Qiagen N.V. (QGEN) Earnings Call Transcript & Summary

All right. Good afternoon, everybody. I'm Doug Schenkel. I lead Wolfe's Life Science Tools and Diagnostic franchise here at Wolfe. It's my pleasure to kick off the afternoon session with QIAGEN. And from the company, we have Thierry Bernard. I did see John -- yes, there is John. John Gilardi is here as well, just not up on stage, so we'll have to do this without you, John. But we're really excited to talk more about QIAGEN. So I think most of you know QIAGEN well, but just in case, this is a company with a strong historical foothold in sample prep across tools and diagnostics. And over the last several years, the company has done a great job growing its presence in higher growth areas of diagnostics, including syndromic testing and very importantly, latent TB testing. So before we go any further, thank you for being here today.

Thanks, Doug. Thanks for having us. Thank you.

So maybe just to provide a little bit of a framework for our discussion. I did want to just start with some high-level thoughts on QIAGEN high-level questions. I do want to talk about the recently announced leadership transition at the company. So that will be the first section. I then want to talk about the state of end markets and the opportunity from here. Third topic is really capital deployment. And I think the Parse transaction, we should talk about that specifically, but also use that as a way to more broadly talk about capital deployment and then we'll close with some company-specific growth drivers.

Sure.

So Thierry, you've been with the company, I think it's 10 years. 6 as CEO...

Close to 7, yes.

Close to 7. That's crazy. Time flies. But in my opinion, you have done a really fantastic job in driving a substantial amount of improvement relative to where we were and QIAGEN was always a great company, but you brought the company to a new level in a really difficult period. So with that in mind, as we think about the 2028 targets that you outlined last year, where do you -- where are you in terms of tracking to plan there? And where are we already seeing signs of success and kind of what is still on the come?

So thanks. First of all, many thanks for the very kind comments, but it's not a [chair issue]. It's a team achievement. I think this company is indeed much stronger and solid than it was pre-COVID, I would say, stronger board, stronger executive team and good sense of execution, it's 24th quarter in a row where we have met or exceeded expectations or guidance. We are perfectly on track towards our goals that we disclosed in New York in June '24. And as a reminder, 7% CAGR top line growth, 31% EBIT margin, $2 billion revenues through what we call our pillars of growth and at least $1 billion return to shareholders. 7% CAGR you have seen our Q3 release. We are still growing in the top tier of the market in an environment which is not becoming more simple or more visible, I would say, volatility has tremendously increased since June 2024, shutdown, tariffs, geographic uncertainties. So put it that way, Doug, we want, as a team to continue to deliver on that 7% target organically or nonorganically, given the volatility of the top line, we want to continue to deliver that. And this is how also I invite you to see the Parse acquisition that we are going to discuss about. 31% EBIT target. QIAGEN has already a stronger P&L than many of our peers. But we have triggered and we disclosed that in New York as well, what we call QIAefficiency, which is an operational efficiency action plan. And I'm convinced that we will beat the 31% target. And I'm just waiting for a good moment understanding a bit better where the U.S. are going and some other key countries before giving a new target EBIT-wise to the market. Another way to look at it is if I just focus on '26 and if I look at the current consensus in the market around EPS for QIAGEN, I take the following commitment regardless of what happened to the top line, we will achieve that. And that renewed focus on profitable growth is also something that I wanted to make happen in this company. We are now in a company which is able to grow EPS faster than sales growth most of the time, which is also what I wanted to achieve. $2 billion coming from the pillars, I think we are still on target, and I'm going to give you a few more details. Sample tech is going well, as you have seen in Q3, 3% growth. I invite you -- I believe most of you have received the invitation, but on Friday, we have once again, what we call our Investor Relations deep-dive sessions in 1 hour, 1 hour of your time, you can understand everything. And this time, it's going to be on sample tech. And our strategy, I think, is generating results, automation, investments into high-value application, like liquid biopsy, investments into new technology. Sample tech will probably be on target. QIAstat the second pillar of growth. I'm not ranking them, just listing them. We'll be above target. We took a commitment to the market to be at $200 million revenues by '2'8. We will be above that. QuantiFERON will be on target or even slightly above. We took a commitment to be at $600 million revenues by 28%. We will achieve that. We would be over $500 million this year. Digital PCR might be slightly below just because of capital expense or capital expense in labs. It's not because of the consumables, they are doing very well. Am I concerned? No, because it's going to be slightly below, but we are faced with a significant constraint on capital sales for academia and research. Bioinformatics will be on target for clinical below for research. So I'm not sure that we are going to hit the $200 million mark. But between the basically beat and slightly below, we should be on target. $1 billion return to shareholders, you have seen that we are already above that with the recent $500 million that we committed to return to shareholders by January of next year. So we try to execute. Let's put it that way.

