Good day. I'm Melinda, your PGI call operator. Welcome, and thank you for joining Qiagen's Fourth Quarter 2023 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. 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.

Thank you, operator, and a welcome to all of you today who are joining us for this call. We appreciate your interest in QIAGEN. Our speakers are Thierry Bernard, our Chief Executive Officer, and Roland Sackers, our Chief Financial Officer. We also have Phoebe Loh from the IR team with us. 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 will begin with some remarks from Thierry and Roland, followed by a Q&A session. Before we start, let me note that we are going to have an Analyst and Investor Day on Monday, June 17 in New York. An invitation to the event will be going out in the next few weeks, but please mark this in your calendars. And also before we start, let’s briefly go over our safe harbor statement. The views expressed during this conference call and the responses to your questions represent the perspectives of management as of today, February 7, 2024. We will be making statements and providing responses to your questions that convey our intentions, beliefs, expectations or predictions for the future. These forward-looking 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 forward-looking statements. Factors that could influence results are mentioned in our filings with the U.S. Securities and Exchange Commission. These filings are available on the SEC’s website and also on our website. QIAGEN disclaims any intention or obligation to update any forward-looking statements. Additionally, we will refer to certain financial measures 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 measure in our press release and presentation. Now I would like to hand over the call to Thierry.

Thank you, John. Hello and good morning, good afternoon or good evening depending on where you are in the world and thank you once again for joining us. Thank you for your continuous interest in our company, QIAGEN. We continue today reporting another solid year, and a strong performance in the fourth quarter. Amid the dynamic macro-environment, our teams continued to execute, delivering solid sales and installed base growth. This is a further testament to how our strategy of balance and focus has positioned our portfolios well to expand our leadership in both Life Sciences and Molecular Diagnostics. Let me go through the key messages for today as we dive into the details: First, we exceeded our outlook for net sales and adjusted EPS for the fourth quarter and achieved our full-year outlook. Net sales for the fourth quarter were $ 503 million at CER, which exceeded our outlook for at least $ 500 million. Our non-COVID base business delivered one of the top performances in the industry with 8% CER sales growth over the prior year fourth quarter. This was driven by ongoing strong demand for consumables that accounted for over 85% of total sales. Net sales for the full year were [$9.97] (SEC) [$1.97] billion at CER, and this was on point for our sales outlook for 2023. Our non-COVID sales also grew 8% CER for the year compared to the year 2022. Adjusted earnings per share for the fourth quarter were $0.55 CER, above the outlook for at least $0.53 CER. For the full year, adjusted diluted EPS were $2.09 CER and above the outlook for at least $2.07 CER. Our second key message. Our teams executed well to deliver growth and build value in our portfolio, achieving some important milestones in our pillars of growth. First,…

Thank you, Thierry. Hello, everyone. Thank you as well from me for joining our call. Let me first discuss our results for the fourth quarter and the full year and then share some views on our outlook for 2024. As you saw in our press release, net sales for the fourth quarter of '23 were $509 million, up 2% from the year ago period, even against a substantial decline in COVID-19 revenues. We saw modestly positive currency movements against U.S. dollar, so this helped sales at actual rates. Consumables and related revenues led the performance, rising 10% CER for non-COVID product groups. Sales of instruments declined 2% CER for the non-COVID product groups in the fourth quarter of '23, a signal of the conservative spending environment for capital sales. At the same time, we achieved some important milestones for placements, especially for QIAstat-Dx and QIAcuity as we continue to see good placement trends for reagent rental agreements with multiyear consumable contracts. Overall, sales for the full year showed a decline of 8% against '22 reflecting the drop of in COVID-19 testing, while we delivered 8% CER growth in the non-COVID portfolio that represented over 90% of total sales in '23. Looking at the non-COVID growth for the year at 8% CER. This included the strong performance from QuantiFERON, growing well above our target rate for at least 10% CER while also having to absorb the volatility in our OEM business. Taking out both of these factors, non-COVID sales were still up 7% CER in '23 over '22. Among our 4 product groups, the first is Sample Technologies, and this represents about 1/3 of total sales. For the non-COVID products, this sales growth at a mid-single-digit CER rate for both Q4 '23 and for full year over the same period in…

