Earnings Call Transcript - BRKR Q2 2024

Operator, Operator

Good day. And welcome to the Bruker Corporation Second Quarter 2024 Earnings Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. 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, Associate Director of Investor Relations

Good morning. I would like to welcome everyone to Bruker Corporation’s second quarter 2024 earnings conference call. My name is Joe Kostka, Associate 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 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 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 and pending acquisitions, geopolitical risks, market demand or supply chain. 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, 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, August 6, 2024. 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 2024 financial results expected in early November 2024. 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 2024 in more detail and share our updated full year 2024 financial outlook. Now, I’d like to turn the call over to Bruker’s CEO, Frank Laukien.

Frank Laukien, President and CEO

Thank you, Joe. Good morning, everyone. And thank you for joining us on today’s second quarter 2024 earnings call. Our teams have delivered excellent revenue growth in the second quarter and a solid first half of 2024 despite soft market conditions. We continue to execute on our dual strategy of Project Accelerate 2.0 portfolio transformation and operational excellence, posting well above market organic revenue growth and even stronger constant exchange rate or CER revenue growth. We see mostly good demand for our differentiated Scientific Instruments and Life Science Solutions, but we acknowledge that biopharma demand has remained weak, and in China, customers appear to delay some purchase decisions into the second half of the year while they apply for more funding from the announced stimulus package. We now expect mid-single-digit organic revenue growth in the third quarter of 2024 and we maintain our guidance of full year organic revenue growth in the range of 5% to 7%. Our well-above organic growth is driven by Bruker’s differentiated innovation engine, as well as our multiyear transformation towards fundamentally favorable secular trends for our unique enabling tools for the post-genomic era. We are also benefiting from strong orders in semiconductor metrology in support of high performance computing for the AI megatrend, with strength in orders in Pacific RIM countries and North America. On May 17th, we hosted an Investor Webinar in which we provided in-depth looks into the three well-timed strategic acquisitions that we completed in the first half of 2024. These major acquisitions further accelerate our portfolio transformation and addressable market expansion into spatial biology, molecular diagnostics, as well as into laboratory automation and digitization. So far, Chemspeed is overperforming our expectations and the performance of ELITech and NanoString is reassuringly very much in line with our initial expectations. Chemspeed is doing quite well as the industry appears to favor CapEx investments in productivity via R&D or QC lab automation and digitization, even at times when industry, including pharma, tries to reduce headcount and OpEx. Moreover, we are very pleased with our ELITech sample-to-answer molecular diagnostics business, where we have added excellent new leadership teams in Italy and the U.S. for our combined Bruker molecular diagnostics business that we are now integrating with our previous molecular diagnostics business in Germany to achieve additional synergies. ELITech growth in 2024, for the full year including the periods when we didn’t own it, appears to be on track for mid-single-digit to high-single-digit revenue growth, and we are delighted with ahead-of-plan placements of our InGenius and BeGenius sample-to-answer molecular diagnostics platforms in the first three months, May through July, which is ahead of our expectations and which bodes well for 2025, when these platforms should be at full SA consumables pull-through. In general, molecular diagnostics is one of the market bright spots at the moment, so the timing of our ELITech acquisition seems to be very good. Most importantly, perhaps from an investor perspective, I would like to take a moment to provide additional updates on our NanoString business, which we acquired in early May. I am pleased to report that after exactly three months today of running the NanoString business, Bruker already has the improved visibility to fully incorporate NanoString into our formal guidance for fiscal year 2024 now rather than in 2025 as contemplated previously during our May 17th investor webinar. We continue to anticipate about $10 million per month NanoString revenue run rate for fiscal year 2024 and we expect a solid rebound and significant step-up in 2025. On margin improvements for NanoString, as you may recall, the previous NanoString public company had already taken very considerable cost actions in the fourth quarter of 2023, and then again in the first quarter of 2024. Moreover, Bruker did not acquire the public entity with its cost overhead, but we acquired the NanoString business in a lean assets deal. This will benefit us in the second half of 2024 already. By the end of 2024 and into 2025, we expect to also see the benefits of multiple additional cost actions, such as facility consolidation, insourcing of CosMx production, very meaningful cloud software savings, and many other growth and cost benefits of our operational excellence drive at NanoString. We expect the financial benefits in 2025 and beyond. Finally, we have also taken significant cost actions across other areas of Bruker in order to offset in part some of the initial NanoString margin and EPS dilution. I was just in Seattle at NanoString recently, and I am very pleased to report that our Bruker Nano Group has already put in place an aligned, lean, and highly motivated NanoString management team applying our Bruker management process to reaccelerate innovation and growth. At the same time, we are advancing operational excellence for cost of goods sold and OpEx reduction to drive NanoString margin improvements. Altogether, I am really quite optimistic that the NanoString acquisition will turn out to be strategically and financially excellent and a high ROIC investment for Bruker. Getting into the financial weeds now and turning to Slide 4, in the second quarter of 2024, Bruker delivered a very good growth quarter as our innovative products remained resilient despite choppier conditions in certain markets. Bruker’s second quarter 2024 reported revenues increased 17.4% to $800.7 million, which included a currency headwind of 1.1%. On an organic basis, revenues increased 7.4%, which included 8.6% organic revenue growth in BSI and a minus 2.8% organic decline in our BEST segment net of intercompany eliminations. Revenue growth from acquisitions added 11.1%, which implies constant exchange rate or CER growth of 18.5% year-over-year in the second quarter. Our second quarter 2024 non-GAAP margin was 13.8%, a decrease of minus 150 bps year-over-year. A significant organic operating margin expansion was more than offset by the expected initial headwinds from recent acquisitions, as explained in our Investor Webinar in mid-May. In the second quarter of 2024, Bruker reported GAAP-diluted EPS of $0.05 per share, compared to $0.39 reported in the second quarter of 2023. On a non-GAAP basis, second quarter 2024 diluted EPS was $0.52, up 4% from $0.50 in the second quarter of 2023. Gerald will discuss the drivers for margins and EPS later in more detail. Moving to the first half 2024 performance on Slide 5, you can see Bruker’s solid performance and execution in the first half of 2024, with organic revenue growth of 4.5%, while non-GAAP EPS was down minus 8.7% as expected due to our transformative acquisitions.

