Bruker Corporation (BRKR) Q1 2019 Earnings Report, Transcript and Summary

Hello, and welcome to the Bruker Corporation First Quarter 2019 Earnings Release Conference Call. [Operator Instructions] Please note, today's event is being recorded. I'd now like to turn the conference over to Pam Clark. Ms. Clark, please go ahead.

Thank you. Good afternoon, everyone. I'd like to welcome everyone to Bruker's First Quarter 2019 Earnings Conference Call. My name is Pam Clark, and I'm standing in for Miroslava Minkova, our Director of Investor Relations and Corporate Development, who is currently on maternity leave. Joining me on today's call are Frank Laukien, our President and CEO; and Gerald Herman, our Chief Financial Officer. In addition to the earnings release we issued earlier today, during today's conference call, we'll be referencing a slide presentation. The PDF of this presentation can be downloaded from the Latest Results section on the Bruker Investor Relations website. During today's call, we will highlight 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. During the course of this conference call, we'll be making forward-looking statements regarding future events or the financial and operational performance of the company that involves risk and uncertainties. The company's actual results may differ materially from the projections described in 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, which are available on our website and on the SEC website. Also note that the following information is related to current business conditions and to our outlook as of today, May 2, 2019. Consistent with our prior practice, we do not intend to update our forward-looking statements based on new information, future events or other reasons prior to the release of our second quarter 2019 financial results in early August 2019. Therefore, you should not rely on these forward-looking statements as representing our views or outlook as of any date subsequent to today. We will begin today's call with Frank providing a business summary. Gerald will then cover the financials for the first quarter of 2019 in more detail. I'd like to turn the call over to Bruker's CEO, Frank Laukien.

