Q2 2022 Bruker Corp Earnings Call
Good day and welcome to the broker.
Third quarter 2022 earnings conference call, all participants will be in listen only mode.
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I would now like to turn the conference over to Justin Ward Senior director of Investor Relations and corporate development. Please go ahead.
Thank you.
Good afternoon, I would like to welcome everyone to broker Corporation second quarter 2022 earnings Conference call. My name is Justin Ward named brokered senior director of Investor Relations and corporate development joining.
Joining me on today's call are Frank <unk>, 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 the 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 the financial and operational performance of the company that involve risks and uncertainties, including those related to geopolitical and energy 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 might cause such differences include but are not limited to those discussed in today's earnings release and in our Form 10-K for the period ending December 31 2021.
As update and as updated by our other SEC filings, which are available on our website and on the SEC's web site.
Also please note that the following information is based on current business conditions and to our outlook as of today August three 2020 through 2022.
We do not intend to update our forward looking statements based on new information future events or for other reasons, except as may be required by law prior to the release of our third quarter 2022 financial results expected in early November 2022.
You should not rely on these forward looking statements as necessarily representing our views or outlook as of any other 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 second quarter and first half of 2022 in more detail and share updated fiscal year 2022 financial outlook.
Now I'd like to turn the call over to broker CEO Frank leukemia.
Thank you Jessica and good afternoon, everyone and thank you for joining us on today's second quarter 2022 earnings call.
Turning to our slide four.
In the second quarter of 2022 brokered delivered robust bookings growth with organic bookings growth again.
Facing organic revenue growth.
In the second quarter, we launched several compelling product innovations across our portfolio.
And our strong organic revenue growth of eight 8%.
160 bps above consensus.
This solid performance came despite the operational headwinds from significant supply chain and logistics delays lockdowns in China and the conflict in Europe .
We again saw excellent demand for our differentiated high value scientific instruments in life science solutions as evidenced by the strong momentum in organic bookings and revenue growth.
For the second quarter of 2022, our broker scientific instruments or BSI segment organic bookings were up double digits percentages year over year, and our BSI book to Bill ratio remained greater than 1%.
Finally, our BSI backlog remains very high.
Brokers second quarter 'twenty to reported revenues increased three 1% year over year to $588 4 million. Despite a strong FX headwind of minus seven 3% on an organic basis revenues increased eight 8% which included eight.
1% organic growth in BSI and 15, 1% at best net of intercompany eliminations, while growth from acquisitions added one 6%.
This implies constant exchange rate growth of 10, 4% year over year.
Our second quarter 22, non-GAAP gross margin increased 180 bps year over year to 51, 8%.
While non-GAAP operating margin was 16, 6% a decrease of 70 bps year over year.
Our gross margin expansion despite inflation headwinds is clearly benefiting from our project accelerate to that though margin mix as well as from volume leverage and currency tailwind.
In the second quarter gross profit margin expansion was more than offset by our planned project accelerate to Dido operating expense opex investments in commercial and R&D capabilities.
In the second quarter of 'twenty, two broker reported GAAP diluted earnings per share of 33 cents compared to <unk> 38 reported in the second quarter of 'twenty one.
On a non-GAAP basis second quarter of 'twenty, two diluted EPS was <unk> 45.
Up a penny from <unk> 44 cents in the second quarter of 2021.
Gerald will discuss the drivers for margins and EPS later on.
In summary, the second quarter of 'twenty, two again saw a strong demand for our differentiated products as we ramped our opex investments in project accelerate to Dido to capitalize on the major opportunities in proteomics sense spatial biology, as well as in Biopharma <unk> applied markets infectious.
Disease diagnostics cancer research and semiconductor tools.
Moving onto slide five.
You can see brokers performance for the first half of 2022, our revenues increased by five 1% to one 183 billion on an organic basis revenues.
Revenues grew nine 6% year over year, consisting of eight 8% organic growth in scientific instruments, and 17, 9% organic growth at best net of intercompany eliminations.
First half 2022 order bookings for brokers three scientific instruments groups grew double digits year over year organically and our BSI book to Bill ratio for the first half remained above one one.
Geographically, our first half 2022 order bookings were up double digits year over year organically in all major regions.
Our first half 2022, non-GAAP gross and operating margin and GAAP and non-GAAP EPS performance are all summarized on this slide five and we are particularly pleased with our 160 bps gross margin expansion year over year, which speaks to the value of our <unk>.
<unk> and solutions.
Our trailing 12 months return on invested capital a non-GAAP measure was 25, 9%, which puts us among the leaders in our industry. We believe this is the result of our strong broker management process and our focus on disciplined entrepreneurial ism and organic growth.
Supplemented by selective bolt on acquisitions.
Yeah.
