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spk12: Good morning and welcome to the Brooker Corporation First Quarter 2024 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, listen to 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 one on your touchtone and telephones. To withdraw your questions, you may press star and two. There's also a note today's event is being recorded. I'd now like to turn the floor over to Justin Ward, Senior Director of Investor Relations and Corporate Development. Please go ahead.
spk06: Thank you and good morning everybody. I would like to welcome everyone to Brooker Corporation's First Quarter 2024 earnings conference call. My name is Justin Ward and I am Brooker's Senior Director of Investor Relations and Corporate Development. Joining me on today's call are Frank Laukeen, our President and CEO, and Gerald Herman, our Executive Vice President and CFO. In addition to the earnings release we issued earlier today, during today's conference call we will be referencing a slide presentation that can be downloaded from the events and presentation section of Brooker's Investor Relations website. During today's call we will be highlighting non-GAAP financial information. Reconciliation of our non-GAAP to GAAP financial measures are included in our earnings release and are posted on our website at .Brooker.com. Before we begin, I would like to reference Brooker's Safe Harbor Statement, which is shown on slide two of the presentation. During this conference call we will 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 our recent and pending acquisitions, geopolitical risks and wars, as well as 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. As updated by other SEC filings, which are available on our website and on the SEC websites. Also, please note that the following information is based on current business conditions and to our outlook as of today, May 2, 2024. You should not rely on these forward-looking statements as necessarily representing our views or outlooks as of any date after today. We will begin today's call with Frank providing an overview of our business progress. Gerald will then cover the financials for the first quarter of 2024 in more detail and share our updated 2024 financial outlook. Now, I'd like to turn the call over to Brewers CEO,
spk01: Frank Laukeen. Thank you Justin. Good morning everyone and thank you for joining us on today's first quarter 2024 earnings call. I am excited to announce that we have just closed our Elitech acquisition on April 30th, ahead of schedule after we received all required regulatory clearances and also after the completion of the pre-closing carve-out of the Elitech clinical chemistry business that we did not wish to acquire. Accordingly, please note that in addition to our earnings release, we simultaneously have issued a second press release this morning, 7 a.m. Eastern, on the closing of our Elitech acquisition. We do encourage you to read both press releases for complementary information and perspectives. As a result, we are pleased to raise our constant exchange rate revenue growth guidance for fiscal year 2024 by 400 bips to 12 to 14 percent
spk08: as
spk01: explained in
spk08: detail later during this call. Turning to our earnings release and slide
spk01: four, Brooker finished the quarter of 2024 with 1.6 percent organic and 5.5 percent constant exchange rate or CER revenue growth despite about 15 million of revenue slippage into the second quarter, primarily because of a rather tough comparison to a very strong first quarter of 2023 in which, if you recall, we posted 17.6 percent organic growth a year ago. Keep in mind that we had expected low single-digit organic revenue growth anyway in Q1 because of some similar pull forward of about 15 million of revenues into the fourth quarter of 2023 when customer site readiness and shipments just worked very well. Underlying demand for Brooker's products and solutions has remained solid with first quarter 2024 book to bill, four-hour BSI segment just below 1.0. So, in the second quarter of 2024, we expect a re-acceleration of our organic revenue growth and we also expect double-digit constant exchange rate or CER revenue growth year over year. As expected in the first quarter of 2024, our margins compress year over year primarily because of the tough comparison to an unusually strong first quarter of 2023. But also as a result of transitory factors such as the expected initial margin dilution from our recent acquisitions as well as less favorable mix in this quarter. We expect significant sequential margin improvement in the remainder of the year. As we look to the remainder of 2024 with our solid backlog and pipeline, we expect to achieve above market organic revenue and organic non-GAAP EPS growth. Accordingly, we are maintaining our fiscal year 24 guidance for organic revenue growth of 5% to 7%. Since our prior guidance in mid-February, we have closed the Kemp Speed acquisition in the April 30th. Both are now included in our updated guidance today. As a result, we are increasing our reported revenue guidance by $60 million for reported revenue growth of 11% to 13% year over year and we are increasing our non-GAAP EPS guidance by 8% to 8% to 10% non-GAAP EPS growth year over year. Please note that our updated May 2nd guidance today does not yet include the pending NanoString acquisition which is expected to be EPS dilutive and which we hope to close in the second quarter. For further information on the pending NanoString acquisition, I refer you to our press release issued on Monday, April 22nd. Continuing on slide 4, Brooker's first quarter 24 reported revenues increased .3% year over year to $721.7 million which included an M&A tailwind of 3.8%. On an organic basis, revenues increased .6% which included flat organic revenues in our BSI segment and .9% organic growth at best. Net of Inter-Company eliminations while the FX headwind was minor at 