Bruker Corporation BRKR CEO Frank Laukien on Q2 2020 Results

Thank you, Miroslava. Good afternoon everyone, and thank you for joining us on today's call. I hope you and your families are well. These are challenging times as we all manage through a global pandemic that has upended economies and daily lives. At Bruker, as you can see on our slide 3, we remain focused on our key priorities: number one, the health and safety of our employees, customers, and partners; number two, maintaining service levels for our customers; number three, carefully managing our cost structure while continuing to invest in important long-term project accelerate and operational excellence initiatives; and number four, delivering enabling research and diagnostic products that support essential priorities of our society and help fight the pandemic. I am very proud of how our leadership team and our 7,000 employees worldwide have delivered. Our organization has continued to support our customers globally with exemplary dedication while adhering to appropriate health and safety protocols. Over the last few months, we have supported various initiatives aiming to understand the characteristics of the SARS-CoV-2 and of the COVID-19 disease. For example, we are supporting the COVID-19 NMR initiative, which is a consortium of 140 scientists in 30 research groups across 15 countries who are working to determine the RNA and protein structures of the SARS-CoV-2 virus in order to investigate the drugability of such structures with pharmaceutical inhibitors. Between late March and the end of June, we continuously ramped our Bruker deliver of nucleic acid extraction kits and of COVID-19 PCR test kits to customers in Europe and Africa. In Q2 2020, we reached 7 million in COVID-19 related testing revenues. These revenues came from the sale of liquid handling robots, from about half a million nucleic acid extraction kits, and about a quarter million COVID-19 PCR assays in the second quarter of 2020. We intend to ramp this further in the second half of 2020 and into 2021, and we are presently evaluating additional COVID-19 related tests for our assay portfolio. Just last week, we announced our second generation CE-IVD marked FluoroType SARS-CoV-2 plus PCR test for the detection of COVID-19. The new test targets two independent genes on the SARS-CoV-2 genome while at the same time differentiating the SARS-CoV-2 virus from four common human coronaviruses. The test is available on our novel Bruker FluoroCycler XT real-time PCR system as well as on other commonly available thermocyclers. From an operational standpoint, by now all of our major manufacturing sites have returned to the new normal operations with expanding capacity and productivity levels, and we are currently not facing any Bruker factory disruptions anymore as we did in April and into May at certain sites affected by full or partial site closures. Several of our European factories continue to use the short time work approach to reduce their capacities and cost structures during reduced demand generally. Our teams have done an excellent job in managing our costs and objectives in the second quarter, which is why our second quarter non-GAAP operating margin has improved sequentially by 390 basis points compared to the first quarter of 2020 despite similar revenues. Financially, our second quarter 2020 revenues declined less than the minus 15 to minus 25 percent year-over-year revenue decline scenarios that we outlined during our last earnings call. We also mitigated the negative impacts of the pandemic on our profitability and cash flow through successful cost control and cost reduction measures while continuing to invest in our key dual strategic priorities of Project Accelerate and Operational Excellence. Exiting the second quarter 2020, Bruker maintains a healthy balance sheet, and we believe Bruker is well positioned for sequentially improving business conditions in the second half of 2020. I now go to slide 5 where we show the financial highlights for the second quarter of 2020. Bruker's Q2 2020 revenues declined 13.4 percent year-over-year to 425 million. Acquisitions added 0.4 to revenue growth while foreign currency translation was a headwind of 1.1 percent. On an organic basis, Bruker's second quarter 2020 revenues declined 12.7 percent year-over-year. The reported and organic revenue declines primarily reflect COVID-19 related disruptions to our customers and certain of our operations along with softer instrument demand by academic, industrial, and applied customers due to the pandemic. Our second quarter GAAP gross margin decreased 440 basis points year-over-year to 45.1 percent, while our non-GAAP operating margin declined 350 basis points year-over-year to 11.5 percent. The margin decline reflects primarily lower revenues and reduced productivity due to disruption from the pandemic, partially offset by cost control and reduction measures. As Gerald will discuss, in Q2 of 2020, Bruker reported GAAP diluted EPS of 16 cents per share compared to 23 cents in the second quarter of 2019. On a non-GAAP basis, second quarter 2020 EPS of 21 cents compared to 33 cents in the second quarter of 2019. On slide 6 we show Bruker's performance for the first half of 2020. Our revenues decreased by 103 million year-over-year or by 10.8 percent to 849 million. On an organic