Bruker Corporation

Good day, and welcome to the Bruker Corporation fourth quarter 2021 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I'd now like to turn the conference over to Justin Ward, Senior Director of Investor Relations and Corporate Development. Please go ahead, sir.

Thank you, Jason, and good morning, everyone. I would like to welcome everyone to Bruker Corporation's fourth quarter and full year 2021 earnings conference call. My name is Justin Ward, and I am Bruker's new Senior Director of Investor Relations and Corporate Development. I joined Bruker in January, and I'm looking forward to meeting many of you in early 2022. Joining me on today's call are Frank Laukeen, our President and CEO, and Gerald Herman, our Executive Vice President and Chief Financial Officer. In addition to the earnings release we issued earlier today, during today's conference call, we will be referencing a slide presentation that can be downloaded from the events and presentations section of Brooker's Investor Relations website. During today's call, we will be highlighting non-GAAP financial information. Reconciliations of our non-GAAP to GAAP financial measures are included in our earnings release and are posted on our website at ir.brooker.com. Before we begin, I would like to reference Brooker's safe harbor statement, which is shown on slide two of the presentation. During this conference call, we will make forward-looking statements regarding future events and the financial and operational performance of the company that involve risks and uncertainties, including those related to the ongoing COVID-19 pandemic, as well as ongoing supply chain, logistics, and inflation challenges. The company's actual results may differ materially from such statements. Factors that might cause such differences include, but are not limited to, those discussed in today's earnings release and in our Form 10-K as updated by our other SEC filings, which are available on our website and on the SEC's website. Also note that the following information is based on current business conditions and to our outlook as of today, February 11th, 2022. We do not intend to update our forward-looking statements based on new information, future events, or for other reasons except as may be required by law prior to the release of our first quarter 2022 financial results expected in early May 2022. You should not rely on these forward-looking statements as representing our views or outlook as of any date after today. We will begin today's call with Frank providing an overview of our business progress. Gerald will then cover the financials for the fourth quarter and full year 2021 in more detail and share our fiscal year 2022 financial outlook. Now, I'd like to turn the call over to Bruker CEO, Frank Laukeen.