0.1%. This all implies constant exchange rate or CER revenue growth of 5.5%. Year over year. Our first quarter 2024 non-GAAP operating margin was .0% down 630 bits due to the factors that I described earlier. In the first quarter of 2024, Brooker reported GAAP diluted EPS of 35 cents compared to 52 cents in the first quarter of 23. On a non-GAAP basis, first quarter 24 diluted EPS was 53 cents down from 64 cents in the first quarter of 23. Right, please turn to slides 5 and 6 now where we highlight the first quarter 24 CER performance by our three scientific instruments groups and of our best segments all year over year. In the first quarter of 24, Biospin group revenue was 183 million with low single digit percentage CER growth. Biospins saw growth across biopharma, academic government, and industrial research markets without any gigahertz class system in Q124 revenue. By the way, in 2024 we expect revenue from three gigahertz class NMRs
spk08: including one in the second quarter. We also closed the ChemSpeed lab
spk01: automation acquisition and we will be talking about that further in the future when we update you on our medium term targets. Moving on to Caled and Q124, our Caled group had revenue of 228 million and its CER declined in the low single digit percentage primarily to the timing of shipments slipping from Q1 into Q2 as well as to tough comms in the prior year first quarter. On slide 6, Q124 Brooker Nano revenue was 240 million and Nano achieved CER revenue growth in the Metis percentage with strong revenue growth in academic government, ECGov, industrial, and semiconductor metrology. The artificial intelligence or AI megatrend continues to be a tailwind for our semiconductor metrology and advanced packaging tools business. Finally, Q124 best CER revenues grew in the high teams percentage, net of intercompany eliminations, driven by solid superconductor demands as well as by growth in big science and fusion research projects, and our emerging key extreme UV or EUV technologies for semiconductor lithography tools by a very large OEM customers also in support of strong AI demand. Let me take a quick excursion from financials to a couple of further product introductions on slides 7 and 8. At US-UPO in the first quarter, we continued with 4D proteomics tools and workflows and software. In this here, we highlight both immunocastidones, which are very important in immunoncology, and separately glycoproteomics, of course, all with the 4D versions that we do on our Dimstop platform. Without going into a lot of details here, both of them are excellent examples of things that are not translated in the DNA, they are not in our genes, at least not in any way that we know, so they're excellent examples of additional post-genomic information that is absolutely needed to understand biology and disease biology, and we are a leader on that same Dimstop platform in 4D proteomics and its applications. The two examples that are both quite important in immunopeptidomics and 4D glycoproteomics. The other examples are from product introductions that we had at our recent most important NMR conference of the year, the ENC, which was actually in April in California, and we introduced both new enabling scientific capabilities, for new scientific capabilities in structural biology, particularly of membrane proteins, of aggregates, of many membrane proteins are important targets or are signaling proteins. They're there, by the way, they're also not something that alpha-pho or cryo-EM or crystallography handle very well. They're one of the very important areas where NMR plays a crucial role, and again, without scientific details, having ultra-fast spinning probes give us much higher resolution for things that could never be seen before by scientists, and a separate introduction of a technology for DNP, which stands for dynamic nuclear polarization, can increase sensitivity for some of these methods, in fact, by factors of the order of 100, so it's really game-changing and enabling. On the other hand, we also want to make broaden the adoption of NMR and make it much more accessible. A really wonderful new magnet introduction is this Ascend EVO 600 NMR magnet with a one-year helium hold time. This is more than doubled from before, so it's quite a technological marvel, and again, I think it'll be warmly welcomed by all existing NMR labs, but also the new labs in biopharma research, in clinical metabolism, clinical research, where previously they hadn't handled NMR but would like to use it, makes it much more accessible and available for broader markets. And last but not least, for biotech and biopharma process analytical integration or path integration, the Fourier 80, which is our non-cryogenic bench top FDNMR, if you recall, has now been more broadly available for this biopharma QC world. All very, very good developments
spk08: on which we want to update you from time to time. Now, in summary,
spk01: and as I wrap up my remarks, Rucker delivered solid constant exchange rate growth, albeit with weaker margins than EPS in the first quarter of 2024. We accept some margin and EPS dilution from our acquisitions in 2024 because we have been able to acquire several strategically very important businesses at reasonable valuations. We expect that our Rucker management process applied to these acquired businesses will significantly improve their financial performance over time and drive their long-term profitable growth. We anticipate also that these strategic acquisitions will enable strong returns on invested capital or ROICs in the future, something that is important to Brooker's business culture of disciplined entrepreneurialism and also for long-term shareholder value creation. So with those comments, let me turn the call over to our chief financial officer, Gerald Herman, who will review Brooker's first quarter financial performance in more detail and provide our updated financial year 2024 guidance and assumptions. Gerald.
