Earnings Call Transcript
Bruker Corp (BRKR)
Earnings Call Transcript - BRKR Q3 2022
Operator, Operator
Good morning, everyone, and welcome to the Bruker Third Quarter 2022 Earnings Conference Call. Please also note that today's event is being recorded. At this time, I'd like to turn the floor over to Justin Ward, Senior Director of Investor Relations and Corporate Development. Sir, please go ahead.
Justin Ward, Senior Director of Investor Relations and Corporate Development
Thank you. Good morning. I would like to welcome everyone to Bruker Corporation's third quarter 2022 earnings 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 call, we will be referencing a slide presentation that can be downloaded from the Events & Presentations section of Bruker's Investor Relations website. During today's call, we will be highlighting non-GAAP financial information. Reconciliations of our non-GAAP to GAAP financial measures are included in our earnings release and are posted on our website at ir.bruker.com. Before we begin, I would like to reference Bruker's safe harbor statement which is shown on Slide 2 of the presentation. During this call, we will 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 elevated geopolitical and energy risks, the COVID-19 pandemic and supply chain logistics and inflation challenges. The company's actual results may differ materially from such statements. Factors that might cause such differences include but are not limited to, those discussed in today's earnings release and in our Form 10-K for the period ending December 31, 2021, 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 our outlook as of today, November 3, 2022. 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 fourth quarter and fiscal year 2022 financial results expected in February 2023. You should not rely on these forward-looking statements as necessarily representing our views or outlook as of any date after today. We will begin today's call with Frank providing an overview of our business progress. Gerald will then cover the financials for the third quarter of 2022 in more detail and share our updated fiscal year 2022 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 third quarter 2022 earnings call. In the third quarter of 2022, Bruker achieved strong organic revenue growth of 12.7%, surpassing the mid-single-digit outlook shared during our Q2 2022 earnings call. Our teams performed well despite facing operational challenges from ongoing supply chain and logistics delays, lockdowns in China, and the conflict in Europe. We experienced solid demand for our high-value scientific instruments and life science solutions. Additionally, our Scientific Instruments segment's book-to-bill ratio was above 1 again this quarter. Strong performance in Q3 has compensated for the weaker second quarter, during which we dealt with some revenue delays due to supply chain issues. For the third quarter of 2022, Bruker's reported revenues rose 4.9% year-over-year to $638.9 million, even with a significant currency headwind of 9%. On an organic basis, revenues increased by 12.7%, which included 12% organic growth in Scientific Instruments and 20.3% growth in BEST, after intercompany eliminations, while acquisitions contributed 1.2%. This indicates a constant currency growth rate of 13.9% year-over-year for the quarter. Our non-GAAP gross margin for Q3 increased by 150 basis points year-over-year to 53.2%, and our non-GAAP operating margin rose to 22.4%, an increase of 180 basis points year-over-year. Our gross margin improvement, despite inflation challenges, is benefiting from our Project Accelerate 2.0 margin mix and our core operational excellence driving volume leverage, pricing, and favorable currency effects. Notably, we ensured strong operating margin growth in the third quarter, even with the planned OpEx investments in Project Accelerate 2.0 focused on enhancing our commercial and R&D capabilities, especially in proteomics and spatial biology. In Q3 2022, Bruker reported GAAP diluted earnings per share of $0.59, a rise from $0.57 in the same quarter of 2021. On a non-GAAP basis, diluted EPS was $0.66, up from $0.63 year-over-year, and Gerald will discuss the margin and EPS drivers later. In summary, Q3 2022 again demonstrated strong demand for our differentiated products and significant margin expansion, even as we executed operational investments in Project Accelerate 2.0 to leverage opportunities in proteomics and spatial biology, as well as in biopharma, applied sciences, infectious disease diagnostics, cancer research, and semiconductor tools. Now, let's review the performance for the first nine months of 2022. Our revenues increased by 5.1% to $1.822 billion, with organic growth of 10.7% year-over-year, including 9.9% in Scientific Instruments and 18.7% in BEST, after intercompany eliminations. Year-to-date order bookings for our three Scientific Instruments groups showed double-digit organic growth year-over-year. Geographically, our BSI order bookings were driven by mid-teens growth in Europe and APAC, while the Americas experienced single-digit growth. Our non-GAAP gross and operating margins, as well as GAAP and non-GAAP EPS performance for the first nine months of 2022, are summarized in our presentation. We are pleased with the 80 basis points operating margin expansion year-over-year, despite high inflation and our planned investments in Project Accelerate initiatives. Our