DiaSorin S.p.A. (DIA) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the DiaSorin H1 2025 Results Conference Call. [Operator Instructions]. At this time, I would like to turn the conference over to Mr. Carlo Rosa, CEO of DiaSorin. Please go ahead, sir.

Thank you, operator. Ladies and gentlemen, good afternoon, and welcome to the first half results for Chorus Call as usual. I'm going to give some general comments on the business, and then Mr. Pedron, our CFO, is going to take you through the numbers. Quarter 1 was a solid quarter for DiaSorin in terms of top line growth and EBITDA margin. Quarter 2 revenues ex covered growth in line with expectation, making H1 25 at plus 8%. Quarter 2, EBITDA margin, 36%, a H1 EBITDA, 35%. So in line what we expect to achieve by year-end and Mr. Pedron will then comment on the typical we have a seasonality and a difference between 2. But overall, we confirm guidance of 2025. As usual, I'm going to comment on the business by all the different business lines and starting from immunodiagnostics. Immunodiagnostic grew 8% in quarter 2 in half 1. In line with expectations and confirming the strong policy trends or our clear business in all the geographies, except for China, I'm going to make a comment about China. If you consider the immunodiagnostic growth ex the China effect, it would have been 10%, both in quarter 2 and in H1. So franchise, as we have seen in the past, continue to deliver growth according to the different program that we discussed many times. If we now go by geography immunodiagnostics, North American which is 1 of the most relevant geographies for DiaSorin for immuno grew 14% in the quarter, and the growth is driven by the continued success of our U.S. hospital strategy we have a target of reaching -- adding 100 new hospitals by the end of the year, and we are taking perfectly compared to the target. And clearly, as we have discussed many times, this is due to our unique menu specialties that makes LIAISON excel our platform are very suitable for this market. When it comes to Europe with good performance, plus 6% in quarter 2, driven by obviously driven by the success of the LIAISON platform as we discussed many times in this geography, we are very much penetrated. So we are -- our result is relies on the fact that we keep adding products to our existing installed base of LIAISON platforms. So Europe overall continues to deliver high mid- to high single digits, which is what we expect this geography to do. When it comes to the rest of the world with positive performance in the quarter despite political tensions in some countries. And the good result has been driven by strong growth in direct markets, mainly Brazil, Mexico and Australia. And in those geographies where we sell through local distributors. Last but not least, I would like to discuss China. China, as we have discussed now since almost 2 years is becoming a very difficult market to operate. We experienced in the quarter at double-digit decrease due to the already announced and expected impact on VBP. The market said is difficult. I think that a few other companies already recorded and did comment on [indiscernible] China. So I don't think we need to spend more time. For DiaSorin, China represents less than 5% of the revenue. So even if we are struggling in this market, it does not impact the overall company performance. If we look by technology by product QuantiFERON TB together with our tool panel continues to drive the growth of the business, both in Europe and in the U.S. And we are launching this product also in secondary geographies. So we expect that when we get to separation of the primary market, secondary market, will have at out to continue to grow these franchises. But what I think is fairly remarkable is that also established product lines, like hepatitis retrovirus or even vitamin D are experiencing growth again. And especially vitamin is very interesting. We've been losing vitamin for many years. Now we reached a position where -- we are selling this product in the hospital market where together with the rest of the menu, we can bundle it, we can secure it and we clearly enjoy the testing volume increase for this parameter, which is actually happening across the globe. [ Minutes ], we continue to see positive signs of acceleration in North America. And we have reached 40 active customers by the end of H1. I remind everybody that we have a target of 75 new customers by year-end. So we are well in the position to deliver this target by year-end, which I think is worth noting is that we recently signed a very relevant contract in the U.S. is a $1 million business that -- so it is the first time that we were able to sign for this as a clinical group that decided to use now is the NIM Bass, across site and being part of the medical tracker. So I'm very positive about the future. Now let's move to molecular diagnostic, with molecular diagnostic, I would like to point out that we need to in order to fairly compare '25 with '24, we need to exclude the various contribution, the ARIES contribution which was 5.5 million in 2024. ARIES, I remind everybody is Luminex legacy platform that we decided to discontinue last year. So we had sales through H1, but we don't -- we didn't have anything this year. So if we look at the molecular diagnostic ex-COVID performance in Q1, excluding ARIES growth was 8%. Sorry, I said in Q1, but here I was talking about Q2. So in Q2, 2025 growth, excluding ARIES is 8%. If you look at the VERIGENE and the LIAISON PLEX, platforms together, what we call our multiplex syndromic business. The tranches in quarter 2 grew 11% and 18% in H1 2025. Clearly, after the strong start in quarter 1, where we had a 25% growth, there is an expected a lower pace in the second quarter because the LIAISON PLEX, the panel we launched is a respiratory that clearly in Q2 and Q3 is not a period on demand, and then it's related to the regulatory season, so we expect an acceleration