Q3 2024 Bruker Corp Earnings Call
Good day and welcome to the Bruch of Corporation 3rd Quarter 2024 earnings call.
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After today's remarks, there will be an opportunity to ask questions. Staff, you question, you may press star, then one on your touchstone phone.
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Speaker Change: and I'd like to turn the conference up.
Speaker Change: over to Joe Koska, Director of Investor Relations.
Speaker Change: Please go ahead.
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Joe Koska: Good morning. I would like to welcome everyone to Bruker Corporation's third quarter 2024 earnings conference call.
Speaker Change: My name is Joe Koska, and I am the Director of Bruker Investor Relations.
Speaker Change: Joining me on today's call are Frank Laukien, our President and CEO, and Gerald Herman, our EVP and CFO.
Speaker Change: In addition to the earnings release we issued earlier today, during today's conference call, we will be referencing a slide presentation that can be downloaded from the Events and Presentations section of the Brooker's Investor Relations website.
Speaker Change: 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.bruker.com
Speaker Change: Before we begin, I would like to reference Bruker's Safe Harbor Statement, which is shown on slide 2 of the presentation.
Speaker Change: During this conference call, we will or may make forward-looking statements regarding future events and the financial and operational performance of the company that involve risks and uncertainties.
Speaker Change: including those related to our recent acquisitions, geopolitical risks, market demand, or supply chains.
Speaker Change: The company's actual results may differ materially from such statements.
Speaker Change: 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 31st, 2023, as updated by our other SEC filings, which are available on our website and on the SEC's website.
Speaker Change: Also, please note that the following information is based on current business conditions and to our outlook as of today.
Speaker Change: November 5th, 2024.
Speaker Change: 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 fourth quarter 2024 financial results expected in early February 2025.
Speaker Change: You should not rely on these forward-looking statements as necessarily representing our views or outlook as of any date after today
Speaker Change: We will begin today's call with Frank providing an overview of our business progress.
Speaker Change: Gerald will then cover the financials for the third quarter and the first nine months of 2024 in more detail and share our updated fiscal year 2024 financial outlook.
Joe Koska: Now, I'd like to turn the call over to Bruker's CEO, Frank Laukien.
Frank Laukien: Thank you, Joe. Good morning, everyone, and thank you for joining us on today's third quarter 2024 earnings call.
Speaker Change: Brooker continues to grow rapidly and we have once again posted double-digit year-over-year CER or constant exchange rate revenue and above market organic revenue growth in Q3 and year-to-date.
Speaker Change: Our Q3-24 DER revenue growth was 15.7% year-over-year, including several strategic acquisitions that have closed earlier in the year.
Speaker Change: RQ324 Organic Revenue Growth of
Speaker Change: 3.1%
Speaker Change: Bruker Scientific Instruments or BSI segment organic revenue growth of 3.8% year-over-year were above market or at the high end of the life science tools market.
Speaker Change: and come on top of our strong organic growth of 10.9% in the prior year Q3'23 which obviously made for a tougher year-over-year comparison than what our peers typically faced in Q3.
Speaker Change: Equally importantly, our broker management process and operational excellence programs are now driving rapid performance improvements in our recent strategic acquisitions in single-cell biology,
Speaker Change: Spatial Biology, Molecular Diagnostics, and Lab Automation and Digitization.
Speaker Change: With that, we have already delivered sequential operating improvements in Q3, which was our first full quarter including all acquisitions, and we also expect further sequential margin improvements in Q4.
Speaker Change: In this fourth quarter, we expect low single-digit organic revenue growth in comparison to an exceptional quarter Q4 of 2023, when Bruker grew revenues 15.9% organically year over year.
Speaker Change: So, we are not benefiting from easy comps due to revenue declines in the second half of last year, but Brooker continues in sustained organic and fundamentally transformational growth.
Speaker Change: It is encouraging for us that despite delayed recoveries in biopharma in China demand orders for our differentiated post-genomic multi-omics.
Speaker Change: Clean tech.
Speaker Change: Semicon tools and infectious disease diagnostic solutions are gradually improving.
Speaker Change: with Upper Mid-Single-Digit BSI Organic Bookings Growth in Q3 year-over-year. This has been the strongest organic order growth for BSI in over a year, and we anticipate that this trend will continue.
Speaker Change: Supplemented by our first China stimulus orders in the fourth quarter of 2024.
Speaker Change: Please recall that for Bruker there is typically a two-quarter lag between orders and systems revenue, so China's stimulus order could begin to benefit our P&L in the second half of 2025.
Speaker Change: Integrating and improving our recently acquired businesses is making good progress and will further accelerate Bruker's remarkable transformation.
Speaker Change: We are confident in our ability to drive above-market organic revenue growth with significant margin expansion in 2025 and beyond.
Speaker Change: If you turn to slide four now.
Speaker Change: Rupert's Q3'24 reported revenues increased 16.4% year-over-year to $864.4 million, which included a currency tailwind of 0.7%.
Speaker Change: On an organic basis, revenues increased 3.1%, which included 3.8% organic growth in BSI and a
Speaker Change: 3.2% organic decline at best, net of intercompany eliminations.
Speaker Change: Revenue growth from acquisitions added twelve and a half percent which implies constant exchange rate or CER growth of 15.7 percent year-over-year.
Speaker Change: Our Q3-24 non-GAAP operating margin was 14.9%.
Speaker Change: Up 110 bips.
Speaker Change: sequentially, but a decrease of 510 bps year-over-year, largely the result of our recent strategic acquisitions, which initially are margin and EPS diluted.
Speaker Change: but have added close to about $500 million in revenues of scale to Bruker, and even more importantly, have allowed us to enter or accelerate our presence in key growth markets for the next decade.
Speaker Change: In Q3-24, Brooker reported GAAP diluted EPS of $0.27 compared to $0.60 reported in Q3-23.
Speaker Change: On a non-GAAP basis, Q3-24 diluted EPS was $0.60, down 19% from $0.74 in Q3-23. Gerald will discuss the drivers for margins and EPS later in more detail.
Speaker Change: Moving to slide nine, you can see Brooker's performance for the first nine months of 2024 with above LST market organic revenue growth of 4%.
