Yahoo Finance Bruker Corporation (NASDAQ:BRKR) Q1 2024 Earnings Call Transcript
Bruker Corporation (NASDAQ:BRKR) Q1 2024 Earnings Call Transcript May 2, 2024
Bruker Corporation misses on earnings expectations. Reported EPS is $0.3489 EPS, expectations were $0.46. Bruker Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning and welcome to the Bruker Corporation First Quarter 2024 earnings conference call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note, today's event is being recorded. I'd now like to turn the floor over to Justin Ward, Senior Director on Investor Relations and Corporate Development. Please go ahead.
Justin Ward: Thank you, and good morning, everybody. I would like to welcome everyone to Bruker Corporation's first quarter 2024 earnings conference call. My name is Justin Ward, and I am Bruker's Senior Director of Investor Relations and Corporate Development. Joining me on today's call are Frank Laukien, our President and CEO, and Gerald Herman, our Executive Vice President and CFO. In addition to the earnings release we issued earlier today, during today's conference call, we will be referencing a slide presentation that can be downloaded from the events and presentation section of Bruker's investor relations website. During today's call, we will be highlighting non-GAAP financial information. Reconciliation of our non-GAAP to GAAP financial measures are included in our earnings release and are posted on our website at ir.bruker.com.
Before we begin, I would like to reference Bruker's safe harbor statement, which is shown on Slide 2 of the presentation. During this conference call, we will be making forward-looking statements regarding future events and the financial and operational performance of the company that involve risks and uncertainties, including those related to our recent and pending acquisitions, geopolitical risks and wars as well as supply chain, logistics and inflation. The company's actual results may differ materially from such statements. Factors that might cause such differences include, but are not limited to, those discussed in today's earnings release and in our Form 10-K for the period ending December 31, 2023, as updated by other SEC filings, which are available on our website and on the SEC websites.
Also, please note that the following information is based on current business conditions and to our outlook as of today, May 2nd, 2024. You should not rely on these forward-looking statements as necessarily representing our views or outlooks as of any date after today. We will begin today's call with Frank providing an overview of our business progress. Gerald will then cover the financials for the first quarter of 2024 in more detail and share our updated 2024 financial outlook. Now I'd like to turn the call over to Bruker CEO, Frank Laukien.
Frank Laukien: Thank you, Justin. Good morning everyone and thank you for joining us on today's first quarter 2024 earnings call. I am excited to announce that we have just closed our ELITech acquisition on April 30th, ahead of schedule, after we received all required regulatory clearances, and also after the completion of the pre-closing carve-out of the ELITech clinical chemistry business that we did not wish to acquire. Accordingly, please note that in addition to our earnings release, we simultaneously have issued a second press release this morning, 7 a.m. Eastern, on the closing of our ELITech acquisition. We do encourage you to read both press releases for complementary information and perspectives. As a result, we are pleased to raise our constant exchange rate revenue growth guidance for fiscal year 2024 by 400 bps to 12% to 14%, as explained in detail later during this call.
Turning to our earnings release and Slide 4, Bruker finished the quarter of 2024 with 1.6% organic and 5.5% constant exchange rate or CER revenue growth despite about $15 million of revenue slippage into the second quarter, primarily and primarily because of a rather tough comparison to a very strong first quarter of 2023, in which, if you recall, we posted 17.6% organic growth a year ago. So, keep in mind that we had expected low single-digit organic revenue growth anyway in Q1 because of some pull forward of about 15 -- similar pull forward of about $15 million of revenues into the fourth quarter of ‘23 when customer site readiness and shipments just work very well. So underlying demand for Bruker’s products and solutions has remained solid with first quarter ‘24 book-to-build for our BSI segment just below 1.0. So in the second quarter of 2024, we expect a re-acceleration of our organic revenue growth and we also expect double digit, constant exchange rate or CER revenue growth year-over-year.
