Bruker Corp Q4 FY2021 Earnings Call

Good day and welcome to the Bruker Corporation Fourth Quarter 2021 Earnings Call. All participants will be in listen-only mode. Operator instructions were provided on how to participate. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I'd now like to turn the conference over to Justin Ward, Senior Director of Investor Relations and Corporate Development. Please go ahead, sir.

Thank you, Jason. And good morning, everyone. I would like to welcome everyone to Bruker Corporation fourth quarter and full-year 2021 earnings conference call. My name is Justin Ward, and I am Bruker's new Senior Director of Investor Relations and Corporate Development. I joined Bruker in January and I'm looking forward to meeting many of you in early 2022. Joining me on today's call are Frank Laukien, our President and CEO, and Gerald Herman, our Executive Vice President and Chief Financial Officer. In addition to the earnings release we issued earlier today, during today's conference call, we will be referencing a slide presentation that can be downloaded from the events and presentation section of Bruker's investor relations website. During today's call, we will be highlighting non-GAAP financial information. Reconciliations of our non-GAAP to GAAP financial measures are included in our earnings release and are posted on our website at ir.bruker.com. Before we begin, I would like to reference Bruker's safe harbor statement, which is shown on Slide 2 of the presentation. During this conference call, we will make forward-looking statements regarding future events and the financial and operational performance of the Company, that involve risks and uncertainties, including those related to the ongoing COVID-19 pandemic, as well as ongoing supply chain, logistics, and inflation challenges. The Company's actual results may differ materially from such statements. Factors that might cause such differences include, but are not limited to, those discussed in today's earnings release and in our Form 10-K as updated by our other SEC filings, which are available on our website and on the SEC's website. Also, note that the following information is based on current business conditions and our outlook as of today, February 11, 2022. We do not intend to update our forward-looking statements based on new information, future events, or for other reasons except as may be required by law prior to the release of our first quarter 2022 financial results expected in early May 2022. You should not rely on these forward-looking statements as representing our views or outlook as of any date after today. We will begin today's call with Frank providing an overview of our business progress. Gerald will then cover the financials for the fourth quarter and full-year 2021 in more detail and share our fiscal year 2022 financial outlook. Now, I'd like to turn the call over to Bruker's CEO, Frank Laukien.

