Bruker Corporation (BRKR) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to day 2 of the Wells Fargo Healthcare Conference. We're happy to have Bruker here and late surprise guest, CEO, Frank Laukien; and Gerald Herman, CFO. Frank is just returning from Europe, and I think he wanted to start off with a couple of comments about his experience there and things that he learned.

Thank you so much, Evan, for having us. Good morning, everybody. Sorry to almost fall flat on my face, but only -- so yes, a few things that I'd like to maybe take out -- set out there as an opening remark, and they relate to international conferences and events that happen to be in Europe. It's not about the European markets. One was a big NMR and structural biology conference in Davos of all places, unrelated to the World Economic Forum. And as you know, we have reorganized as of July 1 and created the Bruker Biosystems Group that combines a number of technologies and applications and most importantly, NMR with mass spectrometry. And that's very timely or maybe we should have done it more before, but the opportunities there are really quite unique and important, particularly in drug discovery, but also to our theme of having the best tools and the most informative data even for foundation model training and all of that with deep data that goes beyond the genome. Genome is important. It's foundational, but then what really happens at the phenome level. And I'm delighted to say that NMR by itself, it's a complementary technique. It's not -- that's how you do structural biology, but you combine it with other vendors, cryo-EM or crystallography, which we do ourselves. So you do it at beam lines and with NMR and more and more also with mass spec, so-called cross-linking mass spectrometry, which is taking a big step up, and we have the right systems for that. And the combination gives you structural enhancements. It also very importantly gives you binding and dynamics, which is really crucial, even if you have structured so-called globular proteins, they're not a rigid lock and you're looking for just the right key or the degrader. So there is dynamics. When you stick the key into the lock, the lock closes around, it's called an induced fit. For all of these things, NMR beautifully complements AlphaFold, not our product, right, cryo-EMs and other technologies. And more and more also even for structural biology, and the important protein interactions, mass spectrometry, our TIMS platform and derivatives thereof. So combining that and finding more niches also for mRNA drugs, whether RNA is a drug target or a therapeutic modality itself, NMR rules, kind of, it's the technology, the others can't do it. It's very important. And another field, the TIDES, which is often the larger peptides, small, small proteins or oligonucleotides. Again, NMR has a very, very unique role often in combination with mass spectrometry. And we're really now under Juergen Srega's leader -- in that Biosystems group under Juergen Srega's leadership can combine those in pretty unique metabolomics, even glyco and workflow solutions for drug discovery or for training AI models with really deep and insightful data as opposed to just a lot of surface data. One more remark, if I may, because we also visited and that happens to be in the Netherlands, in Leiden in Europe, of course. We had our kickoff meetings of our MIMETAS acquisition or majority investment. We own about 90% of that business now. Why is Bruker doing something new? Don't you have your plate full? Yes. But this is really, really important. Every drug discovery conference I go to, they're talking about multiomics and spatial and biology 2.0 or post-genomic biology, whatever you want to call it, but they're also all very keen in addition to animal models, which won't go away and in preclinical work to have these humanized microphysiological systems. Sometimes they're called NAMs, which stands for new approaches. NAMs are humanized microphysiological systems. And we have been looking at that market of smaller companies for the last more than a year, very fairly systematically. And we have noticed that MIMETAS, we think that we acquired now has the best automation, laboratory standard automation microtiter plates. They also have the most physiological value, we think and they think because it is membrane-free and does organs on a chip without having a membrane that distorts it again. So it's an incredibly important technique. It's only about a $10 million business right now, but that could be a future $50 million to $100 million business, will take some years. Also, it's very synergistic. It will pull in metabolomics and proteomics tools and some of our microscopy and maybe even spatial biology tools. It will often be at the lead because that's what biopharma looks at. By the way, it's essentially all consumables and aftermarket business. So we like that in our business mix. In biopharma drug discovery and development and often we'll pull in additional Bruker and sometimes other vendor systems to get the most meaningful information out of these new approaches, NAMs or humanized, not mouse, humanized microphysiological systems. I'll leave it there at that. There's other stuff, but that's -- those are 2 things that I thought would be worth sharing.

Yes. No, great. Thanks so much. That was really interesting stuff.

So maybe, I guess, for me, the best place to start, maybe just on the recap of 2Q. Just kind of -- I mean, I think EPS beat by a pretty wide margin, but organic growth was a little bit below expectations. So can you walk us through kind of the puts and takes from the quarter?

