Ladies and gentlemen, thank you for standing by. I am Jess your Global Meet call operator. Welcome, and thank you for joining QIAGEN's Q3 2023 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 website. A prepared remark will be followed by a question-and-answer session. [Operator Instructions] At this time, I would like to introduce your host, Mr. John Gilardi, Vice President, Head of Corporate Communications and Investor Relations at QIAGEN. Please go ahead, sir.

Thank you, Jess, and thank you all of you for joining us today for this call. We appreciate your interest in QIAGEN. Our speakers today are Thierry Bernard, our Chief Executive Officer; and Roland Sackers, our Chief Financial Officer. We also have Phoebe Loh from the IR team joining us as well. This call is being webcast live and will be archived on the Investors section of our website at www.qiagen.com. You can also find a copy of the quarterly results press release and presentation on our website. We'll begin with remarks from Thierry and Roland and then move into a Q&A session. Before we start, let me briefly go over the safe harbor statement. The views expressed during this conference call and in response to your questions represent the perspectives of management as of today, October 31, 2023. We will be making statements and providing responses to your questions that convey our intentions, beliefs, expectations or predictions for the future. These statements fall under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. They involve risks and uncertainties, and actual results may differ materially from those suggested by these statements. Factors that could influence results are mentioned in our filings with the SEC. These are also available on the SEC website and also on our own website. QIAGEN disclaims any intention or obligation to update any forward-looking statements. Additionally, we will refer to certain financial measures not approved -- sorry, not prepared following generally accepted accounting principles or GAAP. All references to EPS refer to diluted EPS. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures in our press release and presentation. I'd like to now hand over the call to Thierry.

Thank you, John. Good morning, good afternoon or good evening, depending, of course, of where you are in the world, and thank you for joining us. We delivered another quarter of solid results that exceeded our outlook in an increasingly volatile macro environment. This confirms again the resilience of our portfolio. Our performance continues to be driven by our strategy of focus and balance, focus on our pillars of growth and balance in serving over 500,000 customers in the Life Sciences and Molecular Diagnostics with our broad geographic presence. At the same time, we are obviously closely monitoring increasingly challenging geopolitical and macro environment and taking actions to reduce as much as possible the impact on our business. We believe that we are very well positioned to finish this year in a strong position, committed to delivering solid sales growth and improved earnings in the fourth quarter as we prepare for more growth and expansion in 2024 and the years ahead. Let me quickly go to our top messages for today. First, we exceeded our outlook for net sales and adjusted EPS for the third quarter, driven by solid growth in the non-COVID base business and a high level of profitability. Net sales were $470 million at constant exchange rates, which exceeded our outlook for at least $465 million. Our non-COVID product sales rose 5% CER, and this was supported by 10% CER growth in sales of highly recurring consumables revenues that accounted for well over 85% of total sales. For the first nine months of the year, those sales grew 8% CER. Overall results showed a decline of 5% to $476 million reflecting, of course, the significant drop off in COVID testing revenues from 2022. We continue to track towards $160 million to $165 million of sales for 2023…

Thank you, Thierry. Hello, everyone. Thank you as well for me for joining our call. Let me first discuss our results for the third quarter and first nine months of the year and then share some views on our outlook. As you saw in our press release, net sales for the third quarter of 23 were US$476 million at actual rates and US$470 million at constant exchange rates. We saw a modest impact from currency movements against U.S. dollar, so sales declined 5% compared to the year ago period, while a result at constant exchange rates were down 6%. As has been the trend during '23, this was again a quarter with a substantial decline in COVID-19 revenues. Instrument sales led the performance, rising 1% CER as our teams generated growth despite more conservative customer spending trends. Even in this environment, we still saw solid placements of lower price point instruments such as QIAcuity and QIAstat-Dx. We continued to see good placement trends for reagent rental agreements. This agreement among molecular diagnostic customers involved placements linked to multiyear consumable contracts and help secure future consumable commitments. Among our four product groups, let's start with sample technologies, which represents about 1/3 of total sales. Here we had growth at a low single-digit CER rate for the non-COVID products and this represented nearly 90% of sales within this product group. Overall, sales declined 13% CER, and this was due to the very tough comparison against '22 results and the drop of this year in COVID-19 testing demand. Diagnostic Solutions, our second product group also represents about 1/3 of sales. The QuantiFERON latent TB test was the main driver with all regions delivering sales growth of about 20% CER or better. The strong conversion trend from the traditional skin trend test is continuing…

