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spk06: Welcome and thank you for joining QIAGEN's first quarter 2022 earnings conference call webcast. At this time all participants are in a listen only mode. Please be advised that this call is being recorded at QIAGEN's request and will be made available on their internet site. The prepared remarks will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touch tone telephone. Please press the star key followed by zero for operator assistance. At this time, I would like to introduce your host, John Giliardi, Vice President of Corporate Communications and Investor Relations at QIAGEN. Please go ahead, sir.
spk07: So thank you very much and welcome all of you to our call. The speakers today are Terry Bernard, our chief executive officer, and Roland Sackers, our chief financial officer. Also joining us today is Phoebe Lowe from the IR team. Please note that this call is being webcast live and will be archived in the investor section of our website at www.kygen.com. Today we will first have some remarks from Terry and Roland and then move into the Q&A session. A presentation with details on our performance is available in the IR section of our website, along with the quarterly release that you saw earlier this week. We will not be showing slides during the call, but you have the slides from the website as a reference. Before we begin, let me cover as usual our safe harbor statement. This conference call discussion and responses to your questions reflect the views of management as of today, April 28, 2022. We will be making statements providing responses to your questions that state our intentions, beliefs, expectations, and predictions of the future. These constitute forward-looking statements for the purpose of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially from those projected. Cajunist claims any intention or obligations to revise any forward-looking statements. For more information, please refer to our filings with the U.S. Securities and Exchange Commission, and those are also available on our website. We will also be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. All references to EPS refer to diluted EPS. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release as well as the presentation. Again, these are both on our website. I'd like to now turn over the call to Terry.
spk00: Thank you, John, and welcome to our conference call today, and thank you once again to everyone for joining us. We are very pleased to report strong results in the first quarter of 2022, which exceeded our outlook and reflects a solid performance in our non-COVID products of 14% CER growth. In this current environment, This once again demonstrates the resilience of the portfolios of QIAGEM and the strength of our company, as well as the relevance of our strategy. Against the dynamic global situation, we have taken a very proactive approach to showing up our business. This has enabled us up to this point to effectively manage supply chains and keep production running to ensure delivery of our products. As the beginning of the year brought further economic uncertainty on a macro scale, our teams did an excellent job of staying focused. Something that we are very proud to highlight is the fact that upon Russia's invasion into Ukraine, Kayageners all over the world banded together in support of Ukrainians as our teams all over the world donated funds clothing and food, and even open their homes to those in need. During those unprecedented times, we see the true culture of QIAGEN with a dedication to taking care of one another while remaining disciplined towards execution of our goals. For that, I really would like to thank all our teams for their unwavering commitment. Now allow me to move to our key messages for today. First of all, we exceeded the outlook set for net sales growth and adjusted EPS for Q1 2022. Net sales for the first quarter of 2022 grew 15% at constant exchange rates to $628 million over the same period in 2021. This was well above the outlook for at least 7% growth CER. Our non-COVID product sales continued to deliver solid growth at 14% CER, which was ahead of our expectations. COVID-19 related product sales were also better than expected, driven mainly by surges of Omicron outbreaks in Europe. Adjusted earnings per share in the first quarter grew to 83 cents CER, which was above the outlook for at least 72 cents. Second key message. We had strong profitability and increased cash flow in the first quarter, which further reflects the strength of our business. Operating cash flow for the first quarter of 2022 rose 61% to $207 million, while free cash flow more than doubled to $178 million over the first quarter of 2021. Those results demonstrate our ability to support future growth through smart investments while managing a rapidly increasing changing cost environment. As a last message, we have increased our outlook for the full year 2022 as a result of our performance in the first quarter. Although we are in a time of international economic uncertainty, we feel optimistic that our strategy is robust and execution by our teams is on track. Therefore, we now expect sales of at least $2.12 billion for the full year 2022, to be mainly driven by double-digit CER growth coming from our non-COVID portfolio. And as for EPS, we now expect at least $2.14 CER for adjusted EPS. We remain focused on advancing our non-COVID product groups, and we are still taking a conservative view on COVID-19 testing demand for the year. Of course, as always, we will remain ready to support COVID testing as needed in case of any outbreaks in the future. We will provide more details on the outlook later in this call, and I would like now to hand over to Roland, for our financial update.
