Q1 2022 Bruker Corp Earnings Call
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At this time I'd like to turn the conference call over to you Justin Ward Senior director of Investor Relations and corporate development. Sir. Please go ahead.
Thank you and good morning.
I would like to welcome everyone to broker Corporation's first quarter 2022 earnings Conference call. My name is Justin Ward and I am brokers senior director of Investor Relations and corporate development.
Joining me on today's call are Frank like King, our President and CEO and Gerald Herman our executive Vice President and CFO .
In addition to the earnings release, we issued earlier today during today's conference call, we will be referencing a slide presentation that can be downloaded from the events and presentations section of brokers 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 dot broker dot com.
Before we begin I would like to reference brokerage 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 financial and operational performance of the company that involve risks and uncertainty uncertainties.
Including those related to Gilles geopolitical risks, the COVID-19, pandemic and supply chain logistics and inflation challenges.
The company's actual results may differ materially from such statements.
Factors that may 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 31st 2021 as updated by our other SEC filings, which are available on our website and on the SEC's website.
Also please note that the following information is based on current business conditions and to our outlook as of today May four 2022, we.
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 second quarter 2022 financial results expected in early August 2022.
You should not rely on these forward looking statements as necessarily representing our views or outlook as of any date after today.
We will begin today's call with Frank providing an overview of our business progress Gerald will then cover the financials for the first quarter in more detail and share our updated fiscal year 2022 financial outlook.
Now I'd like to turn the call over to broker CEO Frank Louthan.
Thanks, Justin and good morning, everyone and thank you for joining us on today's first quarter 2022 earnings call.
If you go to slide four you can see that brokers solid 10.5% organic revenue growth in the first quarter.
And even stronger organic bookings growth represent a good performance in light of challenges with a war in Ukraine and Lockdowns in China.
As a reminder, we do not have any manufacturing operations in China.
Excellent demand for our differentiated high value scientific instruments in life Science solutions resulted in continued strong momentum in organic bookings and revenue growth, despite a supply chain and logistics drag.
For the first quarter of 2022 our brokers scientific instruments or BSI segment bookings were up strongly with all four broker groups with double digit percentage organic bookings growth.
And our B S I book to Bill ratio greater than 1.1.
Brokers Q1, 'twenty two revenues increased seven 3% year over year to $595 million.
With a currency headwind of minus four 2%.
On an organic basis revenues increased 10, 5%, which included nine 5% organic growth in BSI and 21% at best net of intercompany eliminations.
While growth from acquisitions added about 1%.
This implies constant exchange rate growth of 11, and a 5% year over year.
Our first quarter 'twenty two non-GAAP gross margin increased 140 bps year over year to 52, 7%, while non-GAAP operating margin was 19, 5% an increase of 110 bps year over year.
Gross margin expansion was partially offset by planned investments in commercial and R&D capabilities as well as by supply chain logistics and inflation headwinds, which more than offset currency tailwind.
In the first quarter of 2022.
<unk> reported GAAP diluted EPS of <unk> 41 cents compared with 37 reported in Q1 of 'twenty one on.
On a non-GAAP basis Q.
Q1, 'twenty two diluted EPS was 49 cents, an increase of 11, 4%.
From 44 cents in the first quarter of 'twenty one.
Our trailing 12 months return on invested capital was 27, 6%, which puts us among the leaders in our industry.
We believe this is the result of our strong broker management process and are focused on disciplined entrepreneurial lithium and organic growth supplemented by selective bolt on and technology acquisitions.
In summary, the first quarter of 'twenty, two was a quarter with broad based demand strength across virtually all broker businesses with double digit organic bookings growth as well as further investments in project accelerate to Dot O.
Plus investments in our recent acquisitions in additional proteomics, biopharma and applied markets capabilities in the first quarter as well as in April .
Please turn to slides five and six now where we highlight the first quarter 'twenty two performance of our three scientific instruments groups and of our best segment, all on a constant currency and year over year basis.
In the first quarter of 'twenty two the bio spin group revenue was 158 million and grew in the low single digits percentage.
Bio spin faced a difficult comparison as they were two gigahertz class <unk> in the first quarter of 'twenty, one with none in the first quarter of 'twenty two.
We continue to explore expect four gigahertz class <unk> in revenue in 2022 with a one two gigahertz system just accepted in April . So this will be in Q2 revenue.
<unk> saw robust growth in revenues in our preclinical imaging business and bio spin achieved double digit bookings growth.
Bio spin innovations of note include our compact single story.
Ascend evil 1.0 gigahertz magnet.
To give more structural biology, and drug discovery labs access two gigahertz technology.
And on the other end of the spectrum. If you like we also launched an advanced new capabilities on our bench top four year 80 ft in EMR system to enable broader applications, particularly in pharmaceutical and applied markets analysis.
Moving onto Calvert for the first quarter of 'twenty two the Calvert group revenue of $203 million increased in the low double digits percentage with strong growth in microbiology and molecular spectroscopy or.
Our Gamestop platform continues its adoption in four D proteomics, Abbvie proteomics and multi omics and in Q2, we announced key further capability enhancements for the same stopped platform and had excellent year over year bookings growth.