Thank you, Roland. And if you allow me, I'd like now to take a moment to run through some of our progresses in advancing our portfolio this quarter. First, we continue to sharpen our focus on our pillars of growth and expand in our key areas of expertise to drive sustainable growth in various applications. While we are directing investments into growing our new pillars of growth such as QIAstat diagnostic or QIAcuity, we are obviously not complacent in our established leadership in Sample tech or QuantiFERON. First of all, in our market-leading sample technology portfolio, we continue to make progress on automation upgrades with the recent launch of the TissueLyser III instruments. This instrument is used as a key tool in sample disruption of difficult to isolate samples in early steps of or DNA isolation such as those involving bone, tissue or environmental samples like soil or plant matter. The prior generation of this instrument has been seated in over 14,000 publications and is part of a comprehensive lineup of automation that well positions QIAGEN to answer a broad range of customer demand for sample processing. Through the complete upgrade of our sample preparation systems, we have ensured these platforms are not only delivering state-of-the-art technology for the highest quality processing but also modern solutions for connectivity, which is used for real-time monitoring of runs, cloud management of data and remote service monitoring. Another example is the next update that will come with the release of an upgraded version of our fledging platform, QIAsymphony, which will onboard connectivity elements and additional features to even better enable high-volume applications such as liquid biopsies. We also continue to leverage our deep sample prep expertise through some of the more dynamic growth applications such as expanding our microbiome portfolio. Our teams recently…

Let me provide more perspectives on our outlook for '23 and also for the fourth quarter. As noted earlier, we have reaffirmed our full year sales outlook for at least US$1.97 billion at constant exchange rates. In terms of COVID-19 sales for 2023, we continue to expect about US$160 million to US$165 million. Remember that in 2019, we had $143 million of sales from products that were redeployed for use during the pandemic, and these were mainly sample technologies for use in obtaining RNA. So we clearly see 2023 as the last full year of significant COVID-19 headwinds. In regards to our OEM business, these sales are tracking at about $90 million for the year. To frame this, the pre-COVID OEM sales were in the range of US$70 million plus. And we would like -- we would expect this business to normalize to that level again next year. In terms of regions, we are closely monitoring fast-changing geopolitical and macro trends during the world. We continue to have a cautious view on China where the environment has not improved as is reflected in the results for the third quarter. We are also closely monitoring the situation in the Middle East. In that region, we are actively working to support our distributors during these challenging times. In terms of profitability, we have reaffirmed our outlook for adjusted EPS to at least $2.07 at constant exchange rates. A significant part of our cost structure is variable, which enables agility in cost management while continuing to invest in the business. This remains a top priority as we position QIAGEN to continue delivering solid growth in the midterm. As for currency movements and based on rates as of October 27, we expect a negative impact on full year net sales of about 1 percentage point and at least $0.02 per share negatively impact on adjusted EPS results. Moving to the fourth quarter. Our outlook is for net sales of at least US$500 million CER. Adjusted earnings per share expected to be at least $0.53 per share also at CER. As for currency movements and based on rates as of October 27, we expect a neutral to slightly negative impact on both net sales and adjusted EPS for the fourth quarter. I would like to now hand back to Thierry.

