Bruker - Q2 2021

Transcript

Operator (participant)

Good day, everyone, and welcome to the Bruker Corporation 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Miroslava Minkova, Senior Director of Investor Relations and Corporate Development. Ma'am, please go ahead.

Miroslava Minkova (SVP of Investor Relations & Corporate Development (formerly Senior Director))

Thank you, Jamie. Good afternoon. I would like to welcome everyone to Bruker Corporation's 2021 earnings conference call. My name is Miroslava Minkova, Senior Director of Investor Relations and Corporate Development at Bruker Corporation. Joining me on today's call are Frank Laukien, our President and CEO, and Gerald Herman, our Executive Vice President and Chief Financial Officer. In addition to the earnings release we issued earlier today, during today's conference call, we'll be referencing a slide presentation. The PDF of this presentation can be downloaded from the latest results section on Bruker's Investor Relations website. During today's call, we'll 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 we show on slide two.

During the course of this conference call, we'll 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 the ongoing COVID-19 pandemic, the spread of the Delta variant, as well as ongoing worldwide semiconductor chips and other supply shortages. 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's website. Also, note that the following information is related to current business conditions and to our outlook as of today, August 2nd, 2021.

We do not intend to update our forward-looking statements based on new information, future events, or for other reasons prior to the release of our third quarter 2021 financial results expected in early November 2021. Therefore, you should not rely on these forward-looking statements as representing our views or outlook as of any date subsequent to today. We'll begin today's call with Frank providing a summary. Gerald will then cover the financials for the second quarter in more detail. Now, I would like to turn the call over to Bruker's CEO, Frank Laukien.

Frank Laukien (Chairman, President and CEO)

Thank you, Miroslava, and good afternoon, everyone. Thank you for joining us on today's earnings call. Bruker again demonstrated excellent progress in the second quarter following our strong start in the first quarter of 2021. During the second quarter, Bruker's revenues, margins, and earnings grew significantly year over year with robust demand for our high-performance scientific instruments, life science, and diagnostic solutions amidst a solid end-market recovery. Our teams executed well across our core business and project accelerate, and Bruker is now very well positioned for excellent progress in 2021. Our second quarter 2021 revenues grew 34.4% to approximately $571 million. On an organic basis, Bruker's revenues increased 27.2% year over year, which includes 27.8% organic growth in the Bruker Scientific Instruments groups and 21.8% organic growth at best.

Our Q2 2021 non-GAAP gross margins expanded 490 basis points year over year to 50%, while our non-GAAP operating margin reached 17.3%, up from 11.5% in the second quarter of 2020, which was negatively impacted by the pandemic. In the second quarter of 2021, Bruker reported GAAP diluted earnings per share, or EPS, of $0.38. On a non-GAAP basis, second quarter 2021 diluted EPS were $0.44 compared to $0.21 in the second quarter of 2020. Gerald will cover the drivers for margins and EPS later on the call, but in summary, the strong revenue and volume growth in the quarter drove substantial year-over-year gross and operating margin expansion despite our increased R&D and marketing and sales investments in Project Accelerate 2.0. On slide five, we show Bruker's performance for the first half of 2021.

Our revenues increased by $277 million year over year, or by 32.6% to $1.126 billion. On an organic basis, revenues grew 25.5% year over year, again comprised of 26.7% organic growth in scientific instruments and a 14.3% organic increase at BEST net of intercompany eliminations. First half 2021 order bookings for Bruker's three scientific instruments groups grew more than 20% year over year organically, and our BSI book-to-bill ratio for the first half of the year remained above 1.0. During the first half of the year, many of our businesses saw revenue and bookings growth even beyond what the pandemic recovery would imply as we experienced strong demand across our core academic and industrial businesses, as well as in our Project Accelerate high-growth markets. Geographically, our first half 2021 order bookings were particularly strong in North America, China, and other Asia-Pacific markets outside of Japan.

Our first half 2021 non-GAAP growth and operating margin and GAAP and non-GAAP EPS performance are all summarized on slide five. All stepped up significantly year over year as our business recovered and actually accelerated in the first half of 2021. Please turn to slide six and seven now, where I provide highlights on the first half 2021 performance of our three scientific instruments groups and of our BEST segment, all on a constant currency and year-over-year basis. For the first half of 2021, the BioSpin Group revenue grew approximately 20% to $307.9 million, reflecting a recovery in customer demand and installation activities compared to the first half of 2020. BioSpin Systems revenue was up strongly year over year, including revenue recognition on two gigahertz class NMR systems in the first quarter of 2021. As expected, there were no gigahertz class systems in revenue in the second quarter of 2021.

In mid-June, the U.S. National Science Foundation announced a $40 million award to establish a network of advanced NMR, or NAN, among three U.S. academic institutions: University of Connecticut School of Medicine, the University of Georgia Complex Carbohydrate Research Center, and the University of Wisconsin-Madison's National Magnetic Resonance Facility. We are pleased to announce that as a result of this grant, a new recent order for a 1.1 gigahertz NMR system has been received from the University of Wisconsin-Madison. BioSpin's aftermarket and software revenues also grew strongly, grew year over year. In the first half of 2021, our CALID Group revenues increased more than 30% to $385.7 million, with continued strong growth in our mass spectrometry and microbiology businesses and a rebound in our FTIR, near-infrared, and Raman molecular spectroscopy product lines.

We continue to see very robust demand and revenue growth for our timsTOF Unbiased 4D Proteomics platform, while revenue for other life science mass spec products also grew year over year. Microbiology and molecular diagnostics revenue grew year over year, driven by healthy demand for our MALDI Biotyper instruments and consumables, coupled with a partial recovery of Bruker Hain tuberculosis diagnostic products. During the second quarter, our revenue from SARS-CoV-2, or COVID PCR testing, was approximately $6 million, so first half 2021 revenues of our infrared, near-infrared, Raman molecular spectroscopy products were sharply higher year over year with solid execution, new product adoption, and a strong global industrial applied and academic market rebound. Please turn to slide seven now. First half 2021, Bruker Nano revenues grew in the high 20% to $329.7 million. Nano's industrial and academic business had a solid rebound, with industrial even outperforming our recovery expectations.