Thanks, Pam. Good afternoon, everyone, and thank you for joining us on today's call. Bruker delivered another solid quarter with revenue growth acceleration as well as good margin expansion and EPS improvements. During the first quarter, our year-over-year organic revenue growth was 5.5%. In the first quarter of 2019, we also again delivered year-over-year gross and operating margin expansion. We are pleased with our results which combined with the expected impact of recent acquisitions and confidence in our outlook for the remainder of 2019 have enabled us to raise our outlook for revenue growth as well as our non-GAAP operating margin and non-GAAP EPS guidance for fiscal year 2019. Turning to specifics now on Slide 4. In the first quarter of 2019, Bruker's revenue increased 6.9% year-over-year to $461.4 million. On an organic basis, revenue increased 5.5% year-over-year, including 5.5% organic growth at our Scientific Instruments segment and a 5.4% organic revenue growth - revenue increase at BEST, net of intercompany eliminations. During the first quarter, acquisitions added 6.0% to year-over-year revenue growth, while foreign currency translation was a headwind of minus 4.6%. On a constant currency basis, revenue increased 11.5% year-over-year. Our Q1 2019 non-GAAP gross margin increased 140 bps year-over-year, while our non-GAAP operating margin improved 125 bps year-over-year, continuing the trends from the last year with higher revenues, operational improvements and an 80 bps operating profit margin tailwind from FX from currency translation. In Q1 of 2019, Bruker reported GAAP diluted earnings per share of $0.20 per share compared to $0.17 in Q1 of 2018. On a non-GAAP basis, Q1 '19 EPS of $0.28 increased 16.7% compared to $0.24 in Q1 of 2018 with minimal FX - foreign currency FX on EPS. Order bookings. In Q1, order bookings for Bruker's academic and government Biopharma & Applied as well as microbiology markets remained favorable in the first quarter of 2019, as they had been throughout of 2018. Industrial market bookings were a bit softer year-over-year, as we had expected. Overall, bookings growth remained quite healthy in the first quarter of 2019 with high single-digit organic order growth in our 3 Scientific Instruments groups, even without counting the new BioSpin 1.2 gigahertz NMR order in Q1, which is not expected to turn into revenue for some time. So a good start. Please turn to Slide 5 and 6 now, where I provide further highlights on the Q1 2019 performance of our 3 Scientific Instruments groups and of our BEST segment, all on a constant currency and year-over-year basis. Q1 2019 BioSpin Group constant currency revenue was flat at $128 million as some orders and installations shifted into future periods. We continue to believe that BioSpin is positioned for improved organic growth in 2019 despite the somewhat weak start in the first quarter of '19. Our CALID group reported strong performance in the first quarter of 2019 with constant currency revenues up in the double digits to $148 million. Within CALID, growth was driven by strong organic growth in our mass spectrometry and microbiology businesses, and the Bruker-Hain majority acquisition contributed to inorganic growth. Our - for [a trends] from IR, Near IR, Raman, molecular spectroscopy products also had a solid first quarter 2019 driven by product innovation and healthy applied markets. Restructuring for our detection business is on track and expected to be completed by the middle of 2019. As we had mentioned before, we anticipate that this should result in one CALID factory less in Germany and a staff reduction of about 45 FTEs. Please turn to Slide 6 now. Bruker NANO reported double-digit constant currency revenue growth to $141 million in the first quarter of 2019. NANO's results were driven by solid academic governments and industrial research demand for advanced x-ray and nano materials analysis products. NANO results also included contributions from acquisitions last year, primarily Anasys, JPK and Alicona. In early April 2019, i.e., in the second quarter, NANO closed the RAVE acquisition of an important and profitable semiconductor mass repair business, which we expect to contribute to results in the remainder of this year. Finally, BEST constant currency revenue in Q1 2019 was up in the mid-single digits as the pickup in superconductor demand for MRI and strength in big science projects continued into 2019. Turning now to Slide 7. I show an update on the world's first stable homogeneous superconducting 1.1 gigahertz magnet for high-resolution NMR and structural biology, which we announced at ENC in early April and was quite a milestone. I will not read everything on this page, but it is a very unique - it's an important milestone because it is the first hybrid low-temperature, high-temperature combined magnet. In early 2019, we had some very good scientific validation from a number of key collaborators that showed that this technology has significant scientific benefits and is a novel enabling technology for structural biology, intrinsically disordered proteins and, importantly, molecular dynamics research in cell biology and pathobiology. This is an important new tool, and this was an important new milestones. We also pointed out at the time that we had received a ninth order, again in Europe, for a 1.2 gigahertz NMR, this one from the Leibniz Institute in Berlin. We had some other very important probe - NMR probe announcements that are also significant as they are particularly applicable to biological solids that may play a role in membrane protein signaling or in disease aggregates. And this probe allows to do this at physiological temperatures, which is completely unique. This probe has very major sensitivity and throughput advantages, and it really enables some new science. Turning to the other technical or product updates on Project Accelerate. For proteomics, we had quite a bit of news flow on our timsTOF Pro at the U.S. HUPO and the European Proteomics Association meeting, EUPA 2019, on our progress with our unique 4-dimensional, 4D proteomics tools, which really provide record-breaking throughput and ultra-high sensitivity for proteomics. It is really a very unique tool. For next-generation 4D proteomics with some new capabilities, I won't go into the details, but it provides much more data completeness as proteomics eventually will transition across the chasm, so to speak, to diagnostics that will be very important. We've had some terrific examples with customers at Oxford University on really high-throughput plasma proteomics research on small sample amounts, as outlined here, with almost 200 samples in 2 days. That's really unprecedented and unheard of to get proteoms this way. We've expanded the scope of workflow to 4-dimensional lipidomics and metabolomics, where this mobility or coalition cross-section dimension may be even more important. And we got an award, the timsTOF Pro rather got the EUPA 2019 Technology Award. In perspective, we think that the timsTOF Pro will be driving the transition to use an NGS analogy from $1,000 to $100 proteom for robust pharmacoproteomics and large cohort, i.e., greater than 1,000 samples clinical research and validation for the next phase of proteomics. It is also very, very suitable and perhaps uniquely suitable for important applications in single-cell proteomics and in ultra-high sensitivity cancer proteomics research. Returning to the business. On Slide 9, we summarized Bruker's key objectives for the next 5 years through 2023, which remain unchanged: our dual strategy of transforming our portfolio via Project Accelerate and driving operational excellence in all of our businesses. With that dual strategy, we expect to continue to gradually accelerate our organic revenue growth and to continue our sustainable multiyear margin expansion, while maintaining our disciplined capital deployment approach and a greater than 20% return on invested capital. For 2019, we continue to expect further organic revenue growth acceleration, now guided to be in a range between 4.5% and 5.5% or between 9.5% and 10.5% on a constant currency basis. We expect non-GAAP operating margin expansion of 90 to 120 bps year-over-year by now with our updated guidance. And we are increasing our non-GAAP EPS guidance for the year by $0.03. So overall, we are very pleased with how our organization has delivered on our core objective so far. And we look forward to updating you on our progress at our Investor Day on June 20 in New York. Let me now turn the call over to our CFO, Gerald Herman, who will review our Q1 2019 financial performance and share details on our raised guidance for the fiscal year 2019. Gerald?

