Yes, for being here. Excited to have Gerald Herman from Bruker with us. I was just saying he's been one of the busier guys in the space with the deals that you guys have been closing all the time. And again, maybe we can start there, Gerald. Obviously, yesterday had the official announcement on ELITech. Maybe just talk about we heard some news on that in December, some yesterday. Maybe we just talk about the news flow on that specific deal and then we yeah, maybe we can dive into it, into a little bit more color on the asset.
Sure, sure. So very excited to have that particular acquisition moving in the right direction. You would like me to know we had a put option agreement established, which we communicated in December. Now we have an SPA executed here in January, February. We still have a few closing items to clear through from a regulatory approval perspective and a couple of carve-off items to resolve. But other than that, our expectation is that we'll close that transaction at some point in the in the second quarter. It's an exciting acquisition for us. It's a major step forward in our microbiology and infectious disease side. We're, we think it's very strategic. If it's squarely into the Project Accelerate 2.0 area, it's gonna give us some more significant scale in the in that space. So we're quite excited about it.
It's also, if you haven't already heard this, it's about EUR 150 million business on an annual basis. We expect to see, you know, high single-digit growth coming out of that asset. And fundamentally, you know, expect it to be generally accreted to our operating margins. So it's a good, solid business for us that.
I'm pretty excited about that option.
Yeah. No, we've heard certainly it seems quite profitable. I know you guys haven't given kind of full metrics, but I know some folks are kind of thinking, you know, it should be quite accretive to earnings next year.
For sure.
Maybe as much as, you know, 5%, something like that. I don't know if you can put some numbers around it.
Well, what we're gonna do actually is our expectation is as soon as we close the ELITech transaction formally and the regulatory approval process is behind us, that we will actually have a street communication. I mean, likely a call so that the analysts and others can communicate,
With us specifically about the transaction details. I think it's important that, you know, we're talking a little more generally about it now.
Get more specific as we, if we complete that closed transaction. I would say also, you know, I'm fielding a lot of questions from investors around the whole, you know, capital financing area for that particular transaction. Some of you may have seen we've completed a series of other, finance-related transactions on the debt side.
Mm-hmm.
Give us plenty of, you know, firepower to handle that transaction. I'm not being rude.
Yeah. I mean, the debt side seemed somewhat attractive. I know you guys did some kind of Euro/Swiss denominated type debt at a pretty attractive rate. Maybe just talk a little bit about what that looks like.
Sure. Yeah. I'm pretty proud of that. I mean, we, we upsized our revolver, our, our credit facility to EUR 900 million. That gives us quite a bit of firepower that we didn't have even a few months back. We added about EUR 430 million in private placement notes. These are denominated in a currency that's very favorable from a coupon rate perspective. And generally, we haven't spent a lot of time talking about this, but you know, it's a 2.7% average coupon rate on that level of debt. So very excited about that. Interestingly for me, you know, we have some of the same players on that private placement note arrangement that we had you know, a decade ago.
Mm-hmm.
Which tells me that, you know, we've got a good solid base with our debt holders program. And these are 10, 12, and 15-year maturities, so it gives us a good strong bit of runway here.
Yeah. Yeah. And I guess maybe on the deal, I mean, like you said, it seems we'll get full details, but it seems.
Yes.
The margins are quite attractive.
Yeah.
You know, fair to think about it as, you know, somewhat EPS accretive as we work on the contract?
Oh, for sure. Yeah. And I think the other point that we should stress is, you know, this is a highly, you know, aftermarket-based business.
Mm-hmm.
The consumables percentage on that particular business is greater than 70% or 80%.
Mm-hmm.
It's also gonna help us too. There's been quite a bit of conversation about our kind of recurring revenue base, and this is gonna certainly help us in a major direction with respect to that topic.
Yeah.
You know, that's Patrick from our earlier conversations, but we're quite excited about having instrument-based businesses. But as well, it's helpful for us to have a stronger lean towards some recurring-based.
Mm-hmm.
Revenues. This has certainly been offered that to us.
Yep. And just on the balance sheet, you know, I guess once this closes, where are we on the leverage side? How comfortable are you guys with?
