Earnings Call Transcript - QGEN Q4 2022

Operator, Operator

Ladies and gentlemen, thank you for standing by. I am Katie, your PGI call operator. Welcome, and thank you for joining QIAGEN's Q4 Full Year 2022 Earnings Conference Call Webcast. At this time, all participants are in a listen-only mode. Please be advised that this call is being recorded at QIAGEN's request and will be made available on their Internet site. The prepared remarks will be followed by a question-and-answer session. 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.

John Gilardi, Vice President, Head of Corporate Communications and Investor Relations

Thank you, Katie, and welcome everyone. Thank you for joining our call today. The speakers are Thierry Bernard, our Chief Executive Officer, and Roland Sackers, our Chief Financial Officer. Also with us is Phoebe Loh from the Investor Relations team. Please note that this call is being webcast live and will be available for replay in the Investors section of our website. Today, we'll first hear from Thierry and Roland, followed by a Q&A session. A presentation outlining our performance can be found in the Investor Relations section of our website, along with the quarterly release. We will not be displaying the slides during this call, but we encourage you to review them alongside the discussion. Before we begin, let me go over our safe harbor statement. The discussion today and our responses reflect management’s views as of today, February 8, 2023. We will be making statements that express our intentions, beliefs, expectations, or predictions about the future, which are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements carry risks and uncertainties that could lead to actual results differing significantly from what we project. QIAGEN disclaims any intention or obligation to update any forward-looking statements. For more details, please refer to our filings with the US Securities and Exchange Commission, which are also available on our website. Additionally, we will refer to certain financial measures that are not prepared in accordance with generally accepted accounting principles or GAAP. All mentions of EPS refer to diluted EPS. A reconciliation of the non-GAAP financial measures to the most comparable GAAP measures is available in our press release and the presentation. With that, I will now turn the call over to Thierry.

Thierry Bernard, CEO

Thank you, John. And obviously, welcome everyone and a big thank you all for joining us. We are pleased to report a solid close to the year with the performance in the fourth quarter of 2022 that again, exceeded our outlook. Our teams at QIAGEN are doing a great job in showing their capabilities to proactively respond to new developments with agility and to execute successfully in a volatile environment. As a very important point before we move on, our quarterly report includes the news that Rick Bright has been appointed as a new member of the Scientific Advisory Board of QIAGEN. As many of you may know, Rick is an American immunologist who is an expert in vaccine, drugs, and diagnostic development, with a significant public health track record. We are pleased to add his deep expertise to our team of advisors. Now, let me go through the top messages for today. First, we exceeded our outlook for net sales growth and adjusted EPS, both for the fourth quarter and for the full year 2022. Once again, the primary driver was double-digit CER sales growth in our non-COVID product groups, and 75% of the outlook bit for both the fourth quarter and full year 2022 came from sales in non-COVID product groups. While sales for products used in COVID testing declined as expected for both the fourth quarter and the full year over the 2021 period. Net sales for the fourth quarter were $531 million at CER and exceeded our outlook for at least $520 million sales. Our non-COVID product group delivered 15% CER growth over the fourth quarter of 2021 and represented 87% of our total sales. For the full year 2022, we also exceeded our outlook for net sales, with results of $2.26 billion at CER. This was above our outlook for about $2.25 billion. Our non-COVID business performed well throughout the year with 14% CER growth for 2022. Sales of products used in COVID testing, as expected, declined significantly and finished the year at $498 million CER compared to $704 million in 2021. Adjusted earnings per share for the fourth quarter were $0.55 CER, above the outlook for at least $0.50 CER. For the full year 2022, adjusted EPS was $2.46 CER, and this was also above the outlook for about $2.40 per share at CER. Roland will later cover the results at actual rates. As you saw in the press release, this is impacted by significant currency headwinds. Our second key message: Our teams executed on key goals in 2022 to advance our Sample to Insight portfolio. We are very pleased to report that all five pillars of growth exceeded their respective sales goals. Our three new platforms, QIAstat Diagnostics, NeuMoDx, and QIAcuity, all achieved the goals we set for instrument placements. We also saw solid demand trends for consumables and instruments in our Sample Technology portfolio. Our QuantiFERON franchise continued to grow and broke through the milestones of $300 million of annual sales and exceeded the 2022 target as well. I will later walk you through an update on the 2022 achievement. Lastly, we have taken a prudent approach to our outlook for 2023 given the macroeconomic trends, while continuing to expect double-digit CER sales growth in the non-COVID portfolio. For 2023, we expect sales of at least $2.05 billion at constant exchange rates and for adjusted EPS of at least $2.10 CER. We continue to feel confident in achieving the double-digit CER growth target for our non-COVID product group for the New Year 2023.