Sure. I'll take this. I'd say, generally speaking, the highlight of the quarter really was our EPS performance. We outperformed both the consensus and our own expectations. We got a little bit of a boost from some tariff recovery elements, but nonetheless, overall performance at the EPS line was quite good. This is part of our broader program to increase our EPS performance and strengthen our operating margin. We seem to be doing very well, at least through the first 2 quarters, particularly driven by some of our cost-saving actions that kicked in, in the second quarter in particular. But beyond that, I think the other highlight really was our book-to-bill, which is over 1x again. This is the fourth quarter in a row in which we've seen really good order bookings performance. And I'd say orders organically were above 10% growth on a year-over-year basis. And there were a few other highlights in those orders. I think most investors are interested to hear that we really did see a bit of pivot in China. Our order performance in China was up over 20% in the second quarter. We saw some really good signals for another quarter related to biopharma. These were also really encouraging signs for us. I know a number of our peers are also performing well in these areas. But we had struggled, I would say, after a relatively weak 2025 performance in China to see sort of double-digit order growth. It's really encouraging. And this was -- especially for China, this was really broadly based across biopharma, across the academic side and even in the semi space, where we have a pretty good market position there. So I think China looked good. Biopharma, quite strong as well, mostly in large pharma in the second quarter. And then we had a better performance, excluding the U.S., in the academic and government research markets. That also showed greater than 20% order growth in those markets. So I think that -- what that shows generally at our level is that we have the right products, the right solutions for the right markets. It's taking a little longer perhaps on the revenue performance to be reflected, but that's coming. That's good.

Got you. No, that's great. In terms of the outlook for the rest of the year, you did talk about a push out of, I think, $20 million of semi orders. You also have ultra-high field, I believe, in the fourth quarter.

We do, yes.

And so I think organic -- based on those 2 dynamics, I mean, you have a pretty big step-up into the 4Q implied guide, I think it goes to about 5%. What are kind of some of the underlying drivers that give you confidence in hitting that?

Well, I think personally, we've really gone through a lot of scrubbing after the pushout commentary that we provided in the second quarter. We got pretty good visibility to what our expectations are and the execution capabilities of our teams. And we've done, I think, an excellent job on the execution side historically, especially for some very large fourth quarters in the past. With respect to the ultra-high field system, I think that seems pretty much locked in at this stage. So we have pretty good visibility to that. I mean I think the same is likely true for most of our semi activity for the fourth quarter. As some of you may know, the fourth quarter for Bruker isn't usually a quarter. It's more like 1/3 of our total revenue performance. So we do have some seasonality built in there, and that generally has played itself out pretty well. That's kind of the big picture for us. It feels like while it might seem to some investors as a large or larger quarter on an organic revenue basis, it's not a lot of growth built in there.

I mean you did comment on this. You said that's taking -- the orders are there, but it's taking longer to convert to revenue relative to other companies, but also seems like relative to your own expectations. So why do you think that is the case?

I think part of it is the mix. I mean when you think about semi orders, for example, can take anywhere between 9 and 18 months, both in terms of production. I also think it's the timing of some of these orders. We have some orders that are multiyear -- have multiyear elements to them. So they stretch out over multiple years and have to be delivered over those years. But just generally, I mean, we have complex instruments that we're building and producing. Most of those have to get moved into customer sites. Some of those sites have to have the right conditions in order for them to be accepted. And...

But there is a bit of a structural element. As our deep tech this year is -- and we think next year and the following year is so strong. Semiconductor metrology gets the most attention, but the orders that we get for fusion demonstrators via the BEST segment or some of our defense or airport aviation security more general. A lot of these orders inherently in semiconductor metrology normally get orders 9 to 18 months before they want delivery for their new fab or their new research site. And some of these other contracts tend to be indeed 2 or 3 years orders. So there's a bit of a structural element as opposed to just expectations in that being the strongest almost in terms of orders, those don't all -- most of that does not go into this year, right? It will help us in '27, some even in '28. So that's a bit of a new -- not a new element. But of course, deep tech being so strong for us is an upside in orders compared to our expectations on January 1. We're delighted and we -- but it's really working out extremely well. And yes, these structurally have -- tend to have longer delivery times and sometimes are multiyear contracts.

Okay. I mean maybe we'll stick to deep tech. I mean that was a big part of the 2Q call. I don't know if I've ever kind of seen you phrase it that way. Maybe I'm just forgetting. But can you talk about what parts of your portfolio are part of this deep tech business? How big it is? And maybe some of like how fast that's been growing in recent years and kind of what the outlook is?