Well, right now, we're at roughly in the two, EBITDA leverage ratio. It's about 2.0, 2.1. I think as we add some more of this debt financing, it's gonna march its way up into the three category. I still don't think that's terribly, you know, problematic for a company that's as well capitalized as we are.
Mm-hmm.
As I said, we have plenty of runway, I think, from a capital.
Yeah.
Financing perspective.
Yep. And I guess just on the pace of deals, Matt, I certainly have some investors joke that you guys, you know, do a deal a week seemingly these days. But,
Well, not quite.
What's the appetite now? Obviously, this is a big one.
Yeah.
For sure.
But you know, are you gonna just continue to kind of gobble up some of these smaller assets? What's right.
Yeah.
With thinking about the?
I'm feeling a lot of questions on this, and we should probably clarify a few things. First of all, these transactions that have really been culminating in the first quarter.
Mm-hmm.
That's not a sustainable pace. Actually, the way it has fallen in, most of these transactions have been completed, mostly from the deal structure arrangements over the last few quarters. In some cases, we've been dancing with some of these targets for over a year.
Mm-hmm.
I think it's all coming into a quarter, but I don't want people to think that that's, that's the pace that we're gonna keep for any period of time 'cause that's not.
Sure.
Sustainable. But I would say that what this does is sort of illustrate that, you know, the market conditions for us, you know, well capitalized, good balance sheet, healthy balance sheet, you know, we're in a position where we can capitalize on opportunities that may be recycled back from a couple of years ago where we walked away, you know, because of multiple issues.
Largely. You know, the multiples on some of those transactions a couple of years ago were just not attractive for us. I think just to remind folks that we, you know, our ROIC targets are over 20. We're typically 20%. We're typically running, you know, above that in the 22-24 range depending on the year. So, you know, we have a pretty high hurdle rate. You don't just bring transactions in because they look interesting. They've got to hit financial hurdles. And we're continuing our ROIC target at greater than 20%. So I do think the current market conditions are quite favorable for us at the moment. And we clearly have, you know, some transactions that we're looking closely at, but you know this as well as others. You know, you look at a lot, but you don't always buy a lot.
I think our transaction activity is pretty intense right now. I think you'll see it'll moderate going forward. I'm pretty excited about what we actually see in the pipeline at this stage.
Yeah. And maybe just the appetite, you know, in terms of even some of the smaller deals you did, a somewhat larger.
Right.
Dilutive one last year as well. What, how do you think about the appetite to take on near-term dilution to drive, you know, some of those?
Yeah.
Some of those growthy assets?
Yeah. This is a good question. And I have to say, I take it a lot. We're focused on strategic fit.
Mm-hmm.
To the extent that, particularly in, I think you're referring to our Genomics acquisition.
Mm-hmm.
That we now call the Bruker Cellular Analysis business. And we've completed that in October of 2023. I mean, just a tremendously interesting business.
Mm-hmm.
You know, from a cellular analysis perspective, it gave us a foothold into a market that we didn't really have as much scale in and at a very favorable, you know, cost going in. We really like those types of transactions to the extent that we can make them happen, if they give us footprint and scale and certainly good, strong organic revenue growth expectations. But of course, you know, I'm the CFO. My job is to make sure that we have some dilution.
Mm-hmm.
That we can afford to take on and that we clearly have accretive acquisitions that go in the mix. The big one I've just been talking about is clearly gonna be accretive at the operating margin line and the EPS line. And the expectation would be that we're clearly targeting more of those.
Yeah.
But I know you know this, Patrick. We're really very much focused on, you know.
Mm-hmm.
Longer-term strategic moves. And I think some of the actions that we've taken that we can talk a bit about, I mean, even, you know, some of the smaller transactions that we have done recently are really interesting. They tend to be more technology tuck-ins. But Nanophoton, for example, gives us a better foothold, with a major Japanese Raman Microscopy business.
Mm-hmm.
We have Nyon. You know, this is a $10 million business, which we think is gonna strengthen, you know, our nano, part of our nano, portfolio. You know, Chemspeed. Chemspeed is a sizable business. It's a lab automation business which has, you know, got good profitability, which will expand, you know, over, over time. These are they're just really good strategic acquisitions for Bruker at this time, so I'd say, you know, to the extent that, they're a little bit dilutive.
Mm-hmm.
