Bruker Corporation

Good day, and welcome to the Bruker Corporation first quarter 2023 earnings conference call. All participants will be in a 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 one on your touchtone phone, and to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Justin Ward. Please go ahead, sir.

Good morning. I would like to welcome everyone to Bruker Corporation's first quarter 2023 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 Bruker'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 be making forward-looking statements regarding future events and the financial and operational performance of the company that involve risks and uncertainties, including those related to geopolitical risks 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 on our Form 10-K for the period ended December 31st, 2022, 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, 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 second quarter 2023 financial results expected in early August 2023. You should not rely on these forward-looking statements as necessarily representing our views or outlook as of any date after today. With that said, 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 2023 financial outlook. Now I'd like to turn the call over to Brucker's CEO, Frank Laukeen.

Thanks, Justin. Good morning, everyone, and thank you for joining us on today's first quarter 2023 earnings call. Bruker achieved an excellent start to the year and I commend our team members globally for their hard work and contributions. We are advancing our project Accelerate 2.0 high growth, high margin initiatives with particular focus on the large opportunities in proteomics and spatial biology, while also investing in operational excellence, productivity, and our growth capacity for the next 10 years. Turning to slide four, in the first quarter, Bruker posted strong organic revenue growth of 17.6%. The robust demand for our differentiated high-value scientific instruments and life science solutions was relatively broad based across the portfolio, and bookings and backlog for Bruker have remained strong. For the first quarter of 2023, Bruker's revenue Revenues increased 15.2% year-over-year to $685.3 million despite a currency headwind of minus 4.5%. On an organic basis, revenues increased 17.6% and acquisitions added 2.1% to growth, which implies first quarter constant exchange rate growth of 19.7% year-over-year. This included 18.4% organic growth in our scientific instrument segment and 9.7% organic growth in our best segment, net of intercompany eliminations. Our first quarter 23 non-GAAP growth margin increased 70 basis points year over year to 53.4%, while our non-GAAP operating margin was 20.3%, an increase of 80 bps year-over-year. Our strong performance on the top line drove margin expansion from volume leverage despite our stepped up investments in commercial and R&D capabilities. The strong revenue growth combined with margin expansion resulted in non-GAAP operating profit growth of 20.4% year-over-year in the first quarter. In the first quarter 23, Brewker reported gap diluted EPS of 52 cents compared to 41 cents reported in the first quarter of 2022. On a non-gap basis, first quarter 23 diluted EPS was 64 cents, an increase of 30.6% from 49 cents in the first quarter of 22. Our trailing 12 months return on invested capital was 24%, a metric that reflects well upon the differentiated broker management process and our focus on disciplined entrepreneurialism and organic growth, supplemented by strategic acquisitions of complementary skills and technologies. In summary, the first quarter of 23 was an excellent quarter with revenue growth across all broker scientific instruments groups with continued strong bookings as well as ramping investments in Project Accelerate 2.0, particularly in proteomics. Please turn to slides five and six now, where we highlight the first quarter 23 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 23, the BioSpin group revenue of 180 million grew in the high teens percentage on a constant currency basis, even without any gigahertz class revenue in the first quarter. BioSpin saw robust growth in revenues across its full portfolio, including NMR and MRI preclinical imaging. Notably, we received two orders from the United Kingdom for 1.2 GHz NMRs for life science and green tech materials research. Please note that we now do not expect any GHz class revenue in the first half of 2023, but after some system final test delays, we now expect three or four GHz class NMR systems in the revenue for the second half of 2023. For the first quarter of 2023, the Kelley Group revenue of $237 million increased low 20s percentage on a constant currency basis with strong life of science, mass spec, and vibrational spectroscopy businesses. Our Timstuff platform continues its adoption in 4D proteomics, epiproteomics, and multiomics. In the first quarter, we announced key further capability enhancements and had excellent year-over-year bookings growth. Please turn to slide six now, first quarter. Bruker Nano revenue was $210 million and grew in the low 20% on a constant currency basis. Nano's academic, industrial, and green tech research and high-end semiconductor metrology revenues all remain strong. Revenues for advanced X-ray and Nano surfaces tools also delivered strong growth in the quarter. Nano's microelectronics and semiconductorology tools performed well with strong bookings and backlog. Life science fluorescence microscopy revenue was up sharply on product innovation and strong research demand, as well as our InScopix acquisition, which we did in the fourth quarter of last year. Finally, first quarter best revenues grew in the high single-digit percentage net of intercompany eliminations, driven by share gains and strong superconductor demand by MRI OEM customers, but meaningfully constrained by supply chain challenges. Moving to slides seven and eight now. On slide seven, we just highlight the two new orders for 1.2 gigahertz NMRs that we received recently. Interestingly, they're both used for structural functional biology and life science research. but also for a lot of green tech and materials research in the UK. These systems will be placed at the University of Warwick and University of Birmingham, which interestingly also both already have Bruker 1.0 gigahertz NMRs. This is really a UK scientific infrastructure investment, not only for these two universities that host the systems, but really will be used broadly by the UK scientific community. I think it's really quite exemplary. And it is interesting, of course, to see the life science research, but also how much materials, biofuels, energy storage research is being done at these universities. I won't read them, but I draw your attention to the two quotes that are on slide seven. They're actually very self-explanatory and very good. Moving on to slide eight. having certain sample prep and software innovations that support our Tim's Talk 4D proteomics business. On the left, you see an innovation by our friends and majority-owned business, Preomics, out of the Munich area. And it's really a new workflow, but it's a very important one. Their very compact tabletop benchtop system, the beatbox, is now also qualified for, importantly, for tissue proteomics for an FFPE workflow. And a gentleman from the University of Copenhagen said, this breakthrough now allows us to process large cohorts of FFPE tissues quickly, reproducibly, and with greater precision, enabling large-scale tissue biobank projects. The beatbox gives excellent, deep, unbiased proteomics results for pathology research in this particular case. So this is an important further enhancement of our consumables and automation and sample prep business at Preomics. Switching to software in support of immunopeptidomics, which is very important in research and I think now for the first time has reached the sensitivity and throughput levels where it could really be used on small tumor biopsy samples. We collaborate with an external Canadian company that provides the NOVOR algorithm for AI-informed and GPU-enabled immunopeptidomics. For those of you, as a reminder, immunopeptides are very important in immuno-oncology targeting. They're also not expressed in the genome, so you really have to sequence them de novo. And doing that at scale with sensitivity and excellent software is another important area in this case in immuno-oncology research and in the future hopefully also in immuno-oncology applications in the clinic. Right, after this science excursion, I'd like to go back and just summarize. Bruker again made excellent progress and continues to experience strong demand for our differentiated instruments and solutions across our portfolio. Our project Accelerate 2.0 high-growth, high-margin initiatives performed well. We reiterate our intention to ramp investments for accelerated growth, especially in proteomics, spatial biology, biopharma and applied markets, as well as in Semicon metrology. Very pleased with how well our teams have executed to begin the year. As we move through fiscal year 2023, our high backlog continues to give us very good visibility, and we are raising our revenue growth and EPS guidance for the full year 2023. So with that, let me turn the call over to our CFO, Gerald Herman, who will review Brooker's first quarter financial performance and raise fiscal year 2023 guidance in more detail. Gerald.

