Earnings Call Transcript - BRKR Q1 2024

Operator, Operator

Good morning, and welcome to the Bruker Corporation First Quarter 2024 Earnings Conference Call. Please also note today's event is being recorded. I'd now like to turn the floor over to Justin Ward, Senior Director of Investor Relations and Corporate Development. Please go ahead.

Justin Ward, Senior Director of Investor Relations and Corporate Development

Thank you, and good morning, everybody. I would like to welcome everyone to Bruker Corporation's First Quarter 2024 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. 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. Reconciliation of our non-GAAP to GAAP financial measures are included in our earnings release and are posted on our website at ir.bruker.com. Before we begin, I would like to reference Bruker's safe harbor statement, which is shown on Slide 2 of the presentation. During this conference call, we will be making forward-looking statements regarding future events and the financial and operational performance of the company that involve risks and uncertainties, including those related to our recent and pending acquisitions, geopolitical risks and wars as well as 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 ending December 31, 2023, as updated by other SEC filings, which are available on our website and on the SEC website. Also, please note that the following information is based on current business conditions and to our outlook as of today, May 2, 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 first quarter of 2024 in more detail and share our updated 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, Justin. Good morning, everyone, and thank you for joining us on today's first quarter 2024 earnings call. I am excited to announce that we have just closed our ELITech acquisition on April 30, ahead of schedule, after we received all required regulatory clearances and also after the completion of the pre-closing carve-out of the ELITech clinical chemistry business that we did not wish to acquire. Accordingly, please note that in addition to our earnings release, we simultaneously have issued a second press release this morning at 7:00 a.m. Eastern on the closing of our ELITech acquisition. We do encourage you to read both press releases for complementary information and perspectives. As a result, we are pleased to raise our constant exchange rate revenue growth guidance for fiscal year 2024 by 400 basis points to 12% to 14%, as explained in detail later during this call. Turning to our earnings release and Slide 4. Bruker finished the quarter of 2024 with 1.6% organic and 5.5% constant exchange rate or CER revenue growth despite about $15 million of revenue slippage into the second quarter and primarily because of a rather tough comparison to a very strong first quarter of 2023, in which, if you recall, we posted 17.6% organic growth a year ago. So keep in mind that we had expected low single-digit organic revenue growth anyway in Q1 because of some pull forward of about $15 million of revenues into the fourth quarter of '23 when customer site readiness and shipments just worked very well. So underlying demand for Bruker's products and solutions has remained solid with first-quarter '24 book-to-bill for our BSI segment just below 1.0. In the second quarter of 2024, we expect a reacceleration of our organic revenue growth, and we also expect double-digit constant exchange rate or CER revenue growth year-over-year. As expected in the first quarter of '24, our margins compressed year-over-year, primarily because of the tough comparison to an unusually strong first quarter of '23 but also as a result of transitory factors such as the expected initial margin dilution from our recent acquisitions as well as less favorable mix in this quarter. We expect significant sequential margin improvement in the remainder of the year. As we look to the remainder of 2024, with our solid backlog and pipeline, we expect to achieve above-market organic revenue and organic non-GAAP EPS growth. Accordingly, we are maintaining our fiscal year '24 guidance for organic revenue growth of 5% to 7%. Since our prior guidance in mid-February, we have closed the Chemspeed acquisition in the first quarter and now the ELITech acquisition on April 30. Both are now included in our updated guidance today. As a result, we are increasing our reported revenue guidance by $60 million for reported revenue growth of 11% to 13% year-over-year, and we are increasing our non-GAAP EPS guidance by $0.08 to 8% to 10% non-GAAP EPS growth year-over-year. Please note that our updated May 2 guidance today does not yet include the pending NanoString acquisition, which is expected to be EPS dilutive and which we hope to close in the second quarter. Continuing on Slide 4. Bruker's first quarter '24 reported revenues increased 5.3% year-over-year to $721.7 million, which included an M&A tailwind of 3.8%. On an organic basis, revenues increased 1.6%, which included flat organic revenues in our BSI segment and 18.9% organic growth at BEST net of intercompany eliminations, while the FX headwind was minor at 0.1%. This all implies constant exchange rate or CER revenue growth of 5.5% year-over-year. Our first quarter 2024 non-GAAP operating margin was 14.0%, down 630 basis points due to the factors that I described earlier. In the first quarter of '24, Bruker reported GAAP diluted EPS of $0.35 compared to $0.52 in the first quarter of '23. On a non-GAAP basis, first quarter '24 diluted EPS was $0.53, down