Thanks, Roland. We are now coming close to the end of our presentation. So let me provide you with a quick summary before we move into the Q&A session. First, amid the ongoing volatile macro environment, QIAGEN has delivered another solid performance in the third quarter of 2023. We achieved our outlook for both net sales and adjusted EPS with good demand for our technologies in our non-COVID base business. Second, those results were driven by resilient performance for our key pillars in both Life Sciences and Molecular Diagnostics. Our strength in sample tech and QuantiFERON are complemented by the solid progress the team are making in expanding our footprint in QIAstat diagnostic and QIAcuity digital PCR systems. Third, as always, we continue to maintain a high level of profitability and are using our healthy balance sheet to create value through organic and inorganic investment. And lastly, we have reaffirmed our full year outlook for 2023. As we move through the end of the year, we are diligently keeping an eye on the global landscape to understand all these dynamics carry into 2024. Despite the currently challenging environment, we see a solid midterm outlook for both the Life Sciences and Diagnostics market and are well positioned to continue to deliver sustainable growth in the coming years. With that, I would like now to hand back to John and to the operator for the question-and-answer questions. Thank you.

Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] The first question comes from Catherine Schulte with R. Baird. Your line is open. Please go ahead.

It's great to see these results amidst a lot of pressures on the space. I wanted to start on the Life Sciences side of your business. We've heard some peers talking about pharma spend caution intensifying throughout the quarter. Meanwhile, academia has been pretty healthy. I think NIH outlays were up over 20% in the third quarter. Can you just talk through the trends you saw throughout the quarter in those customer groups and your expectations for those end markets going forward?

Thanks, Catherine. Thanks for the questions. Yes, obviously, we are following also what some competitors are saying on the market. It is obvious that funding for the biotech industry is a bit under tension. However, we see still a very good demand for the life science product of QIAGEN, especially in Life Science. What you have to -- in sample, I'm sorry, what you have to understand is that especially in Life Science, whether we talk sample tech or UNGS that are self-directed to either the research of the academic sector, we are not a very high budget in those spending, but we are a fundamental part of those spending. So it's difficult to eliminate QIAGEN even in times of difficult economic environment. Sample tech is the first and crucial step for any biological run, yet it is not the most expensive part of activities in those labs. And this is why I think we are pretty protected. That doesn't mean that our company is immune to adverse economic events, but we are monitoring this very carefully. As an example, we keep a line on the government shown down in the U.S. and we are carefully analyzing what will be the budget increase, if there is an increase for organization like, for example, the CDC and the NIH, but we have it under control.

The next question comes from Patrick Donnelly of Citi. Your line is open. Please go ahead.

Terry, maybe as you look at some of these lingering headwinds, whether it's the OEM piece, instrumentation and maybe a little bit in China, I guess how do you think about the potential for these to continue into 2024 and impact the growth there? Obviously, we've got some commentary from peers about the first half maybe being a little more subdued given some of these headwinds. And then on the same topic for Roland, just how you think about the margin set up into next year if some of these headwinds do persist, just the leverage you guys have in the P&L?

Thanks, Patrick, and we will take [indiscernible] [Roland] this question just before going to the margin, so questions on OEM instrumentation in China. Obviously, Patrick, I'd like to have a crystal ball. It's obviously extremely challenging those days to forecast given the volatility. However, as we have said in Q2, we strongly believe that our OEM business is now normalizing towards its pre-COVID time. So I expect a normal, let's say, OEM range of revenues around $70 million to $80 million in a normalized environment. China, it is obvious that a lot of players in the market were expecting a sequential improvement of the Chinese market starting in Q1 of this year. This has not happened. And it's clear as well that the anticorruption campaign in health care, launched by President Xi is adding to other challenges met by foreign companies on this market, pressure towards localization, delays in permission and registration from a regulatory standpoint, the so-called VBP policy. However, China is a very important market, both for life science and clinical diagnostics, it's probably already the second market in the world. So I do not see a fundamental improvement on the market in the coming six months, for example, but I believe in the long-term potential of this market because of the needs of the population and the patients locally. Obviously, foreign companies have to adapt their strategy to fit, obviously, into the Chinese priority. So, we need to keep a cool head. It's an important market. It's not going to bounce back immediately, but the long-term perspectives are good. Instrumentation, QIAGEN always said that because of the influx of tier, as we say, of instrument during the COVID period, the post-COVID period would see in many labs more trends towards placements of instruments than capital expenses in the diagnostic world. We are used to that at QIAGEN. I still believe that labs on average, continues to renew and upgrade their instrumentation every five years. There is no scientific rules here, but it's well adopted and well accepted KPI in our market. So whether it is capital sales or placement QIAGEN as the financial answers for all those options, it is true that it's a bit more constrained. But once again, we believe that the market for diagnostic life science and clinical is solid and will continue at a pretty solid growth rate as well in the coming months. Roland, moving to the margin.

