Qiagen N.V.

Ladies and gentlemen, thank you for standing by. I am Katie and I will be your conference operator. Welcome and thank you for joining Kaiagen's Q2 2024 earnings conference call webcast. At this time, all participants are in a listen-only mode. We will be, please be advised that the call is being recorded at Kaiagen'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'd like to ask a question, you may press star followed by one on your touchtone telephone. Please press the star key followed by zero for operator assistance. At this time, I would like to introduce your host, John Ghilardi, vice president of corporate communications and investor relations at Kaiagen. Please go ahead.

Thank you, Katie, and welcome to all of you for joining our call. We appreciate your interest in Kaiagen. Our speakers today are Terry Bernard, our chief executive officer, and Roland Sackers, our chief financial officer. This call is being webcast live and will be archived on the investor section of our website at .kaiagen.com. You can also find a copy of the quarterly results press release and presentation on our website. We will begin with remarks from Terry and Roland followed by a Q&A session. So let's go over the safe harbor statement. I would like to remind everyone that we will be discussing forward-looking statements. Actual results may differ materially from those projected in any statement that we make. The factors that could cause our actual results to differ materially are discussed in our most recent Form 20-F on file with the SEC and also available on our website. Additionally, we will refer to certain financial measures not prepared following generally accepted accounting principles or GAP. All references to EPS refer to diluted EPS. You can also find a reconciliation to the most directly comparable GAP measures in our press release and the presentation. I'd like to hand over to Terry.

Thank you, John. And hello and very good morning, good afternoon or good evening depending on where you are in the world. And thank you once again for joining us. Our teams at Kaiagen executed well in the second quarter delivering growth over quarter two of 2023 as well as sequential growth from the first quarter of 2024. In fact, our results position Kaiagen as among the fastest growing companies in the diversified tools sector. They also signal our conviction to accelerate our performance and achieve our updated outlook. Executing on our 2024 targets will put us on a good trajectory to achieve the new midterm targets we outlined at our capital markets day that are underscored by our commitment to solid and profitable growth. Let me get you to our key messages for the quarter. First, Kaiagen marked another quarter of exceeding our outlook for sale and adjusted earnings. Net sales were $496 million for the quarter, an increase of 1% at CER constant exchange rates over the second quarter of 2023. Most important results at CER of $502 million were seven million ahead of the outlook for at least $495 million. And sales were up 2% CER excluding new modics. And also up 8% CER in our diagnostic solutions product group in light of our decision announced in June to phase out the new modics system. Our highly recurring revenues business led the performance with consumable sales rising 3% CER and making up nearly 90% of our total sales. A trend that we have seen in the industry this quarter was the impact on instrument sales. In quarter two of 2024, overall, our instrument sales were down 10%. And if you include new modics, they were down 6% CER. Customers are indeed still cautious on capital investment and that includes larger scale instrument purchases as well. Adjusted earnings per share were $0.55 and also $0.55 at CER. This is $0.03 above our outlook for at least $0.52. Second key message, our teams delivered important product advances in our portfolio serving customers from life science to clinical diagnostics. Let's start with KayaSTAT, our system for syndromic testing. Our teams delivered a very strong 12% CER growth in the second quarter. And we see this trend improving in the second half of the year on the back of two important product launches in the United States. First, our teams launched the new gastro-instastinal panel in a record time in early July after we received FDA clearance in June. From marketing to operations to the Salesforce, this was a tremendous execution. And second, we also received FDA clearance during the second quarter for our upgraded respiratory panel, which now covers 21 pathogens, including the -CoV-2 virus. Those milestones are important catalysts to attracting new customers in the US, and more new tests are on the way. The meningitis and encephalitis panel is on track with US submissions this year, along with three new mini panels, one involving respiratory targets, and two for the gastro-intestinal targets. We are also extremely excited about the expansion of KayaStat into new application with our pharma partners for companion diagnostic that will help guiding treatment decision for patients. If you remember, we noted at our capital market day that we now have in place the first pharma collaborations for KayaStat diagnostic, and those involve panels tests for chronic diseases. Our goal together with our pharma partner is to offer tests on KayaStat that can be done rapidly while the patient is still undergoing a clinical examination and could live with a prescription is deemed a candidate for a given medicine. This indeed embodies our approach to clinical molecular diagnostics, this is if when it matters. On Quantiferon, we welcome the recent update to the American Academy of Pediatrics guidelines in the US for latent tuberculosis screening in children. Children of all age groups are now eligible for testing using Quantiferon, and this could open incremental latent TB tests to be converted every year. In any case, the potential for further growth in Quantiferon is strong, given that skin tests still make up well over 50% of the global annual latent TB testing market, including in the US. As you know, a key element of our strategy also involves reviewing our portfolio in light of market trends. You saw this this year again with the announcement in June about our decision to phase out pneumotics. This was indeed a difficult decision involving what we see as a great system and a great platform. But the market dynamics changed after the pandemic COVID-19, and we did not see a realistic pathway to developing this system in a value creating way. These decisions underscores our unwavering commitment to focus where we can develop profitable leadership positions. And last message, we have updated our 2024 outlook based on the solid core business performance in the first half, along with the pneumotics decision. Our sales for the first half of 2024 were about $15 million CER above our outlook. And this played a very key role in our decision to update the full year sales outlook for at least ,985,000 at CER, while also taking into consideration our decision on pneumotics. We have also raised the outlook for adjusted EPS by 2 cents to $2.16 as we step up to our commitment for solid profitable growth. This is also underscored by the adjusted operating income margin target at .5% of sales and the outstanding free cash flow generation. And now I would like to hand over to Roland for a review of the financial results.

