Ladies and gentlemen, thank you for standing by. I am Anna, your PGI call operator. Welcome, and thank you for joining QIAGEN's conference call to discuss the Q1 2019 results. [Operator Instructions]. At this time, I'd like to introduce your host, John Gilardi, Vice President of Corporate Communications and Investor Relations at QIAGEN. Please go ahead.

Thank you, Anna, and welcome to all of you to our conference call. The speakers today are Peer Schatz, the Chief Executive Officer of QIAGEN; Roland Sackers, the Chief Financial Officer. Also joining us today is Phoebe Loh, a new member of our IR team, who has deep experience in the genomic testing industry and has been with QIAGEN for the last five years in marketing roles. Please note that this call is being webcast live and will be archived on the Investor Relations section of our website at www.qiagen.com. A copy of the press release is also available on the same section. Before we begin, let me cover our safe harbor statement. The discussions and responses to your questions on this call reflect management's views as of today, Tuesday, May 7, 2019. We will be making statements and providing responses to your questions that state our intentions, beliefs, expectations or predictions of the future. 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 the reconciliation in these figures to GAAP in the press release and presentation for this call. As a last point, I'd like to remind you that we are planning to hold an Analyst and Investor Day on Thursday, June 20, in New York, and invitation has already been sent out. If you have any questions or comments about that event, please feel to contact Phoebe and me. I would like to now turn the call over to Peer.

Thank you, John, and thank you to all of you for joining us for this call. Our performance for the first quarter of 2019 was in line with our outlook for solid sales growth and continued improvements in profitability. We have made significant progress already in 2019 on advancing our portfolio of differentiated Sample to Insight solutions and are pushing ahead to ensure continually increasing delivery of value over the course of this year and beyond. Even though we are seeing some challenging macro trends especially in Europe and we have a lot to do in terms of execution on our growth opportunities, our teams are performing well and our strategic initiatives are well on track and we are reaffirming our outlook for the full year. We have these key messages for you today. First, we achieved the outlook we set for net sales growth and exceeded the target we had set for adjusted earnings per share. Net sales were $348.7 million in the first quarter of 2019, rising 6.1% at constant exchange rate, and this was solidly in the high end of our outlook we gave for 5% to 6% CER growth. Adjusted earnings per share were $0.27 on a reported basis and $0.28 at CER, and this exceeded the outlook we had set for $0.26 to $0.27 CER. The adjusted operating income margin remained steady at 22% of sales compared to the first quarter of 2018 and absorbed the significant investments we had to make in our portfolio, in particular, the development and commercialization initiative for QIAstat-Dx as well as other products. Second, we are making progress on developing our Sample to Insight portfolio, fueled by dynamic innovation in disruptive solutions. We have a set of differentiated growth drivers moving in the right direction and creating a broad…

Thank you, Peer. Good afternoon to those of you in Europe, and good morning to those of you in the U.S. Let's first review the financial results for the first quarter of 2019 and later provide you with our guidance for the second quarter and the full year. For the first quarter of 2019, net sales were solid 6.1% constant exchange rate, and this was solidly at the high end of our target for 5% to 6% CER growth. On a reported basis, net sales was 1.5% to USD 348.7 million, which included currency headwinds of 4.6 percentage points. This was higher than we anticipated for about 3 to 4 percentage points. You can find more information in the appendix to the presentation. In terms of growth components, the first time contributions from the launch of QIAstat-Dx provided about 1 percentage point of total CER sales growth. The rest of the portfolio provided 5 percentage points of CER sales growth, which absorbed a headwind of 1 percentage point from the divestment of our vet assay business in the spring of 2018 and the ongoing move away from third-party web news from instrument service contracts. So that means that total CER growth, excluding these two portfolio changes, was 7% CER. Moving down the income statement, the adjusted gross profit margin was 70% of sales in the first quarter of 2019, largely unchanged from the same period in 2018 as a favorable product mix towards higher margin consumables helped to absorb the launch investments into new products. QIAstat-Dx remains dilutive to gross margin at this time as we are building up capacity. Adjusted operating income was 1% to $77.9 million, which reflected ongoing efficiency gains in our prudent approach for cost management, while considering the investment in the launch of QIAstat-Dx for…