Sure. Yes, I think also the margin as you laid out wild days, I would say, still volatility and clearly also increasing uncertainty in the market. I do believe that we had shown in the past that we have our hands around our expenses quite well around, and I don't think that is going to change going forward. So even in a more in brackets -- in a scenario where you assume a more muted growth rate moving from '23 to' '24, I still believe that we should be able to deliver actually also a very reasonable margin improvement. There is clearly -- and we said it also on the call today, right now, we are rather accelerating some of our R&D investments because we do believe there is a good opportunity for us to invest. We continue to see more and more leverage opportunities on the sales and marketing side. We have seen that trend on the administrative side. Now, I think for the last 24 months that we are here while we had lower overall revenues still have quite significantly reduced our admin expense ratio and there's more potential around that as well. So all in, I think on the EBIT line, there should be even in a more difficult environment, enough room for us to improve margins.

The next question comes from Daniel Arias of Stifel. Your line is open. Please go ahead.

It's Paul on for Dan. Just in terms of kind of getting a sense of your comfort level heading into 2024, you talked a little bit last quarter about being more or less comfortable with a sort of high single-digit growth trajectory, just kind of baseline expectation. Should we expect that, that's come down since what we were kind of talking about three months ago? And do you have a sense for as inflation is normalizing and so forth, what the pricing realization might be just in terms of directionality for next year?

Thank you, Paul. So, I'm not sure that I have ever seen a number like high single-digit growth for 2024. But what we have always said, we believe that we have the people and the product portfolio for QIAGEN, both life science and clinical diagnostic to be above market growth. And I still believe in this, wherever in that market. Once again, that market might be experiences some pressure and pressures those days, but it's a good market. I believe that COVID-19 has definitely proven the relevance of life science diagnostics and clinical diagnostics in the health care value chain. This is not disappearing. So even if the market is a bit softer, it's still a growing market. And what we feel at QIAGEN is that regardless the level of the market growth, we have the portfolio to be above that market growth. At the moment, we are clearly focusing on achieving 2023 and our guidance in a volatile environment. As you know, we give our guidance for the year around early February. This is what we are going to do this year. But we strongly believe that we have the people and the product portfolio to systematically beat the market growth. On inflation, yes, it has receded compared to 2022. However, QIAGEN didn't start to implement price increase because there was a hyperinflation last year. QIAGEN has a systematic policy of price increase every year around January well shared with our customers because we sell value. We sell innovation, and we invest in R&D. In a normalized environment, we believe that normal price increase of between 2.5%, 3.5% per year according to different geographies is what we need to look for. And as I said before, I always think that net-net a company like QIAGEN in a normalized environment should expect a net-net impact of price increase of around 50 to 100 basis points.

The next question comes from Falko Friedrichs of Deutsche Bank. Please go ahead.

Thank you very much. And my question is, how should we think about the future of the NeuMoDx platform within your company? And do you still believe you're the best owner? And then my follow-up would be on QIAstat-Dx and whether you can remind us of the next steps when it comes to the test menu expansion.

