Qiagen Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 7, 2024

There are 11 speakers on the call.

Operator

Good day. I'm Melinda, your PGI call operator. Welcome and thank you for joining QIAGEN's 4th Quarter 2023 Earnings Conference Call Webcast. At this time, all participants are in a listen only mode.

Operator

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. At this time, I'd like to introduce your host, John Gallardi, Vice President, Head of Corporate Communications and Investor Relations at QIAGEN. Please go ahead.

Speaker 1

Thank you, operator, and welcome to all of you today who are joining us for this call. We appreciate your interest in QIAGEN. Our speakers today are Terry Bernard, our Chief Executive Officer and Roland Sackers, our Chief Financial Officer. We also have Phoebe Lowe 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.qaiogen.com.

Speaker 1

You can also find a copy of the quarterly results press release and the presentation on our website. We'll begin with some remarks from Turi and Roland followed by a Q and 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, And also before we start, let's briefly go over the Safe Harbor statement. The views expressed during this conference call and the responses to your questions and predictions for the future.

Speaker 1

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.

Speaker 1

These filings are available on the SEC 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 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. Now I'd like to hand over the call to Thierry.

Speaker 2

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 come to you today reporting another solid year and a performance in the Q4. Amid the dynamic macro environment, our teams continue to execute delivering solid sales and installed base growth.

Speaker 2

This is a based 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. 1st, We exceeded our outlook for net sales and adjusted EPS for the Q4 and achieved our full year outlook. Net sales for the Q4 were $503,000,000 at CER, which exceeded our outlook for at least $500,000,000 Our non COVID based business delivered 1 of the top performances in the industry with 8% CER sales growth over the prior Q4.

Speaker 2

This was driven by ongoing strong demand for consumables that accounted for over 85% of total sales. Net sales for the full year were $9,970,000,000 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 Q4 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.

Speaker 2

Our teams executed well to deliver growth and build value in our portfolio, achieving some important milestones in our pillars of growth. 1st, Sample Technologies capped the year with 6% CER growth in non COVID related sales and over 1500 new automation system placed in the market in 2023. The QuantiFERON latent TB test reached more than $400,000,000 of annual sales for the first time and also had 3 consecutive quarters of sales above $100,000,000 during the year. The QIAstat syndromic testing platform grew 7% CER in non COVID sales for the full year 2023 and passed several key milestones. Over 1,000,000 Cartridges of QIAstat were shipped in 2023 and driven by double digit CER sales growth outside the U.

Speaker 2

S. Globally, full year sales of meningitis and GI, our gastrointestinal panel, doubled compared to 2022. In addition, the 4th quarter saw the highest number of quarterly placement for the year and bringing the total number of cumulative placement to over 4,000 systems. The Kayaquiti digital PCR system also performed well, delivering double digit full year sales growth at constant exchange rates and met the milestone of over 2,000 cumulative placements. Our third message, we again delivered a high level of profitability as we remain dedicated to investing into research and development.

Speaker 2

The adjusted operating income margin rose to 28 in the Q4, even as we continue to invest in expanding menus and driving innovation in our portfolio with about 9% of our sales going into research and development. And our last point, we have initiated full year 2024 outlook taking into account the volatile macro environment against the solid trends of our non COVID business. For 2024, we have set an outlook for at least $2,000,000,000 of sales at CER and for adjusted EPS of at least $2.10 CER again. Roland will give you more details on our outlook assumptions later in the call. Before I hand over to Roland, I would like to welcome our 2 new members to our Supervisory Board.

Speaker 2

In March, Eva Van Pelt will be joining the Board, bringing Wizzer an extensive experience in our industry. Most recently, Eva served as Co CEO of Eppendorf, a privately held German life science company and before held previous position with Siemens, Accenture, Hitachi Data System and Leica Microsystem. A month later in April, Bert van Meerst will also be joining the Board. Bert is currently a member of the Executive at Royal Philips NV in the Netherlands, where he is leading their image guided therapy business as well as the precision diagnosis business. We are pleased to have Bert's industry experience, but also his knowledge of operating in the Netherlands.

Speaker 2

They both will be a very valuable addition to our diverse board, and we are looking forward to their contribution. Now I would like to hand over to Ronan for a review of our results.

