Bruker Corporation

Good day and welcome to the Bruker Corporation first quarter 2025 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Joe Koska, Director of Investor Relations. Please go ahead.

Good morning. I would like to welcome everyone to Bruker Corporation's first quarter 2025 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 presentation section of Brooker's Investor Relations website. During today's call, we will be highlighting non-GAAP financial information, reconciliations of our non-gap-to-gap financial measures are included in our earnings release and are posted on our website at ir.bruker.com. Before we begin, I would like to reference Bruker's safe harbor statement, which is shown on slide two of the presentation. During this conference call, we will 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, tariffs, 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 in our Form 10-K for the period ending December 31, 2024, as updated by our other SEC filings, which are available on our website and on the SEC's website. Also, please note that the following information is based on current business conditions and to our outlook as of today, May 7, 2025. We do not intend to update our forward-looking statements based on new information, future events, or for other reasons, except this may be required by law prior to the release of our second quarter 2025 financial results expected in early August 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 and of the expected impacts from U.S. policy changes and new tariffs. Gerald will then cover the financials for the first quarter of 2025 in more detail and share our updated full-year 2025 financial outlook. Now, I'd like to turn the call over to Brooker's CEO, Frank Laukeen.

Thanks, Joe. Good morning, everyone. And thank you for joining us on today's first quarter 25 earnings call. Bruker had a solid start to 2025 with double digit reported and constant exchange rate or CER revenue growth. We also had 5.1% organic revenue growth in our Bruker Scientific Instruments segment and better operating margin performance than expected. In short, our teams executed very well under significant uncertainties in key markets. In the first quarter and in April, at the important AGBT, ENC, ESCMID, and AACR conferences at the Alphabet Soup, we launched a number of very innovative performance-leading new products in spatial biology, cellular analysis, NMR, microbiology, and molecular diagnostics, all strengthening our high-value offerings in key areas of our strategic focus. I'll cover several of these important new products in a few moments, but the key message here is that in times of funding uncertainties, and in particularly, it is particularly important to enable our customers with unique and highly relevant new research and clinical capabilities. We also expect these meaningful post-genomic innovations to drive continued higher revenue CAGR differentiation for Bruker beyond the present ACCAgov headwinds in the U.S. and China. Let's begin on slide four. With the performance of the business in Q125, Then I'll walk you through the impact of recent U.S. policy changes and the new tariff regime, how we anticipate it will impact broker and how we intend to mitigate the resulting headwinds to our margins slightly more than half in 2025 and then completely by 2026. On Q125 performance, we delivered a stronger than expected first quarter. Brooker's Q125 reported revenues increased 11% year-over-year to $801.4 million, above our pre-announced range of $795 to $800 million, and significantly above prior expectations. Our constant exchange rate, CER, revenue growth was 12.5% year-over-year, including organic growth of 2.9%, with, as I said earlier, reasonably strong 5.1% organic growth delivered by our BSI segment, and a 9.6% contribution to revenue growth from acquisitions. If you recall, we did some of our larger acquisitions last year in the second quarter. Notably, performance in the biopharma end markets strengthened in the quarter and grew in the mid-single digits percentage. Our first quarter 25 non-GAAP operating margin was 12.7%, which was down year over year due to the expected M&A dilution from the strategic acquisitions I just mentioned that we completed in Q2 24. However, underneath, we again posted strong organic operating profit margin expansion of about 100 basis points year-over-year in the quarter. Our first quarter 25 diluted non-GAAP EPS was $0.47, down from $0.53 in Q124 due to expected and more recent FX currency headwinds. Please turn to slides five and six, where we highlight the first quarter CER performance of our three scientific instruments groups and of our best segments year over year. In Q1, BioSpin revenue was $208 million, with mid-teens percentage CER growth. BioSpin growth was driven by strong ACCA Gov revenue, including an ultra high-field NMR system in the UK, by industrial research and food safety markets, and a strengthening biopharma environment, as well as strong contributions from preclinical imaging and lab automation, the new ChemSpeed business. In Q1, our CALIT group had