Thank you, Thierry. Hello everyone. Thank you as well for me for joining our call and it was a pleasure to see many of you at our Capital Market Day event. Let me also go through some highlights and provide some perspectives on our performance. As a first point, our results for the second quarter shows improving sequential trend from Q1-24 and these results put us on the trajectory to achieve the goals we have set for the year. Compared to the first quarter 24, there was no material change in non-operational results. The adjusted tax rate was at 19% and the share count at 224 million, both in line with our guidance. As a result, adjusted operating income and adjusted net income both grew at the same rate of 4%. Our outperformance in the first half of 24, both in terms of sales and profitability, played a key role in our updated outlook for the year. For the second half of 24, we are on track to see an acceleration in the -on-year sales growth rate along with an improvement in the adjusted operating income margin. Let me dig into some of the highlights now. The adjusted operating income margin rose by 1% to .4% of sales for the second quarter over the year-ago period. This gives us confidence in achieving the target for at least .5% for the full year and a step towards our goal for an adjusted margin of at least 31% in 2028. On cash flow trends, free cash flow rose 56% in the second quarter to 129 million US dollars over the year-ago period and was up an even more impressive 86% to 225 million US dollars for the first half of the year. We are seeing the impact of measures to ensure a high level of cash conversion from the rising level of adjusted net income. These actions include upscaling our accounts receivable and accounts payable teams at our hubs in Wokloff and Manila. While keeping an eye on inventory levels, we are taking steps to ensure that we have adequate supplies to avoid disruption, especially in light of concerns about the current macro environment and supply chain stability. Let me now give you some additional views on our results for the second quarter. Among the product groups, we saw higher sales in the second quarter on sample technologies, diagnostic solutions and PCR nucleate acid amplification over the year-ago period. In sample technologies, the 1% CER growth came in from consumables and particularly strong growth in kits used on our automation systems. And this comes after the launch of upgraded systems, in particular, KayaCube Connect and Easy2 Connect. While we saw some weaker sales trends for manual kits, the increase in automation consumables is a testament to our conversion ability. In diagnostic solutions, we were pleased with the ongoing strong performance of Quantiferon, which sales up 11% CER in marking the fifth consecutive quarter above $100 million in revenues. KayaStudX sales also rose at a robust pace, growing 12% CER over the second quarter of 2013 on significant gains in consumables and an ongoing good level of instrument placements. The recent expansion of the US test menu gives us increasing confidence in exceeding the 24 sales target of at least $100 million. In the PCR product group, KayaCube delivered robust growth in consumable sales. We continue to see good demand trends for instruments as well. We are especially pleased with the demands for the higher throughput KayaQt 4 and 8 versions that are popular with biopharma and manufacturing customers as well as larger academic research facilities. We believe this will translate into an even higher consumable pull-through. In the genomics NGS product group, sales of the KayaGen digital insight business rose at a high single digit pace and here we saw good sales trends for both the research and clinical portfolios. However, we faced a tough comparison to the strong results in the year ago quarter. At the same time, we anticipate improving demand trends for our NGS portfolio in the second half of the year and for this product group to return to growth as we saw in the first quarter. Let's now move to results for the regions. Sales rose 7% CER in the Europe Middle East Africa region with a top performance in Germany, Italy and the United Kingdom. KayaStudy X sales in this region were robust with double digit growth in both consumables and instruments. We also saw growth above the global average for quantiferone on continued conversion from the tuberculin skin test. In the America sales were stable compared to the second quarter of 23 as single digit consumer growth was offset by the cautious spending environment for instruments. In the Asia Pacific Japan region, sales declined 3% CER in the second quarter and led by higher sales in Japan, Australia and India. Results for China showed a single digit CER declined over the second quarter of 23 but grew at a significant double digit rate sequentially from the first quarter of 24. We currently anticipate the challenging macro conditions in China to continue. Let me just remind you, China makes up less than 6% of our global sales. Let's now review the rest of the income statement. The adjusted gross margin was .2% of sales and increase of about 30 basis points from the second quarter of 23 on beneficial changes in the product mix towards higher consumable sales. Additional margin benefits came from lower operating expenses in R&D, selling and marketing expenses and administrations in the second quarter over the year ago period. This led to the adjusted operating income margin expansion by one percentage point to .4% from the second quarter of 23 and a marked step up from the 25.7 margin in the first quarter of 24. The favorable trends show the impact of our initiatives on effective cost management while making targeted investments to fuel growth and support our targets of at least .5% for the full year of 24. As for Noimo DX, given that the decision came in June, we did not see any material impact on operational expenses other than the restructuring charges taken in the second quarter that was excluded from adjusted results. The restructuring charge for the second quarter was 351 million US dollars, of which 80% was non-cash. About 280 million dollars was included in the cost of goods sold and about 70 million dollars in operating expenses. We continue to expect the restructuring charges to total approximately 400 million US dollars through the completion of the program in 25 and with about 75% involving non-cash items. As for the third quarter of 24, we currently expect the charges to total approximately 30 to 40 million dollars related to this decision. As for adjusted EPS, results at constant exchange rates were at 55 cents and three cents ahead of the outlook for at least 52 cents. The adjusted tax rate was at 19% and the average number of diluted shares at 224 million were both in line with our expectations. Turning to cash flow, results for the second quarter were a continuation of the good outcome seen in the first quarter of 24. Operating cash flow for the first half was up 63% to 300 million US dollars over the same period in 23. In terms of work and capital management, accounts receivables fell by nearly 30 million dollars since the end of 23, while our days of sales outstanding was 58 days and has remained within this recent trend. Another contributor was the reduction in inventories by about 80 million dollars since the end of 23. This was partially due to the decision to do continue NoyModiX, but also improvements in other areas of the portfolio. Free cash flow also improved in the first half of 24, rising 86% to 225 million dollars from the first half of 23. At the same time, we saw increased capex levels for software development, including for the upgrade of our SAP system that is tracking well against our plans. For the second half of 24, we anticipate an ongoing strong level of underlying cash flow generation, largely in line with the levels seen in the first half of the year, excluding one-time cash charges related to restructuring. The same is true for free cash flow levels with similar levels of capex spending as in the first half. As for our financing, we had a payment of about 100 million dollars for a German private placement that reached maturity in the second quarter. We also have 500 million dollars of convertible notes reaching maturity in September and anticipate having to repay another 500 million dollars of convertible notes in 25 as well. I would now like to head back to Tréillé.

