Bruker Corporation

Hello, and welcome to the Bruker Corporation Q4 2020 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please sit down with a conference specialist or pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To try your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Miroslava Minkova. Ms. Minkova, please go ahead.

Miroslava Minkova Good morning. I would like to welcome everyone to Brooker's fourth quarter and fiscal year 2020 Earth Conference Call. My name is Miroslava Minkova, Director of Investor Relations and Corporate Development. Joining me on today's call are Frank Laukeen, our President and CEO, and Gerald Herman, our Chief Financial Officer. In addition to the earnings release we issued earlier this morning, during today's conference call, we will be referencing a slide presentation. The PDF of this presentation can be downloaded from the latest results section on Brokers' 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 they're posted on our website at ir.brooker.com. Before we begin, I would like to reference Brooker's safe harbor statement, which is shown on slide two. During the course of this conference call, we will make forward-looking statements regarding future events and the expected future financial and operational performance of the company that involve risks and uncertainties, including risks and uncertainties related to the COVID-19 pandemic. The company's actual results may differ materially from projections described in 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 and subsequent Form 10-Q filings, all of which are available on our website and on the SEC's website. Note that the following information is related to current business conditions and to our outlook as of today, February 16th, 2021. Consistent with our prior practice, we do not intend to update our forward-looking statements based on new information, future events, or other reasons prior to the release of our first quarter 2021 financial results expected in May 2021. Therefore, you should not rely on these forward-looking statements as representative of our views or outlook as of any date subsequent to today. We'll begin today's call with Frank providing a business summary. Gerald will then cover the financials for the fourth quarter and the fiscal year 2020 in more detail. Now, I'd like to turn the call over to Brooker's CEO, Frank Laukeen.

