Bruker Corporation

Good day and welcome to Bruker Corporation's second 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 a touch-tone phone. To withdraw your questions, 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 second 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 our President and CEO, Frank Laukeen, and our EVP and CFO, Gerald Herrmann. 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-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 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 acquisitions, geopolitical risks, tariffs, foreign currency, 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, 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 on our outlook as of today, August 4, 2025. 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 third quarter 2025 financial results, expected in early November 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 and updated thoughts and assumptions around the U.S. and global funding environment and tariffs. Gerald will then cover the financials for the second quarter of 2025 in more detail and share our updated fiscal year 2025 financial outlook. Now, I'd like to turn the call over to Brooker's CEO, Frank Laukeen.

Thank you, Joe. Good morning, everyone, and thank you for joining us on today's second quarter 2025 earnings call. Life science research instruments markets are under pressure at the moment, with expected U.S. academic funding headwinds and China stimulus delays for high-end research instrumentation. In addition, global tariffs, pharma pricing, and economic uncertainty in the second quarter have delayed biopharma and industrial research instrumentation investments. This resulted in lower than anticipated bookings and revenues in the second quarter. Our Bruker Scientific Instruments, or BSI segment, book-to-bill ratio was in the mid .9 range in the quarter, which was not great, but also not too bad. We anticipate that the third quarter will bring additional visibility on U.S. NIH and NSF funding, both for the remainder of fiscal year 25, as well as for fiscal year 26 federal research budgets. We are encouraged by several recent settlements of disputes between major universities and the federal government, and we anticipate additional settlements to allow the resumption of grants for important scientific and medical research. On academic and disease biology research, we believe that our unique postgenomic tools will be in significant demand in all geographies, and in particular also when China releases its stimulus budgets for high-end medical research instrumentation. Moreover, as U.S. tariffs for many major countries and trade blocs get settled in early August, we believe that global biopharma, industrial, and semiconductor companies will accelerate their investments in next-generation drug discovery and development systems, as well as in research and quality control tools for advanced materials, cleantech, and semiconductor research and production. We are observing where U.S. tariffs on Swiss imports will settle, and we anticipate that ultimately it will not be at 39%, the rate communicated last week. In a worst-case scenario for Switzerland, we intend to leverage our other European Union and U.S. factories for products designated for the United States market. Bruker is poised to resume above-market growth, particularly in the next-generation systems needed for disease research and drug discovery in view of the greater biological complexity revealed by the emerging post-genomic view. Similarly, the enormous investments in artificial intelligence are very beneficial for advanced and often unique semiconductor metrology tools. Finally, we have strong positions in microbiology and infection diagnostics with an exciting roadmap of medically needed and differentiated capabilities. Back to our second quarter, the stronger than anticipated organic revenue decline, coupled with higher U.S. tariffs and stiff currency trade winds from a declining U.S. dollar, caused margins and profitability to come in below our expectations. On our first quarter call, we discussed our mitigation, our mitigating price, supply chain, and cost measures, but these take two to three quarters before they fully benefit our operating results. Today, we are announcing a significantly expanded cost savings initiative that is expected to reduce our annual costs for fiscal year 2026 by $100 million to $120 million annualized. These major cost reductions affect all parts of our business, from supply chain and manufacturing to our commercial, administrative, and R&D investments. These are difficult but necessary decisions to right-size our cost structure to match the trough demand levels currently seen in the market. As a result of our weaker second quarter performance, we are lowering our guidance expectations for fiscal year 25. We now expect approximately flat constant exchange rate revenue growth and organic revenue decline to decline minus 2 to minus 4% for the year, with a mid-teens percentage non-GAAP EPS decline year over year. Looking beyond 2025, even in a muted revenue growth scenario in fiscal year 26, it is our intention to deliver very significant margin improvements and double-digit EPS growth just based on our major cost reduction initiatives. If there also is a partial growth recovery in advanced life science research and drug discovery tools in fiscal year 26, then this could provide additional tailwinds. Beyond 2026, we expect to return to our stated goal of organic revenue growth, 200 to 300 bps above market, which we delivered many years in a row. And with rapid margin expansion and double-digit EPS growth, once academic, trade, and economic uncertainty abates. This is driven by our exceptional innovation in next-generation disease research and biopharma drug discovery tools for the post-genomic era. This is also driven by other Bruker-specific growth drivers from semiconductor metrology for the AI revolution to unique applied and diagnostic solutions. Turning to slide 4 for our Q2 2025 performance. As I just detailed in the second quarter of 2025, we faced delays in many end markets, most notably biopharma and industrial, which drove both the top and bottom lines to come in below our expectations. Brooker's second quarter, 25, reported revenues decreased 0.4% year-over-year to $797.4 million, which included an FX tailwind of 2.9%. On an