from $0.64 in the first quarter of '23. Right. Please turn to Slides 5 and 6 now, where we highlight the first quarter '24 CER performance by our 3 Scientific Instruments groups and of our BEST segment all year-over-year. In the first quarter of '24, BioSpin Group revenue was $183 million with low single-digit percentage CER growth. BioSpin saw growth across biopharma, academic/government and industrial research markets without any gigahertz-class system in Q1 '24 revenue. By the way, in 2024, we expect revenue from 3 gigahertz-class NMRs, including one in the second quarter. We also closed the Chemspeed Lab automation acquisition, and we will be talking about that further in the future when we update you on our medium-term targets. Moving on to CALID in Q1 '24. Our CALID Group had revenue of $228 million, and its CER declined in the low single-digit percentage, primarily due to the timing of shipments slipping from Q1 into Q2 as well as to top comps in the prior year first quarter. On Slide 6, Q1 '24 Bruker NANO revenue was $240 million, and NANO achieved CER revenue growth in the mid-teens percentage with strong revenue growth in academic/government, aca/gov, industrial and semiconductor metrology. The artificial intelligence or AI mega trend continues to be a tailwind for our semiconductor metrology and advanced packaging tools business. Finally, Q1 '24 BEST CER revenues grew in the high teens percentage net of intercompany eliminations, driven by solid superconductor demand as well as by growth in big science and FUSION research projects and our emerging key extreme UV or EUV technologies for semiconductor lithography tools by a very large OEM customer, also in support of strong AI demand. Let me take a quick excursion from financials to a couple of further product introductions on Slide 7 and 8. At U.S. HUPO, in the first quarter, we continued with 40 proteomics tools and workflows and software. And in this year, we highlight both immunopeptidomes, which are very important in immuno-oncology, and separately, glycoproteomics, of course, all of the 4D versions that we do on our timsTOF platform. And without going into a lot of details here, both of them are excellent examples of things that are not templated in the DNA. They're not in our genes, at least not in any way that we know. So they are excellent examples of additional post-genomic information that is absolutely needed to understand biology and disease biology. And we are a leader on that same timsTOF platform, in 4D-Proteomics and its applications, the 2 examples that are both quite important in immunopeptidomics and 4D glycoproteomics. The other examples are from product introductions that we had at our recent most important NMR conference of the year, the ENC, which was actually in April in California. And we introduced both new enabling scientific capabilities for new scientific capabilities in structural biology, particularly of membrane proteins of aggregates of many membrane proteins which are important targets or signaling proteins. And there, by the way, they're also not something that AlphaFold or cryo-EM or crystallography handled very well. They're one of the very important areas where NMR plays a crucial role. And again, without scientific details, having ultrafast spinning probes gives us much higher resolution for things that could never be seen before by scientists. And a separate introduction of a technology for DMP, which stands for dynamic nuclear polarization, can increase sensitivity for some of these methods, in fact, by factors of the order of 100. So it's really game-changing and enabling. On the other hand, we also want to broaden the adoption of NMR and make it much more accessible. A really wonderful new magnet introduction is this Ascend Evo 600 NMR magnet with a 1-year Helium hold time. This is more than doubled from before. So it's quite a technological marvel. And again, I think it will be warmly welcomed by all existing NMR labs, but also the new labs in biopharma research, in clinical metabolism, clinical research, where previously, they hadn't handled NMR but would like to use it. Makes it much more accessible and available for broader markets. And last but not least, for biotech and biopharma process analytical integration or PAT integration, the Fourier 80, which is our noncryogenic benchtop FT-NMR, if you recall, has now been more broadly available for this biopharma QC world. All very, very good developments on which we want to update you from time to time. Now in summary, and as I wrap up my remarks, Bruker delivered solid constant exchange rate growth, albeit with weaker margins and EPS in the first quarter of 2024. We expect some margin and EPS dilution from our acquisitions in 2024 because we have been able to acquire several strategically very important businesses at reasonable valuations. We expect that our Bruker management process applied to these acquired businesses will significantly improve their financial performance over time and drive their long-term profitable growth. We anticipate also that these strategic acquisitions will enable strong returns on invested capital or ROICs in the future, something that is important to Bruker's business culture of disciplined entrepreneurialism and also for long-term shareholder value creation. So with those comments, let me turn the call over to our Chief Financial Officer, Gerald Herman, who will review Bruker's first quarter financial performance in more detail and provide our updated fiscal year '24 guidance and assumptions. Gerald?