Microbiology revenue delivered strong growth driven by demand for multi biotype are systems and consumables. This was coupled with a gradual recovery of our tuberculosis molecular diagnostics products platform.
We are excited about the launch of our mid Plex Pcr.
Liquid array next generation Syndromic panel 10.
<unk> at the <unk> 'twenty two 2022 conference in April with more of these liquid array panels and assays to come.
Please turn to slide six now.
<unk> first quarter 2022 broker nano revenue was 179 million and grew in the high teens percentage nanos academic industrial and semiconductor metrology markets all remain strong.
Revenue for our nano advanced X Ray and nano surface tools delivered strongly strong growth in the quarter and that it was microelectronics and semi con metrology tools performed very well with strong bookings and backlog.
Our life Science Florescence microscopy revenue was up sharply on on product innovation and strong research demand.
We note that our canopy subsidiary launched the next generation cell scape chip cytometry instrument for high throughput in situ spatial biology.
With sub cellular resolution and outstanding quantitate in where they tend to be a dynamic range.
Very unique.
Finally first quarter best revenues grew in the hot twenties percentage net of intercompany eliminations, driven by share gains and strong superconductor demand by our MRI OEM customers.
Best demand appears very healthy, but we experienced supply chain challenges.
Moving to slide seven and eight we continue to make good progress with our project accelerate to Dido initiatives, which in 2021 represented 54% of total revenues.
On slide seven we highlight our very recent introduction of the compact single story Ultra high field magnet called the ascend Evo 1.0 gigahertz, it's really quite a technological Marvel that.
Being able to put that into a single storyline will provide many more structural biology and drug discovery researchers access to these enabling functional structural biology capable capabilities of gigahertz anymore. So this is no longer for national.
Labs, only but really for Pi and co Pi grants and as well as for our Biopharma customers. This is a.
The result of the key hybrid technologies, we've developed at one two gigahertz.
For high temperature superconductors operating in this case at four two Calvin which is convenient and also reduces helium consumption by a factor of three that's very very significant and very timely.
So very exciting new technology.
Moving onto slide eight where we talk about project accelerate to Dot O. Our nano technology initiative and here in particular semiconductor metrology and microelectronics I'm certainly not going to go through all the bullet on that slide I just wanted to remind you this business.
Including display package data storage and semiconductor metrology was about 7% of our BSI segment revenues in 2021.
And it was up again in up in the high teens year over year in 2021 and up in the low twenties in year over year in Q1 of 2022, So a strong growth business tends to have very good margins and here are two examples one is for next generation chip manufacturing using X Ray diffraction.
Tools that are quite unique and.
On the right something more on three D chips that require advanced packaging quality control, where we have very unique tools that you probably don't see from US every day, whether they are absolutely crucial and enabling for a lot of these new these new packaging technologies that affect so much of our lives.
Alright enough technology after that outlook in.
Summary, broker continues to experience strong demand for our differentiated instruments and solutions across our portfolio.
Our project accelerate to Dido high growth high margin initiatives performed well and we reiterate our intention to ramp investments for accelerated growth except for example, in proteomics and spatial biology in Biopharma and applied as well as in nanotechnology and semi con metrology.
Really firing on many cylinders or all cylinders here.
I am pleased with how well our teams have executed in a challenging supply chain and logistics environment.
We benefit from being able to manage a high backlog to navigate that environment very well and as we move through fiscal year 2022, our high backlog gives us good visibility on growth.
So let me turn now turn the call over to our Chief Financial Officer, Gerald who will review brokerage Q1 financial performance and that fiscal raised fiscal year 2022 outlook in more detail Gerald.
Thank you Frank and thank you everyone for joining us today I'm pleased to provide more detail on brokers first quarter 2022 financial performance.
Starting on slide 10.
In the first quarter of 2022 brokers reported revenue increased seven 3% to approximately $595 million, which reflects an organic revenue increase was 10, 5% year over year.
We reported GAAP EPS of <unk> 41 per share compared to 37 cents in the first quarter of 2021.
On a non-GAAP basis, Q1, 2022, EPS was <unk> 49 per share an increase of 11, 4% from 44 in the first quarter of 2021.
Our Q1 2022, non-GAAP operating income grew 13, 3%.
And our non-GAAP operating margin increased 110 basis points year over year to 19, 5% for the reasons Frank's already reviewed.
We finished the first quarter with cash cash equivalents and short term investments of approximately $916 million.
During the quarter, we used cash to ramp selected project accelerate to the auto investments funded capital expenditures complete several bolt on technology acquisitions in proteomics.
Repay $105 million tranche of our 2012 debt and fund share repurchases.
You may recall that in May 2021, our board approved a two year share repurchase authorization up to $500 million through May 2023.
In the first quarter of 2022, we repurchased approximately one 6 million shares for about $106 million.
As a reminder, in fiscal year 2021, we repurchased.
$2 1 million shares for approximately $153 million.
We generated $77 8 million of operating cash flow in the first quarter of 2022, partially offset by Capex investments, resulting in $58 $8 million of free cash flow in the first quarter of 2022.
