Bruker Corporation

Good morning and welcome to the Brooker Corporation's fourth quarter 2022 earnings conference 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. To ask a question, you may press star then on your telephone keypad. To withdraw your question, please press star then two. Please note that this event is being recorded. I would like to turn the conference over to Justin Ward, Senior Director of Investor Relations,

and corporate development. Please go ahead. Thank you, Anthony, and good morning, everyone. I would like to welcome everyone to Bruker Corporation's fourth quarter and full year 2022 earnings conference call. My name is Justin Ward, and I am Bruker'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 presentation 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 Spruiker's safe harbor statement, which is shown on slide two of the presentation. During this 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 elevated geopolitical and energy 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 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 9th, 2023. 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 2023 financial results, expected in early May 2023. 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 2022 in more detail. And he will share our fiscal year 2023 financial outlook. Now, I'd like to turn the call over to Bruker CEO, Frank Laukeen.

Thank you, Justin. Good morning, everyone, and thank you for joining us on today's earnings call. In fiscal year 2022, Bruker achieved solid operating and financial improvements with 10% organic revenue growth, 150 basis points gross margin expansion and 11% non-GAAP EPS growth, all with a non-GAAP return on invested capital above 20% and while investing significantly in proteomics and spatial biology. We have made several key acquisitions and investments in the last 13 months in order to expand the breadth of our proteomics capabilities into proteomics consumables, automation software, and expert proteomics drug discovery services, and also in order to enter attractive new markets in cancer research tools and neuroscience research tools and solutions. Our teams also have been effectively navigating supply chain and geopolitical challenges, which are gradually improving but not fully resolved yet, and probably will not be fully resolved until the end of 2023 and in some areas of electronics even into early 2024. Most importantly, we are advancing our project Accelerate 2.0 high growth, high margin initiatives with, as you know, a particular focus on the large opportunities in proteomics and the related field of spatial biology, while also investing in operational excellence, productivity, and our capacity growth for the next 10 years. Bruker again has introduced key life science tools innovations in 2022 and demand for our high-value solutions and differentiated instruments is strong. In fiscal year 2022, our scientific instrument segment generated double-digit year-over-year organic bookings growth and built additional backlog for good visibility into the year. In 2023, we intend to drive strong revenue growth and another solid EPS increase while further expanding our focus strategic investments in the recently acquired additional proteomics capabilities and in our other key project accelerate 2.0 initiatives. Our medium term goal is to continue to transform Bruker into a high revenue growth and consistent double digit EPS growth company with significant further growth and operating margin expansion potential. Turning now to slide four, broker solid 8.9% year-over-year organic revenue growth in the fourth quarter capped off another strong year for the company. Continued demand for our differentiated high-value solutions drove robust performance in bookings and revenues, and our fourth quarter 22 scientific instrument segment book-to-bill ratio was again greater than one. For the full year 2022, our BSI segment organic bookings and backlog both increased in the double-digit percentage year-over-year. For the fourth quarter of 2022, the BSI segment order bookings continued to grow nicely driven by broad-based customer demand with demand in Europe being particularly strong. Brooker's Q4 22 reported revenue increased 3.6% year-over-year to $708 million. This was in comparison to a strong prior year Q4 of 21 and with a 7% Q4 22 headwind from FX. So on an organic basis, our Q4 2022 revenues increased 8.9% year-over-year. Our Q4 2022 non-GAAP gross margin increased 140 basis points year-over-year to 52.6%, while our non-GAAP margin was 21.0%, the same as in the fourth quarter of 2021. Despite inflation headwinds, our gross margin expansion is clearly benefiting from Project Accelerate 2.0 margin mix, are operational excellence, productivity gains, as well as volume leverage, pricing, and currency tailwinds. In the fourth quarter of 22, Bruker reported gap-diluted earnings per share of 66 cents, up 32%, compared to 50 cents reported in the fourth quarter of 21. On a non-gap basis, fourth quarter 22 diluted EPS was 74 cents, up 25% from 59 cents in the fourth quarter of 21. In summary, the fourth quarter of 22 was a quarter of good execution and continued broad demand for our differentiated portfolio. Moving on to slide five, we show broker's performance for