As expected in the first quarter of ‘24, our margins compressed year-over-year, primarily because of the tough comparison to an unusually strong first quarter of ‘23, but also as a result of transitory factors such as the expected initial margin dilution from our recent acquisitions as well as less favorable mix in this quarter. We expect significant sequential margin improvement in the remainder of the year. As we look to the remainder of 2024 with our solid backlog and pipeline, we expect to achieve above market organic revenue and organic non-GAAP EPS growth. Accordingly, we are maintaining our fiscal year ‘24 guidance for organic revenue growth of 5% to 7%. Since our prior guidance in mid-February, we have closed the Chemspeed acquisition in the first quarter and now the ELITech acquisition on April 30th.
Both are now included in our updated guidance today. As a result, we are increasing our reported revenue guidance by $60 million for reported revenue growth of 11% to 13% year-over-year, and we are increasing our non-GAAP EPS guidance by $0.08 to 8% to 10% non-GAAP EPS growth year-over-year. Please note that our updated May 2 guidance today does not yet include the pending NanoString acquisition, which is expected to be EPS dilutive and which we hope to close in the second quarter. For further information on the pending NanoString acquisition, I refer you to our press release issued on Monday, April 22nd. Continuing On Slide 4, Bruker's first quarter ‘24 reported revenues increased 5.3% year-over-year to $721.7 million, which included an M&A tailwind of 3.8%.
On an organic basis, revenues increased 1.6%, which included flat organic revenues in our BSI segment and 18.9% organic growth at BEST, net of inter-company eliminations, while the FX headwind was minor at 0.1%. This all implies constant exchange rate or CER revenue growth of 5.5% year-over-year. Our first quarter 2024 non-GAAP operating margin was 14.0%, down 630 bps due to the factors that I described earlier. In the first quarter of 2024, Bruker reported GAAP diluted EPS of $0.35 compared to $0.52 in the first quarter of ‘23. On a non-GAAP basis, first quarter ‘24 diluted EPS was $0.53, down from $0.64 in the first quarter of ‘23. Right, please turn to Slides 5 and 6 now where we highlight the first quarter ‘24 CER performance by our three scientific instruments groups and of our BEST segments all year-over-year.
In the first quarter of ‘24, BioSpin group revenue was $183 million with low single-digit percentage CER growth. BioSpin saw growth across biopharma, academic government, and industrial research markets without any gigahertz class systems in Q1 ‘24 revenue. By the way, in 2024 we expect revenue from three gigahertz class NMRs, including one in the second quarter. We also closed the Chemspeed lab automation acquisition and we will be talking about that further in the future when we update you on our medium-term targets. Moving on to CALID in Q1 ‘24, our CALID group had revenue of $228 million and its CER declined in the low single-digit percentage, primarily to the timing of shipments slipping from Q1 into Q2, as well as to tough comps in the prior year first quarter.
On Slide 6, Q1 ‘24 Bruker NANO revenue was $240 million, and NANO achieved CER revenue growth in the mid-teens percentage, with strong revenue growth in academic government, Aca/Gov, industrial and semiconductor metrology. The artificial intelligence or AI megatrend continues to be a tailwind for our semiconductor metrology and advanced packaging tools business. Finally, Q1 ‘24 BEST CER revenues grew in the high teams percentage, net of inter-company eliminations, driven by solid superconductor demands as well as by growth in big science and fusion research projects, and our emerging key extreme UV or EUV technologies for semiconductor lithography tools by a very large OEM customers, also in support of strong AI demand. Let me take a quick excursion from financials to a couple of further product introductions on Slides 7 and 8.
At US HUPO in the first quarter, we continued with 40 proteomics tools and workflows and software. And in this here we highlight both immunopeptidomes, which are very important in immuno-oncology, and separately glycoproteomics, of course always the 4D versions that we do on our timsTOF platform, and without going into a lot of details here, both of them are excellent examples of things that are not translated in the DNA, they're not in our genes, at least not in any way that we know. So they're excellent examples of additional post genomic information that is absolutely needed to understand biology and disease biology. And we are a leader on that same timsTOF platform in 4D proteomics and its applications. The two examples that are both quite important in immunopeptidomics and 4D glycoproteomics.