Gerald Herman, Executive Vice President and CFO

Thank you, Frank, and thank you, everyone, for joining us today. I'm pleased to provide some more detail on Bruker's first quarter 2024 financial performance starting on Slide 10, which shows the revenue bridge for the first quarter of 2024. Revenue was up $36 million or 5.3%, reflecting organic growth of 1.6%. Acquisitions added 3.8% to our top line, while foreign exchange was a 0.1% headwind, resulting in constant exchange rate revenue growth of 5.5% year-over-year. Frank has already covered the drivers of revenue growth for the quarter. Geographically and on an organic basis in the first quarter of 2024, our Americas revenue grew in the mid-single-digit percentage. European revenue grew in the high single-digit percentage. Asia Pacific revenue declined in the single-digit percentage range, primarily due to softness in Japan, all year-over-year. For our EMEA region, first quarter 2024 revenue was up mid-teens percentage year-over-year. Slide 11 shows our Q1 2024 P&L performance on a non-GAAP basis. Non-GAAP gross margin of 51.2% decreased 220 basis points from 53.4% in the first quarter of '23, impacted primarily by mix, acquisition and FX headwinds and a challenging prior year comp. First quarter 2024 non-GAAP operating margin of 14.0% was 630 basis points lower than the 20.3% margin we posted in the first quarter of '23. This decline is attributable to most of the same factors impacting gross margin, product mix, acquisition and foreign exchange headwinds and a challenging prior year comp. We expect Bruker's non-GAAP operating margins to improve sequentially in the second quarter and significantly in the second half of 2024. For the first quarter of 2024, our non-GAAP effective tax rate was 26.7%, a modest improvement from the 27.8% in the first quarter of '23, resulting from favorable jurisdictional mix. Weighted average diluted shares outstanding in the first quarter of 2024 were 145.9 million, a reduction of 1.7 million shares or 1.2% from the first quarter of '23, resulting from our share repurchases. Finally, Q1 2024 non-GAAP EPS of $0.53 was down 17.2% compared to the first quarter of 2023, primarily due to the margin compression factors previously detailed. We experienced about $0.05 of non-GAAP EPS dilution from the Bruker Cellular Analysis, formerly PhenomeX, acquisition in the first quarter of 2024. With the rightsizing actions we've already taken, we expect our BCA business to reach breakeven by 2026. We generated $21.8 million of operating cash flow in the first quarter 2024. Our capital expenditure investments were $21.4 million, resulting in free cash flow of $0.4 million in the first quarter of 2024. This reflects a decrease in cash flow of approximately $62.1 million over Q1 of '23 driven by lower net income and higher working capital levels, mostly impacted by our recent acquisitions. We finished the first quarter with cash, cash equivalents and short-term investments of approximately $340 million. During the first quarter, we used cash to fund acquisitions, capital expenditures and select Project Accelerate 2.0 initiatives. In the first quarter of 2024, we completed a series of debt financing actions to fund our recent acquisitions, including the larger ELITech transaction. We upsized our revolving credit facility to $900 million, issued CHF 431 million in private placement senior notes with 10-, 12- and 15-year maturities at average interest rates of about 2.6% and closed on a CHF 450 million term loan structure with 5-, 7- and 10-year maturities carrying interest rates of about 3%. These financings provide us with flexibility to support strategic acquisitions like ELITech and our pending NanoString acquisition, and delever over time. Turning now to Slide 14. We are maintaining our organic revenue growth guidance and organic non-GAAP EPS prior guidance from February 13, '24. We're updating our 2024 outlook to include the recently closed acquisitions of ELITech and Chemspeed as well as changes in foreign currency. It does not include the pending NanoString acquisition, which was covered in our April 22nd press release. Our updated guidance for reported revenue is $3.29 billion to $3.35 billion, up $60 million from prior guidance, representing growth of 11% to 13% compared to 2023. As noted earlier by Frank, this guidance maintains our full year '24 organic revenue growth of 5% to 7% year-over-year. It also reflects an estimated foreign currency headwind of about 1% and acquisitions contributing now about 7% to revenue growth year-over-year. This guidance now implies constant exchange rate, CER, revenue growth of 12% to 14% in full year 2024 year-over-year. For non-GAAP operating margins in 2024, following strong organic operating improvement of about 130 basis points in 2023, we expect 2024 organic operating margin improvement of about 50 basis points. For non-GAAP operating margins all in, we expect about a 60 basis point decline from the prior year due to a combined acquisition and foreign exchange headwind of about 110 basis points. As we explained in the simultaneous ELITech closing press release this morning, we expect ELITech to be immediately accretive to Bruker margins. On the bottom line, we're now guiding to non-GAAP EPS for 2024 in a range of $2.79 to $2.84, up $0.08 from the accretive ELITech acquisition. This translates to non-GAAP EPS growth guidance of 8% to 10% compared to 2023. Other guidance assumptions are listed on the slide. Our fiscal year 2024 ranges have been updated for foreign currency rates as of March 31, 2024. One additional note on quarterly phasing for the year. We expect second quarter organic revenue to be up mid-single digits organically year-over-year. We also expect to see sequential improvement in non-GAAP operating margin performance in the second quarter of 2024 and significant improvement in the second half of 2024. We expect to host a follow-up call with investors and sell-side analysts within a few weeks after the closing of our NanoString acquisition. During this call, we plan to provide additional information on our recent significant acquisitions, including Chemspeed, ELITech and NanoString, and update our medium-term outlook for fiscal year 2026 financial targets. Finally, I echo Frank's earlier comments on the importance of these recent acquisitions. While we expect some margin dilution initially from certain acquisitions, these are excellent additions to complement the portfolio transformation underway at Bruker and expected to contribute solid profitable growth and strong ROIC performance to our shareholders over the next few years. To wrap up, Bruker delivered solid constant exchange rate revenue growth in the first quarter of 2024, and we're well positioned to deliver above-market revenue growth and organic non-GAAP EPS growth in 2024.