Thank you, Miroslava, and good morning, everyone. Thank you for joining us on today's call. During the fourth quarter, we saw continued sequential quarter-over-quarter recovery in our financial performance from the revenue and margin dip experienced in the first half of 2020 due to the pandemic and its economic repercussions. Our Q4 2020 revenues were above prior year levels on a reported basis and essentially flat organically compared to Q4 2019. Encouragingly, our Q4 2020 non-GAAP gross margin, operating margin, and EPS, and free cash flow all exceeded the Q4 2019 levels. Over the course of 2020, we stepped up investments and made significant progress in three areas of substantial long-term growth potential. Proteomics, second, spatial and single-cell biology, and third, molecular viral diagnostics. We also initiated further operational excellence programs for productivity improvements, including restructurings in our Bruker Nano Group and INVEST, as well as for capacity expansion, particularly in our BioSpin and CALIT groups. Turning to Q4 results now on slide four, we're pleased with our continued sequential recovery in the fourth quarter of 2020. Q4 2020 revenues of $627.5 million rose $28 million or 4.6% year over year. including favorable foreign currency translation of $27 million or 4.6%. On an organic basis, revenues were just minus 0.4% below the Q4 2019 levels. Our Q4 BSI revenues were flat year-over-year, while best revenues declined minus 6.8% organically, net of intercompany eliminations. Acquisitions added 4%. 0.4% to revenue growth in the quarter. Our Q4 2020 non-GAAP gross margin expanded 80 bps year-over-year to a new high of 51.7%, and our non-GAAP operating margin expanded 40 bps year-over-year to 22.5%. The improvements in non-GAAP growth and operating margins were realized despite significant foreign exchange headwinds and resulted from increasing project accelerate revenues in our mix and continued SG&A expense control in the quarter. In Q4 2020, broker's GAAP diluted EPS were 45 cents compared to 44 cents in Q4 of 2019, and our non-GAAP EPS were 58 cents an increase of 9.4% compared to 53 cents in Q4 of 2019. Continuing on slide five, we show broker's performance for the full year. In 2020, broker's revenue decreased by minus 85 million or minus 4.1% year-over-year to 1.99 billion, reflecting the impact of the pandemic and the related economic slowdown. On an organic basis, revenues declined minus 6% year over year, comprised of a minus 5.5% organic decline in the scientific instruments business and a minus 11% organic decline at best net of intercompany eliminations. Acquisitions added 0.5% to our top line, and foreign currency translation was a benefit of 1.4%. During 2020, our key 4D proteomics, infectious disease diagnostics, ultra high-field NMR, biopharma, and aftermarket initiatives continued to perform strongly. Microelectronics and semiconductor metrology also grew nicely year over year. Other businesses, including our broader academic revenue base, industrial research, and the applied market stabilized and improved further in the fourth quarter. Fiscal year 2020 order bookings for broker scientific instruments groups increased low single digits organically. Our BSI orders continue to strengthen sequentially, and in the fourth quarter of 2020, BSI achieved approximately 10% organic order growth year-over-year. The strong Q4 2020 bookings likely included some catch-up from delayed activity early in the year, particularly in our academic, industrial, and applied businesses. Our Q4 2020 order rates also reflected continued strong performance in our proteomics, microbiology, and molecular diagnostics, biopharma, and microelectronics and semiconductor metrology businesses. Fiscal year 2020 non-GAAP gross margin decreased 130 basis points year over year, while non-GAAP operating margin declined 160 basis points. Growth and operating margins benefited from expense controls and cost reduction measures taken earlier in the year, but this was more than offset by lower volume and revenues in 2020 compared to 2019. As noted earlier, as noted already, both growth and operating margins recovered in the back half of 2020 and, in fact, finished above prior year levels. On a GAAP basis, Bruker reported EPS of $1.02 in 2020 compared to $1.26 in 2019. Fiscal year 2020 non-GAAP EPS was $1.35 compared to $1.57 in 2019. Please turn to slides 6 and 7 now, where we provide further highlights on the 2020 performance of our three scientific instruments groups and of our best segments, all on a constant currency basis and in comparison to 2019. Fiscal year 2020, BioSpin group revenue declined mid-single digits to $600 million. The revenue decline at BioSpin was due to COVID-19-related customer disruption and installation delays. mostly in the first half of 2020. In fiscal year 2020, BioSpin's NMR and PCI systems revenues declined year over year. In the fourth quarter, we received customer acceptance of an additional 1.2 gigahertz NMR system, ending with three 1.2 gigahertz systems accepted in 2020, a major achievement and development milestone for us. BioSpin's aftermarket grew slightly year over year, whereas BioSpin's scientific software revenues were substantially higher, although from a modest base. Moving on to the CALIT group, fiscal year 2020 revenues of $654 million grew mid-single digits compared to 2019. CALIT's performance accelerated sequentially with low teens growth in the fourth quarter. Calix Beltonics, microbiology and molecular diagnostics, and life science mass spectrometry businesses delivered double-digit revenue growth in the full year. This reflected in part the uptake of nucleic acid extraction and SARS-CoV-2 PCR kits, as well as of multi-biotyper consumables, which all grew significantly year over year. Q4 2020 COVID-19, nucleic acid extraction and PCR test kit revenues totaled just under $14 million. For the full year 2020, we grew our COVID-19 PCR business to approximately $30 million in revenue, virtually all in Europe and other countries. In December, we introduced our fluorotype winter four-plex, as we call it, PCR panel in Europe, detecting COVID-19, flu A, flu B, and RSV. And we also began to market two different types of fast antigen tests in Europe in collaboration with partner companies. In late December, we received U.S. FDA clearance for the Maldi Biotyper Sepsityper Kit, The MBT Sepsityper allows for rapid identification of more than 425 microorganisms, bacteria, and yeasts from a positive blood culture on our multibiotyper platform. The Sepsityper workflow typically takes less than 30 minutes from a positive blood culture to identification, saving valuable time in the diagnosis and treatment of critically ill sepsis patients. We anticipate that this will provide a meaningful tailwind to our MALDI biotyper business in the US in 2021 and beyond. Our TIMSTOF unbiased 4D proteomics business had strong revenue growth in 2020, despite the challenging conditions in academia. We exited 2020 with very strong order and revenue growth and an installed customer base of more than 250 TIMSTOF instruments globally. Arcalit molecular spectroscopy revenues declined year-over-year due to the weakened FTIR and NIRR markets earlier in 2020. FTIR, NIRR, and Raman molecular spectroscopy demands strengthened substantially in the fourth quarter of 2020. Please turn to slide seven now. Bruker Nano revenues declined low teens year-over-year to $556 million in fiscal year 2020. This reflects last year's academic market slowdown and weakened industrial and industrial research demand. The nanogroup's X-ray, nanosurface, nanoanalysis tools revenues all declined in 2020 against a backdrop of reduced academic and industrial research demand. Revenue for nano's microelectronics and semiconductor metrology products grew double digits as semi-markets were strong. In the fourth quarter of 2020, we initiated additional restructuring and cost actions within the Nano Group to improve the fundamental cost structure while investing in Nano's spatial biology and targeted multiomics strategy. We anticipate these restructuring actions to benefit Nano's financial performance in late 2021 and in 2022. Finally, fiscal year 2020, best revenue declined low double digits net of intercompany eliminations on reduced superconductor demand by MRI companies. This was partially offset by growth in best big science projects. We also took restructuring and cost actions in best in Q4 of 2020, which are expected to benefit best performance in 2021. Turning to slide 8 now, during 2020, we further expanded investments in our Project Accelerate high-growth, high-margin initiative programs, which we now refer to as Project Accelerate 2.0. We have broadened our proteomics initiatives to include plasma proteomics, cancer proteomics translational research, emerging true single-cell proteomics, targeted proteomics, and multiomics. as well as biomolecular condensate research by NMR and fluorescence microscopy. Our microbiology and diagnostics initiative now also covers viral molecular diagnostics primarily with a fast growing PCR business and emerging antigen detection. Importantly, we launched a spatial biology and single cell biology initiative in our nano group. As presented at the recent JPMorgan Healthcare Conference, each of proteomics, spatial biology, and microbiology and molecular diagnostics addresses large, additional, total addressable markets or TAMs. In 2020, for the first time, our six Project Accelerate initiatives together comprised more than 50% of our revenues, And on average, they grew in the highest single digits organically year over year. Turning to slide nine, we continue to make excellent progress with TIMSSTOFF40 proteomics as our workflows and capabilities keep expanding and publications increase rapidly. We are currently serving a $750 million to $1 billion served addressable market, or SAM, with TIMSTOF within a $5 to $6 billion overall proteomics instrumentation, Instruments 10. We exited 2020 with an default base of greater than 250 TIMSTOF instruments and significant growth. In 2020, we also made substantial progress with our ultra high field NMR program for functional structural biology and biomolecular condensate research, receiving customer acceptance of our first three 1.2 gigahertz systems. New capabilities of gigahertz class NMR enable research discoveries in diseases with significant societal impacts, such as COVID-19, Alzheimer's, and other neurodegenerative diseases, cancer, and cardiovascular disease. For example, a recently published example of a structure and intrinsically disordered regions of the SARS-CoV-2N, or nucleocapsid protein, which contribute to membrane-less organelles, also known as biological condensates, which enable viral RNA replication in host cells. Interestingly, without these biological condensates, there would be no COVID-19 pandemic. But unfortunately, there also would be no life to begin with, as in recent years, science has learned that these ubiquitous biological condensates that we can study with NMR and fluorescence microscopy are really crucial for many key cell biology functions. in healthy cell biology as well as in many disease processes. Very exciting new area for us. In 2021, we anticipate continued ultra-high field NMR growth with customer acceptances of 4 to 5 gigahertz class systems. So in conclusion, brokers' performance strengthened sequentially in Q4 as customer activity continued to recover. Our high growth initiatives have expanded with Project Accelerate 2.0. and our core margin initiatives are progressing with ongoing and additional operational excellence programs underway. We are very excited about our future opportunities in proteomics, structural functional biology, spatial and single cell biology, as well as in microbiology and molecular diagnostics. We enter 2021 with BSI order momentum and a solid backlog and we anticipate high single-digit organic revenue growth at our BioSpin and Nano Groups and low double-digit organic revenue growth at our CALIT Group. We also expect healthy non-GAAP operating margin expansion and very strong non-GAAP EPS growth in 2021 for Brucker overall. And with that, I'd like to turn the call over to our CFO, Gerald Herrmann, who will review our financial performance in more detail. Gerald.

