Bruker - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 missed on both revenue and EPS vs S&P Global consensus as academic, biopharma and industrial demand weakened, tariffs rose, and FX turned into a headwind; revenue was $797.4M vs $810.2M consensus and non-GAAP EPS $0.32 vs $0.42 consensus, while GAAP EPS was $0.05. Consensus values marked with asterisk are from S&P Global: revenue $810.2M*, EPS $0.42*.
• Bruker cut FY25 guidance to revenue of $3.43–$3.50B (2%–4% reported growth) and non-GAAP EPS of $1.95–$2.05 (down 15%–19% YoY), citing lower organic demand (-2% to -4%), ~60 bps tariff and ~90 bps FX headwinds to margin; management also initiated a larger cost program targeting $100–$120M annual savings in FY26 to drive ~300 bps operating margin expansion even in flat growth.
• Non-GAAP operating margin fell 480 bps YoY to 9.0% on weaker volume, mix, tariffs and FX; non-GAAP gross margin was 48.6% (-270 bps YoY). Free cash flow was -$148.8M on tax timing and working capital; book-to-bill was mid-0.9x and BSI backlog ~6.5 months.
• Innovation cadence remained strong (timsUltra AIP, timsOmni, timsMetabo; biocrates acquisition), supporting the medium-term multiomics thesis despite near-term headwinds; Q2 segment mix: CALID strength offset BioSpin softness; BEST declined.
• Catalysts: clarity on tariff rates (esp. Switzerland), visibility on U.S. NIH/NSF funding settlements, China stimulus timing, execution of cost actions, and potential Q4 UHF NMR recognition; management models Swiss tariffs at 15% and can re-route production if needed.

What Went Well and What Went Wrong

What Went Well

• Product/innovation momentum: Launched timsUltra AIP with sensitivity gains enabling single-cell and high-throughput proteomics; also highlighted timsOmni and timsMetabo, and announced biocrates metabolomics acquisition to broaden multiomics consumables/software/services.
• CALID strength and applied MS/diagnostics: First-half CALID revenue up low-teens on MALDI Biotyper and ELITech molecular diagnostics; applied MS grew, offsetting life-science MS softness (management commentary).
• Cost discipline and forward margin plan: Announced expanded cost reductions of $100–$120M annualized for FY26; management targets ~300 bps operating margin uplift in FY26 even with muted growth.

What Went Wrong

• Demand softness and order intake: Organic revenue -7.0%; BSI -7.2% organic; book-to-bill mid-0.9x as U.S. academic, biopharma and industrial markets weakened; Europe and Americas saw low double-digit organic declines; China declined low-single digits.
• Tariffs and FX headwinds: Q2 margins/EPS impacted by higher tariffs and a decline in USD; CFO quantified ~$0.06 EPS headwind from FX in Q2; FY25 margin guide embeds ~60 bps tariffs and ~90 bps FX headwinds YoY.
• Free cash flow pressure and working capital: Q2 FCF -$148.8M on sizable tax prepayments ($50–$60M) and working capital; inventories rose to $1.22B vs $1.07B at 12/31/24.

Transcript

Speaker 1

Good day and welcome to Bruker Corporation second quarter 2025 earnings conference call. All participants will be in 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 then one on a touch-tone phone. To withdraw your questions, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Joe Kostka, Director of Investor Relations. Please go ahead.

Speaker 0

Good morning. I would like to welcome everyone to Bruker Corporation second quarter 2025 earnings conference call. My name is Joe Kostka and I am the Director of Bruker Investor Relations. Joining me on today's call are our President and CEO Frank Laukien and our EVP and CFO Gerald Herman. 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 and 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 two of the presentation.

During this conference call we will make forward-looking statements regarding future events and the financial and operational performance of the company that involve risks and uncertainties including those related to acquisitions, geopolitical risks, tariffs, foreign currency, market demand or supply chains. 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 ending December 31, 2024 as updated by 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 on our outlook as of today on August 4, 2025.

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 third quarter 2025 financial results expected in early November 2025. You should not rely on these forward-looking statements as necessarily representing our views or outlook as of any date after today. We will begin today's call with Frank providing an overview of our business and updated thoughts and assumptions around the US and global funding environment and tariffs. Gerald will then cover the financials for the second quarter of 2025 in more detail and share our updated fiscal year 2025 financial outlook. Now I'd like to turn the call over to Bruker CEO Frank Laukien.

Speaker 1

Thank you, Joe. Good morning, everyone, and thank you for joining us on today's second quarter 2025 earnings call. Life science research instruments markets are under pressure at the moment with expected U.S. academic funding headwinds and China stimulus delays for high-end research instrumentation. In addition, global tariff, pharma pricing, and economic uncertainty in the second quarter have delayed biopharma and industrial research instrumentation investments. This resulted in lower than anticipated bookings and revenues in the second quarter. Our Bruker Scientific Instruments, or BSI, segment book-to-bill ratio was in the mid 0.9 range in the quarter, which was not great but also not too bad. We anticipate that the third quarter will bring additional visibility on U.S. NIH and NSF funding both for the remainder of fiscal year 2025 and as well as for fiscal year 2026 federal research budgets.