Thanks, Justin. Great to have you at Bruker. As some of you know, we welcomed Justin a few weeks ago as our new Senior Director of Investor Relations and Corporate Development. And this is his first earnings call with us. Now, good morning, everyone, and thank you for joining us on today's earnings call. As you can see on slide four, Brooker's solid 11% organic revenue growth in the fourth quarter capped off a year of outstanding progress for the company. Robust demand for our differentiated high-value instruments and solutions resulted in continued strong momentum in bookings and revenues, despite meaningful supply chain challenges. In fiscal year 2021, our BSI segment organic bookings and backlog both increased in the high teens percentage year over year. Accordingly, we are ramping up significant CapEx investments for capacity and productivity, as well as substantial OpEx investments in commercial organizations and R&D for our project Accelerate 2.0 High Growth, High Margin Initiatives. For the fourth quarter of 2021, BSI segment order bookings growth year-over-year was about 10% on an organic basis, driven by broad-based customer demand, with the U.S. demand being particularly strong. Brooker's Q4 2021 revenues increased approximately 9% year-over-year to $684 million, and in comparison to a strong prior year, Q4 2020. On an organic basis, revenues increased 11.4% year-over-year, which included 11.8% organic growth in the BSI, Brooker Scientific Instruments Groups, and 6.8% at-best net of intercompany eliminations. Our Q421 non-GAAP gross margin decreased 50 BIPs year-over-year to 51.2%, while our non-GAAP operating margin was 21.0%, a decline of 150 bps from 22.5% in Q4 2020 due to accelerated commercial investments, unfavorable revenue mix, as well as supply chain challenges and inflation. In Q4, Bruker reported GAAP-diluted EPS of 50 cents compared to 45 cents reported in the prior year period. On a non-GAAP basis, Q4 21 diluted EPS was 59 cents, an increase of one cent from 58 cents in Q4 2020. In summary, Q4 21 was a quarter with continued momentum in bookings and backlog with strong organic revenue growth and ramping investments in our project accelerate initiatives and operational excellence drive. On slide five, We show broker's performance for the full year 2021. Our revenues increased by 430 million year over year, or by 21.7% to 2.42 billion. On an organic basis, fiscal year 21 revenues grew 19.1% year over year, comprised of 19.4% organic growth in BSI, and a 15.5% organic increase at best net of intercompany eliminations. Full year 2021 growth and operating margin, as well as GAAP and non-GAAP EPS performance, all stepped up significantly year over year as our business recovered from the pandemic and accelerated strongly beyond pre-pandemic levels. In fiscal year 21, we experienced particularly strong organic growth in our proteomics, microbiology, biopharma, and industrial research markets. We are very pleased with our 19% organic revenue growth, 240 bps year over year gross profit margin expansion, and 340 bps year over year operating profit margin expansion, and more than 50% EPS growth in 2021. Our return on invested capital of 27.6% in 21 was well above our long-term target of ROIC greater 20%. And it illustrates our differentiated business philosophy and entrepreneurial management process and culture, which we believe will resonate in times with higher inflation and increasing cost of capital. Please turn to slide six and seven. where we highlight the full year 21 performance of our three BSI groups and our best segment, all on a constant currency and year-over-year basis. In 2021, the BioSpin group revenue grew in the mid-teens percentage year-over-year to $691 million. BioSpin saw strength in demand for its NMR, preclinical imaging, and aftermarket offerings, while system installation activities recovered. BioSpin systems revenue were up strongly year over year, including revenue recognition on four gigahertz class NMR instruments. In the fourth quarter, BioSpin's PCI division acquired Molekubes, a Belgian company with innovative benchtop preclinical nuclear molecular imaging systems. For the full year 2021, Cali group revenues increased in the low 20s percentage to $819.6 million, with continued growth in our mass spectrometry and microbiology businesses and very strong performance in our FTIR near IR Raman molecular spectroscopy product lines. We saw strong revenue growth for our TIMSTOF unbiased 4D proteomics and multiomics platform, which, as we mentioned in our J.P. Morgan presentation in early January, exceeded $100 million in revenues in 2021. Revenue for other life science mass spec products, like our research MALDI-TOF product line, rebounded as well. Microbiology and molecular diagnostics revenue grew year over year, driven by high demand for multi-biotyper instruments and consumables. This was coupled with the recovery of our tuberculosis or TB diagnostics products, While during Q4 2021 revenue from our SARS-CoV-2 PCR testing of 6 million, approximately 6 million was down year over year from Q4 2020 as expected. Full year 21 revenues for our IR near IR Raman molecular spectroscopy products were substantially higher year over year with strong execution as the global industrial applied and academic markets rebounded