Thank you, Frank, and thanks for joining us on the call today. I'll be reviewing the fourth quarter and full year 2020 financial highlights starting on slide 11. Rooker's reported revenue in the fourth quarter of 2020 increased 4.6% year-over-year to $627.5 million, which reflects a modest organic revenue decline of 0.4%. Despite relatively flat organic revenue results, our non-GAAP operating profit grew 6.5% year-over-year, and our non-GAAP operating margin expanded 40 basis points year over year. We delivered this operating margin expansion while absorbing approximately 80 basis points of negative foreign exchange translation effects. We reported GAAP EPS of $0.45 per share compared to $0.44 in the fourth quarter of 2019. Fourth quarter 2020 GAAP EPS included material restructuring charges related to the Brooker Nano Group and BEST segment. intended to strengthen long-term financial performance of those businesses. On a non-GAAP basis, fourth quarter 2020 EPS was 58 cents per share, a 9% increase compared to the 53 cents in Q4 2019. We exited the fourth quarter of 2020 in a strong cash and liquidity position with $731.8 million in cash, cash equivalents, and short-term investments, higher sequentially, and compared to the fourth quarter of 2019. This reflects strong cash generation in the fourth quarter and for the full year of 2020. Our net debt position as of December 31st, 2020, showed a slightly lower net debt position compared to a year ago. During the fourth quarter, we continued to deploy cash to fund strategic capital investments, dividends, and our stock buyback programs. In the fourth quarter of 2020, we repurchased 1.4 million shares of Fruka stock for a total of $68.2 million. This brings our total buyback activity for the full year of 2020 to 2.7 million shares and $123.2 million. As of December 31st, 2020, we had $34.5 million remaining on our share repurchase authorization, which is valid until mid-May of 2021. At the end of the fourth quarter of 2020, our working capital to revenue ratio remained elevated versus a year ago on lower 2020 revenue and as we carried higher inventory to address supply chain risks related to the pandemic and set ourselves up for a strong organic growth in the first quarter of 2021. Slide 12 shows the revenue bridge for the fourth quarter of 2020. As noted earlier, organic revenue in the quarter was down 0.4%. We had a positive revenue contribution from foreign currency translation of 4.6% and a modest positive contribution from acquisitions of 0.4%. From an organic revenue perspective, the fourth quarter 2020 BioSpin revenues declined low single digits against a strong comparison a year ago. Cali revenues increased low teens. led by greater than 20% growth in Khalid's microbiology and mass spectrometry businesses, on the strength of Khalid's infectious disease consumables, and the uptake of Tim's Toff proteomics. Nano revenues declined high single digits as Nano continued to experience softness in its core academic, industrial, and industrial research markets, partially offset by solid microelectronics and semiconductor demand. For our three BSI groups, fourth quarter organic systems revenue declined mid-single digits, while aftermarket revenue grew in the low teens organically year over year. Our BSI book-to-bill ratio in the fourth quarter of 2020 was 1.1. We exited 2020 building BSI backlog year over year. Best revenues declined 6.8% year-over-year net of intercompany eliminations due to reduced superconductor demand partially offset by higher big science revenue. Geographically and on an organic basis in the fourth quarter of 2020, our European revenues grew quite strongly in the mid-teens year-over-year. North American revenue declined high teens. Asia-Pacific revenues grew low single digits the rest of the world revenues declined year over year. Slide 13 reflects our P&L results for the fourth quarter of 2020 on a non-GAAP basis. Fourth quarter 2020 non-GAAP gross profit margin of 51.7% increased 80 basis points and 50.9% in the fourth quarter of 2019. This year over year improvement in gross margin reflects favorable mixed trends and operational efficiencies within our BSI groups, partially offset by a headwind from foreign exchange. Non-GAAP SG&A expenses were flat year over year in the fourth quarter of 2020, reflecting solid cost discipline in the quarter, largely offsetting the unfavorable impact of foreign currency translations. In the fourth quarter, we continue to support the expansion of Project Accelerate 2.0 initiatives with our R&D investments up compared to a year ago. All in, we delivered record non-GAAP operating margin of 22.5% in the fourth quarter, an increase of 40 basis points from the fourth quarter of 2019, driven by improved gross margins and SG&A expense control, which more than offset an approximately 80 basis points foreign currency translation headwind on operating margin. Fourth quarter 2020 non-GAAP interest and other expense of $7.1 million was similar to that in the fourth quarter of 2019. For the fourth quarter of 2020, our non-GAAP effective tax rate was 31.9% compared to 34.4% in the fourth quarter of 19. Although below the year-ago level, our fourth quarter 2020 tax rate was impacted unfavorably by jurisdictional tax mix. Weighted average diluted shares outstanding in the fourth quarter of 2020 were 153.8 million. a reduction of approximately 1.6 million shares from the fourth quarter of 2019, reflecting our share repurchase activity. Finally, the fourth quarter of 2020, non-GAAP EPS of 58 cents increased 9.4% year-over-year on favorable mix, expense control, and the lower tax rate. Slide 14 shows the year-over-year revenue bridge for the full year 2020. Revenue declined $85 million, or 4.1%, including a full-year 2020 organic decline of 6.0%. This reflects an organic decline of 5.5% at the three BSI groups collectively and an 11% organic decline at Baskinet at intercompany elimination. Geographically and on an organic basis in the full year of 2020, Booker's European revenue was up low single digits year over year. North American revenue declined mid-teens. Asia Pacific revenues declined mid-single digits, with similar mid-single-digit declines in both China and Japan. Our revenues in the rest of the world were also lower year-over-year. On slide 15, our full-year 2020 non-GAAP gross profit margin of 48.7% decreased 130 basis points year-over-year. Lower volume and reduced productivity from COVID-19 disruptions earlier in the year and its related economic slowdown drove the decline relative to 2019. Full year 2020 non-GAAP operating expenses declined 3.5% year-over-year on cost control and cost reduction measures. All in, our non-GAAP operating margin in the full year of 2020 was 16.0%. 160 basis points below 2019. Interest and other expense of $22.5 million was slightly above the 2019 level. While our interest costs were lower in 2020 following our December 2019 debt financing, this was offset by a net loss on foreign exchange transactions associated with unfavorable currency movements during the year. Finally, non-GAAP EPS of $1.35 was down 14% relative to the full year 2019. Turning now to slide 16, free cash flow in 2020 was approximately $235 million, $95 million higher than that in 2019. An increase in customer advances and favorable other items in 2020 more than offset reduced cash generation from lower net income inventory bill to address risks related to the pandemic, and continued capital expenditures in higher capacity and productivity. Our cash conversion cycle at the end of the fourth quarter of 2020 of 220 days worsened from 198 days a year ago due to the step up in DIO partially offset by a reduction in DSO on improved receivables collections. Turning now to slide 18, we are resuming guidance for 2021. While we cannot rule out further temporary business disruptions related to the pandemic, our visibility for the full year of 2021 has improved compared to 2020 as major end markets have stabilized. We enter 2021 with a healthy backlog in all three BSI groups. Together with some anticipated catch-up from delayed spend and installations from 2020, For the full year 2021, we anticipate our revenues to grow 7% to 9% on an organic basis. Foreign currencies expected to contribute approximately 4% to revenue growth. We therefore expect 2021 reported revenue growth in a range between 11% and 13%. Baked into this projection is the assumption that all three of our BSI groups will drive growth. while best revenue is expected to be flat to down organically on a full year basis. We expect our 2021 non-GAAP operating margin to expand 150 to 190 basis points compared to the 16.0% reported in 2020. This also absorbs an expected foreign currency headwind of approximately 80 basis points on operating margins. On the bottom line, we expect 2021 non-GAAP EPS in a range between $1.72 and $1.77, which would represent an increase of between 27% and 31% compared to 2020. At the midpoint, this would also represent double-digit growth from the $1.57 2019 pre-pandemic non-GAAP EPS level. Our 2021 projected non-GAAP operating margin expansion and non-GAAP EPS take into account a very deliberate increase in R&D investment to approximately 10% of revenues as we fund further investments in Project ACCELERATE 2.0 expansion areas. Other assumptions for 2021 include a projected non-GAAP tax rate of approximately 28%, fully diluted share count of approximately 152 to 153 million shares, and capital expenditures of about $100 million. We continue to project elevated capital expenditure levels in 2021 as we fund important capacity expansions and productivity enhancements. Foreign exchange rate assumptions are listed on the slides. And while we don't provide quarterly guidance, I'd like to give you some additional color on our first quarter 2021 expectations. Given the relatively weak comparisons from the first quarter of 2020, we currently expect our first quarter 2021 financial performance to be relatively strong. Barring any major additional adverse pandemic impact, we expect greater than 15% organic revenue growth and a greater than 100% non-GAAP EPS growth year-over-year to be likely. To wrap up, we concluded 2020 with a solid financial performance in the fourth quarter, delivering sequential quarterly improvements in revenue, margins, EPS, and cash flow. Under challenging business conditions, we entered 2021 with strong backlog and momentum, and with an expectation of solid organic revenue growth and very good earnings growth year-over-year. The strategic investments we made in 2020 in production expansion, operational excellence, acquisitions, and in Project Accelerate 2.0 give us confidence that Brooker is emerging out of the pandemic a much stronger company. We look forward to updating you on our progress on future calls. And with that, I'd like to turn the call over to Miroslava to start the Q&A session. Thank you very much.

