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Earnings call: QIAGEN reports strong Q2 performance, raises 2024 outlook

EditorAhmed Abdulazez Abdulkadir
Published 2024-08-04, 11:26 a/m
© Reuters.
QGEN
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QIAGEN NV (NYSE: QGEN) has reported a robust performance in the second quarter of 2024, with net sales of $496 million surpassing the company's forecasted $495 million. The company experienced a 2% increase in sales (excluding NeuMoDx) and an 8% rise in its Diagnostic Solutions Product Group. Adjusted earnings per share (EPS) reached $0.55, which was higher than the anticipated $0.52.

QIAGEN also announced significant product advancements and updated its full-year outlook, raising the sales forecast to at least $1.985 billion and adjusted EPS to $2.16. The company's free cash flow saw a significant increase, and it expects to continue this growth trajectory in the coming months.

Key Takeaways

  • QIAGEN's net sales hit $496 million, with a 2% rise excluding NeuMoDx and an 8% increase in the Diagnostic Solutions Product Group.
  • Adjusted EPS was $0.55, surpassing the outlook of at least $0.52.
  • The company launched new products, including the Gastrointestinal Panel 2 and an upgraded respiratory panel.
  • 2024 sales outlook increased to at least $1,985 million, and adjusted EPS raised to $2.16.
  • Free cash flow jumped by 56% to $129 million.
  • QIAGEN plans to invest in QIAcuity, QIAstat, and QIAGEN Digital Insights to drive growth.

Company Outlook

  • QIAGEN expects mid-single digit growth in Q3 and solid mid-single digit range growth for the full year.
  • The company is confident in achieving its three-year plan guidance.
  • QIAGEN anticipates improved funding conditions and normalization of spend trends in the life science market.

Bearish Highlights

  • Instrument sales declined by 10% due to customer caution in capital investment.
  • Sales in the Asia-Pacific Japan region decreased, although China showed sequential growth.

Bullish Highlights

  • Sales in the Europe, Middle East, and Africa region were strong, particularly in Germany, Italy, and the UK.
  • The company expects demand trends for its Genomics NGS product group to improve in the second half of the year, leading to growth.
  • QIAGEN's adjusted gross margin stood at 67.2%, with a one percentage point increase in the adjusted operating income margin to 28.4%.

Misses

  • There were no significant misses reported in the earnings call.

Q&A Highlights

  • The company discussed its leadership in sample technologies and QuantiFERON, and its focus on delivering sales guidance for the product.
  • QIAGEN addressed competition in the QuantiFERON market and its strategic decisions to focus on genomics and sequencing.

CEO Thierry Bernard expressed confidence in the trends and improvement in the NGS market for the latter half of the year. The company's partnership with DiaSorin and agreements with automation companies were highlighted as creating an unparalleled automated workflow. Furthermore, QIAGEN is optimizing its portfolio and has begun phasing out the NeuMoDx system. The company's digital PCR platform, QIAcuity, saw above double-digit consumables sales growth in Q2, and the BCR ABL product remains a key focus in oncology. QIAGEN's confidence in surpassing its guidance of $450 million was also conveyed, along with the expected positive impact from the NeuMoDx acquisition on future margins. The call concluded with an invitation for participants to reach out with further questions or comments.

InvestingPro Insights

QIAGEN NV (NYSE: QGEN) has demonstrated a solid financial performance in the recent quarter, reflecting a positive trajectory in its business operations. To further understand the company's current market standing, here are some insights based on recent data from InvestingPro and InvestingPro Tips:

InvestingPro Data shows that QIAGEN is currently trading at a high earnings multiple, with a P/E ratio of 142.06 and an adjusted P/E ratio for the last twelve months as of Q2 2024 at 70.47. Despite a slight revenue decline of 1.9% over the last twelve months as of Q2 2024, the company has maintained a strong gross profit margin of 51.71%. This indicates that QIAGEN has been effective in managing its cost of goods sold and maintaining profitability.

From the InvestingPro Tips, it's noteworthy that management has been actively buying back shares, which could be a sign of their confidence in the company's value and future prospects. Moreover, QIAGEN has a high shareholder yield, suggesting that it is returning significant value to its shareholders.

In terms of stock performance, QIAGEN has been trading near its 52-week high, with the price at 99.44% of this peak. The company has also experienced a strong return over the last month, with a 14.07% increase in its share price. This recent momentum could be of interest to investors looking for growth opportunities.

For those seeking more detailed analysis and additional insights, InvestingPro offers a range of tips, including 12 more tips for QIAGEN, which can be accessed at: https://www.investing.com/pro/QGEN. These tips provide a deeper dive into the company's financial health and market position, helping investors make informed decisions.

Full transcript - Qiagen N.V.-Exch (NYSE:QGEN) Q2 2024:

Operator: Ladies and gentlemen, thank you for standing by. I'm KD and I’ll be your conference operator. Welcome, and thank you for joining QIAGEN's Q2 2024 Earnings Conference Call Webcast. Please be advised that this call is being recorded at QIAGEN's request and will be made available on their Internet site. [Operator Instructions] At this time, I'd like to introduce your host, John Gilardi, Vice President of Corporate Communications and Investor Relations at QIAGEN. Please go ahead.

John Gilardi: Thank you, KD, and a welcome to all of you today who are joining in our call. We appreciate your interest in QIAGEN. Our speakers today are Thierry Bernard, our Chief Executive Officer, and Roland Sackers, our Chief Financial Officer. This call is being webcast live and will be archived on the investors section of our website at www.qiagen.com. You can also find a copy of the quarterly results press release and presentation on our website. We will begin with some remarks from Thierry and Roland, followed by a Q&A session. Let’s go over the Safe Harbor statements. I’d like to remind everyone that we will be discussing statements. Actual results may differ materially from those projected in any statements that we make. The factors that could cause our actual results to differ materially are discussed in our most recent Form 20-F on file with the SEC and also available on our website. Additionally, we will refer to certain financial measures not prepared, following generally accepted accounting principles or GAAP. All references to EPS refer to diluted EPS. You can also find a reconciliation to the most directly comparable GAAP measures in our press release in the presentation. Now I would like to hand over to Thierry.