from 2020 and grew further. Please turn to slide seven. Full year 2021 broker nano revenues grew in the mid-20s percentage to $697.5 million. Nano's industrial research, industrial and academic businesses rebounded strongly, with industrial research outperforming. Revenues of our advanced X-ray, nano surfaces, and nano analysis tools all stepped up substantially versus 2020. Nano's microelectronics and semiconductor metrology tools performed very well in 2021 with ongoing strong bookings and backlog. Life science fluorescence microscopy revenue was up sharply year over year on product innovation and strong academic demand. Nano's 2021 revenue included an M&A contribution from our September September 2020 acquisition of Canobie Biosciences spatial biology targeted proteomics tools and CRO services. Finally, full year best revenue grew in the mid-teens percentage net of intercompany eliminations driven by contributions from big science projects and a recovery in MRI superconductor demand by our MedTech OEM customers. Best superconductor demand appears healthy but we continue to experience supply chain challenges due to material shortages and slow logistics. Moving to slides eight and nine. Eight and nine, we continue to make good progress with our Project Accelerate 2.0 initiatives, which now represent about 54% of our total revenues. On slide eight, we highlight a recent majority in investment that closed in January 2022, and which enhances our proteomics solutions. Preomics has developed innovative automation and sample preparation tools and consumables for use in unbiased, deep proteomics. Preomics' new beatbox device, in combination with Bruker's TIMSTUFF platform, provides accelerated, deep, and unbiased proteomics workflows for tissue biobanks or biopsy research. On slide 9, we show two other recent technology acquisitions that closed in January and also enhance our proteomics initiative. ProLab specializes in precision pumps, autosamplers, and nanoflow to capillary LC or cap-LC systems to increase performance and robustness of 4D proteomics and 4D metabolomics. Brooker also acquired PEPCEP, a company specializing in nano-LC columns and components to optimize proteomics, which are used in Brooker's nano-ELUT nano-LC system and by other manufacturers. The expected fiscal year 2022 revenue from these three proteomics acquisitions is less than $10 million, but we believe these acquisitions have excellent growth potential, and because it's primarily consumable, they have high gross margin potential in the future. and allow Bruker to offer more complete, unbiased 40 proteomics and multiomics solutions, including consumables, as well as higher performance in the future. As we intend to invest in these separation and sample prep technologies, we expect these proteomics acquisitions to be approximately $0.03 to $0.04 dilutive in fiscal year 2022, which is incorporated in our fiscal year 2022 guidance. Slide 10 illustrates a historical perspective of our transformation over the last several years with expanding operating margins, accelerating organic revenue growth, and double-digit EPS CAGR, all while maintaining return on invested capital greater than 20%, which has resulted in robust stakeholder and shareholder value creations. This is a result of our entrepreneurial focus on innovating high-value instruments and solutions combined with a continuous operational excellence drive. As a result, Bruker enters 2022 in its strongest position ever. We intend to further ramp our investments in the Project Accelerate 2.0 high-growth, high-margin initiatives to ensure those opportunities continue to drive profitable growth in the years to come. Specifically, to facilitate growth in our key opportunities in proteomics, spatial biology, biopharma, and semiconductorology, we plan to add incremental commercial and R&D investments of 20 to 25 million in 2022, included in our guidance and, of course, including the three proteomics acquisitions that I mentioned a moment ago. This also includes... investments in Acuity and Canopy, if you recall, our spatial biology ventures and previous acquisitions, as well as into the two smaller Semicon metrology acquisitions we did in the second half of last year. As the revenue contributions from these Project Accelerate 2.0 initiatives increases further, they are expected to pull up our operating margins and revenue growth rate further, first towards our 2024 medium-term financial goals, and then beyond. Finally, we have substantial balance sheet capacity to pursue disciplined strategic M&A with the right opportunities. In summary, during 2021, Bruker delivered excellent progress towards its strategic and financial objectives. Our core businesses have rebounded strongly, and our Project Accelerate high-growth, high-margin initiatives have performed well. very well. I am pleased with how well our teams responded to a challenging supply chain and logistics environment. As we move through fiscal year 2022, our high backlog gives us good visibility on growth. We see meaningful areas for Bruker to develop market leading positions with our innovative technology and commitment to serving our customers. Let me now turn the call over to our CFO, Gerald Herman, who will review Brooker's financial performance and outlook in more detail. Gerald.