Thank you, Gerald. I'd now like to turn the call over to the operator and begin the Q&A portion. In order to allow everyone time for questions, we ask that you limit yourself to one question and one follow-up. Thank you. Operator, we are ready to begin the Q&A.

Yes, thank you. As mentioned, we will now begin the question and answer session. To ask a question, you press star then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To try your question, please press star then two. At this time, we will pause momentarily to assemble the roster. And this morning's first question comes from Dan Leonard with Wells Fargo. Please go ahead, Mr. Leonard. Your line is live.

Apologies. I was on mute. Thanks for taking the question. First off, could you elaborate on your expectations for bookings growth in 2021 and also touch on your pipeline for the gigahertz class NMR systems?

Hi, Dan. It's Frank. Bookings growth for 2021 remains to be seen. We will report on that as we go forward. We have not set formal guidance for that. Our gigahertz pipeline is certainly fully booked for 2021 and 2022 and further growth during these years in terms of revenue and into 2023.

Okay, thank you. And just a quick follow-up on the tax rate. Gerald, do you still see the low 20s tax rate as feasible and what would drive that? Thanks.

Yeah, we do, Dan. And I would say, like we saw, we had some unfavorable jurisdictional tax mix for the fourth quarter, which helped to pull that rate up. But fundamentally, there's still some really interesting opportunities in front of us, which we're going after. You know, I think, about some of our movement initiatives of production activities to Malaysia, for example, which is where we have some tax holiday available to us as well in Switzerland. There's some very good opportunities there, both in terms of the Swiss patent box as well as other rates. We continue to have a fairly strong demand in the semi and microelectronics area. It should favor us from a U.S.-based rate perspective, depending, of course, on what happens with the Biden administration. corporate rates, but fundamentally we think we can still move into that area. We've kept the 28% rate for the full 2021 on the basis that, you know, our mix is still leaning towards more of our European business growth.

Okay. Thanks for the call.

You're welcome. Thank you. And the next question comes from Dan Arias for Stifel.

Morning, guys. Thanks. Frank, maybe just an overarching question here. As you enter the new year and you guys have kind of taken stock of the business and where you want to go with it in relation to some of the initiatives that you've laid out in the past, where, if anywhere, has the pandemic sort of put you behind the pace that you were hoping for? And on the flip side, are there things that you would call out at this point that you've sort of accelerated or pulled forward as you reprioritize things in the portfolio and in the set of things that you're looking to do and just sort of look at what's more important versus less important relative to maybe six or 12 months ago.