Thank you, Frank. I'm pleased to join you today and review Bruker's first quarter 2019 financial highlights, starting on Slide 11. Bruker's reported revenue increased 6.9% to $461.4 million in the first quarter of 2019, which reflects organic growth of 5.5%. We reported GAAP EPS of $0.20 per share. That's up 18% from $0.17 per share in the first quarter of 2018. On a non-GAAP basis, Q1 2019 EPS was $0.28 per share, an increase of 16.7% from $0.24 in Q1 2018. Our Q1 2019 non-GAAP operating income increased 18%, while non-GAAP operating margin of 13.5% improved 125 basis points year-over-year. This improvement reflects volume leverage and favorable mix, together with a foreign exchange tailwind of 80 basis points. We expect this foreign exchange tailwind on operating margin to decelerate throughout the remainder of 2019, with the full year 2019 foreign exchange margin tailwind expected to be approximately 30 basis points. And I'll cover our full year 2019 expectations further in my comments on guidance shortly. We generated free cash flow of $3.6 million in Q1 2019 compared to $35.3 million in the first quarter of 2018, reflecting lower cash advances, higher working capital needs and a year-over-year increase in planned capital expenditures. As of March 31, 2019, we were in a modest net debt position as we deployed cash over the course of the quarter on acquisitions, dividends and capital expenditures. We ended Q1 2019 with higher working capital balances, reflecting our revenue growth, the timing of inventory purchases and shipping activity and our recent acquisitions. Overall, our working capital to revenue ratio was unchanged versus Q1 2018. Slide 12 shows the revenue bridge for Q1 2019. As noted earlier, organic revenue growth in the quarter was 5.5%. We had a positive revenue growth contribution from acquisitions of 6.0%, primarily from our Hain, Alicona, JPK and Anasys acquisitions, which was partially offset by a foreign currency headwind of 4.6%. From an organic Scientific Instruments revenue perspective, we saw mid-single-digit growth in academic and government markets. We continue to see growth strong in biopharma and applied markets, with the highlight being our mass spec biopharma solutions portfolio. Our microbiology business is off to a strong start, growing double digits. Semi metrology revenues were stronger, albeit with a weak comparison from Q1 2018. Geographically and on an organic basis in Q1 2019, Bruker's European revenue was down year-over-year, although interestingly European Scientific Instrument orders picked up organically in Q1 2019. North American organic revenue was up high single digits. Asia Pacific organic revenue was up double digits, driven by strong double-digit growth in China and Japan. Slide 13 shows our Q1 2019 non-GAAP results. Non-GAAP gross profit margin of 48.9% increased approximately 140 basis points from 47.5% in Q1 2018, driven principally by higher revenues in our CALID and NANO Groups as well as operational improvements and a foreign exchange tailwind. Q1 2019 operating expenses grew roughly in line with our higher revenue growth, including expenses related to recent acquisitions Hain, Alicona and Arxspan. This resulted in Q1 2019 non-GAAP operating margin improvement of 125 basis points versus Q1 2018 on revenue growth and favorable mix as well as an 80 basis point favorable impact from foreign exchange. For the first quarter of 2019, our non-GAAP effective tax rate was 24.5% compared to 23.7% in Q1 2018, primarily due to certain discrete items. Weighted average diluted shares outstanding in the first quarter were 157.9 million, up 0.9 million shares from Q1 2018. Finally, Q1 2019 non-GAAP EPS of $0.28 increased 16.7% year-over-year driven by higher revenue and margins. Turning to Slide 14. We generated approximately $3.6 million in free cash flow in Q1 2019 compared to $35.3 million in Q1 2018. This decrease was primarily driven by the timing of cash advances, increased working capital needs and the year-over-year uptick in planned capital expenditures. Our cash conversion cycle at the end of Q1 2019 of 235 days was consistent with Q1 2018. There was a 4-day increase in DSO driven by our backloaded revenue in the quarter, offset by a 5-day improvement in DPO. Turning now to guidance for the full year 2019 on Slide 16. Based upon our strong Q1 2019 results, the expected impact of recent acquisitions and our confidence in our 2019 outlook, we are raising our guidance for revenue growth, operating margin expansion and EPS. We now expect Bruker's revenue in 2019 to increase by 7% to 8%. This now includes organic revenue growth of 4.5% to 5.5%, up from 4% to 5%, and a contribution from acquisitions of approximately 5%, up from 4%. That equates to constant currency revenue growth of 9.5% to 10.5%. Finally, we now expect a foreign currency revenue headwind of approximately 2.5% in full year 2019 as compared to our original expectation of 2%. Revenue from acquisitions includes our recently closed acquisitions of RAVE and Arxspan as well as other 2018 acquisitions. Our 2019 revenue outlook still assumes that at least 1 gigahertz class system turns into revenue later this year. For 2019 guidance, we now expect Bruker's non-GAAP operating margin to expand 90 to 120 basis points compared to our prior expectation of 70 to 100 basis points from the 16.8% level achieved in 2018. This brings our full year 2019 non-GAAP operating margin guidance to a range of 17.7% to 18%, which includes an assumed 30 basis point foreign exchange tailwind. We continue to project our full year 2019 non-GAAP effective tax rate at about 25%. Our expectations for fully diluted share count and capital expenditures are unchanged and are listed on the slide as are updated foreign currency assumptions. Adding it all up, we now expect our 2019 non-GAAP EPS to be in a range between $1.57 to $1.61, representing growth of 12% to 15% compared to our 2018 non-GAAP EPS of $1.40. This includes accretion from our acquisitions. Also, as in all other years, most of our 2019 profitability and cash flow is expected in the second half of the year. To wrap up. Bruker delivered solid financial performance in Q1 2019, posting organic revenue growth of 5.5% and non-GAAP EPS growth of 16.7% compared to Q1 2018. We're off to an excellent start in 2019 and in a strong position to continue to deliver on our financial commitments for the year. We look forward to updating you again on our quarterly progress with our Q2 2019 conference call in early August. And with that, I'd like to turn the call over to Pam to start the Q&A session. Thank you very much.

Thanks, Gerald. I'd now like to turn the call over to the operator to begin the Q&A portion. [Operator Instructions] Thank you. Keith, we're ready to begin the Q&A.

And the first question comes from Brandon Couillard with Jefferies.

Frank, I can't recall Bruker ever raising guidance this early in the year, which is - given it's your seasonally lowest quarter of the year. First, how much of the guidance improvement was a reflection of the 1Q beat relative to our plan? Which segments outperformed most relative to your expectations in the first quarter? And is there something in the order book or visibility in the business that you have right now as far as the rest of the year goes that gives you confidence to go ahead and raise that expectation this early in the year?

