Q2 2022 Qiagen NV Earnings Call
[music].
Ladies and gentlemen, thank you for standing by.
I'm kind of like your Pgi co operator.
Welcome and thank you for joining encouraging second quarter 2022 earnings conference call webcast.
At this time all participants are in a listen only mode.
Right.
If being recorded an occasion to request and will be made available on the internet right.
Prepared remarks will be followed by a question and answer session.
If you would like to ask a question you broke up a little by one on your Touchstone telephone.
Please press the star key followed by zero for operator assistance.
This time I would like to introduce your host George <unk>, Vice President of corporate Communications and Investor Relations at Qiagen. Please go ahead Sir.
So thank you very much operator, and welcome to our call. The speakers today are Terry Bernardo Chief Executive Officer, enrolling Soccer's, our Chief Financial Officer also joining US is Phoebe loh from the Investor Relations team.
Note that this call is being webcast live and will be archived on the investors section of our website at www Qiagen Dot com today, we will first have some remarks from Terry and Rolling and then move into the Q&A session.
Presentation with details on our performance is available on the IR section of our website along with the quarterly release we.
We will not be showing the slides during the call.
Before we begin let me cover as usual our Safe Harbor statement. This conference call discussion and responses to your questions reflects the views of management as of today July 28, 2022, we will be making statements and providing responses to your questions that state our intentions beliefs expectations or predictions of the future. These concepts.
Forward looking statements for the purpose of the Safe Harbor provisions under the private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially from those projected.
<unk> disclaims any intention or obligation to revise any forward looking statements for.
For more information please refer to our filings with the U S Securities and Exchange Commission, which are also available on our website. We will also be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP, all references to EPS refer to diluted EPS.
A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in our press release for the second quarter as well as in the presentation for this call that are both on available on our website I would like to now turn over the call to Terry.
And I repeat on mute your line.
Yeah. Thank you John and it would be even better of you, Steve Hardy and Utah The line I'm sorry for that Sir.
Thank you everyone to for joining and welcome to our concurrent score today.
We are very pleased to report that our teams worldwide delivered solid results in the second quarter of 2022, we have again exceeded our outlook driven by strong double digit sales growth at constant exchange rates from our non covered portfolio.
With our guidance our five pillars of growth are making solid progress towards our two forgone on 22 goals.
While the macro landscape continues to change and to present, new challenges, we still have confidence in the robustness of our company and our strategy.
Our teams have been very proactive in shoring up our business to withstand stores challenges at.
At the onset of Covid, we began strengthening our supply and manufacturing infrastructure against various constraints.
This has definitely helped us to prepare the company for the current environment of supply chain tightening and the rising cost.
We also began implementing alternative energy system late last year at our German site.
This will give us flexibility from known with energy sourcing away from natural gas.
This foresight as served us very well as you can see in our continued delivery of strong results.
We have been able to remain commercially.
And operationally age aisle during those changing times.
And now allow me to get to our key messages for today.
First as mentioned, we exceeded the outlook set for net sales growth and adjusted EPS for Q2 2022.
Net sales for the second quarter of 2022 grew to $544 million at sea or would you kind of 4% over the same period in 2021.
This result was driven by 10% CER growth in sales of our non COVID-19 products at.
At the same times says for COVID-19 related solutions decreased by 39% C E R.
Theater, two folds in in 'twenty, one same quarter.
Adjusted diluted earnings per share in the second quarter were 50 free sense see our revolver the outlook for at least 46 cents.
Second key message our teams continue to execute successfully on our goals to advance our portfolio's.
Especially in our five pillars of growth.
We have launched instrument of grade surcharge, the chaos that diagnostic rise for Syndromic testing in the high volume labs and continued to broaden their menus. We have added a new <unk> X is the quote us at all.
Our installed base is a key.
Fit for future consumables also continued to grow.
As an example cause a creature digital PCR system have now reach over 2000 cumulative placements and KFC forni as passed over 3000 placements.
All of our five pillars of growth off perfectly on track to achieve their sales targets. We have set for the full year of 2022.
And last message for today, we have increased our outlook for the full year two folds out in 'twenty two as a result of our performance in the first half.
We now expect sales of at least $2.2 billion for the full year 2022, with a reaffirmation of the goal for double digit CER growth coming from our non covered portfolio.
And as for adjusted EPS, We all know we're expecting at least $2.50 C E R.
With this outlook, we are taking into account the challenging macro environment and maintaining a very conservative view on COVID-19 testing demand for the year.
As always.
We are ready to support Covid testing in case of any outbreaks in the future, but we continue to be focused on executing on our core business to strengthen our foundation for sustainable growth.
Our strategy of focus on balance continues to be a cornerstone to how we operate.