basis, revenues declined 10.3 percent year-over-year in the first half, comprised of a 10.5 percent organic decline in the scientific instruments business and an 8.5 percent organic decline at BEST net of intercompany eliminations. Acquisitions added 0.6 to our top line while foreign exchange was a 1.1 percent advantage. First half 2020 order bookings for Bruker's three scientific instrument groups declined in the mid to high single digits organically. In our Q1 2020 earnings call, we shared our expectation that order bookings would soften during the second quarter due to customer closures and disruptions from the pandemic, and this was indeed the case. However, our BSI book to bill ratio of approximately 1.1 for the first half of 2020 implies the order rate held better than the first half 2020 revenue declines would suggest. Towards the end of the second quarter, academic laboratories began gradually reopening, and this continues a process that continues albeit with reduced capacities compared to pre-pandemic levels. The operations of our industrial and applied customers also continue to normalize, although with a more uncertain spending outlook. Biopharma markets and order rates remained robust while the semiconductor metrology markets have continued to rebound. Our life science mass spectrometry and infectious disease diagnostics businesses are growing, although the environment remains challenging. We continue to anticipate gradual sequential improvements in business conditions as we move into the back half of the year compared to the first half of 2020. Our first half 2020 non-GAAP gross margin decreased 330 basis points compared to the first half of 2019, while non-GAAP operating margins declined 470 basis points year-over-year. We were able to partially offset the impact of lower revenue and reduced productivity on our operating margin by controlling and reducing expenses. On a GAAP basis, Bruker's EPS of 22 cents in the first half of 2020 compared to 43 cents in the first half of 2019. Our first half 2020 non-GAAP EPS of 35 cents compared to 61 cents in the first half of 2019. All right, please turn to slides 7 and 8 now where I provide further highlights on the first half 2020 performance of our three scientific instruments groups and of our BEST segment, all on a constant currency basis and in comparison to the first half of 2019. First half 2020 BioSpin group revenue declined low double digits to 246 million. The revenue decline at BioSpin was due to COVID-related customer lab closures and installation delays as well as the temporary closure of one of BioSpin's manufacturing sites. We have since reopened that site, while BioSpin's academic customers have been gradually returning to their labs and international tenders in applied and clinical markets are resuming. In April of 2020, BioSpin received customer acceptance for the world's first 1.2 gigahertz NMR system which was successfully installed at the University of Florence in Italy. This was a remarkable achievement capping a decade of R&D into groundbreaking 1.2 gigahertz materials and magnet technology. As we indicated on our Q1 conference call, during Q2 of 2020 we recognized revenue on just the NMR console and probes for this particular Italian 1.2 gigahertz system, while the Florence magnet is subject to a multi-year lease contract. The first half of the year 2020 BioSpin NMR and PCI systems revenue declined significantly year over year due to delivery and installation delays caused primarily by customer disruptions. BioSpin's aftermarket revenue held steady year over year, with software revenues higher although off a low base. Moving on to the CALID group, the first half of 2020 CALID group revenues declined low single digits to 273 million. The modest decline at CALID reflects a significant revenue decline in molecular spectroscopy compared to the first half of 2019, which was partially offset by continued growth in our Daltonics life science mass spectrometry, microbiology and infectious disease diagnostics business. CALID's microbiology and infectious disease consumables, which include our MBT Biotyper consumables and Bruker-Hain nucleic acid extraction and COVID-19 PCR assays, grew significantly year over year. In life science mass spectrometry, our timsTOF proteomics business saw continued growth despite the challenging business conditions for instruments and customer site installation delays. Revenues for our FTIR, NIR, Raman molecular spectroscopy products declined substantially year over year due to COVID-19 related disruptions to customer operations, lower demand, and a temporary factory slowdown. Please turn to slide 8 now. Bruker Nano revenues were down mid-teens year over year to 246 million in the first half of 2020. The decline in Nano revenues was due to worldwide academic customer closures due to the pandemic, weaker industrial markets demand, and temporary factory closures at some of Nano's businesses, which also were reopened by the end of May. Nano's X-ray, nanosurface, and nano-analysis tools all declined compared to the first half of 2019 due to academic customer closures and significantly slower industrial research demand. Semiconductor metrology revenue for the Nano group held steady year over year, with order rates improving as semi-metrology equipment markets appear to be in a rebound. Finally, BEST