Earnings Call Transcript - QGEN Q1 2024

Operator, Operator

Ladies and gentlemen, thank you for standing by. I'm Melinda, your PGI call operator. Welcome, and thank you for joining Qiagen's First Quarter 2024 Earnings Conference Call Webcast. Please be advised this call is being recorded at Qiagen's request and will be made available on their Internet site.

John Gilardi, Vice President of Corporate Communications and Investor Relations

Thank you, operator, and welcome to all of you for joining us on this call. We appreciate your interest in QIAGEN. Our speakers today are Thierry Bernard, our Chief Executive Officer; and Roland Sackers, our Chief Financial Officer. This call is being webcast live and will be archived on the Investor Relations section of our website at www.qiagen.com. You can also find a copy of the quarterly results press release and the presentation on our website. We will begin with remarks from Thierry and Roland, followed by a Q&A session. Before we start, let me note again that we are going to host the Capital Markets Day on June 17, and the event will be held at the New York Stock Exchange. An invitation has already been sent out and information is available under our website in the Events section. You can also attend this event online, but we'd love to see you in person. Let's now go over our safe harbor statement. The views expressed during this conference call and the responses to your questions represent the views and perspectives of management as of today, April 30, 2024. We will be making statements and providing responses to your questions that convey our intentions, beliefs, expectations, and 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 or earnings per share 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 the presentation. Now I'd like to hand over the call to Thierry.

Thierry Bernard, CEO

Thank you, John, and good morning, good afternoon, or good evening, depending on where you are in the world. Thanks for joining us. We are very pleased today to report another solid quarter in which our teams focused on execution and delivered results ahead of our plans. Despite the cautious capital spending environment among our customers, our results show that we are on track to achieve the goals for 2024. Let me share our key messages today with you. First, our results for the first quarter of 2024 are ahead of the outlook as we worked through the final quarter of pandemic COVID-19 headwinds. QIAGEN achieved net sales of $462 million at constant exchange rates, which was ahead of the outlook for at least $455 million CER. This represented a 5% decline from the first quarter of 2023. Sales were down 1% CER for the non-COVID product groups. Recurring consumable sales continued to account for more than 85% of total net sales, a signal of the durability of our sales base. One of the highlights of Q1 was the 5% CER growth of our Diagnostic Solutions product group. This confirmed the strength and resilience of our portfolio mix as we saw double-digit sales growth for the QuantiFERON TB test and for the QIAstat syndromic testing system amid solid placement. Adjusted earnings per share were $0.47 at CER and ahead of the outlook for at least $0.44 CER. As a second key message, our teams executed on our balanced and focused strategy, which is delivering growth in many pillars. This really creates a foundation for us to build momentum during the year. QuantiFERON once again delivered a strong quarter with 11% CER sales growth, fueled by positive demand trends in every region. The first quarter also marked another quarter with net sales above $100 million. Sales of QIAstat diagnostic were up 21% CER. We saw a high level of demand in panels for both respiratory as well as non-respiratory testing while we continue to see a solid trend in terms of instrument placement. Our teams are still working collaboratively with the FDA to get a final decision on the gastrointestinal panel submission. Our digital PCR system QIAcuity also delivered solid double-digit CER growth with strong expansion in consumables and an ongoing high level of instrument placement. We are very pleased to see the increasing demand for this differentiated technology. A key driver of consumables growth has been the expansion of application for use on QIAcuity, particularly for biopharma application to support pharma research and development and new drug discovery. Sample tech sales were clearly impacted by the COVID headwind and also by weaker demand trends in China. For this product group, we still anticipate better year-on-year trends during the rest of the year and continue to expect low single-digit CER growth for 2024, particularly noteworthy in this first quarter where higher sales of automated consumables for use of QIAsymphony, QIAcube Connect, or EZ2. NeuMoDx sales were below our expectation for the quarter of 2024. As we have noted before, we are reviewing strategic options and plan to have a decision by our Capital Markets Day on June 17. As a third message, we saw an ongoing high level of profitability with a 25.7% adjusted operating income margin. This compared to 25.6% in Q1 2023 as our teams realized efficiency gains, particularly in administrative functions, while QIAGEN made investments into research and development and commercialization initiatives. The progress in the first quarter shows how our teams are determined to deliver on our target for an adjusted operating income margin of at least 28% for the year 2024. And as the last point, we are reaffirming our full year 2024 outlook. Our plan is for 2024 net sales of at least $2 billion at CER and adjusted EPS of at least $2.10 also at constant exchange rate. Like many other companies, we are closely monitoring macro trends focusing on our goals for 2024 and building confidence in delivering on our guidance. I would like now to hand over to Roland for a review of our financial results.