Speaker Change: while non-GAAP EPS was down 12.2% as expected due to our transformative acquisitions.
Speaker Change: As reported, our first nine months of 2024 revenues increased by 13.1% to $2.39 billion with constant exchange rate.
Speaker Change: Revenue growth of 13.2% year-to-date.
Speaker Change: First nine months organic revenue growth consisted of 4.1% organic growth in scientific instruments and 3.7% organic growth at best net of intercompany eliminations.
Speaker Change: We continue to work down our elevated backlog and await recoveries in the biopharma and China markets, which we expect to benefit us in the second half of 2025 and beyond.
Speaker Change: Our first nine months, 2024 non-GAAP gross margin and operating margin and GAAP and non-GAAP EPS performance are all summarized on slide five.
Speaker Change: Right, please turn to slide six and seven now where we highlight the year-to-date third quarter 2024 performance of our three scientific instruments group and of our best segment all on a constant currency and year-over-year basis.
Speaker Change: Year-to-date our BRUCA Biospin group revenue was $633 million and grew in the high teens percentage. There were two gigahertz class NMR systems in revenue in Q3 of 24 bringing us to three year-to-date.
Speaker Change: In the first nine months of 2024, Biospin saw growth across academic government and industrial research markets outside of China, as well as strong contributions from our new automation software and services business.
Speaker Change: Biospin has seen weaker bookings in China in biopharma year to date, but has growing expectations for China stimulus orders beginning in the fourth quarter of 2024 and into 2025.
Speaker Change: Here to date, our Bruker Kallik Group had revenue of $773 million and CER revenue increased in the low double digits percentage, with growth in the optics, IR near IR Raman business, as well as strong growth in microbiology and infectious disease diagnostics driven by the Maldi BioTyper franchise, as well as, of course, the recently acquired Elitech Molecular Diagnostics
Speaker Change: Calic growth was partially upset by slower performance in biopharma and in the applied markets.
Speaker Change: Please turn to slide 7 now. Year-to-date, Broker Nano revenue was $780 million and CER revenue grew in the mid-teens percentage, with strong revenue growth in ECAGov, industrial research, and semiconductor metrology bolstered by the AI megatrend.
Speaker Change: Our recently acquired Bruker Cellular Analysis and NanoString businesses contributed inorganic growth. However, both of those businesses continue to be impacted by weakness in biopharma and life science instrumentation.
Speaker Change: Finally, year-to-date 2024 best CER revenues grew in the low single digits, net of intercompany eliminations driven by research instruments, RI, growth in accelerator and fusion research technology, as well as interaction from EUV technologies for OEM semiconductor lithography tools also in support of AI.
Speaker Change: This growth was partially upset by softness in China and weak superconductor demand of our clinical MRI medtech customers.
Speaker Change: On slide 8 and 9, I'll comment on a couple of businesses. We always like to give a couple of case studies or examples.
Speaker Change: a broad set of tools and solutions that Bruker
Speaker Change: and its various businesses and technologies listed at the bottom offer really across the battery value chain. We're approaching this, or have approached this, very strategically and really, really look very broadly rather than insertions of just one or two technologies for one or two problems.
Speaker Change: So cleantech in general, this is just one example, there are others.
Speaker Change: but this is a particularly good example of our broad strategic
Speaker Change: Approach for Industrial Research and Applied
Speaker Change: in Cleantech, which as we've said before really isn't very cyclical and really has been a very nice growth and steady growth element.
Speaker Change: Something else on.
Speaker Change: Slide 9, you may be familiar that with our Sierra SPR systems we had been in the SPR business with a high-performance very sensitive instrument for some time but we launched earlier in this year the so-called Triceratops
Speaker Change: A very high, highest sensitivity, high throughput instrument that we think is market leading in its performance.
Speaker Change: So this was developed over the last two or three years organically, and I think will give us a very strong play in the traditional SPR market for small molecule and large molecule screening.
Speaker Change: New is the Dynamic Biosensors edition. That's an innovative company in Munich that joined us during the third quarter.
Speaker Change: and Ed Hezbollah.
Speaker Change: provides SPR-like but somewhat different technology shown in the middle here. I won't go deeply into detail, but SwitchSense in particular is useful for the novel fields of targeted protein degraders or molecular glues where, in fact, three molecules bind to each other. And this SwitchSense technology has a somewhat unique capability to looking at.
Speaker Change: pre-molecule dynamics, which is actually quite important for latest trends in protein degraders and molecular glues.
Speaker Change: And finally, and perhaps the most exciting part of the Dynamic Biosensors acquisition, is that we really can open up the field of interaction cytometry, not interactions between molecules, but molecules and cells, obviously tremendously important.
Speaker Change: for Fundamental Research, Disease Research, and for...
Speaker Change: targeted and other self-therapeutic gene and self-therapies
Speaker Change: and this single, doing this at the single cell level is pretty revolutionary and unique. So here is our Helix Cyto opening up and pioneering the field of single cell interaction cytometry. Something you haven't heard before but you'll be hearing it again.
Speaker Change: Anyway, moving back to the rest of the earnings call.
Speaker Change: In summary, Bruker again posted double-digit CER revenue growth and above Lifescience Tools Market BSI organic growth in Q3 and year-to-date.
Speaker Change: We continue to focus on driving improvements in our recently acquired businesses and our core, and on providing innovative high-value solutions for the post-genomic era.
Speaker Change: We expect that our strategic expansion into single-cell spatial molecular diagnostics and lab automation will further contribute to our goal of driving profitable above-market growth and significant margin expansion in 2025 and in the years to come.
Speaker Change: So with that, let me turn the call over to our CFO, Gerald, who will review Brooker's financial performance and updated outlook in more detail. Gerald.
Gerald Herman: Thank you, Frank, and thank you everyone for joining us today. I'm pleased to provide more detail on Brooker's third quarter and year-to-date 2024 financial performance, starting in slide 11.
Gerald Herman: In the third quarter of 2024, Brooker's reported revenue increased 16.4% to approximately $864 million, which reflects an organic revenue increase of 3.1%, and BSI organic growth of 3.8% all year over year.
Gerald Herman: This is compared to a very strong prior year comp. As a reminder, our organic growth in the third quarter of 23 was 10.9%.
