Q3 2024 Qiagen NV Earnings Call
Discover it all Avid L Specialist
Ladies and gentlemen, thank you for standing by. I am Katie, your call operator. Welcome, and thank you for joining QIAGEN's Q3 2024 Earnings Conference Call Webcast.
At this time, all participants are in a listen-only mode. Please be advised that this call is being recorded at QIAGEN's 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 press the star key followed by zero for operator assistance.
Speaker Change: At this time, I'd like to introduce your host, John Gilardi, Vice President, Head of Corporate Communications and Investor Relations at QIAGEN. Please go ahead.
John Gilardi: So, thank you, Operator, and thank you to all of you for joining us for our quarterly results call. We're pleased to have you with us and appreciate your interest in QIAGEN.
John Gilardi: This call is being webcast live and will be archived in the IR section of our website.
John Gilardi: You can also find a copy of the quarterly results, press release, and a presentation on our website.
John Gilardi: Now, I'd like to remind everyone that we will be discussing forward-looking statements on this call. Actual results may differ materially from those projected in any statement that we make. The factors that could cause our actual results to differ materially are discussed in our most recent Form 20-F on file with the SEC and also available on our website.
John Gilardi: In addition, we will be referring to certain financial measures not prepared following generally accepted accounting principles, or GAP. We believe these non-CAP measures provide useful information to investors. You can find a reconciliation in our release.
John Gilardi: All references to EPS refer to diluted EPS. So Thierry Bernard, our Chief Executive Officer, and Roland Sackers, our Chief Financial Officer, will start with some remarks on the key initiatives for the quarter, followed by a Q&A session. With that, let me hand over the call to Thierry.
Thierry Bernard: Thank you, John. Hello and good morning, good afternoon, or even good evening, depending on when you are in the world, and thank you for joining us. I'm very pleased to share that our teams have once again exceeded our targets and delivered another solid quarter of results.
Thierry Bernard: Thanks to our heavily recurring revenues, which represent over 85% of our sales, we are very well on track to achieve our goals for 2024 in this still challenging macro environment.
John Gilardi: I want here to recognize the impact of our outstanding Kayaginers.
John Gilardi: But before we get into the performance of Quarter 3, let me take a moment to celebrate some truly remarkable achievements.
John Gilardi: 2024 is another year where our QIAGEN customers were awarded Nobel Prizes for their invaluable contribution to advancing science and improving healthcare.
John Gilardi: This is a real testament to the impact of our customers on our daily lives.
John Gilardi: As we celebrate our 40th anniversary in 2024, we are more committed than ever to delivering the highest quality product that will support future Nobel Prize winners in helping to make improvement in life possible.
So now let me highlight our key messages for Q3.
John Gilardi: First and foremost, we exceeded our outlook for sales and adjusted earnings in the third quarter.
John Gilardi: This exceeded the outlook for at least $495 million at CER.
Growth, excluding the Pneumonics franchise, was also 6% CER.
John Gilardi: To be noted, we saw a 10% growth in our Diagnostic Solutions product group.
John Gilardi: Consumables and related revenues grew 8% CER over Q3 of 2023 and contributed 89% to our sales.
John Gilardi: We continue to see cautious customer spending on instruments, and those sales declined 9% CER.
John Gilardi: Adjusted diluted EPS were $0.57 and results at constant exchange rates were $0.58.
John Gilardi: And this was 3 cents above our outlook for at least 55 cents.
Second key message
We achieved several important product launches and key milestones.
John Gilardi: This position skyrockets strongly for future growth as we set our ambitions towards delivering on our 2028 commitments.
As a first highlight.
John Gilardi: Kyastat had a very strong quarter with 40% CER sales growth driven by increasing demand worldwide and more than 150 placements of instruments in the third quarter.
John Gilardi: We have now received four FDA clearances for chiastat panels, and this includes the announcements just this week of the clearance for the meningitis encephalitis panel.
John Gilardi: Let me here express my appreciation to our KIASTAT team for this tremendous accomplishment, but we are not done yet on our menu expectation plan.
John Gilardi: In September, we also received new approvals in Europe under the new IVDR regulations for the chiastet instrument along with the respiratory and GI gastrointestinal panels.
Across Kaiyajin
John Gilardi: We now have over 80% of our regulated products transferred to this new and more rigorous regulatory framework.
John Gilardi: Building on the success in syndromic testing, we are also expanding the ecosystem for Kiastat into precision medicine.
Que hay estad?
John Gilardi: as the only, is the only syndromic system endorsed by pharmaceutical companies.
John Gilardi: And we have signed a number of pharma collaborations to use this technology in precision medicine applications.
Most recently, we announced collaboration with AstraZeneca and Eli Lilly.
John Gilardi: The goal is to provide chiastat tests to help guide treatment decisions for various chronic diseases with AstraZeneca, and also a new test for Eli Lilly for using diagnosis of Alzheimer's disease.
John Gilardi: If we move now to the Kayakwiti digital PCR system, we also have seen significant progress.
John Gilardi: A key development was the addition of a hundred new validated assays to support our customers in areas such as cancer research, inherited genetic disorders and infectious disease surveillance.
John Gilardi: We can now offer well over 2,400 different high-quality assays developed specifically for digital PCR that are accessible to our customers through our online GeneGlobe portal.
John Gilardi: Another key development in digital PCR was creating a version of QIAQI for clinical applications.
John Gilardi: The first placement has been made after the FDA approval in September of Kayakwiti Diagnostics.
John Gilardi: A four-plate version designed specifically for clinical customers and with an initial focus on oncology.
John Gilardi: Kayakuiti Diagnostic offers many capabilities that make it a better solution for customers against qPCR or next-generation sequencing.
John Gilardi: It is very well suited for monitoring cancer progression and supporting clinical decision making in a very meaningful way.
John Gilardi: And now we continue to build out the application portfolio for carrier equity diagnostics.
John Gilardi: Turning now to the third key message, we again deliver the significant improvement in profitability and free cash flow.