Roland Sackers, CFO

Thank you, Thierry. Hello, everyone. Thank you as well from me for joining our call. Our results for the first quarter were ahead of our goals and show QIAGEN is building momentum. Net sales of $459 million declined 5% at actual rates and also 5% at constant exchange rates despite some modest pressure on results due to the strengthening of the U.S. dollar. Consumables and related revenues had to absorb the COVID headwinds from 2023, and this led to a 4% CER decline over the year-ago period. Instrument sales declined 9% CER, reflecting the challenging environment for capital purchases. At the same time, we saw good placement trends for QIAsymphony, QIAcuity, and QIAstat-DX systems. Among the four product groups, Diagnostic Solutions led the performance. Here again, we saw double-digit gains for QuantiFERON and QIAstat-Dx, while our personal healthcare business also delivered single-digit improvements over the first quarter of 2023. In sample technologies, as mentioned earlier, we were pleased to see higher consumable sales for automated kits. The results for sample technologies take into consideration that we, along with other companies, had larger price increases at the start of 2023. This year, the price increase was more in line with our historical levels of a low single-digit increase. Additionally, we faced COVID-19 headwinds with an underlying sales decline at a modest low single-digit CER rate. We anticipate improved growth trends during the year as we launch marketing initiatives to highlight the differentiation of our portfolio. Additionally, the decision by Congress for essentially flat federal funding for life science research in the U.S. budget was in line with our planning, and this outcome provides customers with clarity on budget. In PCR/nucleic acid amplification, the QIAcuity digital PCR system continued on a solid trajectory, delivering solid double-digit CER sales growth over the first quarter of 2023. Key drivers have been the expansion of consumable sales particularly to biopharma customers, along with ongoing high levels of instrument placements. We anticipate better trends in this product group as the year progresses. In Genomics/NGS, sales were unchanged from the first quarter of '23. We saw higher sales of universal library prep kits for use with third-party next-generation sequencers. Sales in our QIAGEN Digital Insights bioinformatics business were slightly lower for the quarter due to the timing of a large customer contract, but we continue to see solid demand trends for this business and continue to expect sales growth above 10% CER for '24. Among the regions, sales in the Americas reflected the impact of COVID headwinds. Results benefited from improving demand for QuantiFERON, QIAstat, and QIAcuity consumables. The Europe, Middle East, Africa region saw sales decline 2% CER over the first quarter of '23, but underlying results rose at a single-digit CER rate excluding the pandemic headwinds. Among the top countries were France, Switzerland, and the United Kingdom. Our regional expansion in the Middle East helped these results. In the Asia Pacific, Japan region, sales in China declined at a double-digit CER rate, reflecting the macro challenges in this market that are not showing signs of improvement. However, at the same time, we saw improved results in India and South Korea and continue to see dynamic opportunities in targeted emerging markets. Let's now review the rest of the income statement. The adjusted gross margin was 67.1% of sales, modestly lower than the first quarter of '23 as we worked on increasing efficiencies after a period of capacity utilization expansion in recent years. For the first quarter, adjusted operating income declined 5% to $118 million from the first quarter of '23, in line with the decline in sales. We focus on investing in the R&D and delivered an improvement in the adjusted operating income margin to 25.7% of sales compared to 25.6% in the year-ago period. To close out the income statement, adjusted EPS was $0.46 for the first quarter, while results at constant exchange rates were $0.47 and ahead of the outlook for at least $0.44. The adjusted tax rate of 20% was at the high end of the outlook, while the average diluted share count at 226 million was also in line with our expectations. Turning to cash flow, the trends at the start of '24 have been very positive. Operating cash flow nearly doubled to $133 million over the first three months of '23 with significant improvement in working capital management and inventory management as well as collecting accounts receivables. Free cash flow rose nearly 1.5 times over the level in the first quarter of '23 to $97 million while at the same time, we saw a slight increase in investments in property, plant, and equipment as we continue transitioning to our new enterprise resource planning environment. We are paying particular attention on measures to ensure a high level of cash conversion while maintaining adequate supplies to provide products to customers around the world without disruptions, especially in light of the current macro trends and logistical challenges. Continuing with the balance sheet, our liquidity position was about $893 million at the end of the first quarter of '24 compared to $1.1 billion at the end of '23. This level includes the $300 million of cash payout for the synthetic share repurchase in January, which removed about 6.8 million shares outstanding. As a result, our leverage ratio at the end of the first quarter stood at 0.9x net debt to EBITDA compared to 0.6x at the end of '23. As a reminder, we have about $600 million of debt reaching maturity in September. Given our healthy balance sheet and strong cash flows, we want to create value through our capital allocation policy that has served us well. We continue to invest organically into the business while also reviewing various targeted bolt-on acquisitions that would complement our portfolio. The share repurchase at the start of '24 is also a signal of our views about the valuation of QIAGEN and our commitment to increasing returns. I would now like to hand back to Thierry.

