Hello, and welcome to the Bruker Corporation Q4 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Miroslava Minkova. Ms. Minkova, please go ahead.

Good morning. I would like to welcome everyone to Bruker's fourth quarter and fiscal year 2020 earnings conference call. My name is Miroslava Minkova, Director of Investor Relations and Corporate Development. 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 this morning, during today's conference call, we will be referencing a slide presentation. The PDF of this presentation can be downloaded from the latest results section on Bruker's Investor Relations website. During today's call, we will be highlighting non-GAAP financial information. Reconciliations of our non-GAAP to GAAP financial measures are included in our earnings release and are posted on our website at ir.bruker.com. Before we begin, I would like to reference Bruker's safe harbor statement, which is shown on Slide 2. During the course of this conference call, we will make forward-looking statements regarding future events and the expected future financial and operational performance of the Company that involve risks and uncertainties, including risks and uncertainties related to the COVID-19 pandemic. The Company's actual results may differ materially from 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 and subsequent Form 10-Q filings, all of which are available on our website and on the SEC's website. Also, note that the following information is related to current business conditions and to our outlook as of today, February 16, 2021. 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 first quarter 2021 financial results expected in May 2021. Therefore, you should not rely on these forward-looking statements as representative of 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 fourth quarter and the fiscal year 2020 in more detail. Now I'd like to turn the call over to Bruker's CEO, Frank Laukien.

Thank you, Miroslava, and good morning, everyone. Thank you for joining us on today's call. During the fourth quarter, we saw continued sequential quarter-over-quarter recovery in our financial performance from the revenue and margin dip experienced in the first half of 2020 due to the pandemic and its economic repercussions. Our Q4 2020 revenues were above prior year levels on a reported basis and essentially flat organically compared to Q4 2019. Encouragingly, our Q4 2020 non-GAAP gross margin, operating margin and EPS and free cash flow all exceeded the Q4 2019 levels. Over the course of 2020, we stepped up investments and made significant progress in three areas of substantial long-term growth potential: proteomics; second, spatial and single cell biology; and third molecular viral diagnostics. We also initiated further operational excellence programs for productivity improvements, including restructurings in our Bruker NANO Group and Invest as well as for capacity expansion, particularly in our BioSpin and CALID groups. Turning to Q4 results now on Slide 4. We're pleased with our continued sequential recovery in the fourth quarter of 2020. Q4 2020 revenues of $627.5 million rose $28 million or 4.6% year-over-year, including favorable foreign currency translation of $27 million or 4.6%. On an organic basis, revenues were just minus 0.4% below the Q4 2019 level. Our Q4 BSI revenues were flat year-over-year, while BEST revenues declined minus 6.8%organically net of intercompany eliminations, acquisitions added 0.4% to revenue growth in the quarter. Our Q4 2020 non-GAAP gross margin expanded 80 bps year-over-year to a new high of 51.7% and our non-GAAP operating margin expanded 40 bps year-over-year to 22.5%. The improvements in non-GAAP gross and operating margins were realized despite significant foreign exchange headwinds that resulted from increase in Project Accelerate revenues in our mix and continued SG&A expense control in the…

