Bruker Corp (BRKRP) September 22, 2026 Conference Transcript

Good morning, everyone. Welcome to the day one of Bank of America Health Care Conference in London. My name is Luli. I'm from the U.S. Life Science Tools team. We are very fortunate to have General Herman, CEO of Volcker, and then Joba Koska, Investor Relations, joining us today.

Thank you. Delighted to be here. Thanks for the invitation.

So maybe just to quickly start on some of the quick 2Q recap. So results came in a little bit weaker than expected, the same as the free queue guide, but the bookings has been great. So can you just maybe talk about the puts and tapes for the quarter and how should we think about the full queue wrap?

I think that's what people come by focusing on. yeah so so i'd say with respect to the second quarter performance um we clearly have performed on the organic order bookings performance as well as on the eps line um we came in late i'd say on revenue performance which is a little lighter than we expected we have a couple of elements that contributed to that i think one of the key areas i think we need to focus on this talk a little bit about is the highlights of some of the order book performance. Generally speaking, we saw strength in China for the first time actually in multiple quarters. We've seen some significant strength there, greater than 100% order growth. Biopharma space for us was actually quite strong across the globe, including in the US. The other area that I think maybe wasn't such a surprise to most investors, but was our semi-metrology business. Parts of that business are really a remarkable growth going on right now, driven mostly by AI demand, advanced packaging, and just generally some other favorable tailwinds in that space. So order performance, quite good across most of the geographies, with the exception, I'd say, of the U.S., particularly the Gov side. And that's sort of somewhat continued through the third quarter. We can talk a little bit more about that, if you'd like, on the NIH funding environment. But in general, weaker funding environment in the U.S. I can go side in the second quarter, and some of that also, seeing some of that also. With respect to the other elements of the business, I think, you know, generally speaking, And we did well in some of our pharmaceutical product portfolio. We did quite well, I think, in some of the academic and research markets, particularly for our products outside the U.S. And I think just generally, our diagnostics business in order, we saw some high significant digital growth in that space and it's looking to continue to see that. So a mixed bit of a mixed story, mostly industrial weakness and some I could go U.S. weakness, but otherwise a pretty a pretty good story for us from the profitability side in the second quarter. Now to your comments on the third and the fourth ramp. On the third quarter, you know, we did communicate for some color related to the third quarter of 26 that we expect to see some push-outs, particularly in the semi-space. And that's just, unfortunately, adding to the size of the ramp in the fourth quarter. When we look at that, I think just generally we're pretty comfortable with what that looks like right now. It's over a billion dollars worth of revenue, but we have delivered close to that in Q4 of 24. So when you layer on, for example, a gigahertz class NMR system into the fourth quarter of 26, and you add some of the push-outs coming from the third quarter, it feels, from a gravity perspective, it's pretty achievable. and what that does for us just generally it it's going to provide a better mix story for us compared to the prior year quarter up to the fourth quarter it's going to give us some very good volume leverage at the operating margin level and we also have some cost saving actions that begin in the fourth quarter so from an operating margin EPS perspective feels again pretty achievable for us assuming with the revenue volume performance that we're expecting to see so i think that's kind of the feels good for us i think on the fourth quarter it's it's going to be an important quarter for us from an execution perspective that feels like quite achievable great um so let's start with the um academic market um so now we are approaching in the U.S. the fiscal year-end of the government.

Have you started to see maybe more funding being released to your customers? Maybe that you're starting to see a pick-up with orders? Potentially we can see some benefit in 4Q?