Gerald Herman, EVP and CFO

Frank Laukien, President and CEO

In the second quarter of 2024 as a result of our volume of M&A in the quarter, we incurred and paid additional acquisition-related expenses. Just as a reminder, Bruker’s second quarter seasonally tends to have the lowest cash flow of our four quarters.

Gerald Herman, EVP and CFO

Slide 12 shows the revenue bridge for the second quarter of 2024 as Frank has reviewed earlier. Compared to Q2 2023, BioSpin Q2 2024 organic revenue was up in the mid-20% range, driven by strength in our preclinical imaging and our software businesses. Additionally, we had one 1.2 gigahertz system in the second quarter of 2024 revenue, while there were no gigahertz class systems recognized in revenue in the second quarter of 2023. Nano organic revenue was flat, as strength in electron microscopy and Advanced X-Ray was largely offset by softness in fluorescent microscopy. CALID organic revenue grew mid-single digits percentage with strong performance from the MALDI Biotyper and molecular spectroscopy. We delivered solid growth in the second quarter of 2024 in BSI systems and aftermarket revenue with low double-digit CER growth in systems and strong double-digit growth in aftermarket. Geographically and on an organic basis in the second quarter of 2024, our Americas revenue grew in the low-teens percentage. Asia-Pacific revenue was essentially flat, while European revenue had low double-digit percentage growth all year-over-year. For our EMEA region, Q2 2024 revenue was up low-single digits year-over-year.

Frank Laukien, President and CEO

For the first half of 2024, BioSpin Group revenue was about $400 million and grew in the high-teens percentage. There was 1 gigahertz class NMR system in revenue in the second quarter of 2024, and we do expect two more gigahertz class NMRs in revenue in the second half of 2024. In the first half of 2024, BioSpin saw growth across academic government and industrial research markets, as well as in its integrated data solutions division for biopharma process analytical technologies, and our vendor agnostic SciY scientific software platform. For the first half of 2024, CALID Group had revenue growth of $494 million and increased in the high single digits percentage, with growth in the optics, molecular spectroscopy and microscopy business, as well as in microbiology and infectious disease, driven by the MALDI Biotyper franchise, and finally, as well, by the addition of the newly acquired ELITech molecular diagnostics business that we closed at the end of April.