Sure, Dan. So, I mean, clearly the academic markets have taken quite a hit in 2020 and have not fully recovered. They tend to have more recovered in China and in Europe and in the U.S. The academic markets have not recovered yet for us. Industrial is gradually recovering, but is also not fully recovered. And applied has moved pretty strongly in Q4. But, you know, throughout 2020, it took a hit. And last month, but not least, that was certainly declining last year and will not be all that strong in 2021 either, mostly because of indirectly the MRI markets that we serve indirectly with our superconductors are weak. So that's the list of the bad guys, so to speak, although I have to say almost all of them, we are seeing a recovery, although we're not projecting a full recovery yet, at least not for the first half of 2021. Going to Project Accelerate initiatives, they have grown, of course, and as we said, high single digits organically throughout last year. That's pretty impressive, and we continue to see higher than average growth, although our core business also will see good growth in 2021. I certainly proteomics and ultra high field NMR for protein functional structure elucidation are great markets. Our microbiology business has held up remarkably well, particularly the consumables. And of course, we are now emerging also as a molecular diagnostics company. We are starting, you know, on scientific software, on spatial biology, on single-cell targeted multiomics. We're starting at modest levels, but we think those will become great additional growth drivers in 2021 and beyond, and we're investing pretty heavily in that. And... Oh, our biopharma business has done really well with a good double-digit growth organic in 2020. So our rather differentiated NMR and mass spec solutions for various pharma and biopharma discovery and development problems. have really continued to grow very, very nicely. That's nice secular growth. Of course, the biopharma industry is healthy anyway. So that's just becoming a bigger and bigger part of our business. And, sorry, last but not least, microelectronics and semiconductor metrology tools. were our problem child, if you like, financially in 2019, and they've done really, really well in 2020. So that part of our industrial exposure, if you like, is actually a big plus right now because these markets are healthy and are likely to remain healthy for the foreseeable future.

Yeah, okay. That's helpful. And then you referenced capacity expansion and bio spin in some of the earlier parts of your remarks. Can you just update us on the site consolidation in Germany? Are you still tracking to your 2021 goal there? And is that something that you might call out as either a source of risk given the pandemic or maybe a source of margin benefit if you just think that you're in a place to recognize some productivity gains this year? Where do things stand there?

No, that stayed very much on track. Remarkably, the construction activity and some initial moves have occurred already. That's all on track and on time. And we expect that by, I believe, mid-2021, we'll have consolidated those German biospin sites. Similar activities, slightly smaller scales, are going on at BioSpin in Switzerland, and we've expanded our ability to deliver ultra-high field NMRs there as well, some capacity expansion, and a lot of consolidation in terms of site, and that over time also supports. It's not really additional margin expansion, but, you know, we have long-term margin expansion goals, so that all supports that. In addition, we're expanding pretty in 2020 in the beginnings. Well, beginning in 2020, but accelerating in 21, 22, our life science mass spectrometry and our diagnostics capacity, including facilities associated with that. And we're expanding in phase two our Penang, Malaysia, mostly Bruker Nano final assembly and systems test, which is, of course, cost advantageous. as well as tax advantages. So a lot of good investments going on in 2020. They stayed on track, remarkably. Nothing there really fell behind very much and continued in 2021 and into 2022. Those are all very good investment opportunities. Some of that will help us on productivity. Some of that is margin expansion and capacity expansion. It's all margin expansion. Some of it is capacity expansion. Both productivity and capacity expansion for our project accelerate initiatives, of course, are expected to provide not only margin expansion this year, but continued margin expansion into the future years. That's always been our modus operandi, obviously somewhat disrupted temporarily in 2020.

Okay, I appreciate the response, Craig.

Mm-hmm.

Thank you. And the next question comes from Doug Schenkel with Cowan.

Good morning, and thank you for taking my questions. My first question is just a guidance clarification question, and then I want to come back and talk a bit about Project Accelerate.

Just on guidance, I was hoping you could provide a bit more detail on the growth expectations within BSI, you know, really by segment.

Specifically, I'm curious why Nano is expected to grow, I hate to say it, but only high single digits despite a favorable low teens year-over-year decline. You know, I would think that could be a little bit higher. And then on the flip side, I believe you said you expect Khaled to grow low double digits in 2021. That's pretty robust, keeping in mind that The year-over-year comp is a little bit tougher at mid-single-digit growth.

So I'm just curious what's driving those assumptions, and are there specific things you can point to that gave you confidence to set expectations at those levels? So why don't I pause there, and then I'll come back to Project Accelerate in a second. Okay, Doug. That's Frank. We're actually – at Brooker Nano, as we said, we do not expect – you know, the U.S. academic markets and the industrial research markets to fully recover. We don't think they have fully recovered at this time. And, you know, we'll keep observing that, obviously, throughout the year and throughout the first half of this year, 2021. So we expect a partial recovery there. And, you know, we have lots of good indications, including order bookings, that that's on its way. But it is not a full recovery. So... And on the flip side, agreed. CALID had, and MAPSPEC and microbiology and molecular diagnostics had decent growth in 2020 even, and we expect continued very solid growth in 2021 there as well. So it turns out, as Gerald said earlier, that all three of our BSI groups in 2021, interestingly, are going to have comparable growth rates in the you know, in the high single digits organically and call it a little bit higher than that. We haven't spoken about biospin, but we also expect biospin high single digit organic growth rates in 2021. The only laggard is really best, which is smaller. And their recovery may take till the either till 2022 or maybe the second half of 2021 that remains to be seen. Okay, thank you for all that detail. And then on Project Accelerate, Frank, I think you said that Project Accelerate grew at high single-digit levels in 2020. Did that include COVID-19 revenue? I'm just hoping to get a little more granular. It included about, well, pretty close to $30 million, $30 million of COVID-19 revenue, nucleic acid extraction, and then the actual PCR test. So, yeah, that's included in that. Okay. And then for 2021, sorry if I missed this, but what are you assuming for projects accelerate revenue growth within guidance? We expect both project accelerate and project advantage, which is sort of our core business with operational excellence, to have somewhat more comparable growth rates. Obviously, big discrepancy in 2020 with more similar growth rates in 2021. as our core business and some of the businesses that got hit harder are mostly recovering, maybe not fully, but mostly. But we still expect Project Accelerate to grow faster or north of the corporate organic growth average in 2021, but they'll be much closer to each other. Okay. All right. That was super helpful. Thank you guys so much. Really appreciate it. Thank you, Doug.