Particularity when there were five pillars of growth.
We will provide more details on the outlook later in this quarter and I would now like to hand over to hurdle for the financial update.
Thank you Qi Hello, everyone and thank you for joining this call to review our results for the second quarter and its upgraded outlook for 'twenty two.
Let me begin by walking you through the results for detail.
For the second quarter sales were a pipe of about $44 billion at constant exchange rates. This was well ahead of the outlook, we set for at least 10.
<unk> 10 billion you've got rollout.
The key driver was again better than expected performance in our non core product groups, which grew 10%.
That said over 80% of Tau.
Also remember that we had called quarter deposit genomics technology sale of $20 billion this quarter of 20.
21.
Excluding this factor all non COVID-19 sales were up 15%.
<unk>.
Sales of products used in Covid testing declined 39%.
Quarter of 'twenty two.
Whilst this was better than our expectations testing volumes drop significantly across many regions.
Extra words.
Second quarter declined 9% over the same period in 'twenty, one just due to her about five points of currency headwind from the euro.
Dollar against the Euro.
I got cut off.
For the second quarter consumables and related revenues declined 4% over.
What was it in 'twenty one.
Although instrument sales were down 5% see all this work.
Against the very tough comparison due to COVID-19 testing demand, yes, let's see.
<unk> trend in Q systems.
The drop of sales among the four product groups.
This software technology is the board sort of toy sales.
As you said on the last quarterly call you expect more favorable trends as a non Covid chart. During the course of 'twenty two.
It was the case in the second quarter with non Covid choke up 8%.
<unk>.
80% of total job to technology sales.
Our strong performance for the trough type of tool.
Solid market leadership.
However, this product group, so overall sales decline of 7%.
Due to the significant headwinds created by the juice COVID-19 testing demand compared to the second quarter of 'twenty one.
Diagnostics solutions solutions, which represents about 30% of total four 7% at constant exchange rate for the second quarter.
A key driver of both the quantity of on test led to Parker Lewis.
Second quarter were up 9%.
On double digit gains.
Maybe that region.
Given that sales for the first half of the year about $165 billion at constant exchange rates.
Clearly on track to exceed our full year goal for board that she and a $10 billion yeah.
The sales strength for the clinical PCR testing systems kind of thought and.
At Navajo.
Well on track with our expectations that'd be rep particular pleased with double digit CER growth in consumables or chaos.
Yeah.
Is it <unk>.
Patient product group, which represents about 20% of <unk> overall results were largely unchanged from the second quarter of 'twenty one.
Our teams delivered double digit.
The COVID-19 testing product groups such as <unk>.
Solid sales gains kayak curated digital PCR driven by strong instrument placements and it.
Increase in currency will go towards.
Additionally, the acquisition of blood.
22 provided about 1 billion.
Sales for the second quarter.
The genomic NGL product, which represents about 10% of that 423% decline at constant exchange rates.
As we noted earlier this was all faced the difficult comparison due to the public technology.
'twenty one Florida.
When you exclude the spectral ship this product were up 2% CER.
<unk> product sales both at a single digit CR rate.
Solid demand.
And she asked solutions.
We also saw a slowdown is a qiagen digital insights by up a magic business, which sales declining at a low single digit CR rate.
We see this as an outlier.
Business can have large footprints.
On the quarterly basis.
Moving on to geographic breakdown of sales all three of our regions delivered solid sales growth in the non core product groups, but this was more than offset by the drop off pre COVID-19 traffic.
The best performance in the Asia Pacific Japan region.
Sure.
<unk> largely unchanged from the second quarter of 'twenty one.
China was a driver in this region with Sierra Gorda low single digits.
It aligns with our expectations in light of your regional Lockdown.
Colstrip, four noncore, but your bonds among lifestyle customer and for quantity on TB.
It was also supported by demand for cooler testing components made in China for the local market.
Yes, because patients felt the impact of reduced COVID-19 testing there about this overall tilt toward 1% for the second quarter. However, we saw double digit growth for the non corporate product groups.
In the Europe Middle East Africa region sales were down 10%.
For the quarter due to the sharp drop off in Covid testing trends.
Despite that headwind.
He spent at the Netherlands maintains a double digit Roe.
<unk> for the fourth quarter.
Moving down the income statement.
Operating income margin declined to 28% of sales mainly due to the lower sales contributions.
Turning to the components of the adjusted operating income margin to adjusted gross margin declined about 1.3 percentage points to 67, 4% of the second quarter.
This reflected initiatives to increase production capacity, especially for <unk> and <unk>.
Onboarding.
It also includes the cost to secure our supply chain with additional product inventory and secondary suppliers.