spk05: Thank you, Frank, and thank you everyone for joining us today. I'm pleased to provide some more detail on Brooker's first quarter 2024 financial performance starting in slide 10, which shows the revenue bridge for the first quarter of 2024. Revenue was up $36 million, .3% reflecting organic growth of 1.6%. Acquisitions added .8% to our top line, while foreign exchange was a .1% headwind, resulting in constant exchange rate revenue growth of .5% year over year. Frank has already covered the drivers of revenue growth for the quarter. Geographically and on an organic basis in the first quarter of 2024, our America's revenue grew in the mid single digit percentage, European revenue grew in the high single digit percentage, Asia Pacific revenue declined in the single digit percentage range, primarily due to softness in Japan all year over year. For our IMEA region, first quarter 2024 revenue was up mid teens percentage year over year. Slide 11 shows our Q1 2024 P&L performance on a non-GAAP basis. Non-GAAP gross margin of .2% decreased 220 basis points from .4% in the first quarter of 23, impacted primarily by mix acquisition and FX headwinds and a challenging prior year comp. First quarter 2024 non-GAAP operating margin of .0% was 630 basis points lower than the .3% we posted in the first quarter of 2023. This decline is attributable to most of the same factors impacting gross margin, product mix acquisition and foreign exchange headwinds and a challenging prior year comp. We expect Brooker's non-GAAP operating margins to improve sequentially in the second quarter and significantly in the second half of 2024. Slide 12 For the first quarter of 2024, our non-GAAP effective tax rate was 26.7%, a modest improvement from the .8% in the first quarter of 23, resulting from favorable jurisdictional mix. Weighted average diluted shares outstanding in the first quarter of 2024 were 145.9 million, a reduction of 1.7 million shares or .2% from the first quarter of 23, resulting from our share repurchases. Slide 13 Finally, Q1 2024 non-GAAP EPS of 53 cents was down .2% compared to the first quarter of 2023, primarily due to the margin compression factors previously detailed. We experienced about 5 cents of non-GAAP EPS dilution from the Brooker Cellular Analysis, formerly Fingermix acquisition in the first quarter of 2024. With the right actions we've already taken, we expect our BCA business to reach breakeven by 2026. We generated $21.8 million of operating cash flow in the first quarter of 2024. Our capital expenditure investments were $21.4 million, resulting in free cash flow of $0.4 million in the first quarter of 2024. This reflects a decrease in cash flow of approximately $62.1 million over Q1 of 23, driven by lower net income and higher working capital levels mostly impacted by our recent acquisitions. Slide 14 We finished the first quarter with cash, cash equivalents, and short-term investments of approximately $340 million. During the first quarter we used cash to fund acquisitions, capital expenditures, and select Project Accelerate 2.0 initiatives. Slide 15 In the first quarter of 2024, we completed a series of debt financing actions to fund our recent acquisitions, including the larger Alatec transaction. We upsized our evolving credit facility to $900 million, issued $431 million Swiss franc private placement senior notes with 10-, 12-, and 15-year maturities at average interest rates of about 2.6%, and closed on a $450 million Swiss franc term loan structure with 5-, 7-, and 10-year maturities carrying interest rates of about 3%. These financings provide us with flexibility to support strategic acquisitions like Alatec and our pending NanoString acquisition and delever over time. Turning now to slide 14, we are maintaining our organic revenue growth guidance and organic non-GAP prior guidance from February 13, 2024. We are updating our 2024 outlook to include the recently closed acquisitions of Alatec and ChemSpeed as well as changes in foreign currency. It does not include the pending NanoString acquisition, which was covered in our April 22 press release. Our updated guidance for reported revenue is $3.29 to $3.35 billion, about $60 million from prior guidance, representing growth of 11% to 13% compared to 2023. As noted earlier by Frank, this guidance maintains our full year 24 organic revenue growth of 5% to 7% year over year. It also reflects an estimated foreign currency headwind of about 1% and acquisitions contributing now about 7% to revenue growth year over year. This guidance now implies constant exchange rate CER revenue growth of 12 to 14% in full year 2024 year over year. For non-GAP 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-GAP operating margins all in, we expect about a 60 basis point decline from prior year due to a combined acquisition and foreign exchange headwind of about 110 basis points. As we explained in the simultaneous Elitech closing press release this morning, we expect Elitech to be immediately accretive to broker margins. On the bottom line, we're now guiding to non-GAP EPS for 2024 in a range of $2.79 to $2.84, up eight cents from the accretive Elitech acquisition. This translates to non-GAP EPS growth guidance of 8 to 10% compared to 2023. Other guidance assumptions are listed on the slide. Our fiscal year 2024 ranges have been updated for foreign currency rates as of March 31, 2024. One additional note on quarterly phasing for the year. We expect second quarter organic revenue to be up mid single digits organically year over year. We also expect to see sequential improvement in non-GAP operating margin performance in the second quarter of 2024 and significant improvement in the second half of 2024. We expect to host a follow-up call with investors and sell site analysts within a few weeks after the closing of our nanostring acquisition. During this call, we plan to provide additional information on our recent significant acquisitions, including ChemSpeed, Elitech, and Nanostring, and update our medium term outlook for fiscal year 2026 financial targets. Finally, I echo Frank's earlier comments on the importance of these recent acquisitions. While we expect some margin dilution initially from certain acquisitions, these are excellent additions to complement the portfolio transformation underway at broker and expected to contribute solid profitable growth and strong ROI performance to our shareholders over the next few years. To wrap up, broker delivered solid constant exchange rate revenue growth in the first quarter of 2024 and we're well positioned to deliver above market revenue growth and organic non-GAP EPS growth in 2024. With that, I'd like to turn the call over to Justin to start the Q&A section. Thank you very much.