Thank you, Frank, and thank you, everyone, for joining us today. I'm pleased to provide a little more detail on Bruker's first quarter 2023 financial performance, starting on slide 10. In the first quarter of 2023, Bruker's reported revenue increased 15.2% to approximately $685.3 million, which reflects an organic revenue increase of 17.6% year-over-year. The reported GAAP EPS is 52 cents per share, compared to 41 cents in the first quarter of 2022. On a non-GAAP basis, Q1 2023 EPS was 64 cents per share, an increase of 30.6% from the 49 cents we posted in the first quarter of 2022. Our Q1 2023 non-GAAP operating income grew 20.4% and our non-GAAP operating margin increased 80 basis points year over year to 20.3% for the reasons Frank's already reviewed. We finished the first quarter with cash, cash equivalents, and short-term investments of approximately $600 million. During the quarter, we used cash to ramp selected Project Accelerate 2.0 investments, fund capital expenditures, complete a majority acquisition in proteomics, and fund share repurchases. In the first quarter of 2023, we repurchased approximately 315,000 shares for about $22 million. As a reminder, in the full year of 2022, we repurchased 4.2 million shares for approximately $265 million, which continues to favorably impact EPS for the full year of 2023. We generated $87.5 million of operating cash flow in the first quarter of 2023, partially offset by capital expenditure investments, resulting in $62.5 million of free cash flow in the first quarter of 2023. Slide 11 shows the revenue bridge for the first quarter of 2023 as discussed earlier. First quarter 2023 BSI systems revenue increased in the mid-20% range organically, while BSI recurring revenue grew in the high single digits organically compared to the first quarter of 2022. Geographically, and on an organic basis in the first quarter of 2023, Our Americas and European DSI revenues grew in the low double digits, while our Asia Pacific revenue grew more than 30% all year over year. Our rest of world first quarter 2023 revenue declined slightly. Slide 12 shows our first quarter 2023 P&L performance on a non-GAAP basis. Non-GAAP gross margin of 53.4%. increased 70 basis points from 52.7 percent in the first quarter of 2022 benefiting from operating leverage from higher volume higher project accelerate mix and tailwinds from pricing and foreign exchange partially offset by supply chain headwinds first quarter 2023 non-gap operating margin of 20.3 percent was 80 basis points higher than the 19.5 percent in the first quarter of 2022 driven by solid gross margin expansion and volume leverage, despite a continued Project Ashore 2.0 investment ramp. For purposes of your quarterly modeling, we expect our operating expense ramp in the second quarter of 2023 to moderately outpace our revenue ramp and result in an operating margin decline sequentially from the first quarter of 2023 before expanding again in the second half of the full year of 23. This is in part due to two gigahertz class NMRs that we previously expected in the second quarter of 2023 revenue are now expected to shift into the second half of 2023. And with that, we also expect our second quarter 2023 non-GAAP EPS to be down sequentially, but up by mid to high single digit percentage compared to the 45 cents non-GAAP EPS we posted in the second quarter of 2022. For the first quarter of 2023, our non-GAAP effective tax rate was 27.8%, compared to the 32.7% in the first quarter of 2022. Weighted average diluted shares outstanding in the first quarter of 2023 were 147.6 million, a reduction of approximately 3.8 million shares, or 2.5% from the first quarter of 22, resulting from share repurchases over the past 12 months. Finally, first quarter 2023 non-GAAP EPS of 64 cents was up sharply by 30.6% compared to the first quarter of 2022. Turning now to slide 15, given the strength in revenue and bookings in the first quarter of 23 and our record backlog, we're increasing our guidance for the year. Our updated outlook for the full year of 2023 includes raising our revenue guidance to a range of $2.83 to $2.88 billion. This implies organic revenue growth of 9 to 11% year over year, an increase of 1% from our prior guidance. We estimate a foreign currency tailwind of about 1% down from the 1.5% foreign exchange tailwind we estimated in February. We expect acquisitions to contribute about 2% to growth, up from the 1.5% we estimated earlier. This leads to reported revenue growth in a range of 12 to 14 percent, an increase of 1 percent from prior guidance. We continue to expect to deliver solid gross margin expansion and operating profit growth in 2023 with a previously explained transitional decline in operating profit margin. On the bottom line, we're raising our non-GAAP EPS estimated range by 3 cents to 255 to 260 for the full year of 2023, which would represent non-GAAP EPS growth of 9 to 11 percent compared to 2022, up from our prior guidance range of 8 to 10 percent EPS growth. We project a non-GAAP tax rate of approximately 28 percent for the full year of 2023. Other guidance assumptions are listed on the slide. For our full year 2023, ranges have been updated for foreign currency rates as of March 31, 2023. To wrap up, Brooker delivered excellent financial improvements in the first quarter of 2023, with strong organic revenue growth, continued booking strength, and excellent EPS growth. Hopefully, you'll join us in person or virtually on June 15, our planned Investor Day, to learn more about Project Accelerate 2.0 key initiatives and how they're expected to drive our medium-term growth and profitability outlook. And with that, I'll pass it back 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. Operator?