Thierry Bernard: Thank you, John. And hello and very good morning, good afternoon or good evening depending on where you are in the world and thank you once again for joining us. Our teams at QIAGEN executed well in the second quarter, delivering growth over quarter two of 2023 as well as sequential growth from the first quarter of 2024. In fact, our results position QIAGEN as among the fastest growing companies in the diversified tools sector. They also signal our conviction to accelerate our performance and achieve our updated outlook. Executing on our 2024 targets will put us on a good trajectory to achieve the new midterm targets we outlined at our Capital Markets Day that are underscored by our commitment to solid and profitable growth. Let me get you to our key messages for the quarter. First, QIAGEN marked another quarter of exceeding our outlook for sale and adjusted earnings. Net sales were $496 million for the quarter, an increase of 1% at CER constant exchange rates over the second quarter of 2023. Most important, results at CER of $502 million were $7 million ahead of the outlook for at least $495 million. And sales were up 2% CER excluding NeuMoDx, and also up 8% CER in our Diagnostic Solutions Product Group, in light of our decision announced in June to phase out the NeuMoDx system. Our highly recurring revenues business led the performance, with consumable sales rising 3% CER and making up nearly 90% of our total sales. A trend that we have seen in the industry this quarter was the impact on instrument sales. In quarter two of 2024, overall, our instrument sales were down 10%. And if you include NeuMoDx, they were down 6% CER. Customers are indeed still cautious on capital investment, and that includes larger scale instrument purchases as well. Adjusted earnings per share were $0.55 and also $0.55 at CER. This is $0.3 above our outlook for at least $0.52. Second key message, our teams delivered important product advances in our portfolio serving customers from life science to clinical diagnostics. Let's start with QIAstat, our system for syndromic testing. Our teams delivered a very strong 12% CER growth in the second quarter. And we see this trend improving in the second half of the year on the back of two important product launches in the United States. First, our teams launched the new Gastrointestinal Panel 2 in a record time in early July after we received FDA clearance in June. From marketing to operations to the salesforce, this was a tremendous execution. And second, we also received FDA clearance during the second quarter for our upgraded respiratory panel, which now covers 21 pathogens, including the SARS-CoV-2 virus. Those milestones are important catalysts to attracting new customers in the US, and more new tests are on the way. The meningitis and encephalitis panel are on track with US submissions this year, along with three new many panels, one involving respiratory targets and two for the gastrointestinal targets. We are also extremely excited about the expansion of QIAstat into new applications with our pharma partners for companion diagnostic that will help guiding treatment decisions for patients. If you remember, we noted at our Capital Market Day that we now have in place the first pharma collaborations for QIAstat diagnostic, and those involve panel tests for chronic diseases. Our goal together with our pharma partner is to offer tests on QIAstat that can be done rapidly while the patient is still undergoing a clinical examination and could live with a prescription system for candidate for a given medicine. This indeed embodies our approach to clinical molecular diagnostics decisive when it matters. On QuantiFERON, we welcome the recent update to the American Academy of Pediatrics guidelines in the US for latent tuberculosis screening in children. Children of all age groups are now eligible for testing using QuantiFERON, and this could open incremental latent tb tests to be converted every year. In any case the potential for further growth in QuantiFERON is strong, given that skin tests still make up well over 50% of the global annual latent TB testing market, including in the US. As a key element of our strategy also involved reviewing our portfolio in light of market trends. You saw this this year again with the announcement in June about our decision to phase out NeuMoDx. This was indeed a difficult decision involving what we see as a great system and a great platform. But the market dynamics changed after the pandemic COVID-19, and we did not see a realistic pathway to developing this system in a value-creating way. These decisions underscore our unwavering commitment to focus where we can develop profitable leadership positions. And last message, we have updated our 2024 outlook based on the solid core business performance in the first half along with the NeuMoDx decision. Our sales for the first half of 2024 were about $15 million CER above our outlook. And this played a very key role in our decision to update the full year sales outlook for at least $1,985,000 at CER while also taking into consideration our decision on NeuMoDx. We have also raised the outlook for adjusted EPS by $0.02 to $2.16 cents as we step up to our commitment for solid profitable growth. This is also underscored by the adjusted operating income margin target at 28.5% of sales and the outstanding free cash flow generation. And now I would like to hand over to Roland for a review of the financial results.