spk01: Hello and thank you as well for joining this call. As Thierry indicated, we had a very good start to the year and feel confident in delivering on the goals we have set for 2022. Let me begin by walking you through our sales and the results in more detail. For the first quarter, net sales grew 15% at constant exchange rates against a tough comparison to the first quarter of 2021. We saw a solid performance from our non-COVID product groups growing 14% CER. This represented growth widely spread across the portfolios and in an environment still impacted by the pandemic. In our COVID-19 product groups, testing demand in the first part of the quarter resulted in 18% CER growth in sales when we were actually expecting a decline. Consumables and related revenues for the first quarter were up 17% CER over the same period in 2021 and represented 89% of sales. Instrument sales rose slightly at 2% CER, but this was against the highest level of quarterly instrument sales for 2021 in the year-ago period. The Q1 2022 level of $70 million of instrument sales at CER was in fact higher than the sales in any quarter of 2021. Key drivers for this growth were record placements of Kaya STAT and Neumodi X systems, along with solid trends for the Kaya QET, Kaya Symphony, Kaya Cube and EZ2 Connect instruments. In terms of sales among the four product groups, Let's start with sample technologies. These sales rose 22% CER and were driven by high demand for the Kaya Prep and Amp solutions for COVID-19 testing, particularly in Europe. Instrument sales rose at a low single-digit CER rate, supported by placements of the recently launched EZ2 Connect instrument, as well as Kaya Symphony and Kaya Cube Connect. Consumable sales for non-COVID product groups faced headwinds against very strong demand in Q1 2021, a period when many customers were returning to work after lockdowns and back orders were being reduced. We expect more favorable trends for this portfolio in the second quarter and the rest of the year. Sales in diagnostic solutions rose 21% CER for the first quarter of 2022. The key driver was Quantiferon, with sales rising 41% CER to 78 million US dollars, with strong growth across all regions. Sales trends for Kyastat DX and Noimo DX systems were in line with our full-year expectations for these growth pillars, which are both still in a commercialization ramp-up phase. Our precision medicine business benefited from the resumption of many pharma R&D projects, and revenues from companion diagnostics co-development projects were up 26% CER for the quarter. In the PCR Nucleic Acid Amplification product group, sales rose 1% CER for the first quarter of 2022. Here we saw a high single-digit CER decline in COVID product group sales that vastly overshadowed a double-digit CER increase in the non-COVID product groups. This product group was supported by sales of the QIAQuity digital PCR system as well as OOM reagents used by other companies for their own products. Genomics and GS sales were up 16% CER over the first quarter of 2021 and led by a strong performance from the QIAGEN digital insight bioinformatics business. We also saw double-digit CER sales growth in universal consumables, used on any next-generation sequencing platform for non-COVID applications. Moving to the regions, we saw good results in the EMEA region with 24% CR growth. This was led by strong growth in a number of countries, including Germany, Spain, the Netherlands, and the United Kingdom. The Asia-Pacific-Japan region also grew at a solid pace with 25% CER growth. And here we saw China growing above 10% CER along with dynamic gains in Australia that was driven by instrument placements. In the Americas region, sales rose 4% CER against COVID headwinds from the first quarter of 21. The US and Brazil delivered single-digit CER growth supported by higher sales of both consumables and instruments, while sales in Mexico declined over the year-ago period. Moving down the income statement, the adjusted gross margin stood at 68.6% of sales in the first quarter of 2022 and largely unchanged from the year-ago period. This is despite absorbing costs in the first quarter of 2022 for investments made last year to build up consumables production capacity especially for KayaStat and Noimo DX. R&D investments remained at a high level in terms of dollars, but declined as a percentage of sales to 7.4% compared to 8.4% in the year-ago quarter due to the strong sales growth. Our target rate is at least 8-9% of sales being invested into R&D and for a significant share to be in our 5 pillars of growth. At the same time, we gained further leverage in other operating expenses. Sales and marketing expenses declined to 18.9% of sales in the first quarter of 2022 from 2021 in the same period of 2021. We are ramping up our digital customer engagement capabilities and building on the new habits that customers develop that customers developed during the pandemic and are showing signs of continuation. And as last point, general and administration expenses stood at 5.5% of sales in the 22-quarter compared to 6% in the year-ago period. Efficiency gains are being used to support investments in IT systems and cybersecurity. Based on these factors, adjusted operating income rose 19% to $231.6 million and the adjusted operating income margin improved by about 10 basis points to a record 