Earnings Call Transcript - BRKR Q1 2023

Operator, Operator

Good day, and welcome to the Bruker Corporation First 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 note, this event is being recorded. I would now like to turn the conference over to Mr. Justin Ward. Please go ahead, sir.

Justin Ward, Senior Director of Investor Relations and Corporate Development

Good morning. I would like to welcome everyone to Bruker Corporation's first quarter 2023 earnings conference call. My name is Justin Ward, and I am 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. Along with the earnings release we issued earlier today, 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. 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 challenges with supply chain, logistics, and inflation. 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 ended December 31, 2022, as updated by our other SEC filings available on our website and on the SEC’s website. Please note that the following information is based on current business conditions and our outlook as of today, May 4, 2023. We do not intend to update our forward-looking statements based on new information or future events, except as may be required by law prior to the release of our second quarter 2023 financial results expected in early August 2023. You should not rely on these forward-looking statements as necessarily representing our views or outlook as of any date after today. With that said, we will begin today's call with Frank providing an overview of our business progress. Gerald will then cover the financials for the first quarter 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.

Frank Laukien, President and CEO

Thanks, everyone, for joining us for today's first quarter 2023 earnings call. Bruker had a strong start to the year, and I want to recognize our global team for their hard work and contributions. We are moving forward with our Project Accelerate 2.0 initiatives, focused on high-growth and high-margin areas, especially in proteomics and spatial biology, while also investing in operational excellence and our growth capacity for the next decade. In the first quarter, Bruker achieved impressive organic revenue growth of 17.6%. The demand for our scientific instruments and life-science solutions was broad-based, and we maintained strong bookings and backlog. Our revenues for the first quarter of 2023 rose 15.2% year-over-year to $685.3 million, despite facing a currency headwind of 4.5%. On an organic basis, our revenues increased 17.6%, with acquisitions contributing an additional 2.1%, resulting in a constant exchange rate growth of 19.7% year-over-year. We experienced organic growth of 18.4% in our Scientific Instruments segment and 9.7% in our BEST segment, after accounting for intercompany eliminations. Our non-GAAP gross margin for the first quarter improved by 70 basis points year-over-year to 53.4%, while our non-GAAP operating margin was 20.3%, up 80 basis points from the previous year. This strong top-line performance led to margin expansion, even with increased investments in commercial and R&D capabilities. Consequently, our non-GAAP operating profit grew by 20.4% year-over-year in the first quarter. Bruker reported a GAAP diluted EPS of $0.52 in the first quarter, compared to $0.41 in the same period last year. On a non-GAAP basis, our diluted EPS was $0.64, reflecting a 30.6% increase from $0.49 the previous year. Our trailing 12-month return on invested capital stood at 24%, demonstrating the effectiveness of our management process and our commitment to disciplined entrepreneurial growth, augmented by strategic acquisitions. Overall, the first quarter showed solid revenue growth across all Bruker Scientific Instruments groups, backed by continued strong bookings and investments in Project Accelerate 2.0, particularly in proteomics. In the first quarter, BioSpin Group revenue reached $180 million, growing in the high teens percentage on a constant currency basis, despite the absence of gigahertz-class revenue. BioSpin experienced significant growth across its entire portfolio, including NMR and MRI preclinical imaging. We received two orders from the UK for 1.2 gigahertz NMRs for life-science and GreenTech materials research. We currently do not anticipate any gigahertz-class revenue in the first half of 2023 but expect to recognize revenue from three to four gigahertz-class NMR systems in the second half of 2023. For the first quarter, CALID Group revenue of $237 million increased in the low 20s percentage on a constant currency basis, thanks to strong life-science mass spec and vibrational spectroscopy businesses. Our timsTOF platform continues to be adopted in 4D proteomics, epiproteomics, and multiomics. We announced key capability enhancements and experienced excellent year-over-year bookings growth. Bruker NANO revenue for the first quarter was $210 million, also growing in the low 20% range on a constant currency basis, with strong performances in academic, industrial, GreenTech Research, and high-end semiconductor metrology sectors. Life Science fluorescence microscopy revenue grew sharply due to product innovation and strong demand from research, along with our Inscopix acquisition from last year’s fourth quarter. First quarter BEST revenues increased in the high-single-digit percentage, driven by market share gains and strong superconductor demand from MRI OEM customers, though impacted by supply chain challenges. We also received two recent orders for 1.2 gigahertz NMRs used primarily for structural functional biology and life-science research in the UK. These systems are set to be installed at the University of Warwick and the University of Birmingham, which already use Bruker 1.0 gigahertz NMRs. This illustrates a significant investment in UK scientific infrastructure that will benefit the broader scientific community. Furthermore, we are introducing certain sample prep and software innovations to support our timsTOF offerings in proteomics. Collaborating with PreOmics, we developed a new workflow that enhances tissue proteomics. Our software supporting immunopeptidomics has reached new sensitivity and throughput levels, making it suitable for small tumor biopsy samples. In summary, Bruker continues to experience strong demand across our differentiated instruments and solutions. Our Project Accelerate 2.0 initiatives are performing well, and we're committed to ramping investments for accelerated growth in critical areas like proteomics and semiconductor metrology. As we enter fiscal year 2023, we are optimistic due to our high backlog and are raising our revenue growth and EPS guidance for the full year. Now, I will hand the call over to our CFO, Gerald Herman, who will provide a detailed review of Bruker's first quarter financial performance and discuss our updated guidance for fiscal year 2023.

