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.

Thank you, Frank, and thank you, everyone, for joining us today. Pleased to provide more detail on Booker's first quarter 2025 financial performance, starting on slide 10. In the first quarter of 2025, we had another quarter of excellent execution. delivering a strong first quarter above our earlier expectations and the color provided to the investor community. In the first quarter of 2025, Brooker's reported revenue increased 11% to $801.4 million, which reflects an organic revenue increase of 2.9% year over year. Acquisitions added 9.6% to our top line, while foreign exchange was a 1.5% headwind, resulting in constant exchange rate revenue growth of 12.5% year-over-year. Geographically and on a year-over-year organic basis, in the first quarter of 2025, our America's revenue declined in the low single digits percentage. European revenue grew in the mid single digits percentage, while Asia Pacific revenue grew in the low single digits percentage, despite a 10% decline in China. For our IMEA region, revenue was up mid-teens percentage. We delivered strong BSI organic revenue growth in the first quarter of 25 at 5.1%, driven by strength in our BBIO and CALID groups. BSI systems grew in the mid-single-digit range, and BSI aftermarket revenue grew in the high single-digit range organically year over year. Our order book performance in our BSI segment was down slightly compared to the prior year first quarter, with softer academic government orders in the U.S. and in China. Non-GAAP gross margin increased 10 basis points to 51.3%, and Q1 2025 non-GAAP operating margin was 12.7%, which included 100 basis points of organic operating margin expansion on better mix and cost control, more than offset by planned M&A dilution as Q1 2024 did not include two of our largest strategic acquisitions that closed in the second quarter of 24. On a non-GAAP basis, Q1 of 25 diluted EPS was 47 cents, down 11.3% from the 53 cents we posted in the first quarter of 24, which did not yet include our key acquisitions last year. Our non-GAAP effective tax rate was 27.7%, compared to 26.7% in the first quarter of 24, with the increase driven mostly by an unfavorable discrete item. On a gap basis, we reported diluted EPS of 11 cents compared to 35 cents in the first quarter of 24. Weighted average diluted shares outstanding in the first quarter of 2025 were 151.9 million, an increase of 6 million shares or 4.1% from the first quarter of 2024 resulting from our follow-on equity offering in May of 2024. Turning now to slide 11, we generated $65 million of operating cash flow in the first quarter of 2025. Our capital expenditure investments were $26 million, resulting in free cash flow of $39 million in the first quarter of 2025. This reflects an improvement in free cash flow of about $39 million over the first quarter of 2024 driven by better working capital performance in the quarter. We finished the first quarter with cash, cash equivalent, and short-term investments of approximately $184 million. During the first quarter, we used cash to fund capital expenditures, select Project Accelerate 2.0 initiatives, and debt repayments. Turning now to slide 13, as Frank noted earlier, We're updating our fiscal year 2025 outlook to reflect a strong first quarter and the impact of recent policy changes and tariffs. We now expect reported revenues of $3.48 to $3.55 billion, representing reported growth of 3.5 to 5.5%. This guidance assumes organic revenue growth of 0 to 2%, an estimated tailwind from forward exchange of about 1%, and acquisitions to contribute approximately 2.5% to revenue growth. This implies constant exchange rates ER revenue growth of 2.5% to 4.5% all year over year. The revenue guidance includes an organic revenue gross headwind of approximately $100 million from recent policy changes and tariffs, partially offset by pricing and other mitigation actions of about $20 million. for a net headwind of about $80 million. We now expect our fiscal year 2025 operating margin to be roughly flat year over year with organic improvement of greater than 70 basis points, including mitigation actions to be roughly offset by headwinds from M&A and foreign exchange. Recent policy changes, academic government market weakness in the US and China, together with the current level of U.S. and China import tariffs, are assumed to be a $90 million gross headwind to operating profit in fiscal year 2025. We anticipate over half of this impact to be offset through our mitigation actions, including pricing, about $10 million, cost management, about $30 million, and supply chain reengineering, about $10 million, already in fiscal year 2025. On the bottom line, we're now guiding to non-GAAP EPS for 2025 in a range of $2.40 to $2.48. This translates to roughly non-GAAP EPS growth of 0% to 3% compared to 2024. Given the recent weakening of the U.S. dollar against major currencies, foreign exchange is now a 5% headwind to our non-GAAP EPS, implying constant exchange rate non-GAAP EPS growth of 5% to 8% for fiscal year 2025. Other guidance assumptions are listed on the slide. Please note our fiscal year 2025 ranges have been updated for foreign currency rates and tariff rates as of April 30, 2025. While there are other policy and macroeconomic risks that could further impact our fiscal year 2025 financial performance, with this updated guidance, we hope to have established a floor based on current headwinds and our robust mitigation actions. Given the lower base years of 24 and 25, it's now become clear that our previously communicated medium-term outlook targets are not likely to be realized under our originally planned cadence. We intend to provide updated medium-term outlook targets when we have a clear line of sight on U.S. federal research policy and funding and stabilized tariffs. Fundamentally, we remain optimistic that we've transformed Brooker's portfolio for above-market revenue growth, rapid margin expansion towards the mid-20% operating margins, and mid-high-teens EPS growth once new headwinds abate. Finally, to add color on the second quarter of 2025, given softer U.S. and China academic government market conditions and some U.S.-produced China revenue, likely delayed from the second quarter. We expect our second quarter 2025 organic revenue to decline in the low single digits, while constant exchange rate revenue is expected to increase in the low single digits percentage, both year over year. In the second quarter 2025, we also expect to see a transient year over year decrease in non-GAAP operating margin and non-GAAP EPS performance. with significant improvements in both metrics expected in the second half of this year. To wrap up, Bruker delivered a solid BSI organic revenue growth and organic operating margin expansion in the first quarter of 2025 under uncertain conditions. Moving forward, we remain confident in our ability to continue to execute well under a challenging environment. And with that, I'd like to turn the call over to Joe. Thank you very much.