We are encouraged by several recent settlements of disputes between major universities and the federal government, and we anticipate additional settlements to allow the resumption of grants for important scientific and medical research on academic and disease biology research. We believe that our unique post-genomic tools will be in significant demand in all geographies and in particular also when China releases its stimulus budgets for high-end medical research instrumentation. Moreover, as U.S. tariffs for many major countries and trade blocs get settled in early August, we believe that global biopharma, industrial, and semiconductor companies will accelerate their investments in next-generation drug discovery and development systems as well as in research and quality control tools for advanced materials, cleantech, and semiconductor research and production. We are observing where U.S. tariffs on Swiss imports will settle, and we anticipate that ultimately it will not be at 39%, the rate communicated last week.

In a worst-case scenario for Switzerland, we intend to leverage our other European Union and U.S. factories for products designated for the United States market. Bruker is poised to resume above-market growth, particularly in the next-generation systems needed for disease research and drug discovery in view of the greater biological complexity revealed by the emerging post-genomic view. Similarly, the enormous investments in artificial intelligence are very beneficial for advanced and often unique semiconductor metrology tools. Finally, we have strong positions in microbiology and infection diagnostics with an exciting roadmap of medically needed and differentiated capabilities. Back to our second quarter. The stronger than anticipated organic revenue decline, coupled with higher U.S. tariffs and stiff currency trade winds from a declining U.S. dollar, caused margins and profitability to come in below our expectations.

On our first quarter call, we discussed our mitigation, our mitigating price, supply chain, and cost measures, but these take two to three quarters before they fully benefit our operating results. Today, we are announcing a significantly expanded cost savings initiative that is expected to reduce our annual costs for fiscal year 2026 by $100 million to $120 million annualized. These major cost reductions affect all parts of our business, from supply chain and manufacturing to our commercial, administrative, and R&D investments. These are difficult but necessary decisions to right-size our cost structure to match the trough demand levels currently seen in the market. As a result of our weaker second quarter performance, we are lowering our guidance expectations for fiscal year 2025.

We now expect approximately flat constant exchange rate revenue growth and organic revenue to decline -2% to -4% for the year, with a mid-teens percentage non-GAAP EPS decline year over year. Looking beyond 2025, even in a muted revenue growth scenario in fiscal year 2026, it is our intention to deliver very significant margin improvements and double-digit EPS growth just based on our major cost reduction initiatives. If there also is a partial growth recovery in advanced life science research and drug discovery tools in fiscal year 2026, then this could provide additional tailwinds beyond 2026. We expect to return to our stated goal of organic revenue growth 200 to 300 bps above market, which we delivered many years in a row, and with rapid margin expansion and double-digit EPS growth once academic, trade, and economic uncertainty abates.

This is driven by our exceptional innovation in next-generation disease research and biopharma drug discovery tools for the post-genomic era. This is also driven by other Bruker-specific growth drivers, from semiconductor metrology for the AI revolution to unique applied and diagnostic solutions. Turning to slide 4 for our Q2 2025 performance. As I just detailed, in the second quarter of 2025 we faced delays in many end markets, most notably biopharma and industrial, which drove both the top and bottom lines to come in below our expectations. Bruker second quarter 2025 reported revenues decreased 0.4% year over year to $797.4 million, which included an FX tailwind of 2.9%. On an organic basis, revenues decreased 7.0%, which included a 7.2% organic decline in BSI and a 4.8% organic decline at BEST, net of intercompany eliminations.

Revenue growth from acquisitions added 3.7%, which implies a constant exchange rate (CER) revenue decline of 3.3% year over year. Book-to-bill in the quarter was in the mid 0.9 range. Our second quarter 2025 non-GAAP operating margin was 9%, a decrease of 480 bps year over year as lower revenue absorption, additional tariff costs, and currency headwinds were only partially mitigated in Q2 by our earlier cost and pricing actions. In our second quarter 2025, diluted non-GAAP EPS was at $0.32, down 39% from $0.52 in the second quarter of 2024 on organic revenue decline, impact of tariffs, and foreign exchange headwinds. Gerald will discuss the drivers for margins and EPS later in more detail. Moving to slide 5, our first half 2025 revenues increased by 5.0% to $1.6 billion.

First half organic revenue declined 2.3%, consisting of a 1.4% organic decline in scientific instruments or BSI and an 11.5% organic decline at BEST, net of intercompany eliminations. Our first half 2025 non-GAAP gross and operating margin and GAAP and non-GAAP EPS performance are all summarized on slide 5. Please turn to slides 6 and 7, where we highlight the first half 2025 performance of our three scientific instruments group and of our BEST segment, all on a constant currency and year over year basis. In 1H25, BioSpin group revenue was $403 million and was roughly flat year over year. BioSpin saw contributions from NMR, preclinical imaging, and lab automation, while the scientific software business was soft. BioSpin saw weakness in biopharma revenues and softness in orders both in academic and applied markets.

For the first half of 2025, CALID group revenue of $566 million increased in the low teens percentage. Strong growth in microbiology and infection diagnostics was driven by the MALDI Biotyper and the Bruker Elitech molecular diagnostics business. Our applied mass spectrometry business saw robust growth, which offset some softness in the life science mass spectrometry business. Turn to slide 7 now. First half 2025 Bruker Nano revenue was $509 million and grew in the low single digits %. Spatial biology contributed growth in 1H25, while revenues from advanced X-ray were down year over year. Strength in biopharma was partially offset by weakness in industrial markets. Finally, first half 2025 BSI revenues declined in low teens % net of intercompany eliminations due to softness in the clinical MRI market as well as a strong prior year comparison for the research instruments business.