D investments was nine 7% of sales for the second quarter from nine 2% year ago period.
The Arctic we are taking the opportunity to increase the pace of R&D investment that's about surety of CS and the five pillars of growth.
Sales and marketing expenses were also higher in second quarter of 'twenty, two we're having apart because three six percentage points to 23.1% of sales for the same period in 'twenty one.
Due to invest into the dedicated sales and marketing activities for the five pillars of growth as well as higher freight cost, which we are seeking pass onto customers.
Charges.
And as a last point general and administrative expenses was about one percentage point to about six 4% of the 22 quarter <unk>, mainly due to investments in it systems cyber security.
Adjusted EPS for the second quarter was <unk> 53 said at constant exchange rate and again, well above our outlook for at least 46 cents.
Because actual rates were 51 due to the strong currency headwinds.
The adjusted tax rate was 20% and above.
The quarter.
Continue to expect a waiver of about 80% to 90% for the full year.
Turning to cash flow.
Solid trends continuing in the second quarter of the year and drugs of both operating and free cash flow.
Operating cash flow increased.
We preferred to see how about 17 9 billion U S. Dollar from $1 85 billion U S dollar.
That's up 21, this was driven by <unk> group for the third top of the year that led to higher net income at Ultra Ohio.
Adjustments for noncash items.
Free cash flow was pasta at 63% in the fraud pop upgrade to over the year ago period.
Factor was lower purchases of property plant and equipment.
Completion of important investments to expand production capacity.
He fell to $61 million or five 3% of sales in the first half of 'twenty, two compared to 90 billion U S. Dollar.
9% of sales the first half of 'twenty one.
Dropped off our balance sheet.
Consolidated net debt stood at $625 million at June Stuart <unk> 22, compared to $857 million at December 31, 21.
<unk> decreased due to a higher level of cash cash equivalents and short term investments.
At the end of the second quarter, the leverage ratio was unchanged from the third quarter, two seven times net debt to adjusted EBITDA.
Our healthy cash position and strong cash flow provides us with a solid foundation to continue our disciplined capital deployment policy.
So in the second quarter with the second quarter, which I would say the acquisition outlook I would like to now hand back to tea.
Thank you all and we would like now to share with you all a few key points of progress in our portfolios.
In Central Technology first did you excel connect system was launched in the second quarter.
Okay, a cube connect and easy to.
This part of the ongoing program to upgrade our automated sample preparation instrument.
<unk> launch of the cardiac cell builds on over 4000 cardiac cell system already on the market being used for DNA and RNA Quad Tia analysis in both PCR and N G S workflows.
The updated system offers higher sensitivity and a new level of connectivity.
Much like all things from monthly to Qiagen automation portfolio. It connects to the chaos fear up which laws real time remote monitoring of the instrument.
Hey, Ken.
In diagnostics solution, we already mentioned the caveat that the ex rise, but let me tell you why do you see such a great addition to our portfolio.
The caveat the chaos that this rise.
Is the only platform on the market offering automated loading and unloading of Sam.
That means hands-off sample preparation and processing.
It employs eight analytical modules.
And is the only system with the flexibility to overload the modes used to be removed unused individually.
So this is truly something unique in this sort of in the industry for high volume Syndromic testing.
As a reminder.
We have a solid offering of freaky CE IBD test on carrier start respiratory gastrointestinal and maintenance spendings.
In terms of menu in the U S. We offered the respiratory panel and the respiratory for flex did.
The Gi panel was submitted to the FDA on time at the end of 2021.
Discussions remain ongoing with the agency. However, it is probable the approval will come after the end of the year.
At the beginning of the cord I mentioned and you see IPG I say four H S V quantification on your <unk> <unk>.
This brings the merger 215, CE IBD test on your mortgage platforms for Europe , making it one of the broadest menus in core lab testing as a reminder, we continue to invest in research and development to transfer CE IBD test onto the U S and when you in the coming years.
In PCR and nucleic acid amplification.
Yeah, Corey digital PCR not only had strong placement in Q2, Richard's also cros and knows the very important milestone with expansion into the biopharma sector.
As you have seen recently, we have just released 13, new kits and assays are ahead of schedules that locate a creature to be useful quantification and analysis and the development and manufacturing of cell and gene therapy drugs. This is significant since the biopharma sector is probably.
Currently one of the largest customer segments for digital Pcr.
In genomics LNG, yes.
Our carriers and clinical insights bioinformatics platform has now been used to analyze and report over 3 million cases to give you a gauge of the success G. Six five times more than 80 older comparable commercial offerings.
We are strengthening our strategy defined two years ago to be a key platform agnostic player in next generation sequencing chemistry and data management.