Thanks, Justin. Great to have you at Bruker. As some of you know, we welcomed Justin a few weeks ago as our new Senior Director of Investor Relations and Corporate Development. And this is his first earnings call with us. Now, good morning, everyone, and thank you for joining us on today's earnings call. As you can see on Slide 4, Bruker's solid 11% organic revenue growth in the fourth quarter capped off a year of outstanding progress for the Company. Robust demand for our differentiated high-value instruments and solutions resulted in continued strong momentum in bookings and revenues, despite meaningful supply chain challenges. In fiscal year 2021, our BSI segment organic bookings and backlog both increased in the high teens percentage year-over-year. Accordingly, we are ramping up significant CapEx investments for capacity and productivity, as well as substantial OpEx investments in commercial organizations and R&D for our Project Accelerate 2.0 high-growth, high-margin initiatives. For the fourth quarter of 2021 BSI segment order bookings growth year-over-year was about 10% on an organic basis, driven by broad-based customer demand, with U.S. demand being particularly strong. Bruker's Q4 2021 revenues increased approximately 9% year-over-year to $684 million compared to a strong prior year Q4 2020. On an organic basis, revenues increased 11.4% year-over-year, which included 11.8% organic growth in the BSI, Bruker Scientific Instruments Group, and 6.8% at BEST net of intercompany eliminations. Our Q4 2021 non-GAAP gross margin decreased 50 basis points year-over-year to 51.2% while our non-GAAP operating margin was 21.0%, a decline of 150 basis points from 22.5% in Q4 2020 due to accelerated commercial investments, unfavorable revenue mix, as well as supply chain challenges and inflation. In Q4 Bruker reported GAAP diluted EPS of $0.50 compared to $0.45 reported in the prior year period. On a non-GAAP basis, Q4 2021 diluted EPS was $0.59, an increase of $0.01 from $0.58 in Q4 2020. In summary, Q4 2021 was a quarter with continued momentum in bookings and backlog with strong organic revenue growth and ramping investments in our Project Accelerate initiatives and operational excellence drive. On Slide 5, we show Bruker's performance for the full year 2021. Our revenues increased by $430 million year-over-year or by 21.7% to $2.42 billion. On an organic basis, fiscal year 2021 revenues grew 19.1% year-over-year comprised of 19.4% organic growth in BSI and a 15.5% organic increase at BEST net of intercompany eliminations. Full year 2021 growth and operating margin as well as GAAP and non-GAAP EPS performance all stepped up significantly year-over-year as our business recovered from the pandemic and accelerated strongly beyond pre-pandemic levels. In fiscal year 2021, we experienced particularly strong organic growth in our Proteomics, Microbiology, Biopharma, and industrial research markets. We are very pleased with our 19% organic revenue growth, 240 basis points year-over-year gross profit margin expansion, and 340 basis points year-over-year operating profit margin expansion, and more than 50% EPS growth in 2021. Our return on invested capital of 27.6% in 2021 was well above our long-term target of ROIC greater than 20%. And it illustrates our differentiated business philosophy and entrepreneurial management process and culture, which we believe will resonate in times with higher inflation and increasing cost of capital. Please turn to Slide 6 and 7, where we highlight the full-year 2021 performance of our three BSI groups and our BEST segment, all on a constant currency and year-over-year basis. In 2021, the BioSpin group revenue grew in the mid-teens percentage year-over-year to $206.91 million. BioSpin saw strengthened demand for its NMR, preclinical imaging, and aftermarket offerings, while system installation activities recovered. BioSpin systems revenue were up strongly year-over-year including revenue recognition on four gigahertz-class NMR instruments. In the fourth quarter, BioSpin’s PCI division acquired MOLECUBES, a Belgian company with innovative benchtop preclinical nuclear molecular imaging systems. For the full year 2021, CALID Group revenues increased in the low 20s percentage to $819.6 million with continued growth in our mass spectrometry and microbiology businesses and very strong performance in our FT-IR / NIR / Raman molecular spectroscopy product line. We saw strong revenue growth for our timsTOF unbiased 4D proteomics and multiomics platform, which as we mentioned in our JPMorgan presentation in early January exceeded $100 million in revenues in 2021. The revenue for other life science mass products like our research MALDI-TOF product line rebounded as well. Microbiology and Molecular Diagnostics revenue grew year-over-year, driven by high demand for MALDI Biotyper instruments and consumables. This was coupled with the recovery of our tuberculosis diagnostics products while during Q4 2021 revenue from our SARS-CoV-2 PCR testing of approximately $6 million was down year-over-year from Q4 2020, as expected. Full-year 2021 revenues for our IR, near IR, and Raman molecular spectroscopy products were substantially higher year-over-year, with strong execution at the global industrial, applied, and