Gerald Herman, Executive Vice President and CFO

Thank you, Frank, and thank you, everyone, for joining us today. I'm pleased to provide a little more detail on Bruker's first quarter 2023 financial performance starting on Slide 10. In the first quarter of 2023, Bruker's reported revenue increased 15.2% to approximately $685.3 million, which reflects an organic revenue increase of 17.6% year-over-year. We reported GAAP EPS of $0.52 per share compared to $0.41 in the first quarter of 2022. On a non-GAAP basis, Q1 2023 EPS was $0.64 per share, an increase of 30.6% from the $0.49 we posted in the first quarter of 2022. Our Q1 2023 non-GAAP operating income grew 20.4%, and our non-GAAP operating margin increased 80 basis points year-over-year to 20.3% for the reasons Frank has already reviewed. We finished the first quarter with cash, cash equivalents, and short-term investments of approximately $600 million. During the quarter, we used cash to ramp selected Project Accelerate 2.0 investments, fund capital expenditures, complete a majority acquisition in proteomics and fund share repurchases. In the first quarter of 2023, we repurchased approximately 315,000 shares for about $22 million. As a reminder, in the full year of 2022, we repurchased 4.2 million shares for approximately $265 million, which continues to favorably impact EPS for the full year of 2023. We generated $87.5 million of operating cash flow in the first quarter of 2023, partially offset by capital expenditure investments, resulting in $62.5 million of free cash flow in the first quarter of '23. Slide 11 shows the revenue bridge for the first quarter of 2023 as discussed earlier. First quarter 2023 BSI systems revenue increased in the mid 20% range, organically. While BSI recurring revenue grew in the high-single-digits organically compared to the first quarter of 2022. Geographically, and on an organic basis in the first quarter of 2023, our Americas and European BSI revenues grew in the low-double-digits, while our Asia-Pacific revenue grew more than 30% year-over-year. Our Rest of World first quarter 2023 revenue declined slightly. Slide 12 shows our first quarter 2023 P&L performance on a non-GAAP basis. Non-GAAP gross margin of 53.4% increased 70 basis points from 52.7% in the first quarter of 2022, benefiting from operating leverage from higher volume, higher Project Accelerate mix, and tailwinds from pricing and foreign exchange, partially offset by supply chain headwinds. First quarter 2023 non-GAAP operating margin of 20.3% was 80 basis points higher than the 19.5% in the first quarter of 2022, driven by solid gross margin expansion and volume leverage, despite a continued Project Accelerate 2.0 investment ramp. For purposes of your quarterly modeling, we expect our operating expense ramp in the second quarter of 2023 to moderately outpace our revenue ramp and result in an operating margin decline sequentially from the first quarter of 2023 before expanding again in the second half of the full year '23. This is in part due to two gigahertz-class NMRs that we previously expected in the second quarter of 2023 revenue are now expected to shift into the second half of 2023. And with that, we also expect our second quarter 2023 non-GAAP EPS to be down sequentially, but up by mid-to-high single-digit percentage compared to the $0.45 non-GAAP EPS we posted in the second quarter of 2022. For the first quarter of 2023, our non-GAAP effective tax rate was 27.8%, compared to the 32.7% in the first quarter of 2022. Weighted average diluted shares outstanding in the first quarter of 2023 were 147.6 million, a reduction of approximately 3.8 million shares or 2.5% from the first quarter of '22, resulting from share repurchases over the past 12 months. Finally, first quarter 2023 non-GAAP EPS were $0.64 was up sharply by 30.6% compared to the first quarter of 2022. Turning now to Slide 15. Given the strength in revenue and bookings in the first quarter '23 and our record backlog, we're increasing our guidance for the year. Our updated outlook for the full year of 2023 includes raising our revenue guidance to a range of $2.83 billion to $2.88 billion. This implies organic revenue growth of 9% to 11% year-over-year, an increase of 1% from our prior guidance. We estimate a foreign currency tailwind of about 1% and down from the 1.5% foreign exchange tailwind we estimated in February. We expect acquisitions to contribute about 2% to growth, up from the 1.5% we estimated earlier. This leads to reported revenue growth in the range of 12% to 14%, an increase of 1% from the prior guidance. We continue to expect to deliver solid gross margin expansion and operating profit growth in 2023, with the previously explained transitional decline in operating profit margin. On the bottom line, we're raising our non-GAAP EPS estimated range by 0.03 to $2.55 to $2.60 for the full year of 2023, which would represent non-GAAP EPS growth of 9% to 11% compared to 2022, up from our prior guidance range of 8% to 10% EPS growth. We project a non-GAAP tax rate of approximately 28% for the full year of 2023. Other guidance assumptions are listed on the slide. For our full-year 2023 ranges have been updated for foreign currency rates as of March 31, 2023. To wrap up, Bruker delivered excellent financial improvements in the first quarter of 2023, with strong organic revenue growth, continued booking strength, and excellent EPS growth. Hopefully, you'll join us in-person or virtually on June 15, our planned Investor Day to learn more about Project Accelerate 2.0 key initiatives and how they are expected to drive our medium-term growth and profitability outlook. And with that, I'll pass it back to Justin to start the Q&A session. Thank you very much.