organic basis, revenues decreased 7.0%, which included a 7.2% organic decline in BSI and a 4.8% organic decline at best net of intercompany eliminations. Revenue growth from acquisitions added 3.7%, which implies a constant exchange rate CER revenue decline of 3.3% year-over-year. Book-to-bill in the quarter was in the mid .9 range. Our second quarter 25 non-GAAP operating margin was 9%. a decrease of 480 bps year-over-year as lower revenue absorption, additional tariff costs, and currency headwinds were only partially mitigated in Q2 by our earlier cost and pricing actions. In our second quarter 25, diluted non-GAAP EPS was at 32 cents, down 39% from 52 cents in the second quarter of 2024, on organic revenue decline, impact of tariffs, and foreign exchange headwinds. Gerald will discuss the drivers for margins and EPS later in more detail. Moving to slide five, our first half 25 revenues increased by 5.0% to 1.60 billion. First half organic revenue declined 2.3%, consisting of a 1.4% organic decline in scientific instruments, or BSI, and an 11.5% organic decline at best, net of intercompany eliminations. Our first half 2025 non-GAAP growth and operating margin and GAAP and non-GAAP EPS performance are all summarized on slide five. Please turn to slide six and seven, where we highlight the first half 2025 performance of our three scientific instruments group and of our best segment, all on a constant currency and year-over-year basis. In the first half of 2025, BioSpin group Revenue was $403 million and was roughly flat year-over-year. BioSpin saw contributions from NMR, preclinical imaging, and lab automation, while the scientific software business was soft. BioSpin saw weakness in biopharma revenues and softness in orders both in academic and applied markets. For the first half of 25, Calig Group revenue of $566 million increased in the low teens percentage. with strong growth in microbiology and infection diagnostics, driven by the MALDI Biotyper and the Bruker Elitec molecular diagnostics business. Our applied mass spectrometry business saw robust growth, which offset some softness in the life science mass spectrometry business. Turn to slide seven now. First half 25, Bruker Nano revenue was $509 million and grew in the low single-digit percentage. Spatial biology contributed growth in the first half of 25, while revenues from advanced x-ray were down year over year. Strength in pyelopharma was partially offset by weakness in industrial markets. Finally, first half 25 best revenues declined in the low teens percentage, net of intercompany eliminations due to softness in the clinical MRI market as well as a strong priority comparison for the research instruments business. Moving to slide eight, we highlight some of our recent innovations in the second quarter at ASMS. Obviously, an almost unprecedented lineup of new and market-changing instruments from our TIMSS product line, as well as in NanoLC. I won't go into these in detail today, but they significantly enhance our competitive position in traditional bottom-up proteomics while also getting us ushering in a new era of functional proteomics and proteoform analysis with the Tim Zomni. We had very good orders since ASMS already. And finally, a very serious play in benchtop 40 metabolomics, with the TIMSS Metabo launch with very high sensitivity and because of the four dimensions and unprecedented annotation continents being very well received in the market. Let me move to slide nine, probably the key theme for today. How are we navigating through this macro and research instruments weakness? You are aware of the U.S. academic funding disruption. For high-end research instrumentation for academic and medical research, China stimulus continues to be delayed, although our customers remain optimistic for release in the second half. And in the second quarter, we saw that drug discovery and industrial research tools saw CapEx delays and weakness in both of these segments. We're looking forward to more visibility on what time frames they'll recover once tariffs and other items settle in. We also had more tariffs and FX cost headwinds, so a lot of headwinds in this second quarter. We focus on our industry-leading innovation and continue our strategy to reaccelerate growth. and enhance market share in the post-genomic era in academic and medical research, but also very much in biopharma drug discovery tools when they come back. Very importantly, we're broadly expanding our cost reductions, which we had begun previously, but we're expanding those with a goal of $100 million to $120 million of annualized cost reductions to improve margins and profitability, and we're obviously looking for a very significant step up in fiscal year of 26, driven just by the cost reductions and hopefully some emerging recovery in the markets. Of course, we are seizing new opportunities in spatial biology and multiomics, our very large growth drivers, even if they're muted at the moment, as well as new growth drivers in lab automation, scientific software, India improving semiconductor metrology for AI being an incredible opportunity. Emerging growth in European chemical and explosives detection, airport security, airline security. And finally, our industrial research business in clean tech, batteries, fusion. And we are adding to our consumables business organically and inorganically. So, To wrap up the second quarter was a challenging one for broker and we are aggressively executing on our expanded cost reduction initiatives, with a goal of delivering strong margin expansion and EPS growth in 2026 even in a flat to low growth scenario. We are, however, cautiously optimistic for a fiscal year 26 partial recovery and point to Bruker's successful track record of rebounding very strongly from previous market disruptions in 2008, 2009, and in 2020, from which Bruker emerged with multiple years of double-digit organic revenue growth in each scenario. We remain confident. that Brooker's innovation engine will continue to drive differentiated, high-value solutions in attractive markets. Our culture of disciplined entrepreneurialism and our Brooker management process will position us well for sustained financial success in the years to come. Let me now turn the call over to our CFO, Gerald Herman, who will review Brooker's Q2 financial performance and updated fiscal year 25 outlook in more detail. Gerald.

