Earnings Call Transcript - BRKR Q4 2024

Operator, Operator

Good day, and welcome to the Bruker Corporation Fourth Quarter 2024 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Mr. Joe Kostka. Please go ahead, sir.

Joe Kostka, Director of Investor Relations

Good morning. I would like to welcome everyone to Bruker Corporation's Fourth Quarter 2024 Earnings Conference Call. My name is Joe Kostka, and I'm the Director of Bruker Investor Relations. Joining me on today's call are Frank Laukien, our President and CEO; and Gerald Herman, our EVP 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 & 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 or may 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 our recent acquisitions, geopolitical risks, market demand, or supply chains. 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 our Form 10-K for the period ending December 31, 2023, as updated by our other SEC filings, which are available on our website and on the SEC's website. Also, please note that the following information is based on current business conditions and to our outlook as of today, February 13, 2025. 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 2025 financial results expected in early May 2025. 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 fourth quarter and full year of 2024 in more detail and share our full year 2025 financial outlook. Now I'd like to turn the call over to Bruker's CEO, Frank Laukien.

Frank Laukien, CEO

Thanks, Joe. Good morning, everyone, and thank you for joining us on today's fourth quarter 2024 earnings call. Bruker finished 2024 with another quarter of excellent constant currency revenue growth and strong organic revenue growth, both exceeding our expectations for Q4 ’24, especially considering our robust Q4 ’23, which saw organic revenue growth of nearly 16%. For the entire year of 2024, we achieved double-digit constant currency revenue growth at 14% and 4% organic revenue growth, significantly above the market, which we estimate was flat or slightly down in fiscal year ’24. This reflects the strength of our portfolio of innovative solutions, our disciplined entrepreneurial culture, and our management process. In fiscal ’24, we added strategic platforms in spatial biology, molecular diagnostics, and lab automation to our portfolio, continuing our multi-year transformation into a growth-oriented industry leader with substantial scale, positioning us well for leadership in the post-genomic era. This transformation focuses not just on growth but also on enhancing margin potential and accelerating EPS growth. We intentionally accepted initial margin and EPS dilution from our strategic acquisitions to unlock significant market opportunities and strong growth trends, while also further improving Bruker's margin and EPS growth profile. As we look to 2025, we started the year with strong bookings momentum, maintaining a solid backlog in the BSI segment with over six months of revenue, bolstered by our nearly 1:1 book-to-bill ratio in Q4 ’24. We've begun receiving initial orders tied to the China stimulus program, totaling over $15 million in the latter half of ’24, primarily in the fourth quarter, with additional orders anticipated. We recognize the uncertainties in the U.S. NIH and academic government markets and have considered this in our guidance. However, we do not foresee a significant reduction in NIH and other life science investments in the U.S. after some market adjustments. We are seeing robust market trends in diagnostics and semiconductor metrology, along with signs of a recovery in the biopharma sector. Consequently, we are setting our fiscal ’25 guidance for constant currency revenue growth at 5% to 7%, with 3% to 4% organic growth and contributions from acquisitions ranging from 2% to 3%. We are deeply committed to rapid expansion of our non-GAAP operating profit margins, targeting an improvement of approximately 140 basis points in fiscal ’25 compared to our ’24 operating margin of 15.4%, which was slightly above our expectations. We also anticipate non-GAAP EPS growth of 11% to 13%, with constant currency EPS growth of 14% to 16% compared to ’24. Now, moving to Slide 4. In Q4 of ’24, Bruker reported strong revenues and even stronger operating margins than anticipated. Our reported revenues increased by 14.6% year-over-year to $979.6 million, despite facing a foreign exchange headwind of 1.2%. The constant currency revenue growth stood at 15.8% year-over-year, with organic growth of 3.9%—4.5% organic growth in our BSI segment and a decline of 2.8% in BEST, after intercompany eliminations. Revenue from acquisitions contributed an additional 11.9% in Q4 ’24. Our non-GAAP operating margin for the fourth quarter was 18.1%, matching our Q4 ’23 margin due to strong organic operating margin expansion of 300 basis points, which fully offset the dilution from acquisitions and foreign exchange impact. This organic growth indicates the effectiveness of our operational excellence initiatives and M&A integration efforts. Additionally, Q4 non-GAAP diluted EPS rose to $0.76, an increase of 8.6% from $0.70 in Q4 ’23, marking a successful return to year-over-year non-GAAP EPS growth in the fourth quarter. Now, moving to Slide 5, Bruker maintained strong growth throughout fiscal ’24, achieving above-market organic revenue growth despite challenging conditions. For the fiscal year, reported revenues grew by 13.6% to $3.37 