academic markets that rebounded from 2020 and grew further. Please turn to Slide 7. Full-year 2021 Bruker NANO revenues grew in the mid-20s percentage to $697.5 million. NANO's industrial, research, and academic businesses rebounded strongly with industrial research outperforming. Revenues of our advanced X-ray NANO surfaces and NANO analysis tools all stepped up substantially versus 2020. NANO's microelectronics and semiconductor metrology tools performed very well in 2021 with ongoing strong bookings and backlog. Life science fluorescence microscopy revenue was up sharply year-over-year on product innovation and strong academic demand. NANO’s 2021 revenue included an M&A contribution from our September 2020 acquisition of Canopy Biosciences, spatial biology, targeted proteomics tools and CRO services. Finally, full-year BEST revenue grew in the mid-teens percentage net of intercompany eliminations driven by contributions from big science projects and a recovery in MRI superconductor demand by our medtech OEM customers. BEST superconductor demand appears healthy, but we continue to experience supply chain challenges due to material shortages and flow logistics. Moving to Slides 8 and 9, we continue to make good progress with our Project Accelerate 2.0 initiatives which now represent about 54% of our total revenues. On Slide 8, we highlight a recent majority investment that closed in January 2022 and which enhances our Proteomics solutions. PreOmics has developed innovative automation and sample preparation tools and consumables for use in unbiased, deep Proteomics. PreOmics' new BeatBox device in combination with Bruker's timsTOF platform provides accelerated, deep, and unbiased Proteomics workflows for tissue biobanks or biopsy research. On Slide 9, we show two other recent technology acquisitions that closed in January and also enhance our proteomics initiative. Prolab specializes in precision pumps, autosamplers, and nano-flow to capillary LC or cap-LC systems to increase performance and robustness of 4D-Proteomics and 4D Metabolomics. Bruker also acquired PepSep, a company specializing in nanoLC and components to optimize proteomics which are used in Bruker's nanoElute nanoLC system and by other manufacturers. The expected fiscal year 2022 revenue from these three proteomics acquisitions is less than $10 million, but we believe these acquisitions have excellent growth potential. And because it's primarily consumables, they have high gross margin potential in the future, and allow Bruker to offer more complete, unbiased 4D-Proteomics and Multiomics solutions, including consumables, as well as higher performance in the future. As we intend to invest in these separation and sample prep technologies, we expect these Proteomics acquisitions to be approximately $0.03 to $0.04 diluted in fiscal year 2022, which is incorporated in our fiscal year '22 guidance. Slide 10 illustrates the historical perspective of our transformation over the last several years, with expanding operating margins, accelerating organic revenue growth and double-digit EPS CAGR, all while maintaining return on invested capital greater than 20% which has resulted in robust stakeholder and shareholder value creation. This is the result of our entrepreneurial focus on innovating high-value instruments and solutions combined with a continuous operational excellence drive. As a result, Bruker enters 2022 in its strongest position ever. We intend to further ramp our investments in the Project Accelerate 2.0 high-growth, high-margin initiatives to ensure those opportunities continue to drive profitable growth in the years to come. Specifically, to facilitate growth in our key opportunities in Proteomics, spatial biology, biopharma, and semicon metrology, we plan to add incremental commercial and R&D investments of $20 million to $25 million in 2022. Included in our guidance and of course, including the three Proteomics acquisitions that I mentioned a moment ago. This also includes investments in Acuity and Canopy, if you recall our spatial biology ventures and previous acquisitions as well as into the two smallest semicon metrology acquisitions we did in the second half of last year. As the revenue contributions from these Project Accelerate 2.0 initiatives increases further, they are expected to pull up our operating margins and revenue growth rate further; first towards our 2024 medium-term financial goals and then beyond. Finally, we have substantial balance sheet capacity to pursue disciplined strategic M&A with the right opportunities. In summary, during 2021 Bruker delivered excellent progress towards its strategic and financial objectives, our core businesses have rebounded strongly and our Project Accelerate high-growth, high-margin initiatives have performed very well. I am pleased with how well our teams responded to a challenging supply chain and logistics environment. As we move through fiscal year 2022, our high backlog gives us good visibility on growth. We see meaningful areas for Bruker to develop market-leading positions, with our innovative technology and commitment to serving our customers. Let me now turn the call over to our CFO, Gerald Herman, who will review Bruker's financial performance and outlook in more detail. Gerald.