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.

Operator, Operator

Our first question today comes from Puneet Souda from Leerink Partners.

Puneet Souda, Analyst

My first one is on the revenue slippage you talked about. Is that just a pull forward into the 4Q '23 and thus not expected going forward? And just overall, with the mid-single-digit expectations for the second quarter, can you just elaborate what you're seeing in terms of the overall demand, your ability to deliver from the backlog and any bookings growth that you can talk about? And then I have a follow-up.

Frank Laukien, President and CEO

Thank you, Puneet. It's Frank. As you remember, our fourth quarter last year exceeded our expectations. Typically, some items carry over into the first quarter, but we experienced nearly flawless execution with site readiness and export permits. We anticipated low single-digit organic revenue growth for the first quarter, which we had previously communicated. However, we found it was slightly below our desired level due to about $15 million worth of revenue shifting to the second quarter, which we acknowledged. There is no risk of cancellation; this revenue will materialize in the second quarter. The delays were due to standard export permits and logistical issues, not reflecting any demand challenges. Consequently, we achieved 1.6% organic growth, which is not as strong as we hoped. However, it's important to consider Bruker’s performance over multiple quarters. I expect decent mid-single-digit or potentially better organic revenue growth in the second quarter, along with double-digit CER growth. This outlines our outlook.

Puneet Souda, Analyst

Got it. Super helpful. Frank, I can't recall a time when Bruker had this many acquisitions in such a short period. First of all, it's great to see you acquiring a number of excellent technologies for the post-genomics era you've discussed. However, there are two questions that investors are grappling with. Firstly, what do these acquisitions mean for potential dilution? I know you're going to address that in the follow-up call, but can you provide any guidance on how to consider these in 2025? Secondly, could you elaborate on your plans regarding integration priorities? It appears that this is a significant undertaking compared to what Bruker has done in the past, and this could impact inorganic growth and EPS in both the near and medium term. Please share your thoughts on the integration and your approach to it.