Well, so to answer the first part of your question, we are beginning to see some signs of improvement in the funding environment in the high-end research tools market space in the U.S. on the academic research sector. It's taken us quite some time to get to this place, and it is a bit disappointing that there was a funding, that there's congressional approval to go forward, but we have now some sort of a large bolus of amounts that appear to be released, you know, at the end of September. on. We've started to see some signs of some orders as well, but I would say most of those orders we would expect to see if funding occurs in the third quarter, we expect to see those orders in the fourth quarter. So unfortunately, I don't think that's going to translate into any upside at all for the fourth quarter, just because of the turnaround in that process. I would expect that we will, however, see an improvement in the revenue performance coming out of it. And actually, this is very similar to what we saw in fiscal year 2005 with U.S. funding. It all occurred at the end of the fiscal year. And it certainly helped the 26 performance, but it didn't help that particular year. So I wouldn't expect it to see much improvement in the 26th fiscal year as a result of that. But it would give us some good momentum. And certainly we do know from our own connection points into grant applications to the NIH and NSF that our products are being selected as a part of those grant applications. So those clearly will become borders over time. It's just a question of public and academic institutions. translate those into real person.

There was no shortage of NIH news. I think there was a recent one last Friday about potentially additional penalty view on the ground. Wondering, given that academic is a big market for you guys, about like 40% of the total very new globally um u.s can be maybe we're going to see like multi-year witnesses um that's intentional china can be volatile so wondering like whether you have seen any behavior changes in your customer base and what could be the potential offset if we're going to see the witnesses yeah so so our just to reframe this a little bit so the u.s back and got portion of The broker's revenue is about 8% of the total revenue.

So I'm not understating. It's still an important market for us, but it clearly doesn't carry the weight that it used to years back. And secondly, I would say what we've seen generally is an uptick in the order performance in the academic and government research sector for our products outside. And here I'm talking about Europe, China, Korea, Japan. And in those markets, it's pretty clear that we've got the products, the right products in the portfolio to really address the research market requirements. So I think the real question for us is going to be, you know, is there going to be more challenges within the U.S. back at Gov side? And actually, at this point, we haven't seen that. But we've actually seen, especially with the recent bolus of least funds, it's largely going to institutions where we have pretty deep collaboration arrangements and working arrangements with those institutions. So I think, generally speaking, we're expecting the U.S. academic markets to be more stable, notwithstanding multi-year funding, additional reviews, and so on. I think just generally tools that we're providing into that space are the right tools at the right time. I would also say that, you know, I think generally speaking, we have a number of other cylinders that are firing. I can use that analogy, you know, in the business that weren't there in 2025. I mentioned biopharma. China can be volatile, but fundamentally for our tools, The experience that we've had, especially at the high-end research end, has been very stable and pretty predictable, I guess, more broadly. And the great thing about China is that they don't appear to have the same funding challenges that the U.S. has. wants the Chinese to align on a particular sector, they can fund it, and they can fund it very, very quickly and have, actually. I think what we're seeing right now in the China market, including in the academic and government research side, is just the ability to pivot to the right sectors that they want to fund and to be able to fund those quickly and get high-end research tools that they need. I think generally that's the way I would frame this. We've got biopharma performing better, China performing better. I would hope that we start to see, certainly outside of our deep tech products, orders are quite strong, starting to see strength again in industrial. So I think we've got plenty of other places that can offset any delays in the U.S. i could have research funding what i'm hoping is that it's not actually going to be as delayed as it was in 25 and 26 i'm hoping that the administration will have a slightly different view on how to fund this going forward great that's great um i think moving to sammy um i think lots of the investors questions around are you expecting another delay or maybe like your order is being pushed out again to 2027 um so wondering if you have like any thoughts on that

i think the question is really on like you have visibility into the order but seems like the visibility in terms of like delivery time that can vary um do you guys have any like internal process that can improve the visibility um that can help investors as well look i think um to step back a few notches here.