Brandon, it's both. I mean we did want to pass on some of the performance relative to consensus and actually also relative to our own expectations, which were a little muted for Q1, and then it came out better than we had thought. And so we wanted to pass on some of that in order not to imply that somehow something gets weaker later in the year. You know that argument. And then second of all, the order bookings in BSI were really quite good, as I said earlier, with high-single-digit organic order growth in all 3 BSI groups, which, again, was a solid start to the year after decent order patterns most of last year. So with that, we felt this was an appropriate step. Although you're right, normally we have waited till midyear before we adjusted anything, but it seemed appropriate at this time.

Then just to touch on Europe for a second. You noted organic orders there seemed to improve or seemed to be up a little bit in the first quarter, despite a weaker top line. Can you sort of elaborate on what your view of the macro picture is there? And specifically, which end markets you might be seeing an inflection in terms of orders?

Yes. I don't know there's any great, grand, new trends in Europe. I mean a year, 1.5 years ago I thought European high growth rates were not sustainable, and they came down. As you have heard, our revenue organically in Europe in Q1 was actually down a bit year-over-year. And our orders were up a little bit. That was gratifying. So, therefore, I kind of think, in my thinking, Europe is kind of just settling into its traditional patterns and - which tends to be lower growth perhaps than - or clearly than some other regions. Now within Europe, there are areas of strength for us, so it's not always - the macro is kind of third on our mind. The market trends we're pursuing with Project Accelerate are much bigger drivers for us than the macro, unless the macro deteriorates dramatically, which we don't see at this point. And then we've had really good project - excuse me, product innovation, which is also driving our growth. So Europe I think is settling into a lower-growth environment and the quarter-to-quarter with perhaps more noise.

And the next question comes from Dan Leonard with Deutsche Bank.

So first off, Frank, can you help us understand the significance of the tech milestone in NMR, the 1.1 gigahertz achievement? How does that make you feel about achieving the 1.2? And what are reasonable expectations to have for the distribution of that ultra-high field backlog over the following years?

Yes. So it was an important milestone, as you realize. 1.1 gigahertz is the first hybrid magnet with that HTS insert, high-temperature superconductor insert, the same technology that we will be using for 1.2 gigahertz. It also should allow us to ship the 1.1 gigahertz system later in the year, presumably for revenue next year if everything goes well. And so while it is an important milestone towards 1.2 gigahertz, the 1.2 gigahertz uses the same technology. So check, that's good. But it's also quite a bit harder and not just 10% harder because you - everything gets harder in sort of quadratically for magnets. So important milestone but also not - we still have work to do and more milestones to reach, hopefully, later this year at our factory with 1.2 gigahertz, but that remains to be seen. And every setback in this business costs you a quarter, sometimes more. So it's - I feel much better now with the 1.1 gigahertz milestone, but we're not there yet.

Appreciate that color. And then my follow-up. On the microbiology business, you mentioned double-digit growth. Can you elaborate how much of that is new placements versus consumables growth versus maybe some replacement cycle on instruments you installed a long time ago?

It's been healthy all around. So consumables with new assays, nice growth as expected, but also the placements for new units have been really good. There isn't all that much replacement business in Biotyper yet. It's beginning a little bit, but it is not very significant yet. So mostly, it's still new placements and maybe just a little bit - not so much replacement but some labs get a second one or so. So not a big replacement cycle, yet new placements were healthy, and consumables were healthy. So it was pretty good all around. It was really quite solid, and also the various geographies were all pretty decent.

And the next question comes from Chris Lin, Cowen and Company.

This is Chris on for Doug today. So it looks like you are turning the corner on China and doing a solid job converting the strong order growth you called out over the past year to revenue. That said, there has been some mixed macro data. And a few of your peers have called out China capital weakness. So with that in mind, could you just provide a bit more detail on what you're seeing in the China demand environment? And has there been meaningful change to order trends?

I'll take that. It's Gerald. So generally speaking, you're right, we had very solid revenue growth in China in the first quarter. We have performed I think quite well our order growth there as well. We're not seeing anything unusual I guess I would say from a China perspective. Tariffs have really not impacted us significantly I would say, thankfully, for a variety of reasons. But I would - we're expecting revenue growth in full year 2019 to more or less be in line with what we see at the entire tools industry growth rates for China.

Okay. And then Frank, your mass spec franchise continues to perform very well. I guess what product lines are you seeing the strongest demand? And where do you think you are taking share? And then could you just provide some commentary on some of the newer products, such as timsTOF and scimaX?

Yes. They're all making good progress but also other products that were not launched in the last year were making good - were doing well with a lot of our solutions for the biopharma industry, which can be timsTOF based, they can be based on maXis for intact proteins or looking at glycosylation patterns or other changes in intact proteins. There are - we have a variety of well-performing mass spectrometry-based biopharma solutions, not to forget the MALDI imaging base, rapifleX base, MALDI PharmaPulse, which does ultra-high throughput, label-free screening in drug discovery. So it's pretty broad based, and we're making good progress with the timsTOF Pro, but it is by no means just a timsTOF Pro story. I think we've had good product innovation and also then turning some of these products into useful solutions for a given application's problem or workflow in - particularly for biopharma applications but also for small-molecule drug discovery. So it's been relatively broad based, and the products you mentioned also are performing well.

