Q4 2022 Bruker Corp Earnings Call
Yeah.
Yeah.
Good morning, and welcome to the broker Corporation's fourth quarter 2022 earnings conference call.
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I'd like to turn the conference over to Justin Ward Senior director of Investor Relations and corporate development. Please go ahead.
Thank you Anthony and good morning, everyone.
I would like to welcome everyone to broker Corporation's fourth quarter and full year 2022 earnings Conference call. My name is Justin Ward and I'm brokers 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 conference call, we will be referencing a slide presentation that can be downloaded from the events and presentation section section of <unk> Investor Relations website during.
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 group Dot com.
Before we begin I would like to reference brokers Safe Harbor statement, which is shown on slide two of the presentation.
During this 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 the elevated 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.
Actors that might cause such differences include but are not limited to those discussed in today's earnings release and in our Form 10-K as updated by our other SEC filings, which are available on our website and on the SEC's website.
Also note that the following information is based on current business conditions.
And to our outlook as of today February nine 2023.
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 first quarter 2023 financial results expected in early May 2023.
You should not rely on these forward looking statements as 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 fourth quarter and full year 2022 in more detail and he will share our fiscal year 2023 financial outlook.
Now I'd like to turn the call over to broker CEO Frank logging. Thank you Jessica and good morning, everyone and thank you for joining us on today's earnings call.
In fiscal year, 2022 broker achieved solid operating and financial improvements.
With 10% organic revenue growth.
150 basis points gross margin expansion.
And 11% non-GAAP EPS growth all while all with a non-GAAP return on invested capital above 20% and while investing significantly in proteomics center spatial biology.
We have made several key acquisitions and investments in the last 13 months in order to expand the breadth of our proteomics capabilities into proteomics consumables automation software and expert proteomics drug discovery services and also in order to enter attractive new markets.
And cancer research tools, and Euroscience research tools and solutions.
Yeah.
Our teams also have been effectively navigating supply chain and geopolitical challenges, which are gradually improving but not fully resolved yet and probably will not be fully resolved until the end of 2023 and in some areas of electronics even into early 'twenty 'twenty four.
Most importantly, we are advancing our project accelerate to Dot O high growth high margin initiatives.
As you know a particular focus on the large opportunities in proteomics and the related field of spatial biology.
While also investing in operational excellence productivity and our capacity growth for the next 10 years.
Broker again has introduced key life science tools innovations in 2022 and demand for our high value solutions and differentiated instrument is strong.
In fiscal year 'twenty to 'twenty, two our scientific instruments segment generated double digit year over year organic bookings growth and builds additional backlog for good visibility into the year.
Okay.
In 'twenty to 'twenty, three we intend to drive strong revenue growth and another solid EPS increase while further expanding our focus strategic investments in the recently acquired additional proteomics capabilities and in our other key project accelerate to that O initiatives.
Our medium term goal is two trends to continue to transform broker into a high revenue growth and consistent double digit EPS growth company with significant further gross and operating margin expansion potential.
Turning now to slide four brokers solid eight 9% year over year organic revenue growth in the fourth quarter capped off another strong year for the company.
Continued demand for our differentiated high value solutions drove robust performance in bookings and revenues.
And our fourth quarter 'twenty, two scientific instruments segment book to Bill ratio was again greater than one.
For the full year 2022, our BSI segment organic bookings and backlog both increased in the double digit percentage year over year.
For the fourth quarter of 2020 to be at the BSI segment order bookings continued to grow nicely driven by broad based customer demand with demand in Europe , being particularly strong brokerage Q4, 'twenty two reported revenue increased three 6% year over year to $708 million.
This was in comparison to a strong prior year Q4 of 'twenty, one and with a 7% Q4 'twenty to <unk>.
Headwinds from FX.
So on an organic basis, our Q4 2022 revenues increased eight 9% year over year.
Our Q4 2022, non-GAAP gross margin increased 140 basis points year over year to 52, 6%, while our non-GAAP margin was 21.0% the same as in the fourth quarter of 'twenty one.
Fight inflation headwinds our gross margin expansion is clearly benefiting from project accelerate to Dot O margin mix, our operational excellence productivity gains as well as volume leverage pricing and currency tailwind.
In the fourth quarter of 'twenty, two broker reported GAAP diluted earnings per share up 66 cents up 32% compared to 50 cents.
Reported in the fourth quarter of 'twenty one.
On a non-GAAP basis fourth quarter 22 diluted EPS was <unk> 74 cents.
25% from 59 eight for the fourth quarter of 'twenty. One in summary, the fourth quarter of 'twenty two was a quarter of good execution and continued broad demand for our differentiated portfolio.
Moving on to slide five.
We show a brokers performance for the full year 2022.
Our revenues increased by $113 million year over year or by four 7% to 253 billion on an organic basis.
Fiscal year 2022 revenues grew 10, 2% year over year.
For the full year 22.
Book to Bill for brokers three scientific instruments group are all above one one.
Geographically our 'twenty two BSI order bookings were led by double digit organic growth in <unk>.
Asia Pacific, South Asia, and Australia, and New Zealand.
APAC region, as we abbreviate, it and with mid teens percentage organic growth in Europe , and Middle East Africa or EMEA.