Revenues for advanced X-ray, nano surfaces, and nano analysis tools all grew substantially year over year. Nano's microelectronics and semiconductor metrology tools continue to perform strongly with ongoing healthy demand. Finally, fluorescence microscopy revenue was up strongly year over year on strengthened academic demand. First half 2021, Nano revenue also included a contribution from our September 2020 Canopy Biosciences acquisition with Canopy single-cell targeted proteomics tools and services. Moving on to our BEST segment, BEST revenue in the first half 2021 grew in the mid-teens% net of intercompany eliminations, driven by contributions from big science projects. BEST revenue from superconductors for healthcare and MRI was low the prior year period. However, we see strengthened MRI demand for superconductors in the second half of 2021. Moving to slide eight, we continue to make very good progress with our Project Accelerate initiatives and investments.

At our recent virtual Investor Day, David Zhu shared our strategies and goals for our potential breakout opportunities in unbiased 4D proteomics and in spatial biology and single-cell omics, as well as in our rapidly growing microbiology and molecular diagnostics business. In early June, we introduced two new timsTOF platform systems, the timsTOF Pro 2 and the timsTOF SCP for single-cell proteomics. We anticipate these instruments will further drive our growth in the fast-growing and exciting proteomics market. Today, however, for a change, I would like to highlight additional important timsTOF Pro 2 applications in the areas of 4D four-dimensional metabolomics and 4D lipidomics research. As you will see on slide eight, we had some important new workflows and products and libraries that we launched in the second half of June after our investor day, and there was a press release on that.

Very importantly, we have a new ultra-high sensitivity source for high flow rates, the VIP-HESI source that you see here on the timsTOF Pro 2, which generally gives us about an order of magnitude sensitivity gain and further improves or enables new applications in small molecule metabolomics and lipidomics research. We were delighted with our collaboration with Scripps on the METLIN-4D large 4D metabolomics library, now with CCS, or collision cross-section data at scale with more than 10,000 reference small molecule data entries in this library, all now including this very new important parameter that we can measure at scale, the CCS, or collision cross-section.

Because our collision cross-sections on the timsTOF platform are so accurately measured, they can also be precisely predicted, and we have new CCS-Predict software developed together with partners that use artificial intelligence and deep learning to make collision cross-sections from predictions available for even more small molecule workflows, including those in exposomics and in drug metabolites. And finally, in metabolomics, we really have outstanding tools developed organically at Bruker, our MetaboScape and TASQ 2022 software tools, and they are used in a variety of applications, for instance, for the reduction of false positive identifications in 4D lipidomics, which is a very, very important aspect of how to do lipidomics. So great new developments not only in proteomics but also in 4D metabolomics and lipidomics. So finally, let me wrap things up here.

On slide nine, at our investor day, we also noted our continued investments in operational excellence, including investments in environmental sustainability. Here we just briefly highlight the progress of our BioSpin Group in reducing its carbon dioxide emissions, energy, and liquid helium consumption. For its major new facilities, or renovated, expanded facilities in Germany and Switzerland, Bruker BioSpin has invested in solar energy, in photovoltaic, and other energy-efficient systems. Bruker BioSpin's new campus in Germany has been built to the latest standard with substantially reduced carbon dioxide emissions. For its operations in Germany and Switzerland, we anticipate significant reductions as summarized here and much reduced CO2 emissions and lower overall energy consumptions. We are also at BioSpin and at BEST investing significantly in helium reliquefaction capacity in various locations.

I won't go into the details and numbers here, but if you look at the slide in some detail, if you are interested, these are sizable investments, and they make a major difference towards environmental sustainability, something we expect of ourselves and something also our customers expect of Bruker. So in summary, and to wrap things up, during the second quarter and first half of 2021, Bruker has delivered strongly improved performance with significant year-over-year revenue growth, margin expansion, and EPS growth. Our core businesses have rebounded strongly, and our higher growth Project Accelerate areas continue to deliver. We're making further investments in our Project Accelerate 2.0 and operational excellence initiatives, including stepped-up investments in the second half of 2021.

With that, Bruker is well on track for excellent financial and strategic progress in 2021, and we are raising our fiscal year 2021 outlook for revenue growth, non-GAAP operating margin expansion, and non-GAAP EPS further, as Gerald will explain, and as you can see in our press release. Now with that, let me turn the call over to our CFO, Gerald Herman, who will review our financial performance and outlook in more detail. Gerald.

Gerald Herman (Executive VP and CFO)

Thank you, Frank. And thank you, everyone, for joining us. I'm pleased to join you today and review Bruker's second quarter and first half 2021 financial highlights starting on slide 11. Bruker's revenue increased 34.4% to approximately $571 million in the second quarter of 2021, which includes an organic revenue increase of 27.2% year over year.

We reported GAAP EPS of $0.38 per share, excuse me, compared to $0.60 in the second quarter of 2020. On a non-GAAP basis, second quarter 2021 EPS was $0.44 per share compared to $0.21 in the second quarter of 2020. Our second quarter 2021 non-GAAP operating income more than doubled from a weak comparison in the second quarter of 2020, which had been negatively impacted by the pandemic. Our second quarter 2021 non-GAAP operating margin expanded 580 basis points year over year to 17.3%, driven by strong revenue and volume. This was after absorbing additional investments in our Project Accelerate 2.0 and operational excellence programs, and also included a negative impact from foreign exchange translation of approximately 70 basis points in the quarter. We finished the second quarter with cash, cash equivalents, and short-term investments of $706 million.

