Good morning, and welcome to the Bruker Corporation’s Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I'd like to turn the floor over to Justin Ward, Senior Director of Investor Relations and Corporate Development. Please go ahead.

Thank you, Anthony and good morning, everyone. I would like to welcome everyone to Bruker Corporation's fourth quarter and full year 2022 earnings call. My name is Justin Ward and I am Bruker's Senior Director of Investor Relations and Corporate Development. Joining me on today's call are Frank Laukien, our President and CEO; and Gerald Herman, our Executive Vice President and CFO. In addition to the earnings release we issued earlier today, during today's call, we will be referencing a slide presentation that can be downloaded from the Events & Presentations section of Bruker's Investor Relations website. During today's call, we will be highlighting non-GAAP financial information. Reconciliations of our non-GAAP to GAAP financial measures are included in our earnings release and are posted on our website at ir.bruker.com. Before we begin, I would like to reference Bruker's safe harbor statement which is shown on Slide 2 of the presentation. During this call, we will make forward-looking statements regarding future events and the financial and operational performance of the company that involve risks and uncertainties, including those related to elevated geopolitical and energy risk the COVID 19 pandemic, and supply chain logistics and inflation challenges. The company's actual results may differ materially from such statements. Factors that might cause such differences include but are not limited to those discussed in today's earnings release, and in our Form 10-K as updated by our other SEC filings, which are available on our website and on the SEC website. Also note that the following information is based on current business conditions and to our outlook as of today, February 9, 2023. We do not intend to update our forward-looking statements based on new information, future events or for other reasons, except as may be required by law prior to the release of our first quarter 2023 financial results expected in early May 2023. You should not rely on these forward-looking statements as representing our views or outlook as of any date after today. We will begin today's call with Frank providing an overview of our business progress. Gerald will then cover the financials for the fourth quarter and full year 2022 in more detail, and he will share our fiscal year 2023 financial outlook. Now I'd like to turn the call over to Bruker CEO, Frank Laukien.

Thank you, Justin. Good morning, everyone. And thank you for joining us on today's earnings call. In fiscal year 2022, Bruker achieved solid operating and financial improvements with 10% organic revenue growth, 150 basis points gross margin expansion and 11% non-GAAP EPS growth all while all with a non-GAAP return on invested capital above 20%. And while investing significantly in proteomics and spatial biology. We have made several key acquisitions and investments in the last 13 months in order to expand the breadth of our proteomics capabilities into proteomics consumables automation software and expert proteomics drug discovery services and also in order to enter attractive new markets in cancer research tools and neuroscience research tools and solutions. Our teams also have been effectively navigating supply chain and geopolitical challenges which are gradually improving but not fully resolved yet and probably will not be fully resolved until the end of 2023. And in some areas of electronics even into early 2024. Most importantly, we are advancing our Project Accelerate 2.0 high growth high margin initiatives with as you know a particular focus on the large opportunities in proteomics and the related field of spatial biology while also investing in operational excellence, productivity and our capacity growth for the next 10 years. Bruker again has introduced key lifetime tools innovations in 2022. And demand for our high value solutions and differentiated instruments is strong. In fiscal year 2022, our scientific instruments segment generated double digit year-over-year organic bookings growth and build additional backlog for good visibility into the year. In 2023, we intend to drive strong revenue growth and another solid EPS increase, while further expanding our focus strategic investments in the recently acquired additional proteomics capabilities and in our other key Project Accelerate 2.0 initiatives. Our medium-term goal is to continue…