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. And if you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then two. And again, please limit yourself to one question and one follow-up. And if you have further questions, you may re-enter the question queue. And our first question will come from Derek DeBruin with Bank of America. Please go ahead.

Hi, good morning. This is Peter on for Derek. Certainly appreciate there's a lot of uncertainty, but given the 1Q organic growth upside and the 2Q comp, Do you just elaborate on your approach to the updated organic growth guidance for 23? Are you just exercising prudence here by not raising that a bit more? Thanks.

Yes, of course, we're exercising prudence. Good question. I mean, you know, it's still early in the years, and I think it's a good raise. So we think that's prudent under the circumstances. You also saw that our Q2 sequentially will be a little bit weaker. So that makes sense to us.

Okay, and can you just kind of give us an update and remind us how long the orders translate, given the nature of products and current state of the supply chain? Is it fair to assume that much of the order growth you saw in the first quarter is going to convert generally to revenue in 2024? Or kind of how would you frame that for us?

Yeah, it very much depends on the product line. I mean, you know, some benchtop systems, of course, will still turn into revenue this year. Indeed, some NMR systems or other floor standing or larger semiconductor metrology systems where orders came in or additional orders came in. Some of that now is actually going into 2024, but different product lines have different delivery times. All of them right now have excellent backlog and have generally seen very strong bookings again in Q1.

All right. And then do you have any update on the status of the loan program in China by chance? And then that is it for me. Thank you.

Sorry, that was on the loan program in China. Is that right? Yes, correct.

Yeah, we've benefited from that significantly in orders in Q1 and mostly in our high-end instrumentation, NMR, mass spec, but also some high-end fluorescence microscopy and IR systems. So we got good orders from China, very good orders from China in Q1. All right.

Thank you, guys. The next question will come from John Sorbier with UBS. Please go ahead.

Hi. Thanks for taking the question. Maybe on the previous question there on the backlog, would you be willing to provide any color in just what both the bill looked like for the quarter and just the outlook for the year?

