Bruker Corporation (BRKR) Earnings Call Transcript & Summary

[indiscernible] team. We are very fortunate to have Gerald Herman, CFO of Bruker and then Joseph Kostka, Investor Relations, joining us today. Welcome.

Thank you. Delighted to be here. Thanks for the invitation.

Thanks. So maybe just to quickly start on some of the quick 2Q recap. Results came in a little bit weaker than expected, the same as of the 3Q guide, the bookings has been great. So can you just maybe talk about the puts and pages for the quarter? And how should we think about the 4Q run? I think that's what people [indiscernible] by focusing on.

Yes. So I'd tell you, with respect to the second quarter performance, we clearly have outperformed on the organic order bookings performance as well as on the EPS line came in late, I'd say, on revenue performance, which is a little lighter than we had expected. We have a couple of millions that contributed to that. I think one of the key areas I think we need to focus on is to talk a bit about is the highlights of some of the order book performance. Generally speaking, we saw strength in China for the first time actually in multiple quarters, we see some significant strength there gratitude growth. The biopharma space for us is actually quite strong across the road, including in the U.S. The other area that I think maybe wasn't such a surprise to most investors, but was our semi metrology business. Parts of that business are really the marginal growth going on right now driven we'll see by AI demand advanced packaging and just generally some other favorable tailwinds in that space. So order performance, quite good across -- most of the geographies with the exception, I'd say, of the U.S., particularly in the [indiscernible], and that's started somewhat continued through the third quarter, we can talk a little bit more about that if you like [indiscernible] IH funding environment. But in general, weaker funding environment in the U.S. ACA/GOV side in the second quarter and some of that also seeing [indiscernible]. With respect to the other elements of the business, I think you're generally speaking, we did well some of our pharmaceutical product portfolio we did quite well. I think in the -- in some of the academic and research markets, particularly for our pro products outside the U.S. And I think just gentler diagnostics business order result to high single-digit growth in that space, expecting to continue to [indiscernible]. So a mixed -- a bit of a mixed story, most industrial weakest U.S. weakness, but otherwise a pretty good story for us from the profitability side in the second quarter. Now to your comments on the third and the fourth ramp, on the third quarter, we did communicate for some color related to the third quarter of '26 that we expect to see some pushouts, particularly in the semi space. And that's just of course, adding to the size of the ramp fourth quarter. When we look at that, I think just generally, we're pretty controlled what that looks like right now. It's over $1 billion worth of revenue, but we have delivered close to that in Q4 '24. So when you layer on, for example, the gigahertz class NMR system in the fourth quarter and you add some of the pushouts coming from the third quarter feels from a revenue perspective is pretty achievable. And what that does for gross just generally. It's going to provide a better mix story for us compared to the prior year quarter to the fourth quarter. It's going to give us some very good volume leverage in the operating margin -- and we also have some cost saving actions that kick in the fourth quarter. From an operating margin and EPS perspective, it's, again, pretty achievable for us is to the revenue volume performance that we are expecting to see. So I think that's kind of feels good for us. I think on the fourth quarter, it's going to be an important quarter for us from an execution perspective but feels quite achievable.

So let's start with the academic market. So now we are approaching in the U.S. the fiscal year-end of the company. Have you started to see maybe more funding being released to your customers maybe that you're starting to see a pickup in orders, potentially, we can assume benefit increase in 4Q?

So to answer the first part of your question, we are beginning to see some signs of improvement in the funding environment in the high-end research tools market base in the U.S., a calamine research site. It's taken us quite some time to get to this place is the disappoint. That there was a funding there's congressional approval to go forward, but we have been actually sort of a large bolus of amount that appear to be released at the end of September. We started to see some signs of some orders as well. But I would say most of those orders, we would expect to see a funding curve in the third quarter. we expect to see those orders in the fourth quarter. So unfortunately, I don't think that's going to translate into any upside at all for the fourth quarter just because of the turnaround in that process. I would expect that we will ever see an improvement in revenue performance coming out of this. And actually, this is very similar to what we saw in fiscal year '25 with U.S. funding all occurred at the end of the fiscal year certainly helped the '26 performance, but it didn't help that pretty year. So I think we expect to see much improvement fiscal year as a result of that. But it would give us some good momentum. And certainly, we do know from our own connection points into and applications to the MAH and NSF that are reprocure being selected as a part of those grant applications. So there was clearly will become orders over time existing versus institutions translate those into real.

There is no shortage of NIH us. I think there was a reason 1 last Friday about potentially additional panel reviews on the ground. Wondering given that academic is a big market for you guys like 40% of the total revenue globally. U.S. can be. Maybe we're going to see like multiyear witnesses potential. China can be volatile. So wondering like whether you have seen any behavior changes in your customer base and what could be the potential of that if we're going to see the business.

