Ladies and gentlemen, thank you for standing by. I am Patrick Wright, your Chorus Call operator. Welcome and thank you for joining QIAGEN's Conference Call to discuss the Second Quarter 2017 Results. [Operator Instructions] At this time, I would like to introduce your host, John Gilardi, Vice President of Corporate Communications and Investor Relations at QIAGEN. Please go ahead, sir.

Yes. Thank you, Patrick. And we appreciate you all taking the time to join us on this conference call today. Our speakers are Peer Schatz, the Chief Executive Officer of QIAGEN; and Roland Sackers, the Chief Financial Officer. Also joining us is Dr. Sarah Fakih from our IR team. And so first one, I want to thank you for your understanding and patience on the early release on Thursday of our results. I wish there was a better reason than the IT issues we had, but at least the results are really good and, again, we appreciate your understanding and patience. On Slide 2, you’ll see the Safe Harbor statement explaining that the discussion and responses to your questions on this call reflect management’s views as of today, Friday, July 28, 2017. We will be making statements providing responses to your questions that state our intentions, beliefs, expectations, or predictions of the future and these constitute forward-looking statements for the purpose of the Safe Harbor provisions. These statements involve risks and uncertainties that could cause actual results to differ materially from those projected. QIAGEN disclaims any intention or obligation to revise any forward-looking statements. For more information, please refer to our filings with the U.S. Securities and Exchange Commission. We will also be referring to certain financial measures not prepared in accordance with Generally Accepted Accounting Principles. You can find a reconciliation of these figures to GAAP in the press release and in the presentation for this call. With that, I’d like to now hand over to Peer.

Yes. Thank you, John. And to all participants, I would like to welcome you to this conference call. QIAGEN’s performance for the second quarter of 2017 is further confirmation of our confidence in achieving the full-year goals that we set for a robust sales growth, and double-digit increase in adjusted earnings per share. The results for that first half of the year also provide support for our ambitions for faster sales growth, double-digit earnings gains and increased cash flow through to 2020. We are determined now more than ever to capitalize on our competitive advantages and greater value from our portfolio of Sample to Insight solutions for molecular testing. So, I have three key messages for you today. First, we exceeded the financial targets set for the second quarter. Adjusted net sales rose 7% at constant exchange rates and this was ahead of our outlook of 5% to 6% CER growth. While adjusted earnings were $0.30 per share CER, when excluding the restructuring charge, and this was ahead of our outlook for $0.28 to $0.29 CER. Second, we’re capturing growth opportunities across our Sample to Insight portfolio. We see 2017 as an important step towards achieving the midterm goals that we have set for generating a 7% to 9% CER compound annual growth rate in sales from 2016 to 2020, and compound annual growth in adjusted earnings per share of 12% CER or faster over the same period. These results give us confidence in achieving the midterm goals, as the strength of QIAGEN’s differentiated portfolio is becoming more and more evident. Among the most important areas, the QuantiFERON latent TB test showed dynamic sales gains, and we are on track for more than 25% CER sales growth for the full-year. We are also very pleased with the customer demand for…

Thank you, Peer. Good afternoon, to those of you in Europe, and good morning, to those of you in the U.S. I will review our financial performance for the second quarter and the first half of 2017 and later provide you with more details in our guidance for the third quarter and the update for the full year. QIAGEN delivered a robust results in the second quarter and we exceeded the target we had set for adjusted net sales and adjusted earnings per share. For the second quarter of 2017, the adjusted net sales were $349.6 million representing an increase of 7% at constant exchange rates and we were up 5% at the actual rate due to 2 percentage points of currency headwinds. As we noted with the first quarter results, we are referring to adjusted net sales due to the acquisition of OmicSoft, and this is in line with how we have presented bioinformatics use in the past to fully reflect the revenue contributions. Despite the disadvantage of less working days in the second quarter, a solid four percentage points of total CER, adjusted net sales growth came from organic business expansion. This was complemented by another key point that came mainly from the acquisition of Exiqon, which was acquired in June 2016 and to a much lesser degree on the acquisition of OmicSoft, January of this year. I want to also note here, that these results show the strength and differentiation of our portfolio, given the absent of headwinds from U.S. HPD test fails in the second quarter. We continue to expect about one point of overall headwinds for the year. And some pressure in the second half of the year. Moving down the income statement. The adjusted gross margin was 70.6% of sales excluding restructuring charge which…