Thank you, Roland. And now, as usual, please allow me to take a moment to go over some of the progress our teams have made in advancing our portfolios. First of all, we continue to build on our leading position in sample technologies with portfolio expansion and installed base growth. It is where we have a clear focus on key growth areas such as microbiome and liquid biopsy. In those areas, our deep expertise give us significant differentiation. This quarter, as an example, we have again expanded our best-in-class microbiome portfolio with the launch of the RNeasy PowerMax Soil Pro Kit for isolating RNA from challenging soil samples rich in PCR inhibitors While you have heard companies in our industry talking about challenging trends in instrument demand, our teams all over the world have still made significant progress in the last year in placing new platforms. At the end of 2023, there are now over 40,000 cumulative placement of the QIAcube family and over 5,700 cumulative placement of EZ1 and EZ2, both extremely popular solution for low throughput sample prep automation. For higher throughput, there are now over 3,300 cumulative placements of our flagship system, the QIAsymphony. The upgrade for this platform is in development and will include new onboard connectivity elements together with additional features to even better enable high-demand, high-volume application such as liquid biopsy. In our diagnostic portfolio, we continue to see strong global expansion of our products while also facilitating growth through partnerships. For example, you may have seen the recent announcement of our expansion in the Middle East. This includes an agreement for the QuantiFERON latent TB testing to be used in Oman's new screening program were over 800,000 people will be tested over a span of 2 years. This represents the healthy trends we…

Thank you, Thierry. Let me now provide more perspectives on our outlook for '24 and also for the first quarter. As noted earlier, we have set an outlook for at least $2 billion of sales in '24 at constant exchange rates. This reflects total growth at least 2% CER that includes about 1 percentage point of headwinds as we overcome the last group of COVID-19 sales from the first quarter of '23. This means that we are expecting at least 3% CER growth from the non-COVID portfolio. In terms of how we see this year developing like others, we are anticipating a more muted start into the year with a return to solid mid-single-digit CER growth in the second half. Additionally, we have closely monitoring dynamic macro trends and geopolitical risk across the globe as to how they could impact our industry. For China, we continue to take a cautious view and expect a modest single-digit CER decline in total sales for the full year. The environment is not showing any signs of improvement yet. At the same time, this is not a market to ignore. We continue to implement our two-pronged strategy by commercialization, the QIAGEN branded portfolio directly as well as offering a local brand product in China. As we take a step back from '24, our conviction remains strong about the midterm growth perspective for QIAGEN in the markets that we serve. This is a topic we will address in our Analyst and Investor Day planned for June 17 in New York. In terms of profitability, we have set our outlook for adjusted EPS of at least $2.10 at constant exchange rates. For the just operating income margin, we are planning for an improvement of at least 1 percentage point for the full year '24 from the…

Well, thank you, Roland. And we are getting now into the Q&A session. So let me provide you with a quick summary. First, amid the ongoing volatile macro environment, QIAGEN has delivered another quarter of meeting or beating our outlook. We exceeded our outlook for the fourth quarter for both net sales and adjusted EPS. We also achieved our full year 2023 sales outlook driven by top-tier growth in our non-COVID portfolio. Our performance in 2023 definitely shows the relevance and power of our portfolios of solutions to customers around the world and the impact of our strategy. Second, throughout 2023, our teams all over the world continue to execute on our goals to build value in our portfolio, meeting key milestones on sales growth and solid installed base expansion. This includes over 1,500 sample preparation instruments. Over 700 QIAstat platform and over 700 QIAcuity newly placed in 2023, all fueling strong consumables growth going forward. Third, we again delivered a high level of profitability while also maintaining our commitment to disciplined capital deployment, as you saw with the ongoing high level of R&D research and development investment in 2023. The multiyear investment plan for our bioinformatics business and the $300 million recently returned to shareholders. And last, we have announced an outlook for 2024 that demonstrates the strength of our portfolio amid a challenging macroenvironment. While we fully acknowledge a shift in the first part of the year 2024, this takes into account the more subdued market demand in the first half given the current condition such as lack of visibility on funding and conservative spending in labs going into election year into many countries. But we expect a marked improvement as the year unfolds as we return to a strong mid-single-digit CER sales growth for the second half of the year. We strongly believe that this sets up QIAGEN for solid midterm sales growth and improving profitability. We are, therefore, very well positioned to continue delivering a compelling growth profile in our industry. With that, I now would like to hand back to John and the operator for the Q&A session. Thank you all.

Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] The first question comes from Derik De Bruin of Bank of America. Please go ahead.

Hi. Good morning. Thank you for taking my question. Just curious, can you elaborate a little bit more on the OEM headwind and sort of, like how you see that coming through for 2024 on what's there. And I know you're going to have an Analyst Day in June. But I think when you look at a more normalized market environment, do you feel comfortable in sort of, returning to mid- to high single-digit consistently CER growth rate once markets normalize on a more basis? Thank you.

Thank you, Derek. Regarding, first, the OEM question. As you have always understood, this is a specific business in our portfolio. It's made on very large deliveries, most of the time in bulk to a rather limited number of customers. So you have and we have always disclosed that to the market volatility year-on-year. The average revenue pre-COVID for our OEM business was around $80 million to $90 million. During COVID, it showed up to around $170 million. We are now getting back to normalization, but take into account that in 2023, we achieved close to $100 million with this business. So we expect in '24 a headwind compared to our normal performance of around $15 million to $20 million. This should normalize as the year goes by. Further, starting in '25, you should expect that business coming back to normally $75 million, $80 million year-on-year. To your question of our growth profile, we believe that we are building systematically for the last 5 years, a stronger QIAGEN. We have the people. We have the product portfolio to systematically grow above market growth regardless of where that market growth is. So if the market is back to let's say, mid-single-digit growth profile, we will be there, and we will be able to probably be slightly above that.

Our next question comes from Odysseas Manesiotis with Berenberg. Please go ahead.

Hi, thanks for taking my questions. First of all, this time last year, you mentioned you would be negotiating renewal terms with DSR and for your QuantiFERON partnership. Have these negotiations ended? And is it reasonable to assume you'll be getting slightly better financial in terms of the results? And secondly, looking at the NeuMoDx guidance it seems you're expecting this one to outgrow most of your growth pillars this year. Taking into account your commentary that instrument placements shouldn't recover strongly in the near term. What will drive that significant consumables pull-through increase for these instruments. Thank you.

Thank you, Odysseas. And going directly to the second part of your question, and then I will finish with QuantiFERON. On the NeuMoDx, it's not that the percentage outgrow, yes, the percentage of growth is -- but it's starting from a lower base. We're starting from slightly over 40 million, and we go over 50 million in our plan for 2024. Why? Because as you have seen, for example, we start to add menu in the U.S. You have seen the recent approval of our CT&G in addition to our capabilities on LDTs that gives a factor of growth. Second, because we already have something like 330 platforms all over the world. We have very significant menu availabilities in Europe, so we expect the pull-through on this installed base to grow. And this is explaining our assumptions for NeuMoDx. But at the same time, as you know, Odysseas, we have disclosed to the market that we are currently reviewing any kind of evolution for this portfolio for the NeuMoDx within our portfolio. And we'll come back to you in due time on the results of those evaluations. On DiaSorin, I think we need to clarify. What we said since 2023 is that starting 2023 in Europe, and '24 in the U.S., QIAGEN has the possibility by contract to add another partner together with DiaSorin. The situation at the moment is that as we have proven with our members, this partnership and this exclusivity with DiaSorin works very well. Any time we convert a customer to DiaSorin, we are able to do it at a premium price. This partnership partially drives the performance that you have seen over the last 3 years for QuantiFERON. So at the moment, while we always continue to review opportunities, we believe that this exclusivity is very justified and is generating positive results for both partners. As far as the financials, we constantly worked with DiaSorin to optimize the financials for both parties.

Very good. Thank you.

