We are very fortunate to have Gerald Herman, CFO of Bruker, and Joe Kostka, investor relations, joining us today. Gerald, welcome.
Thank you. Delighted to be here.
Great.
Thanks for the invitation.
Thanks. Maybe just to quickly start on some of the quick 2Q recap. Results came in a little bit weaker than expected, the same as with the 3Q guide. Bookings has been great. Can you just maybe talk about the puts and takes for the quarter, and how should we think about the full Q ramp? I think that is what people come by focusing on.
Yeah. I would say with respect to the second quarter performance, we clearly outperformed on the organic order bookings performance as well as on the EPS line. We came in late, I would say, on revenue performance, which is a little later than we had expected. We have a couple of elements that contributed to that. I think one of the key areas I think we need to focus on is, talk a little bit about is the highlights of some of the order book performance. Generally speaking, we saw strength in China for the first time. Actually, in multiple quarters, we have seen some significant strength there, greater than 20% order growth. Biopharma space for us was actually quite strong across the globe, including in the U.S. The other area that I think maybe wasn't such a surprise to most investors, but was our semi-metrology business.
Parts of that business have really got remarkable growth going on right now, driven mostly by AI demand, advanced packaging, and just generally some other favorable tailwinds in that space. Order performance, quite good across most of the geographies, with the exception, I would say, of the U.S., particularly in the academic side. That's sort of somewhat continued through the third quarter. We can talk a little bit more about that if you would like on the sort of NIH funding environment. But in general, weaker funding environment in the U.S. academic side in the second quarter, and some of that also seeing some of that also in. With respect to the other elements of the business, I think generally speaking, we did well with some of our pharmaceutical product portfolio.
We did quite well, I think, in some of the Academic and Government research markets, particularly for our proteomics products outside the U.S. I think just generally our diagnostics business before. In order, we saw some high single-digit growth in that space and expecting to continue to see that. So a bit of a mixed story, mostly industrial weakness and some academic U.S. weakness, but otherwise a pretty good story for us from the profitability side in the second quarter. Now to your comments on the third and the fourth ramp. On the third quarter, we did communicate for some color related to the third quarter of 2026 that we expect to see some push-outs, particularly in the semi space. That's just fortunately adding to the size of the ramp for the fourth quarter.
When we look at that, I think just generally, we are pretty comfortable with what that looks like right now. It's over EUR 1 billion worth of revenue, but we have delivered close to that in Q4 of 2024. So, when you layer on, for example, a gigahertz class NMR system into the fourth quarter of 2026, and you add some of the pushouts coming from the third quarter, it feels, from a revenue perspective, is pretty achievable. What that does for us just generally, it's going to provide a better mixed story for us compared to the prior year quarter, the fourth quarter. It's going to give us some very good volume leverage on the operating margin level. We also have some cost-saving actions that will kick in the fourth quarter.
From an operating margin EPS perspective, it feels, again, pretty achievable for us, assuming that the revenue volume performance that we are expecting to see. I think that's kind of the feels good for us. I think on the fourth quarter, it's going to be an important quarter for us from an execution perspective, but it feels quite achievable.
Great. Let's start with the academic market.
Now we are approaching in the U.S., the physical year-end
Yes
of the government. Have you started to see maybe more funding being released to your customers? Maybe that you're starting to see a pickup in quarters? Potentially we can see some benefit in Q4?
Well, to answer the first part of your question, we are beginning to see some signs of improvement in the funding environment in the high-end research tools market space in the U.S. on the Academic and Government research sector. It's taken us quite some time to get to this place, and it is a bit disappointing that there was a funding, there's congressional approval to go forward, but we have now some sort of a large bolus of amounts that appear to be released. At the end of September, we started to see some signs of some orders as well. But I would say, most of those orders we would expect to see if funding occurs in the third quarter. We expect to see those orders in the fourth quarter.
