Okay. All right, great. Let's get started. I'm Puneet Souda. I cover life science tools and diagnostics here at Leerink, and it's my pleasure to be welcoming Frank Laukien from Bruker. Frank, great to have you at our conference.
Pleasure to be here. Thanks for the great conference and the view.
All right, wonderful. I think you're already expecting the topic I'm going to talk about. It's on everyone's mind. You know, when I look at it, first of all, I have to say, you know, U.S. academic ecosystem and biomedical research is truly number one in the world. You know, one wouldn't want to lose that at the end of the day. That, I think, has to be in the back of the mind for the longer term and for participants. Maybe just on the, you know, NIH point, a lot of discussions on February 7th, indirect cuts. The news every week is not exactly improving, either if it's Columbia or if it's, you know, CSR or if it's, you know, NIH intramural layoffs. We just continue to get sort of, you know, a series of negative news.
Maybe just help us understand how you're framing the U.S. academic challenge here. It's not just NIH. Maybe just help us frame that. And how are you thinking about the orders and the sort of what you're seeing in the current quarter, just given the capital equipment, heavy capital equipment that you have?
Right. Yeah. Thank you, Puneet. Does the microphone—you can all hear me, right? Yeah. Okay. The way we frame that is that NIH-funded revenue is only 3-4%, but that's not the right measure. As you've said, all of U.S. academia and government spending is about 8% of our revenue. Remember, there's the other 92%. This is U.S. academic spending in post-genomic tools. Outside the U.S. is strong. China stimulus is stronger than what we had anticipated. I'm sure we'll talk about that as well. Europe's doing well. Of course, non-academic government is doing well. Back to the elephant in the room, U.S. academia, 8%. We're trying to model what that might mean. I mean, it's nice to—last year we had two significant headwinds. Remember that. We had China as a significant headwind. China was slowing way down.
We also had biopharma slowing way down. Those have both turned into tailwinds. The U.S. academic headwind this year, there is no certainty about how long and how deep that interruption or turbulence will be. I do not think it is fully knowable right now. If you have the most pessimistic scenarios, you get the—that is the best clickbait out there. I do not necessarily subscribe to that. We are modeling it. Maybe to your earlier remark, I think there is no evidence whatsoever from RFK Jr., from the Jay Bhattacharya confirmation hearings, from the Marty Makary confirmation hearings that anybody wants to dismantle the U.S. preeminence in biopharma or in U.S. academic life science and disease research. Whatever we are looking at here, I think, is a temporary disruption and turbulence this year. It is pretty significant turbulence right now. Gets amplified at conferences like this.
I do not think it is fundamental. I think my outlook for 2026 and beyond does not change at all. For 2025, it is a question mark. For 2025, we are presently modeling as the most probable scenario something like an 8% downturn. Now you have heard the number eight coincidentally twice. 8% downturn on 8% of our revenue. That might be about $30 million this year. That type of revenue headwind we could accommodate within our existing guidance. We might—this might then—because I had, you know, you have a lot of conservatism built into the guidance. That conservatism and upside, therefore, may be challenged, right? This might not be the year for beats and raises in guidance. You could also argue that, you know, this could be pushing us towards the low end of our guidance.
That's what we probably regard as guidance and as the most probable scenario. Invariably today at the conference, at another conference yesterday and last week in Boston, people ask, you know, what could be the worst-case scenario? You model or you ask what could—with us, with having seven months plus of backlog and so on, a worst-case but pretty unlikely scenario in our opinion is that—it helps in ring-fencing the issue—would be that U.S. academic, that 8% of our revenue, what if that came down 25%? That's not our guidance, although some people have misinterpreted that. There are some notes out there that have misconstrued that, even though I've been incredibly precise and will again be very precise, that that's a good modeling exercise because with that modeling exercise, that's easy numbers.
That would take 2%; that would be a 2% headwind to our revenue. That would be about $75 million or thereabouts, $70-$75 million. That would mean still growth for Bruker instead of 5%-7% constant exchange rate revenue growth this year. It would imply 3%-5%. That would still mean very significant margin expansion, hopefully at or very close to the 140 basis points that we've baked in right now because that was a quite conservative number. That also would still mean very significant EPS growth, you know, perhaps near the low end or near the low end. Because this isn't guidance, we haven't modeled through all of these scenarios. I will not because there is no data to support the 25%, or is it 15%, or is it 8%, or is it more benign than that?
