Bruker Corporation

Good morning, everyone, and welcome to the Brooker's first quarter 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please see no conference specialists by 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 and then one. To withdraw your questions, you may press star and two. Please also note that today's event is being recorded. At this time, I'd like to turn the conference call over to Justin Ward, Senior Director of Investor Relations and Corporate Development. Sir, please go ahead.

Thank you, and good morning. I would like to welcome everyone to Brooker Corporation's first quarter 2022 earnings conference call. My name is Justin Ward, and I am Brooker's Senior Director of Investor Relations and Corporate Development. Joining me on today's call are Frank Laukeen, our President and CEO, and Gerald Herman, our Executive Vice President and CFO. In addition to the earnings release we issued earlier today, during today's conference call, we will be referencing a slide presentation that can be downloaded from the Events 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.bruker.com. Before we begin, I would like to reference Bruker'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 financial and operational performance of the company that involve risks and uncertainties. including those related to geopolitical risks, the COVID-19 pandemic, and 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 for the period ending December 31, 2021, as updated by our other SEC filings which are available on our website and on the SEC's website. Also, please note that the following information is based on current business conditions and to our outlook as of today, May 4th, 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 second quarter 2022 financial results, expected in early August 2022. You should not rely on these forward-looking statements as necessarily representing our views or outlook as of any date after today. We will begin today's call with Frank providing an overview of our business progress. Gerald will then cover the financials for the first quarter in more detail and share our updated fiscal year 2022 financial outlook. Now, I'd like to turn the call over to Brooker CEO, Frank Lauksy.