Thank you. And the next question comes from Puneet Sutta with SCV Larrick.

Yeah, hi, Frank. Thanks. So the first question is on the strong 15% growth that you were projecting here. Just wondering how much of testing is included in that and how much of the kits and COVID-related benefit is included in that. And I assume that's also part of Project Accelerate in there. I just wanted to get that, given that obviously you're looking at easier accounts, but wondering how much of that is COVID-related.

Yeah, so the 15% or greater organic revenue growth for Q1 2021, year over year, I assume that's what you're referring to, is in part a recovery, obviously a weaker Q1 2020 comparison. We expect our COVID testing business to continue to grow in 2021, although perhaps not explosively. So in 2021, In Q4, 20, it was about 14 million, just shy of 14 million. So, you know, maybe it'll be 15, 16, 17 million in Q1. So it's not all COVID-driven. But, you know, it is one of the elements that helps us with Q1, but it's not the major factor. Of course. Year over year, in Q1 of 20, we had essentially no COVID business. So in that sense, year over year, Q1 year over year, that 15, 16, 17 million of COVID testing business is all incremental. But there are many other healthy growth drivers in Q1 as well. I hope that answered your question, yeah.

Yeah, that's helpful. Thanks for the details there. And on proteomics, if I could get a sense of one of the questions we've been getting is the exposure that you have today in proteomics. And obviously, PEMS-TOS is core to that. The instrument is doing well. You obviously have experience with the instruments now a couple of years in the market. And so as you look at the current proteomics exposure that you have and what it could be, obviously an important growth driver, maybe if you could give us a sense of where it is today and where it could be in a few years. And also, what are you baking for TIMSTOP in the full year guide? Thanks.

Right. So TIMSTOP is growing very nicely. It is, you know, certainly north of 50 million per year now. We have, of course, other proteomics and protein analysis instrumentation from SPR to X-ray crystallography, particularly also gigahertz NMR for structural biology. So our total proteomics, multiomics exposure in 2020 is around 200 to 250 million. And, you know, TeamStop is part of that. It's not the largest part yet, but it is the fastest growing part for sure. And over time, we expect that TeamStop franchise, especially as it branches out into, you know, there's the Flex system that you can also do. spatial omics before you do proteomics. There'll be a future true single-cell proteomic system that gets derived from that. It's going to be a little bit specialized, probably launching in early 2022. So we expect continued, you know, certainly double-digit growth in Timstuff proteomics. And we, you know, last year our orders grew more than 30% in Timstuff with all the different product points and And I don't know that we can maintain that growth rate, but we expect, you know, above company average growth rate, certainly double-digit growth in Proteomics and in Tim's stuff in particular. It's the demand for that and the reception and the publications with that system are really going well. It's very robust. So we think we have a lot of satisfied customers, and they're spreading the word of mouth.

That's great. That's great. And if I could squeeze the last one, on UHS, the gigahertz magnets, I know you're providing a guide here for, you know, four to five of those, but wondering, you know, if all those are in Europe, as well, or do you expect North America to pick up some time?

These are previous orders, so these acceptances and revenue that we're expecting for 2021 of the 45 systems, they're actually all in Europe. We do have an order in for the U.S. and then also one for Asia in backlog. But as you know, we're hoping, we're expecting actually that the U.S. and perhaps also certain Asian countries will begin to really look at the enormous benefits you get even for disease research, for highly relevant disease research from the gigahertz class. and let's have a functional structural biology looking at this. You'll be hearing me talking about biomolecular condensates a lot with both NMR and fluorescence microscopy. It's an exploding area of cell biology and disease biology, tremendously important. Science had a complete blind spot there until a few years ago, and we're going to play a big role in that as well, including with NMR. That, you know, to cut to the business punchline, we think there'll be strong momentum in driving for funding and getting additional orders in the next one or two years also from the U.S. Certainly the U.S. academic community really needs those capabilities. They cannot just hop on a plane and go to Europe right now. That's great. Thanks, Frank.

Thank you. And the next question comes from Zico Peterson with J.P. Morgan.

Hey, good morning. Frank, I'm wondering, you know, how your size in the market for spatial and single-cell, and when you think that could start to become more material to revenues, you know, is it the same $12 billion-ish we've heard about from Nanostring and 10X? And can you maybe also just talk about some of the investments you did just lead to the new single-cell system? So maybe talk about investments you need to make there.

Yeah, for us, good question, Tycho. For us, it starts at a modest level, spatial biology and single-cell multiomics.

You know, you think around 25 to 30 million. So, you know, we have some ways to go, but we haven't started. It's not that it's all aspirational. And, you know, we think of these markets as The way we've added it up, we end up at a more conservative $4 billion market size for what we can see in spatial biology and single-cell multiomics. You know, that's still really large. There's a lot of growth you can do within a $4 billion TEM. And, you know, I know there's higher numbers out there, you know, in the end. growth and revenue growth will be more meaningful than whatever people have as different. People have very different TAM numbers and we're more conservative there.

Okay. And then, Franklin, on the fourth quarter, you did call out a little bit of budget flush. I think that was specific to BSI. Can you maybe just touch on that dynamic? Did you see it in any other parts of the portfolio and anything you could quantify?

Yeah, I mean, budget flush because we don't have such short, you know, so much consumables or things that ship immediately. Budget flush for us is not so significant. But you are right. In a way, I think the BSI across all three groups, the BSI average organic bookings growth was 10% year-over-year, so not only sequential but really excellent year-over-year for a fourth quarter. And we just have to assume – we cannot really – figure out that's budget flush and that's, you know, secular growth. We don't know exactly Tyco, but I bet we assume there's a little bit of catch-up for things that, you know, where people got delayed in Q2 and Q3 or so. So we're not projecting that we now have a 10% growth momentum every quarter. But, you know, so... Hard to say is the answer, but we assume there was a little bit of catch-up as well. We don't think this was all just catch-up. We think they're good secular fundamental growth drivers.