That's great. There's a lot of momentum in what has still been a difficult environment. One of the questions I got a lot, and I suspect you got a lot after you reported was as you provided a framework for 2026, when you exclude Parse, and again, correct me if I'm wrong, the implied organic framework is for, I think, 3% to 5% top line growth. You've been doing better than that. You're tracking ahead of plan. Is some of what drove the decision to at least start '26 expectations at those levels of function of it's still an uncertain time. It's barely the middle of November. I mean is there a smidge of conservatism and timing and just acknowledgment of a still uncertain policy environment?

I'm not sure that I would call it conservatism, but definitely realism in the sense that, I mean, you are living in the same world. I mean there is no doubt that executing on sales for the last 2 years is becoming more and more difficult. We are able to achieve that. But if you look at most of our competitors or peers, they have decreased their guidance, decreased their midterm guidance. QIAGEN has not done that. We maintain guidance for '25, and this is what we want to deliver. But I look at the world also, we are living in. So I try to take this into account. I still see a certain kind of conservatism in especially research academia regarding the future and investing. So I'm a bit cautious here. . I'm not worried about our market in general. The fundamentals of our market and the market growth are still there, but we are living through difficult time. So you kept the kind of 3% to 5%. First of all, it was not a guidance call. It was a comment on how we see the market. First of all, I tend to forget to focus on the 5, which means that organically, regardless of that volatility, I believe that these companies still have the power or the strength to grow above mid-single digit -- mid-single digit. And what I said before in my first comment is that we are taking proactive action to continue to add accretive growth to our top line and Parse is a good example. I expect Parse to bring at least $40 million of revenues next year, 200 basis points of extra growth to our potential. So if the market is getting back on track, if everything becomes clearer, we can be even above 7%. If the market is still as volatile, basically cautious than now, we might be slightly around organically 5%, slightly below and therefore, with Parse at 5%, at 6% or 7%.

Super helpful. I'm going to try to fairly quickly click through some of the current events, the policy dynamics that as cautious as I feel like or whatever my opinion is worth, it feels right to still be cautious given what's been going on in the world, but it does seem like there are some things moving in the right direction. So the end of the government shutdown, I mean, I think that was one of the reasons why you and others introduced maybe smidge of caution for Q4. You and I were talking as we started. I was on a lot of planes last week. And even at the end of the week, things were still pretty messed up. So it does take time for things to get going again. But the fact that the shutdown is now behind us, is that a potential source of last-minute momentum or upside for QIAGEN heading into year-end?

So first of all, there is no doubt, and I shared that with your colleagues this morning that I feel much better about the situation, including funding in the U.S. that I was feeling before the summer, for example. If you remember, before the summer, many people were saying 40%, 50%, 60% [NIH]. And I believe it's not going to happen. At that time, I was saying conservatively, I see it's slightly down or flattish, might be even. And for the shutdown, it's a good news, clearly. At the same time, I believe that many people have been burned. So I don't expect an immediate jump. I believe that it's going to probably normalize from now to Thanksgiving or slightly after. I think that some labs are still going to observe to see if they can spend money. At the same time, I do not deny that [indiscernible], we might see at the end of the year, some people trying to spend money because they don't know what 2026 will be made of, but I don't want to take any bet on that. And I will always prefer to deliver you a realistic yet ambitious, especially if you compare to peers, guidance and beat it rather than the contrary. If we are in a position to raise, we will always tell you at the right time. But I think it's realistic and good management at the moment to be a bit cautious.