And mid single digit percentage organic order bookings growth in the Americas.
In fiscal year, 2022, we experienced particularly strong organic growth and our proteomics biopharma semiconductor metrology and industrial research markets.
In fiscal year 2022 we delivered double digit organic revenue growth of 150 bps year over year gross margin expansion.
60 bps year over year operating margin expansion and.
And double digit percentage non-GAAP EPS growth, our non-GAAP return on invested capital.
24, 3% was again well above our long term target of Aro.
Oh, I see greater than 20% and this continues to confirm our differentiated strategy and entrepreneurial management process and culture are working.
Finally, we're also pleased with our 7% year over year, non-GAAP EBITDA growth, bringing 2022, non-GAAP EBITDA to 547 5 million and the related non-GAAP EBITDA margin up 40 bps to 21 six.
So please turn to slide six and seven where we highlight the full year 2022 performance of our three scientific instruments groups and of our best segment, all on a constant currency and year over year basis.
In 2022 bio spend group revenue grew in the high single digits percentage year over year to 697 7 million with strong growth in it services and support revenues as well as strong growth in preclinical imaging and a notable contribution from our biopharma process analytical technology.
Software acquisition optimal.
Through correctly rukwa bio spin and recognized revenue on four gigahertz class <unk> instruments in 'twenty, two consistent with four systems recognized in 'twenty one.
You may have seen our press release last week in which we detailed the customer acceptances all of the first two.
1.0 gigahertz in EMR systems already in the fourth quarter of 22, one had regained in Japan and one in Barcelona, Spain. These acceptances were ahead of schedule as this new compact single story.
One <unk> gigahertz product largest technically going really very well.
It resulted in some hot one two gigahertz installation side, we're moving to this year 2023.
And in 2023, we again expect to install four gigahertz class <unk> and by the way there none are expected in the first quarter of 2023.
I know some of you are following that quarter by quarter.
Moving on for the full year 2022 caliber group revenues increased in the high single digit percentage to $822 million with continued growth in our life science mass spectrometry business and notable strength in proteomics applications and our Teamstaff portfolio.
With now more than 600 units installed.
In customer labs, we continue to experience some supply chain delays, however, slowing revenue execution and call. It hence the backlog went up our gamestop platform. So very robust demand in applications for 40, proteomics, Ttm's RFE proteomics as well as <unk>.
Single cell proteomics and mass spec imaging all on the various models of the <unk> platform.
Our microbiology and molecular diagnostics revenue was up slightly year over year.
As aftermarket strength offset modest instrument demand, which faced difficult comps on comparable from 2021.
Moving onto slide seven now full year 'twenty two broker nano revenues grew in the high teens.
Our growth Star.
As a percentage of 787 million <unk> revenue growth in semiconductor and industrial markets was particularly strong our nano surfaces division drove the nano group strength, while X ran that analysis Division also grew further versus 2021 and it was microelectronics semi con metrology tools.
Well in 'twenty, two with strong bookings and a strong backlog that provide us with good visibility into 'twenty or 'twenty three.
Broker nano life science fluorescence microscopy showed strong year over year growth. The result of product innovation and life Science research demand and that's also where we have made some additional acquisition as I'll discuss in a moment.
So last but not least it all fiscal year 'twenty two best revenue grew in the mid teens percentage net of intercompany eliminations driven by contributions from Big Science Clean energy research and robust demand for our MRI superconductors by our Med Tech OEM customers.
Best Superconductor demand appears healthy, but we continue to experience supply chain challenges there as well due to some material shortages.
Moving to slides eight and nine now we continue to make good progress.
With our project accelerate initiatives, which in 'twenty two now represent 56% of our total revenue.
On slide eight we highlight two recent acquisition.
In scoping and diagnosis and <unk> is a part of our florescence microscopy business, although it's a very specialized way of doing life animal fluorescence microscopy, and <unk> has really generated and pioneered the field of fundamental neuroscience brain circuitry research.
So this is not molecular I mean this is not just behavior. This is crucial in between that we need to understand.
Brain function in vivo brain function much better they had about $20 million and 22 revenues there their gross margins are well above 60% and while this year. They only have a single digit EBIT margin because they are investing a lot in the support that we expect.
Then to have it not only of double digit revenue CAGR, but also to become accretive to operating margin over time and become one of our more profitable businesses over a few years, but right now they are very much in growth and fast investment mode.
Somewhat similar but I'd.
I'd also slightly different story on diagnosis, where we did go into this specialty drug discovery and development research services or CRO services.
The general strategy for Us as you may know, but very much beneficial in the specialty proteomics services field, whereby the way by Agnosis also that's a very key.
Key consumables kits and software so they are a mix of <unk> drug discovery.
And proteomics specialty tools business as they had about $15 million in 'twenty. Two revenue. We're also expecting them to have a long term double digit CAGR CAGR in the double digits.
And this year because of in 'twenty, three because of the significant investments that we support including their rollout of their U S facility.
We expect them to be not not do not expect them to be profitable, but over time. We think they will also then become accretive to our operating margin over time. This will take a few years, but a very key additional acquisition in proteomics.
Moving on to slide nine this very briefly something that you probably don't have much visibility on and we had a press release on this in December but many of our technologies within best are not only used for high energy physics experiments or big science or MRI by our MRI OEM customers, but increasingly also.