trailing 12-month return on invested capital was 24.6%, placing us among industry leaders, a testament to our strong management practices and focus on disciplined growth supplemented by selective acquisitions. Moving on to our Scientific Instruments groups and BEST segment performance for the first nine months of 2022, we recorded $493 million in BioSpin Group revenue, reflecting mid-single-digit growth. It is important to note that we recognized two gigahertz-class NMR systems in revenue during the first nine months of 2022, a decrease from three in the same period last year. We now anticipate recognizing three to four gigahertz-class NMRs in total revenue for the full year 2022, including one or two expected in Q4. The BioSpin segment benefited from strong growth in Services and Support revenues and robust performance in Preclinical Imaging. The CALID Group generated $601 million in revenue over the first nine months of 2022, marking low double-digit growth, bolstered by considerable life science mass spectrometry and microbiology aftermarket demand, although supply chain delays did hinder revenue realization. The timsTOF platform specifically has experienced solid demand in 4D-Proteomics, Epiproteomics, and Metabolomics, achieving double-digit year-over-year growth in revenues and bookings. For Bruker NANO, revenue reached $559.8 million, exhibiting high teens percentage growth on a constant currency basis, fueled by strong performance in Nano Surfaces and advanced X-ray businesses. Our microelectronics and semiconductor metrology tools also excelled with strong bookings and backlog, while Life Science fluorescence microscopy revenue grew due to product innovation and academic demand. In the first nine months of 2022, BEST revenue saw high teens percentage growth, after intercompany eliminations, largely driven by excellent execution amidst challenging conditions and strong demand from MRI OEM customers. Moving on to highlight notable applications and innovations from our instruments, one key highlight is the recent acquisition of six timsTOF systems by BioMS, a Swedish consortium, aimed at enhancing high-throughput proteomics workflows for clinical research and forthcoming laboratory-developed tests. Additionally, we are excited about our advancements in the field of functional structural biology enabled by innovation in NMR probes. There is a new 8-millimeter Cryoprobe for 15N that achieves improved sensitivity and significantly increased resolution for larger, complex proteins and intrinsically disordered proteins. Furthermore, advancements in solid-state NMR, particularly the development of a 160 kilohertz Magic Angle Spinning probe, have greatly enhanced our ability to conduct biological research, addressing key questions in cellular and disease biology. In summary, Bruker delivered a strong third quarter with positive organic growth and margin enhancement. Although the macroeconomic environment continues to present challenges in forecasting for 2023, we believe our strong demand for differentiated solutions and substantial backlog will help maintain Bruker’s resilience in the upcoming year. We anticipate providing fiscal year 2023 guidance alongside our Q4 2022 results announcement in February. Now, I will hand the call over to our CFO, Gerald Herman, for more details.
Gerald Herman, Executive Vice President and CFO
Thank you, Frank and thank you, everyone, for joining us today. I'm pleased to provide more detail on Bruker's third quarter and year-to-date 2022 financial performance, starting on Slide 11. In the third quarter of 2022, Bruker's reported revenue increased 4.9% to $639 million which represents an organic revenue increase of 12.7% year-over-year. We reported GAAP EPS of $0.59 per share compared to $0.57 in the third quarter of 2021. On a non-GAAP basis, third quarter 2022 EPS was $0.66 per share, an increase of 4.8% from the $0.63 we posted in the third quarter of 2021. Our third quarter 2022 non-GAAP operating income increased 14.2% and our non-GAAP operating margin increased 180 basis points year-over-year to 22.4%, with expanding gross margins and operational leverage more than offsetting our increase in Project Accelerate 2.0 operating expense investments. We finished the third quarter with cash and cash equivalents of approximately $626 million. During the quarter, we used cash to ramp selected Project Accelerate 2.0 investments, fund capital expenditures and fund share repurchases. In the third quarter of 2022, we repurchased 1.2 million shares for approximately $72 million. And year-to-date, we purchased 3.8 million shares for $238 million. As a reminder, in the full year of 2021, our repurchases totaled 2.1 million shares for approximately $153 million. We generated $69.5 million of operating cash flow in the third quarter of 2022. Our capital expenditure investments were $57.7 million, resulting in free cash flow of $11.8 million for the third quarter of 2022. This is an increase from free cash flow in the third quarter of 2021 of $4.2 million. Slide 12 shows the revenue bridge for the third quarter of 2022, as discussed earlier. Compared to the third quarter of 2021, BioSpin third quarter '22 organic revenue was down slightly from a difficult comparison in the third quarter of 2021 with over 20% growth. Nano organic revenue grew in the low 20% range, driven by strength in Nano's semiconductor and industrial businesses. CALID organic revenue grew mid-teens