Yes, thank you, Roland. And now on Slide 9. To give you an overview of key developments of our sample to Insight portfolio during the second quarter. I will go into more detail on specific progress for QuantiFERON-TB, our next generation sequencing offering and personalized healthcare over the next few slides. I would like to briefly touch here on QIAsymphony and Differentiated Technologies both of which are continuing to drive growth very well. As already said, QIAsymphony maintained momentum in placements during the second quarter, and we are very confident that we will exceed our target for more than 2,000 accumulative placements at the end of this year. Consumables are growing at a double-digit rate. And we keep adding value to the QIAsymphony system by broadening the test menu, including two additional test recently approved by the FDA, in particular, JAK2 assay for use in blood cancer. Differentiated Technologies, provide a broad portfolio of kits with unique capabilities to prepare and analyze samples from molecular testing, especially in emerging and challenging fields. For example, we are seeing a tremendous success with our gold standard liquid biopsy solutions. And about 20% of our new powered portfolio for the often extremely challenging samples used in studying the microbiome. And now, let me review the progress on those first three growth drivers in further detail. And now, Slide 10, to update you on developments for QuantiFERON-TB, the market-leading blood test for detecting latent tuberculosis infection. QuantiFERON-TB continued to deliver strong sales momentum during the second quarter of 2017, trending above the 25% annual growth rate target we have set for the year. We are executing on the opportunity of this approximately $1 billion market potential based on the substantial clinical benefits of the QuantiFERON-TB test, which we are driving at a very strong…

Thank you, Peer. As mentioned earlier, we have upgraded our full-year outlook for adjusted net sales growth to 7% CER and this compared to the earlier outlook for 6% to 7% CER growth. The change underscores how we are confident in achieving our goals for 2017. This is based on about 5 to 6 percentage points of solid organic growth and about 1 to 2 percentage points of sales from acquisition. Dilution from acquisitions is a number that could go on up to 2 or down to 1 point. For adjusted EPS, we are keeping the outlook at about $1.25 to $1.27 per share for adjusted EPS excluding the restructuring charge and, again, also at constant exchange rates. This represents a significant increase to the underlying $1.11 per share in 2016 and set a foundation for ongoing solid growth in the coming years in line with our goal for at least 12% CER as a compound annual growth from 2016 to 2020. This outlook include some initial benefits from the efficiency initiative that started in 2016, and also about $0.03 of accretion from the commitment to withdraw $300 million by the end of this year. This full-year guidance is also based on an ongoing expectation for a 17% to 18% adjusted tax rate. Furthermore, this result exclude our current expectations for about $20 million of restructuring charges on a pre-tax basis for the full-year that will be included in adjusted result or about $0.07 on an after tax basis. In terms of currency impact, based on the rate as of July 21, we now expect up to about 1 percentage point of pressure on full-year CER sales growth and about $0.02 per share on the full-year adjusted EPS outlook at CER rate. And now, on Slide 14. And here you…

Thank you, Roland. I’d now like to provide a quick summary before we move in to Q&A. Let me review what we have announced. First, our performance for the second quarter is further confirmation of our confidence in achieving our full year goals for strong gains in sales and adjusted earnings. Second, we are capturing growth opportunities across our Sample to Insight portfolio. We are moving ahead on our strategy to maximize our competitive advantages as a differentiated leader of molecular testing, supporting customers along the continuum from basic research to clinical healthcare. And as a last point, we’re updating our full-year guidance for 2017 based on the solid performance in the first half of the year. We are determined to achieve our goals for strong growth in sales and adjusted earnings for this year complemented by our commitment to value-creation for shareholders and disciplined capital allocation through completion of our commitment to return $300 million by the end of this year. And with that, I’d like to hand back to the operator for the Q&A session. Thank you.

[Operator Instructions] And our first question today comes from the line of Steve Beuchaw of Morgan Stanley. Please go ahead.