Speaker Change: Q3 2024 non-GAAP operating margin decreased 510 basis points year-over-year to 14.9% as a result of expected dilution from our strategic acquisitions and significant R&D investments in our post-genomic tools and solutions.
Speaker Change: We reported gap EPS of $0.27 per share compared to $0.60 in the third quarter of 2023.
Speaker Change: On an on-gap basis, Q3 2024 EPS was $0.60 per share, a decrease of 18.9% from the $0.74 we posted in the third quarter of 2023.
Speaker Change: We generated $38.4 million of operating cash flow in the 3rd quarter of 2024 compared to $44.1 million in the 3rd quarter of 2023.
Speaker Change: Capital Expenditure Investments for $32.6 million, resulting in free cash flow of $5.8 million in the third quarter of 2024.
Speaker Change: down about $11 million year-over-year on lower gap net income and significant M&A-related expenses partially offset by improvements in working capital.
Speaker Change: Slide 12 shows the revenue bridge for the third quarter of 2024, as Frank has reviewed earlier.
Speaker Change: compared to the third quarter of 23, Rooker Biospin's third quarter 24 organic revenue was up in the low double-digit percentage range driven by strength in our magnetic residents and services businesses.
Speaker Change: In the third quarter of 2024, we recognized two gigahertz-class NMR systems in revenue compared to one gigahertz-class system in the third quarter of 2023.
Speaker Change: Bruker Nano Organic Revenue was up mid-single digits percentage with strength in our semiconductor and advanced x-ray businesses partially offset by softness and fluorescent microscopy.
Speaker Change: Cal at Organic Revenue declined low single digits percentage, but strong performance from the multi biotyper and applied mass spectrometry businesses was more than offset by softness in biopharma.
Speaker Change: We delivered solid growth in the third quarter of 2024 in BSI systems and aftermarket revenue with mid single-digit constant exchange rate growth in systems and strong double-digit CER growth in aftermarket.
Speaker Change: Geographically and on an organic basis, in the third quarter of 2024, our America's revenue grew in the low single digits percentage.
Speaker Change: Asia-Pacific revenue, excluding China, was up double-digit percentage.
Speaker Change: with China declining low double-digits and European revenue declining low single-digit percentage all year over year. For our IMEA region, Q3 2024 revenue was up mid-teens percentage year over year.
Speaker Change: Slide 13 shows our Q3 2024 P&L performance on a non-GAAP basis.
Speaker Change: Non-GAAP gross margin of 51.2%, decreased to 150 basis points from 52.7% in the third quarter of 2023 due to unfavorable product mix and expected temporary dilution from our recent strategic acquisitions.
Speaker Change: For the third quarter of 2024, our non-GAAP effective tax rate was up 100 basis points due to jurisdictional mix and an unfavorable discrete item in the third quarter of 2024.
Speaker Change: Weighted average diluted shares outstanding in the third quarter of 2024 were 152 million, an increase of approximately 4.7 million shares from the third quarter of 23 as a result of our follow-on equity offering completed at the end of May.
Speaker Change: Finally, third quarter 2024 non-GAAP EPS of $0.60 was down 18.9% compared to the third quarter of 2023 primarily due to the expected temporary dilution from our strategic acquisitions.
Speaker Change: Thank you.
Speaker Change: Slide 14 shows the year-over-year revenue bridge for the first nine months of 2024. Reported revenue was up 13.1%, reflecting organic growth of 4.0%.
Speaker Change: Acquisitions contributed 9.2 percent to our top line while foreign exchange was a slight 0.1 percent headwind. Frank already covered the drivers for the first nine months of 2024.
Speaker Change: Non-GAAP P&L results for the first nine months of 2024 are summarized on slide 15 with the drivers largely similar to the third quarter of 2024 and as explained on the slide.
Speaker Change: Turning to slide 16, in the first nine months of 2024, we generated sixty-one point
Speaker Change: driven principally by acquisition and restructuring expenses, lower profitability, and the timing of advances, taxes, and other items.
Speaker Change: We expect to see improved cash flow in the fourth quarter, the largest and most profitable quarter of the year.
Speaker Change: Thank you.
Speaker Change: Turning now to slide 18, as previously noted by Frank, we no longer expect to see recoveries in biopharma and China markets to benefit our fiscal year 2024. And accordingly, we're moving down our 2024 fiscal year guidance.
Speaker Change: Our outlook for fiscal year 2024 now assumes revenues in the range of $3.34 to $3.37 billion and organic revenue growth of 3% to 4% for fiscal year 2024.
Speaker Change: We now expect the contribution from acquisitions to be approximately 9.5% year-over-year, and for foreign exchange to be neutral to revenue. This leads to updated fiscal year 2024 reported revenue growth guidance in a range of 12.5% to 13.5%.
Speaker Change: For operating margins in 2024, we now expect a fiscal year 2024 operating margin of approximately 15%, with a greater than 300 basis points headwind from our strategic acquisitions.
Speaker Change: On the bottom line, we're now guiding to a fiscal year 2024 non-GAAP EPS range of 236 to 241.
Speaker Change: down from our prior range of 259 to 264, the result of lowered top-line expectation and transition headwinds from our strategic acquisitions.
Speaker Change: Other guidance assumptions are listed on the slide. Our fiscal year 2024 ranges have been updated for foreign currency rates as of September 30th, 2024.
Speaker Change: against a backdrop of delayed improvements in biopharma and China and with organic growth of approximately 16% in the fourth quarter of 2023, which included three gigahertz-class NMRs as a comp.
Speaker Change: We now anticipate organic revenue growth in the fourth quarter of 2024 to be in the low single digits.
Speaker Change: As Frank mentioned earlier, we also again expect double-digit constant exchange rate revenue growth year-over-year in the fourth quarter of 2024, and further post-acquisition sequential operating margin improvement.
Speaker Change: To wrap up, Brooker delivered above-market organic revenue growth in the third quarter of 2024. We also saw signs that demand for our innovative solutions is gradually improving.
Speaker Change: We look forward to providing an update to you on our fourth quarter and full year results next February. And with that, I'd like to turn the call now over to the operator to begin the Q&A portion of the call. Thank you very much.
Speaker Change: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: In the interest of time, please limit yourself to one question and one follow-up. And to withdraw your question, please press star then 2.