So by Cleantech as clean Tech technologies under development and hear examples of.
Contracts that we have received for over $50 million for superconducting materials from a from an Asian pilot plans on fusion magnetic confinement fusion pilot plant.
As well as from each or indirectly for.
Something that is part of the divestiture I don't expect it to be experts in a magnetic fusion in each of work.
But those are the parts of the each or machine that have the highest heat and radiation load and we have some very specialized materials, there and got those long term contracts by the way. These are all multiyear contracts.
I'll not be on not all be 'twenty, three 'twenty four revenue superconductors.
Superconductors also may play, an increasing role in offshore 20 megawatt and larger wind turbines.
Investment in Europe in Asia, and particularly in the U S that are planned for offshore wind are enormous and larger more efficient wind turbines, probably will get away from rare earth materials, because it gets too heavy it also is the only source in one country.
China in this case.
So there may be a bright future for superconductors in offshore wind turbines more of an outlook for some future growth areas on which you probably haven't had much visibility. So let me wrap up on slide 10 illustrates our revenue mix continues to improve project accelerate to Dot O now presented 56% of our revenues.
Year by year, the changes are incremental but if you look at this at the last pre Covid year not 2019, it's up from 46 to now 56%. This along with operational excellence, obviously advances our gross and operating margins and opens up very new very large new Tam for us, particularly.
The large opportunities for this decade, and the next in proteomics and spatial biology.
We're still in instruments company and proud to be that one on instruments company, because thats, where we innovate and create new markets, but our recurring revenue has advanced from the mid 20 percentage to 30% as you see in the lower left and our geographic balance has really changed dramatically with fast growth, particularly in the Americas.
Two were Americas, and EMEA are at parity at about 33% and very very similar to our broader APAC South Asia revenue, which is about 34% of brokerage total global revenue also quite a different picture than from a few years ago.
Let me wrap things up.
Summary, during 2022 broker again made excellent progress we closed several key technology and capabilities acquisitions, particularly in fluorescence microscopy, neuroscience and proteomics and the last 13 months.
And.
We are expanding the breadth and depth of our capabilities as well as entering new attractive markets.
As I referred to earlier I'm very proud of the agility and responsiveness of our teams in addressing the supply chain challenges.
Moving forward our high backlog for 2023 gives us good visibility into another promising year ahead.
And in 2023, we intend to combine rapid revenue growth further gross margin expansion and solid EPS growth with additional strategic R&D and commercial investments, particularly in proteomics and spatial biology and for 2023, we expect to reach our previously announced medium term target of R&D investment.
As of 10% of revenues, which is a 70 bps step up or increase from $9. Three in 2022. So we are really investing very significantly while improving our financial performance year over year. It's a good strategy. It's a good process and with that let me turn the call over to our CFO Gerald Herman who will review broker.
<unk> financial performance and outlook in more detail Gerald.
Thank you Frank and thank you everyone for joining us today I'm pleased to provide more detail on brokers fourth quarter and full year 2022 financials, starting on slide 12.
Fourth quarter 2022 brokers reported revenue increased three 6% to approximately $708 million, which reflects an organic revenue increase of eight 9% year over year.
We reported GAAP EPS is <unk> 56 per share compared to 50% in the fourth quarter of 2021.
On a non-GAAP basis for the fourth quarter 'twenty to EPS.
<unk> per share an increase of 25% compared to 59 in the fourth quarter of 2021.
Our fourth quarter 2022, non-GAAP operating income grew three 5% year over year with the fourth quarter 22, non-GAAP operating margins about flat year over year by 21%.
As a strong gross margin expansion was offset by higher R&D and commercial investments.
To accelerate to Dod O initiatives as well as by inflation related costs.
We finished the fourth quarter with cash cash equivalents and short term investments of approximately $646 million during.
During the quarter, we used cash to fund selected project accelerate to lower investment.
Key strategic opportunities capital expenditures.
Our dividend program.
In the fourth quarter, we purchased approximately 435000 shares of Pokerstars for total consideration of about $26 million for the full year of 2022, our repurchases totaled $4 2 million shares or approximately $265 million.
We generated $159 million of operating cash flow in the fourth quarter.
Which after capital expenditure investments resulted in a $135 million in free cash flow for the fourth quarter of 'twenty two.
This represents a $25 million increase from the fourth quarter of 'twenty, one due primarily to higher net income in the.
Quarter.
Slide 13 shows the revenue bridge for the fourth quarter of 2002 as noted earlier organic revenue in the quarter increased eight 9%.
We had a positive revenue contribution from acquisitions of one 7% and a foreign currency headwind.
Ted.
From an organic revenue growth perspective, and compare to the fourth quarter of 2021, <unk> fourth quarter revenue.
For the fourth.
Fourth quarter 'twenty, two revenue increased in the high single digit percentage.
With a notable strength in our PCI and biased and software businesses.
Nano organic revenue grew in the low 20% on strength in semicon metrology and our surface materials and nano analysis tools Division.
<unk> performance was constrained by supply chain delays in the fourth quarter of 2002, but bookings were again robust.
Order bookings in <unk> in the fourth quarter were significantly higher than revenues for a book to bill meaningfully above one.