Frank Laukien, President and CEO

Yes. I'll address this in reverse order, Puneet. I'm quite confident in our integration capabilities and our capacity to manage this process. With three strong groups and the BEST initiative, we effectively have the management and integration capacity as if we were three separate companies. While we are one company, the ELITech business and several smaller acquisitions made by our Bruker Optics division are all under CALID. They are managing these operations very effectively, focusing primarily on financing and high-level corporate matters. I believe they will manage this well, as they have done with previous smaller acquisitions like Chemspeed and other software buys within the BioSpin Group. We have a distinct group working on this in a modular fashion, and they are excelling in their efforts. So, it’s not that we are overwhelmed; rather, our role is to provide strategic direction and financial support at the highest level. We did not anticipate acquiring the former PhenomeX, now Bruker Cellular Analysis, or that NanoString would enter Chapter 11 reorganization so soon. This situation didn't allow us to wait until Q4 or next year; it represented an incredible strategic opportunity. It presents a complex situation, but it is an opportunity to acquire not only a commendable gene expression business with nCounter but also, hopefully soon, the leading spatial biology business in an asset deal, which is under agreement. These strategic opportunities are compelling and promise great returns on invested capital. It’s somewhat unusual for Bruker to pursue many acquisitions, but due to the opportunities and the flexibility we have within our organization, we are equipped to take advantage of them. On 2025 and 2026, we are planning a mini Investor Day shortly after we close the acquisition of NanoString, which we expect to happen in the second quarter. Within a few weeks post-closing, Justin will organize a 2-hour virtual call featuring division leaders from our new businesses, including Chemspeed and ELITech, along with a presentation on NanoString. Gerald and I will conclude the call by discussing how these developments will influence our medium-term outlook for 2026. That's the current plan. For now, we prefer not to comment on NanoString as it is still pending, and we like to maintain discipline in our communications. We can discuss ELITech now that the deal is finalized, and we will focus on NanoString once that acquisition is completed, which we hope will be in the second quarter.

Operator, Operator

Our next question comes from Patrick Donnelly from Citi.

Patrick Donnelly, Analyst

Frank, maybe just one on kind of the order backdrop, a little more real-time. It sounds like the book-to-bill was a little bit below 1 in BSI. Can you just talk about what you're seeing on the order front, maybe on the academic side, in particular, what the conversations there with customers are and just expectations as we go forward here?

Frank Laukien, President and CEO

Yes. We didn't utilize much of our backlog in the first quarter due to some revenue delays. Our backlog coverage is still around 7.5 months, which is strong. The academic and government sectors in the U.S. and Europe have performed decently. Bookings in biopharma and diagnostics have also been reasonable, with the exception of China. The MALDI Biotyper, particularly on the consumables side, is doing well. The overall macro environment is not ideal, but it's decent, and the bookings across various markets are in line with our expectations, reflecting slower growth but still organic growth for us. While the macro environment isn't particularly exciting, it hasn't worsened either. It aligns with our expectations based on our toolset and portfolio transformation, which should support above-market organic revenue growth of 5% to 7% this year. We are quite confident about this outlook.

Patrick Donnelly, Analyst

Okay. That's helpful. And then maybe you touched on China briefly in the answer there. Can you just talk about the trends over there? I mean there's been some debate about a stimulus loan program, whatever you want to call it. What you're seeing there, what the conversations look like in China, and expectations for the year would be helpful.

Gerald Herman, Executive Vice President and CFO

It's still early days regarding the loan stimulus program being discussed in China. We've heard various opinions about how this might unfold, and we don't anticipate seeing any real orders from it until at least the second half of the year. Our understanding is that this program is quite broad, focusing on equipment upgrades, particularly in the technology sector, over several years. We believe it will ultimately benefit Bruker, but we don't have specific details on the timing or which products will be affected. Overall, we remain optimistic about the long-term performance in China, though there have been some macroeconomic challenges.

Frank Laukien, President and CEO

Very fundamentally, China has again made and clarified they are very strong and exceptionally strong commitment to science and technology. And that's a very high priority for them and for their investments as a country, which bodes well for the entire industry. It also does bode quite well for us with more of an academic/government exposure or, I mean, more participation in China, whereas we got a little lucky that we're not so exposed to their biopharma or CRO markets, which obviously have been and probably continue to struggle to some extent because of geopolitical risks. Anyway, so that's bypassing us mostly.

Operator, Operator

Our next question comes from Rachel Vatnsdal from JPMorgan.

Rachel Vatnsdal Olson, Analyst

So first, I wanted to push a little bit on the 2Q guide. You mentioned that you're expecting mid-single-digit organic growth next quarter. So that came in a little bit lighter than expectations. You also mentioned that $15 million slipped from 1Q to 2Q. So can you help us understand the puts and takes there? What are the underlying assumptions embedded in 2Q? Is there any level of conservatism? Or is this more of a realistic guide based on what you're seeing in the market right now?

Frank Laukien, President and CEO

Yes, we're aiming for mid-single-digit growth, which we consider a conservative estimate because we fell a bit short in Q1. We want to avoid a repeat of that. There’s potential for upside, but we also want to present a realistic outlook for Q2, ensuring there's no downside.