Roland Sackers: Thank you, Thierry. Hello, everyone. Thank you as well for me for joining our call. And it was a pleasure to see many of you at our Capital Market Day event. Let me also go through some highlights and provide some perspectives on our performance. As a first point, our results for the second quarter show the improving sequential trend from Q1 2024. And these results put us on the trajectory to achieve the goals we have set for the year. Compared to the first quarter ‘24, there was no material change in our operational results. The adjusted tax rate was at 19% and the share count at 224 million, both in line with our guidance. As a result, adjusted operating income and adjusted net income both grew at the same rate of 4%. Our outperformance in the first half of ‘24 both in terms of sales and profitability played a key role in our updated outlook for the year. For the second half of ’24, we are on track to see an acceleration in the year-on-year sales growth rate along with an improvement in the adjusted operating income margin. Let me dig into some of the highlights now. The adjusted operating income margin rose by one percentage point to 28.4% of sales for the second quarter over the year ago period. This gives us confidence in achieving the target for at least 28.5% for the full year and a step towards our goal for an adjusted margin of at least 31% in 2028. On cash flow trends, free cash flow rose 56% in the second quarter to $129 million over the year ago period and was up an even more impressive 86% to $225 million for the first half of the year. We are seeing the impact of measures to ensure a high level of cash conversion from the rising level of adjusted net income. These actions include upscaling our accounts receivable and accounts payable to teams at our hubs in Wroclaw and Manila. While keeping an eye on inventory levels, we are taking steps to ensure that we have adequate supplies to avoid disruption, especially in light of concerns about the current macro environment and supply chain stability. Let me now give you some additional views on our results for the second quarter. Among the product groups, we saw higher sales in the second quarter on sample technologies, diagnostic solutions, and PCR Nucleic acid amplification over the year ago period. In Sample Technologies, the 1% CER growth came in from consumers and particularly strong growth in kits used in our automation systems. And this comes after the launch of upgraded systems, in particular QIAcube Connect and EZ2 Connect. While we saw some weaker sales transform in manual kits, the increase in automation consumers is a testament to our conversion ability. In Diagnostic Solutions, we were pleased with the ongoing strong performance of QuantiFERON, which sales up 11% CER in marking the fifth consecutive quarter above $100 million in revenues. QIAstat-Dx also rose at a robust pace, growing 12% CER over the second quarter of ‘23 on significant gains in consumables and an ongoing good level of instrument placement. The recent expansion of the U.S. test menu gives us increasing confidence in exceeding the ‘24 sales target of at least US $100 million. In the PCR group product group, QIAcuity delivered robust growth in consumable sales. We continue to see good demand trends for instruments as well. We are especially pleased with the demands for the higher throughput QIAcuity 4 and 8 versions that are popular with biopharma manufacturing customers as well as larger Academica research facilities. We believe this will translate into an even higher consumable proposal. In the Genomics NGS product group, sales of the QIAGEN Digital Insights business holds at the highest single-digit pace and here we saw good sales trends for both the research and clinical portfolios. However, we faced a tough comparison to the strong results in the year ago quarter. At the same time, we anticipate improving demand trends for our NGS portfolio in the second half of the year and for this product group to return to growth as we saw in the first quarter. Let's now move to results for the regions. Sales were 7% CER in the Europe, Middle East, Africa region with a top performance in Germany, Italy and the United Kingdom. QIAstat-Dx sales in this region were robust with double-digit growth in both consumables and instruments. We also saw growth above the global average for QuantiFERON on continued conversion from the tuberculin skin test. In the Americas, sales were stable compared to the second quarter of ‘23 as single-digit consumable growth was offset by the cautious spending environment for instruments. In the Asia-Pacific Japan region, sales declined 3% CER in the second quarter and led by higher sales in Japan, Australia and India. Results for China showed a single-digit CER declined over the second quarter of ‘23 but grew at a significant double-digit rate sequentially from the first quarter of ‘24. We currently anticipate the challenging market conditions in China to continue. Let me just remind you, China makes up less than 6% of our global sales. Let's now review the rest of the income statement. The adjusted gross margin was 67.2% of sales and increase of about 30 basis points from the second quarter of ‘23 on beneficial changes in the product mix towards higher consumable sales. Additional margin benefits came from lower operating expenses in R&D, selling and marketing expenses and administrations in the second quarter over the year ago period. This led to the adjusted operating income margin expansion by one percentage point to 28.4% from the second quarter of ‘23 and a marked step up from the 25.7% margin in the first quarter of ‘24. The favorable trends show the impact of our initiatives on effective cost management while making targeted investments to fuel growth and supports our targets of at least 28.5% for the full year of ‘24. As for NeuMoDx, given that the decision came in June, we did not see any material impact on operational expenses other than the restructuring charges taken in the second quarter that was excluded from adjusted results. The restructuring charge for the second quarter was $351 million, of which 80% was noncash. About $280 million was included in the cost of goods sold and about $70 million in operating expenses. We continue to expect the restructuring charges to total approximately $400 million through the completion of the program in 2025 and with about 75% involving noncash items. As per the third quarter of 2024, we currently expect the charges to total approximately $30 million to $40 million related to this decision. As for adjusted EPS, results at constant exchange rates were at $0.55 and $0.03 ahead of outlook for at least $0.52. The adjusted tax rate was at 19% and the average number of diluted shares at 224 million were both in line with our expectations. Turning to cash flow, results for the second quarter were a continuation of the good outcome seen in the first quarter of 2024. Operating cash flow for the first half was up 63% to $300 million over the same period in ‘23. In terms of work and capital management, account receivables fell by nearly $30 million since the end of ‘23, while our days of sales outstanding was 58 days and has remained within this recent trend. Another contributor was the reduction in inventories by about $80 million since the end of ‘23. This was partially due to the decision to reduce, continue NeuMoDx but also improvements in other areas of the portfolio. Free cash flow also improved in the first half of 2024, rising 86% to $225 million from the first half of ‘23. At the same time, we saw increased CapEx levels for software development, including for the upgrade of our SAP system that is tracking well against our plans. For the second half of ‘24, we anticipate an ongoing strong level of underlying cash flow generation largely in line with levels seen in the first half of the year, excluding one-time cash charges related to restructuring. The same is true for free cash flow levels with similar levels of CapEx spending as in the first half. As for our financing, we had a payment of about $100 million for a German private placement that reached maturity in the second quarter. We also have $500 million of convertible notes reaching maturity in September and anticipate having to repay another $500 million of convertible notes in ‘25 as well. I would now like to hand back to Thierry.