spk06: 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're ready for the Q&A portion.
spk12: We will now begin that question and answer session. To join the question queue once again, you may press star and then one. If you are using a speakerphone, you may pick up the handset prior to pressing the key. To withdraw your questions, you may press star and two. At this time, we'll pause momentarily to assemble the roster. Our first question today comes from Paneet Suda from Lerang Partners. Please go ahead with your question.
spk13: Hi, Frank, Gerald. Thanks for taking the questions. My first one is on the revenue slippage you talked about. Is that just a pull forward into the 4Q23 and thus not expected going forward? And just overall with the mid-single digit expectations for the second quarter, can you just elaborate what you're seeing in terms of the overall demand, your ability to deliver from the backlog and any bookings growth that you can talk about? And then I have a follow-up.
spk01: Yes, thank you, Paneet. It's Frank. So, yes, as you recall, our Q4 of last year was strong, even stronger than we had expected. Usually, something slipped into Q1 and all the site readiness and export permits. I mean, nearly everything went flawlessly. And so, yes, with that, we had already expected a low single digit organic revenue growth for Q1, we had signaled that previously. And then it was a little lower than we would have liked with about 15 million that's slipping into Q2, which is what we acknowledged here. There's essentially no risk of any of that getting canceled that will come in in Q2. Those were the usual export permits, site readiness, or sometimes some logistical issues that the system does not go in. But there's no organic growth, which is a bit weaker than we would have liked. But as always, it's best to look at Brooker as an average over several quarters. And I think we'll have a decent mid-single digit or perhaps better Q2 organic revenue growth and expect double digit CR growth in the second quarter. So that's the cadence.
spk13: Got it. Super helpful. And then, Frank, I mean, I can't recall a time Brooker had these many number of acquisitions in such a short period of time. So, look, first of all, it's great to see you picking up a number of these excellent technologies for the post-genomics era that you've talked about. But two questions that investors are struggling with is when we look at what do these acquisitions mean for potential dilution? And I know you're going to talk about on the follow-up call, but any sort of directional read that you can provide us on and into how to think about these in 2025. And then, more importantly, I mean, if you could elaborate a bit on how your plans are looking in terms of integration priorities, because it does seem like there's significant undertaking versus what Brooker might have done in the past, and that is likely to have some impact on the inorganic growth and ETS in the near term and medium term as well. So maybe just talk to us about the integration and how are you thinking about that?
spk01: Yeah, so I'll sort of do it in reverse order, Punit. We're actually very confident on the integration and that we have the bandwidth to do this. It turns out because we have three very strong groups, plus best, we really have the management capacity and integration capacity as if we were almost three companies. I mean, obviously we're one company, but it turns out the Elitech business and a number of these smaller acquisitions that were done by our Brooker Optics division previously, that's all within Caled and they're handling that, really except for financing and some high level corporate matters, really very, very focused and they're, and I'm convinced they're going to handle that very well and they're handling very well the smaller ones that they've done already. Chemspeed and some of these software acquisitions that you've seen recently are very much part of the Biospin group. So we have a really a separate group. It's really, are doing a great job with that. So again, it doesn't, it's not that these things are all piling up on our success at the highest level where we provide the strategic direction and the support and the financing of course. And ultimately, and that's where there's more work to be done. I mean, we did not expect either that we would be able to acquire the former Phenomex, now Brooker and Calio analysis and then that NanoString would already in Q2 run into their chapter 11 reorganization and so this wasn't going to wait till Q4 or till we get around till next year. This was an opportunity, a strategic opportunity that's incredible in a complicated situation. We'll admit that, but on the other hand, what an opportunity to build, to buy not only a gene expression business, their gene expression business with Encounter is quite nice, but really a hopefully close soon. I mean, this hasn't closed yet, but to acquire hopefully soon and it's under agreement in an asset deal, the spatial biology business, which is one of the leading spatial transcriptomics businesses, as you know. So those were incredible strategic opportunities and again, evaluations that are absolutely compelling and will lead to great ROICs. That is very unusual for Brooker to have that many acquisitions. On the other hand, the opportunities that we had and the flexibility and the organizational bandwidth that we have allow us to do that. On 25 and 26, if I may defer you to this little mini investor day that we hope to do within, as a virtual call only, within weeks after we close NanoString. Hopefully we get to close NanoString in the second quarter and then hopefully within weeks Justin will be setting up a two-hour call where we present and have the division leaders of those new businesses present Kemp Speed, present Ellitech and hopefully present NanoString. And then of course, Gerald and I will wrap it all up and tell you how that affects and accelerates our medium term outlook for 2026. That's our present plan. Other than that, we prefer not to comment on NanoString today because it's still pending. And as you know, we tend to be very disciplined. Now we talk about Ellitech now that it's closed and we'll talk about NanoString more out
spk08: when
spk01: that closes, hopefully
spk08: in the second quarter.
