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Good day, and welcome to the Bruker Corporation First Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Justin Ward. Please go ahead, sir.

Good morning. I would like to welcome everyone to Bruker Corporation's first quarter 2023 earnings conference call. My name is Justin Ward and I am Bruker's Senior Director of Investor Relations and Corporate Development. Joining me on today's call are Frank Laukien, our President and CEO; and Gerald Herman, our Executive Vice President and CFO. In addition to the earnings release we issued earlier today, during today's conference call, we will be referencing a slide presentation that can be downloaded from the Events & 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 conference call, we will be making forward-looking statements regarding future events and the financial and operational performance of the company that involve risks and uncertainties, including those related to geopolitical risks 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 for the period ended December 31, 2022, as updated by our other financial -- our other SEC filings, which are available on our website and on the SEC’s website. Also, please note that the following information is based on current business conditions and to our outlook as of today, May 4, 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 second quarter 2023 financial results expected in early August 2023. You should not rely on these forward-looking statements as necessarily representing our views or outlook as of any date after today. With that said, we will begin today's call with Frank providing an overview of our business progress. Gerald will then cover the financials for the first quarter in more detail, and share our updated fiscal year 2023 financial outlook. Now I'd like to turn the call over to Bruker's CEO, Frank Laukien.

Thanks, Justin. Good morning, everyone, and thank you for joining us on today's first quarter 2023 earnings call. Bruker achieved an excellent start to the year and I commend our team members globally for their hard work and contributions. We are advancing our Project Accelerate 2.0, high-growth, high-margin initiatives, with particular focus on the large opportunities in proteomics and spatial biology. While also investing in operational excellence, productivity, and our growth capacity for the next 10 years. Turning to Slide 4. In the first quarter, Bruker posted strong organic revenue growth of 17.6%. The robust demand for our differentiated high-value scientific instruments and life-science solutions was relatively broad-based across the portfolio, and bookings and backlog for Bruker have remained strong. For the first quarter of 2023, Bruker's revenues increased 15.2% year-over-year to $685.3 million, despite a currency headwind of minus 4.5%. On an organic basis, revenues increased 17.6% and acquisitions added 2.1% to growth, which implies first quarter constant exchange rate growth of 19.7% year-over-year. This included 18.4% organic growth in our Scientific Instruments segment and 9.7% organic growth in our BEST segment, net of intercompany eliminations. Our first quarter '23 non-GAAP gross margin increased 70 basis points year-over-year to 53.4%, while our non-GAAP operating margin was 20.3%, an increase of 80 bps year-over-year. Our strong performance on the top line drove margin expansion from volume leverage, despite our stepped-up investments in commercial and R&D capabilities. The strong revenue growth combined with margin expansion resulted in non-GAAP operating profit growth of 20.4% year-over-year in the first quarter. In the first quarter '23, Bruker reported GAAP diluted EPS of $0.52 compared to $0.41 reported in the first quarter of 2022. On a non-GAAP basis, first quarter '23 diluted EPS was $0.64, an increase of 30.6% from $0.49 in the first quarter of '22. Our trailing 12 months return on invested capital was 24%, a metric that reflects well upon the differentiated Bruker management process and our focus on disciplined entrepreneurialism and organic growth supplemented by strategic acquisitions, acquisitions of complementary skills, and technologies. In summary, the first quarter of '23 was an excellent quarter with revenue growth across all Bruker Scientific Instruments groups, with continued strong bookings, as well as ramping investments in Project Accelerate 2.0, particularly in proteomics. Please turn to Slides 5 and 6 now, where we highlight the first quarter '23 performance of our three scientific instruments groups and of our BEST segment, all on a constant currency and year-over-year basis. In the first quarter of '23, the BioSpin Group revenue of $180 million grew in the high-teens percentage on a constant currency basis, even without any gigahertz-class revenue in the first quarter. BioSpin saw robust growth in revenues across its full portfolio including NMR and MRI preclinical imaging. Notably, we received two orders from the United Kingdom for 1.2 gigahertz NMRs for Life-Science and GreenTech materials research. Please note that we now do not expect any gigahertz class revenue in the first half of '23, but after some system final test delays, we now expect 3 or 4 gigahertz-class NMR systems in the revenue for the second half of '23. For the first quarter of '23, the CALID Group revenue of $237 million increased low 20s percentage on a constant currency basis with strong life of science mass spec and vibrational spectroscopy businesses. Our timsTOF platform continues its adoption in 4D proteomics, epiproteomics and multiomics. In the first quarter, we announced key further capability enhancements and had excellent year-over-year bookings growth. Please turn to Slide 6 now. First quarter Bruker NANO revenue was $210 million and grew in the low 20% on a constant currency basis. NANO's academic, industrial and GreenTech Research and high-end semiconductor metrology revenues, all remain strong. Revenues for our advanced X-ray and Nano Surfaces tools also delivered strong growth in the quarter. NANO's microelectronics and semicon metrology tools performed well with strong bookings and backlog. Life Science fluorescence microscopy revenue was up sharply on product innovation and strong research demand, as well as our Inscopix acquisition, which we did in the fourth quarter of last year. Finally, first quarter BEST revenues grew in the high-single-digit percentage net of intercompany eliminations, driven by share gains and strong superconductor demand by MRI OEM customers, but meaningfully constrained by supply chain challenges. Moving to Slide 7 and 8 now. On Slide 7, we just highlight the two new orders for 1.2 gigahertz NMRs that we received recently. They're both -- interestingly, they're both used for our structural functional biology and life-science research, but also for a lot of GreenTech and materials research in the UK. These systems will be placed at the University of Warwick and University of Birmingham, which interestingly also both already have Bruker 1.0 gigahertz NMRs. This is really UK scientific infrastructure investment, not only for these two universities that host the systems but really will be used broadly by the UK scientific community. I think it's really quite exemplary. And it is interesting, of course, to see the life-science research, but also how much materials, biofuels, energy storage, research is being done at these universities. I won't read them, but I draw your attention to the two quotes that are on Slide 7. They're actually very self-explanatory and very good. Moving on to Slide 8. We are having certain sample prep and software innovations that support our timsTO0046 for the proteomics business. On the far -- on the left, you see an innovation by our friends and majority owned business, PreOmics out of the Munich area, and it's really a new workflow, but it's a very important one. They're very compact tabletop, benchtop system. The BeatBox is now also qualified for importantly for tissue proteomics for an FFPE workflow and a gentleman from the University of Copenhagen said, this breakthrough now allows us to process large cohorts of FFPE tissues quickly, reproducibly and with greater precision enabling large-scale tissue biobank projects. The BeatBox gives excellent, deep, unbiased proteomics results for pathology research in this particular case. So this is an important further enhancement of our consumables and automation and sample prep business at PreOmics. Switching to software in support of immunopeptidomics, which is very important in research and I think now for the first time has reached the sensitivity and throughput levels, where it could really be used on small tumor biopsy samples, we collaborate with an external Canadian company that provides the Novor algorithm for AI, informed and GPU enabled immunopeptidomics. For those of you -- as a reminder, immunopeptides are very important immuno-oncology targeting. They are also not expressed in the genome. So you really have to sequence some de novo and doing that at-scale with sensitivity and excellent software is another important area in this case in immuno-oncology research and in the future, hopefully, also in immuno-oncology applications in the clinic. Right. After this science excursion, I'd like to go back and just summarize. Bruker again made excellent progress and continues to experience strong demand for our differentiated instruments and solutions across our portfolio. Our Project Accelerate 2.0, high growth, high margin initiatives performed well. We reiterate our intention to ramp investments for accelerated growth, especially in proteomics, spatial biology, biopharma and applied markets, as well as in semicon metrology. Very pleased with how well our teams have executed to begin the year. As we move through fiscal year 2023, our high backlog continues to give us very good visibility, and we are raising our revenue growth and EPS guidance for the full year 2023. So with that, let me turn the call over to our CFO, Gerald Herman, who will review Bruker's first quarter financial performance and raised fiscal year 2023 guidance in more detail. Gerald?