Speaker Change: At this time, we'll pause momentarily to assemble our roster.
Speaker Change: And our first question comes from Puneet Suda from Lyrinc Partners. Please go ahead.
Puneet Suda: Hi, Frank. Thanks for the questions here. So, first one, you know, you pointed out the biopharma and China won't help you in 2024, but
Puneet Suda: and you talked about high-end of the mid-single-digit bookings in BSI but wondering if you saw any cancellations there in the backlog?
Speaker Change: Okay, Puneet. No, we have had no, we never have seemed to have any material cancellations. I'm not aware of any material cancellations, so that's not an issue for us. Yeah, biopharma and biotech, after being seemingly maybe
Speaker Change: Improving somewhat in the ability for biotech to raise funding. I think that has
Speaker Change: Slow it down a little bit. Biopharma, we see a lot of cost-cutting, site restructuring, program consolidation.
Speaker Change: So they still seem to be preoccupied by that, and we really thought that we would get some lift from biopharma.
Speaker Change: with a bit of a recovery in the second half of this year. There are some green shoots, but I wouldn't call it a trend yet.
Speaker Change: China is pretty significant if you really think year to date. The cumulative effect of China orders being weaker is
Speaker Change: In the double digits, it's actually above 20% decline year over year. So that's not far from 100 million in total over several quarters. And the cumulative effect of China orders, even in Q2 and in Q3, we saw that again.
Speaker Change: seemingly getting pushed back as people are waiting for stimulus funding.
Speaker Change: You know, by now it has accumulated to where this isn't going to help us this year anymore. It's not going to help our P&L anymore as we thought it might in the second half of this year.
Speaker Change: On the encouraging side, there really is a lot of activity. We are beginning to see stimulus orders.
Speaker Change: Cannot quantify them yet, but it's probably going to be particularly beneficial for our Biospin business But we're also seeing it for other big-ticket items, mass spectrometers, microscopes, etc so that
Speaker Change: And I would add, we, the life science, I've seen this from other companies, the weakness in life science instrumentation.
Speaker Change: generally related to biopharma, but also U.S. academic spending isn't super strong right now. Perhaps there's a little bit of hesitancy prior to the election. So these effects do add up to where we indeed wanted to lower our and what is needed to lower our guidance.
Speaker Change: for the fourth quarter and for the rest of the year.
Speaker Change: Thank you. Thank you.
Speaker Change: Got it. And then I have to ask a bit about 2025. I mean, you gave $3.10 APS expectations before on the acquisitions update call. Just wondering, any change to that or any additional thoughts on 2025, just given the weakness that you're seeing from biopharma China and some academic, too?
Speaker Change: Yeah, we're starting from a lower base. That's than anticipated. That's a given. Also, since a lot of the
Speaker Change: Stimulus orders from China probably will be mostly for big ticket items. Those inherently tend to have, you know, two, three quarters delivery time. So as I said in the call.
Speaker Change: Thank you.
Speaker Change: benefits from China's stimulus may arrive in our P&L, so to speak, in the second half of the year.
Speaker Change: So, we're not giving guidance for 2025 because Q4 will be so important, but it is definitely a... It makes complete sense to lower estimates for 2025, let me say that pretty clearly, and we will, you know, we'll obviously...
Speaker Change: Okay, thank you.
Speaker Change: The next question comes from Michael Ryskin from Bank of America. Please go ahead.
Michael Ryskin: Great, thanks.
Michael Ryskin: Sorry, Frank, I want to follow up on that last point. I mean, you made a strong point in the preparatory remarks of, you know, you're confident in above-market growth and significant margin expansion in 2025.
Michael Ryskin: Just sort of what's driving that confidence this early given there's still this visibility and what do you see as the biggest swing factors? You know, you talked about China stimulus a lot, but like you said there's a six-month delay between orders and revenues So that's only contributing for the second half of next year, right? So what else do you see as tailwinds that give you confidence in above-market growth next year?
Speaker Change: Yeah, very good question, Michael. So we, you know, we still have pretty significant around excess backlog, if you like. We're still about seven months of backlog, which are normalized should be about five months. But beyond that, I mean, we've really had very
Michael Ryskin: We're very satisfied with the way the diagnostics business is going, from Maldi Piotyper to the newly acquired Elitech Diagnostics. It seems to be generally, as others have reported as well, stronger at the moment than life science tools.
Michael Ryskin: So we're pleased with that.
Michael Ryskin: Academic and government spending in other parts of the world, in the rest of APAC outside of China, has been actually strong, reasonably strong, and same in Europe. So there are enough strong drivers that are
Michael Ryskin: They are strong drivers. They are things that are...
Michael Ryskin: solid, and there are things that still, you know, we are waiting for the recovery. We're actually quite optimistic about China seeing a significant step up in orders in Q4 and in the first half of next year because of that stimulus funding. But it's still difficult to quantify because we don't know what the
Michael Ryskin: We can look at the Opportunity Funnel and we can apply our average.
Michael Ryskin: percentage win rates that we normally have because it's just not known how many of these projects will all be funded. But some orders are coming in. We did receive stimulus orders already in October. As expected, how much that will add up to, we don't know yet.
Michael Ryskin: So, I think we're in good shape, certainly also for the first half of the year to outgrow the market, and by the second half of the next year, 2025, we do believe and anticipate that there will be some biopharma recovery.
Michael Ryskin: and also that indeed China orders will pick up after the pretty pronounced weakness in the first nine months of this year.
Michael Ryskin: So that for both parts of the year, I think we're in good shape for next year to outgrow the market. What market growth will be, of course, we don't know yet. And a lot will for other companies that will then kind of set the market level probably with their guidance and our guidance, which we hope to give in early February, that will set the tone for 2025. But I think the fundamental trends that we have with that.
Michael Ryskin: multi-omics
Michael Ryskin: Proteomics, these are all very good markets. Facial biology, we think there will be a lot of demand for that. And yes, lab automation is actually a little bit counter cyclical. Lab automation and digitization, companies that are cutting costs and cutting sites are making investments there. So I think our chem speed acquisition is very nicely placed. The biggest driver, the strongest single driver, I would say is SEMI.
Speaker Change: Okay, that's all really, I will call Frank. I just want to...