During the quarter, we used cash to fund strategic investments, stock purchases, and dividends. In the second quarter of 2021, we repurchased approximately 556,000 shares of Bruker stock for a total of $38.3 million. In May, our board approved a new two-year share repurchase authorization of up to $500 million, valid until May 2023. Year-to-date, share repurchases have totaled 1.1 million shares for approximately $71 million. We generated $21.9 million of operating cash flow in the second quarter, which was more than offset by our higher capital expenditures in the quarter, resulting in a $0.7 million in free cash outflow for the second quarter. Our working capital-to-revenue ratio improved from the full year 2020 due to higher revenue and efficiency gains in the second quarter of 2021. Slide 12 shows the revenue bridge for the second quarter of 2021. As noted earlier, organic revenue in the quarter increased 27.2%.

We had a positive revenue contribution from acquisitions of 0.4% and a foreign currency tailwind of 6.8%. From a year-over-year organic revenue perspective, in the second quarter of 2021, BioSpin increased in the mid-teens. Nano grew in the low 30% range, and CALID grew in the mid-30% range. BEST revenue increased in the low 20% range net of intercompany eliminations. Second quarter 2021 BSI systems revenue increased in the low 30% range organically, while aftermarket revenue grew in the high teens organically compared to the second quarter of 2020. Geographically and on an organic basis, in the second quarter of 2021, our European revenue increased in the high 20% range. North American revenue grew over 50% off a weak prior year comparison, and Asia-Pacific grew in the high single digits year over year.

Softer revenue performance in China and Japan was more than offset by strong revenue growth in other APAC regions. Rest of the world's second quarter 2021 revenue was also higher year over year. Slide 13 shows our second quarter 2021 P&L performance on a non-GAAP basis. Second quarter 2021 non-GAAP gross margin of 50.0% increased 490 basis points from 45.1% in the second quarter of 2020, driven by higher revenue and volume leverage. Second quarter 2021 non-GAAP operating expenses increased 30.9% compared to the second quarter of 2020, reflecting more normalized expense levels after the temporary cost controls and reductions we had in place during the second quarter of 2020. Second quarter 2021 operating expenses also reflect a step-up in our Project Accelerate 2.0 investments and a significant foreign exchange headwind.

As previously communicated, over the course of 2021, we are increasing our investments in our Project Accelerate 2.0 initiatives, and the pace of these investments is expected to step up further in the second half of 2021. Our Q2 2021 non-GAAP operating margin of 17.3% was 580 basis points above 11.5% in the second quarter of 2020. This resulted from significantly higher revenue, volume, and operating leverage in the second quarter of 2021. For the second quarter of 2021, our non-GAAP effective tax rate was 26.7% compared to 22.6% in the second quarter of 2020, with the increase driven principally by jurisdictional mix and the impact of favorable discrete tax items in the second quarter of 2020.

Weighted average diluted shares outstanding in the second quarter of 2021 were 152.9 million, a reduction of approximately 1.8 million shares or 1.2% from the second quarter of 2020, resulting from our share repurchase activity. Finally, second quarter 2021 non-GAAP EPS of $0.44 more than doubled from the $0.21 in the second quarter of 2020, driven primarily by higher revenue, gross, and operating margins. Slide 14 shows the year-over-year revenue bridge for the first half of 2021. Revenue was up $277 million or 32.6%, including organic growth of 25.5%. Acquisitions added 0.6% to our top line, while foreign exchange was a 6.5% tailwind, and Frank has already covered the drivers for the first half of 2021 revenue. P&L results for the first half of 2021 are summarized on slide 15, with the drivers largely similar to the second quarter of 2021 and are explained on the slide.

Turning now to slide 16, in the first half of 2021, we generated $72.6 million of free cash flow compared to a cash outflow of $4 million in the first half of 2020. First half 2021 free cash flow benefited from a higher net income, partially offset by other items, principally the timing of customer deposits. Our cash conversion cycle at the end of the second quarter of 2021 was 239 days, a reduction of 42 days compared to the second quarter of 2020, reflecting the normalization of our working capital cycle. We continue to carry elevated inventory to better manage supply chain risks, including those related to semiconductor chips and other supply shortages, as well as to meet accelerating demand across most of our businesses.

Turning now to slide 18, given our strong first half financial performance and improving outlook in our core business, we're again raising our outlook for 2021 revenue growth, non-GAAP operating margin expansion, and non-GAAP EPS. For fiscal year 2021, we now expect organic revenue growth of 14%-16%. We continue to project a foreign currency tailwind to revenue growth of approximately 3%. This is expected to lead to reported revenue growth for 2021 in the range of 17%-19% compared to 2020. Non-GAAP operating margin for 2021 is expected to expand 270-310 basis points compared to 16% reported in 2020. Directionally, our guidance model assumes R&D investments at approximately 10% of revenue in 2021, but adjusted now for a lower foreign exchange headwind to our non-GAAP operating margin of approximately 30 basis points for the full year.

On the bottom line, this adds up to non-GAAP EPS for 2021 in a range of $1.88-$1.93, representing non-GAAP EPS growth of 39%-43% compared to 2020. This also represents 20-plus% growth from our $1.57 pre-pandemic non-GAAP EPS level in the full year of 2019. Other guidance assumptions are unchanged and are listed on the slide. Our updated full year 2021 ranges reflect foreign currency rates as of June 30, 2021. While we do not provide quarterly guidance, given the unusual dynamics of 2020 and 2021, I'd like to add some additional color for our expectations on the third quarter. Revenue, margin, and earnings comparisons to 2020 become more normalized in the second half of the year compared to the first half.

Given strong demand, we nonetheless anticipate Q3 2021 revenue to grow 10%-12% on an organic basis compared to the third quarter of 2020. This range includes the likely revenue recognition for one additional ultra-high field NMR system. As I noted earlier, we also anticipate a further ramp-up in our Project Accelerate 2.0 strategic investments during the second half of 2021. To conclude, we delivered excellent financial year-over-year improvements in the second quarter. Robust demand and recovery in our core business, plus continuing strength in our Project Accelerate initiatives, drove strong volume and pull-through to our operating margin and EPS in the second quarter. Our first half 2021 revenue performance exceeds the first half 2019 pre-pandemic revenues by approximately 13% organically. We're currently well-positioned for excellent progress in 2021. With that, I'd like to turn the call over to Miroslava to start the Q&A session.

Thank you very much.