Speaker 3

Thank you, Thierry. Hello, everyone. Thank you as well from me for joining our call. Let me first discuss our results for the Q4 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 Q4 of 2023 were $509,000,000 up 2% from the year ago period, Even against a substantial decline in COVID-nineteen revenues, we saw modestly positive currency movements against U.

Speaker 3

S. Dollar, So this helped sales at actual rates. Consumables and related revenues led the performance, rising 10% CER for non COVID product Group. Sales of instruments declined 2% CER for the non COVID product groups in the Q4 of 2023, 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.

Speaker 3

Overall, sales for the full year showed a decline of 8% against 22%, reflecting the drop off in COVID-nineteen testing, while we delivered 8% CER growth in the non COVID portfolio That represented over 90% of total sales in 2023. Looking at the non COVID growth for the year at 8% CER. This included the strong performance from QuantiFERM, 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 2023 over 20 22. Among our 4 product groups, the first is Sample Technologies, and this represents about 1 third of total sales.

Speaker 3

For the non COVID products, this sales rose at a mid single digit CR rate for both Q4 2023 and the full year over the same period in 2022. Our second product group, Diagnostic Solutions, also represents about 1 third of sales and delivered mid single digit CR sales growth in 23. Within this product group, the QuantiFERON TB test continued to capture growth from conversion of tuberculosis skin testing to modern blood testing and finished an outstanding year with 24% CER growth over 22 and achieving more than $400,000,000 for the first time. For the QIAstat Dx system for the endometriosis testing, Sales faced some headwinds from COVID-nineteen testing, but saw underlying non COVID sales rising at a solid single digit CR rate. Results for Nonmodics, our integrated clinical PCR testing platform also reflected the significant headwinds the high level of revenues from COVID-nineteen testing in 2022.

Speaker 3

In the 3rd group, which involves PCR, Nucleate Acid Amplification Products sales declined 1% CER in the 4th quarter. This was much better than the overall trend during the year with sales for 2023 down more than 20% compared to 2022. As we have been mentioning, The reason for the sharp drop off in the sales in 23 has been the volatility in orders from our OEM third party customers that use our real gens for their own products. An important driver in the PCR Nucleate Acid product group is QIAcurity, Our group of digital PCR platforms. Here we saw dynamic growth during 2023 as our teams exceeded the goal for at least $70,000,000 of annual sales.

Speaker 3

This growth was driven by increasing consumables pull through along with new placements, especially in the biopharma sector. Genomic NGS is our last product group. This includes our QIAGENIGITAL Insight Bioinformatics business and the QIAGEN consumables portfolio designed for use with any third party next generation sequencer. The QDI business had another solid performance in Q4 and for the full year delivering double digit CER growth in 2023 over 20 22. In terms of sales on a geographic basis, the Americas delivered mid single digit CER growth in the Q4 of 2023 in terms of total sales with non COVID product groups rising 9% CER over the Q4 of 2022.

Speaker 3

We also had a similar trend on a full year basis With sales for non COVID products groups rising 10% CER over 2022 on the back of solid growth in QuantiFERON as well as the Life Science portfolio driven by Chilacuity. The Europe, Middle East, Africa region quoted double digit CER pace for both the Q4 and the full year when excluding COVID-nineteen headwinds. In terms of COVID-nineteen sales, the top performing In terms of non COVID sales, the top performing countries for the Q4 included France, Germany, Italy and the United Kingdom. In the Asia Pacific Japan region, sales in the 4th quarter were also affected by COVID-nineteen headwinds from 2022. They were also modestly lower over the year ago period for the non COVID product group as well.

Speaker 3

This was due to the double digit CER sales decline in China, where macro driven demand was weaker than expected in the Q4. For the full year, China sales declined at a low single digit CER weighed over 22, but this was more than offset by higher sales in the rest of the region, especially South Korea and India. Let's now review the rest of the income statement. For the 4th quarter, adjusted operating income rose 6% to US142 $1,000,000 from the Q4 of 2022 and we also generated higher operating income on a reported basis over the year ago period. This led to an adjusted operating income margin of 28% for the 4th quarter, up from 27.1% in the same period of 2022.