This is very relevant because with the introduction of new technology, enabling lower cost and faster next generation sequencing <unk> digital insights and our universe for consumables are very well placed in a rapidly expanding market.
We believe that this is a winning strategy to address a growing number of sequencing platform on this market.
Those are just a few examples of the progress of our teams continue to make on goes to ovens have a portfolio not only that is built on our leadership in areas such as central takes or quantify it.
But it also sets the stage for market expansion in all of our five pillars of growth.
And now once again, let me hand, it back over to hurdle Arnaud.
Ladies and gentlemen, we opened later.
In the presentation piece streaming online, we'll be hearing music until the dentition lithium.
Just a second operator, we have today.
[music].
We can tell you now Roland Thank you Brad.
Thank you again.
<unk>.
I would like to provide some additional perspective on the upgraded outlook for the full year 'twenty, two and ultra pro this quarter, we have increased our full year.
To now reach at least $2 2 billion at constant exchange rates is an increase from the prior your prior outlook or at least to put 2 billion U S. Dollar.
Yeah, Tammi, our expectations hooked up.
The non core product groups after the 12% to the outperformance in the third top of CEO .
Includes a reaffirmation of our targets for the five lots of cool.
We are also maintaining our conservative view on Colgate testing demand.
We continue to expect a decline in corporate sales from 21 level of 704 billion U S. Dollar.
This drove top of 'twenty, two weird way generated $336 million at CER and visit.
<unk> amount of the cobot sales expected for the full year.
The new outlook also reflects our updated views on the current inflation and macroeconomic trends.
Mentioned, we are taking actions to mitigate the impact in terms of our supply chain and as you need.
That point on natural gas needs in Germany are going to be covered by a doctor.
G softness as of August and while natural gas is used to heat our buildings, we don't needed for production.
Full year outlook at or what do you take into consideration.
<unk> of about 1% of sales coming from Russia, Ukraine. The language, we had suspended our business in Russia. After the invasion of credit.
In terms of profitability, we now expect adjusted EPS of at least two dollar and Scotty.
Compared to the prior.
Outlook for at least $2 14.
This takes into consideration our plan to step up investments into all five.
Paul and trumped up R&D expenses and sales and marketing.
We have also considered.
Costs are rising due to the net.
The interest rate trends or 'twenty two.
At the same time, we continue with our disciplined.
On operating expenses.
<unk> product prices increases in July on a country by country basis.
The progress of our business, however, increasingly impacted by adverse currency.
Currency movements against the U S dollar.
Based on exchange rates as of July .
20 seconds.
Currency movements against the dollar are now expected to create in that broad impact of about five percentage points on net sales.
10 to 11.
Sure on adjusted EPS for full year 'twenty two.
The third quarter, we have set a floor for both net sales and adjusted EPS. This calls for sales to reach at least $5 10 billion.
And adjusted diluted EPS of at least 48 cents.
All text difficult.
Difficult currency headwinds the saltwater this mean and that growth impact of about six percentage points until about two to three cents on that.
Adjusted EPS.
I'd like now hand back to tell you.
Thank you all and before we go to the Q&A session. Let me provide you with a quick summary, and leave you with some obviously a key takeaway messages first of course, our COVID-19 related product did better than expected in Q2, while still experiencing a drop in demand compared to the year.
Ego periods, but first and foremost what is very key is that we exceeded our outlook. This quarter driven by a very strong performance from our non COVID-19 product groups and we keep to send me safety sees where the focus of the company is thicker our teams continue to execute on advancing our portfolio.
With the launch of instrument upgrades and when you expect expansion in our growth drivers perfectly on plan and as a last point, we have increased our 2022 outlook for sales and EPS. After a very strong first half of the year.
We are reaffirming our commitment for double digit growth of our non covered portfolio into forgone in 'twenty, two and we continue to take a conservative view on demand for Covid testing in the second half of 2022.
Okay. Yeah, Jen is delivering on the goals we have set for this year moving ahead from a position of strength and detailed mine to create greater value from a truly differentiated portfolio with significant growth potential.
As our team stayed focus on executing quarter after quarter, we are working to ensure the strength of our companion jauzion agenda dynamic and changing microenvironment.
We continue to leverage our strategy anchored by focus and balance.
Curious on attractive market opportunities and that will five pillars of growth and balance among customers in life science and more digital diagnostic azuela is among the various regions of the world with that thanks for your attention and I'd like to hand back to John and the operator for the Q&A session. Thank you.
Thank you ladies and gentlemen at this time, we will begin the question and answer session.
The one who wishes to ask a question.
Followed by one on your attached to in California.
If you wish to withdraw your question you May press Star will look like two.
To ensure we can accommodate as many people as possible. Please limit yourself to only one question and if necessary one follow up.
