Really pleased to be joined here on stage with Gerald Herman, EVP and Chief Financial Officer for Bruker. So, Gerald, welcome. I said last meeting in Revvity I would check my emails for questions, and I actually didn't. But I will try during Bruker, hopefully, and I'll see if anyone's got questions, feel free. Sorry, I didn't see some of the Revvity questions. So anyway, Gerald, listen, welcome. Let's start off with your recent pull forward of your 2026 targets, right? That was pretty impressive for revenue and earnings to 2025. You know, by our math, it implies, you know, 7% organic growth over 2024 and 2025. You know, obviously you've been growing a lot faster recently, right? 9% the last five years, 12% the last two years. So 7% is no doubt impressive, given what we've seen in the broader market. But maybe just talk a little bit about, like.
Sure.
That pull forward, kind of what's implied, and kind of why you guys did it.
Yeah. So, first of all, great to be here. We love the conference. It's good to be local.
Yeah.
I would say just generally in our world, it's a, our focus has been mostly on overdelivery. We've seen this sort of the double-digit organic revenue growth here for the last three years. I mean, I think as we look out into the forward years, especially, 2024 and 2025, I mean, we still believe we're going to have 200-300 basis points of growth above the market. And currently, as some of you know, the market is being impacted particularly by, you know, some challenges in the biopharma space, including bioproduction areas. We're not heavily exposed in those areas, so I think our overall position is, you know, pretty well-positioned from a portfolio perspective.
Then just more broadly, when we look at our overall core business, which has been quite healthy actually over the last year, year and a half, and top that off with some of our more exciting products in the portfolio, I think the expectation is that we'll continue, you know, to perform the market. The idea of, you know, it's just simply math. When you look at the growth rates and where we laid out for medium-term targets at both the revenue and the EPS line, you know, we are clearly gonna exceed that, and we're gonna get to that closer to 2025 than we would in 2026. So I think it's all pretty positive. We have very good, you know, strong secular growth trends, you know, behind us. That's in the proteomics area, in the semi-metrology AI-based area, multiomics.
We were just chatting a little bit about cellular analysis. And so there's a number of very significant growth trends behind us, and so I think it's all quite positive at the moment.
You just rattled off a couple. I guess my second question was that there is a lot of innovation at Bruker.
Yep.
You know, to kind of unpack what's been driving just the level of this really strong organic growth the last few years, you know, like, kind of which of those would you highlight as, like, the biggest outsized contributors? You know, NMR, timsTOF, was it China? I mean, there's a lot of different ways to slice it, but, like, if you were to zero in on a few areas that were, like, really the key drivers here, what would you say they were?
Well, I'd start by saying that the overall health of the business is very good. You know, the portfolio itself has been transformed, I mean, fundamentally. But even our core business, where we typically play in, you know, the number one or number two share position, has really evolved. And I think with the level of innovation that we're funding right now, this is around 9.5%-10% a year. It's really very fundamental for us to be able to continue to innovate, not only in these very flashy, sexy areas, particularly in proteomics, for example, but also in the core business. And I think that's made a huge difference to that. So if I were gonna highlight a few things, I'd say health of the core business has been really very solid, historically, including 2023.
I think the other areas are strong secular growth trend areas. AI, semi-metrology, proteomics are overall multiomics businesses here. We're talking now about faster-growing areas in spatial and cellular analysis. And then I do think NMR has been a very solid contributor over 2023, and our expectation is that it'll continue to grow. I mean, one final comment. I think most folks understand our portfolio position, but particularly relative to the market position, our end market, particularly for the academic and government research area, is outsized. And we have seen very strong, you know, bookings performance, particularly relative to that sector.
Maybe just on margins. You know, back at your Investor Day, you got it to 70 basis. I think it was an implied 70 basis points a year.
Yeah.
Roughly in the zip code. But they've been pressured by the M&A that you've done, right?
Mm-hmm.
So, you know, you basically didn't pull forward your margin target for 2026 because I think, you know, some of this M&A, so just as we cycle through these M&A headwinds, is it gonna be back on 70 basis points? Or when you look at the portfolio that you'll have underneath, you know, the Bruker umbrella, is it gonna be something greater than that, less than that? Just, you know.
Yeah.
How do we think about that?