36.9% of sales. Adjusted EPS for the first quarter was again well above our outlook and was $0.83 CER versus the outlook for at least $0.72 CER. Results at actual rates were $0.80 due to the stronger than expected currency headwinds. The adjusted tax rate was 19% and above the outlook we have given for a tax rate of about 17 to 18%. Turning to cash flow trends for the first quarter of 2022, we saw dynamic performance in both operating and free cash flow. Operating cash flow increased 61% to 207 million US dollars from 129 million dollars in the first quarter of 2021. This was driven by our strong business expansion that led to higher net income and adjusted adjustments from non-cash items operating cash flow include a decrease in operating assets and liabilities primarily due to increased accounts receivable and inventories to meet the increase in demand and decreases in accrued and other liabilities and accounts payable as for the free cash flow we saw 116 percent increase to 178 million us dollars in the first quarter of 2022 from $82 million in the year-ago period. This reflects a decrease of purchase of property, plant and equipment in the first quarter of 2022 compared to the year-ago period when additional investments were made to expand product capacity for key growth products at sites in Europe and the United States. In terms of our balance sheet, our total long-term debt is $1.9 billion at the end of the first quarter of 2022 and remains relatively unchanged from the balance sheet at the year end. As of March 31st, $469 million of this debt is due later this year as a portion of both our US and German private placement debt instruments will mature in October. While our total debt level remains in line with this end of 2021, our net debt has decreased due to higher levels of cash, cash excellence and short-term investments held at the end of this first quarter. The decrease in net debt combined with higher adjusted EBITDA resulted into a leverage ratio at 0.7 times at the end of the first quarter. Our continued solid cash flow performance along with the value we are creating in our portfolio through our investments into the business give us confidence we are well positioned for waves of growth in the coming years. This allows us to continue exploring options for capital deployment including bolt-on acquisitions, alignment with our goals to create greater value for shareholders and other stakeholders. Our ongoing commitment to increase returns to shareholders is evidenced through the share repurchase program completed last year in which we repurchased a total of 1.9 million shares for 100 million US dollars. I would like now to hand back to Thuye.
spk00: Thank you Roland. And please, as usual, allow me to give you a quick update on our key portfolios. And here again I would say that the keyword is execution. In sample technologies first, our new easy-to-connect system will launch at the end of 2021 as part of our program to upgrade our automated sample preparation instruments. With the launch of the latest consumable kit for extraction of RNA from cells and tissue, the easy-to-connect is covering a wide range of key applications and enhance our human identification solution, HID. A new workflow on the EZ2 along with the QIAQUITY digital PCR instrument offers streamlined biomarker profiling from liquid biopsies and paraffin-embedded samples, enabling quantification of viruses, bacteria, or other disorders, including rare cancer mutations. In diagnostic solution, Quantiferon TB Gold Plus has reached a new milestone with over 100 million patients screened for latent TB. We anticipate the next few years to be a growth period from modern latent TB testing in emerging markets, as the KIA-Rich TB test makes its way into high-burden, low-resources areas. Third, the KIAstat diagnostic rise. The new higher throughput version of the KIAstat diagnostic syndromic testing platform is on track for launch by mid-year. As a reminder, this system features random access with capacity to hold up to 18 different tests and includes a new level of walk-away efficiency. This comes at the same time as we expand the menu for KIA-STAT diagnostic with the CE registration of the meningitis panel and submission to the FDA for approval of the gastrointestinal panel at the end of 2021. In PCR and nucleic acid amplification, QIAQUITY digital PCR is making good progress in expanding the application range for those systems. The recently launched digital PCR microbial DNA detection assays leverage the simplicity and precision of QIAQUITY in a fast workflow for the rapidly growing area of microbial analysis. In genomics, we are building growth through partnerships, as we have signed an agreement with NHS England for a two-year licensing contract for QIAGEN's bioinformatics solutions to support work in the 100,000 Genomes project. Also, a new collaboration with Element Bioscience Partners leverages the flexibility of QIAGEN's universal NGS consumables with validation on the element AVT sequencing system. This will include a complete workflow employing QIAGEN sample prep, custom-made assays, and industry-leading bioinformatics solutions. So as you can see, we continue to make progress on our goals for targeted expansion of our portfolios as part of our strategy to drive sustainable growth in the coming years. And now back to Roland.
