One more question, if the next person is on there.

The next question comes from Doug Schenkel of Wolfe Research.

One question, I guess, what I would call portfolio evolution. And then just a follow-up on China. So portfolio evolution, some of your bigger acquisitions over the past couple of years ostensibly served to move your revenue mix away from China and into areas outside of academic research. I'm not saying those were the primary motivations, but they're certainly features of a lot of those deals. So China seems like a complete black box right now, and it seems like it plausibly could be structural. Academic, government funding, as we talked about extensively, is at risk globally. So I guess what I'm wondering is when would you expect the deals you did in '23 and '24 to grow year-over-year on a same-store sales basis? Is that going to happen in '25 and '26? Are we kind of in the background starting to see the benefits of portfolio evolution? So that's what I'm...

Oh absolutely, yes. Yes. And...

Why don't I...

Yes. Go ahead, Doug.

Why don't we answer that, and we'll come back to China in a second.

Okay. And then we'll wrap it up. So yes, absolutely. The portfolio evolution is already visible. I mean, diagnostics is steady as can be. And when other things are weaker, steady, high single-digit growth in diagnostics, molecular, microbiology is awesome. Of course, also a lot of consumables. So that works. The automation and multiple smaller software -- scientific software acquisitions, I kind of take them a little bit together because they feed each other towards the digitized lab, more automated lab. That's all working really nicely. And even as people are a little people -- biopharma and other industries, cleantech and fine chemicals love to invest in that because they either can't find the staffing or they're prepared to do it with more productivity and less hands-on time. So those are all good trends. The investments of the old Berkeley Lights, which is cellular analysis, the Beacon platform as many of you know it, and about that 1/3 of spatial biology that does go into to biopharma, yes, they're helping us in the biopharma recovery. So that a lot of these things are already active and are offsetting some of the ACA/GOV weakness. Without the portfolio evolution, including the pretty rapid evolution with our acquisitions in the last 5, 6 quarters or so, this would be a tougher call and maybe we wouldn't -- or maybe we'd go down organically this year. We think we'll still grow a little bit despite all of the headwinds. So yes, China is hard to read, I agree.

Yes. My question there was just going to be, and I know I'll keep it tight, if we think about even what you guys were saying 1 month, 1.5 months ago about orders related to China stimulus, it obviously sounds different today. It all has changed in that period. My question is really, do you think, in general, your visibility on what's going on in China and what's going to happen in China is just a lot lower than it has been for the last decade? And do you think you have that adequately captured in guidance at this point?

It is lower. And I hope we've got it captured because we're not built -- there is stimulus plans, amazing when some of our executives are over there, the projects that are already approved by the university, maybe even approved locally, just no funding yet, would be quite favorable for us in NMR, mass spec and other fields, but the funding doesn't get released. And I don't know whether it gets released ever in Q2 or Q3 or Q4. And I don't think they know. However, unlike past China stimulus programs, which were sort of 1 or 2 quarter wonders, this one seems to be much more sustained. And so some of the professors or PIs of large consortia for academic medical research, they say, yes, yes, this will get funded; we just don't know whether this year or next year, and worse case, in 3 years, but this will get funded, this is a priority. So it's more the -- but the timing is really -- there is no visibility in the timing and they don't have it either. It could be next quarter. It could be next year. They're all pretty confident they'll get it. So that's the answer. I wish I knew the timing, but that's how it works right now. Yes. All right, 09:40, so we're 10 minutes over. Yes.

Okay. This concludes our question-and-answer session. I would like to turn the conference back over to Joe Kostka for any closing remarks.

Thank you for joining us today. Bruker's leadership team looks forward to meeting with you at an event or speaking with you directly during the second quarter. Feel free to reach out to me to arrange any follow-ups, and have a good day. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.