Thierry Bernard, CEO

Thank you, Roland. Now let me take a moment to go over some of the progress our teams have made in advancing our portfolio. First of all, we are strengthening our dominant position in sample technologies, the first step in lab processes to gain access to DNA and RNA. Key expansion areas for QIAGEN involve new kits to support customers in fields like microbiome or liquid biopsy. Those areas are increasingly becoming critical to life sciences research and are in the early stages of clinical application. Let me start, for example, with the launch of the PAXgene Urine Liquid Biopsy Set, which offers a new non-invasive approach to collect cell-free DNA from urine. This technology holds potential for detecting minimal residual disease such as in cancer patients and improving the identification of therapeutic targets and patient monitoring for disease progression. Another example is that QIAGEN has a long-standing commitment to helping improve health for people around the world. QuantiFERON for latent TB screening continues to be a key element in the global fight against tuberculosis, which remains a leading cause of death. Recent tuberculosis outbreaks in the U.S., such as in Chicago or in San Diego, underscore the urgent need for robust screening measures. These outbreaks, particularly among immigrant populations and in areas with high tuberculosis incidence rates, highlight the importance of proactive screening initiatives. This is why we continue the conversion to modern blood-based testing from the old skin test, and the majority of the market worldwide and in the U.S. is available for this conversion. In March, our global awareness event to support World Tuberculosis Day was a great success with over 3,000 participants, underpinning the significance of collaborative efforts in raising awareness. Additionally, we announced a new partnership with the International Panel Physicians Association to reinforce our commitment to TB screening. Together with the IPPA, a nonprofit organization focused on improving migrant health, we are jointly promoting the use of IGRA technologies like QuantiFERON for screening immigrants as young as 2 years old. This is part of our effort to enhance early detection and support the U.S. target of eliminating domestic tuberculosis cases by 2050. As part of QIAGEN commitment to the global fight against tuberculosis, we recently launched a QIAseq panel that enables whole genome sequencing of tuberculosis samples. This breakthrough will enable real-time epidemiology of tuberculosis outbreaks, a critical need for tuberculosis surveillance and control. Another important development was the launch of our new software for QIAstat diagnostic. This upgraded version enables remote access to the system from other devices and allows healthcare professionals to gain faster access to results and collaborate more efficiently. For QIAcuity on digital PCR, we are expanding the utility of this technology for cancer research and oncology testing. Our teams recently launched new kits for better cancer detection through deeper simultaneous analysis of EGFR and B-RAF mutations that have not been possible with other tests. Those mutations are found in many cancer types, and the kits are designed to reduce the incidence of false positive results. In our QIAGEN Digital Insights bioinformatics business, we have launched an artificial intelligence-driven knowledge base for advancing drug discovery among our pharma and biotech customers. This database is built on vast sets of biomedical literature and scientific sources and can extract causal relationships between genes, diseases, drugs, and biological entities from genomic data. This new software will help our customers to better understand disease mechanisms and identify new drug targets. So across our portfolio, you can really see that QIAGEN is developing breakthroughs addressing important customer demands as we harness the power of biology impacting our daily lives. And now back to Roland for details of our outlook.

Roland Sackers, CFO

Thank you Thierry. Let me now provide more perspectives on our outlook for '24 and also for the second quarter. The start of the year shows that we are building momentum to achieve our full year outlook for at least $2 billion of sales at CER. This represents at least 2% CER growth from the $1.97 billion in '23 and also at least 3% CER growth in the non-COVID portfolio. The plan for '24 remains on track. Like others, we expect a more muted start and return to solid mid-single-digit CER growth in the second half. We continue to expect growth in the QuantiFERON TB test of at least 10% CER while also expecting double-digit CER sales improvements from QIAcuity and QIAstat-Dx. Our QIAGEN Digital Insights business is also set to deliver growth at a double-digit CER pace for the year as well. In terms of profitability, we have reaffirmed our outlook for adjusted EPS of at least $2.10 at constant exchange rates. The key profitability driver is our expectation to reach at least 28% adjusted operating income margin for '24, up at least 1 percentage point from 27% in '23. This reflects our commitment to operational efficiency while investing in R&D and new product development and commercialization. As for currency movements and based on rates as of April '26, we expect a neutral impact on full year net sales, but for an adverse impact of about $0.01 per share on adjusted EPS results. For the second quarter, we have set an outlook for net sales of at least USD 495 million CER and adjusted earnings per share of at least $0.50 per share also at CER. I would like to now hand back to Thierry.