Justin Ward, Senior Director of Investor Relations and Corporate Development

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?

Operator, Operator

We will now begin the question-and-answer session. And again, please limit yourself to one question and one follow-up. And if you have further questions, you may re-enter the question queue. And our first question will come from Derik De Bruin with Bank of America. Please go ahead.

Unidentified Participant, Analyst

Hi. Good morning. This is Peter on for Derik. Certainly appreciate there's a lot of uncertainty. But given the 1Q organic growth upside and the 2Q comp, could you just elaborate on your approach to the updated organic growth guidance for '23? Are you just exercising prudence here by not raising that a bit more? Thanks.

Frank Laukien, President and CEO

Yes. Of course, we're exercising prudence. Good question. I mean, it's still early in the year and I think it's a good raise. So we think that's prudent under the circumstances. You also saw that our Q2 sequentially will be a little bit weaker. So that makes sense to us.

Unidentified Participant, Analyst

Okay. And can you just kind of give us an update and remind us how long the orders translate, given the nature of products and current state of the supply chain? Is it fair to assume that much of the order growth you saw in the first quarter is going to convert generally to revenue in '24? Or how would you frame that for us?

Justin Ward, Senior Director of Investor Relations and Corporate Development

Yeah. It very much depends on the product line. I mean, some benchtop systems, of course, will still turn into revenue this year. Indeed, some NMR systems or other floor spending or larger semiconductor metrology systems where orders came in or additional orders came in. Some of that now is actually going into 2024. But different product lines have different delivery times. All of them right now have excellent backlog and have generally seen very strong bookings again in Q1.

Unidentified Participant, Analyst

All right. And then do you have any update on the status of the loan program in China by chance? And then that is it for me. Thank you.

Frank Laukien, President and CEO

We have significantly benefited in orders during Q1, particularly in our high-end instrumentation such as NMR mass spectrometry, as well as in some high-end fluorescence microscopy and infrared systems. We received very good orders from China in Q1.

Operator, Operator

The next question will come from John Sourbeer with UBS. Please go ahead.

John Sourbeer, Analyst

Hi. Thanks for taking the question. Maybe on the previous question there on the backlog. Would you be willing to provide any color on just what book-to-bill looks like for the quarter and just the outlook for the year?

Frank Laukien, President and CEO

The book-to-bill ratio was slightly above 1 again. At some point, we will need quarters with a book-to-bill ratio below 1, but we haven't reached that yet. So, it's somewhat of a light-hearted comment. The short answer is that it was again slightly greater than 1%, despite very strong revenue growth.