Thierry Bernard: Thanks a lot Roland. And now let me give you an update on some progresses across our portfolio. First, on QIAcuity, we are ramping up our commercial presence as we seek to drive dynamic growth and gain share in the digital PCR market. If you remember initially, we started with academia and then biopharma and now we are targeting new markets including forensics and clinical application. In forensics, where we have a top three leadership positions driven by our sample prep portfolio, we have a new partnership with the U.S. Federal Bureau of Investigation FBI to develop a first-of -its -kind digital PCR assay. It is designed to enhance DNA quantification in human samples which boosts forensics analytics and ultimately contributes to improving public safety. And as for the clinical market and digital PCR, the launch of the QIAcuity diagnostic version is perfectly on track for later this year. The first assay for FDA submission, a BCR ABL assay for use in hematology patients, is also on track for approval in 2025. We still have ample room for growth in the academia and biopharma markets and our teams are ramping up customers activation campaigns. If we move now to QIAGEN Digital Insights, powerful analytics to understand genomics, our bioinformatics portfolio, we are harnessing the power of AI driven content combined with human curation to provide the industry leading in bioinformatics portfolio. Customers rely on QDI by QIAGEN for results in minutes, even seconds that would have taken days and weeks with other options. This speed is possible today. At our Capital Market Day, if you remember, we outline the accelerated investment going into QDI to strengthen this portfolio. And this is distinguished in our industry given the high level of profitability. We are deepening our commercial teams with new sales specialists and we invest further into research and development. This will help us to deliver at least 14 AI enhanced products to our customers by 2028. In Sample Technologies, this is the foundation I remind you of our offering in the life science and molecular diagnostic where QIAGEN is enabling endless possibilities with DNA/RNA from the first step in many lab workflows. We are moving ahead. We plan to launch two important instruments, an upgrade with the QIAsymphony Connect. This is planned for the second half of 2025. And our entry into high throughput automation will be anchored with the launch of QiaSprint Connect early 2026. The introduction of this instrument will increase the capacity to process nearly 200 samples in a few hours. A host of new kits are being developed and ready for launch, including new kits for free circulating DNA and microbiome target isolation. Across our portfolio, you can therefore see that QIAGEN is stronger than even before. We have a differentiated portfolio targeting growth above the market we serve, and we will continue to invest in strengthening this differentiation. Now back again to Roland with the details on the outlook.

Roland Sackers: Thank you, Thierry. Let me now provide more perspectives on our updated outlook for ‘24 and also for the third quarter. As we mentioned earlier, the new outlook for net sales is for US $1.985 billion CER and this compares to the previous outlook for at least US $2 billion. This takes into consideration the strong first half of ‘24 that was ahead of our outlook by $15 million CER, especially with a solid performance from QIAstat-Dx and QuantiFERON. It also reflects an update due to the NeuMoDx decision, as we now expect this sales to be about US $25 million CER compared to previous target for at least US $55 million. Consumables and related revenues are expected to continue driving growth while larger scale instrument sales remain challenging. For the third quarter, we have set an outlook for net sales of at least US $495 million CER, an increase of about 4% CER from the third quarter to ‘23 sales of US $476 million. This includes a headwind of about one percentage point from the NeuMoDx decision, in effect an underlying 5% CER growth over the third quarter, ‘23. This confirms our expected sequential growth that we anticipate for the second half of ‘24 over the same period in ‘23. On adjusted earnings per share, our updated outlook for the year is for at least $2.16 at CER and this is an upgrade from our previous outlook for at least $2.14 CER. I want to also note that this is an increase of $0.06 from the initial outlook at the start of ‘24 as we double down on our commitment for solid profitable growth. Adjusted earnings per share for the third quarter are expected to be at least $0.55 per share also at CER compared to $0.50 in the third quarter of ‘23 to a nice improvement. As for the impact of currencies, based on recent movements, we are now expecting a negative impact on full year net sales of about one percentage point and an adverse impact of about $0.02 per share on adjusted EPS results. I would like to now hand back to Thierry.

Thierry Bernard: Thanks a lot, Roland, again, and we are coming to the end of our call. So before we move into the Q&A session, let me quickly summarize today's key points. First, we are very pleased with the results for the first half of 2024 and what we see as a company delivering among the fastest growth and improvement in profitability in our industry. The solid results for the first half give us increasing confidence in achieving the updated 2024 outlook. Second, our strategy of balance and focus is proving its value as we roll out new products and strengthen our offering to customers from the life sciences to the molecular diagnostic field and capitalize on our broad global presence. A key element is the fact that nearly 90% of our sales are coming from highly recurring revenues, and this bolsters our business in a challenging macro environment marked those days by slower capital investments. We have, as focused on our sharpened growth drivers, QIAcuity, QIAstat, and QIAGEN Digital Insights as areas where we are accelerating investment for growth. We also invest in our proven leadership in sample technologies and also in QuantiFERON. Those major focus do not prevent QIAGEN from having all the significant growth potentials such as genomics, precision medicine and companion diagnostic, and also HID, human identification, and forensics, where QIAGEN is already a top player. Above all, the QIAGEN of today is about delivering sales growth combined with improved profitability, in line with our commitment to solid profitable growth for the coming years. This is what we have demonstrated with our results for the first half of 2024, and we are determined to do so in the second half as well. With that, I'd now like to hand back to John and the operator for the Q &A session. Thanks a lot for your attention.

Operator: [Operator Instructions] The first question comes from Catherine Schulte with Baird.

Catherine Schulte: Hi. Thanks for the question. Maybe just first, as we think about the back half guide, third quarter looks like you're getting back to about mid-single digit growth and probably exiting the year in the solid mid-single digit range. How should we think about that as a jumping-off point for ‘25 and maybe compare that with your 7% long term CAGR that you laid out at your CMD last month? Thanks.

