Q2 2023 Qiagen NV Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by I am Katy Your P. G I call operator, welcome and thank you for joining Qiagen Q2, 2023 earnings conference call webcast. At this time all participants are in a listen only mode. Please be advised this call is being recorded at Qiagen <unk> request and will be made available on their internet site.
The prepared remarks will be followed by a question and answer session. If you would like to ask a question you May Press Star followed by one on your Touchtone telephone. Please limit. Please press star key followed by zero for operator assistance.
At this time, if you I would like to introduce your host John <unk> Vice President.
Head of corporate Communications and Investor Relations at Qiagen. Please go ahead.
Thank you operator, and welcome to all of you and thank you as well for joining this call. We appreciate your interest in Qiagen. Our speakers today are Terry Bernard our Chief Executive Officer, and Rolling Soccer's, Our Chief Financial Officer. We also have P. B low from the Investor Relations team here with us.
This call is being webcast live and will be archived on the investors section of our website at www Qiagen Dot Com you can also find a copy of the quarterly results press release and presentation on our website will begin as usual with remarks from Terry and Rolling and then have a Q&A session before we start let's briefly go over our Safe Harbor statement, if you use express.
During this conference call and the responses to your questions represent three prospectus as management as of today August nine 2023, we will be making statements and providing response your questions that conveyor intentions beliefs expectations or predictions for the future.
These forward looking statements fall under the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995, they involve risks and uncertainties and actual results may differ materially from those suggested by these forward looking statements and factors that could influence results are mentioned in our filings with the U S Securities and Exchange Commission. These filings are also available.
Well on the SEC's website, and also our own website qiagen disclaims any intention or obligations to update any forward looking statements.
Additionally, we will be referring to certain financial measures not prepared following generally accepted accounting principles or GAAP.
All references to EPS refer to diluted EPS.
You can find the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures in our press release and the presentation I'd like to now a hand over the call to Terry.
Thank you John and Hello, Good morning, good afternoon, or good evening, depending on where you are in the world to all of you and thank you for joining US. We are very pleased to report today are very solid results for the second quarter of 2020 free.
As you have already heard from other companies. This quarter, we are operating in an uncertain macro environment. Therefore, we are especially pleased with how our teams have remained focused and dedicated to executing on our goals.
Our results are another confirmation of the strength and the resilience of our business.
The depth of experience and knowledge in our teams and the word agility and navigating through a dynamic environment.
Now, let me go to the top of messages for today.
First when you achieve our outlook for net sales growth and adjusted EPS for the second quarter driven by strong sales in the base business.
Net sales were $497 million at constant exchange rates and exceeded our outlook for at least $490 million.
We saw some softness in capital spending for instrumentation. However.
Remember that our business is heavily weighted towards highly recurring consumables revenues over 85% of Kerry I didn't say it was all coming from high margin consumables and related revenues.
We saw 10% CER growth in non core vehicles to my board says with the resilient and broad based demand across both customer classes like science and clinical diagnostics.
In terms of profitability.
Earnings per share was 52 cents C E O, which was booked to the outlook for at least 50 signed C E R.
Second key message.
Our key pillars of growth progressed, well in driving our base business.
To call out just a few.
Our market, leading quantitate wanted 10, TB tests delivered another outstanding quarter.
And they're reaching 27% CER growth and crossing a significant milestone with quarterly sales rising above 100 million dollar loss for the first time.
We continue to see very healthy.
There are some trends from the troubleshooting skin test.
This has clearly accelerated since the pandemic due to the benefits of quantifiable requiring only one visit with a simple.
Blood draw.
Opposed to two visits to a medical professional with a traditional skin test.
And those are exempt British to catch up with your digital PCR system, which continued to benefit from increasing demand in the life science market with significant sales growth in the second quarter.
This was driven by both the growing demand for consumables and an ongoing high level of instrument placement.
We saw a solid operating margin improvement in the second quarter, while continuing to make important investments.
Our adjusted operating income margin in the second quarter was 27% 0.4, we achieved liberty one investing around 10% of sales into research and development, which is important obviously to create NUMMI days of growth and support our midterm ambitions.
And finally fourth message we are revising our full year outlook for 2020 free to reflect the significant drop off in coffee testing and the volatility in our OEM business, which is driven by large skills bulk orders.
Our new outlook for niche says he's for at least.
1.970 billion DAU allows C E. R. Why did your outlook for adjusted earnings per series no set to at least $2.07 C. E. R. Again.
Hold on a bit later, we'd provide more color and perspectives in his remarks.
Before I hand over to hurdle I would also like to discuss the change in our leadership team.
Okay. Yeah. Tim This is very pleased to welcome knits in Salt, who withdrawn caviar genuine October our senior Vice President head of our life Science business area and a member of the Executive Committee.
Knitting joins us with over 20 years of experience in diagnostics and in life science in companies like Pilkington, Edinburgh, Archie learned and most recently was serving as chief commercial officer at adaptive Biotechnologies.
We are very much looking for work to eat fresh perspectives and key contribution in driving forward our lifestyle business.
Nick N. He's taking over this role from too much bongs, who has decided to step down as part of his plan to retire in 2024.
