Q3 2022 Bruker Corp Earnings Call
Yeah.
Good morning, everyone and welcome to the broker third quarter 2022 earnings Conference call.
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At this time I'd like to turn the floor over to Justin Ward Senior director of Investor Relations and corporate development. Sir. Please go ahead.
Thank you.
Good morning, I would like to welcome everyone to broker Corporation's third quarter 2022 earnings call. My name is Justin Ward Nye in Burger Senior director of Investor Relations and corporate development. 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 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'll be highlighting non-GAAP financial information and reconciliation of our non-GAAP to GAAP financial measures are included in our earnings release and are posted on our website at IR Dot group 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 call. We will be 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 elevated geopolitical and energy risks of COVID-19.
Pandemic and supply chain logistics 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 updated by other 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 our outlook as of today November three 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.
Here to the release of our fourth quarter and fiscal year 2022 financial results expected in February 2023, you.
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 third quarter of 2022 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 Lucky.
Thank you Justin good morning, everyone and thank you for joining us on today's third quarter 2022 earnings call.
Turning to slide four in the third quarter of 2022 broker delivered robust organic revenue growth of 12, 7% well above the mid single digit outlook provided on our Q2 2022 earnings call our teams executed well despite operational headwinds.
Some lingering supply chain and logistic delays lockdowns in China and the conflict in Europe .
We again saw good demand for our differentiated high value scientific instruments in life Science solutions.
And our third quarter 2022 scientific instruments segment book to Bill ratio was again greater than one.
With a strong Q3, we have now made up for our somewhat weaker second quarter, where if you recall, we experienced some revenue delays due to supply chain and logistics.
For the third quarter of 2022 brokers reported revenues increased four 9% year over year to $638 nine 9 million. Despite a very strong currency headwind of minus 9% on an organic basis revenues increased.
12, 7%, which included 12% organic growth in scientific instruments, and 23% organic growth at best net of intercompany eliminations while.
While growth from acquisitions added one 2%.
This implies a constant exchange rate growth of 13, 9% for the quarter year over year.
Our third quarter 22, non-GAAP gross margin increased 150 bps year over year to 53, 2%, while non-GAAP operating margin was 22, 4% an increase of 180 bps year over year.
Our gross margin expansion despite inflation headwinds is clearly benefiting from our project accelerate two point of margin mix as well as from our core operational excellence drive.
Volume leverage pricing and currency tailwind.
Importantly, we were able to deliver strong operating margin expansion in the third quarter. Despite our previously announced additional project accelerate to that though.
Opex investments in commercial and R&D capabilities, particularly in proteomics and spatial biology.
In the third quarter of 2002 broker reported GAAP diluted earnings per share of <unk> 59 cents up from 57% reported in the third quarter of 'twenty, one on a non-GAAP basis third quarter 'twenty two diluted EPS was <unk> 66 cents up from 63.
In the third quarter of 'twenty, one and Gerald will discuss the drivers for margins and EPS later.
Eliminations.
First nine months of 2022 order bookings for brokers three signed to begin instruments groups were double digits year over year organically geographically our year to date third quarter of 2022, BSI order bookings were led by mid teens growth in Europe in APEC with America.
Throwing in the single digits.
Our first nine months of 2022, non-GAAP gross and operating margin and gap and non-GAAP EPS performance are all summarized on slide five and we are very pleased with our 80 bps operating margin expansion year over year, Despite high inflation and the planned investments in R. P.
Projects accelerates initiatives.
Are trailing 12 months return on invested capital a non-GAAP measure was $24, 6%, which puts us amongst the leaders in our industry. We believe this is the result of our strong broker management process and our focus on disciplined entrepreneurial as an organic growth supplement.
By selected bolt on acquisitions.
Please turn to slide six and seven where we highlight the year to date third quarter of 2022 performance of our three scientific instruments groups and have our best segment, all on a constant currency base currency and year over year basis.
For the first nine months of 2022, the bio spin group revenue was $493 million and grew in the mid single digits percentage wise. Please.
Please note there were two gigahertz class and Nomar systems recognized in revenue in the first nine months of 2022 compared to three in the first nine months of 2021.
We now expect three to four gigahertz class and Emr's in revenue for the full year 2022, which means one or two are expected in the fourth quarter.
Bio spin saw robust growth in services and support revenues as well as strong growth in the preclinical imaging business.
Moving to call. It for the first nine months of 2022, the Celtic group revenue of $601 million increase low double digit percentage with strong growth in life science mass spectrometry and microbiology after market, but wisdom, but.
But still with supply chain delight delays slowing revenue execution.
Our teams tough platform in particular saw a robust demand for applications and 40, proteomics <unk> mix with double digit growth year over year in revenues and bookings.
Please turn to slide seven now.
