Earnings Call Transcript - BRKR Q3 2025

Operator, Operator

Good day, and welcome to the Bruker Corporation Third Quarter 2025 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Joe Kostka, Director of Bruker Investor Relations. Please go ahead.

Joe Kostka, Director of Investor Relations

Good morning. I would like to welcome everyone to Bruker Corporation's Third Quarter 2025 Earnings Conference Call. My name is Joe Kostka, and I am the Director of Bruker Investor Relations. Joining me on today's call are our President and CEO, Frank Laukien; and our EVP and CFO, Gerald Herman. In addition to the earnings release we issued earlier today, during today's conference call, we will be referencing a slide presentation that can be downloaded from the Events and 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. Before we begin, I would like to reference Bruker's safe harbor statement. During this conference 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 acquisitions, geopolitical risks, tariffs, foreign currency, market demand, or supply chains. The company's actual results may differ materially from such statements. Factors that might cause such differences include, but are not limited to, those discussed in today's earnings release and in our Form 10-K for the period ending December 31, 2024, as updated by our other SEC filings. Also, please note that the following information is based on current business conditions and on our outlook as of today, November 3, 2025. We do not intend to update our forward-looking statements based on new information, future events, or for other reasons, except as may be required by law, prior to the release of our fourth quarter and full year 2025 financial results expected in February 2026. 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 2025 in more detail and share our updated full year 2025 financial outlook. Now I'd like to turn the call over to Bruker's CEO, Frank Laukien.