This represents a $14 $5 million decline from the first quarter of 2021, mostly due to the timing of tax payments.
Turning to slide 11 shows the revenue bridge for the first quarter of 2022 as discussed earlier.
<unk> to the first quarter of 2021 bio spins first quarter 2022 organic revenue grew in the low single digit percentage against the difficult comparison due to European gigahertz class LMR mixed headwinds.
Nano organic revenue grew in the high teens percentage, resulting from the strength of nanos academic industrial research and semiconductor businesses.
Organic revenue grew high single digit percentage with strong performance coming from the multi <unk> platform <unk>.
First quarter 2022, BSI systems revenue increased in the high single digit range organically.
Our BSI aftermarket revenue grew in the low teens organically compared to the first quarter of 2021.
Geographically and on an organic basis in the first quarter of 2020 to our North American revenue grew in the low 30% range Asia Pacific grew in the high single digit percentage, while European revenue declined in the low single digits percentage growth all year over year.
Our rest of the World first quarter 2022 revenue was significantly higher in the low 40% range.
Slide 12 shows our first quarter 2022, P&L performance on a non-GAAP basis.
non-GAAP gross margin of 52, 7% increased 140 basis points from 51, 3% in the first quarter 2021, principally benefiting from operating leverage from higher volume revenue mix as our project accelerate initiatives performed well, partially offset by supply chain.
Logistics challenges.
First quarter 2022, non-GAAP operating margin of 19, 5% was 110 basis points higher than the 18, 4% in the first quarter of 2021, driven by gross margin expansion, partially offset by increased sales and marketing investments as a percentage of revenue to support.
The growth of our higher margin products.
<unk> operating margin expansion in the first quarter of 2022.
A year over year headwind from two European Gigahertz class systems in the first quarter of 2021 revenue, which was offset by a gain on the sale of <unk> property.
Given the headwind from Lockdowns in China, we expect that our second quarter 2022 operating expense ramp for broker will moderately outpace our revenue ramp and resulting operating margins declining slightly sequentially from the first quarter of 2022 before expanding.
Sequentially in the second half of fiscal year 'twenty two versus the first half.
And with that we expect the second quarter 2022, non-GAAP EPS to be similar to Q2 2021 non-GAAP EPS.
For the first quarter of 2022, our non-GAAP effective tax rate was 32, 7% compared to 31, 1% in the first quarter of 2021, primarily due to certain unfavorable discrete tax items.
Weighted average diluted shares outstanding in the first quarter of 2020 to $151 4 million a reduction of approximately one 8 million shares or one 2% from the first quarter of 2021, resulting from share repurchases over the past 12 months.
Finally, first quarter 2022, non-GAAP EPS of <unk> 49.
Was up 11, 4% compared to the first quarter of 2021.
Our cash conversion cycle at the end of the first quarter 'twenty two with 253 days, an increase of 11 days compared to the first quarter of 2021 <unk>.
Resulting primarily from late quarter shipments and receivables timing.
Turning now to slide 15, given the broad based strength in revenue and bookings growth in the first quarter of 2022, and our record backlog, we are increasing our guidance for organic revenue growth for the year.
Our updated outlook for fiscal year 2022 includes organic revenue growth of 7% to 9% year over year, an increase of 1% from our prior guidance.
We estimate a foreign currency headwind of about three 5% stronger than our 2% prior foreign exchange headwind guidance.
We expect acquisitions to contribute about one 5% to growth up from the prior guidance of 1%.
This is expected to lead to reported revenue growth in a range of 5% to 7% consistent with our prior guidance.
The supply chain logistics and inflation environments remain volatile and challenging and.
And we are maintaining our guidance of 30 to 60 basis points of operating margin expansion in 2022 from the 19, 4% level, we delivered in 2021.
On the bottom line, we reiterate our non-GAAP EPS estimated range of $2 29 to $2 33 for fiscal year, 2022, which would represent non-GAAP EPS growth of 9% to 11% compared to 2021.
We now project, a non-GAAP tax rate of approximately 29, 5%.
Fiscal year 2022.
Other guidance assumptions are listed on the slide our fiscal year 2022 ranges have been updated for the foreign currency rates as of March 31 2022.
For the second quarter of 2022, our outlook is for organic revenue growth in the mid to high single digits year over year subject of course to further COVID-19 related lockdowns in China, or other geopolitical risks, which could negatively impact that growth.
So to wrap up our broker delivered strong bookings backlog and solid organic revenue growth in the first quarter.
The teams delivered remarkable performance in a very challenging environment.
Demand momentum is broad based across many of our businesses, giving us confidence in our ability to deliver another solid financial performance in 2022.
And with that I'd like to turn the call over to Justin.
Thank you very much.
Thank you Gerald.
I'd now like to turn the call over to the operator to begin the Q&A portion of the call.
As a reminder to allow everyone time for questions. Please we ask that you limit yourself to one question and one follow up.
Operator, we're ready for the Q&A portion.
Yes.
Ladies and gentlemen at this time, if you would like to ask a question. Once again you May Press Star and then one to join the question queue. If you are using a speaker phone would you ask that you. Please pick up the handset prior to pressing the keys to ensure the best sound quality.