percentage, driven by strong growth in both the Life Science Mass Spectrometry and Optics businesses. The third quarter of 2022 Scientific Instruments systems revenue grew in the teens percentage, while aftermarket revenue grew high single digits organically compared to the third quarter of 2021. Geographically and on a BSI organic basis in the third quarter of 2022, our Americas revenue grew in the mid-teens percentage. Asia Pacific grew in the low double digits, while European revenue had low double-digit percentage growth all year-over-year. In the third quarter, our Rest of the World organic revenue which is small as we categorize it, grew in the mid-single digits. Slide 13 shows our third quarter 2022 P&L performance on a non-GAAP basis. Non-GAAP gross margin of 53.2% increased 150 basis points from 51.7% in the third quarter of 2021, benefiting from our Project Accelerate 2.0 mix, pricing and currency tailwinds, partially offset by inflation. 2022 non-GAAP operating margin of 22.4% was 180 basis points higher than the 20.6% margin we delivered in the third quarter of 2021, as higher gross margins and operating volume leverage benefits, partially offset our increased sales and marketing investments towards high-growth, high-margin Project Accelerate 2.0 initiatives. In contrast to the second quarter of 2022, our ramp in revenues outpaced the sales and marketing operating expense ramp, despite ongoing supply chain and logistics challenges. For the third quarter of 2022, our non-GAAP effective tax rate was 30.4% compared to an unusually low effective tax rate of 19.2% in the third quarter of 2021, primarily due to unfavorable discrete tax items. Weighted average diluted shares outstanding in the third quarter of 2022 were 148.6 million, a reduction of approximately 4.2 million shares or 2.7% from the third quarter of 2021, resulting from our share repurchases over the past 12 months. Finally, the third quarter 2022 non-GAAP EPS of $0.66 was up 4.8% compared to a strong third quarter of 2021. Slide 14 shows the year-over-year revenue bridge for the first 9 months of 2022. Revenue was up $87.9 million or 5.1%, reflecting organic growth of 10.7%. Acquisitions added 1.3% to our top line, while foreign exchange was a 6.9% headwind. And Frank has already covered the drivers for the year-to-date 2022 performance. Non-GAAP P&L results for the first 9 months of 2022 are summarized on Slide 15, with the drivers largely similar to the third quarter of 2022 and as explained on the slide. Turning to Slide 16. In the first 9 months of 2022, we generated $8.3 million of free cash flow compared to free cash flow of $80.2 million in the first 9 months of 2021. Higher working capital, together with increased facility and capacity expansion investments in capital expenditures reduced our year-to-date 2022 free cash flow year-over-year. Our cash conversion cycle at the end of the third quarter of 2022 was 240 days, an increase of 3 days compared to the third quarter of 2021. And we continue to carry elevated inventory to manage supply chain risks as well as to meet growing backlog from excellent year-to-date bookings. Turning now to Slide 18. Given the strength in revenue and bookings growth in the first 9 months of 2022 and our significant backlog, we're increasing our full-year 2022 guidance for organic revenue growth and operating margin expansion while holding our EPS guidance for the full year. Reported revenue growth has been decreased due to a stronger foreign exchange headwind. Our updated outlook for fiscal year 2022 now includes the following: we're now guiding to 8% to 10% organic revenue growth year-over-year, up from our prior guidance of 7% to 9%. We now estimate a foreign currency headwind of 8%, up from our prior guidance of 6% due to a stronger U.S. dollar against most major currencies. We expect acquisitions to contribute about 1.5% to growth, unchanged from our prior guidance. And this is now expected to lead to reported full-year 2022 revenue growth in a range of 1.5% to 3.5%. We're increasing our non-GAAP operating margin expansion guidance to 60 to 90 basis points of expansion in 2022, up from our prior guidance of 30 to 60 basis points. This implies non-GAAP operating margins of 20.0% to 20.3% versus our 19.4% level in 2021. On the bottom line, for the fiscal year 2022, we are holding at our non-GAAP EPS estimated range at $2.29 to $2.33 which represents non-GAAP EPS growth of 9% to 11% compared to 2021. We project a non-GAAP tax rate of approximately 29.5% for fiscal year 2022. Other guidance assumptions are listed on the slide. Our fiscal year 2022 ranges have been updated for foreign currency rates as of September 30, 2022. To add color to the fourth quarter, we still expect continuing logistics, supply chain and geopolitical risks to constrain our fourth quarter performance. With that background, we currently anticipate upper mid-single-digit organic revenue growth year-over-year in the fourth quarter. To wrap up, Bruker delivered another quarter of solid organic revenue growth and continued solid bookings performance. We also posted encouraging margin expansion on both the gross and operating lines. Our teams delivered another quarter of excellent execution under challenging conditions. And with that, I'd like to turn the call over 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 would now like to pass the call to the operator to initiate the Q&A segment. Operator?