revenue of $280 million with mid-20s percentage CER growth. CALIT growth was led, as you might expect, by microbiology and infection diagnostics, including the acquired ELITECH molecular diagnostics business, as well as double-digit-plus growth in life science mass spectrometry, driven by strength in the TIMSTOF platform. Khalid saw robust growth in Europe and the Americas in strength in clinical, industrial, and biopharma applications, while ACCA-Gal's performance was moderate. Turning to slide six, in Q1, Brooker Nano revenue was $257 million, with CER revenue growth up by a single-digit percentage. Growth was supported by inorganic revenue growth from NanoString, which was not yet included in Q1 of 24, the year-over-year comparison. Strength in APAC-X China, Biopharma, and Akagov markets were partially offset by softness in Europe and China, as well as in X-ray and nano-analysis tools. Finally, first-quarter best CER revenues declined in the high teens percentage, net of intercompany eliminations, as our research instruments business saw weaker performance in the quarter. They had a very strong prior year comparison. And that also was combined with continued softness in the superconductor market for clinical MRI. Moving to slide seven. We highlight the recent innovations underscoring Brooker's leading commitment to advancing spatial biology announced first at AGBT and then expanded further at AACR in Chicago in late April. There's a lot of information on slide seven. Don't worry, I won't read it all. But it gives you a highlight. It gives you an idea about the breadth and depth and best in class performance of each platform, each significantly enhanced in terms of content or sensitivity or throughput, and of course, the completely unique paintscape. Maybe one theme that comes here throughout is that spatial is going multi-omics. Both our Geomax platform now allows HyFlex transcriptomics, of course, that's what we're known for, but also tissue proteomics. And that's also, by the way, true for our non-spatial encounter system that you may recall from the nanostring days. COSMICS with the whole transcriptome panel now that is ready for orders where we can really get 19,000 protein encoding genes at the transcriptome level is an unmatched research tool. And importantly, we've increased our detection efficiency by a factor of 2x. one of the areas that the customers were waiting for. Too much detail, let me move on to slide eight. Eight is an important acquisition, gets us into a different branch of diagnostics. This is not microbiology infectious disease, and it very much fits with our triple quadrupole mass spec strategy, which of course is very differentiated with our particular claim to fame and focus to chromatography-free or chrome-free point-of-need mass spectrometry using triple-quad targeted technology. This gives us the crucial assays and kits and consumables business. Recipe is based in Munich, been in business for over 40 years. Revenue is a little greater than 15 million, very profitable. And for the European market, it gives us the therapeutic drug monitoring and other kits for IBD and other things that we don't need to go into detail. This combination, kits, assays, contents with a diagnostic focus for therapeutic drug monitoring, And also, by the way, eventually drugs of abuse, because it cannot be so fast and inexpensive, with the DART Chrome-free approach is actually strategically quite exciting to us. And we think these two instruments plus assays and diagnostics coming together is a nice, is an important additional growth trajectory for the company. But we know you want to hear about the macro and aka gov, so let's go into it. Let me make sure I'm on the right slide. Yeah, I will now review our assessment and anticipated impact from U.S. policy changes regarding federal funding for academic research and the current tariff regime on Bruker for the remainder of 2025. Moreover, I will provide an overview of our additional cost initiatives, new pricing actions, and already ongoing and now accelerating supply network reengineering to partially mitigate at least half of the new headwinds in this year, fiscal 25, and then more fully in fiscal 26. So here we go. Our initial estimates are that U.S. policy changes to federal research funding, lower China stimulus funding relief, and some temporary revenue impact of new China tariffs on revenue will amount to an approximately $100 million gross headwind to our organic fiscal year 25 revenues before some mitigation. You cannot mitigate that much on the revenue side, but a little bit. Anyway, this $100 million fiscal year 25 revenue headwind is broken into three buckets. First, and that's a smaller and transient one, some fiscal year 25 China revenues that were to be shipped from the U.S., may be delayed, are delayed by customers, or may be partially canceled due to the current 125% Chinese import tariffs on U.S. goods. We're working with our customers to partially mitigate this impact with supply chain alternatives, tariff exemptions, or delivery delays, with the largest transient impact now expected in the