The other examples are from product introductions that we had at our recent most important NMR conference of the year, the ENC, which was actually in April in California, and we introduced both new enabling scientific capabilities for new scientific capabilities in structural biology, particularly of membrane proteins, of aggregates, of many membrane proteins are important targets or are signaling proteins. And they're, by the way, they're also not something that AlphaFold or Cryo-EM or crystallography handle very well. They're one of the very important areas where NMR plays a crucial role. And again, without scientific details, having ultra-fast spinning probes give us much higher resolution for things that could never be seen before by scientists.
And a separate introduction of a technology for DNP, which stands for dynamic nuclear polarization, can increase sensitivity for some of these methods, in fact by factors of the order of 100. So it's really game changing and enabling. On the other hand, we also want to make broaden the adoption of NMR and make it much more accessible. A really wonderful new magnet introduction is this Ascend Evo 600 NMR magnet with a one-year helium hold time. This is more than double from before. So it's quite a technological marvel and again I think it'll be warmly welcomed by all existing NMR labs but also the new labs in biopharma research, in clinical metabolism, clinical research where previously they hadn't handled NMR but would like to use it, makes it much more accessible and available for broader markets.
And last but not least, for biotech and biopharma process analytical integration or PAT integration, the Fourier 80, which is our non-cryogenic bench-top FT-NMR, if you recall, has now been more broadly available for this biopharma QC world. All very, very good developments on which we want to update you from time to time. Now, in summary, and as I wrap up my remarks, Bruker delivered solid constant exchange rate growth, albeit with weaker margins and EPS in the first quarter of 2024. We expect some margin and EPS dilution from our acquisitions in 2024 because we have been able to acquire several strategically very important businesses at reasonable valuations. We expect that our Bruker management process applied to these acquired businesses will significantly improve their financial performance over time and drive their long-term profitable growth.
We anticipate also that these strategic acquisitions will enable strong returns on invested capital or ROICs in the future, something that is important to Bruker's business culture of disciplined entrepreneurialism and also for long-term shareholder value creation. So with those comments, let me turn the call over to our Chief Financial Officer, Gerald Herman, who will review Bruker's first quarter financial performance in more detail and provide our updated fiscal year ‘24 guidance and assumptions. Gerald?
Gerald Herman: Thank you, Frank, and thank you everyone for joining us today. I'm pleased to provide some more detail on Bruker's first quarter 2024 financial performance starting in Slide 10, which shows the revenue bridge for the first quarter of 2024. Revenue was up $36 million, 5.3% reflecting organic growth of 1.6%. Acquisitions added 3.8% to our top line, while foreign exchange was a 0.1% headwind, resulting in constant exchange rate revenue growth of 5.5% year-over-year. Frank has already covered the drivers of revenue growth for the quarter. Geographically and on an organic basis in the first quarter of 2024, our America's revenue grew in the mid-single-digit percentage, European revenue grew in the high single-digit percentage, Asia Pacific revenue declined in the single digit percentage range, primarily due to softness in Japan, all year-over-year.
For our EMEA region, first quarter 2024 revenue was up mid-teens percentage year over year. Slide 11 shows our Q1 2024 P&L performance on a non-GAAP basis. Non-GAAP gross margin of 51.2% decreased 220 basis points from 53.4% in the first quarter of ‘23, impacted primarily by mix, acquisition and FX headwinds and a challenging prior year comp. First quarter of 2024 non-GAAP operating margin of 14.0% was 630 basis points lower than the 20.3% margin we posted in the first quarter of 2023. This decline is attributable to most of the same factors impacting gross margin, product mix, acquisition and foreign exchange headwinds, and a challenging prior year comp. We expect Bruker's non-GAAP operating margins to improve sequentially in the second quarter and significantly in the second half of 2024.
For the first quarter of 2024, our non-GAAP effective tax rate was 26.7%, a modest improvement from the 27.8% in the first quarter of 2023, resulting from favorable jurisdictional mix. Weighted average diluted shares outstanding in the first quarter of 2024 were 145.9 million, a reduction of 1.7 million shares or 1.2% from the first quarter of ‘23, resulting from our share repurchases. Finally, Q1 2024 non-GAAP EPS of $0.53 was down 17.2% compared to the first quarter of 2023, primarily due to the margin compression factors previously detailed. We experienced about $0.05 of non-GAAP EPS dilution from the Bruker Cellular Analysis, formerly PhenomeX, acquisition in the first quarter of 2024. With the rightsizing actions we've already taken, we expect our BCA business to reach breakeven by 2026.