Rachel Vatnsdal Olson, Analyst

Okay, that's helpful. Regarding 2025, you brought some of the 2026 estimates into 2025 last quarter. I appreciate that you're planning to hold a mini Investor Day in the coming months. To clarify, are you suggesting that any of the underlying assumptions in the 2025 framework you mentioned last quarter have changed? Or are you simply indicating an update due to recent mergers and acquisitions, particularly with ELITech and NanoString?

Frank Laukien, President and CEO

Yes, it's all about mergers and acquisitions, Rachel. Chemspeed is expected to contribute around $10 million in revenue per quarter this year and will neither dilute nor enhance earnings per share. We anticipate that by next year, they will start to positively impact EPS and return to growth. They are undergoing significant changes as they switch to U.S. GAAP and adopt product accounting instead of a percentage of revenue approach. We will provide more details at our upcoming mini Investor Day or Investor Call. They are expected to be slightly accretive. ELITech appears to be consistently experiencing solid organic revenue growth in the high single digits and occasionally in the low double digits and is clearly adding to margins and positively impacting EPS. Additionally, as we finalize the acquisition of NanoString, as mentioned in our April 22nd announcement regarding the asset purchase agreement, we will not provide 2024 guidance for NanoString due to the substantial disruptions caused by Chapter 11 and related litigations. We will not discuss that matter today. We want to inform the market that there will be a notable dilution in 2024, estimated between $0.15 and $0.20. We anticipate that this will decrease next year. However, we cannot delve into details at this time as the transaction has not yet closed. Essentially, all incremental changes stem from these acquisitions and the attractive financing we have secured with our banks. We are very pleased with how our capital structure is facilitating these developments. We will consolidate all these aspects as there are many variables for you to consider.

Operator, Operator

Our next question comes from Doug Schenkel from Wolfe Research.

Unknown Analyst, Analyst

This is Colleen on for Doug. I just want to know how you're framing book-to-bill normalizing for the bolus in China stimulus bookings in Q1 of last year and the timing of delay of bookings in Q1?

Justin Ward, Senior Director of Investor Relations and Corporate Development

The book-to-bill ratio that Frank mentioned, which is approximately 1, pertains to the first quarter of this year, which is a positive sign. Last year, we experienced a significant influx of orders in China during the first quarter, but then saw a notable decline in orders during the third quarter. This led to some inconsistencies in our booking figures for China last year. Overall, for the entire year last year in China, we saw substantial bookings and revenue growth in the double digits. As we look ahead to 2024, it's important to consider the distortions in year-over-year comparisons for bookings in China. Therefore, we believe it's more insightful to assess the full-year picture when evaluating bookings. I hope that clarifies things.

Unknown Analyst, Analyst

And just one follow-up on leverage. So with the NanoString deal, we estimate your debt-to-EBITDA will approximate about 3.5x. Is that right? And if so, is it fair to assume this is the limit of what you'd be willing to take the balance sheet?

Gerald Herman, Executive Vice President and CFO

Let's discuss that further during the mini Investor Day. First, it's important to clarify the difference between gross and net in our calculations. I will defer more details to our upcoming call. Overall, we are pleased with the financing actions we've taken so far, and we will explore additional options as we engage with forward investors and sell-side analysts.

Frank Laukien, President and CEO

You are approximately correct with your question. The gross leverage is about 3.5, while the net leverage will be lower. Typically, we prefer to operate in the range of 2 to 2.5. There will be opportunities to reduce leverage, and our goal will be to decrease it from that level again.

Operator, Operator

Our next question comes from Jack Meehan from Nephron Research.

Jack Meehan, Analyst

I have a couple of financial questions for you. On the income statement, can you explain the other income below the line? I was expecting around $7 million in other expenses, but it turned out to be the opposite. Were there any factors that contributed to this in the quarter?

Gerald Herman, Executive Vice President and CFO

One of the significant items from the quarter is that we took several actions on the foreign exchange side to secure the EUR 807 million ELITech transaction. This resulted in a considerable foreign exchange gain between the euro and the Swiss franc. Additionally, as I mentioned in my prepared remarks, we experienced a more favorable tax rate compared to the previous year, which we are pleased with from a jurisdictional mix perspective. Those are the two key points.

Jack Meehan, Analyst

Great. Okay. That makes sense. And then the second question was just on the PhenomeX solution. Could you talk about just how the integration is going, number one? Number two, I think I heard $0.05 of dilution. I think previously, you were talking about $0.02 to $0.03 a quarter. Just what was the delta there?