John Gilardi: Our adjusted operating income margin improved by 3% to 29.6% of sales from the third quarter of 2023.
This came from a combination of factors, including efficiency gains across the business, as well as the decision in June to discontinue the pneumatic system by 2025.
John Gilardi: In terms of free cash flow, here we saw a 73% increase to $364 million in the first nine months of 2024.
John Gilardi: Last, we are reaffirming our full year 24 outlook for net sales and we are increasing our target for adjusted EPS.
The net sales outlook continues to be at least $1,985,000 at constant exchange rates.
This takes into consideration the solid base business performance to date in 2024, as well as the reduced sales expectation for Pneumodics.
and those are tracking as we had expected for 24.
John Gilardi: We have increased our adjusted EPS target to at least $2.19 from the prior outlook which was $2.16, also at CER.
John Gilardi: Last, I would also here like to mention a change in our Executive Committee.
John Gilardi: Jonathan Sheldon, our head of our KayaGen Digital Insights business, has stepped down from this role.
Let me express our appreciation to Jonathan for his many important contributions to developing our bioinformatics business and we wish him all the best in his future endeavors.
Those of you who attended our Capital Market Day in New York had the chance to meet Dominic Jones from our QIAGEN Digital Insights team and I'm looking forward to working with him and the rest of the QDI team.
So as a quick summary, our teams are committed to delivering on the goals for 2024 in a challenging micro-environment.
Doing so will position Kayagen for further profitable growth in 2025 and put us on the course to achieve our mid-term target for 2028.
Speaker Change: I would like now to hand over to Roland for a review of our financial results.
Roland Sackers: Thank you Thierry. Hello everyone. Thank you as well for me for joining our call. We are pleased to report strong financial results for the third quarter.
Let me give you four key figures to highlight that performance.
A three percentage point improvement in the adjusted operating income margin to 29.6%.
an 18% increase in adjusted operating income.
Speaker Change: and 11% rise in adjusted net income compared to the same period last year.
and a 73% increase in free cash flow for the first 9 months of 2024 to 364 million US Dollars.
Looking ahead, we are confident in our ability to achieve our full-year targets.
Speaker Change: We have reaffirmed our outlook for net sales of at least US$1.985 billion at CER.
Speaker Change: and we increased the adjusted EPS target to at least $2.19 at
Speaker Change: C.E.R. This is up 9 cents from the outlook we gave in January.
Speaker Change: Let me now give you some additional insights into our results and sales trends from the quarter.
Speaker Change: In terms of sales, we saw higher sales in the Sample Technologies, Diagnostic Solutions and PCR product group over the third quarter of 2023, while sales in the Genomics NGS group were unchanged.
Speaker Change: This growth trend is coming from the launch of upgraded systems, in particular KayaCube Connect and Easy2Connect.
Speaker Change: We are preparing for important new system launches in 2025 and 2026 and we expect these to drive further growth.
Speaker Change: In diagnostic solutions, sales rose 10% CER and were led by the strong growth in the quantiferon TB test, which marked the sixth consecutive quarter of sales above $100 million.
Kaya Studd, the X-Sales Group, had a dynamic 40% CER pace thanks to significant double-digit sales gains in consumers and also double-digit growth in instrument sales.
In the PCR product group, we saw double-digit CR growth in various consumable kits.
Speaker Change: This was especially the case for consumables used on the Calacuity digital PCR system where consumables sales grew at a very strong double-digit pace and we are on track for an overall double-digit sales growth in 2024 over 2023.
But like others, we continue to see cautious spending by customers on new instruments.
At the same time, customer interest is strong and we are confident in future growth opportunities in the life sciences and also increasingly in clinical healthcare with the recent launch of the QIA QTDX version.
In the Genomics NGS product group, sales were unchanged in the third quarter of 2024 over the year-ago period.
Speaker Change: We saw improving transfer sales of universal kits that are used to prepare samples for processing on sequencers.
Speaker Change: Sales in the digital inside business declined at a low single-digit CER rate. This was due mainly to the transition of customers, particularly in the pharma industry, from longer-term license agreements to software-as-a-service, or SaaS, subscription contracts.
Speaker Change: But we saw good growth in our clinical business, and the midterm growth trends are clearly in favor of QDI given the growing levels for genomic data being generated by our customers.
In light of that potential, we are planning to host a virtual deep dive event for you in December to share more perspectives on the QDI business.
Further information will be announced soon about this online event.
Let's now move to results for the regions.
Speaker Change: We are investing to strengthen our international presence, and this was reflected in the results for the quarter.
In the Europe-Middle East-Africa region, sales rose 8% CER. The top performing countries included France and Italy, and we are seeing the contributions from our expansion initiatives in the Middle East.
Speaker Change: In the Americas, sales rose 6% the year over the third quarter of 2023, with solid growth in consumables that more than offset lower instrument sales in light of the cautious spending environment.
In the Asia-Pacific-Japan region, sales were down 2% CER in the third quarter.
Speaker Change: China continued to decline at a high single-digit CR rate over the year-ago period.
Speaker Change: The challenging market conditions continue in China and we are cautious in predicting a path to recovery.
However, it's important to note that China only made up about 5% of our sales in the third quarter.
The rest of this region delivered single-digit CAR growth thanks to our business expansion in Australia, Japan, India and Singapore.
Speaker Change: Let's now review the rest of the income statement for the third quarter.
As I mentioned earlier, adjusted operating income rose 18% to $149 million.
Speaker Change: Key contributors to the improved operating margin were across all lines, in the adjusted cost margin, as well as lower levels of R&D investments and SG&A costs as a share of sales over the year-ago period.
Speaker Change: The outcome was the adjusted operating income margin increasing 3 percentage points to 29.6% of sales.
These results underscore our commitment to solid, profitable growth, while also freeing up resources to reinvest into targeted growth opportunities.
The adjusted cost margin was 66.5% for the quarter and an increase of 40 basis points from the third quarter of 2023.