Speaker 3

We delivered This improvement despite the adjusted gross margin failing to 65.7% in the 2023 quarter, a decline of about 1 point percentage points from the Q4 of 2022. This was due to an adverse change in product mix as well as low utilization levels For some manufacturing capacity that we have built up to support new product launches, we expect the gross margin to improve as we build up sales in these newer products. In terms of R and D expenses, this remained at a high level at 9% of sales And unchanged from the Q4 of 2022, this was also in line with our 2023 goal for investments at 9% to 10% rate. Sales and marketing expenses benefited from improvements in greater focus and efficiency and customer engagement, especially through digital channels. These expenses were 23.1 percent of sales in the Q4 of 2023, down about 1.4 percentage points from last year.

Speaker 3

General and administrative expenses were also less than in the Q4 of 2022, falling to 5.6% of sales compared to 6.4% a year ago. For the full year, the adjusted operating income margin was 26.9% of sales compared to 30.6% in 2022, supporting again the high level of R and D investments, while absorbing investments into commercialization. We also faced a lower adjusted gross margin for the year at 66.4% of sales compared to 67.7% in 2022 and again for the reasons outlined earlier. To close out the income statement, adjusted EPS for the Q4 was $0.55 at constant exchange rates and above the outlook for at least $0.53 CER. For the full year, adjusted EPS was $2.07 at actual rates, Our results at constant exchange rates were $0.02 better at $2.09 due to some adverse currency trends against U.

Speaker 3

S. Dollar on a full year basis. As we have mentioned earlier, a key factor in 2023 was the non operating income benefits to income due to the significant higher interest rate environment compared to 2022. Turning to cash flow, the trends in 2023 reflect lower levels of sales and net income compared to 2022 as we move beyond the pandemic. Operating cash flow was US459 million dollars for 2023, while free cash flow was $310,000,000 Beyond the impact of lower sales and profitability, We are in a period of higher working capital requirements.

Speaker 3

This is due to our decisions to maintain a relatively high level of inventories In light of the challenging geopolitical and macro environment, we want to ensure that QIAGEN can provide products to customers around the world without disruptions. This trend is also reflected in the ongoing high levels of inventories in the balance sheet. Continuing with the balance sheet, our liquidity position was about $1,100,000,000 at the end of 2023 And this compares to $1,400,000,000 at the end of 'twenty two. Taking into consideration the recent synthetic share repurchase, which we returned about $300,000,000 to QIAGEN shareholders. Our leverage ratio would be about 1.1 times net debt to EBITDA compared to 0.6 times at the end of 2023 and 0.5 times at the end of 2022.

Speaker 3

Keep in mind for 2024 that we have about $600,000,000 of debt reaching maturity and this builds on having repaid about $400,000,000 of debt during 2023 from existing cash reserves. We are reviewing other ways to deploy cash within our disciplined allocation strategy, which has proved its value over the last decade. Given our healthy balance sheet and strong cash flows, We want to continue creating value by investing internally into the business as we see with our announcements about the multiyear investments in the Caix Digital Insight business as well as through targeted bolt on acquisitions that complement our portfolio. I would now like to hand back to Thierry.

Speaker 2

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.

Speaker 2

This quarter, as an example, we have again expanded our best in class microbiome with the launch of the Ereniz PowerMax SoilPro 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 demands, 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 Kaya Cube 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 placement of our FLAC6 system, the Kaya Symphony. 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.

Speaker 2

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, where over 800,000 people will be tested over a span of 2 years. This represents the healthy trends we are seeing in the increase of global latent TB testing and the conversion from the old GB skin test to the modern blood based testing. We have also signed an agreement with the Ministry of Health in Saudi Arabia to support their public health and infection control initiatives.

Speaker 2

In addition to the development of their New national latent TB screening program using the QuantiFERON TB test, this includes an effort to eliminate meningitis through the WHO program using QIAstat diagnostic platform. This represents another good example of how syndromic testing is being employed more and more to detect meningitis. In fact, we saw the highest quarterly sales yet for the QIAstat platform for meningitis in Q4 of 2023. Another example. Through our companion diagnostic program, QIAGEN and Myriad Genetics entered into a collaboration to provide next generation sequencing and digital PCR solution to pharma companies for the development of cancer tests.