Thanks a lot, Roland. And now let me give you an update on some progresses across our portfolio. First, on Kayakuity, we are ramping up our commercial presence as we seek to drive dynamic growth and gain share in the digital PCR market. If you remember, initially we started with Academia and then BioPharma. And now we are targeting new markets, including forensics and clinical application. In forensics, where we have a top three leadership position driven by our sample prep portfolio, we have a new partnership with the US Federal Bureau of Investigation, FBI, to develop a first of its kind digital PCR assay. It is designed to enhance DNA quantification in human samples, which boosts forensics analytics and ultimately contributes to improving public safety. And as for the clinical market and digital PCR, the launch of the Kayakuity diagnostic version is perfectly on track for later this year. The first assay for FDA submission, a BCR ABL assay for use in hematology patients, is also on track for approval in 2025. We still have ample room for growth in the Academia and BioPharma markets. And our teams are ramping up customers activation campaigns. If we move now to Kayagen Digital Insights, powerful analytics to understand genomics, our bioinformatics portfolio, we are harnessing the power of AI driven content combined with human curation to provide the industry leading in bioinformatics portfolio. Customer rely on QDI by Kayagen for results in minutes, even seconds that would have taken days and weeks with other options. This speed is possible today. At our capital market days, if you remember, we outlined the accelerated investment going into QDI to strengthen this portfolio. And this is distinguished in our industry, given the high level of profitability. We are deepening our commercial teams with new sales specialist, and we invest further into research and development. This will help us to deliver at least 14 AI enhanced products to our customers by 2020 rates. In sample technologies, this is the foundation, I remind you of our offering in the life science and molecular diagnostic, where Kayagen is enabling endless possibilities with DNA, from the first step in Mellilab workflows. We are moving ahead with plan to launch two important instruments, an upgrade with the Kayasymphonic Connect, this is planned for the second half of 2025. And our entry into high throughput automation will be anchored with the launch of Kayaspreet Connect early 2026. The introduction of this instrument will increase the capacity to process nearly 200 samples in a few hours. A host of new kits are being developed and ready for launch, including new kits for free circulating DNA and microbiome target isolation. Across our portfolio, you can therefore see that Kayagen is stronger than even before. We have a differentiated portfolio targeting growth above the market we serve, and we will continue to invest in strengthening this differentiation. Now back again to Roland with the details on the outlook.

