Bruker Corp (BRKR) Q2 2023 Earnings Call Transcript

Good morning and welcome to Bruker's Second Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please also note that this event is being recorded today. I would now like to turn the conference over to Justin Ward, Senior Director of Investor Relations and Corporate Development. Please go ahead, sir.

Thank you, and good morning. I would like to welcome everyone to Bruker Corporation's Second Quarter 2023 Earnings Conference Call. My name is Justin Ward, and I'm Bruker's Senior Director of Investor Relations and Corporate Development. Joining me on today's call are Frank Laukien, our President and CEO; and Gerald Herman, our Executive Vice President and CFO. 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 Presentations 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 be making forward-looking statements regarding future events and the financial and operational performance of the company that involve risks and uncertainties, including those related to geopolitical risks and 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 for the period ending December 31, 2022, and as updated by other SEC filings, which are available on our website and on the SEC website. Also, please note that the following information is based on current business conditions, and our outlook as of today, August 3, 2023. 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 third quarter 2023 financial results expected in early November 2023. You should not rely on these forward-looking statements as necessarily 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 second quarter and first half of 2023 in more detail and share our updated fiscal year 2023 financial outlook. Now I'd like to turn the call over to Bruker's CEO, Frank Laukien.

Thank you, Justin. Good morning, everyone, and thank you for joining us for our second quarter 2023 earnings call. While we recognize that market conditions are becoming softer in cyclical applied semiconductor metrology and industrial markets, Bruker continues to experience strong demand for our unique scientific instruments and life science solutions. In the second quarter of 2023, we recorded continued growth in bookings from academia, government, and academic medical centers, despite retail industry trends. We are pleased to see ongoing growth in bookings in biopharma and China, both in the second quarter and the first half of 2023. We believe this resilience is due to our technologies and solutions, which often offer unique capabilities and performance, helping to mitigate the impact of customer budget reductions and market weakness. We anticipate solid mid-single to high-single-digit organic revenue growth in the second half of 2023. Additionally, we plan to be flexible in managing our costs in this volatile macro environment. We will maintain our strategic investments in our transformative Project Accelerate 2.0, especially in proteomics and spatial biology, as well as in recently acquired growth drivers in proteomics consumables, drug discovery services, neuroscience research tools, applied market solutions, and scientific software. In the second quarter of 2023, Bruker achieved an organic revenue growth of 13.5% and a non-GAAP EPS growth of 11.1% year-over-year. Reported revenues for the second quarter increased by 15.9% year-over-year to $681.9 million, including a slight currency tailwind of 0.5%. On an organic basis, revenues grew by 13.5%, with 13% growth in scientific instruments and 18.4% in our BEST segment, net of intercompany eliminations, while growth from acquisitions contributed 1.9%. This indicates a constant exchange rate growth of 15.4% year-over-year. Our second quarter non-GAAP gross margin decreased by 90 basis points year-over-year to 50.9%, a decline due to an unfavorable product mix as well as currency and inflationary pressures. Our non-GAAP operating margin stood at 15.3%, down 130 basis points year-over-year due to the decrease in gross margin and anticipated currency and acquisition impacts on our operating expenses. In the second quarter of 2023, Bruker reported a GAAP diluted EPS of $0.39, up from $0.33 in Q2 of 2022, which is an increase of 18.2%. On a non-GAAP basis, the diluted EPS for the second quarter was $0.50, an increase of 11.1% from $0.45 in the same quarter of 2022. Gerald will provide further details on margins and EPS