Thank you, Frank, and thank you, everyone, for joining us today. I'm pleased to provide a little more detail on Bruker's first quarter 2023 financial performance starting on Slide 10. In the first quarter of 2023, Bruker's reported revenue increased 15.2% to approximately $685.3 million, which reflects an organic revenue increase of 17.6% year-over-year. We reported GAAP EPS of $0.52 per share compared to $0.41 in the first quarter of 2022. On a non-GAAP basis, Q1 2023 EPS was $0.64 per share, an increase of 30.6% from the $0.49 we posted in the first quarter of 2022. Our Q1 2023 non-GAAP operating income grew 20.4% and our non-GAAP operating margin increased 80 basis points year-over-year to 20.3% for the reasons Frank has already reviewed. We finished the first quarter with cash, cash equivalents, and short-term investments of approximately $600 million. During the quarter, we used cash to ramp selected Project Accelerate 2.0 investments, fund capital expenditures, complete a majority acquisition in proteomics and fund share repurchases. In the first quarter of 2023, we repurchased approximately 315,000 shares for about $22 million. As a reminder, in the full year of 2022, we repurchased 4.2 million shares for approximately $265 million, which continues to favorably impact EPS for the full year of 2023. We generated $87.5 million of operating cash flow in the first quarter of 2023, partially offset by capital expenditure investments resulting in $62.5 million of free cash flow in the first quarter of '23. Slide 11, shows the revenue bridge for the first quarter of 2023 as discussed earlier. First quarter 2023 BSI systems revenue increased in the mid 20% range, organically. While, BSI recurring revenue grew in the high-single-digits organically compared to the first quarter of 2022. Geographically, and on an organic basis in the first quarter of 2023, our Americas and European BSI revenues grew in the low-double-digits. While our Asia-Pacific revenue grew more than 30% all year-over-year. Our Rest of World first quarter 2023 revenue declined slightly. Slide 12, shows our first quarter 2023 P&L performance on a non-GAAP basis. Non-GAAP gross margin of 53.4% increased 70 basis points from 52.7% in the first quarter of 2022, benefiting from operating leverage from higher volume, higher Project Accelerate mix, and tailwinds from pricing and foreign exchange, partially offset by supply chain headwinds. First quarter 2023 non-GAAP operating margin of 20.3% was 80 basis points higher than the 19.5% in the first quarter of 2022, driven by solid gross margin expansion and volume leverage, despite a continued Project Accelerate 2.0 investment ramp. For purposes of your quarterly modeling, we expect our operating expense ramp in the second quarter of 2023 to moderately outpaced our revenue ramp and result in an operating margin decline sequentially from the first quarter of 2023 before expanding again in the second half of the full year '23. This is in part due to 2 gigahertz-class NMRs that we previously expected in the second quarter of 2023 revenue are now expected to shift into the second half of 2023. And with that, we also expect our second quarter 2023 non-GAAP EPS to be down sequentially, but up by mid-to-high single-digit percentage compared to the $0.45 non-GAAP EPS we posted in the second quarter of 2022. For the first quarter of 2023, our non-GAAP effective tax rate was 27.8%, compared to the 32.7% in the first quarter of 2022. Weighted average diluted shares outstanding in the first quarter of 2023 were 147.6 million, a reduction of approximately 3.8 million shares or 2.5% from the first quarter of '22, resulting from share repurchases over the past 12 months. Finally, first quarter 2023 non-GAAP EPS were $0.64 was up sharply by 30.6%, compared to the first quarter of 2022. Turning now to Slide 15, given the strength in revenue and bookings in the first quarter '23 and our record backlog, we're increasing our guidance for the year. Our updated outlook for the full year of 2023 includes raising our revenue guidance to a range of $2.83 billion to $2.88 billion. This implies organic revenue growth of 9% to 11% year-over-year, an increase of 1% from our prior guidance. We estimate a foreign currency tailwind of about 1% and down from the 1.5% foreign exchange tailwind we estimated in February. We expect acquisitions to contribute about 2% to growth, up from the 1.5% we estimated earlier. This leads to reported revenue growth in the range of 12% to 14%, an increase of 1% from the prior guidance. We continue to expect to deliver solid gross margin expansion and operating profit growth in 2023, with the previously explained transitional decline in operating profit margin. On the bottom line, we're raising our non-GAAP EPS estimated range by 0.03 to $2.55 to $2.60 for the full year of 2023, which would represent non-GAAP EPS growth of 9% to 11%, compared to 2022, up from our -- prior guidance range of 8% to 10% EPS growth. We project a non-GAAP tax rate of approximately 28% for the full year of 2023. Other guidance assumptions are listed on the slide. For our full-year 2023 ranges have been updated for foreign currency rates as of March 31, 2023. To wrap up, Bruker delivered excellent financial improvements in the first quarter of 2023, with strong organic revenue growth, continued booking strength, and excellent EPS growth. Hopefully, you'll join us in-person or virtually on June 15, our planned Investor Day to learn more about Project Accelerate 2.0 key initiatives and how they are expected to drive our medium-term growth and profitability outlook. And with that, I'll pass it back to Justin to start the Q&A session. Thank you very much.