Miroslava Minkova (SVP of Investor Relations & Corporate Development (formerly Senior Director))

Thank you, Gerald. I would now like to turn the call back over to the operator to begin the Q&A portion. As a reminder, in order to allow everyone time for questions, we ask that you limit yourself to one question and a follow-up. Jamie, please go ahead.

Operator (participant)

Ladies and gentlemen, at this time, we will begin that question-and-answer session. To ask a question, once again, you may press star and then one. If you are using a speakerphone, we do ask that you please pick up the handset before pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and two. Again, that is star and then one to ask a question. We'll pause momentarily to assemble the roster. And our first question today comes from Puneet Souda from SVB Leerink. Please go ahead with your question.

Puneet Souda (Senior Research Analyst)

Yeah, hi, Frank. Thanks for taking the question. So first one is really on the demand.

Frank Laukien (Chairman, President and CEO)

Hey, there.

Puneet Souda (Senior Research Analyst)

Hi, Frank. Hear me now?

Frank Laukien (Chairman, President and CEO)

We can, yes, we can hear you, but barely.

Puneet Souda (Senior Research Analyst)

Hopefully, you can hear me now, and I'll try to ask, and if not, I'll back into the queue.

Frank Laukien (Chairman, President and CEO)

Yes, we can.

Just in terms of the oral.

We can hear you now.

Gerald Herman (Executive VP and CFO)

It's better, yes.

Puneet Souda (Senior Research Analyst)

Excellent. Thank you. So just in terms of the overall demand that you're seeing in the market right now, how would you classify that as more of a pent-up demand? And really, the question is, as we go towards the fourth quarter, should we expect a normal sort of a fourth quarter cycle? And in terms of the budget flush and the total overall instrumentation demand that we normally see in the fourth quarter, that would be great. And would that be sort of somewhat what we have seen prior to COVID? Is kind of what I'm trying to get to?

Frank Laukien (Chairman, President and CEO)

Yeah. So Puneet, I think we're seeing more than just a recovery. This is a pretty strong economy, pretty strong demand, now also with the U.S. being very strong in terms of demand. Previously, Europe and China had picked up earlier, as you know. We are seeing great strength in industrial research and industrial QC businesses. So the core businesses, along with academia, those had been a little bit more sluggish until recently, but now they're very strong in both bookings and revenue. And of course, our Project Accelerate 2.0 initiatives are all doing quite well, and some are doing exceptionally well. So it's really a very strong picture right now. In terms of normalized, I mean, I would not I mean, we're obviously very pleased with our second quarter, but it's a weaker comparison. In the second half, the comparisons get more normalized or get stronger.

I think I wouldn't want to point to any given quarter this year as a normalized quarter. I think I would really average over the four quarters, and that's what we're managing to set a new baseline rather than to do something that compares to last year's rather distorted quarters in 2020. So I think we're obviously making excellent progress. We're doing much more than just recover. We're really in pretty fast growth mode right now. And yeah, I hope that gives you the type of color that you are looking for. This is maybe one more point to one of your questions or elements of your question. This is much more than, in our opinion, much more than just pent-up demand or catch-up. This is really quite healthy.

Puneet Souda (Senior Research Analyst)

Got it. That's very helpful. And then on timsTOF, obviously, a strong install base four years into the launch. You're obviously launching new applications into proteomics and new products as well. So as you look at that trajectory, what can you provide us in terms of the overall, given the current status of the install base, the growth rate sort of you're expecting at this sort of point in time? And again, a second question I would say is on the strategy for the LC side. As you see more install base growing out there, do you expect to see more attach rates for maybe Bruker LCs or other Bruker accessories into timsTOF?

Frank Laukien (Chairman, President and CEO)

Right. So the timsTOF platform, which now has multiple types of systems, right? The fleX with all the additional imaging capability, the SCP for single-cell proteomics, brand new, of course. The fleX was launched previously. And then the bread-and-butter system, right, for proteomics, but also with a new source and the new capabilities also for 4D metabolomics, as I explained. Overall, it's just really a very good, very healthy good picture of strength. And in the first half, as well as in the second quarter, both bookings and revenue growth in that platform had been very strong and stronger than the corporate average growth, which isn't bad. So very pleased with that. So we're in a growing market. We're doing well in a growing market. I think the proteomics markets are doing well, and we're doing particularly well within proteomics.

Our LC attachment is a bit of a specialized question, but our LC attachment rate is not bad. A lot of customers, we're not pushing them, but our standard offering is a Bruker nanoElute LC. It's a very, very good nano LC. We're not saying it is much better than any other, but it is good as any, I would say, out there. And it's well recognized for excellent stability and separation and all the usual attributes. So our LC attach rate is reasonably high, and I think it's well above 50%, although I don't have an exact number for our timsTOF series for proteomics. But we also work well with other either larger LC suppliers, you know who they are, or specialists that particularly focus on proteomics. So I don't anticipate a significant change there because that's been pretty good for us all along.

More people are getting our software. Of course, everybody uses multiple bioinformatics packages for proteomics, but they're increasingly also very, very interested in our very fast GPU-driven run-and-done proteomics PaSER software, even if they then use complementary other packages by other vendors who we collaborate with. So I think we're picking up some proteomics revenue beyond just the mass spec, if that's what you're referring to, obviously. And that's going as expected. It's going well.

Puneet Souda (Senior Research Analyst)

Great. And just last one, if I could squeeze in. In terms of the ultra-high field gigahertz NMR, could you just clarify the expectations again for this year? And given the multiple sort of larger grants, what's your outlook here in terms of expansion of the number of installed base? I think you were guided to three to five installs for the year. Is that changing, and how should we look at 2022? Appreciate it. Thank you.