Roland Sackers, CFO

Thank you, Thierry. Hello, everyone, and thank you from me as well for joining us today. Let me start with a review of our results for the fourth quarter and the full year 2022, and then move on to the outlook later in the call. For the fourth quarter, net sales were US$498 million at actual rates. These results over the year ago period represented a 14% decline at actual rates due to the expected currency headwinds of about five percentage points. In the fourth quarter, we again saw better-than-expected growth in our non-COVID product groups with these sales up 15% CER over the year ago period. For the full year 2022, non-COVID sales were up 14% CER and in line with our outlook for double-digit CER growth. As expected, sales from the COVID product group declined over 60% CER from the fourth quarter of 2021, and they're also down about 30% for the full year to $470 million at actual rates. Consumables and related revenues fell 11% CER in the fourth quarter over the year-ago period, showing the impact of the decline in COVID-19 product sales. Instrument sales were much stronger in the fourth quarter of 2022, rising 6% CER. This shows traction for our new systems gaining in the post-pandemic environment. The adjusted operating income margin was 30.6% of sales in 2022, compared to 33.5% in 2021. This was mainly due to our decision to accelerate investment into the business to support further growth opportunities.

Thierry Bernard, CEO

Thank you, Roland. I would like now to provide you with some more details on the progress of our teams in 2022 and the goals for 2023. First of all, let's talk about Sample Tech. As you may have seen, we recently launched another instrument upgrade with the release of the new easy-to-connect molecular diagnostic. This version is specifically registered for use in diagnostic laboratories in Europe and other areas accepting the CE-IVD mark. This launch expands the easy-to-connect line of instrumentation, which was first released in 2021 to address research and forensics customers. Even in light of the instrument placement during the pandemic, we continued to see good trends during 2022. This is a very positive signal about the value of our portfolio and should support future consumable trends. We reached a new milestone with over 3,200 cumulative placements of the flagship QIAsymphony system. The QIAcuity family surpassed 14,000 cumulative placements while the EZ1 and EZ2 family reached over 5,000 cumulative placements. The strong instrument placement trends were also seen among our clinical testing platform. We saw good demand for respiratory testing at the end of the year, driven by the need to distinguish between influenza and RSV infections, as well as for the SARS-CoV virus. This really once again shows the value of syndromic testing beyond COVID.

Roland Sackers, CFO

Let me provide more perspectives on our outlook for 2023 and also for the first quarter. We have initiated a full year sales outlook for 2023 for at least US$ 2.05 billion at constant exchange rates. As noted earlier, we are planning for double-digit CER sales growth for the full year in the non-COVID product groups. Our strength is that we have a resilient portfolio, particularly with the high share of vector consumables that will help us to achieve the double-digit CER target. We also recognize in the short term that we are facing a more volatile environment. This involves some areas of the world, such as China, and also some areas of our portfolio, such as our OEM business.

Thierry Bernard, CEO

As we are coming to the end of our call, let me provide you with a quick recap of our key messages before we move into the Q&A session. First, our results for both the fourth quarter and full year 2022 exceeded the outlook for sales, driven by double-digit CER gains in the non-COVID group of QIAGEN product. We also exceeded our outlook for adjusted earnings per share and delivered another year of strong cash flow. Second, our teams made excellent progress this year on advancing our Sample to Insight portfolio, especially, but not only in our five pillars of growth. We have a healthy balance sheet that will enable us to continue investing in our business while considering ways to increase returns and create greater value.

Patrick Donnelly, Analyst

Hey, guys. Thank you for taking the question. Thierry, maybe one for you and I'm sure Roland can jump in as well. Just in terms of the cadence throughout the year for 2023, it sounds like 1Q is going to be the low point for growth in margins then you're going to ramp from there. Obviously, the comp dynamic explains some of that. But can you just talk through some of the near-term headwinds?