billion, with 14% constant currency revenue growth. Organic revenue growth amounted to 4% year-over-year, featuring 4.2% growth in Scientific Instruments and 1.9% in BEST, net of eliminations. Acquisitions contributed 10% to revenue growth, while foreign exchange generated a slight headwind of 0.4% for the year. Slide 5 summarizes our non-GAAP gross and operating margin and EPS performance, which were down year-over-year due to anticipated initial dilution from our strategic acquisitions made in the first half of ’24. Please refer to Slides 5 and 6, which detail our fiscal year ’24 constant currency performance across our three Scientific Instruments groups and the BEST segment year-over-year. In ’24, the BioSpin Group generated revenues of $905.7 million, experiencing low teens percentage growth in constant currency. BioSpin witnessed strong revenue increases in Europe and the Americas, in addition to industrial research and ACA/GOV markets, and biopharma, with notable contributions from our automation, service, and software segments. In ’24, we recorded revenue from 4 gigahertz class NMR systems for both the current and previous fiscal years. In Q4 ’24, we also achieved revenue from a 1.2 gigahertz NMR system at the University of Zürich in Switzerland. For ’24, the CALID Group's revenue reached $1.1 billion, reflecting mid-teens percentage growth in constant currency, largely driven by microbiology and infection diagnostics from both the MALDI Biotyper and the newly acquired ELITech Molecular Diagnostics business, as well as our Optics IR, near IR, and Raman molecular spectroscopy divisions. This growth was partially offset by declines in ACA/GOV and our China business. On Slide 7, Bruker NANO's revenue for ’24 also reached $1.1 billion, with high teens percentage growth in constant currency, largely fueled by ACA/GOV research and semiconductor metrology. The trends in high-performance computing and AI present a strong market advantage for our semiconductor and advanced packaging tools, with over $125 million in metrology revenues from AI and HPC-related semiconductor NANO tools, though not all of this relates directly to AI as we have observed. The integration of our cellular analysis and spatial biology business is progressing well, although demand from biopharma has been softer in ’24. Lastly, BEST revenues grew in the low single digits, net of intercompany eliminations, driven by advancements in accelerator and FUSION technologies within our research instruments division. RI is also gaining traction in extreme UV lithography technologies, crucial for manufacturing next-generation semiconductors. On Slide 8, we showcase two contrasting businesses—our microbiology segment and semiconductor metrology—which are both performing well and achieving above-average corporate margins. Microbiology and Infectious Diagnostics saw mid-teens growth in Q4 and high single-digit growth throughout the year, supported by a growing installed base of over 7,000 MALDI Biotypers and the ELITech Molecular Diagnostics acquisition. This business has limited exposure to China, NIH, and biopharma. Similarly, semiconductor metrology experienced organic revenue growth exceeding 20% in Q4, with low teens growth for fiscal year ’24. Our total annual revenue from semiconductor metrology is over $250 million, with approximately half derived from high-performance computing and AI. I won’t dwell too much on Slide 9, which we presented at the JPMorgan Healthcare Conference, as it outlines the broader picture for Bruker. We've achieved scale with 70% cumulative revenue growth over the past four years, exceeding $3.35 billion. Last year, we added $400 million in revenue, with a steady constant currency revenue CAGR of 15%, a leading figure in our industry. Historically, we demonstrated the capacity to drive significant operating margin expansion, with an increase of 1,000 basis points over an eight-year period before strategically pursuing acquisitions that were temporarily dilutive but have positioned us to tap into key growth markets with sizable addressable markets. Our next three-year goals, including fiscal ‘25, aim for annual non-GAAP operating margin expansions exceeding 125 basis points. This year, we target 140 basis points, alongside committing to 13% to 15% constant currency EPS growth, with a specific aim of 14% to 16%. We have successfully executed and continue to enhance this multiyear transformation into a growth-centric industry leader with attractive margin and EPS potentials. In summary, 2024 was a transformative year for Bruker. We completed important strategic acquisitions to access expansive addressable markets with strong growth trends, while integrating additional platforms in spatial biology, molecular diagnostics, lab automation, and software into our portfolio. For four consecutive years, Bruker has sustained above-market organic and double-digit constant currency revenue growth. Following approximately 70% cumulative revenue growth over the past four years, we have significantly increased our competitive scale, creating an excellent base for substantial margin enhancement and rapid EPS growth. We have further refined our differentiated portfolio to not only target growth and margin expansion but also to emerge as a leader in the post-genomic age, which we anticipate will define life sciences over the next quarter-century. With that overview, I'll hand the presentation over to our CFO, Gerald.