Frank Laukien (Chairman, President and CEO)

Yeah. For this year, we're most likely going to look at four now, is my best estimate, with both some factory and but also some customer siting delay. So four this year. We had two in Q1, none in Q2 as expected. As Gerald just said, we're expecting one in Q3. And yeah, you do the math, therefore probably one more in Q4, although right now we gave color on Q3. So that's the plan for this year. We're delighted with the additional NSF funding on orders, right? Those won't go into revenue, not next year, more like 2023, 2024. We'll need to see exactly how that plays itself out. We've ramped up our capacity to build and test more in Switzerland. We're not giving 2022 guidance, but I mean, our order books certainly are full. And so that all bodes very well.

Maybe very importantly, other than just instruments and more orders and more funding, that's good. The U.S. needs a lot more funding. I'm glad with this NSF-funded icebreaker, so to speak, with the two systems, the two additional systems, one of which we received an order, the other one so far simply has funding. The U.S. will probably want to do a lot more to be on par with Europe. And then, of course, also I think there'll be a lot of interest over time developing in Asia-Pacific, where so far there's only one system on order for Korea. So other applications are coming along very nicely. And even some of the structure prediction by Google, AlphaFold, and so on could actually be a boost to NMR demand because we don't do just structures. We love to start in NMR.

Our customers like to start with a structure, whether that comes from X-ray or cryo-EM or from prediction, if it's reasonably good, and then they do the dynamics and look at the binding and look at the changes and functional interactions. Actually, there's a lot of good drivers that I think will make NMR functional structural biology even more important, both technical as well as what's happening around us outside of Bruker. We think there's a lot of good scientific drivers.

Puneet Souda (Senior Research Analyst)

That's great. Thanks for the details, Frank.

Frank Laukien (Chairman, President and CEO)

Yep.

Operator (participant)

Our next question comes from Derik de Bruin from Bank of America. Please go ahead with your question.

Derik de Bruin (Managing Director and Senior Equity Analyst)

Hi, good afternoon, and congratulations on a strong quarter.

Frank Laukien (Chairman, President and CEO)

Thank you.

Derik de Bruin (Managing Director and Senior Equity Analyst)

Just two quick questions. Frank, could you clarify, did I heard you correctly, then greater than 20% order growth in the first half? What was it exiting to Q, if you don't mind?

Frank Laukien (Chairman, President and CEO)

I may need some help here with greater than 20% organic growth rate in BSI in the first half, right? And I know that our BSI book-to-bill was about 1.1 in the second quarter. So that is the number that I have at my fingertips. So pretty healthy.

Derik de Bruin (Managing Director and Senior Equity Analyst)

Great. No, thank you. Thanks for the clarity on that. And can you talk a little bit about the semiconductor markets and supply chain issues? I think some of the other companies have talked about transportation costs going up and shipping costs going up. Can you talk a little bit about what you're seeing in the supply chain and also just what you're sort of looking at in terms of the semiconductor markets and obviously how that impacts the and what you're seeing is, of course, the global supply chain there as well. Thank you.

Frank Laukien (Chairman, President and CEO)

Yeah. Yeah. For us, it's on two sides, right? The one where like everyone else, we're working really, really hard, and it's a struggle to deal with supply chain issues and cost, right, from transportation issues to even mundane things, wood pallets and things like that, to, of course, electronic components and semiconductor chips. There, it's – we're working it so far, but it is far from trivial. So I mean, I think there are real risks. I think that's why our guidance, I think, is very reasonable. But we also still think that some of these things, in some cases, not only they'll derail us, but they could slow us down here or there. On the other hand, of course, we have a large semiconductor metrology business that's doing extremely well, and investments in semiconductor metrology, in packaging, are all really very good for our Bruker Nano business.

And so, by the way, I was just passing the note that our BSI orders in the second quarter, our organic growth for that was around 30%. So again, very, very strong. And yes, book-to-bill for BSI orders was 1.1. So all very good metrics.

Derik de Bruin (Managing Director and Senior Equity Analyst)

Great.

Frank Laukien (Chairman, President and CEO)

By the way.

Derik de Bruin (Managing Director and Senior Equity Analyst)

Thank you.

Frank Laukien (Chairman, President and CEO)

For us, I mean, if some of this year we have outstanding growth and recovery, at least we think so. And if some things get delayed a little bit from Q4 into next year, that's fine with us. We think that sets up maybe a more normalized set of comparisons for next year, whereas this year, the growth rates in any given quarter always so much depend on the prior year's quarter, and the prior year, as we know, was unusual. So this is actually, we're not losing. We're having excellent orders, excellent backlog, and if some things were to get delayed a little bit, we're fine with that. That sets up a more even trajectory.

Derik de Bruin (Managing Director and Senior Equity Analyst)

Thank you very much.

Frank Laukien (Chairman, President and CEO)

Yep.

Operator (participant)

Our next question comes from Tycho Peterson from JPMorgan. Please go ahead with your question.

Tycho Peterson (Managing Director)

Hey, Frank. I'm just wondering, looking across the four divisions, if you could just give us a little bit of color about how you're thinking has evolved, which of the segments may be inflecting. I know you just touched on the semiconductor piece for Nano, but can you maybe just give us a walkthrough between BEST and Nano, CALID, and BioSpin, how you're thinking about the back half of the year?

Frank Laukien (Chairman, President and CEO)

Yeah. I can. Sure, Tycho. So CALID is just doing really well, and even in the second half, it'll have a little bit of a headwind because the second half of last year had more PCR testing for COVID, and that's obviously come down sequentially, and so you'll have a little bit of a headwind, but between proteomics and the IVD business and metabolomics, and also the strength in the applied market that we see in our molecular spectroscopy business, CALID continues to have great momentum. BNano is particularly strong compared to last year, of course, with its industrial recovery and its continued strength in semi, and it's emerging and beginning to move the needle. Very nice growth in fluorescence microscopy from light sheet imaging to multiphoton to super-resolution imaging, so that part is now growing, so BNano is sort of a little bit the star this year.

BBio had an okay second quarter, but we think it'll have a very strong third quarter. So BBio will do well as well, although a little bit more better in Q3 than in Q2. And BEST is another surprise this year because early in the year, we didn't really expect the MRI OEM demand from our OEM customers, large MRI companies, to be as strong. And that's just been strengthening and strengthening. So BEST is actually, as you've already seen, Q2 was pretty good growth for BEST. And then in the second half of the year, BEST will actually be right up there in terms of good growth. So not a lot of weak spots and maybe just the occasional quarterly, one weak quarter followed by, again, a strong quarter in BBio. But over the year, that BBio is doing great.