Our overall organic operating performance has been quite strong.
Yes.
You, you know this. We.
Yes.
We put up a very strong organic operating margin expansion in the fourth quarter, about 130 basis points of improvement for the full year in 2023. So, you know, we have a little bit of acquisition drag for a temporary period. I think it's perfectly fine.
Mm-hmm.
It's the way I start to think about that, especially.
Yeah.
These are major strategic opportunities for us.
Yeah.
We think we are moving things.
Sure. Yeah. And with PhenomeX and then I guess some of the other smaller dilutive ones, I mean, you guys seem like you're being pretty aggressive in terms of pulling some of the cost out.
Yes.
You know, maintain you had the dilution in 4Q, obviously. You know, 1Q, the guidance has a good amount of that in there. And then it feels like it wears off relatively quickly.
Yeah.
And maybe talk about just.
Sure.
How the actions you guys are taking to kind of right-size those.
Sure. So first of all, I'll repeat. Very good strategic fit for Bruker. Takes us into cellular analysis and gene therapy in a way we didn't have really in the portfolio previously. Great fit. We've done quite a bit of right-sizing. Most of the cost structure right-sizing was done in the fourth quarter. Our position is that we've got most of that out of the way.
Mm-hmm.
We had a $0.10 dilution to the EPS line in the fourth quarter. We expect it to be $0.10 dilutive in that range in the full year of 2023. So really taking a lot of costs out. This is facility consolidation, you know, headcount, you know, reexamining some of the R&D activity. Just a lot of, I would say, really strategic steps. This lives in our NANO business, which some of you know is run by Mark Munch, you know, a terrific leader, great, you know, a lot of experience in the whole acquisition integration world, especially in deep restructuring. So we're very confident with respect to how that's gonna play out. And we do continue to believe that that's a business that's, and I think we said publicly somewhere in the $60 million.
Mm-hmm.
Range on an annual basis, but pretty comfortable with that range of revenue. And more importantly, you know, the growth that we see going forward for that business is really, really very positive. I mentioned to a couple of investors a couple of days ago that there's also been quite a bit of activity from the FDA approval side for, you know, gene therapy-related investments. And I would say, you know, some of our neighbors in the Boston area have good success in first-time FDA approval of gene therapy. So we think this is a really attractive market going forward. And, you know, we're very pleased to have that in the portfolio just now.
Yeah. Yeah. Maybe we can shift to the core business. I've covered Bruker a long time. I don't know if we've ever talked deals that much. So it's definitely a little bit of a different setup these days.
It's all good.
Yeah. So on the core business, you guys obviously, to your point, you put together a really strong 2023, healthy 2024 outlook. Maybe starting just kind of where we ended, you know, 4Q, the book-to-bill was above one, on the BSI side. Maybe just talk about what you're seeing on the order front there. And again, you know, obviously, really healthy pipeline here in terms of the outlook. But.
Mm-hmm.
Yeah. Maybe just talk about the order front and the expectations there.
Sure. Well, the core business doesn't get as much attention as some of the flashy sexy stuff, you know, in the portfolio. But it's worth noting that I think, generally speaking, the core business has been really solid and very healthy in 2023. I wanna back up a little bit because I need to remind investors and potential investors that Bruker has now had three years of consecutive years of double-digit organic revenue growth, with third year being 2023. And we've put up 14.5% organic revenue growth. And under very turbulent markets, more broadly, I think this is an important, key point for people to understand. Why is that? A lot of that has to do with the core business. Fundamentally, the economics have been very solid, particularly in the academic and government research part of our portfolio.
It's important to stress that, you know, the Bruker business has 40%+ of its portfolio in the academic and government research side, which at the moment, it is growing, beyond mid-single digits into that high-single digits range. So this area is very stable, solid growth performer for us and has been now for multiple years. There's always a lot of conversation about NIH funding and, you know, what is it gonna be? You know, there's always this shock when there's some conversation or chatter on the street about what funding is gonna be. Fundamentally, three things. One is, you know, from an NIH perspective, if you go onto their website, you can continuously see over decades that the NIH funding levels are literally up and to the right.
Mm-hmm.