Last but not least, even within this year, there is a timing element. There is going to be some delays, but these budgets have not been taken away from NIH. What are they going to do with these budgets where they have delayed grants? Is there going to be a significant budget flush with orders in August, September? That is also a plausible scenario, but nobody quite knows. For us, admittedly, that would probably make for a strong Q4, but some of that revenue would then also go into the first half of next year. Ironically, it could strengthen next year and weaken 2025. It is unclear to me. To see, I do not see any scenario where these budgets complete—I could see—we can imagine anything. It does not seem likely that approved budgets for NIH would not be spent at all, but some of that could shift into next year.
I think that's the different angles on this topic.
Okay. No, that's very helpful. Maybe on the point of 8% reduction, maybe can you clarify? I mean, this isn't this time more different than the COVID times. Obviously, we saw a sharp decline there, somewhat of a freezing. There weren't these anxiety-prone researchers and labs, and there's just a constant sort of drumbeat of negative news. It was just frozen type of situation. People were then trying to return back to the labs. When they did, they, you know, ordered those products. Maybe there was a little bit—seems like there was more certainty. Just wanted to understand sort of thinking behind the 8%.
In March 2020, there was not more certainty either, right? By later in the year, then there was some more certainty and people began to figure it out. It took a couple of quarters to get from extreme scenarios to, okay, more a narrower range of scenarios. Not that everybody then knew the future, but, you know, from this extreme uncertainty, which is somewhat comparable psychologically with what we have right now, this extreme uncertainty and turbulence. In this particular segment, I think there is some analogy. Of course, it is not an exact comparison, which is why the 8% is not—this is not a precise figure. It could be 5%, it could be 12%. It gives you a range, right?
Having said that, you know, a company that has seven months of backlog—now, seven months of backlog in revenue really means it's more like 10 months of instruments backlog. We also have $1 billion per year of revenue that is recurring in consumables and software and services. Most of that goes forward. I understand from, I guess, Techne. CFO made a comment yesterday. I know from a privately held Promega that indeed there is a reduction in spending on consumables on life science. Obviously those guys would notice that first. That is not surprising, right? That is totally to be expected that that might be down. I do not know what it is down. Is it down 10% or something like that?
I've seen various universities who tell all of their departments, "Hey, we're going to have a hiring freeze for staff, not for faculty necessarily." Every department has to cut their budget or their spending this year by 5% or by 10%. You know, those are reasonable numbers. Nobody has said 40%, by the way. I don't see that anywhere either. The numbers that come out of that anecdotal various universities doing cost cutting, it's in that high single-digit range, which again supports a high single-digit assumption. Although it may be dampened for us, maybe for companies with consumables, it is down 8% or 10%. Maybe for a company that has backlog of over seven months, maybe it's down less than that. This tends to dampen upswings.
It also tends to dampen a one or two-quarter, you know, dip if it is a four-quarter dip, which I would not expect because it is correct that these budgets have been approved. I do not think Jay Bhattacharya will get confirmed and say, "Hey, great, I am going to give these $4 billion back to the Treasury." He will probably say, but I do not know once confirmed, which might be soon if Senate hearings look reasonable. Okay, guys, let us get this out. And then we can ask for an increase in spending with a focus on chronic diseases, which is what RFK Jr. wants to tackle. All things that we—neurodegeneration, autoimmunity, cancer—these are all examples. There are other chronic diseases, all things where our tools would be very, very applicable for disease research. I think this is completely overblown.
This people freaking out and going to whoever gives them the lowest number and the scariest number. I mean, this does attract clicks, but I think it's bullshit. You can quote me on that.
Okay. All right. That's very clear. Okay. Maybe just, you know, then switching gears to the potential, there was some news on the German side in terms of the chancellor talking about potential, you know, incoming German spending on the defense spending side and fusion research in Germany. You know, maybe just help us understand sort of how large that opportunity is. It doesn't look like it's going to be this year, but maybe just help us understand sort of the timing of that.
Right. It's going to be, you know, for the next three, four years. It's not going to be this year. At a very high level, indeed, this isn't an approved plan yet. This is the coalition exploratory talks and agreements among the two/three parties that are likely to form the next German governing coalition that should come together in about a month under presumed new chancellor Friedrich Merz. Actually, at a very high level, very encouraging that guy because he has also been in industry. He, for the first time in three decades in Germany, I can complain because I'm from Germany originally, there's really anything that resembles an innovation strategy or an interest in an innovation strategy, something that Germany just hasn't had. They don't even have R&D tax credits and things like that that all other European countries have, the U.S., of course.