It's a good question. So first of all, just to calibrate it, you know, our 2023 numbers, organic operating margin expansion was quite strong. It was around 130 basis points. We have strong foreign exchange and M&A headwinds in 2023. But fundamentally, the core organic growth of our operating margin area has been quite solid. So I think for the forward years, our expectation's been somewhere between 30 and 60 basis points. And I think that's probably a reasonable level given what we delivered, especially in 2023. But even beyond that, as some of the acquisition headwinds start to abate, particularly through 2024, as some of you know, we have about a $0.10 dilution on EPS levels coming from the PhenomeX acquisition, what we now describe as BCA, Bruker Cellular Analysis business.
But we have a number of other acquisitions that we're making significant investments into, you know, diagnostics is a proteomics specialty CRO that we acquired. We're just establishing some new facilities here in the United States related to that business. So there's some headwinds on the M&A side for sure in 2024. Our expectation is that that flips when we get into 2025 and 2026. And with our performance, I think even at the gross margin line, you know, we see opportunities for us to hit the operating margin targets that we set on the medium-term level.
Okay, the guide this year is 5%-7%.
Yep.
Definitely above peers, but you've been consistently beating numbers. You've got the strong backlog. You have accelerated momentum.
Mm-hmm.
I mean, is it fair to think the 5%- 7% similarly incorporates a lot of conservatism, or how would you characterize it?
Well, look, there's some puts and takes with respect to that. I mean, as you likely know, Dan, we generally start off with an initial guidance at a relatively conservative level. And as we see how the year progresses, we begin to move that up, and we'll see how that all progresses for 2024. But, you know, I think fundamentally, when you add the contribution from acquisitions together with that 5%-7% organic level, you're still up in the higher end, almost reaching 10%, on a constant exchange rate basis for sure. So I don't think it's a major adjustment for us. I think it's just sort of how we see the year starting. There's clearly a lot of macro elements in the mix as well.
I think some of the risks from the macro levels are higher this year than they were in other years. We're pretty comfortable with where we are right now.
So NIH, you talked about, like, the strength or just earlier in your commentary about, I guess, the demand or that you've been seeing. But the budget's flat after three to four years of high single-digit growth, and you've got this continuing resolution. Just wondering, just, you know, have your customers felt any pressure from NIH constraints as your outlook incorporating the risk from this dynamic?
So look, I mean, let's, let's talk about a couple of things. First of all, NIH funding for Bruker overall on a revenue basis is relatively modest. It's in that 5%-7% level. But what's really important is that the overall academic government funding area has been quite stable and actually growing over time. And that's not just coming from NIH. There's NSF, National Science Foundation. There's DOE. There's collaborative arrangements with other biopharma companies. There's clearly, you know, demand in other what I might describe as more independent research institutions that have their own funding momentum. So I think just broadly, that academic and government research market, no matter where you look and I'm not just referring to U.S., but also even in the European markets, have been really quite stable and growing.
What we see is that, that if you're in the hot areas relative to what government research institutions are really trying to fund and here, we're talking about kind of the post-genomics era elements here, proteomics, focusing on areas that are really instrumental in terms of overall fundamental research, I think you're gonna continue to see that to be well-funded in the markets, including in the U.S. I actually think our infrastructure is really well-suited towards that academic and government research channel, whatever form it takes. And I think you're gonna see that in the U.S. as well.
Do you feel like I mean, we've heard this at this conference and in some survey work, but, you know, this shift towards proteomics? I mean, do you see that, you know, kind of in your business? Like, do you feel like there's a notable tilt that the, you know, maybe some of these foundations you just mentioned are kind of allocating more to proteomics for?
Yeah.
I mean, we did some work with our Washington Research Group, and it looked like genomics and proteomics research proteomics was outpacing a bit from a funding basis. It wasn't, like, dramatic. I don't know what kind of you guys see from your own diligence.
Well, look, we're, we're deep in that world. I think from a, you know, we're talking here about, you know, deep collaborations with core academic and research institutions. We have deep insights into those. I mean, our experience is that, you know, while there's still some basic genomic sequencing activity going on, a lot of the activity is really shifting into mRNA and into the whole protein discovery area. We talk about this at another conference last week. But if you look at the overall, you know, protein discovery world, I mean, instruments like ours and others are just yielding enormous opportunities to understand the protein, the proteome, in a much deeper way. So we have been able to identify more proteins today than you'd seen even in the last probably decade.