revenue in the first half of 2020 declined high single digits net of intercompany eliminations due to weakening superconductor demand by MRI companies and government research lab disruptions from COVID-19. So despite the challenges created by COVID-19, Bruker continues its track record of meaningful innovation, which we believe will position the company well for recovery as global market conditions improve. Turning to slide 9, during the recent ASMS reboot virtual conference in early June, I believe we were the clear innovation leader as we introduced instrument and workflow innovations for our flagship timsTOF mass spectrometry platform for high throughput, high sensitivity spatial omics, discovery proteomics, and targeted proteomics. Our timsTOF platform actually maintained a healthy double-digit year-over-year order growth rate even during the difficult first half of 2020. If you take a quick look at slide number 9, you will see at ASMS we had a very major innovation with a MALDI-2 source that is really a next generation multi-source that provides one to two orders of magnitude increase in sensitivity for many small molecules and lipids, and it greatly increases the applications range of MALDI mass spectrometry and MALDI mass spectrometry imaging, both of them very important to our business. In parallel, in 4D proteomics and also 4D metabolomics for that matter on our timsTOF platform, we introduced targeted so-called PRM passive methods, high throughput short gradient DIA/PASEF methods. We did a lot of work on fly constellation analysis which is very important for viral antigens, whether you are developing SARS-CoV-2 vaccines or serology assays, you need antigens with proper glycosylation patterns, and that's another area where the timsTOF platform excels. Moreover, taking this fourth dimension that we keep mentioning in 4D proteomics, we've shown and some of our collaborators have shown the use of very large scale accurate collision cross sections using the ion mobility spectrometry capabilities of our TIMS system that are completely unique, and that moreover in addition to measuring tens and hundreds of thousands of collision cross sections routinely and at scale, also allow actual excellent machine learning and prediction, so it's really changing the way proteomics is done fundamentally. It's allowing about an order of magnitude more information content and peak capacity which is tremendously important for the future of high throughput and in-depth proteomics. We also introduced together with a partner company the run and done IP2 GPU 4G Pro 4D proteomics analysis software, something that has previously not been done and again addresses the bottleneck in high throughput proteomics. If you go to slide 10, as we've said already earlier, we are pleased to announce the customer acceptance of a second 1.2 gigahertz NMR system at the ETH or in Zurich, Switzerland, which was in July and that revenue therefore is anticipated for Q3. It was not in Q2. We continue to ramp our gigahertz class production and testing capacity at our Swiss BioSpin factory. We've already shipped an additional system to the Max Planck Institute in Germany. And so the our gigahertz and gigahertz plus business is really running very nicely and we are very pleased with how this has gone so far this year. Moreover, as I mentioned earlier and you'll be seeing more news of that in future weeks, NMR is really quite important in COVID-19 research. I had mentioned earlier the international COVID-19 NMR consortium with the website being given here on slide 10, which is very important for functional structural biology and for studying how pharmaceutical inhibitor binding can bind to the SARS-CoV-2 RNA or proteins. Moreover, we're making very good progress in our collaboration with Murdoch University in the Australian National Genome Center in Perth, Western Australia, in studying the what will soon be called, in my opinion, the post-COVID-19 syndrome that comes after the active infection, whether it's asymptomatic or with severe symptoms, and we are using some very unique NMR and mass spec combined plasma metabolomics methods to study the long-term effects which are really quite considerable even for patients who barely had any symptoms or had very mild symptoms. So if you like, that will be in some ways the third wave of post-COVID-19 syndrome effects that we're only beginning to see now, this is the other six-seventh of the iceberg that has not emerged yet, and I believe NMR and mass spec with metabolomics will play a very important role as a screening tool for this next focus of our COVID pandemic health concerns. Anyway, let me conclude by reiterating that Bruker remains fundamentally healthy, and we continue to invest in our key Project Accelerate and operational priorities that we believe will position the company well for the future. While we anticipate that the pandemic will continue to negatively impact our third quarter financial results year over year, we expect sequential improvements in our financial performance from the second quarter to the third quarter of 2020, provided of course that the present second wave increase in infections can be contained. With that, let me now turn the call over to our CFO, Gerald Hermann, who will review our Q2 and first half 2020 financial performance in more detail. Gerald.