Thank you Frank and thank you everyone for joining us today. I'd like to add my warm welcome to Justin as he joins our IR and Corporate Development team here at Bruker. I'm pleased to provide more detail on Bruker's fourth quarter and full year 2021 financials starting on Slide 12. In the fourth quarter of 2021, Bruker's revenue increased 9% to approximately $684 million which reflects an organic revenue increase of 11.4% year-over-year. We reported GAAP EPS of $0.50 per share compared to $0.45 in the fourth quarter of 2020. On a non-GAAP basis, Q4 2021 EPS was $0.59 per share, an increase of $0.01 compared to $0.58 in the fourth quarter of 2020. Our fourth-quarter 2021 non-GAAP operating income grew 1.9% off a strong comparison in the fourth quarter of 2020. In the fourth quarter of 2021, our non-GAAP operating margin decreased 150 basis points year-over-year to 21% principally due to the impact of accelerated investments, revenue mix, and supply chain pressures. As Frank mentioned, the Bruker team executed very well in the fourth quarter handling significantly higher volume despite COVID, supply chain shortages, and logistics delays. We finished the fourth quarter with cash, cash equivalents and short-term investments of approximately $1.17 billion. During the quarter, we used cash to ramp selected Project Accelerate 2.0 investments in our key strategic opportunities, fund capital expenditures, as well as the acquisition of MOLECUBES and our dividend program. You may recall that in May of 2021, our Board approved a new two-year share repurchase authorization of up to $500 million, valid until May 2023. In the fourth quarter, we repurchased approximately one million shares of Bruker's stock for a total consideration of $82 million. For the full year 2021, our repurchases totaled 2.1 million shares for approximately $153 million. We generated $138.6 million of operating cash flow in the fourth quarter which was partially offset by our CapEx investments resulting in $110.2 million in free cash flow for the fourth quarter. This represents a $64 million decline from the fourth quarter of 2020 due to higher working capital associated with buffer inventories and our higher revenue level and related receivables. In the fourth quarter, we completed a private placement of approximately $500 million of 10-year notes carrying euro-denominated fixed rates of approximately 1%. This provides us with further capital to continue to fund disciplined and strategic investments, both organic and inorganic in key growth areas. Slide 13 shows the revenue bridge for the fourth quarter of 2021. As noted earlier, organic revenue in the quarter increased 11.4%. We had a positive revenue contribution from acquisitions of 0.3% and a foreign currency headwind of 2.8%. From an organic revenue growth perspective and compared to the fourth quarter of 2020, BioSpin’s fourth quarter 2021 revenue decreased slightly due to an ultra-high field revenue mix headwind and the previous pull-forward of approximately $15 million in China-related revenues into the third quarter of 2021. NANO organic revenue grew in the low 20% on strength in NANO's industrial research and academic businesses. CALID grew high-teens percent with strong performance in life science mass spectrometry and the MALDI Biotyper franchise, partially offset by a year-over-year decline in SARS-CoV-2 testing revenue. BEST revenue increased in the mid-single digits year-over-year net of intercompany eliminations. Fourth quarter 2021 BSI systems revenue increased in the mid-teens percentage range organically while BSI aftermarket grew in the high single-digits organically compared to the fourth quarter of 2020. Geographically and on an organic basis in the fourth quarter of 2021, our European revenue was up mid-single-digits percent year-over-year. North American revenue grew in the high 20% range and Asia-Pacific grew in the mid-single-digits year-over-year. Rest of world fourth quarter 2021 revenue was significantly higher year-over-year, in the low 30% range. Slide 14 shows our fourth quarter 2021 P&L performance on a non-GAAP basis. Fourth quarter 2021 non-GAAP gross margin of 51.2% decreased 50 basis points from 51.7% in the fourth quarter of 2020, driven principally by the impact of revenue mix and supply chain cost pressures. The fourth quarter 2021 non-GAAP operating expenses were up 12.6% compared to the fourth quarter of 2020 and reflected a significant ramp of commercial investments in Project Accelerate 2.0 including proteomics and spatial biology. Our fourth quarter 2021 non-GAAP operating margin of 21% was 150 basis points lower than the 22.5% in the fourth