Fourth quarter 'twenty to DSI systems revenue and aftermarket were both up high single digit percentages organically compared to the fourth quarter of 2021.
Geographically and on an organic basis in the fourth quarter of 2022, our European revenue was down mid single digit percentage year over year Americas grew in the high single digit percentage range and the <unk>.
Pac region grew in the 20% range year over year.
The rest of World fourth quarter 'twenty, two revenue was higher year over year in the high teens percentage.
Slide 14 shows our fourth quarter 'twenty, two P&L performance on a non-GAAP .
Yes.
Fourth quarter 22, non-GAAP gross margin of 52, 6% increased 140 basis points from 51, 2% in the fourth quarter of 'twenty one.
To increase the capacity utilization favorable revenue mix and volume leverage.
Fourth quarter 22, non-GAAP operating expenses were up eight 2% compared to the fourth quarter of 2021.
The continuing acceleration of R&D and commercial investments in project accelerate to the auto including in proteomics and spatial biology. In addition to increased costs related to inflation.
For the fourth quarter of 2022, our non-GAAP effective tax rate was 26% compared to 34, 4% in the fourth quarter 21, primarily due to a favorable U S tax clarification issued in the fourth quarter of 'twenty two.
Weighted average diluted shares outstanding in the fourth quarter was 22 $147 9 million.
A reduction of approximately $4 6 million shares with 3% from the fourth quarter of 'twenty, one, resulting from our share repurchase activity over the past year.
Finally fourth quarter 22, non-GAAP EPS of <unk> 74.
It was up 25% compared to 59 cents in the fourth quarter of 'twenty one.
Slide 15 shows the year over year revenue bridge for the full year of 2002.
Revenue was up $113 million or four 7%, including organic.
10, 2% following a very strong 2021 organic growth comp of over 19%.
Acquisitions added one 4% to our top line, while foreign exchange was a 7% headwind for the full year of 2002.
P&L results for the full year of 'twenty two are summarized on slide 16.
For the full year gross margin expanded 150 basis points to 52, 6%, reflecting higher revenue volume leverage and more favorable mix from project accelerate to Dot O. While operating margins grew 60 basis points to 20.0% for many of the same reasons.
The full non-GAAP tax rate was 27, 7% compared to a 28% rate in 'twenty one.
Turning now to slide 17, and the full year of 2000.
2022, regenerated $143 million of free cash flow approximately $47 million lower than in 2021.
Full year 'twenty two.
Free cash flow benefited from higher net income more than offset by higher working capital related to our increased volume buffer inventories and the timing of receivables our capital expenditures in the year reflect our continuing investments in growth capacity and productivity as part of our operational excellence drive.
Our cash conversion cycle at the end of the fourth quarter of 'twenty. Two was 229 days, an increase of 21 days compared to the fourth quarter of 'twenty one.
This increase was due to higher working capital needs to Cushing supply chain risks.
Turning now to slide 19, given our continued strong bookings growth and backlog in 2022, we expect solid growth in 2023.
Our outlook for 2023 includes we are now guiding to organic revenue growth of 8% to 10% year over year.
We estimate a foreign currency tailwind of about one 5% with acquisitions also contributing about one 5% growth.
This is expected to lead to reported revenue of $2 eight 1% to $2 $86 billion representing growth in the range of 11% to 13% compared to 2022.
For 2023, we expect to reach our medium term R&D target of approximately 10% of revenues.
A 70 basis point step up from the nine 3% level.
Delivered in 2022.
Nonetheless, we expect our innovative portfolio to continue to deliver solid gross margin expansion and operating profit growth in 2003.
We are targeting 7% to 9% year over year non-GAAP operating profit growth in 2023.
Organic operating margins are expected to expand approximately 50 basis points in 2023, but a combined transitory headwind in 2023 of about 120 basis points from foreign exchange and dilution from our recent acquisitions. This is expected to decrease our non-GAAP operating.
<unk> by approximately 70 basis points to 19, 3% for 2023.
We expect operating margins to rebound from this anticipated 2023 dip in 2024, and our medium term goal continues to be to expand our non-GAAP operating margins well beyond our 20% level, which we achieved for the first time in 2022.
As Frank mentioned, our recent acquisitions are highly synergistic and strategic and we expect them to deliver.
To deliver double digit revenue growth rapid margin improvement and strong shareholder returns over time.
On the bottom line, we're guiding to non-GAAP EPS for 2023 in the range of $2 52 to $2 57, or non-GAAP EPS growth of 8% to 10% compared to 2022.
This would also represent a 13% non-GAAP EPS CAGR from our $1 57 pre pandemic level in fiscal year 2019.
We are projecting a non-GAAP tax rate of approximately 28% for the full year of 2003 others.
Other guidance assumptions are listed on the slide and our full year 2023 ranges have been updated for foreign currency rates as of January 31, 2023.
So to wrap up broker delivered strong bookings backlog and revenue growth in the fourth quarter capping off another year of very good financial improvement.
We're carrying bookings momentum innovative products and our record backlog into 2023, giving us good confidence in our ability to deliver another solid financial performance in 2023.
With that I'd like to turn the call over to Jonathan to start the Q&A session. Thank you very much.