Please turn to slide six and seven where we highlight the first half of 2022 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 half of 2022 bio spin group revenue was $318 million and grew in the high single digits percentage. Please note that was one gigahertz class on EMR system recognized in revenue in the first half of 'twenty two compared to two in the first half.
'twenty one.
We continue to expect four gigahertz class <unk> in revenue in 2022 with one in the second quarter and we expect one in the third quarter and.
Two in the fourth quarter.
<unk> saw robust growth in applied markets revenues as well as from services in support.
<unk> achieved organic bookings growth in excess of 20% in the first six months of 2022.
<unk> innovations off note include our new single storey one gigahertz magnet to make gigahertz on a more accessible for more functional structural biology and drug discovery laboratories. We also launched advanced capabilities on our bench top 40, 80, FTE in EMR system to.
Enable broader applications in pharmaceutical and applied markets analysis.
Switching to <unk> for the first half of 2020 due the Calvert group revenue our colleague group revenue of $394 million.
Increased in the high single digit percentage with strong growth in life science mass spectrometry, and microbiology aftermarket, but also with the supply chain delays slowing revenue execution.
Our Tim's tough Giorgio mixed platform saw a robust demand for applications in 40 proteomics at P proteomics and metabolomics.
In the second quarter, we launched the Teamstaff HTS or high throughput system as a higher throughput instrument that includes a novel fourth generation teams XR sell in 2014 with digitizer for greater dynamic range enhanced peptide coverage at more accurate quantitative and unbiased 40.
Plasma and tissue proteomics more on that on a later slide.
Microbiology revenue delivered strong growth driven by demand for multi bio type of consumables. This was coupled with a gradual recovery in our tuberculosis molecular diagnostics products. We are excited about the launch of selected liquid array next generation syndromic panels at <unk> <unk>.
<unk> 22 in April with more to come later this year.
Please turn to slide seven now.
First half 2022 broker nano revenue was $361 million and grew in the mid teens percentage nanos industrial and semiconductor metrology markets all remain strong.
Revenues for our advanced X Ray and nano surfaces tools delivered strong growth in the first half.
That was microelectronics and semiconductor metrology tools performed well.
Again with strong bookings and backlog.
<unk> life Science fluorescence microscopy revenue was up sharply on product innovation and strong research demand.
And our canopy subsidiary launched the next generation cell scape chip cytometry instrument for high throughput.
In situ spatial biology with sub cellular resolution.
And best in class quantitative.
Finally first half of 2022 best revenues grew in the high teens percentage net of intercompany eliminations, driven by share gains and strong superconductor demand by our MRI OEM customers best demand appears healthy, but we continue to navigate through supply chain and.
<unk> challenges.
Moving to slides eight and nine.
We continue to make good progress with our project accelerate to Dino initiatives, which as a reminder, in 2022 represented about 54% of total revenues.
On slide eight we highlight three recent orders that all came in in the second quarter for our compact single storey one gigahertz, one point O gigahertz for Calvin magnets.
Seats that little Guy in the Middle that's really quite a technological Marvel.
And clearly enables more structural biology, researchers and even pharmaceutical companies individuals individual universities to access gigahertz on EMR, which is obviously very very powerful for pathology research and fundamental biology research as well as even metal below mix.
This now fits into a single storey lapped this compact system. It has much smaller footprint easier to deliver and install and quite importantly, it also reduces helium consumption by almost two thirds.
The orders came from Japan, and two of them from Spain, We're very very pleased with that both of these order all three of these orders were received in the second quarter and subsequent to our product launch in at a conference in early in April .
Moving onto slide nine.
Three important platform for proteomics, but also from edible oil mix is of course, our <unk> platform.
<unk> now has a number of family members and the latest one that we launched was the Tim's tough Ht that we launched at the ASM conference in Minneapolis in June of 2022, as sort of the ultimate high throughput workhorse and in particularly also suitable for plasma proteomics.
I won't go through this slide in detail, but in terms of performance higher and higher.
Number of peptides and proteins that can be.
<unk> identified and quantified with excellence, one percentage false discovery rates, which is really essential I think for certainly for discovery applications and without suffering from the inevitable antigen cross reactivity.
As a bit of an update as of the end of June is as of the end of the second quarter of 2022, our total Tim's tough installed base off of paid units is greater than 500 units.
And our revenue run rate now is greater than $125 million per annum. So excellent continued growth and excellent progress.
So in summary, broker again experienced strong demand for our differentiated instruments and solutions across our portfolio. Our project accelerate <unk> high growth high margin initiatives performed well and we continue to ramp investments in R&D and in our commercial infrastructure and compelling opportunity area.
Yes.
With that let me now turn the call over to our CFO Gerald Herman who will review brokers Q2 financial performance and our fiscal 2021 'twenty two outlook in more detail Gerald.