Gerald Herman, EVP and CFO

In the second quarter at ASMS, we launched two exciting new mass spectrometers and I will come back onto that with a separate Slide. Please turn to Slide 7 now. For the first half of 2024, Bruker Nano revenue was $493 million and grew in the mid-teens percentage, with strong revenue growth in aca/gov, academic/government, and industrial research markets. We also saw solid growth contributions from our recently acquired Bruker Cellular Analysis, the former PhenomeX, and the recently acquired NanoString business. Our Advanced X-Ray and Nano Analytics businesses delivered strong revenue growth in the first half, while Life Science Fluorescence Microscopy revenues were down. Finally, first half 2024 BEST revenues grew in the high single-digit net of intercompany eliminations, driven by growth in big science and fusion research projects, as well as our RI, EUV technologies for OEM semiconductor lithography tools. This is different from metrology. These are semiconductor lithography tools, also in support of AI.

Frank Laukien, President and CEO

Moving to Slides 8 and 9, we highlight the transformative growth and portfolio repositioning that over a four-year period are expected to lead to an impressive cumulative reported revenue growth of greater than 70% and greater than 14% CAGR from 2020 to the midpoint of our 2024 guidance. This is rather good compared to other mature companies in the Life Science tool space, which did not have significant revenue, COVID revenue overshoot, and which typically grew in the mid-20s percentage. Our 70% cumulative reported revenue growth, which we call transformative over those four years, incidentally had about 58% organic revenue growth and the remainder was acquisitions. So we are rather pleased and I think it highlights how four years later, Bruker is really a transformed fast-growth company. If I may take your attention to Slide 9, it’s a quick summary. I won’t talk through all the bullets, but we had rather important launches on the consumable side, but also in the mass spectrometry instrument side at the recent ASMS with the flagship timsTOF Ultra 2 launch that takes sensitivity to the next level for even better single-cell proteomics and immunopeptidomics, and it opens a new window on subcellular proteomics. Very remarkable and highly timely for biological research. Moreover, we launched a multiomic Mass Spec Imaging Benchtop System, the neofleX MALDI-TOF, which I think will be very, very well received, and it uniquely enables multiomic colocalization on tissue of proteins, lipids, metabolites, and glycosylation. It’s really very, very popular and a very unique product. So in summary, Bruker continues to see well above market organic revenue growth and even more significant constant exchange rate revenue growth for our instruments and solutions across our portfolio. We have further accelerated our portfolio transformation and addressable market expansion into spatial biology, molecular diagnostics, as well as lab automation with recent M&A. We are confident that applying our proven Bruker management process and culture of disciplined entrepreneurialism will lead to operational excellence, profitable growth, and significant margin expansion in our recently acquired businesses over the next three years and beyond. With that, let me turn the call over to our CFO, Gerald Herman, who will review Bruker’s Q2 and fiscal year 2024 outlook in more detail. Gerald?