Thanks, Gerald. I'd now like to turn the call over to the operator to begin the Q&A portion of the call. As a reminder, to allow everyone time for questions, we ask that you limit yourself to one question and one follow-up.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Puneet Sudha of LeeRank Partners. Go ahead, please.

Hi, Frank. Thanks for the questions here. And thanks for all the details on the tariffs for quantifying that. Could you elaborate if there was any pull forward in the quarter because of the tariffs worries or any other worries in the market that the customers might have had? And are you baking any impact from that as a result of that pull forward? And in China, I appreciate you mentioned cancellations, but are you seeing any cancellations in the U.S. or European markets, specifically maybe around UHF gigahertz magnets? I didn't hear guidance on that for the year.

Okay, Puneet, thank you. there really wasn't any pull forward that's being talked about due to tariffs or AcaGov. We didn't see that. However, we acknowledge that the UK 1.2 gigahertz system that we had expected for Q2, it just technically, it just went in easily. And so it got in in Q1. That wasn't a pull forward. That was just a really smooth installation. So that, you know, I helped Q1 a little bit, and of course, I wouldn't call it a pull forward. It was not a market-driven pull forward. To cancellations, we don't really see any China cancellations yet. Customers who don't have the budget to pay the extra 125%, for which they, according to the terms, would be mostly, we think, would be on them, They just don't, you know, they presently right now are a little bit in this holding pattern. Hey, don't ship yet. We can't accept it because we can't pay the import duties. It's not a big effect, but of course, in Q2, it's going to be noticeable, as Gerald explained. We do not see any cancellations. We see lots of uncertainties and delays in the U.S. and Akagaf. We haven't seen any cancellations because of that. So no cancellations yet. in China but delays and in some cases we are also simply rerouting and you know maybe building some of these systems in Europe or Malaysia so hopefully we can mitigate but you know sort of typically with a quarters delay okay that's helpful hopefully that answers your questions yeah

Yeah, thank you. And then when we think about the offsets, you know, obviously a lot of challenges in the market today. But when we think about the offsets, the AI chips, onshoring of that, the funding initiatives in Germany, maybe lower interest rates. Can you walk us through how are you, you know, thinking about some of those offsets potentially, you know, sort of mitigating the impact maybe into the second half?