Peer, I'm sure there’ll be a lot of good questions in the Q&A about sequencing and diagnostics and pharma. So, I want to ask about something that maybe doesn’t get as much attention normally and it’s the Applied business. When I think back to the Analyst Meeting, you guys called out Applied as a double-digit growth driver and at the time, I thought it was the most surprising thing I saw in the Analyst Day presentation, and here you are, you are delivering some very good growth in Applied. Can you remind us about the case for the acceleration. What it is you’re doing differently this year versus last year. And can you just frame up for us again the case for the strong sustainable growth and considering that beyond 2017 the comps will be just a little bit tougher? And then for Roland, just a couple clarification. I wonder if you could – given the restructuring charges in the first half of the year frame up for how you’re thinking about free cash flow for this year, I think excluding the restructuring, we’re looking at something like 19%, 20% through the first half. Is that a reasonable bar for the full year? And then, any chance you’ve made an attempt to think about what the impact of Easter was that was quantitatively on the quarter? Thanks so much.

So, to the first question, yes, the Applied business is definitely very attractive and it is, as we all know, 7% to 8% of our sales, but we’ve seen very good double-digit growth rate in the last few years. We’ve seen some weaknesses in the instrumentation portfolio where there was some volatility from quarter-to-quarter. But, in general, the consumables are on a very good double-digit growth pace and it really has to do with the fact we break down the Applied business more than the majority of that business is forensics. We also have a veterinary testing and the food testing business which are the bulk of the remainder. In the forensic area, we have an extremely strong position in sample processing and almost every laboratory around the world is basically using our product for a case for example that you read about in papers where difficult to process samples are being looked at for forensic evidence. But what we announced a couple of years ago that kind of got lost a little bit in the noise was that we entered the market for the assays and these are typically PCR assays that are quite challenging to create and are extremely sensitive that detects certain STR, short tandem repeat areas within our genome, and it create profiles or fingerprints for forensic evidence. This is a marquee we hadn’t been in, in the U.S. prior to 2015 and in Europe prior to 2012 and we entered those areas. And this is a much larger market than the pure sample processing areas. So, we’re gaining a lot of share in this market and moving forward quite aggressively, also to create these more complete solutions with sample technologies and assay technologies being integrated. So, there’s a very good trajectory ahead of us there. We’ve really only just started. Roland, do you want to take the second one?

Two questions, on the working differential second quarter 2017 to 2016 would have given QIAGEN somewhere between 100 bps and 150 bps more growth on the overall corporate level, again, if you would have the same kind of working days. So, I think, this quarter was, therefore, one of the quarters we’re having a mega difference. And, therefore, I think it’s a good question to raise. So, again, it would be somewhere between 100 bps and 150 bps more growth in the second quarter. It would have the same number of working days, like last year. On the free cash flow side. As I said, I think, we had a good start into the year, especially having a margin that’s roughly around $30 million one-off cost, a cost on expenses of our cash-outs in the first half of 2017. As you have seen, we clearly now finalized by far the majority of all of our activities on restructuring. And therefore, again, P&L-wise, we shouldn’t expect larger payout for the rest of the year but of course, some of the things that occurred in the second quarter. So, in terms of cash out, I would probably expect another probably $20-plus million one-off cost, again, paid out H2 related to restructuring cost. Excluding that effect, I would say, we will see a similar increase as we have seen in the first quarter and therefore I think this is very well on track in terms of overall cash flow generation.

Our next question comes from the line of Tycho Peterson of JPMorgan. Please go ahead.

Peer, just starting I guess off of Bristol, wondering if you can provide any color just in terms of the financial structure, milestone piece and just maybe what the pipeline looks like for other similar deals and any risk, I guess to that market given what we saw out of Astra yesterday. And then for the follow-up, just wondering if you could comment on HPV, U.S. is better with the expected obviously international balance. So, just wondering if you can comment on that and expectations for the rest of the year.