Thank you, Frank, and thanks for joining us on the call today. I'll be reviewing the fourth quarter and full year 2020 financial highlights, starting on Slide 11. Bruker's reported revenue in the fourth quarter of 2020 increased 4.6% year-over-year to $627.5 million, which reflects a modest organic revenue decline of 0.4%. Despite relatively flat organic revenue results, our non-GAAP operating profit grew 6.5% year-over-year and our non-GAAP operating margin expanded 40 basis points year-over-year. We delivered this operating margin expansion while absorbing approximately 80 basis points of negative foreign exchange translation effects. We reported GAAP EPS of $0.45 per share compared to $0.44 in the fourth quarter of 2019. Fourth quarter 2020 GAAP EPS included material restructuring charges related to the Bruker NANO Group and BEST segment intended to strengthen long-term financial performance of those businesses. On a non-GAAP basis, fourth quarter 2020 EPS and was $0.58 per share, a 9% increase compared to $0.53 in Q4 2019. We exited the fourth quarter of 2020 in a strong cash and liquidity position with $731.8 million in cash, cash equivalents and short-term investments, higher sequentially and compared to the fourth quarter 2019. This reflects strong cash generation in the fourth quarter and for the full year of 2020. Our net debt position as of December 31, 2020, showed a slightly lower net debt position compared to a year ago. During the fourth quarter, we continued to deploy cash to fund strategic capital investments, dividends and our stock buyback program. In the fourth quarter of 2020, we repurchased 1.4 million shares of Bruker stock for a total of $68.2 million. This brings our total buyback activity for the full year of 2020 to 2.7 million shares and $123.2 million. As of December 31, 2020, we had $34.5 million remaining on our…

Thank you, Gerald. I'd now like to turn the call over to the operator and begin the Q&A portion. In order to allow everyone time for question, we ask that you limit yourself to one question and one follow-up. Thank you. Operator, we are ready to begin the Q&A.

Yes, thank you. As mentioned, we will now begin the question-and-answer session. [Operator Instructions] And this morning's first question comes from Dan Leonard with Wells Fargo. Please go ahead, Mr. Leonard. Your line is live.

Apologies, I was on mute. Thanks for taking the question. First off, could you elaborate on your expectations for bookings growth in 2021? And also touch on your pipeline for the gigahertz class NMR systems?

Hi, Dan, it's Frank. Bookings growth for 2021 remains to be seen, we will report on that as we go forward. We have not set formal guidance for that. Our gigahertz pipeline is certainly fully booked for 2021 and 2022 and further growth during these years in terms of revenue and into 2023.

Okay and just a quick follow-up on the tax rate. Gerald, do you still see the low 20s tax rate as feasible? And what would drive that? Thanks.

Yes, we do, Dan. And I would say, like we saw, we had some unfavorable jurisdictional tax mix for the fourth quarter, which helped to pull that rate up. But fundamentally, there's still some really interesting opportunities in front of us, which we're going after. I think, about some of our movement of production activities to Malaysia, for example, which is where we have some tax holiday available to us as well in Switzerland, and there's some very good opportunities there, both in terms of the Swiss patent box as well as other rates. We continue to have a fairly strong demand in the semi and microelectronics area, which should favor us from a U.S. base rate perspective, depending, of course, on what happens with the Biden administration corporate rates. But fundamentally, we think we can still move into that area. We've kept the 28% rate for the full 2021 on the basis that our mix is still leaning towards more of our European business growth.

Thank you. And the next question comes from Dan Arias with Stifel.

Frank, maybe just an overarching question here. As you enter the New Year and you guys have kind of taken stock of the business and where you want to go with it in relation to some of the initiatives that you've laid out in the past, where, if anywhere, has the pandemic sort of puts you behind the pace that you were hoping for? And on the flip side, are there things that you would call out at this point that you've sort of accelerated or pulled forward as you reprioritize things in the portfolio in the set of things that you're looking to do and just sort of look at what's more important versus less important relative to maybe 6 or 12 months ago?