Thank you, Frank, and thank you, everyone, for joining us today. I'd like to add my warm welcome to Justin as he joins our IR and corporate development team here at Brooker. I'm pleased to provide more detail on Brooker's fourth quarter and full year 2021 financials, starting on slide 12. In the fourth quarter of 2021, Brooker's revenue increased 9%. To approximately 684 million dollars, which reflects an organic revenue increase of 11.4% year over year we reported gap EPS 50 cents per share compared to 45 cents in the fourth quarter of 2020. On a non gap basis to for 2021 EPS with 59 cents per share an increase of one cent compared to 58 cents in the fourth quarter 2020. Our fourth quarter 2021 non-GAAP operating income grew 1.9% off a strong comparison in the fourth quarter of 2020. In the fourth quarter of 2021, our non-GAAP operating margin decreased 150 basis points year over year to 21%, principally due to the impact of accelerated investments, revenue mix, and supply chain pressures. As Frank mentioned, the Bruker team executed very well in the fourth quarter, handling significantly higher volume despite COVID, supply chain shortages, and logistics delays. We finished the fourth quarter with cash, cash equivalents, and short-term investments of approximately $1.17 billion. During the quarter, we used cash to ramp selected Project Accelerate 2.0 investments in our key strategic opportunities, fund capital expenditures, as well as the acquisition of molecules and our dividend program. You may recall that in May of 2021 our Board approved a new two-year share repurchase authorization of up to $500 million, valid until May 2023. In the fourth quarter, we repurchased approximately 1 million shares of Bruker stock for a total consideration of $82 million. For the full year of 2021, our repurchases totaled 2.1 million shares for approximately $153 million. We generated $138.6 million of operating cash flow in the fourth quarter, which was partially offset by our CapEx investments, resulting in $110.2 million in free cash flow for the fourth quarter. This represents a $64 million decline from the fourth quarter of 2020 due to higher working capital associated with buffer inventories and our higher revenue level and related receivables. In the fourth quarter, we completed a private placement of approximately $500 million of 10-year notes carrying Euro-Franc-based fixed rates of approximately 1%. This provides us with further capital to continue to fund disciplined and strategic investments, both organic and inorganic, in key growth areas. Slide 13 shows the revenue bridge for the fourth quarter of 2021. As noted earlier, organic revenue in the quarter increased 11.4%. We had a positive revenue contribution from acquisitions of 0.3% and a foreign currency headwind of 2.8%. From an organic revenue growth perspective and compared to the fourth quarter of 2020, BioSpin's fourth quarter 2021 revenue decreased slightly due to an ultra-high field revenue mix headwind. and the previous pulled forward of approximately $15 million in China-related revenues into the third quarter of 2021. Nano organic revenue grew in the low 20% on strength in Nano's industrial research and academic businesses. Caled grew high teens percent with strong performance in life science mass spectrometry and the multi-biotyper franchise, partially offset by a year-over-year decline in SARS-CoV-2 testing revenue. Best revenue increased in the mid-single digits year-over-year net of intercompany eliminations. Fourth quarter 2021 BSI systems revenue increased in the mid-teens percentage range organically, while BSI aftermarket grew in the high single digits organically compared to the fourth quarter of 2020. Geographically and on an organic basis, in the fourth quarter of 2021, our European revenue was up mid-single digits percent year-over-year, North American revenue grew in the high 20% range, and Asia Pacific grew in the mid-single digits year over year. Rest of the world fourth quarter 2021 revenue was significantly higher year over year in the low 30% range. Slide 14 shows our fourth quarter 2021 P&L performance on a non-GAAP basis. Fourth quarter 2021 non-GAAP gross margin of 51.2%, decreased 50 basis points from 51.7 percent in the fourth quarter of 2020, driven principally by the impact of revenue mix and supply chain cost pressures. The fourth quarter 2021 non-GAAP operating expenses were up 12.6 percent compared to the fourth quarter of 2020 and reflected a significant ramp of commercial investments in Project Accelerate 2.0, including in proteomics and spatial biology. Our fourth quarter 2021 non-GAAP operating margin of 21% was 150 basis points lower than the 22.5% in the fourth quarter of 2020, which was a high watermark for operating margin performance for us historically. Our fourth quarter 2021 year-over-year operating margin decline was driven by lower gross margin and higher investments in marketing and sales associated with building out our commercial teams for growth. For the fourth quarter of 2021, our non-GAAP effective tax rate was 34.4%, compared to 31.9% in the fourth quarter of 2020, primarily due to certain unfavorable discrete tax items. Weighted average diluted shares outstanding in the fourth quarter of 2021 were 152 million, a reduction of approximately 1.3 million shares, or 1% from the fourth quarter of 2020, resulting from our share repurchase activity over the past year. And finally, fourth quarter 2021 non-GAAP EPS of 59 cents was up one cent compared to the fourth quarter of 2020. Slide 15 shows the year-over-year revenue bridge for the full year of 2021. Revenue was up $430 million, or 21.7%, including organic growth of an impressive 19.1%. Acquisitions added 0.4% to our top line, while foreign exchange was a 2.2 percent tailwind for the year. And Frank has already covered the drivers for the 2021 revenue performance. P&L results for the full year 2021 are summarized on slide 16. For the full year, gross margin expanded 240 basis points to 51.1 percent, reflecting higher revenues, volume, leverage, and mix, while operating margin grew 340 basis points to 19.4% for much of the same reasons. The full year tax rate was 28%, similar to the 28.1% rate in 2020. Turning to slide 17, in the full year 2021, we generated $190.4 million of free cash flow, approximately $45 million lower than in 2020, which was a record cash flow year for Brugger. Full year 2021 free cash flow benefited from higher net income, partially offset by higher working capital related to increased volume, buffer inventories, and the timing of receivables. Our capital expenditures in the year reflects our continuing investments in growth capacity and productivity as part of our operational excellence drive. Our cash conversion cycle at the end of the fourth quarter 2021 was 208 days. a reduction of 12 days compared to the fourth quarter of 2020, reflecting gradual improvement in our working capital cycle. Turning now to slide 19, given our strong bookings growth and record backlog in 2021, we expect solid growth in 2022. Our outlook for 2022 includes organic revenue growth of 6% to 8% year over year. We estimate a foreign currency headwind of about 2% with acquisitions contributing about 1% to growth. This is expected to lead to reported revenue growth for 2022 in a range of 5% to 7% compared to 2021. Given the dramatic improvement in non-GAAP operating margin we delivered in 2021 and the significant additional investments in Project Accelerate 2.0 opportunities we intend to make in 2022, We expect non-GAAP operating margin expansion for 2022 to moderate to a range of 30 to 60 basis points from the 19.4% level we delivered in 2021. We also expect 2022 quarterly margin progression to return to its more historical norm and expect to see the first half operating margins about 500 to 600 basis points below the second half operating margins. On the bottom line, this adds up to non-GAAP EPS for 2022 in an estimated range of $2.29 to $2.33, which would represent non-GAAP EPS growth of 9% to 11% compared to 2021. This also represents 13% to 14% CAGR from our $1.57 pre-pandemic non-GAAP EPS level in the full year of 2019. We're projecting a non-GAAP tax rate of approximately 28.5% for full year 2022. Other guidance assumptions are listed on the slide. Our full year 2022 ranges have been updated for foreign currency rates as of December 31st, 2021. For the first quarter of 2022, this outlook implies organic revenue growth in the mid-single digits on a year-over-year basis. we expect the first quarter to be impacted by two factors of note. First, continuing supply chain and logistics delays, which may result in the push out of certain shipments into later quarters. And secondly, we do not expect any gigahertz class NMR revenue in the first quarter of 2022, which compares with revenue from two gigahertz class systems in the first quarter of 2021. On an annual basis, we expect to recognize four gigahertz class NMRs in 2022. To wrap up, Bruker delivered strong bookings, backlog, and revenue growth in the fourth quarter, capping off an exceptional year of financial improvements in 2021. We're carrying record backlog into 2022, giving us a high degree of confidence in our ability to deliver another solid financial performance in 2022. And with that, I'd like to turn the call over to Justin 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 to begin the Q&A portion of the call. As a reminder, to allow everyone time for questions, we ask that you limit yourself to one question and one follow-up.