I mean, the semi-metrology business for broker makes up about 9% of our total revenue. So it's a sizable sector for us. I mean, we saw remarkable growth. And I'm talking about greater than 50% order growth in the second quarter. I can tell you that the growth profile for third quarter so far looks very good as well. So I think the overall market dynamics and market demand for that for semi products in particular the products that we offer is really quite strong now as to the volatility or the question around visibility I would say you know generally speaking you know first of all we are very blessed to have significant order activity and it looks like that's continued it looks like that's going to be at least sustainable through several more orders into 2027. Maybe some question about what happens in 2028 and 29, but at the moment, the 27 picture looks pretty good from an order perspective. And the conversion of those orders into revenue has been a little choppier, and And that's not really driven by Brooker's actions, but really driven by its customers. Customers typically put orders into the slot, they identify, and then from time to time, they move appropriately for them, depending on when their fabs open or whether they're when they're bringing these instruments on, or want to bring these instruments online. So those are really not elements that we can control, yet necessarily really good. We have deep working relationships with these customers, and I think many of you may know, these are some of the largest semiconductor companies in the world, and they have significant control and management of when they want those instruments to be delivered. We don't get to decide on those. And we get visibility usually three to six months in advance, but sometimes they push those out further. So I don't think there's much more we can do internally to get better visibility into when the revenue itself will be recognized, other than to be clear about what our expectations, what their expectations are in terms of time, delivery times. I think just generally, just it looks like the bolus of order activity being as strong as it is, is going to need a much smoother revenue curve going forward. We have quite a bit of backlog at the moment, so maybe that smoother curve doesn't occur until sometime in 2027. But I think investors shouldn't worry about whether those orders are going to be dropped or changed. They might change the timing. Historically, we haven't seen cancellations or any other moving off of an existing order. Moving it to another quarter, I think, is normal in this business.

And the scale of what we're talking about, I think, is pretty reasonable in order for us to do that. but we will have better visibility into that as we march into 2027 and we'll give the street more clarity around how that looks especially that part of the business that's helpful um i think circling back to one of your point where you think 27 pictures got uh beyond that will depends but think about the portfolio that you sold into the semi like any specific product that you think have a little bit more durable growth into like outer years where you see like pretty healthy demand, just in general?

Yeah, just generally, I mean, of course, we have some really hot demand products going on in the semi-space. I think as we just said, that's likely to be durable for multiple years. I think the other area that we've been talking quite a bit about with investors is the Thames Omni product. This is a product that we introduced in 2020, I guess 2025, and I've really taken a lot of order activity in not only the academic government research side, but also in the pharmaceutical side. This is a product that focuses on proteomics and the identification of proteoforms and the functioning of those proteoforms. So this is a product that's sort of what we call part of the proteomics 2.0 concept that we've been communicating to the street. And that product has shown to be, you know, really exciting. I think in the marketplace, there isn't really any other products similar to it. It's being used extensively already in the pharma space with the identification and functionality of proteins. So I think that is one for sure that would be also pretty hot going forward. I think the other one that we talked a little bit about is the Tim's Metabo. This is a product that's focused mostly on metabolites. And I think that's another area that's going to be very important moving forward. I think the take up on that particular product has been quite good. It operates at the high end of the market. And I think we've seen a pretty significant performance there. But we do have a pretty broad portfolio. I think, as some of you may know, we introduce new products like every year with our R&D spend activity. We have a lot of new products that are introduced annually, and we try to be the number one or the number two market position in all those products. And if we're not, we're reinventing or re-innovating or we're moving out of that market space. So we have a range of products that I would say, other than three that I've talked about, I think there's a whole range of other products that are doing extremely well in microscopy, in the Raman microscopy, in our optical or x-ray technology products as well. We've got some really interesting products coming up. But I would say we're starting to move also into more advanced products in energy fusion, security detection area, where we're seeing really good take-up in our instruments.

So there's a bunch of products, I'd say, that are going to propel us forward at a more rapid rate than, I think, general market conditions in 27 and beyond. um maybe slightly also related to that i think everyone talking about ai um but i think my focus will be a little bit outside of the semi but more on the traditional research tools right um how will you kind of like size your percentage of the portfolio that are like more like high resolution tools that can be used in ai job discovery like maybe you already started seeing some benefit from that like maybe you can talk a little bit about that sure but it's an interesting question.