I think that leads to more discovery, and I think that's gonna continue to be the case going forward.
You guys have bucked the trend in China.
Mm-hmm.
You know, the tool peers have seen it, right? You've been delivering really strong growth, a really impressive backlog. Just why have you been able to do so well? I'm sure it's gonna come back to your products while others have suffered. Are there any specific segments that have been key drivers over there? And just remind us, for 2024, implicit in your 5%-7%, kind of what have you guys incorporated for China?
Yeah. So China's an interesting market for us. First of all, it's an important market for us and most other life science tools companies. Fundamentally, our portfolio is quite different in China from most. We have an underrepresented proportion in the biopharma space. It's about 10% of our portfolio in China. And the numbers for the rest of the portfolio in China is mostly 50%, for example, of our portfolio is in the academic and government research area. The rest of it largely is in material science, if I can describe it that way, loosely called industrial in our category. So I think, generally speaking, we were very well-positioned, especially in 2023, because a lot of the challenges in the biopharma area, while we saw it, we were not really widely exposed to it and certainly weren't very significantly impacted by it.
Whereas in the academic government research side, especially in, like, late 2023 and early 2023, lots of demand, a part of it from low-interest stimulus. But more fundamentally, I mean, we continue to see China as a, a very strong, player and leader to a certain extent in proteomics research. If you look at the KOL activity surrounding China, you know, they are really leading, and their funding environment is really almost equal to many other countries combined. So, I think we happen to be really well-positioned in China historically, and I think that's gonna continue. What we hear now in China is that there's continuing funding going to be focused on more tier two and tier three cities. And a lot of that, again, is coming out of, you know, government funding in that space.
Turn a little bit away from biopharma, you know, in China more fundamentally in that country. So, I think we've factored into the 2024 guidance, you know, some more conservatism in that space, partly due to the macroeconomic conditions that are ongoing in China. But fundamentally, it feels like it's still quite a strong market for us. And of course, I think you know this, Dan, but we have, you know, very high-end instruments that are used particularly in the proteomics space. You know, these instruments are not available, typically from the local markets. And generally speaking, we're on the cutting edge of that technology. So if you really want to do cutting-edge research, you need our instruments.
So like the Biosecure Bill, we, you know, we brought it up with Revity. We'll try to bring it up with, with, you know, most of the speakers here. You know, it's targeting some of the technologies in China that the government feels like are going into defense. And our D.C. experts feel it's gonna probably morph into something a lot more tangible where the government, you know, did a call a month ago with a staffer who said mass spec was something that the government is focused on as maybe a critical U.S. technology. So I guess the question is, do you guys have any sense of kind of where this thing could go, just, you know, in terms of maybe, you know, the government becoming more restrictive on allowing certain key technologies to get into China?
Just, you know, kind of any thoughts on, you know, how impactful that would be to your business?
Yeah. It's difficult to assess exactly, particularly proposed legislation until it moves through some of the legislative process. I mean, our general view is first of all, I think most know we're a global company. You know, it's not just a U.S. story for sure. And many of our products are manufactured and distributed through other parts of the world. So I think, generally speaking, we're not overly concerned about that. You may know, Dan, we went through a process, particularly in our semi space, where we had some more advanced technologies that were, I think, inappropriately, but for some reason, highly, you know, targeted. And, you know, we either stripped those out of our backlog about a year and a half ago because we couldn't order or we couldn't deliver on those orders.
Or we found, you know, through an approval process to go through the regulatory process here in the United States, and we're able to secure those. I mean, to state the obvious, you know, we're not involved in any military or defense-related research work. You know, we're a life science tools company. And obviously, we push very hard to make sure that our instruments get to the right places, including in China. So I think it's early days. Hopefully, you know, the U.S. government will understand where most companies in our space, you know, really are.
Okay. Can you discuss typical visibility? You know, your backlog, I think, is, you know, maybe, maybe how big is your backlog today versus typical?
Sure.
how long, you know, would you expect, you know, you know, I think you have seven and a half months of backlog or something on that zip code. Like, what, what how long will it take to burn that down? What kind of backlog conversion is kind of incorporated into your guidance for 2024?