Okay. And then one last one for Jill before I hop off. You know, if we think about kind of the margin guide, 150 to 190 bps, you know, traditionally you've talked about two-thirds of that coming from gross margin. Obviously this year it will be more, you know, from some of the structural initiatives you talked about. But how should we think about all of this in the context of kind of the longer-term outlook of 75 to 100 bps of margin expansion? In other words, are some of these structural changes going to position you for maybe a range above that longer-term?

Well, I think we'll talk multi-year more in our investor day when we move into June. But just fundamentally, you know, we're starting to see some improvements on the mix side. Part of our Project Accelerate initiatives are helping to change the mix, and that's all favorable from an operating margin perspective for us. So, you know, we – This is also the starting point for us for 2021. It's early in the year, and clearly there's still some uncertainties out there. But fundamentally, yes, I think the mix shift is helping us, and we'll do that both on the growth margin line and if we expect that to drop down ultimately into the operating margin line.

Okay. Thank you.

You're welcome.

Thank you. And the next question comes from Dan Brown with UBS. Yes.

Great. Thanks for taking the questions. Maybe, Frank, just with the new 2.0 Accelerate, which obviously rolled out earlier this year, I'm just wondering if we think about the long-term growth profile that you laid out previously. On Project Accelerate 2.0, I'm just wondering how does the new, you know, initiative that you have, some of the larger TAMs, how do they impact with position broker? over the longer term. I know we're going to get probably an update at the investor day, but I'm wondering if you can give us a sense of, you know, what impact these new markets are opening up for you in terms of your growth rate.

Yeah, right. It's going to be a qualitative rather than a quantitative discussion right now. So we certainly think that proteomics, both targeted and unbiased, we're pursuing both in a very broad sense, is going to be the very, very large opportunity and very large growth opportunity for Brooker for all sorts of reasons that are being discussed in the industry, and more and more others are sharing that vision, and we think we're going to have a very crucial role to play here. We also think, while we are not projecting the $12 billion, we think that spatial biology, including single-cell multi-omics, and targeted multi-omics is going to be big, and I think we're going to be one of the major players in that spatial biology field with things that we've announced already and more things in the pipeline. I understand we're at about 30, 25 to 30 million. We're starting at a modest level, but I think you'll see that ramp up quite a bit with very good growth rates as well and good margin opportunities. And then, you know, as we're becoming a more sizable diagnostics player focused on infectious disease diagnostics, but also more and more research use tools for cancer, translational research, which eventually could also go into laboratory-developed tests. We expect that actually will happen over time, although that's not for 2021. We think there are some very, very large secular growth opportunities for broker where we're really well positioned and have, in many cases, very unique tools that can really contribute to the overall mix in those markets. So I would highlight those as the three. Among the six projects that will accelerate 2.0 initiatives, I think there are three that are very large, and I call those proteomics, spatial biology, and, you know, infectious disease diagnostics. Those are very large long-term opportunities for broker, and we're really well positioned for those.

Great. Thank you for that. And then just maybe as a follow-up, I know the 15% organic guide was kind of touched upon already a few times here, but I'm just wondering, even when you back out the COVID contribution, it looks like that that guidance looks stronger than kind of your full-year guidance would imply. It looks like you have an easy comp. So I'm just wondering, is it something we should be aware of as we get into the year? Why, you know, on a Statson basis, when we do the math, it looks like, you know, the high- Oh, we just wanted to give you some modeling guidance, right?

I mean, obviously, Q1 and Q2 of last year were weaker for us. So the relative growth will be strong. But we also did have strong order momentum and strong, very solid backlog right now in all three BSI groups. We also wanted to highlight that last year the discrepancy between groups was huge, whereas this year we expected to be actually a pretty tight spread. We thought those would just be useful modeling opportunities. And, yeah, we are excited. I mean, we think we're going to see, you know, great organic growth and really pretty good organic growth for the entire year, but particularly strong in Q1 and Q2.

Great. Thanks, Frank. Thanks, Joe.

Sure.

Thank you. And the next question comes from Derek DeBroom with Bank of America.

Hi. Good morning. Just a couple of quick ones. Gerald, can you talk a little bit about, and if I miss the apologies, what the free cash flow target is for 21? Then I could follow up.

Yeah. I guess I'd say just generally we don't provide targets specifically publicly, but you can see, I think, from the free cash flow generation we had in the fourth quarter, and actually for the full year, you know, we kind of re-engineered our cash engine, if we can put it that way, and we had some success for sure in the fourth quarter where we had some strong order performance plus cash flow that followed it. So we'll talk more about multi-year cash flow concept when we move into the June investor day, but fundamentally it's pretty healthy at the moment.

But I think we would concede, Derek, that our cash flow can fluctuate from year to year. And we've seen that before, that it's not always a steady incremental function. So we had very good, strong cash flow in 2020, but you cannot always just add another, whatever, 10% for the next year. Our cash flow, if you look at us historically, has been fluctuating from year to year, and that could happen again. Great.

And just one more. Gerald, how should we think about the margin progression for this year? A very impressive guide in the numbers given all things going on, but just some quarterly guidance would be really helpful if you have any.

Well, as you know, we don't provide guidance at the quarters. We just give you a little bit of color on each piece as we move through the year. And fundamentally, we're pretty optimistic about where we stand. I mentioned earlier that We have delivered very good – we actually had record operating margin performance in the fourth quarter. We expect a strong first quarter, and I made some comments about EPS at the bottom line. Fundamentally, our mix has helped us at the gross margin line, and our cost control measures in the operating expense area, at least in SG&A, have really made a difference for us. I mean, we'll talk more about that as we move through the year, but I'm pretty optimistic, actually, about where we stand from the gross margin line and the drop-down ultimately into the operating margin line.

Great.

Thank you very much.

You're welcome.

Thank you.

And the next question comes from Jack Meehan with NetFun Research. Thank you. Good morning. Good morning. Frank, I was wondering if you could just give some higher-level thoughts around what's going on in the academic end market now. I know you mentioned, obviously, it took a bit of a hit in 2020, but what are you seeing entering 2021 in terms of research activity and willingness just to invest in new capital equipment?

