Bruker Corporation

Good day, and welcome to the Bruker Corporation third quarter 2024 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I'd now like to turn the conference over to Joe Koska, Director of Investor Relations. Please go ahead.

Good morning. I would like to welcome everyone to Bruker Corporation's third quarter 2024 earnings conference call. My name is Joe Koska, and I am the Director of Bruker Investor Relations. Joining me on today's call are Frank Laukeen, our President and CEO, and Gerald Herman, our EVP and CFO. In addition to the earnings release we issued earlier today, during today's conference call, we will be referencing a slide presentation that can be downloaded from the Events and Presentations section of the Brooker's Investor Relations website. During today's call, we will be highlighting non-GAAP financial information. Reconciliations of our non-GAAP to GAAP financial measures are included in our earnings release and are posted on our website at ir.brooker.com. Before we begin, I would like to reference Brooker's Safe Harbor Statement, which is shown on slide two of the presentation. During this conference call, we will or may 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 our recent acquisitions, geopolitical risks, market demand, or supply chains. 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 our other SEC filings, which are available on our website and on the SEC's website. Also, please note that the following information is based on current business conditions and to our outlook as of today, November 5, 2024. We do not intend to update our forward-looking statements based on new information, future events, or for other reasons except as may be required by law prior to the release of our fourth quarter 2024 financial results expected in early February 2025. 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 third quarter and the first nine months of 2024 in more detail and share our updated fiscal year 2024 financial outlook. Now, I'd like to turn the call over to Bruker's CEO, Frank Laukeen.