Yeah, book-to-bill again was above, slightly above one. And, right, I mean, at some point we need book-to-bill quarters with lower than one, but we haven't achieved that yet so far. So, I mean, it's kind of the tongue-in-cheek remark. Obviously, it was, again, slightly greater than one is the short answer. And despite very good revenue growth, obviously. That is true to take for the scientific instruments business. BEST always has these five-year orders, so we'll take that out. But for the 90% of our business, which is the scientific instruments, three scientific instruments groups, that was true.

And then just on the updated guidance for the year on the UPS, I just You know, with the R&D investments and some of the investments you're making, are there just any additional color just on, you know, the margin cadence for the year and how we should think about that?

Yeah, we expect, you know, better margins than expected and perhaps even we expected in Q1. Obviously, sequential step down in Q2 and then recovering in the second half. And our guidance for margins, you see that on that slide 15. that the margin guidance we haven't really changed for the years. That's obviously not in dollars, but in percentages or bips. So that we've left the same. Got it.

Thanks for taking the questions.

Sure. The next question will come from Punit Sudha with SVB Securities.

Please go ahead. Yeah. Hi, Frank. And really congrats here on an impressive quarter. You know, if I could, if you could take a bit of a step back and look at the, you know, sort of the high end and, you know, sort of high ticket items that you have versus, you know, what we're seeing is a tougher backdrop of macro. I appreciate the book to bill is over one and that has continued to stay that way. And in March, you are you're booking those in the second half. But both from sort of Khalid and Nano, maybe just give us sort of the visibility that you have, where you have more confidence in the portfolio and maybe where the visibility is a little bit low. I mean, we continue to hear that, you know, semiconductor headwinds, biotech funding and concerns in healthcare as well. So just overall, just give us your sense of the strong results and your visibility versus the backdrop.

Yeah, so what's noticeable? I mean, China was noticeable, strong orders. I think we are benefiting from some of that loan stimulus program. Now, not all of that will be additional business. Some of that will probably be pulled forward where people in China are ordering earlier this year than in other years because of those incentives that have been created. Some of that does look like additional business that we actually did not necessarily expect this year. So it's a mix. but it's not all additional business. Some of it is probably pulled forward from later quarters. Uh, Europe was quite strong for us. Biopharma was quite strong. I know there's a lot of rumblings about that. Um, semiconductor metrology orders are softening a little bit, but we still have so much backlog that that's actually quite welcome because our backlog quite honestly was too long and still is long. So, um, Sort of as expected with China, better than expected. Biopharma, perhaps better than expected. Proteomics doing great. And, yeah, Europe also. We expected that, but not sure everybody else expected that. Europe has really recovered nicely, the academic and also European biopharma front. A lot of green tech research in Europe, worldwide, but also in Europe. So that's kind of a little bit different from the traditional more cyclical industrial or industrial research demand. And of course, very welcome.

Got it. No, that's super helpful. In terms of China, what's the duration of this program? And wondering if you are hearing about any sort of temporary pause in that program? If you could elaborate that a bit. And Gerald, if you can provide any contribution on the pricing in the quarter, that would be helpful, too. Thank you.

All right. I'll take the first part. You know, we don't know. We think most of that goal of stimulus orders may have come through. We don't expect that to continue. So, you know, that's been good for high-end systems. We don't really have visibility. We hear by reading Southside Research reports that the program may have been paused. but we don't really have our independent data or additional insights that we don't read from reading yours and others. Gerald, do you want to talk about pricing slash inflation?

Sure. On the pricing side, I guess what I'd say is we continue to see, we continue to take action on the pricing side. We continue to do that from the prior year as well as in 2023. We think that the The pricing realization is still significant for us. It's about 250 basis points, and offsetting that is about 350 basis points of inflation impact, so net drag in the first quarter of about 100 basis points. We think that's going to moderate as we march forward into the rest of 2023. Our expectation is around 50 basis points of net drag for 2023. That's our current thinking.

On margins.

On margins, yeah. Got it.

All right. That's great. Thanks, guys. The next question will come from Josh Waltman with Cleveland Research. Please go ahead.

Hey, thanks for taking my questions. A couple for you. Frank, I wondered if you could provide a bit more of an update on Tim's talk. Sounds like I had another strong quarter. Just curious if you could provide some additional color on which end markets are the primary drivers to the strength here. And then I think this was a system that had maybe bigger supply chain issues last year just curious how supply chain and production capacity looks now and just how you're thinking about this portfolio as a contribution you know to growth going forward is it one that could grow you know 20 to 30 percent here in the in the medium term say 23 and 24. yeah we don't give that granularity um but um the tin stop um