Operator, Operator
Our first question today comes from Jack Meehan from Nephron.
Jack Meehan, Analyst
Wanted to talk a little bit more about the supply chain and what you're seeing here. Obviously, the third quarter came in better than expected but it sounds like you're still expressing a little caution about the fourth quarter. Can you just talk about like median time to delivery, how that's trending? And when you think this could come back down to more normalized levels?
Frank Laukien, President and CEO
Yes, Jack. This is Frank. The logistics issues are improving and logistics inflation is easing. While there is some hope for the supply chain, it remains challenging. It is not worsening, but improvement is slow. We estimate that supply chain conditions may begin to normalize in the second half of next year, and the logistics situation has clearly improved, although there are always exceptions. Regarding our substantial backlog for Scientific Instruments, it currently averages nearly 8 months, and that may vary. We aim to reduce that by a couple of months or more over the next 2 to 3 years if demand remains strong. This gives us some flexibility; if 2023 experiences a downturn, it would provide us with a solid buffer. That's our perspective at this time.
Jack Meehan, Analyst
Great. I wanted to explore the performance of Nano in more detail, particularly with organic growth exceeding 20%. Can you discuss, especially regarding the semiconductor sector, what you're observing in terms of demand? There have been mixed signals; while some companies are making substantial investments in chips and related areas, there also seem to be indications of weaker demand in the market. Given these factors, what do they imply for Bruker in this specific market?
Frank Laukien, President and CEO
Yes, that's a great question. We've been seeing mixed signals, particularly regarding memory pricing and the memory chip market. Additionally, there are new export restrictions on semiconductor metrology to China, which will at least cause delays in obtaining approvals and lead to some equipment being impossible to export. However, there are significant offsets from technology innovations. Approximately half of our sales in semiconductor metrology are related to new technology purchases, which remain strong. While capacity purchases are experiencing a slight slowdown, our backlog is still excellent. The CHIPS and Science Act, which supports investments in semiconductor technology and fabrication facilities in the U.S. and to some extent in Europe, is expected to provide a strong boost to our business and the industry overall. We are starting to see some buying, but the majority of this will likely begin next year. Until these developments translate into revenue and profit benefits for us, our projections remain around $425 million to $426 million. Overall, despite some signs of a downturn or slowdown, we have numerous factors working in our favor, including our backlog, the strong presence of technology purchases, and significant investments underway in the U.S. and Europe. We feel very optimistic about this area of our business, which is high-margin and high-growth. So that's the overall picture.
Operator, Operator
Our next question comes from Patrick Donnelly from Citi.
Patrick Donnelly, Analyst
Frank, maybe to follow up on Jack's question there. I mean you talked a little bit about the backlog there going into '23. To your point, if the macro does slow down, it probably benefits you, inflates you guys a little bit, given the backlog. How sticky do you typically see that backlog? I tend to think of it pretty high relative to others, given the segments you play in. Customers don't have kind of options to go elsewhere. So maybe talk a little bit about that. And then how much more visibility does the current backlog give you into next year compared to your typical starts to the year? And then the only other moving piece, Gerald, just how do you think about FX for next year, given current rates?
Frank Laukien, President and CEO
Thank you, Pat. I'll begin. Our backlog is very stable. Once customers place their orders and we receive purchase orders, often with down payments, cancellations are extremely rare and not financially significant. This year, we faced a few percentage points of revenue headwind due to the Russia and Ukraine situation impacting our markets. Looking ahead to next year, we anticipate a 1% to 2% headwind from potential delays in delivering certain semiconductor metrology equipment to China. This is manageable for us and primarily involves delays. We believe our backlog, which currently stands at about eight months, is the highest we've ever had for Scientific Instruments. Over the next couple of years, we aim to reduce that to below six months, which will help smooth our profit and loss and revenue growth. Additionally, as I mentioned in my earlier statements, our progress on the Project Accelerate initiatives strengthens our resilience for 2023, even if it becomes a year focused on defense. We are making significant strides and gaining market share in many areas.