Yeah, in terms of orders, they may. I mean, AI remains very strong in our tools. I mean, you know, of course, there's more important partners, but without us, the AI revolution also wouldn't work, right? TMSE absolutely needs our tools. I think they're our single largest customer in the world at this point. Of course, they're doing a lot of work both in Japan and in the U.S. They're also upgrading and investing in Taiwan. So that remains strong and has remained strong. In fact, for AI-driven bookings in Q1, we're quite strong. So that's strong. And a lot of the delivery times for these things are longer. When their fab is ready, middle of next year, you can't really ship it earlier. German and Korean and similar stimulus funding or European defense spending, the timeline, these are all good trends. Some of them are beginning to turn into order. Some of them just, you know, are very encouraging in Germany, I would say. That's nearly 10% of our revenue in typical years. But I don't think they'll make much of a difference anymore in revenue. And in our P&L this year, they are, however, you know, welcome tailwinds for 26 and even into 27, 28. So... AI will help us also this year. Although if I take an order today, it's probably for next year, but I have orders that I can ship this year and that continues to be strong demand. And yes, the onshoring in Japan, in the US, also in Europe plays a role, but that's also very significant continued investments by the leading, technologically leading companies in Taiwan and in Korea. So that's actually quite good.

Okay. I'll hop back into the queue. Thank you. Thank you, Puneet.

The next question comes from Michael Reiskin of BOA. Go ahead, please.

Great. Thanks for taking the question. Frank, I want to talk about a comment you made towards the end of the prepared remarks in terms of the medium-term guide being a little bit unrealistic in the current environment. So if we just focus on the U.S. policy changes, you mentioned Trump's initial proposal is 40%. cut, you don't think that'll happen because Congress will offset. But, you know, let's say it's 20, 25% cut to next year's budget, just to pick a number similar to what your assumption is for this year. How does Brooker offset that next year? Could you talk about, you know, how you would respond, what different levers you are, how we should think about possible ways to get around that, whether it's pharma, biotech, whether it's, you know, putting staff on AI and some of that, some of the more industrial tech parts of the business. Just sort of what steps would you take to offset that U.S. A&G cut that would be a little bit more medium term?

Yeah, no, you listed most of them. So I'll, as you've seen, our 24, mid-24 medium term outlook. 24, 25, the two base years, that's obviously changed. That's what we're talking about. So therefore, we are very committed to resuming very significant margin expansion this year. We had a lot more than the 140 bps lined up, and we're hoping to do much better than that. Turns out this year, we're kind of moving sideways because we're using all of these improvements plus new costs and pricing and supply chain actions to just deal with the headwinds this year. So, um, but you know, assuming no new, new headwinds, um, by 26 and beyond, I think, uh, this operating model, operational excellence integration, that all still works, but it kind of takes a, you know, with a one year shift because this year we're playing defense, but honestly, um, Right. I think all these trends that you did mention, biopharma has been picking up nicely our tools for biopharma, including those from spatial biology and beacon cellular analysis. You've seen we've not just done cost cuts, we've done incredible, fantastic, fast product development to resume growth in these businesses when the headwinds abate, right? We're doing very well with AI. Then we just discussed that with Puneet and you asked about it. That's doing well. European security and defense spending, European investment, quite honestly, infusion research, other clean energy projects are all helping us. So there's a lot of good growth drivers that are overshadowed this year, but that I think will play a bigger role next year. There's also some transient effects that we've explained a little bit that just go away. Your estimate that, you know, I don't know where NIH and NSF funding comes out once it gets through Congress. I'm pretty sure it's not the opening bit. Would it be, you know, but I think it will be down. I agree with you, it will be down. Maybe just not as deeply as proposed by the White House initially. But there are many other, I mean, Germany's not only looking at defense, they're really looking at significant R&D and innovation infrastructure and tools investments. And And other, the weakness of the America academic system, there will be other countries that try to, well, quite honestly, exploit that a little bit and say, oh, great, we can get some researchers. Let's give them a startup budget. So you see some of that dynamics. There's a lot of growth drivers that just most, we're not baking them in this year, even if they help us a little bit in the second half. Mostly, I think it'll be on orders. And, you know, we're just trying to set ourselves up for giving a baseline for 25, moving sideways a little bit with some organic growth and a little bit of EPS growth. Actually, EPS growth excluding currencies, reasonable for us this year in what we're projecting, and then really fully resuming fast margin expansion, EPS growth, et cetera, next year.