Speaker 2

This adds to the over 30 active partnership We have with pharma companies where we are one of the only companies to offer development of assays based on all three modalities: PCR, next generation sequencing and digital PCR. In PCR and nucleic acid amplification, we have launched new kits and software updates for KAYAKUITY Digital PCR To expand capabilities in pharma, biopharma and food and drug safety, the new kits ensure precise quantification, increased sensitivity and cost efficiency for applications specifically used by these customers. While the software update further equips Kalaquity to be especially well suited for labs that must meet GMP standard by helping to automate the critical task of documentation for reporting and audit trails. In our next generation sequencing and genomics product group, We have recently entered into a new strategic partnership with Element Biosciences to offer NGS workflow on their AVT system. This follows our strategy to offer platform agnostic next generation sequencing consumable and bioinformatics solution.

Speaker 2

In this way, QIAGEN has been systematically partnering with sequencing platform providers to enable the use of on a very large range of sequencing instruments. With regards to our QDI, our bioinformatics business, We have made the decision to accelerate our own investments with the goal of expanding this leading portfolio in to new geographic regions and market segments. This investment is planned over the next 5 years and will support new product launches and also additional expansion of the knowledge bases that are powering our QDI solutions. Also planned in this program is the extension of the use of artificial intelligence and augmented molecular intelligence as well as new solutions for rapid NGS analysis in clinical labs. So as you can see, we continue to build value in our portfolio a strategy that is leveraging our strong global footprint, deep network and innovation through expertise.

Speaker 2

And now back to Roland to give you more details on our outlook 24.

Speaker 3

Thank you, Thierry. Let me now provide more perspectives on our outlook for 2024 and also for the Q1. As noted earlier, we have set an outlook for at least $2,000,000,000 of sales in 24 at constant exchange rates. Reflects total growth at or at least 2% CER and includes about 1 percentage points of headwinds as we Overcome the last group of COVID-nineteen sales from the Q1 of 'twenty three. This means that we're expecting at least 3% CER growth from the non COVID portfolio.

Speaker 3

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 are 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.

Speaker 3

We continue to implement our 2 pronged strategy by commercializing the QIAGEN branded portfolio directly as well as offering a local brand product in China. As we take a step back from 2024, Our convictions remain 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 2017 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 adjusted operating income margin, we are planning for an improvement of at least 1 percentage point For the full year 2024 from the 2023 level of 2017 of sales, while continuing to invest in the business to support our business.

Speaker 3

This includes investments into QDI Business in 2024 as we plan to add more than 50 new positions, launch a series of new products and expand our global presence. We see these multi year investments helping to accelerate growth This is profitable business. As we noted in the quarterly report, we anticipate significant pressure from non operating income and these Factors represent about $0.10 of headwind for 2024 results compared to 2023. First, adjusted net interest income is expected to be between $25,000,000 $27,000,000 for 2024. This is half the 23 levels of $55,000,000 The decline is due to the fact that we have lower cash on our balance sheet along with expectations for modestly lower interest rates during the year compared to 2023.

Speaker 3

The second factor involves our expectations for an adjusted tax rate for about 19% to 20% in 2024. This is up from 18% in 2023. The increase is due to higher profit shares in higher tax jurisdictions as well as countries taking actions to implement OECD initiatives known as Pillar 2. The Netherlands implemented this at the end of 2023. As for currency movements And based on rates as of January 31, we expect a neutral impact on full year net sales, but for an adverse impact of about 0.01 dollars per share on adjusted EPS results.

Speaker 3

Moving to the Q1, our outlook is for net sales of about $455,000,000 CER, keep in mind that this will be a period with significant COVID sales in 2023. Adjusted earnings per share are expected to be at least $0.44 per share also at CER. I would like to now hand back to Thierry.

Speaker 2

Well, thank you, Roland, and we are getting now into the Q and A session. So let me provide you with a quick summary. 1st, amid the ongoing volatile microenvironment, QIAGEN has delivered another quarter of meeting or beating our outlook. We exceeded our outlook for the Q4 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.

Speaker 2

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. 2nd, 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 1500 Sample preparation instruments. Over 700 SKIAstat platform and over 700 SKIAQUITY newly placed in 2023, all fueling strong consumables growth going forward. 3rd, we again delivered a high level of profitability, while also maintaining our commitment disciplined capital deployment.

Speaker 2

As you saw with the ongoing high level of R and D research and development investment in 2023, The multiyear investment plan for our bioinformatics business and the $300,000,000 recently returned to shareholders. And last, we have announced an outlook for 2024 that demonstrates the strength of our portfolio amid a challenging macro environment. While we fully acknowledge a shift in the 1st 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 in too 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 mid term sales growth and improving profitability.