spk13: Got it. That's fair. Thanks, Frank.
spk08: All right. Thank you,
spk12: Paneet. Our next question comes from Patrick Donnelly from Citi. Please go ahead with your question.
spk09: Hey guys, thanks for taking the questions. Frank, maybe just one on on kind of the order backdrop, a little more real time. It sounded like the booked bill is a good one. What are you seeing on the order front, maybe on the academic side in particular, what the conversations there with customers are and just expectations as we go forward here?
spk01: Yeah. We didn't use up much backlog in the first quarter because of some revenue slippage. So our backlog coverage is still about seven and a half months. So that's remained strong. And academic government in the US and in Europe has been decent. We've had also reasonable, except for China, reasonable bookings in biopharma. Diagnostics, -bio-typers is doing well, certainly on the consumable side. So it's not a fantastic macro environment out there, right? But it's decent and it's sort of the bookings and in all the various markets, geography or by market, by end market are about as expected, which is slower growth, but still organic growth for us. And yeah, so the macro environment isn't exciting, but it is also not deteriorating. And it is about as we expect it, given our toolset and portfolio transformation, which as you've seen does allow us with above market, 5% to 7% organic revenue growth this year. We're really quite confident with that.
spk09: Okay. And then maybe you touched on China briefly in the answer there. Can you just talk about trends over there? I mean, there's been some debate about stimulus loan program, whatever you want to call it, what you're seeing there, what the conversations look like in China and expectations for the year would be helpful. Thank you.
spk05: Patrick, it's Gerald. I'll take this one. So from a perspective of China, I mean, we're still early days, I guess I'd say with respect to this loan stimulus program that's being considered, we've heard some conversation on the street about how that's going to play out. We don't expect to see that transfer itself into real orders probably until certainly the second half. Our understanding is that it's a relatively broad stimulus program targeting equipment upgrade. And certainly in the technology area, over multiple years, our expectation is that will ultimately result in a tailwind for broker. But we don't really have any further details on exactly the timing or exactly which products would be impacted. That's what I guess I can say about that. We still continue to feel pretty strong about the overall performance in China over time. But obviously, there's been some
spk08: challenges there from a macro perspective. Very fundamentally, China has again made
spk01: and clarified their very strong and exceptionally strong commitment to science and technology. And that's a very high priority for them and for their as a country, which bodes well for the entire industry. It also does bode quite well for us with more of an academic government exposure or participation in China. Whereas we got a little lucky that we're not so exposed to their biopharma or CRO markets, which obviously have been and probably continue to struggle to some extent also because of geopolitical risks.
spk08: Anyway, so that's bypassing us mostly. Thank you guys. Our next question comes from
spk12: Rachel. That's installed from JP Morgan. Please go ahead with your question.
spk03: Perfect. Hi, good morning, you guys. Thanks so much for taking the questions. So first, I want to push a little bit on this QQ guide. You mentioned that you're expecting the single digit organic growth next quarter. So that came in a little bit lighter than expectations. You also mentioned that 15 million flipping from one Q to two Q. So can you help us understand the puts and takes there? What are the underlying assumptions embedded in two Q? Is there any level of conservatism or is this more of a realistic guide based on what you're seeing in the market right now?
spk01: Yeah, no, I mean, hopefully it's in the, you know, sorry, mid single digit is someone conservative guy because we just missed a little bit in Q1. So we'd like to not have that repeat. But so there's some upside to that. But on the other hand, it's also realistic, you know, realistic. It's a realistic color for the second quarter with potential for upside. But we'd like to be
spk08: in an area where, you know, there's no downside to that in Q2.
spk03: Okay, great. That's helpful. And then just on 2025, you know, you've told forward some of the 2025 or the 2026 estimates to 2025 last quarter, appreciate you're going to host this, you know, mini analyst day in the coming months here. But I guess just to clarify, are you assuming that any of the underlying assumptions within that 2025 framework that you touched on last quarter have changed? Or are you really just pointing towards an update given some of the recent M&A and deals closing between UliTAC and Nanostring on the horizon? Okay.