So we'd be working closely obviously always neatly into she pulled the transition.
We are extremely grateful to Tomas for many contributions during his nearly 20 years at Qiagen in many roles in particular, all the development of the caveat and Brian and we wish him all the best in his future Endeavours.
Now I'd like to hand over to her long to review our results in greater detail.
Hello, everyone first of all I would also like the sector the sector almost for her significant contributions always long impactful to you at Qiagen.
I will first discuss our results for the second quarter and first half of the year and then share some views on the outlook.
As you saw in our press release net sales for the second quarter of 2023, well for that 95 million U S dollars. It extra words, and 497 million U S dollars at constant exchange rates.
That there was little impact from currency movements sales declined 4% compared to the year ago period, which had been substantial COVID-19 revenues.
Non COVID-19 product groups experienced struggled wolf with sales up 9% CER for $457 million, representing well over 90% of total sales in the second quarter. In fact, there's not covered sales were up 10% CER for the first half of CEO.
Instrument sales declined at a low single digit C. O. It is academic biotech customers continue to be conservative and capital spending.
However, we continue to see good placement trends for reagent rental agreements that are linked to our multiyear consumer contract among molecular diagnostic customers.
Agreement, a normal part of our business and help secure future codes, you'll vote commitments.
Among our four product groups, let's start the softer technologies, which represents about one sort of total sales.
So healthy 6% CER growth in non Covid products and this represented well over 85% of sales with this product.
This group continued to have a very tough comparison against the drop off in COVID-19 testing demand, which led to the overall decline.
Diagnostic solution to our second product group also represents about one third of sales.
As he mentioned earlier the quantifiable latent TB test, what's the main driver with all regions delivering field scope of above 20% CER amidst the ongoing strong conversion from the traditional skin test.
In light of the performance of the first half of 2023 we now expect full year sales north of C N at $80 million from the prior.
Tacticians of Sienna 60 million U S dollar.
This group also includes the chaos that the X system for Syndromic testing, this salesforce or about 40% CER dynamic cough and nonwoven applications. This is especially due to the increased non COVID-19 utilization in Europe.
The first half on a global basis, we have seen significant double digit growth in this non corporate revenues.
No about eggs or integrated clinical PCR testing platform again saw sales decline in the second quarter due to headwinds against the high level of corporate testing revenues in the second quarter 'twenty to 'twenty two.
While we saw double digit C. I grew up with non corporate sales and new placements, we have taken a more cautious view on automotive <unk> sales for this year due to the rapid and significant decline in Covid testing as a result of your target for sales in 'twenty three is for over 40 million U S dollars.
Moving onto the PCR nucleic acid amplification product called these sales in the second quarter were down 29% CER. This was due to the sharp drop off in sales to oil and sought party customers.
It was also a factor contributing to the revised full year outlook.
It's the same time kind of acuity digital PCR sales are tracking vella to what's a 2023 goals for at least 70 million U S. Dollars. He have you saw dynamic rule for the quarter.
TIK alive by increasing consumables pull through for Biopharma placements.
The last product group as genomics and yes, which includes platform agnostic products used for next generation sequencing and archived digital insight bioinformatics business.
The acuity I business had an outstanding performance delivering growth above 20% CER in the second quarter.
Double digit CER growth rate for the first half of CER.
Also supporting growth in this product group for incremental sets from our expansion into Ngls based applications for forensics and you buy different vacations, whose acquisition off balance sheet at the start of this year.
Moving to sales on a geographic basis.
The Americas grew 4% CER led by the U S.
Among the key drivers, whereas it cannot defer ought to be test and solid biopharma demand for the kayak acuity digital Pcr systems.
Balls that offsets the drop off in COVID-19 sales in this region.
In the Europe Middle East Africa region sales rose at a double digit CER rate for non COVID-19 product groups, but here, we saw the pandemic headwinds led to overall sales declined 7% CER compared to Q2, 'twenty two a box with top performing countries, whereas the United Kingdom and France.
<unk>.
Results for the Asia Pacific, Japan region showed a 17% CER decline or what sets, but sales for non COVID-19 products grew at a mid single digit CR case in.
In China, which currently accounts for about 6% of sales not corporate sales declined slightly from the second quarter of 'twenty two while overall sales declined about 30% CER due to the Covid related revenues in the second quarter of 'twenty two.
Let's now go through the rest of the income statement.
Adjusted operating income was down 7% to $1 $36 billion from the same period of 'twenty two.
Lack things the impact of the lower sales space due to the drop off in COVID-19 revenues.
The adjusted operating income margin showed a sequential improvement from the first quarter. It was 27, 4% of sales.
Adjusted gross margin was 66, 9% of sales for the second quarter of 'twenty three adult about half a percentage point from the 'twenty two period.
Reflected through overall law suits levels, the related lower manufacturing capacity utilization.
We expect adjusted gross margin to continue at the same level for the rest of the year.
Oh Dear investments continued at a high pace S. We invested organically into the business why is it to 10, 1% of sales in the second quarter 'twenty suite from about nine 7% the year ago period. He sees these investments trending into a 9% to 10% range for the full year.