Yes. I haven't used that terminology. It's now more investors who know your non-life science stuff, Frank, what shall we call it? And so deep tech is a fine term. It obviously has a meaning elsewhere in the industry. And these are -- it absolutely qualifies as very difficult, high barriers to entry. But when you're there and if you happen to have the right market dynamics, welcoming you, then there's other deep tech technologies where that makes sense. So semiconductor metrology is -- you either can look at it as a $300 million or $500 million business. The semiconductor metrology more specifically is a $300 million business, but it's part of a $500 million business, the metrology and surface solutions part of the Bruker Nano group that sometimes also they do compound semiconductor and research things, other applications of atomic force microscopy or white light interferometry. They're not directly in high-volume manufacturing, which is semiconductor metrology, but they're adjacent. The capacity part of that, that people are most excited, my God, isn't that going through the roof, that may be about $200 million. So giving you 3 answers, right? $200 million is the part that -- only $200 million is the part that people think why don't you triple, but it's growing very fast, but the $300 million and $500 million buckets in the concentric circles are also growing very fast. Defense and aviation security, we secure a lot of the cargo coming in and the passengers that sit a level above it often, right, of very major U.S. airlines that you all fly all the time and heard of, but they like -- they don't like to use us to use their names, with explosives trace detection systems deployed at all their -- at many of their -- or essentially all of their international cargo hubs as they fly stuff internationally or back to the U.S. We're also securing more and more European airports for some time. We've been in Geneva, some French airports. Frankfurt, the very big installation. I think we have something like 150 systems explosives trace detection. But it's competitive, but our systems are better, more reliable, more -- less false positives, which is really annoying. So we're now getting into -- we got into the Zurich Airport, Brussels, Norwegian airports, Korean Incheon Airport, Saudi Arabia, it's actually growing very nicely. In addition, because of the instability, particularly in -- well, the war in Ukraine, right? We're not selling into Ukraine, but we're selling to a lot of countries not far from those front lines, and they're beefing up amongst other things, also their chemical detection capabilities, and those have been very profitable orders. It's very deep tech because it's pretty unique stuff. Used to be maybe 1% of our revenue. It's now closer to 2% of our revenue and looks fairly sustainable, that probably will be a $100 million business in the not-so-distant future. And then, yes, energy -- high energy physics and all of a sudden, all these enormous funding going into fusion energy. In addition to the ITER project, which is this international project, been around for a while, we, via our BEST research instruments have about $200 million in orders, some delivered, some coming this, some coming next year, some into '28. But I don't know whether people have -- if people who follow fusion energy, there's probably a $10 billion, $20 billion project in China. Of course, most of that will be Chinese only. But some of that, we actually -- they need superconductors also from the West. Germany over a multiyear period is spending about EUR 9 billion on fusion research. And the U.S., of course, it's driven primarily by the capital markets, the U.S. I think the total funding that's gone into various magnetic confinement, tokamaks, stellarator, then we benefit lasers, then we don't benefit. There's been $10 billion or more. I think it's approaching $14 billion of venture capital that's gone into these companies, and they all need tools and gadgets and cryo pumps and diverters. I won't even try to explain what that all means, but they need a lot of deep tech stuff. Some of that we're just very, very good at because we've practiced with ITER. So that's a delight, and that had the, percentage-wise, very highest growth rates. So -- but again, delivery times are somewhat longer. Margins will be very satisfactory.

Got you. And how big is that energy research business?

That's about EUR 100 million, yes, a little over $100 million. And almost all of their businesses are booming. There's some research-y stuff, the European light source I won't go into that, but it's been a very big profitable business where they build accelerators or advanced physics research capabilities, not all energy related, but booming.

Yes. I mean, since you ended there, I did -- you guys did put out a press release, I think, I guess, last week with Atinary. And so it actually made me just do a little bit of research. And to your point, I was shocked by how much fusion research is going on in the world and how much money is being spent on it. And so I was just curious, I mean, when -- I mean, I think most people think of fusion actually using -- having a useful application of fusion, not just research, but actually being able to create electricity and create more energy is -- seems I don't know, like an unlikely thing to happen in most people's minds. But I was just curious since you ended there, and where are we in that journey? Like what is going on in fusion research? Is there -- I mean, where do you see that business going for you?

Still very early innings, if you like. There's nobody who's generating fusion power today, and there won't be for another decade. But there's so much money going into developing these technologies. Pilots, those tend to be a little bit more research-oriented. We focus more on the industrial demonstrators that want to show net energy gain. It's not a power plant yet, but it does net energy gain. And then fusion has one of these idiosyncrasies, -- you've got to breed your own fuel, the tritium. And to do that, you need -- the most difficult technology is the tritium breeding blanket and most companies kick that down the road. We, via RI, we're very much involved in a modular solid-state breeding blanket technology that will be also essential. So in addition to supporting power plants that eventually will show up at the end of the 30s, there's just so much investment and so many tools that go into that in parallel to the many countries now reentering the nuclear fission world, right? The U.S., does it big time, France, other countries, Switzerland will have a popular referendum on it. Italy just said they'll go back into that. So that nuclear industry, that was a word that you never ever use, right, and nor defense, right? Now all of a sudden, nuclear, the nearer term being the fission, which we're not very involved in, but the fusion coming to supplement that because you need both with the voracious demand for energy that we'll have. And of course, fusion eventually is the inexhaustible, should last 100 million years. There is no shortage of water or deuterium. And it's also the inherently safe technology. You can never build a dirty bomb with it or use it for -- the bad guys cannot use it for proliferation in any realistic scenario.

Got you. Maybe moving to AI, and we've touched on this a little bit.

That's Atinary. That's actually the self-driving AI lab, yes.

Yes. All right. Did I -- maybe I missed...