Thanks, Justin. Good morning, everyone, and thank you for joining us on today's first quarter 2022 earnings call. If you go to slide four, you can see that broker's solid 10.5% organic revenue growth in the first quarter and even stronger organic bookings growth represent a good performance in light of challenges with a war in Ukraine and lockdowns in China. As a reminder, we do not have any manufacturing operations in China. Excellent demand for our differentiated high-value scientific instruments and life science solutions resulted in continued strong momentum in organic bookings and revenue growth despite a supply chain and logistics drag. For the first quarter of 2022, our broker scientific instruments or BSI segment bookings were up strongly with all four broker groups with double digits percentage organic bookings growth and our BSI book-to-bill ratio greater than 1.1. Brokers Q122 revenues increased 7.3% year-over-year to $595 million. with a currency headwind of minus 4.2%. On an organic basis, revenues increased 10.5%, which included 9.5% organic growth in BSI and 21% at best net of intercompany eliminations, while growth from acquisitions added about 1%. This implies constant exchange rate growth of 11.5% year-over-year. Our first quarter 22 non-GAAP gross margin increased 140 bps year-over-year to 52.7%, while non-GAAP operating margin was 19.5%, an increase of 110 bps year-over-year. Gross margin expansion was partially offset by planned investments in commercial and R&D capabilities as well as by supply chain logistics and inflation headwinds, which more than offset currency tailwinds. In the first quarter of 2022, Bruker reported gap-diluted EPS of 41 cents compared to 37 cents reported in Q1 of 21. On a non-gap basis, Q1 2022 diluted EPS was 49 cents an increase of 11.4% from $0.44 in the first quarter of 2021. Our trailing 12-month return on invested capital was 27.6%, which puts us among the leaders in our industry. We believe this is the result of our strong broker management process and our focus on disciplined entrepreneurialism and organic growth supplemented by selected bolt-on and technology acquisitions. In summary, the first quarter of 2022 was a quarter with broad-based demand strength across virtually all broker businesses with double-digit organic bookings growth as well as further investments in Project Accelerate 2.0 plus investments in our recent acquisitions in additional proteomics, biopharma, and applied markets capabilities in the first quarter as well as in April. Please turn to slides five and six now where we highlight the first quarter 22 performance of our three scientific instruments groups and of our best segment, all on a constant currency and year-over-year basis. In the first quarter of 22, The BioSpin group revenue was 158 million and grew in the low single digits percentage. BioSpin faced a difficult comparison as they were two gigahertz class NMRs in the first quarter of 21 with none in the first quarter of 22. We continue to expect four gigahertz class NMRs in revenue in 2022 with a 1.2 gigahertz system just accepted in April, so this will be in Q2 revenue. BioSpin saw robust growth in revenues in our preclinical imaging business, and BioSpin achieved double-digit bookings growth. BioSpin innovations of note include our compact single-story Ascend Evil 1.0 gigahertz magnet, to give more structural biology and drug discovery labs access to gigahertz technology. And on the other end of the spectrum, if you like, we also launched and advanced new capabilities on our bench top Fourier 80 FTNMR system to enable broader applications, particularly in pharmaceutical and applied markets analysis. Moving on to CALIT for the first quarter of 22, the CALIT group revenue of 203 million increased in the low double digits percentage with strong growth in microbiology and molecular spectroscopy. Our TIMSTOF platform continues its adoption in 4D proteomics, epiproteomics, and multiomics. And in Q2, we announced key further capability enhancements for the TIMSTOF platform and had excellent year-over-year bookings growth. Microbiology revenue delivered strong growth driven by demand for multi-biotyper systems and consumables. This was coupled with a gradual recovery of our tuberculosis molecular diagnostics product platform. We are excited about the launch of our MitPlex PCR liquid array next generation syndromic panels at the ECMIT 2022 conference in April. with more of these liquid array panels and assays to come. Please turn to slide six now. First quarter 2022 Pruker Nano revenue was $179 million and grew in the high teens percentage. Nano's academic, industrial, and semiconductor metrology markets all remain strong. Revenue for our Nano advanced X-ray and Nano surfaces tools delivered strongly strong growth in the quarter, and Nano's microelectronics and semiconductorology tools performed very well with strong bookings and backlog. Our life science fluorescence microscopy revenue was up sharply on product innovation and strong research demand. We note that our Canopy subsidiary launched the next generation CellScape chips cytometry instrument for high throughput in C2 spatial biology with subcellular resolution and outstanding quantitation with a 10 to the 8 dynamic range. Very unique. Finally, first quarter best revenues grew in the hot 20s percentage net of intercompany eliminations driven by share gains and strong superconductor demand by our MRI OEM customers. Best demand appears very healthy. but we experienced supply chain challenges. Moving to slide seven and eight, we continue to make good progress with our Project Accelerate 2.0 initiatives, which in 2021 represented 54% of total revenues. On slide seven, we highlight our very recent introduction of the compact single-story ultra-high field NMR magnet called the Ascend EVO 1.0 gigahertz. It's really quite a technological marvel that being able to put that into a single story lab will provide many more structural biology and drug discovery researchers access to these enabling functional structural biology capabilities of gigahertz NMR. So this is no longer for national labs only, but really for PI and co-PI grants and as well as for biopharma customers. This is a result of the key hybrid technologies we've developed at 1.2 gigahertz for high temperature superconductors operating in this case at 4.2 Kelvin, which is convenient and also reduces helium consumption by a factor of three. That's very, very significant and very timely. So very exciting new technology. Moving on to slide eight, where we talk about Project Accelerate 2.0, our nanotechnology initiative, and here in particular, semiconductor metrology and microelectronics. I'm certainly not going to go through all the bullets on that slide. I just wanted to remind you this business, including display package data storage and semiconductor metrology, was about 7% of our BSI segment revenues in 2021. And it was up again in up in the high teens year over year in 2021 and up in the low 20s in year over year in Q1 of 2022. So strong growth business tends to have very good margins. And here are two examples. One is for next generation chip manufacturing using X-ray diffraction tools that are quite unique. And on the right, something more on 3D chips that require advanced packaging quality control where we have very unique tools that you probably don't see from us every day, but that are absolutely crucial and enabling for a lot of these new packaging technologies that affect so much of our lives. All right, enough technology after that outlook. In summary, Bruker continues to experience strong demand for our differentiated instruments and solutions across our portfolio. Our project accelerates 2.0 high-growth, high-margin initiatives perform well, and we reiterate our intention to ramp investments for accelerated growth, for example, in proteomics, in spatial biology, in biopharma and applied, as well as in nanotechnology and semiconmetrology. Really firing on many cylinders or all cylinders here. I'm pleased with how well our teams have executed in a challenging supply chain and logistics environment. We benefit from being able to manage a high backlog to navigate that environment very well. And as we move through fiscal year 2022, our high backlog gives us good visibility on growth. So let me now turn the call over to our Chief Financial Officer, Gerald, who will review Brooker's Q1 financial performance and then raise fiscal year 2022 outlook in more detail. Gerald.