That's a marketing expenses were slightly higher than in Q2, 'twenty two wise into 23, 5% of sales from 23, 1% in the year ago period, as we seek to gain more impact and effectiveness from customer engagement, especially through digital channels, which now account.
For the majority of sales.
General and administrative expenses were slightly lower than in Q2, 'twenty two and represented five 9% of C. S.
We continue to see benefits of the shared service teams, we have built at our key hubs in Poland and the Philippines, while also relocating our sauces stair stepped up investments into I T systems and cyber security.
For clothes outside income statement adjusted EPS for the second quarter was 52 cents at constant exchange rates and about the outlook for at least 50 said see all the adjusted tax rate was it did.
And the share count of 231 million shares and these were in line with our outlook.
Turning to cash flow because that's for the first half of 'twenty three.
The lowest sales and profit levels for the same period of 'twenty two.
Operating cash flow for the first half of 'twenty three was 183 million U S dollars and free cash flow was $121 billion.
As he mentioned in the call for the first quarter cash flow results for 23 include tie up capital requirements. This is due to our decision to increase inventories to ensure adequate product availability and the current market environment.
Is seen as well is the balance sheet and drops off the increase in inventories.
Continuing with the balance sheet, our total consolidated net debt stood at $5 56 billion U S dollars as of June <unk> compared to $4 43 billion. You asked a lot is the end of 'twenty two.
Our liquidity position remains at about one $3 billion at the end of the second quarter compared to $1 4 billion U S dollars at the end of December 'twenty two.
This means that our leverage ratio was about one eight times net debt to adjusted EBITDA compared to about one five times at the end of 'twenty two.
In terms of using cash proceeds we have approximately $4 million of debt, reaching maturity in the third quarter of this year.
Use a portion of these proceeds for debt repayment.
Even with this repayment we continue to have a healthy balance sheet to support our business expansion and a disciplined capital allocation policies.
I'd now like to hand back to you.
Many thanks for them and at this point. Please allow me to take a few minutes to review key aspects of our portfolio and our strategy based on violence in serving customer across the life Sciences and molecular diagnostic.
And to focus on targeting the highly attractive growth opportunities.
This is the basis for our ability to generate above market growth and meaningful meet our returns.
Let me walk through a couple of points that shore up our business.
First of all remember that the foundation of carriage and the rest on the highly recurring revenues, we consistently see over 85%, although with total sales coming from our high margin consumables.
Our closed automation system drive the use of a broad portfolio of consumables, but keep in mind that some of our sample prep kits are used also manually city. So there is a wide range of opportunities for expansion.
Those cells are well balanced across life sciences, and diagnostic where our products carry a healthy healthy gross margin.
And despite some of the more challenging topics in the current environment. Both of these markets have a real solid longer term outlook.
For example in the life Sciences, we continue to see good research funding levers.
The ability to target attractive areas in translational medicine oncology research and hot topics like liquid biopsy.
Minimum residual disease cell and gene therapy.
Well microbiome, where qiagen is already positioned and ready to capture more opportunities.
Many of those key advances make their way of course to continue I mean to clinic or to have scale and here, we can support customers as we target areas of immune response.
Infectious diseases and oncology.
In fact since the pandemic.
Where do you put out this thing is clearly being utilized more than ever to increase the quality of patient care.
It is clear that more and more molecule our reputation our rig Keystone for future growth in both life Science research and clinical diagnostic and Qiagen is a clear leader in Nordic Rudolph technologies.
In our growth pillar, we are leveraging strong leadership position as well as products in early commercialization stages with significant potential.
So as an example, you see sample technologies is the foundation of Qiagen, which continues to lead the market and sample preparation kits, which are used in the front of almost every molecule our workflow in both research and clinical labs.
This robust comprehensive portfolio leverage is called gold standup kits.
While continually evolving to capture emerging application such as liquid biopsy microbial once again or CRISPR.
Sample technologies have delivered sales growth well above market CAGR in the last few years as we implement instrument upgrade in the automation portfolio and we have no reason to expect less done solely the low to mid single digit growth in our midterm perspective.
Our second pillar with very strong leadership is the quantity of film franchise.
The quality of your own latent TB.
Has it been delivering double digit growth on the sizable base for good reason.
Now on the fourth generation and we've enhanced automation through our partnership with W. Serene, but also with Harbin Tornante counting it has generated more than $2 billion of committed sales for qiagen since the acquisition of cities well.
Well over 200 million people have been screened to date using G quantity on test.
Our specialized commercial it seems that the tricky code really shouldn't she was the reason that sure Noah entities in the ongoing for two transition latent TB screening to this modem blood test from the antiquated old skin test.
Moving to our free P dolls in early commercialization stage I Wouldnt fixtures disease platform carrier start and <unk> certainly received a boost from the pandemic.
And while the system, we're in the high utilization during Covid.
There are extending on for respiratory testing their value to customers lies in the much broader context as we continued to expand the menu photos platform.
Okay, Yes that has quickly taken a top pause you shouldnt amongst system used for Syndromic testing based on some key differentiators summaries.
Some recent analysis on the market of a hold would you pause you shouldnt eat as the number two on the market.