CALID and Nano are doing the best this year.

Tycho Peterson (Managing Director)

Okay. That's helpful, and then two for Gerald quickly. I'm wondering if you can quantify any contribution from the COVID PCR assay in the quarter. And then cash flow, I'm wondering if you could maybe provide some updated thoughts on cash flow in the back half of the year as revenues pick up. We've had questions as to why cash flow is not picking up more.

Gerald Herman (Executive VP and CFO)

Yeah. So in terms of the COVID PCR revenue levels, I guess I'd say fairly modest, $6 million in the second quarter. So not a, I guess, not outstanding on many levels, but not really quite a drop-off as we had predicted in other cases. So that's pretty stable, I guess I'd say at this point. Relative to your question regarding cash flow, we did generate some fairly solid operating cash flow in the quarter, in the second quarter specifically. We're starting to see some change in volume of customer deposits. The level and the timing of it obviously really impacts our cash flow on an ongoing basis, and that's been the case, was clearly the case in the second quarter. The way that typically works is as we finalize orders, we begin to get fairly significant customer deposits in place.

And we're hopeful that that's going to continue as we start to see this demand continue to move. In the second quarter, we had a little bit of movement between tax payments between quarters, so that negatively impacted our cash flow for the second quarter. But overall, we're very optimistic about these levels of net income. We're very optimistic in the long term.

Frank Laukien (Chairman, President and CEO)

Cash flow just varies highly from quarter to quarter. Cash flow is really best looked at, averaged over several quarters. You saw our first half cash flow was about plus $73.

Gerald Herman (Executive VP and CFO)

$73 million, roughly. Yeah.

Frank Laukien (Chairman, President and CEO)

Yeah, so much, much, much, much higher than last year.

Tycho Peterson (Managing Director)

Okay. Thank you.

Gerald Herman (Executive VP and CFO)

You're welcome.

Operator (participant)

Our next question comes from Dan Leonard from Wells Fargo. Please go ahead with your question.

Dan Leonard (Former Analyst)

Hi. Thanks for the time. So a question on the guidance rates. I was hoping perhaps you could frame the new growth outlook compared to 2019. I understand the growth deceleration you're looking for in 2H versus 2020, given the comp, but I'm not sure I understand what's driving the deceleration in the two-year stats compared to 2019 versus what you just reported in the first half.

Frank Laukien (Chairman, President and CEO)

Yeah. So, we think we're just really looking for the full-year growth, and the full-year growth also compared to 2019 is actually quite strong as well. Of course, our guidance is relative to last year with the, at the midpoint, 15% organic growth rate guidance that you've now heard, and the rest is pretty much just math, quite honestly. I mean, this year, the growth rates will be much higher in the first half of the year due to comparisons, and then they'll be mathematically lower in the second half. I think for the year, we'll still have excellent growth year over year and also very solid growth compared to 2019, but 2020 didn't just not happen, right? There was actually a year 2020 with a pandemic, so it's not that we can simply do spreadsheet exercises as if it didn't.

Dan Leonard (Former Analyst)

I'd like to pretend it didn't happen. Maybe my follow-up [crosstalk] question wouldn't be all like that. Yeah.

Frank, as a follow-up, is there any way to frame the metabolomics and lipidomics applications you highlighted for timsTOF? Are these maybe secondary and tertiary applications compared to proteomics, or could they be equivalently important to proteomics on the timsTOF?

Frank Laukien (Chairman, President and CEO)

Yeah. Very good question. So lipidomics, metabolomics, they are different. But they're usually bunched together when people look at these markets. That's how we look at them. And it is smaller than the proteomics opportunity, for sure. But initially, or maybe a couple of years ago, we perhaps also expected that proteomics would dominate, and it will be the larger of the omics fields for us, for sure, by quite a bit. But it turns out that this 4D metabolomics and 4D lipidomics, let's take these two together with some of the new 4D capabilities that are unique to our timsTOF platform, and then 10 times more sensitive source and these libraries and predict capabilities actually start to make a bigger difference in those markets in terms of unique capabilities and unique working flows.

We're now getting, without even having tried as much, we're now getting quite a bit of pull from those markets in addition. I don't have a really good number for you, but maybe it's like a 2 to 1 or 3 to 1 proteomics compared to metabolomics, lipidomics. It's not negligible, but it is certainly smaller, and proteomics is the bigger opportunity. That gives you a very rough sizing.

Dan Leonard (Former Analyst)

Okay. Appreciate that perspective. Thank you.

Operator (participant)

Our next question comes from Jack Meehan from Nephron Research. Please go ahead with your question.

Jack Meehan (Research Analyst)

Yeah. Thank you. And good afternoon. I wanted to try Dan's first question, maybe a second way. As I look at the back half of the year, your guidance seems to imply somewhere around 2%-3% compounded growth versus 2019. And that compares to, on an organic basis, and that compares to around 6% in the first half of the year. So I was curious, what are some things that might be weighing on it? And for Gerald, the 3Q revenue guidance you talked about, is there any comment you can give around phasing on EPS, how that goes through the income statement?

Frank Laukien (Chairman, President and CEO)

Yeah. I mean, I'll take the first part and then turn things over to, so Jack, I haven't checked all your percentages, but directionally, I'm sure they're correct. Yeah. We're very comfortable the way we're managing the year in terms of growth and financial progress and organic growth. And we're not managing to the third quarter or to the fourth quarter. We're managing to the year, and we think we'll establish a very healthy pattern with excellent growth for the year. And that's our story, and we're sticking to that. And you can absolutely do calculations on two-year growth on any given quarter. Those are probably correct. And we're totally fine with that. I think we're making excellent progress and expect to establish a 2021 pattern that is rational and a good basis for comparison in the future.

