Q1 2021 Bruker Corp Earnings Call
Yeah.
[music] Good day and welcome to the Bluegrass Corp, third quarter 2021 earnings Conference call.
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Please note because of that is being recorded I would now like to turn the conference over to your nearest Lauder and cobalt senior director of Investor Relations and corporate development. Please go ahead.
Thank you Sarah good morning, everyone I would like to welcome everyone to brokers first quarter 2021 earnings Conference call. My name is nearest Logmein Cola senior director of Investor Relations and corporate development.
Joining me on today's call are Frank Lal King, our President and CEO and Gerald Herman Our executive Vice President and Chief Financial Officer.
In addition to the earnings release, we issued earlier today during today's conference call, we'll be referencing a slide presentation. The PDF from this presentation can be downloaded from the latest results section on brokers to Investor Relations website. During today's call, we'll be highlighting non-GAAP financial information a reconciliation.
<unk> of our non-GAAP to GAAP financial measures are included in our earnings release and are posted on our website at IR dog broke her dotcom.
Before we begin I would like to reference brokers Safe Harbor statement, which we show on slide two.
During the course of this conference call, we'll 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 the ongoing COVID-19 pandemic as well as ongoing worldwide semiconductor chip and other supply shortages.
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 as updated by our other SEC filings, which are available on our website and on the SEC's website.
Also note that the following information is related to current business conditions and to our outlook as of today may five 2021, we do not intend to update our forward looking statements based on new information future events or for other reasons prior to the release of our second for 2020 one financial results expect.
In early August 2021, except for any forward looking statements regarding medium term outlook that we may share at our upcoming Investor day in June.
Therefore, you should not rely on these forward looking statements as representing our views or outlook as of any date subsequent to today.
We will begin today's call with Frank providing a business summary, Gerald will then cover the financials for the first quarter in more detail.
Now I'd like to turn the call over to broker CEO Frank Louthan.
Thank you Mara as Laura Good morning, everyone and thank you for joining us on today's call broker had an excellent first quarter with a strong start to 2021, we saw a significant recovery in many of our businesses previously impacted by the pandemic.
Our project accelerate initiatives continued to deliver strong growth and value.
And our financial performance stepped up accordingly, reflecting strength and competitive business and the end market dynamics. We also continued to make progress in the expansion of project accelerate which we now call project accelerate to Dot O.
So Q1 first quarter 2021 revenues grew 38% to approximately $555 million.
Foreign currency translation was a tailwind of six 2%, while acquisitions added 0.8% to revenue growth in the quarter.
On an organic basis brokerage revenues increased 23, 8% year over year from a pandemic impacted Q1, 'twenty 'twenty when our revenues were down approximately 8% organically.
The reported and organic revenue increases in Q1 of 2022 reflected strong demand for our high performance life science tools scientific instruments and diagnostic solutions with continued uptake of our project accelerate growth initiatives and a strong recovery in end markets.
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Our first quarter 'twenty, one non-GAAP gross margin stepped up 460 bps year over year, while our non-GAAP operating margin reached 18, 4% from seven 6% in the first quarter of 2020.
The improvements reflect our revenue and volume increase.
Positive operating leverage and higher project accelerate revenue in the mix.
In the first quarter of 2021 broker reported GAAP diluted earnings per share of 37 cents on a non-GAAP basis first quarter 'twenty, one diluted EPS were <unk> 44 cents more than tripling compared to 14 cents in the first quarter of 2020.
First quarter 2021 order bookings for brokers scientific instruments groups grew mid teens organically year over year.
This reflected continued strong order growth for our innovative proteomics and Biopharma solutions and a strong recovery in Arca Demick applied and industrial research businesses.
Demand for Microelectronics and semiconductor metrology systems also remained robust.
During the first quarter, we made further progress in three areas of significant long term growth potential on bias proteomics spatial on single cell biology, and microbiology and molecular diagnostics.
At the U S youthful conference in March researchers presented exciting new results in deep unbiased plasma for the proteomics using our unique tims top passive solutions.
We believe that plasma proteomics is the next frontier for proteomics, researchers, particularly for liquid biopsy multi omics biomarker development using cancer proteome genomics methods.
In late February of 2021, a seminal publication by the groups of professors much yes months and Fabio on Feis published in nature Communications described collision cross sections of our Ccs on the Tim's tough platform as an essential intrinsic property of peptide.
And the men in size publications suggested that accurate large scale collision cross section values, which are unique to tim's tough can increase confidence in peptide and protein group identification.
In spatial and single cell biology in March we announced the formation of acuity spatial Gino genomics, a new company that is majority with a majority investment by broker.
Acuity spatial genomics has core IP with an exclusive license to certain innovations made at Harvard University, and Professor Cheng Who's lab, I will discuss acuity spatial genomics in more detail later on the call.
Finally in our microbiology and diagnostics business, we began the U S rollout of the FDA cleared N V T CEP to tie for IBD kit for the rapid identification of bacteria and fungi directly from positive blood cultures were very pleased with how our project accelerate to Dido initiatives are on.
Folding.
We will do a deeper dive into these areas at a planned virtual investor day on June 17th.