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

We will now begin the question-and-answer session. [Operator Instructions] And again, please limit yourself to one question and one follow-up. And if you have further questions, you may re-enter the question queue. And our first question will come from Derik De Bruin with Bank of America. Please go ahead.

Hi. Good morning. This is Peter on for Derik. Certainly appreciate there's a lot of uncertainty. But given the 1Q organic growth upside and the 2Q comp, could you just elaborate on your approach to the updated organic growth guidance for '23? Are you just exercising prudence here by not raising that a bit more? Thanks.

Yes. Of course, we're exercising prudence. Good question. I mean, it's still early in the years and I think it's a good raise. So we think that's prudent under the circumstances. You also saw that our Q2 sequentially will be a little bit weaker. So that make sense to us.

Okay. And can you just kind of give us an update and remind us how long the orders translate, given the nature of products and current, like, state of the supply chain? Is it fair to assume that much of the order growth you saw in the first quarter is going to convert generally to revenue in '24? Or kind of how would you frame that for us?

Yeah. It very much depends on the product line. I mean, some benchtop systems, of course, will still turn into revenue this year. Indeed, some NMR systems or other floor spending or larger semiconductor metrology systems where orders came in or additional orders came in. Some of that now is actually going into 2024. But different product lines have different delivery times. All of them right now have excellent backlog and have generally seen very strong bookings again in Q1.

All right. And then do you have any update on the status of the loan program in China by chance? And then that is it for me. Thank you.

Sorry, that was on the loan program in China. Is that right?

Yes, correct.

Yeah. We've benefited from that significantly, in orders in Q1 and mostly in our high-end instrumentation, NMR mass spec, but also some high end fluorescence microscopy and IR systems. So we really -- we got good orders from China. Very good orders from China in Q1.

Okay. Thank you, guys.