Thank you Frank and thanks, everyone for joining us today I'm pleased to provide some more detail on brokers second quarter 2022 financial performance starting on slide 11 in.
In the second quarter of 2022 brokers reported revenue increased three 1% to approximately $588 million, which reflects an organic revenue increase of eight 8% year over year.
We reported GAAP EPS of <unk> 33 per share compared to 38 in the second quarter of 2021.
On a non-GAAP basis, Q2, 2022, EPS was <unk> 45 per share an increase of two 3% from the 44.
In the second quarter of 2021.
Our Q2 2022, non-GAAP operating income decreased one 1% and our non-GAAP operating margin decreased 70 basis points year over year to 16, 6% with expanding gross margins more than offset by our planned project accelerate <unk> investments.
We finished the second quarter with cash cash equivalents and short term investments of approximately $723 million.
During the quarter, we used cash to ramp selected project accelerate <unk> investments fund capital expenditures.
Several key inorganic investments in strategically relevant technologies 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 of 2023.
In the second quarter of 2022, we repurchased nearly 1 million shares for approximately $60 million and year to date, we've repurchased two 6 million shares for approximately $166 million.
As a reminder, in the full year of 2021, our repurchases totaled $2 1 million shares for approximately $153 million.
We used $44 $4 million of operating cash in the second quarter of 2022 largely to build inventories for our planned revenue ramp in the second half of the year as well as to protect against supply chain risks.
Operating cash flow was also impacted by the timing of tax payments and customer advances.
Our capital expenditure investments were $17 $9 million, resulting in a decrease of $62 3 million and free cash flow in the second quarter of 2022.
This compares with a free cash flow decreased in the second quarter of 2021 of zero point $7 million.
Slide 12 shows the revenue bridge for the second quarter of 2022 as discussed earlier.
<unk> to the second quarter of 2021.
<unk> second quarter organic revenue for 2022 grew in the low double digits percentage and benefited from revenue recognition of 112 gigahertz system in the second quarter of 2022, where there wasn't one in the second quarter of 2021.
Nano organic revenue grew in the high single digit percentage driven by strength in nanos industrial research and semiconductor businesses.
<unk> organic revenue grew mid single digit percentage as this group was constrained by supply chain issues.
Q2, 2022, BSI systems and aftermarket revenue both increased in the high single digit.
Percentage range organically compared to the second quarter of 2021.
Geographically and on an organic basis in the second quarter of 2020 to our North American revenue grew in the high single digit percentage.
Asia Pacific grew in the low 20% range, while European revenue had low single digit percentage growth all year over year.
Our rest of world, which is small as we categorize it Q2 2022 revenue declined in the high teens percentage range.
Slide 13 shows our Q2 2022 P&L performance on a non-GAAP basis.
non-GAAP gross margin of 51, 8% increased 180 basis points from 50% in Q2 2021 benefiting from our project accelerate to Dato mix volume leverage and currency tailwind, partially offset by supply chain and logistics inflation.
<unk>.
2022, non-GAAP operating margin of 16, 6% was 70 basis points lower than the 17, 3% margin delivered in the second quarter of 2021 as our gross margin expansion was more than offset by increased sales in sales and marketing investments to invest in higher <unk>.
With higher margin project accelerate to the auto initiatives.
As expected and noted in our first quarter call in the second quarter of 2022, our sales and marketing Opex ramp outpaced our revenue ramp, particularly due to supply chain delays.
For the second quarter of 2022, our non-GAAP effective tax rate was 28, 2% compared to 26, 7% in the second quarter of 2021.
Primarily due to unfavorable discrete tax items.
Weighted average diluted shares outstanding in the second quarter of 2020 to $149 8 million a reduction of $3 1 million shares or 2% from the second quarter of 2021, resulting from our share repurchases over the past 12 months.
And finally, Q2 2022, non-GAAP EPS of <unk> 45.
It was up two 3% compared to the second quarter of 2021.
Slide 14 shows the year over year revenue bridge for the first half of 2022 rare.
Revenue was up $58 million or five 1%, reflecting organic growth of nine 6%.
Acquisitions added one 3% to our top line, while foreign exchange was a five 8% headwind and Frank has already covered the drivers for the first half of 2022.
non-GAAP P&L results for the first half of 2022 are summarized on slide 15, with the drivers largely similar to the second quarter of 2022 and as explained on the slide.
Turning now to slide 16 in the first half of 2022, we used $3 $5 billion of free cash flow compared to positive free cash flow of $72 6 million in the first half of 2021.
First half 2022 free cash flow use was used principally to build inventory to facilitate the second half revenue ramp and to address supply chain risks. He was also impacted by the timing of tax and other payments.
Our cash conversion cycle at the end of Q2 2022 was 257 days, an increase of 18 days compared to the second quarter of 2021.