Last but by no means least we continue to drive.
Operational excellence and productivity programs.
He should support further operational gains and Reinvestments in our business in 2021 and beyond.
With that please to turn on slide turning.
Turning to slides five and six now where I provide further highlights on the first quarter 'twenty one performance of our three scientific instruments groups and of our best segment, all on a constant currency and year over year basis.
First quarter 2021, bio spin group revenue grew in the mid 20 twenties percentage.
$259 4 million.
As customer demand and instrument delivers deliveries improved.
<unk> system revenue was up strongly and included customer acceptance of a one two gigahertz system and have a 1.0 gigahertz system both in Europe.
During the quarter. In addition to strengthening academic markets demand for bio spins industrial and applied solutions began to recover as well.
<unk> aftermarket and software revenues also grew.
First quarter 2021, Kallat group revenues increased in the high twenties percentage to $192 4 million.
The growth at Calvert reflected strong demand for life science mass spectrometry.
And for FTIR near IR, Raman molecular spectroscopy products.
During the quarter, we continued to see robust order and revenue growth for our teams tough unbiased 40 proteomics platform, while demand for other mass spec products also improved.
Microbiology and molecular diagnostics revenue was higher on contributions from sort of cut to cough to diagnostic products.
During the first quarter of 2021.
Revenue from COVID-19 testing was approximately $7 million.
Virtually all incremental growth year over year, but down sequentially from the fourth quarter of 2020.
Revenues for our molecular spectroscopy products were sharply higher year over year, Amit Amit made excellent new product ramp and strengthened industrial applied and academic market.
Please turn to slide six now.
Broke around on nano revenues increased in the mid twenties percentage $254 4 million in the quarter nano saw a rebound in its industrial research product lines and a recovering academic business demand for nanos microelectronics and semiconductor metrology products remains strong.
First quarter 2021 nano revenue also included a modest contribution from our September 2021, 2020 canopy Biosciences.
<unk> cell targeted proteomics acquisition.
In the first quarter of 2021, Nanos advanced X Ray and on the surface revenues grew strongly year over your year and nano analysis revenues stabilized.
First quarter, 2021, microelectronics and semiconductor metrology revenue grew significantly compared to first quarter 2020 on healthy demand and finally nanos fluorescence microscopy revenue was slightly higher year over year, but with very good order growth.
Moving on to best Best revenue in the first quarter 2021 grew in the mid single digits net of intercompany eliminations on contributions from best Big Science projects during the first quarter underlying demand for best superconductor product for.
For healthcare and MRI began to recover after a slow down in 2020, primarily attributed to the pandemic last year.
Moving to slide seven I would like to share some highlights on the recent U S and Americas rollout of an enhanced for 80 bench top FTL EMR with applications and applied industrial pharmaceutical and academic teaching markets.
The bench top for your ATM for next generation higher performance system, featuring a permanent magnet. So therefore, no need for Cryogen refills. The system is routinely equipped for gradients spectroscopy and has industry leading automation options. We believe this system is poised to democratize MMR to a broad range.
Labs on applications as it does not have the cost space or cryogen requirements of high field superconducting LMR systems.
Turning to slide eight in March 2021, acuity spatial genomics was formed with a majority investment by broker.
<unk> aims to open a new frontier in spatial <unk> genomics and multi omics analysis for basic research and discovery.
Acuity Leverages innovations developed in the lab of Professor thing, which he is a professor at the of genetics at Harvard Medical School, and specifically, the or legal physique methods and technology, which makes it possible to see the three dimensional genome in situ and at single cell and sub cellular.
Resolutions.
Capabilities enabled by acuity include for example, a deeper understanding of the three dimensional chromatin structure and insights into transcription regulatory programs that drive cell type sales state.
Pathogenesis and function.
Such fundamental cell biology discoveries could help address problems in complex questions in oncology neuroscience and cell development.
<unk> is an important addition to our emerging spatial and single cell biology portfolio. We look forward to sharing more information on this area at our upcoming Investor day.
So let me conclude by reiterating that our first quarter 2021 got us off to a strong start we saw a recovery in most of our core businesses and our high growth project accelerate initiatives continued to deliver.
As discussed on our February call. We are planning further investments this year to support the growth of our business and project accelerate to dot O, including in R&D and Capex at the same time. We also continue to drive our operational excellence programs, which are already partially reflected in the strong recovery of our core businesses.
We are raising our fiscal year 2021 outlook for revenue growth non-GAAP operating margin expansion and non-GAAP EPS as you can see from our press release I am confident that brokerage is emerging from the pandemic in a very strong position and I look forward to further updating you on our many exciting opportunities.
<unk> at our virtual Investor Day in June let me now turn the call over to our CFO Gerald Herman who will review, our first quarter 2021 financial performance and guidance in detail Gerald.
Thank you Frank I'm pleased to join you today on review brokers first quarter 2021 financial highlights starting on slide 10.
<unk> revenue increased 38% to approximately $555 million in the first quarter of 2021, which includes an organic revenue increase of 23, 8%.
We reported GAAP EPS for 37 per share compared to seven cents in the first quarter of 2020.