later. Now looking at our performance in the first half of 2023, Bruker demonstrated strong execution with organic revenue growth of 15.6% and non-GAAP EPS growth of 22.3%. Specifically, revenues for the first half of 2023 grew by 15.5% to $1.367 billion. On an organic basis, first half revenues increased by 15.6% year-over-year, including 15.7% growth in scientific instruments and 14.1% growth in the BEST segment, net of intercompany eliminations. Order bookings for our BSI segment in the first half of 2023 experienced double-digit organic growth, driven by Bruker BioSpin and CALID. Our book-to-bill ratio for Bruker Scientific Instruments remained above 1.0. The summary of our first half 2023 non-GAAP gross and operating margins, along with GAAP and non-GAAP EPS performance, is depicted on Slide 5, showing an impressive non-GAAP EPS growth of 22.3% in the life science tools sector. In the first half of 2023, our BioSpin Group generated revenue of $342 million, reflecting high single-digit growth. It's important to note that there were no gigahertz class NMR systems generating revenue in the first half of 2023, compared to 1.2 gigahertz in the previous year. We now anticipate 2 or 3 gigahertz class NMRs generating revenue in the second half of 2023, with some revenue shifting into early 2024. The BioSpin Group experienced strong growth across various sectors, including academic government, industrial research, and applied markets, along with its new integrated data solutions division featuring a novel scientific and lab software platform. The CALID Group reported revenue of $464 million during the first half, growing in the low 20s percentage, fueled by life science mass spectrometry, driven by the timsTOF platform and aftermarket business, as well as optics IR, Near IR, and Raman businesses. The timsTOF platform witnessed robust demand for applications in 4D proteomics, anti-proteomics, and metabolomics. In Q2 at ASMS, we introduced the timsTOF Ultra, offering market-leading sensitivity and throughput with expanded peptide coverage and accurate quantitation for unbiased 4D single-cell analysis. Meanwhile, microbiology and infectious disease revenue showed a slight increase due to strong demand for MALDI Biotyper consumables, despite a significant reduction in our COVID-19 molecular diagnostics revenue. Moving to Bruker NANO, revenue for the first half of 2023 reached $435 million, reflecting low 20s percentage growth across its market segments, including academia, government, industrial, and semiconductor metrology. Significant revenue growth was seen in advanced x-ray and nano surface tools, with life science fluorescence microscopy revenue increasing due to product innovations and research demand, now enhanced by contributions from our recent acquisition of Inscopix neuroscience research tools. The BEST segment's revenue grew in the mid-teens percentage in the first half of 2023, driven by market share gains and strong demand for superconductors from MRI OEM customers, alongside advancements in technology revenues for Big Science, FUSION Research, and extreme UV semiconductor tools. I also want to highlight our unique metrology tools on Slide 8 and their crucial role in leading AI, chip R&D, and production. Approximately $75 million of our estimated 2023 revenue is driven by AI trends, which we expect to continue growing. Turning to life science and proteomics on Slide 9, our new timsTOF Ultra, launched at ASMS 2023, offers best-in-class sensitivity for 4D proteomics and sets new benchmarks for unbiased proteomics with advanced technologies and next-generation ion sources. This system provides significant performance advantages in low sample amounts, such as single-cell proteomics and various post-translational modification analyses, which are vital in oncology and other diseases. In conclusion, Bruker is experiencing strong demand for our differentiated instruments and solutions across our portfolio. We are committed to investing in R&D and our commercial infrastructure while maintaining agility and discipline with our costs. Our leadership in technology and biological applications, combined with exceptional execution and our unique management culture, positions us for continued success. I will now hand the call over to our CFO, Gerald Herman, to review Bruker's Q2 financial performance and fiscal year 2023 outlook in greater detail.