We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Dan Leonard from Wells Fargo. Please go ahead.

Thank you for the time. So just a couple on supply chain and logistics. First off, Was there any meaningful amount of sales pushed from Q4 to Q1 as a result of supply chain and logistics challenges?

Hi, Dan. It's Frank. No, there weren't really any push-outs, like a number that I can give you. But it is clear that supply chain and logistics put a brake on the business. And so we're pleased with our organic growth in Q4. But With those limitations in that environment, more would not have been easily possible, but there is not a specific number of X million that got pushed out that would be impossible to delineate.

Frank, would you attribute any of your booking strength in 2021 to customer response to supply chain challenges? Maybe they're ordering farther in advance, so they typically would to allow for longer logistics, or would you attribute it all to just organic core you know, momentum in the business?

You know, we don't really know. I know that question comes up from time to time. It's a good question. I mean, you know, certainly academic hospital diagnostic customers, they don't really order ahead of time. Some industrial or some semiconductor metrology companies with longer lead times might they accelerate an order here or there? I can't exclude it. We don't have any specific evidence or information of that type, but I think it's probably a relatively minor effect, but there may be some of that out there. Understood. Thanks for the caller. Thank you, Dan.

The next question comes from Patrick Donnelly from Citi. Please go ahead.

Hey, guys. Thanks for taking the questions. There might be a little bit of a follow-up on that. Just in terms of the margins, it might be for Gerald. Can you just talk about the moving pieces as we look to 22? Obviously, some increased investments. I assume the supply chain inflationary pressures are maybe offsetting some of the underlying strength. And then how much are you able to pass on on the pricing side? I'd be curious just the levers on the margin as you look towards that guide.

So first of all, thanks for the question. We're pretty encouraged by the strength of our order. Booking's performance in 2021, and we saw a very strong backlog, record backlog for bookers. So the strength of our business is there. I think the issue for us is more around timing from a logistics perspective, given some of the supply chain issues. There are clearly going to be some modest impact relative to that, and we see it We expect to see it in the first half of 2022. That's what's driving us to lead to a little bit of color on our guidance is that we expect the operating margin performance in the first half to be weaker than it is in the second half. So I guess I would just add that we're very encouraged by the strength of the business. As far as your second question around inflation, I mean, we are, of course, like every other business, experiencing some degree of cost pressure that's coming from this whole supply chain process. Our view on this at the moment is that we've been able to navigate through it pretty effectively, I think, in the fourth quarter. And more fundamentally, we expect to do that in 2022. You may know we are pretty active in presenting pricing changes into the markets where we feel we have flexibility to do that. And that will be part of our strategy as we move through the rest of 2022.

But we should keep in mind, just to add to that, that for us, when we do increase prices until that turns into revenue, there is a two to three quarter time delay. So that all supports everything that Gerald said. Also keep in mind that our pricing and our backlog is baked in which is, again, why we think we'll go back to more of our historical pattern of lower margins in the first half and then higher margins in the second half, which is typical for us but wasn't the case last year. But it has been historically. So we have a time delay in passing on these inflationary pressures via pricing.

That's helpful. And then, Frank, maybe just on kind of the funding outlook on the academic side for 22, you know, clearly feel pretty good about it given the six to eight organic guide. But can you just talk about maybe the U.S. and Europe in terms of the academic funding environment, you know, what you're hearing there and confidence level and the strength, you know, persisting there?

Yeah, I mean, I hope that the Senate passed the House Delayed Competitiveness Act or ICA, whatever it's called, will pass once it comes out of the committees, but of course it's very difficult to predict Washington. Even without that, I think the optimism and the funding for academic and in the U.S. in general has been excellent, and obviously there could be a further boost. Now, if that funding gets through, particularly with a lot of NSF, but also other funding for semiconductor industry and so on in the U.S., I wouldn't expect that money to reach us so quickly. And even then, it probably would be 2023 revenue. But of course, we'll be very happy to have, you know, hopefully that can lead to bookings maybe in the second half of this year and, you know, hopefully another solid year than in 2023. But of course, it's more of a good long-term outlook. The shorter-term outlook from backlog and near-term demand generally has been quite strong. in almost all of our markets and most geographies and certainly the major geographies.

Thanks, Frank.

The next question comes from Puneet Sudha from SVB Learink. Please go ahead.

Hi, Frank. Thanks for taking the question. And Justin, great to have you on board. So my first question is really on, I mean, obviously, supply chain is a big topic here. Frank, which parts of the business would you say are more impacted versus others? The temp stuff, the UHF NMRs, the nano, what sort of, you know, could you maybe provide some clarity there? And any line of sight you have at this point and when these things are, you know, likely to improve based on your conversations across the industry?

Great questions. I wish I had the crystal ball. I mean, we're saying at a minimum it'll persist throughout the first half. That doesn't mean that we know that it stops after the first half. We just don't see it stop, you know, the first half. I'm sure the supply chain challenges continue. And then we just don't know for how long they will continue or whether they'll gradually abate. You know, we can speculate as much as anybody else, but we don't know. We have certainly baked them into being challenging for the entire year in our outlook. Now, where do we, I mean, I think Best is, you know, Best has the most torpedoes in the water for their supply chain, so to speak, not to get too graphic here. They're managing through it very, very well. And of course, they have the two factories on two continents and multiple supply chains. But I think for them, it's the most difficult. Managing really well so far, as are all of our business. And the second part is really electronics and chips. And that can hit all of our products, other than maybe some consumables have electronics and chips. So that really is, you know, that just can affect absolutely any product line. And we are constantly actively managing that. promised deliveries get pushed out all of a sudden by weeks and months. Some minor component all of a sudden isn't available, and we have to figure out a way to get it somehow. So it's really very, very choppy waters and heavy lifting, and our teams are doing really, really well, but it is an extraordinary supply chain disruption out there, and it's incredibly hard work. So all the more admirable that they've done so well. I think for us, supply chain is, however, a quarterly cadence question rather than a question for the year. We feel really quite good about the year, but could something get pushed from one quarter into another? Yes, it can. So I think it's a short-term issue, may probably throughout the year. but I don't think it fundamentally changes anything on how we progress on an annual cadence in our strategy. That's our view.