Okay. That's all really helpful. And then, Gerald, if I could squeeze in a follow-up for you. You mentioned a comment in your prepared remarks about order book and BSI down year-over-year on A&G in U.S. and China. Obviously, it makes sense given what's going on there. Any way you could quantify that, either via book-to-bill or just an order growth number? And then could you touch on your backlog, your existing backlog ability to offset maybe a lower order book at 1Q, 2Q this year, just sort of what that buffer gives you? Thanks.

With respect to the order performance in the first quarter, it was actually just slightly under the first quarter of 2024. The general composition of that was, well, we did see slightly weaker performance in academic and government research sectors in both China and the U.S. We saw strength, actually, in biopharma and in some of the industrial markets, including SEMI, of course. So I think, generally speaking, right now, we're reasonably well positioned on the order book in order for us to continue. These orders, of course, benefit as you march into the second half of 2025 and further into 2026. So I think, generally speaking, our general position is we're feeling pretty good about that. I would say on the backlog, we are still at seven months on the backlog level, so we do have some remaining backlog to be able to pull on in some of these quarters. We didn't see much, um, decrease in the backlog, um, drawdown level in the first quarter. So, um, we'll see how this all plays out over the next couple of quarters, but fundamentally we still have quite a bit of backlog, um, to be able to pull on. So I think that's the high level view, right?

And BSI book to bill just, uh, just below 0.95, not great, a little weaker in March as you would have expected, which is, you know, um, fits the overall pictures as expected. Not great, not bad. Great.

Thanks a lot, guys. I'll look at that. Appreciate it.

Sure. The next question comes from Patrick Donnelly of Citi. Go ahead, please.

Hey, good morning, guys. Maybe one more on the tariff side, encouraging to hear you guys offsetting that for 26. Can you just talk through, it sounds like pricing, cost initiatives, moving to manufacturing around, supply chain management. Can you just talk through, I guess, the new pricing assumptions, what you're doing on the manufacturing side? Just want to talk through that confidence level of offsetting it into 26 and preserving that number and, again, kind of moving into 26 with a clean slate on the tariff offsets. If you could just talk through pricing, manufacturing, cost initiatives that you're using to offset it.

Yeah. Yeah. Patrick, thank you. Good questions. So pricing, yeah, we're taking some U.S., but also some worldwide additional pricing action. I think for competitive reasons, we'd like to not go into that. It's not across the board, right? You kind of do it in a way that's smart and like all other companies in terms of supply chain. Yes, the usual things that you do as an international company. I mean, there are some products that you can do the final assembly and systems test. We can do it in the U.S., or we can do it in Europe, or we can do it in our Malaysia, Penang, Malaysia major manufacturing centers. And we're exploring all of that and looking at all of that. Vice versa, we used to do X-ray and mass spec and NMR final assembly and systems test. In the U.S., we're talking to third-party, you know, trusted contract manufacturers that are international that we're already using either in Malaysia or in Europe, quite honestly. And they have, you know, one of them has a facility here in New Hampshire and others have other U.S. facilities about onshoring parts of our production even. And for that, of course, we also need a little bit more visibility about where transatlantic tariffs or respect to Israel and Malaysia end up. Right now, we assume existing tariff rates, which may not be a bad assumption for where things end up, but then again, nobody is entirely sure. And yeah, cost actions, I think Gerald mentioned those, the additional cost actions. uh we expect this year to amount to about 30 million so pretty aggressive and by the way we didn't wait for that and you know that we that has started actually that started some of it has started right at the beginning of the year because we wanted to over perform our initial guidance and and then more of that has been significantly accelerated as more clouds moved in and uh so yeah and so here we that's that's the cost actions are significant. The supply chain, you don't see such a big number, 10 million this year, but that has a little bit more of a delayed effect that that will be a much bigger effect next year.