Thank you, Frank. And thank you everyone for joining us today. I am pleased to provide more detail on Bruker’s fourth quarter and full year 2022 financials. Starting in slide 12, in the fourth quarter of 2022, Bruker’s reported revenue increased 3.6% to approximately $708 million, which reflects an organic revenue increase of 8.9% year-over-year. We reported GAAP EPS of $0.66 per share, compared to $0.50 in the fourth quarter of 2021. On a non-GAAP basis, the fourth quarter ‘22 EPS was $0.74 per share, an increase of 25% compared to $0.59 in the fourth quarter of 2021. Our fourth quarter 2022 non-GAAP operating income grew 3.5% year-over-year, with the fourth quarter ‘22 non-GAAP operating margins about flat year-over-year at 21%. Now the strong gross margin expansion was offset by higher R&D and Commercial Investments for Project Accelerate 2.0 initiatives as well as by inflation related costs. We finished the fourth quarter with cash, cash equivalents and short-term investments of approximately $646 million. During the quarter, we used cash to fund selected Project Accelerate 2.0 investments in our key strategic opportunities, capital expenditures, and of course, our dividend program. In the fourth quarter, we purchased approximately 435,000 shares of Bruker stock, for total consideration is about $26 million. For the full year of 2022, our repurchases totaled 4.2 million shares, or approximately $265 million. We generated $159 million of operating cash flow in the fourth quarter, which after a capital expenditure investment resulted in $135 million in free cash flow for the fourth quarter of ‘22. This represents a $25 million increase from the fourth quarter of ‘21 due primarily to higher net income in the quarter. Slide 13 shows the revenue bridge for the fourth quarter of ‘22. As noted earlier, organic revenue in the quarter increased 8.9%. We…

Thank you, Gerald. I'd now like to turn the call over to the operator to begin the Q&A portion of the call. As a reminder, to allow everyone time for questions, we ask that you limit yourself to one question and one follow up. Operator?

[Operator Instructions] Our first question will come from Puneet Souda with SVB Securities.

Yes. Hi, Frank. Gerald, thanks for taking my questions. So first one is on just book-to-bill that came in obviously greater than one. Could you maybe elaborate on bookings? Are they skewing to one segment versus the other among the instrumentation? And on CALID, you were supply, you said your supply chain constraint. We obviously have been hearing from other peer groups on instrumentations supply chains have been getting addressed throughout the year. So could you talk a little bit about that and what visibility you have on supply chains there and what instruments are maybe sort of impacted there. And then I have follow-up.

Hi. I'd I'll start with that the book-to-bill greater than one in the BSI segment, strength in timsTOF for sure, BioSpin had very strong bookings. But it was really nothing that dropped out or something like that. Some of the applied and industrial areas remained pretty resilient. We kept an eye on that. And then geographically a bit of a surprise is that Europe had such strong bookings in Q4. I think those are maybe the more remarkable things that you may, some of them may surprise you and some are as expected. To the second point supply chain. Yes, it is getting better, but that just certainly not getting worse. But there still are some things that sometimes there's just a part or a few parts that delayed deliveries we got, for instance in the CALID Group, both the Bruker optics, molecular spectroscopy, but also our timsTOF line got delayed and some deliveries sometimes it's even just even the chromatography equipment and so on that can be delayed. So I don't want to bore you with the details, but it's not that it's all smooth sailing, this will still take some time to sort itself out, it is getting better, but that it's not gone. And so it still is a drag on revenue, which is we didn't really intend to build our backlog further in Q4, but that we delivered good revenue growth. But we also had delightfully better than expected, perhaps, or better than feared if you -- if we were all a little concerned what's going on with the economy. So we're pretty pleased that our bookings were so strong and yes, that our backlog went up yet again. So that's the bigger picture there.

Got it. Okay, helpful. And then just general on off margin, dip in here in 2023. Could you talk a little bit about those R&D investments that you're talking about? How should we think about off margin cadence throughout the year, and then just if I could squeeze one in on China? Frank, we've been hearing –

One by one, - sorry.

Appreciate it. But this is an important one, I would love to get your view on the RMB 1.7 trillion and 200 billion instrumentation, certainly sort of stimulus there. I know it's a loan, but love to get you because you're obviously strong in instrumentation. So we'd love to get your thoughts there that could be meaningful. Thank you.