Yeah, good questions, Pat. Well, obviously China began to open first, but the opening in China is not that fast. It's not that they had a V-shaped recovery or reopening. Europe is ahead of the United States; the infection rates are now generally lower in Europe as you have seen. The US academic and government customers are all cautiously gradually reopening. Of course, I'm aware that not all students are coming back, but that doesn't really affect us. It's the grad students, postdocs, and professors that do the research part of the academic enterprise, and they are all opening and reopening gradually just obviously under all these new normal conditions that are different from working previously. So access to labs is improving. Same is true in Japan. There are some geographies like India or parts of Australia that are still quite difficult and there are sometimes additional lockdowns and restrictions, but things are generally improving. We think it's a gradual process. That's why we think probably by the end of Q3 most academic customers will be back in the research business, although also not with quite the same productivity and capacity that we've necessarily seen prior to the pandemic. And I would also point out that there is an applied and industrial market simply even independent of the pandemic disruptions. There is just an economic malaise and downturn, and how quickly that recovers, we think there is an ongoing recovery in the second half of the year, but we do not model this as coming back to pre-pandemic levels this year.

You're welcome.

Well, it's hard to disentangle FICO. We think other industries like the automobile industry were not heavily exposed to them, but they're getting out of their own disruptions. So to the extent that the disruptions for these industries are going away and were due to lockdowns or supply-side disruptions, we expect that to improve. What the disruption-free economic downturn is and how that is different, we don't have numbers and visibility on that yet. But we expect that industrial demand, even when you take away the disruptions, will be lower and that we're in an economic recession even when the disruptions from lockdowns and logistics and transportation limitations are gone. So with that, we're taking a cautious look at industrial and applied markets. We expect them to continue to be down even as the disruptions per se are hopefully taken care of by a large, barring a second wave with lockdowns. So we don't have a good number for that, but we expect that industrial applied demand will be down.

Yes, so proteomics for us is almost all the timsTOF platform mass spectrometry platform. We just announced a lot of new capabilities on that platform at the ASMS conference. There is a virtual meeting coming up in the middle of October. We'll have more innovations and workflows for that, and we continue to invest in the capabilities of that 4D proteomics platform for more and more different workflows and additional capabilities. You'll see more of that as we proceed during the year and also into next year. So that remains a high priority for continued investments and also investments in collaborations with industrial and academic partners. Somewhat separate from that, on the ultra-high field NMR side, for structural functional biology, which is primarily where we are involved with NMR and which distinguishes NMR from cryo-EM or X-ray crystallography (i.e., they can look at functional and binding and dynamic information and so on), that's going technically so well, but we also decided to make incremental investments in our factory and testing capacity in Switzerland. So both of these are part of the ongoing project accelerate investments that we have not slowed down or de-prioritized at all.