It doesn't really matter what administration is in the White House. It doesn't matter who's controlling Congress. Ultimately, the U.S. funding environment has been very healthy in this space. And even though NIH funding for Bruker is, you know, in that 5%-8% of our total base, it's, we still believe that to be very healthy. The second point is, it's not just NIH that is funding today. I mean, we have a lot of funding, and we saw some of that even in our at the high-field business coming out of the NSF and the DOE. So U.S. government funding has been quite healthy, I think, historically. And I wouldn't expect that to change. And then if you look forward even to other geographies like China or even Europe, you know, on the academic and government side, that's been very healthy as well.
We've seen very strong order bookings performance in China. I know you know this, but huge bolus of orders in the first quarter of 2023, a little spillover into the second. You know, we had a bit of an air gap in the third quarter, but we saw sequential recovery even in China in academic government research side in the fourth quarter. I think just generally, what we understand in China is that that academic market is pivoting a little bit away from just direct investment into biotech and more directly into academic and government research funding, and doing their own, you know, research work specifically in China, through their own academic facilities. So we're very well positioned in that space. That's kind of our bread and butter, getting this view of the portfolio.
I should mention I've talked about this quite a bit with investors, that, you know, in the portfolio in China, that's a 50% portfolio that's academic government research, very small biopharma exposure in that 10%-12% range, historically for Bruker. We're underrepresented in biopharma.
Mm-hmm.
That's no bioprocessing activity, you know, anywhere in the world and certainly none in China. So our exposure in the academic and government research has really added a whole different dimension of resiliency, I think, for the overall performance.
Mm-hmm.
If I can just go to a couple other markets. I mean, biopharma, as we all know, generally, we saw some, some softness for sure in China. But generally speaking, our biopharma performance for 2023 was also quite solid, not only from a revenue perspective but also from a bookings perspective. And so, many of you know, we have high-end instrumentation. And a lot of our instruments are targeted towards high-end research areas. And in those areas, it's really you just don't see the kind of wild volatility that you sometimes see in bioproduction that you can turn on and off.
Mm-hmm.
Here, you know, this is a much more stable environment on the bio, biopharma side for us. We are underrepresented, so having a little more strength there, I think, than others. Then just finally, on industrial and semi, on the semi side, our experience, both from a bookings perspective and even revenue, has been very solid in 2023. We actually expected to see a trough in 2023 given the softness that we keep hearing and reading about. We did not really see that. In fact, our fourth-quarter bookings performance in the semi and microelectronics areas is very strong. It's got a lot of really strong tailwinds, right? You've got secular trends in AI. We've got the CHIPS and Science Act.
Right.
Elements across different continents. So the semi and microelectronics area has just been very strong for us. And then finally, just on the what we describe as kind of industrial, which is really more material science or even green tech-related activity, we focus mostly on niche markets in that space, mostly in research on material science technologies for, you know, Wall Street general tech, you know, industrial companies. They're not turning down that, material science research. We see this across the geographies, very strong, performance there in the industrial markets in these particular, you know, geographies, including here in the U.S.
Yeah.
Overall, the portfolio and I'll stop talking now for a moment. Overall, the portfolio has been really resilient across these end markets.
Mm-hmm.
I think that largely explains the bulk of our outperformance relative to peers. We're in niche markets, differentiated technologies, and more heavily weighted towards academic government research and less biopharma.
Yeah.
Exposure. That's kind of the big picture.
Yeah. Yeah. No, plenty to work through there. Maybe on one of the last points there, the semi side, can you just talk about what the exposure looks like there? Again, you mentioned the CHIPS and Science Act.
Yep.
You know, you started to see some dollars maybe flow there.
Mm-hmm.
What is the right way to think about, you know, the potential benefit that you guys could have there?
Yeah. It's, it's very significant, I have to say. And I said publicly there was a time when I wasn't as interested in that business, but now I'm very interested in that business. The growth prospects for that area are really pretty remarkable, I have to say, or exceptional. So let me back up. So first of all, on the semi and microelectronics area, you know, our target, customer base is really not in memory. Let's get that on the table. That's not our target. Our target is really high-end research, node-related research in the semi space and in QAQC in the, fab production areas. And so, there's some very significant tailwinds at the moment in that space. And it's not only AI, although that's clearly driving a very significant secular tailwind. I mean, it's just the core, you know, the core elements of fab production.