Frank Laukien, President and CEO

Yes, PhenomeX, now known as Bruker Cellular Analysis, is projected to have a dilution of $0.10 to $0.12 for the year 2024. As a reminder, we experienced a dilution of $0.14 in Q4 before we could activate the WARN Act. While we acted promptly in making decisions, it took some time to implement reductions in headcount and costs, and some of this is still occurring outside the United States, which can delay the impact of cost reductions. For PhenomeX, the anticipated number is $0.05. The average dilution this year is expected to be around $0.02 to $0.03, potentially closer to $0.03 on average, but it will be more front-loaded. Good observation, Jack; the figure was indeed higher than the average in Q1.

Justin Ward, Senior Director of Investor Relations and Corporate Development

Yes. Jack, as you'd imagine, the dilution is going to gradually taper from PhenomeX over time. What we've said is we expect it to be basically breakeven by 2026, but a lot of that dilution will really taper off in the first half of this year. So that's how we're thinking about the situation.

Operator, Operator

Our next question comes from Dan Brennan from TD Cowen.

Daniel Brennan, Analyst

Frank and Gerald, I know we're going to get more color on NanoString once it closes, but is it possible to speak at all to the work that you've done on the patent situation? Just because I think that likely caught many people by surprise, the fact that they've got these cases ongoing, and they lost the genomics case earlier this year, which obviously they're appealing, and they have the CosMx case. I'm just wondering, any color you can provide on the work you did, the comfort you got and/or any remedies you might have in place if these cases go against NanoString?

Frank Laukien, President and CEO

Yes, we’re not going to discuss litigation, potential outcomes, or strategies after the closing. We certainly can’t talk about it today because the issue hasn’t been resolved. This is a significant matter for NanoString, as it contributed to their Chapter 11 reorganization. While there was a favorable interim ruling from the European patent court that lifted the CosMx preliminary injunction outside of Germany, this is still subject to appeal and a final decision. There are many moving parts, various litigations, challenges, and antitrust counterclaims involved. We can touch on this a bit more, but I assure you, our mini Investor Day won't focus solely on intellectual property issues. We'll provide some additional insights on ongoing litigations, although our ability to comment is quite limited. We're very much aware of the situation.

Daniel Brennan, Analyst

Okay. And maybe just one on the semi business. You called out the AI-related positioning. Just wondering if you can help us kind of size that? Like how did semis do in the quarter? Any specific color on how much that AI is driving your semi and packaging business? And kind of what do you kind of assume implicit in the guide for the year?

Frank Laukien, President and CEO

We generally assess our performance on an annual basis due to quarterly fluctuations. Currently, our semiconductor metrology business accounts for a high single-digit percentage of our revenue, and it's likely growing towards 10% and above. The revenue from this sector performed well in the first quarter. Additional fees remain modest, currently below 1% of our total revenue. Our BEST unit and their research instrument subsidiary are involved in the semiconductor late data. Extreme UV (EUV) technologies are being incorporated into lithography, which is essential for semiconductor manufacturing, particularly for smaller feature sizes necessary for AI and high-performance computing applications. We provide unique technologies that contribute to the supply chain, although we don't deliver complete systems for the largest EUV lithography supply chain. We are pleased to offer distinctive technologies from our research instruments business, which may not be widely recognized but are significant, potentially around $20 million in value. These technologies are important for enhancing our semiconductor and advanced packaging metrology business, which you are likely more familiar with. This trend is quite positive and is atypical for a life sciences or post-genomic company. However, we do see applications for it in our NANO tools, which possess unique characteristics.

Operator, Operator

Our next question comes from Dan Arias from Stifel.

Daniel Arias, Analyst

Frank, I apologize for asking this since you mentioned you'll cover NanoString later, so it may not be fair. However, I’m curious about the rationale behind the deal rather than the financial details. Can you share whether you felt the price was right, or if your due diligence made you comfortable with the legal and technical aspects related to some issues that impacted the legal side? Could you elaborate on how at ease you felt with this controversial deal?