Sorry for that, I mean we're obviously delighted by that prospect, as you know from announcements until this gets into specific grants and budgets, and then into purchase orders take some time. But that along with the Inflation Reduction Act in the US, so the CHIPS Act in the US and potential also additional stimulus that may happen in Europe. In clean tech and other energies, it all caters to our strengths. And we're in principle very, we're delighted and excited. But I just don't want to caution it takes some time before, this probably won't show up at all revenue till ’24- ‘25. But it's great to have these medium- and long-term tailwinds as well. On the other question, I go over to Justin or to you or –

I'm happy to respond. So relative to the ‘23 guidance relative to the margin performance. I think, as you've probably heard from my prepared remarks, there's two major factors there. First of all, we posted, I think, very solid, full year ‘22 operating margin performance of 20%. That's a record for the company. Secondly, we do expect some combined foreign exchange and acquisition related dilution on the operating margin for ‘23. There's another factor which you've already referenced, which is accelerated R&D spend, we do think with some stabilization on the supply chain and some of the work we're doing there that we will be able to bring our R&D levels back up to a 10% level in ‘23, all of that pulls the operating margin down slightly for ‘23. We expect to be able to rebound that back in ‘24.

Importantly, we expect to expand our gross margins, our non-GAAP gross margins in ‘23. And we've even on, if you look at the guidance slide and we're thinking that organically our operating margin, it's good, we're still going to grow about 60 bps. But yes, we are acknowledging some transition margin headwinds from FX and the deliberate and very good acquisitions. But in the first year, they're either not profitable, they have low margins. We're very glad we did these acquisitions; I think they'll be terrific for the company. But that gives us a temporary drag on in 2023, which we're accepting and we think that only gives us more growth and operating margin expansion potential in the future years as we're positioning the company continue to transform the company.

Our next question will come from Patrick Donnelly with Citi.

Thanks for the questions. Frank, I think this is the highest growth number I've seen you guys put out to start a year. You guys are typically known for layering in a pretty healthy amount of conservatism. I guess with this elevated growth numbers, they're still that typical Bruker conservatism in there. And on the back of that, I guess what gives you the confidence to put out this type of numbers start of the year, bumping it even from what you were talking about JPM. I mean, clearly, the record backlog, I assume as part of it, does that just give you the visibility you didn't have in prior years to get to this number. It did headwind like that semi concern that you talked about last quarter, alleviate a little bit, it'd be great to get your perspective on kind of where we stand to start the year here.

Yes, thanks for the question. Good question, I can give you some incremental because of, to your very last point, we already took out about a few orders from China semiconductor out of our backlog because of the probability or of either significant delays or it's not being feasible to export certain pieces of equipment. So that's all built into our forecasts. And we took care of that in Q4, if you like, so no additional risks there that we can see at the time. I think it's the usual balance of risks and opportunities. Yes, it is backlog, we acknowledged that, of course, that backlog will not come to normalized levels, all in one year, there'll be a two-to-three-year process. It's continued orders momentum, it's also in some of the areas where we were concerned, and we're wondering ourselves whether they would get quite a bit weaker, and while some of them are not growing as fast. We haven't seen any pronounced signs of weakness or any signs of real weakness. So it's just coming the order momentum. And then order momentum in BioSpin, timsTOF and number of areas is very strong we have. So it's just, yes, it is an unusual number early in the year for us, but I would think it’s the usual good balance that we hopefully will not regret, right? We, that's the number that we hope we can deliver.

Okay, that's helpful. And then yes, I think this quarter, particularly, there's been an increased focus on kind of the 1Q and annual progression. Most of your life science peers have kind of guided 1Q to be a little bit light of expectations in the latest quarter as you think about kind of the growth progression throughout the year. Can you guys just give us some perspective on kind of the cadence throughout the year? How should we think about 1Q both on the organic growth side, and then Gerald, maybe on the margin side, just in terms of the build as we work our way through the particularly again, 1Q just given some headwinds via China?

We expect Q1, yes, sorry, we also expect Q1 to be a little lighter. So, Gerald, do you want to expand there on some quarterly color but we do acknowledge that we also expect Q1 to be on the lighter side, but we still expect decent growth.