Thank you, Frank, and thank you everyone for joining us today. I'm going to go through more detail on Bruker's second quarter and first half 2025 financial performance, starting in slide 11. In the second quarter of 2025, our results came in below our expectations on both the top and bottom lines. In the second quarter of 2025, Bruker's reported revenue decreased 0.4% to $797.4 million, which reflects an organic revenue decrease of 7% year-over-year. Acquisitions contributed 3.7% to our top line, while foreign exchange was a 2.9% tailwind, resulting in constant exchange rate revenue decline of 3.3% year-over-year. Geographically, and on a year-over-year organic basis, in the second quarter of 2025, our America's revenue declined in the low double-digit percentage. European revenue also declined in the low double digits percentage, while Asia Pacific revenue grew in the low single digits percentage, despite a low single digit decline in China. For our IMEA region, revenue was up by single digits percentage. BSI organic revenue declined 7.2% in the second quarter of 2025, with organic declines in all groups. BSI systems declined roughly 10%. and BSI aftermarket revenue was flat organically year over year. Our order book performance in the BSI segment was down organically in the high single-digit percentage year over year, with softer academic government research orders in most geographies and a significant decline in biopharma orders in the U.S. Non-GAAP gross margin decreased 270 basis points to 48.6%. Q2 2025 non-GAAP operating margin was 9.0%, impacted by weaker volume leverage, unfavorable mix, tariffs, and foreign currency. On a non-GAAP basis, Q2 2025 diluted EPS was 32 cents, down 38.5% from the 52 cents we posted in the second quarter of 2024. Our EPS performance was significantly impacted by the decline in the U.S. dollar in the quarter, which resulted in a six-cent headwind. Our non-GAAP effective tax rate was 23.6% compared to 28.4% in the second quarter of 24, with the decrease driven mostly by favorable discrete items in the quarter. On a GAAP basis, we reported diluted EPS of 5 cents per share flat compared to the second quarter of 24. Weighted average diluted shares outstanding in the second quarter of 2025 were 151.7 million, an increase of 3.7 million shares from the second quarter of 24, resulting from our follow-on equity offering in May of 2024. Slide 12 shows Brooker's performance for the first half of 2025, which has similar drivers to the second quarter. Turning to slide 13 now, during the first half of 2025, we had a decrease in operating cash flow of $85 million, driven principally by the timing of tax payments and other items. We had a modest year-over-year increase in capital expenditures in the first half of 2025, which resulted in a free cash outflow of $110 million in the first half of 25. Given the challenging market conditions, today we announced the expansion of current cost-saving initiatives intended to take $100 to $120 million of annualized costs out of the business. These actions cross all business units, all geographies, and all functions within Bruker. This expanded cost program is already underway but the majority of savings is expected in fiscal year 2026. These cost actions are expected to contribute approximately 300 basis points of operating margin improvement in fiscal year 2026, even under flat or muted market demand conditions. Turning now to slide 15, we're updating our full year 2025 outlook to reflect Q2 results and current market, tariff, and foreign exchange headwinds. Our outlook for fiscal year 25 now assumes revenue in a range of $3.43 billion to $3.50 billion, with an organic revenue decline of 2% to 4%. Contribution from acquisitions is expected to be approximately 3.5%, and we now expect a foreign currency tailwind of 2.5% on the revenue line. This leads to updated reported revenue growth guidance in a range of 2 to 4%, with approximately 0.5% constant exchange rate growth year over year. For operating margins in 2025, given soft market conditions, we now expect lower organic revenues, expected M&A dilution, and tariff on foreign exchange headwinds to lead to an approximately 210 basis point decline. in operating margins year over year. This anticipated full-year 2025 operating margin decline consists of headwinds of 40 basis points from 2024 M&A activity, 60 basis points from tariffs, 90 basis points from foreign exchange, as well as a 20 basis point decline in organic operating margins. On the bottom line, our updated fiscal year 2025 non-GAAP EPS is expected to be in a range of 195 to 205, which implies non-GAAP EPS down 15 to 19% compared to fiscal year 24. The midpoint of our updated EPS guidance is down 44 cents from our previous guidance. primarily driven by roughly $50 million decline in expected fiscal year 25 revenue associated with the present trough in global academic biopharma drug discovery and industrial research instrument markets, as well as a higher foreign exchange headwind than previously expected of an additional five cents. We expect a very significant EPS rebound in fiscal year 26 based on our significant cost-cutting initiatives with or without meaningful revenue growth. Other guidance assumptions are listed on the slide, and our fiscal year 25 ranges have been updated for foreign currency rates as of June 30, 2025. With respect to the third quarter of 2025, we expect relatively weak organic revenue performance again with mid to high single-digits percent decline year-over-year in the third quarter of 2025. On EPS, we expect non-GAAP EPS for the third quarter of 2025 to be similar to EPS in the second quarter of 2025, with a reacceleration of EPS expected in the fourth quarter. To wrap up, market, tariff, and foreign exchange headwinds impacted our second quarter of 2025. We remain cautiously optimistic about a fiscal year 26 partial recovery and research instruments and are very committed to significant margin expansion and EPS growth in fiscal year 26 and beyond. With that, I'd like to turn the call back over to Joe. Thank you very much.