Sure, Dan. So I mean, clearly, the academic markets have taken quite a hit in 2020 and have not fully recovered. They tend to more recovered in China and in Europe. And in the U.S., the academic markets have not recovered yet for us. Industrial is gradually recovering but is also not fully recovered. And applied has moved pretty strongly in Q4 but throughout 2020 took a hit. And last not but not least, BEST was certainly declining last year and will not be all that strong in 2021 either mostly because of indirectly the MRI markets that we serve indirectly with our superconductors are weak. So that's the list of the bad guys, so to speak, although I have to say almost all of them, I see -- we are seeing a recovery, although we're not projecting a full recovery yet for the first half of 2021. Going to Project Accelerate initiatives, they have grown, of course, as we said, high single digits organically throughout last year. That's pretty impressive. And we continue to see higher-than-average growth, although our core business also will see good growth in 2021. Certainly, proteomics and ultrahigh field NMR for protein functional structure elucidation are great markets. Our microbiology business has held up remarkably well, particularly the consumables. And of course, we are now emerging also as a molecular diagnostics company. We are starting on scientific software, on spatial biology, on single-cell targeted multi-omics, we're starting at modest levels, but we think those will become great additional growth drivers in 2021 and beyond, and we're investing pretty heavily in that. And our biopharma market business has done really well with a good double-digit growth, organic in 2020. So our rather differentiated NMR and mass spec solutions for various pharma and biopharma discovery and development problems have really continued to grow very, very nicely. That's nice secular growth. Of course, the biopharma industry is healthy anyway. So that's just becoming a bigger and bigger part of our business. And -- sorry, last but not least, microelectronics and semiconductor metrology tools were our problem child, if you like, financially in 2019, and they've done really, really well in 2020. So that part of our industrial exposure, if you like, is actually a big plus right now because these markets are healthy and are likely to remain healthy for the foreseeable future.

Yes. Okay. That's helpful. And then you referenced capacity expansion and BioSpin in some of the earlier parts of your remarks. Can you just update us on the site consolidation in Germany? Are you still tracking to your 2021 goal there? And is that something that you might call out as either a source of risk given the pandemic or maybe a sort of margin benefit if you just think that you're in a place to recognize some productivity gains this year? Where do things stand there?

No, that stayed very much on track. Remarkably, the construction activity and some initial moves have occurred already as all on track and on time. And we expect that by, I believe, mid-2021, we'll have consolidated those German BioSpin sites. Similar activity, slightly smaller scales are going on at BioSpin in Switzerland, and we've expanded our ability to deliver ultra-high field NMRs there as well, some capacity expansion and a lot of consolidation in terms of site, and that over time also supports. It's not really additional margin expansion, but we have long-term margin expansion goals, so that all supports that. In addition, we've -- we're expanding pretty in 2020 in the beginnings -- well, beginning in 2020, but accelerating in '21, '22, our life science mass spectrometry and our diagnostics capacity, including facilities associated with that. And we're expanding in Phase II our Penang, Malaysia, mostly Bruker NANO final assembly and systems test, which is, of course, cost advantages as well as tax advantages. So, a lot of good investments going on in 2020, sort of they stayed on track remarkably, and nothing there really fell behind very much and continued in 2021 and into 2022. Those are all very good investment opportunities. Some of that will help us on productivity. Some of that is margin expansion and capacity -- it's all margin expansion. Some of it is capacity expansion. Both productivity and capacity expansion for our Project Accelerate initiatives of course are expected to provide not only margin expansion this year but continued margin expansion into the future years. That's always been our modus operandi, obviously somewhat disrupted in temporarily in 2020.

Thank you. And the next question comes from Doug Schenkel with Cowen.

Good morning and thank you for taking my question. My first question is just a guidance clarification question, and then I want to come back and talk a bit about Project Accelerate. Just on guidance, I was hoping you could provide a bit more detail on the growth expectations within BSI really by segment. Specifically, I'm curious why NANO is expected to grow? I hate to say it, but only high single-digit despite a favorable low teens year-over-year decline. I would think that could be a little bit higher. And then on the flip side, I believe you said you expect CALID to grow low double digits in 2021. That's pretty robust. Keeping in mind, the year-over-year comp is a little bit tougher at mid-single-digit growth. So I'm just curious kind of what's driving those assumptions? And are there specific things you can point to that gave you confidence to set expectations at those levels? So why don't I pause there and then I'll come back to project to accelerate in a second.