That makes sense. Are you seeing -- and some of it's just psychology, right? I mean as you think about the NIH, I mean it's not like it's going to be the best of times. But like you said, 6 months ago, we were talking down 20%, down 40%. As we start to see, hey, it's not going to be great, but it's not going to be that bad. Does the dialogue with customers change a little bit?

So I think, first of all, I would never say that QIAGEN is immune to economic downturns, funding issues. I think we are slightly more protected than other companies. One is because one of the main sale to NIH or CDC is sample tech. If you want to get rid of sample tech, you need basically to cancel everything you do because if you want to start some run, you know today sample tech. So that's number one. Number 2 is that in QIAGEN portfolio, there is no instruments, no capital equipment, which will go above 200,000. So 200,000 is still an investment, but it's not a big, big investment into basically a mass spec system or -- so it's still affordable. And most of them are below the 100,000 mark. So I think it helps us a little bit. So to your question, in our dialogue, we sense that people are still observing, none of them are actually canceling projects. They are just postponing. But what is interesting to note is that before the shutdown -- before the shutdown, with the shutdown, obviously, we saw some drop. Our direct sales to NIH or affiliated site were not impacted. They continue to use QIAGEN. So sales were just flattish, but not decreasing. What was impacted was the overall research and academia. But NIH, as such, no.

Okay. That's great. On the academic and government end market, one quick, but I think important follow-up. One of the things your team pointed out to me that I had been overlooking over the summer were some of the funding trends in Europe as we think about the next horizon proposal. And I think at least as we sit here today, the proposal won't be for a couple of years, but it's to actually double the next 5-year budget. Is that something that we should be cautiously optimistic about as we think about the long-term outlook?

As we discussed for the U.S., I'm feeling better also for Germany. Germany was our main question mark before the summer or during the summer because we knew that budget decision would have to come around November -- October, November. It seems rather more of a mixed bag. And I was again with our management in Germany this morning on the phone, and we have customers, especially, for example, in the Berlin area, opening up again orders. Some of them more cautious, but we don't see a sudden drop. So we are feeling better about it. We continue to receive positive signals from the U.K. as regard to funding. France, we don't know because they have no budget at the moment. And I mean, the government is fighting hard to get a budget before the end of the year. But France has never really cut into real health care funding. So let's see it flat for the moment. The rest of the countries are less relevant. Beyond Europe, we still see tremendous investment in Middle East. They spend money, and we see that in our results. QIAstat is doing extremely well. QuantiFERON extremely well. Asia Pacific is more difficult. Japan is kind of flattish as regard to expenses. China, we can -- it's a specific best we can talk about it. So yes, it's a mixed bag overall. But once again, I think the fundamentals of our market are still very strong. And from a budget funding, I feel better now than I was feeling before the summer.

Two more current event questions. One is DiaSorin on their recent call, talked about what sounded like more limitations on the use of broad syndromic panels. We've seen this a little bit in China. I don't know if this is kind of the same idea, but does -- cutting to the chase, is this type of change in Germany relevant for QIAGEN?

I mean -- so first of all, QIAGEN is growing on syndromic in -- on QIAstat. So I'm not seeing what this company has been saying. On China, it's very clear for us. We will never sell QIAstat to normal labs in China because we won't go through registration to an NPA. It's an absolute waste of money. It will be 5 years of clinical trials and expenses to go to peanuts as results. But we sell to the CDC. It's very interesting that we have quite a significant number of QIAstat that's used by the CDC in China, the Chinese CDC, obviously. In every of their location, they have CDCs in every province in China. But we won't try to get it through the clinical market. So at the moment, I don't see what our Italian partners for QuantiFERON are seeing in Germany. For us, we still see them as a very good partner for QuantiFERON. The rest, it's not QIAGEN.