Yes, we do. And I would say, from an organic growth perspective, we still expect H1 to be very solid, Q1 may be a little lighter. But remember, we are targeting some ultra-high field systems as we move through the years. So it didn't get –

I think Q1.

Sorry Q1, but it is clear that there'll be strength in the first half for sure. And in addition, you likely know, we had some supply chain constraints. And we hope to be able to release some of that as we move through the first half, including the first quarters so.

And maybe I'll add to that for your modeling, Q1 of last year was very strong. So we're likely to be flat or down on margin compared to Q1 of last year, Q2 of last year was particularly supply chain constrained, so Q2 will be a weaker comparison for us. We don't expect to, we expect to have a more even revenue and margin flow this year than last year. So last year, Q1, strong comparison Q2, weaker comparison, and we expect that to even out in more -- be more even in 2023. So for your modeling, relatively speaking, our Q1 will not be that strong, because Q1 of ‘22 was so strong. I hope that help.

So again on growth side, maybe 1Q below that 8 to 10, maybe like mid-single and then we build our way through the year. Is that kind of a fair ballpark?

We're not giving color, numerical color. So we'd rather not comment because we don't get quarterly color this time. There's nothing that we, if there was something very unusual, we try to call it out. But I just want to make sure that I'm not giving additional numerical color that we didn't intend to.

Our next question will come from Jack Meehan with Nephron Research.

Thank you. Good morning. Wanted to talk about Nano, so 17% organic growth for the year over 20% of fourth quarter just really like an outstanding year. Can you dissect for us how much of this is coming from things like semiconductor versus the investments in spatial? And how big is that business today?

Oh, yes, I mean, the spatial and fluorescence microscopy is still much, much smaller than the semiconductor and advanced electronics. Spatial biology and including the adjacent areas that we group up there, which include fluorescence microscopy, but also the new spatial neuroscience businesses that we've acquired, particularly in Inscopix are going to be needle moving in 2023, but they're still quite a bit smaller than the semiconductor business, And the semiconductor business is very strong backlog. We're not to expose to the memory area where indeed there is an oversupply in some areas that are a bit commoditized. But we expect semiconductor orders to be weaker and revenue will not grow steeply in 2023 in that area. But it's, it does, it looks like a soft landing and more than made up or at least made up by others areas of strength in our portfolio. In ‘22, semiconductor was a strong contributor margin wise and growth wise, for sure.

Right, then wanted to move over BioSpin. Just ask about the single-story gigahertz NMR, can you give us an update on how many orders you have for that at this point? And just expectations for our ability to scale the manufacturing.

So far, we just have three orders, two of which we delivered in Q4, we announced them all, they coincidentally all came in the second quarter of last year. So two of them, we delivered ahead of schedule that was just really amazing that a new product could really mature so quickly and indeed be delivered and getting smooth customer installation. So we're kind of thrilled with how that's going. And yes, there is another one that we expect to have in ‘23 revenue. There is quite a bit of activity. There's quite a few opportunities and things in the pipeline where people are trying to raise funding. But no orders to report yet. No additional orders report yet.

Our next question will come from Josh Waldman with Cleveland Research.

Good morning. Thanks for taking my questions. A couple for you. I guess first on the margin guide. Frank, I wonder if you could provide more context on where the R&D and Commercial Investments are being targeted? And you kind of what the timeline is for when we start to see these show up in revenue growth? I mean it sounds like these are a bit more kind of one time-ish investments that show up in ‘23 and roll off in ‘24. Is that right? And then, I guess, Gerald, I guess a follow up on that. And you alluded to it a bit, I think in the prepared remarks, but curious if you're still targeting the 21.5% out margins and $3 of earnings for ‘24? Or is this kind of change that target?