The next question will come from John Sourbeer with UBS. Please go ahead.

Hi. Thanks for taking the question. Maybe on the previous question there on the backlog. Would you be willing to provide any color on just what book-to-bill look like for the quarter and just the outlook for the year?

Yeah. Book-to-bill again was above -- slightly above 1. And right? I mean at some point, we need book-to-bill quarters under -- with lower than 1, but we haven't achieved that yet so far. So I mean, it's kind of the tongue-in-cheek remark. Obviously, it was again slightly greater than 1% is the short answer. And despite a very good revenue growth, obviously.

Got it. Appreciate it. And then [Multiple Speakers]

That is true to take for the scientific instruments business. Best is always at these fives year orders. So we'll take that out. But for the 90% of our business, which is the scientific instruments, three scientific instruments groups that was true.

I appreciate the color. And then just on the updated guidance for the year on the EPS side. Just with the R&D investments and some of the investments you're making there, just any additional color just on the margin cadence for the year and how we should think about that?

Yeah. We expect better margins than expected and drops even we expected in Q1, obviously, sequential step down in Q2 and then recovery in the second half. And our guidance for margins, you see that on the Slide 15 that the margin guidance, we haven't really changed for the year. So, that's obviously always not in dollars, but in percentages or bps. So that is less the same.

Got it. Thanks for taking the questions.

Sure.

Sure.

The next question will come from Puneet Souda with SVB Securities. Please go ahead.

Yeah. Hi, Frank, and really congrats here on an impressive quarter. If you could take a bit of a step back and look at the sort of the high end and sort of high-ticket items that you have versus what we're seeing is a tougher backdrop of macro. I appreciate the book-to-bill is over 1, and that has continued to stay that way and NMRs, are you booking those in the second half? But both from sort of CALID and NANO, maybe just give us sort of the visibility that you have where you have more confidence in the portfolio and maybe where the visibility is a little bit low. I mean, we continue to hear that semiconductor headwinds, biotech funding and concerns in health care as well. So just overall, just give us your sense of the strong results and your visibility versus the backdrop?

Yeah. So that's noticeable. I mean, China was noticeable, strong orders. I think we are benefiting from some of that loan stimulus program. Now not all of that will be additional business. Some of that will probably be pulled forward where people in China are ordering earlier this year than in other years because of those incentives that have been created. Some of that does look like additional business that we actually did not necessarily expect this year. So it's a mix, but it's not all additional business. Some of it is probably pulled forward from later quarters. Europe was quite strong. For us, biopharma was quite strong. I know there's a lot of rumblings about that. Semiconductor metrology orders are softening a little bit. But we still have so much backlog but that's actually quite welcome, because our backlog quite honestly was too long and still is long. So sort of as expected, with China better than expected, biopharma perhaps better-than-expected, proteomics doing great. And yeah, Europe also we expected that, but I'm not sure everybody else expected that. We -- Europe has really recovered nicely the academic and also European biopharma front. A lot of GreenTech Research in Europe, but also worldwide, but also in Europe. So that's kind of a little bit different from the traditional more cyclical industrial or industrial research demand and, of course, very welcome.

Got it. That's super helpful. In terms of China, what's the duration of this program? And wondering if you are hearing about any sort of temporary pause in that program, if you could elaborate that a bit? And Gerald, if you can provide any contribution on the pricing in the quarter, that would be helpful, too. Thank you.

All right. I'll take the first part. We don't know. We think most of that goal is of stimulus orders may have come through. We don't expect that to continue. So that's been good for high-end systems. It may. We don't really have visibility and we hear by reading sell-side research reports that the program may have been paused, but we don't really have our independent data or additional insights that we don't read from reading yours and others. Gerald, do you want to talk about pricing/inflation?

Sure. Puneet on the pricing side, I guess what I'd say is we continue to see -- we continue to take action on the pricing side. We continue to do that from the prior year as well as in 2023. We think that the pricing realization is still significant for us. It's about 250 basis points. And offsetting that, it's about 350 basis points of inflation impact. So net drag in the first quarter of about 100 basis points. We think that's going to moderate as we march forward into the rest of 2023, our expectation is around 50 basis points of net drag for 2023. That's our current thinking.

On margins.

On margins, yeah, sorry.

Got it. All right. That's great. Thanks, guys.

Sure.

The next question will come from Josh Waldman with Cleveland Research. Please go ahead.

Hey. Thanks for taking my questions. A couple for you. Frank, I wondered if you could provide a bit more of an update on timsTOF. It sounds like I had another strong quarter. Just curious if you could provide some additional color on which end markets are the primary drivers to the strength here? And then I think this was a system that had maybe bigger supply chain issues last year. Just curious how supply chain and production capacity looks now and just how you're thinking about this portfolio as a contribution to growth going forward? Is it one that could grow 20% to 30% here in the medium term, say, '23 and '24?