Thank you Thierry. Let me now provide more perspectives on our updated outlook for 2024 and also for the third quarter. As we mentioned earlier, the new outlook for net sales is for 1.985 billion US dollar CR, and this compares to the previous outlook for at least 2 billion US dollars. This takes into consideration the strong first half of 24 that was ahead of our outlook by $15 million CER, especially with the solid performance from Kaya Statte X and Quantiferon. It also reflects an update due to the Neumodi X decision, as we now expect the sales to be about $25 million CER compared to previous target for at least $55 million. Consumables and related revenues are expected to continue driving growth, while larger scale instrument sales remain challenging. For the third quarter, we have set an outlook for net sales of at least $495 million CER, an increase of about 4% CER from the third quarter 23 sales of $476 million US dollars. This includes a headwind of about one percentage point from the Neumodi X decision, in effect, an underlying 5% CER growth over the third quarter 23. This confirms our expected sequential growth that we anticipate for the second half of 24 over the same period in 23. On adjusted earnings per share, our updated outlook for the year is for at least $2.16 at CER, and this is an upgrade from our previous outlook for at least $2.14 CER. I want to also note that there's an increase of 6 cents from the initial outlook at the start of 24, as we double down on our commitment for solid profitable growth. Adjusted earnings per share for the third quarter are expected to be at least 55 cents per share, also at CER, compared to 50 cents in the third quarter of 23, so a nice improvement. As for the impact of currencies, based on recent movements, we are now expecting a negative impact on full year net sales of about one percentage point, and an adverse impact of about two cents per share on adjusted EPS results. I would like to now hand back to Thierry.

Thanks a lot, Roland, again, and we are coming to the end of our call, so before we move into the Q&A session, let me quickly summarize today's key points. First, we are very pleased with the results for the first half of 2024, and what we see as a company delivering among the fastest growth and improvement in profitability in our industry. The solid results for the first half give us increasing confidence in achieving the updated 2024 outlook. Second, our strategy of balance and focus, it's proving its value as we roll out new products and strengthen our offering to customers, from the life sciences to the molecular diagnostic field, and capitalize on our broad global presence. A key element is the fact that nearly 90% of our sales are coming from highly recurring revenues, and this bolsters our business in a challenging macro environment, marked those days by slower capital investments. We have, as you know, focus on our sharpened growth drivers. QIA Quity, QIA Stat, and QIAgen Digital Insights are areas where we are accelerating investment for growth. We also invest in our proven leadership in sample technologies and also in Quantiferon. Those major focus do not prevent QIAgen from having all the significant growth potentials, such as dynamics, precision medicine, and companion diagnostic, and also HID, human identification, and forensics, where QIAgen is already a top player. Above all, the QIAgen of today is about delivering sales growth combined with improved profitability, in line with our commitment to solid profitable growth for the coming years. This is what we have demonstrated with our results for the first half of 2024, and we are determined to do so in the second half as well. With that, I'd now like to hand back to Joan and the operator for the Q&A session. Thanks a lot for your attention.

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 yourself to one question, and if necessary, one follow-up. Your microphone will also be muted after finish asking the questions. Anyone who has a question may press star one followed, star followed by one at this time. One moment for our first question, please. The first question comes from Katherine Schulz with Baird.

Hi, thanks for the questions. Maybe just first, as we think about the back half guide, third quarter looks like you're getting back to about mid-single digits or growth and probably exiting the year in solid mid-single digit range. How should we think about that as a jumping off point for 25 and maybe compare that with your 7% long-term K-grade? I'm sure that you laid out at your CMD last month.

Thanks. Thanks, Katherine. I would say that what it shows is that we are perfectly executing on what we said at the beginning of the year. You remember, we signaled clearly to you and to the market when we get our guidance for 2024 that we would have a slower H1 and then progressively accelerate. And coming back to a performance in H2 that would be very comparable to our performance in 2023. And this is why that you have our Q3, which is at 4% growth. If you exclude new modics, it's 5% growth and 5% also growth in Q4. Q3 will be driven by, first of all, the input of new products in our portfolio in H1 of 2024, you have no impact of the GI approval in the US. You have no impact on the QIA Quity diagnostic approval also in the US. This is impacting the second half. Second, in H2, you have also the confirmation of the investment that we are doing for now a bit more than six months into our bioinformatics QDI business. And this is going to show acceleration. Third, you probably know that traditionally the second half of the year is always stronger and faster in growth for Quantiferron because it's impacted by impactful marketing activities, especially in the US with our back to college, back to school campaign. So it's fundamental for us to accelerate. We have the pipeline and the portfolio to do so. And this would position QIAGEN then to deliver on the expected three years plan guidance that we gave in our capital market day in New York.

All right, great, thank you. And then great to see consumables returning to growth as well. What are your expectations for instruments versus consumables in the back half of the year?

We have always signaled to the market that for many factors, first of all, an influx of capital sales during the COVID pandemic era. Second, let's never forget that this year is very specific in the world. It's one of the few years where half of the world is going into election and notably in key markets such as the US. So anytime you have election, you have a bit of a wait and see attitude. So there is clearly some caution in capital expense in many labs, especially in life science. We expect this situation to be short-lived. We have always said that laboratories are traditionally and on a regular basis investing into upgrading their capital sales. So we expect this movement to normalize progressively moving into 2025.

Thank you, we'll go next to Michael Reiskin. America.

Great, thanks for taking the question. I wanna dig in on some of the portfolio developments you talked about, particularly the digital insights. It sounds like you're making a lot of progress there and seeing some strengths in the software business. Just wondering if you could talk about the underlying state of that end market, customer purchasing decisions and broad with just what you're seeing in genomics.