the full year 2022. Our revenues increased by 113 million year over year or by 4.7%. to $2.53 billion. On an organic basis, fiscal year 2022 revenues grew 10.2% year-over-year. For the full year 22, book-to-bill for Brooker's three scientific instruments group were all above 1.1. Geographically, our 22 BSI order bookings were led by double-digit organic growth in Asia Pacific, South Asia, and Australia and New Zealand, the APAC region as we abbreviate it, and with mid-teens percentage organic growth in Europe and Middle East Africa, or EMEA, and mid-single digit percentage organic order bookings growth in the Americas. In fiscal year 2022, we experienced particularly strong organic growth in our proteomics, biopharma, semiconductor metrology, and industrial research markets. In fiscal year 2022, we delivered double-digit organic revenue growth, 150 bps year-over-year gross margin expansion, 60 bps year-over-year operating margin expansion, and double-digit percentage non-GAAP EPS growth. Our non-GAAP return on invested capital of 24.3% was again well above our long-term target of ROIC greater than 20%. And this continues to confirm our differentiated strategy and entrepreneurial management process and culture are working. Finally, we're also pleased with our 7% year-over-year non-GAAP EBITDA growth, bringing 2022 non-GAAP EBITDA to $547.5 million and the related non-GAAP EBITDA margin up 40 bits to 21.6. So please turn to slide six and seven, where we highlight the full year 2022 performance of our three scientific instruments groups and of our best segment, all on a constant currency and year-over-year basis. In 2022, BioSpin Group revenue grew in the high single digits percentage year-over-year to $697.7 million, with strong growth in its services and support revenues, as well as strong growth in preclinical imaging and a notable contribution from our biopharma process analytical technology software acquisition, Optimo. Rooker Biospin recognized revenue on four gigahertz-class NMR instruments in 22, consistent with four systems recognized in 21. You may have seen our press release last week in which we detailed the customer acceptance of the first two 1.0 GHz NMR systems already in the fourth quarter of 2022, one at RIKEN in Japan and one in Barcelona, Spain. These acceptances were ahead of schedule as this new compact single-story 1.0 GHz product launch is technically going really very well. It resulted in some 1.2 GHz installations however moving to this year, 2023, And in 2023, we again expect to install four gigahertz-class NMRs. And by the way, none are expected in the first quarter of 2023. I know some of you are following that quarter by quarter. Moving on, for the full year 2022, CalID group revenues increased in the high single-digit percentage to $822 million, with continued growth in our life science mass spectrometry business and notable strengths in proteomics applications and our TIMSTOF portfolio with now more than 600 units installed in customer labs. We continue to experience some supply chain delays, however, slowing revenue execution in CALIT and hence the backlog went up. Our TIMSTOF platform saw very robust demand in applications for 40 proteomics, PTMs or epiproteomics, as well as single-cell proteomics and mass spec imaging all on the various models of the TIMSTOPS platform. Our microbiology and molecular diagnostics revenue was up slightly year over year as aftermarket strength offset modest instrument demand, which faced difficult comps and comparables from 2021. Moving on to slide seven now, full year 22 broker nano revenues grew in the high teens, Our growth star, high-teens percentage to 787 million. Nano's revenue growth in semiconductor industrial markets was particularly strong. Our nanosurfaces division drove the nanogroup strength, while X-ray and nanoanalysis divisions also grew further versus 2021. Nano's microelectronics and semiconductor metrology tools performed well in 22, with strong bookings and a strong backlog that provide us with good visibility into 2023. Brooker Nano life science fluorescence microscopy showed strong year-over-year growth as a result of product innovation and life science research demand, and that's also where we have made some additional acquisitions I'll discuss in a moment. So last but not least at all, fiscal year 22 best revenue grew in the mid-teens percentage, net of intercompany eliminations driven by contributions from big science, clean energy, research, and robust demand for our MRI superconductors by our MedTech OEM customers. Best superconductor demand appears healthy, but we continue to experience supply chain challenges there as well due to some material shortages. Moving to slides eight and nine now, we continue to make good progress with our project Accelerate 2.0 initiatives, which in 22 now represent 56% of our total revenue. On slide eight, we highlight two recent acquisitions, Inscopix and Diagnosis. Inscopix is a part of our fluorescence microscopy business, although it's a very specialized way of doing life animal fluorescence microscopy. And Inscopix has really generated and pioneered the field of fundamental neuroscience brain circuitry research So this is not molecular and this is not just behavior. This is this crucial in between that we need to