It is very easy to operate with no upfront sample preparation and its capability to provide PCR based quantitative results brings I did clinical value foremost targeted treatment decision.
You moved the school testing platform O film mix liver technology, we still want them access sample loading and unmatched capabilities for running a laboratory developed test.
In Europe , and those are markets, which are accepting to CE Mark we have won already of the most broad those.
Testing menu available at the same time in the U S. We have seen some delays in developing the test menu as a consequence of the priority to support the pandemic response.
And for our last pillar of growth catch up with your digital PCR platform.
Those platforms are especially important in democratizing digital Pcr to wider customer base.
<unk> launched a line of instruments with nobody integrity technology, bringing the time to reserve Don under two hours.
Those system addresses the skidding needs of customers from the low volume users in academia, all the way up to Biopharma labs processing high volume of samples.
And we are rapidly expecting the menu with internally developed assays as well as partnering with companies in emerging applications for digital Pcr.
Looking for award key milestone will be the FDA submission to enter the clinical market in 2024.
Our business is targeted on the high growth areas.
And why do we have a sharp focus on our growth pillars. They are anchored by core portfolios with qiagen as leading position.
As an example.
We are a top three provider for human identification solution, which have included sample preparation and PCR kits.
We are now leveraging dispose you shouldnt as we expand into next generation sequencing based application with the recent acquisition of village in early 2020, free which is offering new ways to solve cases and bring resort was shown to those affected.
<unk> is also considered as a top provider of consumable and bioinformatics solution for use with a next generation sequencer.
In those businesses.
Fisher decay agenda digital insights for bioinformatics, we have taken significant market share and deliver strong growth in the most recent years.
And those early example is precision medicine.
Okay, Yes, and as Overfill T partnerships with pharma and biotech companies for companion diagnostic to help guide treatment decisions.
And we are probably the only company able to fulfill quantitative PCR digital PCR and next generation sequencing modalities to pharma company.
So with this brief summary help you to see that we are well positioned in diverse markets with attractive growth potential and why did you issue or maybe a bit more challenging than expected.
Our it teams are committed to capitalizing on opportunities by leveraging these portfolio and delivering attractive midterm growth.
And now we're back to where it ought to give you more details on our outlook for 2023.
Thank you Terry.
Let me provide more perspectives, our updated outlook for 'twenty suite and also for the third quarter.
As noted earlier, we have revised our full year sales outlook for at least one part one part nine 7 billion U S dollars at constant exchange rates as compared to the prior goal of at least two points or 5 billion U S dollars see.
Oh, a revision is driven mainly by two factors.
That make drop off of Covid testing as well as significant volatility in large pollack autos coming fall or M customers.
In terms of COVID-19 test sales for 'twenty to 'twenty three we have reduced our initial assessment for about $200 million to $210 million to a new level of about 165 million U S dollars.
Remember that in 2019, we had $143 million of sales from products that were already deployed for use during the pandemic and just mainly softer <unk>.
Acknowledges for use in obtaining I E.
It's important to understand that we are approaching the pre pandemic.
Pandemic baseline for these products.
And then it got store web business as we have seen in the past. This is a area that can be volatile. We are certainly seeing that volatility. This year in terms of customer order patterns against our initial plans.
This business involves large scale customer back orders, which impacts both COVID-19 and non COVID-19 sits without.
In terms of regions, we are keeping an eye on trends in China and how this develops during the year.
The sequential improvement of some market that was expected is taking more time in light of the Chinese economy. So for the second half of the year. We are taking a more cautious view than it is the start of 'twenty three we're not expecting shine on non Covid says to remain flat what age to 2022.
Two.
At the same time, we see the strength of our base business with sales growth expectations higher than many of our peers. We now expect healthy sales growth in the non COVID-19 product groups of at least 8% CER. This was driven by resilient demand for our industry leading portfolio of consumables.
We are also anticipating a healthy level of instrument placements both of them.
Linda of CER.
In terms of profitability, we are ticking that used sales contribution into consideration with the revised outlook for adjusted EPS of at least $2.07 at constant exchange rates.
We have been taking a very disciplined approach to balancing cost while investing in the business. This remains a top priority during the second half of the year. When we also expect to see benefits from having accelerated certain activities such as R&D investments into the first half.
Moving to the third quarter, our outlook is for net sales of at least $465 million CER adjusted earnings per share I expect it to be at least 48 cents per share also at CER.
As for their currency movements and based on rates as of August 1st we expect a neutral impact on both net sales and adjusted EPS for the full year.
2023 for the third quarter, we expect <unk> of up to one percentage points on net sales and then neutral impact on adjusted EPS.
I'd like to now hand back to you.
Pardon the interruption Terry if you're on.
If you're muted if you could check your mute function. We're not hearing you Yep I was muted I'm sorry, so to summarize very quickly first message amid challenging macro trends, we delivered strong results in the second quarter of 2020 free we have achieved our outlook for both net sales and adjusted EPS second the performance was good.
Our solid consumable business, serving both life sciences, and molecular diagnostic customers and anchored by our ability to deliver a differentiated solution across lab workflows for my word established leadership position in some particular regions or quantify them through to emerging numerous areas such as carriers start or cardiac Richie I will.