So with your all your questions you May press Star two.
Again that is star and then one to join the question queue.
Our first question comes from Puneet <unk> from SBB Securities. Please go ahead with your question.
Yeah, Hi, Frank Thanks for taking the question. So first of all congrats on a strong quarter here.
Just first one is really on pricing I mean, how much contribution are you seeing from pricing in the quarter on instruments and whats baked into the expectations for.
And the guide for the full year.
Well I'll take that if you don't mind Puneet, it's Gerald.
Just fundamentally one of the challenges we have of course from a price realization perspective is that we have quite a bit about the backlog and we're exercising through that backlog.
So I do think what we see is not so much price realization in the first quarter, although we are expecting to see more in the latter half of the year.
As you likely know this cycle times as we exercise through backlog into actual product revenue takes us usually a quarter or two more significantly.
In the <unk> side of our business. So so I would say, we're not seeing too much.
Price realization in the first quarter pretty modest, but I would expect to see more as we move through the rest of the year.
Okay got it and then on the strong.
Book to Bill that you're seeing here, maybe could you just elaborate how much of that is end of March.
Much of the new backlog, that's building as more of Tomorrow, and Tim stop and other key instruments I'm, just trying to understand the mix there and for the for UHF Gigahertz Magnet I think you mentioned one coming next quarter, but just wanted to make sure we have the cadence for the for the full year.
<unk> I'll take that one it's Frank Thank you.
So.
The strength in orders is.
Is very broad based it is particularly.
Really strong and Tim staff.
It has been quite strong in bio spin and MMR It has been.
Quite strong in nanotechnology.
But it's almost not fair to single something out because it's really fairly broad based sure. Some are growing even faster, but it's really been strong strong strong book to bill of one one.
In the BSI segment, and so faster.
Organic bookings growth and even organic revenue growth.
Throughout Q throughout Q1, continuing our momentum.
On the gigahertz question, Yeah. There was none in Q1 'twenty two that we expect there to be one one.
One we just accepted in.
Near Munich.
In April already and for them as revenue in the second quarter.
And therefore, the balances three more in the second half of the year and they will probably be spread over more than one quarter, but we don't know the exact cadence of that yet.
Sure.
Okay got it.
Most of your questions.
Yes, I really appreciate it and just a quick one if I could.
Ask on really great to see.
The record revenues in semiconductor metrology, how much Frank how much of this is coming from sort of new factories being built out and how should we expect that this to sort of trend through the year. So as these new fabs.
On board.
Across the world.
That's a good question, we get asked that frequently asked shipped almost glad you asked it actually probably just close to none of that is for new fabs that.
Spent the geopolitical footprint away from Taiwan and in most of APAC too much more semiconductor capability that Europe wants to have in Europe , and the U S wants to have in the U S right in and by the way also Japan, what Japan.
An additional driver those are all more long term trends that could be more at.
'twenty four 'twenty five 'twenty six business so.
That's a very good thing because we think for 'twenty two 'twenty three just on the sheer demand from us all being on the zooms and artificial intelligence and I don't know, maybe bitcoins are little less fashionable, but all the many other trends right now.
Still driving very strong demand in fact, the industry is behind demand.
For 'twenty, two and we probably think throughout 'twenty three.
And as we see it it may actually line up very nicely with maybe the geopolitical investments in North America, Japan, and Europe , playing a bigger role maybe in revenue in 'twenty four 'twenty five 'twenty six.
So it's actually very strong long term picture and nanotechnology as far as we can tell.
Great Thanks, and congrats again.
Okay.
Our next question comes from Derik de Bruin from Bank of America. Please go ahead with your question.
Alright, Thank you and good morning. This is Peter on for Derek.
Could you quantify any impact you saw in China across the first quarter and any headwinds in the second quarter and I guess could you discuss the extent to which you expect to recover that demand across the balance of the year.
Yeah, I'll take that if you don't mind, Peter it's Gerald so.
Generally speaking we've seen.
Quite remarkable demand in China across both the bookings performance as well as in the revenue line.
And this has continued for quite some time frankly.
Mostly not.
Absolutely, but mostly consistently quarter by quarter and I would say the first quarter is really no exception.
Here in 'twenty two.
We are seeing some dampening relative to the.
The Lockdowns that are going on currently I would say this is now speaking with respect to the second quarter as opposed to the first.
And I think the concern of course is that if this broadens.
That puts further risk into the overall execution of our revenue, but I think the way we view it as very strong performance from a bookings perspective in China across almost all of the individual end markets and thats very encouraging for us because now it's really.
<unk> execution, and our ability to to do that.
With that we think we will have mid single mid to high single digit organic revenue growth year over year. In Q2 now if there is a massive acceleration in tightening of lockdowns that would present additional risk, but we obviously assumed what sort of the levels that we're seeing today.
And.
I have been a little bit more cautious on Q2 accordingly in our color on Q2, we do think that we can catch up off for the remainder of the year.
We don't we don't see anything that that at the at the moment that would push that into next year. So.
I think it's a quarterly cadence question and yes, we're a bit more conservative on Q2 accordingly.