Moving to slide 8, we highlight some of our recent innovations in the second quarter at ASMS. Obviously, an almost unprecedented lineup of new and market-changing instruments from our TIMS product line as well as in Nano LC. I won't go into these in detail today, but they significantly enhance our competitive position in traditional bottom-up proteomics while also ushering in a new era of functional proteomics and proteoform analysis. With the TIMS Omni, we had very good orders since ASMS already, and finally a very serious play in benchtop for metabolomics with the TIMS Metabolome with very high sensitivity, and because of the four dimensions and unprecedented annotation confidence, being very well received in the market. Let me move to slide 9, probably the key theme for today. How are we navigating through this macro and research instruments weakness?

You are aware of the US academic funding disruption for high-end research instrumentation for academic and medical research. China stimulus continues to be delayed, although our customers remain optimistic for release in the second half, and in the second quarter we saw that drug discovery and industrial research tools saw CapEx delays and weakness in both of these segments. We're looking forward to more visibility on what time frames they'll recover once tariffs and other items settle in. We also had more tariff and FX cost headwinds, so a lot of headwinds in the second quarter. We focus on our industry-leading innovation and continue our strategy to re-accelerate growth and enhance market share in the post-genomic era in academic and medical research, but also very much in biopharma drug discovery tools when they come back.

Very importantly, we're broadly expanding our cost reductions, which we had begun previously, but we're expanding those with a goal of $100 million to $220 million of annualized cost reductions to improve margins and profitability. We're obviously looking for a very significant step up in fiscal year 2026 driven just by the cost reductions and hopefully some emerging recovery in the markets. Of course, we are seizing new opportunities in spatial biology and multi-omics, which are very large growth drivers even if they're muted at the moment, as well as new growth drivers in lab automation, scientific software, India, improving semiconductor metrology for AI being an incredible opportunity, emerging growth in European chemical and explosives detection, airport security, airline security, and finally our industrial research business in cleantech, batteries, fusion, and we are adding to our consumables business organically and inorganically.

To wrap up, the second quarter was a challenging one for Bruker, and we are aggressively executing on our expanded cost reduction initiatives with the goal of delivering strong margin expansion and EPS growth in 2026 even in a flat to low growth scenario. We are, however, cautiously optimistic for a fiscal year 2026 partial recovery and point to Bruker's successful track record of rebounding very strongly from previous market disruptions in 2008, 2009, and in 2020, from which Bruker emerged with multiple years of double-digit organic revenue growth in each scenario. We remain confident that Bruker's innovation engine will continue to drive differentiated high-value solutions in attractive markets. Our culture of disciplined entrepreneurialism and our Bruker management process will position us well for sustained financial success in the years to come.

Let me now turn the call over to our CFO, Gerald Herman, who will review Bruker's Q2 financial performance and updated fiscal year 2025 outlook in more detail.

Speaker 0

Gerald, thank you, Frank, and thank you everyone for joining us today. I'm going to go through more detail on Bruker's second quarter and first half 2025 financial performance starting on slide 11. In the second quarter of 2025, our results came in below our expectations on both the top and bottom lines. In the second quarter 2025, Bruker's reported revenue decreased 0.4% to $797.4 million, which reflects an organic revenue decrease of 7% year over year. Acquisitions contributed 3.7% to our top line while foreign exchange was a 2.9% tailwind, resulting in constant exchange rate revenue decline of 3.3% year over year. Geographically and on a year over year organic basis, in the second quarter of 2025, our Americas revenue declined in the low double digits %. European revenue also declined in the low double digits %, while Asia Pacific revenue grew in the low single digits %.

Despite a low single digit decline in China, for our EMEA region, revenue was up high single digits %. BSI organic revenue declined 7.2% in the second quarter of 2025 with organic declines in all groups. BSI Systems declined roughly 10% and BSI Aftermarket revenue was flat organically year over year. Our order book performance in the BSI segment was down organically in the high single digit % year over year, with softer academic government research orders in most geographies and a significant decline in biopharma orders. In the U.S., non-GAAP gross margin decreased 270 basis points to 48.6%. Q2 2025 non-GAAP operating margin was 9.0%, impacted by weaker volume leverage, unfavorable mix, tariffs, and foreign currency. On a non-GAAP basis, Q2 2025 diluted EPS was $0.32, down 38.5% from the $0.52 we posted in the second quarter of 2024.

Our EPS performance was significantly impacted by the decline in the U.S. dollar in the quarter, which resulted in a $0.06 headwind. Our non-GAAP effective tax rate was 23.6% compared to 28.4% in Q2 2024, with the decrease driven mostly by favorable discrete items in the quarter. On a GAAP basis, we reported diluted EPS of $0.05 per share, flat compared to Q2 2024. Weighted average diluted shares outstanding in the second quarter of 2025 were 151.7 million, an increase of 3.7 million shares from Q2 2024, resulting from our follow-on equity offering in May of 2024. Slide 12 shows Bruker's performance for the first half of 2025, which has similar drivers to the second quarter.

