Ladies and gentlemen, thank you for standing by. I am Perry, your PGI call operator. Welcome, and thank you for joining QIAGEN's Q3 2022 Earnings Conference Call Webcast. At this time, all participants are in a listen-only mode. Please be advised that this call is being recorded at QIAGEN's request and will be made available on their Internet site. The prepared remarks will be followed by a question-and-answer session. [Operator Instructions] At this time, I'd like to introduce your host, John Gilardi, Vice President, Head of Corporate Communications and Investor Relations at QIAGEN. Please go ahead, sir.

Thank you, operator, and welcome to our call. The speakers today are Thierry Bernard, our Chief Executive Officer; and Roland Sackers, our Chief Financial Officer. Also joining us is Phoebe Loh from the Investor Relations team. Please note that this call is being webcast live and will be archived on the Investors section of our website at www.qiagen.com. Today, we'll first have some remarks from Thierry Bernard 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. We will not be showing the slides during this call. 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, November 8, 2022. 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 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 intentions or obligations to revise any forward-looking statements. For more information, please refer to our filings with the U.S. Securities and Exchange Commission, which are also available on our website. We will also be referring today to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. All references to EPS refer to diluted EPS or earnings per share. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in our press release and the presentation. And again, these are both available on our website. I would like to now turn over the call to Thierry.

Thank you, John, and good morning, good afternoon. Welcome to our conference call today, and thank you to everyone for joining. We are very pleased to report a strong performance in the third quarter of 2022. We indeed saw solid ongoing market trends with broad-based demand for both our molecular research and clinical diagnostic solutions across the business. So let me get right to the top messages for today. First of all, we again exceeded our quarterly outlook for net sales growth and adjusted EPS. This was driven by the top performance in our non-COVID portfolio and also higher-than-expected sales from product used in COVID testing. Net sales for the third quarter of '22 were $533 million at CER and exceeded our outlook for $510 million. These results were largely unchanged from sales of $535 million in the third quarter of 2021, a period of high COVID-testing demand. Our non-COVID product group delivered 18% CER sales growth over the third quarter 2021 and represented more than 80% of our total sales. Adjusted diluted earnings per share were $0.55 CER and above the outlook for at least $0.48. Those results demonstrate that our portfolios are performing very well. In fact, this is the seventh consecutive quarter of double-digit CER growth in our non-COVID portfolio. This clearly underlines the strength of our business and the execution mindset across QIAGEN. Second key message, our teams have been delivering on key goals as we advance our five pillars of growth. The performance for the nine months of 2022 underscore the strength and ability of QIAGEN in a very dynamic micro environment. I am definitely very proud of our teams. They have done an outstanding job this year remaining proactive and staying focused on executing our five pillars of growth strategy. This is creating a…

Thank you, Thierry. Hello, and thank you from me as well for joining this call. Let me first start with a review of our results, and then I will come back later to discuss the outlook. In terms of net sales, at actual rates, they declined 7% in the third quarter on a year-over-year basis to USD500 million. This was due to about six points of currency headwinds in light of the strong U.S. dollar against the euro and other currencies such as the yen. The sales result at constant exchange rates were USD533 million and ahead of the outlook for at least $510 million CER. We had a much better-than-expected performance in our non-COVID product groups with these sales up 18% CER. The COVID product group sales were also better than expected. Even so, sales were down 43% CER over the year ago period. Sales of consumables and related revenues and also instruments were unchanged at constant exchange rates. Excluding the COVID-19 headwinds, sales for consumers and related revenues were up 17% CER, while instrument sales rose at a faster pace, about 20% CER. In terms of sales among the four product groups, let's start with Sample Technologies, which represents about 1/3 of total sales. Here, we saw solid double-digit CER growth in the non-COVID portfolio that represented 75% of sales in the third quarter of '22. However, the significant decline in COVID-19 testing demand led to the overall decline of about 2% at constant exchange rates over the year ago period. Diagnostic Solutions is our second product group, and this represented about 30% of sales. The key driver behind the growth in this group was a QuantiFERON franchise. Sales for the QuantiFERON TB test rose 14% CER in the third quarter on double-digit gains in all regions. Take…