Okay, that's helpful. And then maybe a bit of a follow-up on Mike's question there. When you think about the academic market, Frank, I know you're talking about academic government, I think down 20, 25% this year. I guess when you look forward, Gerald mentioned that mid to high teens, earnings once these headwinds are absorbed are you thinking that the academic market one of the big questions again is this structural for the next few years right where this declines every year for the next few years or is it you know you rebase this year and then have opportunity for that piece to grow how do you think about the academic government exposure here and is this again with with the new administration in office is this structural until things change on that front over the next few years

Yeah, we still assume that U.S. AcaGov will be weak, on the weaker side next year. Of course, we don't have straight visibility about some of the budget negotiations. I know they'll be negotiated, but, you know, I don't think that Congress will then say, hey, never mind, Mr. President, we're going to have an NIH budget increase. But, you know, probably, hopefully, a lesser decrease. Other things, of course, You know, I mean, ECAGov, 75% of the ECAGov market for us worldwide is outside the U.S. That's doing well. There's even some stimulus funding. There is some, you know, that's actually one of the better pieces of our demand. In the U.S., we also expect it to be weak but probably growing compared to this year's more disrupted ECAGov market where there's also been, you know, the delays and the arguments over what's allowable overhead and indirect costs, and then certain universities being in political fights with, and, you know, some of them are big, right? Some of them that's not insignificant. So I think some of that we believe will be somewhat temporary, although temporary not one or two quarters, but, you know, for this year, and we still expect some weakness next year, although probably growth year over year compared to this year in the U.S. like I got. Right. Understood. Thanks. Thank you, Patrick.

The next question comes from Tycho Peterson of Jefferies. Go ahead, please.

Hey, thanks. Frank, I want to dig into your pharma comments. You mentioned strengthening biopharma a few times. So, you know, did it get better as the quarter progressed? Anything you can say in April? Is that, you know, mostly Tim's talk? And then, you know, in your guidance, you alluded to maybe baking in some pharma slowdowns. So, maybe just talk about the gives and takes.

Yeah, biopharma, as you know, we're partly in the late regulated, but mostly in the drug discovery and development. Yeah, biopharma has been increasing, you know, from a week base last year or before that even. Biopharma has been – had trended very nicely for us in Q4 already and in Q1. I don't really – you know, for us, because we're not primarily consumables, April, I can't comment. Taking that in and knowing that there's a threat of biopharma tariffs, we have, you know – put in a moderated recovery, a dampened recovery in biopharma, but not, you know, it falling back into a hole as it was maybe a year ago or so. Timstof, NMR, but, you know, also a little bit of spatial, of course, our cellular analysis, beacon tools, now that we have the new benchtop discovery system. We're having more and more. We're not a one-trick pony or a two-trick pony in biopharma anymore. So there's a lot of tools, including some process analytical tools and things like that, ProcessRama and some of the automation things from our ChemSpeed acquisition, some of the software that all supports efficiency and productivity and investments in pharma towards the digital lab and maybe eventually the lights out lab and things like that. So we have a bunch of things that are driving that. It's not only a one or two product story anymore. And that's all been, you know, reasonably healthy. Actually, it's been quite healthy the last two quarters.

Okay. And then follow up on M&A. You know, you're adding the Rossipi deal, just over $15 million or so in revenues, but you're not really changing your contributions here. It was two to three before. Now it's two and a half. So maybe just talk a little bit about, you know, what the offsets are on M&A. And are you kind of more optimistic on revenue synergies from some of the deals? Maybe just a scorecard.

now that we're kind of a year into these deals yeah chem speed is doing great better than expected with its automation demand in pharma and elsewhere so very happy with that um elli tech my god the most predictable business ever and they're doing well and in fact they did well again in q1 so uh that's a good space and they're doing a little better than our acquisition model they also did better last year in getting more platforms out that then over the first year after deployment. That's when the consumables fall through growth as they add more and more assays. Spatial biology and cellular analysis, they both suffered from weak pharma this year, and they're both suffering a little bit from weak academic this year. And of course, it gets harder to export things to China when there's 125% increase. So there, we're making great progress on taking costs out, on efficiency, on putting in a new management process. Amazing progress in new competitive products from cellular analysis and spatial biology, but they're both somewhat weaker than what we had expected because, of course, the U.S. ACAGOV this year, they both noticed that, even as biopharma, which was weaker last year, is recovering. So that's sort of muted, but I think we're still on track there for looking at a 26th break even for these two businesses. That was the quick rundown. Yeah.