Thank you, Frank, and thank you, everyone, for joining us today. I'm pleased to provide more detail on brokers first quarter 2022 financial performance, starting on slide 10. In the first quarter of 2022 brokers reported revenue increased 7.3% to approximately $595 million, which reflects an organic revenue increases 10.5% year over year. We reported gap EPS of 41 cents per share compared to 37 cents in the first quarter of 2021. On a non-GAAP basis, Q1 2022 EPS was $0.49 per share, an increase of 11.4% from $0.44 in the first quarter of 2021. Our Q1 2022 non-GAAP operating income grew 13.3%, and our non-GAAP operating margin increased 110 basis points year over year to 19.5% for the reasons Frank's already reviewed. We finished the first quarter with cash, cash equivalents, and short-term investments of approximately $916 million. During the quarter, we used cash to ramp selected Project Accelerate 2.0 investments, fund capital expenditures, complete several bolt-on technology acquisitions and proteomics, repay a $105 million tranche of our 2012 debt, and fund share repurchases. You may recall that in May 2021, our board approved a two-year share repurchase authorization up to $500 million through May 2023. In the first quarter of 2022, we repurchased approximately 1.6 million shares for about $106 million. As a reminder, in fiscal year 2021, we repurchased 2.1 million shares for approximately $153 million. We generated $77.8 million of operating cash flow in the first quarter of 2022, partially offset by CapEx investments, resulting in $58.8 million of free cash flow in the first quarter of 2022. This represents a $14.5 million decline from the first quarter of 2021, mostly due to the timing of tax payments. Turning to slide 11, shows the revenue bridge for the first quarter of 2022 as discussed earlier. Compared to the first quarter of 2021, BioSpin's first quarter 2022 organic revenue grew in the low single-digit percentage against a difficult comparison due to European gigahertz class NMR mixed headwinds. Nano organic revenue grew in the high teens percentage, resulting from the strength of Nano's academic industrial research and semiconductor businesses. CALID organic revenue grew high single-digit percentage with strong performance coming from the multi-biotyper platform. First quarter 2022 BSI systems revenue increased in the high single-digit range organically, while our BSI aftermarket revenue grew in the low teens organically compared to the first quarter 2021. Geographically and on an organic basis, in the first quarter of 2022, our North American revenue grew in the low 30% range. Asia Pacific grew in the high single-digit percentage, while European revenue declined in the low single-digit percentage growth all year over year. Our rest of the world first quarter 2022 revenue was significantly higher in the low 40% range. Slide 12 shows our first quarter 2022 P&L performance on a non-GAAP basis. Non-GAAP gross margin of 52.7%, increased 140 basis points from 51.3% in the first quarter 2021, principally benefiting from operating leverage from higher volume, revenue mix as our Project Accelerate initiatives performed well, partially offset by supply chain and logistics challenges. First quarter 2022 non-GAAP operating margin of 19.5% was 110 basis points higher than the 18.4% in the first quarter of 2021, driven by growth margin expansion, partially offset by increased sales and marketing investments as a percentage of revenue to support the growth of our higher margin products. BioSpin's operating margin expansion in the first quarter of 2022 had a year-over-year headwind from two European gigahertz class systems in the first quarter of 2021 revenue, which was offset by a gain on the sale of BioSpin property. Given the headwind from lockdowns in China, we expect that our second quarter 2022 operating expense ramp for Bruker will moderately outpace our revenue ramp and result in operating margins declining slightly sequentially from the first quarter of 2022 before expanding sequentially in the second half of fiscal year 22 versus the first half. And with that, we expect the second quarter 2022 non-GAAP EPS to be similar to Q2 2021 non-GAAP EPS. For the first quarter of 2022, our non-GAAP effective tax rate was 32.7 percent compared to 31.1 percent in the first quarter of 2021. primarily due to certain unfavorable discrete tax items. Weighted average diluted shares outstanding in the first quarter of 2022 were 151.4 million, a reduction of approximately 1.8 million shares, or 1.2%, from the first quarter of 2021, resulting from share repurchases over the past 12 months. Finally, first quarter 2022 non-GAAP EPS of 49 cents was up 11.4% compared to the first quarter of 2021. Our cash conversion cycle at the end of the first quarter of 22 was 253 days, an increase of 11 days compared to the first quarter of 2021, resulting primarily from late quarter shipments and receivables timing. Turning now to slide 15, Given the broad-based strength in revenue and bookings growth in the first quarter of 2022 and our record backlog, we're increasing our guidance for organic revenue growth for the year. Our updated outlook for fiscal year 2022 includes organic revenue growth of 7 to 9% year-over-year, an increase of 1% from our prior guidance. We estimate a foreign currency headwind of about 3.5%. stronger than our 2% prior foreign exchange headwind guidance. We expect acquisitions to contribute about 1.5% to growth, up from the prior guidance of 1%. This is expected to lead to reported revenue growth in a range of 5% to 7%, consistent with our prior guidance. The supply chain, logistics, and inflation environments remain volatile and challenging, and we are maintaining our guidance of 30 to 60 basis points of operating margin expansion in 2022 from the 19.4 percent level we delivered in 2021. On the bottom line, we reiterate our non-GAAP EPS estimated range of 229 to 233 for fiscal year 2022, which would represent non-GAAP EPS growth of 9 to 11 percent compared to 2021. We now project a non-GAAP tax rate of approximately 29.5% for fiscal year 2022. Other guidance assumptions are listed on the slide. Our fiscal year 2022 ranges have been updated for the foreign currency rates as of March 31st, 2022. For the second quarter of 2022, Our outlook is for organic revenue growth in the mid to high single digits year over year, subject, of course, to further COVID-related lockdowns in China or other geopolitical risks, which could negatively impact that growth. So to wrap up, Brooker delivered strong bookings, backlog, and solid organic revenue growth in the first quarter, as the teams delivered remarkable performance in a very challenging environment. Demand momentum is broad based across many of our businesses, giving us 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. 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, please We ask that you limit yourself to one question and one follow-up. Operator, we're ready for the Q&A portion.

Ladies and gentlemen, at this time, if you would like to ask a question, once again, you may press star and then 1 to join the question queue. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and 2. Again, that is star and then 1. to join the question queue. Our first question comes from Puneet Sudha from SVB Securities. Please go ahead with your question.