Four broker nano for the first nine months of 2002 revenue was $559 $8 million and grew in the high teens percentage on a constant currency basis revenues for our nanos surfaces tools delivered very strong growth in the first nine months, while our advanced X Ray business all.
Also grew.
Frucher nanos, microelectronics, and semiconductor metrology tools performed well with strong bookings and backlog.
Life signs fluorescence microscopy revenue showed year to date growth. The result of product innovation and life Science research academic demand.
Finally.
The first nine months of 2022 best revenue grew in the high teens percentage net of intercompany eliminations driven by excellent execution under adverse conditions and strong superconductor demand by MRI OEM customers best demand appears healthy, but we continue to navigate through difficult supply.
Chain issues.
Moving to slice 809, we highlight some important applications and innovations of our instruments.
On slide eight.
The highlight recent teamstaff purchases by bio M. S. M. S is Swedish national infrastructure.
Consortium for biological mass spectrometry. They did acquire six teamstaff systems for three institutes in order to advance high throughput proteomics workflows for clinical research and and future emerging laboratory to develop test.
Tim's tops ht's were used for plasma cell and tissue proteomics and we're delighted they at the also all obtained Teamstaff singles Scp's for single cell proteomics, but really also generally used for very low samples of mountains such as of course sorted in single cells, but also for immune <unk> Ffbe's slide specific <unk>.
<unk> sections et cetera, a very nice case example of success of going to broader clinical proteomics research switching to slide nine.
Often we talk about magnets here I really want to talk about the science and the novel functional structural biology research that's being enabled by other probe technology in particular <unk>. There is a new eight millimeter.
<unk> 415, and a very normally very insensitive nucleus, but with a special <unk> experiment developed by professor <unk> and other coworkers.
We've reached dramatic sensitivity and very significantly increase resolution for.
For a complex larger proteins and for these.
Paso biologically very important intrinsically disordered proteins and there is a very nice statement here that I, let you read.
That allow is really a great expansion of the applicability of liquid Santa Mar two more and more protein systems, including intrinsically disordered proteins.
On the solid state and EMR side, there has been dramatic further progress.
With 160, kilo Hertz magic angle spinning or emas probe imagine that's something that rotates 160000 times per second and this is mechanical rotation not radio frequency anyway with this new probe, which is completely unique as far as we're concerned it's used for by.
Logical applications by Professor <unk>, Italy, and France, and significantly enhances the ability of high fuel then EMR to push structural cellular and disease biology research in solid state and EMR for instance for membrane proteins amyloid newer digit.
Generative diseases.
And many other.
Fundamental biology and disease biology questions.
So after this non-financial excursion into what we're doing in summary.
Brokerage delivered a strong third quarter with good organic growth and margin expansion, while the macro environment remains difficult to forecast for 2023. We also believe that the strong demand for our differentiated products and solutions combined with our strong backlog will make broker quite resilient in the coming year.
We expect to give a fiscal year 2023 guidance. When we report our results for the fourth quarter of 2002 in February .
With that let me turn the call over to our CFO Gerald Herman for further details Gerald.
Thank you Frank and thank everyone for joining us today I'm pleased to provide more detail.
And year to date 2022 financial performance, starting and slide 11.
In the third quarter of 2022 brokers reported revenue increased 4.9% to $639 million, which represents an organic revenue increase of 12.7% year over year.
We reported gap EPS and 59 cents per share compared to 57 in the third quarter of 2021.
On a non-GAAP basis third quarter of 2022, EPS was 66 cents per share an increase of 4.8% from the 63 cents, we posted in the third quarter of 2021.
Our third quarter of 2022, non-GAAP operating income increased 14.2% in.
Or non-GAAP operating margin increased to 180 basis points year over year to 22.4% with expanding gross margins and operational leverage more than offsetting or increase in project accelerated to the auto operating expense investments.
We finished the third quarter with cash and cash equivalents of approximately $626 million.
During the quarter, we used cash to ramp selected project to accelerate to the auto investments.
And capital expenditures and find share repurchases.
In the third quarter of 2022, we repurchased 1.2 million shares for approximately $72 million a year to date, we purchased 3.8 million shares for $238 million.
As a reminder, in the full year of 2021 or repurchases totaled 2.1 million shares for approximately $153 million.
We generated $69.5 million of operating cash flow in the third quarter of 2022.
R capital expenditure investments for $57.7 million, resulting in free cash flow of $11.8 million for the third quarter of 2022. This is an increase from free cash flow in the third quarter of 2021 or $2 million.
Slide 12 shows the revenue bridge for the third quarter of 2022 as discussed earlier.
Compared to the third quarter of 2021, bio spins third quarter twenty-two organic revenue was down slightly from a difficult comparison in the third quarter of 2021 with over 20% growth.
Nano organic revenue.