Oh, I think it's disappointing, but it's much more of a multi-year effect. So I don't expect that. Europe is one of our better performers so far this year; we expect that to continue to be the case. Also, fortunately, not all R&D funding for academia in Europe comes from the European budget. Very large amounts come from the national budgets: the German, the UK, the French budgets, and they were actually a bit more optimistic as there are some sizable investments planned in priorities that align with what we can offer for spatial omics, proteomics, metabolomics, and other priority areas. But the Horizon slowdown, the Horizon budgets for the future being approved at a level lower than what had been asked for, is a disappointment. It's more of a multi-year effect, and we think it will be mitigated by national R&D budgets.

Good question, Chris. For us, the budget flush or something like that is not such a significant factor. That may have a bigger impact on some consumables companies. So for us, that's not such a big question; we don't really experience that in other years either. U.S. academic orders have been coming back more slowly than European academic orders. So that has been notable as the reopening of U.S. academic sites has been slower because of higher infection rates or perhaps for other reasons. So while we expect federal funding for life science R&D (NIH, NSF, DOE, or otherwise funded) to be strong and perhaps even to go up in future years, there is obviously in the U.S. some concern. Some private universities are having reduced tuition and housing income, or if you have a big research hospital on campus that may be losing money at this point. So U.S. academic spending is a bit of a concern despite probably pretty good federal investment priorities. And again, as I look under the hood rather than just if the tide goes up or down, the trends for spatial omics, proteomics, post-translational modifications, glycomics all related to proteomics and metabolomics, I think are very good. I think there's an increasing investment in these scientifically and for disease research very important areas that are now becoming accessible using our timsTOF technology and other technologies beyond just next-generation sequencing and transcriptomics. So that's the picture for the U.S.

Yeah, all good questions. Let me take it in reverse order. If you recall, our COVID-related nucleic acid or COVID PCR assays were really quite de minimis in Q1. So the $7 million is not a big number; we realize that it doesn't offset some of the other headwinds we're facing, but it's a huge improvement for us. And yes, there's further development in more refined molecular tests, so PCR tests. We have released second-generation tests. We're looking at expanding the geographic coverage of where we sell them with our go-to-market strategy. We're looking at additional capacity ramp-up for those. And we're also looking at additional, let me keep it broad, content by additional refinements and additional capabilities in molecular tests. So that's all ongoing with geographic capacity and content investments and further plans to broaden that. And correctly, we're also looking and we're in the pilot phase for two additional types of tests that are Bruker-related. One of them is indeed a serology test, so that we're targeting Europe and Africa in this particular case. And we're in the pilot phase where we're evaluating the performance, workflow economics, and customer and market acceptance for that in Europe. And we also have a similar pilot project for active disease antigen testing from nasal swabs as an alternative screen compared to PCR for faster point-of-care on-site testing. So some very interesting additional things. And last but not least, this is not Bruker HIN related but Bruker BioSpin related: we are very seriously looking at the needs of what NMR-based combined tests may be needed in the future as a risk screen for this very serious phenomenon that's only beginning to be understood now, maybe what I think will soon be called post-COVID-19 syndrome, where there are multiple systemic effects that are detectable via metabolic signatures. Not only lung damage but potential neurological, kidney, diabetic, liver, and systemic problems. There is something else emerging that comes after the viral infection that's actually pretty scary. And I believe that at least on the research side and possibly also moving eventually towards diagnostic screening, some of our neither serology nor molecular but in fact NMR mass spec metabolic tests or screens can play a significant role. It's a little bit longer term, but it may become very, very important.

Yeah, both astute observations, Dan. Indeed, bookings were down similarly to revenue. Although if we look at BSI, the instrument segment, we also built a little bit of backlog both in Q1 and Q2 where our book-to-bill ratio was close to 1.1, simply because not all labs are open and also because in April some of our facilities we had to close down temporarily or take for economic and cost reasons early vacation and things like that. So indeed, as your second question implies, we are looking to gradually build some backlog actually, and we'll probably not be able to consume all of that in the second half of the year. And we're trying to have good sequential improvements. We're very much focused on our investment on bookings and go-to-market strategies and hopefully setting ourselves up for a much healthier 2021.