And the next question comes from Steve Unger with Needham & Company.

Frank, could you - just to follow up on the China question, could you maybe provide a little more color on what product lines are seeing success in China?

Yes. I mean we had this weird trend, if you recall, Steve, that last year we had excellent bookings growth and not much revenue growth in China. Of course, that good bookings growth is now relatively broad based, leading to a pickup in - or, hopefully, a sustainable uptick - not uptick, a sustainable increase in our revenue in China. Certainly, Q1 was a very good example. Because of some of the discussions that we've observed elsewhere in the industry, we've kept an eye on China as well. And BioSpin was a little slower in bookings in China in Q1 and then for the full year last year. But I think that doesn't mean anything yet because I think the pipeline looks very good and plus we had such strong orders last year. So I don't know that I can really read very much into it. We expect it to maybe lose some BEST orders in China because of tariffs, but that hasn't happened yet either or at least not to a significant extent. So as - the lame answer is for us a quarter is just a quarter and not a statistic. So - and I don't - I cannot discern any real patterns from a Bruker perspective right now for China. I think we'll have decent growth there this year. We had a good start for the year, and it's just too early to say. From one quarter, I cannot stitch together a trend.

And the next question comes from Puneet Souda with SVB Leerink.

So maybe first one just following up on Europe. I just wanted to get a sense of - you have 9 orders here of 1.2 gigahertz in Europe. And so with the long-term outlook of Europe in mind, sort of just give us a sense of how are you thinking about these systems and if there's any challenges in terms of funding environment over - because the 1.2 gigahertz just seems like it's going to be delivered over the next couple of years, so I just wanted to get a sense there first.

Yes. So first of all, it's - when I mentioned these European order trends earlier being slightly positive again in Q1 year-over-year, I excluded the 1.2 gigahertz because that could distort the picture, the one we got from Berlin. Second comment, we'll definitely not going to ship one this year. That's for sure. And then - they won't all ship over the next couple of years, which might imply 2 years. This is more of a 3 to 5-year story. And quite honestly, we don't know yet whether it'll take us 3 or 4 or 5 years. I am somewhat optimistic that even if next year we're going to ship a couple or something like that we would replenish that backlog because there's more in the pipeline in - both in Europe and in Asia. So I don't think we'll simply work off that backlog and be done. And last but not least, as you've heard, at ENC, Puneet, there's now some heightened interest in the U.S. in applying for ultra-high field NMR funding, and we will see how that goes. But the U.S. is getting organized. And usually when the U.S. gets organized, something good happens sooner or later. So don't know that, that helps you, but it's not just a 2-year delivery story, the 9 times 1.2 gigahertz will be more like a - thinking about that as a 4-year ramp or so. It's - starting in 2020 may be the better assumption. If we can accelerate that, great, but we just don't know yet what the yield on these will be. It's not [just] that everyone will work on first try, even if the first one makes it to field perhaps late this year. So that's all the detail and more than you wanted to hear on that probably, yes.

No. I appreciate the detail. And in terms of timsTOF, could you just remind us that this - is this - any metrics or any installed base that you can provide there? And is this more of a category expander in your view at this point? Obviously, you had some experience with this product in customers' hand and the growth that you have seen in this product. Can you give us - elaborate on sort of where you stand and where could this product go in terms of the metric and installed base?

Yes. It's not a category expander yet. I think right now the people that buy this already have various other proteomic systems and they're usually well-known proteomics labs, although there are some very early signs that some of those proteomics key opinion leaders might get additional systems to deploy them, for instance, to explore some clinical validation or clinical LDTs eventually. But that's still really early days. So we think it will eventually expand the category, if I interpret this as growing the proteomics market, beyond the research proteomics market that we have today. So over time, it may well do that. I think right now it's a little bit too early, but it is well received as an additional tool with a certain capability set that is unique and that is complementary to other proteomics tools that are out there. So it is finding good acceptance. We're at this point we're not commenting on installed base or unit numbers, but it is finding - we're pleased with the gradual ramp-up of that product line. And most importantly, we want to do a quality job with the early adopters that we do have so that they can publish good science. And I think you'll see quite a bit of that at ASMS, which is, of course, coming up soon.

And our next question comes from Tycho Peterson with JPMorgan.

Frank, maybe starting with Biotyper. You had a whole series of announcements during the quarter, the library expansion, improved throughput, and I think [you want] Sepsityper as well. Just curious how you think these things could accelerate placement and any time lines around adding AST?

Good questions, Tycho. Yes, so - so yes, I'd say they were solid incremental improvements on the MALDI Biotyper platform. But in diagnostics, not everything is revolutionary. Every year, you just add and add and put more things and more content onto the same platform. We expect further announcements for that platform also at ASM at the end of June, ASM, American Society for Microbiology, in San Francisco this year. We think we're at least holding, possibly expanding, our market share in MALDI identification systems given that we have pretty unique capabilities, certainly in Europe and more and more also in the U.S. and elsewhere in the world. And yes, we have a very healthy consumables stream and additional assays that are coming out. So this just looks like - this won't explode, but I could be - that could very well be a low double-digit growth area for quite some time. If I think as a solution overall, systems may not grow that fast anymore. But if I look at the mix of aftermarket and consumables, this is a very healthy business. It has very good margins for us. And we have excellent partners. We have a couple of strategic partners that are bigger companies, BD and Beckman Coulter, and it's a pleasure to work with them, and they're a big part of that success as well.