Gerald Herman, CFO

Thank you very much, Frank, and thanks, everyone, for joining us today. I’m pleased to provide more detail on Bruker's fourth quarter and full year 2024 financial performance. Starting on Slide 11. In the fourth quarter of 2024, Bruker's reported revenue increased 14.6% to $979.6 million. It reflects an organic revenue increase of 3.9% year-over-year. Geographically and on an organic basis in the fourth quarter of '24, our Americas revenue grew in the low single-digit percentage, European revenue grew in the mid-teens range, while Asia Pacific revenue declined in the high single-digit percentage all year-over-year. For our EMEA region, the fourth quarter '24 revenue was up mid-single-digit percentage year-over-year. BSI organic revenue growth in the fourth quarter of '24 was 4.5%, a solid revenue performance on top of an exceptional fourth quarter of '23 at 15.5% organic growth. BSI fourth quarter '24 organic systems growth was in the low single-digit range, with aftermarket revenue growth in the low double-digit range percent year-over-year. For the full year 2024, aftermarket revenue represented over 30% of BSI revenues for the first time. Non-GAAP gross margin increased 70 basis points in the fourth quarter '24 to 52.5%, as pricing and operational excellence initiatives continued to contribute to gross margin expansion year-over-year. Our fourth quarter '24 non-GAAP operating income increased 14.9% year-over-year, and we posted a non-GAAP operating margin of 18.1%, equal to that reported in the fourth quarter, which has not yet accounted for margin dilution associated with some of our first half '24 acquisitions. On a year-over-year basis, we delivered excellent organic operating margin expansion of 300 basis points in the fourth quarter of '24, driven by volume, mix, operational excellence, and integration synergies. This significant organic operating margin expansion fully offset the margin dilutive impact of our earlier strategic M&A and FX in the quarter. On a non-GAAP basis, fourth quarter '24 diluted EPS was $0.76, up 8.6% from $0.70 in the fourth quarter of '23. Our non-GAAP effective tax rate was 32.5% compared to 31.3% in the fourth quarter of '23, with the increase driven mostly by jurisdictional mix and discrete items. On a GAAP basis, we reported diluted EPS of $0.09 per share, including significant acquisition-related costs compared to $1.41 per share in the fourth quarter of '23, which included a one-time $0.99 per share noncash bargain purchase gain arising from the PhenomeX acquisition. Weighted average diluted shares outstanding in the fourth quarter of 2024 were 152 million, an increase of 6 million shares or 4.1% from the fourth quarter of 2023, resulting from our follow-on equity offering in May of 2024. Turning now to Slide 12. We generated $189.9 million of operating cash flow in the fourth quarter of '24. Our capital expenditure investments were $38.8 million, resulting in free cash flow of $151.1 million in the fourth quarter of '24. This reflects a cash flow decrease of $23 million compared to the fourth quarter of '23, as significant acquisition-related expenses and restructurings more than offset better working capital performance in the fourth quarter of '24. We finished the fourth quarter of '24 with cash, cash equivalents, and short-term investments of approximately $183 million. During the fourth quarter, we used cash to fund selected Project Accelerate 2.0 investments, capital expenditures, and completed debt repayment of about $50 million. We continue to move forward with our deleveraging actions following the strategic acquisitions we completed in the first half of 2024. In addition, with improved cash flow entering 2025, returning capital to our shareholders through our existing share buyback program is an attractive opportunity at this time. Slide 13 shows our non-GAAP P&L results for the full year of 2024. Revenue was up 13.6% to $3.37 billion, reflecting organic growth of 4%. Acquisitions added 10% to our top line, while foreign exchange was a 0.4% headwind, resulting in constant exchange rate revenue growth of 14% year-over-year. The remainder of the non-GAAP P&L results for the full year of 2024 are summarized on Slide 13 with the drivers as explained and on the slide. Turning now to Slide 14, in the full year of 2024, we generated $251.2 million of operating cash flow, down about $99 million from 2023 as a result of lower net income and significant acquisition-related expenses and initial working capital needs for our acquired businesses. We generated $134 million of free cash flow in 2024, down about $109 million from 2023, which was due to lower operating cash flow and higher capital expenditures. Turning now to Slide 16. We entered the year with a stronger transformed portfolio, healthy backlog, and emerging order momentum. We're initiating guidance for full year 2025 as follows: reported revenue of $3.47 billion to $3.54 billion, representing reported growth of 3% to 5% and constant exchange rate revenue growth of 5% to 7%, all compared to 2024. This guidance assumes organic revenue growth of 3% to 4% year-over-year and an estimated foreign exchange headwind of 2%, with acquisitions contributing 2% to 3% to revenue growth. For operating margins in 2025, we expect non-GAAP operating margin expansion of approximately 140 basis points compared to the 15.4% we posted in 2024. On the bottom line, we're guiding to non-GAAP EPS for 2025 in a range of $2.67 to $2.72, reflecting non-GAAP EPS growth of 11% to 13% compared to 2024. This includes an approximate 3% foreign exchange headwind, and our non-GAAP CER EPS growth guidance for 2025 is therefore 14% to 16% year-over-year. Other guidance assumptions are listed on the slide. Our fiscal year '25 ranges have been updated for foreign currency rates as of December 31, 2024. We anticipate first quarter 2025 organic revenue to be roughly flat year-over-year, with CER revenue growth in the mid-single digits. In the first quarter of 2025, we expect softer operating margin performance year-over-year as we experienced some dilution from our NanoString acquisition completed in early May of 2024. As we saw in fiscal year 2024, we expect our organic revenue and operating margin performance to strengthen in the subsequent quarters of 2025. To wrap up, Bruker delivered meaningfully above market organic growth in 2024, and we're well positioned to deliver strong CER revenue and non-GAAP EPS growth in 2025. With that, I’d like to turn the call back over to Joe. Thank you very much.