quarter of 2020, which was a high watermark for operating margin performance for us historically. Our fourth quarter 2021 year-over-year operating margin decline was driven by lower gross margin and higher investments in marketing and sales associated with building out our commercial teams for growth. For the fourth quarter of 2021, our non-GAAP effective tax rate was 34.4% compared to 31.9% in the fourth quarter of 2020, primarily due to certain unfavorable discrete tax items. Weighted average diluted shares outstanding in the fourth quarter of 2021 were 152 million, a reduction of approximately 1.3 million shares or 1% from the fourth quarter of 2020 resulting from our share repurchase activity over the past year. And finally, fourth-quarter 2021 non-GAAP EPS of $0.59 was up $0.01 compared to the fourth quarter of 2020. Slide 15 shows the year-over-year revenue bridge for the full year of 2021. Revenue was up $430 million or 21.7%, including organic growth of 19.1%. Acquisitions added 0.4% to our top line while foreign exchange was a 2.2% tailwind for the year. And Frank has already covered the drivers for the 2021 revenue performance. P&L results for the full year 2021 are summarized on Slide 16. For the full year, gross margin expanded 240 basis points to 51.1% reflecting higher revenues, volume, leverage, and mix while operating margin grew 340 basis points to 19.4% for much of the same reasons. The full-year tax rate was 28%, similar to the 28.1% rate in 2020. Turning to Slide 17, in the full-year 2021, we generated $190.4 million of free cash flow, approximately $45 million lower than in 2020, which was a record cash flow year for Bruker. Full year 2021 free cash flow benefited from higher net income, partially offset by higher working capital related to increased volume buffer inventories and the timing of receivables. Our capital expenditures in the year reflect our continuing investments in growth capacity, and productivity as part of our operational excellence drives. Our cash conversion cycle at the end of the fourth quarter 2021 was 208 days, a reduction of 12 days compared to the fourth quarter of 2020, reflecting gradual improvement in our working capital cycle. Turning now to Slide 19, given our strong bookings growth and record backlog in 2021, we expect solid growth in 2022. Our outlook for 2022 includes organic revenue growth of 6% to 8% year-over-year. We estimate a foreign currency headwind of about 2%, with acquisitions contributing about 1% to growth. This is expected to lead to reported revenue growth for 2022 in a range of 5% to 7% compared to 2021. Given the dramatic improvement in non-GAAP operating margin we delivered in 2021, and the significant additional investments in Project Accelerate 2.0 opportunities we intend to make in 2022, we expect non-GAAP operating margin expansion for 2022 to moderate to a range of 30 basis points to 60 basis points from the 19.4% level we delivered in 2021. We also expect 2022 quarterly margin progression to return to its more historical norm and expect to see the first half operating margins about 500 to 600 basis points below the second half operating margins. On the bottom line, this adds up to non-GAAP EPS for 2022 in an estimated range of $2.29 to $2.33, which would represent non-GAAP EPS growth of 9% to 11% compared to 2021. This also represents 13% to 14% CAGR from $1.57 pre-pandemic non-GAAP EPS level in the full year of 2019. We're projecting a non-GAAP tax rate of approximately 28.5% for full year 2022. Other guidance assumptions are listed on the slide. Our full year 2022 ranges have been updated for foreign currency rates as of December 31, 2021. For the first quarter of 2022 this outlook implies organic revenue growth in the mid-single digits on a year-over-year basis. We expect the first quarter to be impacted by two factors of note: first, continuing supply chain and logistics delays which may result in the push-out of certain shipments into later quarters; and secondly, we do not expect any gigahertz-class NMR revenue in the first quarter of 2022, which compares with revenue from two gigahertz-class systems in the first quarter of 2021. On an annual basis, we expect to recognize four gigahertz-class NMRs in 2022. To wrap up, Bruker delivered strong bookings, backlog, and revenue growth in the fourth quarter capping off an exceptional year of financial improvements in 2021. We're carrying record backlog into 2022 giving us a high degree of confidence in our ability to deliver another solid financial performance in 2022. And with that, I'd like to turn the call over to Justin to start the Q&A session. Thank you very much.