spk01: Let me provide some additional perspectives on the outlook for full year 2022 and also for the second quarter. Based on the strong start to the year, we have increased our outlook for full year sales to now reach 2.12 billion US dollars at constant exchange rates. This outlook reaffirms our expectations for double-digit CER growth in the non-COVID product groups, building on the 14% CER performance in the first quarter. However, we do continue to take a conservative view on the course of the pandemic and still expect a significant decline in sales from the 21 levels of $704 million in product groups used in COVID testing. An important amount of these sales for 2022 have come in the first quarter. For the second half of the year, we expect these product groups to deliver sales in line with the 2019 run rate. Also taken into consideration are the current inflation and macroeconomic trends. This includes the adverse impact of anticipated lost sales in 2022 from Russia, Ukraine and Belarus, which represented approximately 1% of net sales in 2021. We also take a more cautious view on China due to the current lockdown situation. In terms of profitability, we now expect adjusted EPS of at least $2.14 at CER. This takes into consideration continued plans for investments into our portfolio and in particular the five pillars of growth. It also takes into consideration some adverse impact on costs related to current inflation rates which we are trying to offset with a second wave of price increases this summer. Based on exchange rates as of April 25, 2022, currency movements against the US dollar, our reporting currency, are expected to create an adverse impact of about 4 percentage points on net sales and about 8 to 9 cents per share on adjusted EPS for full year 2022. For the second quarter, net sales are expected to reach at least 510 million US dollars CER and adjusted diluted EPS is expected to be at least 46 cents at CER. Remember that we had one-time revenues of about 20 million US dollars in the second quarter of 2021 related to the sale of genomic patents and technology licenses. We also expect currency headwinds in the second quarter against the US dollar and for an adverse impact of about four to five percentage points on sales and about two to three cents on adjusted EPS. I would like to now hand back to Thierry.
spk00: Thank you, Roland. So let me provide you with a quick summary before we move into the Q&A session. First, our teams continue to deliver strong results this quarter with sales growth and adjusted EPS exceeded outlook. This was driven by solid growth in non-COVID product groups as well as higher-than-expected sales from COVID-related demand. Second, we maintain an attractive level of profitability as dynamic cash flow enabled us to continue to invest in our growth drivers and digital customer engagement platforms while disciplined spending gave us leverage in our operating expenses. We are obviously proactively thinking about our capital deployment strategy including evaluation of bolt-on acquisitions. Third, we continue to advance our portfolios with the launch of key products and platforms to upgrade our instrument systems and broaden the menu of our growth drivers. And as a last point, we have increased our 2022 outlook for sales and EPS after a very strong and solid start of the year. We therefore confirm our commitment for double digit growth of our non-COVID portfolio in 2022. Our performance in the first quarter set a solid stage for continued execution in an increasingly volatile environment, while our proactive initiatives have helped us to build resilience into our business. All over the world, our teams of empowered kyogeners are highly focused on delivering on our promises for future growth. We continue to believe in our focus on execution, quarter after quarter, from sales to project development. Kyogen is more than ever well balanced between life science, and molecular diagnostics, well balanced geographically and well balanced between our five pillars of growth and our core business. With that, I'd like to hand back to John and the operator for the Q&A session. Thanks a lot for your attention.
spk06: Thank you. Ladies and gentlemen, at this time we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touchtone telephone. If you wish to withdraw your question, you may press star followed by two. To ensure we can accommodate as many people as possible, please limit yourselves to one question only, and if necessary, one follow-up. Your microphone will also be muted after finishing asking your question. Anyone who has a question may press star followed by one at this time.
spk05: One moment for the first question. We will take our first question today from Patrick Donnelly of City.
spk06: Please go ahead.
spk02: Hey guys, thanks for taking the questions. Roland, maybe one for you on the margins, and I have a follow-up on some longer-term stuff. But on the margin side, you know, pretty nice performance here. Can you just talk about the moving pieces? Obviously, you know, cost inflation, wage inflation are big topics. You know, you guys seem like you're passing price along pretty well to customers in this environment. Can you just talk about the levers there and expectations going forward, you know, how we should think about particularly the gross margin piece going through the year here?
spk01: Yes, thanks for the question. And yeah, you have seen that Big Daily had a good start in the year, also in terms of profitability and clearly pricing was helpful for us. As you know, we typically do our regular price increase earlier in that period. I would say it got well accepted by our customers. But it's also clear that while we were able to increase our guidance for the full year, we clearly also reflected some of the inflation-driven costs, particularly on energy and logistics, which are at least partially affecting us as well, and took care for that. So I do think we have reflected that as well. I think one of the benefits of being a strong brand, and I clearly recognize for the quality of the product, is also that we do have pricing power and that we are in continuous discussion with our customers. So we have to see how it moves for the rest of the year. I do think what is also important to note is that overall, I think, and you recall that from prior years, we have, I think, very well our hands around our overall cost structure. So we're clearly using some of the extra, while we are able to increase our guidance, we're clearly also using some of the extra proceeds to reinvest into certain R&D and marketing activities to be even, I would say, stronger and faster with some of the activities over the course of 22. And I think that is probably the framework we're in.
spk02: OK, that's helpful. And then maybe just kind of a longer-term one. I know a lot of investors focus on kind of trying to break out the... Look ahead. Is it still, Thierry, the right way to think about kind of that core business growing somewhere 6%, 7%? And then that COVID piece, you obviously had the pre-existing $150 million or so. The rest of that, you know, maybe declining pretty healthily next year and then kind of put those two together and you can kind of get to a 23 number. I'm just trying to think again. the framework, the right way to think about as we work into next year. Again, you guys are a little unique in the fact that you had kind of a stable, quote, COVID revenue before COVID. So, again, I'm just trying to kind of think about the core versus COVID and kind of that bridge as we work our way into the next couple years here.