Got it. Super helpful on that. And then just my follow-up is on proteomics. I mean, obviously, TempSoft has been an excellent driver for you, a really remarkable growth in that instrument. I assume it's given based on what you provided at the start of the year, you're probably nearing 450 installs or so here. So maybe, you know, just tell us at this point in time of the sort of the growth trajectory, sort of what sort of growth we should imply for this platform. And do you have all the, you know, sort of the required accessories and capabilities around the instruments with these new acquisitions in terms of the LC tissue capabilities and other capabilities that you've built in software around TIMSTOP. Thanks.

Yeah. So, first of all, we continue to operate in an ecosystem on software. We'll never have all of it in-house. We have some software in-house, our fast GPU, Pacer processing, and now our, you're familiar with that, obviously, our TIMST, Diane, or DINN software, which is absolutely remarkable, particularly in conjunction with the DIA passive workflows, the data independent workflows. But we also work with many, many other smaller software companies that are an essential part of our ecosystem. On the consumables and separations and aside, and we've made big strategic progress with these acquisitions, But they require further investment. So they're a very good basis. So we probably saved ourselves three or four years in leapfrogging into these fields inorganically. But now it's not all done. Now this requires further development with these often smaller but very great technology companies. And we're just looking forward to then offering more and more complete solutions. at least on the consumables automation separation side. Of course, we'll still use lots of software also from other companies in this ecosystem. With all of that all in to your very first question, Puneet, I would just say that our 40 proteomics and 40 metabolomics is expected to grow well above the corporate average also going forward.

Got it. Thanks. The next question comes from Jack Meehan from Nefron Research. Please go ahead.

Thank you, and good morning. My first question was, can you just talk about the 2022 guidance, just what the outlook assumes by segment for organic growth, and just a little bit more color on what you're thinking within the mid-single digits for the first quarter by segment as well?

Don't think we're going to do it by quarter, but for the full year, Gerald, maybe you'll want to give some.

Well, relative to the market segments themselves, I mean, I think you've heard Frank's kind of positive view relative to the academic markets and how those are all playing out. We had excellent strength in 2021 in the biopharma segment, and we expect to continue that as we move forward into 22. That's an area that, as you likely know, is a little bit underrepresented in Bruker and we're driving hard to improve that strongly. The other areas that are very solid at the moment remain in the industrial research and industrial areas. Obviously, we're on a very good track, I think, relative to our proteomics area. These are all strong. You heard a little bit, I hope, in the J.P. Morgan conference around our multi-biotyper performance in the microbiology and diagnostic space. So actually, almost all our segments are performing well.

From a group point of view, I think you can continue to see the fastest organic growth from the nano and calate groups in 2022, with BEST and BioSpin also growing, but not quite as fast as nano and calate. That may help you with your modeling. And yes, since you asked about Q1-22, as I think we pointed out earlier, we will not have, the B-Bio group will not have any gigahertz system in Q1 revenue. That's moved to Q2. This year, 2022, whereas last year, 2020, 2021, I'm sorry, we had two one gigahertz class systems in the first quarter. So B-Bio will have... Bbio will have a weaker Q1 2022 year-over-year, if you want some group guidance, group color, so to speak. Biospeed will have a good year for the year, but a weaker start at Q1.

That is helpful. And maybe just on that point, so the mid-single-digit organic philosophy for the first quarter, I actually thought that was pretty impressive because You know, those two – the headwind from the two gigahertz systems is, you know, three or four points by my math, and it sounds like you're building in some caution related to supply chain. So I was just curious if you could call out – are there any good guys that are contributing to that, or can you just comment on kind of the magnitude of the backlog you're entering the year with versus last year, just to talk about, you know, what's driving kind of the underlying above the full-year trend?

Yeah, no, thank you. It is actually mid-single digits in Q1, given those two, you know, supply chain caution and headwind from two gigahertz class systems isn't bad. So thank you. It is mostly, I mean, Nano and Khalid will be the good guys in Q1, to use your language. And indeed, those are also the businesses that had the highest backlog increase. Overall, our backlog at the end of 2021 was at record levels. And, you know, around $2 billion, which is amazing.

Thank you, Frank. The next question comes from Derek Brown from Bank of America. Please go ahead.

Hey, good morning. Thanks for taking my call. Hey, Gerald, can you talk a little bit about gross margin targets for the full year and pacing? And also just how FX is slowing through on the margins this year. Thanks.