Thank you, Roland. On Slide 9, you have an overview of key developments in our Sample to Insight portfolio. In today's call, I would like to go into more details on the progress our teams have made in the areas of Precision Medicine, QuantiFERON-TB, our leading portfolio of molecular testing platforms, next-generation sequencing and new solutions we are developing in our offering of Differentiated Technologies. Our Precision Medicine franchise had an exciting start to the year with the U.S. regulatory approval of a new companion diagnostic, therascreen FGFR, and this is the first FDA approval for this biomarker. The therascreen FGFR test was improved as a companion diagnostic to help guide the use of Janssen's new therapy, BALVERSA, which is approved -- which was approved at the same time and is a novel therapy for use in patients with metastatic urothelial cancer. The therascreen FGFR test leverages a worldwide exclusive license from Columbia University. There's a high unmet need among patients who are looking for new treatment options with advanced metastatic bladder cancer. As part of our efforts to accelerate the adoption of our companion diagnostics and provide physicians and patients with faster access to novel drugs, the therascreen FGFR test was quickly released to our day one lab readiness program, which is a network of major labs partnering with QIAGEN and ready to ensure fast testing readiness for our companion diagnostics following their approvals. As you might have seen, we are pleased to welcome LabCorp for the day one network. Traditionally, due to the need for validation and commercial preparations at labs, testing using newly approved companion diagnostics was available often only months after their approval. With our new day one program, we can offer almost immediate availability, a true benefit for patients and our partners. I would now…

Thank you, Peer. I would like to first review our outlook for 2019, which we have reaffirmed and then provide some perspectives on the outlook for the second quarter. We continue to expect about 7% to 8% CER total net sales growth for 2019. We also continue to expect adjusted diluted EPS of about $1.45 to $1.47 at constant exchange rates. We are sharpening our focus on accelerating sales growth and combining it with operational and financial improvement and profitability. This takes into account a significant investment into our portfolio to support midterm growth, in particular, $0.03 of dilution for the development of our digital PCR platform. As we have mentioned before, QIAstat-Dx is expected to be neutral in terms of impact on the adjusted operating income margin in 2019, but this is based on dilution in the first half and accretion in the second half. As for currencies. Based on rates as of April 30, 2019, we now expect more severe headwinds of about 3 percentage points on sales for 2019. For adjusted EPS for the full year, we now expect the currency headwind of about $0.03 to $0.04. The main factors are the strengthening of the U.S. dollar against the euro and the Turkish lira and, to a lesser extent, against the Korean won. For the second quarter of 2019, our guidance for total net sales growth of about 5 percentage CER growth. This outlook takes into consideration the continuation of some adverse macro trends and also that we expect QuantiFERON-TB to grow at a mid-single-digit CER rate that is below the 15% CER plus growth corridor for 2019 due to the very challenging comparison to the strong second quarter of 2018 when we had the U.S. transition on the third generation to the fourth generation. It also takes into account our expectations for a sharp decline in revenues from co-development projects for companion diagnostics after significant gains in 2018 and also the ongoing adverse impact of reduced revenues from third-party instrument service contracts. These three factors combined are expected to create a headwind of at least 2 percentage points on CER sales growth in the second quarter of 2019. Adjusted EPS at constant exchange rate is expected to be about $0.33 to $0.34 per share, also at constant exchange rate. In terms of currency impact for the second quarter and, again, based on rates as of April 30, 2019, we expect a headwind of about 4 percentage points on the CER net sales guidance and about $0.01 on the adjusted EPS guidance at CER rates. With that, I would like to hand back to Peer.

Yes. Thank you, Roland. So here's a quick summary before we move into Q&A. Let me review what we have announced. First, we achieved our outlook for net sales growth in the first quarter of 2019 and exceeded the outlook for adjusted EPS and had reaffirmed our outlook for the year. Second, we are advancing our Sample to Insight portfolio across the continuum from basic research to routine clinical health care. We look forward to geographic expansion and new product launches during 2019 and beyond. Third, we see value in our shares and have announced plans for a new $100 million share repurchase program after completion of our current $200 million commitment. As a last point, we are reaffirming the outlook we have set for sales and adjusted earnings growth in 2019 at constant exchange rates. We are determined to execute on our strategy in 2019 and strengthen our position for even faster growth in 2020 and the coming years. With that, I'd like to hand back to John and the operator for the Q&A session. Thank you.