Okay, Doug. It's Frank. The -- we're actually -- Bruker NANO, as we said, we do not expect the U.S. academic markets and the industrial, industrial research markets to fully recover. We don't think they have fully recovered at this time. And we'll keep observing that, obviously, throughout the year and throughout the first half of this year 2021. So, we expect a partial recovery there. And we have lots of good indications including order bookings, that's on its way, but it is not a full recovery. So -- and on the flip side, agreed, CALID and mass spec and microbiology and diagnostic -- molecular diagnostics had decent growth in 2020 even, and we expect continued very solid growth in 2021 there as well. So it turns out, as Gerald said earlier, that all three of our BSI groups in 2021, interestingly, are going to have comparable growth rates in the high single digits organically and CALID a little bit higher than that. We haven't spoken about BioSpin, but we also expect BioSpin high single-digit organic growth 2021. The only laggard is really BEST, which is smaller, and their recovery may take until the 2022 or maybe the second half of 2021. That remains to be seen.

Okay. And then on Project Accelerate, Frank, I think you said that Project Accelerate grew at high single-digit levels in 2020. Did that include COVID-19 revenue? I'm just hoping...

These included about -- well, pretty close to $30 million, 3-0, $30 million of COVID-19 revenue, nucleic acid extraction and then the actual PCR tests. So yes, that's included in that.

Okay. And then for 2021, sorry if I missed this, but what are you assuming for Project Accelerate revenue growth within guidance?

We expect both Project Accelerate and Project Advantage, which is sort of our core business with operational excellence, to have somewhat more comparable growth rates, obviously, a big discrepancy in 2020 with more similar growth rates in 2021 as our core business and some of the businesses that got hit harder are mostly -- but we still expect Project Accelerate to grow faster or north of the corporate organic growth average in 2021, but they'll be much closer to each other.

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

Frank, so the first question is on the strong 15% growth that you're projecting here. Just wondering, how much of testing is included in that and how much of the sort of the kids and COVID-related benefit is included in that? And I assume that's also part of Project Accelerate in there. I just wanted to get that given the -- obviously, you're looking at easier comps, but wondering how much of that is COVID?

Yes. So, the 15% or greater organic revenue growth for Q1, 21 year-over-year, I assume that's what you're referring to, is in part a recovery, obviously, a weaker Q1 '20 comparison. We expect our COVID testing business to continue to grow in 2021, although perhaps not explosively. So in Q4 '20, it was about $14 million, just shy of $14 million. So maybe it will be $15 million, $16 million, $17 million in Q1. So it's not all COVID-driven, but it is one of the elements that helps us with Q1, but it's not the major factor. Of course, year-over-year, in Q1 of '20, we had essentially no COVID business. So in that sense, year-over-year, Q1 year-over-year, that $15 million, $16 million, $17 million of PCR of COVID testing business is all incremental. But there are many other healthy growth drivers in Q1 as well. I hope that answered your question, yes.

Yes. That's helpful. Thanks for the details there. And on proteomics, if I could get a sense of -- one of the questions we've been getting is the exposure that you have today in proteomics and, obviously, timsTOF is core to that. The instrument is doing well. You obviously have experience with the instruments now a couple of years in the market. And so as you look at the current proteomics exposure that you have and what it could be, obviously, an important growth driver. Maybe if you could give us a sense of where it is today and where it could be in a few years. And also, what are you making for timsTOF for the -- in the full year guide? Thanks.

Right. So timsTOF is growing very nicely. It is certainly north of $50 million per year now. We have, of course, other proteomics and protein analysis instrumentation from SPR to x-ray crystallography, particularly also gigahertz NMR structural biology. So our total proteomic multi-omics exposure in 2020 is around $200 million to $250 million. And timsTOF is part of that. It's not the largest part yet, but it is the fastest-growing part for sure. And over time, we expect that timsTOF franchise, especially as it branches out into -- there's a flex system that you can also do spatialomics before you do proteomics. There'll be a future true single cell proteomic system that gets derived from that going to give you a little bit specialized, probably launching in early 2022. So, we expect continued, certainly, double-digit growth in timsTOF proteomics. And we -- last year, with our orders grew more than 30% in timsTOF with all the different product points. And I don't know that we can maintain that growth rate, but we expect above company average growth rate, certainly double-digit growth in proteomics and in timsTOF, in particular. It's the demand for that and the reception and the publications with that system are really going well. It's very robust. So we think we have a lot of satisfied customers and they're spreading the word of mouth.