We generated $21.8 million of operating cash flow in the first quarter of 2024. Our capital expenditure investments were $21.4 million, resulting in free cash flow of $0.4 million in the first quarter of 2024. This reflects a decrease in cashflow of approximately $62.1 million over Q1 of ‘23, driven by lower net income and higher working capital levels, mostly impacted by our recent acquisitions. We finished the first quarter with cash, cash equivalents, and short-term investments of approximately $340 million. During the first quarter, we used cash to fund acquisitions, capital expenditures, and select Project Accelerate 2.0 initiatives. In the first quarter of 2024, we completed a series of debt financing actions to fund our recent acquisitions, including the larger ELITech transaction.
We upsized our evolving credit facility to $900 million, issued CHF431 million private placement senior notes with 10, 12 and 15 year maturities at average interest rates of about 2.6% and closed on a CHF450 million term loan structure with 5, 7 and 10 year maturities carrying interest rates of about 3%. These financings provide us with flexibility to support strategic acquisitions like ELITech and our pending NanoString acquisition and de-lever over time. Turning now to Slide 14, we are maintaining our organic revenue growth guidance and organic non-GAAP EPS prior guidance from February 13, ‘24. We're updating our 2024 outlook to include the recently closed acquisitions of ELITech and Chemspeed, as well as changes in foreign currency. It does not include the pending NanoString acquisition, which was covered in our April 22nd press release.
Our updated guidance for reported revenue is $3.29 billion to $3.35 billion, up $60 million from prior guidance, representing growth of 11% to 13% compared to 2023. As noted earlier by Frank, this guidance maintains our full year ‘24 organic revenue growth of 5% to 7% year-over-year. It also reflects an estimated foreign currency headwind of about 1% and acquisitions contributing now about 7% to revenue growth year-over-year. This guidance now implies constant exchange rate, CER revenue growth of 12% to 14% in full year 2024 year-over-year. For non-GAAP operating margins in 2024, following strong organic operating improvement of about 130 basis points in 2023, we expect 2024 organic operating margin improvement of about 50 basis points. For non-GAAP operating margins all in, we expect about a 60 basis point decline from the prior year due to a combined acquisition and foreign exchange headwind of about 110 basis points.
As we explained in the simultaneous ELITech closing press release this morning, we expect ELITech to be immediately accretive to Bruker margins. On the bottom line, we're now guiding to non-GAAP EPS for 2024 in a range of $2.79 to $2.84, up $0.08 from the accretive ELITech acquisition. This translates to non-GAAP EPS growth guidance of 8% to 10% compared to 2023. Other guidance assumptions are listed on the slide. Our fiscal year 2024 ranges have been updated for foreign currency rates as of March 31, 2024. One additional note on quarterly phasing for the year. We expect second quarter organic revenue to be up mid-single-digits organically year-over-year. We also expect to see sequential improvement in non-GAAP operating margin performance in the second quarter of 2024 and significant improvement in the second half of 2024.
We expect to host a follow-up call with investors and sell-side analysts within a few weeks after the closing of our NanoString acquisition. During this call, we plan to provide additional information on our recent significant acquisitions, including Chemspeed, ELITech, and NanoString, and update our medium-term outlook for fiscal year 2026 financial targets. Finally, I echo Frank's earlier comments on the importance of these recent acquisitions. While we expect some margin dilution initially from certain acquisitions, these are excellent additions to complement the portfolio transformation underway at Bruker and expected to contribute solid profitable growth and strong ROIC performance to our shareholders over the next few years. To wrap up, Bruker delivered solid, constant exchange rate revenue growth in the first quarter of 2024 and we’re well positioned to deliver above market revenue growth and organic non-GAAP EPS growth in 2024.
With that, I'd like to turn the call over to Justin to start the Q&A section. Thank you very much.
Justin Ward: Thank you, Gerald. I'd now like to turn the call over to the operator to begin the Q&A portion of the call. As a reminder, to allow everyone time for questions, we ask that you limit yourself to one question and one follow-up. Operator, we're ready for the Q&A portion.
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