understand brain function, in vivo brain function much better. They had about 20 million and 22 revenues. Their growth margins are well above 60%. And while this year they only have a single digit EBIT margin because they're investing a lot and we support that, we expect to have not only a double-digit revenue CAGR, but also to become accretive to operating margin over time and become one of our more profitable businesses over a few years. But right now, they're very much in growth and fast investment mode. Somewhat similar, but also slightly different story on diagnosis, where we did go into this specialty drug discovery and development research services, or CRO services, Not a general strategy for us, as you may know, but very much beneficial in the specialty proteomics services field, where, by the way, diagnosis also has some very key consumables kits and software. So they're a mix of CRO, drug discovery, and proteomics specialty tools businesses. They had about $15 million in 2022 revenue. We're also expecting them to have a long-term double-digit CAGR in the double digits. And this year, in 2023, because of significant investments that we support, including their rollout of their U.S. facility, we do not expect them to be profitable. But over time, we think they will also then become accretive to our operating margin over time. This will take a few years. but a very key additional acquisition in proteomics. Moving on to slide nine, just very briefly, something that you probably don't have much visibility on, and we had a press release on this in December, but many of our technologies within BEST are not only used for high-energy physics experiments or big science or MRI by our MRI OEM customers, but increasingly also by cleantech as cleantech technologies under development. And here are examples of contracts that we have received for over $50 million for superconducting materials from an Asian pilot plant on fusion, magnetic confinement fusion pilot plant, as well as from ITER indirectly for something that is part of the diverter. I don't expect you to be experts in how magnetic fusion and ITER work. But those are the parts of the heater machine that have the highest heat and radiation load. We have some very specialized materials there and got those long-term contracts. By the way, these are all multi-year contracts. This will not all be 23 or 24 revenue. Superconductors also may play an increasing role in offshore 20 megawatt and larger wind turbines. The investment in Europe, in Asia, and particularly in the U.S. that are planned for offshore wind are enormous. And larger, more efficient wind turbines probably will get away from rare earth materials because it gets too heavy. It also is only sourced in one country, China in this case. And so there may be a bright future for superconductors in offshore wind turbines. More of an outlook for some future growth areas on which you probably haven't had much visibility. So let me wrap up on slide 10. Illustrates how our revenue mix continues to improve. Project Accelerate 2.0 now presents 56% of our revenues. Year by year, the changes are incremental, but if you look at this at the last pre-COVID year, 2019, it's up from 46 to now 56%. This, along with operational excellence, obviously advances our growth and our operating margins and opens up very large new tents for us, particularly the large opportunities for this decade and the next in proteomics and spatial biology. We're still an instruments company and proud to be that one, an instruments company, because that's where we innovate and create new markets. But our recurring revenue has advanced from the mid-20s percentage to 30%, as you see in the lower left. And our geographic balance has really changed dramatically with fast growth, particularly in the Americas. to where Americas and EMEA are at parity at about 33%, and very, very similar to our broader APEC South Asia revenue, which is about 34% of Rupert's total global revenue. Also quite a different picture than from a few years ago. Well, let me wrap things up. Summary. During 2022, Bruker again made excellent progress. We closed several key technology and capabilities acquisitions, particularly in fluorescence microscopy and neuroscience and proteomics in the last 13 months. And we are expanding the breadth and depth of our capabilities, as well as entering new attractive markets, as I've referred to earlier. Very proud of the agility and responsiveness of our teams in addressing the supply chain challenges. Moving forward, our high backlog for 2023 gives us good visibility into another promising year ahead. And in 2023, we intend to combine rapid revenue growth, further gross margin expansion, and solid EPS growth with additional strategic R&D and commercial investments, particularly in proteomics and spatial biology. And for 2023, we expect to reach our previously announced medium-term target of R&D investments of 10%, of revenues, which is a 70-bit step up or increase from 9.3 in 2022. So we are really investing very significantly while improving our financial performance year over year. It's a good strategy. It's a good process. And with that, let me turn the call over to our CFO, Gerald Herman, who will review Brooker's financial performance and outlook in more detail. Gerald.