Joe Kostka, Director of Investor Relations

Thanks, Gerald. We'll now begin the Q&A portion of the call. Operator?

Operator, Operator

And the first question will come from Puneet Souda with Leerink Partners.

Puneet Souda, Analyst

Frank, my first question is about the guidance. The full year guidance shows 3% to 4% organic growth, which is higher at the top end compared to what you had before the NIH indirect announcements and direct cuts. I'm trying to understand what gives you confidence in the instrumentation sales. Clearly, Bruker's instrumentation has more exposure in this area, so I want to know if it's due to ELITech, AI, aftermarket service, or if European offsets are contributing throughout the year to boost your confidence. Additionally, you're also increasing your margin guidance with an expected 140 basis points expansion for the year, so I’d appreciate any insights on that.

Frank Laukien, CEO

Thank you, Puneet. Yes, there are various factors at play in a dynamic environment. We've previously indicated at JPMorgan that we anticipate uncertainty in government-supported research, and this uncertainty remains. For context, NIH represents less than 5% of our exposure. If there were to be a decline of 8% to 10%, which I don't believe is likely but is possible, it could translate to around $15 million in lost revenue. However, I’m optimistic about other growth drivers outside the U.S., such as a modest recovery in biopharma, potential stimulus funding in China, and several sectors like microbiology, semiconductors, AI, applied markets, and defense spending in Europe. All these factors together could lead to organic growth of about 3% to 4%. While not extraordinary, I consider it solid for this year. We have developed a balanced approach, and we focus on constant exchange rate revenue growth as we navigate through the quarter. Some areas may show more constant exchange rate growth while others may show more organic growth. I am confident we can achieve 5% to 7% constant exchange rate revenue growth this year, which will include the 3% to 4% organic growth. While there's potential for better performance, there are headwinds, justifying our balanced outlook. We are committed to improving the operating profit margin, aiming to approach 20% within three years, with significant progress anticipated in '25. Our management teams are fully engaged in this plan. We also see opportunities despite the uncertainties around NIH funding, particularly in the first half of the year. Overall, we feel positive about our goals, including a target of 14% to 16% EPS growth on a constant exchange rate basis. Despite some headwinds for EPS, which I also mentioned at JPMorgan, we project reported EPS growth of 11% to 13%. This is a solid figure, especially when excluding foreign exchange effects, which are a reality we must face. In summary, we are deeply committed to enhancing our margins and EPS, while maintaining reasonable confidence in revenue growth.

Puneet Souda, Analyst

And could you talk a bit about the assumptions in Q1, what you're hearing from the customers in terms of instrumentation placements, their ability to take the instrument and install and get them signed off in Q1 and sort of the main question being that some of the facilities are very much supported by the indirect cuts. I mean, I recall when I purchased your solariX 15 Tesla magnet many years ago, I mean, we had to take down a while and that was facilities. So if you could maybe just elaborate what you're hearing from the customers and your ability to continue to install here, and any backlog cancellations that you contemplate just given the NIH backdrop?