I think fundamentally we do think that we're in the early stages of the AI. We think that AI is going to be a tailwind, particularly to selected light science tools companies, and we think we will be one of the primary beneficiaries of that. And the reason for that is primarily because we offer really deep resolution resolution capabilities and data generation capabilities from our instruments in a way that most of the others in the tools industry don't. So there will be other companies that will benefit, but I think will be my primary beneficiaries. And I think just generally what we're starting to see at the moment is early stage, the development of early stage foundational models in the AI side. And those are essentially designed to beta test some workflows. So you take a particular problem and you start to design the flow and then test with an instrument and then do some analysis with artificial intelligence. And fundamentally, I mean, we are going to be part of that testing process, we think. And we've seen some evidence in particular in the Boston area, but in other markets, where some companies are starting to develop these foundational models in a fairly elemental way with some fairly straightforward, likely simpler tools. But one would expect, as these models evolve, they will need deeper data analysis and deeper data solutions. That's where I think our instruments come in. Having a deeper understanding of disease biology and the kind of data that our tools generate is really kind of where we think this is going to go. So in stages two and three and four, as these models develop, we think they'll need more advanced deep high-resolution tools. That's where they really well space. So here I'm talking about tools like the proteomics tools, the Omni, Tim's Omni, the AIP, my throughput tools, some of our Metabo instruments around tablets. I think the other area would be spatial biology, which we haven't spent too much time talking about. But certainly the amount of data that gets generated through spatial dimensioning of cells and molecules is going to be a big part of that. So I think the cosmics, you know, product and related products associated with that would be a significant idea. So I think those are the areas that we see as essentially developing a tailwind. Going forward, I think the early stage development activities are just occurring here in 2026. But I mentioned to some investors earlier today that there is a really interesting company that we made an early investment in a company called Itinerary, which basically does clinical chemistry. It essentially takes compounds and puts them together to look at toxicity and reaction. And they've got a foundational model, but they're beginning to develop this in the Boston area. Essentially, they're trying to look at reaction capabilities between these chemistries. And, you know, they're using a Fourier 80 Bruecker and Benchtop NMR to look at those chemical reactions and structurally provide data with respect to those. So the way I think about this is that's a very small contained sort of chemical reaction. But using artificial intelligence, they're doing these chemical reactions over and over again. And eventually, when they move to a home stage, these are being applied for pharmaceutical and drug toxicity tests, for example. When you apply this on a much larger scale, they're going to need larger NMR systems, which will be much larger than the AID that they're using today. And this is a thesis that we have going forward, maybe in the early stages, you use our relatively It's a straightforward tool, but then as you march towards more advanced models, you need the heavy guns have to come out and need deep resolution capabilities and a lot of data. And then that gets fed into these models. That is how we think this is going to play out with many more shots at a particular target. and fundamentally probably different targets will be identified in a way that we have never seen before. So that's the sort of the big picture around what we think is going to be pretty significant tailwind, but be starting in 2007 and beyond on the AI side for selected tools companies.

Great. I think you'd touch on spatial a little bit and then maybe just like talk about competition dynamic in some of your areas right so one is spatial uh one of your competitors launching a newer higher football machine anything on your pipelines um going after the similar market another one will be more like a microbiology another real competitor kind of like turning around the story so wondering how do you kind of like comment the competition dynamic yeah i mean And, you know, the key thing is that when you're playing at the number one or the number two position in most of these markets, you have to be, you know, you have to be innovating continuously.

And that's one of the things that I think Brooker does better than most companies. You know, our innovation cycle is world class. And I think fundamentally we generate new products more quickly. And those are typically products of innovation with impact. They're not just a slug upgrade. These are usually products that take science to generate a higher level. And I would say that if you think about the spatial biology area, I would say the Cosmix product, which we acquired as part of our manufacturing acquisition, we really upgraded and really strengthened the capabilities of that tool. I mean, to a point where essentially the ATERA, which is the 10X product that's competing with that, is making a lot of claims yet to actually deliver a product. And we had most of those capabilities, whether it's the human transcriptome or the mouse transcriptome or microRNA capabilities or additional protein capabilities. We had all that a year ago, and those products are continuing to sell. And especially in markets outside the U.S. where the funding dynamics are slightly different. But so I think the short answer is whether it's microbiology, whether it's our spatial biology business or a proteomics business, we just continue to innovate at a faster rate and with higher impact than any of our peers. and that's going to keep us you know hopefully thriving our growth rates and their rates on market that's really the strategy we're investing you know roughly 11 plus percent of our overall revenue into r&d on an annualized basis and you know that seems to be paying off you know nicely in our expected growth rates going forward and a few headwinds in 25 and a little in 26 But I think with funding environments improving and most of the sectors that we play and improving, we expect to see stronger revenue growth.