And we continue to carry elevated inventory to manage supply chain risks as well as to meet growing backlog from our excellent bookings.
Turning now to slide 18, given the strength in revenue and bookings growth in the first half of 2022 and our record backlog, we're maintaining our guidance for high single digit organic revenue growth for the full year 2022, while reducing our outlook for reported revenue growth due to.
Two a stronger foreign exchange headwind.
Our updated outlook for the full year of 2022 now includes the following.
First no change to our prior guidance of organic revenue growth of 7% to 9% year over year.
We now estimate a foreign currency headwind of approximately 6% stronger than our three 5% prior foreign exchange headwind guidance on the basis of a stronger U S dollar against.
Most major currencies.
We expect acquisitions to contribute about one 5% to growth unchanged from our May 3rd guidance. This is now expected to lead to reported revenue growth in a range of two five to four 5%.
We expect supply chain and logistics delays to continue throughout the second half of 2022.
We are maintaining our guidance of 30 to 60 basis points of operating margin expansion in 2022 from the 19, 4% level 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're projecting a non-GAAP tax rate of approximately 29, 5% for full year 2022.
Other guidance assumptions are listed on the slide our full year 2022 ranges have been updated for foreign currency rates as of June 32022.
To give you some color on the third quarter of 2022, we expect supply chain and logistics delays to impact our third quarter with mid single digits year over year organic revenue growth.
On non-GAAP EPS.
We do not expect to repeat the unusual tax favorability of the third quarter 2021 and.
And anticipate third quarter, 2022, non-GAAP EPS to be down year over year, but up sequentially from the second quarter 2022 by 10% to 20%.
As you've just heard this does not change our full year 2022 outlook for organic revenue growth or non-GAAP EPS as we expect to catch up in the fourth quarter of 2022.
So finally to wrap up broker delivered another solid quarter of solid organic revenue growth and continued strong bookings and backlog. We also posted very encouraging gross margin expansion in the quarter as our teams delivered remarkable execution under challenging conditions.
With that I'd like to turn the call over to Justin to start the Q&A session. 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. We ask that you limit yourself to one question and one follow up.
Thank you we will now begin the question and answer session.
A question you May Press Star then one on your Touchtone phone.
We're using a speakerphone please pick up your handset before pressing the keys is that anytime Youre question has been addressed and you would like to withdraw your question. Please press Star then two.
Our first question comes from Derik de Bruin of.
Bank of America Merrill Lynch. Please go ahead.
Hey, guys. This is my question on for Derik I got a quick one on the updated guide on a follow up.
First on the guidance want to make sure I got this right. So it seems like the biggest change in the guide or really the main change in the guide is the FX assumption is now two five points higher because organics unchanged M&A is unchanged and your margin guidance unchanged. So I'm just wondering how are you able to maintain adjusted.
PFS guide is there something in the non operating lines that we're missing or is this just some some rounding in the numbers somewhere in terms of higher end of the range lower end of the range.
Given the two five points more reported revenue headwind you would think that EPS will be impacted as well.
Yes.
It's Gerald here. So first of all your assumption is correct. We are only modifying the foreign exchange element to the guide the other elements, both organic revenue growth and non-GAAP EPS are.
We're holding reiterating those so.
That's the first part of your question I think on the second part.
Yes, we obviously are facing some some cost pressures on a number of fronts, including you've heard some of the story around supply chain challenges, but fundamentally we continue to believe that our.
Organic revenue numbers are solid and we are.
We're quite comfortable with that and on the EPS side.
We're continuing to post solid gross margin activity through two quarters now we've seen excellent.
Opex management I think over those two quarters and we're pretty comfortable on where we are at the EPS line given that.
Okay, Alright, and then for the follow up I guess on the book to Bill comments and on the on the backlog you continue to have really positive commentary on book to Bill over one one.
Strong demand across most of the most of the business could you give us a little bit of clarity on.
Backlog conversion when do you think some of those orders are going be able to convert to revenues.
Just sort of walk us through how thats going to flow through the business.
Well.
As is typical for us Mike the second the second half tends to be stronger in terms of revenue and in terms of margins than the first half. That's our typical seasonality. We expect that as you just heard Q3 will not be as strong. We think Q4 will be stronger in helping us catch up.
No.
And I mean this.
This isn't this isn't.
Backlog conversion isn't.
Isn't going to be done I mean, we always carry a backlog, but it's not going to be normalized yet this year, I think supply chain and logistics issues still prevail and are out there certainly for the remainder of this year some of that backlog we expect to.
Some of that may be somewhat unusually high backlog. We also expect to carry into next year.
Okay. Thanks.
Youre welcome.
The next question comes from Puneet <unk> of Seb Securities.
Please go ahead.
