Qiagen N.V. (QGEN) Q1 2022 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. I am Elaine, your PGI call operator. Welcome, and thank you for joining QIAGEN's First Quarter 2022 Earnings Conference Call Webcast. [Operator Instructions] Please be advised that this call is being recorded at QIAGEN's request and will be made available on their Internet site. [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.

So thank you very much, and welcome all of you to our call. The speakers today are Thierry Bernard, our Chief Executive Officer; and Roland Sackers, our Chief Financial Officer. Also joining us today is Phoebe Loh from the IR team. Please note that this call is being webcast live and will be archived in the Investors section of our website at www.qiagen.com. Today, we will first have some remarks from Thierry and Roland and then move into the Q&A session. A presentation with details on our performance is available in the IR section of our website, along with the quarterly release that you saw earlier this week. We will not be showing slides during the call, but you have the slides from the website as a reference. Before we begin, let me cover as usual, our safe harbor statement. This conference call discussion and responses to your questions reflect the views of management as of today, April 28, 2022. We will be making statements, providing response to your questions and state our intentions, beliefs, expectations or predictions of the future. These constitute forward-looking statements for the purpose of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially from those projected. 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, and those are also available on our website. We will also be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. All references to EPS refer to diluted EPS. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release as well as the presentation. Again, these are both on our website. I'd like to now turn over the call to Thierry.

Thank you, John, and welcome to our conference call today and thank you once again to everyone for joining us. We are very pleased to report strong results in the first quarter of 2022, which exceeded our outlook and reflects a solid performance in our non-COVID products of 14%, CER growth. In this current environment, this once again demonstrates the resilience of the portfolio of QIAGEN and the strength of our company, as well as the relevance of our strategy. Against the dynamic global situation, we have taken a very proactive approach to shoring up our business. This has enabled us up to this point to effectively manage supply chains and keep production running to ensure delivery of our products. As the beginning of the year brought further economic uncertainty on a macro scale, our teams did an excellent job of staying focused. Something that we are very proud to highlight is the fact that upon Russia's invasion into Ukraine, QIAGENers all over the world banded together in support of Ukrainians, as our teams all over the world donated funds, clothing and food, and even opened their homes to those in need. During those unprecedented times, we see the true culture of QIAGEN with a dedication to taking care of one another, while remaining disciplined towards execution of our goals. For that, I really would like to thank all our teams for their unwavering commitment. Now allow me to move to our key messages for today. First of all, we exceeded the outlook set for net sales growth and adjusted EPS for Q1 2022. Net sales for the first quarter of 2022 grew 15% at constant exchange rates to $628 million over the same period in 2021. This was well above the outlook for at least 7% growth CER. Our non-COVID product sales continued to deliver solid growth at 14% CER, which was ahead of our expectations. COVID-19 related product sales were also better than expected, driven mainly by surges of Omicron outbreaks in Europe. Adjusted earnings per share in the first quarter grew to $0.83 CER, which was above the outlook for at least $0.72. Second key message. We had strong profitability and increased cash flow in the first quarter, which further reflects the strength of our business. Operating cash flow for the first quarter of 2022 rose 61% to $207 million, while free cash flow more than doubled to $178 million over the first quarter of 2021. Those results demonstrates our ability to support future growth through smart investments, while managing a rapidly changing cost environment. As a last message, we have increased our outlook for the full year 2022 as a result of our performance in the first quarter. Although we are in the time of international economic uncertainty, we feel optimistic that our strategy is robust and execution by our teams is on track. Therefore, we now expect sales of at least $2.12 billion for the full year 2022 to be mainly driven by double-digit CER growth coming from our non-COVID portfolio. And as for EPS, we now expect at least $2.14 CER for registered EPS. We remain focused on advancing our non-COVID product groups, and we are still taking a conservative view on COVID-19 testing demand for the year. Of course, as always, we will remain ready to support COVID testing as needed in case of any outbreaks in the future. We will provide more details on the outlook later in this call, and I would like now to hand over to Roland for our financial update.