And self-orders have continued to be very strong. To your question, that's, of course, various flavors or types of proteomics, from cell line proteomics to tissue proteomics to chemical proteomics in the biopharma industry to plasma proteomics to single-cell proteomics. Once you get deeper into proteomics, there are so many different subfields. And they're actually all doing pretty well and are pretty strong. And the fact that we have more and more of these, we have a Teams top platform, but we have multiple product points, product performance points, and of course, different types of software for different applications. It's, one has to be, one begins to see the greater granularity, the market segmentation. Not to forget, of course, the targeted tissue proteomics that we do with multi-imaging. as well as with non-team stuff with our cellscape microscopy product line in spatial biology. So in that sense, they're broadly all doing very well, and there's a lot of demand. I think this is the decade or decade and a half of proteomics, and we're in the early days of that, and it's all pretty healthy. We're addressing more and more of those points. I mean, earlier I mentioned in unipoptidomics, earlier I mentioned SFPE pathology, research by proteomics. It's really, it's all good. Sorry, there was an, yeah, we don't break out the growth rates. And yes, we did have some acknowledged and acknowledged some previous and also some continued supplied issues, mostly on the chromatography actually, but still you need that for the overall system. We're muddling through it. But yes, that's not perfect yet on the supply chain. But we're fixing it by all the means, right, where there's all the chromatography systems on the market. So we're sorting it out. It's kind of details that are not that important. But you're not wrong with your question. Okay.

And then looking at, I guess, total portfolio again, I wonder if you could update us on where the backlog stands today and how you're thinking about normalization. I think you had previously said you had something like eight plus months and you would work that down to maybe more like six months over two years. Just curious if that's still thinking about it.

We're sticking to that story. So that's the reality, you know, and we thought our backlog would begin to come down a little bit, you know, but in fact it went up further, which is a wonderful problem to have. It looks very healthy, but yet it's not going to resolve itself over a few quarters. This will be perhaps over two plus years. But we're continuing to invest in capacity and supply chain while still with meaningful issues. It's getting better. Fewer new problems come up. Some areas are improving. But, you know, our orders have been strong and really quite strong in Q1 as well. So the short answer is, yeah, greater than eight months is still true. And that this will take two years plus to normalize, if you like, is also still correct, Josh. Got it. Thanks, Frank.

The next question will come from Dan Aries with Stiefel. Please go ahead.

Morning, guys. Thanks for the questions. Frank, obviously a lot of moving parts in China right now. Can you just maybe update us on biotyper performance in that region and just how placements and utilization are comparing to what's going on in U.S. and Europe?

Well, the biotyper is somewhat more recurring revenue, services, databases, and, of course, consumables, including reagents and systems. The systems business has slowed down for us. The multibiodiversity type of systems business has slowed down, however, also in comparison to a very, very strong comparison. It has slowed down significantly in China. It's doing quite well in Europe. Also, the replacement systems, there's a meaningful replacement market now for replacement of our and other company systems, and we're doing very well with that. The U.S. has picked up a little bit, but the U.S. still has a lot of potential. Keep in mind that we have almost twice as many multibiotipers in Europe as in the U.S., and over time that should equalize. So the consumables business has continued to grow in the double digits and has the better margins, as you might expect. So the usage of these systems, I don't know, probably approaching 200 million identifications per year of these about 6,000 systems that are out there. It's just very strong, so it's a really useful tool in the clinical and non-clinical microbiology lab. It's extensively being used, and we're investing also more into additional workflows, additional consumable software, Sepsityper, and eventually, although that's still in the research phase, in selected antibiotic susceptibility testing on that platform. So it's a nice flywheel, but the... you know, the instrument placement that's getting into a little bit the later part of the S curve that's not as steeply growing anymore as it used to be over the last 15 years. Okay, helpful.

Maybe just staying inside the Accelerate program with the spatial business, Canopy, Gutara, Acuity, what's the right growth rate that you would attach to that portfolio this year within, you know, the overall outlook for you guys? And then obviously there's a lot going on in that space, so where are you seeing the most interest? And then on Acuity, is there anything you can tell us about the product launch timing there?

You know, I'll take the easy way out and say, listen in, or better yet, join our Investor Day on June 15th, because that's going to be a topic, and Mark Munch, my colleague Mark Munch, will give you much more, you know, will probably address many of those questions. Acuity Acuity is a 24 event, so that won't launch until 24. Canopy, the cell scape, is getting tremendous interest in the spatial proteomics end of the spatial biology market. We're also doing well with tissue imaging using MALDI imaging. That's not single cell per se, but it's tissue imaging with multiomics, including metabolites and lipids and glycosylation. That's a bit of a different niche. And then that spatial biology business also broadly includes a little bit more of the cell biology and high-end fluorescence microscopy markets. Those are growing. Those are maybe somewhat adjacent markets, include things like Inscopix, the in vivo rodent neuroscience imaging microscopy, Obviously, it's more tissue rather than single cell, but there's a lot of elements that come together, and Mark will do a much better job than I just have with a pretty, I think really will explain that much better to the street during our investor day that's coming up in June.

Okay, very good. Thanks, Frank. Congrats. Sure, Dan.

The next question will come from Patrick Donnelly with Citi. Please go ahead.