Thank you. 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 operator.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
Using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question will come from Puneet <unk> with <unk>.
BB Securities you May now go ahead.
Yes, hi.
Thank Gerald Thanks for taking my questions. So first one is on just a book to Bill.
That came in obviously greater than one could you maybe elaborate on bookings are these going to one segment versus the other among the instrumentation and uncurled.
Your supply you said you were supply chain constrained.
Obviously, we've been hearing from other peer groups on instrumentation supply chains have been getting addressed throughout the year.
So could you talk a little bit about that and what visibility you have on supply chain, there and what instruments are maybe sort of impacted there and then I have a follow up.
Alright, I'll start with that as a book to bill greater than one in the BSI segment in the segments.
Strength in Tim's talked for sure bio spin had very strong bookings.
But it was it was really nothing that that dropped out or something like that some of the applied and industrial areas remained pretty resilient. We kept an eye on that and then geographically a bit of a surprise is that Europe had such strong bookings in Q4, I think those are maybe the more remarkable.
Things that you know.
That you may have some of them may surprise, you and some of them are as expected.
To the second point supply chain, yes, it is getting better but that.
Certainly not getting worse.
Still are some things that sometimes there is just a part or a few parts that are that delay deliveries, we got the price doesn't it.
The Calvert group.
Both the broker of optics molecular spectroscopy, but also our Tim's top line got delayed and some deliveries sometimes it's even that even though the chromatography equipment and so on that can be delayed. So I don't want to bore you with the details, but it's not that it's all smooth sailing this will still take some time to sort itself out it is.
Getting better, but it's not gone and so it still is a drag on revenue, which is we didn't really intend to build our backlog further in Q4, but.
We delivered good revenue growth.
But we also had delightfully better than expected perhaps are better than feared if you. If we were all concerned what's going on with the economy. So we're pretty pleased that our bookings were so strong in and yet our backlog went up yet again.
That's the bigger picture there.
Got it Okay helpful. And then just general on op margin dip in here in 2023.
Could you talk a little bit about the.
The R&D investments that you are talking about how should we think about op margin kind of throughout the year and then just if I could squeeze one in on China.
Frank we've been bearing about one point right sorry.
I appreciate it but this is an important one that would love to get your view on the $1 seven Chilean renminbi.
$200 billion instrumentation.
The stimulus there I know, it's alone, but love to get your because you are obviously strong and strong in instrumentation. So would love to get your thoughts there if that could be meaningful for Parker. Thank you I mean, we're obviously delighted by that prospect as you know from announcements until this gets into specific grants and budgets and then enter purchase orders.
Take some time, but you know that along with the you know inflation reduction act in the U S. So the chips act in the U S and.
Central also additional stimulus that may happen in Europe .
In clean Tech and other energies, it's at all caters to our strengths and where we are in principle very we're delighted and excited but I just don't want to caution. It takes some time before this probably won't show up in toll revenue till 'twenty four 'twenty five but it's great to have these medium and long term tailwind as well.
<unk>.
On the other question I go over to Justin or to you or I'm happy to respond so relative to the 23 guidance relative to the margin performance I think I've, probably heard from my prepared remarks.
There's two major factors there first of all we posted.
Very solid.
Full year 'twenty, two operating margin performance of 20% that's a record for the company.
Secondly, we do expect some combined foreign exchange and acquisition related dilution on the operating margin from 23, there's another factor, which you've already referenced which is accelerated R&D spend we do think with some stabilization on the supply chain and some of the work we're doing there that will.
Being able to bring our R&D levels back up to a 10% level in 2003 all of that pulls the operating margin down slightly from 23, we expect to be able to rebound that back.
In 2004 and importantly.
We expect to expand our gross margins our non-GAAP gross margins in 'twenty three.
And we've even.
If you look at the guidance slide are and then we're thinking that organically. Our operating margin is because we're still going to grow about 50 bps, but yes, we are acknowledging.
Transition Mt.
Mount margin headwinds from FX and.
And the deliberate and very good acquisitions, but in the first year, they're either not profitable or they have low margins. We're very glad we did these acquisitions I think there'll be terrific for the company, but that gives us a temporary drag on <unk> in 'twenty.
'twenty, three which we're accepting an end.
And we think that only gives us more gross and operating margin expansion potential in the future years as we're positioning the company and trends continue to transform the company.
Got it appreciate it thank you.
Sure.
Our next question will come from Patrick Donnelly with Citi. You May now go ahead.
Taking the questions.
You know Frank I think this is the highest growth number I've seen you guys put out at the start of year.
It typically known for for layered in a pretty healthy amount of conservatism I guess with this elevated growth numbers, there still that typical broker conservatism in there and on the back of that I guess, what gives you the confidence to put out.
Type of number to start the year, you're bumping it even from what you were talking about a J P. M. I mean, clearly the record backlog I assume that's part of it is that just gives you. The visibility you didn't have in prior years to get to this number did headwind like that China semi concerned that you talked about last quarter alleviate a little bit it would be great to just get your perspective on kind of where we stand to start the year.
Yeah.
Yeah. Thanks for the question. Good question I can give you some incremental because with two of your very last point, we already took out about.
A few orders from China semiconductor out of our backlog because of the.