Hello, and thank you as well for joining this call. As Thierry indicated, we had a very good start to the year and feel confident in delivering on the goals we have set for 2022. Let me begin by walking you through our sales and the results in more detail. For the first quarter, net sales grew 15% at constant exchange rates against a tough comparison to the first quarter of 2021. We saw a solid performance from our non-COVID product groups growing 14% CER. This represented growth widely spread across the portfolios and in an environment still impacted by the pandemic. In our COVID-19 product groups, testing demand in the first part of the quarter resulted in 18% CER growth in sales, when we were actually expecting a decline. Consumables and related revenues for the first quarter were up 17% CER over the same period in 2021 and represented 89% of sales. Instrument sales rose slightly at 2% CER, but this was against the highest level of quarterly instrument sales for '21 in the year ago period. The Q1 2022 level of $70 million of instrument sales at CER was, in fact, higher than the sales in any quarter of '21. Key drivers for this growth were record placements of QIAstat and NeuMoDx systems, along with solid trends for the QIAcuity, QIAsymphony, QIAcube and EZ2 Connect instruments. In terms of sales among the four product groups, let's start with Sample technologies. These sales rose 22% CER and were driven by high demand for the QIAprep& solutions for COVID-19 testing particular in Europe. Instrument sales growth at a low single-digit CER rate, supported by placements of the recently launched EZ2 Connect instrument as well as QIAsymphony and QIAcube Connect. Consumable sales for non-COVID product groups faced headwinds against very strong demand in Q1 '21, a period when many customers were returning to work after lockdowns and back orders were being reduced. We expect more favorable trends for this portfolio in the second quarter and the rest of the year. Sales in Diagnostic Solutions rose 21% CER for the first quarter of '22. The key driver was QuantiFERON, with sales rising 41% CER to USD 78 million with strong growth across all regions. Sales trends for QIAstat-Dx and NeuMoDx systems were in line with our full year expectations for these growth pillars, which are both still in the commercialization ramp-up phase. Our Precision Medicine business benefited from the resumption of many pharma R&D projects and revenues from companion diagnostic co-development projects were up 26% CER for the quarter. In the PCR/Nucleic acid amplification product group sales rose 1% CER for the first quarter of '22. Here, we saw a high single-digit CER decline in COVID product group sales that vastly overshadowed a double-digit CER increase in the non-COVID product groups. This product group was supported by sales of the QIAcuity, digital PCR system as well as OEM reagents used by other companies for their own products. Genomics/NGS sales were up 16% CER over the first quarter of '21 and led by a strong performance from the QIAGEN Digital Insight bioinformatics business. We also saw double-digit CER sales growth in universal consumables used on any next-generation sequencing platform for non-COVID applications. Moving to the regions. We saw good results in the EMEA region -- in the EMEA area with 24% CER growth. This was led by strong growth in a number of countries including Germany, Spain, the Netherlands and the United Kingdom. The Asia Pacific, Japan region also grew at a solid pace with 25% CER growth. And here, we saw China growing above 10% CER along with dynamic gains in Australia that was driven by instrument placements. In the Americas region, sales rose 4% CER against COVID headwinds from the first quarter of '21. The U.S. and Brazil delivered single-digit CER growth, supported by higher sales of both consumables and instruments, while sales in Mexico declined over the year ago period. Moving down to the income statement. The adjusted gross margin stood at 68.6% of sales in the first quarter of '22 and largely unchanged from the year ago period. This is despite absorbing costs in the first quarter of '22 for investments made last year to build up consumables production capacity, especially for QIAstat and NeuMoDx. R&D investments remained at a high level in terms of dollars, but declined as a percentage of sales to 7.4%, compared to 8.4% in the year ago quarter due to the strong sales growth. Our target rate is at least 8% to 9% of sales being invested into R&D and for a significant share to be in our five pillars of growth. At the same time, we gained further leverage in other operating expenses. Sales and marketing expenses declined to 18.9% of sales in the first quarter of '22 from 21% in the same period of '21. We are ramping up our digital customer engagement capabilities and building on the new habits that customer develop -- that customers developed during the pandemic and are showing signs of continuation. And as last point, general and administration expenses stood at 5.5% of sales in the '22 quarter compared to 6% in the year-ago period. Efficiency gains are being used to support investments in IT systems and cybersecurity. Based on these factors, adjusted operating income was 19% to USD 231.6 million and the adjusted operating income margin improved by about 10 basis points to a record 36.9% of sales. Adjusted EPS for the first quarter was again well above our outlook and was $0.83 CER versus outlook for at least $0.72 CER. Results at actual rates were $0.80 due to the stronger-than-expected currency headwinds. The adjusted tax rate was 19% and above the outlook we have given for a tax rate of about 17% to 18%. Turning to cash flow trends for the first quarter of '22, we saw dynamic performance in both, operating and free cash flow. Operating cash flow increased 61% to USD 207 million from $129 million in the first quarter of '21. This was driven our strong business expansion that led to higher net income and adjusted adjustments from noncash items. Operating cash flow include a decrease in operating assets and liabilities, primarily due to increased accounts receivable and inventories to meet the increase in demand and decreases in accrued and other liabilities and accounts payable. As for the free cash flow, we saw a 116% increase to USD 178 million in the first quarter of '22 from USD 82 million in the year ago period. This reflects a decrease of purchase of property, plant and equipment in the first quarter of '22 compared to the year ago period when additional investments were made to expand product capacity for key growth products at sites in Europe and in the United States. In terms of our balance sheet, our total long-term debt is $1.9 billion at the end of the first quarter of '22 and remains relatively unchanged from the balance sheet at the year-end. As of March 31, $469 million of this debt is due later this year, as a portion of both our U.S. and German private placement debt instruments will mature in October. While our total debt level remains in line with this end of '21, our net debt has decreased due to higher levels of cash, cash equivalents and short-term investments held at the end of this first quarter. The decrease in net debt, combined with higher adjusted EBITDA resulted into a leverage ratio at 0.7x at the end of the first quarter. Our continued solid cash flow performance, along with the value, we are creating in our portfolio through our investments into the business give us confidence, we are well positioned for waves of growth in the coming years. This allows us to continue exploring options for capital deployment, including bolt-on acquisitions, alignment with our goals to create greater value for shareholders and other stakeholders. Our ongoing commitment to increase returns to shareholders is evidenced through the share repurchase program completed last year in which we repurchased a total of 1.9 million shares for USD 100 million. I would like now to hand back to Thierry.