John Sourbeer, Analyst

Got it. Appreciate it. And then just on the updated guidance for the year on the EPS side. Just with the R&D investments and some of the investments you're making there, just any additional color just on the margin cadence for the year and how we should think about that?

Frank Laukien, President and CEO

Yeah. We expect better margins than expected and drops even we expected in Q1, obviously, sequential step down in Q2 and then recovery in the second half. And our guidance for margins, you see that on Slide 15 that the margin guidance, we haven't really changed for the year. So, that's obviously always not in dollars, but in percentages or bps. So that is less the same.

John Sourbeer, Analyst

Got it. Thanks for taking the questions.

Frank Laukien, President and CEO

Sure.

Gerald Herman, Executive Vice President and CFO

Sure.

Operator, Operator

The next question will come from Puneet Souda with SVB Securities. Please go ahead.

Puneet Souda, Analyst

Yeah. Hi, Frank, and congratulations here on an impressive quarter. If you could take a bit of a step back and look at sort of the high-end and sort of high-ticket items that you have versus what we're seeing as a tougher backdrop of macro. I appreciate the book-to-bill is over 1, and that has continued to stay that way and NMRs, are you booking those in the second half? But both from CALID and NANO, maybe just give us sort of the visibility that you have where you have more confidence in the portfolio and maybe where the visibility is a little bit low. I mean, we continue to hear that semiconductor headwinds, biotech funding, and concerns in health care as well. So just overall, just give us your sense of the strong results and your visibility versus the backdrop?

Frank Laukien, President and CEO

China showed strong orders, likely benefiting from the loan stimulus program. However, not all of these orders represent new business; some appear to be earlier purchases due to these incentives. There is a mixture of expected and unexpected orders. Europe performed well, particularly in biopharma, and while there are some concerns about semiconductor metrology orders softening, our backlog remains substantial, which is actually beneficial as it had been too lengthy. Overall, we saw China perform better than anticipated and biopharma exceed expectations, with proteomics also doing well. Europe, which has been recovering in academic sectors and biopharma, has seen significant GreenTech research activity. This contrasts with more cyclical demands in industrial research, making it a welcome development.

Puneet Souda, Analyst

Got it. That's super helpful. In terms of China, what's the duration of this program? And wondering if you are hearing about any sort of temporary pause in that program, if you could elaborate that a bit? And Gerald, if you can provide any contribution on the pricing in the quarter, that would be helpful, too. Thank you.

Frank Laukien, President and CEO

All right. I'll take the first part. We don't know. We think most of that goal is of stimulus orders may have come through. We don't expect that to continue. So that's been good for high-end systems. It may. We don't really have visibility, and we hear by reading sell-side research reports that the program may have been paused, but we don't really have our independent data or additional insights that we don't read from reading yours and others. Gerald, do you want to talk about pricing/inflation?

Gerald Herman, Executive Vice President and CFO

Sure. Regarding pricing, we continue to take actions similar to those from the previous year and into 2023. We believe pricing realization remains significant for us, approximately 250 basis points. However, we are also facing about 350 basis points of inflation impact, resulting in a net drag of roughly 100 basis points in the first quarter. We anticipate this drag will moderate as we progress through 2023, and we expect around 50 basis points of net drag for the year. That's our current perspective.

Frank Laukien, President and CEO

On margins.

Gerald Herman, Executive Vice President and CFO

On margins, yeah, sorry.

Puneet Souda, Analyst

Got it. All right. That's great. Thanks, guys.

Frank Laukien, President and CEO

Sure.

Operator, Operator

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

Josh Waldman, Analyst

Hey. Thanks for taking my questions. A couple for you. Frank, I wondered if you could provide a bit more of an update on timsTOF. It sounds like I had another strong quarter. Just curious if you could provide some additional color on which end markets are the primary drivers to the strength here? And then I think this was a system that had maybe bigger supply chain issues last year. Just curious how supply chain and production capacity looks now and just how you're thinking about this portfolio as a contribution to growth going forward? Is it one that could grow 20% to 30% here in the medium term, say, '23 and '24?