spk01: That's all about M&A, Rachel. So, you know, TempSpeed this year adds about $10 million per quarter in revenue. And it's neither EPS dilutive nor aggrisitive. We think by next year, they'll be somewhat EPS aggrisitive and get back into growth mode. They had a lot of changes going from switching to US GAAP and product accounting percentage of revenue, too much detail and we'll give you more at our mini investor day there or mini investor call. So they'll be multi-aggrisitive. UliTAC will be, you know, it looks like it continues to be a very nice high single digit, sometimes low single, low double digit, organic revenue growth business. And clearly, you know, somewhat margin-aggrisitive, clearly EPS aggrisitive. So that all comes in. And then, you know, as we close up, when we close Nanostring, as we have spelled out without a lot of detail, but just as a heads up in our April 22nd announcement of the asset purchase agreement for Nanostring, we won't give 24 guidance on Nanostring for reasons explained in that press obviously had considerable disruption from Chapter 11 and, you know, and other litigation related materials. We will get into that today. So we'll see how that business tunnels, we just want to give the street a heads up that there is a meaningful dilution from that in 24. We estimated 15 to 20 cents. Happy to take that next year. We expect that to be lower next year, but we're not going to be able to go into that today, right, because it hasn't closed. So it's all fundamentally, all the incremental changes are all about these acquisitions. And how that'll, and I guess the supporting financing that we've done it, that Gerald has done at incredibly extractive rates with our banking partners, very, very pleased with how capital structure is supporting all of that in a very attractive way. So we'll pull all of these things together because they are too many moving pieces for you all, quite honestly, to be able to try to figure it all out. So we'll hope to really assist you with that and give you the ability to then model 26 and 25 in between, although we're not going to give 25 guidance, but I think you'll be in a much better position to understand how all these pieces come together.
spk03: Great. Thank you for the question.
spk12: Our next question comes from Doug Schenkel from Wolf Research. Please go ahead with your question.
spk02: Hi, thanks for the question. This is Colleen on for Doug. I just want to know how you're framing Book to Bill normalizing for the bullish in China stimulus bookings in Q1 of last year and the timing of delay of bookings in Q1.
spk08: So the
spk06: Book to Bill that Frank quoted of roughly one is for the first quarter of this year, right? So that bodes well. Now, last year in China, we had a bolus of orders in the first quarter, but then we had basically an air pocket of orders in the third quarter of last year from China. So there was a lot of distortion in bookings in China last year. For the full year in last year in China, we had bookings up nicely in the double digits along with revenues. So as you look at 2024, there's quite a bit of distortion on the -over-year comp in China for bookings. And for that reason, we really think it makes sense to look at kind of full year picture from bookings. Hopefully that's helpful.
spk02: Thank you. And just one follow-up on leverage. So with the nanostring deal, we estimate your debt to EBITDA will approximate about three and a half times. Is that right? And if so, is it fair to assume this is the limit of what you'd be willing to take the
spk05: Now, let's, we'll talk more about that actually in the, in the mini investor day. But what I'd say is, first of all, we need to make sure we're talking about growth versus net on the calculation. And we'll talk again, I think I just defer that to our call coming up. I mean, overall, of course, we're pleased with the financing actions we've already taken. And we'll talk more about options as we march into the forward investor and sell side analyst discussion.
spk01: But approximately with your question, you're approximately right here, you know, leverage, growth leverage of about three and a half debt net leverage will be lower. And generally, that's not where we normally operate. We prefer to operate more in the two to two and a half range. And, you know, obviously there'll be time, there'll be opportunities to delever very clearly. Our will be to deliver from that level again.
spk02: Thank you.
spk05: Welcome.
spk12: Our next question comes from Jeff me from Nefron research, please go with your question.
spk11: Thank you. Good morning. I had a couple of financial questions for you guys on the income statement. Um, did you just explain, I guess, like below the line, other income, I was modeling, like 7 million of other expense, but it was kind of the opposite. How were there any factors that drove them the quarter?
spk05: One of one of the other significant items coming out of the quarters, of course, as you likely know, we, we moved a series of ticket series of actions on the foreign exchange side to be able to secure the 807 million euro, allotech transaction. So that's part of what you see there. There's a substantial foreign exchange game that came between the euro and the Swiss Frank. So that's what you see. We also had, as I think I mentioned in my prepared remarks, a more favorable tax rate than we had in the prior year. Fundamentally pleased with that from a jurisdictional mixed perspective. So those are the two pieces.
spk11: Great. Okay. That makes sense. And then the second question was just on the phenomex solution. Could you talk about just how the integration is going? Number one, number two, I think I heard five cents of dilution previously. You were talking about two to three cents a quarter. Just what was the Delta there?
spk08: Yeah. Phenomex, or now as
spk01: we call it, broker cellular analysis. We are estimating 10 to 12 cents dilution for the year 24. If you recall, we had 14 cents of dilution in Q4 before we could, we trigger the Warren Act. So we took us, while we made the decisions right away, took us some time to reduce headcount and cost. And you still, some of that also still outside of the United States, some of that cost reduction takes a little longer to have an effect. So yeah, five cents was the number correct for Phenomex. And the average this year, maybe two to three cents, or maybe three cents on average, but it will be more front loaded. So good catch again, Jack. It was higher than the average in Q1.