It seems our leveraging of pull off with Baltimore you just bought for you I was one of the top growth profiles among companies in our sector.
We continue to maintain a high level of profitability and are using our healthy balance sheet to create value through organic and Nonorganic investment and lastly, we are adjusting our food. Your your outlook for 2020 free to reflect one the significant drop off in COVID-19 testing and.
Two the volatility in ordering them onto our OEM customers.
Against this backdrop, we are currently delivering one of the highest base business growth profiles in the industry.
We remain confident in the mid term growth potential of our portfolio and believe that our company Qiagen is well positioned to deliver on the goals that we have set.
Our track record of executing on that will gore's combine with the dedication of our teams we'd have hurt us to successfully navigate through the current macro environment with that I'd like to thank you for your attention and back to Joan.
The operator for the Q&A session. Thank you.
Ladies and gentlemen at this time, we will begin the question and answer session anyone who wishes to ask a question press star followed by one on their Touchtone telephone if you wish to withdraw. Your question you May Press star followed by Q to ensure we can accommodate as many people as possible. Please.
Get yourself to one only one question and if necessary a follow up.
Microphone will be muted after finishing asking the questions.
Anyone who has a question press star followed by one at this time one moment for the first question. Please.
Our first question comes from Patrick Donnelly with Citi.
Hey, this is Brendan on for Patrick Thank you for taking my question. So.
I thought I saw a 9% decline.
Customers in the quarter.
What are you seeing from a bio biopharma funding perspective, and is there any cube, a kind of parse out between emerging biotech and large pharma trends.
Thanks, Brendan first of all we consider that for life science, especially.
The overall environment for funding remains extremely healthy we have not seen cuts into the budget. For example of C. D C or is or was there a major organization seeking we are probably less exposed than menus or companies to pharma or Biopharma Oh.
Inventory, we have seen a soft a softening of some demands sometime in biotechs Ford our bioinformatics UGI activities, but overall, we are not that much affected by those trends at the moment.
Thank you we'll take our next question from.
How do you see it.
Men minute C O tests.
Oh, hi, thanks for taking my questions.
So I wanted to ask one on quantify around.
In this scenario that one of your largest peers I'm being a Nazi side.
Launched a similar tests to yours, one T b well.
What makes you comfortable that you'll be better able to maintain your market position compared to H B V. A few years back.
Yeah.
She's a very good question that issue, but I would say first of all we have prepared this and it's probably a very good example of a company.
With leadership position.
Planning the future and the potential increase of competition and just what's the rationale behind our partnership with dire serene for backend automation, although with this.
You shouldn't do this partnership we built front end automation partnership with Hamilton or T can as a result as of today.
We have the most automated.
Workflow for latent TB on the market.
Second.
We are talking about 20 years.
Of medical education.
Vacation, Iran quantify when he sees a real brand name on the market.
Did you catch it people.
On the sales on the marketing side on the medical education side.
We schedule and for many years extremely close relation with all the organization dedicated to the fight against TB WH show stop TB and so many users.
So we are not belittling of course.
The potential to arrive on the market from competitors, but we see Russia positively because it will probably help raising the wellness.
Iran. Denise is the retesting 40, 10 TB in the fight against your Bill Ketosis.
No that's very clear thank you.
Yeah.
Go ahead.
Yeah.
Thank you we'll take our next question from Derik de Bruin with Bank of America.
Hi, Thanks. This is Peter on for Derek just.
At a high level will have had things generally remain stable here at this point in the third quarter, just could you kind of discussed how things have evolved since exiting <unk>.
You know whether it be by customer class product or geography, I guess anything.
Helpful.
Thanks, Peter I think who don't give already some kudos I believe that geographically geographically at the moment. There is nothing to highlight are when we are moving to Q free you know that we need to take Q3 or so with a grain of salt are part of the world, especially in Europe .
A stronger holidays are either in July for Germany or in August for our four mm.
The rest of Europe .
Third.
We don't see any sequential improvement.
Improvement as all highlighted on the Chinese market. So I don't think that there is no specific highlight at the moment with either product wise or a geography wise what I would.
Just mm mm highlight ease that forest Q3 is an interesting a quarter, especially for quanta, you feel why because especially in the U S. With so many students going back to school each center proton testing time. So I don't know if we are going to achieve the same performance as Q2 with a 100 million.
DAU allows general retreat in one quarter, but we shouldn't be that far away from that.
Alright, thank you.
Well go next to Dan Brennan with TD Cowen.
Great. Thanks, Thanks for the question and congrats on the quarter guys.
Just wanted to unpack the guide a little bit if you don't mind to the OEM business.
Raw material can you just help size how.
How big that business is you know what did it decline or what did you do in Q2.
And it sounds like of your cut for the year $80 million or so you know a chunk from Covid how.
How much of the remaining $40 million from the OEM business versus the China I'm, just trying to get a sense of like now what are you assuming for the OEM business for the full year, because I know you said, 8% ex Covid CER growth could be I'm, just trying to understand what the business has.
The OEM business impacts that thank you.
Yeah, Thanks, Dan and thanks for the question they've got I.