Thank you, Joe. Good morning, everyone, and thank you for joining us on today's third quarter 2024 earnings call. Bruker continues to grow rapidly, and we have once again hosted double-digit year-over-year CER or constant exchange rate revenue, and above-market organic revenue growth in Q3 and year-to-date. Our Q3 24 CER revenue growth was 15.7% year-over-year, including several strategic acquisitions that have closed earlier in the year. Our Q3 24 organic revenue growth of 3.1% and Bruker Scientific Instruments or BSI segment organic revenue growth of 3.8% year-over-year were above market or at the high end of the life science tools market and come on top of our strong organic growth of 10.9% in the prior year, Q3 23, which obviously made for a tougher year-over-year comparison than what our peers typically faced in Q3. This is a testament to our multi-year project accelerate transformation into a fast growth company with increased exposure to many of the most powerful secular trends in our industry. Equally importantly, our broker management process and operational excellence programs are now driving rapid performance improvements in our recent strategic acquisitions in single cell biology, spatial biology, molecular diagnostics, and lab automation and digitization. With that, we have already delivered sequential operating improvements in Q3, which was our first full quarter including all acquisitions, and we also expect further sequential margin improvements in Q4. In this fourth quarter, we expect low single-digit organic revenue growth, in comparison to an exceptional quarter Q4 of 23, when Bruker grew revenues 15.9% organically year over year. So we are not benefiting from easy comps due to revenue declines in the second half of last year, but Bruker continues its sustained organic and fundamentally transformational growth. We again expect double-digit constant exchange rate revenue growth year-over-year in the fourth quarter of 2024. It is encouraging for us that despite delayed recoveries in biopharma and China demand, orders for our differentiated post-genomic, multi-omics, cleantech, Semicon tools, and infectious disease diagnostic solutions are gradually improving. with upper mid-single-digit BSI organic bookings growth in Q3 year-over-year. This has been the strongest organic order growth for BSI in over a year, and we anticipate that this trend will continue, supplemented by our first China stimulus orders in the fourth quarter of 2024. Please recall that for Bruker, there is typically a two-quarter lag between orders and systems revenue, so China's stimulus order could begin to benefit our P&L in the second half of 2025. Stepping back, it also has become evident that nascent recoveries in biopharma, emerging biotech, CRO, and China demand will not significantly benefit our fiscal year 2024 anymore. and accordingly we are lowering our fiscal year 2024 guidance. Integrating and improving our recently acquired businesses is making good progress and will further accelerate Brooker's remarkable transformation. We are confident in our ability to drive above market organic revenue growth with significant margin expansion in 2025 and beyond. If you turn to slide four now, Rupert's Q3-24 reported revenues increased 16.4% year-over-year to $864.4 million, which included a currency tailwind of 0.7%. On an organic basis, revenues increased 3.1%, which included 3.8% organic growth in BSI and a 3.2% organic decline at best net of intercompany eliminations. Revenue growth from acquisitions added 12.5%, which implies constant exchange rate or CER growth of 15.7% year-over-year. Our Q3-24 non-GAAP operating margin was 14.9%, up 110 BIPs Sequentially, but a decrease of 510 bps year-over-year, largely the result of our recent strategic acquisitions, which initially are margin and EPS diluted, but have added close to about $500 million in revenues of scale to broker, and even more importantly, have allowed us to enter or accelerate our presence in key growth markets for the next decade. In Q3 24, Bruker reported GAAP diluted EPS of 27 cents compared to 60 cents reported in Q3 of 23. On a non-GAAP basis, Q3 24 diluted EPS was 60 cents, down 19% from 74 cents in Q3 of 23. Gerald will discuss the drivers for margins and EPS later in more detail. Moving to slide nine, you can see broker's performance for the first nine months of 2024 with above LST market organic revenue growth of 4%, while non-GAAP EPS was down 12.2% as expected due to our transformative acquisitions. As reported, our first nine months of 2024 revenues increased by 13.1% to 2.39 billion with constant exchange rate revenue growth of 13.2% year-to-date. First nine months organic revenue growth consisted of 4.1% organic growth in scientific instruments and 3.7% organic growth at best, net of intercompany eliminations. We continue to work down our elevated backlog and await recoveries in the biopharma and China markets, which we expect to benefit us in the second half of 2025 and beyond. Our first nine months 2024 non-GAAP gross margin and operating margin and GAAP and non-GAAP EPS performance are all summarized on slide five. Right, please turn to slide six and seven now, where we highlight the year-to-date third quarter 2024 performance of our three scientific instruments group and of our best segment, all on a constant currency and year-over-year basis. Year-to-date, our Bruker BioSpin group revenue was 633 million and grew in the high teens percentage. There were two gigahertz class NMR systems in revenue in Q3 of 24, bringing us to three year-to-date. In the first nine months of 2024, BioSpin saw growth across academic government and industrial research markets outside of China, as well as strong contributions from our new automation software and services business. BioSpin has seen weaker bookings in China and BioPharma year-to-date, but has growing expectations for China stimulus orders beginning in the fourth quarter of 2024 and into 2025. Year-to-date, our Brooker Kelley Group had revenue of $773 million, and CER revenue increased in the low double-digit percentage, with growth in the optics, IR near IR Raman business, as well as strong growth in microbiology and infectious disease diagnostics, driven by the multi-bio type of franchise, as well as, of course, the recently acquired Elitec molecular diagnostics business. Calic growth was partially offset by slower performance in biopharma and in the applied markets. Please turn to slide 7 now. Year-to-date, broker nano revenue was $780 million, and CER revenue grew in the mid-teens percentage, with strong revenue growth in AgaGov, industrial research, and semiconductor metrology bolstered by the AI megatrend. Our recently acquired Bruker Cellular Analysis and NanoString businesses contributed inorganic growth. However, both of those businesses continue to be impacted by weakness in biopharma and life science instrumentation. Finally, year-to-date 2024 best CER revenues grew in the low single digits, net of intercompany eliminations driven by research instruments, RI, growth in accelerator and fusion research technology, as well as interaction from EUV technologies for OEM semiconductor lithography tools, also in support of AI. This growth was partially offset by softness in China and weak superconductor demand of our clinical MRI MedTech customers. On slide eight and nine, I'll comment on a couple of businesses. We always like to give a couple of case studies or examples, and often we talk about industrial research and clean tech examples. On slide eight, you see the rather broad set of tools and solutions that Brooker has And its various businesses and technologies listed at the bottom offer really across the battery value chain. We're approaching this or have approached this very strategically and really, really look very broadly rather than insertions of just one or two technologies for one or two problems. So cleantech in general, this is just one example. There are others. But this is a particularly good example of our broad strategic approach for industrial research and applied in cleantech, which, as we've said before, really isn't very cyclical and really has been a very nice growth and steady growth element. Something else on... Slide 9, you may be familiar that with our Sierra SPR systems, we had been in the SPR business with a high performance, very sensitive instrument for some time. But we launched earlier in this year the so-called triceratops, a very high sensitivity, high throughput instrument that we think is market leading in its performance. So this was developed over the last two or three years organically, and I think will give us a very strong play in the traditional SPR market for small molecule and large molecule screening. New is the Dynamic Biosensors Edition. That's an innovative company in Munich that joined us during the third quarter, and that has... provides SPR-like but somewhat different technology shown in the middle here. I won't go deeply into detail, but SwitchSense in particular is useful for the novel fields of targeted protein degraders or molecular glues where, in fact, three molecules bind to each other. And this SwitchSense technology has a somewhat unique capability to looking at pre-molecule dynamics, which is actually quite important for the latest trends in protein degraders and molecular glues. And finally, and perhaps the most exciting part of the dynamic biosensors acquisition, is that we really can open up the field of interaction cytometry, not interactions between molecules, but molecules and cells, obviously tremendously important for fundamental research, disease research, and for Target and other cell therapeutics, gene and cell therapies. And doing this at the single cell level is pretty revolutionary and unique. So here is our Helix Cyto opening up and pioneering the field of single cell interaction cytometry. Something you haven't heard before, but you'll be hearing it again. Anyway, moving back to the rest of the earnings call. In summary, Bruker again posted double-digit CER revenue growth and above life science tools market BSI organic growth in Q3 and year to date. However, we are not immune to the delayed recoveries in biopharma and China demand during the first nine months of 2024. Accordingly, as Gerald will explain in more detail, we are adjusting our guidance and we now expect full-year 2024 CER revenue growth of approximately 13% and organic revenue growth for the year of 3 to 4%. We continue to focus on driving improvements in our recently acquired businesses and our core and on providing innovative high-value solutions for the post-genomic era. We expect that our strategic expansion into single-cell, spatial, molecular diagnostics, and lab automation will further contribute to our goal of having profitable above-market growth and significant margin expansion in 2025 and in the years to come. So with that, let me turn the call over to our CFO, Gerald, who will review Brooker's financial performance and updated outlook in more detail. Gerald.