Yeah, Hi, Frank.
Thanks for and Gerald Thanks for taking the questions. So first one I just wanted to I didn't hear on China. Just wanted to see if you can quantify that what.
What you saw there.
No.
As you talked about the EPS line, no impact and just sort of trying to understand.
From a from an op margin perspective.
And you have sizeable operations in Germany are you expecting any challenges there in terms of the impact from energy and such some companies. Your peer companies have pointed that out so I just wanted to.
Check on that geographically as well.
If I may Pea Nieto, it's Gerald.
I'll take the first part of your question regarding China.
Frank can talk more.
More intelligently about German situation, so with respect to China.
So very solid quarter for us in terms of revenue performance. Despite a lot of the China Lockdowns I would say the teams performed extremely well from a logistics perspective.
<unk> conditions.
We saw a little softness in the.
Order performance in China in the second quarter, but I don't read too much into that we had very strong performance in the first quarter or so.
What we understand on the ground is that things have opened up or beginning to open up there's still some challenges there, but our expectation is that that will improve over time as we execute further into the second half of every year.
We are anticipating.
Logistics are going to improve there and certainly we've got a lot of backlog to be able to execute on for the second half of the year.
And with EPS I think we just I think we were prudent in the way we guided for the year end and Thats I think we can that's why we continue to feel comfortable with our margin expansion and EPS guidance.
As to Germany, I mean, there are some additional risks now Europe has some additional energy risks and gas risks, it's all well known.
First of all we add broker really don't have any significant processes that use natural gas. So this is not a primary problem for us of course, there's other companies in Kenya, and metallurgy or in <unk>.
Chemistry, or et cetera that used gas.
It could conceivably there is therefore, a risk for increasing supply chain problems in certain areas, perhaps in the second or perhaps into next year, but it's not a direct primary risk for broker.
In terms of energy or electricity rationing, we're not a heavy user but of course, we need continuous power.
So there is an incremental risk.
We are of course saving on energy like everybody else in Europe and in Germany in particular.
We are taking the prudent steps that we can take.
And presently most of our German factory managers do not anticipate any energy rationing or rolling rolling blackouts or anything like that.
For even for this winter, but there is a risk of course not.
So different from what we had due to fires in California, some time some years ago.
But there are some additional energy risks in Europe and.
We have anticipated the inflation risk energy costs are certainly going up although much of that is buffered or some of that is buffered by governments quite honestly, who are protecting consumers that maybe even the industry to some extent.
But it remains a very dynamic environment between pandemic and supply chain challenges and now additional supply chain secondary second tier supply chain and energy risks in Europe , we acknowledge they exist where we're.
We're not primarily.
Affected, but we're keeping an eye on it and of course, we're doing lots of contingency and other planning to manage through that.
Got it.
Helpful. Frank.
Just one on ascend Evo.
1.1 gigahertz three orders that you had won from raking. So when do you think you can deliver those in.
Should we now assume three to four.
<unk>.
I'll try frequency end of March.
Being order instead of the three to four being maybe a larger number for 2023, given these order given the current order book.
Good question and with some inside of course, we know of course that gives us more capacity right. The 1.2 story 11112 gigahertz systems, we have a certain capacity for those.
Capacity for the 1.0 gigahertz is almost separate in addition, so in many ways, we've more than doubled our capacity in principal so that doesn't have an effect yet on 2022, and we're not going to project 'twenty to 'twenty three 'twenty four right now, but it does help us to have essentially two lines that too.
Story magnets and the for Calvin single story magnets and they were just delighted that now early on there has been some interest.
And kind of showing a going into Asia Pacific or in this case into Japan for biological research and then you know as a country like Spain needs to have those while theyre very many other countries or larger universities or even high end pharma biopharma companies that will need this functional structural biology and disease research.
So we think that's it's a great start for that product line.
But of course, we don't expect that in revenue this year that will take a while.
Got it okay alright, thank you.
The next question comes from Brandon Couillard of Jefferies. Please go ahead.
Hey, Thanks, good afternoon.
On the <unk> platform I appreciate the update on the installed base and revenue ramp looks like you've already placed 75 systems in the first half of the year.
Curious if you could speak to the HP introduction.
Weather.
That system will appeal to a broader customer base and then.
Update us on where you think the installed base could ultimately go Tim's top platform, let's say over the next two to three years.
Okay.
Well, thank you Brandon.
<unk>.
So the Tim's tough H T in part will.
The Tim's tough pro some of those orders in the future will be Tim stuff Ht orders, so that's not purely additive.
But so it's a further strengthening of the product line.
I think it's.
It, particularly high throughput customers, and particularly plasma proteomics customers will find the HP.
Even more powerful and robust in all of that and even higher dynamic range.
So, particularly for plasma proteomics so far.