Speaker Change: reconcile one other point though you did touch on you know the backlog is really strong seven months you've talked about that a number of times
Speaker Change: You know, you talked about bookings, growth.
Speaker Change: So
Speaker Change: And yet, on the other hand, you do have the revenue guide cut. And I understand that China's been weak. I understand that biopharma recovery hasn't materialized. That's not a fair point, so that's not new, and that's not...
Speaker Change: If the backlog is so strong, why aren't you able to backfill some of those orders? Is that a timing perspective where it's not so easy to move things around? I guess what I'm saying is just with that seven months of backlog, I thought that there'd be more support for revenue.
Speaker Change: Thank you.
Speaker Change: Yeah, well if you look at it sequentially, and we of course did, then the step-up sequentially from this year Q3 to Q4 is still very substantial, right? We're not quite reaching a billion-dollar fourth quarter. It looks more like, you know, $9.65, $9.70 or so is the implication.
Speaker Change: That's pretty close to a billion. That's by far the largest fourth quarter that that we've had
Speaker Change: And the step up from Q3 to Q4 is very significant.
Speaker Change: That's about $100 million, actually, so it's not that we lack ambition here. I think it's just as you look at how these things line up, I think that's a prudent guide for the fourth quarter.
Speaker Change: Okay. Thanks, guys. Appreciate it.
Speaker Change: The next question comes from Patrick Donnelly from Citi. Please go ahead.
Patrick Donnelly: Hey guys, thank you for taking the questions. Gerald, maybe one on just kind of the...
Patrick Donnelly: solution from the acquisition, the margin impact. Can you just talk about where we are on some of that? You know, I know NanoString, obviously the biggest one.
Patrick Donnelly: I think the guide was for $0.15 to $0.20 this year. You know, I know you had in the past said that could be half of that next year. I'm curious if that's still the right way to think about it and just what's going on with those deals. It felt like you guys had your arms around it, but maybe that dilution slipped a little bit. I just want to talk through that.
Speaker Change: Hi, Patrick. I would say generally the acquisition integration activities are on track.
Patrick Donnelly: that we are progressing nicely. We've talked about, historically, the broker management process and how that's applied now into all these newer acquisitions, including the one you just mentioned. But the overall dilution picture for us for 24 and what we see thus far for 25 is
Patrick Donnelly: is pretty solid. We aren't really modifying our dilution expectations with respect to 2024 or 2025 right now.
Patrick Donnelly: We went through those, Patrick, I think fundamentally at this.
Patrick Donnelly: So, yeah, we expect pretty significant margin improvement in each of the next three years.
Patrick Donnelly: That's really on track. It would help, of course, to have a little bit more strength in life science tools and biopharma.
Patrick Donnelly: wind under our wing is not fully materializing yet and so we, what others have seen in spatial biology and in life science tools, we confirm that the demand there is on the weak side right now still.
Speaker Change: Thank you.
Speaker Change: Yeah, understood. And then Frank, maybe just on the academic government market, you know, into next year, obviously a pretty impactful day here in the U.S., how are you thinking about just that outlook? What are you hearing from customers? You know, what could change today? And just kind of that expectation going into 25 would be helpful. Thank you, guys.
Speaker Change: Yeah, that's a good one, right? So once we know the outcome of this election, which may be tonight, may be in three or four weeks,
Speaker Change: You know, those in the biopharma industry are more concerned about one outcome. Those in AgaGov are concerned about the other outcome. And I think right now the uncertainty doesn't help, quite honestly, because people don't know where it's going.
Speaker Change: non-political, you know, my interpretation is that
Speaker Change: if they're...
Speaker Change: was one way or the other split government that perhaps would avoid
Patrick Donnelly: extreme moves on taxation and price control and NIH funding.
Patrick Donnelly: Maybe that would be the best outcome for the businesses in our sector, including ourselves. But until we know that, maybe we'll know that in...
Patrick Donnelly: You know, it's not only about the presidency, I know that's an exciting race there, but also about how House and Senate line up. And with split government, I think maybe some optimism in predictability of are there going to be tariffs, are there taxes, are there more price controls may come back.
Patrick Donnelly: Right now, there's a lot of uncertainty and hesitancy, is what I would say.
Speaker Change: I appreciate it Frank. Hopefully it's not three or four weeks but we'll see.
Patrick Donnelly: Yeah, maybe the House and Senate we can figure out faster, right? Yeah.
Speaker Change: The next question comes from Rachel Vatzenthal from J.P. Morgan. Please go ahead.
Rachel Vatzenthal: Great. Good morning. Thank you for taking the questions. So I wanted to follow up on one of the earlier questions here just on top line. So you reduced the top line organic growth guidance for the year by 250 basis points.
Patrick Donnelly: Can you just break down that 250-basis point cut between some of the moving pieces that you called out across biopharma in China and if there's any other areas contributing to that?
Patrick Donnelly: and then also you mentioned that you're no longer assuming you know recoveries within biopharma in China but can you just clarify for us did either of those markets actually get worse sequentially or were you just you know previously a little bit more zealous on what that recovery would look like into the back half and taking that out of the model at this point?
Speaker Change: Right, so got it, Rachel, I think. So top line...
Patrick Donnelly: the
Patrick Donnelly: effect of China is even stronger than biopharma?
Speaker Change: So China may be two-thirds, biopharma one-third, roughly.
Patrick Donnelly: and in terms of things that have that are slowing us down a little bit there.
Patrick Donnelly: and as we talk about recovery, we're actually optimistic on bookings or more optimistic on bookings, but believe that generally those, you know, now it's November, that really won't help us in the P&L and revenue anymore, at least not in a meaningful, in a significant way.
Patrick Donnelly: Some orders will help us in, you know, the first half and others in the second half of last year. So we do believe in China recovery.
Patrick Donnelly: Bing
Patrick Donnelly: very likely with a stimulus program. We cannot quite quantify it yet, but we're very optimistic about that and
Patrick Donnelly: Well, biopharma at some point will be done where they're cost-cutting, right? And they're pretty aggressive about it everywhere, so I think at some point they'll find a new level to where they're reinvesting. I can't call the timing on that one.
Patrick Donnelly: So.