Thanks, Gerald. We will now begin the Q&A portion of the call. As a reminder, to allow everyone time for questions, we ask that you limit yourself to one question and one follow-up. Operator?

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. 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 questions, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from the line of Puneet Soda with Learing Partners. Please go ahead.

Hi, Frank, Joe, thanks for taking my questions. First one on the guide, I understand the magnitude of cut, but maybe just given the backdrop of the markets, could you parse out why is the backlog, which has been strong, why is that not helping this year? And how should we think about, you talked about book to bill, but how should we think about the recovery here? in the fourth quarter, given that's an important quarter from an instrumentation perspective. And then on fiscal 26, Gerald talked about recovery there. How should we think about fiscal 26? I know it's a bit early, but would love your thoughts there.

Thank you, Puneet. So backlog, we are using our backlog to some extent. Obviously, you can't accelerated at will as as in delivery times production and delivery times are very much planned and locked in by the customers also our backlog has come down slightly from seven months to six and a half months so we are leveraging that using that um yeah we think it's actually our q4 i know q4 has a bit of a ramp but we're actually feeling pretty comfortable with that with all of our financial planning i think that that that looks um doable, and as Gerald had cautioned, Q3, we think, will be still somewhat weak. A little too early to talk about 26. We just wanted to make sure that even in a no-growth scenario, we can deliver very significant margin expansion and EPS growth. Whether next year will be no growth or a partial recovery of a few percent growth, we don't have the visibility yet, and we hope to gain that in the next, you know, one or two quarters. Obviously, a lot of things, a lot of moving pieces still, especially when it comes to U.S. federal budgets.

Got it. And then on the UHF magnets, I apologize if I missed this. I would love to know if you're expecting that in any third quarter or fourth quarter. And there was a recent acquisition in the space of the BD assets. That channel sells your MALDI biotyper. Do you expect any impact to the MALDI and the sales from that? Obviously, that's a LCMS company that acquired those assets.

So, presently, ultra-high field. We don't expect an ultra-high field revenue recognition in the third quarter. We do expect one in the fourth quarter. on that topic. Then you're talking about the BD microbiology business being in an acquisition process, is that what, yeah, so obviously we'll, yeah, you know, I mean, when, I don't know, because obviously if Waters closes that in early 26, you know, we'll see what their intentions are. Keep in mind that in these diagnostics businesses, quite honestly, the little benchtop multi-top, that's 10%, and 90% is all the assays, all the content, all the regulatory approvals and all. So we can only observe that when Danaher, which has the CyEx MassSpec divisions, when they acquired Siemens Microbiology, they continue to work with us on the Beckman-Coulter diagnostics business in an excellent manner going forward and weren't tempted by, hey, we can build a mass spec. Anybody can build a mass spec, but a multi-biotype or franchise that has worked extremely well with BD, hopefully that will continue. But we don't have any, you know, until that closes, we will see in 26, I guess. If someone wanted to develop something like this, it would be a very, very large five-year investment. And by that time, of course, we're moving on. So anyway, but it would be speculative. Quite honestly, we don't expect it, but we don't know.

Got it. Okay. That's helpful. Thanks, Frank.

I would point out that we obviously sell more than half of our multibiotypers ourselves directly. So if at some point a channel was no longer available, I think we could handle that very well.

Thank you. Next question comes from the line of Tycho Peterson with Jefferies. Please go ahead.

Hey, thanks. Frank, I want to push on the cost out, and really the idea here is earnings today are 30% below where they were 90 days ago, and then only 5 cents of that is FX. I know you're protecting the P&L now, but A couple things, I guess. Why didn't, you know, you initiate some of these clocked out sooner? And are you committing to the 100 to 120 million regardless, even if the top line does start to come back?