Yes. So our -- just to refrain this a little bit. So the U.S. back and got portion of Bruker's revenue is about 8% of total revenue. So I'm not understanding it still to an important market for us, but it clearly doesn't carry the way that used to years by. And secondly, I would say what we see generally is an uptick in the order performance in the academic and government research sector for our products on site. And here, I'm talking about Europe, China, or Japan, in those markets, it's pretty clear that we've got the products, the right products in the portfolio to really address the research market requirements. So I think the real question for us is going to be is there going to be some challenges within the U.S. ACA/GOV side. And actually, at this point, we haven't seen that. We've actually seen, especially with the recent bolus lease funds, it's largely going to the institutions where we have pretty deep collaboration arrangements and working agents with those institutions. So I think, generally speaking, we're expecting the U.S. academic market more stable, notwithstanding multiyear funding additional reviews and so on. I think just generally, tools that we're providing into that space are the right tools at time. I would also say that I think, generally speaking, we have a number of other cylinders that are firing in that analogy in the business that weren't there in 2025, mentioned biopharma China can be volatile, but fundamentally for our tools, the experience that we've had, especially in the high-end research and has been very stable and pretty predictable, I guess, more broadly. And the great thing about China is that they don't appear to have the same funding challenges that the U.S. has once the Chinese stood aligned on a on a particular sector. They can fund it, and we can fund it very, very quickly and have actually. I think what we're seeing right now in the China market is including in the academic and comment research side, is just the ability to pivot to the right sectors that they want to fund and to fund those quickly by end research to use I think generally, that's the way I would frame this. We've got biopharma performing better. China performing better. I would hope that we start to see certain outside of our deep cut product. I think orders are quite strong, starting to see any strength we had in industrial as forward. So I think we've got plenty of other places that can it an many delays in U.S., I could have research funding. What I'm hoping is that it's actually going to be as delayed as it was in '25 and '26. I'm hoping that the administration sort different view on how to fund this going forward.

Great. That's great. I think moving to semi. I think most of the users caution Sudan? Are you expecting another delay or maybe like new orders being pushed out again to 2027. So wondering if you have any thoughts on that. I think the caution is really on like you have visibility into the order, but it seems like the visibility in terms of the delivery time that can varies. Do you guys have any like internal process that can improve the visibility that can help a buster as well.

Look, I think to step back a few notches here, I mean, the semi metrology business for Bruker makes up about 9% of the total revenue. So it's a sizable sector for us. I mean we saw a marketable growth here and talking about greater than 15% order growth in the second quarter. I can tell you that the growth profile for the third quarter so far looks very good as well. sector. So I think the overall market dynamics and the market demand for that or 70 products in particular, the products that we offer is really quite strong. Now as to the volatility or the question around visibility, I would say, generally speaking, first of all, we are very blessed to have significant order activity. It looks like that's continued. It looks like that's going to be at least sustainable through several more quarters into 2027. I -- maybe some question about what happens to 2028 and '29 at the moment the '27 picture looks pretty good from an order perspective. then the conversion of that those orders into revenue has been a little choppier, and that's not really driven by brokers actions that really driven by its customers. customers typically put orders in, into the slate being identified. And then from time to time, they move appropriately for them, depending on when their fabs open or whether they're when they're bringing these instruments on brings instruments online. So those are really not elements that we can control yet necessarily really good. We have deep working relationships with these customers in I think many of you may know, these are some of the largest semiconductor companies in the world, and they have significant control and management of when they want those instruments to be delivered, we don't get inside of ads. And we get visibility usually 3, 6 months in advance, but sometimes they push those out further. So I don't think there's much more we can do internally to get better visibility into when the revenue itself will be recognized other than to be clear about what our expectations, what their expectations are trying on the delivery times. I think just generally, just it looks like the bolus of order activity being as strong as it is, is going to need a much smoother revenue curve going forward. We have quite a bit of backlog at the moment. So I mean maybe that smoother doesn't occur until sometime in 2027. But I think investors shouldn't worry about whether those orders are going to be dropped or changed. They might change the timing on the but historically, we haven't seen installations or whether moving off of an existing order. Moving into another quarter, I think, is in this business and the scale of what we're talking about, I think, is pretty reasonable in order for us to do that. But we will have better visibility into that as we march into 2027, and we'll give -- the Street more clarity around that looks especially that part of the business.

That's helpful. I think so going back to one of your points where you think '27 pictures go beyond that, it depends. But think about a portfolio that you sold into the semi, like any specific product that you think have a little bit more dealable growth into like outer years? Where you see like pretty healthy demand in...