Gerald Herman, EVP and CFO

Thank you, Frank, and thank you everyone for joining us today. I am pleased to provide more detail on Bruker’s second quarter and first half 2024 financial performance starting on Slide 11. In the second quarter of 2024, Bruker’s reported revenue increased 17.4% to approximately $801 million, which reflects an organic revenue increase of 7.4% and BSI organic growth of 8.6% all year-over-year. We reported GAAP EPS of about $0.05 per share, compared to $0.39 in the second quarter of 2023. On a non-GAAP basis, Q2 2024 EPS was $0.52 per share, an increase of 4% from the $0.50 we posted in the second quarter of 2023. Our Q2 2024 non-GAAP operating income increased 6.3% and non-GAAP operating margin decreased 150 basis points year-over-year to 13.8% as higher gross margins and strong organic operating margin expansion was more than offset by operating margin headwinds from our recent acquisitions. We finished the second quarter with cash, cash equivalents, and short-term investments of approximately $170 million. Our second quarter treasury program was very active as we completed $1.3 billion in funding of the ELITech and NanoString acquisitions with about $0.9 billion of financing through fixed low interest rates, Swiss franc debt, and the balance through a $400 million follow-on equity offering. We also funded selected Project Accelerate 2.0 investments, as well as capital expenditures in the quarter. We generated $0.9 million of operating cash in the second quarter of 2024, compared to $13 million in the second quarter of 2023. Capital expenditure investments were $26 million resulting in free cash outflow of $25.1 million in the second quarter of 2024, compared to $10.5 million in the second quarter of 2023. Turning now to Slide 18, now that we have improved visibility to NanoString performance and outlook, we have now included NanoString and all closed acquisitions in our formal 2024 guidance. Our outlook for fiscal year 2024 now assumes increasing our revenue estimates to a range of $3.38 billion to $3.44 billion and maintaining organic revenue guidance of 5% to 7% for fiscal year 2024. We now expect the contribution from acquisitions to be approximately 10%, up from prior guidance of 7% and we continue to expect a foreign currency headwind of about 1%. This leads to updated reported revenue growth in a range of 14% to 16%, up from our prior guidance of 11% to 13%. For operating margins in 2024, we continue to expect greater than 50 basis points of organic operating margin expansion, more than offset by greater than 300 basis points of headwind from our recent acquisitions and foreign exchange. On the bottomline, we are tightening our fiscal year 2024 non-GAAP EPS guidance range to $2.59 to $2.64. Despite significant EPS dilution from the recent acquisitions, this guidance implies non-GAAP EPS flat or up low single-digit percentage from fiscal year 2023. Other guidance assumptions are listed on the slide. Our fiscal year 2024 ranges have been updated for foreign currency rates 2024. Now some color on the third quarter of 2024. Against a strong prior year comparable, we now anticipate mid-single-digit organic revenue growth in the third quarter. We expect third quarter 2024 non-GAAP EPS to be down meaningfully year-over-year, but up sequentially over the second quarter of 2024 with a reacceleration of year-over-year EPS growth expected in the fourth quarter. Against the backdrop of mixed macroeconomic conditions and ongoing geopolitical risks, it’s important for me to confirm that we are proactively managing costs across all of our businesses. And finally, thanks to the remarkable work of my colleagues, integration actions are progressing well in each of our recent acquisitions. I remain very confident in our ability to establish our Bruker management process, drive operational excellence to strengthen operating margin performance and drive rapid EPS growth over the next three years and beyond. To wrap up, Bruker delivered solid organic revenue growth and organic operating margin expansion in the second quarter of 2024. Our businesses continue to execute well under muted market conditions and we look forward to updating you again on our third-quarter progress in November.

Joe Kostka, Associate Director of Investor Relations

Thank you 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. Feel free to reach out to me to arrange any follow-up and have a good day.

Operator, Operator

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

Puneet Souda, Analyst

Hi, Frank, Gerald. Thanks for taking my question. So maybe just a financial one first and then a broader question. So I appreciate the organic growth guide remain the same for the year, but op margin was slightly lower, and Gerald, I think, you were expecting a lower op margin in the third quarter. Just maybe talk to us about what’s your expectation there and what can drive that higher or lower.

Frank Laukien, President and CEO

Well, it’s all in, right? There are many moving pieces. You have mentioned several of them, which is why we don't evaluate this quarterly, but rather for the full year. If you refer to our Slide 18, you'll see the assumptions that inform our revenue and non-GAAP EPS guidance. For example, the operating profit margin indicates it's around 16% for the year, showing an organic increase of over 50 basis points. We are continuing to make progress in our core business, which is encouraging. This year, as anticipated, we face a headwind of about 300 basis points primarily due to M&A, along with a bit of foreign exchange impact, while still keeping our R&D expenses at around 10% of revenue. That’s how everything fits together. NanoString China, biopharma, and all, we are seeing sustained demand growth outside of China, which is positive. Our diagnostics segment is performing well, and it currently stands out as a strong business, likely growing faster than the overall Life Science tools market right now. Additionally, we experienced solid growth in semiconductor metrology and a slight uptick in lithography orders. The diversity of our portfolio is beneficial. There are numerous factors at play, and while this year is more mixed, we still project organic revenue growth of 5% to 7% and 15% to 17% growth at constant exchange rates for the full year. That’s how all the pieces come together.

Puneet Souda, Analyst

Okay. That’s helpful, Frank. And that’s a good segue into my broader question.