Well, this year we tend to be at about deliveries, not necessarily all acceptance and revenue, but deliveries of probably four systems. And this is not only 1.2 gigahertz; sometimes it's also 1.1 or 1.0. We call that the gigahertz class, and they all take somewhat similar amounts of work. So we're trying to bring that up so that hopefully by 2021 and certainly 2022 we can deliver and hopefully get into revenue more than three to four systems a year.

Indeed, and that's those are scenarios for reported revenue.

Well, that's an interesting question because to be honest, the volatility for foreign exchange and some of the major currencies against the U.S. dollar has been pretty significant in the second quarter, and we're watching it closely. Our expectation, as you perhaps know if you follow us, is that the foreign exchange impact down to the bottom line will be relatively modest, and at the revenue line in and around that same headwind which we have right now, as you probably saw for the second quarter, a 1.1% headwind on foreign exchange.

Yeah, as I said, normally we've had, I think Q2 was a little unusual relative to the volatility, and hopefully we'll start to see more stability as we move through the following quarters of the third and the fourth, but it's not exactly clear yet. But the scenarios were for reported revenue, not organic in this case, and that would imply improved financial results at the operating margin level and at the EPS level.

That's correct. The way we're thinking about this at the moment, and this is largely dependent on the business conditions as the conditions dictate, some of our operations will move more quickly back to the more sort of new normal cost structure, and others will remain at a relatively lower cost structure depending on what happens at the moment. As an example, travel and entertainment will continue to be down; we don't even have to do all that much, that's always inevitable on the marketing and sales side, and there are no all the conferences are virtual as you know. But some of the temporary salary and compensation reductions that we've asked our management teams to take temporarily for a quarter or for half a year, some of these things we will let expire because we're obviously, it's not a great second quarter but it's better than the scenarios that we had anticipated and certainly much better than the worst case or the bottom end of the scenario. So we're relaxing some of these things. We really appreciated the leadership and the solidarity by many of our employees, but we're also relaxing some of these temporary compensation reductions that they had volunteered to take or that we made them take. And so some of these things will go away in Q3 or Q4.

Yeah, because of IT infrastructure, because we're on calls and meetings and Teams meetings and whatnot, obviously that's really doing quite well, plus it was overdue for a bit of a recovery anyway even before the pandemic. So those markets look pretty healthy in terms of order patterns and were even, whereas they were a drag on us last year, actually a pretty significant drag in the second half of last year. So that headwind is going away and it's probably turning into a small tailwind for the year and probably continuing into next year. If you recall, in 2019 our semiconductor metrology revenue was about 6% of our revenue, and rather than declining we expect that to become, and it already is, a mild tailwind, and it may become a stronger tailwind along with hero diagnostics and trauma biopharma proteomics and so on. So it's good to have as industrial markets, the remaining industrial markets are expected to be weak certainly also at the beginning of next year, not as weak as Q2 of this year, but we're in an economic recession. The metrology piece is actually a good guy so to speak, and it's going to have a different pattern which actually could be quite healthy, and it also has very nice incremental margins for us. So that may really help us a little bit next year, and a little bit is here already.

No, it's all US only, that's the easy part. Our capacity, which was still pretty modest, you heard that about half a million nucleic acid extractions, a quarter million PCR assays, and we're continuing to increase that for the second half and into next year. We're not prepared to give numbers of where that will be, but we're expecting that to continue to move. Even within March through June it has continued to increase. And so far, we've been pretty much able to sell anything we were able to produce; we were really capacity limited there. And even though it remains OUS, we're also looking at broadening the geographic markets outside of the United States because so far we've only been really going after selected countries and could sell everything we wanted to or could produce there. So it's obviously at a modest level, more modest than some much larger companies, but we hope to be reasonably clever in the capabilities we're offering and we're going to ramp that further along with looking at, as I said earlier, COVID-19 related assays that are not only molecular and PCR. So this is part of our broader multi-bio hyper and infectious disease diagnostics franchise, which of course has been healthy and continues to be quite healthy. So both MALDI BioTyper and other infectious viral infectious disease consumables are growing very nicely and they've also helped us to make the group quite profitable.