Thank you, Falko. On NeuMoDx. The first consideration is that we acquired that platform because we believe in it, and we strongly believe that it's probably the best platform in the market for many features, ease of use, speed, versatility, especially the ability to run a laboratory developed test in parallel to a regulated test in a very, very, very random access. This is the only platform able to do that. However, as we have disclosed, we have experienced stability issues at the launch of the platform, which is normal in this market. And therefore, we have given priority to fix in those stability issues over the last 2.5 years. As a result, we are experiencing delays. It's submitting and approving assays on the U.S. market, which is still by far the main market for infectious diseases PCR testing. NeuMoDx is doing well in Europe. We see non-COVID assays, double-digit growth. At the same time, it is our duty to systematically and constantly review the performance of our product portfolio, market shares, growth, return on capital invested. And there is no dogma at QIAGEN. It is not because the product is part of our five pillars of growth that it will be part of our priorities forever. The product and the team need to deliver. And so, we are currently reviewing every kind of options for NeuMoDx. This is what we can say at the moment. QIAstat-Dx, the menu is going on, and I would differentiate two kinds of development. The traditional menu to be competitive in syndromic testing is already available for QIAstat in Europe. I refer here to respiratory, GI and meningitis. We are going to bring those assays as well in the U.S. The next step is to develop a completely differentiated assays that is not existing in our competition portfolio. And I refer here to what we call the complicated UTIs. Once we have launched that assay in Europe first, we will continue the development and registration of more traditional assets such as direct identification of blood culture positive, already research use only in Europe, pneumonia, and then we will go probably to other kind of samples, whether we are talking joint or other kind of samples. This is the road map for QIAstat, a solution where we believe we can really take the number two position on that market, which is a very growing market and expected to be around close to $5 billion total market size by 2026.

The next question comes from Jack Meehan of Nephron Research. Your line is open. Please go ahead.

Thank you everyone. I want to focus on QuantiFERON. So first, could you just talk about how you're looking at kind of the competitive landscape and some of the differentiation for the test? Second, are there any macro sensitivities you see here? And maybe finally, just level of confidence this can sustain double-digit growth into 2024?

So Jack, thanks for the questions. Obviously, the first thing about the differentiation of QuantiFERON. The major growth driver that we have decided to protect and grow faster since 2016 where we started the discussion and negotiation with DiaSorin for automation. Many people are aware of the partnership with DiaSorin. Some people sometimes forget about the partnership also with Hamilton and Tecan for the front-end automation of QuantiFERON. And therefore, as of today, there is no more automated workflow and easier to use than QuantiFERON. And from the back-end automation available in a very sizable installed base of the Liaison Diasorin either excel or excess. Number one. Number two, the number of publications around the quality, the value, the clinical superiority of QuantiFERON is unprecedented. We are talking here about 20 years of public health, medical education and publications. Third, for the product itself, we continue to invest in R&D. As you have seen, for example, over the last three years, we moved from the QuantiFERON third generation to the fourth generation by adding CD8, which seriously increased the sensitivity of the test. This is what explains the success of QuantiFERON, continuous organic and nonorganic investment to expand its market penetration and where do we see the main potential for market penetration is still on the skin test. We believe that the skin test market, even in the U.S. is between still, let's say, 30% to 40% penetration. So, there is a significant room to grow. So we are not complacent despite being the number one. We continue to invest. We continue to push QuantiFERON in many countries. You have seen two years ago, the guidance in Brazil in favor of QuantiFERON. You have seen some emerging countries in Asia Pacific adopting also QuantiFERON. So, there is no complacency, but there is a strong leadership, sustained by R&D investment partnership, and this is what is fueling once again, the 25% growth of Q3. We are confident that we can maintain a double-digit growth for this product.

The next question comes from Matt Sykes of Goldman Sachs. Your line is open. Please go ahead.