Unfortunately, I don't think that's going to translate into any upside at all for the fourth quarter just because of the turnaround in that process. I would expect that we will, however, see an improvement in 2027 revenue performance coming out of this. And actually, this is very similar to what we saw in fiscal year 2025 with the U.S. funding. It all occurred at the end of the fiscal year, and I think it certainly helped the 2026 performance, but it didn't help that particular year. So I wouldn't expect to see much improvement in 2026 fiscal year as a result of that. But it would give us some good momentum, and certainly, we do know just from our own connection points into grant applications to the NIH and NSF that our products are being selected as a part of those grant applications.
Those clearly will become orders over time. It's just a question of how quickly academic institutions translate those into real personal opportunities.
Great. There was no shortage of NIH news. I think there was a recent one last Friday.
Yeah
about potentially additional panel review on the ground. Wondering, given that academic is a big market for you guys, about 40% of the total revenue globally.
U.S. can be, maybe we're going to see multi-year weakness, that's a potential. China can be volatile. Wondering whether you have seen any behavior changes in your customer base, and what could be the potential offset if we're going to see the weakness?
Yeah. Just to reframe this a little bit. The U.S. ACA-Gov portion of Bruker's revenue is about 8% of the total revenue, so I'm not understating. It's still an important market for us, but it clearly doesn't carry the weight that it used to years back. Secondly, I would say, what we've seen generally is an uptick in the order performance in the Academic and Government research sector for our products outside the U.S. And here I'm talking about Europe, China, Korea, Japan. In those markets, it's pretty clear that we've got the right products in the portfolio to really address the research market requirements. I think the real question for us is going to be, is there going to be more challenges within the U.S. ACA-Gov upside? And actually, at this point, we haven't seen that.
We've actually seen, especially with the recent bolus of East funds, it's largely going to the institutions where we have pretty deep collaboration arrangements and working arrangements with those institutions. I think generally speaking, we're expecting the U.S. ACA-Gov markets to be more stable, notwithstanding multi-year funding, additional reviews, and so on. I think just generally, tools that we're providing into that space are the right tools at the right time. I would also say that, I think generally speaking, we have a number of other cylinders that are firing. I can use that analogy, in the business that weren't there in 2025. I mentioned biopharma. China can be volatile, but fundamentally for our tools, the experience that we've had, especially at the high-end research end, has been very stable and pretty predictable, I guess, more broadly.
The great thing about China is that they do not appear to have the same funding challenges that the U.S. has. Once the Chinese stood aligned on a particular sector, they can fund it and they can fund it very quickly and have actually. I think what we are seeing right now in the China market is, including in the Academic and Government research side, is just the ability to pivot to the right sectors that they want to fund and to be able to fund those quickly, get the high-end research tools that they need. I think generally that is the way I would frame this. We have biopharma performing better, China performing better. I would hope that we will start to see certainly outside of our deep tech products, the orders are quite strong. Starting to see strength again in industrial steps forward.
I think we have plenty of other places that can offset any delays in U.S. ACA-Gov research funding. What I am hoping is that it is not actually going to be as delayed as it was in 2025 and 2026. I am hoping that the administration will have a slightly different view on how to fund this going forward.
Great. That is great. Moving to semi, I think lots of the investors' questions around are you expecting another delay or maybe new orders being pushed out again to 2027? Wondering if you have any thoughts on that. I think the question is really on you have visibility into the order, but seems like the visibility in terms of delivery time, that can vary.
Do you guys have any internal process that can improve the visibility, that can help investors as well?
Look, I mean, the semi-metrology business for Bruker makes up about 9% of our total revenue, so it is a sizable sector for us. We saw remarkable growth, and again, we are talking about greater than 15% order growth in the second quarter. I can tell you that the growth profile for the third quarter so far looks very good as well. I think the overall market dynamics and market demand for semi products, and particularly the products that we offer, is really quite strong. As to the volatility or the question around visibility, I would say, generally speaking, first of all, we are very blessed to have significant order activity. It looks like that is continued. It looks like that is going to be at least sustainable through several more quarters, into 2027.
