Bruker Corporation

Good morning, everyone, and welcome to the Bruker Corporation fourth 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 and then one on your touchtone telephones. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Justin Ward, Senior Director of Investor Relations and Corporate Development. Please go ahead.

Thank you, and good morning. I would like to welcome everyone to Bruker Corporation's fourth 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 the Brooker 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. To begin, I would like to reference Brooker's safe harbor statement, which is shown on slide two of the presentation. During this conference call, we will make forward-looking statements regarding future events and the financial and operational performance of the company that involve risks and uncertainties, including those related to geopolitical risks and wars, as well as to supply chain logistics and inflation. 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, 2023, and as updated by our other SEC filings, which are available on our website and on the SEC's websites. Also, please note that the following information is based on current business conditions and to our outlook as of today, February 13th, 2024. We do not intend to update the 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 2024 financial results expected in early May 2024. 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 fourth quarter and full year 2023 in more detail and share our newly established full year 2024 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 fourth quarter 2023 earnings call. Brooker finished 2023 with another quarter of excellent revenue growth, including 15.9% organic revenue growth year-over-year. For the full year 2023, we delivered industry-leading 14.5% organic revenue growth, which shows remarkable resiliency and consistency under difficult market conditions. Moreover, 2023 was our third consecutive year of double-digit organic revenue growth, a testament to the strong execution of our broker colleagues across the globe and to our differentiated innovation strategy and culture of disciplined entrepreneurialism. Importantly, in fiscal 2023, we also delivered a solid 10.3% non-GAAP EPS growth year over year, all while investing significantly in R&D, capacity, and productivity, and in selected strategic bolt-on acquisitions. For those keeping track of our new Brooker Cellular Analysis business, which we refer to as BCA and formerly known as Phenomex, as forecasted in fiscal 23, we had a fourth quarter bolus of 10 cents of non-GAAP EPS dilution. Excluding BCA, our fiscal year 23 pro forma non-GAAP EPS grew 14.5%. In Q4 of 23, we did major restructuring and cost cutting at BCA almost immediately after the acquisition closed on October 2, 2023. Accordingly, in fiscal year 24, We expect the quarterly BCA non-GAAP EPS dilution to be significantly reduced to just two to three cents per quarter, with a significant further drop in dilution expected in fiscal year 25 and BCA profitability anticipated in fiscal year 26. As we look at the fiscal year 2024, we enter the year with solid bookings momentum a strong backlog, and a positive outlook for Brooker to emerge as a leader of the post-genomic era, and financially to again achieve above-market organic revenue and non-GAAP EPS growth. Accordingly, we are today announcing our fiscal year 24 guidance for organic revenue growth of 5% to 7% and non-GAAP EPS growth of 5% to 7%. both compared to fiscal year 23. Turning now to slide 4, in the fourth quarter of 23, Bruker delivered excellent organic revenue growth of 15.9% and solid pro forma non-GAAP EPS growth. Bruker's Q4 23 reported revenues increased 20.6% year-over-year to $854.5 million, which included a currency tailwind of 2%. On an organic basis, revenues increased 15.9%, which included 15.5% organic growth in BSI, our scientific instrument segment, and 20.3% in our best segment. Net of intercompany eliminations while growth from acquisitions added 2.7 percent. This implies constant exchange rate, or CER, revenue growth of 18.6 percent year over year. Our fourth quarter 23 non-GAAP operating margin was 18.1 percent, which was down 290 bps primarily due to the diluted Phenom X acquisition into 4.23, as well as headwinds from other M&A and currency. Altogether, this combined effect more than offset our organic operating margin expansion of plus 270 bps. Our strong organic operating margin expansion is evidence of the success of our Project Accelerate and Operational Excellence initiatives. In Q4 of 23, Bruker reported gap diluted EPS of $1.41 compared to $0.66 in Q4 of 22. Our Q4 23 included an acquisition gain of $0.99 from our Fenomex acquisition. On a non-gap basis, Q4 23 diluted EPS was $0.70, down 5.4% from 74 cents in the fourth quarter of 22, primarily due to the Phenomex acquisition in Q4 23. Excluding the initial minus 10 cents BCA dilution in Q4 23, Bruker delivered pro forma non-GAAP EPS growth of plus 8.1% year over year in Q4 of 23. Moving to our full year 23 performance on slide 5, you can see Bruker's strong performance and excellent execution in 2023, with industry-leading organic revenue growth of 14.5%, solid non-GAAP EPS growth of plus 10.3%, and excluding BCA, even pro forma non-GAAP EPS growth of plus 14.5%. More specifically, for fiscal year 23, revenues increased by 17.1% to $2.96 billion. On an organic basis, revenues grew 14.5% year over year, consisting of 14.5% organic growth in scientific instruments and 14.7% organic growth at best, net of intercompany eliminations. Our 2023 non-GAAP growth and operating margin and GAAP and non-GAAP EPS performance are all summarized on slide five, and you can see solid non-GAAP EPS growth of 