So hopefully, next year, I'll be less defensive or facetious or whatever I am when it comes to discussing prior year comparisons because they'll make sense to us. You want to take the second part, Gerald?

Gerald Herman (Executive VP and CFO)

Yeah. Relative to your comments on where we see the third quarter, what I can tell you is that we put up a very solid operating margin performance in the second quarter at 17.3%. Our expectation with a higher level of organic revenue growth is that we'll continue to see some improvements there. We are, however, investing more heavily, and I mentioned in my prepared remarks our Project Accelerate 2.0 investments in the second half. So despite some improvements from our revenue perspective, we are intending to continue to strengthen our investments in these strategic investments. I'm not going to—I don't really want to give you EPS guidance or any other color specifically on a particular quarter. We'll talk about that at the full-year level. But fundamentally, that directionally, we're spending a little more in important strategic areas in the third and the fourth quarter.

Frank Laukien (Chairman, President and CEO)

Yeah. Look, I mean, we're growing around 40% in terms of non-GAAP EPS. We're very satisfied with that. That gives us the opportunity. We've always said we're committed to margin expansion and to EPS growth. And if we can do more, we'll invest it in the business. And that's exactly what we're doing. We're not trying to maximize this year. We're trying to invest in our future and deliver excellent improvements this year.

Jack Meehan (Research Analyst)

Yeah. Great. One other thing I was curious to get more color on was the results in the U.S. this quarter. Obviously, the year-over-year benefited from the prior year comp, but it was a strong quarter. I think the step-up sequentially was even bigger than going back to 2019 or 2018. Just any color on what you're seeing here in the U.S. that might have been driving the strength would be helpful.

Frank Laukien (Chairman, President and CEO)

Yeah. US biopharma is strong. Actually, also Sepsityper and MALDI Biotyper are strong. Semiconductor, it's also pretty broad-based, but biopharma and MALDI Biotyper come to mind, which biopharma was strong last year, getting even stronger, whereas MALDI Biotyper was really weak last year. And in the US, we didn't have any PCR COVID testing revenue. So those things contributed to that. But overall, they're not insignificant, but the US economy, academic, industrial, semiconductor, biopharma, applied diagnostics, microbiology diagnostics—we don't do PCR in the US—are just all remarkably strong.

Jack Meehan (Research Analyst)

Thank you, Frank.

Frank Laukien (Chairman, President and CEO)

Yeah.

Operator (participant)

Our next question comes from Doug Schenkel from Cowen. Please go ahead with your question.

Doug Schenkel (Analyst)

Hey. Good afternoon. Good afternoon, team. Goodbye.

Frank Laukien (Chairman, President and CEO)

Questions? I have one guidance question and then kind of, I guess, one higher-level outlook question for the longer term. So the first on guidance, and this has been touched on a little bit already, but I guess maybe taking a different angle on this, recognizing that comparisons get tougher in the second half. I think it's clear you sound great when it comes to bookings and higher-level trends. With that in mind, though, when you look at the quarterly pacing, guidance assumes that growth moderates at the midpoint. I think you guys said 11%. I think it's 10%-12% in Q3, and if I'm doing the quick math right, that implies around 4% growth in Q4.

Again, I get the comps, but is there another component of this just a function of the—you have a lot of visibility on Q3, and then when you look ahead to Q4, recognizing the business is going well, but the world is still uncertain, this is just kind of a prudent way to guide the street? So that's the first question, essentially, just kind of what's behind the thinking on pacing. And then the second question just kind of goes back to your recent capital markets analyst event, where you highlighted a lot of exciting existing and pending efforts in emerging proteomics. I'm just wondering if you could talk about how those, especially the pending efforts, are impacting revenues. And I'm guessing it's too early to impact revenue and bookings, but I'm assuming that is something that's factoring into how you're thinking about end of year into 2022.

If you could talk about that a little bit, I think that would be of interest as well. Thank you.

So on the, I'm going to be combative today, but I just have to be. We're reporting Q2 today, not Q4. And Q2, we overperformed consensus very significantly. It was by about $30 million or something like that. So sure, criticize us that well, but that makes Q4 look less important than all of that. But first of all, we were greatly outperforming and over-delivering, and we're setting up for a good Q3. So yeah, that's, those are the facts. The rest is just guidance and future quarters. So we're very pleased with our performance that we're delivering and that our, certainly, the buy side really appreciates. The rest would be repetitive. We're managing to the year. We're having great performance improvements this year, and we're very happy with our overperformance, first in Q1 and then in Q2.

I think it's better to have upfront overperformance to de-risk the year than to- as opposed to if I had missed the first two quarters, maybe you'd be happy with my Q4 because then it gets a lot more risky. So I don't quite honestly- I know where you're coming from, but I get it and I don't get it. So anyway, we're-

Yeah. Frank. Maybe Frank. [crosstalk]

We're driving the year with overperformance upfront and de-risking the year, and I think that's the way to do it.

Gerald Herman (Executive VP and CFO)

Yeah. Frank, I think maybe you're taking this the wrong way to be, I guess, equally direct. I think it's really more—you did a good job in the first half, which I think I agreed with, and I think most on the call have. Secondly, I think we look at Q3, and that's a good guide. Q4 is a little bit lower. I think we're just—I'm not saying that's not good. I'm saying, "Hey, is it just kind of let's be conservative because we're doing real well," and the bias is to the upside there. So I actually would kind of redirect you to think about it a little differently.

Frank Laukien (Chairman, President and CEO)

Okay. Thank you. Your second higher-level question was on the outlook on proteomics. And sorry, can you remind me of what was the question on proteomics?

Operator (participant)

Yeah. I'm just wondering. That obviously generated a lot of excitement and I think started to get Bruker a little more attention in terms of what you were capable of with the pipeline. And you guys have been doing great with your new products. I think this brought a little more attention to it on Wall Street. I'm just wondering, as you think about it with customers, was that already resonating, or are there similar efforts where you're starting to get more credit as we think about the outlook for 2022 and 2023 with some of these pipeline initiatives?