Speaker Change: The biggest contributor was Kayastat-TX, which had a favorable impact on the consumable product mix and we also had benefits from higher production capacity utilization.
Speaker Change: Additional contributions came from the Saab Technology Consumables business and Kayastat Digital PCR.
Speaker Change: R&D investments were 8.9% of sales, down about 1 percentage point from the year-ago period.
Speaker Change: In particular, the stop of R&D projects in Neumode X has been driving this decrease.
Speaker Change: Sales and marketing expenses declined about 1.2 percentage points and this was mainly due to effective cost management through our efficiency programs. At the same time, we are stepping up targeted investments into our pillars.
Speaker Change: General and administrative expenses were steady at 5.9% of sales as we maintained a high level of IT and cybersecurity investments combined with efficiency gains.
Regarding the restructuring costs for Neumundi X and related projects, we continue to expect total charges of approximately 400 million US dollars and for about 75% to be non-cash.
Speaker Change: The bulk of this charge came in the second quarter, results with a pre-tax charge of about $350 million, of which 80% involved non-cash items.
Speaker Change: We incurred about $60 million of additional charges in the third quarter and expect about $20 to $25 million for the fourth quarter.
Speaker Change: Some remaining charges may come in the first half of 2025 as we complete the program.
Speaker Change: As for adjusted EPS, reported results were $0.57, while results at constant exchange rates were $0.58 and $0.03 ahead of the outlook for at least $0.55.
Speaker Change: This confirmation of solid profitable growth enabled us to raise the Folia Outlook by three cents.
Speaker Change: The adjusted tax rate was 20% and above the estimate for about 19% while the average number of diluted shares at $224 million was in line with our expectations.
Speaker Change: Turning to cash flow, we are pleased to see continued improvements in our results for the third quarter.
Speaker Change: Operating cash flow for the first nine months of the year increased by an impressive 56% to $482 million over the same period in 2023. This is even after absorbing payments related to restructuring decisions.
Speaker Change: We have seen a steady improvement in working capital, which has decreased by about $198 million and stood at 6.4% of total assets at the end of Q3 and down from 9.8% at the end of Q23.
Speaker Change: Accounts receivable have also fallen by about 10% since the end of 2023 and stood at 55.5 days at the end of September.
Another contributing factor to the improvement...
Speaker Change: Free cash flow for the first nine months of 2024 grew at a faster pace than operating cash flow, rising 73% to $364 million compared to the same period in 2023.
Speaker Change: This is particularly impressive given the increase in CAPEX levels. This primarily went towards software development and in particular the upgrade of our SAP system.
Speaker Change: So we are on track for a solid cash flow trend in 2024 and even after including the charges related to the Noem-Modi-X decision.
Speaker Change: As for our financing, we raised about $500 million in September through the issuance of a new net share settled convertible bond due in 2031 with a 2.5% coupon. This successful offering received robust demand, reflecting investor confidence in our future growth prospects.
Speaker Change: The proceeds will be used to support our strategic growth initiatives and also to repay upcoming debt obligations.
Speaker Change: We have $500 million in convertible notes reaching maturity in the fourth quarter. We also expect to repay another $500 million in 2025 due to an early redemption option for convertible notes reaching maturity in 2027.
Speaker Change: We said, I would now like to hand back to Thierry.
Thierry: Thanks a lot, Roland. And now let me take a moment to discuss with all of you more progress our teams have made across a world portfolio.
Speaker Change: First on sample technology, and Roland, you did what you did, we are expanding our portfolio of state-of-the-art applications in many areas, and this includes liquid biopsy.
Speaker Change: Gaia-Gen is a top provider of liquid biopsy samples prep solutions and we are the only provider of all three key technologies.
circulating tumor DNA, cell-free DNA and exosomes.
Our portfolio has been invaluable for many years to customers.
Speaker Change: at the start, to those in research studying various types of cancer and other diseases, and increasingly today, to commercial labs across the world offering liquid biopsy tests.
Speaker Change: Those labs are many of the major names that you would recognize as the leaders in this field.
Speaker Change: We continue to solidify our leadership in this area by expanding our portfolio for urine samples and moving beyond the initial focus on blood samples.
Speaker Change: In our pre-analytics joint venture with Becton Dickinson, we recently launched the PAX Gene Urine Liquid Biopsy Set.
This new kit addresses critical needs on how to collect.
process and store DNA from urine samples for analysis.
Speaker Change: Key applications in both research and clinical healthcare include detection of markers for minimal residual disease analysis, to monitor treatment response, and even to identify therapeutic targets.
Speaker Change: We continue to innovate in this area to help advance the use of liquid biopsy, in particular to improve precision medicine and make it easier to tailor and monitor treatments to get better outcomes for patients around the world.
If we move now to quantiferon
Speaker Change: Our test for latent TB detection continues to be a key contributor in the global fight against tuberculosis.
Tuberculosis is on the rise.
And once again...
has overtaken COVID-19 as the world's leading infectious disease killer.
Speaker Change: This is according to the WHO Global Tuberculosis Report for 2024 that was just released a few weeks ago in October.
Speaker Change: The report showed 8.2 million people were newly diagnosed with TB, tuberculosis, in 2023. And this represents the highest number of tuberculosis cases recorded by the WHO since it began monitoring in 1995.
Speaker Change: It also marked a significant increase from the 7.5 million new TB cases reported the year before in 2022.
These shows, once again,
the impact of limited testing during the pandemic.
Speaker Change: We leverage once again our knowledge and resources amid the resurgence of the world's most deadly infectious disease by hosting the Global TB Summit in London in October, our fifth annual event.
Speaker Change: with invited experts reaching more than 10,000 participants across a hybrid conference of in-person and virtual sessions.
Latent TB detection is essential.
Speaker Change: 1 in 4 people worldwide is estimated to be positive, 1 in 4, and creates the new waves of active TB cases.