I appreciate that and then I guess could you give us maybe a little bit more color.
On the dynamics flowing through the rest of the P&L I mean, given the strength you've seen the top line and decision to maintain margin EPS guidance, if you could maybe quantify.
No supply chain change impact and so on to the op margin if you could.
Yes, it's Gerald again I'll take that so just generally.
The guidance I mean, we have a number of moving factors of course, and where we're trying to move.
We're trying to move up it consider the up and downs that go along with that but I won't go through all the detail, but we do have that information available.
And I think you can go through that in more detail with Justin if you'd like I mean, I guess, just generally what I would say is we are.
We're pretty comfortable with the guidance that we've laid out we baked in a number of pluses and minuses, including some of the supply chain risks that you've just heard about.
We've also considered some of the strength that we see in our our bookings performance into the overall picture, including at the operating margin line. So I think thats it.
<unk> pretty clear to us at this stage that our guidance reflects what we understand right now.
Yes.
Very good thank you youre.
Youre welcome.
Our next question comes from Brandon <unk> from Jefferies. Please go ahead with your question.
Okay.
Hey, Thanks, good morning.
Frank lets get your view on kind of your assessment of kind of the global helium supply situation right now and whether you think that's impacting in EMR installation timing or perhaps orders or even kind of your own internal supply in terms of your costs.
Yeah. So good question Brandon.
So cost has gone up and there are some there.
There are some cases, where a customer is that universities are under allocation.
They they tend to turn off the kind of voluntary or delay the voluntary large helium guzzler experiments in physics first and delay those by a quarter or two that's the anecdotally what we heard at Enc. The regularly scheduled scheduled at them ours, our mris and hospitals.
Seem to be not generally affected could always be an exception, we're making a lot of our internal investments in capex in the last two years now seem very well timed.
For our factories in Switzerland, and France, and our superconducting factory outside of Frankfurt and are now as well we've made considerable additional capex investments in helium relinquished vacation investments. So our factories are in really really good shape and we just.
Anticipated well you'll.
You'll see some new developments like that single storey gigahertz magnet that we just did a technology introduction.
That takes three times less liquid helium so.
Those are also highlighted on the call. We also just introduced at the end of April a helio smart recovery solution. So customers if they choose to do that and more of them do it can capture all of the liquid helium that boils off as we say in the industry from their superconducting magnets and compress and pressurize.
Is it and then send it out somewhere for a relief reputation either at their own university or at our regional sites or which is one of their suppliers. So.
I think it's difficult it's manageable and it is more expensive so there'll be more of that circular helium economy that we are strongly supporting with our developments and that Fortunately we have invested in internally.
So so that our factory in final test situation is in very good shape.
So that's that's that's I think that's the answer.
It's manageable so far but we're obviously very proactive with it for both investments as well as in terms of new capabilities for our customers and new services.
Okay, Great and then I think you said Europe overall down low single digits does that all do.
Due to the in the Maher installation comp from last year, and that's exactly the kind of underlying data.
Good catch I mean, Europe , there isn't it.
Europe is a little bit weaker among the three major geographies that have a little bit slower right now than the others, but in addition in Q1, we simply add.
Two gigahertz class system, so north of $20 million of European revenue that we had in Q1 of 'twenty one that we don't have.
In Q.
Q1 of 'twenty, two so don't pay too much attention to that piece.
Yeah.
But Europe Europe right now a year ago. It was about the strongest then I would say right now it's among the major geographies.
It's slightly it's weaker than the than North America or.
Most of APAC, obviously, APAC theres country to country differences.
Great. Thanks.
Our next question comes from Josh Waldman from Cleveland Research. Please go ahead with your question.
Good morning, Thanks for taking my questions one.
One for Gerald and then one for Frank.
Gerald can you spend a bit more time kind of talking through the cost price dynamic you are seeing and it seems like margins were stronger than maybe you anticipated here in the quarter. It doesn't sound like it was price I guess was it more reflection of.
Broker controlling supply chain costs, and then I forget if you mentioned, but are you still expecting kind of a $5 to 600 basis point step up in the second half.
Versus the first with respect to op margins.
Yeah.
Yeah. So, let's just maybe ill start with your last part of your question first so just to clarify.
We initially laid out around 400 basis points change between first half and second half the expectation is that we will.
<unk> significantly outperformed from an operating margin perspective in the second half.
Yes.
Put that back.
Those numbers, but just relatively speaking I mean, we did not see much price realization in the first quarter as I mentioned earlier a lot of this has to do with our I think outstanding work that was done by our procurement and supply chain teams to manage through very.
Challenging conditions. This is true for both materials costs as well as logistics airfreight costs.
Significant numbers.
Headwinds related to the supply chain side and I think our teams just did an outstanding job of navigating through that and in addition, we did we did see some other elements in the mix.
Partly due to our project accelerate initiatives, which I think is helping to pull that gross margin.
Expansion to another level and I think thats really the acoustic <unk> point that is the fundamental trend that broker that you've been seeing will continue to see that we just.
Have more and more a higher gross margin CIS.
Our systems and solutions and services.