Frank Laukien, CEO

Thank you, Joe. Good morning, everyone, and thank you for joining us on today's third quarter 2025 earnings call. As forecasted, our third quarter revenues and earnings were down year-over-year, primarily due to weaker academic and research instruments demand in the first half of 2025. However, our Q3 '25 performance was quite a bit better than expected and represents a meaningful sequential step-up from our Q2 performance. In this third quarter, we were encouraged by our mid-single-digit percentage organic bookings growth. For the first time this year, we saw strength in bookings in the academic government market segment as well as improving biopharma and applied market orders. Interestingly, in Q3 of '25, we saw the stark contrast of a double-digit percentage organic revenue decline in the ACA/GOV markets year-over-year compared to a double-digit percentage organic improvement in ACA/GOV bookings year-over-year. In fact, our ACA/GOV orders grew in the high teens percentage in Q3 '25 as very robust order growth outside of the United States more than offset a continued year-over-year softness in the U.S., with a lot of moving pieces. Anyway, notably, our innovative spatial biology, proteomics, and multiomics solutions launched at AGBT, AACR, and ASMS earlier this year are being very well received by our biopharma and academic customers and enhance our leadership in enabling tools for drug discovery and disease biology research in the post-genomic era. Biopharma and applied also saw organic bookings growth in Q3, with biopharma having the strongest organic order growth of all our end markets, both in Q3 and year-to-date. Organic scientific instruments orders in China increased by double-digit percentage in the third quarter year-over-year, and we saw what may be green shoots of stimulus funding in China beginning to be dispersed. So this stronger Q3 '25 order performance drove our Scientific Instruments segment book-to-bill ratio to greater than 1.0x for the first time in several quarters. While one quarter of improved orders is too early to call a trend, we are encouraged that our two divisions most directly tied to macroeconomic factors, which happens to be Bruker Optics and AXS, also saw strong bookings in Q3 of '25. These two divisions often serve as a leading indicator within Bruker for changing macro market trends. However, due to the late timing of Q3 orders and certain customer site delays, we are reducing our organic revenue growth expectations for the fourth quarter and our guidance for the full year. This also derisks our implied fourth quarter forecast to levels that we are very confident we can achieve. Finally, our major cost-saving initiatives announced last quarter are progressing well towards the high end of our $100 million to $120 million cost-down targets for 2026, and they are expected to deliver significant margin expansion and double-digit EPS growth in 2026. In Q3 '25, continued softness in ACA/GOV revenues led to year-over-year declines throughout the P&L. However, we noted sequential improvements in biopharma, microbiology, and diagnostic revenues, which led to both top and bottom line coming in better than our expectations in early August. Bruker's Q3 '25 reported revenues decreased 0.5% to $860.5 million, which included a currency tailwind of 2.9%. On an organic basis, revenues decreased 4.5%, which included a 5.4% organic decline in Scientific Instruments and 6.9% organic growth at BEST, net of intercompany eliminations. Revenue growth from acquisitions added 1.1%. Our third quarter '25 non-GAAP operating margin was 12.3%, a decrease of 260 bps year-over-year as lower revenue absorption, additional tariff costs, and currency headwinds were only partially mitigated in Q3 by our earlier cost and pricing actions. Our third quarter diluted non-GAAP EPS was $0.45, down 25% from $0.60 in Q3 of '24, but up sequentially compared to the $0.32 we reported in the second quarter of '25. Gerald will discuss the drivers for margin and EPS later in more detail. Our year-to-date Q3 revenue increased by 3.0% to $2.5 billion. Organic revenue declined 3.1% with a 2.9% organic decline in Scientific Instruments and a 5.5% organic decline at BEST net of intercompany eliminations. Our first 9 months 2025 non-GAAP gross and operating margin and GAAP and non-GAAP EPS performance are all summarized on Slide 5. Year-to-date 2025, BioSpin Group CER revenue of $612 million was down mid-single digits percentage. BioSpin saw growth in lab automation and services, offset by a tough comparison with 2 GigaHertz class NMR systems in Q3 '24 revenue versus none in Q3 of '25. BioSpin saw weakness in ACA/GOV and biopharma revenues, but improved order growth in both end markets in the third quarter of '25. Year-to-date 2025, CALID Group revenue of $879 million increased in the low double-digit percentage, driven by microbiology and infectious disease diagnostics with strength in both the MALDI Biotyper and the ELITech molecular diagnostics franchises. Life science mass spectrometry is seeing early traction for recently launched products, including the new timsOmni and the new timsMetabo, both launched at ASMS, while our molecular spectroscopy revenues remained stable, but with strong applied markets orders in Q3 '25. Year-to-date 2025, Bruker Nano revenue of $775 million declined in the low single-digit percentage. Revenues from advanced X-ray and Nano analysis tools were down year-over-year, partially offset by growth in spatial biology. Strength in biopharma year-to-date revenues was offset by weakness in ACA/GOV and softer industrial research and semi markets. You may have seen our press release that we had some recent NIH and NSF funded orders for advanced NMR instruments. I won't go through all of them, but here are several unique enabling and breakthrough tools with respective customers that are crucial for fundamental scientific research and drug discovery and disease biology research. The aggregate value of these orders was disclosed previously, it's about $10 million. They are all expected to be installed and generate revenue next year, not in Q4. The bigger message here is in that last bullet that our scientific instrument ACA/GOV orders, as I mentioned earlier, we were pleased, were up mid-teens percentage organically year-over-year in Q3, despite lingering U.S. weakness. Improvements in the U.S. were present, but primarily, there were significant improvements outside of the U.S., Europe, Japan, and in China. Another press release we stressed recently referred to some new applied markets. This is not food testing, but security, defense, and homeland security. We have a very nice product line that's growing rapidly, 30% year-over-year. We highlighted some recent orders from explosive trace detectors that you will find at many European airports and an increasing number of those in South Korea and the Middle East. These products have significant performance and usability advantages. This isn't just an instrument sale. It also includes several years of consumables and service sales, providing a consistent revenue stream. We have gained market share and are pleased with those orders. Additionally, due to tensions and rearming in Europe, we received significant defense detection orders from a Central European Ministry of Defense. To wrap up, our third quarter P&L was still impacted by various headwinds we've seen across the industry earlier this year. However, the results came in ahead of our expectations. Our improved bookings in Q3 '25 and Scientific Instruments book-to-bill ratio above 1.0 make us optimistic that we may be past the trough in demand. We look to build on this performance in Q4, and we are increasingly confident in a fiscal year '26 partial recovery. We expect significant improvements in our organic revenue performance compared to our meaningful decline in '25. Importantly, we are cutting up to $120 million in costs from our business in fiscal year '26 to drive significant margin expansion and strong double-digit EPS growth. Our transform Project Accelerate 2.0 portfolio is fundamentally very strong.