On a non-GAAP basis, Q1, 2021, EPS was <unk> 44 per share an increase of 214% from 14 cents in the first quarter of 2020.
Our first quarter 2021, non-GAAP operating income and non-GAAP operating margin stepped up significantly year over year, given the increased revenue and volume.
Coupled with our disciplined management of expenses. This resulted in a significant drop through to the bottom line, our first quarter 2021, non-GAAP operating margin.
Reached 18, 4% compared to seven 6% in the first quarter of 2020.
At the end of the first quarter 2021, our balance sheet cash and liquidity position remained healthy and improved sequentially from the fourth quarter of 2020.
We ended the first quarter with $746 $8 million in cash cash equivalents and short term investments and a modest net debt position.
During the quarter, we again used cash to fund strategic capital investments, our stock buyback program and our dividend.
In the first quarter of 2021, we repurchased approximately 531000 shares of broker stock for a total of $32 $8 million we.
We have completed our share buyback authorization, which was valid until mid may of 2021.
Free cash flow in the first quarter of 2021 was a healthy $73 $3 million.
And our working capital to revenue ratio improved relative to December 31, 2020, driven by efficiency gains.
Slide 11 shows the revenue bridge for the first quarter of 2021.
As noted earlier organic revenue revenue in the quarter increased 23, 8%, we had a positive revenue contribution from acquisitions of 0.8% net of foreign currency tailwind of six 2%.
From an organic revenue perspective, Brian spend revenue increased in the mid 20% range Callard revenue increased in the high 20% range and nano grew in the low 20% range.
Revenue was up in the mid single digits net of intercompany eliminations. Frank has already reviewed the primary drivers earlier in this call.
Systems revenue for each of our three BSI groups increased in the high 20% range organically and aftermarket revenue also grew approximately 20% organically compared to the first quarter of 2020.
Geographically and on an organic basis in the first quarter of 2021 European revenue increased close to 40%.
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Two gigahertz class <unk>, while Asia Pacific revenue grew in the mid 20% range and North American revenue grew in the mid single digits.
Rest of the World revenue was slightly higher year over year.
Slide 12 shows our first quarter 2021, P&L performance on and on GAAP basis.
The first quarter 2021, non-GAAP gross margin of 51, 3% increased 460 basis points from the 46, 7% in the first quarter of 2012 20, driven by volume leverage on increased revenue and higher project accelerate mix.
Over the past few years, we've added new capabilities to our high performance instrument portfolio, which are now delivering solid margin improvements. In addition to the higher volume we experienced in the first quarter of 2021.
Q1, 2021, non-GAAP operating expenses increased nine 8% compared to the first quarter of 2020 for.
Our operating expenses in the first quarter reflect solid cost management as we navigated through a significant foreign exchange headwind in the quarter.
We anticipate that our planned project accelerate to Dato investments, which did not impact for P&L in a significant way in the first quarter will ramp up.
The remainder of the year.
As a result of our first quarter 2021, non-GAAP operating margin stepped up over 10 percentage points year over year to 18, 4% a record level for us in the first quarter.
This reflects significantly higher revenue improved gross margin and favorable operating leverage compared to the first quarter of 2020, we.
We also absorbed an approximate 70 basis point foreign exchange headwind on our operating margin in the quarter.
For the first quarter of 2021, our non-GAAP effective tax rate was 31, 1% compared to 23, 9% in the first quarter of 2020, primarily up due to discrete items and jurisdictional mix.
Weighted average diluted shares outstanding in the first quarter of 2021 were $153 2 million a reduction of approximately $2 2 million shares or one 4% from the first quarter of 2020, resulting from our share repurchase activity over the past 12 months.
And finally first quarter 2021, non-GAAP EPS of <unk> 44 cents.
Stepped up significantly from the 14th in.
In the first quarter of 2020, driven primarily by higher revenue and margins.
Turning to slide 13, our free cash flow in the first quarter 2021, with $73 $3 million, reflecting sharply higher net income year over year.
First quarter 2021 cash flow also benefited from the timing of income tax payments and other items as well as slightly lower year over year capital expenditures.
Our cash conversion cycle at the end of the first quarter of 2021 was 243 days a decrease of 33 days compared to the first quarter of 2020 <unk>.
The reduction was due to our strengthening cash collection process and improvements in days inventory and days payable outstanding.
We continue to carry significant inventory in order to manage supply chain risks with new risks emerging related to semiconductor chip and other supply shortages as the major economies recover from the pandemic.
Turning now to slide 15, we are raising our guidance for 2021 to reflect our strong start to the year and favorable trends, we see in our business.
While we cannot rule out further risks, including those related to the pandemic or to the supply chain demand for our products and solutions has strengthened across our portfolio and major end markets appear to be recovering.
For fiscal 2021.
We now expect organic revenue growth of 11% to 13% representing an increase of four percentage points from our February guidance foreign currency is now expected to contribute approximately 3% to revenue growth and a slight reduction from the approximate 4% tailwind predict projected early.
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This now Calibrates reported revenue growth for 2021 to a range of 14% to 16% compared to 2020.
Baked into this projection is the assumption that our three BSI groups will continue to be the primary drivers of this growth.