Thank you, Gerald. I'd now like to turn the call over to the Operator to begin the Q&A portion of the call. As a reminder, to allow everyone time for questions, we ask that you limit yourself to one question and one follow-up.

We will now begin the question-and-answer session. Operator instructions were provided. Our first question comes from Dan Leonard from Wells Fargo. Please go ahead.

Thank you for the time. So just a couple on supply chain and logistics. First off, was there any meaningful amount of sales pushed from Q4 to Q1 as a result of supply chain and logistics challenges?

Hi Dan, it's Frank. Well, there weren't really any push-outs like a specific number that I can give you but it is clear that supply chain and logistics put a break on the business and so we're pleased with our organic growth in Q4. With those limitations in that environment, more would not have been easily possible, but there's not a specific dollar amount that got pushed out. That would be impossible to delineate.

And Frank, would you attribute any of your bookings strength in 2021 to customer response to supply chain challenges, maybe they're ordering farther in advance than they typically would to allow for longer logistics, or would you attribute it all to just organic core momentum in the business?

We don't really know. I know that question comes up from time to time; it's a good question. Certainly academic, hospital, and diagnostic customers don't really order ahead of time. Might some industrial or some semiconductor metrology companies with longer lead times accelerate an order here or there? I can't exclude it, we don't have any specific evidence or information of that type, but I think it's probably a relatively minor effect. There may be some of that out there, but the majority is core momentum in the business.

Understood. Thanks for the color.

The next question comes from Patrick Donnelly from Citi. Please go ahead.

Hey guys, thanks for taking the questions. A little bit of a follow-up on that. In terms of the margins, it might be for Gerald, can you talk about the moving pieces as we look to '22? Obviously some increased investments, I assume supply chain inflationary pressures are maybe offsetting some of the underlying strength. And then, how much are you able to pass on on the pricing side? I'd be curious just the leverage on the margin as you look towards that guidance.

First of all, thanks for the question. We're pretty encouraged by the strength of our order bookings performance in 2021 and we saw very strong backlog — record backlog for Bruker. So the strength of our business is there. The issue for us is more around timing from a logistics perspective given some of the supply chain issues. There are clearly going to be some modest impacts related to that and we expect to see them in the first half of 2022, and that's what's driving our guidance toward weaker first half margins versus the second half. We are, like every other business, experiencing some degree of cost pressure from supply chain disruptions. Our view is that we've been able to navigate through it pretty effectively in the fourth quarter and we expect to continue to do that in 2022. We are actively implementing pricing changes in markets where we feel we have flexibility to do that, and that will be part of our strategy as we move through the rest of 2022.

But we should keep in mind that when we increase prices, until that turns into revenue, there's a delay of two to three quarters, so that supports what Gerald said. Also keep in mind that our pricing and backlog is already baked in, which is again why we think we'll return to our historical pattern of lower margins in the first half and higher margins in the second half. There is a time delay in passing on these inflationary pressures via pricing.

That's helpful. And then Frank, maybe on the funding outlook on the academic side for '22, clearly we feel pretty good about it given six to eight organic guide. But can you talk about the U.S. and Europe in terms of the academic funding environment? What you’re hearing there, confidence level, and whether the strength persists?

I hope that the competitiveness or innovation legislation in the U.S. passes; it's difficult to predict Washington. Even without that, I think optimism and funding for academics in the U.S. in general has been excellent and obviously there could be a further boost if additional legislation and NSF funding occurs. I wouldn't expect that money to reach us very quickly; even if approved it would likely impact 2023 revenue. But it could lead to bookings in the second half of this year. The shorter-term outlook from backlog and near-term demand has been quite strong in almost all of our markets and geographies, particularly the major geographies.

The next question comes from Puneet Souda from SVB Leerink. Please go ahead.

Hi. Frank, thanks for taking the question and Justin, great to have you on board. My first question is on supply chain. Frank, which parts of the business would you say are more impacted versus others? The timsTOF, CALID, and NANO — what sort of clarity can you provide there? And any line of sight you have at this point in when these things are likely to improve based on your conversations?

Without a crystal ball, we're staying conservative and expect supply chain challenges to persist at a minimum throughout the first half. That doesn't mean they'll stop after the first half; we just don't see them stopping in the first half. BEST is the most challenged in terms of supply chain complexity — they have multiple factories and multiple supply chains and it's the most difficult area. Electronics and chips are the second major constraint and that can hit virtually all of our products other than some consumables. We are constantly managing sudden delays where a minor component becomes unavailable and deliveries get pushed by weeks or months. It's very choppy waters and heavy lifting, and our teams are doing very well, but it is an extraordinary supply chain disruption. For us supply chain is more of a quarterly cadence question rather than something that we expect to materially change our annual view. We feel quite good about the year but shipments can shift between quarters.

Got it. Super helpful. And then just my follow-up is on proteomics. Obviously timsTOF has been an excellent driver for you. Based on what you provided, you're probably nearing 415 installed or so here. So maybe just tell us at this point in time the growth trajectory we should imply for this platform, and do you have all the required accessories and capabilities around the instruments with these new acquisitions in terms of LC, tissue capabilities and other capabilities that you've built in software around timsTOF?