Yeah. Hi, Frank. Thanks for taking the question. So, and first of all, congrats on a strong quarter here. Just first one is really on pricing. I mean, how much contribution are you seeing from pricing in the quarter on instruments and, you know, what's baked into the expectations for in the guide for the full year?

Well, I'll take that if you don't mind, Puneet. It's Gerald. Just fundamentally, one of the challenges we have, of course, from a price realization perspective is that we have quite a bit of backlog and we're exercising through that backlog. So I do think what we see is not so much price realization in the first quarter, although we are expecting to see more in the latter half of the year. As you likely know, this cycle times as we exercise through backlog into actual product revenue takes us usually a quarter or two more significantly than in the NMR side of our business. So I'd say we're not seeing too much price realization in the first quarter, pretty modest, but I would expect to see more as we move through the rest of the year.

Okay, got it. And then on the strong book to build that you're seeing here, maybe could you just elaborate how much of that is NMR, how much of the new backlog that's building is more of NMR and TempStop and other key instruments? Just trying to understand the mix there. And for the four UHF gigahertz magnet, I think you mentioned one coming next quarter, but just wanted to make sure we have the cadence for the full year.

Guneet, I'll take that one. It's Frank. Thank you. So the strength in orders is very broad-based. It is particularly strong in TIMSTOF. It has been quite strong in BioSpin and NMR. It has been quite strong in nanotechnology. But it's almost not fair to single something out because it's really fairly broad-based. Sure, some are growing even faster, but it's really been strong book-to-bill of 1.1 in the BSI segment, and so faster organic bookings growth and even organic revenue growth throughout Q1, continuing our momentum. On the gigahertz question, yeah, there was none in Q1-22. We expect there to be one, the one we just accepted in near Munich in April already as revenue in the second quarter. And therefore, the balance is three more in the second half of the year, and they'll probably be spread over more than one quarter, but we don't know the exact cadence of that yet.

Okay, got it. Yeah, I really appreciate it. And just a quick one, if I could ask on... Really great to see that, you know, the record revenues in semiconductor metrology. Frank, how much of this is coming from sort of new factories being built out and how should we expect that this to, you know, sort of trend through the years as these new fabs are coming on board, you know, across the world?

Yeah, that's a good question. We get asked that frequently. I'm almost glad you asked it. Actually, probably just close to none of that is for new fabs that expand the geopolitical footprint away from Taiwan and most of APAC to much more semiconductor capability that Europe wants to have in Europe and the U.S. wants to have in the U.S., right? And by the way, also Japan wants to have in Japan, that's an additional driver. Those are all more long-term trends. This could be more, I don't know, 24, 25, 26 business. So that's a very good thing because, you know, we think for 22, 23, just on the sheer demand from us all being on Zooms and artificial intelligence and, I don't know, maybe Bitcoin's a little less fashionable. But all the many other trends right now are still driving very strong demand. In fact, the industry is behind demand for 22, and we probably think throughout 23. And as we see it, it may actually line up very nicely with maybe the geopolitical investments in North America, Japan, and Europe playing a bigger role maybe in revenue in 24, 25, 26. So it's actually a very strong long-term picture in nanotechnology as far as we can tell.

Great. Thanks. And congrats again. Thank you. Thank you.

Our next question comes from Derek DeBruin from Bank of America. Please go ahead with your question.

Hi. Thank you. Good morning. This is Peter on for Derek. Could you quantify any impact you saw in China across the first quarter and any headwinds in the second quarter? And I guess could you discuss the extent to which you expect to recover that demand across the balance of the year?

Yeah, I'll take that if you don't mind, Peter. It's Gerald. So generally speaking, we've seen quite remarkable demand in China across both the bookings performance as well as in the revenue line. And this has continued for quite some time, frankly, mostly, not absolutely, but mostly consistently quarter by quarter. And I would say the first quarter is really no exception. here in 22. We are clearly seeing some dampening relative to the lockdowns that are going on currently. I would say this is now speaking with respect to the second quarter as opposed to the first. And I think the concern, of course, is that if this broadens, that puts further risk into the overall execution of our revenue. But I think The way we view it is in a very strong performance from a bookings perspective in China across almost all the individual end markets. And that's very encouraging for us because now it's really about execution and our ability to to do that.

And with that, we think we'll have mid to high single digit organic revenue growth year over year in Q2. Now, if there is a massive acceleration and tightening of lockdowns, that would present additional risk. But, you know, we obviously assumed what sort of the levels that we're seeing today and, you know, have been a little bit more cautious on Q2 accordingly in our color on Q2. We do think that we can catch up for the remainder of the year. We don't see anything at the moment that would push that into next year. So I think it's a quarterly cadence question, and we're a bit more conservative on Q2 accordingly.

Appreciate that. And then, I guess, could you give us maybe a little bit more color on the dynamics flowing through the rest of P&L? I mean, given the strength you're seeing in the top line and the decision to maintain margin EPS guidance, if you could maybe quantify or parse out, you know, supply chain, point of change, impact, and so on to the OP margin, if you could.