Frank Laukien, President and CEO

Yeah, of the 70% cumulative growth, over 55% was organic. While we no longer have double-digit organic revenue growth at Bruker this year, it is still strong. If the LS tools market remains flat or declines a couple of percent this year, our growth differential is still significantly higher than the 200 to 300 basis points we aim for on average each year. This is due to our fundamental repositioning; we are no longer a traditional Life Science tools or analytical instruments company. Our focus is on the post-genomic era, including spatial biology, single cells, proteomics, multiomics, and protein interactions, which are where funding is directed. Even in a challenging environment, we are performing well. Additionally, our cleantech and industrial research sectors are doing reasonably well, and diagnostics, particularly our clinical microbiology and expanded molecular diagnostics business with ELITech, are strong demand drivers for our organic growth this year. We have a solid plan to continue outgrowing the market in the medium term over the next few years.

Puneet Souda, Analyst

That’s great. Super helpful. Thanks for the perspective, Frank.

Frank Laukien, President and CEO

Thank you, Puneet. All right.

Operator, Operator

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

Patrick Donnelly, Analyst

Hey, guys. Thank you for taking the questions. Frank, maybe on the BSI side, I think you said the first half book-to-bill was somewhere above 0.9, a little bit below 1. Can I pin you down a little bit on the 2Q trends on the order front, book-to-bill will be great, and then certainly if orders, if you could give any sort of growth range for the 2Q orders, that would be helpful.

Frank Laukien, President and CEO

All right. Tighten it up a little bit, Patrick. Fair enough. Yeah. It’s in the mid-0.9 range. So sort of halfway between 1 and 0.9. So mid-0.9 book-to-bill for BSI, up organically, which was because we still had good China orders last year in the second quarter. So, BSI organic order growth was still up mid-single digits. So, nothing to write home about, but really not so bad. And that along with our backlog, which is now at about seven months, down from 7.5. So it’s coming down a little bit. It will probably also end up. Now that we have ELITech is 80% consumable, spatial biology single cell is as these instruments get out there is more than 50% consumables and aftermarket. So in the future, we probably still have two years of roughly of backlog normalization buffering these choppier general markets and then just fundamentally, our orders are decent given and we have enough of our portfolio with the post-genomic era with some of this cleantech and semiconductor metrology, we still have strength in the portfolio. And fundamentally, if you take out China, aca/gov is up for us as well, obviously, an important driver for us and there is some weakness in U.S. funding here, here and there but overall, it’s up. Europe, for instance, did really quite well in the second quarter with a weak comp last year, but many, many moving pieces, but overall, very, very resilient.

Patrick Donnelly, Analyst

Yeah. No. That would be positive from our side too. Yeah. No, no, Frank. And then, Gerald, maybe one for you. We get a lot of questions just about the 2025 setup. I know you guys kind of implied the 310 earnings number for next year at the Analyst Day. Can you just talk about, I guess, the moving pieces, the confidence level there?

Gerald Herman, EVP and CFO

It's great to hear from you, Patrick. Regarding 2025, we can't disclose too much at this moment. We'll provide more details in February. Our medium-term outlook numbers remain unchanged from what we presented two months ago. Overall, we will discuss this further.

Frank Laukien, President and CEO

A lot of our growth, especially in semiconductor metrology, has been driven by impressive bookings growth in the second quarter and the first half of the year, particularly from the Pacific Rim. Notably, South Korea and Taiwan have shown remarkable performance. Additionally, the U.S. is finally making investments in semiconductor metrology, which contributes positively. Japan, however, is currently less significant for us and is not experiencing strong growth or orders, compounded by some currency challenges. Despite these headwinds, we have sufficient tailwinds to balance things out. Regarding our acquisitions, including Chemspeed, they have a substantial backlog that should sustain them through 2025. The industry seems willing to invest in automation and lab automation, especially if they can manage with lower operating expenses and headcount. I am pleased with our placement rate for our molecular diagnostics business, with placements for products like InGenius and BeGenius exceeding our expectations by about 20% in the first three months since we acquired them. While revenue from this year may be modest, the potential for consumables revenue next year looks promising. I am optimistic about NanoString, which is recovering from challenges after its Chapter 11 proceedings. The team is coming together quickly, and even after a short time, we have solid management processes in place and a motivated leadership team focused on building opportunities. I believe NanoString will experience good growth next year.

Patrick Donnelly, Analyst

Very helpful. Thank you guys.

Operator, Operator

The next question will come from Rachel Vatnsdal with JPMorgan. Please go ahead.