second quarter of 2025. Then second, the strongest, but by far the strongest revenue headwind this year, not surprisingly, is related to U.S. ACAGOV markets as a result of research funding policy changes. For broker, we now expect U.S. ACAGOV revenue to be down 20 to 25% for this year. U.S. ACAGOV in fiscal year 24 had grown to about 10% of overall broker revenues, And in the updated guidance, we assume that the current academic funding uncertainty continues, even though we acknowledge there's some potential upside in the second half of 25 if NIH and NSF and DOE R&D grants begin to flow again without further delays. Anyway, we have not baked those in, so hopefully this is a floor. Finally, we do not think that the President's initial budget request for NIH and NSF will be passed by Congress as is, without an improvement. We expect it to be down, but not as much as the opening bid. Third, a headwind related to anticipated China ACCAgov revenue, as funding of the stimulus programs in China has been slow to be released by the provinces. Many shovel-reading projects, a lot of them with our instrumentation, high-end ACCAgov, but slow to release as they're probably watching tariffs and trade wars. This may improve throughout 2025, but at the moment, timing and amounts are uncertain. So there are a number of moving parts that could provide additional upside, such as release of China stimulus funding, German and South Korean stimulus funding, European defense and security investments. We see some of that. and for the semiconductor metrology strength due to the AI and machine learning trends, which are very profitable for us. So these factors could add upside, but we have not built them into our guide assumptions, hoping to provide a floor for 2025 with upside in any case more likely to benefit fiscal 2026. We also note that uncertainty around potential U.S. tariffs on pharma products could slow the encouraging recovery that we have seen in drug discovery and development markets in the last two quarters. And again, we have tried to take that into account in our guidance. So that was the revenue piece. Let's move to operating profit or margins. So with respect to 25 operating profits, the gross headwinds before our mitigation actions are pretty meaningful. So, first of all, the roughly 100 million of produced organic revenue previously noted is expected to lead to about a 50 million reduction in 25 operating profits. Moreover, Bruker imports about 75% of our U.S. product revenue, obviously not the services revenue, there's another piece to it, but of our product revenue, 75% is imported largely from the European Union and Switzerland, but also from Israel and Malaysia. the current U.S. import tariff rate of 10% from those countries would result in an additional headwind of at most of about $40 million to operating profit for the remainder of 2025, again before our ongoing mitigation actions. That's a gross headwind. U.S. tariffs on imports from China for Bruker have a negligible effect on Bruker, excluding some secondary supply chain inflationary effects, but we basically don't import any products from China. So in total, we therefore estimate gross headwinds for our 25 operating profits, primarily from U.S. agar.gov disruption and new tariffs, to be about $90 million altogether before our mitigation actions. Now, deploying our broker management process and strong leadership team that, as you've seen, has been really excellent, executing very well, not only this year, but for many years. We have already taken and are taking numerous actions to offset more than half of these margin headwinds this year, with the remainder expected to be fully effective next year in 26. Our mitigation actions include new pricing actions, additional cost-cutting initiatives, and supply network and manufacturing re-engineering. We estimate these mitigation measures will offset slightly more than half of the operating profit headwind for 2025. We then expect to fully offset these headwinds through price, cost, and supply network and manufacturing re-engineering by 2026. Fortunately, we're a very international company with a lot of flexibility, but it takes a little bit of time. Anyway, finally, factoring in U.S. ACAGOV and tariff headwinds, as well as the recent weakening of the U.S. dollar, a significant effect, as well as our mitigation actions and taking it all into our updated fiscal year 25 non-GAAP EPS projections leads us to a new guidance range for EPS of $2.40 to $2.48. So in summary, Bruker delivered strong CER growth and organic operating margin expansion in the first quarter of 25. We're experiencing new headwinds as a result of ACCA-Gov policy changes and tariffs. As always, we remain agile in responding to the evolving dynamics. Our management process is navigating us through these headwinds in 25 and setting us up for resuming margin expansion and strong EPS growth in 26 and beyond. So with that, let me turn the call over to Gerald, our CFO, who will review our financial performance in more detail and provide further color on our updated outlook for 2025. Gerald, go ahead, please.