spk00: Patrick, I think we have given several indications over the recent years of what we were thinking about the coming years without giving a formal midterm guidance. During this call, we also mentioned to start with the COVID that we expect basically in the second half of the year to have a COVID business basically normalized to the growth that we had pre-COVID. Clearly, you remember that we always mentioned the 150 million base. Once we enter into a more normalized phase, this is going to grow at what it was growing pre-COVID, which is really in the low single digit. So This is for the question on the COVID comparison, pre-COVID and post-COVID. We always said since December 8th, when we did the CAI agenda, that four of our growth drivers were expected to have a double-digit growth. We always said that QuantiFerron obviously is not going to stay at those levels forever, but we always normalize QuantiFerron on a, let's say, mid-term basis around basically 12%, 12% to 13% growth rate, and we maintain that. We always say that because they are basically new platforms in dynamic markets, obviously, Kayakuity, Kayastat, and Numodix post- headwinds of of of the kovid forecast and pneumatics are double digit also dimension we always said also that the sample tech is a business that you could expect to grow to a low to from a low single digit to to to mid single digit uh depending on the new application that we can launch so we confirm this something that i would like to highlight also today is that um Sometimes I believe that when we talk about the five pillars of growth, some people are considering that what is not pillars of growth are not growing business. And we prove you again with those Q1 results that it's absolutely not the case. So to give you some details, we expect, for example, our companion diagnostic business to continue to grow at double digits, our universal NGS solution had a profile of double digit growth before COVID, there is no reason that post-COVID they go to simple digit growth. And last but not least, I would insist again that our bioinformatic activities, what we call QIAgen Digital Insight, in our assumption also continue to have a double digit growth profile. Does it answer your question?
spk02: Yes, that was great, Terry. I appreciate it.
spk06: Thank you. We move to our next question from Dan Arias of Stifle. Please go ahead.
spk12: Good morning, guys. Thanks for the questions. Two, if I may. Number one, Terry, when you think about the outlook for Kyostat, what do you envision the mix looking like a few years out when it comes to the installed base for that system? And is 85 million still the right target for Kyostat and 22 And then number two for Roland, I just wanted to check in on the COVID-related margins assumption. I think at the end of last year, I believe the view was that absent the leverage that you'll get from the above-average volumes coming from COVID testing, the COVID testing revenues shouldn't actually come through the door at a meaningly different profitability level than the rest of the sales base. Is that still the view? Thanks a bunch.
spk00: Thank you, Dan. So regarding Kayastat, yes, of course, As of today, we confirm obviously the outlook for 2022. And to your broader question, I'm going to use the market share that we are targeting here. We continue to believe that the syndromic market is a very dynamic market. We believe at Kyogen that this market is already around $1.2-1.3 billion market. And our assumption at KIAGEN is that this market grows at around 15% per year. I highlight that some of our competitors are thinking that the market is already bigger because they sometimes say $2 billion market, and they also sometimes say that, according to them, the market is growing at 20%. But anyway, it's a dynamic market. We confirm that our ambition for KIAGEN is to take at least a 10 percent market share of that market clearly and we have a number two ambition so you know who is the number two at the moment if i would tell you we will be the number one it will be completely aspirational because we are basically behind by your fire but taking the number two on the market is our clear ambition for the coming three years It's difficult to tell you in terms of platform what it means. But pre-COVID, on average, we had quarters between 250 and 300 placements per quarter. As we are going to continue to increase the menu, so you have seen meningitis now approved in Europe, we expect the approval of GI in the US to come at the end of the year. And then we will obviously submit meningitis, so we expect meningitis to be approved next year in the US. That means that by 2023 um let's say around hopefully quarter three or 23 then you will have two regions in the world europe and the us with a very decent menu already for a syndromic platform respiratory with or without covid meningitis and gi and we have also development as we showed you we are preparing our development for the pneumonia we are also working on our direct identification of positive blood culture, and we confirm that we are also working on a CA UTI. So if we execute on that menu, there should be no reason that basically quarter after quarter we are around that level of platform per quarter that we had pre-COVID. That's in our assumption. Does it answer your question then?
spk12: It does. Thank you. And then just rolling on the margins if you could.