That's great. That's great. And if I could squeeze a last one on U.S. gigahertz magnets, I know you're providing a guide for four to five of those, but wondering how if all those are in Europe as well. Or do you expect North America to pick up some time?

These are previous orders, so these acceptances and revenue that we're expecting for 2021 of the four to five systems actually all in Europe. We do have an order in for the U.S. and then also one for Asia in backlog. But as you know, we're hoping, we're expecting actually that the U.S. and perhaps also certain Asian countries will begin to really look at the enormous benefits you get even for disease research, highly relevant disease research from the gigahertz class and that have a functional structural biology looking at this. You'll be hearing me talking about biomolecular condensates a lot with both NMR and fluorescence microscopy. It's an exploding area of cell biology and disease biology, tremendously important. Science had a complete blind spot there until a few years ago. And we're going to play a big role in that as well, including with NMR. So that's -- to cut to the business punch line, we think there'll be strong momentum in driving for funding and getting additional orders in the next one or two years also from the U.S. Certainly, the U.S. academic community really needs those capabilities. They just cannot just hop on a plane and go to Europe right now.

Thank you. And the next question comes from Tycho Peterson with JPMorgan.

Frank, I'm wondering how you're sizing the market for spatial and single cell and when you -- that could start to become more material to revenues? Is it the same $12 billion-ish TAM we've heard about from NanoString and? And can you maybe also just talk about some of the investments you just alluded to the new single cell system? So maybe talk about investments you need to make there?

Yes. For us, good questions, Tycho. For us, it starts at a modest level, spatial biology and single cell multi-omics, you think, around $25 million to $30 million. So we have some ways to go, but we have a start. It's not that it's all aspirational. And we think of these markets -- the way we've added it up, we end up at a more conservative $4 billion market size for what we can see in spatial biology and single cell multi-omics. That's still really large. There's a lot of growth you can do within a $4 billion TAM. And I won't -- I know there's higher numbers out there in the end growth and growth -- revenue growth will be more meaningful than whatever people have as different. Different people have very different TAM numbers, and we are more conservative there.

Okay. And then, Frank, on the fourth quarter, you did call out a little bit of budget flush. I think that was specific to BSI. Can you maybe just touch on that dynamic? Did you see it in any other parts of the portfolio? And anything you could quantify?

Yes. I mean, budget flush because we don't have such short -- so much consumables or things that ship immediately, budget flush front is not so significant. But you are right. In a way, I think the BSI or across all three groups, the BSI average, organic bookings growth was 10% year-over-year, so not only sequential but really excellent year-over-year for fourth quarter. And we just have to assume -- we cannot really figure out that's budget flush and that's secular growth. We don't know exactly, Tycho, but we assume there's a little bit of catch-up for things that -- where people got delayed in Q2 and Q3 or so. So, we're not projecting that we now have a 10% growth momentum every quarter, but so -- hard to say it's the answer. But we assume there was a little bit of catch-up as well. We don't think this was all just catch-up. We think they're good secular fundamental growth drivers.

Okay, and then one last one for Gerald before I hop off. If we think about kind of the margin guide, 150 to 190 bps, traditionally, you've talked about two-third of that coming from gross margin. Obviously, this year, it will be more from some of the structural initiatives you talked about. But how should we think about all of this in the context of kind of the longer-term outlook of 75 to 100 bps of margin expansion? In other words, are some of these structural changes going to position you for maybe a range above that longer term?