Congrats on the quarter in a tough environment. Just two quick questions. I'll ask both upfront. But just first on R&D., that 10% level, if we kind of look at what it could end up for '23, probably be about 100 basis points above where you were for '22 and probably 200 above the year before. Just wondering, is that 10% sort of the level we should be thinking about R&D investments in terms of percentage of sales as we think into '24? And then secondly, the spread in non-COVID product growth in Europe versus the Americas. Is there anything we can read into that from a customer type or a product or segment that accounted for that difference in growth?

Yes, thanks for the question. You can go ahead, Roland, if you want.

Probably can take the R&D question. And Matt, I think it's very straightforward. We clearly right now see good opportunities to drive some R&D activities, given also our overall profitability and that thing is going quite well along even in a more difficult environment. I would assume now looking into next year that we are probably next year, rather between somewhere, let's say, 9% and 10%. I don't think that we will have next year, any need for staying, let's say, 10-plus percent. So, I do think there is some leverage here. Nevertheless, we continue, of course, to invest and expand our menu.

Thank you, Roland. And on the spread on the non-COVID growth, I don't think that there are major differences between American and European customers, but we have also a difference in our portfolio at the moment. So, the non-COVID in North America is very much driven by QuantiFERON by digital PCR, especially in the biopharma. This is where we have the main concentration of biopharma customers, and this is where we are taking significant market shares, but also UNGS. Whether in Europe, where you have compared to the U.S., a greater revenue for non-COVID on QIAstat, for example, you have a great harmony for non-COVID on NeuMoDx. You have also had this impact. Obviously, we are also growing our market shares for QuantiFERON Europe year-on-year to a lower level than the U.S. We are also growing our market share in digital PCR. So, it's rather basically adjusting the status of our portfolio rather than differences of customers. I would end up saying that we focus now at QIAGEN, as you know, since 2021, clearly, on the non-COVID. This is our core business. We know that we have a range of products available, if COVID surge again anytime, but the focus is really on the non-COVID.

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

Maybe one for Roland, just can you walk through the debt repayment schedule, how you're thinking about that and implications for interest income and interest expense, maybe give us a level set for 2024 that we can model?

Sure, Casey. I think I get you the details more or less during the call. But nevertheless, I would assume that suggest that we -- in the remarks, we went down around about $400 million in terms of repayments end of September, which probably has an impact now on the net interest expense fourth quarter compared to the third quarter is probably around US$5 million. And for next year, probably again depends, of course, where interest rates are going all in I do think there is an impact around $0.02 to $0.03 EPS on the net level as well. So, I think that probably helps you. As I said, there's a couple of repayments next year planned as well. And it's clearly also again, $100 million in June next year and $500 million in November 24. And on the convert side, there might be another $ 500 million in December 25.

The last question comes from Andrew Brackmann of William Blair. Please go ahead.

Maybe just on the Sample tech business. You've obviously made a lot of investments there in automation over the last handful years. Can you just give us an update around what you're seeing in those customers who have upgraded? And I guess, how should we be thinking about additional investments in automation for that business going forward?

Thanks, Andrew. I think it was the right decision when we started, let's say, five years ago to systematically upgrade our automation. As a reminder, QIAcube became QIAcube Connect. EZ1 became EZ1, and all the time, adding new features. As we said in today's presentation, the next steps is QIAsymphony, where we are not only adding new connectivity features, but we are increasing the volume input, which is fundamental to better answer our already existing customers in liquid biopsy and taking more customers. This was a fundamental strategy to enhance our market shares and confirm our leadership. And we see customers for manual customers before sometimes being obviously moving to those automation platform, automated platform. The next steps, but it's a bit too early to speak in details about it today, is to think about higher throughput automation, but we will come back to you in due term.

Okay Thierry, operator, Roland, thank you very much for your time today on the call. If you have any follow-up questions, please do not hesitate to reach out to Phoebe, me. Thank you very much again for your interest in QIAGEN. Bye-bye.

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