Speaker Change: Given that skin tests still make up well over 50% of the market for annual latent TB testing
globally or in the U.S.
or Europe, the growth potential for QuantiFerron remains very substantial.
Speaker Change: To further accelerate conversion from skin test to our quantiFERON latent TB test
Speaker Change: We are already involved in national screening programs in more than 15 countries around the world.
We are now clearly on track.
Speaker Change: To exceed our target for at least $450 million of sales in 2024 and further conversion from the skin test as well as overall market growth is set to drive mid-term growth.
Speaker Change: We are also creating a new relay of growth with the quantiferon test for detection of Lyme disease with our partner Diasurin.
We are awaiting a decision from the FDA.
and getting ready for the 2025 testing season.
Speaker Change: So, across the Kaiagen portfolio, you can see that our company has never been positioned better position and we are working to strengthen our competitive edge. And now back to Roland with the details on our outlook for the year.
Roland: Thank you, Thierry. Let me now provide more perspectives on our updated Outlook for 2024 and also on the fourth quarter.
Roland: We have reaffirmed the outlook for full-year net sales of at least 1.985 billion U.S. dollars at CER, taking into consideration the solid growth in our base business and reduced sales from NeumudiX after the decision to discontinue the system.
Roland: For the fourth quarter, we have set an outlook for a net sales of at least 520 million dollars at CER, an increase of about 2% CER from 509 million dollars in the fourth quarter of 2023. This includes a headwind of about 1 percentage point from the Neumudi-X decision.
Speaker Change: So in effect, underlying 3% CER growth over the fourth quarter of 2023, leaving the second half of 2024 with a growth rate of 4-5%.
Speaker Change: This confirms our expected acceleration in year-on-year growth rates for the second half of 2024 compared to results in the first half of this year.
Speaker Change: On adjusted earnings per share, our updated outlook for the year is for at least $2.19 at CER and another upgrade based on the significant improvements in profitability.
Remember that this compares to an outlook for the future.
Speaker Change: at the start of the year for adjusted EPS for at least $2.10 CER as we double down on our commitment to solid profitable growth.
Speaker Change: Adjusted earnings per share for the fourth quarter. I expect it to be at least 60 cents per share, also at CER, compared to 55 cents in the fourth quarter of 23. So another good improvement.
Speaker Change: As for the impact on currencies, based on recent movements, we do not expect any change from what we announced at the end of the second quarter. We are expecting an adverse impact on full-year net sales of about 1 percentage point and an adverse impact of about 2 cents per share on adjusted EPS results. I would like to now hand back to Thierry.
Thierry: Thanks a lot, Roland. We are coming to the end of our call, so let me summarize our key messages for today, and then we'll move into the Q&A session.
Thierry: First, we had a very solid performance for the third quarter that exceeded our outlook on net sales and also on adjusted earnings.
despite the quite challenging macro environment.
Thierry: and cautious spending among customers on instruments, our heavily recurring revenues at over 85% of sales continues to deliver solid growth.
Thierry: We were especially pleased with the performance of our sample technologies, diagnostic solution, and PCR product groups.
Thierry: We also saw the innovation power and commitment to efficiency in our teams through a steady number of new product launches with an improved adjusted operating income margin at 29.6%.
Thierry: It is fair to say that QIAGEN is delivering on its target on sales, is delivering on profitability, delivering on cash flow generation and on product development.
Thierry: This makes us confident in achieving the updated outlook for 2024 and positioning our company for more solid profitable growth in 2025 and the years ahead.
Speaker Change: And with that, I would like to hand back to John and the operator for the Q&A session. Thanks a lot.
and Thierry Bernard. Thank you.
Speaker Change: Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on your touchtone telephone. If you wish to withdraw your question, you may press star followed by two.
Speaker Change: To ensure that we can accommodate as many people as possible, please limit yourself to only one question and, if necessary, one follow-up. Your microphone will also be muted after finish asking the questions.
Speaker Change: Anyone who has a question may press star followed by one at this time. One moment for the first question.
We'll go first to Patrick Donnelly with Citi.
Patrick Donnelly: Thanks for taking the questions. Thierry, maybe on Quantiferon, you know, another nice double-digit growth quarter here. Can you just talk about, I guess, the drivers, the sustainability of this type of growth going forward? You know, the competitive landscape certainly seems to have quieted down from our perspective. Obviously, there was some noise over the last few quarters, but no impact, clearly, your business. So, maybe just talk about what you're seeing, and again, you know, the growth going forward, and then I have a follow-up after that.
Speaker Change: Main driver for us remains the same, we are very coherent.
Speaker Change: We have a fantastic potential to convert skin tests. It's still more than 50% of this market. It's an antiquated technology and quantiFERON in its blood format offers value to our customers.
Patrick Donnelly: Second, the partnership with Diacerin gives values to customers as well. We continue to convert traditional quantiferon customers to Diacerin, but we also
Patrick Donnelly: are adding QuantiFerronTest to the Diastole install base. It's a successful partnership and anytime we convert a customer, we can do it at a premium price.
and third, because of many years of publication.
Medical Education
Patrick Donnelly: We are converting more and more countries to have latent TB testing in their guidelines against tuberculosis.
Speaker Change: I would highlight that, Patrick, as the three key drivers. We believe that it's a sustainable growth ahead of us, which you have seen in our Capital Market Day.
Speaker Change: that we announce an objective of 600 million revenues for QuantiFerron by the year 2028, which gives us a projected 6 to 7% CAGR for the coming years.
The End.
Speaker Change: Yeah, no, that's helpful. I appreciate that, Thierry. And then maybe just, you know, as we're kind of turning eyes towards 25 here, I know with the closing remarks there, you kind of highlighted it should be another healthy year.
Speaker Change: You know, can you just talk about the moving pieces, both on the revenue and then maybe Roland can chime in on the margin piece, high level as we think about next year. I mean, any reason why you guys wouldn't be kind of in that high end of the mid-single-digit type range next year on the revenues? Any headwinds we should be aware of? And then the same question on the margins for Roland. Thank you, guys.