We operate in an ecosystem and we'll never have all software in-house. We have some software in-house and we work with many smaller software companies that are an essential part of our ecosystem. On consumables and separations we've made strategic progress with the acquisitions, but they require further investments. These acquisitions give us a strong basis and likely saved us years of development, but further development is required with these smaller technology companies. We're looking forward to offering more complete solutions on the consumables, automation, and separation side. We will continue to work with third-party software partners. Our 4D-Proteomics and 4D-Metabolomics are expected to grow well above the corporate average going forward.

The next question comes from Jack Meehan from Nephron Research. Please go ahead.

Thank you, and good morning. My first question was on the 2022 guidance. Just what the outlook assumes by segment for organic growth, and a bit more color on what you're thinking within the mid-single digits for the first quarter by segment as well?

Yes. I don't think we're going to break it down by quarter by segment today, but Gerald, maybe you'll want to give some ideas for the full year.

Relative to market segments, you've heard Frank’s positive review related to academic markets. We had excellent strength in 2021 in the biopharma segment and we expect to continue that in 2022. Industrial research and industrial areas remain strong. We're on a very good track relative to proteomics. From a group point of view, you can expect the fastest organic growth from the NANO and CALID groups in 2022, with BEST and BioSpin also growing but not quite as fast as NANO and CALID. For Q1 2022 specifically, the BioSpin group will be weaker year-over-year because we do not expect gigahertz-class NMR revenue in Q1; those systems' revenues have moved to Q2 this year, whereas last year we recognized revenue from two gigahertz-class systems in the first quarter.

BioSpin will have a good year for 2022 overall, but Q1 will be softer compared to last year's Q1 due to the timing of gigahertz-class systems.

That is helpful. And maybe just on that point, the mid-single-digit organic guidance for the first quarter is pretty impressive because there's a headwind from the two gigahertz systems; sounds like you're building in some caution related to the supply chain. Could you call out which businesses are contributing positively and the magnitude of the backlog you're entering the year with versus last year?

NANO and CALID will be the primary contributors in Q1. Those are also the businesses that had the highest backlog increase. Overall, our backlog at the end of 2021 was at record levels around $2 billion, which is very strong.

The next question comes from Derik DeBruin from Bank of America. Please go ahead.

Hey, good morning. Thanks for taking my call. Gerald, can you talk a little bit about gross margin targets for the full year and pacing, and also just how FX is flowing through on the margins this year. Thanks.

Sure. You're referring to 2022, I take it. We've put up very strong gross margin performance in 2021 and we expect most of that to continue into 2022, particularly with the NANO Group and its industrial and semiconductor performance helping on the gross margin line. We are working to strengthen our performance in a number of other areas, including biopharma where we see good gross margin performance. Phasing is largely a function of mix. Ultra-high-field systems can cause mix headwinds in certain quarters. Overall, we're encouraged by what we see for gross margin levels in 2022.

Most of our operating margin improvement comes from gross margin improvement. In 2021 it was about two-thirds of the operating margin improvement. We expect more than half of our operating margin improvement to come from gross margin again in 2022, even as we make deliberate incremental OPEX investments in commercial and R&D to drive the next wave of growth toward our 2024 goals. We don't provide a specific gross margin guidance point, but we expect further progress and that gross margin will be a main driver of operating margin expansion.

Great. And then one follow-up, Gerald, just FX pacing on revenues?

FX continues to be a little volatile. In January we saw some up and down moves. As the U.S. dollar strengthens against the euro and the Swiss franc, we show a foreign exchange headwind of about 2% on revenue. We also have a small contribution from acquisitions in our guidance. By the time you get to operating profit margin or EPS, FX is not expected to be a major driver in 2022.

The FX effect is mainly on revenue and not expected to be a major driver of operating profit margin this year.

Got it. And Frank, just how much of your revenues are coming from Project Accelerate-related products and projects right now? And how did those grow relative to the legacy business?

It's about 54%, roughly flat with 2020. Project Accelerate businesses' growth has been higher than the corporate average. Our core business has also been very strong in 2021, and last year we had a beautiful alignment where both Project Accelerate and core tools did well in terms of revenue growth and margin expansion.