Well, I think we'll talk multiyear more in our Investor Day when we move into June. But just fundamentally, we're starting to see some improvements on the mix side. Part of our Project Accelerate initiatives that are helping to change the mix, and that's all favorable from an operating margin perspective for us. So this is also the starting point for us for 2021. It's early in the year. And clearly, there's still some uncertainties out there. But fundamentally, yes, I think the mix shift is something else. And we'll do that both on the gross margin line, and we expect that to drop down ultimately into the operating margin line.

Thank you. And the next question comes from Dan Brennan with UBS.

Great. Maybe, Frank, just with the new 2.0 accelerate, which obviously rolled out earlier this year, I'm just wondering if we think about the long-term growth profile that you laid out previously on Project Accelerate 2.0. I'm just wondering, how does the new initiatives that you have some in the larger TAMs? How do they impact to position Bruker over the longer term? I know we're going to get probably an update at the Investor Day. But I'm wondering, if you can give us a sense of what impacted new markets are opening up in terms of your growth rate?

Yes. Right, it's going to be a qualitative rather than a quantitative discussion right now. So we certainly think that proteomics, both targeted and unbiased, we're pursuing both. In a very broad sense, it's going to be the very, very large opportunity and very large growth opportunity for Bruker for all sorts of reasons that are well -- that are being discussed in the industry, and others are sharing -- that more and more others are sharing that vision, and we think we're going to have a very crucial role to play here. We also think while we are not projecting the $12 billion TAM, we think that spatial biology, including single cell multi-omics and targeted multi-omics is going to be big. And I think we're going to be one of the major players in that spatial biology field with things that we've announced already and more things in the pipeline. I understand we're at about $30 million -- $25 million to $30 million, we're starting at a modest level, but I think you'll see that ramp up quite a bit with very good growth rates as well and good margin opportunities. And then, as we're becoming a more sizable diagnostics player focused on infectious disease diagnostics, but also more and more research use tools for cancer, translational research, which eventually could also go into laboratory developed tests, we expect that actually will happen over time, although that's not for 2021. We think there are some very, very large secular growth opportunities for Bruker, where we have -- we're really well positioned and have, in many cases, very unique tools that can really contribute to the overall mix in those markets. So I would highlight those as the three -- among the six projects that will -- accelerate 2.0 initiatives, I think there are three that are very large, and I call those proteomics, spatial biology and infectious disease diagnostics. Those are very large long-term opportunities for Bruker, and we're really well positioned for those.

Great. And then just maybe as a follow-up. I know the 15% organic guide was kind of touched upon already a few times here. But I'm just wondering, even when you back out the COVID contribution, it looks like that, that guidance looks stronger than kind of your full year guidance would imply, it looks like you have an easy comp. I'm just wondering, is there something we should be aware of at beginning to the year, why on a stock comp basis when we do the math, it looks like the high…

I just want to give you some modeling guidance, right? I mean, obviously, Q1 and Q2 of last year were weaker for us. So the relative growth will be strong. But we also did have strong order momentum and strong, very solid backlog right now in all three BSI groups. We also wanted to highlight that last year the discrepancy between groups was huge, whereas, this year, we expect it to be actually a pretty tight spread. We thought those would just be useful modeling opportunities. And yes, we are excited. I mean, we think we're going to see great organic growth and really pretty good growth -- organic growth for the entire year but particularly strong in Q1 and Q2.

Thank you. And the next question comes from Derik De Bruin with Bank of America.

Just a couple of quick ones. Gerald, can you talk a little bit about -- and if I missed it, apologies, what the free cash flow target is for '21? And then I have a follow-up.

Yes. I guess I'd say just generally, we don't provide targets specifically publicly. But you can see, I think, from the free cash flow generation, we had in the fourth quarter and actually for the full year, we kind of reengineered our cash engine, if we can put it that way. And we had some success, for sure, in the fourth quarter where we had some strong order performance plus cash flow that. So, we'll talk more about multiyear cash flow concept when we move into the June Investor Day, but fundamentally, it's pretty healthy at the moment.