That have been ramping our gross margin and that trend continues despite some inflation headwinds right now of course.
But that's the fundamental driver on that is it.
Leased in Q1 was stronger than even the noise from inflation in logistics spikes that we do see and try to manage around.
So I think that's kind of the <unk>.
The story line, we expect to see some.
Some further cost issues in the in the second quarter and our.
Our ramp of some of our project accelerate activities occurring in the second quarter as well. So that's why we're a little more cautious I would say in the second quarter operating margin, but expect to reaccelerate in the second half of the year.
Got it Okay, and then frankly can you give us an update on what Youre seeing from University and government accounts, specifically in the U S and Europe I think you previously mentioned kind of strong orders from some of these accounts over the last couple of quarters.
I guess, how how to academic and government contributed double digit bookings growth here in the quarter and when would you start to see kind of revenue flow through.
I mean, we are beginning to see that ride we are beginning to see that it's obviously not.
A short wave, it's just a long long term trend and we're seeing that we see as we saw that in Europe , which we now see that in the U S C that in China.
And in some other geographies, where we're also delightful latest our biopharma business, both <unk> and mass spec is becoming stronger and stronger.
We.
And it's an important additional capability.
Inorganically with our optimal acquisition in the U K on April one that will add further to how we integrate hours and other vendors.
Tools for.
For Biopharma Biopharma process analytical technologies path, but also an upfront on the drug discovery I mean, we sell an awful lot of teamstaff into into Crows.
Both metabolomics and proteomics, we sell a lot of teams stuff into and even teams tough single cell proteomics research systems into <unk>.
Drug discovery into very large pharma companies and your biotech companies.
And <unk> doing quite well both of them, particularly in the U S.
But also in Europe and also in China. So.
It's not only the academic business, the biopharma is becoming stronger and stronger for us.
And also including some other product lines.
Molecular spectroscopy for small molecule Pat.
So it's a good it's a good it's.
It's a solid picture.
Got it thanks for all the color.
Thank you Josh.
Our next question comes from Patrick Donnelly from Citi. Please go ahead with your question.
Okay.
Questions.
Maybe one more on the supply chain in general we've talked a lot about the cost side of that I'm, just curious what youre seeing on that front. It seems like there's a little more disruptive last quarter or is it something that's plateaued, it's not getting better not getting worse and you guys you just kind of.
Managing through it at this point.
Escalating.
Just your perspective on what Youre seeing on the supply chain side.
That risk going forward in terms of what you're seeing.
Well I wish I could tell you that it is getting better.
Unfortunately, I cannot it's been extremely challenging and I do need to say there is there has been a lot of disruption.
In the businesses and that's also true in the first quarter relative to this issue I think what we're starting to see is just as we had disruptions in the pandemic era.
We're still working our way through those.
In the supply chain World and.
I think the teams as I said earlier done just an outstanding job and there is still obviously cost pressure.
In the system and we're working our way through that.
We expect to have.
Hopefully more to say in the latter half of the year, but it's it's Shannon.
Imagine anything disastrous it's not that we're you know that something <unk> MMR, our mass spec business for a quarter, but we completely acknowledged that there is product lines were for a couple of weeks, we can't do very much but we have you know.
50, other product lines, where we can continue and so the benefits of being a broad based company with many good products excellent demand very strong backlog are just that we can really manage through this but.
We're like the duck on the water, we're kicking very hard under the surface.
But it's manageable, it's not getting better this year.
And the Lockdowns in China, arent, helping and all of that is not getting better. This year was going to be like this all year and maybe well into next year.
No. That's helpful. I appreciate that and maybe just a quick one on the orders I know you talked about the book to Bill of one.
Like double digit growth on orders across the segments.
Was the order growth in the quarter with 10%, 20% double digits, a little bit vague, because I'm, just trying to pin that down a little bit if you could.
It varies obviously from product line to product line and group to group.
That's why we didn't.
The $1 one greater than one one and orders for the BSI segment is correct and they were all double digit I know double digit is a broad range of principle, but some in the teens and the twenties right, but there's obviously a mix there and in every single one of them. It was.
It was double digits very strong.
Thanks, Ron.
You're welcome Patrick.
Okay.
And our next question comes from Jack Meehan from Nephron. Please go ahead with your question.
Thanks, Good morning.
Frank I was curious with the new compact 1.0 gigahertz system. What do you think this does for the addressable opportunity for gigahertz class in Tomorrow, just demand in the market.
And can you talk about from a manufacturing perspective.
Are there any efficiencies here that could enable you to expand the number of instruments you are able to deliver in a given year.
I Love your question because that's a good one yet so.
It's not all additive to the demand, but the 1112 gigahertz demand often for national centers and things like that right.
The two NAND systems that had been funded by NSF, where we got orders previously we had announced those I don't think it has any impact on that nobody's considering when they have those big labs, and the ability to and they all have really helium liquefaction capabilities by now anyway. So it's really not affecting that.
There are some there is a.
Distinct pocket of demand Thats small so far at 1.1 gigahertz because so far. These were also these big two story systems.
Now those that are in the pipeline. We will think will continue to order and theyre simply delighted when we told them. They are getting a smaller magnet with less footprint and less consumption. So.