Here in the United States, we're talking about new fab facilities. And some of the names you already know, you know, in Ohio and in Arizona. In Europe, we're talking about significant fab production in a variety of places, including Germany. And then we've heard more recently that there may be also some additional activity being considered in Japan. And obviously, this is being driven by the geopolitical risk associated with Taiwan and what China is or not going to do. And fundamentally, these, you know, semi companies themselves know very well that they need to diversify their geographical footprint. And with or without CHIPS Act funding, which is quite significant and now starting to be finally allocated out by the U.S. government, I mean, I think the tailwinds on this particular end of end market are very significant.
Yeah.
We're not seeing a lot of headwinds.
Yeah.
To say right now at all in any element here. It's across the geographies. This is actually quite an important point. It's not just a U.S. phenomenon. We see it in both the, in Europe, and we're starting to see it in other, other places as well.
What's the right way to think about your guys' revenue, whatever?
Yeah.
Exposure to that?
I'm sorry I didn't answer that.
Yeah.
Part of your question. I mean, it ranges anywhere between 8%-10% of the total revenue base.
Mm-hmm.
For Bruker. As I've been describing, you know, that base has been growing.
Yeah.
At a very fast rate. One final comment for those that aren't familiar with the space. You know, it's a very sticky customer base. Once you get in, for example, if you're in a QAQC framework in the existing fab and you copy and paste that fab into the United States or into Europe, you know, they're gonna still play with the same players. There our instruments are kind of critical to their.
Mm-hmm.
Their quality control elements. So it's important, it's important. And it's highly profitable for us from an operating margin perspective.
Mm-hmm.
This is a very healthy element contributing ultimately to our overall operating margin performance, not only in prior years, but as we look forward, we expect it.
Yeah.
It's gonna be having some outsized importance to us going forward.
Yeah. Okay. Sounds like it'll be bigger than 8-10 in a couple of years.
Yeah. I would expect it to, although, as you already know, we have some pretty good tailwinds coming from some other end markets as well.
Yeah. Yeah. Maybe we can touch on some of those. I mean, maybe we'll start with, with just China. You know, obviously, it gets a lot of a lot of headlines, a lot of concerns.
Yeah.
To your point, you guys had the great first half. I remember sitting here.
Yeah.
A year ago, and China stimulus was happening. And you guys.
Mm-hmm.
Clearly, you know, felt really good about it at that point.
Mm-hmm.
3Q was lower. And then 4Q, it seemed like it got a little bit better. So what are you seeing there? And, and what are the expectations? Is it gonna be this huge air pocket without stimulus? It doesn't sound like it, but the answer here.
Yeah. I think, again, we may be slightly differently positioned than a number of other companies in this particular geography. So first of all, just to level set it, no, no production facilities in China. No R&D activities going on in China. We really are a true commercial player in the Chinese market, very important market for us.
Mm-hmm.
You know, it is in that 16%-18% of our total revenue base just as it is with other peer companies in our space. But fundamentally, it's an important market for us. And we have really, I would say, overperformed not only peers but, you know, historically. A lot of that, again, has to do with our, strength in the academic government research side. It appears as if the Chinese government's pivoting funding in more directly to their own facilities, wherever those might be. There's also, been a more recent shift to instead of, pushing funding directly into tier-one cities to look at Tier 2 and Tier 3 cities. And I think with our, channel distribution there, both on the ground and our distributors, we feel very like we're really well positioned to pick up those, any funding activity that goes into those cities.
And that's a more kind of a dominant theme, I think, that the Chinese government's beginning to talk more broadly about. So we like the market opportunities there. Our bookings performance, as you correctly point out, recovered sequentially from the third quarter. I think it has really good market opportunity for us. And I would say even in, you know, the industrial market areas, outside of academic and government research, the commercial funding in what I describe as loosely more material science, this is polymers, concretes, chemicals, you know, the more industrial complex type elements where we serve their research elements, including research that's going on in China's subcontinent, you know, have been quite healthy.
Our core businesses in China are X-ray technology businesses, our molecular spectroscopy businesses, those that you know what I would describe as core, have been really quite solid as well.
Mm-hmm.