Hey, guys. Thanks for taking the questions. Frank, maybe one on the U.S. business. The NIH budget has gotten some more attention recently. Can you guys just talk through, remind us on your exposure, I think it's mid-single, maybe even high single digits to that, and how sensitive you actually are to changes in the budget? And then at the end, just what you're hearing there, any visibility into your expectations?

Yeah, we're reading the same publications and information that you're reading, so I don't think I have any broker-specific insights. You are correct, Patrick, and our exposure is in the single digits, obviously, to that. For us, it's always much, much more. Whether it goes up 3% or 5% or 8%, it's much more important what the priorities are and that it strongly prioritizes tools that relate to proteomics and to spatial biology is a much more important effect than the exact, you know, rays or in any given year. So for us, those fundamental trends, those secular trends have been very strong, right? And I think as a lot of genomics and sequencing gets into the later part of the S-curve, proteomics and, of course, in parallel and partly related spatial biology are getting into the steeper part of the S curve. And then for us, that's just very, very good. That's very good for our positioning probably for the next decade.

Okay, that's helpful. And then we're just getting a few questions on the 2Q setup, just the organic growth side. You know, I know previously you had suggested that was going to be maybe the high watermark for the year. Coming off this quarter, you know, maybe that's no longer the case, obviously. But, yeah, how do you think about the step down there? Just given, again, the booking's very healthy. Is it just a timing issue given the easy comp? And then should it still be in the double digits? I'm just trying to kind of frame up the numbers as we're getting a number of questions there. Thank you.

Yeah, no, as Gerald said earlier, yeah, Q2 is sequential step down because we did have a little bit of, you know, almost inadvertent pull-ins in Q1, you know, not that. And then we have two ultra-high field systems that we had anticipated in Q2 that we now know will be, that we now know will not be in Q2, and we expect them in the second half of the year. So it's really just a timing thing. With that, I think we've looked at what were the specific color that you've given, Gerald, on Q2. I think you've indicated mid to high single-digit.

Yeah, exactly. We'll still, on a comparison again.

EPS growth, right?

On EPS growth. And I think it's pretty much what Frank just described. We have some puts and takes in the individual quarter, and it seems as if more takes in the case of the Q2 experience. So, yeah, I think it's old. Our view is that the overall full-year growth story is pretty much the same. It's more about timing.

We're ready for the full year, right?

Yeah.

But yes, Q2 sequentially will be down.

I'll also maybe point out that in 2Q of 2022, we had one ultra-high field in revenues. And so we have none this quarter. Yet our prior guidance of commenting that we thought it would be the organic growth high watermark for the year assumed that we'd have those two ultra-high fields. So that's the big swing factor.

Understood. Thank you, guys. So a little bit more of a shift to the second half. And yes, and with a strong start in the first quarter. Right. Got it. Thanks, Frank. Thank you, Patrick.

The next question will come from Rachel Vanstel with JP Morgan. Please go ahead.

Hey, thanks for taking questions and congrats on the quarter, you guys. So a lot of talk here about China and some of the outpaced strength in 1Q. Can you just tell us what was the actual growth in China during this quarter? And then I wanted to dig into some of those earlier comments around the China stimulus package. Can you characterize a bit further around some of that pull forward versus new wind dynamic that you flagged? How much of the China performance was really driven by that pull forward dynamic that you mentioned? Thanks.

Yeah. Hi, Rachel. This is Justin. So we really want to delineate between the orders and the revenue impact in China in the first quarter. So the orders were very strong. We're not going to quantify what those were in China, obviously. But there wasn't much conversion of those orders into revenues in the quarter, given the lead times and the backlog we have. But that being said, revenues in the first quarter in China were still robust. And on the organic basis, it was a higher organic growth rate than the corporate organic growth rate in China in the first quarter.

And the dynamics, Rachel, to, as I said earlier, there is some apparent order pull forward in China that seems to be encouraged by that loan slash stimulus program. So we don't think this was all incremental business, but there's some incremental business that our teams did not necessarily expect this year where people just saw the opportunity to buy, get additional budgets, and particularly buy high-end, big-ticket items that they You know, when they get an extra million dollars, they don't fill their fridge with reagents. They buy big-ticket items that they otherwise might not get a grant for for many years. So there was additional. It's difficult for us to say how much of that was pulled forward versus a real additional business. It certainly is a mix. I don't know whether it's a 50-50 mix, but, you know, since I don't know, that might be not a bad model in first approximation. So some acceleration, meaningful additional business tended to favor NMR and Big Mass specs, but also some other product lines, especially those where we are very unique.

Great. And then next one for me is just on supply chain. So can you walk us through which specific segments you're seeing the most supply chain constraints fill? And then what's your level of visibility for when you expect those constraints to really ease? And then follow up to that, is supply chain really becoming a limiting factor in terms of guidance for the rest of the year? And how much did that really play into the decision to not lift the guidance further versus, you know, some of that prudence around the macro backdrop that you flagged? Thanks.