spk06: Yeah, Jack, as you'd imagine, the dilution is going to gradually taper from Phenomex over time. What we've said is we expect it to be basically breakeven by 2026, but a lot of that dilution will really taper off in the first half of this year.
spk08: So that's how we're thinking about the time. Yeah. Sounds good. Thank you guys. You're welcome. Our
spk12: next question comes from Dan Brennan from TD Cowan. Please go ahead with your question.
spk07: Great. Thank you. Thanks for the question. Frank and Darrell, I know we're going to get more color on nanostring once it closes, but is it possible to speak at all to the work that you've done on the patent situation? Just because I think that likely caught many people by surprise, the fact that they've got these cases ongoing and they lost the Geomics case earlier this year, which obviously they're appealing and they have the Cosmics case. I'm just wondering any color you can provide on the work you did, the comfort you got, and or any remedies you might have in place if these cases go against nanostring?
spk01: Yeah, that's really something we're, you know, at first of all talking, we're not going to talk even after the closing about litigation, our potential litigation outcomes or litigation strategies. Today we certainly cannot talk about it because it hasn't even closed. It's obviously a key issue for the nanostring company, right? I mean that to a significant extent drove them into Chapter 11 reorganization. Then once they were in the Chapter 11 reorganization, I'm not telling you anything you don't know, there was a favorable interim ruling at the European Patent Court that lifted the Cosmics preliminary injunction, at least outside of Germany, if I have all my facts right. So there's been some positive news, but you know that's all intermediate, subject to final ruling. So there is a lot of moving pieces and a lot of separate litigations and challenges and you know and dirty hands and antitrust counterplains and all of that. And how that plays itself out we can discuss a little bit more. Hopefully we don't spend our entire mini, we will not, I promise you spend our mini investor day on IP items, but we can give you a little bit more color to the extent we can't comment on ongoing litigations, which is you know very limited as you might guess. We are very aware, we're very aware.
spk07: Okay and maybe just one on the semi-business, you called out the AI related positioning. Just wondering if you can help us kind of size that, like how did semis do in the quarter? Any specific color on how much that AI is driving your semi and packaging business and kind of you know what do you kind of assume implicit in the you know the guide for the year? Thanks.
spk01: Now we tend to do that more on an annual basis because of course quarterly fluctuations, but I think our semiconductor metrology business as a total percentage of revenues now in the high single digits and probably marching towards you know towards dimensionally towards 10 percent and higher. And maybe the and so that's did well in terms of revenues in Q1. The additional piece that's still you know modest and below 1 percent of our revenue that we now via BEST and their research instrument subsidiary participate in the semiconductor. The extreme UV or UV technologies are now going into lithography, which is of course semiconductor manufacturing for smaller and smaller feature sizes which are needed particularly for AI but also perhaps for other high performance computing applications. And there are some unique technologies where we're simply in the supply chain. We don't deliver complete systems of the largest lithography, UV lithography supply chain that is out there. Anybody can guess who that might be and we're very pleased we're providing some unique technologies from our research instruments business and I'm sure you've never heard of but it's now you know it's not insignificant anymore. Maybe it's 20 million dollars or something like that in the supply chain these aren't systems but it's a very very key and very unique technology position that that just adds a little bit of cherry on top of our semiconductor and advanced packaging metrology business that you're more familiar with. Yeah this is just a that's a very good trend and it's unusual for a life science or post genomic company but indeed we have it in our nanotools to some extent are just very applicable and very unique
spk08: there. It's wonderful. Great thank you. You're welcome. You're welcome Dan.
spk12: Our next question comes from Dan Arias from Steeples. Please go ahead with your question.
spk10: Morning guys thank you. Frank I really do apologize for asking this because you you said you'll be addressing nanostring later and so you know this may be an unfair question but if I don't believe you. Yes go ahead Dan. Sorry. It's less about the details and the financials and more just about the rationale. Can you speak to whether this is a deal where you just felt like the price is right to your point earlier or one where the diligence led you to a point where you felt like you were comfortable either with the legal side of the equation or the technical side of the equation and work around for some of the problems that are actually leading to the legal side. Can you just talk a little bit about how comfortable you got with the deal because obviously it is a controversial one. Thanks a bunch.