Liquid biopsy research for cancer Biomarkers for anybody who pursues a multi omics strategy I think it's all going to be quite attractive. So it's yet another building block.
Pushing the flywheel again to add additional capabilities to our broader and broader teamstaff platform.
Your observations about the number of units shipped therefore in the first half or put into revenue is correct.
And we expect that product line to ramp further I mean, it's it continues to be obviously, a double digit growth product line for us.
And even here.
Due to some supply chain issues, our our order performance is even higher than our revenue performance.
So this is all very much on track and we continue to bring out new workflows, New software as you know we invested in companies and investments to also add a lot more consumables and sample prep automation.
That'll take a little bit of time until that gets developed and gets rolled out but it gets us becomes a broader and broader story for us.
An unbiased 40 proteomics.
Okay.
Okay. Thanks, My follow up for Gerald.
You just clarified so that the FX headwind on the topline is that actually.
An incremental tailwind to <unk>.
Full year margins, just help us understand the impact of currency on the OPM line for the year. Thanks, Yes, sure Brendan just generally speaking the way it works for us, especially when the U S. Dollar strengthens as it has in this particular quarter quite strongly and we ended up with a headwind on the revenue line as you described.
And we end up with a tailwind in both gross margin and operating margin.
By the time, you net those and get down to the EPS line, it's pretty near neutral and Thats, we have seen some favorability actually in the second quarter, but fundamentally we get variability quarter by quarter. As a result of these movements and just I think you likely know this brandon, but it's not only.
U S D against Euro or Frank we have we also have a lot of variability against the other currencies.
So it's complicated but that's generally the big picture. In addition to that we have this year, we have a headwind from inflation and logistics costs.
While pricing actions have been put into place for broker they take a while because we have the high backlog and so on so we have a net headwind.
P&L, maybe for the full year, maybe we're estimating 20 to 30 bps between as inflation headwind that could be an up to up to 100 bps and an FX tailwind on margins that is.
Maybe more for the full year and more in the 60 to 70 bps range.
So partially offsetting but its a net headwind to margins this year.
Great. Thanks.
Youre welcome.
Next question is from Jack Meehan of Nephron Research. Please go ahead.
Thanks, Good afternoon.
I wanted to start just on college, you talked about some of the supply chain constraints in the quarter is it possible to quantify what the revenue impact might have been my back of the envelope with something like $5 million to $10 million don't know if that's a good ballpark or not.
For broker for broker overall not for Cali, I'm, not we don't want to break it up into groups, but it was we don't want to quantify because it's almost like a separate set of books.
What would everything have been had you had more revenue, but we had revenue delays from Q2 into Q3, and we'll have more from Q3 into Q4, and it's tens of millions obviously.
Millions so it's meaningful.
And we think that will be kind of an effect that will have in Q3, and probably again in Q4 until that sorts itself out I think thats going to be next year. Nonetheless, with all of that and we still have obviously, a good organic growth rates, but that's why our book to bill.
<unk> is so high and our backlog is so strong.
Because we have we have some revenue delays of tens of millions of dollars from quarter two.
That's higher lease supply chain and logistics and every once in a while a customer size isn't quite ready, but then we always up.
It's not demand, which is good it's not certainly.
Certainly not competitiveness, we're doing extremely well, but it is supply chain and logistics I mean, there is a certain amount of disarray and that continues to do that I wouldn't call. The disruption that's too strong, but the disarray, it's still there and it's <unk>.
Challenging.
Yes, it makes sense.
And then wanted to talk about <unk>, so coming out of ACC one of the big themes. I was hearing is just automation given staff shortages I was wondering how you think this is going to play out in the microbiology lab and just how the instrument placements from all the are trending this year I know you talked about over 600 last year.
It's impossible to talk about just where theyre going to land this year.
It's a little early in the year obviously.
Yes.
So I don't know what it will be by the end of the year last year, we had exceptionally strong unit growth in Seo that'll be not as strong also we had last year we had some.
The biotech business in Russia, So that's not going to be happen. This year, obviously, there is no business there.
<unk>.
Sure.
We already launched for Europe at least at Acme.
Furthermore, the automation solutions that we've developed with our subsidiary in the Czech Republic form all the automation.
And theyre more other workflows that are going to be more and more automated so far that feel this only partially automated a lot of it is manual that has been the standard but we absolutely agree that the trend is towards more at least semi automation when doesn't always need a $1 million.
<unk> sample to answer automation, most lapsed I'll look for that but some of the more laborious and repetitive steps. If they can be automated we have some solutions. Although you always have to get regulatory approval. So some of those have now been launched for Europe with regulatory approval.
We will look forward to regulatory approval and other markets. Eventually and then of course more is in the pipeline.
So basically we agree with the trend and we're responding to that we're not only improving assays in software.