Good questions, Tycho. So we did start earlier. We early in the year when before any of the headwinds appeared, we had an initial savings program where we just tried to grow our, expand our margins more than what we had guided to initially. and we had planned an additional 25 million, a new 25 million cost savings plan. We then, when the tariffs began to appear, we expanded that to 50 million plus in a second phase, which is good because most of the cost savings are kicking in next year, but about 30 million of cost savings are kicking in and are part of our guidance for fiscal year 25. So the bigger effect will be in 26, admittedly, but at least we do have about $30 million of cost savings in our fiscal year 25 guide. To the last point, Tycho, yes, we are completely committed and dialed in for the $100 to $120 million in cost savings. We hope to be at the upper end of that, and that's going to We expect that to happen independent of market conditions or recovery. If that gives us, in a flat scenario, 300 bps of margin improvement next year, that's great. And if the growth comes back, we don't expect it to snap back fully, but comes back partially, wonderful. Then we can deliver more margin expansion and EPS growth. But we're completely committed to that, yes.

Okay, and then on the growth side, if I go back to our conference in June, you know, you had effectively committed to 4% growth in 26. Now it seems like you're not wanting to go there. Maybe just talk about what has really changed, you know, in the past two months here on the growth side. And then maybe just before I jump off, one for Gerald on leverage, you know, over four turns, but the covenant is three and a half turns. Can you maybe comment on that dynamic as well?

Okay, I'll take the first part. So we were indicating at your conference that we didn't expect growth in 26 to come back to more traditional for us six to eight percent levels and that at that point we were a little bit more optimistic that it might be you know maybe it wasn't a commitment to that but we were speculating it could be two to four percent organic growth next year. What has happened is that Somewhat as expected, the US academic and China academic stimulus money is not flowing yet. That was somewhat expected and expected, I think, when we saw you at your conference. The additional US biopharma weakness in orders was for high-end drug discovery research instrumentation. I know it doesn't hit all companies equally, but for research instrumentation, we saw a significant slowdown there. And we'll see whether once tariffs settle and, you know, and some of the other political settlements kick in, whether that additional headwind goes away or abates in the second half of this year. And that will, of course, in part drive 26. We also saw because of the economic and tariff uncertainty, that's certainly our interpretation. We saw general Europe, U.S. and China inflation. weakness in industrial research instrument investments. So that was also something that became clear in the second half, which is why we're more muted in our, we don't have growth expectations for 26, but we do want to be realistic and ready for a no growth scenario. That's not our expectation. We don't have an expectation yet, but I want to make sure that we can do the significant margin expansion and double digit EPS growth. even without growth. But please, my words are even without growth, we hope for some modest growth or partial recovery. We cannot give guidance for 26 of what that might be.

And Tycho, on your question regarding leverage ratio, we don't comment specifically on ratio dynamics quarter by quarter. I mean, I can tell you that we have satisfied our debt covenants for the first and second quarters of 25. And we have a target, as I think we've discussed, directly in around that 2.7 range, and that's what we're looking towards. Over several years right now.

Thank you.

Sure. Thank you. Next question comes from the line of Brandon Couillard with Wells Fargo. Please go ahead.

Thanks. Good morning. Gerald, just to follow up there, did you unpack the free cash flow burden in the second quarter? How much was one time? And what are you expecting for operating cash flow in the second half? And why is it capex coming down by a larger degree?

Sorry, I wasn't sure I caught the last part of your question.

How is the capex coming down? Why is the capex coming down?

Yeah, I think our capex, let me just ask the last part of your question first. The capex is plan to scale down. We have dialed that back for the third and the fourth quarters. I mean, we do typically have programs that are already in motion for the first and second quarters, and that's why you see the capex levels where they are. Yeah, and on the cash flow burn, yes, we did have a couple of what I would describe as unusual outflows in the second quarter related specifically to some tax payments, which we highlighted. Those we don't expect to recur, so. We expect to get back to a normal cash flow.

And Brandon, those were sizable. Those were $50 to $60 million, including some tax payments that are prepayments, some of which we expect to recover. But yeah, there were some sizable tax payments in that second quarter.

Okay, that's helpful. And then, Frank, I think Gerald said BSI aftermarket was flat in the quarter. Can you kind of unpack what you saw between diagnostics and maybe some A&G customers and just a surprise to see, you know, the aftermarket utilization kind of flat in the quarter? Thanks.

That granularity we do not have. Obviously, the diagnostics business has been growing very nicely, sort of according to plan, although placements for the Elitech molecular diagnostics business, which you don't see in revenue placements. New platforms going out there generate future revenues, but placements there, that's one of the highlights of the quarter or for the first half of the year, are way ahead of our plan. So the Elitech business in placements is doing great. And in terms of growth and margin expansion, it's according to plan. So That gives an indirect partial answer to what you're saying. Namely, they are, of course, 80% or 90% consumable space, and they, as well as the multi-biotyper consumables, are doing well. Therefore, aftermarket in other segments was also down partially, but we don't have granular percentages on that. Hope that helps.

Mr. Quyad, are you done with the question? Yeah. Great. Thanks. Thank you. Next question comes from the line of Luke Sagot with Barclays. Please go ahead.