Thank you, Frank, and thank everyone for joining us today. I'm pleased to provide more detail on Brooker's third quarter and year-to-date 2024 financial performance, starting with slide 11. In the third quarter of 24, Brooker's reported revenue increased 16.4% to approximately $864 million, which reflects an organic revenue increase of 3.1%, and BSI organic growth of 3.8% all year over year. This is compared to a very strong prior year comp. As a reminder, our organic growth in the third quarter of 23 was 10.9 percent. Q3 2024 non-GAAP operating margin decreased 510 basis points year-over-year to 14.9 percent as a result of expected dilution from our strategic acquisitions and significant R&D investments in our post-genomic tools and solutions. We reported gap EPS of 27 cents per share compared to 60 cents in the third quarter of 2023. On an on-gap basis, Q3 2024 EPS was 60 cents per share, a decrease of 18.9% from the 74 cents we posted in the third quarter of 2023. We generated $38.4 million of operating cash flow in the third quarter of 2024 compared to 44.1 million. in the third quarter of 23. Capital expenditure investments for $32.6 million, resulting in free cash flow of $5.8 million in the third quarter of 24, down about $11 million year-over-year on lower gap net income and significant M&A-related expenses, partially offset by improvements in working capital. Slide 12 shows the revenue bridge for the third quarter of 2024, as Frank has reviewed earlier. Compared to the third quarter of 23, Brooker BioSpin's third quarter 24 organic revenue is up in the low double-digit percentage range, driven by strength in our magnetic residents and services businesses. In the third quarter of 2024, we recognized two gigahertz class NMR systems in revenue, compared to one gigahertz class system in the third quarter of 23. Brooker Nano organic revenue was up mid-single digits percentage, with strength in our semiconductor and advanced X-ray businesses, partially offset by softness and fluorescent microscopy. Calid organic revenue declined low single digits percentage, as strong performance from the multibiotyper and applied mass spectrometry businesses was more than offset by softness in biopharma. We delivered solid growth in the third quarter of 2024 in BSI systems and aftermarket revenue, with mid single-digit constant exchange rate growth in systems and strong double-digit CER growth in aftermarket. Geographically and on an organic basis, in the third quarter of 2024, our America's revenue grew in the low single-digits percentage. Asia Pacific revenue, excluding China, was up double-digit percentage. with China declining low double digits and European revenue declining low single-digit percentage all year over year. For our IMEA region, Q3 2024 revenue was up mid-teens percentage year over year. Slide 13 shows our Q3 2024 P&L performance on a non-GAAP basis. Non-GAAP gross margin of 51.2% decreased 150 basis points from 52.7% in the third quarter of 23 due to unfavorable product mix and expected temporary dilution from our recent strategic acquisitions. For the third quarter of 2024, our non-GAAP effective tax rate was up 100 basis points due to jurisdictional mix and an unfavorable discrete item in the third quarter of 24. Weighted average diluted shares outstanding in the third quarter of 2024 were 152 million. an increase of approximately 4.7 million shares from the third quarter of 23 as a result of our follow-on equity offering completed at the end of May. Finally, third quarter 2024 non-GAAP EPS of $0.60 was down 18.9% compared to the third quarter of 2023, primarily due to the expected temporary dilution from our strategic acquisitions. Slide 14 shows the year-over-year revenue bridge for the first nine months of 2024. Reported revenue was up 13.1%, reflecting organic growth of 4.0%. Acquisitions contributed 9.2% to our top line, while foreign exchange was a slight 0.1% headwind. Frank already covered the drivers for the first nine months of 2024. Non-GAAP P&L results for the first nine months of 2024 are summarized on slide 15, with the drivers largely similar to the third quarter of 24, and as explained on the slide. Turning to slide 16, in the first nine months of 2024, we generated $61.3 million of operating cash flow, down $83.3 million compared to the first nine months of 2023, driven principally by acquisition and restructuring expenses, lower profitability, and the timing of advances taxes and other items. We expect to see improved cash flow in the fourth quarter, the largest and most profitable quarter of the year. Turning now to slide 18, as previously noted by Frank, we no longer expect to see recoveries in biopharma and China markets to benefit our fiscal year 2024. And accordingly, we're moving down our 2024 fiscal year guidance. Our outlook for fiscal year 2024 now assumes revenues in the range of $3.34 to $3.37 billion and organic revenue growth of 3% to 4% for fiscal year 2024. We now expect the contribution from acquisitions to be approximately 9.5% year-over-year and for foreign exchange to be neutral to revenue. This leads to updated fiscal year 2024 reported revenue growth guidance in a range of 12.5 to 13.5%. For operating margins in 2024, we now expect a fiscal year 2024 operating margin of approximately 15%, with a greater than 300 basis points headwind from our strategic acquisitions. On the bottom line, we're now guiding to a fiscal year 2024 non-GAAP EPS range of 236 to 241, down from our prior range of 259 to 264, a result of lowered top line expectation and transition headwinds from our strategic acquisitions. Other guidance assumptions are listed on the slide. Our fiscal year 2024 ranges have been updated for foreign currency rates as of September 30th, 2024. To add color to the fourth quarter 2024 expectations, against the backdrop of delayed improvements in biopharma and China, and with organic growth of approximately 16% in the fourth quarter of 2023, which included three gigahertz-class NMRs as a comp, we now anticipate organic revenue growth in the fourth quarter of 2024 to be in the low single digits. As Frank mentioned earlier, we also again expect double-digit constant exchange rate revenue growth year-over-year in the fourth quarter of 24 and further post-acquisition sequential operating margin improvement. To wrap up, Bruker delivered above-market organic revenue growth in the third quarter of 2024. We also saw signs that demand for our innovative solutions is gradually improving. We look forward to providing an update to you on our fourth quarter and full year results next February. With that, I'd like to turn the call now over to the operator to begin the Q&A portion of the call. Thank you very much.