Grew and the low 20% range driven by strength in nano semiconductor industrial businesses.
Cal It organic revenue grew mid teens percentage driven by strong growth in both the life science mass spectrometry and optics businesses.
The third quarter of 2022 scientific instruments Systems' revenue grew in the teens percentage, while aftermarket revenue grew high single digits organically compared to the third quarter of 2021.
Geographically in on a DSI organic basis in the third quarter of 2022 are America's revenue grew in the mid teens percentage.
Pacific grew and the low double digits.
European revenue had low double digit percentage growth all year over year.
In the third quarter or rest of the world organic revenue, which as small as we categorize it grew in the mid single digits.
Slide 13 shows our third quarter of 2022, P&L performance on a non-GAAP basis.
non-GAAP gross margin of 53.2% increased 150 basis points from 51.7% in the third quarter of 2021 benefiting from our project to accelerate two dot O mix pricing and currency tailwinds, partially offset by inflation.
2022, non-GAAP operating margin of 22.4% was 180 basis points higher than the 26% margin we delivered in the third quarter of 2021.
Higher gross margins and operating volume leverage benefits, partially offset or increased sales and marketing investments towards high growth high margin project to accelerate to dot O initiatives.
In contrast to the second quarter of 2022 are ramping revenues outpaced the sales and marketing operating expense ramp despite ongoing supply chain and logistics challenges.
For the third quarter of 2022 are non-GAAP effective tax rate was 34% compared to usually low effective tax rate of 19.2% in the third quarter of 2021, primarily due to unfavorable discrete tax items.
Weighted average diluted shares outstanding in the third quarter of 2022 $148.6 million a reduction of approximately 4.2 million shares or 2.7% from the third quarter of 2021, resulting from our share repurchases over the past 12 months.
Finally, the third quarter of 2022, non-GAAP Dps from 66 cents was up 4.8% compared to a strong third quarter of 2021.
Slide 14 shows the year over year revenue bridge for the first nine months of 2022.
Revenue was up $87.9 million or 5.1%, reflecting.
Reflecting organic growth of 10.7%.
Acquisitions added one 3% to our top line or foreign exchange was a 6.9% headwind.
And Frank is already covered the drivers for the year to date 2022 performance.
non-GAAP P&L results for the first nine months of 2022 are summarized on slide 15, with the drivers largely similar to the third quarter of 2022, and it's explained on the slide.
Turning to slide 16 in the first nine months of 2022, we generated $8.3 million, a free cash flow compared to free cash flow of $82 million in the first nine months of 2021.
Higher working capital together with increased facility and capacity expansion investment and capital expenditures reduced our year to date 2022 free cash flow year over year.
Our cash conversion cycle at the end of the third quarter of 2022 was 240 days, an increase of three days compared to the third quarter of 2021 and.
And we continue to carry elevated inventory demand and supply chain risks as well as to meet growing backlog from excellent year to date bookings.
Turning now to slide 18, given the strength and revenue in bookings growth in the first nine months of 2022 and are significant backlog, we're increasing our full year 2022 guidance for organic revenue growth and operating margin expansion holding our EPS guidance for the full year.
Reported revenue growth has been decreased due to a stronger foreign exchange headwind.
Are updated outlook for fiscal year 2022 now includes the following.
We are now guiding two 8% to 10% organic revenue growth year over year.
Up from our prior guidance of 7% to 9%.
We now estimate of foreign currency headwind of 8%.
Up from our prior guidance of 6% due to a stronger U S dollar against most major currencies.
We expect acquisitions to contribute about 1.5% to growth unchanged from our prior guidance.
And this is now expected to lead to reported full year 2022 revenue growth in a range of 1.5% to 3.5%.
We are increasing our non-GAAP operating margin expansion guidance to 60% to 90 basis points of expansion in 2022.
From a prior guidance of 30 to 60 basis points.
This implies non-GAAP operating margins of 20.02, 23% versus $19, 4% level in 2021.
On the bottom line for the fiscal year 2022, we are holding that are non-GAAP EPS estimated range of 229% to 233, which represents non-GAAP EPS growth of 911% compared to 2021.
We projected non-GAAP tax rates of approximately 29.5% for fiscal year 2022.
Other guidance assumptions are listed on the slide or.
Fiscal year 2022 Rangers have been updated for foreign currency rates as of September 30th 2022.
To add color to the fourth quarter, we still expect continuing logistics supply chain and geopolitical risks to constrain or fourth quarter performance.
With that background. We currently anticipate upper mid single digit organic revenue growth year over year in the fourth quarter.
To wrap up Brooker delivered another quarter of solid organic revenue growth and continued solid bookings performance.
We also posted encouraging margin expansion on both the gross and operating lines.
Our teams delivered another quarter of excellent execution under challenging conditions.
