BRUKER CORP Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Business Progress: Bruker had double-digit constant exchange rate (CER) revenue growth and above-market organic revenue growth in Q3 2024 and year-to-date. Strategic acquisitions in single cell biology, Spatial Biology, molecular diagnostics, and lab automation are driving performance improvements, with sequential operating improvements in Q3 and expected margin improvements in Q4.
• Financials: Q3 2024 reported revenues increased 16.4% to $864.4 million, with organic revenue growth 3.1% and BSI organic growth 3.8%. Non-GAAP operating margin was 14.9%, down year-over-year. First nine months 2024 revenues totaled $2.39 billion, with constant exchange rate growth of 13.2%.
• Acquisitions: Recent acquisitions are driving performance improvements, with sequential margin improvements expected. The company has already delivered sequential operating improvements in Q3, its first full quarter including all acquisitions, and expects further sequential margin improvements in Q4.

Segment Performance

• Bruker BioSpin Group: Year-to-date revenue was $633 million, growing in the high-teens percentage. Had two gigahertz class NMR systems in Q3 2024. Saw growth across academic government and industrial research markets outside of China, with strong contributions from automation, software, and services. Weaker bookings in China and biopharma year-to-date, but expects China stimulus orders from Q4 2024.
• Bruker CALID Group: Year-to-date revenue was $773 million, with CER revenue increasing in the low-double digits. Growth in optics, IR, near-IR, Raman, microbiology, and infectious disease diagnostics (driven by MALDI Biotyper and ELITech Molecular Diagnostics); partially offset by biopharma and applied markets weakness.
• Bruker NANO: Year-to-date revenue was $780 million, with CER revenue growing in the mid-teens percentage. Strong growth in aca/gov, industrial research, and semiconductor metrology; impacted by biopharma and Life Science instrumentation weakness. Recently acquired businesses contributed inorganic growth but were affected by biopharma weakness.
• BEST Segment: Year-to-date CER revenues grew in the low-single digits, net of intercompany eliminations. Driven by research instruments, accelerator and fusion research technology, EUV technologies for OEM semiconductor lithography tools; partially offset by China softness and weak superconductor demand of clinical MRI medtech customers.

Guidance

• Fiscal year 2024 guidance revised: Revenues are expected to be in the range of $3.34 billion to $3.37 billion, with organic revenue growth of 3% to 4% and non-GAAP EPS in the range of $2.36 to $2.41.
• Fourth quarter outlook: Expected low-single-digit organic revenue growth, with double-digit CER revenue growth anticipated.
• 2025 outlook: Confident in above-market organic growth and significant margin expansion, but no specific 2025 guidance provided yet, with expectations to update in early February 2025.

Risks

• Geopolitical risks, including uncertainties related to recent acquisitions.
• Market demand and supply chain challenges.
• Delayed recoveries in biopharma and China demand, which impacted fiscal year 2024 guidance.
• Impact of recent acquisitions on margins and EPS, with initial dilution from acquisitions.

Question and Answer

• Q: Hi, Frank. Thanks for the questions here. So, first one, you pointed out the biopharma and China won’t help you in 2024. But how much of that the guide cut is due to the push out of orders into the maybe the first quarter of 2025 versus orders that simply won’t materialize? And you talked about high end of the mid-single-digit bookings in BSI, but wondering if you saw any cancellations there in the backlog?

A: Okay, Puneet. No. We have had no -- we never have seemed to have any material cancellations. I’m not aware of any material cancellations. So, that’s not an issue for us. Yeah, biopharma after and biotech after being seemingly maybe improving somewhat in the ability for biotech to raise funding. I think that has slowed down a little bit. Biopharma, we see a lot of cost cutting, site restructuring, program consolidation. So, they still seem to be preoccupied by that and we really thought that we would get some lift from biopharma with a bit of a recovery in the second half of this year. There are some green shoots, but I wouldn’t call it a trend yet. China is pretty significant if you really think year-to-date. The cumulative effect of China orders being weaker is in the double digits is actually about 20% decline year-over-year. So, that’s not far from $100 million in total over several quarters and the cumulative effect of China orders, even in Q2 and in Q3, we saw that again, seemingly getting pushed back as people are waiting for stimulus funding. By now it has accumulated to where this isn’t going to help us this year anymore. It’s not going to help our P&L anymore as we thought it might in the second half of this year. On the encouraging side, there really is a lot of activity. We are beginning to see stimulus orders. Cannot quantify them yet, but it’s probably going to be particularly beneficial for our BioSpin business. But we’re also seeing it for other big ticket items, mass spectrometers, microscopes, et cetera. So that -- and I would add, the Life Science, I’ve seen this from other companies, the weakness in Life Science instrumentation, generally related to biopharma, but also U.S. academic spending isn’t super strong right now. Perhaps there’s a little bit of hesitancy prior to the election. So, these effects do add up to where we indeed wanted to lower our and wanted -- needed to lower our guidance for the fourth quarter and for the rest of the year, so.

• Q: Great. Thanks. Sorry, Frank, I want to follow up on that last point. I mean, you made a strong point in the prepared remarks of you are confident in above market growth and significant margin expansion in 2025. So, just sort of what’s driving that confidence this early, given there’s still this visibility and what do you see as the biggest swing factors? You talked about China spending a lot, but like you said, there’s a six-month delay between orders and revenues. So, that’s only contributing for the second half of next year, right? So, what else do you see as tailwinds that give you confidence in above market growth next year?

A: Yeah. Very good question, Michael. So, we still have pretty significant around excess backlog, if you like. We’re still about seven months of backlog, which are normalized should be about five months. But beyond that, I mean, we’ve really had very -- we’re very satisfied with the way the diagnostics business is going from MALDI Biotyper to the newly acquired ELITech Diagnostics. It seems to be generally, as others have reported as well, stronger at the moment than Life Science tools. Very good demand throughout the year, and particularly in Q3 for semiconductor metrology. That’s really going to be a strong driver and so we’re pleased with that. Academic and government spending in other parts of the world, in the rest of APAC outside of China, has been actually reasonably strong, and same in Europe. So, there are enough strong drivers that, that up -- there are strong drivers, there are things that are solid and there are things that still, you know, we are waiting for the recovery. We’re actually quite optimistic about China seeing a significant step up in orders in Q4 and in the first half of next year because of that stimulus funding, but it’s still difficult to quantify because we don’t know what -- we can look at the opportunity funnel and we can’t apply our average percentage win rates that we normally have, because it’s just not known how many of these projects will all be funded. But some orders are coming in. We did receive stimulus orders already in October. As expected, how much that will add up to, we don’t know yet. So, I think we’re in good shape, certainly also for the first half of the year to outgrow the market, and by the second half of the next year, 2025, I -- we do believe and anticipate that there will be some biopharma recovery and also that, indeed, China orders will pick up after the pretty pronounced weakness in the first nine months of this year. So, that’s for both parts of the year. I think we’re in good shape for next year to outgrow the market. What market growth will be, of course, we don’t know yet, and a lot will for other companies that will then kind of set the market level, probably with their guidance and our guidance, which we hope to give in early February that will set the tone for 2025. But I think the fundamental trends that we have with multiomics, proteomics, these are all very good markets. Spatial Biology, we think there’ll be a lot of demand for that. And yes, lab automation is actually a little bit counter-cyclical. Lab automation and digitization, companies that are cutting costs and cutting sites are making investments there. So, I think our Chemspeed acquisition is very nicely placed. The biggest driver, the strongest single driver, I would say is semi.