Anyway, investment in innovation and R&D was part of this proposed $500 billion. They do not call it stimulus. Initially, it was geared at defense and beefing up defense spending, which had been neglected for a long time in Germany. It became a broader infrastructure and innovation $500 million package, $500 billion package, presumably for the next four years that this government will be in power before the next elections. Defense spending is good. Even that might modestly benefit Bruker. We do not talk about it very much, but we do not have anything that shoots, but we have stuff that measures. We have defense and homeland security detection equipment, about a 50. That business from being small has grown to about $50 million in order run rates because of the Ukraine.
That business, which has very good margins, mostly sells into Europe, not only into Germany, into Finland, you know, Czech Republic, Romania, all sorts of customers in Europe that are beefing up their defense detection capabilities. We think that business could, you know, over the next three or four years, perhaps go from $50 million to $75 million to $100 million. Not hugely needle moving, but yet another one of these healthy growth drivers at Bruker that comes out of technologies. The second part, which was fusion energy, why would I care about that? It actually turns out that Bruker, in our BEST segment and its research instruments subsidiary, as well as the superconducting materials we make in BEST, has had of the order or more than $100 million cumulatively, not per year, of fusion-related technology revenue or contracts.
A lot of that goes into ITER, but some of that also goes into German Wendelstein and similar plasma physics projects that are all fusion-related. Some of that goes to China, some of them goes to the U.K., et cetera. It turns out that if fusion energy does take off with more research funding, which was specifically highlighted in this positioning paper, and then the actually strategic proposal that surprised us, I mean, I was thrilled to read it, that Merz and his imminent coalition had highlighted that Germany wanted to build the first fusion power plant in the world. Wow, that's a cool proposition, right? Now, other countries have the same plans, but at least there is a goal, and there presumably would be prioritized funding for that. That could be quite beneficial, not only in Germany, but in Europe and to some extent also the U.S.
and Asia for Bruker. As I said right now, that, well, $100 million cumulatively, right now, that's about $25 million or so of revenues per year. Again, good margins that we have. That could, of course, very dramatically increase. None of that will happen in 2025. Again, this research spending and pilot project technology could really be beneficial over the next four years. Until $10 billion fusion power plants and 200 of them are being built in Europe, that's going to be quite a while. Even during that ramp-up period, as many country programs and then the 40-50 startups in the world, most of which are pursuing magnetic confinement fusion, need these plasma heating and diverter and cryopumps and superconducting materials tools. That could be a very, very just a little bit like semiconductor came up for AI a few years ago.
That's a set of technologies that could, over time, also grow. I mean, it could become a $100 million-$200 million business over, you know, five to ten years. But it's there already, so it was nice. The most imminent thing that I think would benefit us in this new program is the innovation in R&D. They didn't specify proteomics or spatial biology, unfortunately, because it's too high level. That'll take a year to turn into specific programs, which ministry gets what, and then how do they allocate it. Germany has an excellent track record of being one of the highest, biggest investors early on in proteomics and in related technologies. I think they get the post-genomic era.
It bodes well at a very high level in terms of messaging for programs that will benefit this life science spend on the post-genomic era, this next chapter in life science and disease research, for which we've rebuilt the transformation of Bruker, as you very well understand.
Yeah, indeed. Indeed. The question around Europe, the other question that we're getting in, as you would have expected, just given the challenges that we're seeing in the news in terms of steel, aluminum, other tariffs, to what extent these tariffs extend into instrumentation. You obviously use a lot of, I mean, if I could say, wires and things and capabilities that you have in order to manufacture in Europe. Your presence, I believe, Biospin calid presence in manufacturing, correct me if I'm wrong. It's Germany, and maybe it's in Switzerland as well. Maybe just help us understand if there were further tariffs, things go back and forth in maybe in some situations. Help us understand the dynamic and how much tariff, how much exposure do you have there.
Yeah, it's multifaceted. I'll take a couple of minutes. First of all, Mexico, China doesn't affect us in.
Mexico, Canada, you mean?
What is it? Mexico, Canada. Thank you. I misspoke. Thank you. Thanks for. Yeah, Mexico and Canada doesn't really, it doesn't affect us. China, we have an exceptionally beneficial setup there in we don't manufacture and for our final test, anything in China. We manufacture in the U.S., in Penang, Malaysia, and in Europe, but not in China. So we're not importing anything that's affected by these increasing tariffs by the U.S. on things imported from China. China will have retaliatory tariffs, but of what we Bruker sell into China, 90% comes from Europe or from Malaysia, and only 10% comes from the U.S. and could therefore be subject to the increasing Chinese tariffs on U.S.-made goods. To your Europe question, the post to Truth Social that I had seen from a cabinet meeting at some point by Trump was on tariffs on the European Union.