And 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 Kunai portion of the call as a reminder to allow everyone time periods for questions. We ask that you limit yourself to one question and one follow ups operator.
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Our first question today comes from <unk> from <unk>. Please go ahead with your question.
Thank you good morning, everyone.
<unk> talk a little bit more about the supply chain and what you're seeing here you know obviously the third quarter came in better than expected, but sounds like you're still expressing a little caution about the fourth quarter.
Can you just talk about you know like median time to delivery.
How that's trending and when do you think this could come back down to more normalised levels.
Yes, Jack this is Frank so logistics issues are getting better and logistics inflation is becoming.
Less severe supply chain issues, while there is.
Hope on the horizon, the it is still a difficult situation and.
So that isn't.
Isn't getting worse, but it's not getting better quickly.
We were guesstimating that may be supply chain may normal lies in the second half of next year and logistics situation clearly clearly has improved with with that there's always some exceptions.
As to our high backlog for scientific instruments, that's about an unusually high nearly eight months on average.
It depends a little bit, we probably would bring that down.
We'd like to bring that down by you know a.
Couple of months or more over the next two to three years, if demand stays healthy as we see it right now and I guess it gives us a little bit of Optionality that if 2023 was more of a downturn then.
It's difficult to predict then obviously that would provide an excellent cushion for us. So that's how we view it at this at this time.
Great.
And then when did take a little bit more into the nano performance here with organic growth over 20% can you talk about maybe.
Maybe notably on the semiconductor side, what you're seeing in terms of demand there. There's been some mixed signals because you see real new investment firm some companies around chips in science and other things, but also maybe some weaker demand signals in the market. So just how do you <unk> just given all these signs what is.
Mean for Burger in this market.
Excellent question. It is mixed signals indeed, as you've seen some memory pricing and there might be a glutton memory chips and so on.
There is also some their system additional export restrictions to China on semiconductor metrology, which at a minimum will lead to delays for getting approvals and.
And certain types of equipment will not be possible to export anymore.
That that's of course, there's there's great offsets to that with technology innovations about half of what we sell in semiconductor metrology goes into new technology buys as we call them. Those continue very very strongly capacity buys are slowing down a little bit but.
We still have excellent backlog and of course, perhaps with a little bit of a delay, but this chips in science Act with the <unk>.
Investment in semiconductor.
Technology and Fabs in the U S and by the way also in Europe . Although there is with a single act to support that we think will provide a strong tailwind to us in the industry in general.
We're beginning to see some buying but I think most of that will begin next year and until that really materializes as a revenue in P&L tailwind for us will be probably more 24 25 26. So so overall given that there is a bit of a downturn or a slowdown for sure.
There are many mitigating factors that we think will.
Backlog to us having at least half technology buys to the major investments that are coming in that are coming and have begun in the U S and to a lesser extent, but also significantly in Europe .
We feel very good about that business and it's a high margin high growth business for us.
So that's that's that mixed picture if you like.
Alright, Thanks Frank.
Our next question comes from Patrick Donnelly from City. Please go ahead with your question.
The questions drank maybe to follow up on jobs question. There I mean, you talk a little bit about the backlog they're going into twenty-three.
To your point at the macro does slowdown would probably benefit to you in case, you guys a little bit <unk> given the backlog.
How sticky do you typically see that backlog tend to think of it pretty high relative to others. Given the segment you plan customers don't have kind of options to go elsewhere. So.
Maybe talk a little bit about that and then how much more visibility cause the current backlog give you into next year compared to your typical starts to the year.
And then the only other moving piece Gerald <unk>, how do we think about the effects for next year given current rates.
Alright, Thanks, Pat the I'll start so yeah, our backlog is really quite sticky.
You know if.
If once people order from us and we have purchase orders and very often also downpayments with that it is extremely rare and financially image completely immaterial.
That they would be any backlog cancellations.
We do you know last year, while this year really up it seems like last year. This year, we had a couple of percent revenue headwind from.
Russia, and Ukraine, basically dropping office markets for US next year, we may see a 1% to 2%.
Headwind.
Some delays or R. R R.
Okay.
It being not possible to deliver a certain semiconductor metrology equipment to China. So that may be up a bit of a headwind for next year, but it's pretty manageable for us and we are estimating one certainly less than 2% and mostly we're expecting it to be delays, having said all of that with our strong backlog.
We we.
We really.
At about eight months of backlog that's the highest.
Reach that we've ever had for scientific instruments, and we certainly not all in one year, but over two to three years. We you know we'd like to bring that down to below six months.
So.
So that's that's that on that really.
Smooth and solid hour I think our P&L in revenue trajectory quite a bit and as I said earlier in my prepared statements I think will that along with the excellent progress on the project accelerate initiatives I think really makes us.
Very resilient.
Four 2023, if this is a year of defense budget.