Thank you, Roland. And please now allow me to go over some of the key updates our teams have made in the progress of advancing our five pillars of growth within our overall growth strategy. Starting, first of all, in Sample Tech. Here, we are working in tandem to update our instrument and automation system in combination with new kits to further develop application in key areas. Just as an example, in the third quarter, we released a new workflow leveraging the new easy-to-connect instrument with the QIAcuity digital PCR instruments for liquid biopsy applications. This workflow combines the key features of these two platforms, the very high-quality sample prep with easy tool and QIAcuity's high sensitivity in order to handle the demands of high-volume liquid biopsy samples. This unique power of two offers optimize detection and quantification for successful biomarker profiling. This also builds on QIAGEN's comprehensive liquid biopsy portfolio. In fact, QIAGEN is one of the only providers able to master all liquid biopsy analyzes. Those include circulating DNA, circulating tumor cells and exosomes. Our teams have also expanded the range of kits for the QIAxcel Connect instrument that is used for quality control analysis. Those new kits make QIAxcel even more attractive for analysis of DNA and RNA in next-generation sequencing application. Our second growth pillar involves QuantiFERON, the modern gold standard for detection of latent tuberculosis. We remain extremely committed to bringing TB testing solution to as many countries around the world as possible. As for QIAreach, the test version launched earlier this year for high burden low-income countries. Our partner, Illumina has recently entered insolvency proceedings. We still are working on new options for this product and are also very much open to new solutions to improve TB testing in emerging countries. But keep in…

Thank you, Thierry. Based on the better-than-expected results in the third quarter and also the solid outlook for the fourth quarter, we have increased our full year sales outlook to about USD2.25 billion at constant exchange rates. This is an increase from the prior outlook for at least USD2.2 billion and compares to $2.2 billion of sales in '21. In the first three quarters of '22, we delivered 14% CER growth in our non-core product groups and expect double-digit CER growth to continue into the fourth quarter putting us on track to achieve our full year goal. We are maintaining our conservative view on COVID testing and for these sales in '22 to be below the 21% level of USD704 million. In the first three quarters of '22, we had USD427 million of COVID product group sales at constant exchange rates. Our latest planning is for COVID product group sales to be about $500 million at constant exchange rates. Clearly, we are also able to absorb within our full year outlook the impact of losing about 1% of annual sales due to the Russian invasion of Ukraine and the suspension of our business in Russia. In terms of profitability, we have upgraded our outlook for adjusted EPS to be about $2.40 at constant exchange rates. This is an increase of $0.10 from the prior outlook for at least $2.30, and this compares with our initial '22 outlook for adjusted EPS of about $2.05 at CER. The progress in our business, however, is increasingly impacted by adverse currency movements against the U.S. dollar. Based on exchange rates as of October 31, '22, currency movements against the dollar are now expected to create an adverse impact of about six percentage points on net sales. The adverse headwinds are also expected to reduce adjusted EPS at actual rates by $0.09 to $0.10 per share. At actual rates, this applies sales of about USD2.1 billion and adjusted EPS of about $2.30 to $2.31. For the fourth quarter, we have set an outlook for sales to reach at least USD520 million at constant exchange rates, that for adjusted diluted EPS of at least $0.50 also at CER. It takes into consideration the acceleration of investments in light of the strong performance and also our decision to make onetime payments to support QIAGEN employees in light of the current high inflation environment. We expect currency headwinds in the fourth quarter to have an adverse impact of about seven percentage points on sales and about $0.03 on adjusted EPS. At actual rates, this implies sales of at least USD483 million and adjusted EPS of at least $0.47. I would like to now hand back to Thierry.

Thank you, Roland, and thank you all for your attention. I think it's time to go to a quick recap of our key messages before we move into the Q&A session. First, our results exceeded the outlook for the third quarter of 2022, driven by the 18% CER growth from our non-COVID product group and adjusted earnings per share of $0.55 CER well above the previous outlook of $0.48 CER. Second, our teams remain fully engaged and continue to execute on our five pillars of growth strategy. And lastly, we have increased our 2022 full year outlook to reflect the better-than-expected sales and profitability in the third quarter. With that, we are reaffirming our commitment for double-digit growth of our non-COVID portfolio in 2022. And as we look into 2023, based on what we see today, there is no reason why QIAGEN non-COVID product group should not continue at a double-digit CER growth rate in the new year as well. I now would like to hand back to John and the operator for the Q&A session. Thank you all.

[Operator Instructions] And our first question comes from Odysseas Manesiotis of Berenberg. Odysseas, please go ahead.