10.3%, despite a 10 cents headwind from BCA in the fourth quarter. I'll also note that our 2023 free cash flow increased by 98 million year over year. Our trailing 12 months return on invested capital, a non-GAAP measure was 20.6%, a metric that highlights our differentiated broker management process and focus on disciplined entrepreneurialism. Innovation and organic growth supplemented by selected strategic bolt-on or early stage technology acquisitions. Please turn to slide 6 and 7, where we highlight the fiscal year 23 constant exchange rate or CER performance of our three scientific instruments groups and of our best segment year over year. In 23, BioSpin group revenue was $799 million and grew in the team's percentages in constant exchange rate. BioSpin saw growth across biopharma, academic government, industrial research, and applied markets, as well as in our new integrated data solutions, or IDS, division. We had revenue from four gigahertz-class NMR systems each in fiscal 23 and fiscal 22. And in the fourth quarter of 23, we installed the first 1.2 gigahertz NMR in the United States. at the Ohio State University and the 1.1 gigahertz NMR at the University of Wisconsin at Madison. For 23, our CALI group had revenue of $960 million and constant exchange rate growth in the high teens percentage, with strong growth in life science mass spectrometry driven by the TIMSOFT platform and aftermarket business, as well as strong growth in applied mass spectrometry and our optics infrared, near-infrared, and Raman business. Microbiology and infectious disease revenue was up slightly, as solid demand for multi-biotype consumables was offset by a final drop of our modest COVID-19 molecular diagnostics revenue to near zero. Please turn to slide seven now. Fiscal year 23, Bruker Nano revenue was $942 million, And in constant exchange rate, nano grew in the high-teens percentage, with strong revenue growth across markets, including academic government, industrial, and semiconductor metrology. The artificial intelligence megatrend is a strong tailwind for our semiconductor metrology and advanced packaging tools. Revenues for our advanced X-ray solutions and nano surfaces core tools also showed strong growth. Fluorescence microscopy revenue was up on solid growth in academic government research, as well as contributions from RQ422 acquisition of the Inscopix neuroscience research tools. Finally, 2023 best revenues grew in the mid-teens percentage net of intercompany eliminations driven by share gains and superconductor demand by our MRI OEM customers, as well as by growth in big science fusion research and key new extreme ultraviolet EUV technologies for semiconductor lithography tools by large OEM customers, all in support of the strong AI or artificial intelligence demand. Let me now move to slide eight, which is a slide that's familiar to those of you who saw our presentation at the J.P. Morgan Healthcare Conference, where we're outlining what we mean by leadership, emerging leadership in the post-genomic era, which of course includes many different fields of multiomics beyond genomics, but including genomics, as well as solutions for single-cell, spatial, structural, quantitative, and interaction biology. I will not dwell on this, but I invite you to read this slide in more detail at your leisure. On slide nine, you have quick summaries of two technology acquisitions that we closed in early February and which both filled gaps that we had in our portfolio and therefore strengthened our portfolio. On the left, you will see that we acquired Nanophoton in Osaka, Japan, a company with about $5 million in fiscal year 23 revenue. They are a specialist in research from microscopy systems. So far, primarily or only offered in Japan and Korea, but we think these products will do very well outside of Japan and Korea as well since they're really performance leading with exceptional speed, sensitivity, spatial resolution, and user-friendly workflows in research Raman microscopy. Applications are going from inspecting semiconductors and nanomaterials, battery research, as well as academic and industrial research. Differently, here in the United States, in Tucson, Arizona, we acquired Spectral Instruments Imaging, LLC, to fill, to complement our preclinical product lines with preclinical optical imaging for bioluminescence and fluorescence, in vivo imaging, and optional X-ray imaging. This enhances our preclinical imaging or PCI solutions for in vivo disease research and should be welcomed by our customers. So, let me wrap things up. In summary, Bruker delivered excellent organic revenue growth and solid EPS growth in 23. Even as we have accelerated our strategic investments, in the project Accelerate 2.0 for transformation, as well as in production capacity and productivity to meet our growing demands. Bruker's strong growth is the result of his fundamental commitment to innovating in high-value solutions, as well as of our ongoing portfolio transformation. Our technology and biological applications leadership in many areas, combined with world-class execution and an excellent Bruker management process positioned us well for continued outperformance as a leader in the emerging post-genomic era. Now, given our strong growth in 23, our healthy fiscal year 24 guidance, as well as our recent selected strategic bolt-on acquisitions, we are now optimistic that we can achieve our previously communicated fiscal year 26 medium-term outlook for revenue and non-GAAP EPS already one year earlier in fiscal year 2025. With that, let me now turn the call over to our CFO, Gerald Ehrman, who will review Brokers Q4 and full year 23 financial performance in more detail and provide our fiscal year 24 outlook and assumptions. Gerald.