Speaker 2

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 and A session. Thank you all.

Operator

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

Speaker 4

Hi, good morning. Thank you for good afternoon. Thank you for taking my question. Just curious, can you elaborate a little bit more on the OEM headwind and like how you see that coming through for 2024 and what's there. And I know you're going to have an Analyst Day in June.

Speaker 4

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 the markets normalize on a more basis? Thank you.

Speaker 2

Thank you, Derek. Regarding first the OEM questions, 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 $80,000,000 to $90,000,000 During COVID, it showed up to around $170,000,000 We are now getting back to normalization, but take into account that in 2023, We achieved close to $100,000,000 with this business.

Speaker 2

So we expect in 2024 a headwind compared to our normal performance of around $15,000,000 to $20,000,000 This should normalize as the years goes by. Further, starting in 2025, you should expect that business coming back to normally $75,000,000 $80,000,000 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.

Speaker 2

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.

Operator

Our next question comes from Odisha Manasiotis with Berenberg. Please go ahead.

Speaker 5

Hi, thanks for taking my questions. First of all, this time last year you mentioned you would be negotiating renewal terms with DiaSorin for your QuantiFERON Have these negotiations ended? And is it reasonable to assume you'll be getting slightly better financial terms as a result? And secondly, looking at the new model 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.

Speaker 5

Thank you.

Speaker 2

Thank you, Odysseus. 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 €40,000,000 and we go over €50,000,000 in our plan for 2024. Why? Because as you have seen, for example, we start to add menu in the U.

Speaker 2

S. You have seen the recent approval of our CTNG In addition to our capabilities on LEDs, that gives a factor of growth. 2nd, 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.

Speaker 2

And this is explaining our assumptions for NeuMoDx. But at the same time, as you know, Odysseus, 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.

Speaker 2

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 the 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 work with DiaSorin to optimize the financials for both parties.

Speaker 5

Very clear. Thank you.

Operator

Our next question comes from Casey Woodring with JP Morgan.

Speaker 6

Great. Thank you for taking my questions. So I was hoping that you guys could dig into the 1Q guide a 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?

Speaker 6

And then just as a follow-up, curious on Chi Acuity, 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.

Speaker 3

Yes. Hi, Casey. A couple of facts here. And I think we clearly cited and you have heard it from many other companies in our industry as well, the overall macro environment in general, but clearly in Pacific also a couple of trends, which we have seen also more or less folding up In the last couple of weeksmonths, it's quite obvious, but for capital expenditures, particularly for the bigger ticket environment, Things right now are more difficult. We clearly see a certain increased demand for reagent rentals, Well, the capital sales environment is clearly somewhat more difficult.

Speaker 3

As I said before, we believe that is something what was 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 OM, I think we are somewhat down in the high single digit area, I think somewhere between $8,000,000 $10,000,000 in the Q1 compared to the West 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 4 years pre COVID, the drop in absolute revenues between the Q4 and the Q1 was always around about $50,000,000 plus, so not very different.

Operator

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

Speaker 7

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

Speaker 2

Yes. The first one is on China. Yes. I'm sorry, I need to interrupt you. We're going to go back to your question.

Speaker 2

There was a second half of the question, which was on Kaya Equity, 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? Very good. Thank you.

Speaker 2

So on Kayaquity, yes, we do obviously, KC, show with our numbers that we are taking shares 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. 2nd, because if you remember, we cover with 3 different instruments 3 kind of different throughput needs: low throughput, 1 plate mid throughput, 4 plates 8 throughput, larger plates 4th, 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.

Speaker 2

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 4th, 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 application in the life science market, But as you know, in 2024, we are going to make it a diagnostic clinical solution as well. In the first half of twenty twenty four, this platform will be FDA and IVDR approved. And in the second half of the year, We are planning to launch our 1st 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 number one position on this market.

Speaker 7

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 seeing 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.

Speaker 7

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.

Speaker 2

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 has still not has bounced 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 sometime affected by price constraints.

Speaker 2

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 2024. We believe that we are very well equipped to take position in this market for three reasons. First of all, the premium brand of QIAGEN for the top tier of the labs in China. 2nd, because to localize our product, we have a research development and manufacturing operation site.