Thank you, Michael. You know that we have basically two main classes of customers as we have highlighted during our capital market day in June for QDI, what we call the discovery, which has the research and academia customers and also the clinical customers. There is a significant need for bioinformatics, especially driven by the demand for genomics data. But the market is also driven by the fact that when you have an explosion of available genomics data, you still need to have very smart softwares to allow clinicians and laboratory to make sense of those data. In other words, to transform those trillions of data into actionable research or clinical insights. And this is why it's pushing the dynamic of that market. The specificity of KayaGen here is that not only we have invested for many years into artificial intelligence, but we have built also an incomparable knowledge base thanks to years of manual data curation. And this is that combination of automation and AI and manual curation that makes KayaGen so specific. In addition to that, especially when you compare with all our competitors on that segment, these activities highly accretive for KayaGen at every level, gross margin, EBIT margin, EPS, when our competitors are rather basically bleeding money. This is why we believe that it's a market that it's interesting to invest in marketing and also research and development.

Okay, thanks. And I'd like to please then a follow up on Quantifier on the solid quarter, double judge CR growth, continuous strength there. Obviously there's been a lot of discussions about potential competition in the market. It's been another quarter since there's been some updates from potential competitors down the road. Just wondering if you've had any change of conversations with your customers or what you're seeing in the market in terms of people's expectations in the future there.

Michael, KayaGen is like you. We hear and we listen to comments from competitors even when they are extremely contradictory. But this is not our focus. The first focus for us is to deliver on 450 million guidance in 2024 for Quantiferon. We are on good track, fifth quarter in a row, exceeding a hundred million of sales. Once again, double digit. Second is to make sure that we capture the skin test market because this is the main competition in that market. There are still probably around 60 million skin tests in the world of which 1616 million in the US alone. So you understand that we have still a lot of room to grow. Third is to deliver on the commitment we took during our Capital Market Day in New York, which is bringing that franchise to $600 million by 2028, which is showing a 7% cagger. Those are our focus and this is what matters, I believe.

Thank you. We'll go next to Jack Meehan with Nefron Research.

Thank you. Good morning. Good afternoon. I wanted to start just to get your latest thinking on and market trends on the life science side for academic customers and also pharma customers. How just in terms of spend trends, how are you feeling about funding conditions and just kind of the pace, the recovery here into the second half?

I believe, Jack, thanks for the question, that the situation should normalize on the backs of one main reason. People will have more and more visibility on the funding situation. Remember that for a good part of H1, at least until April, if you just take the US as an example, many labs did not know what the budget, for example, for NIH 2024 would be. Now they know it's flat this year. Will it be flat forever? I don't believe so. We have never seen that in the history, for example, of NIH. So we have highlighted these cautions in capital spending, but I believe that given the power of innovation in life science, once again, look at microbiome. Who was talking about microbiome six years ago? Now minimal residual diseases. Every year you have a new push for expenses or more discoveries. So that means that we are very confident that this market will continue to grow. Clear this year, it's a bit softer in capital sales, but that shouldn't last forever.

Great. Okay. And then on QIAQITY, how do you feel like you're tracking relative to the over $90 million target? I think it implies a little bit of a step up in terms of the growth rate in the second half of the year. Just would love to hear more about your confidence in that. Thanks.

Thank you, Jack. So first of all, let's not forget that QIAQITY is probably the fastest growing install base ever in life science. Since the very first day we launched QIAQITY, we achieved a remarkable number of placements, converting QPCR customers or converting competition. Second, it's clear that because it is up to now mainly a life science play for QIAGEN, yes, QIAQITY, even if we see a nice demand for our instrument, is slightly impacted by the caution on capital expenses in labs. But the good thing is that we are extending the reach of QIAQITY in two dimensions. First of all, the clinical business, and this is the launch and the approval, the FDA approval of the platform in the second half, but also the pharma. So QIAQITY now becomes also a very valid solution for companion diagnostic. And this is why we believe that we have the guidance for 2024 of 90 million within reach.

Thank you. We'll go next to Dan Arias with Stiefel.

Hey, good morning, guys. Thanks for the questions. Terry, obviously, QIAQITY is an important product for you guys here. And as a capital markets day, part of the discussion on maintaining your competitive position was just related to workflow. So I'm just curious about the timeline associated with some of the automation improvements that you highlighted there. I don't think we covered that. If we did, I apologize. But I think automation was one of those critical elements of the offering there. So we'd just sort of love to understand when the workflow is expected to change and then maybe how the workflow is expected to improve over time.

With all due respect, Dan, what we insisted during the capital market day is first on the strength of our partnership with Diasaurin. Let's not forget that this is one of the major install base in immunosays in the world. So we have already an extremely competitive backhand workflow. Second, and sometimes the market forgets that, is that we have also agreements with two leading front end automation companies, TKAN and Hamilton. And therefore, when you combine both, this is an unparalleled automated workflow. Second, what we said in New York is that our agreement with Diasaurin allows us potentially to add an automation partner. We have not taken an informal decision. We review options. And obviously, we would inform the market in due time.

Okay. Thanks.

Thank you. We'll take our next question from Odysseus Menisiotis with Berenberg.