Frank Laukien, CEO

We have not received any reports of backlog cancellations, which is why we are being a bit cautious regarding Q1, as mentioned by Gerald. We believe we have accounted for that in our projections. Thankfully, we still expect to see considerable M&A growth in Q1, which supports our outlook for mid-single-digit CER revenue growth. However, as you may have noticed, we anticipate organic growth to be nearly flat in Q1, factoring in some cushion for uncertainty. We have not heard any specific concerns about customers like not being able to prepare their labs or issues related to power cryogenics. There is currently uncertainty due to a stay on that order, indicating a shift in approach moving forward. We don’t foresee a return to previous conditions but rather expect a new funding approach, possibly reinvesting the $4 billion saved into infrastructure or scientific projects. We anticipate that there won’t be outright cuts, and this perspective seems to be shared across Congress. The new HHS and NIH leadership also appears focused on re-evaluating priorities rather than reducing budgets. We expect continued funding for the types of instruments and aftermarket solutions we offer, so I remain optimistic about NIH spending, as well as philanthropic and state funding, which remain robust. We have built in a buffer acknowledging the uncertainty for Q1 and likely Q2. Additionally, our revenue flow suggests that by Q2, we will see significant year-over-year improvements through Q4.

Operator, Operator

The next question will come from Patrick Donnelly with Citi.

Elizabeth Speyer, Analyst

You have Lizzy on for Patrick. I guess, first, can you talk a little bit about academic government budget in Europe and China? I think you touched a little bit on stimulus there, but it would be great to hear more on that?

Frank Laukien, CEO

Yes. In China, there is now stimulus funding. It's not expected to be a one- or two-quarter surge, which is beneficial for us. The funding will be more evenly distributed over time. Some has already started to come in, a small amount in Q3, and a bit more in Q4. We anticipate more in the first half of this year, but it might continue throughout the year. The impact on our revenue may be more pronounced in 2025 and 2026, which is positive as I prefer a smoother distribution over multiple quarters. Regarding Europe, I should also mention the rest of Asia. The Asia Pacific region, including Taiwan, Korea, and Japan, along with other parts of India, has shown relative strength, helping to offset some weakness in China. You may hear similar perspectives from others. Europe has been performing reasonably well recently, so overall, I believe that the academic government sector won't perform spectacularly this year, but it also won't be too disappointing. Moreover, there are several other strengths and growth drivers we see this year that do not rely on the academic government sector. Considering all this, I think our guidance for a 5% to 7% revenue growth at constant exchange rates is reasonable.

Elizabeth Speyer, Analyst

Great. And I've just one more. For the deal dilution this year, is $0.08 to $0.10 kind of the right way to think about it entirely? Or am I thinking about that right?

Gerald Herman, CFO

Yes. This is Gerald. Yes, you are thinking about it correctly. We're moving from roughly $0.15 to $0.20 plus dilution coming out of '24 into $0.08 to $0.10 in '25 on the EPS line. That's correct.

Frank Laukien, CEO

And then hopefully, we aim to be near breakeven in 2026. This illustrates our capability to adapt, especially since some areas of the biopharma business, such as cellular analysis and spatial biology, are expected to be relatively weak in 2024. We've adjusted accordingly to make that happen. Furthermore, we are on track for the numbers you inquired about for 2025 and are very much looking to achieve breakeven in 2026.

Operator, Operator

Next question will come from Michael Ryskin with Bank of America.

Unidentified Analyst, Analyst

This is Julia on for Mike. Do you have an update on biopharma recovery timing? Are you expecting that to be in the second half of this year?

Frank Laukien, CEO

Good question, Julia. We don't believe it will happen all at once. Instead, we expect it to be gradual. Therefore, we anticipate some progress in the first half of this year, possibly gaining momentum in the second half. That's a more accurate way to think about it.

Operator, Operator

The next question will come from Luke Sergott with Barclays.

Salem Salem, Analyst

This is Salem on for Luke. Is the expectation still to play somewhere in the realm of 3 to 4 UHF NMRs this year, kind of in line with what you've placed in the past couple of years? And then could you talk about the geographic concentration of the backlog in BSI? Is that relatively in line with your exposure? Or do you see it kind of higher in regions where you're seeing the most strength?

Frank Laukien, CEO

Good questions. Yes, we might see 3 ultra-high field systems in 2025. In fact, over the last two years, we had 4 of them. It could be 4 this year, but we are currently expecting 3, which is included in the guidance and geographic breakdown of the backlog for BSI. Jason, do you have any thoughts on that?

Unidentified Company Representative, Unidentified Role

It will be consistent with our geographic mix.

Frank Laukien, CEO

Yes. So nothing unusual there is the answer, right?

Unidentified Company Representative, Unidentified Role

The only thing I would add is that the backlog level is currently just over 7 months. It hasn't changed much from the third quarter to the fourth quarter, so we still have a significant backlog. The composition is similar to our overall geographic mix, but the number hasn't changed drastically from the third quarter.