We're really making excellent progress on that good market share gains in many many areas.
And poetry to your question regarding foreign exchange, it's Gerald Mmm I would just add that.
I wish I could predict the foreign exchange markets in 2023, [laughter] I'm not quite in that place at this stage.
Yeah.
Volatility clearly the U S. Dollar continues to strengthen under the current conditions and stabilize itself.
For the last quarter so not.
Quite ready to talk about foreign exchange for 2023 at this stage, but.
But but usually we don't speculate on that we just take today's rates are rather I guess formally October 1st rates and that's how we make our September 30th right same thing right and make the prediction. So we don't we don't predict FX.
We don't.
Right Yep that'd be <unk>, he may be a bit of a headwind, but that's that'll be let's see what happens.
And then Frank I guess.
It will still be somewhat of a headwind at the beginning of the year to revenue.
He acknowledged that that but.
We just assumed the rates or whatever we have his most recent rates.
Yep.
And then Frank during the quarter, we got a decent amount of questions just on the Europe Backdropped given the macro you guys put up good results. There I think he called out low double digit growth, maybe just give us some perspective about customer conversations what you're hearing in Europe , what that academic market looks like because we work our way into twenty-three just given me a macro fears there.
Yeah. The we don't really see any I mean, the investments and.
<unk> research and life Science and disease research in Europe , we continue to see that very strong also biopharma investments continues strongly particularly in the U S. But also in Europe and of course also in China and some other geographies.
So I.
I think for.
For the type of products that were making the concerns about Europe bar.
It's not zero, but you know it's it's they're greatly over there exaggerated Europe is four hour type of products and for most of our industry is probably quite healthy.
Plus one thing that kind of may not be so obvious if you look at our year to date revenue.
Mix for for the scientific instruments for the first nine months, it's now about the same at 32% Europe , 32% of America's.
That is very different from broker a few years ago as recently as 2020 for the full year then for scientific instruments. It was in the high thirties for Europe in mid twenties for the Americas. So we have grown so significantly in the Americas and academic N biopharma with protein mix.
With so many other products that we have that we are.
Not as historically.
<unk>, if you like to Europe as broker traditionally has been quite a milestone for us that year to date or America as in Europe revenue is about the same at about just under 32% of our revenue. That's a different broker then you remember I would guess at least yeah.
Right.
Our next question comes from <unk> from S. Phoebe Securities, but go ahead with your question.
Yes, hi, Frank Thanks for taking questions. So.
First one I just want to clarify last quarter, you were confident of the two gigahertz.
222 of the <unk> in the fourth quarter, but now you're saying it could be one or two so what is sort of getting that is it the acceptance of the instrument and sort of how should we think about the <unk> magnets and sort of 2023 and obviously the numbers here are.
Strong, but just want to sort of get a sense of how you're thinking about that and uhm what's corner.
That's correct Yep. We initially thought we would have for this year now we're hedging a little bit by saying three to four which implies 122.
In the fourth quarter.
And you know.
These systems are manufactured and have passed final tests. So.
So that's not the gating item, but by the the the timing it takes to install them and some of them of course. There are there are some rework that needs to be done.
So you know that's why we're guiding to one or two systems in the fourth quarter.
And that's three to four for the full year, we have we're not giving 2023 guidance, but it's probably going to be similar in that you know.
Around four systems per year, it seems to be our run rate.
And over time, that's probably going to go up as we also will have gigahertz systems. In addition to the 1.2 gig or it's as you know them slightly different technology different <unk> different manufacturing.
Tracks, but yeah that's.
There are guidance of course for the fourth quarter is that's all baked in that'd be.
So we.
If we only have one which is possible right.
If one of them would move into the first quarter of next year, that's not a big deal I mean overall, we're pretty confident that we can reach our guys implied r-color an implied guidance for the fourth quarter Nd raised guidance at least on the organic.
Revenue growth level for the full year 2022 so.
I wouldn't let us worry so to speak and not to be flipping here, but let us worry about the exact timing we tend to balance that if one does drift into next year right now, it's one or two that were anticipating in the fourth quarter.
Okay, great. Thanks for that and then.
Just one for you Frank and then maybe just a brief one four <unk>.
Backlog obviously.
Pointed out strong eight months and and book to Bill is more than one so.
How can you check to rise a little bit about what whereas and markets and geography of this backlog as it just largely a representation of what we have seen with broker.
<unk> and Uhm Segmentations prosper for revenue, meaning that is it sort of more lover too biopharma versus industrial vs. Again, you have a large presence in Europe . So just trying to check the rise.
The backlog and as you pointed out this is pretty sticky. So you just wanted to get a picture of that and then Gerald margin.
Obviously significantly ahead of us can.
Can you talk a little bit about the sustainability without it shows sort of 2023. Thank you yeah.
So.