The next question comes from Rachel Bedstelt of JP Morgan. Go ahead, please.

Perfect. Good morning. Thanks so much for taking the questions. So I wanted to follow up on Mike's earlier question around order book trends. Appreciate all the color you gave us on orders in the quarter and book to bill as well. But can you talk to us about your expectations for bookings going forward? Do you think we've kind of hit the bottom on orders? Are you expecting it to get worse as we get into the second, third quarter, given some of the headlines on NIH budget proposals? And then where are you expecting to exit this year on backlog, given you said you still have this seven months of backlog that you're working with?

I think the academic order weakness, I think, is just beginning. Q1 or maybe March, we saw just a little bit of that. But so U.S. academic orders and a lot of that headwind this year, I think you'll see that in weak U.S. academic government orders in the U.S. in Q2, Q3. probably in Q3, and we'll see whether there is some budget flush and grants moving through finally with much delay. So I think the brunt of that is now coming in Q2 and Q3, hence the revenue headwind that we've taken into account in this new guidance and that we've explained. We have enough other strengths in our forecast that we still think will come out at the end of the year with a six and a half to seven months backlog. So I know we're all focused on U.S. ACAgov and every day there's a usually not very nice headline. But there is other stuff that we do, and we are so diversified and so international that we actually still, we think our long-term normalized backlog should be around 5x now that we have much more consumables in aftermarket that's a little lower than historically when we would have said 5.5x. And I think at this end of this year, we'll almost certainly be at 6.5, possibly still at 7. So that's stubbornly high, which is a good thing, of course. And you see, I mean, we've outperformed in Q4. We've outperformed in Q1. Q2 will be tougher because of some of the transient effects. But I hope that helps your modeling and gives you some additional insights on the timing.

Yeah, no, that was great, Collar. Thank you, Frank. And then just my follow-up, I wanted to dig into some of the China stimulus comments. You called out that being a little bit slower in light of the terrorist situation and provinces just being slower to release those funds. So can you unpack that for us a little bit more? How much stimulus revenues did you guys recognize in China in the first quarter? And then are you assuming any China stimulus revenues for the rest of the year?

Thanks. I know more by orders, it was low. It was very little, less than 10 million, certainly. Uh, in Q1, as I would think most of the provinces are hanging on to the money if they have it. Um, so it's been deferred while China is trying to figure out what's, you know, what's going on with tariffs and trade war, I assume. Um, so it's, it's, yeah, it's been delayed essentially. And as I said earlier, we have not baked in by now, you know, not may. have not and until that gets even if it got released and then turned into orders well most of these orders then would might come in in q3 and by that time because there that's a lot of high big ticket cutting edge and leading edge performance things that they order on these stimulus packages most of that would go into 26 for our revenue so we don't expect China stimulus to be significant in our P&L in 25.

Thanks, Frank.

You're welcome, Rachel.

The next question comes from Luke Saragot of Barclays. Go ahead, please.

Great. Thanks, guys. kind of dig in a little bit on the 2Q, get some cleanup modeling. You know, can you just help us with the guide assumptions by the segment for BSI and best, you know, what that what's embedded there for that low single digit constant currency growth kind of FXMA. And then on the operating profit, you know, I understand that the cost outs, excuse me, for that 90 million or the mitigation efforts for that 90 million turn into 45. Like how much of that 45 net are you guys looking to hit in that 2Q?

In Q2? Gerald? That's a long-term thing. We get the question. Yeah, I appreciate it. Probably more of that in Q3 and Q4, right?