Yeah, it's Gerald again. I'll take that. So, just generally on the guidance, we have a number of moving factors, of course, and we're trying to move We're trying to consider the up and downs that go along with that. But I won't go through all the detail, but we do have that information available. And I think you can go through that in more detail with Justin if you'd like. I mean, I guess just generally what I would say is we're pretty comfortable with the guidance that we've laid out. We've baked in a number of pluses and minuses, including some of the supply chain risks that you've just heard about. And we've also considered some of the strengths that we see in our bookings performance into the overall picture, including at the operating margin line. So I think it's pretty clear to us at this stage that our guidance reflects what we understand right now.

Very good. Thank you. You're welcome.

Our next question comes from Brandon Couillard from Jefferies. Please go ahead with your question.

Hey, thanks. Good morning. Frank, let's get your view on your assessment of the global helium supply situation right now and whether you think that's impacting NMR installation timing or perhaps orders or even kind of your own internal supply in terms of your costs.

Yeah, so good question, Brandon. So cost has gone up, and there are some cases where customers' universities are under allocation. They tend to turn off the kind of voluntary or delay the voluntary large helium guzzler experiments in physics first and delay those by a quarter or two. That's anecdotally what we heard at the ENC. The regularly scheduled NMRs or MRIs in hospitals seem to be Not generally affected. It could always be an exception. Our internal investments in CapEx in the last two years now seem very well-timed for our factories in Switzerland, in France, and our superconducting factory outside of Frankfurt in Hanau as well. We've made considerable additional CapEx investments in helium reliquification investments. So our factories are in really, really good shape, and we just anticipated well. You see some new developments, like that single-story gigahertz magnet that we just did a technology introduction that takes three times less liquid helium. So those are, we also, I didn't highlight it on the call, we also just introduced at the end of April a Heliosmart recovery solution. So customers, if they choose to do that and more of them do it, can capture all of the liquid helium that boils off, as we say in the industry, from their superconducting magnets and compress and pressurize it and then send it out somewhere for reliquification, either at their own university or at a regional site or just one of their suppliers. So I think it's difficult, it's manageable, and it's more expensive, so there'll be more of that circular helium economy that we're strongly supporting with our developments and that fortunately we have invested in internally so that our factory and final test situation is in very good shape. So I think that's the answer. It's manageable so far, but we're obviously very proactive with it for both investments as well as in terms of new capabilities for our customers and new services.

Okay, great. Now, I think you said Europe overall down low single business. Is that all due to the NMR installation comp from last year?

Yeah, exactly. Good catch. I mean, Europe, there is a bit, you know, I'd say Europe is a little bit weaker among the three major geographies. That's a little bit slower right now than the others. But in addition, in Q1, we simply had, you know, two gigahertz class systems. So north of 20 million of European revenue that we had in Q1 of 21 that we don't have in Q1 of 22. So don't pay too much attention to that piece. But Europe right now, a year ago, it was about the strongest, and I'd say right now it's among the major geographies. It's slightly weaker than North America or most of APEC. Obviously, APEC, there's country-to-country differences. Thanks.

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

Good morning. Thanks for taking my questions. One for Gerald and then one for Frank. Gerald, could you spend a bit more time kind of talking through the cost-price dynamic you're seeing? It seems like margins were stronger than maybe you anticipated here in the quarter. It doesn't sound like it was price. I guess was it more a reflection of broker controlling supply chain costs? And then I forget if you mentioned, but are you still expecting kind of a 500 to 600 basis points step up in the second half versus the first with respect to op margins?

Yeah, so let's just maybe I'll start with your last part of your question first. So just to clarify, we initially laid out around a 400 basis points change between first half and second half. The expectation is that we'll significantly outperform from an operating margin perspective in the second half. So just to put that back to those numbers. But just relatively speaking, I mean, we did not see much price realization in the first quarter as I mentioned earlier. A lot of this has to do with our, I think, outstanding work that was done by our procurement and supply chain teams to manage through very challenging conditions. This is true for both materials costs as well as logistics, air freight costs. There's a significant number of headwinds related to the supply chain side, and I think our teams just did an outstanding job of navigating through that. And in addition, we did see some other elements in the mix, partly due to our Project Accelerate 2.0 initiatives, which I think is helping to pull that gross margin expansion to another level.

Yeah, I think that's really the key point. That's the fundamental trend at Bruker that you've been seeing. We'll continue to see that we just have more and more higher gross margin systems and solutions and services that have been ramping our gross margin, and that trend continues despite some inflation headwinds right now. Of course. But that's the fundamental driver, and that, at least in Q1, was stronger than even the noise from inflation and logistics spikes that we do see and try to manage around.

Yeah, exactly. So I think that's kind of the storyline we expect to see some further cost issues in the second quarter and our ramp of some of our Project Accelerate activities occurring in the second quarter as well. So that's why we're a little more cautious, I'd say, in the second quarter operating margin, but expect it to re-accelerate in the second half of the year.