Speaker 2

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, their own 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 Chinese market, post COVID, progressively, we will expect the mid single digit growth.

Speaker 2

This will not come before 2025.

Speaker 7

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

Speaker 7

Thanks so much.

Speaker 2

So on M and A, we confirm our traditional strategy. You see that you know that we have a rich history essentially especially of The bolt on acquisition. We have always said that we don't want to do M and A for the sake of M and A. We want to do M and A not to spread the company's pain again. We are constantly working, looking at opportunities that fit in our current portfolio and especially would reinforce our pillars of growth.

Speaker 2

So it's a very focused M and 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 and 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, stronger or bigger than just bolt on acquisition.

Speaker 2

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 VEROGENE, we were expecting a contribution of around 20,000,000 dollars for the year 2023, and this is where we landed.

Speaker 7

Thanks so much.

Operator

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

Speaker 8

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.

Speaker 8

So to me, while the Q1 guide is lower than what we see in consensus models, I think the good thing is on the surface, it seems pretty de risked 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 want 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 even beating expectations?

Speaker 2

I think thanks, Derek. I think Renaud and I can take Doug, I'm sorry, 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 happens, it's the overall economic situation.

Speaker 2

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 was a bit slow, I wouldn't say necessarily that it would question the full year.

Speaker 2

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.

Speaker 2

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 KAYAKRQUITY clinical diagnostic also in H2.

Speaker 5

Those are my assumptions.

Speaker 2

But Roland, please. Yes. Hi,

Speaker 3

Yes. Hi, Doug. Just a few additions and welcome back. As I said before, I also looked a bit backwards more or less a year pre COVID because they are probably good indications what we have seen before, right? And so revenue profitability share H1, H2 for 2024 is actually in the same ratio as we have seen more or less for the year 2016 biz 2019.

Speaker 3

So I would say It's quite normal in terms of ramp for the year. 2nd, 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 ramp. I would rather say we back to normal in the 2nd part of the year.

Speaker 3

So the off is rather in the first half of the year than normal. If you compare it also to the full year 2013 or even to the second half of twenty twenty three, that is what we expect to happen in the second part of the year.

Speaker 8

Thank you very much.

Operator

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

Speaker 9

Thank you. Good afternoon. My question is on Keya STAT Dx, please, which was a little bit slower in Q4 than what we're used to from this platform. Can you speak a bit about the dynamics in the Q4 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?

Speaker 9

Thank you.

Speaker 2

Thank you, Falco. 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.

Speaker 2

At the same time, it's quite Humbling to see that with 1 panel respiratory in the U. S, we continue to play system and take market against competition, which shows the strength of the platform. So Why are we confident? 1st, because we do expect, as I said before, GI and meningitis to come in the U. S.

Speaker 2

In 2024. And if by the end of 'twenty four, you have the 3 Normal, I would say, or traditional panel for syndromic testing available in the U. S, you completely change the dynamic of growth of QIAstat in that kit market. And I remind you that North America is still the 1st market in volume for syndromic testing. 2nd, 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.

Speaker 2

S. So long story short, as we have said on our last Investor Day, December 8, 2020, QIAstat is a solution with a double digit growth profile, definitely, And we are moving to take the 2nd position on that market. If I would have told you we would be number 1 on syndromic, it would be purely as be rational, but positioning QIAstat to really become the number 2 in that market is the objective and this is the objective we are going to achieve.

Speaker 9

Okay. Thank you.

Operator

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

Speaker 10

Just one for me. Just can appreciate the capital equipment environment you guys outlined in relation to the guidance in Q1 and 2024. 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 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? Thanks.

Speaker 2

I think as we described for the rest of the business, we expect Sequential acceleration here as well. 2nd, If you especially consider the purely non COVID part of that SampleTech business, We will be completely aligned with the guidance once again that we gave on December 8, 2040 portfolio, which is between lowtomidsingledigit. 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 lowtomidsingledigit. 3rd, SampleTech is definitely a 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, Kaiaq becoming Kaiaq Connect, EZ1 becoming EZ2 every time with new features?

Speaker 2

As we said today again, we will launch an upgraded version of Kaya Symphony, our flexing 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.

Speaker 6

Thank you.

Speaker 1

Thank you, Terry. 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.

Operator

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

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Earnings Conference Call
Qiagen Q4 2023
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