Thank you. We'll now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. In the interest of time, please limit yourself to one question and one follow-up. And to withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. And our first question comes from Puneet Sudha from Lear Inc. Partners. Please go ahead.

Yeah, hi, Frank. Thanks for the questions here. So first one, you know, you pointed out the biopharma and China won't help you in 2024, but how much of the guide cut is due to the push out of orders into maybe the first quarter of 25 versus orders that simply won't materialize. And you talked about high end of the mid-single digit bookings in BSI, but wondering if you saw any cancellations there in the backlog.

Okay, Puneet. No, we have had no, we never have seemed to have any material cancellations. I'm not aware of any material cancellations, so that's not an issue for us. Yeah, biopharma and biotech, after being seemingly maybe improving somewhat in the ability for biotech to raise funding. I think that has slowed down a little bit. Biopharma, we see a lot of cost-cutting, site restructuring, program consolidation, so they still seem to be preoccupied by that, and we really thought that we would get some lift from biopharma with a bit of a recovery in the second half of this year. There are some green shoots, but I wouldn't call it a trend yet. China is pretty significant if you really think year to date. The cumulative effect of China orders being weaker is in the double digits. It's actually about 20% decline year over year. So that's not far from 100 million in total over several quarters. And the cumulative effect of China orders, even in Q2 and in Q3, we saw that again seemingly getting pushed back as people are waiting for stimulus funding. you know, by now it has accumulated to where this isn't going to help us this year anymore. It's not going to help our P&L anymore as we thought it might in the second half of this year. On the encouraging side, there really is a lot of activity. We are beginning to see stimulus orders. Cannot quantify them yet, but it's probably going to be particularly beneficial for our BioSpin business. But we're also seeing it for other big-ticket items, mass spectrometers, microscopes, etc. So, And I would add, the life science, I've seen this from other companies, the weakness in life science instrumentation, generally related to biopharma, but also U.S. academic spending isn't super strong right now. Perhaps there's a little bit of hesitancy prior to the election. So these effects do add up to where we indeed wanted to lower our, and needed to lower our guidance for the fourth quarter and for the rest of the year.

Okay, got it. And then I have to ask a bit about 2025. I mean, you gave $3.10 APS expectations before on the acquisitions update call. Just wondering any change to that or any additional thoughts on 2025, just given the weakness that you're seeing from BioPharm of China and some academic tools?

Yeah, we're starting from a lower base. That's then anticipated. That's a given. Also, since a lot of the stimulus orders from China probably will be mostly for big-ticket items, those inherently tend to have two, three quarters delivery time. So as I said in the call, benefits from China stimulus may arrive in our P&L, so to speak, in the second half of the year. So we're not giving guidance for 2025 because Q4 will be so important, but it is definitely, it makes complete sense to lower estimates for 2025. Let me say that pretty clearly. And we will, you know, we'll obviously, based on Q4, then give our new 2025 guidance.

Okay.

Thank you.

The next question comes from Michael Reiskin from Bank of America. Please go ahead.

Great, thanks. Sorry, Frank, I want to follow up on that last point. I mean, you made a strong point in the prepared remarks of, you know, you're confident in above-market growth and significant margin expansion in 25. So just sort of what's driving that confidence this early, given there's still this visibility? And what do you see as the biggest swing factors? You know, you talked about China spending this a lot, but Like you said, there's a six-month delay between orders and revenues, so that's only contributing for the second half of next year, right? So what else do you see as tailwinds that give you confidence in above-market growth next year?

Yeah, very good question, Michael. So we still have pretty significant around excess backlog, if you like. We're still about seven months of backlog, which are normalized to be about five months. But beyond that, I mean, we've really had... We're very satisfied with the way the diagnostics business is going from MALDI PioCypher to the newly acquired ELISAC diagnostics. It seems to be generally, as others have reported as well, stronger at the moment than life science tools. Very good demand throughout the year and particularly in Q3 for semiconductor metrology that's really going to be a strong driver. And so we're pleased with that. Academic and government spending in other parts of the world, in the rest of APAC outside of China, has been actually reasonably strong and same in Europe. So there are enough strong drivers that There are strong drivers. There are things that are solid and there are things that still, you know, we are waiting for the recovery. We're actually quite optimistic about China seeing a significant step up in orders in Q4 and in the first half of next year because of that stimulus funding. But it's still difficult to quantify because we don't know what the... We can look at the opportunity funnel and we can't apply our average... percentage win rates that we normally have because it's just not known how many of these projects will all be funded but some orders are coming in we did receive stimulus orders in already in October as expected how much that will add up to we don't know yet so I think we're in good shape certainly also for the first half of the year to outgrow the market and in by the second half of the Next year, 2025, we do believe and anticipate that there will be some biopharma recovery and also that indeed China orders will pick up after the pretty pronounced weakness in the first nine months of this year. So that for both parts of the year, I think we're in good shape for next year to outgrow the market. What market growth will be, of course, we don't know yet. and a lot for other companies that will then kind of set the market level, probably with their guidance and our guidance, which we hope to give in early February, that will set the tone for 2025. But I think the fundamental trends that we have with multiomics, proteomics, these are all very good markets. Facial biology, we think there will be a lot of demand for that. And yes, lab automation is actually a little bit counter-cyclical. Lab automation and digitization companies that are cutting costs and cutting sites are making investments there. So I think our ChemSpeed acquisition is very nicely placed. The biggest driver, the strongest single driver, I would say is Semi.