We now expect our 2021 non-GAAP operating margin to expand 210 to 250 basis points compared to the 16% reported in 2020.
This is an increase of approximately.
60 basis points compared to our prior outlook.
For the full year 2021, we now estimate a foreign currency headwind of approximately 50 basis points on operating margin more favorable than the 80 basis point foreign exchange headwind, we projected in our February call.
On the bottom line, we expect 2021 non-GAAP EPS in a range between $1 82, and $1 87, a 10 cent increase compared to our February guidance range, and representing non-GAAP EPS growth of 35% to 39% compared to 2020.
This also represents mid to high teens growth from the $1 57, pre pandemic non-GAAP EPS level in full year 2019.
Our 2021 projected non-GAAP operating margin expansion and non-GAAP EPS continue to assume an increased R&D investment of approximately 10% of revenue as we fund investments in project accelerate to the auto growth initiatives.
We are increasing our non-GAAP tax rate projection for 2021 to approximately 30%.
This is due to a change in the jurisdictional revenue mix, we now anticipate for the full year.
Other assumptions for 2021 are listed on this slide along with our updated foreign exchange rate assumptions as of April 30th.
While we do not provide quarterly guidance I would like to add some additional color to our expectations for the second quarter given.
Given the relatively weak comparisons from the second quarter of 2020, we currently anticipate our second quarter 2021 financial performance improvements to again be quite strong with 15% or greater organic revenue growth year over year.
Unlike the first quarter of 2021, we do not expect any gigahertz class systems revenue in the second quarter due to timing reasons.
This combined with our planned ramp up in project accelerate to Dato investments may result than lighter than first quarter sequential operating margin and EPS performance in the second quarter of 2021.
To wrap up we began 2021 with an excellent competitive position and strengthening end market demand for our products in many key markets in the first quarter, we saw strength, particularly in proteomics Biopharma applied semiconductor and industrial research markets our innovative product.
Portfolio combined with recovering end markets.
Positioned us well to deliver strong year over year improvements in revenue margin EPS and cash flow in the first quarter.
We also took a meaningful step up in our outlook for the full year the.
For strategic investments and sound operating actions. We took in 2020 are expected to further strengthen our financial performance in 2021 and beyond.
We look forward to updating you on our upcoming virtual Investor day and on future earnings calls.
And with that I'd like to turn the call over to Miroslaw, but to start the Q&A session. Thank you very much.
Thank you Gerald I would now like to turn the call over to the operator to begin the Q&A portion as a reminder, in order to allow everyone time for questions. We ask that you limit yourself to one question and one follow up on.
Operator, we are ready to begin the Q&A.
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 youre using a speakerphone please pick up your handset before pressing the keys.
So what's driving your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Doug Schenkel with Cowen. Please go ahead.
Hi, Good morning. This is Chris on for Doug Thanks for taking my questions.
Gerald I think updated full year organic revenue growth guidance implies that the average two year stacked growth rate in Q2 Q3 in Q4 collectively is just 2% I know you increased full year guidance beyond Q1 revenue each but the stacks grocery is well below the 8% you just delivered in Q1 EBITDA.
If we adjust for the two gigahertz systems, so with that in mind I am curious how conservative you think updated guidance is and if there are any other factors, we should consider as we update our models.
We can't follow your numbers they don't they don't they don't agree with our numbers.
I guess said differently.
Just look at the stacked growth rate from Q1 of 'twenty one.
Put up for I think.
At that stack growth rate of 8% is just lower than what guidance implies for the rest of the year. So I'm curious you know.
If there are any factors, we should consider as we update our models or how conservative you think updated guidance is for the balance of the year.
Think the guidance is reasonable and they still don't follow the numbers that yours, citing to us because they don't coincide with our numbers, but we think our guidance for the second quarter and for the remainder of the year is reasonable.
We can follow up after it but for my second question.
Frank could you just help us contextualize the market opportunity for the FTE in EMR system does that replace some of the lower magnetic field strength and EMR systems, you have or is that more complementary.
Good question, Yes, I think it's a news still.
Still rather small market segment.
There are some other companies smaller companies out there that have been in that market, we're sort of a little bit of a late fall over here, but I think we now have a very good second generation high performance very stable highly automated product with a lot of benefits. So it's its own little market niche I think Thomas.
I don't think it will cannibalize the superconducting MMR market of 400 megahertz or above thats the different performance envelope, but I think for the first time and that's really what we were aiming for it makes a bench top <unk>.
Something that you could put into any lab, just you could put a little GC or LC mass spec into single, our triple quad or a little FTIR bench top system into any analytical or chemistry, or teaching lab and MMR always was pretty much mostly relegated to a central research facilities.
With a few exceptions to that and I think we're really pray breaking that paradigm. So I think it just add <unk> is incredibly useful.
But it wasn't as easily and broadly accessible to all sorts of chemistry labs as it as it now is becoming so I think it's a very it's a small niche, but I think it has a lot of growth potential for the future.
Okay, great. Thanks for taking the questions.
Our next question comes from.
I mean their name. Please go ahead.
Hi, Good morning, this is Scott and quality on core need thanks for taking questions.
So.