So we're pretty positive about the overall China market. We're not living in a bubble. I mean, we recognize that if China economic activity begins to drop off, there'll be some impact. But we think we're really well positioned, right, to.
Mm-hmm.
In that particular market.
Yeah. Yeah. And then maybe the academic NIH piece you touched on.
Yeah.
You know, we get a lot of questions there as well near term. Obviously, there's, you know, continued resolution. There's a lot of worry that budgets are just not moving right now. I guess, what are you guys seeing on the academic front? Maybe we can start in the U.S.
Sure.
Just kind of the general backdrop here.
So as I said earlier, I mean, our view on academic and government research is a little more global. First of all, we are operating our business globally. So if we do have a downturn and I'm not suggesting we are, but if we do in a particular geography, we shift our attention and our targets towards another geography. We've been quite successful at doing that. But with respect to, let's start with the U.S. As I said earlier, I mean, I think we take the NIH funding as it comes. And fundamentally, we're pretty comfortable with what that is. I try to stress, with investors that it's not just NIH funding. There's a lot of National Science Foundation funding that has been directed particularly to some of our NMR franchise, specifically around ultra-high-field systems.
There's a lot of funding in the academic and government research side. I tried to stress at another conference earlier this week that there's also. I don't think people fully understand that the network, the collaborative network of academic and government research has really evolved over the last 3-4 years. It's not just, you know, U.S. government funding. It's you have collaborations with, for example, Harvard Medical School collaborates with, a biotech company or with a large pharma company. There's funding that goes into those environments coming from other sources other than just, you know, the traditional government research side.
Mm-hmm.
So I think it's a very healthy space right now, including in the U.S. I'm not overly concerned at this stage about what, you know, turbulence goes on in the U.S., you know, political landscape. I think it all shakes out eventually, I mean, over time to be more stable growth, you know, and market for us. And then if you turn to Europe, I mean, most people don't understand, but Germany, for example, financed significant research grants into the proteomics era right during the peak of the pandemic. You might wonder, why is that? But fundamentally, that's government stimulus funding at a time when, you know, economic conditions tend to turn down. There's more funding required in those environments.
And so I think, you know, we've seen a very stable. This is the typical story for Europe, very stable academic government research funding in that space. And we just talked a little bit about China. You know, it's been a little choppy up and down. But because we're focused on high-end research instruments, typically, the storyline has been pretty solid, solid up and to the right.
Mm-hmm.
Fundamentally, where you can't get our instruments, you know, especially in China, if you're gonna do, for example, deep, deep research in proteomics and the Chinese are very much on the leading edge of proteomics research across the globe, I mean, I would put China right up there in terms of their, their proteomics research and their results. It's, it's really quite remarkable.
Mm-hmm.
They're gonna continue to fund, you know, high-end research instruments that they need for those because they can't get them at the local level. And they need it for high-end research.
Yeah. Yeah. So I guess putting that all together, you know, I remember again, sitting here last year, we talked a lot about the book-to-bill and the order trends. You know, I think there was a worry a year ago that your book-to-bill was gonna go way below one. And all of a sudden.
No.
You know, that obviously didn't happen.
Didn't happen. No.
I guess sitting here today, how do you feel about the order trends? I, I clearly have a good backlog. But.
Mm-hmm.
You know, on the order side, should we expect book-to-bill to dip below 1 for a prolonged period of time? What's the right way to think about it?
Yeah. So first of all, I mean, our bookings performance has been really exceptional. I think, generally speaking, and this is going on now for three years.
Mm-hmm.
I mean, it's at some point, that's not completely sustainable, right? But especially with record revenue performance as we've been delivering it, you know, at some point, you have to expect that the bookings performance is gonna be under that revenue performance. And actually, you know, from a business perspective, we want that because.
Mm-hmm.
You know, while we do have, we've been publicly communicating a 7.5+-month backlog for us, in some pockets of our business, it's higher than that. And so fundamentally, we really want and need, you know, to get that down to what we characterize as a more normalized level, which is somewhere in that 5.5-6-month backlog level. So point number one, we need that backlog to come down.
Mm-hmm.
At some point. We want it, particularly for, you know, service delivery to our customers in the right-end markets. Secondly, I mean, I do think our bookings performance has been really quite exceptional over time.
Mm-hmm.