Okay. That's all really helpful call, Frank. I just want to reconcile one other point, though. You did touch on You know, the backlog is really strong. Seven months, you've talked about that a number of times. You know, you talked about bookings growth. So, and yet on the other hand, you do have the revenue guide cut. And I understand that China has been weak. I understand that biopharma recovery hasn't materialized. That's all fair points. That's not new and that's not debated. But if the backlog is so strong, why aren't you able to backfill some of those orders? Is that a timing perspective where, you know, it's not so easy to move things around? I guess what I'm saying is just with that seven months of backlog, I thought that there'd be more support for revenues.

Yeah. Well, if you look at it sequentially, and we of course did, then the step up sequentially from this year, Q3 to Q4, is still very substantial, right? We're not quite reaching a billion dollar fourth quarter. It looks more like, you know, 965, 970 or so is the implication. That's pretty close to a billion. That's by far the largest fourth quarter quarter. that we've had. And the step up from Q3 to Q4 is very significant. That's about $100 million, actually. So it's not that we lack ambition here. I think it's just as you look at how these things line up, I think that's a prudent guide for the fourth quarter.

Okay. Thanks, guys. Appreciate it. The next question comes from Patrick Donnelly from Citi. Please go ahead.

Hey, guys. Thank you for taking the questions. Gerald, maybe one on just kind of the dilution from the acquisition, the margin impact. Can you just talk about where we are on some of that? You know, I know NanoString, obviously the biggest one. I think the guide was for 15 to 20 cents this year. You know, I know you had in the past said that could be half of that next year. Curious if that's still the right way to think about it and just what's going on with those deals. It felt like you guys had your arms around it, but maybe that dilution slipped a little bit. I just want to talk through that.

Yeah. Hi, Patrick. I would say generally the acquisition integration activities are on track, that we are progressing nicely. We've talked about historically the broker management process and how that's applied now into all these newer acquisitions, including the one you just mentioned. But, you know, while dilution – picture for us for 24 and what we see thus far for 25 is pretty solid. We aren't really modifying our dilution expectations with respect to 2024 or 2025 right now. We went through those, Patrick, I think, fundamentally at this.

So the type of, maybe to add, Patrick, The nanostring and cellular analysis businesses, we're still aiming to bring those to break even in 2026. And I think we're on track for that with really good management and really good enthusiasm by the acquired businesses, very aligned management teams there. So, yeah, we expect pretty significant margin improvement in each of the next three years. That's really on track. It would help, of course, to have a little bit more strength in life science tools and biopharma. That wind under our wing is not fully materializing yet, and so what others have seen in spatial biology and in life science tools, we concur that the demand there is on the weak side right now still.

Yeah, understood. And then, Frank, maybe just on the academic government market into next year, obviously a pretty impactful day here in the U.S., how are you thinking about just that outlook? What are you hearing from customers? What could change today? And just kind of that expectation going into 25 would be helpful. Thank you, guys.

Yeah, that's a good one, right? So once we know the outcome of this election, which may be tonight, may be in three or four weeks, You know, those in the biopharma industry are more concerned about one outcome. Those in ACAgov are concerned about the other outcome. And I think right now the uncertainty doesn't help, quite honestly, because people don't know where it's going. And my interpretation is that if there was one way or the other split government, that perhaps would avoid Extreme moves on taxation and price control and NIH funding, maybe that would be the best outcome for the businesses in our sector, including ourselves. But until we know that, maybe we'll know that. It's not only about the presidency. I know that's an exciting race there, but also about how House and Senate line up. And with split government, I think maybe some optimism and predictability of are there going to be tariffs, are there taxes, are there more price controls may come back. Right now, there's a lot of uncertainty and hesitancy is what I would say.

I appreciate it, Frank. Hopefully, it's not three or four weeks, but we'll see.

Yeah, maybe the House and Senate, we can figure out faster. Yeah.

The next question comes from Rachel Vatzendahl from J.P. Morgan. Please go ahead.

Great. Good morning. Thank you for taking the questions. So I wanted to follow up on one of the earlier questions here just on top line. So you reduced the top line organic growth guidance for the year by 250 basis points. Can you just break down that 250 basis point cut between some of the moving pieces that you called out across biopharma in China and if there's any other areas contributing to that? And then also, you mentioned that you're no longer assuming, you know, recoveries within biopharma in China, but can you just clarify for us, did either of those markets actually get worse sequentially, or were you just, you know, previously a little bit more zealous on what that recovery would look like into the back half and taking that out of the model at this point?

Right. So, got it, Rachel, I think. So, top line, the Effect of China is even stronger than biopharma. So China may be two-thirds, biopharma one-third, roughly. And in terms of things that are slowing us down a little bit there. And as we talk about recovery, we're actually optimistic on bookings or more optimistic on bookings. but believe that generally those, you know, now it's November, that really won't help us in the P&L in revenue anymore, at least not in a meaningful, in a significant way. Some orders will help us in, you know, the first half and others in the second half of last year. So we do believe in China recovery being very likely with the stimulus program. We cannot quite quantify it yet. But we're very optimistic about that. And, well, biopharma at some point will be done with their cost-cutting, right? And they're pretty aggressive about it everywhere. So I think at some point they'll find a new level to where they're reinvesting. I can't call the timing on that one. So China, I'm pretty optimistic that we have so much activity and orders beginning to come in. I'd be very surprised if we didn't have reasonably good China orders. in Q4 after relatively weak orders all year long. And yes, Q3, to your last part of your question, Q3 China orders were lower than what we had expected. And some of those we would have still been able to deliver in this year, but now with Q4, even then turning mostly into Q4 orders, perhaps also into Q1 and Q2, it's just not going to happen this year anymore.