Frank Laukien, CEO

Since the consumables-heavy businesses like ELITech molecular diagnostics, as well as the cellular analysis and spatial biology sectors, naturally experience less backlog, we can expect a normalized backlog level around 5 instead of 5.5. This situation helps us mitigate any uncertainties related to NIH this year, aided by our consistently high backlog, which is beneficial. Previously, we had anticipated the backlog would decrease to below 6 and around 5.5 by this time, but the book-to-bill ratio has remained strong throughout the year, with an impressive 0.99 for a strong Q4. We continue to reap the benefits from this, allowing us to plan well for each quarter and providing some cushioning, which is advantageous for us.

Salem Salem, Analyst

That's helpful. Appreciate that. And then on operating margins, you're targeting around 140 basis points of expansion, right? And I'm just wondering if you could give some puts and takes on that, kind of bucket out the assumptions on the operational improvements on the existing business versus what's continuing to come from the integration of M&A, maybe a little bit on FX as well. And kind of in that vein, I know you guys do a good amount of manufacturing in Europe. Are you guys contemplating anything on potential tariffs there? If not, how are you thinking about the potential risk?

Frank Laukien, CEO

Thank you for the questions. Yes, 140 basis points seems reasonable, although there may be a slight variation. That would bring us to around 16.8, but it might be slightly higher or lower. Overall, 140 basis points appears to be a solid estimate. We have some organic headwinds, likely around 50 basis points, offset by a minor foreign exchange tailwind, so the overall picture is balanced. Additionally, there is a non-organic headwind we are considering. In an ideal scenario without these headwinds, our expectation could exceed 140 basis points, but this figure accounts for both FX impacts and the organic headwinds. Regarding tariffs, we manufacture in the U.S., Europe, and Malaysia, but not in China, which gives us flexibility to adapt quickly. So far, we haven't faced any significant impacts, but the situation is fluid. If needed, we could adjust our operations within a few quarters. I don’t anticipate we would be subject to punitive tariffs, as our products—many sourced from Europe and the U.S.—are essential for our life science research operations in the U.S. We have several manufacturing and testing facilities in the U.S., and we can modify production as necessary to meet market demands.

Operator, Operator

The next question will come from Brandon Couillard with Wells Fargo.

Brandon Couillard, Analyst

Frank, it would be great to get an update just on the timsTOF platform. Any updated installed base figures you have, a revenue run rate for that platform, how you think about growth in '25?

Frank Laukien, CEO

Yes, the timsTOF platform is performing better again. We faced some competitive challenges when another instrument was released, but we have recovered significantly due to various improvements in our timsTOF models. The platform consists of multiple models, which we showcased at both ASMS and the International HUPO last year. Our win rate has returned and remains competitive. There are two strong platforms in the market, which is beneficial for the sector overall. While growth has been somewhat muted, the recent improvements in our win rate suggest that it will pick up again. The timsTOF platform is nearing a $200 million business for us, making it significant with good profit margins, and it holds strategic importance. We plan to undertake considerable activities this year for enhancements, new models, and refinements. Many of our investments are directed toward proteomics, including various areas from proteoform profiling to lipidomics, metabolomics, and glycomics. This is a crucial segment for us, alongside spatial biology, representing significant growth potential for the company, and we are investing heavily in it. Overall, the timsTOF platform is doing well, and its growth rate is on the rise.

Brandon Couillard, Analyst

And then two questions for Gerald. Could you break out the impact of currency on operating margin guidance for the year? And then secondly, inventories came down a lot sequentially. Maybe that was currency. Just how are you thinking about free cash flow conversion in '25?

Gerald Herman, CFO

Yes. So on the first question, Brandon, yes, I think generally, for '25, we're expecting a 3% foreign exchange headwind right now. And that's just where it is. We'll see how it all plays out as we get further. In 2025, we start to see some movement thereafter. And on the cash flow conversion, we had quite a good quarter, I would say, notwithstanding some acquisition-related expenses in the fourth quarter. We generated a significant amount of working capital improvement in the fourth quarter, and I'm expecting to see that continue as we move into 2025. Our cash flow conversion has improved significantly after, I would say, some challenges, especially related to initial working capital associated with our acquired businesses. But overall, we're pretty pleased with the performance in the fourth quarter and expect to continue to see it.

Frank Laukien, CEO

Yes, our operational and finance teams are doing a great job with free cash flow conversion, which has already improved, as you saw in Q4. It will also be a major focus for 2025 as we look to either reduce debt further or engage in more share buybacks. This is a priority for us as it offers more flexibility. Regarding your earlier modeling question about our 140 basis points operating profit margin expansion in 2025, the net headwind from a larger M&A headwind and a smaller FX tailwind is approximately 20 basis points. I hope that clarifies and addresses your question.

Operator, Operator

The next question will come from Doug Schenkel with Wolfe Research.