Sure. You're referring to 2022, I think. 2022, yes, of course. Yeah. So I think in our case, you've seen we put up very strong gross margin performance in 2022. Again, this is part of our philosophy regarding the strength in our Project Accelerate 2.0 initiatives and the overall strength of of the business at the moment. We expect most of that to continue into 2022, particularly Frank's highlighted, you know, the nano group with both industrial as well as semiconductor performance helps on the gross margin line. And in addition, we have a question, you know, we're still working hard on a whole range of strengthening our performance in a number of other areas, including biopharma, where we see good gross margin performance. So I guess what I would say relative to the phasing, our gross margin performance is really largely focused on mix. You just heard a little bit about the ultra high field, which drops better gross margin performance in. It's much better in the last part of the year, I'd say. We had very strong plans for the third and fourth quarter on the gross margin side. So I think overall, Very encouraged on what we see for the gross margin levels.

But as you'll generally see, most of our operating margin improvement comes from gross margin improvement. It was about two-thirds in 2021. And I don't have an exact number or range, but it'll be more than half of our operating margin improvement, especially as we have considerable OPEX investments in commercial and R&D. We don't guide specifically on gross margin, but we expect further progress there and most of our operating margin expansion this year, which is a bit more moderate than last year, by choice. We're really benefiting last year. We kind of harvested in a big step up from many of the project accelerate investments made years earlier. And now we're really pushing the next wave of investments to, you know, continue to benefit towards 24 and then really beyond that as well. So that's how we're thinking about it.

And so then one follow-up, Gerald, just FX pacing on revenues?

Yeah, well, FX continues to be a little volatile. I guess I could say even in the month of January we've seen it up and down. You know, I think generally the way this works, as the US dollar strengthens against the euro and the franc, which is one of our major, you know, we're showing a foreign exchange headwind of about 2%, and we are getting a little bit of benefit from some acquisitions in our guidance as well.

This was on the revenue.

On the revenue line, yes. Yeah. So I think, you know, we can... Go through that in a little more detail if you'd like, but it's fairly similar to our normal scenario where the USD strengthens.

Got it. And Frank, just how much of revenues are coming from Project Accelerate related products and projects right now, and how did those grow relative to the legacy business?

Yeah, it's about 54%, which was about even with 2020. In 2020, we took the big step up because our Project Accelerate businesses held up much better in 2020. And in 2020, the Project Accelerate became more than half of our revenue, about 54%. And then, yes, last year in 2020, they were also about 54%. Their growth has been higher than the corporate average. Got it. Thank you. And so, but what that means is that our core business has also been very strong in 2021. So, you know, from x-ray tools to infrared applied market tools, many, many, all the way to best, right? Last year, it really was a beautiful alignment where not only project accelerated very well, but also our core tools did well in terms of revenue growth and margin expansion also.

Our next question comes from Josh Waldman from Cleveland Research. Please go ahead.

Hey, thanks for taking my questions this morning. Just a couple for you. First, a quick follow-up on FX. Gerald, did you quantify how much of the expected margin expansion is coming from FX?

No, we don't typically do that, Josh. But you can see our overall story on the top line is reflected in our guidance

But it's also not a very large effect going forward. We highlighted in some years, Josh, when it's a big effect, right? We don't expect it on the operating profit margin to be a significant effect in 2022 so far. It has the headwind on the revenue, minus 2%, but by the time you get to operating profit margin or EPS, it is not expected to be a major driver, hence we don't highlight it.

Got it. Got it. Okay. Then, Frank, I wondered if you could provide an update on the VAT tax situation in China. Did you see any easing here? Did this cause you to carry more revenue into 2022 than maybe you would have otherwise? And then I guess a view on China overall, as you think about your guide and kind of your expectations there for 2022 would be helpful.

Josh, if you don't mind, I'll take that. Gerard Yates, Jr.: : it's Gerald I guess our our we did see some relief relative to the whole tax certificate issues that started early in 2021 in China, those have. Gerard Yates, Jr.: : resolved themselves largely in many of the larger provinces in China, at least in the fourth quarter and we're continuing to see improvement, thus far in the first quarter of 2022. I mean, just generally speaking, just to frame it, the China business for us is around 15% of the total broker revenue, and it's a very important market for us. We had very solid growth both on the bookings as well as on the revenue side in 2021, and we're expecting to continue to see that level of growth in 2022. The market conditions actually in China, even from a logistics perspective, seem to be normalizing and changing. So I'd say it's business as usual, despite some supply chain challenges.

Great. Appreciate the color.

Sure. The next question comes from Tycho Peterson from J.P. Morgan. Please go ahead.

Frank, I've got a Tim's Top question. You know, you did the pre-omics and measurement. I know it's relatively small, but you had also done the SEER measurement. partnership in January. How do you think about those two since they seem to be solving for something very similar?