So, the collaboration we have with Bristol-Myers, without going into details, follows pretty much the standard template that we apply where we have some funding for the development expenses that we together incurred over the development period, which is two- to three-year period. And this basically compensate us for our development expenses with an opportunity cost margin. But the goal is really to create assay sales and we’re heavily focused on that. We see the assay in particular with the new IP that we created and acquired as quite intriguing. And so, the - falls into the mold. We don’t believe in big payments for development reimbursement. We believe in an generating assay that will create high volume and we think we have a pretty good shot at it. Now, obviously, there was some volatility in the I-O market yesterday due to – obviously, you all saw the MYSTIC trial results. I think this shouldn’t be interpreted as a severe dent into I-O overall. It is definitely a trend that is showing massive in broad-based support, and we’re going to continue to see challenges and at the same time breakthroughs with I-O drugs. I think we all agree to that and we have I think a very unique cornerstone asset there. What I mentioned very briefly is that many of these drugs will also be combined with targeted therapies and that’s where our targeted and mutation panels kick in very nicely because you can, with the experience that we have and also the portfolio we have, you can combine the I-O selection and monitoring assays with the targeted assays that we, to a good degree, already have on board today. So, I wouldn’t expect a big financial impact over the development period but we’re getting a lot of interest in this portfolio based on the capabilities we’ve announced and I would be surprised if we don’t see more similar announcements going forward. U.S. HPV, yes, good catch. Quite surprising, I think, it’s the first time in five years that we actually saw slight grow in North American HPV and I read a lot of commentary but what is interesting to note is that we have a very strong position in the U.S. based on superior clinical profile, the product which still is the case, and very clearly demonstrated by clinical studies and this is recognized and we know seem to have reached the position where we’re not far away from this absolute bottom. And it’s pretty clear what we expect now for the years going forward. There’s still some impact in the second half of the year. So, it’s an important product for us and very widely available. We had volatility in sales ex-U.S., but that was explained by Roland due to the tender timing. It could very well be that HPV turns into a gross story and a growth contributor going forward.

Our next question comes from the line of Bill Quirk of Piper Jaffray. Please go ahead.

Couple of questions from me. First off, Roland, just thinking about the earnings guidance. You’re going to put a $0.01 upside in both the first and the second quarter. Is it simply the share count that what’s holding you back and bumping up earnings to this point?

I would say right now, looking at this - it's clearly that it's a nice explanation in terms of growth price, revenue growth rate in the second part of CER but we also given a range in terms of EPS guidance. So, I think we feel quite comfortable when we present that range and I think the third quarter and probably we’ll see if we can increase it for the rest of the year. Right now, I don’t think it make any sense for us going ahead of ourselves. We see a quite significant efficiency gain coming out, we have seen I would say a significant jump in operating margin in the second quarter and was again, be able to deliver on these every quarter.

And then, a question for Peer, just on GeneReader maybe can you just elaborate a little bit about some of the customer profiles here? I don’t know if we’re at a point where we can quantify the contribution, but certainly any additional color will be most welcome. Thank you. Just secondly, perhaps…

So, we basically have customers across the whole scope of different customers in clinical research and pathology. And this is different throughput ranges. We have customers running thousands of panels a year. We have customers doing a couple of hundred and so, we’ve seen many different types of customers. What is interesting to note is that we also have customers from around the world. There has been a great success also with the global dissemination of the GeneReader. And the contribution is, let’s say, we measure more internally how well are we doing in the area of clinical research and pathology and how rapidly is that segment growing. This is a sizeable nine-digit segment for us and we’re seeing this starting to contribute to growth. And, going forward, there’s obviously a lot more in the pipeline.

Our next question comes from the line of Vijay Kumar of Evercore ISI. Please go ahead.

So, maybe a couple of questions on the guidance, Roland. Yeah. Obviously, stock is up. We’ve been getting a bunch of questions. If I go back, so the guidance was raised CER, right? It looks like M&A was raised slightly. And the questions I’m getting is, what’s the organic? I know the midpoint was maintained. What’s the high end of the organic? Was it down? Can you just address that, Roland?

It’s a good question because, I think, just to make it crystal clear, we also expect an increase compared to the guidance given for the – more or less for the full year now in terms of organic growth rate. It’s the difference was averting it slightly changed. It's just surrounding because it was also brought some contributions, let’s say, around 1.3. And now, there’s an opportunity that it’s a going to be somewhere between 1.3 and 1.5 [indiscernible] and the major and the larger contribution and acceleration. And therefore, also the guidance change and update is because we see a good growth rate in some of our growth drivers. Again, we talked about other suites organically.