Okay. Yeah, so the timsTOF primarily proteomics, but some of it also metabolomics and some of it also imaging. The growth upon the platform has been good, in the double digits both in orders and in revenue in the first half, which was obviously in that existing environment was really quite good. The growth came primarily from Europe and primarily from pharma, not so much from the US and not so much from Asia or from China as they're recovering. So good first half year growth primarily driven by Europe and by pharma adoption. That was one of your questions. Yes, we can expect continued growth in our proteomics platform. We just think that 4D proteomics technology, high throughput, deep proteomics with so many other attributes, it's just really at some point driving the inflection point of proteomics to become much more important than it has been traditionally in disease and other research, and maybe cancer proteomics in particular. So we continue to be generally optimistic there. I think over time the US and Americas and Asia and China will also continue to grow again; that was more of a quarterly perhaps aberration. But so far it's been Europe and pharma primarily in the first half. And then to your last question, MALDI. If you can do something with MALDI without any GC or LC chromatography, if you can do something in a less than one minute experiment, perhaps in a few seconds, you're going to solve every problem you can with MALDI. It's incredibly robust, it's incredibly fast, and by the way it can do imaging, so it can do things in pathology research or in spatial omics that you cannot inherently do or cannot easily do with any time you need electrospray and chromatography. So broadening, increasing the sensitivity but also broadening the range of molecular classes that are amenable to this very robust, very fast, very high throughput, and very easy to use MALDI technologies is fantastic news. As more of the mass spec market and some of its applications, maybe applied markets or diagnostic markets or screening markets, can shift to MALDI, which is always desirable. So I think the MALDI innovation, which is also on the timsTOF platform as you know, is really like a generational once every three decades kind of big push to make MALDI that much more applicable. It's not going to displace everything else, but it's going to make that MALDI opportunity where we are the market leader that much more attractive, including and very importantly in mass spec imaging, which is where MALDI will also play quite a role on the timsTOF flex. Sorry, a bit of a long answer, but in addition to proteomics which will not be done by MALDI, proteomics metabolomics will be done with LC electrospray collision cross-section MSMS on the timsTOF platform, but it's nice to have that second growth driver, or the third growth driver: multi-bioTyper being the second very nice growth driver, a third one with MALDI probably going through a renaissance and expanding its scope. So that's sort of the big picture strategy for life science mass spectrometry for us.

So we're not really providing guidance specifically by the business groups to begin with, but I guess what I can say more generally is that the overall performance is expected to improve sequentially. Clearly, as you already know, some of our businesses, particularly those that are in the industrial or applied markets, are going to have more challenges than others. Some of the areas that Frank has already described around BioSpin and MALDI clearly will perform stronger because of the portfolio that they're working with. And the other industrial and applied markets are clearly having a headwind that they're pushing up against, maybe with the exception of the semi space. So that probably translates into, for the third quarter and really for the second half of the year, that Calus including life science mass spectrometry and diagnostics will be the strongest, BioSpin probably will get stronger in the second half of the year, and Nano and BEST will be relatively speaking weaker within the mix because they have more of an industrial and applied exposure, with the small bright spot around semi metrology which you've already heard a little bit about, and also fluorescence microscopy but it's growing from a small basis within the Nano group that's also very important in life science research.