I think you mentioned a couple of drivers in 2027 and beyond. So I guess as we kind of look at that, what will become the moving pieces for 2027?

Yeah, so I think for sure, Semi, it looks like it's going to continue at a fairly rapid growth rate. I would say our proteomics business fundamentally started to see pretty significant pickup, especially from these new products. I mentioned Omni and Tabo, but beyond that, our proteomics business continues to grow at a good rate. I would say the biopharma space, you know, if you compare where we were in 25 slash 26 as a transition year, it feels as if the biopharma markets are really starting to pick back up. We have really good products that focus on discovery research. So I think that particular space looks pretty encouraging. And then finally, China. I just think, as I said earlier, China has the ability to pivot and fund really quickly. And they are clearly doing that in the biopharma space, but also in the semi-space and just fundamental academic research markets in China seem to be turning favorably. So I think those would be more of the growth drivers in that space. I'm still hoping for a stronger recovery in the industrial parts of our business, which continue to be a little lighter than I would like to see.

But assuming that that also starts to strengthen in industrial and applied markets, we could see in further acceleration of growth in 2020 so great um i guess i may be turning to the margin on 2027 um i think frank have i mentioned you guys are expecting at least 100 basis points margin suspension i guess like how much is that coming from like the cost saving program that you have this year and then versus like maybe you're expecting organic revenue to to drop through and then have some bought leverage?

Yeah, so there's a few factors. So first of all, we have talked about sort of returning to growth in 2026. We did that pivot in Q2 of 2026. The expectation is we would hopefully begin to accelerate that through 2027. We'll see once we've wrapped up the fourth quarter, which is a significant quarter for us, what that spells for 2027 in terms of organic revenue growth. But certainly on the operating margin expansion, you know, we expect to put up 150 plus basis points of operating margin expansion in 2026. And I think, as Frank pointed out, we expect to be somewhere greater than 100. I think a good portion of that, I would say, if you look at something like 100 basis points, a good portion of that is going to be made up from just the cost-saving actions that people have already taken. we have roughly 140 million dollars north of 140 million dollars of savings going on in the business in 2026 on an annualized basis we expect that to be you know better pickup in 2027 plus some of you may know we did a reorganization of our NMR business essentially with our mass spec and optics businesses to create a biosystems group. And that group, we expect to be able to drive a roughly $20 million for the annualized savings as a result of that reorganization. That wasn't why we did it. We did it more market dynamics in our competitive position in servicing our customer base. But fundamentally, we will generate some savings out of that as well. So I think between the cost savings actions, combine that with what I describe as the volume impact of a higher volume, even if it's modest, dropping down to the bottom line, add to that some mixed benefits. We do expect to see some more academic government research funding activities, not only in the U.S., but outside that with some of our core products. that will be more favorable from an X perspective. We continue to think we will have better X performance in the semi-business just by virtue of the scale of that business that now goes into 2027. And then I think the other piece from an operating margin perspective is it does appear as if the headwinds that came from Warren Exchange in 2025 and to a certain extent in 2026 will be somewhat debated. If you look at the long-term or the medium-term forecast from the US dollar against the major currencies that we operate in, which is euro and Swiss franc again, it looks like there will be some favorable, even if it's not as strong a headwind, that will be favorable to us on the operating margin line. The benefit of it is that hopefully all of this, most of our operations and factory operations are in Europe. So we generate a lot of costs in euro. And so those have been headwind in 2025 and 2026. And we expect that to be more stable as the US dollar appears to be stabilizing and somewhat strengthening, at least what we can see. But Bank of America is the expert in foreign exchange, Matt Brueger. But I would say, generally speaking, we're thinking that that will also contribute to that property in 1947.