I was pretty satisfied with our guidance rates. It's also still early and we have a slightly weaker Q2. I think it makes sense right now. Supply chain is the best group. They're doing very well comparatively within their industry. They've really planned ahead and invested in capacity and supply chain probably more strategically than anybody else in their industry. So that's probably relatively even medium to long term that this will be somewhat constrained in the superconductor business. In other areas, those are things that... The incidence of new supply chain problems that sometimes came without warning is down significantly. There's still some areas in the Timstaff area and a few other areas in NMR in some of the semiconductor equipment areas were improving, but I wouldn't say we're out of the woods yet. Things generally like electronics and packaging and logistics, that's all mostly with a few, you know, very topical exceptions, much improved.

The next question will come from Jack Meehan with Nefron Research. Please go ahead. Thank you. Good morning.

I wanted to dig a little bit more into this China result. really strong, you know, so APAC up over 30%. Was China well above that? Can you just provide a little bit more color on the regional revenue growth? And then just what does guidance assume in terms of revenue growth in the region for the rest of the year?

Yeah, Jack, this is Justin. So we're not going to break out necessarily by country within APAC, but I would say that the strength is pretty broad. throughout APAC, really strong growth in Japan, in fact, which is the leader in terms of the growth rate in APAC. But I don't think we'll comment much more on sort of a regional breakout or what's factored in the guidance.

And, Jack, that was a revenue comment by Justin. Revenue comment, yeah. On orders, China was the standout. Yeah. Great.

Okay. And then... Just as a follow-up, I think previously we've talked about sort of the export restriction issues in China. Where does that stand? And obviously it doesn't seem like it had any impact here, but just any update on that would be helpful.

Well, if you may recall already in Q4, certain semiconductor metrology pieces of equipment that we will either no longer be able to export to China or that would have perhaps a very long to get permits. We've taken those out of our backlog already, I think in Q4, at the end of Q4. And so in that sense, there is no further change since then. You know, life science and biopharma and applied market food testing and so on, they're really, sometimes things get slower until you get permission, for instance, also from the German authorities. They just tend to be slower on China export permits, but they come through eventually. But that also sometimes is gating a little bit in how fast you can grow, and your orders sometimes grow faster because of that. Excellent. No significant further changes since about five, six months ago. Thank you, Frank.

Sure. The next question will come from Daniel Brennan with Cowan. Please go ahead.

Great, thanks. Thanks for taking the question, Frank, Gerald. Maybe just one on the guide and then one on Tinstop. Just back to the guide. Gerald and Frank, how much of the first quarter strength was from the order slippage from 4Q to 1Q? Because I get it, we're very early in the year, but after the 18% growth and the easing comes from the backlog, it looks like your guide implies a pretty material deceleration. Still healthy, but just trying to reconcile how much of that's conservatism and how much of it's this maybe one-quarter phenomenon where you benefited from the slippage.

Yeah, you know, even we don't fully know early in the year, so a little bit of conservatism is absolutely prudent, and sometimes it ends up not being conservative, right? But we feel it's appropriate. given the cadence of the first two quarters, which we, and, you know, the assumed, and we believe we'll have a second, a strong second half then. So it makes a lot of sense to us. And, you know, it is really quite good organic revenue growth and good, and, you know, now also, and despite very, very significant investments, I mean, our R&D really has reached about 10% now in the first quarter as a percentage of revenue as we had predicted, and so the investments are very significant. And we're, of course, pleased that, you know, therefore, we still deliver EPS growth, and you've seen our margin guidance for the year. We've left the same as before. But we did well in Q1. We did a little better in Q1 than we initially expected. So it's a good sign of leverage and pricing and the value of our systems. So I don't know that I really nailed your question here, but that's kind of what comes to mind.

I might just add that there's still quite a bit of uncertainty out there. You have geopolitical uncertainty related to China and Taiwan. We have the Ukrainian conflict. We have recession in some way, shape, or form around the globe. There's still supply chain constraints. There's still quite a bit of issues floating around in the mix. So I think our position on the guide, I think, is we took that into consideration, both ups and downs.

Yeah, we also look at what others are saying. If others are saying that they see less, I mean, it's not surprising that there's less early-stage biotech funding and that those companies will be tightening their belts a little bit. Of course, they will be. Some of our NMR and some of our Timstaff sales, I mean, a lot of them go into biopharma. It's actually remarkably strong before the team stops. Almost a third or so goes into biopharma. We have not seen in our data any slowdown. It's probably less the macro for these early-stage biotechs and more the value and the need for the kind of information that our systems can provide. But, you know, one cannot ignore what's going on around us. keeping all in. We think that's a prudent raise. We're in a position to do that. Hopefully, we're not, as my Canadian CFO would say, getting ahead of our skis.