Got it. Okay. And then for my follow-up, I actually did want to dig into that order dynamic. So you talked about how orders grew in the upper mid-single digits this quarter. Can you kind of break that down for us? You mentioned China was a little bit weaker, but any other trends on that order book? And then just around book-to-bill, can you give us book-to-bill in the quarter? And you've separately talked about how book-to-bill may not be you know, the best stat to look at broker on a go-forward basis. So should we still expect to get book-to-bill on a quarterly basis going forward? Will this shift to an annual stat at some point? And if so, when should we expect that shift?

Yes, all good questions, right? So book-to-bill in the third quarter and year-to-date has been below 1 and above 0.9. That's We do expect that to give that update annually. I think it's a more useful figure annually, but since you asked, so that's where it was. So the book-to-bill in line with what it had been in the first half of the year, no greater weakness or something like that. In fact, as you've said, the other measure is that in terms of organic BSI bookings growth, this has been the best BSI organic bookings growth in four, actually five quarters. So, you know... But it's nothing to write home about yet, but it is encouraging. It's going in the right direction. Despite the China weakness and biopharma weakness, which tells you that everything else is growing in the high single digits, since the two bad guys, biopharma and China, clearly are a drag. And China is down year over year. The other parts of the business have pretty good growth momentum. Now we could, certainly for the first half of the year, up next year, I think we're in pretty good shape. For the second half of next year, we could use some anticipated assist from China, stimulus funding, and from Biopharma turning the corner.

The next question comes from Tycho Peterson from Jefferies. Please go ahead.

Hey, thanks. No, you guys don't want to really talk about 25, but you did talk about significant margin expansion. I'm wondering if you can maybe just give us a high-level framework there. And then I just want to gut check, are you assuming a normal market next year, which you previously talked about as 4% to 5% growth?

In reverse order, we would assume a more muted recovery, maybe with a normal market by 26 or maybe in the second half of next year. We're not sure. But we don't expect a snapback in our estimates for next year. We expect an improvement over 24 for the full year for the market and not a normalized market yet. If that were to surprise us and it goes back to normalized growth rates of 45%, that'd be great. But right now we're modeling, we're expecting that for 26.

And I'm sorry, the first part of your question was... You talked about significant, you characterized it as significant margin expansion at 25. The street's at 110 basis points. I'm just curious if you can give us maybe what significant means in your view.

Yeah, north of that. So higher than 110 basis points. Yeah, it's too early because it will depend on Q4 orders. And that's not only the biggest close to a billion dollars in revenue, but it's also a very big quarter for orders. So we'll need those to give more meaningful numbers. But we're working very hard, you know, in cost avoidance, cost reduction, cost reductions, some headcount reductions throughout the business. And, of course, particularly working on the newly acquired businesses that are generally all diluted to margins, as we anticipated, but are great strategic expansions So with that, we would expect north of the number that you've mentioned in margin improvement. We'll be driving very hard for that. But I cannot give you greater bracketing or something like that. Clearly, it's going to be more aggressive than 100 bps.

Okay. And then a follow-up just on SEMI. I'm just curious if you can flesh out your comments there more. I know demand trends have been strong, but obviously some of the recent data points haven't been great. So What are you seeing and what are you thinking about next year on the semifront?

Well, year-to-date and in Q3, our semi-orders have seen very nice growth, double digits sometimes in certain segments, even greater than 20% to certain instrument segments. Sorry, not to clarify. So we think we should have a Semi would be at the high end of the broker growth rate next year. Whatever that number will be, the organic growth rate semi will probably be leading the charge. Okay. They didn't give you numbers, I realize this, but I can't really... I also do not just have the numbers. It's not just that I want to go into that type of granularity. but that specific number I don't have at my fingertips either and wouldn't really until we give. It's a totally fair question, Taiko, obviously, but I think if you ask that one again when we give guidance for 2025 in early February, then we'll be able to give you some color on here's our average guidance and this will be weaker and this will be stronger and SEMI will be up there among the strongest.

Okay, but no cracks based on what we saw from ASML and some of the other kind of end market data points. Is that fair?

So our iBusiness that is in the ASML supply chain with their not metrology but lithography technologies that not complete systems but systems that they eventually are in the site supply chain that is in the ASML supply chain, they have all accounted for them slowing down a little bit some of their initial expansion for euv and and the next generation of euv tools so that's all baked in it's still nice growth for us for us it's nice growth because we're getting into a new market um and we're all of a sudden part of an important you know small but important part of that supply chain so for us this is almost all upside great thanks

The next question comes from Josh Waldman from Cleveland Research. Please go ahead.

Hey, morning guys. Thanks for taking my questions. A couple for you. First, Gerald, I wondered if you could provide more color on what the business grew in the quarter excluding the two one gig placements and I guess how that compared versus your expectation. I mean, it seems like BSI may have declined in the quarter. Is that right? I'm just curious where you're most surprised or where you've seen the most abrupt pullback and how that informs your assumption for sequential progression in the Q4.

I think we had one last year.