<unk> will also be muted finish asking the question anyone who has a question you May press star followed by one at this time.
One moment for the first question please.
The first question comes from Daniel Wendorff.
<unk> auto business.
Line is open. Please go ahead.
Thanks and.
Good afternoon, and thanks for taking my question and I like to better understand the dynamics of non Covid related say, that's what we have seen so far in Q1 and Q2.
Maybe you can talk a bit about how important E catch catch up effects.
Is the increased installed basis during the pandemic key driver or is that just a continuous general continuous trend.
The tool to increase R&D spending so I really led to better understand the dynamics here. Thank you.
Thanks Danielle.
So I think the main part of my answer here is that it's basically a combination of different factors.
First of all you know that many parts of our portfolio are purely a menu play.
Those are system for example that on <unk> that has been obviously benefiting from the tailwind as we scope because the I've seen in a very good increase of the placement.
But they will not limited to.
To be installed in a laboratory just to run covey taste and we always highlighted that you're after you. We will continue to increase the menu available for those platform and therefore increase the potential for growth. This is why you have seen the extension of Dominion carrier start beyond the respiratory to G and recently meningitis.
In Europe . This is why we highlighted today also the launch of a USA for pneumonia complementing already 15 assays 14 of assays in Europe , and therefore being so this is the first movement, obviously year over over favoring do growth second.
If you remember we had also a strong quarter over over placement in Q1, a das system. Obviously on that will go into generate also concerns from a menu in coffee for some of them, but also rhonda non kavita menu filled their awesome part of it.
Our portfolio that are very little or not at all impacted by Covid and that clearly benefits from a return to quasi normal of investment and activities in labs debased.
The basis of your steel domestic example, you scaled equity digital PCR as they've ever been launched for coffee don't usually we took advantage of COVID-19 to launch a specific application or wastewater testing right now with the installed base that we are creating for the last year in the hall is fully at play to receive all of you speak on central government.
In the life Science Department quantify when was the same culture you feel you'll remember was impacted obviously at the height of Covid because laboratory, where it invested on Covid and this is why we had the blank here with quanta filling 2020, but since then we always said that we would recover and we went back on.
Growth and I would say that when international migration are not back to their normal potential I think the normal level of consumption for quantity always back to quasi pre pandemic level. So you have discounted those dobell effect of basically laboratory is coming back to no more levered a modern world.
Activity and have used to do demand generated by you will increase the store base. Thanks to dependent and you could extend that to ozone activities oncology I mean, I have said that in 2021 most of laboratories, we're probably back 80% to the pre pandemic level. We are now cross sell to.
Fully pre pandemic level in oncology in companion diagnostics pharma companies stopped again to invest into new development of growth and this is why we see promising contract in PCR technologies, but also in Ngls and also with our PCR digital PCR sort of shown as rate so basically so.
So combination of those different factors that she's also confirming decide just gets turned over non COVID-19.
Does it answer your question Daniel.
Thank you very much.
Well take our next question from Dan Brennan of Cowen. Your line is open. Please go ahead.
Dan are you there we don't hear you.
Okay, operator, let's move on to the next person.
Certainly.
Operator, let's move on to the next person.
One moment please.
Okay.
We move to the next question Patrick Donnelly with Citi.
Your line is open. Please go ahead.
Great can you guys hear me okay.
Go ahead Ben.
Okay.
Thanks for taking the question, maybe just on focusing on the PCR side. It looked like the base PCR performance was really strong even if you back out Covid and digital PCR can you just talk about what youre seeing there maybe start with base PCR and then obviously digital PCR you touched on kind of acuity youre getting into Biopharma bid, but maybe <unk>.
And then digital PCR as well just the performance in the quarter and then I have a quick follow up.
Yes, Thank you Patrick I mean digital.
Digital PCR first if you may I mean, we are still let's be also very clear in an infant launch after road I mean Gees solution has been launcher youre under Heartbreaker, Jane will you see more than a thousand system in the urine under half in that difficult environment.
<unk> improves the quality of our solution and the fact that the market and it shows very well.
But so here we are.
In our plan, we are executing and what we are basically.
Our proposed to you at the time of their launches that once you install the system needs to go as soon as possible and to increase consumption two reached routine consumption in the play now is to offer our laboratories more and more application and this is why going to the Biopharma development is extremely important.
Because it's one of the most active or.
Market, obviously for digital PCR.
And so this is why we see both that nice increase of installed base a nice increase on consumption at the same time for digital PCR. It's also worth saying that that you have seen the very important decision by the CDC in the U S to choose digital PCR to tasteful wastewater testing when related to.
Jacoby the ETA, an important win that 40 stickler Aegean therefore, an important read forecasted and that's right.