Yeah. We don't give that granularity, but the timsTOF in stuff orders have continued to be very strong. To your question, that's, of course, various flavors or types of proteomics from cell line proteomics to tissue proteomics to chemical proteomics in the biopharma industry to plasma proteomics to single-cell proteomics. As you -- once you get deeper into proteomics, there are so many different subfields and they're actually all doing pretty well and are pretty strong. And the fact that we have more and more of these. We have a timsTOF platform, but we have multiple product points of product performance points and, of course, different types of software for different applications. One has to be, when one begins to see the greater granularity, the market segmentation. Not to forget, of course, the targeted tissue proteomics that we do with MALDI imaging, as well as with non-timsTOF with our CellScape microscopy product line. in spatial biology. So in that sense, they're broadly all doing very well, and there's a lot of demand and I think this is the decade or 1.5 decades of proteomics and we're in the early days of that, and it's all pretty healthy. We're addressing more and more of those points. I mean, earlier I mentioned in immunopeptidomics,, or earlier I mentioned FFPE pathology research by proteomics, it's really -- it's all this. Sorry, there was -- yeah, we don't break up the growth rates. And yes, we did have some acknowledged we and acknowledged some previous and also some continued supply issues, mostly on the chromatography actually, but still you need that for the overall system. We're modeling through it. But yeah, that's not perfect yet on the supply chain. But we're fixing it by other means, right, where there's other chromatography systems on the market. So we're sorting it out kind of details that are not that important, but...

Okay.

But you're not -- you're not wrong with your question.

Okay. And then looking at, I guess, total portfolio again. I wonder if you could update us on where the backlog stands today and how you're thinking about normalization? I think you had previously said you had something like eight months plus and you would work that down to maybe more like six months over two years. Just curious if that's still how you're thinking about it?

We're sticking to that story. No, that's the reality. And we thought our backlog would begin to come down a little bit, but in fact, it went up further, which is a wonderful problem to have. And so, it looks very healthy. But yes, it's not going to resolve itself over a few quarters. This will be over -- perhaps over two-plus years. But we're continuing to invest in capacity and supply chain, while still with meaningful issues is getting better, fewer new problems come up, some areas are improving. And yeah -- but our orders have been strong and then really quite strong in Q1 as well. So the short answer is, yeah, greater than eight months is still true, and that this will take two years plus to normalize, if you like, is also still correct, Josh.

Got it. Thanks, Frank.

The next question will come from Dan Arias with Stifel. Please go ahead.

Good morning, guys. Thanks for the questions. Frank, obviously, a lot of moving parts in China right now. Can you just maybe update us on Biotyper performance in that region? And just how placements in utilization or comparing to what's going on in US and Europe?

MALDI Biotyper is somewhat more recurring revenue, services, databases, and of course, consumables, including reagents and systems. The systems business has slowed down for us. The MALDI Biotyper systems business has slowed down. However, also in comparison to a very, very strong comparison. It has slowed down significantly in China. It's doing quite well in Europe. Also, the replacement systems, there's a meaningful replacement market now for replacement of our and other company systems, and we're doing very well with that. US has picked up a little bit, but US still has a lot of potential. Keep in mind that we have almost twice as many MALDI Biotyper in Europe as in the US. And over time, that should equalize. So the consumables business kind of continued to grow in the double-digits and has the better margins as you might expect. So the usage of these systems, -- I don't know, probably approaching $200 million identifications per year of these -- of about 6,000 systems that are out there is just very strong. So it's a really useful tool in the clinical and non-clinical microbiology lab. It's extensively being used and we're investing also more into additional workflows, additional consumables, software, Sepsityper and eventually, although that's still in the research phase in selected antibiotic susceptibility testing on that platform. So it's a nice flywheel, but the instrument placement that's getting into a little bit the later part of the S curve that's not as steeply growing anymore as it used to be over the last 15 years.

Okay. Helpful. Maybe just staying inside the Accelerate program with the spatial business, Canopy, Vutara, Acuity, what's the right growth rate that you would attach to that portfolio this year within the overall outlook for you guys? And then obviously, there's a lot going on in that space. So where are you seeing the most interest? And then on Acuity, is there anything you can tell us about the product launch timing there?

Yeah. I'll take the easy way out and say, listen in or better you can join our Investor Day on June 15, because that's going to be a topic. And Mark Munch -- my colleague, Mark Munch, will give you a much more – we’ll probably address many of those questions. Acuity is a '24 event, so that won't launch until '24. Canopy, is a CellScape. It’s getting tremendous interest in the spatial proteomics and of the spatial biology market. We're also doing well with tissue imaging using MALDI imaging, that's not single cell per se, but it's tissue imaging with multi-omics, including metabolites and lipids and like consolation, that's a bit of a different niche. And then that spatial biology business also broadly includes a little bit more of the cell biology and then high-end fluorescence microscopy market, those are growing. So some may be somewhat adjacent markets, include things like Inscopix, the in-vivo rodent neuroscience imaging, microscopy. Obviously, it's more tissue rather than single cell. But there's a lot of elements that come together and Mark will do a much better job than I just have with a pretty -- I think really will explain that much better to the Street during our Investor Day that's coming up in June.