Sure. Let's talk about that. So, right now, our backlog level's about seven and a half, eight months. It's an average. So we do have some products or some divisions that are higher and some that are lower. But fundamentally, that's higher than our average. We're typically in the five and a half, six-month level. So we've been carrying significant backlog. Of course, it's moving, but we've been carrying significant backlog now for about two and a half years. Part of that was driven by supply chain constraints. But over time, because of the level of demand for our products, you know, being able to pull through that backlog has really been challenging for us. And actually, I think the same is likely gonna be true for 2024. I do think backlog conversion is going to improve in 2024.
As long as the demand for our products continues to be strong, it's gonna be challenging to bring that down. So I think our view generally has been that we will have a multi-year backlog conversion. Some of you may know we've expanded our overall production facilities to try to bring that backlog down to what I would want a more normalized level from a customer experience perspective. So I think over time, over the last two years, we've attempted to bring that backlog down, and the demand level has just made it really challenging for us to do. I expect we'll probably have something similar to that, you know, in 2024. You know, it's a little early to talk about 2025.
So basically, what the implication is then, you think, like, your orders will probably go in line with your top line, I guess, is what you're saying?
Yeah. And it's worth repeating too. You hear that, you know, we have had record revenues year after year. You know, these last three years have been really record revenue for Bruker. So for us to have solid demand keeping up with that, which is essentially what backlog means, you know, you have to have exceeded that overall revenue performance. And, you know, even in the fourth quarter, we had some, you know, some moderation generally in demand, but we're still at a level above our revenue performance. So it's quite encouraging at the moment, just the level of demand we see across most of our products, including, you know, the ones most know about.
So, you've had a steady cadence of M&A, including the, you know, the billion-dollar ELITech deal, right? Maybe just start with that deal.
Sure.
You know, molecular diagnostic sample to answer. I think most of their business is OUS. Just any background on the deal, how it developed, was it competitive, and just, you know, how do we think about the financial implications? I know you guys haven't, I think, kind of closed, so you haven't, like, put those out yet. But just any, any color from a high level.
Sure.
that you could provide there .
Well, here's what I can say, Dan. So first of all, we have been, you know, tracking this opportunity for a year or two. I'd say, you know, it's been a really interesting business. We're talking here about EUR 150 million annually from a revenue perspective. Good, double-digit organic revenue growth. Our expectation is that it's a good, strong business. It focuses largely on, you know, midsized hospitals. So it's not bumping up against, you know, some of the larger players like Roche or Abbott in that space. Good solid growth, accretive to both operating margins and EPS, you know, on day one. So I very much like this acquisition. And our expectation is we still have a few hurdles to go over in terms of regulatory approval.
We have a bit of a carve-out that's going to happen as a part of their chemical, their clinical chemistry business, which comes off before we do the acquisition. So we're hopeful that, you know, now that we've signed a purchase and sale agreement, that that will transpire and occur, hopefully, in the second quarter. And at that time, we'll provide much more detail around the financial story of the business. But fundamentally, I think it's a good, healthy business. We believe that it fits squarely in our Project Accelerate 2.0 microbiology and infectious disease area. This is an initiative that we've had underway. What's really cool about it from my perspective is, you know, we have a very strong franchise in the MALDI Biotyper, 6,000+ instruments all across the globe, kind of a gold standard for microbial and fungal identification.
This now would give us access into a viral-related infectious disease franchise. So it's very strategic. We're quite excited about it, and hopefully, we'll be able to provide a little more. Our expectation is that when we close, we'll actually do a Street call because of the size of the transaction. We feel like we'll, we'll be in a good place to, to talk more about it then.
And then beyond just the financial aspects, which we'll get a lot more color on, but just maybe could you just give us just a very quick synopsis, kind of what makes the technology kind of differentiated? 'Cause it is a competitive market, right? Certainly, but just other couple of key facets to it, like why it's done well and kind of, you know, maybe why it beats out some of the other competitors?
Well, I think, again, we can save some of that for the call. But I would say just generally, it's a sample-to-answer system. It has really, you know, quite esoteric panels. And I think maybe we'll provide a little more detail on that. Not to tease folks, but it's valuable to have a deeper conversation with our teams on that. But financially, we're pretty excited about that opportunity.