Turning to Slide 13 now, during the first half of 2025 we had a decrease in operating cash flow of $85 million driven principally by the timing of tax payments and other items, with a modest year-over-year increase in capital expenditures in 1H25 which resulted in a free cash outflow of $110 million in 1H25. Given the challenging market conditions, today we announced the expansion of current cost-saving initiatives intended to take $100 to $120 million of annualized costs out of the business. These actions cross all business units, all geographies, and all functions within Bruker. This expanded cost program is already underway, but the majority of savings is expected in fiscal year 2026. These cost actions are expected to contribute approximately 300 basis points of operating margin improvement in fiscal year 2026 even under flat or muted market demand conditions.

Turning now to Slide 15, we're updating our full-year 2025 outlook to reflect Q2 results and current market, tariff, and foreign exchange headwinds. Our outlook for fiscal year 2025 now assumes revenue in a range of $3.43 billion to $3.50 billion with an organic revenue decline of 2% to 4%. Contribution from acquisitions is expected to be approximately 3.5% and we now expect a foreign currency tailwind of 2.5% on the revenue line. This leads to updated reported revenue growth guidance in a range of 2% to 4% with approximately 0.5% constant exchange rate growth year-over-year for operating margins in 2025. Given soft market conditions, we now expect lower organic revenues, expected M&A dilution, and tariff and foreign exchange headwinds to lead to an approximately 210 basis point decline in operating margins year-over-year.

This anticipated full-year 2025 operating margin decline consists of headwinds of 40 basis points from 2024 M&A activity, 60 basis points from tariffs, 90 basis points from foreign exchange, as well as a 20 basis point decline in organic operating margin. On the bottom line, our updated fiscal year 2025 non-GAAP EPS is expected to be in a range of $1.95 to $2.05, which implies non-GAAP EPS down 15% to 19% compared to fiscal year 2024. The midpoint of our updated EPS guidance is down $0.44 from our previous guidance, primarily driven by roughly $50 million decline in expected fiscal year 2025 revenue associated with the present trough in global academic, biopharma, drug discovery and industrial research instrument markets, as well as a higher foreign exchange headwind than previously expected of an additional $0.05.

We expect a very significant EPS rebound in fiscal year 2026 based on our significant cost cutting initiatives with or without meaningful revenue growth. Other guidance assumptions are listed on the slide and our fiscal year 2025 ranges have been updated for foreign currency rates as of June 30, 2025. With respect to the third quarter of 2025, we expect relatively weak organic revenue performance again with mid to high single digits % decline year over year in the third quarter of 2025. On EPS, we expect non-GAAP EPS for 3Q25 to be similar to EPS in 2Q25 with a reacceleration of EPS expected in the fourth quarter. To wrap up, market, tariff and foreign exchange headwinds impacted our second quarter 2025.

We remain cautiously optimistic about a fiscal year 2026 partial recovery in research instruments and are very committed to significant margin expansion and EPS growth in fiscal year 2026 and beyond. With that, I'd like to turn the call back over to Joe. Thank you very much. Thanks, Gerald. We will now 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.

Speaker 1

Operator, thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your questions, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from the line of Puneet Souda with Leerink Partners. Please go. Hi Frank, Joe, thanks for taking my questions. First one on the guide, I understand the magnitude of cut, but maybe just given the backdrop of the markets, could you parse out why is the backlog, which has been strong, why is that not helping this year?

How should we think about, you talked about book-to-bill, but how should we think about the recovery here in the fourth quarter, given that's an important quarter from an instrumentation perspective? On fiscal 2026, Gerald talked about recovery there. How should we think about fiscal 2026? I know it's a bit early, but would love your thoughts there. Thank you, Puneet. So backlog, we are using our backlog to some extent. Obviously, you can't accelerate it at will, as in delivery times. Production and delivery times are very much planned and locked in by the customers. Also, our backlog had come down slightly from seven months to six and a half months. We are leveraging using that. We think it's actually our Q4. I know Q4 has a bit of a ramp, but we're actually feeling pretty comfortable with that.

With all of our financial planning, I think that looks doable. As Gerald had cautioned, Q3 we think will be still somewhat weak. A little too early to talk about 2026. We just wanted to make sure that even in the no growth scenario, can deliver very significant margin expansion and EPS growth. Whether next year will be no growth or a partial recovery of a few % growth, we don't have the visibility yet and we hope to gain that in the next, you know, one or two quarters. Obviously, a lot of things, a lot of moving pieces still, especially when it comes to U.S. Federal budgets.

Speaker 0

Got it.

Speaker 1

On the UHF magnets, I apologize if I missed this. I would love to know if you're expecting that in any third quarter or the fourth quarter. There was a recent acquisition in the space of the BD assets that channel sells your MALDI Biotyper. Do you expect any impact to the MALDI and the sales from that? Obviously that's a LCMS company that acquired those assets. Presently, ultra high field, we don't expect an ultra high field revenue recognition in the third quarter. We do expect one in the fourth quarter. On that topic, you're talking about the BD Microbiology business being in an acquisition process, is that what you mean? Yeah, so obviously, you know, I mean, I don't know because obviously if Waters closes that in early 2026, we'll see what their intentions are.