Okay. Very good. Thanks, Frank. Congrats.

The next question will come from Patrick Donnelly with Citi. Please go ahead.

Hey, guys. Thanks for taking the questions. Frank, maybe one on the US business. The NIH budget has gotten some more attention recently. Can you guys just talk through, remind us on your exposure, I think it's mid-single, maybe even high-single-digits to that? And how sensitive you actually are to changes in the budget? And then at the end, just what you're hearing there? Any visibility into your expectations?

Yeah. We're reading the same publications and in our information that you're reading. So I don't think I have any Bruker-specific insights. You are correct, Patrick, in our exposure is in the single-digits, obviously, to that. For us, it's always much, much more -- it doesn't -- whether it goes up 3% or 5% or 8% it's much more important what the priorities are and that it strongly prioritizes tools that relate to proteomics and to spatial biology is a much more important effect than the exact raise or in any given year. So for us, those fundamental trends, those secular trends have been very strong, right? And I think as a lot of genomics and sequencing gets into the later part of the S curve, proteomics and of course, in parallel and partly related spatial biology are getting into the steeper part of the S curve. And then for us, that's just very, very good. That's very good for our positioning probably for the next decade.

Okay. That's helpful. And then we're just getting a few questions on the 2Q setup. Just the organic growth side. I know previously, you had suggested that was going to be maybe the high watermark for the year. coming off this quarter, maybe that's no longer the case, obviously. But how do you think about the step down there, just given, again, the bookings very healthy. Is it just a timing issue given the easy comp? And then should it still be in the double digits? I'm just trying to kind of frame up the numbers as we're getting a number of questions there. Thank you.

Yeah. No. As Gerald said earlier, yeah, Q2 sequential step down because we did have a little bit of almost inadvertent pull-ins in Q1, not that. And then we have two ultra-high field systems that we had anticipated in Q2 that we're now -- that we now know will be -- that we know will not be in Q2 and we expect them in the second half of the year. So it's really just a timing thing. With that, I think we've looked at what was the specific color that you've given, Gerald, on Q2, I think you've indicated mid-to-high single-digits.

Yeah, exactly. We'll still on a comparison [Multiple Speakers]

EPS growth, right?

The EPS growth. And I think it's pretty much we're trying to describe. We have some puts and takes from the individual quarter, it seems as if more takes in the case of the Q2 experience. So yeah, I think it's -- our view is that the overall full year story is pretty much the same. It's more about timing.

With rates for the full year, right?

Yeah.

But yes, Q2 sequentially will be down.

I'll also maybe point out that in 2Q of 2022, we had one ultra-high field in revenues. And so, we have none in this quarter, yet our prior guidance of commenting that we thought it would be the organic growth high watermark for the year assume that we'd have those two ultra-high field. So that's the big thing, Patrick.

Understood. Thank you, guys.

So a little bit more of a shift to the second half. And yes, and with a strong start in the first quarter.

Right. Got it. Thanks, Frank.

Thank you, Patrick.

The next question will come from Rachel Vatnsdal with J.P. Morgan. Please go ahead.

Hi. Thanks for taking questions and congrats on the quarter, you guys. And so, a lot of talk here about China and some of the outpaced strength in 1Q. Can you just tell us what was the actual growth in China during this quarter? And then I wanted to dig into some of those earlier comments around the China stimulus package. Can you characterize a bit further around some of that pull forward versus new wind dynamics that you flagged? How much of the China performance was really driven by that pull-forward dynamic that you mentioned? Thanks.

Yeah. Hi, Rachel. This is Justin. So we really want to delineate between the orders and the revenue impact in China in the first quarter. So, the orders were very strong. We're not going to quantify what those were in China, obviously. But there wasn't much conversion of those orders into revenues in the quarter given the lead times in the backlog we have. But that being said, revenues in the first quarter in China were still robust. And on an organic basis, it was a higher organic growth rate than the corporate organic growth rate in China in the first quarter.

And the dynamics, Rachel, to, as I said earlier, there is some apparent order pull forward in China that seems to be encouraged by that loan/stimulus program. So, we don't think this was all incremental business, but there is some incremental business that we -- that our teams did not necessarily expect this year where people just saw the opportunity to buy, get additional budgets and particularly by high-end big-ticket items that they -- when they get an extra million dollars. They don't fill their fridge with reagents. They buy big ticket items that they otherwise might not get a grant for many years. So there was additional -- it's difficult for us to say how much of that was pulled forward versus a real additional business. It certainly is a mix. I don't know whether it's a 50-50 mix. But since I don't know that might be not a bad modeling, first approximation. So meaningful -- some acceleration, meaningful additional business tended to favor NMR and big mass specs and -- but also some other product lines, especially those where we are very unique.

Great. And then next one for me is just on supply chain. So can you walk us through what specific segments you're seeing the most supply chain constraints still? And then what's your level of visibility, or when you expect those constraints to really ease? And then follow-up to that. Is supply chain really becoming the limiting factor in terms of guidance for the rest of the year? And how much does that really play into the decision to not lift the guidance further versus some of that prudence around the macro backdrop that you flagged? Thanks.