I do not want to introduce another layoff numbers, but if you would take them out of a call. It non COVID-19 numbers ex physical wolf, where it would be north of 10% for the year. So you clearly can see that.
It is actually that when volatility which is affecting our business are for 2020 suite.
Just to help you a bit to two two to peg it as I said before the web business is a very different business than our typical call. It blue books, a consumable business. This was a as few customers was all its orders seven significant seven digits and indeed, even the dolphins that being very volatile very volatile as it typically.
He is our enzymes are all legal business for us.
And it clearly had a very strong last year as we said before it is a combination of COVID-19 and non COVID-19 related business.
Last year. It was all about how about $17 million in the West is this and revenues for this year are expected to be around.
$90 million, you clearly anticipated drop already from last year. When they are forgiven initial guidance, but unfortunately, we ought to see now that given the overall macro environment things that are particularly as the larger pharma and diagnostic companies also review the interview.
Inventories and things like that that that created additional volatility.
We saw this the right time now to more or less a set it on a new base because the volatility probably remains for the rest of this year and I don't think it's both what it does over shadows or existing performance as our overall consumables business.
Great. Thanks, guys.
Well take our next question from Dan Arias with Stifel.
Good morning, guys. Thanks for the question Roland or Terry can you just expand on the nonpublic China performance.
Down slightly year over year, I believe what did the diagnostics versus life Sciences business looked like there. If you have it and then how do you see clinical demand, finishing out the year there it sounds like that's a healthier environment than in a research setting.
And then if I could stick on a follow up question to Dan's question on OEM Destocking.
Well, if I'm not mistaken that has the lower margin part of the portfolio. So it's what's happening there on the destocking actually having a positive impact on profitability just boosting the margins a bit on mix or is that not material at all.
Thanks, Dan what I propose is wheeled photo image agenda question I'm, just talking with all of them and then they will take on China just after.
Yeah.
Again as I said, it's only a few customers.
Talk too much about it.
Margins in general, but I do think it's fair to say that we do expect.
More or less the year, finishing on in terms of margin performance.
Above, 27% and EBIT margin as well. So you can do the math by yourself again. It is there's a business that's very much dear driven. Nevertheless, you know is that all of our consumer business has actually overall, a very strong margin. So I think the types you to put things in perspective.
Thank you all and regarding China, I believe it's fair to say that the current situation doesn't change our vision for this market and division that we have been explaining to the market for at least the last two years.
Mr Ward it is a significant market.
For life Science and clinical diagnostic it's the chicken market in the world just after the American market.
Second it is a very very specific market, we saw significant trends towards nationalization of healthcare not.
Not only diagnosis, but also pharma in China. He knows the world The Chinese authority are threatening to favor local champions.
Against pouring.
Foreign competitors.
To cope with that situation eat experiment in China to be able to localize manufacturing and research and development.
We can do that at Qiagen, we that we're manufacturing and research development sites that we have in Shenzen.
She sees rosati P. Cornell those are companies do the same.
Got you a genius probe you'll be specific because in addition to that we have also a second brand in China.
<unk>, which is independent op irrationally.
Our sales and marketing activities in China, which is sitting at Chinese originated product mainly to Chinese company.
Which is fully owned by Qiagen and fully consolidated.
In our reserves and revenues.
And I think this will be a key differentiation and head for the coming years.
However.
I repeated many times that if you would have asked me before the pandemic.
What would or what should be.
The growth expected from China, you can get your Gen sales year. After year I would have told you double digit probably low double digit around 10% to 12% per year.
Post pandemic.
And due to the different factors that I just explained I would expect they shouldn't you know normalized situation would be a growth coming from schein now 5% to 6% per year.
Probably more coming from life science and clinical diagnostic for one key reason the competition from Chinese company, we'd probably be much more intense in clinical diagnostics than in life science.
Last I would say that Luckily jenny's position in molecular technologies, we're probably there is less Chinese competition at the moment than in OS or businesses, such as immuno assays or clinical chemistry.
Thank you we'll go next to Matt <unk> with Goldman Sachs.
Hi, good morning, Thanks for taking my questions, maybe just two quick ones I'll ask them, both upfront, but just on the OEM business.
Given its it sounds like it's Destocking and it is generally volatile and not very many customers. What is the type of visibility you have on those customers in terms of sort of the duration of these issues if any maybe help us out with that and then.
Just secondly on sort of the menu the putting the menu into the U S. In a number of the.
Diagnostic platforms, you have understand that there's sort of a lot that's out of your control in terms of the approval process, but is there anything that you can do to try to accelerate that or re prioritize different types of tests on the menu in order to to realize realize your goals in the U S. In terms of menu expansion. Thanks.
But those are two good questions OEM first then and she wants to feel free to chime in as well. We hope you stay as you can imagine a very close discussion with those are a few customers and hold all highlighted in this presentation that what we are selling to them is rosa.
Basically compulsory in their process, we are talking already goes our enzymes. So we work on having a.
Forecast or improve forecast accuracy.
However, I think they are faced at the moment resorts or softness in demands on their side and he sees the way it has been more difficult to be sure. We strongly believe that our at least on the base business that we have at least 90 million. The total highlighted a few minutes ago, we have a good visibility and good reason to continue that business in the coming years.