Thank you, Roland. And please, as usual, allow me to give you a quick update on our key portfolios. And here again, I would say that the key word is execution. In Sample technologies first, our new easy to connect system were launched at the end of 2021 as part of our program to upgrade our automated sample preparation instruments. With the launch of the latest consumable kit for extraction, of RNA from cells and tissue, the EZ2 Connect is covering a wide range of clear application and enhance our human identification solution, HID. The new workflow on the EZ2 along with the QIAcuity digital PCR instrument offers streamlined biomarker profiling from liquid biopsies and paraffin-embedded samples, enabling quantification of viruses, bacteria or other disorders, including rare cancer mutations. In Diagnostic Solutions, QuantiFERON-TB Gold Plus has reached a new milestone with over 100 million patients screened for latent TB. We anticipate the next few years to be a growth period from modern latent TB testing in emerging markets as the QIAreach TB test makes its way into high-burden, low-resources areas. Third, the QIAstat diagnostic rise, the new higher throughput version of the QIAstat diagnostic syndromic testing platform is on track for launch by midyear. As a reminder, this system features random access with capacity to hold up to 18 different tests and includes a new level of work away efficiency. This comes at the same time as we expand the menu for QIAstat diagnostic with the CE registration of the meningitis panel and submission for -- to the FDA for approval of the gastrointestinal panel at the end of 2021. In PCR/Nucleic acid amplification QIAcuity digital PCR is making good progress in expanding the application range for those systems. The recently launched Digital PCR microbial DNA detection assays, leverage the simplicity and precision of QIAcuity in the fast workflow for the rapidly growing area of microbial analysis. In genomics, we are building growth through partnerships, as we have signed an agreement with NHS England for a 2-year licensing contract for QIAGEN's bioinformatics solutions to support work in the 100,000 genomes project. Also, a new collaboration with Element Biosciences, partners leverage the flexibility of QIAGEN's universal NGS consumables with validation on the element AVT-sequencing system. This will include a complete workflow employing QIAGEN sample prep, custom-made assays and industry-leading bioinformatics solutions. So as you can see, we continue to make progress on our goals for targeted expansion of our portfolios as part of our strategy to drive sustainable growth in the coming years. And now back to Roland.