Gerald Herman, Executive Vice President and CFO
And Pat, to your question regarding foreign exchange, it's Gerald, I would just add that I wish I could predict the foreign exchange markets in 2023. I'm not quite in that place at this stage. It's volatility. Clearly, the U.S. dollar continues to strengthen under the current conditions and will stabilize itself for the last quarter. So I'm not quite ready to talk about foreign exchange for 2023 at this stage. But you...
Frank Laukien, President and CEO
But usually, we don't speculate on that. We just take today's rates or rather, I guess, formally October 1 rates and that's how we make our September 30 rate, same thing, right and make the prediction. So we don't predict FX, we don't.
Patrick Donnelly, Analyst
It seems like there was a bit of a challenge, but we'll see how it unfolds. Frank, I think there...
Frank Laukien, President and CEO
Oh, no, it will be somewhat of a headwind at the beginning of the year to revenue, that we acknowledge. But we just assume the rates are whatever we have as most recent rates. Yes.
Patrick Donnelly, Analyst
And then, Frank, during the quarter, we got a decent amount of questions just on the Europe backdrop, given the macro. You guys put up good results there. I think you called out low double-digit growth. Maybe just give us some perspective about customer conversations, what you're hearing in Europe? What that academic market looks like as we work our way into '23, just given the macro fears there?
Frank Laukien, President and CEO
Yes. We don't see any issues with the investments in academic research, life sciences, and disease research in Europe. They remain very strong. Similarly, Biopharma investments are thriving, especially in the U.S. but also in Europe and China, among other regions. For the types of products we manufacture, concerns regarding Europe are exaggerated. Europe is quite healthy for our products and much of our industry. Additionally, if you examine our year-to-date revenue mix for Scientific Instruments over the first nine months, it shows approximately 32% from Europe and 32% from the Americas. This marks a significant change from just a few years ago, particularly in 2020, when the full-year Scientific Instruments revenue was in the high 30s for Europe and mid-20s for the Americas. We have experienced substantial growth in the Americas, particularly in academic and biopharma sectors with our proteomics and various other products. Consequently, we are not as historically reliant on Europe as we once were. It’s a considerable milestone that our revenue from both the Americas and Europe is now nearly equal, each accounting for just under 32% of our total revenue. This represents a different Bruker than you may recall.
Operator, Operator
Our next question comes from Puneet Souda from SVB Securities.
Puneet Souda, Analyst
I want to clarify that last quarter you expressed confidence in achieving 2 gigahertz NMRs in the fourth quarter. However, now you suggest it could be 1 or 2. What is causing this change? Is it related to the acceptance of the instrument? How should we approach the USF gigahertz magnets in 2023? The numbers are strong, but I'm looking to understand your perspective for the fourth quarter.
Frank Laukien, President and CEO
That's correct, yes. Initially, we expected to have four systems this year. Now, we are adjusting that to anticipate three to four, which suggests one to two in the fourth quarter. The systems are manufactured and have passed final tests, so that’s not the issue; it’s the time required for installation. Additionally, some may require rework. Therefore, we're guiding towards one or two systems in the fourth quarter and three to four for the entire year. We’re not providing guidance for 2023 yet, but we expect it to be similar, aiming for around four systems per year as our ongoing rate. Over time, we anticipate this number will increase, especially with the introduction of gigahertz systems alongside the 1.2 gigahertz technology, which entails different manufacturing processes. Our guidance for the fourth quarter reflects this, and we are confident in meeting our implied targets. If we end up with only one system, which is possible if one pushes into the first quarter of next year, it isn’t a major concern. Overall, we are confident in reaching our expectations for the fourth quarter and in our raised guidance for organic revenue growth for full-year 2022. So, there’s no need for concern over the exact timing; we can manage that if one system gets pushed to next year. Currently, we are looking at one or two systems for the fourth quarter.
Puneet Souda, Analyst
Okay, great. I have a question for you, Frank, and a brief one for Gerald. The backlog is clearly strong, with an 8-month duration and a book-to-bill ratio of over 1. Can you provide some insights into the end markets and the geographic distribution of this backlog? Is it predominantly reflective of what we've observed with Bruker's revenue, along with some segmentation, indicating a stronger focus on Biopharma compared to Industrial, considering your significant presence in Europe? I'm trying to get a clearer picture of the backlog. Also, Gerald, the operating margin is obviously much better than we expected. Could you discuss the sustainability of that into 2023?