We had one in the prior year quarter, and we had two in the third quarter. What I would say generally here, Josh, is that I think the trends we discussed earlier around biopharma in China were probably the areas that I would say were most disappointing, if we can put it that way, relative to our expectations. And we did have, as Frank's already discussed, we did have solid growth from a revenue perspective in the semi part of the business. Industrial cleantech was quite solid. So we had very significant encouraging bright spots. I would say the two that we've called out and this is particularly relevant for BSI, would be the biopharma in China, I would say.

On the gigahertz class, since you're asking, two of them in Q3 of this year. One of them was really intended originally for the first quarter of this year.

Yes.

The University of Georgia was one of the systems that was supposed to, but that ended up needing rework, so it moved from Q1 to Q3. And the Korea system had always been planned for Q3, and that's comparable to a Q3 system last year when we grew 11% organically and also had one gigahertz system. So if you want to adjust for two versus one gigahertz system, take 10 million or so if you want to model that. And for 2004, last year, we had three gigahertz class systems and 15.9% organic growth. This year, 2004, we're planning for zero or one. Okay.

Okay. And then, Frank, a follow-up on your previous comments. As you think about recent order trends, you contemplate what you think you can drive from the backlog. Do you think the low single-digit growth implied here in H2 is the right way to think about, you know, the medium term, you know, just given the typical two-quarter lag in REVREC and your comments on recovery into the second half of 25? No, no, no, no, no, no.

Actually, not at all. No, that's not the right way to think about this. Think about, you've got to look at 23, 11% organic growth in Q3. and 16% organic growth in Q4. You've got to look at our comps. So as I said earlier, I don't mean to be defensive here, but we're not just recovering from last year's drop. We're putting that onto our growth numbers on top of very, very good growth numbers organically, 11% and 16% respectively in the third and fourth quarter of last year. Now, mercifully, our Q1 comparison will get a lot easier, right? And Q2 comparisons will also not be comparisons to prior year quarters with double-digit organic growth rates as what we're facing right now. So the answer is clearly no. Don't take our second half 24 growth rates, extrapolate from that. They're only growth rates because of pretty amazing organic growth numbers in the second half of 23 that nobody else was even close to.

Understood. Okay. Thank you.

Okay. Thanks for asking the question, actually, because I think that's an important one for everyone.

The next question comes from Dan Brennan from TD Cowan. Please go ahead.

Great. Thanks. Thanks for the questions. Maybe just on kind of China stimulus, Frank, since you've called it out a series of times, I'm just hoping I can ask a few questions here just to get some color. So maybe the first one is like, what should we be looking at as kind of a stimulus program? You know, kind of we've tracked like a 500 billion yuan monetary stimulus. Is that the right one or are there others? And then B, like, do you expect as the China government is expected to announce a new large fiscal, excuse me, stimulus measures, Do you expect more money to come into instruments from that? And then I know you said during your prior Q&A that you really can't size it yet in terms of the impact for Bruker. But any way to think about potential implications for Bruker?

Okay. So I'm not aware of your good question. So the further Chinese fiscal stimulus is not baked into this in any way. The previously announced stimulus that is making it to the provinces and then each province moves at their own pace and with somewhat of their own priorities, although with a general framework of investing in scientific and medical innovation, that's the one we're talking about, right? How quickly it arrives, whether it arrives with orders in Q4. Some of that will arrive in Q4. We think it's not going to be a single quarter bolus this time, but maybe the orders come in beginning in Q4 and for all of next year. We kind of think it will be predominantly in Q4 and H1 of next year. So that's the one we're talking about. And sizing that, I mean... I would say it would be, you know, 100 bps of growth would be at the low end of that. However, it depends when that all comes in. It could help us mostly next year. Some of that could also go into 26. And yes, it might be more than that, but it's just very difficult because we cannot use our normal percentage. And normally I have a pretty good feeling I have 10 opportunities, I'm probably going to get six or seven, whatever the numbers are. And this time, the yield is just not knowable yet because so many people applied for these programs. A lot of our customers, we continue to think it will benefit academic research and big-ticket items in particular, which positions us very well within our business. I expect BioSpin to benefit the most.

Great. And then maybe this is a follow-up just on biopharma since that's been a weak spot here. I mean, would you care to give us a sense of what that business is growing for you? I don't think you've done that in the past, but other tools peers will give us a biopharma number. So just wondering in Q3 and how that compared to the first half and then related to that, like what should we be looking at, do you think, as like a proxy for when this improves? I mean, the headlines don't look great, but we just did an analysis on biopharma spending and it actually looked okay from an R&D basis. So is R&D not the right metric to look at, or just, you know, what should we be monitoring to see kind of when this could turn? Thank you.

Right, so biopharma, yeah, just trying to look at revenue versus bookings numbers and year-to-date, it is down, although not nearly down. So biopharma, as a catch-all, including biotech and CRO, is down for us this year, not as much as China. So it generally had been around 15% of our revenue, but that's going up. We wanted to grow also inorganically in biopharma. So our cellular analysis business, our spatial analysis business, nanostring, our chem speed business, business, they all benefit to a much more significant extent from biopharma than Bruker has traditionally. So very roughly, if Bruker traditionally had 15% of its revenue from biopharma, that's trending towards 20%. We're doing that at the worst time as biopharma is weak, but who cares? It'll come back, and by that time, we'll be very pleased that our exposure right now or opportunity in biopharma will have gone up further towards that 20% and beyond 20%, which we strategically wanted to have. If you recall, a long time ago, it was very close to 10%, so we were pretty underrepresented there. So down year-to-date, but not as much as China. And eventually, I think it will be at 20% and plus of our overall revenue. Maybe that helps you to triangulate. Great. A couple more questions. All right. Let's take two more questions.