Thierry Bernard, CEO

Thanks, Patrick. As you said, Roland can chime in. So first of all talking Q1, I think Roland and I both alluded to the rationale behind our guidance for Q1. First of all, obviously, we very proactively look and consider and recognize our economic and financial environment. That's number one. Second, as you know, there is a significant base effect Q1 2023 compared to Q1 2022, where by the way in Q1 2022, COVID testing was still extremely strong. We take a prudent look at the Chinese market for many reasons because over the last three years we have constantly fueled some Chinese companies with components for their own COVID testing. This is disappearing. We still consider China as an important market, but we are cautious. Second, and nothing surprising, we see a more volatile OEM business in Q1. This is not a surprise. This is the nature of our OEM business, which has always had those volatile features. We see as Roland highlighted, the constant acceleration of our business.

Aisyah Noor, Analyst

Hi, can you hear me?

Thierry Bernard, CEO

Yes, we can. Thank you so much.

Aisyah Noor, Analyst

Could you confirm whether the stake sale or complete sale of the business is happening? Will it help to free up some capital for other investment priorities? Can you discuss that?

Thierry Bernard, CEO

Clearly, what we can say today is that it's not just about bioinformatics. For every part of our portfolio, we constantly look at alternatives to offer better potential of growth, better return on investment, and better optimization of this portfolio. So that includes as well bioinformatics, where we believe that significant investments are needed to fully break the code of the value of those bioinformatic solutions. We are open for many scenarios. What is sure is that we want to continue to develop and contribute to the growth of that market but we are open to different solutions.

Odysseas Manesiotis, Analyst

Could you give us some color on how you expect your installed base to expand over 2023, particularly for NeuMoDx, QIAstat, and QIAcuity?

Thierry Bernard, CEO

We continue to have what we call a realistic ambition and that includes obviously the growth of our installed base. We see no reason not to continue to take market shares for QIAstat, for QIAcuity, and for NeuMoDx for different reasons. First of all, for those three instruments, it's a menu play, not a COVID play. We continue to add new registrations, especially in Europe and we are going to see new ones in the US as well this year. We expect the evolution of QIAcuity, our digital platform solution from life science to clinical diagnostics to happen at the end of 2023.

Derik De Bruin, Analyst

Hi, good morning. Thank you for taking my questions. So two, one is a housekeeping question. What's the assumptions for interest income and interest expense?

Roland Sackers, CFO

On interest - on the net interest income side, I think the delta between 2022 and 2023, I probably would take somewhere I would say probably an additional $30 million compared to last year depending on the cash flow and also the interest development.

Thierry Bernard, CEO

For the year 2022, this is an activity that has achieved around $100 million, which makes us clearly the number one in the market. I mean twice as big as our immediate number two and five times as big as the number three in the market.

Casey Woodring, Analyst

Just maybe on COVID, the guidance calls for COVID revenue between $200 million and $210 million CER. That's slightly below the $220 million you pointed to at a conference last month and below the $250 million.

Thierry Bernard, CEO

We believe that slightly over $200 million for the full COVID figure, considering the pre-COVID amount of $150 million, is a reasonable estimate for what COVID could generate this year.

Hugo Solvet, Analyst

I have one on QuantiFERON TB and can you talk to the contribution of market share gains in IGRA testing to QuantiFERON to reach sales growth?

Thierry Bernard, CEO

With the growth that we are showing to the market, once again above double digits, it's clear that we are taking market shares. We have a tremendous respect in this company for the partnership with DiaSorin. It has helped QuantiFERON. In 2023, we need to discuss exclusivity.

Ed Ridley-Day, Analyst

Can you just update on what you estimate the addressable market was in 2022 and what the underlying growth of that market was?

Thierry Bernard, CEO

We believe that this is already a market probably around $1.3 billion to $1.5 billion. It's growing at a rate probably between 13% to 15% per year. We need to build this in the US. In our numbers for 2023, we expect our GI to be approved for the second half of the year.

John Gilardi, Vice President, Head of Corporate Communications and Investor Relations

Okay, Thierry. Thank you very much. And with that, I'd like to end the call and also just remind you, if you have any questions or comments or follow-up issues to resolve, please give Phoebe and me a call. We're always available. Thank you very much. Bye-bye.

Operator, Operator

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