Frank Laukien, President and CEO

The answer is no because I prefer not to discuss the litigation or related matters. Strategically, expanding our presence in spatial biology by acquiring one of the leaders in spatial transcriptomics at a reasonable valuation is an exceptional opportunity that drives this deal. We are impressed with their gene expression and counter-profiling business, which shows growth potential and strong margins. However, the main focus is on spatial transcriptomics, particularly the GeoMx and CosMx products along with their software and other product lines. This is significant for anyone wanting to lead in spatial biology. We have a smaller complementary spatial proteomics business with Canopy, and while their markets are adjacent and do not overlap, NanoString's efforts are vastly larger. This acquisition places us firmly in the spatial transcriptomics arena. We appreciate their plexing capability, which is highly valued by research customers, and they are notably advanced in this field. As pioneers, we aim to further support their customers in both fundamental and translational clinical research where spatial single-cell transcriptomics tools are crucial for biomedical studies, alongside other areas like Proteomics and structural biology. The broader field of spatial biology is dominated by spatial transcriptomics, in which we previously had no presence. Therefore, this acquisition represents a significant opportunity for us, and we have acted on it.

Daniel Arias, Analyst

I appreciate your patience with that. Moving on to the next question, are you still looking for deals? Should we expect any additional mergers and acquisitions going forward?

Frank Laukien, President and CEO

I believe we will be focusing on smaller deals for a while. There are always smaller opportunities, some generating $5 million or $10 million in revenue. Many of these deals address gaps in our product offerings, such as preclinical imaging, Raman process analytical technology, or high-end Raman microscopes, which we have been monitoring for years, sometimes over a decade. When relevant companies became available that align with our Bruker Optics or BioSpin preclinical imaging, we saw a great opportunity. However, the timing is challenging compared to two years ago when it was difficult to agree on valuations. We remain focused on value and return on invested capital. Regarding larger deals, we plan to reduce our debt levels first, so I do not anticipate any significant acquisitions until that happens.

Operator, Operator

Our next question comes from Josh Waldman from Cleveland Research.

Joshua Waldman, Analyst

I'll ask two and then hop off. First, Frank, can you comment on year-over-year orders in DESY in 1Q and whether the guide assumes any sequential improvement in order rates from here? I guess just more context on how you're thinking about the order cadence to support the full year organic guide would be helpful. And then for my follow-up, Frank again. I wondered if you could comment or provide more context on the moving pieces within the CALID business. I mean maybe more color on the revenue slippage. You mentioned tougher comps. I can't help but notice you didn't highlight timsTOF this round. I guess just any more context here being on the order front. How are you thinking about timsTOF growth? And any other kind of one-off or onetime pressures the segment may have seen this quarter?

Frank Laukien, President and CEO

Yes. We expect the typical seasonality with bookings, which are usually weakest in Q1, strongest in Q4, and more balanced in Q2 and Q3. We anticipate this pattern to hold true this year as well. This implies a sequential increase, not just in revenues and margins, which we have noted, but also in bookings for the rest of the year. I mentioned the timsTOF platform earlier, including its advancements in 4D-Proteomics, immunopeptidomics, and glycoproteomics. The timsTOF Ultra was highlighted during the U.S. HUPO meeting. We also have the ASMS conference coming up in the second week of June in Anaheim, which is significant for the mass spectrometry community. The timsTOF platform is performing well, offering various capabilities. It encompasses many areas like proteomics, plasma proteomics, single-cell proteomics, and classes like middle down, top down, as well as intact forms. The field is vast, covering around a dozen subfields within proteomics and related disciplines. The instrument is well-suited for these areas, supported by new consumables, software, and workflows. There's a lot happening in this space.

Joshua Waldman, Analyst

Frank, I guess just on the revenue slippage. Was that timsTOF? Or is it something else within CALID?

Frank Laukien, President and CEO

No, it was not only CALID. It also included semiconductor metrology tools. Sometimes when a facility purchases one of our large semiconductor metrology tools, the delivery might be postponed by a quarter or two, especially when those big customers request specific shipping dates, often in March or within Q2. Additionally, some of that was related to NMR and preclinical imaging, particularly MRI. So this wasn't solely about CALID, although CALID did have a notably strong comparison year-over-year, likely one of the best. In Q4, there was a significant amount of business pulled forward, such as in the optics sector, which is part of CALID. These factors contributed to considerable distortions in the figures, primarily impacting the lower organic growth in the first quarter.

Justin Ward, Senior Director of Investor Relations and Corporate Development

All right. Operator, I think we're all set with questions. So we want to thank everyone for joining us today on the call. Bruker's leadership team looks forward to meeting with you at an event or speaking with you directly during the second quarter. Please feel free to reach out to me to arrange any follow-ups. Have a great day.

Operator, Operator

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.