Okay. And then a question on the RAVE acquisition. I know it's relatively small, only $25 million in revenues. But just curious if you could talk about the growth profile of the business. And then in light of where we are in the broader semiconductor market cycle, if you can just talk to the rationale and thought process of putting that onboard?

Yes. It's a little bit of an anticyclical move there, isn't it? Semicon is still weak, and some people hope for a recovery in the second half of the year. We're not as impacted by that. First of all, semi is only about less than 4%, maybe around 3%, prior to RAVE of our total revenue. It was weak last year already. So it's not that this year's weakness will catch up with us. But so far, it remains on the weaker side, as we all can read in The Wall Street Journal or elsewhere. So RAVE is a really nice technology. Actually, we think that they will not be that vulnerable to economic cycles. Their tools, those mask cleaning - masks are incredibly valuable and even more so today in the semiconductor industry. And when you have to repair or clean those, you're going to spend that investment. That's an easy calculation for those customers. So we thought it was a very good addition. It is not like atomic force microscopy, but it uses some similar technologies. It perfectly well fits into our semicon distribution and marketing and service, so there are some nice synergies in that range. We call on slightly different call points with the same very well-known big customers and intermediate-sized customers. So it was just a really nice technology acquisition. This year this business should perform well for us in the remainder of the year. And I cannot call how their next year will be. But looking - maybe - now interpreting your question correctly, in the last couple of years, they had very nice growth. So they're in a good growth trajectory, and they should have a good remainder of this year, so it should be a - and they have good margins.

Okay. And then just before I hop off, one clarification. On the 1.2 gigahertz, your order book so far has been all in Europe. Are you suggesting we could see an order outside of Europe, maybe in the U.S. over the course of the year? Or what's the time line do you think pushing beyond Europe?

I wish I knew. It is possible that maybe a first non-European order could occur. My bet would be on APAC, without going into countries right now, but it's very difficult to say. And then in the U.S., I think it's more orders that would - if they're coming, I would expect them to may be coming in '20 and '21. I can't rule out that someone gets the money together this year, but it's probably more next year.

And the next question comes from Jack Meehan with Barclays.

Gerald, I was hoping you could walk me through the FX dynamic in terms of the benefit on the operating margin line in the quarter. How did that compare to your guidance coming into the quarter, when we started the year? And how much of that is contributing to the operating margin raise relative to prior guidance?

Sure, Jack. So as you probably know, generally speaking, the way this works is a stronger U.S. dollar relative to the euro helps us on the operating margin percentage line. It hurts us generally on the revenue line. So from a foreign exchange perspective here, it didn't have much impact actually on EPS for the first quarter. And it's not really significantly impacting our overall revenue guidance because it's - as you probably heard, we're projecting actually a 2.5% foreign exchange headwind on the revenue side. It's - what happens at the operating margin line, in our case we've assumed we got a big tailwind actually for operating margin in the first quarter. We expect that to decelerate over the rest of the year. And we're actually expecting that tailwind to be about 30 basis points on the operating margin line. So that's sort of the elements, I guess I would say. We revised our foreign exchange view in first quarter after we saw the activity that went on relative to our revenue performance in the first quarter.

And maybe to expand, when we initially gave guidance on February 11, we expected some operating profit margin FX tailwinds. But we expected it to be less for the full year and, therefore, didn't call it out. It's become a little bit more. And since it was more significant in Q1, we felt it appropriate to call it out for the year overall at the 30 bps level. So that went up a little bit, and - but it was - there was always some modest - more modest tailwind baked in also into our initial guidance, to answer your question very specifically.

Yes. That's all great color. And then maybe, Frank, I was hoping just give us a little bit more color on the Nano organic performance in the quarter. I was positively surprised by that. Can you just walk through some of the product families there and what - and how the performance was?

Yes. No, they're doing okay. I mean AXS was a little bit slower than we had expected after a strong Q4. And they had also some - we didn't fully call it out, but they had some pushouts into Q2 and Q3 as well, like B Bio. B Nano and Nano Surfaces did really quite well also with their life science product line, picking up the fluorescence microscope. That's one of the still small product lines that we had called out for expecting some year-over-year growth certainly in bookings and I think also in revenue given that they had some very, very strong next-generation product introductions last Q4, Q4 '18. And yes, semi was actually not bad, but that's because it had a weak comparison from Q1 of 2018. So I wouldn't say that that's a new trend. It was - just happened to be a weak comparison. So those are the bits and pieces that come together. So, yes, it's good growth and even double-digit growth, although that included some inorganic growth from the acquisitions that have benefited the Nano business. A good mix.

And the next question comes from Ross Muken with Evercore.

It's Luke on for Ross today. Just kind of one cleanup on the balance sheet. You guys had a pretty big step-up in the working cap today. Is there anything that is out of the ordinary with that?