Frank Laukien, President and CEO
Yes, Puneet, I don't want to cause any frustration because that's a great question. We haven't identified any distinct patterns yet. Europe is performing better than many anticipated. The Industrial and Applied segments are also stronger than expected. Semiconductor metrology is doing well, even with some headlines about a slowdown in certain capital expenditures and memory chips. There's definitely a mixture of news and a macroeconomic landscape, but it doesn't reflect much in our data so far. China has shown consistent strength, and Europe has also maintained solid performance. Additionally, macroeconomically sensitive markets like non-semiconductor industrial or applied sectors are performing strongly this year. There's a bit of a discrepancy between what we're reading in the news and what our data shows. We're approaching next year with more caution in our planning compared to this year, which followed a booming previous year. This year has been solid, and in our data, including bookings, things look quite strong. There's not much to conclude yet, and we are closely monitoring the situation since we share your questions, which are indeed very valid.
Gerald Herman, Executive Vice President and CFO
Puneet, it's Gerald. If I may just comment on third quarter margin performance. Operating margin performance was pretty solid, as you pointed out. I mean a lot of that has to do with the Project Accelerate 2.0 mix as well as our volume drop down through to the operating margin line. I would also point out, if you didn't catch it in my prepared remarks, I mean we had extremely strong operating profit for the quarter, 14.2% EBIT. I would say, generally speaking, I'm not going to comment on where that takes us for the 2023 period. We'll talk a little bit more about that in February. But obviously, we're quite encouraged with what we see at this stage. It's clearly moving completely in the direction we were hoping for.
Frank Laukien, President and CEO
But look at the year-to-date results, not at 1 quarter. You remember that our second quarter was a bit weaker than we would have liked. We met and exceeded consensus but we would have liked to achieve more. But then towards the end, logistics and supply chain did not allow that. We had a bit of a boost from that in Q3. So looking at the average of the first 3 quarters of the year, it's really more informative than focusing on any 1 quarter, even if it's a very good quarter like Q3.
Puneet Souda, Analyst
Got it. Super helpful. And congrats again on the progress made despite the challenges.
Frank Laukien, President and CEO
Thank you.
Gerald Herman, Executive Vice President and CFO
Thank you.
Operator, Operator
Our next question comes from Dan Arias from Stifel.
Dan Arias, Analyst
Frank, I just wanted to ask a follow-up question on BioSpin. I mean it sounds like demand for the high-field portfolio is pretty strong right now. What are you seeing on the Benchtop side for some of the Applied market applications? Just curious if growth there is noticeably different from the high end? And if so, how different?
Frank Laukien, President and CEO
Thank you for the question, Dan. Let me clarify the difference between Benchtop and Applied. While there is some overlap with Benchtop in the Applied sector, the larger focus is on the Applied and clinical research areas. We are seeing steady demand in our mid-field superconducting systems, typically at 400 megahertz for food analysis, including our NMR food screener and our clinical research system at 600 megahertz. However, we face challenges with the supply chain, which has contributed to a backlog. The growth in Benchtop is positive this year but limited due to supply chain issues affecting certain magnet materials and components, restricting our production ramp-up. It's worth noting that this segment represents a small fraction of BioSpin currently, although it has potential for future growth. We're seeing double-digit growth, though it hasn't met our expectations due to supply constraints this year. We anticipate normalization in this area in 2023, especially in the larger Applied and clinical research superconducting NMR sector. Additionally, our BioSpin Preclinical Imaging business, which focuses on MRI, PET/MR, and PET/CT, is performing exceptionally well. Lastly, our service and consumables business is showing solid, high single-digit growth and remains a strong margin contributor.
Dan Arias, Analyst
Yes. Okay. And then apologies for sort of beating the dead horse on Europe. But I guess I'm just curious about whether your customers are specifically talking about the energy issues and the concerns that people have just as the winter approaches, I mean, especially at sites that do draw a lot of power, physics labs, etcetera. I mean, is that coming up in conversation? Or is that just sort of baseline noise and...