First of all, Switzerland is not part of the European Union. A very big part, essentially all of our NMR business, all of our NMR business, not some of our MRI and EPR business, although that could also come out of Switzerland very easily, comes from Switzerland, which with their Swiss neutrality does not seem to be implicated because they're not European Union. That might be a good guy. That's a big chunk. The things that do come out of the European Union, mass spectrometers, X-ray equipment, you know, things that we make mostly in Germany, but also in France and Belgium, that's all European Union. If you look at tariffs on, are there any European Union tariffs on scientific equipment made in America and coming into Europe, there are none, none that I'm aware of.
It's not like pickup trucks or SUVs or steel or aluminum. There aren't any. There shouldn't be any retaliatory tariffs against that. Now, it could be broader brush, right? Maybe they'll say, well, equipment coming in from the European Union, that could be very broad, and that then could also include Bruker scientific equipment coming into the U.S. There I have, we're not doing anything at the moment because this is also unclear. There I have reasonable agility because we used to make X-ray equipment in Madison, Wisconsin. Now it all comes from Karlsruhe, Germany, but we could go back. We already have the facility there. And could for the U.S. market, I wouldn't move all my global manufacturing, but for the U.S. market, I could move it back to Wisconsin.
Mass spectrometry and NMR, NMR comes out of Switzerland, but both of those used to be also made in Massachusetts at our Billerica headquarter sites. That is where we did all the MALDI Biotyper . We had, and we have, a big mass spec R&D footprint. We could bring our mass spec to Massachusetts and if needed, our Swiss NMRs to Massachusetts because we used to do final tests over there. That does not happen overnight, but it also does not take, so it probably would take, you know, maybe $10 million-$20 million in CapEx that we are presently not planning, and it could take us maybe two or three quarters with rehiring and resetting everything up appropriately. That is very different from, oh my God, I need a couple of hundred million and a greenfield site, and this will take me two or three years to execute.
We have reasonable agility there. We have all the X-ray, NMR, mass spec experience on these sites that we could pull it off, and we still have manufacturing and even FDA regulatory systems in these sites. We could move it within a few quarters. We are not doing that right now because you do not know what to solve for, right? Some of these things get talked about, then they get talked down, then, you know, maybe they will focus on cars and pickup trucks and aluminum and not on scientific equipment because U.S. scientific equipment faces no tariffs in Europe, in the European Union at least. Longish answer because there are a lot of moving pieces or a lot of presently non-moving pieces. Overall, I think that is a pretty favorable and agile setup, even with respect to Europe having such a big part in Switzerland.
Yeah. What was, can you just remind us your total European exposure overall? I do not know if there is a way to fragment that into Germany versus Swiss, but.
Different ways of saying that, maybe that's not what you're asking, but revenue-wise, Europe tends to be about one-third, right? I mean, very roughly, Europe, the Americas, and Asia-Pacific are each at 30-33%, and then we have like 4-5%, you know, other Latin America, India, Middle East or so. That's the revenue exposure in terms of R&D and manufacturing. Europe, but Europe including Switzerland, which is not European Union, is more than 50% of manufacturing. The European EU only is probably 30-40% because Switzerland is a very large piece. By the way, I could also move my mass spec production to Switzerland because the TIMS cartridges and the LCs and a lot of the tims development are already happening in Switzerland with Swiss IP and have the facilities there also to say, okay, all timsTOFs for the U.S.
Rather than coming from Bremen, Germany, they would now come from Zurich or near Zurich, Switzerland. That also would be a relatively two-quarter change or so with facilities and experience and know-how there, manufacturing systems all there. They do not have to be created. Again, this is a fair amount of agility that allows us to respond to whatever the political and tariff developments might be.
Yeah. A number of ways to address, but it's going to take, it could take some time, two or three quarters. Yeah.
Yeah, but yeah, it doesn't take two or three years, and it doesn't take hundreds of millions. It may take, you know, what, maybe $10 million-$20 million in CapEx to refurbish those sites to set them up for, and I would move all of production. I would move production for the U.S. market. That's about 23% of our revenue.
Got it. Okay. Just.
Lots of details.
No, I appreciate all that. Just given the, you know, since the majority of discussion is still on macro, just on the, you know, on the CHIPS Act, there's some discussions of sort of rebranding it maybe. Again, it seems like technologies are still very much important to the White House. Given the presence and the dominance of the U.S. in that, maybe just, you know, does that, are you hearing anything on that front? Does that change any timelines and the way you provide your X-ray equipment into these facilities? Also, maybe along the way, if you could talk about AI, if you're seeing any change in the sort of the demand dynamics there that you supply into some of the GPUs, I mean, the products that end up building those.