Thank you, Frank, and thank you, everyone for joining us today. I'm pleased to provide more detail on Bruker's second-quarter and first-half 2023 financial performance, starting on Slide 11. In the second quarter of 2023, Bruker's reported revenue increased 15.9% to approximately $682 million, which reflects an organic revenue increase of 13.5% year-over-year. We reported GAAP EPS of $0.39 per share compared to $0.33 in the second quarter of 2022. On a non-GAAP basis, Q2 2023 EPS was $0.50 per share, an increase of 11.1% from the $0.45 we posted in the second quarter of 2022. Our Q2 2023 non-GAAP operating income increased 6.6%, and our non-GAAP operating margin decreased 130 basis points year-over-year to 15.3%, down as a result of lower gross margins and continued Project Accelerate 2.0 investments, as well as partially transitory headwinds from foreign currency and acquisitions, as we've communicated earlier in the year. Gross margin performance in the second quarter of 2023 was also unfavorably impacted by mix and inflation in several of our larger divisions. We finished the second quarter with cash, cash equivalents, and short-term investments of approximately $575 million. During the quarter, we used cash to fund selected Project Accelerate 2.0 investments and capital expenditures. We generated $13 million of operating cash flow in the second quarter of 2023. Our capital expenditure investments were $23.5 million resulting in free cash outflow of $10.5 million in the second quarter of 2023. This compares with operating cash outflow of $44.4 million and a free cash outflow of $62.3 million in the second quarter of 2022. Bruker's second-quarter cash flow seasonally tends to have the lowest cash flow of our four quarters. Slide 12 shows the revenue bridge for the second quarter of 2023, as Frank has reviewed earlier. Compared to the second quarter of 2022, BioSpin's second-quarter 2023 organic revenue was essentially flat due in part to a 1.2 gigahertz system in our prior Q2 2022 revenue, while a gigahertz class system originally planned for the second quarter of 2023 has shifted into the second half of 2023. Nano organic revenue grew in the low 20% range, driven by strength in Nano's industrial research and academic businesses. CALID organic growth grew mid-teens percentage with strong performance from proteomics and molecular spectroscopy. We delivered solid growth in the second quarter of 2023 in the BSI segment systems and aftermarket revenue, with mid-teens growth in systems and high single-digit growth in aftermarket. Geographically, and on an organic basis in the second quarter of 2023, our Americas revenue grew in the mid-single digit percentage, Asia Pacific revenue grew in the high 20% range, while European revenue had high single-digit percentage growth, all year-over-year. For our EMEA region, which is small as we categorize it, second quarter 2023 revenue was up over 30% year-over-year. Slide 13 shows our Q2 2023 P&L performance on a non-GAAP basis. Non-GAAP gross margin of 50.9% decreased 9 basis points from the 51.8% we posted in the second quarter of 2022 due to unfavorable product mix and foreign currency and inflation headwinds. Second quarter 2023 non-GAAP operating margin of 15.3% was 130 basis points lower than the 16.6% margin we put up in the second quarter of 2022, as we were impacted by lower gross margin product mix in this quarter, continuing investments in select Project Accelerate 2.0 initiatives, and our recent acquisitions and a strong foreign exchange headwind. For the second quarter of 2023, our non-GAAP effective tax rate was 25.2% compared to 28.2% in the second quarter of 2022, driven mostly by favorable jurisdictional mix. Weighted average diluted shares outstanding in the second quarter of 2023 were 147.7 million, a reduction of approximately 2.1 million shares or 1.4% from the second quarter of 2022, resulting from our share repurchases over the past 12 months. And finally, for the second quarter 2023, non-GAAP EPS came in at $0.50, which was up 11.1% compared to the second quarter of 2022. Slide 14 shows the year-over-year revenue bridge for the first half of 2023. Revenue was up $184 million or 15.5%, including organic revenue growth of 15.6%. Acquisitions added 2% to our top line, while foreign exchange was a 2.1% headwind. Frank has already covered the drivers for the first half of 2023. Non-GAAP P&L results for the first half of 2023 are summarized on Slide 15, with the drivers largely similar to the second quarter of 2023, and as I've explained on slide. Turning to Slide 16, in the first half of 2023, we generated $100.5 million of operating cash flow, up $67 million over the first half of 2022 from higher profitability and favorable other items. We generated $52 million of free cash flow in the first half of 2023, up about $56 million over the first half of 2022, including higher capital expenditures for capacity expansion and productivity optimization. Turning now to Slide 17, given the strength in revenue in the first half of 2023, we're again increasing our revenue guidance for the year. Our updated outlook for fiscal year 2023 includes a raise of our revenue guidance to a range of $2.85 billion to $2.9 billion. This includes organic revenue growth of 9.5% to 11.5% year-over-year, an increase of 0.5 percentage point from prior guidance. We continue to expect a foreign currency tailwind of about 1% and an acquisition contribution of about 2% to our revenue growth. This leads to reported revenue growth in a range of 12.5% to 14.5%, an increase of 0.5% from our prior guidance. In 2023, we continue to expect about 50 basis points of organic operating margin expansion, excluding the effects of our recent acquisitions and foreign currency. For non-GAAP operating margins, we expect a decline from the prior year due to partially transitory operating margin headwinds from recent acquisitions and foreign currency, with this headwind now estimated at approximately 150 basis points for the full year of 2023, primarily due to a steeper-than-expected decline in the U.S. dollar against the Euro and the Swiss Franc in the last few quarters. As a reminder, last year, our third quarter of 2022 was exceptionally strong, and we expect a more typical quarterly cadence in fiscal year 2023. Accordingly, for the third quarter of 2023, we anticipate mid to high single-digit organic revenue growth and non-GAAP EPS down slightly year-over-year and then a reacceleration of EPS growth in the fourth quarter. While we do expect solid organic revenue growth in the second half of 2023, in the mid to high single-digit percentage range, we will also proactively manage our costs given the changing macro environment. On the bottom line, we're maintaining our non-GAAP EPS estimated range of $2.55 to $2.60 for fiscal year 2023, which would represent non-GAAP EPS growth of 9% to 11% compared to 2022. Note that this now includes an estimated 5% or approximately $0.10 year-over-year foreign exchange headwind to non-GAAP EPS. Other guidance assumptions are listed on the slide. To wrap up, Bruker delivered excellent organic revenue growth and strong EPS growth in the first half of 2023, and we remain confident in our full-year 2023 outlook and beyond. 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. Operator.