Speaker Change: I mean, if you look at the paradigm of our growth pattern in 24 countries.
Speaker Change: You see that acceleration, and we forecasted it, we disclosed that, the acceleration in H2. If you look at the overall H2, we're going to be between 4 to 5 percent growth.
We have momentum in some portfolios, Kayastat as we highlighted.
Quanti Ferron
Speaker Change: SampleTech is back on growth and we have, as Roland said, new instruments going up in 2025 and then in 2026.
Digital PCR, we have very different solutions.
Speaker Change: and consumables are growing very well. We had had in the last three years the fastest growth of install bays in digital PCR.
Speaker Change: Roland said that our QDI bioinformatics business was going to a transition, but the fundamentals of the business are very solid. More NGS testing, more oncology testing are calling for more bioinformatics analysis.
Speaker Change: So, I'm trying to express that, that the growth pillars of Kaeya Jain...
are leveraging good market opportunities.
differentiations, and features or menu expansion.
Speaker Change: With that in mind, I believe that with a performance of 4-5% growth in H2, we are well on track to continue on a very...
Speaker Change: Decent growth for 2025 and to achieve our 7% CAGR 24 to 28 as said in New York in June 2024.
Roland for the Margin Extension.
Sure, and hello Patrick.
Speaker Change: I do think it is very important to understand that the majority of the impact on margin improvement is not in the numbers of 24, it will come over the course of the first half of the year. I would say a certain amount, might be one third.
Speaker Change: built into the numbers or helping the numbers, if you like, for 25 because, as you know, we're still producing, helping our customers and so on. So there's a lot of things which we still have to eat and that is going to continue. Most likely by mid of next year we are done with that.
In addition to that, we continue what we started
Speaker Change: And we clearly see that all across the company, opportunities to empower organizations to get more decentralized and therefore having quite a number of efficiency gains.
Speaker Change: which adding up and that is what is driving the margin improvement right now but they're not stopping halfway so I would also expect for next year continuation of margin improvement.
Speaker Change: Thank you. We'll take our next question from Odysseus Minnesotas with Berenberg.
Hi, thanks for taking my questions.
Speaker Change: Firstly, could you give us a bit more color on the Kayasat placements since the GI panel launch and the mini panel launch?
Speaker Change: What share of these placements have been competitive? Was there an acceleration since last quarter? And could you also share what part of these placements were placed on reagent rental contracts? And then I have a follow-up, thank you.
Speaker Change: Thanks for the question. So first of all, the first thing I'd like to highlight is Q3 is a very good number, very good performance for karyostatin placement, more than 150 placements for the quarter. It's more than our competitors.
Speaker Change: I wouldn't say it's specifically GI approval. What is very important to remember, the U.S. is still the first market in the world and still growing for syndromic testing. And now, in the U.S., QIAstat can offer
the minimal menu to be competitive with customers. Respiratory, GI.
Speaker Change: In addition to that, as you have seen, we are bringing a mini-panel for respiratory in the U.S. and soon we will be bringing a mini-panel for GI. So we create, we strengthen a momentum.
Speaker Change: This is a market where you should see, between or across the region, the region at 50-50%. 50% placement, 50% capital sales.
But the key message here...
Speaker Change: is that we were already growing well thanks to Europe and some other regions. Without the U.S. on Kayastat, now we are even more competitive and entering 2025, more competitive for the U.S. This is what makes us confident for this franchise to achieve.
Speaker Change: the commitment we took to you in New York in June, which is a revenue of 200 million dollars by 2028
Thanks, Thierry. And a quick one on capital deployment.
So
Speaker Change: Is larger M&A still likely, as you were talking about earlier in the year, or is there more of a bias towards buybacks?
Speaker Change: I mean, we are extremely active on both fronts. You have seen us active on buyback at the beginning of the year. I think the main question for us is, what is best?
Speaker Change: for our shareholders at a given time. We have a very solid balance sheet.
We have taken a commitment once again in New York.
Speaker Change: of, absent of significant M&A, a billion dollars returned to shareholders.
Speaker Change: until 2028. We are still committed to achieve that. At the same time, QIAGEN is on the hunt.
4. Interesting
value creation,
Speaker Change: Thank you. We'll take our next question from Matt Sykes with Goldman Sachs.
Speaker Change: Hi, good morning. Thanks for taking my questions. Thierry, maybe one for you to start out, just high level. As you think about sort of the mix of growth that you've achieved over the past year, quantifier has obviously been a significant driver. And as you talked about sort of the long-term normalization of that growth, closer to six to seven.
Speaker Change: How are you thinking about the mix the portfolio to drive incremental growth as quantifier on normalizes a little bit I am assuming it's a combination of chi-stat Chi acuity and QDI But I would just love to hear how comfortable you are with the portfolio mix to continue to drive that incremental growth if we get that normalization and quantifier on
Speaker Change: Yes, you are perfectly right and thanks for the question and I would refer you to what we presented in New York in June.
We continue to believe in focusing.
and focusing in
growth opportunities
where we believe we can either...
Reinforce the leadership
Ortec Substantial
Market shares
Reinforce the leadership.
It's...
SimpleTips.
and Quentin Ferron
Take mini-full market share.
Speaker Change: It is Digital PCR, KIA-STAT syndromic testing, and KIAgen Digital Insights, our bioinformatics portfolio.
And we gave you very...
precise data back in June.
Sample take.
We believe we can achieve...
Speaker Change: Above market growth 2-3% CAGR in the coming years because our strategy to invest in automation has paid off until now.
Speaker Change: Roland Alludy to Easy2Success in Q3, to KayaCubeConnectSuccess in Q3 and we are going to launch...
Three new instruments.
between 2025 and 2026.
Quanti Ferron, we have explained the driver behind our expectation.
Conversion of Skin Tests, and we.
Believe!
Speaker Change: that by 2025 we will have Lyme approved together with our partner in the U.S. It's a differentiated assay.