spk01: Sure. Yeah, I think it's fair to say that we have actually a broad bandwidth on different margins on the COVID products and that the mix is sometimes even shifting quite a bit. So, for example, in the first quarter, you clearly have seen that we had a good contribution overall from COVID from sample products, particularly Prevonam. which I would say is probably a somewhat higher gross margin product. At the same time, we also had a good contribution from some of the OM products within COVID, which have typically a significantly lower gross margin. So I think there is some fluctuation within that. I would say, on average, I would lean into that COVID probably has somewhat under-average gross margin for us. But again, there is some volatility on that.
spk05: Thank you.
spk06: We now move to our next question from Derek de Bruin of Bank of America. Please go ahead.
spk10: Hello and good morning. So two questions. I think the first one is, you know, you're 0.7 times net leverage and you've alluded to some potential use of cash for acquisitions. Can you sort of update us on your capital deployment outlook right now and, you know, and sort of like the balance between share buybacks, doing incremental share buybacks in M&A, and just anything in terms of the outlook on the market and potential augmentation to your portfolio.
spk00: Well, I can take the first part, and I would like also to point Roland to chime in also, especially on the balance between acquisitions, share buyback, all those tools. I mean, I think we said during this call that the ambition is to create value for the shareholders, shareholders and also stakeholders of the company. So we are obviously actively considering different tools. M&A is one of our focus at the moment, and we are strictly trying to execute on what we have told the market for the last two years. Priority is on Bolton. but not only on Bolton, on Bolton that are really fitting into the core or the five pillars of growth for Kyogen. In other words, do not expect us to come up with a new technology, even promising, that could be considered a Bolton acquisition and whereby we would also tell you we will probably have to expand 100 million in OPEX or CAPEX to bring it to the market. No, we want to focus on Bolton that are rapid plug-in in our portfolio. We always said also, especially last year when we were asked about Bolton, that we want also to pay the same price in the market, which is sometimes slightly overheated. So you can therefore think about either reinforcement of our vertical strengths, raw materials, components for assays. You can think about menu addition for some of our existing either core activities or pillars of growth. This is what we call directly actionable. And obviously, we are targeting acquisition that should benefit quickly from an acquisition standpoint, QIAGEN. Now, obviously, there are other tools. You have seen KSGEN doing share buybacks program in the past, and I would like to invite Roland also to give his point on the balance between M&A and share buybacks or other tools. Roland?
spk01: Yeah, thanks, Thierry. Hi, Derek. I think one thing that I... What of course is somewhat depending on the bolt-on acquisitions we're looking into is of course the size. Nevertheless, I would say current planning assumes that we are most likely in a situation that we actually can do both and therefore a continuation of our since 2012 capital allocation policies doing bolt-on acquisitions and continuing with our share buyback policy. I think it worked out quite nicely over the last few years. In addition to that, just have in mind that we also have a larger repayment in the second half of the year. I think it's around $470 million, so I think all that has to be seen together.
spk05: Did we answer your question, Derek? Yes, you did. Thank you very much.
spk06: Thank you. We move to Matt Sykes of Goldman Sachs for our next question.
spk09: Thanks for taking my questions. Good morning. First one just on Pneumodex. You've talked in the past about the long-term potential of menu expansion, particularly in U.S. on the longer-term side. But just can you kind of give us a reminder of what that menu expansion plan looks like and when we can expect to see some offset? I know the COVID revenue is rolling off at this point, but as that menu expansion starts coming through, when could we see some re-acceleration for Pneumodex specifically as we look through this year and maybe into next?
spk00: So Rather than expansion, it's a geographic expansion of an existing menu, because sometimes I think that if we just speak about menu expansion, people are thinking that we need again to spend development money to expand the menu. No, what we need to spend is clinical affairs and clinical trials money to bring what is existing in Europe, which is 15 assays that are CE-marked. between blood-borne viruses, sexually transmitted diseases, and respiratory issues to the U.S. And it's a mixed bag of 510K approvals and also FDA PMA approval. So we have always told the market that we believe, given the accessibility of clinical trials, given also the backlog, which is quite well known at the FDA at the moment, that those 15 assays of pneumatics should be approved at the FDA by the end of 2024. So, of course, it gives us some years during which we will not always have the menu that we have in Europe. Does it mean that we cannot compete in the US? Absolutely not. First of all, because every year you will see new assets coming in. In Europe, in the US, you have already obviously COVID. You have COVID on shortplex, but also on singleplex. You have also GBS. We are going to go to CTNG. So every year there will be something else. But in the US, one of the big relevance of pneumotics is that it is the only automated platform which a laboratory can use at the same time in a random way, regardless of the sample they are going to use, either regulated assets, FDA approved, or what we call laboratory-developed tests. This is unique. There is no other platform on the market able to do that. And as you know, the U.S. are the main market for LDTs in the world. So, we have two main strategies obviously in the us first is to make sure that we can become attractive for those sites using ldt and move them to pneumatics while at the same time complete their ldt approach by respiratory panels for example like kovid and by the menu that we have like as i said before gpa gbs ctng and adding menu as we go that's the strategy And this is why also we told you very transparently last year that because we are not able with the COVID headwind to wash out the COVID headwind with the rest of the menu in the U.S., this is why Pneumonics numbers are lower this year than in 2021. We achieved 100 million revenues in 2021. We gave a guidance for 80 million plus in 2022. Once we have eliminated this COVID headwind in the US, essentially, once again, there is no reason why Pneumodics shouldn't be growing at double digit and there is no reason why we shouldn't be taking more customers, both in Europe, in the US, but also in other geographies. This is exactly what we are seeing currently in Europe as we are moving Pneumodics out of the COVID impact. Does it answer your question, Matt?