Okay. Perfect. Last current events question. Some of the MFN deals, I mean pharma and biotech, it's just -- I think it's just under 20% of sales as we sit here today. Any improvement in the tone of conversations there subsequent to some of these MFN agreements coming out, probably, again, less bad than feared?

Yes, Doug, I mean, for the last 2 years, we keep saying the same, which is we see renewed interest from pharma companies in companion diagnostic. There's no doubt that they are developing new compounds. We are very happy with our performance on companion diagnostic. It is partially driving our performance on digital PCR. So if you look at that, we are currently the only company probably in the market offering companion diagnostic based solution on PCR, digital PCR and NGS, This is remarkable. Pharma demand for digital PCR, but this time from, for example, a specific direct usage like QC control, cell and gene therapy continues to go way over double digit. So quite confident. We are even wondering at QIAGEN, that would be the only highlight in China. It's too early to say. But given the dynamics of pharma companies in China that we should basically probably invest in our companion diagnostic activities in China that could make sense. So we'll see. The team is currently working on the plan. So yes, we see them more dynamics. The fact that we have received also different project for companion diagnostic from pharma companies on QIAstat is [indiscernible] as well for us. So okay, we see it quite well at the moment.

Excellent All right. Parse, just to completely pivot. I can tell you're really excited about this deal. It's about a $40 million revenue company, growing double digits. For those who may not be as familiar with the QIAGEN story and how Parse fits into it? Would you just briefly kind of describe what brought you to Parse?

So first, let's speak in broad term about M&A and why Parse? M&A for us, first of all, I think you -- most of you are aware that we have a very solid balance sheet. We have no leverage at QIAGEN. So we have quite a significant firepower. But obviously, it's not to spread the company [sin]. I mean for the last 7 years or quasi 7 years, I'm trying to really focus, focus this company. So M&A needs to be strategically synergistic. Basically, we have the same common touch point at customers. In other words, share of wallet can increase. This is clearly the case of Parse. We are having the same customers either if you take it from a sample tech standpoint, from a next-generation sequencing standpoint or from a bioinformatic. So there is no way we cannot expand their reach, number one. Number two, it's an important criteria. It's clearly accretive to our top line. So as you said, Parse will bring $40 million. It's not bad for a company like QIAGEN and it's basically growing at way over double digit. So good. Number three, which is very important, it is accretive to our financials in a very reasonable time frame. Basically, it will be accretive to EPS before '28. So it's the last criteria. It's very reasonable for us. If we can do it accretive before, we will, obviously. And then Parse. Why Parse? Not only because it fits those 3 criterias, but what always intrigued us with Parse. First of all, it's a natural expansion of our sample tech presence. Clearly, the technology, everybody knows that some even key opinion leaders would tell us why are we not investing quicker in single cell because it could threaten some of your positioning in sample tech. So we observed that market. We met Parse for the first time back in 2018 before the company became what it is now. And the first thing that always convinced me is that they always walk the talk. Basically, they were telling us, okay, this is what we are developing. Okay. We are going to have that significant publication. Okay, this is what we are going to target for revenues and they execute it. And as you all know in this world of startup, sometimes there is a bit of wishful thinking, no, they did execute. Second, the installed base that they achieved in such a short period of time is quite impressive. Third, there was no way we would go in single cells mimicking basically or having a me-too product. It's an instrument-free solution. So very easy to use, which probably explains the speed of market penetration. Two, if you are targeting very large volume customers, they open a Giga Lab, which allows them to basically process those analysis through their Giga Lab. And they are also developing a system, an instrument. So basically, in the future, greater automation will be covered as well. Two, probably most important, while competition is able to handle a number of sales to, let's say, the dozen or the hundreds, they can go to millions, potentially billions. And that will make a big difference, especially in oncology. And the most recent publication around Parse are quite significant there. So we believe we have a play. We are obviously going to expand their reach outside of the U.S. in addition to the extra reach we can give them in the U.S. But we need to carefully execute. So what do I mean by this? The founders are going to stay with us, which is, for me, very important. We are going to respect the know-how. It's a site in the U.S. So we are adding a site to our network of sites. I'm not meaning that we are going to keep that site forever, but at least for the coming 2 years, we are going to increase or invest in that site because the know-how is there. But if you look at what our teams internally are seeing from either a sample tech or an NGS or bioinformatics, the excitement is they cannot wait for basically putting their hands on that product. And we expect to close probably the first week of December or so.