There might be some question about what happens in 2028 and 2029, but at the moment, the 2027 picture looks pretty good from an order perspective. The conversion of those orders into revenue has been a little choppier, and that is not really driven by Bruker's actions, but really driven by its customers. Customers typically put orders into the slot they identify, and then from time to time, they move, appropriately for them, depending on when their fabs open or when they are bringing these instruments on, or want to bring these instruments online. Those are really not elements that we can control. Yet necessarily really good. We have deep working relationships with these customers, and I think many of you may know, these are some of the largest semiconductor companies in the world, and they have significant control and management of when they want those instruments to be delivered.
We do not get to decide on those. We get visibility usually three to six months in advance, but sometimes they push those out further. I do not think there is much more we can do internally to get better visibility into when the revenue itself will be recognized, other than to be clear about what our expectations, what their expectations are in terms of timeline to when the delivery times. I think just generally, it looks like the bolus of order activity being as strong as it is going to mean a much smoother revenue curve going forward. We have quite a bit of backlog at the moment, so maybe that smoother curve does not occur until sometime in 2027. But I think investors shouldn't worry about whether those orders are going to be dropped or changed.
They might change the timing of them, but historically, we haven't seen cancellations or any other moving off of an existing order. Moving into another quarter, I think is normal in this business, and the scale of what we are talking about, I think is pretty reasonable in order for us to do that. But we will have better visibility into that as we march into 2027, and we will give the street more clarity around how that looks, especially that part of the business.
Mm-hmm. That's helpful. I think circling back to one of your point where you think 2027 picture is good, beyond that depends, but think about the portfolio that you sold into the semi. Any specific product that you think have a little bit more durable growth into outer years, where you see pretty healthy demand, just in general?
Yeah. Just generally, of course, we have some really hot demand products going on in the semi space. I think as we just said, that's likely to be durable for multiple years. I think the other area that we've been talking quite a bit about with investors is the timsOmni product. This is a product that we introduced in 2020, I guess 2025, and have really taken a lot of order activity in not only the Academic and Government research side, but also in the pharmaceutical side. This is a product that focuses on proteomics and the identification of proteoforms and the functioning of those proteoforms. So this is a product that's sort of what we would call part of the Functional Proteomics 2.0 concept that we've been communicating to the street. And that product has shown to be really exciting.
I think in the marketplace, there isn't really any other products similar to it. It's being used extensively already in the pharma space for the identification and functionality of proteins. So I think that is one for sure that would be also pretty hot going forward. I think the other one that we have talked a little bit about is the timsMetabo. This is a product that's focused mostly on metabolites, and I think that's another area that's going to be very important moving forward. I think the take-up on that particular product has been quite good. It operates at the high end of the market, and I think we've seen pretty significant performance there. But we do have a pretty broad portfolio. I think, as some of you may know, we introduce new products every year.
With our R&D spend activity, we have a lot of new products that are introduced annually, and we try to be at the number one or the number two market position in all those products. If we're not, we're reinventing or re-innovating, or we're moving out of that market space. So we have a range of products that I would say, other than the three that I've talked about, I think there's a whole range of other products that are doing extremely well in microscopy, in Raman microscopy, in our optical or X-ray technology products as well. We've got some really interesting products coming up. I would say we're starting to move also into more advanced products in energy fusion and security detection area, where we're seeing really good take-up in our instruments.
There's a bunch of products I'd say that are going to propel us forward at a more rapid rate than, I think, general market conditions in 2027 and beyond.
Great. Maybe slightly also related to that, I think everyone talking about AI, but I think my focus will be a little bit outside of the same, maybe, but more on the traditional research tools, right? How will you size your percentage of the portfolio that are more like a high-resolution tools that can be used in AI drug discovery, like maybe you already start to seeing some benefit from that? Maybe can you talk a little bit about that?
Sure. It's an interesting question. I think fundamentally, we do think that we're in the early stages of the AI. We think that AI is going to be a tailwind, particularly to selected life science tools companies, and we think we will be one of the primary beneficiaries of that. The reason for that is primarily because we offer really deep resolution capabilities and data generation capabilities from our instruments in a way that most of the others in the tools industry don't. There will be other companies that will benefit, but I think we'll be one of the primary beneficiaries. I think just generally, what we're starting to see at the moment is the development of early-stage foundational models in the AI side, and those are essentially designed to beta test some workflows.