Patrick Donnelly: China, I'm pretty optimistic that we have so much activity and orders beginning to come in. I'd be very surprised if we didn't have reasonably good China orders.
Patrick Donnelly: in Q4 after a relatively weak orders all year long.
Patrick Donnelly: And yes, Q3, to your last part of your question, Q3 China orders were lower than what we had expected.
Patrick Donnelly: and some of those we would have still been able to deliver in this year, but now with Q4, even then turning mostly into Q4 orders, perhaps also into Q1 and Q2, it's just not going to happen this year anymore.
Speaker Change: Okay, and then for my follow up, I actually did want to dig into that order dynamic.
Speaker Change: So you talked about how orders grew in the upper mid-single digits this quarter. Can you kind of break that down for us? You mentioned China was a little bit weaker, but any other trends on that order book? And then just around book-to-bill, can you give us book-to-bill in the quarter? And you separately have talked about how book-to-bill may not be –
Patrick Donnelly: you know, the best stat to look at Bruker on a go-forward basis. So, should we still expect to get book-to-bill on a quarterly basis going forward? Will this shift to an annual stat at some point? And if so, when should we expect that shift?
Speaker Change: Yes, all good questions. Right, so book-to-bill in the third quarter and year-to-date has been below 1 and above 0.9.
Patrick Donnelly: and their families. Thank you. Thank you.
Patrick Donnelly: We do expect that you give that update annually.
Patrick Donnelly: So that's where it was, sort of booked a bill in line with what it had been in the first half of the year. No greater weakness or something like that. In fact, as you've said, you know, the other measure is that these in terms of organic BSI bookings growth, this has been the best BSI organic bookings growth in.
Patrick Donnelly: in four, actually five quarters.
Patrick Donnelly: So, you know
Patrick Donnelly: But it's nothing to write home about yet, but it is encouraging, it's going in the right direction. Despite the China weakness and biopharma weakness, which tells you that everything else is growing in the high single digits, since the two bad guys, biopharma and China, clearly are a drag, and China is down year over year.
Patrick Donnelly: so
Patrick Donnelly: The other parts of the business have pretty good growth momentum. Now we could, certainly for the first half of the year of next year, I think we're in pretty good shape for the second half of next year. We could use some anticipated assist from China.
Patrick Donnelly: stimulus funding, and from Biopharma turning the corner.
Speaker Change: The next question comes from Tycho Peterson from Jeffries. Please go ahead.
Tycho Peterson: Hey, thanks. No, you guys don't want to really talk about 25, but you did talk about significant margin expansion. I'm wondering if you can maybe just give us a high-level framework there. And then I just want to gut check, are you assuming a normal market next year, which you've previously talked about as 4% to 5% growth?
Speaker Change: In reverse order, we would assume a more muted recovery.
Tycho Peterson: maybe with a
Tycho Peterson: normal market by 26 or maybe in the second half of next year we're not sure
Speaker Change: But we don't expect a snapback in our estimates for next year. We expect an improvement over 24 for the full year for the market, and not a normalized market yet.
Tycho Peterson: If that were to surprise us and it goes back to normalized growth rates of 45%, that'd be great, but right now we're modeling, we're expecting that for 26.
Speaker Change: And I'm sorry, the first part of your question was? You talked about significant, you characterized it as significant market expansion at 25. The street's at 110 basis points. I'm just curious if you can give us maybe what, you know, what significant means in your view.
Speaker Change: Yeah, north of that.
Patrick Donnelly: So higher than 110 basis points or higher than... yeah, it's too early because it will depend on Q4 orders and, you know, that's not only the biggest...
Patrick Donnelly: Close to a billion dollars in revenue, but it's also a very big quarter for orders.
Patrick Donnelly: throughout the business, and of course, particularly working on the newly acquired businesses that are generally all dilutive to margins, as we anticipated, but are great strategic expansions.
Patrick Donnelly: So with that, we would expect north of, you know, the number that you've mentioned in margin improvement. We'll be driving very hard for that. But I cannot give you greater bracketing or something like that. Clearly, it's going to be more aggressive than 100 bps.
Speaker Change: Okay, and then a follow-up just on SEMI, you know, I'm just curious if you can flesh out your comments there more, you know, I know demand trends have been strong, but obviously some of the recent data points haven't been great, so what are you seeing and what are you thinking about next year on the SEMI front?
Patrick Donnelly: and the American Heart Association. This is a production of the U.S. Department of Health and Human Services, and the U.S.
Patrick Donnelly: Well, year-to-date and in Q3 are semi-orders.
Speaker Change: have seen very nice growth, double digits sometimes in certain segments, even greater than 20% to certain instrument segments, sorry, not to clarify.
Patrick Donnelly: So we think we should have a...
Patrick Donnelly: SEMI would be at the high end of the Breuker growth rate next year. Whatever that number will be, the organic growth rate SEMI will probably be leading the charge.
Speaker Change: Okay. They didn't give you numbers, I realize it, but I can't really... I also do not just have the numbers. It's not just that I don't want to go into that type of granularity, but that specific number I don't have at my fingertips either, and wouldn't really until we give... It's a totally fair question, Tycho, obviously, but I think if you ask that one again when we give guidance for 2025 in early February, then, you know, we'll be able to give you some color on here's our average guidance, and this will be weaker, and this will be stronger, and STEMI will be up there among the strongest.
Tycho Peterson: Okay, but no cracks based on what we saw from ASML and some of the other kind of end market data points. Is that fair?
Speaker Change: So, our RI business that is in the ASML supply chain with their, not metrology, but lithography.
Speaker Change: technologies that not complete systems but systems that they eventually are in the size supply chain that is in the ASML supply chain they have all accounted for
Speaker Change: them slowing down a little bit some of their initial expansion for EUV and and the next generation of EUV tools. So that's all baked in.
Speaker Change: It's still nice growth.
Speaker Change: for us. For us it's nice growth because we're getting into a new market and we're all of a sudden part of an important, you know, small but important part of that supply chain. So for us this is almost all upside.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: Great, thanks.
Speaker Change: The next question comes from Josh Waldman from Cleveland Research. Please go ahead.
Josh Waldman: Hey, good morning guys. Thanks for taking my questions.