Rachel Vatnsdal, Analyst

Perfect. Good morning to you guys. Thanks so much for taking the question. First, I just wanted to push on the 3Q guide. You mentioned that you expect 3Q to grow mid-single-digit organic, which is a little below consensus, but you also mentioned that you started to see an air pocket related to China stimulus where customers are starting to hold back on orders as they just wait for funding. So could you unpack that mid-single-digit 3Q guide for us a bit?

Frank Laukien, President and CEO

Yeah. Fair question, Rachel. So, yeah, you saw that our Q1 was below average growth. Q2 was above this year’s average growth. Q3 will be more in line, right, with roughly the organic growth that we are expecting. Mid-single digits indeed, yeah, a little muted China orders in Q2 for sure. I wouldn’t call it an air pocket that’s too strong but muted and, of course, absence of a clear evidence of any biopharma recovery, seeing a little bit of a step-up in the U.S., but that might just be fluctuations. So, yes, so that seems prudent then for Q3 to think that it’s mid-single-digit somewhat not far from the full year trend whereas Q2 was better than the full year trend and Q1 was weaker than the full year trend in terms of organic growth, right? That’s what I am referring to.

Rachel Vatnsdal, Analyst

Helpful. And then maybe just closing that out on the 4Q implied. Could you walk us through what you are assuming from a budget dynamic into 4Q?

Frank Laukien, President and CEO

We are not a company that relies heavily on budget flush strategies. Our current approach is influenced more by our backlogs. Budget flush tends to be more relevant for businesses that deal with a lot of consumables and have more frequent turnover. However, we are indeed aiming for a strong fourth quarter. As we project it, Q4 should be a very robust quarter for us, driven by the accumulation of orders and backlog, along with new orders this year. We also anticipate continued strong orders in Q4. Overall, while Q3 has its strengths, Q4 appears promising.

Gerald Herman, EVP and CFO

Thanks, Rachel.

Operator, Operator

The next question will come from Tycho Peterson with Jefferies. Please go ahead.

Tycho Peterson, Analyst

Hey. Thanks. Frank, can you help us bridge the gap on the M&A step-up here, the incremental $90 million, I think you said NanoString previously $80 million, Chemspeed about $10 million a quarter and ELITech over $150 million for the year. So is that incremental step-up all NanoString or maybe just give us a little bit more color?

Frank Laukien, President and CEO

Good question, Tycho. Honestly, it's made up of many small parts. There isn't a single large component to point to, so there's no straightforward answer. In short, it's nothing extraordinary; it all comes together in this way.

Tycho Peterson, Analyst

I guess it’s your view on…

Frank Laukien, President and CEO

There’s nothing new there that you don’t know. There are no new developments. You saw the last press release a few weeks ago about putting up a bond. Even though we invalidated that patent in Germany, we still had to put up a bond to lift the injunction. We have done that, and the injunction had already been lifted in the rest of Europe some time ago.

Gerald Herman, EVP and CFO

Thank you for that.

Frank Laukien, President and CEO

I think it’s going to be September or later in the year that there might be additional rulings in Europe or in the U.S. and then any of the bigger trials and things like that, if we get that far would be in 2025, possibly into 2026. So it’s been quiet on that front, all.

Gerald Herman, EVP and CFO

That may be good.

Tycho Peterson, Analyst

And then for the back half of the year, just any more kind of color by sub-segment if we think about kind of BSI, Nano BioSpin and CALID for the back half of the year guidance?

Frank Laukien, President and CEO

I apologize that Tycho and I don't have clear answers for you today, but there's not one specific group or product line that stands out. Semiconductor metrology surprised us in the first half with stronger-than-expected orders. On the other hand, we hoped for a better recovery in biopharma, but that may now be a 2025 situation, considering reports from other companies. Some of the acquisitions contribute, but only about 10%. We see strength in MALDI Biotyper or diagnostics, industrial research, proteomics, and NMR, all performing well. The overall message is solid execution across the portfolio rather than a single standout product. We do anticipate revenue declines in China and weakness in biopharma this year, which are concerns. However, the rest looks positive, and semiconductor performance appears very strong, although the long lead times mean that much of this recovery might not translate into revenue until 2025. People are looking for growth in 2025.

Tycho Peterson, Analyst

Understood. Thanks, Frank. I appreciate it.