I wanted to talk about our single cell proteomics, you guys kind of mentioned.
And a call actually held with us about our single cell proteomics instrument. That's slated to launch in 2022 based on a breakthrough paper from the Mann group.
Want to front run the Investor day, but maybe just more high level, how you're thinking about the system and how it fits into the portfolio with canopy and from the other initiatives you guys have.
Ongoing in the single cell arena.
Yes, Scott that's a good one in fact of course, we are doing single cell targeted proteomics, that's not so unique and there's not many companies that can do it where one of them with our canopy Biosciences investment.
And single cell targeted proteomics, primarily for clinical and translational research on on on both fresh frozen and.
FSP tissue or on suspend itself is.
It's something that we're doing and we have very nice panels for that now that's why we did that canopy acquisition.
However, unbiased a bottoms up if you like I'm biased.
Single cell proteomics, that's quantitative.
And beyond.
A few signals, that's really novel and having that with a large number of protein groups on peptides identified was in that seminal paper that you just mentioned by the Mann group.
And yes, so we are.
We're developing that system, we hope to launch that in.
In early 2022, and it really is a new scientific capability.
Single cell proteomics, which goes with spatial proteomics within a tissue you will obviously want to cut out individual cells. If you have a tissue with some.
Laser capture.
On micro dissection mechanism, that's not a brokerage suite tool, but these tools are out there and and then looking at the sales and an unbiased way and and not on the few.
A few targeted.
Things that you can look at today.
And of course also then things that targeted can't give you you want to look at post translational modification foster relation is tremendously important in in cancer and in tissue microenvironment. Similarly cell surface glide constellation is something thats tremendously important all the things that only unbiased proteomics realists.
He can give you so it's really a new it's going to be a very important new open.
Window, that's opening up for force for spatial and single cell science in general.
I think the biology is tremendously important because single cell proteomics is far more quantitative than single cell RNA, it's great because that technology is out there, but because of low coffee numbers, it's not biologically quantitatively very meaningful and we're big believers in quantitative biology.
So stopping there the.
On the instrument will be a very very dedicated niche high end system, probably around the $1 billion Mark.
But we think they will actually be quite a bit of demand for that I don't say its going to be a volume product, but in certain specialized markets I think it'll be very well received and we're getting inquiries and first orders already.
Yes.
So.
Okay.
Yes.
Thank you for that very helpful.
If I could go back to the LMR business you guys have had very good success, placing these systems in recent years.
I'm, having some strong momentum here, but it seems like U S and APAC, maybe adopt maybe particularly particularly with the the gigahertz class.
What are the main barriers of adoption for these regions and do you expect these regions to kind of represent the next leg of growth for the MMR business, maybe how does the <unk> announcement today, maybe accelerates on the adoption of the most region.
So yeah two good questions. Both on EMR related gigahertz on them are I mean, Asia Pacific and the U S or the Americas with U S. In particular are way behind and I think theres a lot of momentum in the community and also hopefully in the federal funding agencies and some other.
Privately foundation funded efforts to improve that and so.
We are somewhat optimistic that.
Some of the various approaches to raising NIH NSF funding.
How that will be negotiated in the Ed nobody knows but it does seem that the all the tell tale sign seem to be there for some set substantial increases in funding benefiting many areas, but potentially also that's what would be required from NIH NSF and perhaps others in the U S to provide funding for this badly.
Need it infrastructure.
On which were indeed, Europe has moved first and by the way growth in Europe isn't over yet even just last fall in Q4, we had another order in Europe in Switzerland, and so theres still European activity as well before you 80 of course is.
It's a very different budget item right that's more around.
Low hundred K level, so that comes out of many many budgets and I think for.
Colleges to.
Chemistry or from our research to forensic labs. There are many many many labs that previously just would've said look I.
I can only send samples to a centralized facility and maybe I'll do that or I don't I'd just use mass spec our FTIR, but now if I could also get MMR data pretty easily and in my own lab with a little bench top system that I don't need to worry about.
I think that just opens up a broader a broader new market.
And.
There I don't think a geographic we started in Europe, we're now launching in the U S on Canada.
We just want to make sure that that product has excellent excellent reputation for and overcoming a lot of the shortcomings that the first generation products that are that are out there in terms of performance and stability can really fully fulfill the promise that we're taking it slow but I think it's going to be it is a very high quality highly automated.
Very high stability product that I think hopefully will be up.
Joy to us and on.
Alright, Thank you Frank I'll hop back in queue.
Our next question comes from Derik de Bruin with Bank of America. Please go ahead.
Hi, good morning.
Hi, Derik.
A couple of questions Frank Gerald I guess, the first one just a margin question.
You did 17, 6% adjusted operating margin in 2019.
Guidance this year basically assumes $80 185%.
A question for Mike how do we think about the margin as we go into 'twenty.
'twenty two.
I mean, you've been tracking somewhere in the 70 to 100 basis points increases.
Realizing youre doing some incremental investments going on but as you know is that.
Can you.
How do you expect to grow from sort of like the numbers this year on the margin.
Well first Derrick.
Pretty pleased with what we delivered for the first quarter.
Coming off of a pretty solid.
Fourth quarter performance on the operating margin side.