Great. Thanks. Just wanted to talk a little bit about the underlying dynamics as you think about that more muted growth in the 26, particularly around China, because we've heard from peers right now that they're starting to see some of the stimulus flow through. So Have you guys started to see any of that? And then as you think about those dynamics in the 26, a more muted growth, you know, also following up here on Tycho's question, but kind of, you know, is that just assuming the current market environment just continues there? Just trying to figure out, like, if China should start getting better, what would, you know, in that in that more muted growth scenario, what's getting worse?

Well, a muted growth scenario in our, maybe we should, a muted growth scenario is still a growth scenario. Right now we're seeing a decline in our scientific and industrial and biopharma research markets. So a muted growth scenario, even a no growth scenario next year would be better than the headwinds that we're observing right now. We don't mean muted growth scenario meaning a decline next year at least at this point that's not what we're what we're anticipating so maybe with that clarification we also do not you know expect a market growth or for us you know a six to eight percent organic growth snapback next year hopefully we'll get there by 27 but you know let's not let's not comment on that one right now China stimulus for high-end research instrumentation, we have not seen those releases yet. We've seen reasonable tender activity in China lately, including into July, but that wasn't necessarily the high-end stimulus funding. That was just normal China activity, which maybe is getting a little bit stronger. Our Chinese customers, that are looking for shovel-ready large projects that include NMR and mass spec and high-end microscopes remain very optimistic that this is just a question of time until the provinces release it. Perhaps once there is greater clarity or maybe there is greater clarity that there probably isn't going to be an all-out China-U.S. trade war. During that time, we think the province has held back to see whether they needed a rainy day fund. Anyway, so China stimulus not released yet for our high-end research instrumentation and remarkable optimism by the customers that it's going to happen. We just don't know exactly when. We do also expect that as tariffs settle in and the new economic world order is emerging for trade, that CFOs in major industrial and biopharma companies will be less reluctant to release CapEx investments because they do need the research capabilities, whether it's industrial material, semiconductor, or, of course, drug discovery. So in that sense, we expect an improvement in 26 compared to 25, but we cannot quantify it at this moment. Having said all of that, and we don't want to rely on that improvement even with no growth, we expect to deliver the 300 bps or greater in margin improvement. That's the takeaway.

Okay, great. Thanks. And then for follow-up, we talked about this a little bit before about with the NIH or the U.S. academic funding issues. you know, and how you ultimately kind of see this shaking out where, whether it's a more of a democratization from the, from the coast or from the IVs or the high, you know, the high end users of the institutions going more towards like, you know, state systems and things like that. So are you starting to see, you know, do you have an update on how you kind of see this ultimately playing out with the funding releases and, you know, over the next few years?

We can read some tea leaves. I don't think NIH budgets will be flat or up. I don't think they'll be down 40% either, ditto for NSF or DOE research or so. We assume that the deal will be that they'll be down, and if they're down 20%, that's not unrealistic from what we're expecting, but maybe they're only down 10%. We shall see. So that's the bigger picture. The other trend that you've mentioned that this is not only temporarily, but longer term, you know, going to be a more level playing field away from the coast or also investments that aren't, you know, primarily in Massachusetts and Northern California. I think that trend, political trend, I continue to see that. So I think some very excellent universities elsewhere may be able to get a bigger piece of the pie. And this is even after some of the already announced and potentially pending settlements of the government with some very well-known universities. We do see NSF 425 calling for some final presentations big ticket NMR items. I don't know what they will do with that and whether there is then 25 funding that may still come through even while we're mostly focused on 26 budgets. There are some encouraging signs. A couple of things went through with NIH budgeting and the customers got ordering from us two days later, but it's not needle moving yet, so it's early days and we don't have clear visibility yet. There are some signs that maybe the worst of the academic funding crisis could be over soon. But we do not expect a snapback to the full growth rates we had previously.

Great. Thank you.

Thank you. Next question comes from the line of Subbu Nambi with Google 9. Please go ahead.

Hey, guys. I had a question on 2025 guide itself. If the cost savings aren't hitting until 2026 and the headwind to EPS is getting worse with FX, how are you thinking about the second half, just given the soft orders in the quarter?

Super good question. So we do think that of our cost savings for the full year 25, about 30 million of cost savings will kick in and will benefit us They're being overwhelmed by the headwinds from the previous M&A, from the organic decline of 2% to 4% that we're now projecting, as well as currency and tariffs. But they are meaningful. They're kicking in to a much greater extent than in 2026. And of course, we've only recently, within the last several weeks have expanded our cost-cutting initiative very significantly and more than doubled it from what we had previously already planned to counteract tariffs. Did that answer your question or did I miss something, Subbu?

No, that did. Frank, I was just hoping for some more granularity in terms of the bridging between revenue and EPS to hit the 4Q ramp, but partially definitely answered the question.