How many other -- how many other opportunities are there like Parse for QIAGEN? And I don't -- I obviously don't mean in single cell necessarily. It's just more the smaller companies that are doing well, but don't have the scale or the global footprint. Is -- could this be something we see more of moving forward?

That's a very good question. And let's be honest, you can imagine that we are screening M&A opportunities every day, every week, and we say no much more often than we say yes. Sometimes it's a question of valuation, sometimes because we do not see ways to make it accretive to our financials, quickly enough. We want to make sure from a valuation standpoint that we are rewarding our shareholders and not basically the shareholders of the target that we are acquiring. It has to be a fair price, but -- so it's not easy. It's not easy. But there are still opportunities. Look, we closed Genoox in the summer, a very good tuck-in acquisition for bioinformatics, small revenues, but good potential of growth, excellent installed base in the U.S. So we are looking at different options. We are looking at markers for infectious diseases, specific or nonspecific, for example, because it would fit in our specialty diagnostic positioning. We are looking at omics opportunities, especially for our research and academia positioning. Again, as long as we can prove that it's accretive to the top line, that it's synergistic with where we sell and what we sell and third, that we can make it profitable in a very reasonable time frame, which is for me 2 to 3 years, we should move. We should move. We have the cash. We have the firepower also.

We only have a couple of minutes left. As we started talking about at the beginning of our conversation, you've been at the helm of QIAGEN in a difficult period where the company has done really well. And I think with that in mind, it was surprising when I -- at least for me, I was surprised when the company announced that you would be transitioning out of the CEO role as a search is ongoing or commences. Why is this the right time? And as I thought about it more and as I've listened to you today, is at some level, is this almost a sign of like, hey, the company is strong enough to do this now? Tell us how -- like why now? And how should we think about it?

Yes. First of all, why now? It's just because today, we are here in New York, but you have to always remember that QIAGEN is working under 3 different governances. We have a Dutch governance because the actual administrative headquarter is in the Netherlands. We have a German governance because our main sites and main activities are German-based. And we are obviously an American governance because we are also listed in the U.S. By German governance, we had to announce it even if the succession was not completed, but it was enough of a news of magnitude to be announced. So that's the only reason here. The second thing is this strong board. You have seen the changes that we have done in the Board for the last 5 to 6 years, bringing new profiles, strong executive committee, newcomers in the Executive Committee for the last 3 years. I think, solid results. So -- it's good after 10 years and 6 or 7 years in that position, not to become complacent and to always think about preparing the future. I don't think that there is any vision to change the strategy. The Board and management is 100% convinced of the focus strategy. The Board and the management is 100% convinced of the necessity to really focus on profitability or increase profitability. But it's always good to bring new vision, new perspectives, not different strategically, but basically potentially finding new opportunities with the current portfolio. And I think for this, everyone should be planning succession in proactively. So...

Makes a lot of sense. All right. We're going to leave it there. Thank you so much. Congratulations and thank you. And we'll talk soon.

Thanks so much. Thanks.