Especially given we saw pretty significant foreign exchange headwind in the operating margin for.
For the first quarter so.
I'm not I can't comment specifically on 2022 will talk please join us for the virtual.
The Investor Day, and we'll talk more about those forward years, but.
I can say, we've been we've talked a little bit about it in the.
Prepared remarks here today is.
We are seeing some good.
And market recovery.
In many areas that we didn't see even a year ago.
We've got it pretty innovative product portfolio, and where we're seeing some good.
Tick there both in revenue performance as well as in order performance so far.
So we're pretty optimistic on the operating margin line, but.
There's still a few quarters to go before we talk too much for 2022.
Got it day in February we thought we'd bounced back to 2019 margins now we've raised that as you've seen this morning to where we think we can exceed 2019 operating margins with a 50 bps headwind from currency and if you like 100 bps headwind.
Debt, which has a choice because we're investing 10 instead of 9% in R&D.
We're delivering very good margin expansion.
But we're also.
Investing in growth.
On balance and with our shareholders. We generally discuss that from time to time, when we have individual meetings and they are all very comfortable with our long term strategy of delivering good operating margin expansion year over year, obviously disrupted by <unk> in 2020.
And but also not absolutely optimizing that in any given year, but really also focusing on the growth opportunities and that remains our philosophy and so we expect to generally continue our margin expansion of course, but again, we're not.
We're not focusing on the fastest margin expansion on possible, but on investing in our future and our profitable growth opportunities, while delivering gradual annual margin expansion in im not saying numerically, but in a pattern that you've seen from us for many years, except for 2020.
<unk>.
Great. That's really helpful and just one quick follow up.
We're getting a lot of questions on that.
Semiconductor markets metrology markets in two ways.
The ultimate potential on sort of this chip shortage from what it could mean for your business both from a revenue potential and also is there any risk to you.
On the chip shortage on impacting your supply chain and you've not being able to get materials to manufacture given some of your high tech items, just some color on both the supply and demand curve on the on the metrology in semiconductor side, yes.
Right and let me add to that of course, we have a semi conductor and metrology and microelectronics.
Tools business and that business as we said, it's one of our project accelerate or a significant part of one of our project accelerate initiatives.
It has very good margins incremental margins and it has been on a very good trajectory and that continues.
<unk> had greater than 30% organic growth year over year in Q1. So it's there we're benefiting from all of that now but to your risk question. We do acknowledge there are risks on it.
In terms of operating environment, the supply chain risks on on chips, you read about it from the automobile industry and we're all we're all working that very very very hard so I think.
Yeah.
It's an additional risk.
We have taken that into account in our guidance for the year, but we also put it out as an additional highlighting that risk factor there is the <unk>.
<unk> done on the pandemic right you don't never know quite what happens with the variance and now there is also the supply chain risk.
Pretty confident that in Q2, we've got everything aligned to two to deliver and we're also confident with Q3 and Q4, but having said that there are additional risks and it's a lot more work to get all your chips and boards on everything delivered and any even goes to be even goes beyond electronics I think.
Present industrial boom is affecting.
<unk> logistics and shipping and sometimes you know wooden pallets and other material. So.
We're taking into account, but we're working it very hard to make it happen. So hopefully it won't become an issue, but it is an additional risk factor.
Thank you very much.
Our next question comes from Jack Meehan with Nephron Research. Please go ahead.
Thank you good morning.
On the dive a little bit more into college, so over 20%.
Growth I'm getting closer to 30%, but I was wondering if you could talk about the relative performance of proteomics within that you know in the past you've talked about kind of the S curve of the tens Tom CRO.
Do you have any updated thoughts around how the order book is going and where you think you are on that curve.
Yep.
So it's going well for now and I talk about proteomics off too.
Say, that's the unbiased proteomics I E. The Tim's tough business that you asked about we also have the targeted proteomics with canopy.
Which is much smaller so far for us at least unbiased proteomics Tim's tough pro.
Again orders and revenue very nice annual year over year growth.
Greater than 30% so above the corporate average which was high even in in Q1. So.
So it's one of our growth drivers in both orders and revenue look very very good with a lot of the new capabilities that we had announced in debt I even highlighted early in the call.
Yes.
In our health in the beginning of the steeper part of the S curve, there I would think.
Great.
On a follow up also on <unk> debt.
COVID-19 tailwind, it's not huge but was just curious what you're seeing there I think $7 million was a little lighter than what you previously talked about do you think this is.
Starting to fade as the cases come down yes.
Yes.
No definitely I mean, we had close to $14 million in Q4.
So the $7 million around $7 million of COVID-19 testing, which for US is essentially all PCR PCR assays in PCR extraction.
On antigen testing that market is flooded and though we have two product offerings out that's not much getting much traction and so we're focusing on refocusing mostly on the PCR testing and associated but at 7 million that was lighter and sequentially down and we don't have very high expectations for it for we expect debt will remain.
A low $10 million or so in Q2, and then we'll see but it's definitely it's definitely.
Coming.
Coming down as far as we can tell and.
Some of that is going to antigen testing, although not everybody's fully pleased with the antigen testing plays a role, but it's a flooded market with oversupply as far as we can tell so we're probably not going to enter that in a very serious way.