So the number of points, they are all very good questions. So no, the R&D 10% investment, that's going to be -- that's a medium-term target. That's not a onetime shot in ‘23. We had been ramping in that particularly in proteomics. Now in proteomics as you've seen, we've added early last year, we've added sample, consumables and automation. We added chromatography capabilities, all these in addition to of course continuing to develop our timsTOF portfolio. Now we've added CRO capabilities and software and further consumables capabilities. These will all require multiyear continued strong R&D investments and we do not want to be pennywise and pound foolish and under invested in this very large proteomics opportunity. So the 10% R&D , I don't want to predict for how many years but that's a multiple year level at which we want to be, I think it would be actually a mistake, a strategic mistake, it'd be under invested here. The second part of that R&D investment that goes heavily into spatial biology, which for us is a mix of fluorescence microscopy and neuroscience. And then the more traditional spatial single cell proteomics, single cell biology, particularly the canopy proteomics, and then the 3D structural, the 3D genomic spatial biology acuity, which is a whole new area that won't have any revenue or any products this year yet but that will begin to come out in ‘24. So there is very, very significant, very important R&D investments and the 10% R&D, we're not going to drive into 11% or 12%. I think that's just as finance, we're also doing disciplined growth investments. But the 10% is here to stay for not forever, but for quite a few years to come. The transitory effects, Josh, are more on the FX and the M&A,…

Got it, and appreciate all the color. And then a follow up, Frank. Just wondered if you could give us an update on your view of the quoting and ordering activity among university accounts in recent months. Just curious your expectations for this end market in ‘23.

Very healthy.

Our next question will come from Rachel Vatnsdal with JPMorgan.

Great. Thanks, guys, for taking the questions. And so maybe we could just spend a minute on Europe here, the region was down mid-single digits in the quarter. But you noted that bookings were exceptionally strong. So can you just talk about what you're really seeing in that region? You previously called out some of the energy headwinds and conversations with customers there? So are you seeing any pockets of weakness? And then maybe can you just point us towards what level of growth are you expecting in Europe for the year?

Right, good questions. Yes. So I mean, I think the mood in Europe hasn’t changed a little bit. That's maybe you can see that in the currencies, right. Euro strengthening and related currencies, the fear of a broader war in Europe, rather than it being hopefully. And tragically, we understand that but contained to Eastern Ukraine, I think then fear of a broader war is probably reduced. Also, Europe had a mild winter and is not running out of gas anytime soon. In fact, the gas supply is very high. So the chances of energy blackouts and so on, they're much reduced. And at least for this winter, Europe still needs to develop their energy strategies for future winters. But this year, they probably will, Europe probably dodged the bullet. And everybody's more optimistic accordingly, energy prices that had absolutely peak three, four months ago or something like that has come way down again, not to the prewar levels, of course, they are still quite a bit higher, but not nearly as high as the peak levels. So everybody's kind of adjusting to that with energy saving measures and us making more investments for instance, in solar power all of this year, so hopefully ready for the summer season when that's particularly beneficial and other energy saving net-net. So the mood in Europe, in the European and also, I think UK and Switzerland and so on. And their willingness to continue to invest in R&D or pharmaceutical discovery or into their version of having a semiconductor supply chain in Europe and not only relying on Asia or the US as the US is rebuilding are all good drivers. And so, yes, I think the outlook for Europe is much more optimistic. And so we're not totally surprised that bookings, came up in Q4, although they did that to a greater extent than even, we had anticipated. So I don't think Europe will be a drag anymore. Maybe even the opposite, because it has to catch up a little bit.

Yes, it seems like it was very broad from an organic perspective on the booking side, it seems as if it wasn't just focused in one particular area. So it bodes well, I think, for the whole –

And Europe is now discussing political additional stimulus in the clean tech sector and elsewhere, somewhat in response to our Inflation Reduction Act, here in the US. So that's the update there.

Perfect, great to hear. And then maybe just last one for me on pricing. So you took them incremental price, especially in the back half of 2022. Can you just let us know, where did pricing fully land for last year? And then what are you modeling for pricing increases and contribution there for 2023 as well? Thank you.