Two votes, Gerald. I'll just add, you know, Frank's reference to that 30 million, the bulk of that's going to hit for fiscal year 25 in the fourth quarter. So we're, and then the remaining, the larger majority of it's going to hit in fiscal year 26. So we are seeing some improvement in our guide expectations around the fourth quarter versus the third quarter, just to help you with respect to that.

Perfect. Thank you, guys.

Yep. Thank you. Next question comes from the line of Dan Brennan with TD Coven. Please go ahead.

Great. Thank you. Thanks for the questions. Maybe just on NIH, Frank and Gerald. Frank, you're obviously the largest U.S. academic government player amongst the large tools, so you should have, I think, more skin in the game of you here. So kind of you're thinking about down 10 to 20, and we'll see where things land in 2026. But I think there's been more optimism, I think, has been raised here, given the seven appropriations, saying up 1%, and folks think that, you know, a CR could be likely. So I'm just wondering, when you think down 10 to 20, kind of A, what's the mechanism to get there? And B, if things were better, would you expect your customers would spend that money? Or what does your commercial team think about? Would they be reticent just given, you know, rescissions and things like that?

Oh, so the 10 to 20%, I want to be... I don't have an expectation. There's been too many surprises to have an expectation of fiscal year 26 budgets. I know the Senate committee marked it up and had a small increase, and the administration was initially setting for a 40% decrease. I just want to be prepared for NIH budgets being down 20% for 26 and deliver the margin expansion. For this year, fiscal year 25, we expect U.S. academic government to be down 20 to 25%. That's what we said last quarter already. So this is a fiscal, this is our calendar year 25. And that plays out about, as we said, so far it's down about minus 15% for the first half of the year. And so for the full year 25, calendar year for us, U.S. academia being down 20% to 25% seems like a realistic expectation. I don't think it's going to be worse than that, so funding is still flowing. And then for next year, as I said, I have no predictions. I've stopped making predictions there. I just want to be prepared for a 20% fiscal year 26, government fiscal year 26, NIH budget reduction. And if it's better than that, I'll be delighted. And we can, you know, more can flow to our bottom, top and bottom line in 26.

Great.

I think customers will spend in a heartbeat. If they get grants, they can't give the grants to the universities who are, you know, struggling otherwise financially. When they get specific grants, I think they'll order in a heartbeat.

That's great. Thank you. And then maybe just one on the backlog and kind of bookings. Obviously, the book to bill has been weak now for, I think, four or so quarters. Can you just remind us, in a given year, what percent of your revenue growth comes from that backlog? What's book and bill? I think there's been some concern, like could broker even grow in 26, just given you had four consecutive quarters of week book to bills, but obviously bookings turn up and that would support growth. So can you just walk through a little bit of, you know, kind of the visibility and the mix between conversion and kind of new turns? Thank you.

Yeah, I mean, you know, we now have aftermarket consumable service software of more than a billion. So it's become a significant, you know, it's become a meaningful part of Bruker that, of course, you know, tends to flow, turn into revenue pretty much in the quarter when it gets ordered. We also have smaller, you know, benchtop and, you know, sub-$100,000 scientific instruments that very often, you know, achieve revenue in the same quarter or within two or three months after they get ordered. So some things maybe, you know, there's some part of our revenue that turns more quickly. And then there's, of course, some revenue where sometimes, you know, order to revenue can be, 18 to 30 months or so. So we have that. So our backlog is still elevated at six and a half months. This is the BS. This is the backlog of six and a half months. We expect that eventually to level out with a new mix as we have more consumables, more Elitec and things like that. More now we added some metabolomics consumables and some therapeutic drug monitoring consumables with some recent smaller acquisitions. So we expect that six and a half months eventually to go down to about five months of backlog as a new normalized level. So we still have some cushion from backlog for the second half and for next year. But of course, we also need the bookings.

Got it.

Great. Thank you, Frank.

Thank you. Next question comes from the line of Patrick Tonelli of Citi. Please go ahead.

Hey, guys. Thanks for taking the questions. Frank Orgel, I wanted to talk a little more on the second half cadence. The 4Q step-up still seems pretty steep. I mean, I think if you're talking about 3Q looking at similar earnings, call it $0.32, it implies around $0.90 in 4Q. And again, the revenue kind of step up with that. So I just want to talk through the visibility into that 4Q number. It did sound like things were maybe getting a little more challenging at the end of the quarter. So can you just talk about the visibility and confidence in that 4Q round?