But I think importantly to your question finally.
I think it really broadens.
The demand there there is a lot of single pie or more typically maybe a few co pis at a medical school or at a major University are a Max Planck Institute or something like that who wouldn't get one of these national centers, but all while for three or four pis plus a bunch of their cancer research colleagues et.
Cetera, they can't justify it so I think we got some very.
People very interested in asking for budgets that previously hadn't.
Considered it and that was just all anecdotal at that conference at the end of our conference in Orlando, where we introduced that we will also see some high end biopharma and pharma demand that previously wouldn't have.
Centered one of these two storage system. So I think it's.
At least more than half of that 1.1 gigahertz demand I think it's additive, but it's all additive.
On the other part it's really a separate production in final test slides I just completely is additive to our gate capacity.
This comes out of hours normal Swiss magnet production line everything under three times I don't want to bore you with that but those that's a normal production process not so different from let's say 800 megahertz systems and so even if we got.
A bunch of orders for this new magnet it would not.
Takeaway from our capacity for the two story 1112 gigahertz at all or vice versa. So we essentially more than doubled our production capabilities in that sense by putting taking this new magnet if and when we get orders straight out of a very different a much more compact then easier production line.
Great.
And then two follow ups on <unk>.
First could you just tell us what the Covid sales were in the quarter and then second.
Recently had a press release talking about new liquid array multiplex Pcr assays.
Just give us some color on the positioning here versus other multiplex players and just what youre expecting in terms of a growth ramp from some of these investments.
So yes. Thank you, so and Covid testing, which as you know, we only do in Europe , and Africa, and it's all PCR not the not the more popular antigen testing, that's declining and year over year with declining considerably.
And then ended up.
Declining quite as much as we had anticipated. So it was a little stronger I think of $1 million stronger in Q1 that what we had anticipated. It is at this point relatively de Minimis.
I think it maybe something like $45 million per quarter or something like that so it's not a big number and it has been declining.
We expect that to actually hang in there at that level or maybe come down a little bit further, but it's almost a non issue for us.
From that same.
R&D site in factory, namely, our molecular diagnostics business, that's where our tuberculosis business in and out of the business and that's where these new liquid array panels are coming from that indeed go into that multiple big Plex Syndromic panel market.
These are not point of care. These are for the central lab or for the for the for the lab at the hospital or the local event.
It's lap, but it is much more affordable and that in that sense. We think it's really second generation diesel cost of 100 or $150 or euro, but sort of in that $30 or euro range.
So much more affordable nice automation the initial ones are for the very broad range of tuberculosis.
Resistance capabilities, we have combined the very nice panel of seven different sexually transmitted diseases that we can all do in one test very often patients are tested for one or two and because there is no capabilities. The other ones don't get tested for but they are also.
Go out there and they are very often get overlooked.
And we have in the works.
Something on gastrointestinal that May launch when I say launched by the way. These are always European launches initially.
So you have a series of further syndromic panels that will be launching this year and next.
And we're building that up at democratizing that such I know its such a term that is overused, but let me use it anyway and it just makes it much more affordable and also gets into some new areas that previously hadn't been addressed by other People's Syndromic panels, but I think it's going to be big.
Much more of.
Affordable, especially in the lower reimbursement European markets, but then later on and eventually also in the U S.
Awesome. Thank you Frank.
Youre welcome Jack and good questions.
And our next question comes from Rachel.
That install from Jpmorgan. Please go ahead with your question.
Hey, Thanks for taking the questions you guys. The first question is on space sure cannot be launched that Nextgen chat during the quarter I can't talk about any early feedback that you've ever seen really how that launch is progressing so far and then can you also give us an update on your R&D progress QAD.
Hi.
Good question spatial.
<unk>.
So in spatial at the ACR, we relaunched the canopy cell scape system.
I think it was very well received with amazement because it is so much more compact.
And smaller than some other early systems that were shown there early on so very very good microfluidics very good optical design retaining its very good.
Wanted to native capabilities that I think are really really important it's got.
And it doesn't get stressed enough initially people just look at the pictures and yes, we have single cell and sub cellular resolution, but beyond pretty pictures. It has to be quantitative single cell and spatial biology, we can do that with high throughput. We can look at 10, thousands or hundreds of thousands of cells simultaneously.
So it's a terrific system I think it will be very very competitive I think gives us more of a second half story, where it begins to ramp and go into early access sites and so on with a full commercial ramp probably next year, but it's a terrific product and technology position and importantly, Rachel we also now have more and more.
Panels that are pre configured yes, you have the flexibility to use your own antibodies or to add your own antibody with a bit of apps work, but it really these pre configured panels for mouse and man named.
Immuno oncology in neuro degenerative research.
Some of them are out some of them are in beta testing. So it's going to be it's a very important part of our strategy.
To acuity, we do not expect any product launches until this year.
But we're making excellent progress there also and in systems and panel in software and other designs I think.
Really high resolution and even Super resolution.
Spatial genomics, where you really can explore the three dimensional position and structures within the cellular nucleus of the chromosomes interactions with.