But I think I should -- we would concede, Derik that our cash flow can fluctuate from year-to-year. And we've seen that before that it's not always a steady increment incremental functions, so we had very good strong cash flow in 2020, but that you cannot always just add another, whatever, 10% for the next year. Our cash flow, if you look at us historically, has been fluctuating from year-to-year, and that could happen again.

Great, and just one more. Gerald, how should we think about the margin progression for this year? A very impressive guide in the numbers, given all things going on, but just some quarterly guidance would be very helpful if you have any.

Well, as you know, we don't provide guidance at the quarters. We just give you a little bit of color on each piece as we move through the year. And fundamentally, we're pretty optimistic about where we stand. I mentioned earlier that we have delivered very good -- we actually had record operating margin performance in the fourth quarter. We expect a strong first quarter, and I made some comments about EPS at the bottom line. Fundamentally, our mix has helped us at the gross margin line, and our cost control measures in the operating expense area, at least in SG&A, has really made a difference for us. So, we'll talk more about that as we move through the year, but I'm pretty optimistic actually about where we stand from the gross margin line and the drop-down ultimately into the operating margin line.

Thank you. And the next question comes from Jack Meehan with Nephron Research.

Frank, I was wondering if you could just give some higher level thoughts around what's going on in the academic end market now. I know you mentioned, obviously, it took a bit of a hit in 2020, but what are you seeing entering 2021 in terms of research activity and willingness just to invest in new capital equipment?

Yes. I think very strong in Europe, pretty strong in China. Throughout last year, most of last year, weak in Japan, weak in India, weak in Latin America, weak in U.S., in particular, and not fully recovered yet in those geographies. Now in the U.S., we expect this to change. I mean endowments are at record highs. The new administration seems to support investment in NIH and similar type of scientific and biomedical investment in particular. I think there'll be more confidence among U.S. academics. But some of the students are still are not on-campus, and you have some of the state universities with budget issue, so you -- but we expect a continuing improvement trend in the U.S., but also the U.S. had not fully recovered in academic. And Japan last year was just generally quite weak with a little bit of strength or early signs of maybe some improvement in Q4. And countries like India or Latin America, they just really just fell behind in academic spending. We hope we're not suggesting that, that's all going to be just all good in Q1 and Q2, but we hope that it sorts itself out throughout the year, so hopefully, by the second half of the year with, again, China and Europe being remarkably strong.

Great. And then, Gerald, I was wondering if you could give some color on cash flow. What does your guidance assume in terms of cash flow generation in 2021? And can you just help us with some of the moving parts around working capital, like inventories, sort of step-up in 2020? When do you expect that to normalize? And then also seeing some increase in customer advances. What is that related to?

Yes. So all good questions. So fundamentally, in terms of our 2021 guidance, we don't provide details around every cash flow item. But just qualitatively, if I may, I'll give you some commentary. With respect to the 2020 performance, we did see strong customer advances, which followed very strong order bookings performance. Frank mentioned order bookings performance across all the groups. And as you may know, most of our larger pieces of equipment for sure require advances when the order is booked. So that tends to bring those -- when the order performance is strong, our customer advance collection activity is strong. In addition to that, we did reengineer, as I mentioned in an earlier question, some of our cash and cash flow process, and that helped us very significantly in a very challenging business year to improve our AR collection activities. And interestingly, that's across all the regions, not specific to anyone. I would also say just generally with respect to the inventory level, you're right, our DIO, our inventory levels have been up for 2020. We were building inventory largely to make sure we addressed supply chain risks associated with the pandemic. And in addition, we're building inventory for more significant rebound, as you've already heard for 2021. So, we are expecting those inventory levels to be managed very carefully as we move through the rest of 2021. But I have to be honest we still do see some potential disruptions, particularly around some of the variants that are still floating around in the world. So, we're trying to be cautious and not overly conservative here, but we would expect to see some improvement in both the inventory management level and, certainly, continue the strength that we had in our receivables collection in our payables activities. And on the free cash flow, just one other point I'll make is you may have seen also that we are continuing to project a significant capital expenditure level. This is largely to focus on production capacity, increases in productivity enhancements across many of the businesses. And we expect that to impact our free cash flow over time but largely higher for 2021. We don't expect to leave it at that level forever. But for the moment, we've got some really exciting opportunities we need to capture through CapEx.