<unk>.
And the instruments, although the instrument is really best in class, but also the automation of availability and capabilities of the automation solutions to support it just as we do in proteomics.
Thanks for any development these days and more to come.
The next question is from Josh Waldman of Cleveland Research. Please go ahead.
Hey, guys. Thanks for taking my questions.
Greg.
Dirk noted supply chain constraints, but invest in Opex and you commented on talent.
What about the rest of the business have you seen areas of sequential improvement.
I guess, when we look at the second half.
Hi, guys.
It seems a bit conservative.
The comps are easing we have pricing coming in is.
Is it is it largely supply chain thats kind of giving you.
Leading you to be more prudent.
Absolutely thats exactly that nobody is immune to supply chain. It's we haven't mentioned it but it's basically every division is playing whack a mole with problems that keep coming up and we have more inventory buffers and things like that but but that only goes so far so.
We're all I mean I think.
Our teams are really managing extremely well.
But yes, I mean in the broker optics and invest there were some more some more issues and it's always just delays really.
But delays.
But it's not only were we mentioned it I would say, it's pervasive and affects all businesses that use electronics or even other materials.
And so far I would I wouldn't I would not say that it is getting better.
Yet so we are not we're not saying, that's where we're not seeing that yet.
And so we think it will certainly last till the end of the year and go into early next year, which is why we are more while we're also being prudent.
Yes.
Without supply chain limitations, we could do more backlog conversion this year, but this.
We think we'll have a good second half of the year, but some of that will still also good.
Good thing, perhaps to also have good backlog going into 2023, but some of that is not only by choice, but really by supply chain limitations.
Got it and Gerald I wondered if you could talk through how costs in the second quarter materialized versus your expectations and.
And how youre thinking about margin progression through the remainder of the year.
I'm, sorry, I didn't hear your earlier part of your question.
Just Ron.
Wondered if you could comment on how costs.
The second quarter materialized versus your expectations thinking.
Picking caused mainly by <unk>, but maybe opex as well.
Sure.
So I think generally speaking.
As you May recall, Josh we communicated in the first quarter earnings call that we were expecting to have our Opex for example.
So our revenue in the second quarter and that's essentially how it played out.
<unk> delivered.
EPS performance EPS.
Ips consensus.
In the quarter, but fundamentally we are investing heavily I would say in some of our important project accelerate initiatives and you saw that.
In the sales and marketing line certainly in the R&D line in the second quarter.
I would also say in terms of inflation cost pressures, we did see that as well I think generally speaking.
Our teams handled that well, especially with some of the supply chain issues that you just heard Frank describing.
So I think overall I am very very pleased with how the cost management occurred in the second quarter, and we're going to have to deliver something similar.
In the third quarter and then obviously as you probably have heard we expect third quarter to be a little.
Dampened by supply chain issues, which just means the fourth quarter is going to be larger.
Got it appreciate it sure.
The next question comes from Max Masucci of Cowen. Please go ahead.
Thanks for taking the questions.
In light of Perkins business divestitures earlier. This week do you see potential to pursue a similar sort of perkin type divestiture strategy or do you feel like you've already executed on that strategy and covered the patients under project accelerate one point out and you pointed out.
Yes, even even earlier Mac. So since I know, we're not planning any divestitures, we're very happy with our big businesses and obviously there are some areas, where we are disproportionately investing which is fine, but we don't really have any legacy business. We have core businesses and everything we have is core business and some areas.
Particularly to try to.
Grow with with high margin opportunities and new fields in spatial biology, proteomics et cetera. So no that's not a topic for us and yes, we did do some pruning even before project accelerate one Dino.
More around the 2012 to 15 timeframe.
We did some pruning it wasn't large scale divestitures as in this particular example that you've cited but we did some pruning we did some smaller divestiture than theirs.
Some product and business lines that we Didnt continue.
Stopped investing in but since then I think what we have that looks really quite healthy and many of our core businesses are have done very well last year continued to do quite well of course project accelerate its a little bit where the glorious and of course that helps pull up our gross margins and accelerate growth. So that's <unk>.
That is all working but it only is working because we have a very strong core business. That's that's fundamentally technologically also core to a lot of the project accelerate.
Didn't have a base small the tough business, we wouldn't be in microbiology and there are many other examples that I could sites. So all of our businesses are good and we're not looking at that I think we have a good mix of core and project accelerate.
Got it one more for me.
You called out the continued pace of practice of investment in the commercial and operational teams supporting project accelerate to point out.
Can you give us some additional detail around where you.
We're making head count adds in.
Your general approach towards building out your commercial presence for some of the newer proteomics and metabolomics and special offerings that might require yes, slightly more specialized sales approach.
Aimed them so it is proteomics.
There's different many different flavors of pro genomics by now.