Our expectation ultimately is that we're gonna bring that backlog down. Book-to-bill ratios will come down below 1. Interestingly, in the fourth quarter, we still carried an over 1 book-to-bill. So I think what that tells you is that we were still building backlog, you know, actually, you know, through the entire year of 2023. So.
Mm-hmm.
We do have some pockets that are starting to get into their backlog, but still fundamentally a good story. But more fundamentally, what I've been stressing with other investors at this stage is if you look at the core business.
Mm-hmm.
So we do have some overperformers, for sure. We talked to, like, Sammy. We haven't really talked about, you know, timsTOF .
Yeah.
You know, come to that question.
Yeah. Yeah.
But in the proteomics space and in some of our other MALDI Biotyper, for example, in the microbiology area, we've really done well, you know, from an overperformance perspective. But I keep coming back to it's the core business, to a large extent, that's driving that good, solid bookings performance.
Mm-hmm.
So as long as that can continue, I mean, I think, and you might some are, are communicating. You might start to see an uptick again now in basic economic performance. And, you know, maybe it's the second half of 2024, the first part of 2025. You know, with the backlog that we have, plus our overall, broad performance capabilities within the core business, it feels pretty good.
Mm-hmm.
I mean, generally speaking, that's our view. But I would say publicly and have. I, we do really wanna see that backlog come down to a more, you know, normalized level.
Mm-hmm.
But so far, we've struggled to make that happen.
Good yeah, good for us to have.
Not a problem at the moment.
Yeah. I guess maybe when you think about the 2024 guide that you guys gave a few weeks ago, you know, the 1Q start is a little slower as is everyone else in tools.
Mm-hmm.
and then you kind of ramp maybe just talk about the cadence of the year.
Yeah.
Why 1Q maybe a little bit lower, I guess both on the growth and margin side.
Yeah. Yeah. Thank you. I'd say so first of all, we guided 5%-7% organic revenue growth for those that aren't following. We expect reported revenue or even constant exchange rate revenue to be well above that. We have almost a 3% tailwind on acquisitions. So these numbers get closer to that 8%-10% on constant exchange rate basis for our expected revenue growth for 2024. So I still think that it's clearly gonna be likely outperforming a number of our peers on that basis. But just to come back to the cadence, so we are expecting to see a slower, softer first quarter for several reasons. One is we had a giant first quarter.
Mm-hmm.
From a comp perspective in 2022, coming off of a huge bonus of orders and certainly good at revenue execution in Q1 of '22, I'm sorry, of 2023. So our expectation here is that, you know, we would see some, some, sequential, organic growth in the first quarter but not at the level that we certainly saw in Q1 of 2023. And on the margin side, again, really hard to kind of beat the comps that we had in Q1 of 2023. And I'm expecting to see that improve as we move through the year. As I think I said in my scripted remarks for the call, the earnings call in February, my expectation is that H2 is gonna be much, so more solid for us on the operating margin side than.
Mm-hmm.
We expect to see in H1. We've talked a little bit about some of the headwinds, already. I mean, we expect to see some more dilution coming in H1 still from our BCA acquisition.
Mm-hmm.
We have some acquisition drag as we pick up some of these other pieces. So I think fundamentally, it's gonna be a better performance in the second half of 2024.
Yeah. Okay. And then, yeah, on the backlog, you mentioned, you know, I think 7.5+ months. Do you wanna get it down? You know, how I know we've talked a lot about it, but it, it's not a quick process in terms of getting it down.
No.
I guess how do you think about, you know, the backlog. I don't know, workdown.
Mm-hmm.
The confidence level, I guess, as you get later into this year, you know, that you still have this really healthy backlog? I think there's some fear, that you have to burn that down really quickly.
Mm-hmm.
Others in the space that aren't necessarily the perfect comps have seen that dynamic. So why don't you talk a little bit about?
Right.
What we're seeing?
So, first of all, it's been multi-years of backlog at these levels. So I don't think we're because our bookings performance has been very solid, but as I said earlier, I think the way I'm thinking about it is this. So there's some value, of course, from a customer and end-market perspective to getting that backlog down. But that's gonna still be a multi-year period. We've been working on this now for a couple of years. And given the bookings performance we've delivered over the last couple of years, we're just not having that much success to bring it down. But I think, you know, our production facilities are ramping up for the growth levels that we have at this stage. And I'm hopeful that we'll be able to improve our overall, you know, satisfaction with that demand earlier.