Gerald Herman, CFO

Thank you, Frank, and thank you, everyone, for joining us today. I'm pleased to provide some more detail on Bruker's third quarter and year-to-date 2025 financial performance, starting on Slide 11. In the third quarter of 2025, our results came in above our expectations on both the top and bottom lines. Bruker's reported revenue decreased 0.5% to $860.5 million, which reflects an organic revenue decrease of 4.5% year-over-year. Acquisitions contributed 1.1% to our top line, while foreign exchange provided a 2.9% tailwind. Geographically and on a year-over-year organic basis, the third quarter of '25 saw our Americas revenue decline in the low single-digit percentage. European revenue was roughly flat, while Asia Pacific revenue declined in the mid-single-digit percentage, including flat performance in China. For our EMEA region, revenue declined by over 20%. The Scientific Instruments organic revenue group segment declined 5.4% in the third quarter of '25 as mid-single-digit organic growth in CALID was more than offset by a double-digit organic decline in BioSpin and a high single-digit organic decline in Bruker Nano. BSI systems revenue declined roughly 10%, while BSI aftermarket revenue increased mid-single-digit percentage organically year-over-year. As Frank mentioned, our order bookings performance in the BSI segment was up organically in the mid-single-digit percentage year-over-year, with a book-to-bill ratio for the third quarter above 1.0. Non-GAAP gross margin decreased 110 basis points to 50.1%. Q3 2025 non-GAAP operating margin was 12.3%, impacted by tariffs, foreign exchange and the headwind from the prior year comparison of 2 GigaHertz class NMRs in our third quarter '24 revenue. On a non-GAAP basis, Q3 '25 diluted EPS was $0.45, down 25% from the $0.60 we posted in the third quarter of '24, but improved sequentially and well ahead of our expectations. Our EPS in the third quarter of '25 includes a $0.01 dilution from the mandatory convertible preferred offering we completed in September and benefited from a lower non-GAAP effective tax rate of 24.4%. On a GAAP basis, we reported diluted loss per share of $0.41, reflecting noncash goodwill and intangibles impairment charges of $119.4 million and restructuring charges in the third quarter of $34.5 million. Non-GAAP weighted average diluted shares outstanding in the third quarter of 2025 were 152 million, flat compared to the third quarter of 2024. Slide 12 shows Bruker's performance on a year-to-date basis for 2025, which has similar drivers to those in the third quarter. In the first nine months of 2025, we had an operating cash outflow of $95.7 million, driven by lower profitability, timing of tax and key vendor payments, and restructuring expenses. We expect to see improved cash flow in the fourth quarter, our largest and most profitable quarter of the year and typically our strongest cash flow quarter. We are updating our full year 2025 forecast and outlook to reflect Q3 results, order timing, and the impact of our September mandatory convertible preferred offering. Our outlook for the full year of 2025 now assumes revenue in a range of $3.41 billion to $3.44 billion, reflecting an organic revenue decline of 4% to 5%. Late order bookings in the third quarter and certain customer site readiness issues are expected to push a portion of revenue we previously expected in the fourth quarter into fiscal year 2026. The full year '25 revenue growth contribution from acquisitions is expected to be approximately 3.5%, and we expect a foreign currency tailwind of about 2.5%. This leads to updated reported revenue growth guidance of 1% to 2%. For operating margins in 2025, we now expect approximately 250 basis point decline in operating margins year-over-year, consisting of headwinds of 60 basis points from M&A, 60 basis points from tariffs, 65 basis points from foreign exchange, as well as a 65 basis point decline in organic operating margin. Our updated full year 2025 guide reflects non-GAAP EPS in a range of $1.85 to $1.90, including a $0.07 dilution from our mandatory convertible preferred offering we completed in September. Despite this dilution, we continue to expect double-digit non-GAAP EPS growth in fiscal year '26 due to the significant cost savings initiatives we're implementing this year. Other guidance assumptions are listed on the slide. Our full year 2025 ranges have been updated for foreign currency rates as of September 30, 2025. With respect to the fourth quarter of '25, we still expect relatively soft organic revenue performance with a mid- to high single-digit percentage decline year-over-year due to lingering effects of weaker orders earlier in the year. We expect non-GAAP EPS for the fourth quarter to show significant sequential improvement, but still be down meaningfully year-over-year as implied by our guidance. To wrap up, the first half 2025 market headwinds adversely impacted our financial performance in the full year 2025. However, we're encouraged by our solid order performance in the third quarter of '25 and expect to drive improved P&L performance in full year '26 and beyond. With our cost savings plans well on track, we're fully committed to significant margin expansion and double-digit EPS growth in fiscal year '26. With that, I'd like to turn the call back over to Joe. Thanks very much.