Hi. Thanks for taking my questions. One on the role and on margin. I mean, you're at .4% this quarter up at the same bit from Q1. I just want to get a feeling of how much of that is NEMO-DX, which I'm assuming is two thirds of the month. And just to think on the latter quarters to where you can get to and respectively the exit rate in 2025, it does seem like you can sort of cross 29 here. Is that a logical way to think about it? And then I have a small follow-up.

Yeah. Thank you. And thanks for the question. In the second quarter of 2024, I think there is no material impact at all from NEMO-DX on the operational expense outside the restructuring charge. As you know, the decision came very late in the month. And of course, I would probably argue some extra costs, which we had to take. But what is clearly important is that that is going to change in the second part of the year and clearly also continue into next year. I think we laid out to you and the market ahead of the capital market day that the transition out of NEMO-DX goes somewhat into mid of 2025. And that also means ramp up in terms of contribution on the profitability will face in over time. And I do think what you're seeing here in the second quarter is clearly a contribution from the core business, which also, and I think clearly I want to mention that as well, will continue. So we feel comfortable in both that we will clearly be north, or at least at the 28.5 for the full year. If you do the math forward, you clearly see that we have to be quite quickly north of 29% within that year. But I do think it gives us clearly also good comfort on our 2028 goal of 31% that we achieved that. And as we said before, it's beginning a larger contribution from the operational expense side. Over time, there's clearly also contribution even outside NEMO-DX from the gross margin side.

Very clear. Thank you. And a follow up on the instrument front. I mean, looking at the instrument sales are down 10%. And you have a comment there saying that it does overshadow transducing on the rental reagent front. So I just wanted to know which franchises did better on instrument placements in H124 compared to 23. Thanks.

Sorry, I was on mute. We said minus 10. I mean, the real comparison for me is rather minus 6 because we stopped promoting NEMO-DX. So basically we need to account for this base effect. The first message is that first of all, we continue to place or sell instruments. It would be a wrong perception that we are either losing market shares. We continue to increase the market penetration of QIA-QT, of QIA-START or of our sample tech instrument. We simply highlighted that customers, especially in life science, are a bit slower to take decisions or sometimes they are postponing because, as I said before, they are waiting for some more visibility. So as we said, I mean, this is a movement that we expect and consider to be rather short term. Never forget that when you are in life science, it's very difficult when you cannot sell the instrument to do placement, but you can do placement in the clinical. So this is why having that balance between both life science and clinical help us to mitigate that situation. But this is a situation that we monitor obviously very carefully. But I insist, QIA-QT, QIA-START and sample tech instruments are increasing quarter after quarter on placement.

Thank you. We'll go next to Doug Schinkel with Wolf Research.

Hey, good morning, good afternoon. Thank you for taking the questions. Terry, I want to start on the topic of portfolio optimization. So first, just really a quick question on Numodex. Is there any chance you still will find a buyer for that asset? You know, just kind of want to level set on that. And then second, and this is really the more important thing I want to get at, recognizing that the focus of your capital markets day was understandably on the growth pillars of your portfolio. Around $600 million of your revenue, or I think that's about 30% of total revenue, falls outside the growth drivers. How active are you in evaluating other options for components of that part of your business? I'm just wondering if there are other opportunities to optimize and reallocate resources while improving the overall growth and margin profile of the business, beyond what you impressively described back at New York a month or so ago.

Thanks, Doug. So first of all, on Numodex, while a company like KayaGen is and will never be dogmatic, we need to be clear. We have started a process to discontinue, to phase out the system. I confirm that this system will be phased out. Now the priority for us is to go along and accompany our customers to make sure that it's a smooth transition. Second, since 2020, we insist on that balance and focus strategy for KayaGen. Focus on growth drivers. That doesn't mean that outside of those growth drivers, we do not have significant growth potential, sometime above double digits. I gave some examples today. Forensic and HID is a double-digit growth potential for KayaGen. Precision medicine and companion diagnostic is another double-digit growth potential for KayaGen. But at the same time, if you remember, especially the presentation of Roland in the Capital Market Day, we have that clear commitment of 250 basis points from our current level of EBIT margin to go above the 31% EBIT margin that Roland was highlighting again. And Roland gave some details that it was divided between, if you remember the graph, 100 basis points, 50 basis points, and another 50 basis points across different activities, of which continuing to optimize our portfolio was a key part. So we said you see pneumatics because it's a big one, but we are actively looking at the rest of the portfolio to prune what is not either making sense for KayaGen anymore or what could be better in another company. That's the strategy, and it will continue.

Thank you for that. And if it's okay to just sneak in a quick modeling question for Roland. Roland, we have about 52% of quantifier on sales in our model in the second half with Q3 being seasonally stronger, as we've seen in the past. You know, KayaStat, even more in the back half, but with more in Q4 than Q3. Is that the right way to directionally think about things?