At this time, we will take our first question from Puneet Souda with Leerink Partners. Please go ahead.

Hey, thanks Frank. Thanks for taking questions here. First one, financial and a follow-up on AI. First one, maybe for Gerald. Obviously, great to see the strength and obviously congrats on the quarter, the top line guide raised as well. But gross margin obviously stepped down meaningfully in the quarter. You have 3 gigahertz magnets coming in the second half. Could you talk a little bit about sort of the cadence for that and how that impacts the gross margin lift? I know you talked about 3Q EPS being lower versus 4Q. But maybe just talk to us about the cadence for gross and op margins in 3Q and 4Q, just given how you think these orders will land?

Yes, I'll address that. Hi, Puneet. The weaker product mix in Q2 impacted our gross margin, primarily due to the ultra-high field gigahertz magnets being pushed to the second half of the year. We now expect 2 to 3 units for the latter half, possibly 1 for Q3 and 1 or 2 for Q4, with a chance that some may carry over into 2024. Overall, while these significant items are important, they do not dictate the performance of a quarter. We manage other factors around them, so we are capable of performing well in a quarter regardless of their presence.

Got it. Super. And then I'm tempted to ask about two major themes that are important for you in the near term. Obviously, you talked about AI being one. And on that could you talk a little bit about that growth rate of that $75 million so far and sort of how do you expect that growth rate to trend? I mean there are some wild estimates out there for GPU chips expansion, so I just want to get that? And then on the clinical MRI and PET imaging, Alzheimer's drugs are reaching the market, and there is a significant demand expected for PET. GE has talked about that. So could you take a minute and talk about how Bruker is positioned with respect to PET imaging as well? Thank you.

I’m noting your questions. Starting with AI, I don’t have specific growth data to share. We have a sense that it will be significant and grow substantially, but I recommend looking at industry data since we are a smaller part of it. Previously, we hadn’t compiled our AI-related revenues, which has changed recently as we've established a baseline for what we believe our AI-related revenue is. Apologies, as we don’t have internal figures yet, but we recognize that it represents a meaningful revenue stream, and we’ll use it as a baseline for future assessments of how it impacts Bruker's growth rate. While I can’t provide a specific number, it is indeed one of our promising growth drivers, usually with strong margins. Regarding your second question on neurodegenerative diseases and Alzheimer’s specifically, clinical MRI and PET will become increasingly important. As you may know, we are the world leader in providing superconducting materials to major clinical MRI providers, making MRI and PET-MR critical. PET is seldom used alone due to the need for MRI high-resolution co-localization. The same is true for our preclinical products, whether PET CT or PET MRI, and we lead the market in both areas. We are well positioned across various animal models, including rodents and nonhuman primates. Although we cannot perfectly segment the data, we expect some healthy growth in our preclinical PET CT, PET MRI, and PET-MR, as well as in preclinical MRI alone. The growth in this area is promising, especially in neurodegenerative research, which seems to be at a turning point after a history of drug discovery setbacks, now potentially moving towards some successes with further developments on the horizon. This is encouraging for our preclinical MRI segment and our superconducting materials business. I apologize for the lengthy response, but your questions required more than simple answers.

No, I appreciate the context. Thank you, Frank.

And our next question will come from Derek De Bruin with Bank of America. Please go ahead.