Yeah, Patrick, it's Gerald. I'll take this, and Frank may want to add some more color. So just generally in terms of the scaling or graduating this into the fourth quarter, as you already know, Our fourth quarter is really not a quarter. It tends to be more like a 30% of the number on an annualized basis. So we do see a more significant ramp historically. And we have no reason to believe that that will not happen for 2025. And fundamentally, I would also say, as I mentioned earlier in the comment to Subbu, we do have some cost savings that are going to get kicked into the fourth quarter that's already planned and scheduled. So we're pretty confident that you're going to see a pretty significant lift in the operating margin and EPS performance for the fourth quarter. I think your math, as usual, Patrick, is not terribly far off what our estimates are for the fourth quarter. So that's kind of the, I'd say at a high level, our expectations are still some flat to down revenue growth for the fourth quarter given market conditions, but improved profitability given the scale. We get, as you already know, we get significant leverage down to the bottom line on higher volume, and the expectation is... And this is just typical for us.

We tend to have pretty huge fourth quarters, and every year we do, and then often it's even better than what we had anticipated. It's our fourth quarter pattern, so we feel comfortable with the cadence. Two more questions, perhaps?

Thank you. Next question comes from the line of Josh Waldman with Cleveland Research. Please go ahead.

Good morning, guys. Thanks for taking my questions. Two for you. First, Frank, on the academic side, I think Gerald mentioned softer academic orders in most geographies. I wonder if you could comment on what you're seeing in Europe. Is that market getting worse on the academic side? Or I guess more broadly, are there other geographies that step down unexpectedly? And then within the U.S. academic environment, I wondered if you could talk on the timing of potential revenue recovery and how long would it take to kind of work through the software order book? to flush this kind of like through the revenue side? On the academic side, when would you need to see a recovery in orders for that to show up in revenue? And does it hit 20 cents?

Yeah. So clearly on the academic orders, the two bad guys are the U.S. and China. Yeah. For us, that's where we have the most pronounced, you know, reduction in orders in the first half from the academic and academic medical research market. Europe, rest of APAC, you know, that just fluctuates up and down. There's really no trend that's discernible there. Q2 wasn't strong, but I think that's If you look at it then over several quarters, then it's the U.S. and China that I think are crucial on the academic side. How long? Well, obviously, with less backlog, we can now do faster deliveries. So there are some products, ultra-high field NMR or very large, you know, stem microscopes or so that indeed sometimes take one or two years to deliver. But It's a 26-story, even if orders came in in August, September, and I don't expect that necessarily. There could be some U.S. orders that come through before the end of our fiscal year at the end of September. There's a possibility of that. By now... These are higher-end systems. This will go into 26. I don't think there is any step up to be expected in 25 anymore.

Got it. And then, Frank, on tariffs, I'm curious if you think you're seeing tariffs negatively impact your competitive position and new opportunities at all. I'm thinking on the price or surcharge front. Does it seem like customers are either holding off on placing orders because of price increases or surcharges or maybe even looking to other suppliers?

Yeah, if I look at each of our market segments, you know, in spatial biology, main competitor is U.S., we're U.S. NMR, main competitor is Japanese, we're European Union, ended up at a level playing field with the new tariffs. In mass spec, a lot of the other mass spec companies manufacture in Europe, also in Germany, in Singapore, etc., So, and you go down the line, x-ray, etc. It turns out that there hasn't been a significant distortion competitively from the new tariff picture. Again, we're still observing Switzerland. That's obviously a somewhat of a pathological number at the moment. We expect that to be less and maybe be more in line with what we have in Europe or from Malaysia. And either way, in NMR and MRI, we have the most flexibility to say, okay, I mean, almost immediately could turn a dime and say any of these systems for the U.S. market come from Germany or from France where we have large factories. So there we could move very, very quickly if come August 7th that Swiss number was still extraordinarily high for a while. So the short answer would have been, we think there is no competitive shifts based on that. It's just a cost headwind. All right, we'll have one more question and then we'll wrap things up for today.

Thank you. Next question comes from the line of Rachel VAT install with J.P. Morgan. Please go ahead.

Hello. This is Martha Zaremba on for Rachel from J.P. Morgan. Thanks for taking the question. I just wanted to clarify your comments on tariffs just now. What are you assuming in your guide for Swiss tariffs at this point? Are you assuming 39% or something lower? And then perhaps more broadly, if you could give more color on your updated tariff assumptions given the changes in Swiss tariffs but also European tariffs. Thank you.

Yeah, for the European Union and Israel, we're at 15%. For Malaysia, we're at 19%. Switzerland, we're presently modeling at 15%. In a worst-case scenario that we didn't shift supply chain and it was 39%, That could be an additional 10 million hits that we presently don't have here, but we think that's just not going to happen. A, we think the number will be lower, and B, in that case, we will just not ship from Switzerland. We will build our NMRs, which is primarily an NMR story, and make them in Germany or France. So that's why I think our modeling is appropriate.

Thank you.

Thank you. This concludes our question and answer session. I would like to turn the conference back over to Joe Koska for 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 third quarter. Feel free to reach out to me to arrange any follow-up. Have a good day.

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