Yeah. I think very strong in Europe, pretty strong in China throughout last year. Most of last year, weak in Japan, weak in India, weak in Latin America, weak in the U.S. in particular, and not fully recovered yet in those geographies. Now in the U.S., we expect this to change. I mean, endowments are at record highs. The new administration seems to support investment in NIH and similar type of scientific and biomedical investment in particular. I think there will be more confidence among U.S. academics, but some of the students still are not on campus and you have some of the state universities with budget issues. But we expect a continuing improvement trend in the U.S., but also the U.S. had not fully recovered in academic. And Japan last year was just generally quite weak with a little bit of strength or early signs of maybe some improvements in Q4. And countries like India or Latin America, they just really just fell behind in academic spending. We hope – we're not suggesting that that's all going to be just all good in Q1 and Q2, but we hope that it sorts itself out throughout the year, so hopefully by the second half of the year, with, again, China and Europe being remarkably strong.

Great. And then, Gerald, I was wondering if you could give some color on cash flow. What does your guidance assume in terms of cash flow generation in 2021? And can you just help us with some of the moving parts around working capital, like inventories took a step up in 2020? When do you expect that to normalize? And then also seeing some increase in customer advances, what is that related to?

Yeah, so all good questions. So fundamentally, in terms of our 2021 guidance, we don't provide details around every cash flow item, but just qualitatively, if I may, I'll give you some commentary. With respect to the 2020 performance, we did see strong customer advances, which followed very strong order bookings performance. Frank mentioned order bookings performance across all the groups, and as you may know, most of our larger pieces of equipment for sure require advances when the order is booked. So that tends to bring those numbers. When the order performance is strong, our customer advance collection activity is strong. In addition to that, we did re-engineer, as I mentioned in an earlier question, some of our cash flow process, and that helped us very significantly in a very challenging business year. to improve our AR collection activities. And interestingly, that's across all the regions, not specific to any one. I would also say just generally with respect to the inventory level, you're right, our DIO, our inventory levels have been up for 2020. We were building inventory largely to make sure we addressed supply chain risks associated with the pandemic. And in addition, we're building inventory for more significant rebound, as you already heard, for 2021. So we are expecting those inventory levels to be managed very carefully as we move through the rest of 2021. But I have to be honest, we still do see some potential disruptions, particularly around some of the variants that are still floating around in the world. We're trying to be cautious and not overly conservative here, but we expect to see some improvement in both the inventory management level and certainly continue the strength that we had in our receivables collection and our payables activities. On the free cash flow, just one other point I'll make is you may have seen also that we are continuing to project a significant cap expenditure level. This is largely to focus on production Capacity increases in productivity, enhancements across many of the businesses, and we expect that to impact our free cash flow over time. That's largely higher for 2021. We don't expect to leave it at that level forever, but for the moment, we've got some really exciting opportunities we need to capture through CapEx.

But 21 and 20, CapEx will be comparable, maybe a little bit higher in 21, not much higher. Yeah. We're not going to have absolutely optimized inventories this year. We think there's still disruption potential. So having slightly higher safety inventories this year will probably be, you know, until that pandemic really is gone and it becomes endemic, we're probably going to operate with elevated inventory levels so that we can, you know, deliver.

Thank you. And the next question comes from Patrick Donnelly with Citi.

Hey, thanks for taking the question, guys. Frank, maybe just to follow up on one of the earlier questions on single-celled spatial, you obviously did that spatial acquisition in late 2020, Canopy. You've talked a little bit more about it to your point, JPM. You talked a good amount about the market. Can you just talk through, you know, how we should expect this business to progress in 21 here? What are the expectations? Like you said, it's a real business now. It's not a future thing. So just wanted to get a feel for what to look out for this year.

Yeah, it's the cannabis chips cytometry businesses plus the services that go with that. So there will be continued fast product development in that business. It's also things from our fluorescence microscopy business. The Vutara voxel launch, which can really go into not only spatial transcriptomics, but true spatial genomics, for which you need less than 100, or in our case, with super resolution. Microscopy, you kind of need that 20 nanometer resolution to look at details, not only of the nucleus, but the chromosomes and the chromatin. So we really can address different scales When we talk about spatial biology, we're talking about resolution scales that many others that are in that space cannot even touch or are nowhere close to doing that. So we have a range of tools for spatial biology, and some of them also serve that single-cell targeted proteomics and targeted multiomics. So it's not a one-trick pony. It's multiple technologies. primarily microscopy-related that look at cellular, subcellular, all the way down to chromosome and chromatin structure, which is, of course, much, much smaller at the tens of nanometer scales. And we have the targeting technologies and the software and the flow labeling technologies combined with microscopy. That's pretty unique. to really have a pretty multifaceted spatial biology, if I use that as the overarching terminology, portfolio that we think will do very well and in many cases exceeds what anybody else can do.

Great. That's helpful. And then maybe just a quick one on Europe. Can you talk, I guess, the trends you've seen recently on the academic side, expectations In 21, I know you guys have seen some pockets of strength and some a little more mixed, but I just wanted to get a feel for what the expectations there are going forward.

Yeah. I mean, European academic funding tends to be much more steady, and it, of course, doesn't depend on tuition or on revenue from, I don't know, sports teams or cafeterias and things like that. So it's steady. And then, of course, it's really the allocation. Single-cell biology, proteomics are big funding themes in Europe. There were good programs with preclinical imaging and a few others. So it's... It's steady, probably low single-digit growth in these budgets, but the allocation to the project accelerate fields that we're particularly interested in, particularly good at, has been very gratifying and beneficial. Of course, it's not identical. Southern Europe is weaker. Central Europe is countries that have a strong pharma industry are really very strong. We believe that the UK will actually heavily invest in research and innovation, also on the academic side after Brexit. So Europe overall has been strong, especially in the way that it's allocated to scientific priorities that match what we can do and where we can grow and where we are unique. Understood. Thanks, Frank.

Thank you. And what was the last question? I would like to return the call over to Miroslava Mykova for any closing remarks.

Thank you for joining us today. In the first quarter of 2021, Brooker will participate virtually in the SBV Lering Global Healthcare Conference and the Cowan Annual Healthcare Conference. We invite you to meet us at these conferences or reach out to us for a virtual meeting during the quarter. Thank you and have a nice day.

Thank you. The conference is all concluded. Thank you for attending today's presentation.