I've got two to three. First of all, I think you've been communicating a high single-digit to low double-digit growth in the non-COVID business potentially rolling on to next year. I wanted to ask the dynamics here between different divisions, particularly your growth pillars. Would it be fair to assume midterm guidance growth, for example, double-digit growth for all growth pillars, except sample prefer next year? And secondly, on QIAstat, could you please I'm sure give us a confirmation of whether you're still planning to launch the GI, meningitis and BCID panels in the U.S. for next year? Is this plan still on track?

Thanks a lot, Odysseas. And for your first question, first on the, let's say, midterm growth profile, so first of all, I'd like to highlight that we are not in the midterm, basically, guidelines. But as we said, based on the results that we are seeing today, based on our knowledge of the current environment, we see no reason indeed to see the non-COVID portfolio of QIAGEN not growing at double digit next year. And if you want to focus on the five pillars, you are perfectly right. We see indeed QuantiFERON, QIAstat, NeuMoDx and QIAcuity continuing to grow at double digits. And as we said back in December 2020 in the QIAGEN Investor Day, we see our Sample Tech portfolio growing at mid-single digit indeed. Now to the question on QIAstat, we have submitted DI for the U.S. approval. We expect, as I said before, an approval in 2023. Our plan is to submit the meningitis panel before the end of 2023. You also mentioned BCID, the BCID panel is not planned to be submitted in 2023. We want first to launch it in Europe. And then we will submit it in the U.S., but probably around the end of 2024.

Operator, let's move to the next question.

The next question comes from Casey Woodring of JPMorgan. Casey, please go ahead.

How should we think about the setup for 2023? Is the strong performance this year creating a tough non-COVID comp for next year? And then how should we think about the moving parts to gross margins next year as well with COVID, actually, revenue rolling off? And higher input costs and you're balancing that out with the pricing. Can we expect gross margin expansion next year?

I think we can take this, Roland and I. And I will ask Roland to chime in also on the gross margin. On the overall perspective, you asking probably that we have raised our guidance for COVID sales 2022 to around $500 million. We continue to take a conservative approach on COVID evolution post 2022. We do not want to have our P&L depending on COVID volatility. And therefore, we expect basically those COVID sales 2022 -- or '23, I'm sorry, to decrease by more than 50%. This is our current assumption. This being said, our focus is on the non-COVID part of our portfolio. And this, I repeat, based on what we have in hands today, we see no reason to have that non-COVID part of our portfolio growing at less than double digit for 2023. This being said, I would like to invite Roland to comment on the gross margin.

Yes. And as Thierry said before, we are clearly not in the guidance call right now for '23. Nevertheless, I think what we are willing to reconfirm today is as Thierry talked about the revenue side. I think it's also fair to say that the comments we made before on profitability are still very valid, which means, as you know, we always said that we want to be post-COVID stronger than we were pre-COVID, and you recall that pre-COVID we had an adjusted EBITDA margin of 27% plus X percent. And we clearly do believe that also now moving into at '23, we should be nicely above the 27%, right? Look, exactly is clearly also a question of certain things are moving from price increases to inflations. Overall, I would say the trend right now over the last couple of weeks were rather positive. So I do think we will move quite strong into the year '23.

Our next question comes from Derik De Bruin of Bank of America. Derik, please go ahead.

Can you talk a little bit about your genomics portfolio, specifically the demand that you're seeing for sample prep and some of your panels and such? There's obviously been a little bit of choppiness in the genomics market to be sort of seeing some results. So what you're feeling there. And just your overall thoughts on how you're viewing Europe and demand there going into the end of the year and in 203?

Derik, can you repeat the second part of your question on Europe, please? I didn't get that. Your voice was a bit muted. I apologize.

Sorry. Yes. Sorry about that. No, just basically, what's your expectations are for Europe as you look into the fourth quarter and into '23. It's just sort of like -- do you expect to see that region softening and any headwinds there?