Keep in mind that in these diagnostics businesses, quite honestly, the little benchtop MALDI Top, that's 10% and 90% is all the assays, all the content, all the regulatory approvals and all. We can only observe that when Danaher, which has the SCIEX mass spec divisions, when they acquired Siemens Microbiology, they continued to work with us on the Beckman Coulter diagnostics business in an excellent manner going forward and weren't tempted by, hey, we can build a mass spec. Anybody can build a mass spec, but the MALDI Biotyper franchise that has worked extremely well with BD. Hopefully that will continue. We don't have any, you know, until that closes we will see in 2026. I guess if someone, if they, if someone wanted to develop something like this, it would be a very, very large five year investment and by that time of course we're moving on.

It would be speculative, quite honestly. We don't expect it, but we don't know. Got it. Okay, that's helpful, thanks. I would point out that we obviously sell more than half of our MALDI Biotyper devices ourselves directly. If at some point a channel was no longer available, I think we could handle that very well. Thank you. Next question comes from the line of Tycho Peterson of Jefferies. Please go ahead. Hey, thanks Frank. I want to push on the cost outs and really the idea here is, you know, earnings today are 30% below where they were 90 days ago and only $0.05 of that is FX. I know you're protecting the P&L now, but a couple things.

I guess why didn't you initiate some of these cost outs sooner, and are you committing to the $100 to $120 million regardless, even if the top line does start to come back? Good questions, Tycho. We did start earlier, early in the year before any of the headwinds appeared. We had an initial savings program where we just tried to grow our, expand our margins more than what we had guided to initially. We had planned an additional $25 million, a new $25 million cost savings plan. When the tariff increases began to appear, we expanded that to $50 million plus in a second phase, which is good because most of the cost savings are kicking in next year. About $30 million of cost savings are kicking in and are part of our guidance for fiscal year 2025.

The bigger effect will be in 2026, admittedly, but at least we do have about $30 million of cost savings in our fiscal year 2025 guide. To the last point, Tycho, yes, we are completely committed and dialed in for the $100 to $120 million in cost savings. We hope to be at the upper end of that, and that's going to, we expect that to happen independent of market conditions or recovery. If that gives us, in a flat scenario, 300 bps of margin improvement next year, that's great. If the growth comes back, we don't expect it to snap back fully, but comes back partially, wonderful. Then we can deliver more margin expansion and EPS growth. We're completely committed to that, yes.

Speaker 0

Okay.

Speaker 1

On the growth side, if I go back to our conference in June, you had effectively committed to 4% growth in 2026. Now it seems like you're not wanting to go there. Maybe just talk about what has really changed in the past two months here on the growth side. Before I jump off, one for Gerald on leverage. Over four turns, but the covenant is three and a half turns. Can you comment on that dynamic as well? Okay, I'll take that first part. We were indicating at your conference that we didn't expect growth in 2026 to come back to more traditional U.S. 6% to 8% levels. At that point, we were a little bit more optimistic that it might be. Maybe it wasn't a commitment to that, but we were speculating it could be 2% to 4% organic growth next year.

What has happened is that, somewhat as expected, the U.S. academic and China academic stimulus money is not flowing yet. That was somewhat expected. I think when we saw you at your conference, the additional U.S. biopharma weakness in orders was for high-end drug discovery research instrumentation. I know it doesn't hit all companies equally, but for research instrumentation we saw a significant slowdown there. We'll see whether once tariffs settle and some of the other political settlements kick in, whether that additional headwind goes away or abates in the second half of this year. That will, of course, in part drive 2026. We also saw, because of the economic and tariff uncertainty—that's certainly our interpretation—general Europe, U.S., and China weakness in industrial research instrument investments. That was also something that became clear in the second half, which is why we're more muted in our expectations.

We don't have growth expectations for 2026, but we do want to be realistic and ready for a no growth scenario. That's not our expectation. We don't have an expectation yet, but I want to make sure that we can do the significant margin expansion and double-digit EPS growth even without growth. At least my words are even without growth, we hope for some modest growth and partial recovery. We don't know. We cannot give guidance for 2026 of what that might be.

Speaker 0

Tycho, on your question regarding leverage ratio, we don't comment specifically on ratio dynamics quarter by quarter. I can tell you that we have satisfied our debt covenants for the first and second quarters of 2025, and we have a target, as I think we've discussed directly, in around that 2.7 range, and that's what we're working towards over several.

Speaker 1

Yeah, over several years right now. Thank you.

Speaker 0

Sure.

Speaker 1

Thank you. Next question comes from the line of Brandon Couillard with Wells Fargo Securities. Please go ahead. Hey, thanks. Good morning Gerald. Just follow up there. Did you unpack the free cash flow burn in the second quarter? How much, how much was one time? What's your, what are you expecting for operating cash flow in the second half? Why isn't CapEx coming down by a larger degree?

Speaker 0

Sorry, I wasn't sure I caught the last part of your question.

Speaker 1

How is the CapEx coming down? Why is the CapEx?

Speaker 0

Yeah, I think our CapEx. Let me just add the last part of your question first. The CapEx is planned to scale down. We have dialed that back for the third and the fourth quarters. I mean we do typically have programs that are already in motion for the first and second quarters, and that's why you see the CapEx levels where they are. Yeah. On the cash flow burn, yes, we did have a couple of what I would describe as unusual outflows in the second quarter related specifically to some tax payments, which we highlighted. Those we don't expect to recur. We expect to get back to a normal cash flow.