spk01: Yes so probably the answer is no because I don't want to talk about any of the litigation and all of these other things but strategically having a much bigger play in spatial biology with being able to acquire at a very reasonable valuation one of the two leaders in spatial transcriptomics is an unbelievable strategic opportunity. That's what that's completely what drives this deal. We're very pleased with their gene expression and counter-profiling business. We think that has some growth opportunities. It has good margins. Wonderful but the driver was spatial transcriptomics. So the Geomix and Cosmix and related product you know software and other product lines and that is a really big deal if you want to be a leader in you know spatial biology. We have a complementary but much much smaller spatial proteomics business with Canopy. They really are in adjacent markets. They don't really overlap. They're also you know what NanoString is doing is you know 100 times larger. So this really puts us on the map in spatial transcriptomics. We like their plexing capability. A lot of research customers that's really what they want. They're far ahead and I think they're pretty fundamentally ahead in spatial transcriptomics. So you know they're one of pioneers and we want to continue to support their customers in doing their fundamental and then very much also their translational clinical research where these spatial single cell transcriptomics tools are so you know needed for biomedical research. And that's in addition to proteomics and structural biology, glycoproteomics, spatial biology and there the bigger field is spatial transcriptomics and we had no presence in that. So for us this is a
spk08: huge opportunity and we seized it.
spk10: Okay appreciate you indulging me on that. And then I guess just the natural next question or one of them anyways is are you still on the for deals? Are you likely to do additional M&A from here? Thank you much.
spk01: I think we're going to be in the deal diet for a little while. I mean there's always small deals that come through you know sometimes as you know a lot of the smaller deals sometimes some of them had five million or ten million in revenue and some of them were literally addressing gaps that we had in our product line in preclinical imaging or in Raman process analytical technology or high trauma microscopy. Those are things that we've been eyeing for many years and sometimes more than a decade and when some of the companies then became available that fit perfectly into our optics or into our bioswim preclinical imaging we said wow this is great and yeah it all comes at the same time. Whereas two years ago it was very difficult with valuations then to agree on anything so we are value conscious we are ROIC conscious and so yeah this is a but in terms of larger deals we obviously need to we do wish to then deliver for a while and that's I think that's the answer on larger deals. I would not expect any additional
spk08: larger deals in that until we deliver some. Thank you Frank. You're welcome Dan.
spk12: Once again if you would like to ask a question please press star and one. Our next question comes from Josh Waldman from Cleveland research please go ahead with your question.
spk04: Hey morning guys thanks for taking my questions. I'll ask two and then hop off. First Frank can you comment on year over year orders in DSI and 1Q and whether the guide assumes any sequential improvement in order rates from here. I guess just you know more context on how you're thinking about the order cadence to support the full year organic guide would be helpful. And then for my follow-up Frank again wondered if you could comment or provide more context on the moving pieces within the calib business. I mean maybe you know more color on the revenue slippage you mentioned Tupper comps. I can't help but notice you didn't highlight Tim's talk this round. Yeah I guess just any more context you're seeing on the order front. How you're thinking about Tim's talk growth and any other you know kind of one-off or one-time pressures the segment may have seen this quarter.
spk01: Yeah so trying to take as many of the questions. So bookings I think we expect the normal seasonality that we have with bookings always weakest in Q1, strongest in Q4 and in between in Q2 Q3. They tend to be more comparable in terms of bookings. So that's what we expect this year as well. So normal booking seasonality to where to your first question I think would imply and a sequential step up not only revenues and margins which we've mentioned but also in bookings you know throughout the remainder of the year. Tim's talk I did mention of course the 4D proteomics and immunopeptidomics and glycoproteomics that's all. There was a picture of a Tim's talk ultra that's all in the Tim's talk platform. Very significant workflow and software and capabilities increases that we showed at the US UFO meeting in March. We have an ASMS around the corner right that's coming up in the second week of June in Anaheim. So that's obviously a biggie in the mass spec world. And yeah Tim's talk is doing well and the many platforms and the many new capabilities. It's just such a beautiful platform. As you peel the onions there's not only proteomics and then maybe plasma proteomics or single cell proteomics and now there's middle down top down, there's intact, there are these immunopeptidomics and unique PTMs and glycoproteomics, there's protein-protein interactions. It's such a rich field that one really now has to look at like a dozen subfields that all constitute proteomics and related fields and the instrument is very very suitable for that and along with new wetware consumables, with new software, with new workflows. So plenty going on there.
spk04: Frank I guess just on the revenue slippage was that Tim's talk or is it something else within Caled?
spk01: No it was also not only Caled and also with semiconductor metrology tools. Sometimes when one of these facilities by one of our large semiconductor metrology tools gets slips by a quarter or two and those very large customers that you all know by name tell you know they'll ship that in, March ship that in, whatever and Q2 and so on. So some of that was that, some of that was NMR and preclinical imaging MRI related. So this was not just on Caled but Caled had a very strong pump year over year I think one of the strongest. And
spk06: Q4, there was quite a bit pulled for into Q4 including within for example the optics business which is within Caled. So those those caused quite a distortion and is the primary driver of the lower organic growth in the first quarter.
spk04: Correct.
spk06: Okay,
spk04: okay appreciate it guys.
spk06: All right operator I think we're all set with questions. So we want to thank everyone for joining us today on the call. Brooker's leadership team looks forward to meeting with you at an event or speaking with you directly during the second quarter. Please feel free to reach out to me to arrange any follow-ups. Have a great day.
spk12: 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.
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