On the.
<unk>.
Most classic what I would say a Pcr.
We see obviously, a sharp decline of Kobe saves, but the noncompete application are growing very substantially at double digit at more than double digit and he sees showing what that many labs are coming back to a more normal pattern of consumption and they are backing to their pre COVID-19.
Situation and this is what we always say it basically.
That said there will be a point where investment will go back once again in academia in research, which also into clean clean according to our let's say non Covid application. This is what we are seeing at the moment and this is what she is expanding our come back.
On growth for this application.
Thank you we'll take our next question from Dan Brennan of Cowen.
Your line is open. Please go ahead.
Great. Thanks can you hear me.
Yep.
Thanks, guys, sorry about that.
So in the last recession.
You guys held up exceptionally well and I know Gary you talked about it in your prepared remarks.
I guess you can attach we'll potentially see some impact so I'm just wondering with the revised guide have you assumed anything for impact this year and when we look ahead to 'twenty three.
Double digit growth ex COVID-19 still reasonable given the durability of our portfolio or if not kind of how do we think about potential macro risks.
Right I think we can we can take these are the both of us hurdle and I and I really appreciate hard also to give his opinion.
We both said in the present to the presentation today that the current forecast for two folds on in 'twenty two with the full year forecast is completely factoring some vesey broad trend Oh, if you see the situation we used the word in Ukraine and the geopolitical tension. So for example, as we communicated.
We have suspended.
Our operation in a in a rush.
Russia Bureau, Russia, and Ukraine and.
Therefore, all D C is completely factored.
Current trends regarding inflation current transcript regarding tensions on the on the supply chains are completely factored, but we also insist on to Fig Qiagen is a company with pricing power.
And we are really very very granular every year.
On passing price increase we do eat normally in a normal environment in December and January of every year. This year, we have decided given the specific inflationary environment to do it twice. So we are passing a second price increase in June and July and we are already by the way preparing the next wave which will.
Before the next.
December and January this is also factored in our in our.
Our forecast, obviously, we need to be very clear, we have some customers that have pre read on your contract with fixed cost.
Or basically already contracted CPI increase so the price increase naver covers the entire T. Obviously of their revenues are owed the portfolio, but anytime we can and where it is accepted by customers. We are passing this year a second price increase we have not factored any improvement.
In the supply chain constraints, but as we have explained to de <unk> our industry in <unk>.
Particular, daughtery Qiagen, we are slightly more prepared than the rest of the world in those supply chain constraint why because for US if you remember Dan. This started two years ago when we were.
Because of the huge demand of Covid.
We were already under constraints for raw material supply plastic supply. So we are coming already with two years of hard work to strengthen our supply chain. So what does it mean.
There is no company in the world no industry or sector, which is completely immune to macro factors and true economic obviously volatility I believe overall, the healthcare resort of ways more protected for obvious reason I believe carrier gymnastic and proactive measures.
Basically to navigate these choppy environment in a in a you know, let's say optimal weight now.
Now what you do second part of your question what does it mean, Florida 2000 in <unk> and 'twenty free.
Done we know what we know I mean, I don't believe that inflationary pressure will disappear by magic.
Virginia I read the first of next year I don't know whats going to happen and this is why I'm, saying, we are already working on preparing our next price increase which will be due for December and January for example, I do not believe that shouldn't be even if everything goes back to normal supply chain is going to drastically improve so we need to take this into account.
When we are going to plan 2022.
In our calendar and then we start to work on budget for the next year at this time of the year. So we are actively currently are working off 2020, what I can tell you is what you probably already know we are not going to take extra assumptions on corvid corvid is volatile.
We do not want to have our P&L impacted by that volatility if it continues seat as a bonus or there were more days.
At the same time, we confirm what we said as early as December 8th two folds in in 'twenty, when we say that with the exception of central take our five pillars of growth all hard.
Two different obviously deliver a double digit.
Growth profile, and we confirm that and we confirm that for next year. The exception being central take will be we believe that with our leadership plus what we have been able to add in our.
Portfolio of solution during the Covid crisis, we have a potential it'll probably low to mid single digit growth profile.
Thank you we take our next question from Council did reach touch.
<unk> Bank. Your line is open. Please go ahead.
Thank you very much.
My question is actually on the tempo Tic business could you elaborate a little bit on the reasons for the very strong performance.
In the non Covid business in Q2 within sample prep it seemed to be a high single digits. So what what's driving this higher growth over what you just mentioned your ambition is going forward for this business. Thank you.
Thank you you've had a cool and I think it's the translation of what we keep explaining for the last two years.