Probability of either a significant delays or if not being feasible for exports certain pieces of equipment.
So that's all built into our forecast and we took care of that in Q4, if you like so no additional risk there.
We can see at the time.
I think it's the.
It's the usual balance of risks and opportunities.
Yes. It yes. It is backlog we acknowledged that of course that backlog will not come to a normalized level all in one year that'll be a two to three year process. It's continued orders momentum. It's also in some of the areas, where we were concerned and we're wondering ourselves whether they would get.
Quite a bit weaker and you know why some of them are not growing as fast we haven't seen any pronounced signs of weakness or any signs of real weakness.
It's just coming the order momentum.
And then you know order momentum in bio spin Teamstaff a number of areas is very strong we have.
So it's just yeah. It is an unusual number early in the year for us, but I would think it's the usual good balance that we hopefully will not regret right.
That's the number that we we.
We hope we can deliver.
Okay. That's helpful.
And then I think this quarter, particularly theres been an increased focus on kind of the one in Q annual progression. Most of your life science peers who've kept guided <unk> to be a little bit light of expectations in the latest quarter. As you think about kind of the growth progression throughout the year can you guys just give us some perspective on kind of the cadence throughout the year, how should we think about.
<unk>.
So on the organic growth side, and then Gerald maybe on the margin side just in terms of the build as we work our way through the year, particularly again <unk> just given.
Some headwinds via China styles like other axes. One yeah go ahead, sorry, we also expect Q1 to be a little lighter.
Gerald do you want to expand on some quarterly color, but but we do acknowledge that we also expect Q1 to be.
On the lighter side, but we still expect decent growth, yes, we do what I would say from an organic growth perspective, we still expect each one to be.
Solid Q1, maybe a little lighter, but remember we are targeting some.
Ultra high field systems as we move through the year. So do you think about in Q1 right.
Right.
Is clear that there'll be.
Strength in the first half for sure and in addition, you likely know we had some supply chain constraints, we hope to be able to release some of that as we move through the first half, including the first quarter or so and maybe I'll add to that for your modeling Q1 of last year was very strong so were like.
It should be.
Flat or down on margin with regard to Q1 of last year.
Q2 of last year was particularly supply chain constraints. So Q2 will be a weaker comparison for us.
We don't expect to we expect to have a more even revenue and margin flow. This year than last year. So last year Q1 strong comparison in Q2 weaker comparison, and we expect that to even out.
And more and more even in 2023, so for your modeling.
Relatively speaking our Q1 will not be that strong because Q1 of 'twenty two was so strong.
Okay I hope that's on the organic growth side, maybe <unk> below that eight to 10, maybe like mid single and then we build our way through the year that kind of a fair ballpark, where we're not giving color numerical color. So we'd rather not comment because we don't give quarterly color. This time.
There is nothing that would be it.
If there was something very unusual we try to call it out.
But I just want to.
Make sure that I'm, not giving additional numerical color that we didn't intend to.
Understood. Thank you guys.
Thank you.
Our next question comes from Jack Meehan.
<unk> Research you May now go ahead.
Thank you good morning.
What does that talk about nano so 17% organic growth for the year over 20% in the fourth quarter, just really like an outstanding year can you dissect for us how much of this is coming from.
Things like semiconductor versus the investments in spatial.
How big is that business today.
I mean, the spatial on fluorescence microscopy is still much much smaller than the semiconductor and advanced electronics.
Spatial biology, and including the <unk>.
The adjacent areas that we group there which include fluorescence microscopy, but also the new spatial neuroscience.
Businesses that we've acquired particularly in scope eggs are going to be needle moving in 'twenty, two 'twenty, three but theres still quite a bit smaller than the semiconductor business. The semiconductor business is very strong backlog.
We're not too exposed to the memory area, where where where indeed there is an oversupply in some areas that are a bit commoditized.
We expect semiconductor.
Orders.
To be weaker and revenue will not grow steeply in 2023 in that area.
But you know it's.
It does it does it looks like a soft landing and more than made up or at least made up by others areas of strength in our portfolio in 'twenty. Two semiconductor was a strong contributor margin wise and growth wise for sure.
Great.
And then wanted to move over that bio spin just ask about the single story gigahertz cinema.
Can you give us an update on how many orders you have for that at this point.
And just expectations for our ability to scale the manufacturing.
Yes, so far we just have three orders two of which we delivered in Q4.
We announced them all they they coincidentally all came in in the second quarter of last year. So two of them. We delivered ahead of schedule that was just really amazing that a new product could really.
Mature so quickly and indeed be delivered and getting smoothed customer installations that we're kind of thrilled with how thats going.
And yet so there's another one that we expect to have in 'twenty. Three revenue there is quite a bit of activity, there's quite a few opportunities and things in the pipeline where people are trying to raise funding.
But no orders to report yet no additional orders to report yet.
Super Thank you.
Mhm.
Our next question will come from Josh Wolfson with Cleveland Research you May now go ahead.
Good morning, Thanks for taking my questions a couple for you.
I guess first on the margin guide Frank.
I Wonder if you could provide more context on where the R&D and commercial investments are.
Being targeted and you kind of what the timeline is for when we should start to see the show up in <unk>.
Revenue growth it sounds like these are a bit more kind of one time ish.