Madeline Mollman, Analyst

This is Madeline Mollman speaking on behalf of Doug. Gerald, if the situation with the NIH or in China worsens, could you explain what actions you can take to safeguard the margin and EPS guidance? Additionally, regarding NIH funding, if the environment becomes more difficult, are there ways you can alleviate obstacles to product adoption, such as support for capital equipment funding?

Frank Laukien, CEO

It's somewhat incorporated into our projections. We have conducted sensitivity analysis and reviewed your research. For example, we modeled an 8% decline, which we don't anticipate happening, but it could in the first half of the year, possibly recovering in the second half. We have included reasonable scenarios, such as delays and a potential reduction in the NIH budget, like the 8% figure that's being discussed. We've taken these factors into account in our guidance, which might otherwise have been a bit higher. While we can’t predict everything for this year, we believe we’ve done a solid job incorporating some challenging NIH scenarios into our guidance. We haven’t included a worst-case scenario, as we don’t expect one, but we have established a reasonable contingency. Additionally, as you’ve noticed, this has been factored into our margins and EPS, not just at the revenue growth level. We believe we have sufficient strength. Gerald, do you want to add anything?

Gerald Herman, CFO

I was just going to say with respect to your other part of your question on '25, in the company, I'd just remind folks that the company is still quite a global organization. And we still have significant revenue performance in other geographies outside of the United States, 70-plus percent of our revenues come from ex U.S. So there's still significant order backlog. Our performance across most of our other areas of growth are continuing, here I'm talking about the 2 areas Frank highlighted, the semiconductor metrology area, our microbiology and infectious disease businesses. We have very solid performance across industrial businesses in other geographies. So I think the general portfolio of the company is really pretty transformed to a level where it's not really only about academic government research funding, and even if it's more focused on that, there are plenty of global opportunities outside of the U.S.

Madeline Mollman, Analyst

Great. And then on the topic of the Make America Healthy Again movement, can you talk a little bit how Bruker is positioned to benefit from things like increases in food, water, environmental, and PFAS testing? What's your exposure there? And do you have anything built into your guidance around that?

Frank Laukien, CEO

Yes, we also have a business focused on applied markets, which includes PFAS testing and research. While some companies may have a greater presence in this area, we are actively involved as well. As people conduct validation studies, I believe the Make America Healthy Again initiative aligns closely with our focus on human phenome biology and post-genomic research. It emphasizes the importance of understanding the total organism and the patients beyond just genomic medicine, as those factors are influenced by food and environmental elements. This shift could significantly enhance our direction towards human phenome biology testing. Although this topic may seem a bit out of place for a financial call, I believe it carries substantial significance for the medical research we are ready to support, especially with the current administration's focus on these areas. Understanding this more deeply could greatly propel us into this post-genomic era.

Operator, Operator

The next question will come from Rachel Vatnsdal with JPMorgan.

Rachel Vatnsdal, Analyst

Perfect. So I wanted to dig into this first quarter guide. You mentioned that you're assuming flat organic growth, mid-single-digit CER. So that's really implying a mid-single-digit contribution from acquisitions. It looks like The Street was modeling a double-digit number for the first quarter in terms of M&A contribution. So can you unpack those M&A assumptions for us in the first quarter? Are there any one-timers? Is there conservatism baked into the M&A assumption? And then what type of cadence are you assuming for M&A contribution throughout the year?

Frank Laukien, CEO

It will have the biggest impact in the first quarter, Rachel, because the two larger acquisitions closed back to back on April 30 and May 6, which are ELITech and NanoString, while Chemspeed closed in the middle of the first quarter. Therefore, we expect a mid- to high single-digit benefit from M&A in the first quarter, which is quite satisfactory. Our focus is on overall revenue growth, and we manage the quarters with that goal in mind, so this fits our expectations well. M&A will have a moderate benefit in the second quarter, but the impact will decrease in Q3 and Q4 as we transition to organic growth.

Rachel Vatnsdal, Analyst

Got it. That's helpful. Then just for my follow-up, just regarding China stimulus. You mentioned that you had $15 million of stimulus orders in the back half of 2024. Can you walk us through what are you assuming in terms of benefit from China stimulus into the 2025 guide versus what would be upside? And then also just where are you seeing orders either from a provincial level, from a product level, any color there would be helpful as well?

Gerald Herman, CFO

Gerald here. I'll address that. Regarding the stimulus orders, we did see some improvement in these orders during the fourth quarter of 2024, and we expect those orders to continue to be spread out in the first half of 2025. For instance, we anticipate more orders in the first quarter of 2025. The revenue benefits from these orders are largely expected to come in the second half of 2025 and into the first half of 2026. We have already factored these into our projections, but we have not made assumptions about significantly large numbers due to ongoing delays we are experiencing.