[Operator Instructions]. Our first question now comes from Patrick Donnelly from Goldman Sachs.

May be just first on the annual guidance. Clearly, baking in a pretty healthy ramp in the second half. I know you get a bigger contribution from STAT-Dx. But also baking in a pretty significant recovery in QuantiFERON from the mid-single-digit growth next quarter and, again, understand the comp dynamic there. But can you just talk through the back half revenue ramp, the moving pieces there? And then just your confidence level of visibility into that to make us feel a little more confident.

Sure. Roland, do you want to take that?

Sure. Yes, Patrick. Yes, I think as Peer has summarized it already quite nicely clearly as you recall that QIAstat-Dx is a big H2 event, $10 million for the first half of the year, $20 million for the second half of the year. In addition to that, we clearly as heard from Peer minutes ago that also the NeuMoDx launch is going quite well. And also here, of course, there's a large impact in the second half of the year than the first half of the year, again, also particularly in the fourth quarter. But also in QuantiFERON, if you do the math, we reconfirmed a 15-plus percent growth rate for the year, giving a mid-single-digit growth rate for the second quarter. That means, we are probably on a very strong path for the third and fourth quarter. But I think what we also said is and I think that is clearly a big driver for us as well is that's an underlying Life Science markets for us. Particular in Europe, we do believe that we probably have a better visibility in the midterm CER. That growth rate also in that area should improve. We have seen actually a good instrumentation growth sets in that area as well, which I probably see as a certain indication there as well. So it will be a combination of a couple of factors. Nevertheless, if you look at that and take out the newly acquired businesses, actually, we don't have any significant difference in the years before in terms of H1, H2 allocation. It is outside of this newly acquired business and portfolio changes that is something where we feel quite comfortable with in terms of allocation. Last but not least, have in mind that already the first quarter, if you adjust for the portfolio changes we had, we had a 7% underlying growth rate.

Our next question now comes from Tycho Peterson from JPMorgan.

I want to follow up on one of those points on the QuantiFERON ramp because it is a very steep ramp in the back half of the year. I think you have to do 20%, 25% to hit numbers. Can you maybe just talk at this point how many of your TB customers have converted to fourth gen? How much runway is left? What are you embedding for DiaSorin contributions in Europe? And as we think about the Quest Oxford situation, have you seen any change in pricing or any change in volume?

And probably before Peer goes in more details, just to quantify on the QuantiFERON side, a little bit from -- on the numbers side. So once again, have to have in mind, of course, what we said there's a transition last year, particularly in the second quarter into the fourth generation in the U.S. Of course, what it means is if it is a comparison broadened for us in the second quarter, it makes, of course, other side easier for us in the third and first quarter. So I think this is something what you have to have in mind as well.

And thanks, Tycho, for your questions. So first, I'd like to also just reinforce what Roland just said, pointing back to 2018 and previous years, it's not unusual for us to have 20-plus percent growth in this space. And the portfolio is really coming together very nicely, in particular, the new automation solutions are creating quite some excitement and the opportunity to actually have a second sales force that is supporting the penetration into accounts where we currently are not present yet is quite promising. Now the LIAISON's systems, there are 7,000 LIAISON systems out there and we've really only started now to market into those accounts. We've been marketing now for about six months in Europe and are expecting FDA approval sometime in 2019. And these are typically very core instruments, where a switch is not made within a few weeks. But this requires a certain validation and a certain also education around the benefits of these platforms. And the first customers are coming -- have come online, and we're seeing a very healthy pipeline of conversions over to the fully integrated automated solution. So this is going to be a trend that we're going to see over the next 3, 4 years in continued conversion. I'd like to highlight that we will always also keep a range of customers that are, for instance, doing monoculture screening for latent TB on the current automation systems. The benefits of the LIAISON just is very unique automation and also the availability to embed QuantiFERON in a broad menu of tests. And as we all know, a successful diagnostic has three legs: It has a superior clinical profile of the test, which we clearly have; and number two is good automation, which we now have in quite an impressive way, we think; and number three is it needs to be embedded in a complete menu of tests to ensure that there is a critical mass and good economics around having the platform that was also achieved by that. Last question was around a competitor and the dynamics that we haven't seen anything yet, we have a very strong partnership with Quest and see actually very healthy growth in that -- in the U.S. market overall, and obviously, we'll won't point out individual customers, but we are very pleased with the pickup in the U.S. market.