That irena testing, which was basically a behind the COVID-19 the numbers of sample. It takes for Qiagen has always been the riser limited part of our portfolio around 25% of center. It takes for us to read a part of the portfolio is the DNA testing and we said.
Thats a win little by little Covid would recede.
We would see labs comes back to pre Covid consumption of <unk> of DNA testing and a day come back to their leading brand and the leading portfolio of solution on the market, which is qiagen overviews.
Obviously also because since Semper techies. It is one of our pillars of growth we pay of usually very granular attention in our commercial deployment and commercial strategy. So we are systematically basically visiting all our in store base to make sure that we can.
Basically bring them back to a normal level of consumption.
But let's not forget as well that we have continuously upgraded our range of automation as we sit today, our physical once again remember starting two years ago, We launched <unk> connect last year, we launched easy to just you know we are going to we are launching <unk> and we always said that there will be also in the <unk>.
I mean, two years, a new version of KFC for the so <unk> also is helping.
Our customers to move also to gives our reserves with better connected higher throughput also.
Our system and you see us pushing out where consumption obviously of sample taken uncovered.
Thank you we look to the next question.
From Casey <unk> of Jpmorgan. Your line is open.
Hi, Thanks for taking my questions just wanted to go through the business regionally. So was wondering what drove strength in China.
Or that was COVID-19 versus the base business. There and then can you talk about what Youre seeing in Europe seems like results were mixed between countries. There. So was that simply due to some COVID-19 headwinds.
Between countries or was there something else going on and then specifically on the UK side did you see any slowdown from academic customers related to the noise around the EU pulling the region's horizon academic something thank you.
So first onto our China.
You remember when we communicated the after Q1 reserve.
We explained that we took a very proactive measures on China regarding the potential lockdown.
And we saw it coming as early as.
As the first part of Q1, and therefore, we decided to basically deliver our commercial partners.
These more project than Israel, so that they could supply even if obviously shipping to China would become more difficult. So that's number one it's not driven by Covid because you remember.
We have two activities in China, we have to purely classical casual product.
And we have all sorts sitcom Brian to Qiagen product in China.
Not benefiting from Covid why because no foreign products on Covid is accepted in China or is Ritchie started in China. So our growth in the classical Qiagen solution is fully non COVID-19 of course, with our sick and Brian Oswald I'll describe.
Is it purely manufactured product locally we also benefit also anytime there is a surge of demand for for Covid.
So that's for China for Europe , as you said yourself.
It's a simply a very diversifies pictures of their C. Tricia and between countries. You know that Europe is a mosaic. So when you see for example, Germany, Spain underneath the loans, we still double digit CER growth trend in our Q2, we had a let's say a slower sales in France suites.
And the United Kingdom.
She'd Kingdom is far too early for us to see a decline in investment into academia or our research labs on the contrary, we still believe that the budget allocated to the National Center over over research you still healthy I think it's residue.
Sequentially, one quarter, it's too early to say, if it's a trend in Europe .
Europe every quarter shows a diversified pictures I would say two things to conclude.
First of all there are some countries, obviously, where we also benefit for what that started in the second half of Q2, which is obviously strong demands on coffee the strong demand of coffee that goes easier to antigen testing is thought to have used the occasion play, but let's be clear also go to our.
Our.
Our PCI portfolio.
But Europe .
Despite COVID-19 is also a perfect translation of carriers and strategy with most of our weight instrument, which is the menu play and it's very interesting guys hormone surge in its path to see that for example, the ratio between Covid and non Covid in Europe of consensual more vessels on <unk>.
Still very much impacted by Covid, obviously in Europe , but does decrease in favor on the non covered portfolio origin. In Q2, and this is very encouraging because this is exactly where we want to drive out where are our installed base.
Thank you we take our next question from with all of that we'd be BNP Paribas.
Your line is open.
Hi, Hello, Thanks for taking my question I have a few on supply chain cheery, which you alluded to can you maybe remind us what business or a predictable stream affected by Sebastian you shut the momentum.
You see that's trading through to other parts of the business or if it's contained or or getting better.
On the single digit growth of the non Covid life Science business, which you mentioned in the press release any.
The differences in regional.
And regional data leaks or client dynamics here that's for <unk>.
We should be aware of are you seeing any weakening of.
Weak biotech funding environment, starting to come through and.
On <unk> and on the sequential slowdown.
Could you maybe share with us some data points on the on the pull through for the Covid and the and the non coli tests. Thank you.
So thanks Hugo on the supply chain again, I'm going to stress that why do we say that no company is immune to the attention I think that we are.
Prepared because we are working hard on that for the last two years.
And I believe that I Wouldnt say, we are completely protected but we have it under control which are the parts that are the most affected it's a mix of different products. There are some raw materials. There are some for example also specific papers for labeling.