Yeah, no, I think, Haydok, it's quite obvious that we believe, and I think Thierry was very clear in his prepared remarks, that we continue to believe that KayaStat has a strong environment not only on all the respiratory activities going on, but clearly now with the launch of the GI panel in the US, we can address the US market much better, not only with GI, but we clearly can even address more tender opportunities. So that will have a larger impact. Quantiferum will stay and remain strong for the year. I think there's also no concern about that. I still would expect that KayaStat also sequentially grows in the third and fourth quarter, just because of what I just said in terms of GI. But do not underestimate also what we should see from QDI and KayaQT over the rest of the year. Thierry was clearly referencing the investments we made over the course of the year, particularly earlier this year, into QDI and KayaQT has a strong environment, particularly with now selling even the larger instruments into that market that will have an impact on consumer pulse-wise as well.

Thank you. We'll go next to Patrick Donley with Citi.

Hey guys. Thanks for taking the questions. Maybe just one for me. Just on China, it sounds like it's got a little bit better sequentially. It doesn't sound like you guys are expecting much improvement for the rest of the year. But can you just talk about what trends you saw there, maybe peel back the layers a little bit in terms of what looks better, what looks worse, and just the expectations for the rest of the year as we look into 2025 as well. Thank you guys.

Thank you, Patrick. Roland was also clear in his comments that first of all our exposure to that market is rather limited, a bit less than 6% of our sales. The second comment is confirmation of what we keep repeating for the last two years. It's a specific market, but it's too large a market for being ignored. So we take all the actions to remain competitive despite the difficulties locally. This goes through further localization of our activities in research and development in manufacturing on products that make sense to become local in China. Second, I remind you that we are quite differentiated in the sense that we do have a second brand in China as well. It's a company which is consolidated with Kaizen, but which is managed differently than Kaizen locally. And selling local products to Chinese companies. And third, we have said and we confirm we do not see any structural improvement on the market at least before the second half of 2025. But once again, it's a significant potential, it's a significant size. It's the second market in the world. It cannot be ignored.

Thank you. We'll go next to Matt Sykes with Goldman Sachs.

Thanks for taking my questions. Good morning. You made some comments about confidence in trends in the NGS business improving the second half. Could you just talk a little bit about what's giving you that confidence and what you're seeing in that market specifically to show improvement in the second half this year?

I mean, it's a rather balanced view. It's just that you remember, Matt, that back in 2019 we took a very fundamental strategic decision at Kaizen which was in genomics and sequencing to focus where we are strong and where are we relevant and strong. It's in chemistry, i.e. providing a platform with kits and in bioinformatics. And we became completely platform agnostic on those two dimensions. And I believe that the market evolution confirmed that decision because since 2019, you see the growth of more and more relevant players in next generation sequencing beyond Illumina. Look at PacBio, look at Element, look at Singular, look at MGI, for example. So our offer both in bioinformatics and in chemistry fit the needs for those players. And so this is why we said we have a base effect in Q2 of 2024, but the market remains significantly active and we provide added value solution. So the demand is there.

And just one quick follow up, just on QI ACQUITY, on your comments about share gains. Can you kind of talk about how much you're seeing in terms of displacing existing competition versus converting those QPCR customers?

It's a very fair question, Matt, but when we have a very differentiated platform like QI ACQUITY, we go after every opportunity. Competitive deal, new deal, i.e. conversion to customers to the technology of digital PCR. So it's a balanced set of wins. What is clear is that given the feature of the system, specific technology, not droplet based, fully integrated boxes, capacity to address different workflows, because I remind you that we have a small workflow, medium throughput, higher throughput, so we address different needs. Plus now covering menu, not only in research academia, but biopharma and tomorrow clinical. We have fundamental good assets that are allowing us to not only win against competition, but also bring newcomers to digital PCR.

Thank you. We'll go next to Dan Leonard with UBS.

Thank you. Just one cleanup on the QI ACQUITY. Did you give the growth rate for that platform in the quarter? And then Terry, can you help me better frame the importance of the BCR ABLE product? Thank you.

So what we said that we have significant healthy and good growth in the consumable for QI ACQUITY Q2, I can tell you that it's above double digit. And we said as well that we continue to have a hefty demand for our platform, especially the higher throughput platform.

And then BCR ABLE.

Yeah, for BCR ABLE also the play here. Let me go back to history, first of all, when we decided to move QI ACQUITY from life science to also clinical diagnostic, we made another decision. We said we will focus in oncology. When we said we focus in oncology, we made a third decision. We said where we are going to be very relevant here is on what we call EMATO oncology, of which BCR ABLE is the main marker. So I'm not going to give you a specific size of the market. I'm just telling you it's the most relevant marker. Second, there is a significant potential where we can prove the superiority of a digital PCR approach, more precise ability to quantitate results versus other technologies, especially QPCR. And for us, it's also making a lot of sense because you might remember that we have a range of products in EMATO oncology, what we call the Ipsogen range of product, which is coming not at the end of its lifecycle, but which is quite mature in its lifecycle. So converting it to digital PCR will be very helpful as well.

Thank you. We'll take our next question from Falco. This is from Fredricks with Deutsche Bank.