Super helpful. Maybe just one on Tim's talk. Can you just remind us, how big is that business today? What kind of share of the Discovery Mass Spec market do you have? Just wondering, is there any expectation that Thermo refreshes or be Were there anything on the competitive response there? I'm sure they're not sitting idly by as Timstop takes share of that market.

Well, I'm sure they're not sitting idly by, and there may very well be some launches from them at ASMS. I wouldn't be surprised. You know, we're also not sitting by, and... You know, what was the last thing we said? We said I think that we have now an installed base of over 600 systems. It certainly is growing in the double digits, orders, revenue, you name it. I mean, healthy double digits. And we've been gaining market share for sure since we launched that product five years ago. I'm sure we're well above a 10% market share and possibly above a 20% market share in proteomics. Now, in mass spec, the mass spec market is larger, and thermal also with air orbit traps plays in a lot of small molecule applied, and metabolomics and other markets where we're getting traction with the team stuff, but it's really primarily a 4D proteomics play with the many sub-markets that proteomics has, actually. So I think we're doing really well. Also, KOL capture is not a nice word, but, you know, KOL enthusiasm, I would call it, for that technology is really very strong.

Yep. No, same thing we've heard. Great. Thanks, Josh.

The next question will come from Brandon Coilard with Jefferies. Please go ahead.

Hey, thanks for taking the question. Just one clarification, Frank, in terms of the first quarter orders. If we exclude the two NMR orders in the UK, would the book-to-bill have still been north of one? And the gigahertz installations planned for the second half, is that delayed manufacturing related or more customer timing?

Good questions, Brandon. So, yes, without the two UK 1.2 gigahertz, book-to-bill would have still been above one. And the second question, yes, that was more factory-related. We needed on a couple of systems, we needed a bit of rework in the factory, and that always requires retesting, and the timelines for rework and retesting of one of these magnets is at least four to six months. So we incurred some internal delays, which is why they're now getting pushed, as best as we can tell, to the second half of... of the year. We were able to ship one, so one successfully passed. We just don't think it's going to maybe be in Q2 revenue, hopefully in Q3. And others look, you know, there's factory delays is the short answer. These are very advanced, complicated systems, so not every system will work in the factory sort of out of the box. Sometimes some rework and retesting is needed. We've always acknowledged that and Yes, it's affecting us a little bit in Q2, but not for the year.

Gotcha. And then you raised the M&A revenue contribution outlook for the year. It looks to be about $10 million improvement. Which assets are getting better or outperforming your expectations? I'm sorry. Was that an M&A-related question? Yeah, you're right. The revenue contribution from M&A for the year went up. I'm just curious which assets are outperforming or contributing most to that improved outlook. Good question.

Even I don't have that granularity. We had an additional small deal in the quarter that's partially contributing to that. I don't think we're necessarily going to break out the forecast for each individual asset and the contributions to the

So, yeah, so nothing stands out. It wasn't the one thing that we'd like to highlight. It's additional small acquisitions, and it's, you know, generally they're performing to plan and maybe a little bit ahead of plan, but there's one thing that stands out that's noteworthy. That's very helpful. Thank you.

The next question will come from Matt Sykes with Goldman Sachs. Please go ahead.

Thank you for taking my questions. I'll just leave it to one. And Frank, maybe a high-level question. As you think about the backlog and additional investments in capacity and supply chain mitigation, how do you think about measuring those investments? You obviously want to deliver the products to your customers and reduce that backlog, but at the same time not over-invest. If we get some level of normalization in this sort of out year, so how are you thinking about balancing those investments to solve for that backlog, but at the same time solve for a future supply-demand environment?

Well, good question. Matt, it's really more of almost a decadal planning rather than for the next year or two. So we're pretty optimistic about our growth for the next decade and have seen good growth recently, at least since the depth of the pandemic, right? And so you've seen our capex is high this year. Our capex has been quite high and elevated in the last two or three years, that's really kind of building capacity for the next decade plus with a new mass spec factory and integrated BioSpin facility. It's also for productivity. It's not only for capacity. As we consolidated two BioSpin factories in the same geographical area near Karlsruhe, Germany, that, of course, is going to be a lot more productive as well. Plus, it generated the capacity capabilities hopefully for the next 10 years, not only for the remainder of this decade. And there we've built up pretty significant additional capacity buffers because we think we're going to grow substantially during that period.

Great.

Thank you very much. I'm not just investing for that backlog and is it a two-year reach or three-year reach or whatever it is. We're really investing for the decade. Got it. Thank you.

All right, operator. With that, we're at 9.30, so we'd like to close the call here.

Yes, sir. I'll pass the call on to you for closing remarks.

Excellent. Well, thank you, everybody, for joining us today. As a reminder, Bruker has scheduled an in-person slash hybrid investor day at our Billerica Mass headquarters for June 15th, which will focus primarily on proteomics and spatial biology. Also, please feel free to reach out to me to arrange any follow-up discussions. Thank you and have a great day.

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