You take a particular problem and you start to design the flow and then test with an instrument, and then do some analysis with artificial intelligence. Fundamentally, we are going to be part of that testing process, we think. We've seen some evidence, in particular in Boston area, but in other markets, where some companies are starting to develop these foundational models in a fairly elemental way with some fairly straightforward, likely simpler tools. But one would expect, as these models evolve, they will need deeper data analysis and deeper data solutions. That's where I think our instruments come in. Having a deeper understanding of disease biology through data that our tools generate is really where we think this is going to go.
In stages two, three, and four, as these models develop, we think they will need more advanced, deep, high-resolution tools, and that is where we play really well in that space. Here I am talking about tools like the proteomics tools, the timsOmni, AIP, high throughput tools, some of our timsMetabo instruments around metabolites. I think the other area would be spatial biology, which we have not spent too much time talking about, but certainly the amount of data that gets generated through spatial dimensioning of cells and molecules is going to be a big part of that. I think the CosMx product and related products associated with that would be significant. I think those are the areas that we see as essentially developing a tailwind going forward. I think the early-stage development activities are just occurring here in 2026.
I mentioned to some investors earlier today that there is a really interesting company that we have made a minority investment in, a company called Itinerary, which basically does clinical chemistry. It essentially takes clinical compounds and puts them together to look at toxicity and reaction. They have got a foundational model that they are beginning to develop. This is in the Boston area. Essentially, they are trying to look at reaction capabilities between these chemistries, and they are using a Fourier 80 Bruker benchtop NMR to look at those chemical reactions and structurally provide data with respect to those. The way I think about this is that is a very small, contained chemical reaction, but using artificial intelligence, they are doing these chemical reactions over and over again. Eventually, when they move to an on stage, these are being applied for pharmaceutical and drug toxicity tests, for example.
When you apply this on a much larger scale, they are going to need larger NMR systems, which will be much larger than Fourier 80 that they are using today. This is a thesis that we have that going forward, maybe in the early stages, you use a relatively straightforward tool, but then as you march towards more advanced models, you need the heavy guns have to come out and need deep resolution capabilities and a lot of data, and then that gets fed into these models. That is how we think this is going to play out with many more shots at a particular target, and fundamentally probably different targets will be identified in a way that we have never seen before.
That is the sort of the big picture around what we think is going to be a pretty significant tailwind, at least starting in 2027 and beyond, on the AI side for selected tools companies.
Great. I think you touched on spatial a little bit. Maybe just talk about competition dynamic in some of your areas. So one is spatial.
Sure.
One of your competitors launching a newer, higher throughput machine. Anything on your pipelines, going after the similar market. Another one will be more like a microbiology, another competitor kind of turning around the story. Wondering how do you comment the competition dynamic?
Yeah. The key thing is that when you're playing at the number one or the number two position in most of these markets, you have to be innovating continuously. That's one of the things that I think Bruker does better than most companies. Our innovation cycle is world-class, and I think fundamentally, we generate new products more quickly. Those are typically products that have innovation with impact. They're not just a slight upgrade. These are usually products that take science to generally a higher level. I would say that if you think about the spatial biology area, I would say the CosMx product, which we acquired as part of our NanoString acquisition, we've really upgraded and really strengthened the capabilities of that tool.
To a point where essentially the Atera, which is the 10x Genomics product that's competing with that, is making a lot of claims yet to actually deliver a product. We had most of those capabilities, whether it's the human transcriptome or the mouse transcriptome, or our microRNA capabilities or additional protein capabilities. We had all that a year ago, and those products are continuing to sell, especially in markets outside the U.S. where the funding dynamics are slightly different. So I think the short answer is, whether it's microbiology, whether it's our spatial biology business or our proteomics business, we just continue to innovate at a faster rate and with higher impact than many of our peers. That's going to keep us hopefully driving our growth rates at rates above market. That's really the strategy.