Great. Thanks for taking the question. This is Mike Ryskin on for Derik. I want to ask a little bit about 1Q, 2Q pacing on orders. I believe last time you said bookings were stronger than revenue in a couple of years in the first quarter. And I think today, you talked about book-to-bill for the first half being greater than 1.0. So could you just sort of put them on a little bit of an apples-to-apples basis for 1Q, 2Q, are bookings still coming in stronger than revenue, did it normalize a little bit, and any color you could provide in terms of which end markets or customer classes, maybe do a little bit better on that on the order front in the third quarter?

In Q1, the book-to-bill ratio for BSI remained above 1 in Q2, which aligns with the long-term 5-year orders from BEST. Looking at the Scientific Instruments segment, which constitutes 90% of our business, their Q2 book-to-bill was approximately 1, reflecting a healthy situation. While it wasn't as robust as in past quarters where we saw ratios exceeding 1, and sometimes 1.1, the growth from China has been particularly strong, along with increases in academia, government, and academic medical centers. There's significant funding within academic medical centers for both discovery and translational research, and many of our tools are integral to that. Additionally, we've experienced solid bookings growth in biopharma, although our tools are not yet widely used in biologics manufacturing; they are primarily utilized in drug discovery and development. Our tools are essential, and budget cuts don’t usually affect their need. This provides some protection against a fluctuating market. To complete the picture, I should note that semiconductor metrology and applied markets orders, along with industrial orders, have been slightly softer than expected. This softness isn't surprising given that these markets are somewhat cyclical. Therefore, our book-to-bill is now trending closer to 1 in Q2, which is still a healthy position as we work to reduce our long backlog to achieve more typical delivery times over the next couple of years.

That's great. I appreciate all that color. Thanks. And then for a follow-up, I want to touch a little bit on CALID and mass spec. You touched on strong demand led by timsTOF and obviously, you guys showcased some new products at ASMS, talked about them at the Analyst Day. Just curious if you could dive into mass spec performance a little bit more. So any early feedback or learnings on the Ultra launch and just broadly, what are you seeing in mass spec land?

Yes, we don't comment on other companies' mass specs or their claims. We read them. Our timsTOF product line, and not only timsTOF is a platform. So the new Ultra is getting a lot of interest. It is particularly for the ultrahigh-sensitivity market. But remember, for the routine high-throughput markets, we have the timsTOF HT, we do a lot of mass spec imaging for multiomics, including targeted proteomics, but also metabolomics, lipidomics with timsTOF fleX. And there are some other specialty products that are derived from the timsTOF platform. So it's really that entire platform is doing really quite well. And I think, of course, with an exciting new product at ASMS introduced recently, people are very, very impressed with its performance and what it can do. So that's the fact. That's the news from CALID and the timsTOF platform has been growing very nicely throughout the first half of the year, and we expect that to continue.

Great, thanks.

Our next question will come from Josh Waldman with Cleveland Research. Please go ahead.

Hey, good morning. Thanks for taking my questions. Two for you. First, Frank or Gerald, I guess, a follow-up on Mike's question. Curious how you're thinking about the contribution from the backlog work down in the coming quarters and maybe how that supports resiliency in the 2023 and medium-term guide. I mean is there a base case number for organic growth that backlog work down contributes, or is that not the way to think about it?

I'll address that quickly, Josh. As you know, we have a record backlog that remains high. We estimate it to be over eight months, which is significant for us. We expect it will take several years to reduce that backlog, and it won't be cleared in just one quarter. However, as Frank mentioned, this gives us considerable resilience for upcoming quarters since we just need to execute on that backlog rather than rely solely on new orders. Additionally, our backlog appears strong across most of our business divisions, with some starting to gradually contribute to that backlog. Overall, the largest divisions still have substantial backlog, which is encouraging for our future outlook, especially on the organic growth front.

Got it. Then, Gerald, I wondered if you could talk to the assumptions underpinning the mid to high single-digit organic growth for the second half. I mean, obviously, it implies a step down. The comp is only modestly more difficult, curious any additional color you could provide there and then maybe walk through the puts and takes on the impacts on the 1 gig systems, it sounds like it's a net headwind, is that right?