The next question comes from Josh Waldman from Cleveland Research. Please go ahead.

Thanks for taking my questions this morning, just a couple. First a quick follow-up on FX, Gerald did you quantify how much of the expected operating margin expansion is coming from FX?

No, we don't typically quantify that. You can see our overall story on the top line in our guidance slide.

But it's not expected to be a significant effect on operating profit margin in 2022. We highlighted FX when it is a large effect in prior years, but for 2022 it's not a major driver after you move down to operating profit and EPS.

Got it. Then Frank, wondering if you could provide an update on the tax situation in China. Did you see it easing here? Did this cause you to carry more revenue into 2022 than maybe you would have otherwise? And a view on China overall as you think about your guide and expectations there for 2022 would be helpful.

We did see some relief related to tax certificate issues in China that started early in 2021. Those largely resolved in many of the larger provinces in China in Q4 and we've continued to see improvement into Q1 2022. China accounts for around 15% of Bruker revenue and it's a very important market for us. We had solid growth in bookings and revenue in China in 2021 and expect to continue to see that level of growth in 2022. Market conditions in China, even from a logistics perspective, seem to be normalizing, so it's business as usual despite some supply chain challenges.

The next question comes from Tycho Peterson from JPMorgan. Please go ahead.

Frank, I've got a timsTOF question. You did the PreOmics investment; I know it's relatively small but you also did a partnership in January. How do you think about those two since they seem to be solving for something similar?

They're actually very different. Seer's offering is focused on plasma proteomics. We have joint customers that use the Seer Proteograph and our timsTOF for depth and throughput on plasma proteomics. Some PreOmics consumables can be used in conjunction with a Proteograph, but PreOmics' BeatBox is focused on tissue homogenization and biopsy samples. So they are complementary with different focuses.

Okay. And then, as we think about your spatial portfolio with Canopy, Vitara, Acuity, can you just talk a little bit about what we should be thinking about in terms of milestones and business development for that portfolio this year?

Acuity is focused on R&D and product development; we're building teams on both coasts. Don't expect product revenue or announcements from Acuity in 2022; it's an investment year with potential first offerings in 2023. Canopy is different: we invested heavily in 2021 and continued investing in 2022, particularly in commercial teams and R&D, in preparation for significant product news in 2022. Canopy had moderate growth last year, lots of investments, and we hope to see a more significant ramp in the second half of this year.

Lastly, you're taking R&D up by $20 to $25 million this year. That includes commercial investments. Are there other areas getting outsize R&D investments this year?

It's not all R&D; a larger portion of the incremental $20 to $25 million is commercial — strategic marketing and sales to prepare for accelerated growth in proteomics, spatial biology, and other areas. There is additional R&D, but the bigger part is commercial investments to support launches and scaling the businesses.

The next question comes from Dan Arias from Stifel. Please go ahead.

Morning guys. Thanks for taking the question. For Accelerate 2.0, where are you assuming growth for the products in that initiative relative to the corporate outlook? In June you talked about high-single to low-doubles for '22 through '24. I'm curious how you see it starting this year.

This year we expect Project Accelerate 2.0 growth to be above the corporate average of 6% to 8% organic growth, but we don't expect a huge discrepancy as we had in 2020 because our core businesses are also performing well. Project Accelerate will be above average but not dramatically so, perhaps closer to 2021's pattern.

So should we think this year as more high-single-digits for Accelerate and then ramping to low-double-digits as new opportunities come into the mix?

We don't provide a precise range by subportfolio. Aftermarket tends to be high-single-digits, while proteomics and spatial biology from a smaller base can be double-digit. Semiconductor metrology is also expected to be double-digit. So yes, some parts will be high-single and others double-digit; overall, Project Accelerate should grow faster than the corporate average.

And thank you for the Q&A. Operator, that will bring to an end the Q&A portion of the call as we are now past 9:30. So I wanted to thank everyone for joining us today. During the first quarter, Bruker will participate in the SVB Leerink Global Healthcare Conference. Bruker's leadership team looks forward to meeting with you at an event or speaking with you directly during the quarter. Feel free to reach out to me to arrange a follow-up. Thanks, and have a good morning, everybody.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.