Thierry Bernard, CEO

Thank you, Roland. And we are now getting closer to the Q&A session. So let me just provide you with a quick summary. First, we are fully on track to achieve our goals for 2024. Our execution on our balanced and focused strategy anchored by our pillars of growth has been instrumental in navigating these uncertain times. The anticipated decline in sales for the first quarter was less than our initial expectations, and the results demonstrate the effectiveness of our strategic initiatives. In this quarter, we are particularly pleased with the double-digit sales growth for QuantiFERON, for QIAstat Diagnostic, and for QIAcuity. This is a real testament to the strength and resilience of our diversified portfolio led by 85% of sales from highly recurring consumables. Another message is that we are pleased with the very good level of profitability. Our teams are committed to delivering on the full year adjusted operating income margin target of at least 28%. Efficiency initiatives are helping to create more flexibility and enhance our effectiveness across the QIAGEN organization. All of these actions are positioning QIAGEN for solid midterm growth as we deliver higher sales and improvements in profitability. I take this opportunity to personally invite you again to attend our Capital Markets Day event on June 17 at the New York Stock Exchange. This will be an opportunity to meet with our leadership team and learn more about our strategy to deliver our midterm ambitions for improving sales and profitability. I am personally really looking forward to seeing all of you in person. With that, I'd like now to hand back to John and the operator for the Q&A session. Thanks a lot for your attention.

Operator, Operator

I would like to invite you to attend our Capital Markets Day event on June 17 at the New York Stock Exchange. This will be a chance to meet our leadership team and learn more about our strategy for achieving our midterm goals related to sales and profitability. I am eager to see everyone in person. Now, I will turn it back to John and the operator for the Q&A session. Thank you for your attention.

Matt Sykes, Analyst

Maybe just to start out, just on QuantiFERON, it's been a pretty strong engine of growth for you previously. And looking at the first quarter results, just want to gauge sort of the phasing of growth for QuantiFERON over the course of the year to reach that greater than $450 million target that you set out, and just is the Oman collaboration that you announced in January a part of that guide? Or is that potential upside?

Thierry Bernard, CEO

So thanks for the question. So directly on Oman, yes, it's part of our guidance for 2024 since we announced it. We are currently deploying the solution together with the Oman authorities, so it goes as planned, as we said before. And now on the phasing, you know that traditionally QuantiFERON accelerates starting in Q3 and Q4 for many reasons. First of all, because we have a lot of local initiatives in different countries, such as, for example, the back-to-school initiatives in the U.S. So we always expect basically a weaker Q2 and then an acceleration again in Q3 and Q4. And at this moment, we are well on track to achieve the guidance that we gave you.

Matt Sykes, Analyst

Got it. And regarding cash flow, which was very strong this quarter, could you discuss potential further improvements? It seems that working capital and reduced accounts receivable were key factors driving operating cash flow. I'd like to hear your expectations for free cash flow generation. Thierry, from a capital allocation perspective, could you outline your priorities for this year in terms of debt, mergers and acquisitions, and organic opportunities?

Thierry Bernard, CEO

Thank you. So I will propose that Roland takes on the cash flow generation, and I will come back to you on the capital allocation. Roland?

Roland Sackers, CFO

Yes. Before I discuss cash flow, I want to address your initial question. It's important to acknowledge the relative growth numbers that Thierry described. Sequentially, we are expected to see growth from the first to the second quarter. However, it's worth noting that the second quarter last year was particularly strong. Regarding cash flow, we are pleased with our outlook for the full year. A good start is crucial, and we anticipate our operating cash flow to be in the mid $500 million range, with free cash flow likely exceeding $350 million. There is potential for upside, especially concerning inventory levels. We currently have high inventory levels due to logistical challenges and political variabilities, particularly around China. We believe that conditions could normalize in the second half of the year, which would be an additional benefit.