But we will further refine our PCR portfolio, we had.
The flu testing for panel winter for panel that wasn't a lot of need for that because there was essentially no fluid flu season in Europe. This winter.
Good for the population.
And we're obviously also looking at we now have on argue over issue that were up that for testing in Europe of ovarian to version. So we think that will be suitable for the market as we proceed.
But overall, we are that is down sequentially.
That's fine with us at least we don't have really much of a tailwind there at all which.
For next year or even for the second half of the year. It just never was a very large part of our revenue.
That makes sense, thanks for the color sure Jack.
Okay.
Our next question comes from Tycho Peterson with Jpmorgan.
Please go ahead.
Hey, Thanks, Frank I wanted to dig into the biotech and instruments for a little bit just curious how much of the strength. There you think was pent up versus new customer wins can you talk.
As to how much of the revenues came out of backlog versus new business wins as well.
Well for bio spin in any given quarter most of it comes out of backlog, but orders in <unk> were also healthy so.
As I said for them for all the number I have is for all the BSI groups together, all three of them together organic year over year.
Order growth was in the mid teens.
And so bio spin was healthy but of course in any given quarter you can pretty much assume that 80% of <unk> revenue comes out of the ending backlog of the previous quarter even.
Pretty much other than service and.
Aftermarket.
So, yes, <unk> batsmen looks good.
And then on nano I appreciate the comments on kind of the semiconductor shortly for you in the near term one of the questions. We've gotten is just with infrastructure on the table here and it seems like broadband build out and upgrading the electrical grid is there an opportunity there do you think for for the nano business.
Net you can tap into some of the titles for federal dollars.
I mean, the opportunity for it I mean, the risk hasn't really materialized for us, but we are aware of it just weren't aware of risk locked on risks, but the opportunity is very substantial so our semiconductor and microelectronics business in the nano group.
Almost all of them in the nano group has really <unk>.
Expanded very very nicely with excellent growth last second half of last year also again, continuing greater than 30% organic growth much greater than that in the first quarter of this year and and really good bookings. So we think that's you know that has that's that's not one of the lingering questions. We think that's really going to be.
Pause I mean, that's going to be positive for as far as we can see which is sort of you know throughout this year, but the longer term trends.
I mean semiconductor is somewhat cyclical although the cycles aren't what they used to be there much longer and the long term trends from artificial intelligence to five G. Two I mean, you name it.
That's cloud based computing and many many many other drivers working from home being one of them.
Make make make that runway look very very healthy on very long plus there is a lot of new investment in new technologies, seven five nanometer greater <unk> stacking more layers, which all cater to our strength.
So so very optimistic about our semiconductor metrology business.
Okay, and then a follow up on on cellular.
Acuity Youre doing as a majority investment could you just talk as to why that was the right strategy as opposed to acquire I know, it's early and then how we think about that in relation to canopy just around your broader spatial analytics that you're offering.
I mean, there was nothing to acquire yet that's a business to be built right. It's a real it's a true startup and.
We found some very talented and enthusiastic people that that are.
Likely to join acuity from from the group that did that work in an academic setting.
So those folks want to be entrepreneurial and do a startup and instead of sending them to the usual VC.
<unk> funding route they chose brokerage the majority investor in and of course, we can also help them as a strategic majority investor with a lot of infrastructure and and not just capital.
So that combination.
<unk> some of our key Super resolution microscopy products that are actually the basis for some of the acuity spatial genomics solutions that are then more biology molecular biology oriented.
In software and services and so on together I think makes for a much much faster start for acuity than if that truly was a day. One here is a bunch of money.
Some seed money get going so I think we can.
Hope it's not.
Running start but it also will not have the typical lead times of another startup. So we're excited about that and we think that we'll talk to you more about on the Investor day will it contribute meaningfully this year now of course, not but it's also not going to be three or four or five years before that ever sees its first revenue.
We're hoping.
And so I think it's a fantastic.
And very creative way of getting into some of the most important new areas in science and spatial.
Genomics in a rather unique way and also in a somewhat unique and clever bit.
Business model that to that.
Net mark Munch and colleagues have.
Our driving for us here from the broker nano group very exciting.
That's helpful. And then one quick one for Gerald for quite a hop off the increase in operating margin guidance to 10% to 50 basis points should we assume two thirds of that is skill from net gross margin line I know that was kind of a rough rule of thumb before.
Yes, I think thats reasonable I mean, we still see very solid gross margin performance in the next few quarters. So I think that's a reasonable assumption for sure.
Okay. Thank you Youre welcome.
Our next question comes from Dan Brennan with UBS. Please go ahead.
Great. Thanks for thanks for taking the questions maybe.
Maybe just first one just broadly on the academic and government market. Frank what are you what are you seeing for.
Probably some of the.
Ways that were happening during 2020, given the pandemic have you seen much of a catch up yet.
Instrument orders, how would you characterize the overall environment given the increased funding that we're seeing globally in that space.
Well I think we still have a little bit of discrepancies in arm in China, and Europe really did very very well in academic funding in orders as well.