The success of LIME
will be conditioned by the success on the U.S. market.
Kaya Stats
Speaker Change: And we said we gave a target of 6 to 7% to achieve 600 million for Cointiferon by 2028.
Then we said.
We believe we have a very leadership.
Solution for Digital PCR
strong growth in install-based
Speaker Change: Movement from life science to clinical diagnostic. We are going to invest in more R&D, in more people on the field. We gave a target.
Speaker Change: of 250 million dollars by 2028. It's a significant double-digit growth, but the market is growing. The power of digital PCR versus qPCR or NGS is becoming more and more recognized.
Kayasthath, as I just said.
Speaker Change: We have a very precise plan for menu extension. If you remember...
direct identification of positive blood culture next year
Speaker Change: Complicated UTI, a very differentiated assay because none of the competitors has it in their portfolio or their plan.
Pneumonia
Speaker Change: In addition to that, our high-throughput system, KIASTAT RISE, will be approved in the U.S.
Speaker Change: That justifies our confidence to grow double-digit and achieve $200 million by 2028, which proves
Speaker Change: What we said for the last 3 years, we will be a very solid number 2 in syndromic testing.
QDI.
Speaker Change: Roland explained that we are transitioning our business, we follow the needs of our customers, towards a more SaaS business that doesn't change the interest of the market.
So, investing for a double-digit growth on QDI.
and reaching $200 million.
Speaker Change: by 2028 is still what we consider a realistic ambition, of course, but a realistic objective.
Speaker Change: Those will be the mix of our growth. That doesn't mean that other parts of our portfolio will not grow. We are still very confident in our positioning in next-generation sequencing chemistry.
Speaker Change: We are still very confident in our positioning in forensic activities.
Speaker Change: And this is how we see the coming four years, and starting with 25.
Speaker Change: Thanks for that color, really helpful. And then, Roland, just on, given your operating margin performance so far this year, I realize you laid out the guide in June of greater than 31% by 2028.
Speaker Change: and probably too early to revisit that, but just want to understand sort of the progress you've made probably above your expectations. How are you thinking about that 2028 operating margin target from here off of this base as we end 24?
Speaker Change: Yeah, no, it's a very fair question and I would argue and agree with what you just said that we clearly made good progress and I do think, and I shared it before, that I also see and we at Kaizen see that we have a high confidence that the same is going to happen also in 2025.
Speaker Change: So I wouldn't be surprised that at some point in time we have to revisit that target in a positive way, but as you said also, it's way too early.
Speaker Change: Thank you. We'll take our next question from Doug Schenkel with Wolf Research.
Hey guys, good afternoon.
So...
Speaker Change: Your stock's been stuck in a range for years. You've been underperforming the group in the market for a while. You're clearly not being rewarded for increasingly solid execution. Yeah, this was a good quarter.
Speaker Change: and it's not the first one this year. So with that in mind and keeping in mind, you know, the stock trades and the material discount to probably anything I can plausibly see you acquiring.
Speaker Change: I know you've said you're going to return a billion dollars to shareholders by 2028. We're aware of what you said at the Capital Markets Day and again what you're saying today.
Speaker Change: I guess my question is, like, why not get going now? Like, what are you waiting for if you believe in your LRP, if you remain confident that competitive concerns are really just noise? And it sure seems like you do. Why not bet on yourself and get more aggressive with the buyback as quickly as possible at this valuation?
Speaker Change: Once again, it's always a question of the right moment and the best value creation.
Speaker Change: On the material discount and your first comment, I would just say, obviously we look at the share price.
I remain convinced that...
Speaker Change: Continuing to be extremely humble and executing quarter after quarter will pay off.
Speaker Change: demonstrating that the value of our portfolio is solid. So it's about execution and delivering, not only on the top line, but also on the operational efficiency, and then it will pay off. That's how I could address your question, but Roland, you might want to add something here.
Speaker Change: Yes, thank you, Dr. Norgen. I would say we are very consistent with our share-of-a-back policy since 2012, where we started and, as you know,
Speaker Change: Typically we start with 100 million incrementals per year. We just more or less in the last two years stepped it up now to 300 million dollar incrementals.
Speaker Change: I would say there's opportunities for us and I would say it's also fair what you said, given also our cash flow, we have clearly opportunity over time to step that up. So it's a fair question and if we continue that way, it's an opportunity.
Okay, thank you guys. I appreciate that.
I'm building off of Matt's question about OpEx.
You know, I won't roll through every...
Speaker Change: you know, variable in the equation. But, you know, it was a good margin quarter, you got new modux rolling off, which will be really margin accretive. You've talked a lot about the levers, you know, pursuant to process optimization.
Speaker Change: You know, and then some of this is just, you know, we're not going to be back to normal next year, but we're going to be a lot closer to normal than we've been for a while.
Speaker Change: Recognizing you don't want to revisit the multi-year targets, but just thinking about those levers and just kind of the math and how lean things have got, relatively speaking, over the last couple of years from an OPEX standpoint.
Speaker Change: Is there anything I'm missing as I kind of walk through this as we think about, you know, the margin trajectory into next year and the prospects for maybe outsized incrementals?
Speaker Change: I think we can take once again this one that both of us, I think Roland alluded to that in a previous answer. I think we have probably...
some opportunities for improvement compared to the targets we gave.
back in June.
At the same time, I would also highlight that...
Speaker Change: We have already a very strong PNL if you compare to competition.
We have proven you.
Speaker Change: When we speak about efforts in operational efficiency, not only we mean it, but we deliver on that, you start to see that.
It's not just about decisions like Pneumodics.
Speaker Change: It's better site utilization and rationalization of our site networks. You have seen the decision that we took on moving the San Diego for Verogen to Germantown or Fredericks, very close to Germantown.
Speaker Change: It's significant efforts on pressure and pressure on cost of goods. You have seen the tremendous evolution of Kayastat cost of goods and therefore contribution to margin improvement in Q3.