Our next question comes from Casey Woodring with JPMorgan. Please go ahead.

Great. Thank you for taking my questions. So I was hoping that you guys could dig into the 1Q guide a little bit more. Roland, I think you said in the prepared, you're assuming conditions are softer in the first half versus the second half, but you just grew 8% non-COVID in 4Q. So does seem to be a bit off trend. Maybe can you just elaborate on maybe what you're expecting as an OEM headwind in 1Q specifically? And then just as a follow-up, curious on QIAcuity, do you guys think you're taking share there? And maybe can you split out the competitive share gains between pharma and academic if you're seeing particular strength in pharma or if it's more across the board? Thank you.

Yes, Casey, a couple of facts here. And I think we clearly cited and you have heard that from many other companies in our industry as well, the overall macro environment in general. But clearly, Pacific also a couple of trends which we have seen also more or less falling up in the last couple of weeks/months, it's quite obvious, but for capital expenditures, particular for the bigger ticket environment. Things right now are more difficult. We clearly see a certain increased demand for reagent rentals, where the capital sales environment is clearly somewhat more difficult. As I said before, we believe that is something that is rather more on the temporary side, and we expect to return to a more solid mid-single-digit trend over the course of the year. Nevertheless, it is not an easy environment. Specifically, in OEM, I think we are somewhat down in the high single-digit area. I think some of the $8 million and $10 million in the first quarter compared to the rest -- compared to '23. Nevertheless, it's also important to understand, and I actually looked it up now for the years 2016 to actually including 2019, so more or less four years pre-COVID, the drop in absolute revenues between the fourth quarter and the first quarter was always around about $50 million plus. So not very different.

Our next question comes from Aisyah Noor of Morgan Stanley. Please go ahead.

Hello, Thierry and Roland. Thanks for taking my questions.

Hold on. Hold on. I'm sorry, I need to interrupt you. We're going to get back to your question. There was a second half of the question, which was on QIAcuity, which we did not answer yet. So I'm going to take that one, and we go back immediately to your question. Is that okay?

Sure.

Very good. Thank you. So on QIAcuity, yes, we do obviously can see show with our numbers that we are taking share, and we are taking market shares of our competition. Why? First of all, because our technology different from the traditional droplet technologies is more cost efficient and allows faster results. Second, because if you remember, we cover with 3 different instruments, 3 kind of different throughput needs. Low throughput, one plate; mid throughput, 4 plates; 8 throughput, larger plates. 4, 3 sorry because we have already developed a menu which is covering application needed in academia, but also in the pharmacy also the pharma business sector. This is definitely our target, main target for the months to come. And this is why you have seen a constant improvement of our digital PCR menu over the last 2 years, dedicated to the Pharma segment. And fourth, why do we believe so much into our digital PCR solution for the coming years as well is that not only can we leverage the growth of those applications in the life science market, but as you know, in 2024, we are going to make it a diagnostic, a clinical solution as well. In the first half of 2024, this platform will be FDA and IVDR approved. And in the second half of the year, we are planning to launch our first assay regulated for onco-hematology application, BCR-ABL. So as we have said since the beginning of the launch of that solution, we believe that we have the team dedicated the solution to take the #1 position in this market.

Okay. I can ask my question now, if that's okay. If you could talk a little bit about China and help us unpack the drivers of the weakness there. My understanding was you had a softer comp in Q4 2022 because of the COVID lockdowns. And from what your peers are saying this quarter, it sounds like a lot of the weakness is down to the Life Sciences market, which I believe is about half your China business. So could you clarify whether the China Diagnostics business is also in decline in the quarter? Just trying to understand the market dynamics within the different customer segments. And I'll leave it there first.