Thierry Bernard, CEO

Thank you, Roland. On capital deployment, so around the 3 main axes for capital deployment, I think that QIAGEN still prioritizes organic investment and R&D or growth with our investment in R&D. You know that we have a ratio which is slightly above 10% of R&D investments to sales. But we want also these investments to be profitable. So I would say priority to profitable organic investment. You know that we have also a very healthy balance sheet. So we are constantly looking at potentially accretive and synergistic acquisitions, mainly bolt-on. We have several discussions ongoing. It's too early to give details, but it's clearly a priority. And third, obviously, anytime we see a good opportunity to return value to our shareholders as we have proven, for example, with the recent share buyback, we will not hesitate to do that. But that would be basically in order of priorities.

Aisyah Noor, Analyst

I have 2, please. First is, what's your view on the U.S. lab developed tests or LDT ruling released by the FDA recently. And can you give us the sense of your exposure, whether that's what portion of your tests classify as an LDT or your exposure to reference labs across the business. If you could just help us quantify your exposure that could be really helpful. The second question is on NeuMoDx. I appreciate you're planning to update us on the business in June. But at this stage of the review and of the outcomes you've considered, which appear most likely? And could you remind us on the margin profile of the NeuMoDx business, please?

Thierry Bernard, CEO

Thanks, Aisyah. And so first question on LDT. First of all, it's a bit premature to comment. You know that the text was issued by the FDA only yesterday. As a reminder, it's a 532 pages long text. So it takes time to proceed. But a couple of points to highlight. This is not new. The FDA has been saying for many years that they believe that they have oversight of laboratory developed tests. Second, from what we have seen so far, the text issued yesterday is much softer than the first version that we saw towards the end of 2023. In that version, if you remember, no tests were grandfathered. The option for grandfathering does exist in the new proposal. Third, the exposure of QIAGEN is very limited, not to say not significant at this moment. I even believe that it will reinforce the positioning of companies like QIAGEN which are supplying quality components to laboratories or industries that are developing LDTs. And fourth, when I say it's premature, it's because everybody is expecting some litigation to start now as we know that several major actors in the U.S., especially the association of laboratories are probably not in agreement with this proposal. Too early to say. On NeuMoDx, we confirm that we will take a definitive stance by June 17. We continue to look at or to work on several scenarios. As we said previously, both of those scenarios, whether finding partners or shutting down the activities are accretive to our P&L. They are accreting from a gross margin standpoint, EBIT margin standpoint, and EPS as well. This is what I would say today, and more details on the decision by June 17.

Michael Ryskin, Analyst

Congrats on the solid year. I want to ask a little bit about underlying market conditions. As you wrapped up quarter end, you talked a little bit about the demand patterns you're seeing from pharma and biotech and also from government with your comments on flat U.S. budget. Just any update on how the first 3, 4 months of the year have played out? And if there is any change relative to your expectation as you go through the rest of the year as it's still a very uncertain time?

Thierry Bernard, CEO

So Michael, I must confess that your voice was seriously muffled. I understand that you are asking about the market conditions. So if I got it right, but do not hesitate to come back on this. Market condition especially academia research. I think Roland alluded to that first point that I would say, at least in the third quarter, we get clarity or we got clarity on the level of public funding, for example, the budget for the NIH, but also in other countries. We know that it's going to be flat. This is exactly what we factored in our budget for 2024. We highlighted in our call this morning that we continue to see a certain cautiousness in our customers for capital spending for capital expense, which is not a surprise because, as you know, Michael, there are so many countries going to election this year, that elections are always creating a bit of caution. We see this or we plan this to improve as those elections are coming behind us, and we are progressing towards the end of the year. That's what I would clearly highlight. We expect the market to slowly ramp up sequentially. We said in the press release this morning and yesterday that we do not expect the Chinese market to bounce back anytime soon, at least not before 2025. So at the moment, the market environment fits what we did factor for 2024.

Michael Ryskin, Analyst

That's helpful. And I think my follow-up. Hopefully, this is easier. A quick follow-up. I wanted to just specifically touch on the insurance portfolio. I know that is a very small part of the overall business, but if you could provide any color within that? You've got a couple of different product lines that fall in the instruments line by complexity of the instrument by ASP, just any change in that as you start the year?

Thierry Bernard, CEO

Absolutely. I don't know John, if you can help me, but from where I am, here in Boston, the voice is too muffled. I didn't get half of the question, at least. There's a lot of background noise.

Roland Sackers, CFO

First of all, I agree it was not easy to understand. It's about the instrument portfolio and growth rate. While many companies are facing challenges in the instrumentation business due to the current market environment, certain instruments like our QIAcuity and QIAstat, priced around $30,000 to $40,000, are performing adequately. Instruments costing over $100,000 face more difficulties. Overall, despite the tough environment for higher-priced instruments, we feel quite comfortable about our introduction into 2024, particularly due to our exposure to QIAcuity, QIAstat, and QIAcube.