Mm-hmm.
I know you know this, but, you know, we have still quite a bit of backlog even in the ultra-high field.
Mm-hmm.
Field.
Yep.
You know, it'd be very nice for us to be able to deliver on those, that backlog sooner.
Mm-hmm.
Expanding facilities and getting that going, especially in our NMR business, would be great. But that's also true for our, you know, mass spec business as well.
Yeah.
So, I think it's a multi-year period. I don't think it's gonna happen all in 2024. I think it's gonna depend largely on how the core business performs and if we have outsized performance from some of our overachievers.
Meanwhile, it's going forward. Yeah. I wanna spend some time. Obviously, the LRP pull forward was, was quite notable on the last quarter. You know, really sharp earnings growth, 25%-30% next year. Can you just talk about the moving pieces? You know, I think a lot of people, myself included, were kind of waiting and saying, "All right. When are they gonna release the margin upside?" You know, clearly, it's, it's showing up next year. What are the, I guess, levers to get to that number?
Yeah.
Is it gross margins? Is it OPEX? Maybe just talk about.
Yeah. I like to talk about that because.
Yeah.
I think, so generally speaking, when you do the math and I'm saying this with all sincerity, when you do the math, it's pretty difficult to see how you don't hit the revenue and EPS targets. Fundamentally, with the growth rate, with the actual performance we've already delivered, it's pretty hard not to hit those, a year earlier on the revenue.
Mm-hmm.
The non-GAAP EPS numbers. I think the challenges for us are more in the operating margin side. That's largely driven by, mostly driven by foreign exchange and our acquisition drag.
Mm-hmm.
That, we talked a little bit about that historically in the PhenomeX acquisition that clearly, you know, interrupted our operating margin progression through the level that we thought we were gonna get earlier. But, you know, a lot of that gets washed away in 2024.
Mm-hmm.
Suddenly, in 2025, you have much stronger operating margin performance coming out of on what I hope to be significant growth in,
Mm-hmm.
Coming in, in the BCA story. The other piece is a lot of the acquisitions for which we've been funding, better operating margin performance is and will also mostly clear through.
Mm-hmm.
As I've already mentioned, we think we've got good, solid accretion in the ELITech area, which is a substantial acquisition for us, generating quite a bit of EBITDA as we bring that on.
Yeah.
That, I think, will also contribute significantly. And even companies, you know, on the acquisition front like Chemspeed and Nylon and others that we.
Mm-hmm.
We're bringing on. We expect to see no improved operating margin performance. And so far, you know, our OPEX performance, very good OPEX discipline historically. We've proven we can flex when we need to flex. And I'm pretty sure we'll be able to do that. So, you know, you know, very positive about our outlook on the profitability side for.
Sure.
2025 and moving into 2026. And obviously, as we get to another, you know, if we do more of these types of acquisitions, we'll have to reset that.
Mm-hmm.
Kind of medium-term outlook.
Yeah.
Performance.
Is the ELITechGroup that is not in the guidance?
That's not in.
Yeah.
Yeah.
Okay. So that'll add, okay. Understood. And maybe last one. I know we're up on time. I just wanna think about the guidance. We talked about 1Q maybe being a little lower.
Yeah.
You know, did you guys layer in any additional conservatism near-term in 1Q given the extra visibility versus the year? How do you think about just that?
Well, look, I mean, I and my colleagues at Bruker have a history of trying to, you know, underpromise and overdeliver.
Mm-hmm.
We think when we have put some tapes in, that we're putting up a reasonable basis, current market conditions, put some risk into the mix. So I think our current 2024 guidance is pretty balanced. But as I think you know, Patrick, you know, to the extent that we see good, strong performance in the first and second quarters.
Mm-hmm.
You know, we aren't shy to move our guidance back up. And, you know, we clearly overachieved in 2023 and in 2022. So.
Mm-hmm.
Hopeful.
Okay.
We're gonna move that way.
All right. It was a lot of ground. Thanks, Gerald.
Yeah.
Really appreciate it.
Great. Great to see you. Thank you all.
Yeah.