Investments to show up in 'twenty, three and roll off in 'twenty four is that right and then.
I guess I guess, yeah go ahead yeah.
Hi.
Gerald I guess a follow up.
On that you alluded to it a bit I think in the prepared remarks, but <unk>.
Curious, if you're still targeting 21, 5% op margins.
And $3 of earnings for 'twenty, four or or is this kind of change that.
Yes.
So the number of points.
Very good question, so no the R&D, 10% investment that's going to be I mean, that's a medium term target that's not a one time shot in 'twenty. Three we had had been ramping in that particularly in proteomics now in proteomics as you've seen we've added early last year, we've added sample consumables and automation.
Added chromatography capabilities. All of these are in addition to of course continuing to develop our same store portfolio.
Now we've added CRM capabilities in software and further consumables capabilities. These will all require a multi year a continued strong R&D investments that we do not want to be.
Penny wise and pound foolish and Underinvest in this very large our proteomics opportunity. So the 10% R&D I don't want to predict for how many years, but that's a multiple year level at.
At which we want to be I think it would be actually <unk> stake a strategic mistake. If we underinvested here. The second part of that R&D investment that goes heavily into spatial biology, which for us. It's a mix of fluorescence microscopy neuroscience and then the more traditional spatial single cell proteomics.
You'll cell biology, particularly the canopy proteomics and then the three D structural the three D. Genomic spatial biology of acuity, which is a whole new area that won't have any revenue or any any products. This year, yet, but that will begin to come out in 'twenty. Four so there is a very very significant and very.
R&D investments in the 10% R&D, we're not going to drive it to 11 or 12% I think Thats. Just you know, it's not finance, where we're also doing disciplined growth investments but.
But the 10% is here to stay for not forever, but for quite a few years to come.
The transitory effects Josh.
More on the FX and the M&A, the newly acquired especially the larger ones in scope effects.
Single digit margins in 'twenty, three and then improving from there in diagnosis in 'twenty, three and 'twenty four.
Having investments that will lead to a P&L loss for these new significant acquisitions.
But we're doing that with our eyes wide open they will grow they will become important they will need further investment. So that's why that 120 bps.
Transitory effect from FX of about half FX and half from these recent acquisitions that is indeed transients are transitory for 2023.
It may still be a bit there, but much abated, probably in 'twenty four whereas the R&D investment of around 10% is very very much important for our growth in proteomics and and and spatial biology.
We're not giving to your last question, Josh we're not giving <unk>.
For guidance on operating margin, we're no we're taking a dip.
And on operating margin this year, we hope to recover substantially from that and grow from there, but we're not giving 'twenty for guidance.
By the way, we had a range that we've given for 2000 and for not just the number.
We are easily we're already within our 24.
Revenue 23, so that's happening much faster and we're within.
We're aware that we are in the last few yards on the few yard lines here of reaching our EPS goal for 'twenty four already in 2003, so we're very likely to reach that in 'twenty four and then we tend to give new multi year medium term goals.
Which we're planning to do in our June 15th Investor and Analyst Day on June 15th of this year, we will probably again give three year financial goals for the medium term.
Got it got it I appreciate all the color and then a follow up Frank just wondering if you could give us an update on your view.
Quoting and ordering activity among university accounts in recent months just curious your expectations for this end market in 'twenty three.
Very healthy.
Uh huh.
Okay.
Thanks.
Our next question will come from Rachel <unk> with J P. Morgan.
You May now go ahead.
Hey, Thanks, guys for taking the question.
And so maybe we could just spend a minute on Europe here. The region was down mid single digits in the quarter, but you noted that bookings were exceptionally strong. So can you just talk about what you're really seeing in that region. You previously called out some of the energy.
Our stations are customers. There. So are you seeing any pockets of weakness and then maybe can you just plans towards what level of growth are you expecting in Europe for the year.
Right. Good question Yeah. So.
So I mean, I think the mood in Europe has changed a little bit. That's maybe you can see that in the current phase right Euro strengthening.
And related currencies, the fear of a broader war in Europe , rather than it being hopefully.
And tragically, we understand that contained two eastern Ukraine, I think that in fear of a broader war is probably.
Reduced also Europe had a mild winter and it's not running out of gas anytime soon and in fact, the gas supply is very high so the chances of.
Of energy blackouts and so on.
Theyre.
Theyre much reduced.
And at least for this winter Europe still needs to develop their energy strategies for future winters, but this year, they probably we'd probably bureau, probably dodged, a bullet and everybody's more optimistic accordingly energy prices that had absolutely peak three four months ago or something like that have come.
Way down again not to the prewar levels of course, there is still quite a bit higher but not nearly as high as the peak level, so everybody's kind of adjusting to that with energy saving measures and.
It's making more investments for instance in solar power all of <unk> all of this year, so hopefully ready for the summer season, when that's particularly beneficial and other energy saving.
So the mood in Europe .
In the European Union, and also I think UK and Switzerland, and so on.
<unk> willingness to continue to invest in R&D, our pharmaceutical discovery or into their version of having a semiconductor supply chain in Europe , and not only relying on Asia or the U S. As the U S is rebuilding our all good drivers.