We're investing roughly 11% + of our overall revenue into R&D on an annualized basis, and that seems to be paying off nicely in our expected growth rates going forward. Had a few headwinds in 2025 and a little in 2026, but I think with funding environments improving and most of the sectors that we play in improving, we expect to see stronger revenue growth.
I think you mentioned a couple drivers in 2027 and beyond. I guess as we look ahead, what will be the moving pieces for 2027?
Yeah. I think for sure semi it looks like it's going to continue at a fairly rapid growth rate. I would say our proteomics business fundamentally started to see pretty significant pickup, especially from these new products I mentioned, timsOmni and [Trevo]. But beyond that, our core proteomics business continues to grow at a good rate. I would say the biopharma space. If you compare where we were in 2025/2026 as a transition year, it feels as if the biopharma markets are really starting to pick back up. We have really good products that focus on drug discovery research. I think that particular space looks pretty encouraging. Then finally, China.
I just think, as I said earlier, China has the ability to pivot and fund really quickly, and they are clearly doing that in the biopharma space, but also in the semi space and just fundamental academic research markets in China seem to be turning favorably. I think those would be more of the growth drivers in that space. I'm still hoping for a stronger recovery in the industrial parts of our business, which continue to be a real laggard, and I would like to see. But assuming that that also starts to strengthen in the industrial and applied markets, we could see further acceleration of growth in 2027.
Great. I guess maybe turning to the margin on 2027. Frank [inaudible] mentioned you guys are expecting at least 100 basis points
Yes
margin expansion. How much is that coming from the cost-saving program that you have this year and versus maybe you are expecting organic revenue to drop through and have some bottom leverage?
Yeah. There is a few factors. First of all, we have talked about returning to growth in 2026. We did that pivot in Q2 of 2026. The expectation is we would hopefully begin to accelerate that through 2027. We will see once we have wrapped up the fourth quarter, which is a significant quarter for us, what that spells for 2027 in terms of organic revenue growth. But certainly on the operating margin expansion, we expect to put up 250+ basis points of operating margin expansion in 2026. I think as Frank pointed out, we expect to be somewhere greater than 100. I think a good portion of that, I would say, if you look at something like 100 basis points, a good portion of that is going to be made up from just the cost-saving actions that Bruker has already taken.
We have roughly $140 million, north of $140 million of savings going on in the business in 2026. On an annualized basis, we expect that to be better pick-up in 2027. Plus, some of you may know, we did a reorganization of our NMR business, essentially with our Mass Spec and Optics businesses, to create a biosystems group. That group, we expect to be able to drive roughly $20 million of annualized savings as a result of that reorganization. That was not why we did it. We did it more for market dynamics and our competitive position in servicing our customer base. But fundamentally, we will generate some savings out of that as well. I think between the cost savings actions, combine that with what I describe as the volume impact of a higher volume, even if it is modest, dropping down to the bottom line.
Add to that some mix benefits. We do expect to see some more academic/government research funding activities, not only in the U.S. but outside that with some of our core products, will be more favorable from a mix perspective. We continue to think we will have better mix performance in the semi business just by virtue of the scale of that business that now goes into 2027. The other piece from an operating margin perspective is it does appear as if the headwinds that came from foreign exchange within 2025, and to a certain extent in 2026, will be somewhat abated.
If you look at the long term or even the medium term forecast for the U.S. dollar against the major currencies that we operate in, which is euro and Swiss franc and yen, it looks like there will be some favorable, even if it is not as strong a headwind, that would be favorable to us on the operating margin line for the benefit of those that do not fully follow this. Most of our operations and factory operations are in Europe, so we generate a lot of costs in euro and Swiss franc. Those have been headwind in 2025 and 2026, and we expect that to be more stable as the U.S. dollar appears to be stabilizing and somewhat strengthening, at least what we can see. Bank of America is the expert on foreign exchange, not Bruker.