Thierry Bernard: Catherine. I would say that what it shows is that we are perfectly executing on what we said at the beginning of the year. You remember we signaled clearly to you and to the market when we get our guidance for 2024 that we would have a slower H1 and then progressively accelerate. And coming back to a performance in H2 that would be very comparable to our performance in 2023. And this is why that you have our Q3, which is at 4% growth. If you exclude NeuMoDx, it's 5% growth and 5% also growth in Q4. Q3 will be driven by, first of all, the input of new products in our portfolio. In H1 of 2024, you have no impact of the GI approval in the US. You have no impact on the QIAcuity diagnostic approval also in the US. This is impacting the second half. Second, in H2, you have also the confirmation of the investment that we are doing for now a bit more than six months into our bioinformatics QDI business, and this is going to show acceleration. Third, you probably know that traditionally, the second half of the year is always stronger and faster in growth for QuantiFERON, because it's impacted by impactful marketing activities, especially in the U.S. with our back-to-college, back-to -school campaign. So it's fundamental for us to accelerate. We have the pipeline and the portfolio to do so, and this would position QIAGEN then to deliver on the expected three year plan guidance that we gave in our Capital Market Day in New York.

Catherine Schulte: All right, great. Thank you. And then great to see consumables returning to growth as well. What are your expectations for instruments versus consumables in the back half of the year?

Thierry Bernard: We have always signaled to the market that for many factors, first of all, an influx of capital sales during the COVID pandemic era. Second, let's never forget that this year is very specific in the world. It's one of the few years where half of the world is going into election and not have been key markets such as the US. So anytime you have election, you have a bit of a wait and see attitude. So there is clearly some caution in capital expense in many labs, especially in life science. We expect this situation to be short lived. We have always said that laboratories are traditionally and on a regular basis, investing into upgrading their capital sales. So we expect this movement to normalize progressively moving into 2025.

Operator: We'll go next to Michael Ryskin with Bank of America (NYSE:BAC).

Michael Ryskin: Great. Thanks for taking the question. I want to dig in on some of the portfolio developments you talked about, particularly the Digital Insights. It sounds like you're making a lot of progress there and seeing some strengths in the software business. Just wondering if you could talk about the underlying state of that end market, customer purchasing decisions, and broadly just what you're seeing in genomics. Thanks.

Thierry Bernard: Thank you, Michael. You know that we have basically two main classes of customers as we have highlighted during our Capital Market Day in June for QDI. What we call the discovery, which has the research and academia customers and also the clinical customers. There is a significant need for bioinformatics, especially driven by the demand for genomics data. But the market is also driven by the fact that when you have an explosion of available genomics data, you still need to have very smart softwares to allow clinicians and laboratory to make sense of those data. In other words, to transform those trillions of data into actionable research or clinical insights. And this is why it's pushing the dynamic of that market. The specificity of QIAGEN here is that not only we have invested for many years into artificial intelligence, but we have built also an incomparable knowledge base thanks to years of manual data curation. And this is that combination of automation and AI and manual curation that makes QIAGEN so specific. In addition to that, especially when you compare with all our competitors on that segment, this activity is highly accretive for QIAGEN at every level. Gross margin, EBIT margin, EPS. When our competitors are rather basically building money. This is why we believe that it's a market that it's interesting to invest in marketing and also research and development.

Michael Ryskin: Okay. Thanks. And if I could squeeze in a follow -up. On QuantiFERON, the solid quarter, double digit CER growth, continuing strength there. Obviously, there's been a lot of discussions about potential competition in that market. It's been another quarter since there's been some updates from potential competitors down the road. Just wondering if you've had any change conversations with your customers or what you're seeing in the market in terms of people's expectations in the future there. Thanks.

Thierry Bernard: Michael, QIAGEN is like you. We hear and we listen to comments from competitors, even when they are extremely contradictory. But this is not our focus. The first focus for us is to deliver on the $450 million guidance in 2024 for QuantiFERON. We are on good track, fifth quarter in a row, exceeding $100 million of sales. Once again double digit. Second is to make sure that we capture the skin test market because this is the main competition in that market. There are still probably around 60 million skits test in the world of which 16 million in the US alone. So you understand that we have still a lot of room to grow. Third is to deliver on the commitment we took during our Capital Market Day in New York which is bringing that franchise to $600 million by 2028 which is showing a 7% CAGR. Those are our focus and this is what matters I believe.

Operator: We'll go next to Jack Meehan with Nephron Research.

Jack Meehan: Thank you. Good morning, good afternoon. Wanted to start just to get your latest thinking on end market trends on the life science side for academic customers and also pharma customers. How just, in terms of spend trends, how are you feeling about funding conditions and just kind of the pace, the recovery here into the second half?

Thierry Bernard: I believe, Jack, thanks for the question that the situation should normalize on the backs of one main reason. People will have more and more visibility on the funding situation. Remember that for a good part of H1, at least until April, if you just take the US as an example, many labs did not know what the budget, for example, for NIH 2024 would be. Now they know it's flat this year. Will it be flat forever? I don't believe so. We have never seen that in the history, for example, of NIH. So we have highlighted this cautious in capital spending, but I believe that given the power of innovation in life science, once again, look at microbiome. Who was talking about microbiome six years ago? Now, many more residual diseases. Every year you have a new push for expenses or more discoveries. So that means that we are very confident that this market will continue to grow. Clear this year, it's a bit softer on capital sales, but that shouldn't last forever.

Jack Meehan: Great, okay. And then on QIAcuity, just how do you feel like you're tracking relative to that over $90 million target? I think it implies a little bit of a step up in terms of the growth rate in the second half of the year. Just would love to hear more about your confidence in that. Thanks.

Thierry Bernard: Thank you, Jack. So first of all, let's not forget that QIAcuity is probably the fastest growing install base ever in life science. Since the very first day we launched QIAcuity, we achieve a remarkable number of placement, converting QPCR customers or converting competition. Second, it's clear that because it is up to now, mainly a life science play for QIAGEN, yes, QIAcuity, even if we see a nice demand for our instrument, is slightly impacted by the caution on capital expenses in labs. But the good thing is that we are extending the reach of QIAcuity in two dimensions. First of all, the clinical business and this is the launch and the approval, the FDA approval of the platform in the second half, but also the pharma, so QIAcuity now becomes also a very valid solution for companion diagnostic. And this is why we believe that we have the guidance for 2024 of $90 million within reach.