I'm aware I don't mean to frustrate you because it's a an excellent question, we don't see any clear patterns, yet Europe is stronger than most would have expected.
Industrial and applied.
It's <unk>.
Stronger at this point, then perhaps many would have expected.
Semiconductor Metropolis cheese is excellent. Despite some headline news about slowdown on in some capex investments and memory chips and so on.
So there clearly is more of a mixed headline news and macro picture, but.
We don't really see it very much yet for us.
China has continued solidly Europe has continued solidly <unk>.
And yes, I'll also you know macroeconomically more sensitive markets, such as non semiconductor industrial or applied markets. So far are really quite strong for the year. So it's a bit of a disconnect between.
What we see on the newspapers or on the Internet versus what we see in our own data. So we are.
All going into next year, a bit more cautiously in our planning then that into this year or last year was more of a boom. This year was a very strong year.
But so.
So far it's really quite strong and what we're seeing in our own data and including bookings so.
Not a lot to be learned.
And we're looking very carefully because we have all the same questions. You just asked and they are obviously very good questions.
Canadian Gerald Mmm, if I may just comment on third quarter margin performance operating margin performance was pretty solid as you've pointed out I mean, a lot of that.
It has to do with the project in February two dot O mix as well as our volume dropdown through.
The the operating margin line <unk>.
I would also point out if you didn't catch it in my prepared remarks, I mean, we had extremely strong operating profit for the quarter $14, 2% EBIT.
I would say generally speaking I'm not going to comment on where that takes us for the 2023 period will talk a little bit more about that in February .
But obviously, we're quite encouraged with what we see at this stage, it's clearly moving completely in the direction, we were hoping for so but but look at the year to date results not at one quarter you remember that our second quarter was a bit weaker than we would have like we met and exceeded consensus, but we would have liked to achieve more but then towards the end logistic.
<unk> and supply chain did not allow that we had a bit of a.
Boost from that.
In Q3, so looking at the average of the first three.
Of the first three quarters of the year is really more informative than focusing on any one quarter, even if it's a very good quarter like Q3.
Got it Super helpful and congrats again on the backdrop.
Thank you. Thank you.
Our next question comes from San areas from Stifel. Please go ahead with your question.
Good morning, guys. Thanks for the questions. Frank just wanted to ask a follow up question on bio span I mean, it sounds like demand for the high field portfolio is pretty strong right. Now what are you seeing on the bench top side for some of the applied market applications. Just curious of growth. There is is noticeably different.
The high end and if so how different.
Yeah. Good question. Thank you then.
So let me split Benchtop and applied a little bit there's some applied benchtop business, but the much larger applied in clinical research businesses of course also.
<unk> field superconducting systems, typically 400 megahertz for food analysis are <unk> fruit screener or hour IBD are the research system are clinical research system at 600 megahertz.
So that demand is is good and and supply chain is challenging but [noise], but overall you know we've managed so far with.
With some slowdowns and that's why we have more backlog.
Benchtop is being Benchtop growth is good this year, but not very good because of some supply chain limitations some of the magnet materials and some of the other things that go into that product line have not allowed us to Ram production as.
As much as we would've liked keep in mind, that's a tiny amount a tiny tiny part of biased spin at this point of course, it's one that holds promise for the future. So it's it's growing in the double digits, but not quite as fast as we would have liked to and that is primarily a supply chain. This year. We think that's gonna normalized at some point in 2023.
The much larger applied in clinical research superconducting and EMR business and the demand for that and not to forget the Bios been preclinical imaging.
Business, which is primarily MRI and pet them all our pet C. T is doing very very well and last but not least the service and consumables business is very nice very solid.
High single digit growth is just chugging, along and is a very nice margin business.
Yeah, Okay, and then apologies for sort of beating the dead horse on Europe , but I guess I'm just curious about whether your customers are specifically talking about the energy issues and the concerns that people have just as.
The winter approaches I mean, especially at site, but do draw a lot of power physics labs et cetera, I mean does that coming up in conversation or is that just sort of baseline noise and and no no no absolutely. It's it's front and center everywhere in Europe in Germany, but also you know also in Switzerland everywhere in Europe . So the.
Inflation is there.
The governments, including the German government, just now have decided to basically put a put a lid sorry, a cap on that and you know have.
<unk> the taxpayer. Thank you very much pay much of that pay much of that and therefore limit for the consumers as well as for industry. The overall inflation impact.
But there is very significant energy and electricity cost inflation in Europe now.
Some industries from fertilizer to beer brewing too to glassblowing to whatnot, there for them, it's fundamental and structural and some of them are slowing down their investments are moving to other locations in the world for us it's not structural for us. It's it's an inflation driver wishing we knowledge inflation dry.
<unk> they are.
A headwind.
This year for sure.
Two hour.