On the menu for the U S. It's a good question, it's a it's a problematic of portfolio allocation.
What is happening is that at this moment, we are in very intense discussion with D. F. D. A to try to push our Gi panel, which would be our second panel for carry that starts in the U S.
On your mood geeks the situation is slightly different in <unk>, we had to make a.
Significant choice at the point it was giving the priority to answering the pandemic volume and therefore, we had to postpone some menu submission in the U S. We are starting again. This year. For example, we have submitted a C T N G.
We will continuing to fall down in 'twenty, four and 'twenty five, but I repeat for new boutiques, we probably have taken a year or two of your under her delays compared to initial plan for your Resubmission, but this was because we had to answer the pandemic increase or the pandemic situation.
Very helpful. Thanks.
Thank you we'll take our next question from.
With Morgan Stanley .
Hey, Terry Thanks for the question I had a question around the guidance given you've now lowered your expectations for <unk>.
Non COVID-19 kras to over 8% and you look at the state of your portfolio today and the apparel launches you have lined up for the next call. It six to 12 months and then you balance that with peer now lower visibility on the OEM business. How are you feeling about your ability to drive double digit non COVID-19 cost in 2024.
And which segments or product lines do you think it will be the biggest contributors to that and then I have a follow up after that if that's okay.
First of all thanks, a lot actually on for your question first of all we need to be very clear, we never took a commitment.
On double digit growth in 2024 for the base business, what you referred to as the non Covid, what we always said and we stick to that statement.
And as with portfolio to grow above market growth and he sees what we really did either.
There is no reason.
To see the.
So brutal decrease.
Lower than double digit for example for our country Fiancee's at least for 2024.
As we said in the presentation today, we stick to what we gave you are back in December eight two folds in in 'twenty, one when we say our central Tech portfolio.
That's clearly a low to mid single digit growth potential we confirm that.
In that same day December 21, we said, we believe that carrier Cui cheat and chaos that definitely.
Have a double digit growth profile, we confirm this.
<unk> is fighting against the weight of your C of Kobe, So as long as we do not stabilize this it will be growing in Europe in the base business and will be affected in the U S. Because of Covid, but all those elements plus the fact that we have serious nobody's grow for example in N G. S N Q D.
That that will companion diagnostic portfolio is constantly in reached by your new launches you have seen our recent press release this year as well, we think that really we are positioned to exceed market growth for the coming years not only in 2024.
Great. That's helpful and then just a quick.
Follow up on the share buyback program and when you expect to get approval finish.
I think before we go there are actually I think its probably also important that I think if you aggregate together what you just said you clearly can see.
That is something what its up nicely to it but if we separate for above market growth with MIT, which again is mid to high single digit, but I think it's also important to say that we also again as I said before if you have a 27 plus our EBIT margin for this year, we do not see any reason why we shouldn't see an improvement in margins automate.
Long term I think we have a good track record of doing so and I think that trend probably also remains quite stable and nothing has changed about both actually visa announcement as of yesterday I think it's important to realize that as well.
In terms of share buyback. The good news is we got the approval of the shareholder meeting. So we are technically a models a pool for our synthetic share buyback.
As I said in my remarks, we are clearly open to continue what we did modest quite successful since 2012, which has three different ways of capital allocation are investing into the business bolt on M&A activities, SPD blood and SPD at village Inn and of course.
Our share buyback activities.
Now as you know we are in the Middle also an unsettling some of our financing instruments go into repayment that has.
Some technical topics wherever you have to Vox, who once we're done with that it's it's quite obvious that we have full flexibility.
Okay. Thank you very much.
Thank you we'll take our next question from Hugo solve it.
BNP Paribas.
Hi, Hello, Thanks for taking my questions just on concentrate on TB, maybe Kevin can you talk to the strength of the U S. In a while in the column, then maybe well, let's yet to account and given your trucking will bolster did for your guide or Shouldnt think about seating.
Gulf Coast, and our fiscal Q3, Q4, and I will ask one follow up after that thank you.
Thank you, we'll go and as you're probably aware.
But once you feel on North America as our main market.
We are not referring to tier one and tier two but we are divided into market between what we call national accounts GP.
Typically laboratories like Quest Labcorp a R. U P. For example, and non national accounts.
And both are developing extremely well.
At a comparable growth rate.
In addition, we have been able to.
Not only.
Extract value from the automation we've done.
Oh, sorry, he knows the world anytime we automate.
The customer from quantify them, a fourth generation to digest serene, we do it at a premium price, but we also on top of that.
Price increase not only last year, but also at the beginning of the year.
Nonetheless, I would like to insist that the growth in the U S. Like in the rest of the world for coffee. If you want is driven mainly by volume.
Before then price.
What makes us optimistic and confident for Quanta you feel.
Especially in North America is that we continue.
To open new opportunities for example.
Diabetes patient is becoming a significant opportunity for us.
Second.
Immigration you starting again at a higher pace compared to the previous administration or the pandemic period anytime there is immigration, especially from emerging countries. There is testing for quanta, you feel and last but not least we know we now have a after a significant investment in marketing.