I would say generally speaking, we are thinking that that would also contribute to better operating margin in 2027.
I know you guys have been doing a lot of continuous cost-saving programs. In 2027 and beyond, have you started to look into other areas where you can squeeze further? Maybe we can have more than $ 140 million.
Yeah. To back up a little bit, north of $140 million, maybe getting to $ 160 million of annualized cost savings for a company our size and our scale, that is a significant cost reduction program. The goal, of course, for us would be to hold those costs, generally speaking, with some variable costs that we have to play through. Generally, to hold the cost structure, even when we start to see an escalation or acceleration of growth, will really be the area that we are targeting. The goal for us would be to continue to drive operating margin expansion up, get us closer to this 20% target that Frank and I have been talking about for a year or so.
In the future years, that would be the primary target to keep driving EPS growth at this kind of double digit, mid-teens growth level, which I think will be exceptional in our space going forward. Yeah, there are other areas. We clearly are looking at some other areas. I would say just generally, we really want to make sure we prioritize and fund our R&D with patience to drive the kind of growth curve that we are expecting going forward. While there are and there will be some other cost saving actions we will take, they probably will not be at the scale we have been talking about here. They may be more on the edge and not so much at the core level. Certainly, it is one of the things that I look at fairly carefully going forward on a regular basis.
I would not expect, especially with the deep cuts that we put in place, I would not expect something similar for the future years. That does not mean we are not looking at cost saving actions, because we do that routinely as a part of our team management program.
That makes sense. I think another part of the margin is the mix. I am referring more to the aftermarket services part. How does that going? What percentage of attach way, whatever matches that you guys are using that in the longer-term target and will help you to achieve that 20%?
Yeah, it's a very good question. I think strategically, the company's really focused a lot of attention in areas where we can generate what we describe as stickier revenue. Particularly in the diagnostics area, specialty diagnostics are some of the things that we really do well. If you think about what's in our aftermarket revenue base for Bruker today, it makes up about 40% of our total revenue. Fundamentally, when I go back to, I joined the company about nine years ago, we were closer to 25% aftermarket revenue. So we've really taken a fairly significant step up over the last, let's say, 5+ years. I think, strategically, we'd like to see more of that. We'd like to see more revenue that's recurring, more revenue that has more predictability and visibility, as you mentioned earlier. Fundamentally, we're interested in that.
So we may have to look at some elements that are more inorganic in order to achieve that, to get us closer to what we're sort of targeting at 50% aftermarket. So 50% instruments and 50% aftermarket. Just to be clear, aftermarket for us includes service, it includes software, spare parts, assays associated with our diagnostics business. Excuse me. Those businesses, including the service area, are growing actually at a higher rate than our instruments levels have been historically. We put a lot of resources and management time into the development of those resources, including even in the software space. I think our focus initially had been on the development of broader software capabilities to support, to be inside our instruments.
Now we're looking at more software elements that are more around managing the data that comes out of our instruments, providing insights to our customers on the understanding of that data. So you don't need to have a postdoc actually interpreting spectra or development of this stuff, but you just hit the green button, and it tells you what the outcome is. That's really what we're targeting. Hopefully, we'll continue to do that organically and inorganically as we march forward.
Great. Last minute. What do you think the Bruker story has been underappreciated by investors?
Well, I think just generally, I would have said our semi business initially, but now that seems to have been more fully understood. I would say we have started to expose the other parts of deep tech, our security detection and our sort of energy-related business elements inside Bruker. I still think the story for us is, I think a little underappreciated, is the scale of our innovation and the kinds of innovative tools we produce across the spectrum. It is not just in proteomics, even though it gets a lot of attention. It is not just in the semi space. It is really our measurement and imaging capabilities across the portfolio that are pretty exceptional. I do not think everybody understands the scale of it or the application of it, which is what I think we are starting to demonstrate now in some of these other areas.
Great. Awesome, [inaudible] . Thank you so much for joining. That wraps up our session.
Thank you very much.
Thank you.
Thanks very much.
Thanks.
Yes. Good. Good session. Nice to see you again.