Thank you for your questions. First of all, just to highlight, our Life Science business in China is more than half of our activities for this market. And it is true that the Life Science sector in China are still not as bounce back from the COVID period. At the same time, we have constantly said that China is such a large market that it cannot be ignored. It is a specific market as well, where you need to localize your activities, if you want to continue to be selected in many tenders, where the market is also sometimes affected by price constraints, it's what we call the VBP policy. In this regard, we have always said consistently since 2022, that the market will come back very progressively, and we were not expecting a return to growth at least before the end of '24. We believe that we are very well equipped to take position in this market for 3 reasons. First of all, the premium brand of QIAGEN for the top tier of the labs in China. Second, because to localize our product, we have a research development and manufacturing operation site. And third, and this is probably also very differentiated compared to competition because we have a second brand also in China, fully owned by QIAGEN, but operationally in China independent from our Qiagen activities. They have their own management, they're all sales force, and those are products developed in China, manufactured in China and sold to Chinese customers. So with those 3 assets, we believe that, as I said before, we can take position, but at the same time, we always insisted that if pre-COVID we were expecting a normal 10% growth year after year from the Chinese market. Post COVID progressively, we would expect a mid-single-digit growth. This will not come before 2025.

Understood. And then the second question was just on M&A and your appetite to deploy capital from here given the recent share buyback program. Obviously, M&A activity among your peers has also picked up in the recent quarter. And then just quickly, if you could give us a contribution from Verogen in 2023, just to help us out with our models. Thanks so much.

So on M&A, we confirm our traditional strategy. You see that you know that we have a rich history essentially, especially of bolt-on acquisition. We have always said that we don't want to do M&A for the sake of M&A. We want to do M&A, not to spread the company's fame again. We are constantly working, looking at opportunities that fit in our current portfolio and especially would reinforce our pillars of growth. So it's a very focused M&A strategy. We have also said many times that we are looking at opportunities that could be during a short period of time, dilutive to our P&L, but should be in a very visible time frame, accretive. We always said that we give it normally around 2 years before becoming accretive. And so we continue to clearly look at opportunities. We also said that given the strength of our balance sheet, we would or we could also be looking at stronger or bigger than just bolt-on acquisition. So this is a work in progress. Once again, what you have to keep in mind, it will have to be very much fitting into our existing portfolio and existing strategy. As regard to Verogen, we were expecting a contribution of around $20 million for the year 2023, and this is where we landed.

Thanks so much.

Our next question comes from Doug Schenkel of Wolfe Research. Please go ahead.

Hi, good morning. Good afternoon, everyone. Thanks for sharing so much on your guidance philosophy for the year. I know there's been a couple of questions on this and pacing. I want to take a different angle. So it's an uncertain time to say the least, and you would have been an outlier if you guided more aggressively in Q1. So to me, while the Q1 guides lower than what we see in consensus models. I think the good thing is on the surface, it seems pretty derisked factoring in comments that you've made on OEM headwinds, China dynamics and how pharma growth is expected to pace in an election year. I guess my question is, where could we be wrong? What's the biggest risk to Q1 as we sit here today? And then looking past Q1, if you don't meet or even beat Q1 expectations, does the rest of the year start to look aspirational because it is really back-end loaded in terms of how you guided relative to the norm. Again, I get it. But again, I wanted to see what the risk is to Q1, if any, and then get your take on what we need to see beyond a strong Q1 to have more confidence in the outlook for the year in terms of you meeting or have been beating expectations.

I think -- thanks, Derek. I think Ron and I can take -- Doug I'm sorry, I can take that question. In terms of risk for Q1. Honestly, I don't see a specific portfolio risk for Q1. The risk that I would highlight, and it's not just impacting QIAGEN, if that happened, is the overall economic situation. Again, let's not forget that half of the world is moving into election this year, that we believe that labs are still a bit slow to building up again their purchasing capacity. So this is for me the main challenge. Roland, in his explanation on 2024 guidance clearly also disclosed that indeed, we have an acceleration, especially between H1 and H2, clearly. Missing Q1 obviously is not our objective now. We want to continue to execute, but even if Q1 would a bit slow, I wouldn't say necessarily that it would question the full year. It would be far too early. Because once again, you see a logic sequential quarter-by-quarter acceleration of our performance. And my last rational argument would also be that do not forget that most of our new launches or expected extra contribution to our performance 2023 is coming in H2. We plan to have GI for QIAstat in the U.S. starting in H2. We plan to have meningitis in the U.S. for QIAstat in Q4 of the year. And we plan to have the real impact of our QIAcuity clinical diagnostic also in H2. Those are my assumption. But Roland, please.