I wouldn’t describe it as a net headwind. From our perspective, we experienced 15.6% organic revenue growth in the first half, which is strong. Our overall guidance at the midpoint is 10.5% organic growth, which is significant for us and seems to be the case in the industry as well. We have a considerable backlog that we hope to address in the third and fourth quarters. Although we anticipate higher costs in those quarters, particularly after a very strong third quarter, we expect to see improvement moving forward. Overall, things look positive for our organic revenue performance, and we believe that trend will continue.

So strong orders in the first half, continued strong backlog, continued demand as far as we can see it. It's getting a little choppier. We acknowledge that. There are some markets that are not growing as fast as they were last year and others that continue to be quite resilient for us. In the mix, we're obviously very resilient here. You know our long-term guidance or medium-term guidance, or I should say, we just gave at our Investor Day for the next few years. So certainly, our second half expectations are consistent with that even if we don't grow at the torrid pace of 15% plus anymore in the first half.

Got it, good to hear. Thanks, guys.

Thanks, Josh.

Our next question will come from Dan Arias with Stifel. Please go ahead.

Hey, good morning guys. Thank you. Frank, BioSpin, how do lead times on NMR installations look today? And when you think about just exiting the COVID period over the last 12 months and then bringing up your own new Germany site, would you say that you've reached sort of a steady state there and that really shouldn't change or do you still think there are some things that you can do in terms of production capabilities, etcetera, or just customer acceptance that you think improves the lead times over the next 12 months?

Yes, we still need to address the high lead times for NMR installations, which are still very elevated but should decrease in future quarters. This situation is not our new normal. We experienced some delays with our gigahertz NMRs, our most advanced products, primarily due to the need for additional tests or modifications in the manufacturing process, which can result in delays of up to a quarter. Additionally, overall demand has been strong, with excellent bookings at BioSpin in the first half of the year, and we expect this trend to continue. To meet this demand, we need to increase our capacity across all areas, including production, testing, and field installations. While these challenges are positive in nature, as they reflect high demand, we need to reduce lead times through growth in capacity. This is relevant not just for NMR but across several areas, which is why our capital expenditure has been high recently as we prepare for both productivity improvements and the capacity we anticipate needing in the coming years. There is still more work ahead.

Okay. So if lead times have improved 12 months from now, chances are it's more to do with your own internal processes rather than anything customer-related, just want to make sure I have that right.

I think that's a reasonable assumption, yes.

Okay. Gerald, to clarify the guidance, if the NMR orders hadn't been deferred to 2024, would it be accurate to say that the outlook could have been increased by 0.5 to 1 point? Additionally, regarding the Accelerate 2.0 spending, I'm curious about the overall investment plan for that program. How much of the investment for 2.0 do you consider to be for 2023 versus 2024?

So maybe on the first one, on the NMR, I mean all these ultra-high fields, there's a range. It depends on whether it's a 1.0, 1.1, 1.2, but very roughly system is around $10 million, right. So yes, it is different. So that's like a 25 basis points size I suppose, if you like, so it's not unimportant. It's meaningful, but it's not that significant.

I would say we have both positive and negative factors in the guidance. Some aspects may exceed our expectations, while others raise concerns about potential declines. We have taken all of these into consideration as we evaluate the current guidance.

In response to your second question regarding Project Accelerate 2.0 investments, we are indeed on a multiyear investment path. While we are not providing guidance for 2024, we did share our medium-term expectations during our Investor Day. Specifically, we anticipate maintaining our R&D investments at about 10% of revenue through 2026.

And as you see, also, we have commercial investments that are going on in the sales and marketing area to support a number of the faster-growing elements of the business as well.

It's a significant transformation coming from Project Accelerate. It's going extremely well, and we're investing in that while delivering earnings per share growth. While we are not maximizing earnings per share growth, we are providing enough growth and focusing on future investments simultaneously. This approach has been effective, making us a faster-growing company with impressive growth this year, both relatively and absolutely in the first half. The second half is expected to show mid to high single-digit growth, around 6% to 8%, which aligns with our medium-term organic growth guidance for the next few years. Our investments are paying off.

Okay, thank you.

And our next question will come from Patrick Donnelly with Citi. Please go ahead.

Questions. Frank, maybe on the China and biopharma piece, encouraging to hear you guys kind of shook off a little bit of the industry concerns there. Can you just talk about, I guess, if anything changed in terms of as the quarter went in linearity, even if you're willing to comment on July? Obviously, the peer set had some issues in those two markets. It would be great to just expand a little bit on what you guys saw and how you're feeling on the go forward there?