Let me provide some additional perspectives on the outlook for full year '22 and also for the second quarter. Based on the strong start to the year, we have increased our outlook for full year sales to now reach USD 2.12 billion at constant exchange rates. This outlook reaffirms our expectations for double-digit CER growth in the non-COVID product groups building on the 14% CER performance in the first quarter. However, we do continue to take a conservative view on the course of the pandemic and still expect a significant decline in sales from the '21 levels of USD 704 million in product groups used in COVID testing. An important amount of the sales for '22 have come in the first quarter. For the second half of the year, we expect these product groups to deliver sales in line with the 2019 run rate. Also taking into consideration how the current inflation and macroeconomic trends, this includes the adverse impact of anticipated loss sales in '22 from Russia, Ukraine and Belarus, which represented approximately 1% of net sales in '21. We are also taking a more cautious view on China due to the current lockdown situation. In terms of profitability, we now expect adjusted EPS of at least $2.14 at CER. This takes into consideration continued plans for investments into our portfolio and in particular, the five pillars of growth. It also takes into consideration some adverse impact on costs related to current inflation rates, which we are trying to offset with a second wave of price increases this summer. Based on exchange rates as of April 25, 2022, currency movements against U.S. dollar, our reporting currency are expected to create an adverse impact of about four percentage points on net sales and about $0.08 to $0.09 per share on adjusted EPS for full year '22. For the second quarter, net sales are expected to reach at least USD 510 million CER and adjusted diluted EPS is expected to be at least $0.46 at CER. Remember that we had onetime revenues of about USD 20 million in the second quarter of '21 related to the sale of genomic patents and technology licenses. We also expect currency headwinds in the second quarter against the U.S. dollar and for an adverse impact of about four to five percentage points on sales and about $0.02 to $0.03 on adjusted EPS. I would like to now hand back to Thierry.

Thank you, Roland. So let me provide you with a quick summary before we move into the Q&A session. First, our teams continue to deliver strong results this quarter with sales growth and adjusted EPS exceeded outlook. This was driven by solid growth in non-COVID product groups as well as higher-than-expected sales from COVID-related demand. Second, we maintain an attractive level of profitability as dynamic cash flow enabled us to continue to invest in our growth drivers and digital customer engagement platforms, while disciplined spending gave us leverage in our operating expenses. We are obviously proactively thinking about our capital deployment strategy including evaluation of bolt-on acquisitions. Third, we continue to advance our portfolio with the launch of key products and platforms to upgrade our instrument systems and broaden the menu of our growth drivers. And as a last point, we have increased our 2022 outlook for sales and EPS after a very strong and solid start of the year. We, therefore, confirm our commitment for double-digit growth of our non-COVID portfolio in 2022. Our performance in the first quarter set a solid stage for continued execution in an increasingly volatile environment while our proactive initiatives have helped us to build resilience into our business. All over the world, our teams of empowered QIAGENers are highly focused on delivering on our promises for future growth. We continue to believe in our focus on execution quarter after quarter from sales to project development. QIAGEN is more than ever well balanced between life science and molecular diagnostics, well balanced geographically and well balanced between our five pillars of growth and our core business. With that, I'd like to hand back to John and the operator for the Q&A session. Thanks a lot for your attention.

[Operator Instructions] We will take our first question today from Patrick Donnelly of Citi. Please go ahead.

Roland, maybe one for you on the margins, and I have a follow-up on some longer-term stuff. But on the margin side, pretty nice performance here. Can you just talk about the moving pieces? Obviously, cost inflation, wage inflation are big topics. You guys seem like you're passing price along pretty well to customers in this environment. Can you just talk about the levers there and expectations going forward? How we should think about particularly the gross margin piece going through the year here?

Yes. Thanks for the question. And yes, you have seen that we clearly had a good start in the year also in terms of profitability. And clearly, pricing was helpful for us. As you know, we typically do our regular price increase earlier in that period. I would say it got well accepted by our customers. But it's also clear that we -- while we were able to increase our guidance for the full year, we clearly also reflected some of the inflation driven costs, particularly on energy and logistics, which are at least partially affecting us as well and took care for that. So I do think we have reflected that as well. I think one of the benefits of being a strong brand and clearly recognized for the quality of the product is also that we do have pricing power and that we are in continuous discussion with our customers. So we have to see how it moves for the rest of the year. I do think what is also important to note is that overall, I think -- and you recall that from prior years, we have, I think, very well our hands around our overall cost structure. So we clearly are using some of the extra -- while we are able to increase our guidance, we're clearly also using some of the extra proceeds to reinvest into certain R&D and marketing activities to be, I would say, stronger and faster with some of the activities over the course of '22. And I think that is probably the framework we are in.

Okay. That's helpful. And then maybe just kind of a longer-term one. I know a lot of investors focus on kind of trying to break out ahead. Is it still, Thierry, the right way to think about kind of that core business growing somewhere 6%, 7%. And then that COVID piece, you obviously had the preexisting $150 million or so the rest of that may be declining pretty healthily next year and then kind of put those two together and you can kind of get to a 23% number. I'm just trying to think, again, the framework, the right way to think about as we work into next year. Again, you guys are a little unique in the fact that you had kind of a stable COVID revenue before COVID. So again, I'm just trying to kind of think about the core versus COVID and kind of that bridge as we work our way to the next couple of years here.