It's tremendous efforts on quality of purchasing and procurement.
Speaker Change: It's end-to-end processes, the fundamental investment that we did in updated ERP with SAP HANA will pay off.
Speaker Change: It's probably a better investment than many companies in digital activities.
Speaker Change: So, yes, we have opportunities, but let's deliver first on the numbers we gave, and then we'll see. Roland, you might have some other colors there as well.
Roland Alludy: Yeah, I think the different perspective, Doug, is also that we see, of course, certain things going much faster than we thought. We clearly, as you have seen, got now four approvals on Kayastat in more or less a couple of weeks, which I think is great news.
Speaker Change: which also again helps us to revisit some of our R&D pipeline projects and we might accelerate certain things because it's clearly some topics which are going quite well right now. So I would say.
Speaker Change: It is also, well, again, as I said, we will see nice margin improvements in the fourth quarter next year for sure.
Speaker Change: The 31 percent, going back to the question we heard from Matt before, is probably something that, as I said, needs, at some point in time, a certain revisit.
Speaker Change: We have also great R&D ideas and we might accelerate some of them if we have the capacity and seeing and confirming the return rates on that. So trying here, also keeping the balance, is an important topic for us as well.
Speaker Change: Peggy O'Brien Thank you. We'll take our next question from Asa Noor with Morgan Stanley.
Speaker Change: Hi, thanks for the questions. My first one is on the QDI business, where you called out a low single-digit decline. What portion of your sales is subscription versus licensing today? And was this shift to subscription already happening before, but accelerated in the quarter? And how does this shape your view around the growth ambitions for QDI versus what you communicated at the Capital Markets Day of a 15% growth to 2028?
Speaker Change: Yeah, thanks. It's an interesting question. It has not happened just overnight. It's a trend. We listen to our customers, especially our pharma customers, the biggest customers, and this is the evolution they want.
Speaker Change: The interest for our solutions has not decreased. If you look at the performance of QDI Clinical, it was very much growing. It's a bit softer in Research and Academia, but because Research and Academia is a bit softer those days, it will pick up at a point as well.
Speaker Change: So, long story short, we are accompanying our customers in their role, so model evolution, listening to them. It's a good thing to do, I think.
Speaker Change: It's not changing the nature or the volume of our contract or the interest in our portfolio and therefore our ambitions to achieve 200 million by 2028 is not changing. We are number one.
Speaker Change: But never forget, compared to competition, we are a profitable number one. It's accretive, also, to our P&L. And this is something also that we need to highlight. It's a profitable business for Kaya Jen. It's not the case in the rest of the market.
and Thierry Bernard.
Speaker Change: Okay, thank you. And then on, my second one was on Quantiferon. So, keen to get your updated thoughts on signing a new, a secondary distribution partner. Just what would be the biggest hurdles to signing on a new partner? Is it the right instrument, the right licensing terms? Because partnerships are not foreign to you. You've got partners, you've got partnerships with Astra, Lilly, McKeeson, so it's not like you've not done this before. If you could talk through your considerations there, that would be great.
As we have said many times, we are
Speaker Change: remaining open to different options. The first thing that we want to highlight, and it is important.
is that the partnership with diethylene works well.
and has proven to be efficient.
By contract, we now have the right
Speaker Change: to add one new partner per geographic region where we are together operating with Diasurin.
We review options. Install base would be a criteria.
take potentially other partnerships. We'll see. Time will tell.
Thank you for watching!
Speaker Change: Thank you. We'll take our next question from Michael Ryskin with Bank of America.
Michael Ryskin: Hey guys, thanks for the question. I want to follow up on sample prep, which I think was just touched on a little bit.
You know, you've talked about market growth, you've talked about...
Michael Ryskin: Kager relative to that For the out years, but just the performance this year. I just want to dig into that a little bit more You know, it's still an important part of the business and you're outperforming on diagnostics clearly But just anything more you can call on that in terms of confidence and reaccelerating Maybe some of the one-timers that are impacting that this year
Thank you. Bye-bye.
Speaker Change: whether that's on instruments or broader market demand, just help us bridge that back to low single digits.
Speaker Change: Well, as you know, Michael, thanks for the question. You know that we...
have significant market shares in the U.S.
In this segment of the market, both manual and automated.
Speaker Change: But we have taken a clear strategy for the last four years to bet on automation.
Speaker Change: And betting on automation for us means either upgrading our current install base with new features
for launching new instruments.
Speaker Change: In the last two years, two years, two years and a half, what you have seen is upgrade of current install base.
KayaCube became KayaCube Connect
EZ-1 became
Is it true?
Speaker Change: What you are going to see now in the coming two years.
Speaker Change: It's a mix of both. We are going to upgrade Kaia Symphony. I remind you that Kaia Symphony is still the flagship instrument for thousands of laboratories all over the world.
Speaker Change: And this instrument will become Kaya Symphony Connect with new features.
Longstein Plan
We said in New York that we would.
enter a new segment
of high-throughput
and Sam Pertake.
We disclosed the solution in New York.
Speaker Change: And what we will also add to that plan is the launch of a new system where we are going to give you more details probably by J.P. Morgan, which is a much smaller throughput benchtop system.
So, we have free automation coming on.
Speaker Change: And if you look at our results for the last two quarters...
Speaker Change: We are back on growth. Yes, it's 1% growth, but it's growth based on significantly already existing market shares.
So we don't see...
Speaker Change: Why we could not continue that momentum and even accelerating it slightly because we are going to offer new solutions either in volume, our high throughput system, or.
Speaker Change: Easy automation of low throughput customers with the new system that we will present at J.P. Morgan.
Speaker Change: So, this is giving us the confidence to be probably, yes, around 3% CAGR for the coming years, which will be above market growth, which will strengthen our market leadership, and then delivering on what we gave you and the numbers we gave you in New York.
Speaker Change: Okay, that's helpful. That's useful, Bridget. And then maybe just a modeling tie-up on pneumatics. I think you've been very consistent.