Meta below makes libido. It makes those those are closely related.
Then of course spatial biology in situ spatial biology.
With the canopy investment acuity, that's not going to have any product fill next year, but thats, an ongoing investment and yes. We also have with the optimal acquisition and additional investments in software and.
And also commercial capabilities, we're investing also quite a bit into biopharma.
So those those are the protium <unk> proteomics, multi omics spatial biology, and Biopharma, that's where we have the most investments also on the commercial side marketing selling specialized sales teams.
Vacation support all that good stuff and it's really working it's really working well for us that's why I think.
It's the products, but it's also I think in parallel developing the commercial infrastructure to then leverage those products I think we have the right mix right now, but certainly continue to invest I think.
This makes complete sense for us and I think we can deliver our EPS and margin commitments. So we're really trying to do both.
We're able to do both.
Great. Thanks, a lot.
Thank you Max.
The next question is from Rachel Fattened staff of J P. Morgan. Please go ahead.
Hey, Thanks for taking the question. So first off on Europe that region grew low single digits. This quarter. So can you walk us through what youre seeing in that market specifically on the funding in academic and government in light of some of these recessionary concerns and then what do you expect to really be able to grow this year.
Okay.
I'm, sorry, what particular area, where you're focused on we missed that part Rachel.
Yeah. So the low single digits in Europe . This quarter I was just wondering if you can walk us through what youre seeing from a funding environment for academic and government specifically in Europe and then what are you anticipating for Europe growth for the year.
We are excited what we have seen for growth. This year Europe is the slowest growth growing mode major geography, other than rest of world and Thats sort of likely continued what we expected.
We're not expecting that to change necessarily in the second half of the year.
So we are euro based more in the low to mid single digits, presumably also for the year.
Academic and government funding in Europe .
Continues to be reasonably healthy tends to be more steady.
In the major economies of central and Western Europe and is not so much affected.
Refugees or energy pricing or.
Defense spending it doesn't it doesn't seem to interact so strongly with academic and government funding because those those research commitments in Europe at the European level and also in the individual countries generally are really quite long term and they get they tend to be maintained.
And the only other thing I'd add here Rachel is that the order bookings performance for Europe and these this category. This segment Youre, describing it was quite solid actually.
For the first half so we're not we're experiencing good.
Bookings growth in that area.
Great and then a follow up on some of your earlier comments around the assumption for the back half of the year. He said that youre expecting mid single digit organic growth in <unk> and say that that includes some of the supply chain crushers that Brent referenced but that you're planning on making up for that in <unk> and <unk>.
It sounded like you're also anticipating some of the supply chain headwinds to continue into 2023. So can you just clarify the supply chain comments and when you think they will really softened in the high <unk>.
And then for <unk> are you, assuming any outsize seasonality from 14 budget flushes or any other thing thats driving that incremental strength. Thanks archil. Thank you yeah. Good questions. It usually budget flush and things like that is something that doesn't affect broker very much maybe marker in the and if you're a more of a consumables company that tends to be more of an effect that.
<unk> had to discuss for us that's not as relevant we often get good orders, but then they often then get delivered 369 months later, so thats less of an effect for us.
Yes, we know we have we expect the the supply chain and logistics.
Delays to continue for the remainder of the year and Nonetheless, you do the math.
Q4 looks stronger for us than Q3, even with all of that in and so I think that's why that's how it adds up to our full year guidance that we've as you've seen is that we've maintained certainly on organic growth and margins and EPS.
Okay.
The next question is from Patrick Donnelly of Citi. Please go ahead.
Hey, this is Jason on for Patrick just one question for you on inflation.
Pressure there. So just curious what you are seeing more specifically across raw materials labor and freight sequentially and is the second half still the right way to think about.
Passing price due to some of those backlog dynamics. Thanks.
We're beginning to see more pricing improvements that are beginning to help us in.
In the second half more than in the first half, but most of the pricing actions that we've taken at the beginning of the year and then again some of that in the middle of the year most of that will help us next year.
But we are getting a little bit of pricing.
Sure.
Little bit of pricing tailwind in the second half of the year, but it's still fairly modest certainly low single digits, probably below 200 bps.
The other question on inflation on materials, and logistics and labor, that's probably too.
Two too granular for us to comment on I mean, obviously see some of those effects.
See effects everywhere, and yes, I mean logistics sale theres, probably some spiking cost there and some of that will come down I don't think all of that will be permanent other areas remains to be seen.
Okay.
This concludes our question and answer session I would now like to turn the conference back over to Justin Ward for closing remarks.
Well, thank you everyone for joining us today.
His leadership team looks forward to meeting with you at an event or speaking with you directly during the third quarter. Please feel free to reach out to meet a range any follow up have a great evening.
The conference has now concluded.
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