Sure. And then, you know, as we were discussing before, you know, the Berkeley Lights deal is one that it's been a drag on the bottom line, but, you know, why you see a nice, you know, kind of top line. Maybe just speak to just in terms of the other M&A deals that you've done. You know, how do we think about the impact of, like, you know, which ones would you call out as, you know, if we look at the next two to three years? Are there any in particular that we're, you know, gonna be hearing more about?
Well, for sure, I should mention at least the, you know, the PhenomeX acquisition, which we've rebranded as the Bruker Cellular Analysis business. You know, terrific business. The Beacon series, which is a series of really sophisticated instruments, you know, in the market, very favorably received in that space, specialized in cellular analysis. I think it's a, it, it does have some dilution, at least in we had it in 2023. We have about a $0.10 dilution expected in 2024. But fundamentally, a really good core, you know, core element of growth for us, I think, going forward. In the other business that I would probably call out is the Chemspeed acquisition, which we've now announced. That's a $40 million-$50 million business annually. It's really in the lab automation and digitization business.
It's a very, I think, again, quite strategic for us in the sense that it helps us we, we're gonna surround that with, you know, some other software-related activities that we've already established in place through some acquisitions. Very interesting business, I think, for us. It's gonna complement some of our, you know, it's our BioSpin-focused. This is our NMR franchise. So I think there's really a lot of interest in that. We've got a transition period. It's mostly a European-based business, and it's mostly it's largely percentage of completion. So we've got some accounting-related transition work we'll do in 2024. But once that is completed, you know, our expectation is that the that's a good, strong, growth driver for us and certainly good, ultimately, we'll have much better, you know, margin performance.
Okay. We have about eight minutes or so left. Maybe we dig into some of the businesses a little bit. So.
Sure.
There's a—I mean, we already touched upon it up top a little bit, but there's always a focus on the backlog and the book-to-bill and things of that nature. So maybe just on BSI, you know, I know you called out at 4Q, I think the BSI backlog was seven and a half months, which had come down from eight months. But then the book-to-bill was above 1. Just trying to reconcile if the backlog came down, like, was it maybe I was misconstrued, but just and again, it's in the weeds. But since it does come up with investors.
Yeah. I guess I'd say, you know, look, I think there's been a lot of dialogue around backlog and book to bill. I think what I would focus more attention on is really the demand story. I mean, the growth of the business, I mean, over a three-year period, you know, the level of our, well, we've got some acquisition in foreign exchange drag, for sure, in 2023 and to a certain extent in 2024. I mean, the overall picture has been really promising. I think it's more about the products and the business itself and less about, you know, individual numbers from a book- to- bill.
I mean, you know, for a company that's been able to, you know, grow its revenue performance at the level it has and to be able to have strong enough demand to be above that and still build backlog. I think that's kind of the main message from my side.
So maybe just on NMR. I think you placed 3 GHz NMR in the fourth quarter, very strong. Just, just remind us. I know you talked about it a little bit on the call. And, you know, the outlook for 2024, was there any, I forget if it was any pull forward of those three, but just how do we think about that business and the contribution outlook?
Yeah. So we've been tracking three to four ultra-high-field systems on an annual basis. I think our expectation is that that will be the case again in 2024. I mean, some of you may know we're trying to expand our capacity, you know, to build those faster. We do have backlog there, and for sure, we'd like to be able to execute more than that. But at the moment, our guide includes that three to four . You know, as you likely know, Dan, you know, there's consequences that are more on the customer side. You know, you need larger facilities. They need to be prepared. So that takes longer. I mean, generally speaking, it's not just about, you know, our ability to produce and deliver.
It's much more about, often, it's much more about customers' ability to get facilities in place and time for those deliveries. So I think it's a relatively, I mean, it's a good business. It's got terrific, you know, margin performance that comes out of those instruments. But fundamentally, you know, it's a relatively small piece of the overall puzzle. As we reach this $3.3 billion, you know, target size, it's a relatively small part of the overall business.
Okay. Maybe just on, obviously, timsTOF's been a great success story. Just, you know, where are you with penetration? I know you give some placement numbers. Just discuss a little bit about, you know, where you are with that. You've had a lot of, you know, continued innovation there on new products. And kind of what are you seeing from the Astral from Thermo?