Yes. We had strong order growth in China in the first quarter, which we discussed during our Q1 earnings call. We anticipated some of this growth was due to real additional demand that wouldn't have existed without the stimulus program in China, which significantly benefited our big-ticket items. Additionally, we expect some of this demand may have been pulled forward within the year. Nevertheless, our second-quarter order growth in China was still quite good, though not as exceptional as in Q1. We continued to see solid orders from academic institutions and government medical centers in China. Most of our orders typically come in the last month of a quarter, so analyzing trends within a quarter isn't particularly meaningful for us. We don't have data that would be significant in that regard, as our business model differs from companies with more consumable revenue.

And Patrick, maybe just one other additional comment from my side. So there's really good revenue performance in the second quarter from China and the backlog levels in China continue to be significant from actually above the corporate average. So we have quite a backlog level there to work down, and we've been somewhat constrained by some export restrictions issues, but hopefully, we work our way through those, and then some of that will fall into the revenue.

We export delay, not filling.

Understood. Alright. And then a quick one, Frank. Just to follow up on the orders and backlog. There's a lot of focus there. I appreciate the book-to-bill commentary. I mean, is it safe to assume, if BSI book-to-bill was hovering around 1. I think BSI grew 13% organic in the quarter. So are orders there up double digits, is that fair to say?

So I'm not sure I caught everything in Q2, as I mentioned earlier to Mike, our BSI book-to-bill was around 1. The second part, I...

Yes. I might add also Patrick, that given some of the lumpiness in the orders, some of the pull forward we saw, as we articulated in China in the first quarter, we really think it makes sense to look at the first half of bookings. And again, the bookings in the first half were up double-digit organically year-over-year. So there's just so much lumpiness from quarter-to-quarter that we think it makes sense to look at the first half. But as Frank did state, the book-to-bill in that second quarter was hovering around 1, which we aim to keep in that area going forward.

In some quarters, we'll have to come below that to build to work off the backlog. Still solid, not as strong as in Q1.

Understood, thank you.

Our next question will come from Dan Brennan with Cowen. Please go ahead.

Great, thank you. Thanks Frank and Gerald for taking the questions. Maybe just one sticking with the order dynamics from kind of what you guys are seeing today any sense on the trajectory of orders in the second half and what would be the early read on 2024 organic growth? Do you think, Frank? Obviously, the backlog is significant, but just trying to get a sense of that trajectory and kind of what you might be thinking about today?

We don't have any specific comments for 2024, Dan. However, our Investor Day showcased a multiyear organic growth rate of 6% to 8%, suggesting mid to high single digits. This is not guidance for 2024; it's a multiyear perspective. In terms of second-half order dynamics, the pipeline and opportunities appear strong. We'll have more insights after we report Q3 and Q4. So far this year, the book-to-bill ratio has been greater than 1 in Q1 and around 1 in Q2, particularly for the BSI segment, and that's all the information we have at this point.

Frank, thank you for that. And how about just academic spending broadly at Q2, it sounds like it was another solid quarter for you. And I think your peers while they struggled elsewhere, academics seem to be a bright spot this quarter, but there are some concerns over tighter budgets. So I'm just wondering kind of how you see the global market for kind of academic as we look out to the back half of the year and beyond?

Yes, academic medical centers are increasingly important. There's significantly more funding available for cancer and neuroscience research compared to traditional chemistry departments. Over the past decade, there has been a strong shift in academia towards pathology, disease biology, and translational clinical research. While academic institutions are performing well, academic medical centers and government funding are particularly beneficial for us. There are concerns about NIH budgets, but initiatives like the Science Act in the U.S. and the CHIPS Act, along with similar efforts in Europe and Germany, are promising. Academic investments in China and Japan remain strong, and although some European budgets may be delayed until the second half of the year, overall the situation is stable. While interest in biopharma has fluctuated, it remains a strong area for us. Our products and solutions position us well to navigate these macroeconomic trends; we are somewhat resilient and have protection due to our unique offerings.

Great, thanks Frank. Thanks Gerald.

Our next question will come from Rachel Vatnsdal with J.P. Morgan. Please go ahead.