And the U S is still lagging a little bit behind although pretty promising signals now people believe there's going to be <unk>.
A rebound and then just healthy NIH NSF et cetera type spending and I think the universities will then also become more optimistic than from faculty hiring to whatever.
<unk> of their budgets. So I think there's optimism in the U S, but that optimism still needs to translate into numbers on that could that may still take till the second half of the year. The U S. Academic market is recovering, but it's not nearly as strong as China and Europe has been.
And then Japan still very anemic, and we will need to see how that plays itself out and whether that's <unk>.
Related cut that comes after the Olympics or whatever so we don't have really good clarity there plus a few places like India of course, having.
Other problems that are far more severe so.
It's it's generally quite good, but Europe, and China, particularly good U S lagging in Japan and India.
Unclear and or.
A week so that gives you a bit of a geographic color to that otherwise pretty strong academic and government funding rebound that we see even with those areas of weakness or questions, it's really quite healthy.
And I believe in the last downturn coming on and that you discussed kind of a delayed reaction will be to your business given the timetable at which granted seem to be written and then Brian its get rewarded and then money to expense. So I'm just trying to things that are within your guidance. This year and as we think ahead beyond 2021 is there a potential really for.
It may be a significant step up in growth beyond just comps given the spending levels from this catch up on academic and the increased funding or.
Potential for sure, but it remains to be seen we think there are a lot of our when funding comes back from NIH and NSF and of course similar funding institutions worldwide right.
On the question is are we are our instruments in proteomics and spatial and structural biology by on EMR et cetera are they in the sweet spot.
Generally rising rising tides good rises Frank.
For all boats, but I think we also positioned ourselves to where a lot of our key instruments are in the sweet spot of funding.
Sure.
So.
So but that also remains to be seen when big funding waves, maybe at NSF for so come until they get into programs into grant programs to individual investigators and day, then purchase an instrument that takes a while it can take actually six to 12 months, so but on the other hand, having all the strength.
We have already and then.
In my opinion, a pretty good chance that U S.
<unk> spending will come become quite strong, possibly in the second half of this year that could be a nice driver for us for for next year.
Great and then just maybe one on the balance sheet, obviously in great shape.
You've had this consistent kind of tuck in M&A strategy does that does that continue going forward is there anything potentially larger on the horizon can you just give us a flavor on what we can expect from that next day.
I know nothing large on the horizon, obviously theres a lot of businesses out there right now that are.
Sure.
It's challenging to figure out what valuations would be for instance, if they have a big COVID-19 bolus.
Or.
Some some some companies are still early in there.
Early revenue or no revenue yet so difficult that we were very disciplined as an acquirer also in terms of value and we have we're blessed in having such incredible organic growth opportunity that you are not likely to see us.
I'll never rule anything out.
But you are not likely to for us have us focus on M&A.
Because of some COVID-19 headwind or something like that quite on the contrary, we're very much focusing on project accelerate and operational excellence and we think that can have developed.
You know deliver excellent further performance improvements and growth.
Without the risks from a valuation on operational point of view from doing a lot of.
Frantic M&A activity. So you won't be seeing youre, very likely not going to see that from broker.
Great. Okay. Thanks, Brian.
And we need to wrap it up I think we may have time for one more question.
Thank you for that question will come from Brandon Couillard with Jefferies. Please go ahead.
Hey, great. Thanks for squeezing me in just a two part question for you Gerald free cash flow is off to a great start.
Seasonally weak first quarter.
Are you penciling in for the balance of the year and then.
The tax rate is going up again going back to the analyst day two years ago, you talked about you know run.
One way to maybe bring that down into the low <unk> is that still a relevant sort of midterm.
Bogey.
Yeah, well, let me ask answer.
Your last question first if I may relative to the tax rate, we did move our non-GAAP tax rate for guidance up for the full year and that's largely driven by the strength of our <unk>.
European businesses, particularly in Germany.
<unk> very high tax rate. So we think it's prudent to move what we currently see in the overall mix from a jurisdictional perspective, so that's what's driving the current.
Thinking around guidance for 2021, I would say, we havent at all given up on.
For the movements in the tax planning strategies that we have here a broker and we're still executing through on those but as I said earlier.
The management of of how it all plays out from the business. So for appears to be more leaning towards those higher tax rate jurisdictions.
And then on your first question relative to cash flow, we we actually.
Solid fourth quarter on 2020 on another good strong on.
Cash flow performance in the first quarter.
Some of this has to do with timing and of course, including.
In this particular quarter, we had some.
Some <unk>.
Improvements I guess I would say in a couple of areas that are significant it probably takes a longer conversation than we have today to go through that but in general.
We're pretty optimistic about our cash flow improvement.
Capabilities and how we delivered on that over the last couple of quarters.
Okay. Thanks.
Okay.
This concludes our question and answer session I would like to turn the conference back over than the average Saba.
For any closing remarks.
Thank you for joining us today.
During the second quarter <unk> will participate in the bank of America, UBS and Jefferies Virtual health care cost for assets. In addition, we will be hosting a virtual investor day on Thursday June 17th.
With registration information forthcoming and we look forward to meeting you at one of these events during the quarter.
And have a nice day.
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