spk09: Yeah, no, that was very helpful, Thierry. Thank you very much. Just one more quick one. I know your newly raised guidance incorporates adverse impacts potentially from China and Ukraine. In regards to China, just wondering if you're also kind of baking in a recovery in China in the back half of the year. I think most expectations are that it's sort of focused on Q2, but just would love to hear how you're thinking about China for your business specifically over the course of this year.
spk00: We have different models for China. First of all, we anticipated what has happened, especially for the last four weeks, because we saw this coming via Hong Kong. So this is why we can show those numbers in Q1, because we anticipated by shipping over to China a bit more than usual. Our model to the new guidance assumed that this lockdown of some cities, because let's not forget, Matt, as you know, that not all the cities are locked down in China. Beijing is working quite normally at the moment. Shanghai is not. And so our current model is thinking that this very strict lockdown of Shanghai is going to remain in place for four to six weeks. This is what is in our current forecast. If it stays on longer, the impact on kerogen will be fully manageable. So we do not factor a specific bump up in Q4 at the moment because clearly there is absolutely no factor showing that this might happen. Now let's not forget also, Matt, that in China, Kaizen has not only the presence with Kaizen products, but you might remember that we have also a second brand. The second brand, which is fully Chinese, with dedicated salespeople, dedicated marketing people, dedicated activities. So this gives us another agility in this country. When it's a bit more difficult for the product of China, because either of lockdown or other, we have Tianjin, our second brand, and vice versa as well. So this is why I believe that the current guidance is factoring completely what could happen in China. If the lockdown continues a bit more, we do not believe that it's going to be a big impact, a material impact. We would find ways to compensate. But obviously, we live that situation like you, day by day. Everybody expects that the government is going to release a bit their money. their policies, especially in some cities like Shanghai, because it's not sustainable for their local population and for their business either.
spk06: Thank you. We take our next question from Dan Brennan of Cowen. Please go ahead. Your line is open.
spk11: Great. Thanks for taking the question, guys. Maybe the first question on the guidance, if you will. You posted 14% CER growth in 1Q ahead of your 7% guide, so I think it was like a 40 million CER beat, and you raised a full year of CER, I believe, by 50 million. So just wondering, is the upside in 1Q not sustainable for the rest of the year, or are you just being conservative, or are these other factors, namely China, Russia, Ukraine, that is maybe mitigating some of the underlying base business guidance rates?
spk00: I think Roland has underlined in his presentation that Ukraine, Russia, both markets combined, or Belarus for that matter, are not really material for cash. And you have understood that we are talking about small numbers of less than 1% of our revenues are fully factored. We do not expect any activity in Russia or in Belarus for the rest of the year. The guidance factors... The new guidance factors obviously the stronger quarter, factors what and where we have visibility on. We are extremely satisfied by the fact that despite a very strong, at least in January and February, push and surge of COVID, our non-COVID portfolio performed so well. We always told you that this was the focus, pushing that portfolio at the double-digit growth. So our new guidance factors a better-than-expected COVID in Q1, a visibility of what we see currently in Q2, and as Roland said, in the second half of the year, we do not take more assumptions on the COVID business, clearly. Thank you.
spk01: And just then, for the number's sake, you recall that we had 567 in Q1-21, adding a 7% guidance, old guidance to that, and compared to the 654 CEI we're having now is a $47 million. Oh, God. Okay.
spk11: Maybe the second one would just be on quantifieron. a really strong number, accelerated on a tier stack basis. So as borders reopen, is low double digits the right way to think about the full year for that business? If you kind of said something about the full year guide, I missed it, I apologize, but just wondering how to think about the full year for Quantiferon.