To our margin expansion.
However, as you have seen with more than overcompensated with over compensated for that with many other positive drivers.
And I mean at this point to Germany finds itself and the ironic situations that it's gas supplies are full of course, they have to last through the winters, but at least it's a good starting position the French nuclear power plants, mostly are back online or coming back online from maintenance before the winter so it.
Doesn't look quite as dire as it might've looked six or eight weeks ago. Nonetheless, there is risk I don't think an hour I mean, everybody's dressing warmer and tiling down the temperature and saving energy and so is broker, we're making additional investments in photovoltaic again and solar for next summer when we need cooling quite honestly.
More than eating.
So you know, it's it's it's messy and it's a it's a risk.
But I mean, if if I think what could be the worst risks right to broker we have multiple factories that wouldn't be affected simultaneously if at some point.
In Q1, one of our factories had had a had to shut down for a week the others would keep moving and by the way the same could happen with wildfires or earthquakes in California, or when we had the power outages in Texas some years ago due to a very cold winter. So it is manageable.
But yes, there is a risk there is elevated risk and there is inflation I think that's kind of the picture I'm not really worried for next year's business plan.
Could could something move from Q1 Q2 in a worst case scenario that I would consider it a low probability yes, there is that type of risk, but but with that quantitatively and looking at the different elements. It's actually overall manageable and I'm really concerned about brokers next year's business plan.
Because of that.
All we can ask is that the brewers make it through okay. [laughter] Luckily, there's plenty of [laughter] and there's a few non European breweries, but yes [laughter].
Correct.
Our next question comes from Josh Waldmann from Cleveland Research and go ahead with your question.
Hey, Thanks for taking my questions. Two for you Frank I guess, starting with a high level question and a bit of a follow up I mean growth over the last 18 months has obviously been quite strong bookings are up double digits here to date. It sounds like backlog grew again in the third quarter I'm curious is there anything in the opportunity to <unk>.
All or in conversations with customers that lead you to believe we might see a normalization new orders or purchasing as we look out over the next several quarters I guess, just trying to rationalize the macro headwinds with your comments on strong broad based order trends here recently.
Well I think you know there is a work growing out backlog as growing our book to Bill for scientific instruments was greater than one.
But within that there is a.
There is a slow down in growth right. The growth was faster than 21, and the order growth was even faster year over year in the beginning of 22. So you see a bit of you see well.
Well, it's a it's a night.
It's a nice way to it is still very very healthy, but it is not I wouldn't characterize it is booming anymore. It is very healthy for us even with non booming macro conditions because of the strength of our portfolio proteome makes us doing really really well, we're doing very very well with biofog with our.
Biopharma tools in all essentially all geographies, our most geographies and and again proteomics being a key tool that is also being used in biopharma quite strongly semiconductor. Many many other examples that I could cite.
But it's.
It is not booming like 2021, and the growth is not as fast in the growth in bookings is not as fast anymore as in the first half of the year. So you see a gradual.
You don't see a slowdown when you use that word now I've used that word.
But you see you see lesser growth compared to the very high growth.
In the first half and and last year. So we acknowledged that and we would expect that the economic any more sensitive industrial and applied markets.
We'll see lower growth in the next you know I don't know 12, 18 months, then but will they they still see growth and that's really the point here right, but the growth is not quite as high anymore, which is.
Which is still a very very healthy set up along with a backlog, but we don't just live off our backlog I mean, our order intake is excellent then indeed book to Bill scientific instruments was greater than one in Q3 and backlog did go up further so it's still very healthy, but I wouldn't <unk> boom times anymore.
Got it that's helpful. Then Gerald a follow up on our margins could you talk through how you were thinking about the cost price mixed progression on the impact of margins. As you look ahead to the fourth quarter and twenty-three obviously nice margin performance in Q3, how much of that was cost starting to abate versus price starting.
To show up and the piano and then I guess, just a comment on your expectation for price contribution here in 22, and what that looks like an twenty-three based on how you price to backlog would be helpful.
Good questions. So we we've discussed this a little bit and Pryor calls, but just fundamentally we do still see inflation.
Inflation costs pressure headwind net of price realisation and.
That was the case no for the early part of 2002 and continues to be the case for the latter part of 22, but fundamentally we are seeing stronger price realisation as we move through 22.
That is helping us I think certainly on the margin performance, we continued to take.
Pricing actions wherever we can in the markets in which we feel we are well.
Well positioned to do so and I think that's really important for not only the fourth quarter, but also for the future including 2023.
Yeah, I think generally speaking.
Performance has been very solid you see the numbers reflected in the in the gross margin performance over the last couple of quarters.
Got it appreciate it goes sure.
[laughter].
Our next question comes from Derek <unk> from Bank of America. Please go ahead with your question.