The next question today comes from Jack Meehan from Barclays.

Just had a few follow-ups on STAT-Dx. As you approach the U.S., at what point do you expect to earn a clear waiver? Can you talk about additionally where you're seeing adoption today just the mix of capital versus reagent rental? And just finally, how are you feeling about the competitive landscape in the U.S. just with some of the reimbursement debate that's going on at the moment?

Yes. Thanks, Jack. Well, yes, the QIAstat rollout is in the United States is really an extremely important event for us. So if we look at 2019, it is probably the most significant event for us that we currently foresee. The opportunity in the United States for syndromic testing, it's an $800 million market, but 80% of that -- 85% of that is the United States. So anything that happened outside the United States, more anecdotal and should give us some indications of our ability to succeed in the United States, the competitive environment ex U.S. is much more fragmented with more players. United States, it's more concentrated due to the higher regulatory hurdles. We, at the same time, are getting fantastic feedback on the benefits of the system in the ex U.S. market. We expect to translate those also into the U.S., have a very targeted launch program in place and are waiting and hopefully we'll receive in due time FDA clearance of a system that will allow us to start placements in anticipation of the respiratory season then later this year. And the clear waiver is something in -- is something we're going to go for. We have decided not to go for the parallel path as this was the first assay that we were taking forward. We decided to do this sequentially. But this is in the foreseeable future and we hope to receive it in the winter of 2019, '20.

The next question now comes from Doug Schenkel from Cowen.

We keep getting more questions from investors on guidance. So I apologize, but I just want to go back to that and hopefully just get a couple more answers that hopefully build confidence a bit and the logic behind the outlook for the second half ramp. So just going back to STAT-Dx, you need to grow core revenue 8% total for the business in the second half to get to the low end of full year guidance. Your guidance for STAT-Dx implies that you are expecting 2.5% of that 8% from STAT-Dx. So clearly, this is an important driver in the context of guidance. Recognizing all the helpful detail on why you're enthused about STAT-Dx that you provided in your prepared remarks, can you just provide a little more detail on how you can be so confident that you're going to get to $30 million for the year after only generating $3 million to $4 million in Q1 revenues, specifically I think it'd be helpful just to get a little more color on whether placement momentum that you talked about late in 2018 continued through the beginning of the year. So that's one question. The second is on NeuMoDx, which you noted as a driver to back half acceleration and by extension your ability to get to full year guidance. How much revenue are you expecting from NeuMoDx for the full year?

Roland, do you want to take that?

Yes, sure. As I assume normally it is quite clear that we expect here a mid- to a high-single-digit million dollar amount for the full year in terms of revenues, and I think there's even an up-cycle opportunity to that. And as Peer just said before, I think that's going as planned and feedback is good and placements are there. And as you know, it's a reagent rental story it was in. But given the placements we're seeing already in the first half so far, I think we feel quite happy about reaching that goal. On the QIAstat side, similar patents. We had clearly a significant placement numbers in 2018. I think it's fair to say that we also again had a significant placement numbers in 2019 and the consumables team is coming up as well. So I think both combined gives us, I would say, enough visibilty on instrumentation business. Of course, it is that you have also a pipeline which you cannot review and every quarter, of course, helps us also now getting a better understanding of our conversion rate. Nevertheless, it's also an important factor that if you need an U.S. approval and that we clearly have to get the U.S. approval to, again, drive some momentum in the U.S. So I think that is clearly a critical point for us. But I would say that is no news as well. Last but not least what you should have in mind is what we said also before. I think on QuantiFERON, the growth rate is coming in quite nicely. It's not unusual for us. And we clearly have seen a couple of quarters where the underlying Academia business was something which was not helpful. We see that improving. And have in mind, the thing that we haven't talked about it yet today, which is interesting by itself is that's the whole sequencing business is going from $145 million to $190 million business. For us, it was across the year. So it's a significant part of our growth as well, and I would say that is going as planned as well.

The next question comes from Scott Bardo from Berenberg.

Can you hear me okay?

Yes.