Operator: We'll go next to Dan Arias with Stifel.

Dan Arias: Hey, good morning, guys. Thanks for the questions. Thierry, obviously, QuantiFERON is an important product for you guys here and at the Capital Market Day, part of the discussion on maintaining your competitive position was just related to work flow. So I'm just curious about the timeline associated with some of the automation improvements that you highlighted there. I don't think we covered that, if we did, I apologize, but I think automation was one of those critical elements of the offering there. So we'd just sort of love to understand when the work flow is expected to change and then maybe how the work flow is expected to improve over time.

Thierry Bernard: With all due respect, Dan, what we insisted during the Capital Market Day is first, on the strength of our partnership with DiaSorin, let's not forget that this is one of the major install base in immunoassays in the world. So we have already an extremely competitive backhand work flow. Second, and sometimes the market forgets that, is that we have also agreements with two leading front-end automation companies, [inaudible] and Hamilton. And therefore, when you combine both, this is an unparalleled automated work flow. Second, what we said in New York, is that our agreement with DiaSorin knows us potentially to have an automation partner. We have not taken on a formal decision. We review options and obviously we would inform the market in due time.

Operator: We'll take our next question from Odysseas Manesiotis with Berenberg Bank.

Odysseas Manesiotis: Hi. Thanks for taking my questions. One on Roland on margin first. I mean, you're at 28.4% this quarter up a decent bit from Q1. I just want to get a feeling of how much of that is NeuMoDx, which I assuming is two-thirds of the month. And just to think on the latter quarters to where you can get to and respectively the exit rate in 2025, it does seem like you can sort of cross 29% here is that a logical way to think about it and then have a small follow-up.

Roland Sackers: Yes, thank you and thanks for the question. In the second quarter of ’24, I think there is no material impact at all from NeuMoDx on the operational expense side outside the restructuring charge. As you know the decision came very late in the months and of course there's even I would probably argue some extra costs which we had to take but what is clearly important is that is going to change in the second part of the year and clearly also continue into next year. I think we laid out to you and the market ahead of the Capital Market day that the transition out of NeuMoDx goes somewhat into mid of 2025 and that also means the ramp up in terms of contribution on the profitability will face in over time. and I do think what you're seeing here in the second quarter is clearly a contribution from the core business which also and I think, clearly, I want to mention that as well will continue. So we feel comfortable in both that we will clearly be north or at least at the 28.5% for the full year. If you do the math forward you clearly see that we have to be quite quickly north of 29% within that year but I do think it gives us clearly also good comfort on our 2028 goal of 31% that we achieved that and as we said before it has -- it's a beginning a larger contribution from the operational expense side. Over time there's clearly also contribution even outside NeuMoDx from the gross margin side.

Odysseas Manesiotis: All very clear. Thank you. And a follow-up on the instrument front. So, I mean, looking at the instrument sales are down 10%, you have a comment there saying that it does overshadow trends you're seeing on the rental reagent front. So, I just wanted to know which franchises did better on instrument placements in H1 ‘24 compared to ‘23. Thanks.

Roland Sackers: Sorry. I was on mute. We said minus 10. I mean, the real comparison for me is rather minus six because we stopped promoting NeuMoDx. So, basically, we need to account for this basic effect. The first message or the service is that, first of all, we continue to place or sell instruments. It would be a wrong perception that we are either losing market shares. We continue to increase the market penetration of QIAcuity, of QIAstat or of our sample tech instruments. We simply highlighted that customers, especially in life science, are a bit slower to take decision or sometimes they are postponing because as I said before, they are waiting for some more visibility. So as we said, I mean, this is a movement that we expect and consider to be rather short term. Never forget that when you are in life science, it's very difficult when you cannot sell the instrument to do placement, but you can do placement in the clinical. So this is why having that balance between both life science and clinical help us to mitigate that situation. But this is a situation that we not monitor obviously very carefully, but I insist, QIAcuity, QIAstat, and sample tech instruments are increasing quarter after quarter on placement.

Operator: We'll go next to Douglas Schenkel with Wolfe Research.

Douglas Schenkel: Hey, good morning, good afternoon. Thank you for taking the questions. Thierry, I want to start on the topic of portfolio optimization. So first, just really a quick question on NeuMoDx. Is there any chance you still will find a buyer for that asset? Just kind of want to level set on that. And then second, and this is really the more important thing I want to get at, recognizing that the focus of your Capital Market Day was understandably on the growth pillars of your portfolio, around $600 million of your revenue, or I think that's about 30% of total revenue falls outside the growth drivers. How active are you in evaluating other options for components of that part of your business? I'm just wondering if there are other opportunities to optimize and reallocate resources while improving the overall growth and margin profile of the business beyond what you impressively described back at New York a month or so ago.

Thierry Bernard: Thanks, Doug. So, first of all, on NeuMoDx, while a company like QIAGEN is and will never be dogmatic, we need to be clear. We have started a process to discontinue to phase out the system. I confirm that the system will be phased out. Now, the priority for us is to go along and accompany our customers to make sure that it's a smooth transition. Second, since 2020, we insist on that balance and focus strategy for QIAGEN, focus on growth drivers, that doesn't mean that outside of those growth drivers we do not have significant growth potential sometime above double digit. I gave some example today forensic and HID is a double digit growth potential for QIAGEN. Precision medicine and companion diagnostic is another double digit growth potential for QIAGEN. But at the same time if you remember especially the presentation of Roland in the Capital Market Day, we have that clear commitment of 250 basis points from our current level of EBIT margin to go above the 31% EBIT margin that Roland was highlighting again. And Roland gave some details that it was divided between if you remember the graph 100 basis points, 50 basis points and another 50 basis points across different activities of which continuing to optimize our portfolio was a key part. So we said you see NeuMoDx because it's a big one but we are actively looking at the rest of the portfolio to prune what is not either making sense for QIAGEN anymore or what could be better in another company. That's the strategy and it will continue.