No. It's Gerald. I wouldn't say so. I mean our working capital balances are up a little bit higher. Remember that we did have some acquisition activity as well that helped to build those, and we have quite a bit of revenue growth activity going on and inventory buildup to some extent. And we also had a little bit of an increase in our DSO, but that's largely a function of the timing of our revenue later in the quarter. So we're not seeing anything unusual there really.

Okay. Fair. And then I'd like to touch a little bit more on the timsTOF. When you talk about bringing the proteomic from $1,000 down to $100, something is going to get disrupted. Kind of what - where do you see the major disruption? On what kind of instrument do you see that, ultimately, taking over? And then how do you ultimately size that opportunity?

Well, that's a very good question. I actually think that, that may not be that much of a disruption. That's just may be broadening the category, and that's where I think that good old crossing the chasm towards pharmaco proteomics and towards large cohort validation, which has never been possible with proteomics, at least not proteomics by mass spectrometry, I think could really begin to take off gradually. And that should be very healthy for the proteomics market overall. Proteomics has been at least a decade behind next-generation sequencing. And as it becomes much more reproducible and robust, I think it's going to be clinically and in terms of clinical trials for new drugs perhaps as informative depending a little on the disease area. But technologically, the science and the technology just wasn't quite there yet, and it's beginning to - we're getting there. And so I think you may see some trends that are reminiscent of what happened in - with NGS a decade ago or so and just lagging behind but catching up now. I think proteomics can really expand to these fields that - where it's urgently needed, that information. But technologically, it hasn't been possible to do these larger-scale studies at reasonable cost with good robustness and reproducibility. And I think the timsTOF Pro is contributing to that inflection point.

And the next question comes from Derik De Bruin with Bank of America Merrill Lynch.

This is Mike Ryskin on for Derik. Want to follow up on something from earlier. Apologies if I missed this during another part of the Q&A. But I think you mentioned something about industrial bookings being a little bit softer in the quarter. Could you give a little more color on that? Is there overlap there with your discussion on Europe? Or is there something else going on? And just sort of break out the magnitude there.

Yes. We were just - I mean it's a little bit like - I think there's a similar comment. Industrial bookings and industrial markets after a long malaise had been really exceptionally healthy last year. And so we think sort of - as we had expected, we think there's going to be a little bit of a settling to a more sustainable longer-term level. And so industrial bookings research on the revenue side, we haven't seen it yet. But on the bookings, we've seen that becoming - coming down from its previously unsustainably wonderful levels a little bit to a more, hopefully, sustainable level. We don't think we're going from a boom to a bust here. We're not seeing that, but we're seeing them coming down to probably maybe that's more longer-term sustainable. It's a little bit like comments that I may have made out of - about Europe a year ago when Europe was growing in the high single digits, and I said that's not going to last. And of course, it can't. So that's the comment there, obviously, surrounded by other fields that had very good growth. So that's not unexpected for us. And within industrial, keep in mind that semi was weaker last year already. So the year-over-year comparison is really - it hasn't recovered yet, but it's also not going down year-over-year in bookings.

Great. And I appreciate that color actually, Frank. And then a quick follow-up on the deal pipeline, I mean it's been a very steady run rate over a very, very long time. You mentioned some comments in the prepared remarks on the balance sheet and the leverage there. It seems like a modest tick up. But is there anything we should think about in terms of a change in the capital deployment outlook for the rest of the year going down the road? Or should we really expect more of the same?

So we did 2 acquisitions and 1 tiny asset deal, so 2.5 acquisitions so far this year. We expect to do 1 additional smaller deal in Q2 possibly. And then I suspect our deal pipeline will be - then I think our deal flow will be slower. We're not looking for deal flow. We're not trying to be an acquisitive company. We had an unusual amount of opportunities that fit well with our strategy last year and into Q1 of this year or even into early April of this year because we had just closed RAVE early April. But I suspect that you'll see, for the next couple of quarters at least, less M&A spending than the unusually high pace that we had in the previous 4 quarters. So yes, that's somewhat - that's not strategic or planned. That's the coincidence of how things come along and become available. So a little less M&A spending is my prediction for the next couple of quarters.

And the next question comes from Dan Brennan with UBS.

Congrats on the quarter. Frank, can you just talk high level on Project Accelerate again? I know you've talked about a lot of the specific products already on the call, but kind of what's kind of implicit for that category of products growth in kind of 2019 now? Can you just update us on like what percent of total revenues and kind of backlog represented by those products?

Yes. So we give Project Accelerate - I mean directionally in terms of color, I can tell you that it's working and that again in Q1 Project Accelerate had growth that was higher than the corporate average, organic growth that was higher than the corporate average, in fact in the double digits. And the more detailed - or some of the more detailed breakouts that we give on what percentage of revenue is it now, we only do that once a year at the end of the year. So we just did that for '18. And so it's working. It's on track. And we'll - at the end of '19, we expect to give you again an update on what percentage of our revenue is. But the formula and the strategy really seemed to be working very nicely. Now keep in mind, we had provided previously - we didn't include that in this quarter's slide, that road map of what kicks in this year and what doesn't, i.e., there are some things, 1.2 gigahertz, liquid arrays, syndromic panels, AST, that Tycho asked about earlier and I never answered that part, that aren't going to be part of the '19 story. And some of them even don't come out until '21 and so on. This year we expect more growth in proteomics with 1.0 gigahertz and in our fluorescence microscopy business. So additional drivers that's kicking in this year that didn't make much of a difference last year but also things that won't come till '20 or '21. So again, we feel really good about it, and it seems to be working. And that road map that we had previously distributed early in the year still very much applies and is still applicable.