Frank Laukien, CEO

So modest levels are baked in, and we're not about to prematurely harvest potential higher levels because of NIH uncertainty. So maybe that will end up offsetting itself, but it remains to be seen. We baked in. In an isolated world, we've probably been quite conservative and China stimulus being baked in because of other uncertainties that we're all aware of. Hope that helps.

Operator, Operator

The next question will come from Tycho Peterson with Jefferies.

Tycho Peterson, Analyst

I have a few questions regarding guidance as well. Regarding the 2% to 3% from M&A, could you clarify the situation with NanoString? I know it has been performing below expectations, while Chemspeed has exceeded them. Are you starting to see synergies with the MALDI business at ELITech? Additionally, Gerald, what are your expectations for further backlog reduction in 2025, as you intentionally aim to bring that down? Are you anticipating a reversal of the import/export restrictions? Lastly, Frank, could the semiconductor sector accelerate from this point? I understand you have a new gated architecture replacing FinFET, which requires more sampling and additional process steps. Could you elaborate on whether the semiconductor sector could see an increase from here?

Frank Laukien, CEO

NanoString is performing reasonably well. It's not quite reaching a $10 million monthly revenue rate, estimating around $110 million instead. This comes during a year when biopharma was relatively weak, which typically accounts for about one-third of NanoString's revenue. We anticipate that segment will improve. While we don't foresee NanoString returning to pre-Chapter 11 levels in 2025, we do expect solid growth this year for both NanoString and Cellular Analysis. ELITech has been progressing steadily; it's been incredibly predictable, and last year saw more instrument placements than anticipated which should lead to full operations and consumable sales by mid-year. Chemspeed is also outperforming expectations. The semiconductor sector is already strong and on a positive path. I think it's unlikely to accelerate further, but I also do not anticipate any slowdown in our semiconductor portfolio. It's been a pleasure watching it grow with excellent margins. I apologize for missing something regarding import/export; could you remind me of the question?

Tycho Peterson, Analyst

Are you assuming that gets unwound, the restrictions on China?

Frank Laukien, CEO

So we have certain semi restrictions on China. They're not going to go away. Those were already implemented 2, 3 years ago for very high-performance equipment that you cannot export to China. That's completely baked in as of years ago. And these other more recent stuff that came out just in early January, none of that affected us. And so therefore, it won't go away, Tycho, but only because it doesn't affect us. These instruments mostly do bottom-up proteomics. And the few instruments that we have that do top-down proteomics, they come from Switzerland or Germany. So they're not affected directly.

Operator, Operator

The next question will come from Subbu Nambi with Guggenheim Securities.

Subbu Nambi, Analyst

Frank, you mentioned timsTOF, that the new product launches are back on track. Where are you seeing most growth in terms of geography? Given recent macro funding events, especially in the U.S., could you lay out what your mass spec exposure is in the U.S. and then what is assumed in the 2025 guide?

Frank Laukien, CEO

Yes, we have indicated that timsTOF is expected to launch this year, hopefully at ASMS. This product represents a novel approach to proteoform analysis in mass spectrometry. We anticipate multiple enhancements, although we cannot disclose specifics for competitive reasons. The geographic contribution for timsTOF is primarily from the U.S. and Europe, with a notable presence in Asia Pacific, including China, Japan, and Korea, particularly with Korea's new stimulus package focusing on biopharma and biosciences. We are also seeing benefits from the battery sector, which is a key growth driver. timsTOF has previously faced challenges due to reduced biopharma funding, but we believe that trend may start to improve this year. Much of the biopharma funding remains concentrated in the U.S., with substantial shares in Europe and Asia Pacific, but the U.S. is clearly at the forefront. I hope this information is helpful, Subbu.

Subbu Nambi, Analyst

Yes. So that means the NIH funding is probably not going to just have an isolated effect on mass spec. One thing you said interactome, does that mean it's top down? And should we worry about something else? Or is this what you told Tycho, that it's manufactured elsewhere, not in the U.S.?

Frank Laukien, CEO

Did you use the word interactome? Interactome is different from top down. Many people utilize bottom-up proteomics to analyze protein-protein interactions. The interactome is also extensively researched using NMR and ultra-high-field NMR. Nonetheless, without diving into too much scientific detail during this financial call, this information is not particularly relevant. All of these instruments for these types of applications are manufactured in Europe. We are out of time.

Operator, Operator

Yes, sir. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Joe Kostka for any closing remarks. Please go ahead.

Joe Kostka, Director of Investor Relations

Thank you for joining us today. Bruker's leadership team looks forward to meeting with you at an investor event or speaking with you directly during the first quarter. Feel free to reach out to me to arrange any follow-up. Have a good day.

Operator, Operator

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