Okay. So first, addressing the genomics. I -- obviously, we follow carefully the evolution of the market. We follow obviously the reporting and publication of our competitors. I'd like to remind our audience today that QIAGEN since 2019 has chosen a completely platform-agnostic strategy. Our chemistry is universal and our bioinformatics is universal and can be used on any different kind of platforms, be they Illumina, Thermo, Element, BDI or [indiscernible]. So I believe that not being involved into the platform sales, we are less exposed than potentially some other companies because of the market evolution at the moment. Now our universal NGS consumables, saw a single-digit growth against high sales in the third quarter of 2021. And if you remember, we have this kind of small base effect because last year, in Q3 of '21 there was a higher consumption of normal UNGS, customers were coming back. And at the same time, we had government still investing in sequencing of positive PCR for COVID to try to detect the evolution of the mutation of the virus. And so this is why we are in Q3 in that single-digit growth. That being said, overall, I do not see a reason to go lower than double-digit growth for our UNGS portfolio as we did, by the way, pre-COVID. Second, your question to Europe, once again, we are not in a guidance call or in the 2020 call. You have seen that Europe, Middle East and Africa had kind of leading growth in Q3. We have strong basis there. We have direct subsidiaries in most of the countries. We are obviously extremely, extremely attentive to the economic situation. Europe is part of the geography where we have -- and we are passing a second set of price increase in July of this year. We will now pass the third set of price increase starting January 2023. So this is what I can say at the moment, very attentive to the economic environment at the same time, very solid in our organization in this geographic area.

The next question comes from Falko Friedrichs of Deutsche Bank.

Two questions, please. Firstly, can you quantify the price increases that you pushed through this year for us? And what do you expect for next year on top of the ones you passed through this year? And then secondly, on digital PCR, where you showed a pretty good performance again. How do you see that market developing going forward now? And do you see Roche new device as a bit of a risk to your device?

Thank you so much, Falko. And very quickly, and Roland, obviously, if you want to chime in on the price increase, obviously, feel free. So we always explained that we have a normal established policy of a yearly price increase that happens normally in January of every year between December of the previous year and January. This year, starting July, we have decided in light of inflation on a selected number of countries to pass a second price increase. And we disclosed in our Q2 results that we were targeting overall lease price, a 6% to 7% price increase, for that second wave. Now obviously, once this objective is set, we negotiate customer by customers to see what we can obviously achieve net-net, and we are still basically living through that at the moment. We explained to you as well that when we say 6% to 7% price increase, you should not consider on the total base of customers. Why? First of all, because as we said, it's on selected geographies obviously, in our main markets, but also because we are in a contract, pre-annual contract with some customers, and therefore, in those pre-annual contracts, we have a guaranteed volume that normally price are already locked for one, two or three years. Nonetheless, as I disclosed also in our Q2 call, I said that given the specificities of higher inflation this year, we are also visiting those pre-annual customers to try to negotiate something. So it's too early to give you a definitive impact. What I can tell you is that, obviously, we have a net-net positive impact of those price increases. For next year, we are working on the increase. We take into account, obviously, what we have passed in January of '22, what we have passed in July, and then we will determine the best number possible together with our customers. Roland, would you like to add something on the price increase, perhaps?

No. I think it was pretty well answered. Thank you.

On the digital PCR, we continue to see that market growing. You remember, Falko, that we said 3% [indiscernible] at this moment, this is probably a $350 million to $400 million market. But the market we need to consider the total accessible market is rather the total Q-PCR market, which is above $3 billion. So we see it as a very growing market, dynamic market, especially for QIAGEN because we believe that with QIAcuity, we have a highly differentiated solution. I remind you, three different workflows, three completely integrated boxes, whereas with competition at this moment, you have to piecemeal basically a workflow to get your final digital PCR result. And this is the case of Roche. We obviously observed the entrance of Roche in that market. It proves, once again, that this market is dynamic. We believe that Roche will help us growing the interest of customers in digital PCR. But I must say, they come with an offer which is not fully integrated, which is made of two components. So I never criticized competition, but I still believe that given its specificities, QIAcuity is well placed to take a leading position on this market.

The next question comes from Hugo Solvet with BNP Paribas.

I have two on supply chain. Some of your peers have been impacted by shortages of electronics and chips mainly in life science instrumentation. What is the situation for QIAGEN at the moment as it does not seem to have an impact on instrument for life science customers? And second, on NeuMoDx, can you update us on the recent progresses that have been made on the broadening of the U.S. menu?

Very good. Thank you, Hugo. On the supply -- and I think Roland also discussed that extensively during our Q2. First of all, we highlight that as unlike other companies, we have been prepared of tight supply situation by COVID. You remember that at the beginning of COVID in 2020 and in 2021, they were extremely difficult supply situation in some key components such as biologics or plastic. What does it mean? It means that our company, our supply and purchasing team is extremely prepared and extremely on the ball, I would say, for more than two years now on those supply issues. We have taken some very specific measures, such as not hesitating, for example, to take a purchasing commitment with suppliers of around one year because we don't want to put our customers in our difficult situation. So I do not want to say that there is absolutely no pressure on our supply chain. Of course, there are but I think they are managed at QIAGEN because we have taken proactive measures. And it's very also interesting for us to see that our backorder, our normal backorder level, at QIAGEN is back to the level that we had at the pre-COVID situation, and this is very encouraging. Roland, a word on supply chain, perhaps?