Speaker Change: and sort of like the wind down and the timing of that.
Speaker Change: But just as we look ahead to 2025, I mean, any way to size just how much contribution there will still be to the model next year, I realize that, you know, you're winding it down. We're expecting about a 1% headwind from pneumatics year over year. Is that about right? Or could it be a little bit less, a little bit more than that?
We will still have some revenues in Q1 and Q2.
Speaker Change: Our site for Pneumodics in Ann Arbor will be definitely shut down.
Speaker Change: at the end of Q2, and therefore the way you should see it probably is no revenues anymore on Pneumodics in H2 of 2025.
Okay, thanks.
Speaker Change: We'll take our next question from Kasey Woodrink with J.P. Morgan.
Speaker Change: Great, thanks for sitting me on guys, appreciate it. One quick one maybe for Roland. So instrument revenue was down year on year, but was flat sequentially. Curious what you're embedding for instrument growth sequentially in 4Q, if you're baking in any sort of seasonal step-up or assuming kind of continued stabilization there. And then I have one follow.
Speaker Change: No, good question. We actually do believe that the fourth quarter in general will be slightly better sequentially in terms of instrumentation growth. Again, that is clearly one factor, particularly if you also have in mind that clearly there is a headwind also here from Norm ODX. So we see that particular, again, KIA-STAT, KIA-ACUITY and some others are going to help, being helpful on the instrumentation side. Nevertheless, overall it will stay negative, but better than the quarter before.
Speaker Change: That's helpful. And Thierry, maybe one for you. You know, you talked a little bit about your capabilities in liquid biopsy and have launched a number of new solutions there recently. Just curious how you're thinking about that application driving consumables growth here over time. And if there's really any way to quantify the liquid biopsy growth contribution here moving forward. Thank you. So the way I invite you to see Skyagen,
in liquid biopsy is one, that of a pioneer.
Speaker Change: Our penetration of the liquid biopsy market is not just 2024.
Speaker Change: And, again, as I said today, we are the only company fully mastering the three key technologies necessary to perform good liquid biopsies, CCFDNA, CTCs, exosomes.
And second, we are an enabler.
Speaker Change: It's using liquid biotin-based solutions by QIAGEN that big names on the market, the Gordon Health, the Natera, and many others in the world can perform their solutions.
And being an enabler is a very smart positioning because...
Speaker Change: More and more companies investing in liquid bioseed have to use your solutions.
Speaker Change: to downsides like change of coverage in reimbursement, so on and so forth.
Speaker Change: And this is where we want to insist in our position, being a top enabler.
of Liquid Biopsy Solution Providers.
mainly in oncology application but
You will see also, as we said in New York,
Our portfolio in Sample-Tech
Speaker Change: We'll invest beyond instrumentation also in much more added value consumable sample tech and mostly around liquid biopsy.
Speaker Change: because this is where we have value and we can also...
Speaker Change: generate quite high pricing as well. So that's the positioning that we want to take, that we are already leveraging from, but that we want to strengthen.
Speaker Change: Thierry Bernard, John Gilardi, Thierry Bernard, John Gilardi, Thierry Bernard, John Gilardi,
Speaker Change: Thank you. We'll take our last question from Andrew Brockman with William Blair.
Andrew Brockman: Hi guys, good afternoon. Thanks for taking the questions. Maybe just following the U.S. election earlier this week, you know, a key topic here has been just sort of tariffs broadly. So recognizing that QIAGEN is a sort of very global business, can you maybe just sort of level set us on how you're thinking about it and the exposure there?
Speaker Change: And then I guess bigger picture, any impact to the way you're sort of thinking about running the business in light of some of these potentially broad policy directions that we've been hearing about.
Speaker Change: Thank you, William. And we can also take this question, the two of us, obviously.
Speaker Change: The first thing I would say is that, as you said, we are a global company and one of the strengths in the company is that our geographic presence is extremely balanced between the U.S. but also Europe, emerging countries, so that's a strength.
Second, we believe that it's very far too early.
to take some statements.
Speaker Change: Obviously, we listened to the candidate's platform and we built our model.
Accordingly, we'll see what happens, it's a bit premature.
What is very clear as far as the U.S.
Speaker Change: is concerned. First of all, it is still, and by far, the main market for health care and for health care innovation in the world.
Speaker Change: But also with R&D and manufacturing is extremely important and there is no way we are going to change that. For the rest, we need to see and to look for the coming months and constantly adjust our policies and actions according to decisions that might be made. But that's what I would say at this stage. Roland, would you like to add some colors to that?
Roland Alludy: Along the lines, Hi Andrew, I do think it's very straight forward, right? First of all, as Thierry said, there's no details to leave and that clearly takes some time before that is going to happen. But nevertheless, some of the facts are clearly in the programs which were announced ahead of the elections.
Roland Alludy: And the ones which are probably more concrete are on the corporate tech side, and it's quite obvious, as Thierry said, we're serving around 50% of the revenues.
Roland Alludy: local sites in a couple of places in the U.S. There's clearly also a corporate tax liability for cohesion, so we have to see what that means. There's also a bigger question now, what happens to the whole Pillar 2 developments globally, because I'm quite sure that with President Trump, that agenda is going to change as well. And as you know, we were rather expecting.
Roland Alludy: a rising corporate tax rate in the midterm plan as well. So again, there's no final answer on that, but I do think that it becomes more questions.
Roland Alludy: Therefore, I would say if that is going to happen, that is something that is affecting companies globally in any direction, there you have to wait for the details.
Great. Thanks, guys.
Speaker Change: Okay, with that, I'd like to end the call and express our appreciation to all of you for your participation, and please do not hesitate to reach out to Dominica and me with any questions or comments, topics that you want to address. Thank you very much. Bye-bye.
Speaker Change: Thank you. Ladies and gentlemen, this concludes the conference call. Thank you for joining and have a pleasant day. Goodbye.