Perfect. Yes, I just wanted to flash out the last point actually roll in, Peer, with respect to the next-generation sequencing, which I think you're guiding for as being your single biggest growth driver this year. I think you mentioned comments of this broadly on track to achieving $190 million. Can you talk a little bit about whether this $50 million incremental step-up comes from, just what needs to happen to make that reality? And just as a follow-up, please, obviously a lot of focus on the core QuantiFERON franchise. Can you talk to a little bit what you're doing to broaden out that portfolio into other indications, please?

Yes, thank you. So good questions, Scott. The first time on the NGS side, as you know we -- that portfolio that we call out going from $140 million to $190 million in sales is primarily next-generation sequencing panels and library preparation solutions and to a smaller degree, the software and the other components that are directly linked with the next-generation sequencing application. And what I talked about very briefly in the prepared remarks is the launch of now fully integrated packages of the next-generation sequencing panel with the analytic and interpreted software. That's actually a big deal. So we see that as a further stimulus of the high growth rate, which is on the panels actually in the high double-digit and some cases even triple-digit range. So we're growing very, very rapidly in this space and taking share in $200 million, $250 million next-generation sequencing panel mark, which is growing quite rapidly. And this is one of the elements of that. In addition, we also are seeing success from the GeneReader portfolio. They actually had -- that portfolio had quite some success in the first quarter of this year, in particular, due to the launch of the new gene panels and the placements that we have now in this space are allowing us already to generate a meaningful revenue base and every additional assay is creating more opportunity for us. In terms of the QuantiFERON opportunity. I did mention that, so thanks for following up on that. As you know, we have two assays in Europe on the QuantiFERON franchise in addition to TB, which are CMV and the monitor test, and they continue to be supported and we will also, over time, port of those over to the LIAISON systems, which would be a very nice combination with the transplant capabilities that the LIAISON has on a de luminescence technology basis. So there is a deep pipeline of additional assays that we have on top of that. We are working on two others that we have not disclosed yet and that we will come forward with, but we are quite excited about that in terms of size, it is substantially larger than the transplantation markers. In addition to that, I'd like to call out that we're also working intensely around other assays related to TB, using the full range of our technologies. In other words, also molecular technologies. So QuantiFERON is both a strong focus on TB management, but also has applicability to other disease management and we are working on both axes.

The last question comes from Ross Muken from Evercore ISI.

It's Luke on. Just a real quick one on the -- you talked about the Academia and Applied down in Europe. Can you give us a sense of how Applied versus of the Academia did? I imagine Applied was probably offset some of the Academia weakness. And ultimately, what you guys have baked for Europe going into guidance?

Sure. I just maybe give some indications on the macro environment, and then Roland can give you the exact numbers. So the first quarter was actually an interesting one in terms of Academia in Europe. As we all know, one of the biggest countries in the European Union is Germany in terms of research, budget or is the biggest one. And there was tremendous uncertainty around funding for, in particular, DFG or some of the largest research pools. It was a very publicly held debate. And just in the last couple of days, we've seen confirmation that the healthy growth rates are expected to continue through 2023 and that was pretty good confirmation and that has to be formally passed, but we feel much more confident than we did a few months ago and so did our customers. The same is also true for the European Union, where we just saw the approval of the horizon budget or the framework, which is obviously a large research funding framework in Europe. And so it was a great to see the European Union that is obviously currently distracted with this whole Brexit discussion, actually pass such a major package, and that puts a lot more certainty now into the second half of the year and a couple of years to come. Roland?

Yes. And again also, Luke, thanks for bringing it up because it allows me to remind you also again on two things, which I want to point out. Have in mind that also the first quarter was the last quarter where we had headwinds from the vet business. Portfolio changed, so again, also one of the reasons why we believe again things getting a little bit easier for us in the second part of the year. And have in mind also on the instrumentation service, that it is also annualizing after the second quarter. So again, also, the headwind we're getting from third-party instrumentation service business is something what is more or less -- more helpful for us in the third and fourth quarter because we started seeing that impact in the third quarter last year. To answer your question, because of the portfolio change, of course, Applied Testing was a dilutive to Life Science in the first quarter. So overall Academia was slightly better than Applied Testing.

Okay. With that, I'd like to thank you, all of you, for your participation in the call today. Again, if you have any questions or comments, please don't hesitate to give us a call.

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