Frank Laukien, President and CEO
No, absolutely, it's a significant issue across Europe, particularly in Germany and Switzerland. The inflation is present, and governments, including Germany's, have decided to cap it, largely funded by taxpayers, to reduce the overall inflation impact on consumers and industries. However, there is considerable inflation in energy and electricity costs throughout Europe. Some industries, like fertilizer, beer brewing, and glassblowing, view this as a fundamental and structural problem, leading some to slow down their investments or relocate. For us, it's more of an inflation driver. We acknowledge that inflation will be a headwind to our margin expansion this year. Nevertheless, we have more than compensated for that with several positive factors. Germany currently has sufficient gas supplies, which should last through the winter, and French nuclear power plants are mostly returning from maintenance. So the situation looks better than it did a few weeks ago, but risks remain. Everyone is taking precautions to save energy, and Bruker is also investing in photovoltaic and solar for next summer when cooling will be more important than heating. While there are risks, we can manage them because we have multiple factories that could operate independently. If one factory had to shut down temporarily, others would continue production. This could also happen due to other disruptions like wildfires or earthquakes, similar to past events. Overall, while there are elevated risks and inflation, I’m not worried about next year's business plan. There is a low probability that any significant delays would occur, and looking at the different factors, the situation is manageable.
Dan Arias, Analyst
All we can ask is that the breweries make it through.
Frank Laukien, President and CEO
Luckily, there's plenty of them. And there's a few non-European breweries but yes.
Operator, Operator
Our next question comes from Josh Waldman from Cleveland Research.
Josh Waldman, Analyst
Two for you. Frank, I guess, starting with a high-level question and a bit of a follow-up. I mean growth over the last 18 months has obviously been quite strong. Bookings are up double digits year-to-date. It sounds like backlog grew again in the third quarter. I'm curious, is there anything in the opportunity funnel or in conversations with customers that lead you to believe we might see a normalization in new orders or purchasing as we look out over the next several quarters? I guess just trying to rationalize the macro headwinds with your comments on strong broad-based order trends here recently.
Frank Laukien, President and CEO
We are experiencing growth, and our backlog continues to increase. The book-to-bill ratio for Scientific Instruments was above 1. However, there has been a slowdown in growth. The growth rate was higher in 2021, and order growth was even more pronounced year-over-year at the start of 2022. While the situation remains quite healthy, I wouldn’t describe it as booming. Despite the current macro conditions, our portfolio remains strong. Proteomics is performing exceptionally well, and our Biopharma tools are doing great across most regions, with proteomics being a key asset also in strong demand in Biopharma and semiconductor sectors, among others. However, it’s not growing as rapidly as it did in 2021, and the growth in bookings has slowed compared to the earlier part of this year. We acknowledge there is reduced growth compared to the significant increases we saw previously. We anticipate that the more economically sensitive industrial and applied markets will see slower growth over the next 12 to 18 months. However, there is still growth, which is important to note. Though it’s not at the same high levels anymore, we have a very healthy situation, supported by a strong backlog, and our order intake remains excellent. The book-to-bill ratio in Scientific Instruments was still above 1 in Q3, and backlog has increased further. So while it’s not a boom period, it is still a robust environment.
Josh Waldman, Analyst
Got it. That's helpful. Then, Gerald, a follow-up on op margins. Could you talk through how you're thinking about the cost price mix progression on the impact to margins as you look ahead to the fourth quarter in '23? Obviously, nice margin performance in Q3. How much of that was cost starting to abate versus price starting to show up in the P&L? And then I guess just a comment on your expectation for price contribution here in '22 and what that looks like in '23, based on how you price the backlog, would be helpful.
Gerald Herman, Executive Vice President and CFO
Yes, that's a good question. We have touched on this in previous calls. Fundamentally, we still face inflation cost pressures that affect us negatively, despite price realization. This situation was evident in the early months of 2022 and continues to impact us in the latter part of the year. However, we are witnessing stronger price realization as we progress through 2022, which is positively influencing our margin performance. We are actively pursuing pricing actions in markets where we believe we are well positioned. This is crucial not only for the fourth quarter but also for the future, including 2023. Overall, I believe the performance has been solid, and this is reflected in our gross margin results over the past few quarters.
Operator, Operator
Our next question comes from Derik De Bruin from Bank of America.
Nisarg Shah, Analyst
This is Nisarg on for Derik. I wanted to start by asking about the demand for Biotyper. As hospitals and labs are experiencing inflationary pressures, how should we consider placements in that area?