Thank you, Frank, and thank everyone for joining us today. I'm pleased to provide some more detail on Broekers' fourth quarter and full year 2023 financial performance, starting on slide 11. In the fourth quarter of 2023, Broekers' reported revenue increased 20.6% to $854.5 million, which reflects an organic revenue increase of 15.9% year-over-year. In the fourth quarter of 23, Broekers' reported gap diluted EPS of $1.41 compared to 66 cents in the fourth quarter of 2022. The fourth quarter 2023 GAAP EPS includes a 99 cents per share non-taxable non-cash gain from the acquisition of Phenomics, now called Bruker Cellular Analysis Division or BCA. This gain for GAAP reporting represents a bargain purchase gain and reflects the excess of identifiable net assets acquired over the purchase consideration paid, included in the acquired assets or deferred tax assets related to acquired net operating losses or NOLs. While the present value of these NOLs is very significant for GAAP accounting, the tax benefits of these NOLs going forward are expected to be much more modest annually. On a non-GAAP basis, Q4 2023 diluted EPS was 70 cents. down 5.4% from 74 cents in the fourth quarter of 22, primarily due to the 10 cent dilutive effect of our Phenomics acquisition in the fourth quarter, as well as a challenging tax rate comparison year over year. Excluding BCA, Brooker delivered pro forma non-GAAP EPS growth of 8.1% year over year in the fourth quarter of 23. Non-GAAP gross margin performance was down 80 basis points year-over-year in the fourth quarter of 23, negatively impacted by foreign exchange and M&A headwinds, partially offset by organic gross margin expansion of about 40 basis points year-over-year. Our fourth quarter 2023 non-GAAP operating income increased 3.8%, while non-GAAP operating margin decreased 290 basis points year-over-year to 18.1%. as foreign exchange and acquisition headwinds, primarily from BCA, more than offset very strong organic operating margin expansion of 270 basis points year-over-year in the fourth quarter of 2023. Our fourth quarter 2023 pro forma non-GAAP operating margin, excluding the Phenomics acquisition, was 20.6%. We finished the fourth quarter with cash, cash equivalents, and short-term investments of approximately $488 million. During the fourth quarter, we used cash to fund selected Project Accelerate 2.0 investments, capital expenditures, and share repurchases of approximately $15 million. We generated $205.5 million of operating cash flow in the fourth quarter of 2023. Our capital expenditure investments were $31.5 million, resulting in free cash flow of $174 million in the fourth quarter of 23. This reflects an improvement in cash flow of about $37 million over the fourth quarter of 22, driven by better working capital performance in the quarter. Slide 12 shows the revenue bridge for the fourth quarter of 23. We delivered solid revenue growth in the fourth quarter of 23 in BSI with 18.5% organic revenue growth in systems and 8.2% organic growth in aftermarket revenue all year over year. Geographically and on an organic basis, in the fourth quarter of 23, our America's revenue grew in the team's percentage, Asia Pacific revenue grew in the 20% range, while European revenue grew in the mid-teens percentage all year-over-year. For our INEA region, fourth quarter 2023 revenue was up high single-digit percentage year-over-year. Slide 13 shows our fourth quarter 2023 P&L performance on a non-GAAP basis. Non-GAAP gross margin of 51.8% decreased 80 basis points from 52.6% in the fourth quarter 22. impacted by foreign exchange and acquisition headwinds, partially offset by organic growth margin improvements of about 40 basis points year-over-year. Fourth quarter 2023 non-GAAP operating margin of 18.1%, with 290 basis points lower than the 21% margin performance we posted in the fourth quarter of 22, as foreign exchange and acquisition headwinds primarily from BCA more than offset strong or organic operating margin expansion of 270 basis points. For the fourth quarter of 2023, our non-GAAP effective tax rate was 31.3%, compared to an unusually low 20.6% in the fourth quarter of 22, driven mostly by a one-time discrete favorable item in the prior year period. Weighted average diluted shares outstanding in the fourth quarter of 2023 were 146 million, a reduction of 1.9 million shares, or 1.3 percent from the fourth quarter of 22, resulting from our share repurchases over the trailing 12 months. Finally, fourth quarter 2023 non-GAAP EPS of 70 cents was down 5.4 percent compared to the fourth quarter of 22, with a 10-cent headwind from BCA. Excluding BCA, our non-GAAP EPS was up 8.1 percent year over year, In fiscal year 2024, we expect BCA to be much less dilutive after our major cost actions in the fourth quarter of 23, and our full year 2024 non-GAAP EPS guidance incorporates a 10-cent non-GAAP EPS headwind from BCA. Slide 14 shows the year-over-year revenue bridge for the full year of 2023. Revenue was up $434 million, or 17.1%. reflecting organic growth of 14.5%. Acquisitions added 2.2% to our top line, while foreign exchange was a 0.4% tailwind, resulting in constant exchange rate revenue growth of 16.7% year over year. Non-GAAP P&L results for the full year of 2023 are summarized on slide 15. with the drivers similar to the fourth quarter of 2023, as explained on the slide. Turning to slide 16, in the full year of 2023, we generated $350.1 million of operating cash flow, up about $76 million from 2022 on improved working capital performance. We generated $243 million of free cash flow in 2023 up about $98 million from 2022 on higher operating cash flow and lower capital expenditures. Turning now to slide 18, we enter the year with solid backlog and an even stronger portfolio to again achieve above-market growth. Our outlook for fiscal year 2024 includes We are initiating a guidance range of reported revenue of $3.23 to $3.29 billion, representing growth of 9% to 11% compared to 2023. This guidance assumes organic revenue growth of 5% to 7% year over year, an estimated foreign exchange tailwind of 1%, with acquisitions contributing 3% to revenue growth. That excludes any announced potential acquisitions that have not yet closed. This guidance implies constant exchange rate revenue growth of 8 to 10% in full year of 2024. For operating margins in 2024, following strong organic operating improvement of about 130 basis points in 2023, we expect 2024 organic operating margin improvement of about 50 basis points. For non-GAAP operating margins all in, we expect about an 80 basis point decline from the prior year due to a combined 130 basis point headwind from foreign exchange and acquisitions. On the bottom line, we're guiding to non-GAAP EPS for 2024 in a range of $2.71 to $2.76, or non-GAAP EPS growth of 5% to 7% compared to 2023. Other guidance assumptions are listed on the slide. Our full year 2024 ranges have been updated for foreign currency rates as of January 31st, 2024. One additional note on quarterly phasing for the year. We expect first quarter organic revenue to be sequentially below the fourth quarter of 23 and only modestly above the first quarter of 2023. which was an exceptionally strong first quarter. We also expect softer operating margin performance in the first quarter of 2024, driven by BCA dilution and other acquisition and foreign exchange headwinds. Our organic revenue and operating margin performance is expected to strengthen in the remainder of 2024. Finally, at our investor day in June 2023, I shared financial targets for the medium-term fiscal year 2026 outlook for Bruker. Our strong 2023 financial performance, healthy 2024 guidance, and our portfolio strength gives me confidence that we will likely reach our full year 2026 medium-term targets for revenue and non-GAAP EPS a year earlier in 2025. To wrap up, Brooker delivered differentiated organic growth and financial results in 2023 and were well positioned to deliver above-market revenue and non-GAAP EPS growth again in 2024. With that, I'd like to turn the call over to Justin to start the Q&A session. Thank you very much.