Next question comes from the line of Jack Meehan of Barclays. Please go ahead.

Want to start with QuantiFERON. Could you give us an update just in terms of the rate of tender activity you’re seeing for the assay. And then second, as you think about the rollout of the fourth generation test in the U.S. toward the end of the year, are there any inventory issues that we should be thinking about? Obviously, a really strong start to the year, but are there any timing issues we should be thinking about at the end of the year? Thanks.

Good questions. So, the last one first. The transition from the third generation to the fourth generation was already experienced in 2016 in Europe. So, you hardly saw a blip there. I think we have had a very good – well, we gained a lot of experience and also performed very nicely in Europe already then in transitioning and upgrading into the 4G product. So, I wouldn’t expect a lot of volatility. We have to talk obviously to larger customers how they are planning to do this, but we want to make it as seamless as possible. Now, the tender activity in QuantiFERON is currently less than 10% or is around 10% of the volume and primarily based on some larger tenders that are, in many cases, just starting to kick in now in the second half of the year. So, the majority of the purchases in QuantiFERON are actually just standard purchases based on volume contract, multiyear contract.

Next question comes from the line of Gunnar Romer of Deutsche Bank. Please go ahead.

Gunnar Romer, Deutsche Bank. Thanks for taking my questions. The first one would be on HPV international. I think you saw some weakness in the second quarter, I was wondering whether you can provide us with an outlook for the full year? And also, how that feeds into your outlook for the molecular diagnostics customer class, how we should be thinking about a potential acceleration during the second half? And then, second question will be on the expected margin trends in the second half because, I believe, your guidance implies about a flattish margin in the second half, coming substantial improvement in the first half. I obviously appreciate that comps are getting tougher but if you could just outline what your assumptions are behind margin development in the second half, that would be great. Thank you.

Thanks, Gunnar. So, HPV international definitely was more volatile this year than what we’ve previously seen. It’s going a little bit, went down. We probably had it down a quarter now this quarter. We expect to see some lumpiness now in the second half of the year. We are continuing to sign up new large-scale contracts, the timing is probably going to be more skewed into later in this year and into 2018. So, there’s a little bit of gap now in the third quarter as one run out earlier this year, that we had in the third quarter of last year. So, that is being adjusted for already in the guidance that Roland gave previously. Roland?

And in terms of margins, I think, it’s perfectly to say that we clearly expect out an expiration dropped off, adjusted EBIT margins over the third and fourth quarter. If you look at the third quarter, I would think, that the EBIT adjusted margin north of 26% is some toward at the end of day. But you can always do a calculation back to it given from our EPS guidance and for the fourth quarter, of course, it’s clearly about 30% adjusted EBITDA as well. So, I would say, it’s clearly now moving in the right direction. And at the end of the year, we again - I don’t know if you had seen a nice margin improvement on a full-year basis, probably more than 200 basis points. But again, it depends a little bit on where currency is placed out. That is something - again [indiscernible] since we’re now, where we have to watch when this is final fulfill, yeah.

Our next question comes from the line of Doug Schenkel of Cowen. Please go ahead.

I want to touch quickly on HPV again. Ask a quick question on each on bioinformatics and then ask a question on Bristol. First, on HPV, I was surprised to hear you positioned HPV as a potential growth [Technical Difficulty] seems that U.S. HPV comes under pressure again in the second half. I just want to make sure that I have that correct? The second thing is on bioinformatics. We haven’t heard about bioinformatics in a while other than really OmicSoft. Can you provide an update specific to what do you expect the revenue to be this year and what is the organic growth in this category excluding contributions from OmicSoft? And then, on Bristol, I’m just curious is this an exclusive agreement? Could you comment on that? Thank you.