Hey, this is <unk>. Thanks for the question. So I wanted to start off by asking you about biotyper demand at hospitals.
Hospitals, and ladders inflationary pressures, how should we think about places there.
So if I understood. The question correctly, it's the malty Biotyper clinical microbiology business. This is Frank So continued very good growth and consumables here today.
Last year, we had some 2021, we had some significant orders.
From Russia in multi Biotyper and also earlier last year and the year before but deliveries were mostly last year from the C. D C and shot their center for disease control and in China, Some significant orders with that the instrument over the instrument revenue.
Multi biotyper this year is down year over year, but with some exceptional.
The large deals.
Last year and.
Consumables business is just growing very nicely. So overall clinical microbiology is up this year, but not as strongly as last year.
Got it. Thank you and then following up on some of the supply chain constraints. You mentioned earlier from this year are you seeing any ketchup spend in this quarter or anything you were looking forward to in for Ya.
Yeah, we're not really aware of that and nobody has told us that they're catching up or that there's some sort of a budget flush those those things don't tend to Ah.
Affect us as Ah more than 50 per cent instruments business with a lot of backlog as much as some primarily consumables or aftermarket companies. So I I wouldn't know, it's not we were not aware of it.
Got it thank you.
Thank you.
Our next question comes from Rachel that's in doll from J P. Morgan. Please go ahead with your question.
Hi, Thanks for taking my questions here and the following up on to my earlier comment just about order books visibility can you just talk about cancelation, how big of a risk nowadays so let's say at the macro backdrop continues to deteriorate, how often would you order a a fee and then maybe can you compare that to prior economic downturns about your cancellation rate what.
Like that.
Yeah, it's essentially immature it's immaterial than we expected to be immaterial now.
Next to nil.
It's a pretty simple answer sorry, if I keep it short, but we just don't our backlog as doesn't it doesn't usually suffer from cancellations.
Okay. That's helpful. And then last one for me just looking at the quarter vacated you guys did almost 13% organic Reds during the quarter and then for four K and you're expecting that upper medicine double digit growth and don't understand there are some lumpiness, but can you kind of walk us curious I'm gonna put your tastes electric new growth this quarter, how much of that 13 per cent was from <unk>.
And the supply chain <unk> and then are you seeing any poll xxxx. Unfortunately demand as well. Thank you Ah Rachel as I said earlier don't look at Q3 don't look at Q2 look at year to date year to date organic growth that 10.7 is a meaningful measure.
We're guiding to 8% to 10% for the year.
Obviously, because they're you know they're always are some continued risks we've been able to nicely Overperforming Q3, we were only barely meeting Texas in Q2, so each quarter is as you know.
It's still a supply chain and other in Lockdown and whatnot challenge. So we take that into account hopefully prudently and and I think I think the key to really understand brokers to look at the year of the year to date.
That's my comments.
An operator or do we have to <unk>, maybe we have time for one more question.
On our final.
Final question today comes from branding <unk> from Jeffries. Please go ahead with your question.
Hey, Thanks. Good morning, Thanks for squeezing in just a couple of housekeeping items for Ya Gerald.
Speak to the third quarter BSI organic order growth specifically the the rate.
And does that exclude.
And the ultra high field the orders.
No in the <unk>.
I understood Brandon in we had I.
I think three ultra high field orders and Q2 and 19 Q3 on that housekeeping items, and then B S. I book to Bill was greater than one.
In Q3, as well if that address the two questions.
Okay, and then Joe what is the impact of currency on gross an operating margin expansion.
I think we may be gone through this before Britney, but generally speaking foreign exchanges. It's got volatility I think we've talked about.
When the U S dollar strengthens.
We got a headwind on the revenue line, we have generally some favor ability because we're foreign operations in with the growth in the operating expense categories, and it's pretty neutral when you get down to the EPS lines. So I think that's generally the case again, we did see some favorite building in the third quarter.
<unk> to foreign exchange that bottom line, but other than that I think.
If you think about if I may.
Posted it a little bit more broadly if you look at we do have some margin tailwinds from FX. This here and we have inflation headwinds those nearly offset.
By the time, you get two EPS, it's relatively small although we do acknowledge a bit of an EPS a small EPS headwind from currency, which is why you've seen that for instance that we haven't raised.
R E P S guidance, even though our margin guidance is higher <unk>.
Margin yeah, they did ask her.
That's right Yep.
Hope that helps.
And ladies and.
Gentlemen, with that will in today's question and answer session I'd like to turn the floor back over to the management team for any closing remarks.
Yep. Thank you for joining us today brokers leadership team looks forward to meeting with you at an event or speaking with you directly during the fourth quarter. Please feel free to reach out to me to arrange any follow ups have a great day.
And with that ladies and gentlemen will conclude today's conference call them presentation. We do thank you for joining you may now disconnect your lines.