Hugo Solvet, Analyst

I have two questions. First, regarding QIAstat, Thierry, thank you for noting that your teams are collaborating closely with the FDA. Could you share your level of confidence in obtaining approval by the end of June to launch the gastro test in the second half of the year? Additionally, could you provide more details on the placement trend for QIAstat?

Thierry Bernard, CEO

Thank you Hugo. So first of all on the level of confidence for the GI approval. Hugo, what I can say is that we have submitted all our data to the FDA and since our later submission, we didn't get any more questions and the data was solid and good. They were solid in terms of analytical performance, and they were solid compared to competition. So now obviously, I cannot speak on behalf of the agency. We are in constant touch. We will continue to do so because it's important for QIAGEN to get this test approved. This is the only thing I can say. I cannot talk on behalf of the agency. Based on our data, I'm confident. On QIAstat, on your questions for the trends of placement, as we said in the press release, it's a healthy trend. We are over the 100 units for the quarter. But what is all the more satisfying for us is, one, to see the growth at more than 20% in many of our panels, and not driven by COVID. So I'm referring to GI in Europe, for example, to meningitis. And two, the fact that despite having only one panel available in the U.S., that we are still able to place instruments. That's very encouraging.

Patrick Donnelly, Analyst

Thierry, maybe a follow-up on the China piece. I think you guys have a few different verticals there, both life science diagnostics and then the QIAGEN brand, the private label brand. Can you just talk a little bit about going through each of those, what you're seeing? Are there different trends in China and just expectations as we work our way through the year there? Does it sound like you're overly optimistic on improvement, but I just want to talk through the outlook of the year there.

Thierry Bernard, CEO

Well, I wouldn't say, Patrick, optimistic or pessimistic, I would say coherent. We keep saying the same thing since 2023, where we said that we would never expect the Chinese market to bounce back any time soon. And we always said, at least not before the end of 2024 and probably more 2025, and we maintain that position. The Chinese market is in a transition phase post COVID that is impacting both life science and clinical diagnostics. QIAGEN has a relatively limited exposure; it's 6% of our revenues. And we have, I think, the strategy that is needed to tackle the needs of the Chinese market, which is, first, investing into local R&D and manufacturing any time this makes sense. Second, having a double brand or second brand, which is serving exclusively the Chinese customers with Chinese products. We are obviously monitoring all the initiatives taken by the Chinese authority to try to boost their market, especially the recent capital investment initiative. It's too early to say what's going to be the impact, but we are fully and closely monitoring it. So for us, China in 2024 is on track with our expectations. We don't see any bounce back. And as I said many times before, starting 2025, this market should represent a mid-single-digit growth opportunity for a company like QIAGEN.

Roland Sackers, CFO

Yes, overall, it has been a good start to the year. We also anticipate that the second quarter will show an increase in operating income adjusted, potentially reaching the 27% range. I believe there is a solid upward trend, and we are optimistic about achieving at least 28% for the rest of the year. While we expect R&D investment to remain around 10% for the full year, it may dip slightly in the fourth quarter. There are still opportunities for leverage around SG&A, particularly from our digitalization efforts and the advantages of scale. We continue to see options for margin improvement, not only for 2024 but also beyond, which we will discuss further during our Capital Markets Day. The tax rate was slightly higher in Q1, but I expect it to normalize over the year. Overall, I would say the start has been quite healthy for us.

Jack Meehan, Analyst

Maybe just to start, I want to dive into the genomics results. Can you talk about visibility in the QDI contract timing you called out in the release and just the path to getting back to growth for that business for the rest of the year, what your visibility is?

Thierry Bernard, CEO

So Jack, it's very simple. The Q1 was mainly due to a timing of revenue recognition. And basically, it's even for one contract, you know that in this QDI business, sometimes we have large contracts, especially with pharma. That doesn't question at all, first of all, the investment plan that we explained to the market 6 months ago. And that doesn't question at all, our goal for double-digit growth for the rest of the year. So it's just a question of timing of recognition. We believe, as we have stated multiple times, that the digital PCR QIAcuity line has significant growth potential, closer to 20% rather than just in the low double digits. Additionally, we have built a highly differentiated company with numerous workflows, and over the past three years, we have developed a menu focused first on life sciences. This became particularly impactful about 18 months ago when we began to engage with biopharma. Now, we are also expanding into cell and gene therapy applications and quality control for pharmaceuticals. It is important to note that we are dedicated to launching this solution for the clinical market, with aims for QIAcuity to receive FDA approval in 2024. Following that, we plan to introduce a menu centered on hematology-oncology panels, such as BCR-ABL. This outlines our objectives for both life sciences and clinical applications.