So, the first question was on HPV, and there, what - the word - growth driver is a strong one and it’s usually accretive to our overall growth. Now, what I was trying to say is that, we have seen the U.S. pretty much bottoming out or near bottoming out and what we are seeing now is more a larger percentage of sales, a solid position in the U.S. and a larger position ex-U.S. where product has significant workflow advantages and also performance benefit over competition and that we are seeing ex-U.S. are clearly more tender activities. And that’s why we have the volatility. So, when I'm talking about HPV on a multiyear basis, we believe that this is a solid revenue portion within the QIAGEN portfolio that also will give us strategic opportunity to expand from. The second question on bioinformatics, we had a lot of activity and the customers received a lot of updates on new features and new products, and obviously we just then put everything into press releases, but the franchise is one that we expect to be double digit grower from here to 2020 as a CAGR and that’s what we announced last year end and talked about last year and that’s what we continue to expect. We’re actually pleased with the performance in the first half of the year. We will probably see some further interesting updates in the second half of the year and this area and continue. We’re just seeing this as a much more integral part of our portfolio. The agreement with BMS has certain features of exclusivity because, clearly, we have some exclusive content, but look it’s not here. If you’re a pharma company and you’re partnering up, I don’t think you partner up to drugs with multiple part. It is just part who – hardly ever seen that and the soon to be 15 years now in companion diagnostics is extremely difficult to be able to process that and integrate multiple parties into this clinical program. So, there might be at some point, the multiple solutions for this in the market that’s in early days, but we are – we’re seeing a great commitment on the side of BMS and our parties to work with us going forward. So, there’s a certain degree of legal exclusivity but more importantly I think we’re just – we believe ahead of anybody and are moving very quickly in the space.

Our next question comes from the line of Derik de Bruin of Bank of America Merrill Lynch. Please go ahead.

So, first off, I was noticing in your appendix and looking at those and so your marketing expenses were down 12% year-on-year on the quarter. Just a little bit more about what you’re doing in terms of your marketing budgets and what’s sort of driving that. Have you changed the way that you’re approaching? And then another question would be on the instrument numbers. Could you talk about – are you seeing that the flow in the instruments being a little bit sluggish? Is that more academic or is that more diagnostic labs? And thanks.

Thanks, Derik. As we said in the second quarter, I think it’s a combination of different things. We have seen very good uptake in some of the strategic instrumentation areas such as QIAsymphony and GeneReader. The pushes are very strong there and being executed well. We saw somewhat poor execution on the instrument funnels across the broader instrumentation portfolio, and this is something that we set out to improve and something you typically can improve within three to four months. We had massive pushes on QIAsymphony and GeneReader, in particular, in 2016. And so, that led to a little bit of dryer pipeline early in to this year that you saw in the numbers. So, we’re confident this is not rocket science and very logical. It’s probably the right thing to focus on but now, seeing the pipeline fill up for the second half of the year. And my hope is that we will be able to see better instrumentation growth numbers in the second half.

And our next question comes from the line of Hugo Solvet of Bryan Garnier. Please go ahead.

One on Asia Pacific which grew in Q2. Could you just comment on the different dynamics you see in the region particularly in China. And could you also give us an update on QuantiFERON in the country please.

Thanks for the question. The dynamic is very, very different across Asia Pacific and we saw a rather sluggish market as I think everybody is seeing in Japan, and at the same time, stellar growth in countries like Korean and Taiwan. And in China, we saw the brand portfolio pretty much in line performance with double digit growth and also across all customer classes. And QuantiFERON is also contributing to a very strong growth across Asia and we are moving very aggressively in that area, converting the market, but also clearly seeing the competitive advantages due to higher sales. We think we can do it better in particular in Asia Pac and in China going forward, and particular now with the portfolio. I also like to point to the strategic and important collaboration we have with Maccura that we announced earlier this year. We are moving very aggressively on building next generation sequencing strategy and execution in China, together with what is an extremely entrepreneurial and fast moving and very strong partner. So, this is moving very well as well. So, we are looking quite confident into the future.

Okay. With that Peer, I would like to close the conference call here and thank everyone for their time. If you have any questions or comments, please do not hesitate to give Sarah and me a call. Thank you very much.

Ladies and gentlemen, this concludes the conference call. Thank you for joining. Have a pleasant day. Goodbye.