Frank Laukien, President and CEO

We don’t provide that level of detail, but the timsTOF in stuff orders has remained very strong. In response to your question, this encompasses various types of proteomics including cell line, tissue, chemical, plasma, and single-cell proteomics within the biopharma industry. As you explore proteomics more deeply, you'll find numerous subfields, all of which are performing well. The growth in these areas is significant, and we offer a timsTOF platform alongside multiple product performance points and various software tailored for different applications. It's important to recognize the market segmentation as we delve deeper. We also engage in targeted tissue proteomics using MALDI imaging and our CellScape microscopy product line in spatial biology. Overall, these areas are thriving, and there's considerable demand. I believe we are entering a significant phase for proteomics, and we’re in the early stages of this growth, which seems quite promising. We are increasingly addressing more aspects of this sector. I previously mentioned immunopeptidomics and FFPE pathology research through proteomics. Unfortunately, we don’t disclose specific growth rates, and while we faced some acknowledged supply chain challenges, particularly with chromatography, we are managing through those issues. The supply chain isn't perfect yet, but we are finding solutions with alternative chromatography systems available in the market. We're working through the details, which I don't believe are critical.

Josh Waldman, Analyst

Okay.

Frank Laukien, President and CEO

But you're not wrong with your question.

Josh Waldman, Analyst

Okay. And then looking at, I guess, total portfolio again. I wonder if you could update us on where the backlog stands today and how you're thinking about normalization? I think you had previously said you had something like eight months plus, and you would work that down to maybe more like six months over two years. Just curious if that's still how you're thinking about it?

Frank Laukien, President and CEO

We're sticking to our story. That's the reality. We expected our backlog to decrease slightly, but it actually increased further, which is a positive issue to have. It appears very robust. However, this situation won't resolve itself in just a few quarters; it will likely take more than two years. We are continuing to invest in capacity and supply chain, despite facing significant challenges. The situation is improving, with fewer new issues arising and some areas making progress. Our orders have been strong, particularly in Q1. So, to sum it up, the expectation of over eight months still stands, and it will indeed take more than two years to return to normal, which is also accurate.

Operator, Operator

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

Daniel Arias, Analyst

Good morning, guys. Thanks for the questions. Frank, obviously, a lot of moving parts in China right now. Can you just maybe update us on Biotyper performance in that region? And just how placements in utilization are comparing to what's going on in the US and Europe?

Frank Laukien, President and CEO

The MALDI Biotyper business has a notable component of recurring revenue from services, databases, and consumables, which includes reagents and systems. However, the systems segment has experienced a slowdown, particularly in China, while performing well in Europe. Replacement systems have become a significant market, and we are succeeding in that area. In the US, there has been some improvement, but there remains considerable untapped potential. It's important to note that we have nearly twice as many MALDI Biotypers in Europe compared to the US, and this disparity should balance out over time. The consumables segment continues to grow at a double-digit rate and has favorable profit margins. The systems are being utilized extensively, approaching $200 million in identifications annually across approximately 6,000 systems, making it a valuable tool in both clinical and non-clinical microbiology labs. We are also investing in additional workflows, consumables, and software, including Sepsityper, and are exploring antibiotic susceptibility testing on that platform, though that is still in the research phase. Overall, while there is a positive cycle in progress, the growth rate for instrument placements is beginning to level off after a strong trend over the past 15 years.

Operator, Operator

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

Patrick Donnelly, Analyst

Hey, guys. Thanks for taking the questions. Frank, maybe one on the US business. The NIH budget has gotten some more attention recently. Can you guys just talk through, remind us on your exposure, I think it's mid-single, maybe even high-single-digits to that? And how sensitive you actually are to changes in the budget? And then at the end, just what you're hearing there? Any visibility into your expectations?

Frank Laukien, President and CEO

We're aware of the same reports you are. I don't have any specific insights about Bruker to provide. You are right, our exposure is in the single digits. What really matters to us isn't whether the budget increases by 3%, 5%, or 8%, but rather the focus on tools related to proteomics and spatial biology. That prioritization is far more significant than any annual increase. The fundamental trends we're seeing have been very strong. As genomics and sequencing begin to plateau, proteomics and spatial biology are entering a more rapid growth phase. This is very favorable for our position over the next decade.

Patrick Donnelly, Analyst

Okay. That's helpful. And then we're just getting a few questions on the 2Q setup. Just the organic growth side. I know previously, you had suggested that was going to be maybe the high watermark for the year. Coming off this quarter, maybe that's no longer the case, obviously. But how do you think about the step down there, just given, again, the bookings very healthy? Is it just a timing issue given the easy comp? And then should it still be in the double digits? I'm just trying to kind of frame up the numbers as we're getting a number of questions there. Thank you.

Frank Laukien, President and CEO

Yes, as Gerald mentioned earlier, there was a sequential decline in Q2 due to some unintentional pull-ins in Q1. Additionally, we expected two ultra-high field systems in Q2, but we now know they will not arrive until the second half of the year. It’s primarily a timing issue. Based on what Gerald shared about Q2, it seems we're looking at mid-to-high single digits.