Got it. Okay. And then, Frank, can you give an update on what you're seeing from university and government accounts, specifically in the U.S. and Europe? I think you've previously mentioned kind of strong orders from these accounts over the last couple of quarters. I guess, how did academic and government contribute to the double-digit bookings growth here in the quarter, and when would you start to see kind of revenue flow through?

Well, I mean, we're beginning to see that, right? We're beginning to see that. It's obviously not a short wave. It's just a long, long-term trend, and we're seeing that. We saw that in Europe. We now see that in the U.S., see that in China. and some other geographies. We're also, delightfully, our biopharma business, both NMR and MassSpec, is just becoming stronger and stronger. We've added an important additional capability inorganically with our optimal acquisition in the UK on April 1st. That'll add further to how we integrate ours and other vendors' tools for for pharma and biopharma process analytical technologies, Pat, but also, you know, up front on the drug discovery. I mean, we sell an awful lot of Timstops into CROs, both metabolomics and proteomics. We sell a lot of Timstops into, and even Timstops single-cell proteomics research systems into drug discovery, into very large pharma companies and newer biotech companies. and NMR is doing quite well, both of them particularly in the U.S., but also in Europe and also in China. So it's not only the academic business. The biopharma is becoming stronger and stronger for us, and it's also including some other product lines, like molecular spectroscopy for small molecule patents.

So it's a solid picture.

Got it. Thanks for all the color.

Thank you, Josh. Our next question comes from Patrick Donley from Citi. Please go ahead with your question.

Questions. Maybe one more on the supply chain. Obviously, Gerald, you talked a lot about the cost side of that. I'm just curious what you're seeing on that front. It seemed like it was a little more disruptive last quarter. Is it something that's plateaued, it's not getting better, not getting worse, and you guys are just kind of managing through it at this point, escalating? We'd love to see a perspective on what you're seeing on the supply chain side and that risk going forward in terms of what you're seeing.

Well, I wish I could tell you that it's getting better. Unfortunately, I cannot. It's been extremely challenging, and I do need to say there has been a lot of disruptions. you know, in the business. And that's also true in the first quarter relative to this issue. I think what we're starting to see is just as we had disruptions in the pandemic era, we're still working our way through those in the supply chain world. And I think the teams, as I said earlier, have done just an outstanding job. There's still obviously cost pressure in the system, and we're working our way through that. Expect to have you know, hopefully more to say in the latter half of the year, but it's challenging.

I mean, don't imagine anything disastrous. It's not that we're, you know, that something stops our NMR or mass spec business for a quarter. But, you know, we completely acknowledge that there's product lines where for a couple of weeks we can't do very much, but we have, you know, 50 other product lines where we can continue. And so the benefit of being a broad-based company with many good products, excellent demand, very strong backlogs, are just that we can really manage through this. But, you know, we're like the duck on the water. We're kicking very hard under the surface. But it's manageable. It's not getting better this year. And, you know, the lockdowns in China aren't helping and all of that. It's not getting better this year. It's going to be like this all year and maybe well into next year.

I appreciate that. And maybe just a quick one on the orders. I know you talked about the book to build, 1-1. It seemed like double-digit growth on orders across the segment. What was the order growth in the quarter? Was it 10%, 20%? I'm seeing double digits a little bit vague, so I'm just trying to pin that down a little bit if you could.

It varies, obviously, from product line to product line and group to group. That's why we didn't, you know, the 1.1, greater than 1.1 in orders for the BSI segment is correct. And they were all double digits. I know double digits is a broad range in principle. But, you know, some in the teens, some in the 20s, right? But, you know, there's obviously a mix there. And in every single one of them, it was double digits. Yeah, very strong.

Thanks, Mark.

You're welcome, Patrick.

And our next question comes from Jack Meehan from Nefron. Please go ahead with your question. Thanks. Good morning. Frank, I was curious with the new compact 1.0 gigahertz system, what do you think this does for the addressable opportunity for gigahertz class NMR, just demand in the market? And can you talk about from a manufacturing perspective, Are there any efficiencies here that could enable you to expand the number of instruments you're able to deliver in a given year?