Josh Waldman: A couple for you. First, Gerald, I wondered if you could provide more color on what the business grew in the quarter, excluding the two one gig placements, and I guess how that compared versus your expectation. I mean, it seems like BSI may have declined in the quarter. Is that right? You know, just curious where you're most surprised or where you've seen the most abrupt pullback and how that informs your assumption for sequential progression
Gerald Herman: I think we had one last year. We had one in the prior year quarter and we had two in the third quarter. Now what I would say generally here Josh is that I think the trends we discussed earlier around biopharma in China were probably the areas that I would say were most
Josh Waldman: Thank you.
Josh Waldman: disappointing if we can put that put it that way relative to our expectations.
Josh Waldman: On the gigahertz class, since you're asking, two of them in Q3 of this year, one of them was a
Josh Waldman: was really intended originally for the first quarter of this year. The University of Georgia was one of the systems that was supposed to, but that ended up needing rework, so it moved from Q1 to Q3.
Josh Waldman: and the Korea system had always been planned for Q3 and that's comparable to a Q3 system last year when we grew 11% organically and also had one gigahertz system. So if you want to adjust for two versus one gigahertz system, take ten million or so, if you want to model that.
Josh Waldman: And for Q4 last year, we had 3 GHz class systems and 15.9% organic growth.
Josh Waldman: This year Q4, we're planning for zero or one. Right.
Josh Waldman: Okay.
Speaker Change: Okay And then Frank a follow-up on your previous comments as you think about recent order trends You contemplate what you think you can drive from the backlog Do you think the low single-digit growth implied here in h2 is the right way to think about you know the medium term? You know just given the typical two-quarter lag and rev rec and your comments on recovery into the second half of 25 No, no, no, no, no, no, that's that would
Frank Laukien: Actually, not at all. No, that's not the right way to think about this. Think about, you've got to look at 23.
Frank Laukien: 11% organic growth in Q3 and 16% organic growth in Q4. You've got to look at our comps.
Josh Waldman: So, as I said earlier, I don't mean to be defensive here, but we're not just recovering from last year's drop, we're putting that onto our growth numbers on top of very, very good growth numbers organically, 11 and 16% respectively, in the third and fourth quarter of last year.
Josh Waldman: Now, mercifully, our Q1 comparison will get a lot easier, right? And Q2 comparisons will also not be...
Josh Waldman: Understood.
Speaker Change: Thank you.
Speaker Change: Thank you. Okay, thanks for asking the question actually, because that's, I think that's an important one for everyone.
Speaker Change: The next question comes from Dan Brennan from TD Cowan. Please go ahead.
Dan Brennan: Great, thanks for the questions. Maybe just on kind of China stimulus, Frank, since you've called it out a series of times, I'm just hoping I can ask a few questions here just to get some color. So maybe the first one is like what should we be looking at as kind of a stimulus program? You know, kind of we've tracked like a 500 billion yuan monetary stimulus. Is that the right one or are there others?
Dan Brennan: And then, B, like, do you expect, as the China government is expected to announce some new large fiscal, excuse me, stimulus measures, do you expect more money to come into instruments from that? And then I know you said during your prior Q&A that you really can't size it yet in terms of the impact for BRCA, but any way to think about potential implications for BRCA?
Speaker Change: Okay, so I'm not aware of, yeah, you're a good question. So the further Chinese fiscal stimulus is not baked into this in any way.
Speaker Change: and others. Thank you. Thank you.
Speaker Change: The previously announced stimulus that is making it to the provinces and then each province moves at their own pace
Speaker Change: and with somewhat of their own priorities, although with a general framework of investing in scientific and medical innovation. That's the one we're talking about, right?
Speaker Change: how quickly it arrives, whether it arrives with orders in Q4. Some of that will arrive in Q4. We think it's not going to be a single quarter bolus this time, but maybe the orders come in beginning in Q4 and for all of next year. We kind of think it'll be
Speaker Change: Predominantly in Q4 and H1 of next year.
Speaker Change: So that's the one we're talking about. And sizing that, I mean.
Speaker Change: Yes.
Speaker Change: You know, a hundred bits of growth.
Speaker Change: would be at the low end of that.
Speaker Change: however it's not all it depends when that all comes in it could help us next
Speaker Change: mostly next year. Some of that could also go into 2026.
Speaker Change: and yes, it might be more than that.
Speaker Change: but it's just very difficult because we cannot use our normal percentage. Normally, I have a pretty good feeling I have 10 opportunities, I'm probably going to get 6 or 7, whatever the numbers are. And this time, the yield is just not knowable yet because so many people applied for these programs.
Speaker Change: a lot of our customers. We think, we continue to think it will benefit academic research and big-ticket items in particular, which positions us very well within our business. I expect BioSpin to benefit the most.
Speaker Change: Great and maybe this is a follow-up just on biopharma since that's been a weak spot here.
Speaker Change: I mean, would you care to give us a sense of what that business is growing for you? I don't think you've done that in the past, but other other tools peers will give us a biopharma number So just wondering in Q3 and how that compared to the first half and then related to that
Speaker Change: Like what should we be looking at do you think as like a proxy for when this improves? I mean the headlines don't look great, but we just did analysis on biopharma spending and it actually looked okay from an R&D basis So is R&D not the right metric to look at or just you know What should we be monitoring to see kind of when this could turn? Thank you
Speaker Change: Right, so biopharma...
Speaker Change: yeah
Speaker Change: just trying to
Speaker Change: Look at revenue versus bookings numbers and year to date it is down although not nearly down. So biopharma as a catch-all including biotech and CRO is down for us this year, not as much as China.
Speaker Change: So, it generally had been around 15% of our revenue, but that's going up. We wanted to grow also inorganically in biopharma, so our cellular analysis business, our spatial analysis business, NanoString, our ChemSpeed business, they all benefit.
Speaker Change: to a much more significant extent from biopharma than Bruker has traditionally. So very roughly, if Bruker traditionally had 15% of its revenue from biopharma, that's trending towards 20%. We're doing that at the worst time as biopharma is weak, but who cares, it'll come back. And by that time, we'll be very pleased that our exposure right now or opportunity in biopharma will have gone up further towards that 20% and beyond 20%, which we strategically wanted to have.