Gerald Herman, Executive Vice President and CFO

Yeah, exactly. We'll still on a comparison.

Frank Laukien, President and CEO

EPS growth, right?

Gerald Herman, Executive Vice President and CFO

The EPS growth is what we're aiming to explain. We have some fluctuations from the individual quarter, with more negatives in the case of the Q2 experience. Therefore, our perspective is that the overall full year outlook remains largely unchanged. It primarily relates to timing.

Frank Laukien, President and CEO

With rates for the full year, right?

Gerald Herman, Executive Vice President and CFO

Yeah.

Patrick Donnelly, Analyst

Understood. Thank you, guys.

Frank Laukien, President and CEO

Thank you, Patrick.

Operator, Operator

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

Rachel Vatnsdal, Analyst

Hi. Thanks for taking questions and congrats on the quarter, you guys. And so, a lot of talk here about China and some of the outpaced strength in 1Q. Can you just tell us what was the actual growth in China during this quarter? And then I wanted to dig into some of those earlier comments around the China stimulus package. Can you characterize a bit further around some of that pull forward versus new wind dynamics that you flagged? How much of the China performance was really driven by that pull-forward dynamic that you mentioned? Thanks.

Justin Ward, Senior Director of Investor Relations and Corporate Development

Yeah, Rachel. This is Justin. So we really want to delineate between the orders and the revenue impact in China in the first quarter. So, the orders were very strong. We're not going to quantify what those were in China, obviously. But there wasn't much conversion of those orders into revenues in the quarter given the lead times in the backlog we have. But that being said, revenues in the first quarter in China were still robust. And on an organic basis, it was a higher organic growth rate than the corporate organic growth rate in China in the first quarter.

Frank Laukien, President and CEO

The dynamics indicate that there has been some noticeable order pull forward in China, likely driven by the loan and stimulus program. We believe this was not entirely new business; however, there was some unexpected incremental business this year. Customers took the opportunity to purchase high-end, big-ticket items, particularly when they received additional budgets, like an extra million dollars. Instead of buying small supplies, they opted for significant purchases that they might not have been able to fund through grants for several years. It's challenging for us to determine the exact mix of pulled-forward orders versus genuine new business, but it is certainly a combination. We are not sure if it's a 50-50 split, but that could be a reasonable initial estimate. There has been meaningful acceleration in additional business, particularly favoring NMR and large mass spectrometers, as well as other unique product lines.

Rachel Vatnsdal, Analyst

Great. And then next one for me is just on supply chain. So can you walk us through what specific segments you're seeing the most supply chain constraints still? And then what's your level of visibility, or when you expect those constraints to really ease? And then follow-up to that. Is supply chain really becoming the limiting factor in terms of guidance for the rest of the year? And how much does that really play into the decision to not lift the guidance further versus some of that prudence around the macro backdrop that you flagged? Thanks.

Frank Laukien, President and CEO

I was quite pleased with our guidance rates. However, it's still early, and we experienced a slightly weaker Q2 sequentially. Given the current circumstances, that seems reasonable. The supply chain for the BEST group remains strong, with successful launches and better planning and investment in capacity compared to others in their industry. Nevertheless, they may face some constraints in the superconductor sector over the medium to long term. On a positive note, the frequency of unexpected supply chain issues has decreased significantly, although we still face challenges in the timsTOF area and certain segments of NMR and semiconductor equipment. While we are making progress, we are not completely in the clear yet. Overall, sectors like electronics, packaging, and logistics have mostly improved, with only a few specific exceptions.

Operator, Operator

The next question will come from Jack Meehan with Nephron Research. Please go ahead.

Jack Meehan, Analyst

Thank you. Good morning. I wanted to dig a little bit more into this China result really, really strong. So APAC up over 30%, was China well above that. Can you just provide a little bit more color on the regional revenue growth? And then just what does guidance assume in terms of revenue growth in the region for the rest of the year?

Justin Ward, Senior Director of Investor Relations and Corporate Development

Yeah, Jack. This is Justin. So we're not going to break out necessarily by country within APAC, but I would say that the strength is pretty broad throughout APAC, really strong growth in Japan, in fact, which is the leader in terms of the growth rate in APAC. But I don't think we'll comment much more on sort of a regional breakout or what factored in the guidance.