I was pretty satisfied with our guidance rates. But you know, the main -- I mean, it's also still early, right? And we have a sequentially slightly weaker Q2. So that's -- I think it's -- it makes sense right now. Supply chain is the BEST group still has -- there are some launch. They're doing very well comparatively within their industry. They've really planned ahead and invested in capacity and the supply chain probably more strategically than anybody else in their industry. But -- so that's probably relatively even medium to long term that they need to -- that this will be somewhat constrained in the superconductor business. In other areas, those are things that the incidence of new supply chain problems that sometimes came without warning is down significantly. There are still some areas in the timsTOF area and a few other areas in NMR, in some of the semiconductor equipment areas, where we're improving, but I wouldn't say we're out of the woods yet. Things generally like electronics and packaging and logistics, that's all mostly with a few very topical exceptions much improved.

The next question will come from Jack Meehan with Nephron Research. Please go ahead.

Thank you. Good morning. I wanted to dig a little bit more into this China result really, really strong. So APAC up over 30%, was China well above that. Can you just provide a little bit more color on the regional revenue growth? And then just what does guidance assume in terms of revenue growth in the region for the rest of the year?

Yeah, Jack. This is Justin. So we're not going to break out necessarily by country within APAC, but I would say that the strength is pretty broad throughout APAC, really strong growth in Japan, in fact, which is the leader in terms of the growth rate in APAC. But I don't think we'll comment much more on sort of a regional breakout or what factored in the guidance.

And Jack, that was a revenue comment by Justin.

Revenue comment.

Yeah. On orders China was the standout.

Yeah.

Great. Okay. And then just as a follow-up, I think previously, we've talked about sort of the export restriction issues in China. Is that -- where does that stand? And obviously, it doesn't seem like it had any impact here, but just any update on that would be helpful.

Well, if you may recall already in Q4, certainly semiconductor metrology pieces of equipment that we will either no longer be able to export to China or that would have perhaps a very long times to get permits to get -- we've taken those out of our backlog already, I think, in Q4 -- at the end of Q4. And so, in that sense, there is no further change since then, life-science and biopharma and applied markets, food testing and so on, they're really -- sometimes things get slower until you get permission, for instance, also from the German authorities, they just tend to be slower on China export permits, but they come through eventually, but that also sometimes is gating a little bit in how fast you can grow and your order sometimes grow faster because of that. But no significant further changes since about five months, six months ago.

Thank you, Frank.

Sure.

The next question will come from Daniel Brennan with Cowen. Please go ahead.

Great. Thanks. Thanks for taking the question, Frank, Gerald. Maybe just one on the guide and then one on timsTOF. Just back to the guide, Gerald and Frank like, how much of the first quarter strength was from the order slippage from 4Q to 1Q? Because I get it we're very early in the year, but after the 18% growth and the easing comps in the backlog, it looks like your guide implies a pretty material deceleration, still healthy, but just trying to reconcile how much of that is conservatism and how much of it is just maybe one quarter phenomenon where you benefited from the slippage?

Yeah. It's -- even we don't fully know early in the year, so a little bit of conservatism is hopefully. It's absolutely prudent and sometimes it ends up not being conservative, right? You're -- but we feel it's appropriate given the cadence of the first two quarters, which we -- and we assumed and we believe we'll have a second -- a strong second half then. So it makes a lot of sense to us. And it is really quite good organic revenue growth and good -- and now also and despite very, very significant investments in our R&D really has reached about 10% in the first quarter as a percentage of revenue as we had predicted. And so, the investments are very significant. And we're, of course, pleased that therefore, we still deliver EPS growth, and you've seen our margin guidance for the year, we've left the same as before. But we did well in Q1. It is a little better in Q1, than we even internally expected. So it's a good sign of leverage and pricing and the value of our systems. So I don't know that I really nailed your question here, but that's kind of what comes to mind.

Yeah. I may just add that there's still quite a bit of uncertainty out there. You have geopolitical uncertainty related to China for one. We have the Ukrainian conflict and we have recession in some way, shape or form around the globe. There's still supply chain constraints. There's still quite a bit of issues floating around in the mix. So I think our position on the guide, I think is, we took that into consideration of both ups and downs.

Yeah. We also look what others are saying. If others are saying that they see like -- I mean that's not surprising that there's less early-stage biotech funding and those companies will be tightening their belts a little bit, of course. There will be some of our NMR and some of our timsTOF sales, certainly, a lot of them could go into biopharma. It's actually remarkably strong with further timsTOF almost a third or so goes into biopharma. We have not seen in our data any slowdown. It's probably less the macro for these early-stage biotechs and more of the value of the -- and the need for the kind of information that our systems can provide. But one cannot ignore what's going on around us. So keeping on.

Great to know that.

All in, we think that's about -- that's a prudent raise, and we're in a position to do that. And hopefully, we're not, as my Canadian CFO would say getting ahead of our skis.