Thank you. My question is on the GI panel launch for the Kaias DAT. Can you give us some insight as to what extent that is already making a bit of a difference in your discussions with customers? And how should we think about the financial contribution of that panel launch in the second half of this year? Thank you.

You have to see it in two ways. Falco, it's exactly what Roland said. So first of all, highlighting that the very healthy performance of H1 on Kaias DAT, 12% growth is absolutely not impacted by GI. That shows you the strength of the solution. Second, we always disclose that part of the acceleration of Kaias DAT for H2 with come from GI. And it's very simple because in the US we had customers already using Kaias DAT for respiratory and they were waiting for this new panel to complete their solution to patients. But you had also other customers saying, I'm very interested, but as long as you don't have at least two panels, I cannot justify the investment. Now they can. So the fact that we have it now, and as I said in my comments, it has been a tremendously quick movement from approval to launch. Explain why Kaias DAT will be one of our main growth drivers in the second half of the year.

Okay, thank you.

We'll take our next question from Hugo Solvett with BNP Periva.

Hi, this is Curtis Mwell on for Hugo. Thank you for taking my questions. The first one here is I'm looking at the slide on page 8, how you're talking about the adjusted EPS outlook for the rest of the year. It looks to me like we only included two cents out of the three cents of our performance in H1. I'm just curious, can you give a little bit of color? Have you done this to keep some room to maneuver or maybe are you planning to invest a little bit more than you had initially planned? Thank you.

Roland, would you like to take the EPS? Sure, happy to. No, I think a fair question. As you noted correctly, we had overperformance not only in revenues for Q1 and Q2, but we also had the same thing for EPS. Clearly, we increased already our outlook quite significantly when we started with 2.10 into the year to 2.40, now 2.16. At the same time, we also confirmed that our EBIT margin improvement goes from 28 now to 28.5 percent. As you said, we clearly will have a significant improvement. If you do the math, you see that we're even climbing very close to 30 percent leaving the year. I would say not too many companies out there with a significant profitability profile with us and having some room to even do better wouldn't be a bad thing. Let's see.

Thanks. If I could just have one follow-up. Coming back to Quantifer and TB, it's been relatively strong in H1. Can you discuss maybe your confidence level around potentially delivering above the guidance in the full year? Also, maybe just to tag on the end of there, I think we understood recently that ReVidi will be launching a new workflow in the US and China soon. Do you expect this to impact the competitive intensity or maybe will that impact your business at all going forward? Thank you.

So to the second half of your question immediately, let's be clear. We respect every competitor. The product announced by ReVidi is nothing new. It has already been on the market. It has not changed so far the paradigm of growth for Quantifer or the paradigm of market shares between the two companies. Just best of luck to them. But it's already on the market and it's not new. Second, are we going to beat the guidance? I mean, we are always trying, Roland, John, myself and this company to be ambitious and realistic. So let's go to the guidance first of $450 million. Believe us, if we can beat that, we will not hesitate to do so. But first, let's go to $450 million.

Thank you. We'll take our final question from Dan Brennan with TD Cowan.

Last but not least, guys, congrats on the quarter. Maybe just one for Roland to start just on the back half of your margin ramp. So I think you've got pneumatics, what, at about a point benefit in the back half. So can you just kind of unpack how we think about, you know, gross margins and the different OPEC signs in the back half and how is the leverage coming through there?

Yeah, I know. I have in mind, a good question, Dan, I have in mind that, as I said before, we will phasing down non-mode X slightly, right? And that means we still have a clearly impact on our profitability also in the second part from non-mode X. So I don't think the gross margin changed too much this year. That is probably more to come next year. But we clearly do expect an operational side to get some incremental impact again, step by step, because clearly some sales and marketing activities and R&D you ramp down sooner than operational activities, but it will take some time. So I think we will see a combination of what I would call probably as of today core improvements or business outside non-mode X still gaining traction and efficiency. And now mod X is sliding into that as well.

Great. And then maybe just one on sample prep. That was a nice beat versus our expectation. You know, we showed pretty healthy growth ex-COVID. What are you seeing there? What do you think happens or what's kind of baked into the guy in Q3 and Q4? I mean, you know, we could argue that there's kind of a maybe deceleration baked in, which could look conservative. So just want to walk through some of the drivers and the assumptions there. Thanks.

I think first, the first thing I would say is that we can be happy to see sample tech coming back to a positive evolution. That's the first highlight. The second highlight is that we said that it was mainly driven by our performance in automated sample tech. I see that as the translation that our strategy to upgrade our instruments is the good one. Remember, QIA Cube became QIA Cube Connect. EZ1 was upgraded to EZ2 and we announced in New York that we would launch two new platforms. So it justifies that strategy, validates that strategy. At the same time, I still see this market for QIAgen as a low single digit. And so we need to continue to develop added value application and access, especially as we said in New York, in the field of liquid biopsy. In the field of microbiome, in the field of minimal residual diseases. And if we do that, we will continue to grow at a low single digit, but it's a recurring business and highly profitable.

With that, I'd like to close this conference call and appreciate all of you for your participation. If you have any questions or comments, please do not hesitate to reach out to us. Thank you very much.

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