Douglas Schenkel: Thank you for that. And if it's okay to just sneak in a quick modeling question for Roland. Roland, we have about 52% of QuantiFERON sales in our model in the second half with Q3 being seasonally stronger as we've seen in the past. QIAstat, even more in the back half but with more in Q4 than Q3, is that the right way to directionally think about things?

Roland Sackers: Yes, I think it's quite obvious that we believe, and I think Thierry was very clear in his prepared remarks, that we continue to believe that QIAstat has a strong environment, not only on other respiratory activities going around, but clearly now with the launch of the GI panel in the U.S., we can address U.S. market much better, not only with GI, but we clearly can even address more tender opportunities. So that will have a large impact. QuantiFERON will stay and remain strong for the year. I think there's also no concern about that. I still would expect that QIAstat also sequentially grows in the third and fourth quarter, just because also of what I just said in terms of GI, but do not underestimate also what we should see from QDI and QIAcuity over the rest of the year. And Thiery was clearly referencing the investments we made over the course of the year, particularly earlier this year, into QDI and QIAcuity has a strong environment, particularly is now selling even the larger instruments into that market that will have an impact on consumable cost as well.

Operator: We'll go next to Patrick Donnelly with Citi.

Patrick Donnelly: Hey guys, thanks for taking the questions. Maybe just one for me, just on China, it sounds like it got a little bit better sequentially, doesn't sound like you guys are expecting much improvement for the rest of the year. But can you just talk about what trends you saw there, maybe peel back the layers a little bit in terms of what looks better, what looks worse, and just the expectations for the rest of the year as we look into 2025 as well. Thank you, guys.

Thierry Bernard: Thank you, Patrick. Roland was also clear in his comments that first of all, our exposure to that market is rather limited, a bit less than 6% of our sales. The second comment is confirmation of what we keep repeating for the last two years. It's a specific market, but it's too large a market for being ignored. So we take all the actions to remain competitive despite the difficulties locally. This goes through further localization of our activities in research and development in manufacturing on products that make sense to become local in China. Second, I remind you that we are quite differentiated in the sense that we do have a second brand in China as well. It's a company which is consolidated with QIAGEN, but which is managed differently than QIAGEN locally and selling local products to Chinese companies. And third, we have said and we confirm we do not see any structural improvement on the market, at least before the second half of 2025. But once again, it's a significant potential, it's a significant size, it's the second market in the world, it cannot be ignored.

Operator: We'll go next to Matthew Sykes with Goldman Sachs (NYSE:GS).

Matthew Sykes: Yes, thanks for taking my questions. Good morning. You made some comments about confidence in trends in the NGS business improving the second half. Could you just talk a little bit about what's giving you that confidence and what you're seeing in that market specifically to show improvement in the second half this year?

Thierry Bernard: I mean, it's a rather balanced view. It's just that you remember, Matt, that back in 2019, we took a very fundamental strategic decision at QIAGEN, which was in genomics and sequencing to focus where we are strong and where are we relevant and strong. It's in chemistry, i.e. providing a platform with kits and in bioinformatics. And we became completely platform-agnostic on those two dimensions. And I believe that the market evolution confirmed that decision because since 2019 you see the growth of more and more relevant players in next generation sequencing beyond Illumina (NASDAQ:ILMN). Look at PacBio, look at Element, look at SingleX, look at MGI for example. So our offer both in bioinformatics and in chemistry fit the needs for those players. And so this is why we said we have a base effect in Q2 of 2024, but the market remains significantly active and we provide added value solution. So the demand is there.

Matthew Sykes: And just one quick follow -up just on QIAcuity on your comments about share gains. Can you kind of talk about how much you're seeing in terms of displacing existing competition versus converting those QPCR customers?

Thierry Bernard: And it's a very fair question, Matt, but when we have a very differentiated platform like QIAcuity, we go after every opportunity, competitive deal, new deal i.e. conversion to customers to the technology of digital PCR. So it's a balanced set of wins. What is clear is that given the feature of the system, specific technology, not droplet-based, fully integrated boxes, capacity to address different workflows because I remind you that we have a small workflow, medium throughput, higher throughput, so we address different needs. Plus now covering mini, not only in research academia, but biopharma and [inaudible] clinical, we have fundamental good assets that are allowing us to not only win against competition, but also bring newcomers to digital PCR.

Operator: We'll go next to Daniel Leonard with UBS.

Daniel Leonard: Thank you. Just one clean-up on the QIAcuity. Did you give the growth rate for that platform in the quarter? And then Thierry, can you help me better frame the importance of the BCR ABL product? Thank you.

Thierry Bernard: So, what we said that we have significant healthy and good growth in the consumable for QIAcuity Q2, I can tell you that it's above double -digit, and we said as well that we continue to have a healthy demand for our platform, especially the higher throughput platform.

Daniel Leonard: And then BCR ABL?

Thierry Bernard: Yes, for BCR ABL also. The play here, let me go back to history first of all. When we decided to move QIAcuity from life science to also clinical diagnostic, we made another decision. We said we will focus in oncology. When we said we focus on oncology, we made a third decision. We said where we are going to be very relevant here is on, we say and what we call a [inaudible] matter oncology, of which BCR-ABL is the main marker. So I'm not going to give you a specific size of the market. I'm just telling you it's the most relevant marker. Second, there is a significant potential where we can prove the superiority of a digital PCR approach, more precise ability to quantitate results versus other technologies, especially QPCR. And for us, it's also making a lot of sense because you might remember that we have a range of products in a matter oncology, what we call the ipsogen range of product, which is coming not at the end of its life cycle, but which is quite mature in life cycle. So converting it to digital PCR will be very helpful as well.