Yes. Overall, I would say the benefit we had is clearly that because of the volatility we have seen in some of our markets, COVID also in some of the growth opportunities we have in the non-COVID side, we decided quite early even in -- as early as in 2020 to increase our, more or less, inventory on semi-finished goods. And I think that's very helpful right now. Of course, in all fairness, most of the challenges companies see in this industry is also coming out of logistic challenges and with a relatively good inventory level, I think you can write that out a bit.

Now we go moving to your second question, which is basically the status of the U.S. menu expansion for NeuMoDx. If you remember Hugo, we have talked several times since 2021 about the regulatory situation in the U.S. for NeuMoDx. First of all, I'd like to highlight that our midterm growth profile for this solution is not changing, and we still expect a double-digit growth profile for NeuMoDx worldwide. Our first priority has been first to answer the global call for testing during the COVID pandemic. Let us remember that the development of single plex or the development of [4 plex] on NeuMoDx was absolutely not forecasted initially. The pandemic also started during the initial launch of the system. And like you have seen with any new system on the market, there is always a period of work where we improve the stability of the system. And this basically was given a priority by QIAGEN and also led to delays in FDA handling submission. At the end of 2022, we are now back in a position to dedicate more resources more emphasis, more focus on developing the U.S. test menu in the coming years, and you will see more submission starting again in 2023. Remember also for the U.S. that NeuMoDx benefit from one very unique capability, which is it's still the only system able to run regulated assays and LDTs on the system at the same time in a random way. And this is unique, and this is why we can still continue to sell in the U.S., even if, obviously, we have less menu than in Europe for the moment.

The last question comes from Ed Ridley-Day of Redburn.

[indiscernible] for your domestic clients, do you see any certain wage inflation and labor shortages? And to what extent do feel you're positioned to help them with those challenges? And just a quick follow-up on China. If you could just you just remind us now at sort of current run rate, the percent of sales in China, and if you can give us any more color on what the sort of current trading environment is in China, that would be helpful.

So Ed, I do apologize once again, I don't know if it's coming on my hand, but I didn't understand the first part of your question. I heard words like inflation and wages. Perhaps you might want to repeat that one?

I think the question, Thierry, was on, more or less, what we are doing for our employees there and the -- pipe in the [indiscernible].

Do you want to take that one, Roland, before I move to China, perhaps?

Sure. No, let's do that. No. And I think what I was trying to say in our prepared minute is that QIAGEN decided in countries where inflation has clearly a larger than average increase to help our employees with a onetime payments here in the fourth quarter. So it will overall affect roughly more than half of our employees. And that's clearly something what we're doing for this year. We clearly also more in the situation for next year. We clearly expect also that salary increases in next year overall will be probably higher than what we have seen before because of, again, on the one hand side, we are having a good performance, but clearly also that inflation challenges are going to stay. So I think it's one way to really taking out our ownership here and our responsibility towards employees very seriously.

Thanks a lot, Roland. And moving to China, Ed. So clearly, ratio-wise, I would say, China, remember, it's around 6% to 7% of our sales. So we don't have the same kind of exposure than some of our peers. At the same time, I would highlight that I think organization-wise, we are quite well prepared to answer the challenges of the Chinese market. You remember in the past, we mentioned localization, nationalization of some health care segment. Remember that we have a site in Shenzhen for local manufacturing and development and we have also a second brand in China. So obviously, we follow extremely carefully the very unpredictable situation with lockdown because it's a very moving situation. And so results wise, as we have said today, for the first nine months of 2022, our sales are up 4% CER over 2021 same period. But in Q3, we saw a sales decline of 3%. It was completely factored in our new guidance that we gave already in the Q2 call. We continue, obviously, to see opportunities in the China market. Let's never forget that whatever the challenge is, it's still the second market in the world from a size standpoint. But compared to probably the pre-COVID period, we see those opportunities at a lower rate than before 2019.

Okay. Thank you very much, Thierry. And with that, we want to end the call here. We appreciate your interest in QIAGEN. If you have any follow-up questions or topics to discuss, please reach out to Phoebe and me, and we're available to help you out. Thank you very much.

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