Well, actually very different. Good question, though, Tycho. So, as you know, SEER is very much focused on plasma proteomics, deep unbiased plasma proteomics. And, you know, we have a number of joint customers who exploit the SEER proteograph and then our GEMSTOF, right? for exceptional, you know, depth and throughput on plasma proteomics. The consumables of preomics, some of the consumables can be used in conjunction even with, you know, even by customers who have a proteograph. And then it's very much focused with a beatbox on tissue homogenization and lysis. and on, you know, let's say biopsy samples and things like that. So, you know, they're complementary and mostly with a different focus.

Okay. And then as we think about your spatial portfolio with Canopy, Votara, Acuity, can you just talk a little bit about, you know, what we should be thinking about in terms of kind of milestones and, you know, business development for that portfolio this year?

Acuity is easy. It's all R&D and development. We're building up the two sites on West Coast, East Coast for Acuity, building up the teams, working on product and solution strategy. The simple answer is don't expect any product revenue or product announcements yet in 2022. 2022 is all investment at Acuity. Then a year from now, we'll talk about Acuity then having having first offerings perhaps in 2023. Canopy, very different, very much an investment year 2021. That's one of the areas where we're ramping up the commercial teams as well as the R&D in preparation for significant product news in 2022. So Canopy, moderate growth last year. lots of investments, but hopefully beginning the ramp or a more significant ramp, let's say at least in the second half of this year. So there are two different stories, two different areas of the spatial biology market. Canopy, big investment last year, continued investment this year, particularly commercially, QED, all product development.

And lastly, you're taking R&D up by 20, 25 million this year. Obviously, you just highlighted some of the spatial investments, but are there other areas that are maybe getting outsized R&D investment this year?

It's actually not all R&D this year. A lot of it is commercial, and Canopy is an example. But there's a number of areas in proteomics, spatial biology, but also in other areas where we're ramping up our commercial capabilities to prepare for further accelerations in growth. So this is not just R&D this time. Actually, the commercial investments on the OpEx side of this extra $20 to $25 million, a bigger part is strategic marketing, commercial, sales ad counts. And there's also additional R&D, but it's a slightly smaller component.

Okay. Thank you.

We had done more of the R&D investments earlier, and we continue to do that. But now we also... for these products that we're launching and have launched. We're ramping up the commercial teams.

The next question comes from Dan Arias from Stifel. Please go ahead.

Morning, guys. Thanks for the questions. Frank, just to further the thought on Accelerate, for Accelerate 2.0, where are you assuming growth for the product and that initiative come in just under the 6% to 8% overall outlook? I think in June you talked about high singles to low doubles, but that was for 22 through 24. So I'm just curious where you're thinking you start off there on growth just for this year.

So this year we would again expect our project accelerate 2.0 growth to be above the corporate average, which as you've seen is 6% to 8% is our guidance for organic growth for the corporate average. but we don't expect a huge discrepancy as we had in 2020, but perhaps closer to 2021 where our other core businesses are also showing nice growth. So project accelerate above the average, but not dramatically so because the core business is doing okay.

Okay, so just a little bit. I'm just trying to square away the outlook in June for Accelerate 2.0 when you kind of put like a discrete range around that portfolio, high singles to low doubles. Should we think about this year being more high singles and then if some of these new opportunities come into the mix? that's when you get to low doubles for that portfolio or, you know, you'll have a range, you know?

Um, so, um, I mean, aftermarket is very solid grower, but it tends to be, you know, high single, uh, proteomics and, and spatial biology from a small base proteomics from a larger base, uh, clearly expect double digit growth there. Um, we, you know, we, we have, um, On semiconductor microelectronics, we expect very good, more like double-digit growth. Last year, our microbiology business grew amazingly well. So sometimes when you have such strong growth, the following year, maybe you're more back to the high single digits, although we haven't finalized that. We'll see how that goes. So I think the short answer would be, yes, the high single to double-digit growth for Project Accelerate also make sense for this year.

Yeah. Okay. Thank you for that.

I neglected to say biopharma has just been very, very strong for us. Um, I know we talk about more proteomics, special biology, and maybe micro multi biotyper because there isn't one product or one solution for biopharma, but the numerous, very differentiated and pretty unique biopharma solutions that we have, from NMR and mass spec primarily, but also from molecular spectroscopy, have just done really, really well. And so our biopharma and applied, biopharma being the much larger part, starts to be around 18% or so of our revenue. And that's just grown very dramatically and with good margins as well in recent years. So that's... That and semiconductor metrology being so strong, maybe we're a little bit under the radar. I mean, they're not under the radar, but they're lower near the horizon, whereas proteomics, spatial biology, and microbiology probably get the bigger headlines. But those other two areas are strong as well.

And thank you for the Q&A, operator. That will bring to an end the Q&A portion of the call as we are now past 930. So I wanted to thank everyone for joining us today. During the first quarter, Bruker will participate in the SVB Lear Inc Global Healthcare Conference. Bruker's leadership team looks forward to meeting with you at an event or speaking with you directly during the quarter. Feel free to reach out to me to arrange a follow-up. Thanks and have a good morning, everybody.

The conference is now concluded. Thank you for attending today's Presentation you may now disconnect.