I love your question because it's a good one, yeah. So it's not all additive to the demand, but, you know, the 1.1, 1.2 gigahertz demand often for national centers and things like that, right, like the two NANs. systems that had been funded by NSF where we got orders previously. We had announced those. I don't think it has any impact on that. Nobody's considering when they have those big labs and the ability to, and they all have helium reliquifaction capabilities by now anyway. So it's really not affecting that. There is a distinct pocket of demand that's small so far at 1.0 gigahertz, because so far these were also these big two-story systems. Now, those that are in the pipeline will continue to order, and they're simply delighted when we told them they're getting a smaller magnet with less footprint and less consumption. But I think, importantly, and to your question finally, I think it really broadens the demand. There's a lot of single PI or more typically maybe a few co-PIs at a medical school or at a major university or a Max Planck Institute or something like that, who wouldn't get one of these national centers, but, oh, wow, for three or four PIs plus a bunch of their cancer research colleagues, et cetera, they can justify it. So I think we got some people very interested in asking for budgets that previously hadn't considered it, and that was just all anecdotal at that conference, that NMR conference in Orlando where we introduced that. We will also... see some high-end biopharma and pharma demand that previously wouldn't have considered one of these two-story systems. I think it's at least more than half of that 1.0 gigahertz demand. I think it's additive, but it's not all additive. On the other part, it's really a separate production and final test line, so it just completely is additive to our capacity. This comes out of our normal Swiss magnet production line, everything under three tons. I don't want to bore you with that. But that's a normal production process, not so different from, let's say, 800 megahertz systems. And so even if we got a bunch of orders for this new magnet, it would not take away from our capacity for the two-story 1.1, 1.2 gigahertz at all, or vice versa. So we essentially... you know, more than doubled our production capabilities in that sense by putting, taking this new magnet if and when we get orders straight out of a very different, a much more compact and easier production line. Great.

And then two follow-ups on Khaled. First, could you just tell us what the COVID sales were in the quarter? And then second, you know, recently had a press release talking about new liquid array, multiplex PCR assays. Um, just give us some color on the positioning here versus other multiplex players and just what you're expecting, you know, in terms of a growth ramp from some of these investments.

So, yeah, thank you. So I'm in COVID testing, which as you know, we only do in Europe and Africa and it's all PCR, not the, not the more popular antigen testing that's declining. and year over year was declining considerably. It then ended up not declining quite as much as we had anticipated, so it was a little stronger, I think a million stronger in Q1 than what we had anticipated. It is at this point relatively de minimis. I think it may be something like 45 million per quarter or something like that, so it's not a big number. And it has been declining. We expect it to actually hang in there at that level or maybe come down a little bit further. But it's almost a non-issue for us. From that same R&D side and factory in the molecular diagnostics business, that's where our tuberculosis business and other business, and that's where these new liquid array panels are coming from that indeed go into that multiplex syndromic panel market. These are not point of care. These are for the central lab or for the lab at the hospital or the local. So it's lab, but it is much more affordable in that sense. We think it's really second generation. These don't cost $100 or $150 or euro, but, you know, sort of in that $30 or euro range. So much more affordable, nice automation. The initial ones are for the very broad range of tuberculosis resistance capabilities. We have combined a very nice panel of seven different sexually transmitted diseases that we can all do in one test. Very often patients are tested for one or two, and because there is no capabilities, the other ones don't get tested for, but they're also out there, and they very often get overlooked. And we have in the works something on gastrointestinal that may launch. When I say launch, by the way, these are always European launches initially. So you have a series of further syndromic panels that we'll be launching this year and next. And we're building that up at, you know, we're democratizing that. I know it's such a term that's overused, but let me use it anyway. and it just makes it much more affordable and also gets into some new areas that previously hadn't been addressed by other people's syndromic panels. But I think it's just going to be much more affordable, especially in the lower reimbursement European markets, but then later on eventually also in the U.S.

Awesome.

Thank you, Frank.

You're welcome, Jack. Good questions. And our next question comes from Rachel. That install from JP Morgan. Please go ahead with your question.

Hey, thanks for taking the questions, you guys. The first question is on Spatial. You had candidly launched that next-gen chip during the quarter, so can you talk about any early feedback that you've received, really how that launch is progressing so far, and then can you also give us an update on your R&D progress for Acuity?

Ah, two more good questions. Spatial. Right. So in Spatial at the AACR, we... we launched the canopy cellscape system. I think it was very well received, sort of with amazement, because it is so much more compact and smaller than some other systems that were shown there early on. So very, very good microfluidics, very good optical design, retaining its very good quantitative capabilities that I think are really, really important. It doesn't get stressed enough. Initially, people just look at the pictures, and yeah, we have single cell and subcellular resolution. But beyond pretty pictures, it has to be quantitative single cell and spatial biology. We can do that with high throughput. We can look at, you know, 10,000 or 100,000 of cells simultaneously. So it's a terrific system. I think it'll be very, very competitive. I think it's more of a second half story where it begins to ramp and go into early access sites and so on with a full commercial ramp probably next year. but it's a terrific product and technology position. And importantly, Rachel, we also now have more and more panels that are preconfigured. Yes, you have the flexibility to use your own antibodies or to add your own antibody with a bit of apps work, but it really, these preconfigured panels for mouse and man on immuno-oncology and neurodegenerative research, some of them are out, some of them are in beta testing. So it's a very important part of our strategy. To Acuity, we do not expect any product launches until this year, but we're making excellent progress there also in systems and panel and software and other designs. I think this really high resolution and even super resolution spatial genomics where you really can explore the three-dimensional position and structures within the cellular nucleus of the chromosomes, interactions on a chromosome, between chromosomes, topographically associated domains and all of these things. All these things that so far have been mostly overlooked in genomics because they couldn't be measured and we have this simplification that there's a bunch of chromosomes which are 1D arrays of genes and and regulatory elements, and it's far more complex. It's really a three-dimensional world in that nucleus. And to understand fundamental cell biology, but particularly cancer biology, it seems like this is awfully important. So we're... It seems like we were disconnected on the web, but we still seem to be on here verbally. So, yeah, Acuity is a 2023 and beyond story. Canopy will ramp in the second half, and I think it's going to be the best system that's out there.