of growth coming from into Q4 is always happens every year. When it comes to the LIAISON PLEX, we now have completed our blood panel. So now we have a full blood panel approved in the U.S., which is allowing us to start quoting in this market that for us is very relevant because the legacy VERIGENE I platform was still holding a good market share in this capital segment. So for us it's defensive -- is a defensive panel plus it is allowing us the ability to clearly increase pricing in this segment moving from one [indiscernible] other plus this is giving credibility to the LIAISON PLEX platform. Now we have 4 different partners that can be used. Any speaking about the ability of the company to deliver on the availability on additional menu on this platform. Clearly, the next one to come that will complete our offer in a Phase I offering is gastrointestinal panel that we will submit by the end of 2025. So in Q4, we expect to submit the product in line with expectations and get it approved beginning of next year. Now if we move then to the molecular diagnostic, the other segment, which we call targeted MDX, this is the [indiscernible] MDX platform. The business grew 10% in quarter to 12% in two the nonrespiratory panel, they're growing 40%. They represent half of the business, more or less, they grew 40%, thanks to, again, the specialty positioning we've been discussing several times one of the most successful assets we have the [ Candida Auris ] where we are the only one in the market and is getting some traction in the U.S. market. respiratory panels in the second quarter decreased due to a softer tail of the flu season versus previous year. And also, let's remind ourselves that in this case, we are comparing to our Bordetella outbreak last year, which did not repeat this year and is affecting comparison between respiratory, Q2 versus last year. We are submitting as a defensive posture in this platform, the [ Forplex ] panel or to be cover to get to par with competition. We expect it spec to EBIT approval next year. So for the next 2 seasons in 2016, they were also in the MDX platform, we are going to have a complete offer. When it comes to the LIAISON PLEX, which is our clear Way platform, we have filed the ABCR funnel apply and apply for a clear waiver in July 2025, in line with the expectations of the Investor Day 2023 Investor Day, and we expect the launch of the system in H1 next year. So to be able to participate season, next panel to come currently under development, initial studies group [indiscernible] that, again, we believe, is going to be avail next year. So we are also building momentum on the LIAISON. Last but not least is the LPG, the LIAISON technology. We had a very good we grew 10% in H1 versus previous year, 7% in quarter 2. I need to draw your attention to the results because if you look at the license technology, half of the business is diagnostic up of the business, life science, the diagnostic portion is well because we are supplying clearly companies that do grow mid- to high single digits in this space. When it comes to the life science, clearly, we are suffering the results of what the -- all our business partners are reporting a softening of the instrument revenues, part of the revenues we have is related to instrument that we make and we sell to the business partners that then sell it to the research community, although what is very interesting and is working for us so far is that reagent revenues in Life Science are still has been growing. Clearly not as the past, but as if there has been a repositioning of the limited funds these days of researchers more eager than CapEx, which makes sense. So in the H1, very good results. We expect some softening clearly in H2, but we really need to understand how this volatile market will be performing in 2025 going into 2026 other initiatives that I would like to comment or 2. One is the closure of the -- our German manufacturing site. As outlined during our last Investor Day in '23, we remain committed to driving operational efficiency across the group, and this is because we foresee that environment -- pricing environment in this space is not seen to improve you can only improve if a company can be innovative and launching specialty products like we continue to do for the products on the market. There is always historically in this space, there has been price pressure that will continue. Therefore, we continue to do whatever we can to improve our profitability in the manufacturing side and in this very specific case, we are concentrating fundamentally our manufacturing capacity in 2 sites, 1 in Italy, 1 in the U.S. want to serve globally our new SA franchise and 1 that is serving primarily the U.S. market, and this is why we're not exposed to tariffs these days. We've invested in capacity and automation in this site. And so after the last review, it did not make sense to continue to manufacture in Germany. We are in current negotiations and we are going to create fairly our employees that have been working with the company for many years, delivering great results. I expect that by next year closure will happen and products will be transferred to Italy. The last remark I would like to make is to do with that we have a collaboration that I think is very interesting with [ Gilead ] that was announced last year about the hepatitis delta virus. Gilead is trying to get here a new drug approved in the U.S. And together with Gilead, we are bringing an assay that would be used in the U.S. screen for those patients that are candidates for the drug. We have submitted to the FDA. We responded to the last set of questions. And so we expect that this assay will be approved in the next quarters or so. And that we clearly will help and support our differentiation in the U.S. market continuing to drive our repetitive franchise growth. Now I'm done with my comments. I'm going to pass the microphone to Mr. Pedron, then we don't take questions.