Patrick, I think we have given several indications over the recent years of what we were thinking about the coming years, without giving a formal midterm guidance. During this call, we also mentioned to start with the COVID that we expect basically in the second half of the year to have COVID business basically normalize to the growth that we had pre-COVID. Clearly, you remember that we always mentioned the $150 million base. Once we enter into a more normalized phase, I mean, this is going to grow at what it was growing pre-COVID, which is really in the low single digit. So this is for the question on the COVID comparison, pre-COVID and post-COVID. We always said since December 8 when we did the QIAGEN Day that four of our growth drivers were expected to have a double-digit growth. We always said that QuantiFERON, obviously, is not going to stay at those levels forever, but we always normalize QuantiFERON on, let's say, midterm basis around basically 12% to 13% growth rate. And we maintain that. We always say that, because they are basically new platform in dynamic markets, obviously, QIAcuity, QIAstat, and NeuMoDx, post headwinds of the COVID for QIAstat and NeuMoDx are double-digit also dimension. We always said also that Sample tech is a business that you could to grow to a low to -- from a low single digit to mid-single digit, depending on the new application that we can launch. So we confirm this. Something that I would like to highlight also today is that sometimes, I believe that when we talk about the five pillars of growth, some people are considering that what is not pillars of growth are not growing business. And we prove you again with those Q1 results that it's absolutely not the case. So to give you some details, we expect, for example, our companion diagnostic business to continue to grow at double digits. Our Universal NGS solution had a profile of double-digit growth before COVID. There is no reason that post-COVID, they go to single digit growth. And last but not least, I would insist again that our bioinformatic activities, what we call QIAGEN Digital Insights, in our assumption also continue to have a double-digit profile -- growth profile. Does it answer your question?

Yes, that was great, Thierry. I appreciate it.

We move to our next question from Dan Arias of Stifel. Please go ahead.

Two, if I may. Number one, Thierry, when you think about the outlook for QIAstat, what do you envision the mix looking like a few years out when it comes to the installed base for that system? And is $85 million still the right target for QIAstat in '22? And then number two for Roland. I just wanted to check in on the COVID-related margin assumption. I think at the end of last year, I believe the view is that absent the leverage that you'll get from the above-average volumes coming from COVID testing, the COVID testing revenues shouldn't actually come through the door and meeting different profitability level than the rest of the sales base. Is that still the view?

Thank you, Dan. So regarding QIAstat, yes, of course, as of today, we confirm obviously, the outlook for 2022. And to your broader question, I'm going to use the market share that we are targeting here. We continue to believe that syndromic market is a very dynamic market. We believe at QIAGEN that this market is already around $1.2 billion, $1.3 billion market. And our assumption at QIAGEN is that this market grows at around 15% a year. I highlight that some of our competitors are thinking that the market is already bigger, because they sometimes say $2 billion market, and they also sometimes say that according to them, the market is growing at 20%, but anyway, it's a dynamic market. We confirm that our ambition for QIAstat is to take at least a 10% market share of that market, clearly. And we have the number two ambition. So you know who is the number two at the moment. If I would tell you, we will be the number one, it will be completely aspirational, because we are basically behind BioFire, but taking the number two on the market is our clear ambition for the coming three years. It's difficult to tell you in terms of platform does -- what it means, but pre-COVID, on average, we had quarters between 250 and 300 placements per quarter. As we are going to continue to increase the menu, so you have seen meningitis now approved in Europe, we expect the approval of GI in the U.S. to come at the end of the year. And then we will obviously submit meningitis. So we expect meningitis to be approved next year in the U.S. That means that by 2023, let's say, around hopefully, quarter three of '23 then, you will have two regions in the world, Europe and the U.S. with a very decent menu already for syndromic platform, respiratory with or without COVID, meningitis, and GI. And we have also development, as we showed you, we are preparing our development for the pneumonia. We are also working on our direct identification of positive blood culture, and we confirm that we are also working on CAUTI. So if we execute on that menu, there should be no reason that basically quarter-after-quarter, we are around that level of platform that we -- per quarter that we had pre-COVID. That's in our assumption. Does it answer your question then?

It does. And then just, Roland, on the margins, if you could?