Frank Laukien, President and CEO

And Jack, that was a revenue comment by Justin.

Justin Ward, Senior Director of Investor Relations and Corporate Development

Revenue comment.

Jack Meehan, Analyst

Great. And just to follow up, we have previously discussed the export restriction issues in China. What is the current status of that? It seems that it hasn't had any impact here, but any update would be appreciated.

Frank Laukien, President and CEO

If you recall, in Q4, we already removed certain semiconductor metrology equipment from our backlog that we either can no longer export to China or would take a long time to receive permits for. Since then, there haven't been any notable changes. In markets such as life sciences, biopharma, and food testing, things occasionally slow down while we wait for permissions, particularly from the German authorities, who are usually slower with China export permits. These permissions eventually come through, but they can sometimes limit the pace of growth, and your orders may increase faster as a result. However, there haven't been any significant changes in the last five to six months.

Jack Meehan, Analyst

Thank you, Frank.

Operator, Operator

The next question will come from Daniel Brennan with Cowen. Please go ahead.

Daniel Brennan, Analyst

Great. Thanks. Thanks for taking the question, Frank, Gerald. Maybe just one on the guide and then one on timsTOF. Just back to the guide, Gerald and Frank, like, how much of the first quarter strength was from the order slippage from 4Q to 1Q? Because I get it we're very early in the year, but after the 18% growth and the easing comps in the backlog, it looks like your guide implies a pretty material deceleration, still healthy, but just trying to reconcile how much of that is conservatism and how much of it is just maybe one quarter phenomenon where you benefited from the slippage?

Frank Laukien, President and CEO

Yeah, we are still trying to understand the early part of the year, so we are being a bit conservative, which we believe is a practical approach. Sometimes that conservatism turns out not to be necessary. However, given the pace of the first two quarters, we feel it is appropriate to expect a strong second half. Our organic revenue growth has been quite good, and despite making significant investments in our R&D that have reached about 10% of revenue in the first quarter, we are pleased to report EPS growth. Our margin guidance for the year remains unchanged. We performed slightly better in Q1 than we anticipated internally, which is a positive indicator of leverage, pricing, and the value of our systems. I may not have fully addressed your question, but that’s what comes to mind.

Gerald Herman, Executive Vice President and CFO

Yeah. I may just add that there's still quite a bit of uncertainty out there. You have geopolitical uncertainty related to China for one. We have the Ukrainian conflict and we have recession in some way, shape, or form around the globe. There's still supply chain constraints. There's still quite a bit of issues floating around in the mix. So I think our position on the guide, I think is, we took that into consideration of both ups and downs.

Frank Laukien, President and CEO

We also consider what others are reporting. It's expected that there is a decrease in early-stage biotech funding, leading those companies to make budget cuts. A portion of our NMR and timsTOF sales will likely go to biopharma, which remains quite strong; almost a third of timsTOF sales are directed towards this sector. Our data shows no signs of a slowdown. The challenges faced by early-stage biotechs are more related to the lack of value and necessity for the information provided by our systems rather than broader economic factors. However, we cannot overlook the external circumstances affecting the market.

Daniel Brennan, Analyst

Great to know that.

Frank Laukien, President and CEO

Overall, we believe this is a sensible increase, and we're well-positioned to make it. Hopefully, we're not, as my Canadian CFO would say, overextending ourselves.

Daniel Brennan, Analyst

No. Super helpful. And then maybe just one on timsTOF. Can you just remind us like how big is that business today? What kind of share of like the discovery mass spec market do you have? And just wondering, like, is there any expectation that Thermo refreshes Orbi? Or is there anything on the competitive response? Or I'm sure they're not sitting idly by as timsTOF takes share of that market?

Frank Laukien, President and CEO

Well, I'm sure they're not sitting idly by and they made very well some launches from them at ASMS, so I wouldn't be surprised. We're also not sitting by. And what was the last thing we said, we said I think that we have now an installed base of over 600 systems. It's certainly been growing in the double-digit orders revenue, you name it. I mean, healthy double digits. And we've been gaining market share for sure since we launched that product five years ago. I'm sure we're well above a 10% market share and possibly above a 20% market share proteomics in mass spec. The mass spec market is larger, and thermal also with their mortgage perhaps plays in a lot of small molecule applied and metabolomics and other markets where we're getting traction with the same stuff, but it's really primarily a 4D proteomics play with many sub-markets that proteomics has actually. So I think we're doing really well. Also KOL, capture is not a nice word, but KOL enthusiasm, I would call it for that technology is really very strong.