Yes, just generally -- I mean, of course, we have some really hot demand products going on in the semi space as we just said, that's likely to be durable for about a few years. I think the other area that we've been talking quite a bit about with investors is the Tims Omni product. This is a product that we introduced us 225 and really taken a lot of order activity in not only in the academic government research side, but also in the pharmaceutical side. This is a product that focuses on proteomics in the identification of proteoforms and the functioning looks very form. So this is a product that's sort of what we call part of the protein prone 2.0 concept that we've been communicating to -- the Street. And that product has shown to be really exciting, I think, in the marketplace. There isn't really any other products similar to it. It's being used extensively already in the pharma space with the identification and functionality of proteins. So it's I think that is 1 for sure, that would be also pretty hot going forward. I think the other 1 that we talked a little bit about is the timetable. This is a product that's focused mostly on metabole -- and I think that's another area that's going to be very important moving forward. I think the take-up on that particular product has been quite good. It operates at the high end of the market. And I think we've seen pretty significant performance there. But we do have a pretty broad portfolio. I think, as some of you may know, -- we introduced new products like every year. I mean with our R&D spend activity, we have a lot of new products that are introducing annually, and we try to be the #1 or the #2 market position in all those products. And if we're not, we're reinventing or innovating or we're moving out of that market space. So we have a range of products that I would say, other than the 3 that I've talked about, I think there's a whole range of other products that are doing extremely well in microscopy, in [indiscernible] microscopy in our optical or X-ray technology products as well. We've got some really interesting products coming up I would say we're starting to move also into more advanced products in energy infusion security detection area where we're seeing a really good take-up in our instruments. So there's a bunch of products, I'd say, that are going to propel us forward and degrade than internal market conditions in '27 and beyond.

Maybe slightly also related to that, I think everyone talked about AI, but I think my focus will be a little bit outside of the sending even more on the teaser folks, right? How will you kind of size your of the portfolio that more [indiscernible] tools that can be used in or discovery like maybe you already start seeing some benefit from that? Like maybe you can talk a little bit about that.

Sure. Well, it's an interesting question. I think fundamentally, we do think that we're in the early stages of the -- so we think that AI is going to be a channel wind, particularly to selected life science tools companies, and we think we will be 1 of the primary beneficiaries of that. And the reason for that is primarily because we offer a really deep resolution capabilities and data generation capabilities from our instruments in a way that most of the other spine tools industry don't. So there will be other companies that will go in, but I think we'll be a lot of primary beneficiaries -- and I think just generally, what we're starting to see at the moment is early stage the development of early-stage foundational models in the AI side, and those are essentially designed to beta test some workflows. So you take a particular problem and you start to design flow and then test with an instrument and then dosing analysis with artificial intelligence. And fundamentally, we are going to be part of that testing process, we think. And we've seen some evidence in particular, Austin area, but in other markets, where some companies are starting to develop these additional models in a fairly elemental way with some fairly straightforward likely simpler tools. But one would expect as these models evolve, they will need a deeper data analysis and deeper data solutions. That's where I think our instruments come in having a deeper understanding of kind of data that articles generated serve income where we think this is going to go. So in stage 2 and 3 and 4 as these models develop, we think they'll need more advanced deep high-resolution tools. And that's where play really well in space. So here, I'm talking about tools like the proteomics tools onion throughput tools, some of our metabo instruments around templates. I think the other area would be spatial biology, which we haven't spent most time talking about but certainly, the amount of data that gets generated through spatial dimensioning cells and molecules is going to be a big part of that case product and related products associated with that significant item. So I think those are the areas that we see as essentially developing a tailwind going forward, I think the early-stage development activities are just occurring here in 2026. But I mentioned to some investors earlier today that there -- it is a really interesting company that we made an investment in a company called angina, which basically does clinical chemistry, it essentially takes product compounds and puts them together get toxicity and reaction. And they have got a foundational model, but they're beginning to develop in the Boston area. Essentially, they're trying to look at the action capability to seats chemistries. And they're using a 4 broker and incur to look at those chemical reactions and structurally provide data with respect to this. So the way I think about this is that's a very small contained to chemical reaction, but using artificial intelligence, they're doing these chemical reductions are over and over again. And eventually, when they move to anum stage, these are being applied for pharmaceutical and drug toxicity tests for example. When you apply this on a much larger scale, they're going to need larger NMR systems, which will be much larger than that they're using today. And this is a thesis that we have and going forward, maybe in the early stages, you use our activity straightforward tool, but then vision wants towards advanced models you need the heavy guns have to come out and deep resolution capabilities and a lot of data, and then that gets fed into these models. That is how we think this is going to play out with much many more many more shots at a particular target and fundamentally, probably different targets we identified in a way that we have never seen. So that's the sort of the big picture around what we think is going to be a pretty significant tailwind to be starting in '27 and beyond on the AI side or selected towards companies in.

Right. I think you touched on spatial a little bit. And then maybe just like talk about competition dynamic in some of your areas, right? So one is special. One of your competitors launching newer higher-throughput machine. Anything on your pipelines going after the similar markets. Another one will be more like a microbiology not your competitor kind of like turning around the story. So wondering how do you kind of like comment patient dynamic?