Great. That's helpful. And then last one from me, just on M&A. So you guys have done a number of more talk-in deals, Pre-Omics, ProLab, PEPSEP. So can you just talk about how those deals have been performing relative to your expectations? And then how are you thinking about capacity to do deals in the back half of this year as well? Thank you.

Good question. So, yeah, we did the optimal acquisition on April 1st. That's very much for process analytical technology and lab integration and manufacturing and testing integration for biopharma. A big way for us to connect our different systems and also have a bigger footprint in biopharma. We did the IonSense acquisition, which gets into sort of more point-of-need acquisition. analytics in from forensics to food testing so that opens up a new world but but a lot of these don't lead to immediate new products so we have to work through some of these things now for you know for a while to then come out with new solutions and you'll see more solutions this year and next that are based on these acquisitions you know some of the things on pre on pre omics and so on and pep stuff that you mentioned from q1 In proteomics, they're available immediately, but then again, more integrated solutions will take some time, but we're very, very pleased with these acquisitions. And yes, we are judicious in how we invest, so that's why we have capacity to consider additional technology or bolt-on acquisitions where they are a good fit for later in the year, for next year. We are certainly active in looking at what could further enhance our project accelerate initiatives.

Operator. Great, thank you. Operator, maybe we have time for one more question.

And our final question today will come from Daniel Arias from Steeple. Please go ahead with your question.

Hey, thanks for getting this in. This is Daniel Macek on for Dan Arias. So maybe just to start with a broader question, just drilling into Project Accelerate 2.0 initiatives. Just, you know, guidance going up a point on the beta. I was wondering what the main drivers of outperformance specifically within Project 2.0 are that were maybe coming in ahead of the outlook slide out at your investor day. and maybe it's all the above, but just wanted to get some thoughts specifically across those growth drivers compared to their outlooks.

Thanks. Thank you, Daniel. It's really pretty much across. I mean, proteomics and lipidomics, metabolomics are doing very well. Structural biology, obviously, because of the timing of gigahertz systems and so on, was weak in Q1, but, you know, overall it's doing well. really very well. We're doing very well in nanotechnology, semiconductor metrology, microelectronics packaging, and so on. We're doing very well in microbiology, clinical microbiology that's been growing beautifully in the U.S., but also, again, in Europe. A little bit less PCR, COVID testing, but, you know, it's never been such a big part of what we're doing. And this has been more the transition year for our molecular diagnostics as we launch some of these liquid array panels. Some have been launched for Europe. Some will come out later this year. It's going to be the bigger commercial impact will be next year and beyond. And then eventually, once we launch those in the U.S., aftermarket is doing well. Biopharma is doing incredibly well, including biopharma proteomics with Tim's stuff, but also with NMR. And yeah, we're doing well in the applied markets with some food testing to forensics to Yeah, we don't do much environmental testing, but that's just – so it's really very broad. And also, you know, just industrial and academic strength is good, really good.

Okay, that's helpful. And then kind of related to that, maybe more of a chance to brag, but last quarter you mentioned supply chain, logistics, inflation, these things could be limiting the growth potential. I mean, growth is obviously really strong in the quarter, so – I'm just wondering if you think that's still the case and if that's expected to continue throughout the full year, maybe the 2023 like you mentioned. And just to clarify, too, when you're saying limiting the growth potential, it's not saying that the outlook that you laid out at the investor day is at all at risk. It's more so that there's just some more obvious room for upside where some of these headwinds are potentially limiting that.

That's very perceptive. I fully agree. Yeah, I'll sound like a broken record all year. Supply chain, logistics, inflation, those are risks. And, you know, we're in a good position to manage through them, but we have to manage it very hard. And, you know, there could always be a quarter of stumble. That's one of our risk factors. In Q2, we are a little bit more conservative because of the China lockdowns, right? We hope we've captured that in our color for Q2. But for the year, we feel good. We have so many different drivers and capabilities that when we stumble in a couple of places and get slowed down, we just accelerate elsewhere. So hopefully, you won't see it as an investor. And so far, it didn't trip us up last year in the second half, and it certainly didn't trip us up in Q1. But thank you. All right.

Well, that brings to an end the Q&A portion of the call. So I want to thank everyone for joining us today. Brooker's leadership team looks forward to meeting with you at an event or speaking with you directly during the second quarter. Please feel free to reach out to me to arrange any follow-ups. Have a great morning. Thank you.

Ladies and gentlemen, with that, we will conclude today's conference call. We thank you for joining today's presentation. You may now disconnect your line.