Thank you, Carlo. Good morning, good afternoon, everyone. Thank you for joining DiaSorin H1 2025 earnings call and for your continued interest in our company. Over the next few minutes, I will walk you through the sorting financial performance for the first half of the year. And then like always following my remarks, we'll open the line for the Q&A session. So 2025 year-to-date revenues reached EUR 619 million, up 5% or EUR 30 million compared to the same period last year. This growth was achieved despite the expected decline in cold sales, which were down EUR 7 million and the EUR 7 million FX headwind, primarily due to the depreciation of the U.S. dollar against the euro as we anticipated during our previous earnings calls. On that note, let me please remind you that on a full year basis full year basis, every $0.01 movement in the U.S. euro exchange rate typically impact the serine revenues by approximately EUR 6 million to EUR 8 million and adjusted EBITDA by EUR 2 million to EUR 3 million. Given that the average USD-euro exchange rate in H2 last year was at 1.08. I believe it's fair to expect an additional FX headwind and in the second half of 2025. Excluding COVID at a constant exchange rate, we saw our core business grew by 8% in the first 6 months of 2025, as said, in line with full year. Carlo already covered all the performance geography and the technologies. So I'm not going to comment more. In the second quarter, revenues, excluding Coria, at constant exchange rate in or more or less EUR 19 million. as we said and as we heard in spite of the continuation of the ARIES platform in 2024. As mentioned earlier, we faced a significant foreign exchange headwind in the quarter amounting to roughly EUR 11 million. These, combined with the expected decline in COVID related revenues resulted in a sharp revenue growth of 2% at current exchange rate at current [indiscernible]. Gross profit for the first half of 2025 reached EUR 406 million represented 60% of total revenues. This marks an improvement of EUR 60 million or 4% compared to the same period last year. In Q2, specifically, the gross margin remained stable at 66% of revenues in line with Q2 2024 and consistent with the level we have in the past few quarters in spite of the fact that we started so some impact from the tariffs of moving goods importing goods into the U.S. Adjusted operating expenses for the first half of 2025 that totaled EUR 232 million representing a 1% increase year-over-year or 2% at constant exchange rates. As a percentage of reoperating expenses declined to 37%, down from 39% in H1 2024. This improvement in rating leverage is a key driver of our margin expansion, as we have consistently emphasized in prior earnings calls and during our current master date. Adjusted other operating expenses for the first half of 2025 were negative EUR 6 million better than the same period in 2024. I'd also like to address the reported other operating expenses which in the quarter has been affected by the initiation of the divestiture and the commissioning plan for our immunodiagnostic manufacturing site in Germany as we've just heard which we expect to complete by the end of 2025. This initiative, as we said, line with the ongoing strategy to optimize our oral manufacturing foot. Similar to the actions we've taken in the past such as the divestitures of our Irish and South African facilities. This affects our continued efforts to adapt to the evolving macroeconomic conditions and as our long-term competitiveness. The one-off charge recorded in Q2 of about EUR 8 million reflects the first part of this program. and we expect additional EUR 6 million to EUR 8 million to be booked by the end of 2026 to eventually record the full scope of this initiative, including, among others, despite the commissioning costs for tilted expenses, fixed asset write-offs and so on and so forth. We anticipate a positive EBITDA impact of approximately EUR 6 million to EUR 8 million annualized once the plan is fully implemented. We said this is one of the levers that support our path towards intertrial targeting the EBITDA margin outlined during the last Capital Market Day. As a result of these dynamics, adjusted EBITDA for the first half of 2025 reached EUR 167 million, representing 27% of revenue. This reflects an increase of EUR 40 million or 9% compared to the same period last year. Adjusted interest expenses for the first half of the year were just under $1 million. compared to an income of EUR 2 million in the same period of 2024. This shift was driven by a lower year on our cash investments, reflecting