Frank Laukien (Chairman, President and CEO)

I think the customers we've had, we've received and for some time now, for the last three, three and a half years, ever since we really launched the proteomics timsTOF Pro platform and then the successor and additional more differentiated products, I think the customer and scientific recognition is excellent. And they're obviously looking at products that are on the technologies that are available today. There isn't much confusion among customers. And I think the story is more complex about investors because there are so many new proteomics companies and new proteomics stories. And sometimes we're included in proteomics exciting stories because that's factual. And sometimes, I don't know, sometimes people kind of look at the two leading proteomics companies out there and don't even mention them among proteomics companies, which the customers don't have that issue.

So I think it has helped on the Wall Street side, as you've pointed out. And I think among the customers, we just don't have that issue. You go to proteomics conferences and you go to mass spec conferences with proteomics interest, and there the recognition for the timsTOF Pro proteomics platform is really excellent. And it's just getting stronger because there are so many satisfied customers, and many of them are now getting second and third and some getting fifth and seventh instruments and whatnot. So there's quite a difference between the investment community and the scientific community and customers. In the latter, among the scientific community, customers, academics, as well as biopharma companies, the timsTOF is extremely well recognized. It's something that's really, in some ways, game-changing and certainly has some very advanced and complementary capabilities that you can't get any other way.

Operator (participant)

Got it. Okay. Thanks. Our next question comes from Brandon Couillard from Jefferies. Please go ahead with your question.

Gerald Herman (Executive VP and CFO)

Hey, thanks. Good afternoon. Frank, you alluded to some softness in China and Japan in the second quarter. Could you just elaborate a little bit more on what you're seeing in China and maybe what your outlook embeds for that market for the year?

Frank Laukien (Chairman, President and CEO)

Yeah. Brandon, Japan has been weak this year and continues to be weak. So that's a pretty short answer, but I think it's pretty much the answer. In China, actually, it's much more differentiated. I think for the whole year, China will be strong. But yes, it was a little weaker in revenue in Q2, although order bookings in Q2 in China were very, very good for BSI, and it's almost all BSI there. So we think that's going to even out over the quarters. So China, we expect to be strong this year. Remember that the China comparison is a little tougher already in Q2 also. Maybe an additional point because China began to recover already in Q2 of 2020, much, much earlier than others. And yeah, we had a little bit of a discrepancy between China revenue and some paperwork that's associated with.

Operator (participant)

It's the tax exemption certificates for certain academic customers.

Frank Laukien (Chairman, President and CEO)

So China will be okay for the year and will be a strong growth contributor, but not as much in Q2. So you're right. Japan is just weaker this year, and maybe after the Olympics, they'll have additional priorities. But right now, the spending in Japan has been strong. It's probably if you've seen any one single economy in the world that's not, at least for us, isn't booming yet, that would be Japan.

Gerald Herman (Executive VP and CFO)

Gotcha. Thank you.

Operator (participant)

Our next question comes from Josh Waldman from Cleveland Research. Please go ahead with your question.

Josh Waldman (Senior Equity Research Analyst)

Hey, guys. Thanks for fitting me in. Just to follow up on China, I believe at the Bruker analyst day, I think on the Q&A, you alluded to some changes that are underway in China. Is there anything to further unpack there? Is that the tax exemptions you just mentioned, or is it something else?

Operator (participant)

Yeah. Hi, Josh. It's Gerald. So what's actually happening is that we got very strong order bookings performance in China across our BSI groups. It's just a bit of a delay in actually getting those tax exemption certificates that are coming through the Chinese authorities. They recalibrated or renewed their exemption activities in Q2, and that's just created some delays. So it's more push-out activity than anything else at this stage. Got it. So no orders dropping out of the book, more just push-out? No, no. As I said before, we have very robust order bookings performance across all the groups in China.

Gerald Herman (Executive VP and CFO)

Got it and then to the earlier comment on potential benefits from any unforeseen shipments or shipment delays later in the year, I guess, what is your ability or appetite, Frank, to manage growth by, I guess, purposely delaying shipments out of 2021? I mean, it seems like based on order trends, the concern maybe is less on your ability to hit the guide and maybe more on your ability to kind of even out revenue growth from 2021 to 2022. Any comments on your ability or willingness?

Frank Laukien (Chairman, President and CEO)

Good question. We're certainly capturing all the revenue we can. And I mean, there's a little bit of conservatism built in as well, right? I mean, there are contradictory statements of how severe Delta is, and is there an objective? Is there the scientific conclusion, or are there different arguments that one hears? You see it. It's pretty diverse. And then how will different countries react to it? Countries that don't have high vaccination rates obviously are extremely vulnerable, including hospitalizations and death rates. You see that, and you saw that in India. You now see that in Southeast Asia, right? Countries with high vaccination rates or high, whatever, perhaps something along herd immunity, which U.K. and others come to mind. It's just not clear what will happen in Q4. There probably will be another wave, but will it be a wave of just infections or hospitalizations?

That, of course, makes a big difference. We can't settle that debate. We're being somewhat cautious. There are also other supply disruptions that could slow us down. So far, we've managed really well, but it is much, much more work for our supply and logistics and production teams than ever before. I mean, with that, we want to make sure we build in a little bit of conservatism, but not excessive either. We'll see how that plays itself out. There are some risks still for the remainder of the year that hopefully we've adequately reflected in our guidance.

Gerald Herman (Executive VP and CFO)

Thanks, guys.

Operator (participant)

And ladies and gentlemen, with that, we'll be ending today's question and answer session. I'd like to turn the floor back over to Miroslava Minkova for closing remarks.

Miroslava Minkova (SVP of Investor Relations & Corporate Development (formerly Senior Director))

Thank you for joining us today. During the third quarter, Bruker will participate in the 2021 Wells Fargo Virtual Healthcare Conference. We look forward to meeting you at any event during the quarter or directly with you during the quarter. Thank you and have a nice evening.

Operator (participant)

Ladies and gentlemen, with that, we'll conclude today's conference call. We do thank you for attending. You may now disconnect your lines.