spk00: Well, we even gave a number for Quantiferon, what we want to achieve, and we are currently confirming these numbers, and it will be a double digit growth in 2022, yes, clearly, yeah.
spk11: But the strength that you're seeing here, is there conservatism baked in there? Just wondering if you can walk through a little bit about what's implied in the back half of the year.
spk01: I think the best way to describe it, sorry. No, please go ahead, Ronald. I think, Dan, the best way to describe it, of course, as Thierry said, we guided earlier this year $310 million for Quantiferum. We clearly had a strong start in the year. And as Thierry said, we believe it's going to continue. Clearly, the comp's getting a bit more difficult. Nevertheless, we are starting to believe that we are, I think, have a very good chance to make and probably to beat that number. Let's leave it there.
spk06: Thank you. We take our next question from Casey Woodring of JP Morgan.
spk08: Hi, guys. Thank you. Can you talk about the low single-digit decline in non-COVID sample tech in the quarter? I know it was a tough comp, but just wondering if there was anything else there you'd call out, maybe Omicron, slow down some customer-lad activity. And then going back to Patrick's question on 2023, it looks like using the back half of 2022's run rate for 23 non-COVID consensus consolidated revenue growth next year is in the low double digits. So just wondering if that's the right way to think about things on the non-COVID side longer term. Thank you.
spk00: On the first question, we can take this one, the two of us. I can start with sample take if you want. No, we clearly see this soft Q1, but it's clearly an harsh comparison, as you highlighted, Casey, with Q1. Last Q1 2021, that was the situation for the non-COVID sample take. We were coming out of a very harsh 20 from a COVID perspective. Customers were reallocating all their efforts into COVID, especially Q2, Q3. But some customers, obviously, starting Q4, started to say, guys, we need to come back into some non-COVID activities. We still need to have some oncology testing, some other infectious diseases. And therefore, in Q1 of last year, you had basically a pent-up demand for many customers in sample tech non-COVID, DNA mainly. And this is what you see here. I don't think that this is a trend. On the contrary, what I highlight is, remember last year, we highlighted many times that we were in more active growth in 2021 for sample tech non-COVID than pre-COVID, than pre-COVID 2019. So I believe it's going to be normalized in Q2, Q3, Q4, back to the normal classical growth of sample tech.
spk05: And then just on 2023. Thanks.
spk01: Yeah, I think on 2023, I think on the non-COVID side, I think we always said that we was, I believe, furthermore, we haven't given any official midterm guidance, but I do think, as you see how we started in the year, that we also reconfirmed today, also for the full year, a double-digit non-COVID growth rate. We had significant placement numbers in the first quarter, particularly on Kyastat and also on MoDX. actually solid patient numbers on the other instruments as well. So I do think we have a lot of reasons to believe that our non-COVID number should be higher than what you indicated before. We are feeling actually quite strong and I would say the Q1 has probably even accelerated some of this use as well.
spk05: Thank you.
spk06: Our last question today comes from Jack Meehan of Nefron Research. Please go ahead.
spk03: Thank you. Hello, guys. My question, I know it's only April, but was hoping you could provide a little bit more perspective on the exit rate into 2023. Just looking at your back half, kind of implied guidance is around 40 cents a quarter of EPS. Can you just talk about the leaping off point as we think about 2023? I know, again, it's early, but just any thoughts on puts and takes would be very helpful.
spk01: Probably some perspectives on that. First of all, I don't think it is $0.40 on average if you do the math to what we have right now and what we got for the second quarter. It's higher. But having said that, I do think I want to make two remarks here. One is First of all, what we said before, while we believe that we are COVID relevant, we do not want to be COVID dependent. What that means is that there is no incremental COVID revenues in our guidance for the third and fourth quarter and other than what we had already in the run rate in 2019, which was pre-COVID. So let's see if that becomes true or not, or if there's still some COVID-related revenues. Second, I think I also said in some of my prepared remarks that we clearly are also going to take some of the extra flexibility we are gaining this year. Again, we're able to increase the guidance in the first quarter and let's see what we are able to do in the next few quarters. We're also taking some of that money and reinvest that in this year, particularly in R&D and some marketing activities. So I do think that should have a beneficial impact on both and and mid-term revenues and probably also on mid-term cost structures because you might get a lot of things initiated. I do think we have shown in the past that we have our hands quite well on our cost structure. So I don't think that you should look on the second half. You should look on the full year if you look also what is the kind of a starting rate for next year.
spk07: Okay, thank you, Roland. I think with that, we're going to end the call right on the hour. If you have any questions, please get back to Phoebe and me, and we really appreciate your participation in this call.
spk06: Thank you. Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation. You may now disconnect.
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