Just a few additions and welcome back. As I said before, I also looked a bit backwards more or less a year's pre-COVID because they are probably good indications to what we have seen before, right. And the revenue/profitability share H1, H2 for '24 is actually in the same way as we have seen more or less for the year '16, this '19. So I would say, it's quite normal in terms of ramp for the year. Second and I do think that is important as well. Again, I would not -- I would rather turn it around what you said before. It is -- you can now argue it’s a whamp [ph] I would rather say we expect rather back to normal in the second part of the year. So the off is rather in the first half of the year, the normal if you compare it also to the full year 2013 or even to the second half of 2023, that is what we expect to happen in the second part of the year. .

Thank you very much.

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

Thank you. Good afternoon. My question is on QIAstat-Dx please, which was a little bit slower in Q4 than what we used to from this platform. Can you speak a bit about the dynamics in the fourth quarter also from a regional perspective? And outside of the test menu expansion that you've just referenced, what makes you confident that 2024 will be another step forward for the platform? Thank you.

Thank you, Falko. First of all, you see when you ask about the geographic, we have to be very clear. Because of the delay of GI registration in the U.S., most of the growth currently for QIAstat is coming from Europe, from also Middle East and Asia Pacific. Those are the 3 contributions mainly to QIAstat. At the same time, it's quite humbling to see that with one panel respiratory in the U.S., we continue to place system and take market against competition, which shows the strength of the platform. So -- why are we confident? First, because we do expect, as I said before, GI and meningitis to come in the U.S. in 2024. And if by the end of '24, you have the 3 normal, I would say, or traditional panel for syndromic testing available in the U.S., you completely changed the dynamic of growth of QIAstat in that kit market. And I remind you that North America is still the first market in volume for syndromic testing. Second, because we have also improved our high-throughput QIAstat solution, the system that we call QIAstat rise, and we are relaunching it in 2024. In Europe, but also in the U.S. So long story short. As we have said on our last Investor Day, December the 8, 2020, QIAstat is a solution with a double-digit growth profile, definitely, and we are moving to take the second position on that market. If I would have told you we would be #1 on syndromic, it would be purely aspirational, but positioning QIAstat to really become the #2 in that market is the objective, and this is the objective we are going to achieve.

Okay. Thank you.

And we take our final question from Matt Sykes with Goldman Sachs. Please go ahead.

Good morning. Thanks for taking my questions. Just one for me. Just can I appreciate the capital equipment environment you guys outlined in relation to the guidance in Q1 and '24. But maybe just on the level of recurring revenue that you have and a lot of that is expressed in Sample Technologies. Could you maybe just give us a little bit more color on the cadence and your view on Sample Technologies over the course of the year, you obviously gave a full year guide for that business, but I would just love to understand how the cadence of that business is going to do over the course of the year, particularly in Q1 and then the back half of this year.

I think as we described for the rest of the business, we expect a sequential acceleration here as well. Taken if you especially consider the purely non-COVID part of that Sample tech business, we will be completely aligned with the guidance once again that we gave on December the 8, 2040 [ph] portfolio, which is between low to mid-single digit. We were very close or slightly above mid in 2023. We expect to be slightly lower this year, but still in that guidance of mid to -- of low to mid-single digits. Third, Sample tech is definitely the portfolio where, in addition to our current leadership, we want to continue to be on the attack. And what I mean by this is that not only are we the only company, which has systematically upgraded its instrument for the last 3 years, QIAcube becoming QIAcube Connect. EZ1 becoming EZ2, every time with new features. As we said today, again, we will launch an upgraded version of QIAsymphony, our flashing [ph] platform by the end of 2025. And we are also planning new development in Sample tech automation that we will probably disclose during our Investor Day on June 17.

Thank you. End of Q&A:

Thank you, Thierry. And with that, I'd like to end this call. If you have any questions or comments, please don't hesitate to reach out to Phoebe and me, and we're always available to help you. Bye-bye.

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