Speaker Change: If you recall, a long time ago, it was very close to 10%, so we were pretty underrepresented there.
Speaker Change: So down year-to-date but not as much as China and eventually I think it will be at 20% and plus of our overall revenue.
Speaker Change: Maybe that helps you to triangulate.
Speaker Change: Great, a couple more questions.
Speaker Change: All right, let's take two more questions.
Speaker Change: Okay, next question comes from Brandon Coulard from Wells Fargo. Please go ahead.
Brandon Coulard: versus the prior ten. Is that rounding? Yeah. And if, okay, any color just on how the L.E. Tech can speed and manage string if performed?
Speaker Change: Elitech ChemSpeed, great. Bruker cellular analysis and nanostring a bit weaker than expected and primarily the biopharma piece which is very, you figured it out immediately, Brandon, exactly. We took that from 10 to 9 and a half percent because the biopharma demand for cellular analysis and spatial biology has been weaker than we had expected. That's part of, that's related, among our M&A, that's related to the
Speaker Change: to the biopharma piece. ChemSpeed is actually remarkably strong. It also serves other industries, but I said it's a little counter-cyclical in that even big pharma will consider very big CapEx investments and software investments even if they're cutting programs, sites, and people.
Speaker Change: And Alatek is chugging along straight.
Speaker Change: Gerald, the guidance rates came down to $55 million in terms of revenue.
Speaker Change: EPS range 23 cents. That would imply a hundred close to a hundred percent decremental margin. Can you just help me reconcile that math and why that makes sense?
Speaker Change: On the guidance, we're actually dropping about $16 million from our previous guidance level. That translates actually into about $100 million of CER revenue. That's mostly driven by biopharma in China, as we've talked about earlier here.
Speaker Change: And, you know, we do get a slight benefit from the foreign exchange elements.
Speaker Change: of that. You may recall that when the U.S. dollar...
Speaker Change: We have a strengthening revenue, we have a tailwind. So you take that $100 million of CER, offset it by a benefit related to foreign exchange, you get the $60 that I was referring to earlier. And on the operating margin, it's the other way around. The FX changes that have been with the dollar weakening, perhaps because of the election or something like that, we got an additional 30 bps of a margin headwind.
Speaker Change: Thank you.
Speaker Change: so yeah that's how it comes to how it comes together last question and then I think we'll need to let you all go into the rest of your day here one more time for one more question yeah we can do one more
Speaker Change: The next question comes from Luke Sirgott from Barclays. Please go ahead.
Luke Sirgott: Thank you. Thank you.
Luke Sirgott: Great, thanks for squeezing me in. I just wanted to kind of follow up on the on the China stimulus and
Luke Sirgott: How the, you know, you talked about early demand and the funnel kind of building there. But given we don't really know how the stimulus is going to shake out through the next year, you know, however that however that comes through, but is there a chance that
Speaker Change: You know, the actual funds flowing through are not going to be enough there to satisfy that demand, and that could ultimately lead to that elevated...
Speaker Change: You know, the elevated backlog of seven months instead of going to five months, just kind of as you think about how that kind of paces through.
Speaker Change: Right, Luke. Good questions. So some of that China stimulus will come through. We're seeing some of it come through now. Some of it is going into tenders. We think those tenders are, you know, favorable for us, and we think they're specifically funded. So it's not that we worry about is it coming at all. It's just, you know, will it at some point add 100 bps to growth? Yes. But could that be the second half of next year?
Speaker Change: first half of 26. That kind of would be a delayed help from the stimulus. It also could be a bigger effect. Certainly the activity is much, much larger and you know, I just don't want to raise expectations but it could be significantly more
Speaker Change: So the funnel looks really good for big-ticket items in particular, and not only NMR, but also on the mass spec and big microscope side, and you know, some other devices, preclinical imaging, EPR, you name it.
Speaker Change: So we're pretty optimistic that it will, we're all well we're very optimistic that it will help us. I've given sort of hopefully the lower end of how much help we might get from it. Hopefully it'll be more but it's
Speaker Change: Too early to tell.
Speaker Change: Yep, got it. It's a little timing thing. All right, and then here from
Speaker Change: From a pharma perspective, I know that you guys don't, you know, you talk about 15-20% of those revs and that's going higher.
Speaker Change: of your Total Rev. So, you know, can you just kind of walk us through what you're seeing on, you know, you typically play more upstream on the drug discovery side, so can you talk about where particular things got a lot weaker for you?
Speaker Change: outset for that as you exit the year.
Speaker Change: Well, it will not surprise you to hear that CROs got hit the hardest, right?
Speaker Change: But no, no, but also, of course, there's some geopolitical gain for
Speaker Change: Indian or American or European CROs, but CRO demand, that's when big pharma cuts, they first cut what they give to the CROs, and then they cut internally. Well, we're seeing some pretty big pharma just doing a lot of cost cutting, kind of whether they need it or not, this is a good time for them to kind of...
Speaker Change: you know, streamline their programs, reduce programs, consolidate sites, reduce headcount. I am delighted to say that our proteomics and post-genomic era customers are.
Speaker Change: Not taking the brunt of that.
Speaker Change: So, again, with the post-genomic markets and proteomics, multiomics, we're in a sweet spot because our customers are in a sweet spot.
Speaker Change: But even if they don't lose headcount or lap space, they're not getting a CapEx budget.
Speaker Change: to spend right now in Q3 or Q4 while some other group is being, you know, eliminated or reduced or something like that.
Speaker Change: So, and, you know, biotech, emerging biotech funding has been tough, and even sort of early seed in Series A is now pretty difficult, and B and C is, has remained difficult. So I don't think there is a step up.
Speaker Change: They're selected biotechs that do it because they have a very compelling Late-stage program, but in general I'd say that the capital markets funding is still very very difficult from what we're observing And you know that also delays leases or purchases of new instruments
Speaker Change: Great, thanks.
Speaker Change: Got it.
Speaker Change: This concludes our... Oops, sorry.
Speaker Change: Thank you very much. Sorry we ran a little over today. I hope it will be an eventful day.
Speaker Change: for America. Thank you very much for joining us today nonetheless and thank you for your interest.
Speaker Change: Marks.
Speaker Change: Thank you.
Speaker Change: Conference is now concluded.