I know you guys have been doing a lot like kind of like continuous like cost saving programs in Point 27 and beyond, have you kind of like starting to look into like other areas where you can squeeze further?

Maybe we can have like more than 140. yeah i mean to to back up a little bit i mean we're north of 140 maybe getting to 160 million of annualized cost savings for the company our size and our scale that's a significant you know cost reduction program and the goal of course for us would be to hold those costs generally speaking some variable costs that we have played through but generally to hold those The cost structure, even when we start to see an escalation and acceleration of growth, will really be the area that we're targeting, right? The goal for us would be to continue to drive operating margin expansion up, get us closer to this 20% target that Frank and I have been talking about for a year or so. So, you know, in the future years, that would be the primary target to keep driving EPS growth, you know, at this kind of double digit mid-teens growth level, which I think would be exceptional in our space going forward. So, yeah, there are other areas. We clearly are looking at some other areas, but I would say just generally, we really want to make sure we prioritize and fund our R&D patients to drive the kind of growth curve that we are expecting going forward. So while there are and there will be some other cost-saving actions we'll take, they probably won't be at the scale we've been talking about here. may be sort of more on the edge and not so much at the core level. And certainly it's one of the things that I look at fairly carefully going forward on a regular basis. But I wouldn't expect, especially with the deep cuts that can be put in place, I wouldn't expect something similar for the future years. But it doesn't mean we aren't looking at cost-saving actions because we do that routinely as a part of our management program. that makes sense.

I think another part of the margin is the mix. I'm referring more to the aftermarket services part. How is that going? Any kind of like what percentage of like a touch wave, whatever matches that you guys are using, that kind of like in the longer term target and will help you to achieve that 20%?

Yeah, it's a very good question. I think I think strategically, the company's really focused a lot of attention in areas where we can generate what we describe as stickier revenue. So particularly in the diagnostics area, specialty diagnostics are some of the things that we really do well. But if you think about what's in our aftermarket revenue base for brokers today, it makes up about 40% of our total revenue. And fundamentally, you know, when I go back to, I joined the company about many years ago, you know, we were closer to 25% of aftermarket revenue. So we've really taken a fairly significant step up for the last, let's say, five plus years. And I think strategically, we'd like to see more of that. We'd like to see more revenue that's recurring, more revenue that has more predictability and visibility, as you mentioned earlier. fundamentally we're interested in that so we may have to look at may look at some elements that are more in the organic in order to achieve that to get us closer to what we're sort of targeting at 50 aftermarket so 50 instruments and 50 aftermarket just to be clear aftermarket for us includes service we need software spare parts assays associated with our diagnostics business excuse me and so so those businesses um including the service area are growing actually at a higher rate than our instruments levels have been historically and um and we put a lot of resources and management time into the development of those resources including even in the software space i think our focus initially had been on the development of broader software capabilities to support to to be inside our instruments and now we're looking at more software elements that are more around managing um and the data that comes out of our instruments providing insights um to our customers on the understanding of that data so you don't need to have a postdoc actually interpreting spectra or development of this stuff but you just you hit the green button and it tells you what what the outcome is that's really what hopefully we'll continue to do that organically and inorganically as we march forward okay uh last minute um what do you think the booker story has been kind of underappreciated by investors well i think i think just generally um i would have said our semi-business initially but now that seems to have been more fully understood. And I would say we started to expose the other parts of deep tech, our security detection and energy-related business elements inside broker. I still think the story for us is, you know, I think a little underappreciated is the scale of our innovation and the kinds of innovative tools we produce across the spectrum. It's not just in proteomics, even though it gets a lot of attention. It's not just in the semi-space. It's really our measurement and imaging capabilities across the portfolio that are pretty exceptional. I don't think everybody understands the scale of it or the application of it, which is what I think we're starting to demonstrate now in some of these other areas.

Great. Awesome, Bob. Thank you so much for joining us on that web sub-hour session. Thank you very much. Thank you.