Gerald Herman, EVP and CFO

Thanks, Tycho.

Operator, Operator

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

Doug Schenkel, Analyst

Hey. Good morning, guys, and thank you for taking the questions. Just a couple of cleanup questions. I want to confirm as we sit here today that one, you aren’t accelerating anything relative to your original plans in terms of working through backlog to get the guidance for the year based on how orders are tracking. It sounds like things are just kind of on track with some different puts and takes, but I just want to make sure that’s the case. And then secondly, I want to make sure you remain comfortable with EPS targets for 2025 through 2027, the ones that you outlined on May 17.

Gerald Herman, EVP and CFO

Thank you for the questions, Doug. This is Gerald. Regarding the cleanup question about our overall performance, I don't see any significant changes. Our existing backlog has decreased to about seven months from 7.5, but this isn't having a major impact. We already have strong organic revenue growth in the business. I would actually be pleased to see some reduction in the backlog, as I’m keen on bringing it down to a more normalized level. Therefore, we do not expect any changes to our guidance for 2024 regarding the backlog. It’s decreasing in line with our expectations. Additionally, concerning the medium-term outlook, as I mentioned earlier, we won't provide specific guidance for 2025, but we do not see any obstacles or roadblocks regarding the medium-term outlook presented in our Investor Webinar on May 17.

Frank Laukien, President and CEO

The medium-term outlook remains unchanged, and it is expected that within about two years, we will have around five months of backlog and a more normalized level in the BSI segment. We are on track despite a challenging year, supported by a strong portfolio.

Doug Schenkel, Analyst

Okay. I have a quick follow-up. You mentioned some slowdown in the market in China due to stimulus. When we spoke at the beginning of June, it didn’t seem like this was an issue for you. I’m guessing that this dynamic worsened towards the end of the quarter and possibly continued into Q3. Is that correct?

Frank Laukien, President and CEO

Sales cycles are lengthening in China, particularly in the academic and government sectors. This has become evident as orders we expected or opportunities that looked promising have shifted to later in the year. There is now a focus on larger budgets and making a more significant impact instead of spending the initial budget immediately, which makes sense. We believe that the stimulus, especially for BioSpin with NMR high-end systems and possibly other high-end systems, could be beneficial, but the progress is not as rapid as it was in the first quarter of 2023. The decision-making process involves more layers and scrutiny across various provinces, causing delays. This was anticipated, and we had indicated a few months ago that any beneficial effects would likely emerge in 2025, which has now been confirmed. Indeed, there was subdued demand and orders in China during the second quarter, and it appears that these orders, particularly in academia, may materialize later this year or in 2025. So, you're correct in your assessment based on what I've seen.

Gerald Herman, EVP and CFO

Doug, I've heard that there is activity, but no orders have been placed. It's important to clarify that while there is a lot of movement, there have not been any orders related to that at this stage.

Josh Waldman, Analyst

Hey. Good morning, guys. Thanks for taking my questions. A couple for you. First, a follow-up on Tycho’s question, I believe. Any changes to growth assumptions by segment for the year versus the prior guide framework. And then within the reiterated 5% to 7% organic outlook for total company, it seems like there’s a wider-than-normal range for the second half. I guess, is that wider range a reflection of market uncertainties in pharma in China? And I guess, like any context you can provide on what gets you to the low-end, what gets you to the high-end, like do you need to see improvement from those end markets to get to the high-end?

Frank Laukien, President and CEO

We had lower expectations for biopharma compared to what we anticipated at the start of the year. While semiconductor revenue is increasing, it takes time to materialize. In China, we were surprised by the rapid influx of stimulus orders in Q1 2023, which we hadn’t anticipated. This trend seems to indicate a longer-term growth rather than a short-term spike. So, while we adjust our expectations downward for China and biopharma, we're raising or maintaining them for most other areas, particularly in semiconductor metrology and lab automation, though the latter is still a developing sector without organic growth yet. We're also increasing expectations for scientific software and seeing positive developments from our infectious disease diagnostics and the MALDI Biotyper franchise. Overall, there are some slight adjustments, but biopharma and China are the main concerns, while other segments are performing well.

Josh Waldman, Analyst

Yeah. Frank. Yeah. That helps, Frank. I appreciate that.

Operator, Operator

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, Associate Director of Investor Relations

Operator, Operator

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