I can bundle the answers because they're tightly related, they're closely related to TSMC and chips and packaging. Let me explain. The swipe against the CHIPS Act, we've noticed, and quite honestly, we don't know what that means, but so noted. Very clearly, there was this, I assume it was at the White House, announcement with the U.S. president and the leadership of TSMC, that TSMC, in addition to their significant investment in Arizona that they've started a few years ago and were plugged in, that they would spend an extra $100 billion in the U.S. I would assume that's like a five-year time frame. You know, it's not going to be over two or three years, because you can't spend it that fast even. Although they are a company that moves at remarkable speed. We are, that's really good news for Bruker.
We are plugged more into TSMC because they need the most advanced semiconductor metrology equipment for smaller nodes, more layers, more metallic layers in chips, but also more stacking, you know, going into three dimensions on memory or particularly in this case, GPU chips. They make all the advanced chips for AI. Others trying to get into that, but it's almost all TSMC right now. They were very, very deeply entrenched in that in Taiwan and also in the advanced packaging because that was one of the subheadlines that people probably did not pay attention to.
As part of that $100 billion investment, they also would bring advanced packaging into the U.S., which is also very good news because really only two companies, KLA Corporation and us, have the white light interferometry advanced equipment. We think we have the best, which is why we've been selected typically by TSMC for advanced packaging. In addition to more chips in the U.S., also bringing advanced packaging, TSMC packaging, that was music to our ears. As you can imagine, that would bode well for, I don't know, orders, maybe 2026, 2027 deliveries, 2027, 2028, 2029, etc. Very, very good trend there. Focusing on TSMC is smart. I mean, they're far ahead of Samsung and they're way, way far ahead of Intel and many other chip manufacturers, particularly for this high-performance computing, which supports AI. We see that trend unbroken.
Got it. Listen, given all the questions that we've been, we've unfortunately didn't get enough time to touch into, you know, or touch base into the proteomics, the neck post-genomics era, but maybe at a high level.
We still do that.
Yeah. You do plenty of that. That is why we have another conference where we spend a lot more time on that.
That's right. Yes.
Maybe just at a high level. I mean, I saw you at AGBT. You know, one of the products that really, you know, was interesting at AGBT for a lot of folks was from a customer side was PaintScape. That's an, you know, an evolution. It's a new innovation in that space. Maybe just talk to us about that and overall, you know, if there are any thoughts on the spatial side that, you know, that you would like to add.
I mean, Bruker, without any question, I think it's just objectively had by far the most product announcements in spatial biology from further improvements in the CellScape spatial proteomics, which now has much higher flexibility in antibodies that you can select, which has higher throughput and can really do plexing without damaging tissue or epitope, something nobody else can really do. I think we're in the premier product position there. We now have the NanoString channel and CellScape is now growing very rapidly. Big announcements on the whole transcriptome from on the CosMx from the old NanoString. We still use that brand name. It's just very recognizable within Bruker spatial biology. On the plexing side, being able to scale to a full transcriptome, which is about 19,000 transcripts, is absolutely remarkable.
The other system on the market really is good at 1 to 2K, and they claim they can do 5K, but it just does not scale. Their rolling circle amplification or RCA does not scale and becomes very inefficient. When people have shown what they can actually measure, I mean, these are just headline numbers. When you measure with a 5K or 6K set, you do not measure each one. You measure some of them. It turns out we could measure three to five times more for comparable plexing. We have now rolled that to the next level. I think it has almost an unfair advantage now in the spatial transcriptomics battles. Yes, Painscape is a brand new thing. That is a completely new technology. That is the type of technologies academia will invest in because they can answer new cancer biology and infectious disease and just basic cell and genome biology questions.
You could never address the genome isn't just a long sequence string, 1D string. It has three-dimensional position. It has three-dimensional interactions. It has a lot of stuff going on that we all thought, my God, that's got to be cancer and a nucleotide or a translocation or extracellular DNA all of a sudden showing up outside the chromosomes in the nucleus. Turns out, wow, this stuff is all there all the time. We really had no idea. Some of it will be cancer and some of the immune system will be taken care of, hopefully. Some of that is just new windows into genome biology. Very, very exciting, very big drivers.
At some point when we get back to those fundamentals, that bodes really well for that entire Bruker spatial biology, including NanoString, to see very good growth and good margin growth with good pricing power because these tools are way ahead or completely unique.
Okay. We'll look forward to that later. Thank you again, Frank, for our time. I really appreciate the input here.
Thank you all very much.