Yeah. So, I mean, just to calibrate this, you know, we introduced the product in 2017, 2018, some very significant uptake initially in the academic and government research markets. What actually happened is that there was a lot of traction initially, not only in the academic and government research but also in the biopharma area. So the uptake there suddenly was very, very rapid. This, I think, fits neatly with a lot of the protein discovery work that I was referring to earlier. And the product is kind of leading edge. You may know we've introduced not just one product but a portfolio now. We have a workhorse, you know, a really high-throughput system together with high sensitivity and single-cell capabilities. So a broad portfolio. And we continue to build on that portfolio.
In 2023, we introduced the Ultra, which had a competitor now with the Astral. I think the key point is we have around 800, I guess, in the portfolio, 800 units and greater than 800 units installed at this stage and, you know, good solid, you know, growth and demand. You know, we are, I would say, continue to be one of the leading players in sensitivity and throughput in this space. The proteomics market itself continues to expand. It's not just about our positioning within a small market. It's our focus on expanding the market. And we've been able to do that, I think, pretty successfully.
As far as the competition goes, it's, I mean, we, of course, love to see competition, especially Thermo's a very strong company with good, you know, competitive characteristics, including the right pricing at the right time in the right markets. I would say just generally that, you know, don't forget that Bruker is kind of the innovation leader in the space. And you can expect to see additional, you know, products in the portfolio, especially targeting sort of high-end proteomics research as you go forward.
Is there a spot? Yeah. We think we have three minutes left. Is there a spot in the context of that timsTOF portfolio where you see a real opportunity where maybe the product doesn't meet in certain part of the market?
No. I think that we've clearly got areas that we have real strength and areas that we could strengthen. And we're gonna continue to do that going forward. That's been our game plan from the very beginning when we launched that product. And now with the portfolio and the scale of what we have, it's pretty powerful at this stage.
So management was very bullish on spatial at your investor day. Just, can you size that business today? Kind of, what kind of traction are you seeing and kind of, yeah. I mean, you know, if you think if we think over the next two to three years, what's the strategy in your spatial business?
Well, first of all, it's relatively modest at this stage. I think it's early days. Fundamentally, we've got some really interesting technology in that space. The Canopy CellScape instrument that we introduced in 2023 is a really powerful instrument. I think it's probably, you know, leading in that space. I think the challenge for us at the moment is really there's a process that goes through, you know, KOLs and, you know, getting introduction into those KOLs. That's been our playbook historically. That's true for the timsTOF stuff. And I think it's clearly gonna be true for Canopy. But we have a number of, you know, focused areas I would call in the spatial area. And I lump our BCA technologies into that category as well. Some very good growth opportunities in that area. I would say it's just early innings.
You know, we'll be, you know, introducing some products, as you may know, even in the genomics area era, in the genomics area, with our Acuity instruments. Those will be coming out at some point in 2024 here. So we're building the portfolio to be broader just as we've done in other areas. And fundamentally, expect to see some further growth from that space.
Great. So we have about a minute left. Maybe just in terms of, you know, you just haven't even closed the ELITechGroup deal yet. And that's a big one. Kind of, what's your appetite for more M&A? Kind of, what are the areas and kind of, you know, what kind of capital could you, you know, allocate over the next 12, 18 months?
So we have a whole series of acquisitions that mostly just fell into the first quarter. Most of those were deals that we've looked at for quite some time and just happened to be closed in the first quarter. So I think the level of particularly large transactions is, you know, we have an appetite for continuing, you know, inorganic activity. But fundamentally, I think that's not a sustainable level for us. But I would say, you know, overall, our capital position we've got a healthy balance sheet. Capital position's quite strong. So I think fundamentally, you know, the company is well-positioned, whether it's through our own organic, you know, process where we reinvest that capital or whether it's inorganic. Multiples are down a little bit.
It's a good, good opportunity and time for us to start looking at some transactions to the extent that they fit into our strategic profile.
So, would you say we're out of time? Like, what's the message you wanna leave investors with today?
I think it's largely around our innovation portfolio. I think the fact is that the company's delivered, you know, double-digit organic revenue growth driven mostly by our innovation cycle within the organization. And it's across most of our portfolio. So transforming Bruker to be more a, you know, post-genomics era leader in emerging sciences is really what our strategy is really all about.
Terrific. Well, with that, we're out of time. So thank you for being with us.
Thank you all.