the decline in interest rates. The adjusted tax rate increased from 23% to 25%, mainly due to the termination of the patent box regime for our Italian legal entity. As previously discussed during our last Capital Market Day, this measure was not renewed by the Italian tax authorities. And the resulting impact on our effective tax rate was therefore anticipated. On a separate note, we do not expect any material impact on our tax rate from the recently after so-called One Big Beautiful Tax Bill in the United States. Year-to-date adjustment income totaled EUR 125 million, representing 25% -- 20% of revenues. This marks an increase of $5 million or 4% compared to 2024. Lastly, H1 adjusted EBITDA reached EUR 240 million, exceeding prior year by EUR 16 million or 8% at current exchange rate and by 10% constant exchange rate. The EBITDA margin of 35%, both as currently content venture, it is better than the 34% were recorded in 2024. Constant effects Q2 EBITDA margin is almost 36%, benefiting from the favorable calendarization of LTT sales, typically associated with higher margins and from disciplined cost management. As we observed last year, we anticipate higher operating expenses in the second half of the year, driven by our summer salary review and by the timing of certain discretionary costs. The improvement in our margin is in line with the guidance and the path to increase profitability we've discussed many times in the past. Let me now turn to our net financial position. We closed Q2 2025 with a net debt of EUR 683 million, an increase of EUR 66 million compared to 2020 for year-end. This variance is mainly the result of 2 key factors. On one hand, we generated a solid free cash flow of almost EUR 85 million. On the other hand, this was more than offset by EUR 97 million debt related to payments owed to shareholders who exercise with lower rights following the recent adoption of [indiscernible] and then we have to account for EUR 63 million dividend paid in May to our shareholders. Before we move on, let me briefly update you on the ongoing Italian payback situation. It looks like we almost get to the final episode. The government mandated reimbursement made an is tied to regional overspending on medical devices covered by the Italian Health National Health Service. Just a few days ago, as part of BT enacted at the end of June, and the Italian government introduced a settlement framework for outstanding playback obligations related to the years from 2025 from 2015, I'm sorry, under this new provision, companies can resolve ongoing legal disputes by paying 25% of the original requested amount a significant reduction from the 48% we discussed in previous calls. Once the payment is made and no further legal or administrative actions can be pursued by the authorities. As you may recall, we have built a provision on our balance sheet over the past few years to cover these risks. As a result, this legal development will have no impact on P&L. However, we do expect a cash outflow of more or less than EUR 5 million. Given the fact that this expense will be deductible from a perspective at the net cash impact will be slightly above 3 million. Fourth, noting that the decree does not address payback publications for the year beyond the that we believe our current provisions remain underweighted to cover any future exposure. Let me now conclude my remarks by sharing our outlook for full year 2025, which remains consistent with the guidance we confirmed during our Q1 earnings call. As always, figures are at constant rate, assuming a USD-euro exchange rate of 1.08 for 2024 is a reset. We expect revenues, excluding COVID to grow by approximately 8%. And we also confirm our guidance for an adjusted EBITDA margin of around 34%. Please note that our guidance already incorporates the anticipated impact of recent tariffs across the geographies in which we operate, but mainly the U.S. while we are exporting mainly to the U.S. While we acknowledge that the broader matter on camera environment remains fluid and while we wait for further clarity following the recently announced trade agreement between the European Union and the U.S. administration. Based on the information currently available and considering the mitigation actions already implemented or underway, we do not expect a material impact on our profitability in 2025. We will continue to closely monitor developments in this evolving situation, and we'll keep you informed as new information becomes available. With that, I'll now turn the line to the operator to begin the Q&A session. Thank you.