No. Super helpful. And then maybe just one on timsTOF. Can you just remind us like how big is that business today? What kind of share of like the discovery mass spec market like do you have? And just wondering, like, is there any expectation that Thermo refreshes Orbi? Or is there anything on the competitive response? Or I'm sure they're not sitting idly by as timsTOF takes share of that market?

Well, I'm sure they're not sitting idly by and they made very well the some launches from them at ASMS, so I wouldn't be surprised. We're also not sitting by. And what was the last thing we said, we said I think that we have now an installed base of over 600 systems. It's certainly been growing in the double-digit orders revenue, you name it. I mean, healthy double digits. And we've been gaining market share for sure, since we launched that product five years ago. I'm sure we're well above a 10% market share and possibly above a 20% market share proteomics in mass spec. The mass spec market is larger and thermal also with their mortgage perhaps plays in a lot of small molecule applied and metabolomics and other markets where we're getting traction with the same stuff, but it's really primarily a 4D proteomics play with many sub-markets that proteomics has actually. So I think we're doing really well. Also KOL, capture is not a nice word, but KOL enthusiasm, I would call it for that technology is really very strong.

Yeah. Same thing we have heard. Great. Thanks, guys.

The next question will come from Brandon Couillard with Jefferies. Please go ahead.

Hey. Thanks for taking the question. Just one clarification, Frank, in terms of the first quarter orders. If we exclude the two NMR orders in the UK, the book-to-bill has still been north of 1 and the gigahertz installations planned for the second half. Is that delayed manufacturing-related or more customer timing?

Good questions, Brandon. So yes, without the two UK 1.2 gigahertz book-to-bill would have still been above 1. And the second question, yes, that was more factory related. We needed on a couple of systems. We needed a bit of rework in the factory and that always requires retesting and the timelines for rework and retesting of one of these magnets is at least four months to six months. So we incurred some internal delays, which is why they got pushed to -- they are now getting pushed as best as we can tell to the second half of the year. We were able to ship one, so one month successfully passed. We just don't think it's going to maybe in Q2 revenue, hopefully in Q3 and others look -- there's some factory delays is the short answer. There are very advanced complicated systems. So not every system will work in the factory sort of out of the box, sometimes some rework and retesting is needed. We've always acknowledged that. And yes, it's affecting us a little bit in Q2, but not for the year.

Got you. And then you raised the M&A revenue contribution outlook for the year looks to be about a $10 million improvement. Which assets are getting better or are outperforming your expectations?

I'm sorry, was that an M&A-related question or?

Yeah. You're -- the revenue contribution from M&A for the year went up. So I'm just curious, which assets are outperforming or contributing most of that improved outlook?

Good question. Even I don't have that granularity.

Yeah. We had an additional small deal in the quarter that's partially contributing to that. But, yes, I don't think we're necessarily going to break out the forecast for each individual asset and the contributions to the guidance, so.

So yeah, so nothing stands out. It wasn't the one thing that we'd like to highlight. It's additional small acquisitions and it's generally, they're performing to plan and maybe a little bit ahead of plan. But then the one thing that stands out, that's noteworthy.

That's it. Very helpful. Thank you.

Your next question will come from Matt Sykes with Goldman Sachs. Please go ahead.

Thanks for taking my questions. I'll just leave it to one. And Frank, maybe a high-level question. As you think about the backlog and additional investments in capacity and supply chain mitigation, how do you think about measuring those investments? You obviously want to deliver the products to your customers and reduce that backlog, but at the same time, not over-invest, if we get some level of normalization in this sort of out year. So how are you thinking about balancing those investments to solve for that backlog, but at the same time, solve for a future supply-demand environment?

Good question. Matt, it's really more of almost a decade of planning rather than for the next year or two. So we're pretty optimistic about our growth for the next decade and have seen good growth recently, at least since the depth of the pandemic, right? And so, we've -- you've seen our CapEx is high this year. Our CapEx has been quite high and elevated in the last two years or three years, that's really kind of building capacity for the next decade-plus with new mass spec factory and integrated BioSpin facility. It's also for productivity. It's not only for capacity as we consolidated two BioSpin factories in the same geographical area near Karlsruhe, Germany. That, of course, is going to be a lot more productive as well. Plus it generated the capacity capabilities, hopefully for the -- not only -- for the next 10 years, not only for the remainder of this decade. And there, we've built up a pretty significant additional capacity buffers, because we think we're going to grow substantially during that period.

Great. Thank you very much.

With that sense, I'm not just investing for that backlog and is it a two year reach or a three year reach or whatever it is, we really investing for the decade.

Got it. Thank you.

All right. Operator, with that, we're at 9:30, so we'd like to close the call here.

Yes, sir, I'll pass the call along to you for closing remarks.

Excellent. Well, thank you, everybody, for joining us today. As a reminder, Bruker has scheduled an in-person/hybrid Investor Day at our Billerica, Massachusetts headquarters for June 15, which will focus primarily on proteomics and spatial biology. Also, please feel free to reach out to me to arrange any follow-up discussions. Thank you, and have a great day.