Sure. Yes, I think it's fair to say that we have actually a broad bandwidth on different margins on the COVID products and that the mix is sometimes even shifting quite a bit. So for example, in the first quarter, you clearly have seen that we had a good contribution overall from COVID from sample products, particular Prep&Amp, which I would say is probably a somewhat higher gross margin product. At the same time, we also had a good contribution from some of the OEM products within COVID, which have typically a significantly lower gross margin. So I think there is some fluctuation within that. I would say, in average, I would lean into that COVID probably has somewhat under average gross margin for us. But again, there is some volatility around that.

We now move to our next question from Derik De Bruin of Bank of America. Please go ahead.

So two questions. I think the first one is your 0.7x net leverage, and you've alluded to some potential use of cash for acquisitions. Can you sort of update us on your capital deployment outlook right now and sort of like the balance between share buybacks or doing incremental share buybacks and M&A and just anything in terms of the outlook on the market and potential augmentation to your portfolio?

Well, I can take the first part, and I would like also to point Roland to chime in also, especially on the balance between acquisitions, share buyback or other tools. I mean I think we said, Derik, during this call that the ambition is to create value for the shareholders, the shareholders and also stakeholders of the company. So we are obviously actively considering different tools. M&A is one of our focus at the moment, and we are strictly trying to execute on what we have told the market for the last two years. Priority is on bolt-on, but not only on bolt-on, on bolt-on that are really fitting into the core or the five pillars of growth for QIAGEN. In other words, do not expect us to come up with new technology even promising that could be considered the bolt-on acquisition and whereby we would also tell you, we would probably have to expand, I'm sorry, $100 million in OpEx or CapEx to bring it to the market. No, we want to focus on bolt-on that are rapid plug-in in our portfolio. We always said also, especially last year, when we were asked about bolt-on that we want also to pay the same price in the market, which is sometimes slightly overheated. So you can, therefore, think about either reinforcement about -- of our vertical strength, raw materials, components for assays. You can think about menu addition for some of our existing either core activities or pillars of growth. This is what we call directly actionable. And obviously, we are targeting acquisition that should benefit quickly from an accretion standpoint, QIAGEN. Now obviously, there are other tools. You have seen QIAGEN doing share buyback program in the past, and I would like to invite Roland also to give his point on the balance between M&A and share buybacks, all other tools. Roland?

Yes. Thanks, Thierry. I think once we -- of course, it's somewhat depending on the bolt-on acquisitions we are looking into is, of course, the size. Nevertheless, I would say, current planning assumes that we are most likely in a situation that we actually can do both. And therefore, a continuation of our, since 2012, capital allocation policies, doing bolt-on acquisitions and continuing with our share buyback policy. I think it worked out quite nicely over the last two years. In addition to that, just have in mind that we also have a large repayment in the second half of the year. I think it's around USD 470 million. So I think all that has to be seen together.

Did we answer your question, Derik?

Yes, you did. Thank you very much.

We move to Matt Sykes of Goldman Sachs for next question.

First one, just on NeuMoDx. You've talked in the past about the long-term potential of menu expansion, particularly in the U.S. on the longer-term side, but just can you kind of give us a reminder of what that menu expansion plan looks like and when we can expect to see some offset? I know the COVID revenue is rolling off at this point, but as that menu expansion starts coming through, when could we see some reacceleration for NeuMoDx specifically as we look through this year and maybe into next?

So rather than expansion, it's a geographic expansion of an existing menu, because sometimes I think that if we just speak about menu expansion, people are thinking that we need again to spend development money to expand the menu. No, what we need to spend is clinical affairs and clinical trials menu -- money, I'm sorry, to bring what is existing in Europe, which is 15 assays that are CE marked between blood-borne viruses, sexually transmitted diseases, respiratory issues to the U.S. And it's a mixed bag of 510(k) approvals and also FDA PMA approval. So we have always told the market that we believe, given the accessibility of clinical trials, given also the backlog, which is quite well known at the FDA at the moment, that those 15 assays of NeuMoDx should be approved at the FDA by the end of 2024. So of course, it gives us some years during which we will not always have the menu that we have in Europe. Does it mean that we cannot compete in the U.S.? Absolutely not. First of all, because every year, you will see new assays coming in. In Europe -- in the U.S., you have already obviously COVID. You have COVID on short plex, but also on single plex. You have also GBS. We are going to go to CT/NG. So every year, there will be something else. But in the U.S., one of the big relevance of NeuMoDx is that it is the only automated platform, which a laboratory can use at the same time in a random way regardless of the sample they are going to use, either regulated assays, FDA approved or what we call laboratory developed test. This is unique. There is no other platform on the market able to do that. And as you know, the U.S. are the main market for LDTs in the world. So we have two main strategy, obviously, in the U.S. First is to make sure that we can become attractive for those sites using LDT and move them to NeuMoDx, while at the same time, complete their LDT approach by respiratory panels, for example, like COVID, and by the menu that we have, like as I said before, GPA -- GBS, CT/NG and adding menu as we go. That's the strategy. And this is why also we told you very transparently last year that, because we are not able with a COVID headwind to wash out the COVID headwind with the rest of the menu in the U.S., this is why NeuMoDx numbers are lower this year than in 2021. We achieved $100 million revenues in 2021. We gave a guidance for $80 million plus in 2022. Once we have eliminated this COVID headwind in the U.S. essentially, once again, there is no reason why NeuMoDx shouldn't be growing at double digit and where we are -- and there is no reason why we shouldn't be taking more customers, both in Europe, in the U.S., but also in other geographies. This is exactly what we are seeing currently in Europe as we are moving NeuMoDx out of the COVID impact. Does it answer your question, Matt?