Speaker 1

Brandon, those were sizable. Those were $50 to $60 million including some tax payments that are prepayment, some of which we expect to recover. There were some sizable tax payments in that second quarter. Frank, I think Gerald said BSI aftermarket was flat in the quarter. Can you kind of unpack what you saw between diagnostics and maybe some academic customers? Surprisingly, the aftermarket utilization kind of flattened the quarter. Thanks. That granularity we do not have, obviously the diagnostics business has been growing very nicely, sort of according to plan. Although placements for the Bruker Elitech molecular diagnostics business, which you don't see in revenue, placements, new platforms going out there generate future revenues. Placements there, that's one of the highlights of the quarter or for the first half of the year, are way ahead of our plan. The Elitech business in placements is doing great.

In terms of growth and margin expansion, it's according to plan. That gives an indirect partial answer to what you're saying. Namely, they are of course 80% or 90% consumables based and they are as well as the MALDI Biotyper consumables are doing well. Therefore, aftermarket in other segments was also down partially. We don't have granular percentage. Hope that helps. Mr. Couillard, are you done with the question? Great, thanks. Thank you. Next question comes from the line of Luke Sergott with Barclays. Please go ahead.

Speaker 0

Great, thanks. Just wanted to talk a little bit.

Speaker 1

About the underlying dynamics as you think about that more muted growth in 2026, particularly around China, because we've heard from peers right now that they're starting to see some of the stimulus flow through. Have you guys started to see any of that? As you think about those dynamics in 2026 on more muted growth, also following up here on Tycho's question, is that just assuming the current market environment just continues there, just trying to figure out if China should start getting better? What would you know in that more muted growth scenario, what's getting worse? A muted growth scenario, maybe a muted growth scenario is still a growth scenario. Right now we're seeing a decline in our scientific and industrial and biopharma research markets. A muted growth scenario, even a no growth scenario next year, would be better than the headwinds that we're observing right now.

We don't mean muted growth scenario meaning a decline next year. At least at this point, that's not what we're anticipating. With that clarification, we also do not expect a market growth or for us, a 6% to 8% organic growth snapback next year. Hopefully we'll get there by 2027, but let's not comment on that one right now. China stimulus for high end research instrumentation, we have not seen those releases yet. We've seen reasonable tender activity in China lately, including into July, but that wasn't necessarily the high end stimulus funding. There was just normal China activity, which maybe is getting a little bit stronger. Our Chinese customers that are looking for shovel ready large projects that include NMR and mass spec and high end microscopes remain very optimistic that this is just a question of time until the provinces release it.

Perhaps once there is greater clarity or maybe there is greater clarity that there probably isn't going to be an all out China-U.S. trade war during that time. We think the provinces held back to see whether they needed a rainy day fund anyway. China stimulus not released yet for our high end research instrumentation and remarkable optimism by the customers that it's going to happen. We just don't know exactly when. We do also expect that as tariffs settle in and the new economic world order as is emerging for trade, that CFOs in major industrial and biopharma companies will be less reluctant to release CapEx investments because they do need the research capabilities whether it's industrial material, semiconductor, or of course drug discovery. In that sense, we expect an improvement in 2026 compared to 2025, but we cannot quantify it at this moment.

Having said all of that, and we don't want to rely on that improvement, even with no growth, we expect to deliver 300 bps or greater in margin improvement. That's the takeaway. Okay, great, thanks.

Speaker 0

For a follow up, we.

Speaker 1

Talked about this a little bit before about with the NIH and the US academic funding issues and how you ultimately kind of see this shaking out. Whether it's more of a democratization from the coast or from the Ivies or the high, you know, the high end users of the institutions going more towards like, you know, state systems and things like that. Are you starting to see, do you have an update on how you kind of see this ultimately playing out with the funding releases and, you know, over the next few years we have, we can read some tea leaves. Yeah. I think, I don't think NIH budgets will be flat or up. I don't think they'll be down 40% either. Ditto for NSF or, you know, DOE research.

We assume that the deal will be that they'll be down and we're, if they're down 20%, that's not unrealistic from what we're expecting. Maybe they're only down 10%. We shall see. That's at the bigger picture. The other trend that you've mentioned, that this is not only temporarily but longer term going to be a more level playing field away from the coast or also investments that aren't primarily in Massachusetts and Northern California. I think that trend, political trend, I continue to see that. I think some very excellent universities elsewhere may be able to get a bigger piece of the pie. This is even after some of the already announced and potentially pending settlements of the government with some very well known universities. We do see NSF Port 25 calling for some final presentations on big ticket NMR items.

I don't know whether what they will do with that and whether there is then 25 funding that may still come through. Even while we're mostly focused on 26 budgets, there are some encouraging signs. A couple of things went through with NIH budgeting and the customers got ordering from us two days later, but it's not needle moving yet. It's early days and we don't have clear visibility yet. There are some signs that maybe the worst of the academic funding crisis could be over soon, but we do not expect a snapback to the full growth rates we had previously. Great, thank you. Thank you. Next question comes from the line of Subbu Nambi with Guggenheim. Please go ahead. Hey guys, I had a question on 2025 guide itself.

If the cost savings aren't hitting until 2026 and the headwind to EPS is getting worse with FX, how are you thinking about the second half just given the soft orders in the quarter? Super good question. We do think that of our cost savings for the full year 2025, about $30 million of cost savings will kick in and will benefit us this year. They're being overwhelmed by the headwinds from the previous M&A, from the organic decline of 2% to 3%, 2% to 4% that we're now projecting as well as currency and tariffs. They are meaningful, just to a bigger extent, they're kicking in to a much greater extent than in 2026. Of course, we've only recently, within the last several weeks, expanded our cost cutting initiative very significantly and more than doubled it from what we had previously already planned to counteract tariffs.