So some of the mitigation actions that we've already put in place, particularly around pricing and supply chain items are not going to fall into the second quarter for sure. It's really more about our cost management elements that we're pushing hard on for sure and that will have some modest impact in the second quarter, which is why I think we've triggered a more significant reset on the second quarter expectations. But once those elements kick in, specifically around the the third and the fourth quarter, I think there's an expectation that our financial performance at the EPS line will improve sharply in the third and the fourth quarter in the second half of the year. It's sort of the big picture.

So as we've been already slowing hiring and using retirement and attrition and so on, we've been doing that. But some things we can actually implement relatively flexibly. I'll give you an example. In Switzerland, and if needed also in Germany, in certain businesses, we can pretty quickly turn down our production capacity by almost about 20% with this. short-term work mechanisms where basically people end up working 20% less and they're still paid like 95, 98% because the government kicks in for up to two years. That's a great way of keeping your highly trained workforce and then ramping them back up, you know, six months or 12 months later, whatever it will be. And we've already doing that and we've announced that in Switzerland, for instance. So it's a very smooth and fast mechanism and it doesn't require It doesn't cost you as much on the gap side in terms of restructuring and cash, and you can also implement it very quickly. But very quickly means still it's mostly going to have a Q3 and Q4 effect and maybe a tiny bit of an effect. It will be effective as of Q2, but it won't move the needle financially yet in Q2. Okay, thanks. Of course, I'm sorry, there are things like discretionary spending and hiring, and we're doing all of these things. also things that you do on pricing until you put them in the price list and get a new order until you that that then works out in pricing also has always a time delay that's why these things do have a effect more into the second half and then much more significant annualized effect next year yeah okay understood and then i guess when you talk about the other regions that are doing stimulus like south korea and germany and japan like

I understand that this is more of an out-year dynamic and potential tailwind, but we have a little context for what those countries have done in the past from a stimulus perspective. Have you done any work or have any insight there of what this could look like? Would this look like something like China's stimulus in the past where you just get a huge bolus, or is this more infrastructure and more secular?

Yeah, and I think in Korea, a number is known, and there was also, I forget, it was over three years or something like that, and it was, Joe, do you have the number? 23. 23 what? Billion. Of what currency? U.S. dollars? Yes. Okay, so over three years or so, so meaningful. Germany is huge, but it'll pay for a lot of other stuff, so it's kind of 50 billion per year over the next 10 years. Some of that goes into defense, right? We do have some detection equipment that on the margin goes there. So that's a good trend for us in one of our little niches. A lot of it is supposed to go into innovation and technology regaining or expanding where they have a technology leadership. So there's some, we're pretty optimistic that a fair, but I can't quantify it. Because it's also, as you know, the new government was elected yesterday, finally. And so they have some really big numbers. Some of that will build bridges. Some of that will build tanks. That won't really help us, although it may be good for the economy in general. But a lot of that probably will also go into innovation, including into life science tools. And so can't quantify it yet. and it'll almost certainly be 26 and beyond, but could be not just a bolus, but a little bit of a longer-term trend.

Great.

So we'll probably keep going for another five minutes or so, going over a little bit. For those who want to stay, we'll try to get to a few more, a couple more people on questions. All right, we move on to the extent they're still on.

Okay, the next question. comes from Sue Bunambi of Gutenheim. Go ahead, please.

Hey, guys. Good morning. Thank you for taking my question. Agree, best is only 10% of the revenue, but do you expect the clinical MRI Supercon to eventually improve for Broker, given that it's taking some time for AI trends to impact your revenue? One of the things with Broker's strength is the diversified product portfolio. and therefore not seeing strength in one of these segments when economic government is down, always remains a question. Like the diversity card portfolio is supposed to offset all these weaknesses. That's why I'm asking about it.

So you're talking about the best portfolio. Did I understand that correctly? Yeah.

That's right.

Yeah.

Yes.