A much more precise knowledge of where the skin test.
In North America, and what is interesting is that the U S is one of the country, where the price of it keeps skin test is very comparable to the price of a quantity film. Therefore conversion is at least a bit easier.
I believe it answered your question, but I think you had a second question Hugo.
Yeah. Thank you just a follow up on the previous question I just think about 2020 full thank you for doing that on the non could be thoughtful yogurt undercoat. He should should get some sales going back to a pre.
The baseline for about 143 million U S.
He or she should should we assume a low single digit reaching a cheesy cool off that baseline til. You'll go to 2000 22020, just a little bit of a sense of what the blend is going to be thank you.
No I think it is.
Assuming some obstacles are in the underlying portfolio I would say the revenues for next year in that area stay probably at least 60 plus might be under 65, plus a few percentage points, a again I think that it's more or less a baseline.
Thank you we'll go next to Falco Friedrichs with Deutsche Bank.
Thank you very much and my question is on line with it.
Can you just remind us on the non COVID-19.
What makes you confident that the.
We will continue to be a winner in the market.
I mean, he is spud and keeps you didn't seem to be doing very well. So what makes you confident that along with it.
One of the drivers that might be lagging a bit behind thank you.
Yeah.
Thanks, It's a good question, but it's a first of all when we look at a three month run investment like pneumonia, we cannot judge on a quarter or a year or just to yeah.
What makes us a first coffee that into the system ease that.
In something like two years two years under hot in number of placement qiagen as already taken more than 10% of the market share of the current number one in that market and as you know it's a competitive market. Obviously, we are very late because of what I explained in the U S and we are not happy with that.
But does she stemmed the platform is extremely differentiated.
In these business, where there are big competitors, none of them I've see I use the upgraded their solution over the last 10 years or very slightly.
<unk> is completely differentiated.
Better automation easier to use you.
You take a DNA result, with numerous <unk> in 60 to 70 minutes.
Against three hours for our main competitors.
True random access the first platform on the market and you don't need to this date.
Where the laboratory can do at the same time, Amy kind of center any kind of assays and he's a laboratory developed test or regulated assays.
So there is no doubt that the platform is differentiated.
Obviously all of you.
We need to continue to develop the menu, but remember in Europe , and CE, marking countries. We already have one of the largest menu available more than 16 assays for infectious diseases.
So oh, we have all the tools to fight at the same time, we need to constantly review, what's the best strategy, what's the best capital allocation per geographies to push that solution to the market.
[noise].
Okay. Thank you Kelly.
Thank you our last question will come from Casey Woodring with J P. Morgan.
Hi, great. Thanks for fitting me in and so apologies. If you guys have touched on this but jumped on late I'm just maybe one for Roland on 24. So you know the street is that 7% topline growth sounds like your exit rate for key will be in that high single digit growth range on the ethanol side.
Similarly, the street's at 100 basis points of margin expansion for next year. So can you maybe just walk through the swing factors.
For 24 hour on those numbers.
<unk> pharma demand continues to be soft OEM and yeah, maybe puts and takes in China instrument demand kind of just.
Maybe kind of level set expectations for 'twenty for.
That would be helpful. Thank you.
Yeah. Thanks, Casey for asking that question because I guess, you should do my job Isabella because exactly what I see right now as well, so I think that that fits quite well.
Overall, I think as you said before that what you just did it doesn't make us uncomfortable at all I think that is all very reasonable but of course, there is volatility in the market, that's clearly a market environment.
Which which might change in either direction, there's still ongoing war in particular in Europe . So I do think there's a lot of uncertainty in the market, which right now is hard to get our hands around.
Nevertheless, the good news for US is that 85% of our business is a very resilient consumer or a business and we haven't seen any reason to believe that it's going to change either in 'twenty. Three on 24. So all we are growing with good comfort into next year, particularly as our pillars of growth as we just said before.
All in all very well underway, there's clearly some even shining more than others, but overall I would say a good performance.
At the same time, there is a couple of areas, where there is upside opportunities as he just said we do believe midterm days a good reason to believe that all pharma and diagnostic lines in the way I'm, sorry to come back to normal and if that becomes another high single, even a double digit grower a very helpful. We all hope.
Not only now but in general that China becomes a business why is a more stable environment that might be helpful. As well. So I think theres a lot of reason well also we could expect in that he is he's upset opportunities is it too early to call them out absolutely at the same time.
Shouldn't forget that there's ongoing menu expansion in many areas at Qiagen Servier driving all R&D activities have talked about that that we actually accelerated a lot of things and again that is also something what what that was very helpful. For us in the last three years, we shouldn't forget that we have now many consecutive quarters.
A healthy double digit growth with and again also here, finishing the year with 8% all in non Covid extra Wham 10, plus golf, which I think is still a very healthy performance.
Yeah.
Okay with that Roland and Terry I'd like to end the call here. Thank you very much for your participation today. If you have any questions comments or suggestions. Please do not hesitate to reach out to Phoebe and me. We're always available to support you on topics. Thank you very much bye bye.
Ladies and gentlemen, this concludes the conference call. Thank you for joining and have a pleasant day Goodbye.
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