Frank Laukien, President and CEO
So if I understood the question correctly, it's about the MALDI Biotyper clinical microbiology business. This is Frank. We continued to experience strong growth in consumables year-to-date. Last year, we had some significant orders from Russia for the MALDI Biotyper and earlier in the previous year, but deliveries were primarily last year from the CDC and their center for disease control in China, which included some noteworthy orders. The instrument revenue for MALDI Biotyper this year has decreased compared to last year, but we had some exceptionally large deals in the previous year. However, the consumables business is growing nicely. Overall, clinical microbiology is up this year, but not as strongly as last year.
Nisarg Shah, Analyst
Got it. And then following up on some of the supply chain constraints you mentioned earlier from this year. Are you seeing any catch-up spend in this quarter, anything you're looking forward to in 4Q?
Frank Laukien, President and CEO
Yes, we are not really aware of that. Nobody has informed us about any catch-up spending or a budget flush. These factors typically do not significantly impact us as a company with over 50% of our business in instruments and a substantial backlog, unlike companies that focus mainly on consumables or aftermarket products. So, I couldn't say. We were not aware of it.
Operator, Operator
Our next question comes from Rachel Vatnsdal from JPMorgan.
Rachel Vatnsdal, Analyst
So following up on some of the earlier comments just about order book visibility, can you just talk about cancellations and how big of a risk that is? So let's say if the macro backdrop continues to deteriorate, how locked in would your order book be? And then maybe compare that to prior economic downturns to what your cancellation rate look like then?
Frank Laukien, President and CEO
Yes, it's essentially immaterial and we expect it to remain that way, nearly negligible. It's a straightforward answer. I apologize for being brief, but our backlog typically doesn't experience significant cancellations.
Rachel Vatnsdal, Analyst
Got it. Okay, that's helpful. And then last one for me. Just looking at the quarterly cadence, you guys did almost 13% organic growth during the quarter. And then for 4Q, you're expecting that upper mid-single-digit growth. So I understand there's some lumpiness but can you kind of walk us through some of the puts and takes on the 3Q growth this quarter? How much of that 13% was from pent-up demand from 2Q and the supply chain constraints you saw? And then, are you seeing any pull forward from 4Q demand as well?
Frank Laukien, President and CEO
Rachel, as I mentioned earlier, focus on the year-to-date performance rather than just Q3 or Q2. The year-to-date organic growth of 10.7% is a significant indicator. We are projecting an annual growth of 8% to 10%, keeping in mind the ongoing risks. We have performed well in Q3, while in Q2 we just met consensus expectations. Each quarter continues to face challenges related to the supply chain, lockdowns, and other factors. We take these into consideration carefully. To truly understand Bruker, it's important to look at the full year or the year-to-date results. That's what I wanted to convey.
Gerald Herman, Executive Vice President and CFO
Maybe we have time for one more question. One final question.
Operator, Operator
And our final question today comes from Brandon Couillard from Jefferies.
Brandon Couillard, Analyst
Just a couple of housekeeping items for you, Gerald. Can you just speak to the third quarter BSI organic order growth, specifically the rate? And does that exclude any ultra-high field orders?
Frank Laukien, President and CEO
I understood, Brandon. We had three ultra-high field orders in Q2 and none in Q3 regarding that housekeeping item.
Gerald Herman, Executive Vice President and CFO
That's right.
Brandon Couillard, Analyst
Okay. And then Gerald, what was the impact of currency on gross and operating margin expansion in the third quarter?
Gerald Herman, Executive Vice President and CFO
I believe we've discussed this before, Brandon. Generally, foreign exchange has volatility. When the U.S. dollar strengthens, it acts as a headwind for revenue. However, we usually experience some favorability due to our foreign operations in both gross and operating expenses, and it tends to be neutral regarding the EPS line. That's typically the situation. In the third quarter, we did observe some favorability related to foreign exchange at the bottom line. But aside from that, I think that's the...
Frank Laukien, President and CEO
If you consider the situation more broadly, we do have some margin benefits from foreign exchange this year, but we also face inflation challenges that nearly balance each other out. By the time we reach earnings per share, the impact is relatively minor, although we do recognize a slight headwind in EPS due to currency fluctuations, which is the reason we have not increased our EPS guidance despite raising our margin guidance.
Gerald Herman, Executive Vice President and CFO
That's right.
Justin Ward, Senior Director of Investor Relations and Corporate Development
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 fourth quarter. Please feel free to reach out to me to arrange any follow-ups. Have a great day.
Operator, Operator
And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.