Components of in three months such as for example, electronic led boards, but overall basically we can match.
It doesn't create pure back orders and our companies, but we are for some product in that location, it's better than pure Backorder. We are working on that we have significantly also increased their level and granularity of communication to our people in the field and also our customers.
To make sure that they are fully informed of the situation. There is nothing worse than their customers not knowing what's the situation of these are older but perhaps hold all you want to add something also on the supply chain solution.
<unk> I'm sorry.
Good thing for US right now to be honest I don't think there's a specific product to mention but I do think if at all it picks it comes mainly by the just kick outs because it's you know shipping things there are these days.
It's difficult particular also auto all of China, but I do think we are well prepared because clearly with all the volatility we will see over the last 18 months because of <unk>.
<unk> actually are obviously ramping up EBIT choice quite significantly you can see that also in our balance sheet. So I do think that.
Heavy duty.
Larger inventory levels.
Quite well, who haven't just more or less temporary.
It should be.
But can we never had an issue with your parent.
Encouraging does give us a bump.
Thanks hurdle and to your second part of the question Hugo. So first you wanted to understand the beta.
The non Covid basically situation for life science and is that something that we can highlight yes, indeed, we see stronger trends at the moment in the U S. A.
And as I shared with you if you remember at the end of Q1.
Academia, especially in Europe was rather soft in Q1 and has evolved a bit more favorably as we were progressing into Q2. So it's coming back you still will be softer than in the U S. But our budgets, it's coming back so it's encouraging let's see what is happening with those similar obviously starting in Europe .
We don't see clearly at the moment really impact at least on our activities on basically decreasing funding for biotech. So for a so of course some research activities. We believe that the level of funding for public research on Beverly checkout, and yet you're still wiser head feet.
And we don't see a drop for us are interested in our collaboration especially with biotech companies.
<unk> I would just leave you with a res one numbers I always disclosed to the market in the previous months that it was fair to say that <unk> between Europe and the.
U S and even more in the U S. As you know because we don't have the reach of the menu that we have in Europe . The 2021 resorts, one <unk> were driven by coffee that probably 80% to 85% of the total consumption.
Happy to see that in Q2 in Europe , obviously, because this is where we have the venue that our ratio of Covid are on the menu for a four on the menu consumption for new projects is lower than 65% to 70% of it depends on the country. So we see now that.
The system using stored laboratories are starting to pick up our blood borne viruses or our sexuality transmitted diseases, obviously, we need to continue to push that but she sees encouraging.
Thank you we take our last question from Matt <unk> with Goldman Sachs. Your line is open.
Great. Thank you for taking my questions.
Gary maybe a high level question for you just given.
The sustainable growth you've seen in non COVID-19 of double digits and what you are calling for in 'twenty three.
And the level of investment that you've been putting into your five pillars of growth.
How are you thinking about the growth versus margin tradeoff as you want to spend to fuel that growth at the same time I want to protect margins do you feel that there is a necessary tradeoffs or can you balance the two as we move into 'twenty three just would love to get your thoughts in terms of strategy for that.
I think hormone Sac, which I mean also I would say that I don't see it as a tradeoff I see it as a management duty are obviously, we are perfectly aware that we want to have to if we want to optimize the potential of our five pillars of growth we need to continue to invest heavily in.
She never engineer and he sees explaining or so some of the evolution as we have explained over our gross margin. Our recently, which is bureau of 68% as you have seen we have clearly give an explanation around that we will continue to invest I'm still thinking in two broad dimension that this company is well put.
In short while dose when windows investment, we'd start to pay off obviously to come back in a more normalized gross margin situation for collision between 68, and 70% and I believe that we have the potential to be very close to 30% operating margin a bit without forgetting that we asked you.
An investor on you you know in investment mode for part of our portfolio that that's how it's not necessarily a tradeoff is question of careful management of our priorities, but I'm sure that hold also as a point here.
Yeah, Hi, Matt Yeah, No I would agree that we got it clearly has a premium gross margin as well.
Operating margin.
The overall industry, so I would say.
Given the growth rate.
We are delivering and in particular in a bolus it two and half years under non Covid side I do think there is clearly also a reason to believe that we are able to match the balance between both quite nicely it's quite sure.
Golf is.
True.
All the industry particular answer to Qiagen.
But again I would say we haven't.
I got up very strong margins within Qiagen.
Okay with that I'd like to end the call here. Thank you very much for your participation as you know please reach out to Phoebe me. If you have any questions or comments or follow up topics, we'd be glad to discuss them with you. Thank you.
Ladies and gentlemen, this concludes the.
Conference call. Thank you for joining and have a pleasant day goodbye.
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