Thanks, 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're ready for Q&A.

Ladies and gentlemen, we'll now begin that question and answer session. To ask a question, you may press star and 1 on your touch-tone telephones. 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. If you'd like to withdraw your question, you may press star and 2. Once again, that is star and then 1 to join the question queue. Our first question today comes from Patrick Donnelly from Citi. Please go ahead with your question.

Hey, guys. Good morning. Thanks for taking the question. Frank, and maybe Gerald as well, just on that LRP pull-forward comment, obviously very nice to see. Can you just talk about that, the earnings side particularly? I think it implies, you know, almost 30% growth in 25 on the earnings side. Is that some of these deals flipping accretive? Obviously, the headwind on the margins last year and this year from the deals has been notable. Can you just talk about some of the moving pieces there, confidence level to pull that forward against, particularly on the earnings side? It's really nice to see. So I just wanted to get some more color on, again, approaching that 350, 355 number a year early.

Yeah. Thank you, Patrick. Indeed, we... We're optimistic that we can pull that forward by a year on the revenue and on the non-GAAP EPS side, which is wonderful. It's really a combined result of strong 23 results and execution. And again, we are pleased to give pretty solid and healthy 24 guidance. Then indeed, as some of these headwinds either go away or abate, And as we look at the, you know, as you've seen, we've delivered under the hood, so to speak, pretty healthy organic or moderate organic gross margin improvement and good. over 100 bibs, operating margin, organic operating margin improvement. And these are all the trends that are continuing while some of the, you know, temporary currency and accepted strategic M&A headwinds go away. So indeed, we expect, without commenting on numbers, but we're expecting a very significant EPS step up in 25 and also in 26.

Okay, that's helpful and, again, encouraging to see that. And, Frank, maybe just on the overall backdrop, you know, we've gotten a lot of questions on just the academic market, the health of it, you know, between continuing resolution in the U.S. and China noise. Can you just maybe talk about what you're seeing out there, expectations? Obviously, you have the order book that should help in the near term, but even on the order trends, you know, how you're thinking about the near term and how you're thinking about that academic market given, you know, at least what appears to be some high-level pressures out there. Thank you so much.

Yeah, gladly. So academic government, revenue growth was great and bookings growth was also pretty good. I mean, in Q4, you know, we had a bit of an air pocket in bookings, nothing dramatic in Q3 after very strong Q1 and Q2 bookings. um in in china in particular uh in q4 it wasn't super strong but it was solid and you know from what i can see better than what others years larger beers may have reported in q4 so our q4 book to bill for bsi was not far from 1.0 so pretty solid and uh and even china was okay uh not so academic government not only backlog, but bookings all the way to revenue growth over the various geographies look solid. It's one of the very defensible areas at a time when, for others at least, biopharma went down, COVID, of course, went down. So it's been one of the strong areas along with diagnostics and many other areas. Actually, just about all of our businesses are doing really quite well in most of our markets.