Hey, thank you for taking my questions. And good morning. I wanted to follow up on Patrick's question earlier about China. So you mentioned that APAC growth was in the high 20s. Can you give us what was the specific China growth in the quarter and then what did orders grow in China? And as a follow-up, what are you hearing on additional stimulus tranches being released in the region? We've heard from some of your peers that there could be some stimulus coming in 4Q, so what are your expectations there, and how is that contemplated in this year's guidance?

Hi Rachel, it's Gerald. Good morning to you. Just generally on China, robust order demand, and I would say, robust revenue performance in China for the first half. I think what we've seen so far is that there is quite a bit of interest in China around these additional stimulus programs. It's not a surprise that with the Chinese GDP following off somewhat that there's suddenly interest in doing that at the government level. What we've heard on the Street is just very positive about that. When we are not clear. But certainly, we're hearing some of the same information.

Yes, there is a lot of speculation about what may happen in the second half. However, based on industry insights, much of this speculation is not grounded in concrete data. Our guidance for the second half of the year is not based on mere hope.

Yes, I mentioned earlier, Rachel, that we have significant backlog in China. We just have to execute on it, and that's what we've incorporated into our plans.

So yes, we're looking at all of this with great interest, but we don't have anything to hang our hat on yet. And when we do, we'll report it.

Great. And then just one more for me. On BEST, you previously talked about growing throughout the year and the supply chain was really the limiting factor there rolling off. So can you talk about the 18% growth this quarter was obviously pretty impressive. How is that supply chain factor kind of driving through those numbers? And then how should we think about that segment sequentially throughout the back half of the year? Thank you.

Supply Chain and Logistics is gradually getting better. It is not completely normalized in some areas like superconducting materials. It is still even multiyear constrained. And that's why we're gaining market share, I think, because we've made the long-term multiyear investments ahead of the curve, whereas others now cannot react fast enough. But supply chain and logistics are gradually improving, but it still requires a very strong execution. And I think we have that. I think we have shown that over and over again. It is still partly a drag on growth which is the same as saying it in a different way but that also while a higher backlog and then it isn’t coming down in a quarter or two but over a couple of years. So it is getting better, but it is still a topic; it is just not a headline topic anymore.

Operator, maybe we have time for one more question from one more participant, please.

Our last question here will come from Jack Meehan with Nephron Research. Please go ahead.

Thank you, good morning. I wanted to ask about timsTOF's instrument pricing. Curious how that is trending and just early dialogue with customers around Ultra, do you think there's potential to pull up the blended instrument pricing for the timsTOF family with some of these new launches?

Yes, it has been on an upward trend for some time. The timsTOF SCP released a couple of years ago for single-cell proteomics, along with the timsTOF fleX which includes additional mass spec imaging for targeted multiomics, both have higher price points, typically in the million-dollar range or more. The Ultra model also falls in that $1 million-plus category. Consequently, the average pricing for the timsTOF platform has been increasing, aligning with market trends where high-end instruments are being introduced at prices over $1 million. Therefore, it appears that the average selling price of the timsTOF family has risen and may continue to rise.

Great. And Gerald, you talked about proactively managing costs. Can you just talk about where you're focused with that and is it possible to quantify how much you're targeting? Thanks.

Look, I mean, I will say that Bruker's philosophy is disciplined entrepreneurialism, so we're pretty disciplined on costs all the time. Our focus now will just be to look at discretionary spending in areas where we think we can tighten slightly. This is a deep surgery by any stretch and our organization is very focused on this from the very beginning and continues to be so. So I'm not going to provide any color on numbers. But we think we're going to continue to be disciplined in our cost management. That's what we do.

It's tweaking. It's not restructuring. We're aiming for meaningful savings because, obviously, it's a choppier macro. We cannot ignore what's going on around us. And you can always sometimes defer hiring; sometimes you have discretionary spending that you can reduce. Those are the levers that we're working on right now and that we've implemented already.

Alright. And this concludes our question-and-answer session. I'd like to turn the conference back over to Justin Ward for any closing remarks.

Well, we want to thank everybody for joining us today. Bruker's leadership team looks forward to meeting with you at an event or speaking with you directly during the third quarter. Please feel free to reach out to me to arrange any follow-up. Have a great day.

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