And so yes, I think the outlook for Europe is much more optimistic and so we're not totally surprised that bookings came up in Q4, although they did that to a greater extent than even we had anticipated.
So I don't think Europe will be a drag anymore, maybe even the opposite because it has to catch up a little bit. It seems like it was very broad from an organic perspective on the bookings side.
It seems as if it wasn't just focused in one particular area. So.
It bodes well I think for that and Europe is now discussing political additional stimulus in the clean tech sector and elsewhere somewhat in response to our invest and inflation reduction Act.
Here in the U S. So that's the update there.
Perfect. Thank you here and then maybe just last one for me on pricing. So you took some incremental price, especially in the back half of 2022.
Can you just let us know where pricing lands for last year and then what are you modeling for pricing increases in contribution there for 2023 as well. Thank you.
Yeah, Hey, Rachel this is Justin thanks for the question so for the full year 2022 price realization was.
In that low single digits, as we mentioned and again it it wasn't fully offsetting the inflation for the year. So we had call. It about 100 basis point drag to operating margin from that net price realization inflation.
For next year, we do think it's going to improve that net.
Price realization is it's working its way through the backlog, we're expecting a little bit higher price realization next year still in that low single digits, and we think it's gonna be a better net against the inflation, but still a little bit of a drag on inflation, maybe about 50 basis points. So as you look at our implied guidance for.
And the commentary that Gerald had for 2023 on op margin that organic.
Margin expansion, we're expecting in 2023 does still include a bit of drag from the price versus inflation.
Okay.
Thank you Rachel.
Okay.
Our next question will come from Derik de Bruin with Bank of America you.
You May now go ahead.
Hi.
Good morning.
And nice quarter, Frank and company. Thanks.
Eric a couple of cleanup questions and then one bigger one so.
Share count assumption for fiscal 'twenty, three I mean, you do do some incremental buybacks. So just want that and how should we think about FX in the first quarter because it sort of set the pacing for the rest of the year and then I have a follow up.
On the share buybacks.
Typically comment on any future buybacks.
The numbers are baked into what we have there already.
And relative to foreign exchange, we actually re rated our guidance based on the January 31st rates.
Thanks.
Yes.
The U S. Dollar has weakened against some of the major currencies and factored that into our analysis, which is.
Currently predicting as you saw for the full year, 1.5% foreign exchange tailwind on the revenue line.
Hum.
Matt.
Yes, I just wanted to the first quarter assumption on it.
Thanks.
Yes. Those are then there was a really bad.
These levels so that isn't normally we think year end FX rates for our planning, but since they had changed so significantly still in January we did the unusual step of looking at.
Baking in January 31st rates, because there had been quite a bit of change even in the 31st 30 days, Okay got it.
So can we talk a little bit about <unk>.
<unk> expectations by geographic region Americas, EMEA APAC in 'twenty, three and then also on APAC and just a little bit more color on the China stimulus.
I mean.
Hum.
Is there any preference for local companies versus.
Outside of outside of China.
Political headwinds going on just a little bit more color on how we should sort of think about that situation. Thanks.
Yeah, So you've heard on the on the geographic side that Europe is making a come back right.
And big.
I'm optimistic about Europe .
And bookings this year.
China is always difficult to read right at some point you have zero zero Covid. Lockdowns, then you have the whole country. It affecting problem getting a wave of infections. So far that all seems to not have such big disruptions.
Although I think China revenue growth was a little weaker in Q4 is that correct.
Little bit, but we were up teens for the year Q4 was up single digits single digits, so a little bit slower than a year, but you know that may be that's probably the transition effect. We're excited about the stimulus.
And the size of it and how much of it might go into scientific instruments, it's fantastic.
I wouldn't say that at this point, we have more than headlight visibility into all of that so it's a little bit like the first the stimulus package or the chips that get passed until you then see until the whole rubber hits the road and we get orders or have visibility into grants and so on that always takes.
Few quarters and so often these announcements then until they turn into our revenue and growth. It's probably a 24 effect, but we're delighted to have more strong drivers in 'twenty four China always has a preference for local products, where they are competitive.
In some areas multi biotype are preclinical MRI and <unk>.
Lower end X Ray systems that are local products right in and we continue to hold our ground people, sometimes want the higher performance.
But sometimes they buy local that's nothing new for most of our product lines there isn't.
A chinese substitute.
And then the geopolitical risks with China.
Around Taiwan or other things or are balloons.
Yes.
That's just very very very difficult to see where that's going so we have not built in any geopolitical major crisis.
That's just not predictable for us, but you know it is a concern of course for the next decade.
Great. Thank you very much.
Operator.
We're past 930 here, so we're going to finish up the call here.
Yeah.
Okay.
Question and answer session I'd like to turn it back over to Justin Ward for any closing remarks.
Great well, thank you everyone for joining us today.
During the first quarter broker will parties participate in several investor conferences, including the Citi Health Care Conference and the Cowen Health Care Conference and as Frank mentioned, we expect to host a broker investor day at the headquarters in Billerica, Massachusetts on June 15th of this year. So we look forward to welcoming all.
Have you to that.
Also brokerage leadership team looks forward to meeting with you at one of those events or speaking with you directly during the quarter. Please feel free to reach out to me to a range of follow up have a great morning.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.