Okay, great. Thanks, Frank. You're welcome, Patrick.

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

Hey, good morning, guys. Thanks for taking my question. Pleasure. Yeah, two for you. Maybe Gerald, starting on the margin side, wondering if you could unpack the margin guide a bit more. Curious the puts and takes on the organic margin of 50 bps. Is that about what you would normally expect on 5% to 7% organic growth? You know, just wondering how, you know, mix, price, maybe other moving pieces within the cost structure are impacting that number.

Yeah, I'd say generally it's, Josh, it's the impact of the Phenomics acquisition specifically. We, of course, continue to take pricing actions, and we have a number of other initiatives underway that play into that. Puts and takes are not that significant, but that's probably the most material item.

Just about the organic expense.

Yeah, so just to clarify, there's a lot of distortion on the margin related to the timing of phenomics. So recall that we acquired it basically the beginning of Q4 of 23, and there was quite a drag on margins. That will become a margin an organic op margin tailwind next year because you're anniversaring that acquisition beginning in Q4. So in the early part of the year where most of the Phenomics op loss will still be taking place, that will be characterized as an acquisition margin drag. So it really just has to do with the categorization of Phenomics and the timing of that acquisition, Josh. Does that make sense?

Yeah, I think that makes sense. And I guess one more, Gerald, on the margins. I mean, it sounds like you're pulling forward the revenue and EPS 26 target by a year. Is the margin target kind of off the table at this point?

No, it's not off the table, so I'll take that. Josh, it's just that we don't think we can pull forward. That looks more likely to be a 26 non-GAAP operating margin target, but it's not at all off the table. We think we can reach that in 26 without pull forward with plenty of room to advance the operating profit margin then further into the mid-20s and subsequent years.

Got it. Okay. And then my follow-up, Frank, was on Biospin, you know, wondering how many 1-gig systems are included in the guide for 24. And then, curious, any thoughts or context you can provide on how the, you know, the non-1-gig class or the sub-1-gig class is performing?

Yeah, I think for 24, we're again looking at 3 to 4 gigahertz class. systems. And so again, three to four, four, four, basically same as in 23 and in 22. And I'm sorry, what was the second part of your question?

Yeah. Yeah. I was just wondering how the, the non one gig class, so kind of the, you know, maybe like 300 up through maybe.

Oh yeah. No, that's doing great. I mean you know, most of the, most of the growth, In Q4, the ultra-high field was very strong because, if you recall, in 23, a number of them got delayed or had needed some rework. So, of the four systems in 23, three of them came in in the last quarter, and we expect to spread that more evenly in 24. And so, the bookings and revenue growth in BioSpin has really been excellent, and most of that was driven you know, not by the ultra-high field, but by the health of applied markets, clinical research, applications in biopharma, as well as the core academic structural biology, functional structural biology, and other applications, and preclinical imaging. So BioSpin's doing great. It's not just an ultra-high field story. The ultra-high field story is sort of like the Formula One, and it's One can enumerate the system, so it's very interesting, but most of the business is not the ultra-high-field business.

Got it. Okay. Great to hear. Thank you, Josh.

Our next question comes from Puneet Suda from Leerank Partners. Please go ahead with your question.

Yeah, Frank. Thanks for taking the questions. So I just wanted to clarify on the pull forward of the fiscal year 26 targets. How much of that is, you know, sort of just the acquisitions that have been sort of announced so far? They should become organic in FY25. And I wanted to ask about the Elitech acquisition as well. Is that included in those assumptions? You know, it's not materialized yet and pending regulatory approval. So could you update us on that? That's a sizable acquisition for you.

Yeah, so very clearly, LA Tech or ChemSpeed to announce potential acquisitions that have not closed are neither included in our 24 guidance nor in our, you know, 25 pull forward of our revenue and our medium-term revenue and on-gap EPS targets that we previously had established for 2016. So, LA Tech and ChemSpeed are not in those numbers. And the pull forward, therefore, is primarily driven by very good organic growth and margin developments and expected very good EPS growth also in 25, 26, which is primarily an organic development on the revenue side, of course, aided somewhat by the BCA or Phenomex acquisition. I believe our goal for that is about $60 million in revenue for 2024. So that helps, but it's not the driver. The other acquisitions, while there have been a number of selected acquisitions that simply were feasible with companies where we've often been in touch with them for many years, and now this was the right time to find valuations that seemed fair for both sides, those, as you know, were To some extent, they have some market tractions, but they were relatively moderate in size. And in some ways, you could regard them as technology acquisitions to complement our portfolio.