Did that answer your question or did I miss something?

Speaker 0

Subbu, no, that did Frank.

Speaker 1

I was just hoping for some more granularity in terms of the bridging between.

Speaker 0

Revenue and EPS to hit the 4Q.

Speaker 1

Ramp, but partially definitely answered the question.

Speaker 0

Gerald, I'll just add, you know, Frank's reference to that $30 million. The bulk of that's going to hit for fiscal year 2025 in the fourth quarter, and then the remaining more larger majority of it's going to hit in fiscal year 2026. We are seeing some improvement in our guide expectations around the fourth quarter versus the third quarter, just to help you with respect to that. Perfect.

Speaker 1

Thank you guys. Thank you. Next question comes from the line of Dan Brennan with TD Cowen, please go ahead.

Speaker 0

Great.

Speaker 1

Thank you. Thanks for the questions. Maybe just on NIH, Frank and Gerald, Frank, you're obviously the largest U.S. economic.

Speaker 0

Government player amongst the large tools, you should have I think more skin in the game and of you here. You're thinking about down 10% to 20% and we'll see where.

Speaker 1

Things land in 2026. I think there's been more optimism, I think has been raised here given the seven appropriations saying up 1%.

Speaker 0

Folks think that, you know, a CR could be likely.

Speaker 1

I'm just wondering when you think.

Speaker 0

Down 10 to 20 kind of a.

Speaker 1

What's the mechanism to get there, and B, if things were better, would you expect your customers would spend that money?

Speaker 0

What does your commercial team think?

Speaker 1

Would they be reticent just given, you know, rescissions and things like that? The 10 to 20%—I want to be clear, I don't have an expectation. There's been too many surprises to have expectations of fiscal year 2026 budgets. I know the Senate committee marked it up and had a small increase, and the administration was initially setting for a 40% decrease. I just want to be prepared for NIH budgets being down 20% for 2026 and deliver the margin expansion for this year. Fiscal year 2025, we expect U.S. academic government to be down 20 to 25%. That's what we said last quarter already. This is our calendar year 2025, and that plays out about as we said so far—it's down about 15% for the first half of the year. For the full year 2025, calendar year, for U.S.

academia being down 20 to 25% seems like a realistic expectation. I don't think it's going to be worse than that. Funding is still flowing, and for next year, as I said, I have no predictions. I've stopped making predictions there. I just want to be prepared for a 20% fiscal year 2026 government, fiscal year 2026 NIH budget reduction. If it's better than that, I'll be delighted, and more can flow through our top and bottom line in 2026.

Speaker 0

Great.

Speaker 1

I think customers will spend in a heartbeat. If they get grants, they can't give the grants to the general, to the universities who are, you know, struggling otherwise financially. When they get specific grants, I think they'll order in a heartbeat. That's great. Thank you. Maybe just one on the backlog and kind of bookings. Obviously the book-to-bill has been weak now for, I think, four or so quarters. Can you just remind us in a given year what % of your revenue growth comes from that backlog? What's book and bill? I think there's been some concern like could Bruker even grow in 2026 just given you've had four consecutive quarters of weak book-to-bills. Obviously bookings turn up and that would support growth. Can you just walk through a.

Speaker 0

Little bit of kind of the visibility and the mix between conversion and kind of new turns.

Speaker 1

Thank you. Yeah, I mean, you know, we now have aftermarket consumable service software of more than $1 billion. It's become a significant, you know, it's become a meaningful part of Bruker that, of course, you know, tends to flow, turn into revenue pretty much in the quarter when it gets ordered. We also have smaller, you know, benchtop and, you know, sub-$100,000 scientific instruments that very often, you know, achieve revenue in the same quarter within two or three months after they get ordered. Some things, maybe, you know, there's some part of our revenue that turns more quickly and then there's, of course, some revenue where sometimes, you know, order to revenue can be 18 to 30 months or so. We have that. Our backlog is still elevated at six and a half months. This is the backlog of six and a half months.

We expect that eventually to level out with a new mix as we have more consumable, more LSEC and things like that. Now we added some metabolomics consumables and therapeutic drug monitoring consumables with some recent smaller acquisitions. We expect that six and a half months eventually to go down to about five months of backlog as the new normalized level. We still have some cushion from backlog for the second half and for next year. Of course, we also need the bookings. Got it.

Speaker 0

Great.

Speaker 1

Thank you, Frank. Thank you. Next question comes from the line of Patrick Donnelly, Citi. Please go ahead. Hey guys, thanks for taking the questions. Frank or Joe.

Speaker 0

I want to touch a little more.

Speaker 1

On just the second half cadence. The 4Q step up still seems pretty steep. I mean, I think if you're talking about 3Q looking at similar earnings, call it $0.32, it implies around $0.90 in 4Q, and again, the revenue kind of step up with that. I just want to talk through the visibility into that 4Q number. It did sound like things are maybe getting a little more challenging at the end of the quarter. Can you just talk about the visibility and confidence in that, in that 4Q ramp?