Yes. No, that was very helpful, Thierry. Just one more quick one. I know your newly raised guidance incorporates adverse impacts potentially from China and Ukraine. In regards to China, just wondering if you're also kind of baking in a recovery in China in the back half of the year, I think most expectations are that it's sort of focused on Q2, but just would love to hear how you're thinking about China for your business specifically over the course of this year.

We have different models for China. First of all, we anticipated what has happened, especially for the last four weeks, because we saw this coming via Hong Kong. So this is why we can show those numbers in Q1, because we anticipated by shipping over to China a bit more than usual. Our model to the new guidance assumes that this lockdown of some cities, because let's not forget, Matt, as you know that not all the cities are locked down in China. Beijing is working quite normally at the moment. Shanghai is not. And so our current model is thinking that this very strict lockdown of Shanghai is going to remain in place for four to six weeks. This is what is in our current forecast. If it remains long -- if it stays on longer, the impact on QIAGEN will be fully manageable. So we do not factor a specific bump up in Q4 at the moment, because clearly, there is absolutely not factor showing that this might happen. Now let's not forget also, Matt, that in China, QIAGEN has not only the presence with QIAGEN product, but you might remember that, we have also a second brand. The second brand, which is fully Chinese with dedicated salespeople, dedicated marketing people, dedicating activities. So this gives us another agility in this country. When it's a bit more difficult for the product of China, because either of lockdown or other activities, we have [indiscernible] as well. So this is why I believe that the Tier 1 guidance is factoring completely what could happen in China. If the lockdown continues a bit more, we do not believe that it's going to be a big impact, a material impact. We would find ways to compensate, but obviously, we leave that situation like you day by day. Everybody expects that the government is going to release a bit their policy, especially in some cities like Shanghai, because it's not sustainable for their local population and for their business either.

We take our next question from Dan Brennan of Cowen. Please go ahead. Your line is open.

Maybe the first question on the guidance, if you will. So you posted 14% CER growth in 1Q, ahead of your 7% guide. So I think it was like a $40 million CER beat and you raised the full year CER, I believe, by $50 million. So just wondering, is the upside in 1Q not sustainable for the rest of the year? Or are you just being conservative? Or is these other factors, namely China, Russia, Ukraine that is maybe mitigating some of the underlying base business guidance raise?

I think Roland has underlined in his presentation that Ukraine, Russia, both markets combined or Belarus for that matter, are not really material for QIAGEN. You have understood that we are talking about small numbers of less than 1% of our revenues are fully factored. We do not expect any activity in Russia or in Belarus for the rest of the year. The guidance factors, the new guidance factors, obviously the stronger quarter factors what and where we have visibility on. We are extremely satisfied by the fact that despite a very strong, at least in January and February, push and surge of COVID, our non-COVID portfolio performed so well. We always told you that this was the focus, pushing that portfolio at a double-digit growth. So our new guidance factors a better-than-expected non-COVID in Q1, visibility of what we see currently in Q2. And as Roland said, in the second half of the year, we do not take more assumption on the COVID business, clearly.

And just then for the numbers sake. You recall that we had $567 million in Q1 '21, adding a 7% guidance -- old guidance to that. And compared to the $654 million CER, we're having now is a $47 million, not $40 million.

Got it. Okay. Maybe second one would just be on QuantiFERON, really strong number accelerating on a 2-year stack basis. So as borders reopen, is low double digit the right way to think about the full year for that business? If you kind of said something about the full year guide, I missed it, I apologize, but just wondering how to think about the full year for QuantiFERON.