Got it. Super helpful. Then on Tim Stoff, if I may ask, what is the expectation for growth this year? Maybe, Frank, could you maybe highlight at a high level, just given... There is a high-resolution, high-end competitor launch that was announced last year, and the question is how that competes with TempStoff and what's your growth expectation for TempStoff's overall portfolio this year. Thank you.

Since the Astra launch by a competitor that's a competitive product, We've continued to grow our TIMSTOFT business, but there is a competitive product on the market. And our product, our new Ultra, and of course the various other price and performance and capabilities points of the TIMSTOFT platform, including the Flex version with multi-imaging and glycomics and other imaging applications. And they really are all performing well. Well, but, you know, we acknowledge there's new competition and that's getting some traction as well. Of course, the traditional Orbitrap franchise is probably the most of that internal competition, but that's, you know, that's not our issue. So, we expect continued steady growth in a growing proteomics market. Fortunately, this is not a zero-sum game, but a growing market as far as we can tell. with very healthy fundamental dynamics, and we expect to continue to do well in that in 2024. Okay.

Thanks.

Our next question comes from Dan Arias from Steeple. Please go ahead with your question.

Good morning, guys. Thanks for the questions. Gerald or Frank, on the deals that you've done here, it looks like you're guiding to a three-point contribution from M&A. How conservative or non-conservative would you say that is? I mean, you've got a half a dozen or so assets. So when you kind of look at the growth expectations that you have for them, I'm just curious what you've modeled relative to 2023. Did you pump the brakes because of the macro? Have you assumed some acceleration because now you're able to support them? Just trying to put some context to the growth expectation there.

No, we're in the middle of the fairway. Neither super conservative nor bullish. That's just a mathematical number of what comes out of these acquisitions. Again, other than the Phenomex acquisitions, now BCA, the other acquisitions that have closed mostly don't have very significant revenue. In the aggregate, it adds up a little bit, which is why we get to the 3%. But that's a That's a figure that's a little of a fairway figure, yeah. So nothing overly conservative nor bullish on that one.

Keep in mind, most of these transactions, so Phenomics closed in Q4 of last year. Most of the other ones closed sort of very end of year, very beginning of this year. So it's a comp situation. The underlying revenue growth of those acquired businesses, as Frank said, we don't have aggressive assumptions.

And most of these are, you know, healthy businesses, of course. The one that we're working through, of course, is the phenomics issue.

All right. Okay. Helpful. And then, Frank, maybe just sort of in the spirit of Patrick's question on academic, can you do a similar thing on Europe just in the way that you're thinking about things and what's under the outlook? I mean, tough macro conditions, academic funding maybe down a bit to your prior point. But you guys are doing well there, I think, on a reported basis. You're up 20% in 4Q. So, you know, what should we expect if we compare 2024 and Europe 23?

Yeah, I mean, it's not that we have internet visibility into that, right? But, I mean, academic government funding is always relatively stable, and in Europe particularly so. You might have more ups and downs in Japan and Japan, in China, in the US, depending on political situation or gridlock or continuing resolutions. In Europe, usually this is not a political item, both at the country level, the major economies and smaller healthy countries in Europe. They don't constantly debate about their governmental or academic R&D budgets. Those are just steadily increasing. And the same is true at the European level. There's some European, overall European budgets. Much, much more importantly is what does it get allocated to? And the drivers are clearly favoring the post-genomic era, and I think they will be for the next decade or two. And there we are just very well, or increasingly very well positioned and really strongly positioned in proteomics, lipidomics, metabolomics, glycomics, you name it, the one up too much jargon, but the post-genomic era at a high level is very much the fundamental secular trend that supports our growth in academic government-funded budgets that is much higher than the overall growth that you may read at a national level. It's the reallocation of the post-genomic era that I think is the, that and artificial intelligence are probably the two very big megatrends for Bruker for the next decades.

Okay, so Frank, just to close the loop on the thought, Germany, macro conditions, recessionary conversation, not something that you see as a red flag right now.

No, but a yellow flag. I mean, Germany is fumbling along and the strong growth has not been all that strong. And yeah, it's not one of the growth engines of Europe in 24 probably either. Pretty clear.

Okay, super. Thank you.

Our next question comes from John Sauerbeer from UBS. Please go ahead with your question.

Thanks. Good morning, and congrats on the quarter. I just wanted to follow up on the BSI book to bill. I know you don't break it out by region, but was China the real region there that drove that below one on the book to bill? And I guess if you were to X out China, was book to bill greater than one? And any additional color just around expectations for China?

Maybe to clarify there, so overall BSI book to bill was actually above one. That includes China. Now China obviously is below one because of the bolus and orders we got from the stimulus. And again, that bolus was really focused in Q1, but we did have some in Q4 of last year as well. But overall BSI book to bill was above one, including China.

And I would say China had I would say a bit of a recovery in the fourth quarter where we saw some challenges in the third quarter relative to that particular market. So from a bookings perspective, there was some improvement there.