Daniel Brennan, Analyst

Yeah. Same thing we have heard. Great. Thanks, guys.

Operator, Operator

The next question will come from Brandon Couillard with Jefferies. Please go ahead.

Brandon Couillard, Analyst

Hey. Thanks for taking the question. Just one clarification, Frank, in terms of the first quarter orders. If we exclude the two NMR orders in the UK, the book-to-bill has still been north of 1 and the gigahertz installations planned for the second half. Is that delayed manufacturing-related or more customer timing?

Frank Laukien, President and CEO

Good questions, Brandon. Yes, even without the two UK 1.2 gigahertz orders, the book-to-bill ratio would still be above 1. Regarding your second question, the delays were primarily due to factory issues. We needed some rework on a couple of systems, which requires retesting. The timeline for processing these magnets typically takes at least four to six months. As a result, we experienced some internal delays, which means they have been pushed into the second half of the year. We did manage to ship one successfully, so one month is now behind us. However, we don't anticipate it contributing to Q2 revenue, and we are hopeful for Q3. There are indeed some factory delays to consider. These are complex systems, and not every unit operates perfectly right away; sometimes, rework and retesting are necessary. We have always recognized this. While it is impacting us a bit in Q2, it shouldn't affect our outlook for the entire year.

Brandon Couillard, Analyst

Got you. And then you raised the M&A revenue contribution outlook for the year looks to be about a $10 million improvement. Which assets are getting better or are outperforming your expectations?

Frank Laukien, President and CEO

I'm sorry, was that an M&A-related question or?

Brandon Couillard, Analyst

The revenue contribution from M&A for the year has increased. I'm interested in knowing which assets are performing well or contributing most to that enhanced outlook.

Frank Laukien, President and CEO

Good question. Even I don't have that granularity.

Justin Ward, Senior Director of Investor Relations and Corporate Development

Yeah. We had an additional small deal in the quarter that's partially contributing to that. But, yes, I don't think we're necessarily going to break out the forecast for each individual asset and the contributions to the guidance, so.

Frank Laukien, President and CEO

So yeah, so nothing stands out. It wasn't the one thing that we'd like to highlight. It's additional small acquisitions, and they're performing to plan and maybe a little bit ahead of plan. But then the one thing that stands out, that's noteworthy.

Brandon Couillard, Analyst

That's it. Very helpful. Thank you.

Operator, Operator

Your next question will come from Matt Sykes with Goldman Sachs. Please go ahead.

Matt Sykes, Analyst

Thanks for taking my questions. I'll just leave it to one. And Frank, maybe a high-level question. As you think about the backlog and additional investments in capacity and supply chain mitigation, how do you think about measuring those investments? You obviously want to deliver the products to your customers and reduce that backlog, but at the same time, not over-invest, if we get some level of normalization in this sort of out year. So how are you thinking about balancing those investments to solve for that backlog, but at the same time, solve for a future supply-demand environment?

Frank Laukien, President and CEO

Good question. It's more about a decade of planning rather than just the next year or two. We're quite optimistic about our growth over the next ten years and have experienced solid growth recently, particularly since the lowest point of the pandemic. Our capital expenditures have been high this year and elevated over the past two to three years, mainly to build capacity for the next decade or more with a new mass spec factory and an integrated BioSpin facility. This investment also aims to enhance productivity. We have consolidated two BioSpin factories in the same area near Karlsruhe, Germany, which will increase efficiency. Additionally, we have built significant capacity buffers because we anticipate substantial growth during this period.

Matt Sykes, Analyst

Great. Thank you very much.

Frank Laukien, President and CEO

With that sense, I'm not just investing for that backlog, and is it a two-year reach or a three-year reach or whatever it is, we really investing for the decade.

Justin Ward, Senior Director of Investor Relations and Corporate Development

All right. Operator, with that, we're at 9:30, so we'd like to close the call here.

Operator, Operator

Yes, sir, I'll pass the call along to you for closing remarks.

Justin Ward, Senior Director of Investor Relations and Corporate Development

Excellent. Well, thank you, everybody, for joining us today. As a reminder, Bruker has scheduled an in-person/hybrid Investor Day at our Billerica, Massachusetts headquarters for June 15, which will focus primarily on proteomics and spatial biology. Also, please feel free to reach out to me to arrange any follow-up discussions. Thank you, and have a great day.

Operator, Operator

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