Operator: We'll take our next question from Falko Friedrichs with Deutsche Bank (ETR:DBKGn).

Falko Friedrichs: My question is on the GI panel launch for the QIAstat. Can you give us some insight as to what extent that is already making a bit of a difference in your discussions with customers? And how should we think about the financial contribution of that panel launch in the second half of this year? Thank you.

Thierry Bernard: You have to see it in two ways, it's exactly what Roland said. So first of all, highlighting that the very healthy performance of H1 on QIAstat, 12% growth is absolutely not impacted by GI. That shows you the strength of the solution. Second, we always disclose that part of the acceleration of QIAstat for H2 would come from GI. And it's very simple because in the US we had customers already using QIAstat for respiratory and they were waiting for this new panel to complete their solution to patients. But you had also other customers saying, I'm very interested but as long as you don't have at least two panels, I cannot justify the investment. Now they can. So the fact that we have it now and as I said in my comments, it has been a tremendously quick movement from approval to launch. Explain why QIAstat will be one of our main growth drivers in the second half of the year.

Operator: We'll take our next question from Hugo Solvet with BNP Paribas (OTC:BNPQY).

Curtis Moiles: Hi, this is Curtis Moiles on for Hugo. Thank you for taking my question. The first one here is, I'm looking at the slide on page 8, how you're talking about the adjusted EPS outlook for the rest of the year. It looks to me like we only included $0.02 out of the $0.03 about performance in H1. I'm just curious, can you give a little bit of color? Have you done this to keep some room to maneuver or maybe are you planning to invest a little bit more than you had initially planned? Thank you.

Thierry Bernard: Ronald, would you like to take the EPS?

Roland Sackers: Sure, I'm happy to answer. No, I think fair question. As you noted correctly, we had overperformance not only in revenues for Q1 and Q2, but we also had the same thing for EPS. Clearly, we increased already our outlook quite significantly when we started with $2.10 into the year to $2.14 now to $2.16. At the same time, we also confirmed that our EBIT margin improvement goes from 28% now to 28.5%. As you said, we clearly will have a significant improvement. If you do the math, you see that we're even climbing very close to 30% leaving the year. So I would say not too many companies out there with a significant profitability profile with us and having some room to even do better wouldn't be a bad thing. Let's see.

Curtis Moiles: Okay, thanks. If I could just have one follow-up on coming back to QuantiFERON. It's been obviously relatively strong in H1. Can you discuss maybe your confidence level around potentially delivering above the guidance in the full year and also maybe just to tag on the end of there? I think we understood recently that that Reviti will be launching the new workflow in the U.S. and China soon. Do you expect this to kind of impact the competitive intensity all, or maybe will that impact your business at all going forward? Thank you.

Thierry Bernard: So to the second half of your question immediately, let's be clear, we respect every competitor. The product announced by Reviti is nothing new. It has already been on the market. It has not changed so far, the paradigm of growth of QuantiFERON or the paradigm of market shares between the two companies. Just best of luck to them. But it's already on the market and it's not new. Second, are we going to beat the guidance? I mean, we are always trying Roland, John, myself, and this company to be ambitious and realistic. So let's go to the guidance first of $450 million. Believe us, if we can beat that, we will not hesitate to do so. But first, let's go to $450 million.

Operator: We'll take our final question from Daniel Brennan with TD (TSX:TD) Cowen.

Daniel Brennan: Last but not least, guys, congrats on the quarter. Maybe just one for Roland to start, just on the back half of your margin ramp. So I think you've got NeuMoDx, what, at about a point benefit in the back half. So can you just kind of unpack how we think about gross margins and the different OpEx lines in the back half and, how is leverage coming through there?

Roland Sackers: Yeah, I know. I have in mind a good question, Dan. I have in mind that, as we said before, we will be phasing down NeuMoDx slightly wide. And that means we still have a clearly impact on our port stability also in the second part from NeuMoDx. So I don't think that cost margin changed to must this year. That is probably more to come next year. But we clearly do expect an operational side to get some incremental impact, again, step by step, because clearly some sales and marketing activities and R&D you ramp down sooner than operational activities. But it will take some time. So I think we will see a combination of what I would call probably as of today core improvements or business outside NeuMoDx still gaining traction and efficiency. And NeuMoDx is sliding in into that as well.

Daniel Brennan: Great. And then maybe just one on sample prep. That was a nice beat versus our expectation. We showed pretty healthy growth ex-COVID. What are you seeing there? What do you think happens or what's kind of baked into the guide in Q3 and Q4? I mean, we could argue that there's kind of a maybe deceleration baked in which could look conservative. So just kind of walk through some of the drivers and the assumptions there. Thanks.

Roland Sackers: I think first op, Dan, the first thing I would say is that we can be happy to see sample tech coming back to a positive evolution. That's the first highlight. The second highlight is that we said that it was mainly driven by our performance in automated sample tech. I see that as the translation that our strategy to upgrade our instruments is the good one. Remember QIAcube became QIAcube Connect, EZ1 was upgraded to EZ2 and we announced in New York that we would launch two new platforms so it justifies that strategy, validate that strategy. At the same time, I still see this market for QIAGEN as a low single digit and so we need to continue to develop added value application and assays especially as we said in New York in the field of liquid biopsy, in the field of microbiome, in the field of minimal residual diseases and if we do that, we will continue to grow at a low single digit but it's a recurring business and highly profitable.

John Gilardi: With that I'd like to close this conference call. And appreciate all of you for your participation. If you have any questions or comments, please do not hesitate to reach out to us. Thank you very much.

Operator: Ladies and gentlemen, this concludes the conference call. Thank you for joining. And have a pleasant day.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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