Catherine Schulte, Analyst

Maybe first on the academic side. You mentioned the NIH budget came in, in line with your expectations. We have seen a slowdown in NIH outlays in the last 2 quarters. So could you just talk to what you're hearing from customers in that end market?

Thierry Bernard, CEO

Well, as we said before, Catherine, if you compare, for example, 2023 with '24. In '23, we did budget for roughly a 3% increase of the NIH budget, and we were right. This year, we were more cautious for different reasons: the economic context, the political context, and we said flat, and we were right as well. We continue to have extremely active collaboration with the NIH in the sense, for example, that you have heard about the recent detection, for example, of H5N1 in milk. This is a field where we collaborate with the NIH. You have seen also the previous discussion, especially in February around the detection of Clade I and Clade II for monkeypox, a decision of the field where we collaborate with the NIH. We have ample fields where we can collaborate with this major research from components, oligos, enzymes to finished products, whether it is PCR or digital PCR. So it fits what we planned for the year. We believe that I cannot speak on behalf of the American authorities, obviously, but it's a kind of a transition period. And it's clear that I haven't seen the U.S. authorities saying that they don't want to invest in high-value technologies or research and development for the future. So we are still confident that this funding will bounce back at some point.

Catherine Schulte, Analyst

Okay. Great. And then in sample tech, how does the non-COVID business perform outside of China? And what's your outlook for sample tech for the second quarter? Should we see a return to growth on a non-COVID basis? Or will that be more of a back half event?

Thierry Bernard, CEO

I would prefer, as Roland said, to say that we still expect low to low-single-digit growth throughout the year. It's too early in the quarter. You see, as we explained, I mean, we are impacted here by weak demand in China. Obviously, the COVID impact. But on the non-COVID, we are pleased on one hand with the placement of instruments. Now we need to accelerate the consumables, both manual and automated, the market is moving probably faster into automated sample tech. But once again, I ask you to see the sequence of growth through the full year, not just in quarter 2.

Falko Friedrichs, Analyst

So the Roche CMD is coming up now in May, everyone's looking forward to see if they do anything on the latent tuberculosis side of things. Irrespective of the decision, can you just briefly remind us why you still believe that you'd be sitting on a great business here that you can grow further even if they were to enter that market? And then related to that, if they decide to enter the market, would that change anything with regard to your further rollout strategy?

Thierry Bernard, CEO

Thanks, Falko. I cannot talk on behalf of any competitors. I'm talking for QIAGEN, and I know that we have built what is the most automated, universal automated workflow for latent TB detection. Many people have in mind the agreement with DiaSorin, which is key and has proven extremely efficient since we executed on it. But it starts also on the pre-analytical step with agreement with Tecan and Hamilton. There is no comparison on the market at the moment with that workflow. Second, as you have seen also recently, Falko, we continue to invest in the product itself. The fourth generation did replace the third generation and we continue to get publications in peer reviews on this fourth generation. Overall, since we have launched latent TB QuantiFERON, it's more than 3,000 publications. It's unprecedented. Third, there has been competition for many years for QuantiFERON. The main one is an antiquated technology called the skin test. And that market is still underpenetrated, probably below 40%. So the potential to convert is still significant in the U.S., obviously, but also in other markets. And beyond skin tests, the emergence or the presence of other competitors independent or not, never really changed the growth rate of QIAGEN and all our market shares. So do not take this for complacency. We monitor the market very well, but we have not seen anything concrete yet. What I know is we continue to invest in our solution on the market conversion, and we believe that we are still very well positioned to lead that market.

Daniel Leonard, Analyst

I have a follow-up to an earlier question on your sample tech business. Has your level of conviction that sample tech can grow low single digits for the year. Has that level of conviction changed at all in the past 3 months?

Thierry Bernard, CEO

No. As we have said, we reiterate that vision for the full year. Once again, 2024. We are spending significant marketing time and analysis to understand the trends of the market worldwide. And so far, this basically confirms that assumption. So no change for the moment.

Daniel Leonard, Analyst

And then my follow-up, Thierry, you mentioned H5N1. How are you thinking about QIAGEN's ability to respond if there is a greater need for testing for H5N1 either in livestock or God forbid humans?