Okay. And then on the BioSpin, I know you mentioned it was flat in the quarter, and you said some things slipped. Can you just elaborate on kind of what happened and kind of what's assumed for full year BioSpin in terms of organic growth?

Yes. For full year BioSpin, we actually expect it to have similar organic growth rates in the mid-single digits or so as implied by our guidance as the Nano and CALID groups. Now that wasn't that wasn't apparent in Q1, and it wasn't apparent last year. But that was really more technical slips in some orders that will come but they did get delayed. It's not just a lame excuse. And some - we had some installation issues in preclinical and a couple of other areas that just made it impossible on certain systems to get them into March. So they'll probably come in Q2 or Q3. So for the year, we expect it to actually have a similar growth - organic growth rate. It doesn't have any acquisitions. There are only small acquisitions in software, but an organic growth rate that's comparable in the mid-single digits to the other 2 BSI groups. So we expect B Bio to step up in the subsequent quarters.

And then maybe one last one. I think it might have been asked already. But in the terms of the last couple of quarters, you've come in better than you've guided. Is that just due to a cushion that you had baked in and you had seen the orders? Or things naturally coming in better than you even internally anticipated? And if so, kind of what are those key areas? And are they sustainable?

Nothing sticks out as a singular event. It's just building up nicely to where we gain more gradually more confidence. And yes, we executed well in Q1 relative to what we could execute in terms of revenue. So it's - hopefully, will be part another quarter and a steady buildup.

[Operator Instructions] And then next question comes from Patrick Donnelly with Goldman Sachs.

Maybe just one on Asia Pac. China always grabs the headlines, but Japan was actually a pretty notable performance for you guys. Can you just talk through what you saw there? I know it tends to be a little bit volatile, but how you guys are feeling about that region?

Yes. It is more volatile. Japan was quite strong in Q1 at that growth level that's not sustainable, but it was a good Q1. We're pleased with that. You know that their fiscal year also runs differently from the U.S. or for most European countries. And so - but yes, Japan was good, and we're pleased with that. And some of our life science tools and pharma tools are just getting good traction over there as well as some of the industrial research tools. Japan does a lot of industrial research but a lot of good life science research in academia and pharma companies. So I believe those are the things that I would stress or point out in Japan. And generally in Japan, when they do need a certain capability, they look for the best available tool. In many cases and in a number of areas, we just really have uniquely enabling tools for either industrial or life science research. And I believe even the microbiology business in Japan was doing well also. So Japan has been good, yes. I acknowledge that. And - no, it won't be that strong for the remainder of the year. It had a pretty good Q1.

Okay. And then maybe just with the Analyst Day coming up next month, it's been a few years since you guys held one. I think last time it was focused on things like improving the service attach rate, the margins, et cetera. As you're planning out the agenda here, what should we expect you guys to really focus on as a bit of a teaser?

Well, we'll talk about the Project Accelerate initiatives and try to give you market sizes and addressable markets and how these markets could evolve and what roles we play there. We, of course, also intend to talk, maybe not quite as much, about this pervasive steady theme of operational excellence in everything we do, also commercial and product innovation excellence and how our medium-term outlook, therefore, is expected to be for the next maybe 3 years or so beyond 2019. And so that's the tantalizing teaser.

And the next question comes from Steve Willoughby with Cleveland Research.

It's Josh on for Steve. Appreciate you squeezing me in. Just a quick one for you. Obviously, seen the company do a couple of software buys recently. Just wonder if you could talk about kind of the near- and longer-term opportunities you see with these deals.

Yes, Josh. You picked that up in your report. I saw that. Yes, I know that's - I mean they're small, it's small beginnings. But they - I think they eventually will be strategically important for us. Maybe that's for the Analyst Day in 2021, not for this one yet. But we're doing this quite consciously and deliberately and adding 2 more software capabilities in some of our fields to provide either software stand-alone capabilities in scientific software, of course, with Arxspan being much more focused on the biopharma industry, we acquired that in Q1, and Mestrelab, where we took a majority position in Q4 of last year, being more focused on chemistry, in both academia and industrial and pharma accounts. They have some synergies. So they're a pretty good fit together. And yes, for us, although it is small beginnings, that's one of the areas we're driving more deliberately and strategically and, hopefully, in a smart way that benefits the rest of our business as well.

And as there are no other questions, I would like to turn the call over to Pam Clark for any closing comments.

Yes. Thank you for joining us today. During the second quarter, Bruker will participate in the Deutsche Bank Healthcare Conference in Boston and the Jefferies Healthcare Conference in New York. We also look forward to seeing you at our Investor Day in New York on June 20. If you haven't received an invitation, please let us know. And of course, we invite you to visit us at our headquarters in Billerica, Massachusetts. Thank you, and have a good evening.\

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