We even gave a number for QuantiFERON, what we want to achieve, and we are currently confirming these numbers, and it will be a double-digit growth in 2022, yes, clearly. Yes.

Right. But the strength that you're seeing here, is there conservatism baked in there? Just wondering if you can walk through a little bit about like what's implied in the back half of the year?

I see the best way to describe it, sorry.

No, please -- please go ahead, Roland.

I think, Dan, the best way to describe it, of course, as Thierry said, we guided earlier this year, a $310 million for QuantiFERON. We clearly had a strong start in the year. And as you said, we believe it's going to continue. Clearly, the comps getting a bit more difficult. Nevertheless, we are starting to believe that we are, I think, have a very good chance to make and probably to beat that number. Let's leave it there.

We take our next question from Casey Woodring of JPMorgan.

Can you talk about the low single-digit decline in non-COVID sample tech in the quarter? I know it was a tough comp, but just wondering if there's anything else there you'd call out maybe Omicron slowed down some customer lab activity. And then going back to Patrick's question on 2023. It looks like using the back half of 2022 run rate for '23, non-COVID consensus consolidated revenue growth next year is in the low double digits. So just wondering if that's the right way to think about things on the non-COVID side longer term?

On the first question, we can take this one, the two others. I can start with Sample tech, if you want. No, we clearly see the soft Q1, but it's clearly a harsh comparison as you highlighted, Casey with Q1. Last Q1 2021, that was the situation for the non-COVID Sample tech. We were coming out over very half '20. From a Covid perspective, customers were reallocating all their efforts into COVID, especially Q2, Q3. But some customers, obviously, starting Q4 started to say, guys, we need to come back into some non-COVID activities. We still need to have some oncology testing, some other infectious diseases. And therefore, in Q1 of last year, you had basically a pent-up demand for many customers in Sample tech non-COVID, DNA mainly and this is what you see here. I don't think that this is a trend. On the contrary, what I highlight is, remember last year, we highlighted many times that we were in more active growth in 2021 for Sample tech non-COVID than pre-COVID -- than pre-COVID 2019. So I believe it's going to be normalized in Q2, Q3, Q4 back to the normal classical growth of Sample tech.

And then just on 2023?

Yes. I think on 2023, I think on the non-COVID side, I think we always said that we rather believe -- first of all, we haven't given any official midterm guidance, but I do think as you see how we started in the year that we also reconfirmed today, also for the full year, double-digit non-COVID growth rate. We had significant placement numbers in the first quarter, particularly on QIAstat and also NeuMoDx and actually solid base numbers on the other instruments as well. So I do think we have a lot of reasons to believe that our non-COVID number should be higher than what you indicated before. We are feeling actually quite strong and, I would say, the Q1 is probably even accelerated some of these views as well.

Our last question today comes from Jack Meehan of Nephron Research. Please go ahead.

My question, I know it's only April, but I was hoping you could provide a little bit more perspective on the exit rate into 2023. Just looking at your back half kind of implied guidance is around $0.40 a quarter of EPS. Can you just talk about like the leaping off point, as we think about 2023? I know, again, it's early, but just any thoughts on puts and takes would be very helpful.

Probably some perspectives on that. Further all, I don't think it is $0.40 on average. If you do the math to what we have right now and what we guided for the second quarter, it's higher. But having said that, I do think -- I want to make two remarks here. One is first of all, what we said before, while we believe that we are COVID relevant, we do not want to be COVID dependent. What that means is that there is no incremental COVID revenues in our guidance for the third and fourth quarter, and other than what we had already in the run rate in 2019, which was pre-COVID. So let's see if that becomes true or not or if there's still some COVID-related revenues. Second, I think I also said in some of my prepared remarks that we clearly are also going to take some of the extra flexibility we are gaining this year. Again, we're able to increase the guidance in the first quarter, and let's see what we are able to do in the next few quarters. We are also taking some of the money and reinvest that in this year, particularly in R&D and some marketing activities. So I do think that should have a beneficial impact on both on midterm revenues and probably also on midterm cost structures, because you might get a lot of things initiated. I do think we have shown in the past that we have our hands quite well on our cost structure. So I don't think that you should look on the second half, you should look in the full year, if you look also what is the kind of a starting rate for next year.

Okay. Thank you, Roland. I think with that, we're going to end the call right on the hour. If you have any questions, please get back to Phoebe and me, and we really appreciate your participation in this call.

Thank you. Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation. You may now disconnect.