Okay. Next question comes from Brandon Coulard from Wells Fargo. Please go ahead.

Hey, thanks.

Good morning. Frank, it looks like the M&A contribution for the year is coming down, at least at the margin, to about 9.5% contribution versus the prior 10. Is that rounding? Yeah. And if, okay. Any college or something, how will you take chem speed and nanostring if performed?

LUTech chem speed, great. Bruker cellular analysis and nanostring a bit weaker than expected, and primarily the biopharma piece, which is You figured it out immediately, Brandon, exactly. We took that from 10% to 9.5% because the biopharma demand for cellular analysis and spatial biology has been weaker than we had expected. That's related to the biopharma piece. ChemSpeed actually remarkably strong. It also serves other industries, but I said it's a little countercyclical in that even Big Pharma will consider very big CapEx investments and software investments, even if they're cutting programs, sites, and people. And Alitech is chugging along straight.

Okay, makes sense. Daryl, the guidance rate came down to $55 million in terms of revenue. EPS range 23 cents, that would imply close to 100% decremental margin. Can you just help me reconcile that math and why that makes sense?

Sure. So it's a little complicated, but let me start. On the guidance, we're actually dropping about $60 million from our previous guidance level. That translates actually into about $100 million of CER revenue. that's mostly driven by biopharma in China, as we've talked about earlier here. And, you know, we do get a slight benefit from the foreign exchange elements of that. You may recall that, you know, when the U.S. dollar weakens, we have a strengthening, you know, revenue. We got a tailwind. So, you take that $100 million of CER offsetted by a benefit related to foreign exchange, you get the $60 that I was referring to earlier.

And on the operating margin, it's the other way around. The FX changes that have been with the dollar weakening, perhaps because of the election or something like that, we got an additional 30 bps of a margin headwind. So...

Yeah, that's how it comes together.

Last question, and then I think we'll need to let you all go into the rest of your day here. We have time for one more question. Yeah, we can do one more.

The next question comes from Luke Surgot from Barclays. Please go ahead.

Great. Thanks for squeezing me in. I just wanted to kind of follow up on the China stimulus and how the, you know, you talked about early demand and the funnel kind of building there. But given we don't really know how the stimulus is going to shake out through the next year, you know, however that comes through. But is there a chance that, you know, the actual funds flowing through are not going to be enough there to satisfy that demand and that could ultimately lead to that elevated, you know, the elevated backlog of seven months instead of going to five months? Just kind of as you think about how that kind of paces through.

Right, Luke, good questions. So some of that China stimulus will come through. We're seeing some of it come through now. Some of it is going into tenders. We think those tenders are, you know, favorable for us, and we think they're specifically funded. So it's not that we worry about is it coming at all. It's just, you know, will it at some point add 100 bits to growth? Yes, but could that be the second half of next year and the first half of 26? That kind of would be a delayed help from the stimulus. It also could be a bigger effect. Certainly the activity is much, much larger and, you know, I just don't want to raise expectations, but it could be significantly more. So the funnel looks really good for big ticket items in particular. and not only NMR, but also on the mass spec and big microscope side and, you know, some other devices, preclinical imaging, EPR, you name it. So we're pretty optimistic that it will – well, we're very optimistic that it will help us. I've given sort of hopefully the lower end of how much help we might get from it, hopefully a little bit more, but it's too early to tell.

Yep, got it. It's all a timing thing. All right. And then here from a pharma perspective, I know that you guys don't, you know, you talk about 15, 20% of those revs and that's going higher of your total revs. So, you know, can you just kind of walk us through what you're seeing on, you know, you typically play more upstream on the drug discovery side. So can you talk about where particular things got a lot weaker for you for what you were originally expecting and and kind of the funnel or early demand outset for that as you exit the year?

Well, it will not surprise you to hear that CROs got hit the hardest, right, and not only Chinese CROs, but no, no, but also, of course, you know, there's some geopolitical gain for Indian or American or European CROs, but CRO demand, that's when big pharma cuts, they first cut what they give to the CROs, and then they cut internally. Well, we're seeing some pretty big pharma just doing a lot of cost cutting, kind of whether they need it or not, this is a good time for them to kind of, you know, streamline their programs, reduce programs, consolidate sites, reduce headcount. I am delighted to say that our proteomics and post-genomic era customers are not taking the brunt of that. So again, with the post-genomic markets and proteomics, multiomics, we're in a sweet spot because our customers are in a sweet spot. But even if they don't lose headcount or lab space, they're not getting a CapEx budget to spend right now in Q3 or Q4 while some other group is being, you know, eliminated or reduced or something like that. So, and, you know, biotech, emerging biotech funding has been tough, and even sort of early seed in Series A is now pretty difficult, and B and C has remained difficult. So I don't think there is a step up. There's selected... biotechs that do it because they have a very compelling late-stage program. But in general, I'd say that the capital markets funding is still very, very difficult from what we're observing. And, you know, that also delays leases or purchases of new instruments. Great. Thanks. Yep. Okay. Sorry. No, that's okay. Thank you very much. Sorry we ran a little over today. I hope it will be an eventful day. for America. Thank you very much for joining us today, nonetheless, and thank you for your interest.

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