Joe Kostka, Director of Investor Relations

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

Operator, Operator

Our first question comes from Puneet Souda with Leerink Partners.

Puneet Souda, Analyst

First one on the book-to-bill, good to see more than 1, and congrats on the quarter, just given the order momentum you're seeing here. I'm wondering how that's trended in the fourth quarter? Are you continuing to see the mid-teens organic order growth? Could you elaborate more on the international momentum? Is it more ACA/GOV versus pharma? Also, tell us a bit more on the academic side of the U.S. Are you starting to see some recovery there?

Frank Laukien, CEO

Yes. Thank you very much, Puneet. So we really don't have Q4 data yet. It's too early, so I just can't comment on Q4. The strength in ACA/GOV orders was primarily outside of the United States. In the U.S., it was less weak, so Q3 was better in the United States for ACA/GOV orders compared to Q2. Some orders came through. I gave you some NMR examples. It was broader than that, also included TIMS and microscopes. It's hard to say what's the trend in the U.S. because there was a little bit of catch-up in Q3 compared to Q2 and even Q1 in ACA/GOV orders in Europe and Japan. There might be green shoots that are quite encouraging, and that's why our ACA/GOV orders year-over-year were up considerably in Q3. But we don't think we're now in a high teens growth trend. That's just a quarter and Q3 '24 was not the strongest. Regarding biopharma, it has been okay in the first half of the year. Much better in the second half of the year in terms of orders, with particular strength in the U.S. but also outside of the U.S. The applied market strength indicated a good sign of macroeconomic trends and had a broad international distribution. I hope that adds some clarity to the multiple moving pieces.

Puneet Souda, Analyst

Got it. Very helpful. Anything on the ultra-high frequency GigaHertz NMRs? What’s the momentum there? Are U.S. acquisitions materializing?

Frank Laukien, CEO

Yes, the U.S. is the enigma there. We expect at least one order for the GigaHertz class in Q4, but there are a number of cases that include the U.S. It’s too early to comment further. We hope to provide guidance for '26 in February, including what has come in for ultra-high field for the GigaHertz class.

Operator, Operator

And the next question comes from Michael Ryskin with Bank of America.

Avantika Dhabaria, Analyst

Could you give us the impact of the government shutdown that you're seeing in Q4? Is that baked into the updated outlook?

Frank Laukien, CEO

That's a good question, and it's not formally baked into our outlook. So far, we have assumed that the effect will be relatively minor. If this continues for a full second month, it may delay some new grants and orders. Currently, we haven't seen any major effects. We believe that our Q4 guidance is appropriately conservative to absorb such impacts.

Avantika Dhabaria, Analyst

Understood. I know you're not formally guiding on 2026 today, but you mentioned meaningful improvement versus the minus 4% to 5% organic in '25. Is it fair to assume that you can grow revenues in 2026?

Frank Laukien, CEO

We're not making that assumption yet. It’s a fair question. We want to see Q4 '25 bookings to provide reliable guidance in February '26. We expect to do much better next year compared to this year, but we cannot provide any assumptions at this time.