And I guess as a follow-up just on China there, you know, any expectations on the outlook for that market for the year? You know, what sentiment are you hearing from customers there and just, you know, visibility into the backlog here starting the year?

Good backlog visibility and I mean China is perhaps the market for the entire industry where we have the least visibility for 2024 and I would say we're not that different than that. We do note that you know our their academic government and investment tends to be strong and I think there's a commitment that continues for that. So we think we're well positioned but While Q4 was a bit of a recovery in China, BSI orders compared to Q3, after the very strong first half, we don't have more visibility into China than other peers.

But we do have quite a different mix in China, as a reminder. So our end market mix in China is about 50% academic and government, which, as Frank just mentioned, is one of the bright spots. Our biopharma revenue mix in China is only about 10%. That's really where the weakness is concentrated.

And we did not see that weak biopharma go away in China in Q4. That's right. Thanks for taking the question.

Sure. Our next question comes from Doug Schenkel from Wolf Research. Please go ahead with your question.

Good morning, and thank you for taking my questions. The first topic I wanted to touch on is backlog. I believe at some point over the course of Q4, you talked about having eight to nine months of backlog. I think the norm's closer to six. So I'm just curious if you'd be willing to comment on where that is now, and is there an assumption embedded into guidance that this comes down a bit?

Yeah, for your wolf bite, which we enjoy reading, it has come down a little bit to closer to seven and a half months now, and that's still elevated, so we expect that that will come down over the next two to three years. So some of that is built into our guidance for fiscal year 24. Mostly it's driven by, you know, reasonable and the buffs here, it seems, order momentum, given the various secular trends that we have mentioned in particular. But we also expect that, without quantifying it, that we also expect that our backlog will come down a bit further. But as I said, it was seven and a half months at the end of 23, so it's come down a little bit.

Okay. No, that's helpful just to make sure it helps, but it's not a major driver to growth in the year. So that's helpful. Can I just touch on M&A real quick? Lots of questions there, lots of focus on all the activity there. I would love to just take a step back and think about this bigger picture. How are you going about identifying these opportunities? Why so many so quickly? And you know, as we kind of think about these, are they filling gaps in the portfolio or are they kind of moving you into new markets? So there's a lot there, but I would love to just hear the philosophy and just kind of the logic behind, you know, getting so active so quickly. Thank you.

Very good questions. And the answer is a little of both. First of all, it is just the end of 23 when most of these deals were negotiated, right? Some of them then close in January or February, but we've been obviously working on them in the second half of 23. And on some of them, we've literally been in the second or third round. Some of these companies we've just known without any process for literally four years. And this is finally the stars aligned in an unusual way, right? We're not on a buying spree. It's just in an unusual way. We will finally be able to, in various areas, pull together the right valuations and deals with sellers and buyers, both thinking it was fair and it was time. So it's very unusual. I don't expect that pace to continue. This is not a different type of broker. We do selected strategic acquisition. Some of them clearly fill gaps or holes in our Swiss cheese. gaps in our portfolio like Tornado or SII or even Nanophoton. Now, you know, I don't mean to degrade those companies in any way. They have beautiful product lines. They have technology. They have market traction demonstrated and margin traction demonstrated in some markets, but usually they're not acting globally or at least not fully globally. We can help them with that, and they fill real gaps in our product lines. The pending acquisitions of ChemSpeed will take us further into new areas of biopharma and chemicals and even cosmetics and consumer products, R&D and QC automation. So those are new areas, but adjacent. In a way, we've been in infectious disease biology, but primarily with a multi-biotype or with a very small foehold in molecular diagnostics. LSX is a much bigger sample to answer molecular diagnostics play. It will not make us a Tier 1 competitor, right? Those are Roche's and Abbott and Hologix and others, but it will get the solid Tier 2 competitor. So, it expands our infectious disease franchise. Again, not new to us, but very nicely complementary to the multi-biotyper that's, of course, focused on on on bacteria and not on virus viral detection whereas molecular diagnostics is a lot of infectious disease viral detection so adjacencies or gaps in our product line don't expect this pace and frequency of you know to continue that's really very very unusual but you know it has to do of course with markets in late 23 market valuations in late 23 permitting to come to compromises on valuation that seems reasonable and that support, again, long-term high ROIC while providing fair valuations for these companies that are where the founders or others might be exiting.

That's great. Thank you very much. You're welcome, Doug.

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

Hi, good morning. Thanks for taking my question. Hey, Gerald, just to clarify, I got a couple of questions from clients. You said the book-to-bill in Q4 was not far from one, and then your comment about being greater than one was for the full year?

Actually, both. The fourth quarter had a book-to-bill of above one, and the full year as well, above one.

Got it. Thank you. Just wanted to clarify that. And going back to the Chemspeed and the LA Tech deals. I mean, we have a general idea on the revenues because you disclosed those. How profitable are those businesses? Basically, when those come in, we're not going to see like another step down in the margin, right? I mean, your guide right now is basically assuming that those, they're right. Can you just talk a little bit about profitability of those businesses?