Thierry Bernard, CEO

So as usual, we are extremely proactive with every relevant authority. I spoke about the NIH before, but it's not only the NIH to discuss proactively about, one, the situation without panicking. And second, the solutions. And as I said before, what is very interesting with QIAGEN is that when I say solutions, it's not just about a kit. If the NIH decided to develop their own kit or the CDC, they will use QIAGEN components. So we can answer from component to finish kits, whether these kits are in a PCR format, in a digital PCR format, or a next-generation sequencing format. You know that during the first major outbreak some years ago of H5N1, QIAGEN was one of the most relevant companies to step up to this challenge. And we will continue to do the same. We are very vigilant on H5N1 and on the development of Monkeypox as well. And so we are ready and constantly negotiating and discussing with those agencies.

Douglas Schenkel, Analyst

I just wanted to quickly follow up on QuantiFERON. Thierry, you explained well the investment community's focus on competition. This isn't a new concern for you; you've been facing competition from traditional approaches for some time. There is already an existing IGRA competitor available. With that context, can we expect you to provide a detailed overview at the CMD, including not only how you compare clinically and in process to alternatives, but also the steps you've taken to secure customer contracts based on the effectiveness of your assay while considering the possibility of broader competition? Is that a reasonable expectation?

Thierry Bernard, CEO

It's a very clear assumption, Doug. It's such a key product for us that the CMD plans to provide indeed details of what our expectations for the coming years. We are also very much monitoring the situation of our contracts. So we will give details on the percentage of contracts that are locked into pre-annual contracts so that you will see really that there is no complacency. There is extreme vigilance. There is investments, and there is confidence that this can continue to be a growth driver for our company.

Doug Schenkel, Analyst

Thank you for that. And then just a quick question on the quarter. Other companies that have reported, at least those that have reported thus far, a slower-than-expected start to the year when it came to lab activity and reagent demand. And then it seemed to indicate that there was a pickup in activity in March and April. I just want to be clear, did you guys see the same thing? And if so, is a continuation of that trend fully reflected in guidance assumptions? Or are you waiting for the trend to extend for a longer period of time before you would factor something like that into your guidance?

Thierry Bernard, CEO

I think, Doug, Roland alluded to that during the presentation in his part. There is softness in the life science market, not just for QIAGEN. If you look at competition, I believe that we outperform the competition and competition results in terms of growth. And there is more dynamism at the moment in the clinical market. The softness in life science mainly translates into cautiousness on capital expense. And as we have explained, for us, it was planned, we did even better than what we expected in Q1. We did better than the competition that has reported the results, at least those that are completely comparable to QIAGEN. And as we said and Roland as well, we reaffirm our guidance. So we see quite solid improvement. This is where we are at the moment.

Daniel Brennan, Analyst

Maybe first one, just on PCR amplification. I know there was a question earlier on the digital PCR portfolio. But after the 12% decline in 1Q, I know the press release says you expect the business to improve through the year. What's assumed for the base business ex digital PCR and kind of what drives that improvement as you see it progress through the year?

Thierry Bernard, CEO

Because we have such a wide portfolio in PCR, I'm not talking digital PCR, which is made of older technologies, newer applications that overall, we believe that the trend will follow the market trends in our sequential improvement expectation. So do not forget that we have a significant installed base also, which is driving this assumption. So this is confirming what we have said. But again, Dan, clearly, in PCR because we focus and because this is also a symbol of that new QIAGEN for the last years, the efforts in R&D, the efforts in presence on the ground, marketing, and sales will not go overall for the PCR portfolio. It will go to the digital PCR portfolio because this is where we can really take a #1 position in the market. So that's the allocation of priorities. And this is what you will see also clearly on June 17. I think John and Roland can chime in as well. The goal for the Investor Day is to go on the ambitions top line and also bottom line for the coming 4 years is to show why we do believe that we have significant growth drivers in our portfolio, and we will show clear numbers here. But we also believe that QIAGEN needs to accelerate on improving profitability, and we want also to show with what kind of efficiency measures we want to achieve that. And obviously, it's also an opportunity for you guys to meet also part of the new management of QIAGEN. You know that we have brought different new managers to the Executive Committee, a new Head of Operations, a new Head for Life Science, a new Head for Clinical Diagnostics. And you will see also those last 2 ones, Head of Life Science and Clinical Diagnostics on stage and giving their assumptions for the growth of their respective portfolio.

John Gilardi, Vice President of Corporate Communications and Investor Relations

Thank you, Thierry, on that point. Again, we look forward to seeing you on June 17 in New York at our event. And if you have any questions or comments in the meantime, please do not hesitate to reach out to us. And thank you again for your interest in QIAGEN. Bye-bye.

Operator, Operator

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