[Operator Instructions]. The first question is from Aisyah Noor with Morgan Stanley.

My first one is on China. So your competitor was talking about DRG or debundling dynamic that's happening and impacting panel-based testing in assays. Have you heard about this? And are your products within the scope of this debundling plan? And then my second question is for Piergiorgio on the margins. Could you explain a bit why the gross margin was down 30 bps, flat year-on-year, I guess, but the EBITDA margin is up 100 bps. Could this reflect a higher mix of partnership revenues in no or any other mix dynamics we should be aware about?

Yes, I'll take the question about China. Yes, I know what the disease. I think that -- and we heard about it. I believe that this confirms what China is plan to address, which is fundamentally cutting costs. right. So BRG together with BBP as 2 ways to do it. And interestingly enough, this has nothing to do with foreign companies per se. This is actually addressing the market and is, at the same time, hitting the Chinese local players and the international company. So to me, nothing new underdestand. Truth of the matter is that China will become a less profitable market for everybody. because of driving less consumption and through the DRG systems and pushing down the price through the VBP. It doesn't mean that China is not an interesting market. Simply by sheer size, is that I believe the strategy for China is not to rely on existing metal products, but focus the strategy of the company into very, very specific specialty products that would help differentiate and the clinical value of which is clearly leaving this product outside the scope of BBP and at the same token upside the pressure of the DRG. As far as the sorting is concerned, we discussed about this a few times. We are going through registration of the TV product. There is a great TV market in China. And we expect this product to be available starting from next year. and then all the gastroenteric line that is not registered for us where there is no, I think, competition is also orifices today. There when it comes for the margin question, , please.

Yes, thanks for the questions. So the margins in the first half of the year grew more same pace as the top line in spite of the impact of tariffs, just short of EUR 1.5 million. And despite the fact that looking about China, our manufacturing plant in China is now fully alternative which means that in our cost of goods sold, we are expenses the cost of the manufacturing site itself, whereas during 2024 the site was not operative yet, so we could capitalize south cost. By the way, let me share with you all that we got the registration for the first 2 products on the Chinese SPA, which is at Mesan from the manufacturing of our set in China. So considering this impact, I believe, overall, the gross margin number is a number where -- it's in line with our budget. And why in spite of having a similar margin, our EBITDA is richer. In terms of marginality, it all comes from mostly comes from operating leather. As you might see from our [indiscernible] the ratio of operating expenses or revenues moved from 39% of 2024 to 37% of 2025. So the EBITDA margin expansion is mainly coming from operating a asset.

And then just to quickly follow-up on that response Piergiorgio. How are you thinking about the margin development for the second half given you are now ahead of your full year target of 3%?

So I believe in the second half, the gross margin will not in material on the 66%, if anything, will be created a bit because we are expecting more molecular savings and less LPG sector. I'll explain why it's such a step that in H2 LPG sales should not grow at the same pace we saw in and as part of LPG says with consumables, we have royalties, which are richer margins than molecular sales. So because of the product mix, we expect -- I expect H2 to be a little bit, I can say, lower in terms of gross margin. At the same time, as we've seen last year, I'm expecting an increase in OpEx. And it was usually not usually always in our company we have a salary review cycle across the old corporation in July which means we should expect a higher cost of labor in H2, which is going to increase OpEx in absolute value H2 to H1. Please consider that of 60%, 65% of our old pets labor cost. And so that's why it into to understand why overall OpEx are going increase So since we closed H1 at 35% and expecting overall an EBITDA and allow me some flexibility and EBITDA margin H2 around 33-ish percent, which should allow us to close the year around 34% at constant exchange rate, which is our guidance for the full year.

The next question is from Hugo Solvet with BNP Pariba.

I have three, please. First two on Memed. Can you hear me okay?

Yes, we can go.

Okay. First on Memed. First, the million contract you mentioned. Does this represent some commitments and how long will it last? Second on MeMed, they announced last week a fingerstick blood test curious if this technological development following the scope of the nonexclusive partnerships that you have with them? And lastly, Piergiorgio Giorgio, if I missed that, but on the discontinuation of the Cement ELISA business, can you share both the revenue loss that will be associated with that discontinuation and also phasing for the EUR 15 million one-off costs.

Okay. MeMed, 1 million I pointed it out because it is the is on trade is covering a hand care system, where you have core facility, you have the clinics. And so it shows that when a health care system is looking at implementing these new tools is a significant business. okay? And so far, we had wins in individual hospitals. And now -- but now this is the first time that we are really getting a full system to buy the hub and spoke they have been spot positioning of this drop, right? And this is why I'm saying with this kind of accounts, and there are, as you know, hundreds of health systems in the U.S. We really expect that now the size of the business that we're going to be gaining is more significant than in the past. On the [ finger prick ], I don't know what they announced, but it's not honestly a contractual relationship with us in MeMed is confidential. So I don't want to comment on that. On the ARIES, it's not ARIES areas, it's the all molecular platform of Luminex. The contribution in H1 was EUR 5.5 million that we have sold last year in when we were closing the plant, all the non equipment clearly by year-end, it was finished, and now we're 0 starting from 2025. And the last comment was?

I believe it was on the discontinuation of our manufacturing sites in Germany. I believe we'll go to instant confusion. It's nothing to do with I if that's what you refer to, right? I believe you said [indiscernible] correct?

Yes, [indiscernible] my bad.