Speaker 0

Yeah, Patrick, it's Gerald. I'll take this. Frank may want to add some more color. Just generally in terms of the scaling or graduating this into the fourth quarter, as you already know, our fourth quarter is really not a quarter. It tends to be more like 30% of the number on an annualized basis. We do see a more significant ramp historically and we have no reason to believe that that will not happen for 2025. Fundamentally, I would also say, as I mentioned earlier in the comment to Subbu, we do have some cost savings that are going to get kicked into the fourth quarter that's already planned and scheduled. We're pretty confident that you're going to see a pretty significant lift in the operating margin and EPS performance for the fourth quarter.

I think your math as usual, Patrick, is not terribly far off what our estimates are for the fourth quarter. That's kind of the, I'd say at a high level, our expectations are still some flat to down, you know, revenue growth for the fourth quarter given market conditions, but improved profitability given the scale we get. As you already know, we get significant leverage down to the bottom line on higher volume and the expectation.

Speaker 1

This is just typical for us. We tend to have pretty huge fourth quarters every year, and then some. Often it's even better than what we had anticipated, our fourth quarter pattern. We feel comfortable with the cadence. Two more questions perhaps?

Speaker 0

Yes.

Speaker 1

Yes, sir. Thank you. Next question comes from the line of Joshua Paul Waldman with Cleveland Research Company. Please go ahead.

Speaker 0

Morning guys.

Speaker 1

Thanks for taking my questions.

Speaker 0

Two for you. First, Frank, on the academic side.

Speaker 1

think Gerald mentioned softer academic orders in most geographies. I wonder if you could comment on what you're seeing in Europe. Is that market getting worse on the academic side, or more broadly, are there other geographies that step down unexpectedly? Within the U.S. academic environment, wondered if you could talk on the timing of potential revenue recovery. I mean, how long would it take to kind of work through the softer order book to flush this through the revenue side on the academic side? Yeah, academic side, when would you need.

Speaker 0

To see a recovery in orders for.

Speaker 1

That to show up in revenue? Does it hit 2026? Yeah, yeah. Clearly on the academic orders, the two bad guys are the U.S. and China. For us, that's where we have the most pronounced reduction in orders in the first half from the academic and academic medical research market. Europe, breadth of APAC, you know, that just fluctuates up and down. There's really no trend that's discernible there. Q2 wasn't strong. If you look at it over several quarters, then it's the U.S. and China that I think are crucial. On the academic side, how long? Obviously, with less backlog we can do faster deliveries. There are some products, ultra high field NMR or very large STEM microscopes, that indeed sometimes take one or two years to deliver. It's a 2026 story.

Even if orders came in August, September, and I don't expect a lot of, you know, I don't expect that necessarily. There could be some U.S. orders that come through before the end of our fiscal year, at the end of September, there's a possibility of that by now. These are higher end systems. This will go into 2026. I don't think there is any step up to be expected in 2025 anymore. Got it.

Speaker 0

Frank, on tariffs, I'm curious.

Speaker 1

If you think you're seeing tariffs negatively impact your competitive position and new opportunities at all. I'm thinking on the price or surcharge front, does it seem like customers are either holding off on placing orders because of price increases or surcharges or maybe even looking to other suppliers? Yeah, if I look at each of our market segments, in spatial biology, main competitor is us, we're U.S. NMR, main competitor is Japanese where European Union ended up at a level playing field with the new tariffs. In mass spec, a lot of the other mass spec companies manufacture in Europe, also in Germany, in Singapore, etc. You go down the line, X-ray, etc. It turns out that there hasn't been a significant distortion competitively from the new tariff picture. Again, we're still observing Switzerland. That's obviously somewhat of a pathological number at the moment.

We expect that to be less and maybe be more in line with what we have in Europe or from Malaysia. Either way, in NMR and MRI we have the most flexibility to say okay, I mean almost immediately could turn a dime and say any of these systems for the U.S. market come from Germany or from France where we have large factories. There we could move very, very quickly if come August 7 that Swiss number was still extraordinarily high for a while. The short answer would have been we think there is no, it can no competitive shift based on that. It's just a cost headwind. All right. Have one more question and then we'll wrap things up for today. Thank you. Next question comes from the line of Rachel Vatnsdal with JP Morgan. Please go ahead. Hello, this is Marta Zarembla on Rachel from JP Morgan.

Thanks for taking the question. I just wanted to clarify your comments on tariffs just now. What are you assuming in your guide for Swiss tariffs at this point? Are you assuming 39% or something lower? And then perhaps more broadly, if you could give more color on your updated tariff assumptions given the changes in Swiss tariffs, but also European tariffs. Thank you. Yeah. For the European Union and Israel, we're at 15%. For Malaysia, we're at 19%. Switzerland, we're presently modeling at 15%. In a worst case scenario that we didn't shift supply chain and it was 39%, that could be an additional $10 million hit that we presently don't have here. We think that's just not going to happen. A, we think the number will be lower, and B, in that case we will just not ship from Switzerland.

We will build our NMRs, which is primarily an NMR story, and make them in Germany or France. That's why I think our modeling is appropriate. Thank you. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Joe Kostka for closing remarks.

Speaker 0

Thank you for joining us today. Bruker's leadership team looks forward to meeting with you at an event or speaking with you directly during the third quarter. Feel free to reach out to me to arrange any follow up.

Speaker 1

Have a good day. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.