On a chromosome between chromosomes.
Turbo graphically associated domains and all of these things all these things that so far have been mostly overlooked and in genomics because they couldnt be measured and we have this simplification that theres a bunch of chromosomes, which are one the arrays of genes and regulatory elements and it's far more complex, it's really a three dimensional.
World in that nucleus and to understand.
Fundamental cell biology, but particularly cancer biology. It seems like this is awfully important so we're.
Okay.
Great.
Thanks Mark.
It seems why we were disconnected on the web, but we still seem to be on hero verbally. So so acuity is a 2023 and beyond story canopy will ramp in the second half and I think be the better it's going to be I think it's the best system that's out there.
Great. That's helpful. And then last one from me just on M&A you guys have done a number of more tuck in Ngls.
Thanks, Carl and Pat that so can you just talk about how those deals have been performing relative to your expectations and then how are you thinking about capacity in the deals and the back half of this year as well. Thank you.
Question. So yes, we did the optimal acquisition.
On April 1st sorry.
It's very very much for for process analytical technology and into and lab integration and manufacturing and testing integration for Biopharma.
Big wave for us to connect our defense systems and also have a bigger footprint in biopharma with the <unk> acquisition, which gets into sort of more point of need analog.
Analytics and from forensics to food testing, so that opens up a new world, but a lot of these don't lead to an immediate new products. So we have to work through some of these things now for you know for a while to then come out with new solutions and Youll see more solutions. This year and next that are based on these.
Acquisitions.
Some of the things on pre on pre owned mix and so on in <unk> that you mentioned from Q1.
And proteomics Theyre available immediately, but then again more integrated solutions will take some time, but those are very very pleased with these acquisitions and yes. We we are judicious in how we invest so that's why we have capacity to consider additional technology or bolt on acquisitions.
Where they are a good fit for you for this for the later in the year for next year. We are certainly active in looking at what could further enhance our project accelerate initiatives.
Operator, thank you.
Operator, maybe we have time for one more question.
And our final question today will come from Daniel <unk> from Stifel. Please go ahead with your question.
Hey, Thanks for thanks for giving US this is Daniel <unk> on for Dan Arias. So maybe just to start with a broader question just drilling into project accelerate.
Our initiatives.
Just guidance point on the beat I was wondering what the main drivers of our performance specifically within project or that maybe coming in ahead of the outlooks laid out at your Investor day, and maybe it's all the above but just wanted to get some cross specifically across some thoughts specifically across those growth drivers compared to their outlooks.
Yeah. Thank you Daniel it's really pretty much across I mean, proteomics and <unk> metal below mix are doing very well.
Structural biology, obviously because of the timing of gigahertz systems and so on was was weak in Q1, but.
Overall, it's doing really very well, we're doing very well in nanotechnology semiconductor metrology microelectronics packaging and so on we're doing very well and Mike.
In microbiology clinical microbiology, that's been growing beautifully in the U S. But also again in Europe .
A little bit less PCR COVID-19 testing, but it's never been such a big part of what we're doing.
And this is a bit more of a transition year for our molecular diagnostics as we launch some of these liquid array panels. Some have been launched for Europe . Some will come out later this year.
It's going to be the bigger commercial impact will be next year and beyond and then eventually once we launch those in the U S. Aftermarket is doing well biopharma is doing incredibly well, including Biopharma proteomics with Tim stuff, but also with MMR and.
We're doing well in deeper in the applied markets with some food testing to forensics too and we don't do much environmental testing, but that system.
It's really very broad and also industrial and academic strength. This is good really good.
Okay. That's helpful and then kind of related to that maybe more of a chance to brag, but last quarter you mentioned.
Slide chain logistics inflation.
This seems to be limited in the growth potential.
Obviously really strong in the quarter. So just wondering if you think that's still the case.
If that's expected to continue throughout the full year, maybe into 2023 like you mentioned.
And just to clarify too.
Youre, saying limiting the growth potential its not saying that the outlook that you laid out at the Investor day is that all at risk. It's mark so that theres just some some more obvious room for upside where some of these headwinds are essentially eliminating that.
That's very perceptive I fully agree yes, I'll sound like a broken record all year supply chain logistics inflation those are risks.
And we are in a good position to manage through them, but where have to manage it very hard and with it could always be a quarter of stumble at one of our risk factors.
In Q2, we are a little bit more conservative because of the China Lockdowns right.
We hope we've captured that in our in our color for Q2, but for the year. We feel good we have so many different drivers on capabilities that when we stumble in a couple of places and get slowed down we just we just accelerated elsewhere. So hopefully.
You won't see it as an investor in so far.
It didn't trip US lastly, up last year in the second half and certainly didn't trip us up in Q1.
But thank you alright, thanks, guys.
Alright.
That brings to an end the Q&A portion of the call. So I want to thank everyone for joining us today brokers leadership team looks forward to meeting with you had added an event or speaking with you directly during the second quarter. Please feel free to reach out to meet to arrange any follow ups have a great morning. Thank you.
Ladies and gentlemen, with that we will conclude today's conference call. We thank you for joining today's presentation. You may now disconnect your lines.
Yeah.