I think that's going to be a slower recovery in the MRI market. Obviously, these are other big healthcare companies that you're all familiar with, and the trends there don't fluctuate all that much, so we expect that to be a weak year for best. And a reasonably better year for the nearly 100 million RI research instruments component. They just had a tough comparison in Q1 year over year. They had an incredible Q1 of last year. So the RI business, I think, will be not growing fast, but be steady. And the superconducting materials business this year will be weaker, probably for the full year. but not as pronounced in a percentage as you would year over year as you've seen in Q1. It'll be much more, it'll stick out less. All right, we have one more question for us. Thank you. Thank you, Subbu. One more question if the next person is on there.

Okay, okay, the next question comes from Doug Shankle of Wolf Research. Go ahead, please.

Hey, good morning. One question, I guess what I would call portfolio evolution, and then just to follow up on China. So portfolio evolution, some of your bigger acquisitions over the past couple of years ostensibly served to move your revenue mix away from China and into areas outside of academic research. I'm not saying those were the primary motivations, but they're certainly features of a lot of those deals. So China seems like a complete black box right now, and it seems like it plausibly could be structural. Academic government funding, as we've talked about extensively, is at risk globally. So I guess what I'm wondering is when would you expect the deals you did in 23 and 24 to grow year over year on a same store sales basis? Is that going to happen in 25 and 26? Are we kind of in the background starting to see the benefits of portfolio evolution? So that's- Oh, absolutely, definitely. Why don't we answer that and we'll come back to China in a second.

Okay. And then we'll wrap it up. So, yeah, absolutely. The portfolio evolution is already visible. I mean, you know, diagnostics is steady and as can be. And, you know, when other things are weaker, steady, high single digit growth in diagnostics, molecular microbiology is awesome. Of course, also a lot of consumables, so that works. The automation and multiple smaller software, scientific software acquisitions, I kind of take them a little bit together because they feed each other towards the digitized lab, more automated lab. That's all working really nicely, and even as people are little people, biopharma and other industries, cleantech and fine chemicals, love to invest in that because they either can't find the staffing or They're prepared to do it with more productivity and less hands-on time. So those are all good trends. The investments of, you know, the old Berkeley Lights, which is cellular analysis, the Beacon platform, as many of you know it, and about that third of spatial biology that does go into biopharma. Yeah, they're helping us in the biopharma recovery. So that a lot of these things are already active and are offsetting some of the ACAGOV weakness. Without the portfolio evolution, including the pretty rapid evolution with our acquisitions in the last five, six quarters or so, this would be a tougher call. And maybe we wouldn't, you know, maybe we'd go down organically this year. We think we'll still grow a little bit despite all of the headwinds. Okay, thank you for that. China is hard to read, I agree.

Yeah, my question there was just going to be, and I know I'll keep it tight. You know, if we think about even what you guys were saying, you know, a month, month and a half ago about orders related to China stimulus, you know, it obviously sounds different today and has changed in that period. My question is really, do you think in general your visibility on what's going on in China and what's going to happen in China is just a lot lower than it has been for the last decade? And do you think you have that adequately captured in guidance at this point?

It is lower, and I hope we've got it captured because we're not built You know, there is stimulus plans. It's amazing when some of our executives are over there. The projects that are, you know, ready, approved by the university, maybe even approved locally, just no funding yet, would be quite favorable for us in NMR, Mass Spec, and other fields. But the funding doesn't get released. And I don't know whether it gets released ever or in Q2 or Q3 or Q4. And I don't think they know. However, unlike past China stimulus programs, which were sort of one or two-quarter wonders, this one seems to be much more sustained. And so some of the professors or PIs of large consortia for academic medical research, they say, yeah, yeah, this will get funded. We just don't know whether this year or next year, and worst case in three years. But this will get funded. This is a priority. It's more that, but the timing is really, there is no visibility into timing and they don't have it either. It could be next quarter. It could be next year. They're all pretty confident they'll get it. So that's the answer. I wish I knew the timing, but that's how it works right now. Yeah. All right. 9.40, so we're 10 minutes over. Yeah.

Okay, this concludes our question and answer session. I would like to turn the conference back over to Joe Koska for any closing remarks.

Thank you for joining us today. Brooker's Leadership Team looks forward to meeting with you at an event or speaking with you directly during the second quarter. Feel free to reach out to me to arrange any follow-ups and have a good day. Thank you.