Operator, Operator

And the next question comes from Tycho Peterson with Jefferies.

Tycho Peterson, Analyst

You are committing to the 300 basis points of margin expansion even if the top line is flat. Should we interpret increased confidence in hitting that margin target next year?

Frank Laukien, CEO

I'm not confirming a number, but I believe we are hoping to have increased confidence in achieving significant margin expansion and double-digit EPS growth. This is why we're driving towards the high end of our cost-cutting target.

Tycho Peterson, Analyst

Could you discuss what you're seeing with the ANG outlook, assuming a flat NIH budget? Are you seeing growth in ANG orders?

Frank Laukien, CEO

Yes, there was a little bit of a budget flush for FY25. Orders and funding from NIH improved in Q3, particularly in September, which was more due to multiyear grants. We are not necessarily assuming the NIH budget will be flat; we will be happy with a 10% or 15% decline, as long as it’s dispersed steadily.

Tycho Peterson, Analyst

Let’s discuss orders and the revenue pushouts.

Frank Laukien, CEO

Yes, there are a few sites that prefer delivery in Q1 rather than Q4, which affected our conservative guidance.

Operator, Operator

The next question comes from Luke Sergott with Barclays.

Luke Sergott, Analyst

Can you talk about the improvements in China and the overall outlook for Q4?

Frank Laukien, CEO

In China, there was a bit of an improvement, even in Q3. We saw not only the academic sector improving but a few stimulus-related orders, under $10 million, indicating some positive trends.

Luke Sergott, Analyst

What do you see in spatial biology demand?

Frank Laukien, CEO

Spatial biology showed better orders in Q3, including some consumables and instruments. It also helps that some workflows like the whole transcriptome run on existing systems.

Operator, Operator

The next question comes from Subbu Nambi with Guggenheim.

Subhalaxmi Nambi, Analyst

How do you see the diagnostics market and growth? Can ELITech be a low double-digit grower?

Frank Laukien, CEO

Diagnostics is significant for us, exceeding $500 million. ELITech's growth has been strong, and we expect it will provide solid revenue in consumables in the future.

Subhalaxmi Nambi, Analyst

Can you elaborate on the order strength observed this quarter?

Gerald Herman, CFO

Order strength in Q3 came from larger ASP-based instruments, with considerable strength in European markets.

Frank Laukien, CEO

The strength in orders in Q3 had little to do with diagnostics. The best performance came from ACA/GOV outside the U.S., as well as biopharma and applied markets.

Operator, Operator

The next question comes from Casey Woodring with JPMorgan.

Casey Woodring, Analyst

What’s the range of outcomes in Q4 for orders? How confident are you in the sequential improvement?

Frank Laukien, CEO

Q4 is typically strong for us. The question will be about year-over-year trends compared to Q4 of last year.

Casey Woodring, Analyst

What is the current backlog?

Gerald Herman, CFO

We currently have about 7 months of backlog through Q3, which is up from 6.5 months. Our performance in Q4 will greatly depend on our revenue outcomes.

Operator, Operator

The next question comes from Brandon Couillard with Wells Fargo.

Brandon Couillard, Analyst

Can you provide an updated interest expense number for the year?

Gerald Herman, CFO

Yes, we will discuss the interest, but generally, it's going to be a bit complicated. Some exchange gains do affect that line.

Operator, Operator

The next question comes from Josh Waldman with Cleveland Research.

Joshua Waldman, Analyst

Can you elaborate on the trends observed in Europe? Did you see notable improvements in pharma and applied accounts?

Gerald Herman, CFO

Europe was stronger, with improvements seen across ACA/GOV, applied, and biopharma. We’re optimistic about sustaining these trends.

Joshua Waldman, Analyst

What do you observe in pharma?

Frank Laukien, CEO

In pharma, there’s no evidence of urgency to push orders through year-end. The investment environment seems improving as companies continue embracing drug discovery tools.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Joe Kostka for any closing remarks.

Joe Kostka, Director of Investor Relations

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

Operator, Operator

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