Yes. Hey, Rachel, this is Justin, thanks for the question. So for the full year 2022 price realization was in that low single digit, as we mentioned, and again, it wasn't fully offsetting the inflation for the year. So we had call it about 100 basis point drag to operating margin from that net price realization inflation. For next year, we do think it's going to improve that net price realization as it's working its way through the backlog, we're expecting a little bit higher price realization next year, still in that low single digit. And we think it's going to be a better net against the inflation, but still a little bit of a drag on inflation, maybe about 50 basis points. So as you look at our implied guidance for and the commentary that Gerald had for 2023 op margin, that organic margin expansion we're expecting in 2023 does still include a bit of drag from the price versus inflation.

Our next question will come from Derik De Bruin with Bank of America.

Hi. Good morning. And nice quarter, Frank, and company. A couple of cleanup questions and then one bigger one. So share kind of assumption for fiscal ‘23. I mean, you do some incremental buybacks. So just want that. And how should we think about FX in the first quarter to sort of set the pace into the rest of the year and then I have a follow up.

Derik, on the share buybacks, we don't typically comment on future buybacks. And numbers are baked into what we have there already so. And relative to foreign exchange, we actually rated our guidance based on the January 31 rates. You seem to think, I assume that the US dollar is weakened against some of the major currencies. And we've factored that into our analysis, which is currently predicting, as you saw for the full year, 1.5% of foreign exchange tailwind on the revenue line from that.

Yes, I just wanted the first quarter assumption on it, FX.

Yes, those are the -- those are really expected levels so.

Normally we take yearend FX rates for our planning, but since they had changed so significantly, still in January, we did the unusual step of looking at after baking in January 31 rates, because there had been quite a bit of change even in the 31st, 30 days.

Got it. So can we talk a little bit about growth expectations by geographic region, Americas, EMEA, APAC in ‘23? And then also on APAC, just a little bit more color on the China's stimulus timing? Is there any preference for local companies versus outside of China political headwinds going on just a little bit more color and how we should sort of think about that situation. Thanks.

Yes. So you've heard on the geographic side that Europe is making a comeback, right. And we were optimistic about Europe and bookings and this year, China as always difficult to read, right, one at some point you have zero COVID lockdown and you have whole country infecting from, getting a wave of infections. So far that all seems to not have such big disruptions. Although, I think China revenue growth was a little weaker in Q4, is that correct?

A little bit. But we were up teens for the year. Q4 was up single digits.

Single digits. So a little bit slower than the year. But that's probably a transition effect. We're excited about the stimulus and the size of it and how much of it might go into scientific instruments. It's fantastic. I wouldn't say that at this point, we have more than headline visibility into all of that. So it's a little bit like when the first stimulus package or the CHIPS Act get passed until you then see until the rubber hits the road and we get orders or have visibility into grants and so on, that always takes a few quarters. And so often these announcements then, until they turn into our revenue and growth, is probably a ‘24 effect. But we're delighted to have more strong drivers in ‘24. China always has a preference for local products where they are competitive in some areas. Multi-biotyper, preclinical MRI and lower end X-ray systems that are local products, right. And we continue to hold our ground. People sometimes want the higher performance, but sometimes they buy local. That's nothing new. For most of our product lines, there isn't a Chinese substitute. And then the geopolitical risk with China around Taiwan or other things balloons that's just very, very, very difficult to see where that's going. So we have not built in any geopolitical major crisis. As that's just not predictable for us, but it is a concern, of course, for the next decade.

Operator. We're past 9:30 here, so we're going to finish up the call here.

Okay, so this concludes the question-and-answer session. I'd like to turn it back over to Justin Ward for any closing remarks.

Great. Well, thank you everyone, for joining us today. During the first quarter, Bruker will participate in several investor conferences, including the City Healthcare Conference and the Cowen Healthcare Conference. And as Frank mentioned, we expect to host a Bruker Investor Day at the headquarters in Bruker, Massachusetts on June 15 of this year. So we look forward to welcoming all of you to that. Also, Bruker’s leadership team looks forward to meeting with you at one of those events, or speaking with you directly during the quarter. Please feel free to reach out to me if you have a follow up. Have a great morning.