But '21 and '20 CapEx will be comparable, maybe a little bit higher in '21, not much higher.

Yes.

So yes, we're not going to have absolutely optimized inventories this year. We think there's still disruption potential. So having slightly higher safety inventories this year will probably be -- until that pandemic really is gone and it becomes endemic, we're probably going to operate with high elevated inventory levels for -- so that we can deliver.

Thank you. And the next question comes from Patrick Daly with Citi.

Frank, maybe just to follow-up on one of the earlier questions on single cell and spatial you obviously did that spatial acquisition late 2020, Canopy, you've talked a little bit more about it, to your point, JPM, you talked a good amount about the market. Can you just talk through how we should expect this business to progress in '21 here? What are the expectations? Like you said, it's a real business now. It's not a future thing. So just wanted to get a feel for what to look out for this year?

Yes, it's the Canopy ChipCytometry businesses, plus the services that go with that. So, there'll be continued fast product development in that business. It's also things from our fluorescence microscopy business, the Vutara VXL launch, which can really go into not only spatial transcriptomics but true spatial genomics for which you need less than 100 or, in our case, with super resolution microscopy, you kind of had to meet that 20-nanometer resolution to look at details not only of the nucleus, but the chromatin, the chromosomes and the chromatin. So we really can address different scales. When we talk about spatial biology, we're talking about resolution scales that many others that are in that space cannot even touch or are nowhere close to doing that. So, we have a range of tools for spatial biology and some of them also serve that single cell targeted proteomics and targeted multi-omics. So it's not a one-trick pony, it's multiple technologies, primarily microscopy-related, that look at cellular, chromatin structure, which is, of course, much, much smaller at the tens of nanometer scales. So -- and we have the targeting technologies and the software and the flow labeling technologies combined with microscopy that's pretty unique to really have a pretty multifaceted spatial biology, if I use that as the overarching terminology portfolio that we think will do very well and, in many cases, exceed what anybody else can do.

Great. That's helpful. And then maybe just a quick one on Europe. Can you just talk to, I guess, the trends you've seen recently on the academic side, expectations in '21? I know you guys have seen some pockets of strength and then some a little more mix, but I just wanted to get a feel for what the expectations there are going forward.

Yes. I mean European academic funding tends to be much more steady. And it, of course, doesn't depend on tuition or on revenue from sports teams or cafeterias and things like that. So it's steady. And then, of course, it's really the allocation. Single cell biology, proteomics are big funding themes in Europe that were good programs with preclinical imaging and a few others. So it's steady, probably low single-digit growth in these budgets, but the allocation to the Project Accelerate fields that we're particularly interested in, particularly good at, has been very gratifying and beneficial. And of course, it's not identical. Southern Europe is weaker. Central Europe, companies, countries that have a strong pharma industry are really very strong. We believe that the U.K. will actually heavily invest in research and innovation also on the academic side after Brexit. So Europe overall has been strong especially in the way they're allocated to scientific priorities that match what we can do and where we can grow and where we are unique.

And that was the last question at the conference. I would like to return the call over to Miroslava Minkova for any closing remarks.

Thank you for joining us today. In the first quarter of 2021, Bruker will participate virtually in the SBV Leerink Global Healthcare Conference and the Cowen Annual Healthcare Conference. We invite you to meet at these conferences or reach out to us for a virtual meeting during the quarter. Thank you, and have a nice day.

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