They're not in our guide, nor in the 26 to 25. Pull forward, as I said earlier, Derry, we have not We have just said that they're both profitable. And when we close them, then we'll give more details with a more detailed press release on each of those. We just don't want to jump the gun.

Got it. I just wanted to clarify the profitability comment. And then just one final one. You've called out geopolitical risks a couple of times. I'm starting to get some questions from investors about obviously what's going on with China and and your sales into the semiconductor market and people sort of starting to worry about competition and just pushbacks. I guess, how do you sort of like think about the geopolitical risk in China right now and just what's going on there? Just your sort of your broad thoughts.

Well, geopolitical risks for us is code for a Ukrainian-Russian war and Israel-Hamas war. and the potential of some war-like action around Taiwan happening at some point or these wars spreading. So it's not... It's sort of related to wars and conflicts as opposed to, you know, how fast is China growing or not. So they are with two wars pending and they... increased risk of a conflict over Taiwan that's possible at some point in the next decade. That's why we're highlighting that. It's an unprecedented level of geopolitical risk that everybody's facing, that the industry is facing. But we mean that narrowly by conflicts rather than, you know, an economy growing or slowing. Maybe that helps.

Yeah, well, I was thinking more about trade, just in terms of restricting R&D, reducing analytical instrumentation sales. So I'm getting some questions from investors on, you know, your metrology tools into China and things like that. Just the sense that there might be some trade pushback. That's what I was going with.

Yeah, remember, you may remember that about two years ago, there were some additional restrictions. on selling certain semiconductor, most advanced semiconductor metrology tools to China. And so, of course, that was implemented a couple of years ago, if I recall. And that's long baked into our model. But of course, if there was a conflict around Taiwan, if there were new restrictions, those are some of the, you know, geopolitical risks that the industry is facing. And so that's what we mean by that, Rich.

Got it. Thank you for clarifying.

Operator, I think we'll take one final question. Operator?

Our final question comes from Brandon Colliard from Jefferies.

Please go ahead with your question.

Hey, thanks. Good morning.

Frank, you mentioned the IDS business within BioSpend. Just curious what else you think you need to – you know, like, I guess, accelerate the vision you have around software, and how do you differentiate in lab software in what seems like a pretty crowded space?

Yeah, it's crowded, but, you know, some of these assets previously acquired haven't done all that well, or some of them have older concepts. So, we think we can bring some, you know, fresh breath of air into some of that scientific and lab software, and the assets that we have acquired and all to some extent are integrating right provides a nice portfolio vendor agnostic scientific and and lab um digitization software solutions that we think has good growth potential with excellent margin potential um some of the automation acquisitions like the one we did already optimal in the uk about a year ago year and a half ago and the pending potential ChemSpeed acquisitions also have software components and will benefit from some of the software assets that we have already in this IDS. So don't know that we need a lot of other things. I think we're getting together or we did get managed to quietly build and pull together the assets that we needed for a serious lab and QC software business. So we're pleased with that. Still early days, but you know, a nice aftermarket growth, if you like, first of all, something we're always trying to strengthen. Then, of course, with good, very good gross margin and operating margin potential and just good revenue growth potential.

And then one more for Gerald. For the year, what are you embedding for interest expense in the guide? And we've done a couple of debt rounds in the last few weeks. And how do you think about pre-cash flow converting for the year? Thank you.

Let me answer your last question first. Our cash flow position actually for 2023 improved sharply from 22. So we added almost 100 million to that number. So I'm pretty encouraged about where we are. Some of that is coming from working capital management improvement. We've had a number of initiatives there. We're pleased with how that's performing. Our expectation is also that we're going to continue to improve that, especially during the 24 period. I guess I'd also say in terms of our overall interest, the cost from an interest perspective for 2024, we're guiding somewhere in that 17 to a little bit above that, $17 million for the full year.

Yeah, so interest expense will come up a little bit, obviously, right? So last year it was closer to 10. It'll come up a little bit.

Yeah, just for those that haven't seen it, we have announced some additional financing activities, particularly with some institutional investors. And the overall rate, interest rate, coupon rate picture there is quite favorable. So while these are bigger numbers, the overall impact is not as giant as some might think it is.

And maybe a final comment, Brandon. Some of these things only get funded or we only need to pull from them for funding if and when we close, for instance, the Alitech acquisition, which is a larger one. So we can time that to some extent that the additional interest expense kicks in if and when we get the additional profitability from these businesses.

Exactly. We draw them as required. Yeah.

Some of them we draw as required, and some of them have delayed drawdown dates anyway.

Okay. Thanks for that clarification. It's helpful. Thank you.

Good question, though. Thank you.

All right. With that, we want to thank everyone for joining us today. Berger's leadership team looks forward to meeting with you at an event or speaking with you directly during the first quarter. Please feel free to reach out to me to arrange any follow-ups. Have a great day.

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