Yeah, the stimulus plans this time are not so clear how they're going to target or whether they're going to be helpful for our industry. Of course for COVID testing, the big bowlers and governments will spend just about anything on PCR testing, vaccine development, and so on. Beyond that, the stimulus plans that have emerged in Europe or elsewhere sometimes are very diffused and they just reduce the general sales tax for a while and stuff like that, so those are not necessarily targeted plans yet. They're just to address the immediate economic band-aids that are not particularly helpful for our industry. We hope that as people think forward, and particularly some of the proposals that are at least being discussed in this country, significant increases in NIH and NSF budgets could occur. That could become a trendsetter, but so far there's not a lot of visibility on targeted stimulus programs. So that's not good news, or at least not good news yet. There's a general feeling that a lot more needs to be invested in life science research so that the next pandemic will be better prepared on many levels, but that still in most countries needs to resolve in concrete programs. They're being discussed but they haven't generally been enacted yet, at least not outside the U.S. So that's what we have to say on that right now. We're observing that, but it really hasn't become clear yet how that might play itself out in Japan and China. I think it's just a little bit early, quite honestly. Everybody's just still fighting the pandemic, and as it becomes endemic and we just deal with it, what do we really do about it strategically? That's not all clear what the strategic responses are.

A little bit of both, PJ. Of course, we expect a sequential improvement in the back half: Q3 better than Q2, Q4 better than Q3. Some of that will also go into 2021. I think that's also fair to say. Do I feel better, do I feel differently at the end of July than in early July? At a societal level, obviously there is much more of a second wave in the U.S. and a few places like Victoria, Australia, and a few other places, which is unpleasant. Will it have an economic effect? So far, other than very selected local areas, I don't really see anybody driving for complete lockdowns and economic shutdown again. I just don't think anybody's prepared to do that from what I can see so far. So no, I don't really have any different view. I took the conservative view that academia and government labs would open gradually and that they wouldn't all be open come August 1st or at full capacity. So in that sense, we're building probably a little bit of buffering that accommodates some of these wrinkles. So no change in outlook from my point of view at the end of the business.

Yeah, good questions. Academic government was down in the high teens in the second quarter. So clearly one of the weakest areas. And as we've noticed, Europe better than the US, better than Japan (very weak), and India and places like this very weak. Big geographic differences. China coming back but not roaring back, not coming back all that quickly. So if anything, Europe was the highlight in academic government in Q2 and actually looks pretty healthy for Q3 as well. A lot of the questions you're asking are very applicable to the United States where you have federal and state government and endowments and tuition and housing and things like that paying for universities, and some universities have a big hospital that contributes to Stanford's budget or this year probably brings a shortfall to Stanford's budget, to pick on a particular university. Those patterns are really almost unknown outside of the United States. So again, academic funding outside of the United States generally is very, very robust. 80% of our academic and government research markets are outside of the United States, and in the US it's more of a mixed picture. Without repeating what I said earlier, in the US it's going to be a big picture: some smaller universities, some state-funded universities, some universities with a big shortfall at their big hospital will be cutting budgets and may slow down a little bit. Even in academic hiring, when they get federal grants they will absolutely take them, so it'll be a mixed picture, not all negative but also not all positive. Whereas I think outside of the United States, the academic funding may have been disrupted but I think it's incredibly solid, and beyond temporary effects that are related to the pandemic in Q2 and Q3, maybe a little bit into Q4, I think will be largely gone and we'll be back at solid academic budgets outside of the United States, which is 80% of the academic markets. In the US, it'll be more mixed, winners and losers in terms of budget and ability to pay. But ultimately, it's hard to predict US politics, but ultimately it seems that there will be bipartisan support, I predict, for significant investments in NIH, NSF, and even DOE R&D.

Sure. Well, just generally, my view is that in our forecasting, we'll see sequential improvement both at the revenue line as well as in the margin gross margin line. A lot of the volume and disruptive activities that we had in the second quarter we don't expect to see necessarily in the third and the fourth quarter. And of course that may be partially offset by some of our cost reduction measures as we relax some of them. So I do think we'll see sequential improvement, and that's probably the best I can say. Likely stronger in the fourth quarter than in the third quarter.

Thank you for joining us today, and apologies to those whose questions we didn't get to answer today. During the third quarter, Bruker will participate in the 2020 Wells Fargo Virtual Healthcare Conference. We hope you stay healthy and well, and we invite you to reach out to us for a virtual meeting during the quarter. Thank you and have a good evening.